<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, 1999 Commission file number 0-18261
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Tower Properties Company
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Missouri 43-1529759
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STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION
911 Main Street, Kansas City, Missouri 64105
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(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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
-------------------- ------------------------
<S> <C>
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
$1 Par Value Common Stock
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(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.)
$27,604,159 at February 22, 2000
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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 - 182,809 Shares
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DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE
DOCUMENTS 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, 1999,
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are incorporated by reference in Parts I, II and IV. Portions of the Annual
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Proxy Statement are incorporated by reference into Part III.
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<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
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TOWER PROPERTIES COMPANY
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FORM 10-K
---------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
---------------------------------------------
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1999
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<PAGE> 3
CROSS-REFERENCE SHEET
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Part II
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Item 6 - Selected Financial Data 1999 Annual Report to Stockholders,
Page 28.
Item 7 - Management's Discussion and 1999 Annual Report to Stockholders,
Analysis of Financial Condition Pages 23 through 27.
and Results of Operations
Item 8 - Financial Statements and 1999 Annual Report to Stockholders,
Supplementary Data Pages 4 through 21 and Pages 28
through 30.
Part III
- --------
Item 10 - Directors and Executive Proxy Statement relating to Annual
Officers of the Registrant Meeting of Stockholders to be held
on April 12, 2000, under the
caption "Election of Directors."
Item 11 - Executive Compensation Proxy Statement relating to Annual
Meeting of Stockholders to be held
on April 12, 2000, 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
Management on April 12, 2000, 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 12, 2000, under the
caption "Transactions."
Part IV
- -------
Item 14(a)(1) - Financial Statements 1999 Annual Report to Stockholders,
Pages 4 through 21.
Item 14(a)(2) - Exhibits Registrant's 1999 Form 10-K (File
No. 0-18261) filed on March 31,
2000.
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Part I
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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, Clay, St.
Louis and Jackson County, Missouri.
(b) Financial Information About Industry Segments:
Registrant considers its business to be concentrated in three
business segments--commercial, apartments, and parking. The Company's
business segments are separate business units that offer different
real estate services.
(c) Narrative Description of Business:
Registrant is primarily engaged in the business of owning,
developing, leasing and managing real property. Registrant owns and
manages 1,174,000 rentable square feet of office and warehouse space
located in the Kansas City and St. Louis metropolitan areas.
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
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<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 94 percent of the 1999 revenues. Registrant competes
with other building owners in the renting and leasing of office
building space. Registrant employs approximately 44 persons on a
full-time basis and approximately 5 persons on a part-time basis.
The remaining 6 percent of 1999 revenues include real estate sales
and commissions (3 percent), management, service and construction
fees (2 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, 1999, 1998
and 1997, Registrant received rent and fees of $5,938,310, $3,746,446
and $1,180,051, respectively, from Commerce.
The Company was also reimbursed for utilities in the amount of
$101,478, $101,758 and $107,711 in 1999, 1998 and 1997.
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 438,000 square feet and is presently 93 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 97 percent occupied. The building
is subject to a mortgage deed of trust securing a loan with a
balance owing of $3,437,487.
(3) 6601 College Boulevard, a 6-story 101,200 rentable square foot
building, located in Overland Park, Kansas. The building was
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completed in 1979. The Company purchased the building on
December 15, 1995. 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 $4,889,778.
(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 $1,118,581.
(5) UMB Bank, a 6-story 59,982 square foot office building with
covered parking on five levels plus surface parking on top of
the attached garage located at 7911 Forsyth, Clayton, Missouri.
The building was completed in 1985. The Company purchased the
building on December 1, 1998. Registrant considers the building
to be in excellent condition. The building is 100% leased.
The building is subject to a mortgage deed of trust securing a
loan with a balance owing of $6,874,732.
(6) 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 $1,758,871. The expansion is subject
to a mortgage deed of trust security a loan with a balance of
$735,699.
(7) 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 $2,538,555.
(8) Tower Parking Garage. The Company, under its Tax Redevelopment
District, demolished the 908-10 Walnut and the 916 and 920
Walnut buildings in 1998 to accommodate a new 624-garage on the
Southwest
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corner of 9th and Walnut. The garage opened for business on
December 15, 1999.
(9) A 29-building, 374-unit apartment complex, on a 30.7-acre
tract, located at New Mark Drive and North Cherry in Kansas
City North. Construction of the first phase was completed in
mid-1971, completion of the second phase in 1978, completion of
the third phase in 1998, and completion of the fourth phase in
1999. The apartments are 83 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 $1,915,721. The 140
units, Phase III, are subject to a mortgage deed of trust
securing a loan with a balance owing of $4,763,269. The 24
units, Phase IV, are subject to a mortgage deed of trust
securing a loan with a balance owing of $l,045,000.
(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
96 percent occupied. The apartments are subject to a mortgage
deed of trust securing a loan with a balance owing of
$8,921,067.
(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
94 percent occupied. The apartments are subject to a mortgage
deed of trust securing a loan with a balance owing of
$3,356,902.
(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 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.
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(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 834
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) Effective September 24, 1999, the Company's 98.19 percent owned
subsidiary, Downtown Redevelopment Corporation, was merged into the
Company and now 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
100 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 $6,211,417.
(2) 700 Baltimore surface parking. Through a tax-free exchange
between Delaware Redevelopment Corporation for the 710 Main
Garage Building on September 1, 1999, the Company obtained this
276 surface parking lot for $250,000. The property value of
700 Baltimore appraised for $3,450,000 and the value of the 710
Main Garage was determined to be $3,200,000. 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 were functionally obsolete. The
Company had remediated environmental problems in the buildings
and in 1997, the Company demolished the north Rodeway facility
and completed a 100 car surface parking lot. The south
facility contains a 258 car-parking garage at 711 Main. The
Company made available an additional 30 parking spaces at the
711 Main location in 1998.
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<PAGE> 9
(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.
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 1999.
Part II
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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
1999. 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>
1999 1998
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Quarter Bid Asked Bid Asked
------- --- ----- --- -----
<S> <C> <C> <C> <C>
First $155.00 $ -- $140.50 $ --
Second 151.00 -- 148.00 --
Third 151.00 -- 153.00 --
Fourth 159.50 -- 156.00 --
</TABLE>
There are no present or future restrictions on the ability of Registrant
to pay common stock dividends. No dividends were paid in 1999, 1998 and
1997. (Management has indicated it will not pay dividends in 2000.)
The table below shows the number of holders of record of each class of
equity securities of Registrant as of February 22, 2000:
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<TABLE>
<CAPTION>
Number of
Title of Class Security Holders
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<S> <C>
Common stock,
$1.00 par value 440
</TABLE>
Item 6. Selected Financial Data.
Reference is made to the caption "Selected Financial Data" on Page 28 of
Registrant's 1999 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 23
through 27 of Registrant's 1999 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 21 and Pages 28 through 30 of
Registrant's 1999 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.
On March 2, 2000, Tower Properties has chosen not to engage Arthur
Andersen LLP as independent accountants to audit the financial statements
of the Company for the year ending December 31, 2000. The Company is in
the process of selecting the successor independent accountants.
The reports of Arthur Andersen LLP for the past two years ending December
31, 1999, contain no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting
principles. Subsequent to December 31, 1999, there have been no
disagreements between Tower Properties and Arthur Andersen.
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<PAGE> 11
Part III
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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 12, 2000. 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 8 of Registrant's Proxy
Statement relating to Annual Meeting of Stockholders to be held April 12,
2000. 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 5 of Registrant's
Proxy Statement relating to Annual Meeting of Stockholders to be held
April 12, 2000. 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" set forth on Page 10 of
Registrant's Proxy Statement relating to Annual Meeting of Stockholders
to be held April 12, 2000. 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
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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 1999 Annual Report to Stockholders are hereby
incorporated herein:
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<PAGE> 12
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income for the Years Ended December
31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Investment for the
Years Ended December 31, 1999, 1998 and 1997
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.
(2) Exhibits.
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<TABLE>
<CAPTION>
Item No. Description Location
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<S> <C> <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)
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<PAGE> 13
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
installments 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
8K (File No. 0-18261)
6601 College Boulevard Office Filed on February 16, 1999, as
Building acquisition agreement Exhibit A to Registrant's Form
8K (File No. 0-18261)
UMB Bank Office Building Filed on February 27, 1996, as
acquisition agreement Exhibit A to Registrant's Form
8-K (File No. 0-18261)
13 Tower Properties Company's Filed on March 07, 2000, as
annual report to its security Exhibit 13 to Registrant's 1999
holders for the 1999 fiscal Form 10-K (File No. 0-18261)
year. Such report is furnished
for the information of the
Commission and is not to be
deemed as filed as a part of
this report.
</TABLE>
(b) Reports on Form 8-K. Registrant filed no required reports on Form 8-K
-------------------
during the last quarter of 1999.
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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, 2000 BY: /s/JAMES M. KEMPER, JR.
-----------------------------------------
James M. Kemper, Jr.
Chairman and Chief Executive Officer
DATE: March 31, 2000 BY: /s/ROBERT C. HARVEY III
-----------------------------------------
Robert C. Harvey III
Chief Financial Officer, 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, 2000 BY: /s/DAVID W. KEMPER
-----------------------------------------
David W. Kemper
Director
DATE: March 31, 2000 BY: /s/BRIAN D. EVERIST
-----------------------------------------
Brian D. Everist
Director
DATE: March 31, 2000 BY: /s/JONATHAN M. KEMPER
-----------------------------------------
Jonathan M. Kemper
Director
DATE: March 31, 2000 BY: /s/THOMAS R. WILLARD
-----------------------------------------
Thomas R. Willard
President and Director
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<PAGE> 1
TOWER PROPERTIES COMPANY
ANNUAL REPORT 1999
<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
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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, Clay, St. Louis 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 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
Quarter Bid Asked Bid Asked
------- --- ----- --- -----
<S> <C> <C> <C> <C>
First $ 155.00 $ -- $ 140.50 $ --
Second 151.00 -- 148.00 --
Third 151.00 -- 153.00 --
Fourth 159.50 -- 156.00 --
</TABLE>
The Company will furnish to any person who was a stockholder on February 22,
2000, 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, 2000, such
person was a beneficial owner of securities entitled to vote at such meeting.
The request should be directed to Mr. Robert C. Harvey III, Vice President,
Tower Properties Company, 911 Main Street, Suite 100, Kansas City, Missouri
64105.
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<PAGE> 3
DEAR STOCKHOLDER:
Sharply reduced earnings this year resulted primarily from the continued
vacancy at the Stanley Warehouse and the repair of termite damage in our
older apartment properties at New Mark. The New Mark expenditures are a
one-time item. Our apartment properties are now fully leased, and we are
contemplating the construction of additional apartments at New Mark this
year.
We have completed the construction of our new Tower Garage. We will now
begin the renovation of our 811 Garage after trading our 710 Main Garage with
Commerce Bancshares for an adjoining surface lot. This should complete our
renovation projects.
With the exception of the Stanley property, our office buildings continue to
be fully leased. The Company continues to maintain a well-balanced financial
position, making it possible to make additional investments when the
opportunity presents itself.
Sincerely,
/s/ James M. Kemper
James M. Kemper, Jr.
Chairman and C.E.O.
<PAGE> 4
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Investment in Commercial Properties:
Rental Property, Net $76,109,334 $66,184,736
Tenant Leasehold Improvements, Net 3,871,804 4,175,869
Equipment and Furniture, Net 4,068,565 4,221,000
Construction in Progress 1,266,623 2,900,811
----------- -----------
Commercial Properties, Net 85,316,326 77,482,416
Real Estate Held for Sale 396,453 430,717
Cash and Cash Equivalents 145,362 147,928
Investments At Market (Related Party) 3,809,718 4,552,133
Receivables 2,555,254 1,612,121
Prepaid Expenses and Other Assets 1,200,207 874,710
----------- -----------
TOTAL ASSETS $93,423,320 $85,100,025
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Liabilities:
Mortgage Notes $47,567,080 $41,072,416
Real Estate Bond Issue 6,400,000 6,400,000
Line of Credit (Related Party) 5,065,030 2,045,000
Accounts Payable and Other Liabilities 2,837,461 3,232,969
Deferred Income Taxes 2,406,595 2,867,725
Income Taxes Payable -- 64,673
----------- -----------
Total Liabilities 64,276,166 55,682,783
Commitments and Contingencies
Minority Interest -- 178,705
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
183,430 Shares 183,430 183,430
Paid-In Capital 18,460,693 18,272,313
Retained Earnings 8,760,535 8,684,079
Accumulated Other Comprehensive Income:
Unrealized Holding Gain for Securities 1,797,170 2,250,043
----------- -----------
29,201,828 29,389,865
Less Treasury Stock, At Cost (516 and
2,345 shares in 1999 and 1998, respectively) (54,674) (151,328)
----------- -----------
Total Stockholders' Investment 29,147,154 29,238,537
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $93,423,320 $85,100,025
=========== ===========
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 TWELVE MONTHS ENDED DECEMBER 31, 1999, 1998 AND 1997
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Rent $17,861,692 $15,821,300 $16,050,084
Rent, Related Party 1,667,822 1,200,686 773,149
Management and Service Fees 143,378 79,099 68,604
Management and Service Fees, Related Party 534,152 388,340 98,834
Real Estate Sales/Proceeds from Easement 59,870 4,295,556 --
Interest and Other Income 442,158 477,024 301,301
----------- ----------- -----------
Total Revenues 20,709,072 22,262,005 17,291,972
----------- ----------- -----------
OPERATING EXPENSES
Operating Expenses 3,595,214 3,170,236 2,952,554
Maintenance and Repairs 6,116,263 3,932,474 3,226,346
Depreciation and Amortization 4,277,601 3,908,494 3,562,215
Taxes Other than Income 1,701,331 1,408,405 1,343,101
General, Administrative and Other 1,237,169 1,557,950 848,566
----------- ----------- -----------
Total Operating Expenses 16,927,578 13,977,559 11,932,782
OTHER EXPENSE
Interest (Including Related Party) 3,659,707 3,290,163 2,883,146
Income Before Minority Interest and
Provision for Income Taxes 121,787 4,994,283 2,476,044
Minority Interest In Income of Subsidiary (7,643) (19,038) (22,263)
----------- ----------- -----------
Income Before Provision for Income Taxes 114,144 4,975,245 2,453,781
----------- ----------- -----------
PROVISION FOR INCOME TAXES
Currently Payable 209,276 342,825 1,164,748
Deferred (171,588) 1,605,018 (248,709)
----------- ----------- -----------
NET INCOME $ 76,456 $ 3,027,402 $ 1,537,742
=========== =========== ===========
Earnings Per Share:
Basic $0.42 $16.85 $9.00
=========== =========== ===========
Diluted $0.42 $16.84 $8.96
=========== =========== ===========
Weighted Average Common Shares Outstanding:
Basic 182,250 179,667 170,925
=========== =========== ===========
Diluted 182,251 179,791 171,678
=========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
-5-
<PAGE> 6
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<CAPTION>
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
NET INCOME $ 76,456 $3,027,402 $1,537,742
Unrealized holding gains (losses) on marketable
equity securities, net of tax benefit (452,873) (108,594) 972,848
--------- ---------- ----------
Comprehensive income $(376,417) $2,918,808 $2,510,590
========= ========== ==========
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, 1999, 1998 AND 1997
<CAPTION>
Accumulated
Other
Common Stock Treasury Stock Com-
------------------- Paid-In Retained ------------------- hensive
Shares Amount Capital Earnings Shares Amount Income Total
------- -------- ----------- ---------- ------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 178,430 178,430 17,355,872 4,118,935 7,535 (494,798) 1,385,789 22,544,228
Net Income -- -- -- 1,537,742 -- -- -- 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 178,430 178,430 17,355,872 5,656,677 7,396 (476,116) 2,358,637 25,073,500
Net Income -- -- -- 3,027,402 -- -- -- 3,027,402
Common Stock
Issuance 5,000 5,000 671,250 -- -- -- -- 676,250
Treasury Stock
Purchases -- -- -- -- 79 (11,757) -- (11,757)
Treasury Stock Sold -- -- 148,150 -- (5,000) 321,850 -- 470,000
Treasury Stock
Issued to
Directors -- -- 5,041 -- (130) 14,695 -- 19,736
Tax benefit from
exercise of stock
options -- -- 92,000 -- -- -- -- 92,000
Unrealized Holding Loss
For Securities -- -- -- -- -- -- (108,594) (108,594)
------- -------- ----------- ---------- ------ --------- ---------- -----------
Balance,
December 31, 1998 183,430 183,430 18,272,313 8,684,079 2,345 (151,328) 2,250,043 29,238,537
Net Income -- -- -- 76,456 -- -- -- 76,456
Treasury Stock
Purchases -- -- -- -- 294 (46,490) -- (46,490)
Treasury Stock Sold -- -- 176,260 -- (2,000) 135,740 -- 312,000
Treasury Stock
Issued to
Directors -- -- 12,120 -- (123) 7,404 -- 19,524
Unrealized Holding
Loss For
Securities -- -- -- -- -- -- (452,873) (452,873)
------- -------- ----------- ---------- ------ --------- ---------- -----------
Balance,
December 31, 1999 183,430 $183,430 $18,460,693 $8,760,535 516 $ (54,674) $1,797,170 $29,147,154
======= ======== =========== ========== ====== ========= ========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-7-
<PAGE> 8
<TABLE>
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 76,456 $ 3,027,402 $ 1,537,742
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 2,949,618 2,840,357 2,359,602
Amortization of Leasehold Improvements 1,327,983 1,068,137 1,202,613
Gain on Real Estate Sales (24,951) (3,743,566) --
Net Change in Minority Interest 7,643 19,038 22,263
Treasury Shares Issued to Directors 19,524 19,736 19,954
Change in Balance Sheet Accounts, Net:
Accounts Receivable (987,019) (327,837) (147,412)
Notes Receivable 43,887 (166,407) (133,456)
Prepaid Expenses and Other Assets (325,498) (110,992) (280,964)
Accounts Payable and Other Liabilities (395,508) 2,140,610 188,191
Income Taxes Payable (64,673) (1,418) (19,242)
Deferred Taxes (171,588) 1,460,018 (210,847)
------------ ------------ ------------
Net Cash Provided by Operating Activities 2,455,874 6,225,078 4,538,444
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of New Mark Phase IV/Phase III (1,126,935) (6,544,710) --
Construction of New Garage/Purchase of Suburban Office Building (9,380,521) (9,424,454) --
Net Change in Construction in Progress 1,634,189 2,086,147 (3,394,805)
Proceeds from Sale of Land 59,870 4,295,556 --
Additions to Real Estate Held for Sale, Net (655) (70,626) (158,333)
Additions to Equipment & Furniture, Net (891,189) (1,314,065) (843,945)
Additions to Rental Income Property, Net (1,323,137) (1,392,447) (3,366,959)
Additions to Leasehold Improvements, Net (1,023,918) (1,511,100) (804,346)
Purchase of Minority Interest (186,348) -- --
------------ ------------ ------------
Net Cash Used in Investing Activities (12,238,644) (13,875,699) (8,568,388)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Mortgages (1,550,336) (1,337,199) (940,442)
Proceeds from Long Term Borrowings 8,045,000 7,175,000 15,670,000
Net Change in Short Term Borrowings 3,020,030 650,000 (10,726,859)
Sale of Common Stock -- 676,250 --
Sale of Treasury Stock 312,000 470,000 --
Purchase of Treasury Stock (46,490) (11,757) (1,272)
Tax Benefit from exercise of stock options -- 92,000 --
------------ ------------ ------------
Net Cash Provided by Financing Activities 9,780,204 7,714,294 4,001,427
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH: (2,566) 63,673 (28,517)
CASH and CASH EQUIVALENTS, Beginning of Period 147,928 84,255 112,772
------------ ------------ ------------
CASH, and CASH EQUIVALENTS, End of Period $ 145,362 $ 147,928 $ 84,255
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-8-
<PAGE> 9
TOWER PROPERTIES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. BUSINESS:
Tower Properties Company (the Company) is primarily engaged in owning,
developing, leasing and managing real property located in Johnson County,
Kansas, Clay, St. Louis 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, 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:
<TABLE>
<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 is
38 years.
</TABLE>
-9-
<PAGE> 10
Maintenance and repairs are charged to expense as incurred. The cost of
additions and betterments are capitalized. Applicable interest charges
incurred during the construction of new facilities are capitalized as one of
the elements of cost and are amortized over the assets' estimated useful
lives. 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
$9,585,205 and $8,305,855 at December 31, 1999 and 1998, 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. Any impairment is then recorded based on an estimate of future
discounted cash flows.
CASH AND CASH EQUIVALENTS
- -------------------------
Cash and cash equivalents include cash on hand and short term investments
with an original maturity of three months or less.
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 $3,650,601, $3,280,224 and $2,924,659 for the years
ended December 31, 1999, 1998 and 1997, respectively. The Company paid
income taxes of $292,423, $423,464, and $1,146,128 for the years ended
December 31, 1999, 1998 and 1997, respectively.
EARNINGS PER SHARE
- ------------------
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
-10-
<PAGE> 11
common equivalent shares outstanding during each year. Stock options are the
Company's only common stock equivalents.
COMPREHENSIVE INCOME
- --------------------
Comprehensive income includes charges and credits to equity that are not the
result of transactions with shareholders. Comprehensive income is composed
of two subsets-net income and other comprehensive income. Included in other
comprehensive income for the Company are unrealized holding gains for
securities.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). This statement
establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet at its fair value. SFAS
133, effective July 1, 2000, requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. The Company is currently evaluating the impact of adopting
SFAS 133, however, it is not expected to have a material impact on the
Company's financial position and results of operation.
3. RENTAL INCOME PROPERTY:
Major classes of rental income property owned by the Company at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Net
---- ------------ ---
<S> <C> <C> <C>
December 31, 1999--
Commercial office and warehouse buildings $ 55,373,875 $19,454,732 $35,919,143
Apartments 31,220,000 6,009,068 25,210,932
Parking facilities 17,226,788 2,247,529 14,979,259
------------ ----------- -----------
$103,820,663 $27,711,329 $76,109,334
============ =========== ===========
<CAPTION>
Accumulated
Cost Depreciation Net
---- ------------ ---
<S> <C> <C> <C>
December 31, 1998--
Commercial office and warehouse buildings $ 55,890,737 $18,459,655 $37,431,082
Apartments 29,451,588 5,254,707 24,196,881
Parking facilities 6,819,173 2,262,400 4,556,773
------------ ----------- -----------
$ 92,161,498 $25,976,762 $66,184,736
============ =========== ===========
</TABLE>
-11-
<PAGE> 12
4. BENEFIT PLANS:
The Company sponsored a defined benefit pension plan that was terminated
effective October 31, 1999. Distributions from the plan are expected to
occur in 2000. The plan covered 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 was to make annual
contributions as required by applicable regulations.
The plan has recognized a settlement and a curtailment. The settlement
resulted because total annuity purchases and cash payments exceeded the sum
of the Service Cost and Interest Cost. The plan curtailment reflects the
plan termination. Benefits have been frozen and all participants have been
fully vested in their accrued benefits. Both the settlement and curtailment
calculations reflect the actual dates of occurrence.
The following tables summarize the status of the plan:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit Obligation at Beginning of Year $ 790,536 $ 631,402
Service Cost 44,138 33,130
Interest Cost 42,061 38,770
Actuarial Loss 45,036 209,583
Effect of Settlement (294,817) (122,349)
Effect of Curtailment (181,941) 0
--------- ---------
Benefit Obligation at End of Year $ 445,013 $ 790,536
========= =========
CHANGE IN PLAN ASSETS
Fair Value of Plan Assets at Beginning of Year $ 551,243 $ 549,177
Actual Return on Plan Assets (19,350) 61,404
Employer Contributions 69,751 63,011
Effect of Settlement (294,817) (122,349)
--------- ---------
Fair Value of Plan Assets at End of Year $ 306,827 $ 551,243
========= =========
Funded Status (Underfunded) $(138,186) $(239,293)
Unrecognized Net Actuarial Loss 12,521 197,429
Unrecognized Transition (Asset) 0 (1,844)
Unrecognized Prior Service Cost 0 11,908
--------- ---------
(Accrued) Benefit Costs $(125,665) $ (31,800)
========= =========
COMPONENTS OF NET PERIODIC BENEFIT COST
Service Cost $ 44,138 $ 33,130
Interest Cost 42,061 38,770
Expected Return on Plan Assets (37,744) (40,751)
Recognized Net Actuarial Loss 13,669 0
Amortization of Transition (Asset) (1,844) (2,287)
-12-
<PAGE> 13
Amortization of Prior Service Cost 3,444 3,444
Effect of Settlement 91,428 30,264
Effect of Settlement and Curtailment 8,464 0
--------- ---------
Net Periodic Benefit Cost $ 163,616 $ 62,570
========= =========
ASSUMPTIONS AND METHOD DISCLOSURES
Discount Rate 5.50% 5.50%
Expected Long Term Rate of Return 7.00% 7.00%
Weighted Average Rate of Compensation Increase 4.26% 4.05%
</TABLE>
All of the Company's union employees are covered by union-sponsored,
collectively-bargained, multi-employer pension plans. Tower contributed
$22,091, $19,500 and $8,781 in 1999, 1998 and 1997, 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 $14,327 and $13,766 and
$12,959 for the years ending December 31, 1999, 1998 and 1997, 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 123, 130 and 152
for the years ending December 31, 1999, 1998 and 1997, respectively.
5. MORTGAGE NOTES PAYABLE:
Mortgage notes payable, secured by rental income property with a net book
value of approximately $54,524,150 and an assignment of certain leases and
related revenue, consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
8.50%, principal and interest payable
$66,388 monthly, until April, 2013 $ 6,364,169 $ 6,588,904
7.875%, principal and interest payable
$24,660 monthly, until February,
2009 1,915,721 2,054,772
7.50%, principal and interest payable
$32,224 monthly, until February,
2014 3,356,902 3,486,498
-13-
<PAGE> 14
9.00%, principal and interest payable
$37,458 monthly, until December,
2012 3,437,487 3,571,011
8.00%, principal and interest payable
$16,311 monthly, until December,
2015 1,758,871 1,811,581
7.65%, principal and interest payable
$25,448 monthly, until May,
2013 2,556,898 2,653,780
7.40%, principal and interest payable
$43,172 monthly, until April,
2016 4,889,778 5,039,918
7.70%, principal and interest payable
$22,246 monthly, until March,
2017 2,538,555 2,607,144
7.25%, principal and interest payable
$9,531 monthly, until May,
2003 1,118,581 1,150,307
8.31%, principal and interest payable
$65,721 monthly, until November,
2012 6,211,417 6,472,022
8.125%, principal and interest payable
$42,212 monthly, until November,
2017 4,763,269 4,877,699
7.45%, principal and interest payable
$6,569 monthly, until December,
2015 735,699 758,780
6.90%, principal and interest payable
$53,852 monthly, until April,
2019 6,874,733 --
7.78%, principal and interest payable
$9,044 monthly, until November,
2017 1,045,000 --
----------- -----------
$47,567,080 $41,072,416
=========== ===========
-14-
<PAGE> 15
Minimum mortgage note principal payments required over the next five years
and thereafter are as follows:
</TABLE>
<TABLE>
<S> <C>
2000 $ 1,780,280
2001 1,926,932
2002 3,094,138
2003 2,215,332
2004 2,382,139
Thereafter 36,168,259
-----------
$47,567,080
===========
</TABLE>
The carrying amounts and approximate fair values of financial instruments are
listed as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $47,567,080 $43,997,000 $41,072,416 $41,323,000
</TABLE>
The fair values of debt instruments are based on quoted market prices, or,
where quoted market prices are not available, on the present value of future
cash flows discounted at estimated borrowing rates for similar debt
instruments or on estimated prices based on current yields for debt issues of
similar quality and terms. The Company negotiates its long-term debt rates
on a property by property basis. The Carrying Amount of the debt represents
the actual face value of the contractual debt contracts. The Fair Value
represents what the mortgage holder could resell the debt for at year end.
For 1999, Fair Value is less than the Carrying Amount which reflects the
favorable interest rates the Company is paying versus the current market
interest rates.
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Tax effect of:
Dividend exclusion (39.4) (0.8) (1.5)
Minority interest 6.7 0.4 0.9
State income taxes,
net of federal benefit 8.2 0.5 4.2
Travel & Entertainment 12.8 0.3 0.5
-15-
<PAGE> 16
Political Contributions 4.6 0.1 --
Other 6.1 4.7 (0.8)
----- ---- ----
Effective Income Tax Rate 33.0% 39.2% 37.3%
===== ==== ====
</TABLE>
The tax effect of temporary differences giving rise to the Company's net
deferred income tax liability at December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Amortization of leasehold improvements $ 1,817,235 $ 1,488,658
Pension 37,717 37,717
Vacation 35,958 34,827
----------- -----------
1,890,910 1,561,202
----------- -----------
Deferred tax liabilities:
Depreciation on rental income property,
equipment and furniture (2,702,643) (2,604,445)
Unrealized holding gain for securities (1,149,010) (1,438,552)
Accrued rent receivable (445,852) (385,930)
----------- -----------
(4,297,505) (4,428,927)
----------- -----------
Net deferred income tax liability $(2,406,595) $(2,867,725)
=========== ===========
</TABLE>
7. ACQUISITIONS:
On December 1, 1998, the Company purchased the UMB Bank commercial office
building assets for $9,400,000. UMB Bank is a six-story, 59,982 square foot
commercial office building and parking garage located in Clayton, Missouri.
The following unaudited pro forma summary combines the results of operations
of the Company as if the acquisition of UMB Bank had occurred at the
beginning of each period.
<TABLE>
<CAPTION>
Unaudited Unaudited
--------- ---------
1998 1997
---- ----
<S> <C> <C>
Total revenue $23,330,341 $17,891,771
Net income 3,165,998 1,448,153
Earnings per common share $17.62 $8.47
</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.
-16-
<PAGE> 17
8. OTHER RELATED PARTY TRANSACTIONS:
On August 31, 1999, the Company completed a like-kind exchange with a related
party. The Company acquired the 700 Baltimore surface parking lot valued at
$3,450,000 in exchange for the 710 Main Parking Garage and $250,000. There
was no gain or loss recognized for the transaction.
The Company received rent and fees from Commerce Bank, N.A. and Commerce
Bancshares, Inc. (Commerce) and its subsidiaries of $5,938,309, $3,746,446
and $1,180,051 in 1999, 1998, and 1997, respectively. The Company was also
reimbursed for utilities in the amount of $101,478, $101,758 and $107,711 in
1999, 1998 and 1997, respectively.
The Company owns 112,464 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 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 an $18,000,000 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, 1999, $4,477,990 was available under
this line of credit, and the average interest rate for the month of December
was 6.84%. The line requires monthly interest payments and expires June 1,
2000. Interest expense paid to Commerce was $120,124, $116,299, and $538,319
for the years ended December 31, 1999, 1998 and 1997, respectively. The
Company pledged the shares of Commerce common stock and real estate as
collateral for the line of credit. The weighted average short term borrowing
rate was 6.55% in 1999. Interest of $322,838, $207,497 and $220,958 was
capitalized for the years ending December 31, 1999, 1998 and 1997,
respectively.
9. STOCK BASED COMPENSATION:
In February, 1999, the Company's Chairman exercised 2,000 nonqualified stock
options granted in 1999 with an exercise price of $156.00 per share. In
January, 1998, the Chairman exercised 5,000 nonqualified stock options
granted in 1997 with an exercise price of $94.00 per share. Treasury shares
were used to satisfy the options. Also in January, 1998, an additional 5,000
nonqualified stock options were granted to the Chairman with an exercise
price of $135.25. The options, exercisable for five years from the date of
grant were exercised in March, 1998. Additional shares were issued to
satisfy the options. 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:
-17-
<PAGE> 18
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net Income: As reported $76,456 $3,027,402 1,537,742
Pro Forma 29,920 2,916,887 1,458,656
Basic Earnings per share: As reported $0.42 $16.85 $9.00
Pro Forma $0.16 $16.23 $8.53
Diluted Earnings per share: As reported $0.42 $16.84 8.96
Pro Forma $0.16 $16.22 $8.50
</TABLE>
The fair value of options granted in 1999, 1998 and 1997 are estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions for 1999, 1998 and 1997, respectively: risk free rate of 4.72%,
5.43% and 6.29%, expected dividend yield of zero for all options, expected
life of five years for all options, and expected volatility of 13.71%, 14.23%
and 9.69%.
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 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 no outstanding construction commitments as of December 31,
1999. The Company has an extraordinary repair project at Phase I & Phase II
of the New Mark apartment complex due to sudden termite damage with remaining
estimated expense of $138,000. The Company has agreed to the modernization
of the elevators at the 811 Main Building for approximately $712,000 with the
project beginning in the fourth quarter of 1999 and completing in the third
quarter of 2000.
11. MERGER OF CONSOLIDATED SUBSIDIARY:
Effective September 24,1999, the Company's 98.19 percent owned subsidiary,
Downtown Redevelopment Corporation (DRC) was merged into the company pursuant
to the articles and plan of merger approved by the Boards of Directors of DRC
and the Company. As a result of the merger, minority shareholders receive
cash of $1,360 per share upon presentation of their
-18-
<PAGE> 19
DRC certificates to the Company. The total purchase price was $300,200. The
Company employed the services of an independent appraiser to value the
minority interest in DRC. As of the effective date of the merger, the
minority interest in DRC was eliminated.
-19-
<PAGE> 20
12. BUSINESS SEGMENTS:
The Company groups its operations into three business segments, commercial
office, apartments, and parking. The Company's business segments are
separate business units that offer different real estate services. The
accounting policies for each segment are the same as those described in the
summary of significant accounting policies.
Following is information for each segment for the years ended December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
December 31, 1999
------------------------------------------------------------------------------------------
Commercial
Office Apartments Parking Other Eliminating Total
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers 12,482,398 5,971,322 1,464,718 790,634 -- 20,709,072
Land sales -- -- -- 59,870 (59,870) --
Interest expense 1,724,431 1,575,891 -- 359,385 -- 3,659,707
Depreciation and amortization 2,535,402 1,261,628 123,649 356,922 -- 4,277,601
Segment net income before tax 2,757,520 (1,703,645) (354,728) (585,003) -- 114,144
Capital expenditures by segment 1,687,194 2,176,479 9,976,888 62,513 (13,903,074) --
Identifiable segment assets 37,351,799 27,183,012 15,938,751 12,949,758 -- 93,423,320
<CAPTION>
------------------------------------------------------------------------------------------
December 31, 1998
------------------------------------------------------------------------------------------
Commercial
Office Apartments Parking Other Eliminating Total
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers 10,188,025 5,263,237 1,619,725 5,191,018 -- 22,262,005
Land sales 242,589 -- -- 4,052,967 (4,295,556) --
Interest expense 1,365,742 1,616,757 -- 307,664 -- 3,290,163
Depreciation and amortization 2,405,007 1,097,707 118,773 287,007 -- 3,908,494
Segment net income before tax 1,222,911 (470,456) 687,335 3,535,455 -- 4,975,245
Capital expenditures by segment 12,709,602 7,187,161 170,649 393,760 (20,461,172) --
Identifiable segment assets 37,571,163 26,234,571 4,658,670 16,635,621 -- 85,100,025
<CAPTION>
------------------------------------------------------------------------------------------
December 31, 1997
------------------------------------------------------------------------------------------
Commercial
Office Apartments Parking Other Eliminating Total
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers 9,583,305 4,983,724 1,508,100 1,216,843 -- 17,291,972
Land sales -- -- -- -- -- --
Interest expense 997,600 1,334,954 -- 550,592 -- 2,883,146
Depreciation and amortization 2,289,464 917,073 110,374 245,304 -- 3,562,215
Segment net income before tax 1,322,163 434,965 595,542 101,111 -- 2,453,781
Capital expenditures by segment 2,073,345 446,721 1,221,370 1,701,902 (5,443,338) --
Identifiable segment assets 27,536,685 23,731,690 4,767,312 14,739,932 -- 70,775,619
</TABLE>
-20-
<PAGE> 21
13. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
1999 Quarters 1998 Quarters
------------------------------------------------- -------------------------------------------------
First Second Third Fourth First Second Third Fourth
- ------------------------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue 5,008,246 5,259,248 5,182,403 5,259,175 4,602,878 4,313,375 5,906,086 7,439,666
Net income 112,423 12,713 53,086 (101,766) 454,403 214,758 732,560 1,625,681
- ------------------------------------------------------------------------------- -------------------------------------------------
Basic Earnings Per Share 0.62 0.07 0.29 (0.56) 2.59 1.19 4.05 9.02
Diluted Earnings Per Share 0.62 0.07 0.29 (0.56) 2.58 1.19 4.05 9.02
- ------------------------------------------------------------------------------- -------------------------------------------------
</TABLE>
-21-
<PAGE> 22
[Letterhead of Arthur Andersen]
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,
1999 and 1998, and the related consolidated statements of income,
comprehensive income, stockholders' investment and cash flows for each of the
three years in the period ended December 31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, 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.
/s/ Arthur Andersen LLP
Kansas City, Missouri
February 25, 2000
<PAGE> 23
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 $18,000,000 line of credit with Commerce Bank, N.A.
At December 31, 1999, the Company had $5,065,030 outstanding on the line of
credit. With cash provided from operations of $2,455,874 in 1999, the Company
does not anticipate any liquidity problems. The Company has not experienced
liquidity problems during the twelve months ended December 31, 1999. In
March, 1998, the Company secured a $775,000 seventeen year, 10 month mortgage
loan on the expansion of the 9200 Cody warehouse/office facility. The
proceeds from this loan were used to reduce the line of credit. The Company
closed land sales in the amount of $1,400,000 in September, 1998 and
$2,700,000 in October, 1998. The proceeds were held by an exchange
corporation with the intention of enacting a tax-free exchange. The Company
identified the UMB Bank commercial office building, located in Clayton,
Missouri as a target exchange property and purchased the property in
December, 1998 for $9,400,000. The purchase was financed by the $4,000,000
generated from the land sales and $5,400,000 in cash drawn on the Company's
line of credit. In the transaction, Tower also acquired the right to issue
$6,400,000 in low interest industrial revenue bonds. These proceeds were
used to reduce the line of credit. In April, 1999, the Company secured
permanent financing of $7,000,000 from Business Men's Assurance at a fixed
rate of 6.9%. The proceeds of this loan were used to pay off the line of
credit and the balance invested in short-term money market accounts. In
December, 1999, the Company secured permanent financing for Phase IV of the
New Mark apartments in the amount of $1,045,000 from Ohio National Life
Insurance at a fixed rate of 7.78%. The proceeds were used to pay for the
major repairs at the New Mark apartments and the construction of the Tower
Parking garage.
YEAR ENDED DECEMBER 31, 1999
COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998
RESULTS OF OPERATIONS
- ---------------------
Overall total revenue decreased $1,552,933. Increased occupancy in the
Commerce Tower and 811 Main commercial office buildings and the December 1,
1998 acquisition of the UMB Bank commercial office building in Clayton,
Missouri resulted in $2,019,285 of the 15% increase in rental income of
$2,507,528. The completion of the Phase III and IV New Mark apartments, an
increase in occupancy at the Hillsborough apartment complex offset by the
decrease in occupancy in Phase I and II New Mark due to termite repairs
resulted in an increase in apartment rentals of 14%. The loss of parking
revenue due to repairs at the 710
-23-
<PAGE> 24
Main parking garage and its exchange for the 700 Baltimore lot primarily was
responsible for the 14% decrease in parking income. The acquisition of the
UMB Bank commercial office building was responsible for 50% of the total
increase in rental income. Occupancy in the Commerce Tower is 93% and
Barkley Place is 97%. The UMB Bank and the 811 Main office buildings are
100% 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 is presently vacant. Phase I and II of the New Mark apartment
complex are 73% leased, Phase III and IV of New Mark are 87% and 88% leased,
respectively. Hillsborough apartments are 96% leased and Peppertree
apartments are 94% leased at year end.
Management and service fees increased due to lease commission fees earned on
new leases for Commerce Bank and other properties. The decrease in real
estate sales/proceeds from easement is the 1998 easement granted by the
Company to Kansas City Power and Light on its 6601 College Boulevard
commercial office building location and the 1998 sale of 197 acres of
undeveloped land in the New Mark sub-division, offset by the 1999 sale of
7.48 acres.
The increase in operating expenses is primarily due to the increase in
management personnel needed to support the management contract for the
Commerce Trust, Commerce Bank and the Executive Plaza office buildings. The
completion of the Phase III and IV New Mark apartments and the acquisition of
the UMB Bank commercial office building, offset by the 1998 asset write down
of the law library and the increase in amortization of leasehold
improvements, are primarily responsible for the increase in depreciation.
The completion of Phase III New Mark and the acquisition of UMB Bank is also
responsible for the increase in taxes other than income. Increased expenses
also related to Phase III, Phase IV New Mark and UMB Bank as well as a
decrease in cost of sales, professional fees and insurance resulted in a
decrease of $321,000 in general, administrative and other expense.
Maintenance and repairs increased due to the termite repairs at the New Mark
Phase I & II, 710 Main garage repairs, the completion of the Phase III and IV
New Mark and the acquisition of the UMB Bank commercial office building. The
increase in interest expense, including related party, is primarily the
interest payments on the 9200 Cody expansion mortgage loan closed in March,
1998, the interest expense on the IRB issue, the mortgage loan on the UMB
Bank building in April, 1999, offset by the increase in the 1999 capitalized
interest of $323,000 as compared to $207,000 in 1998.
YEAR ENDED DECEMBER 31, 1998
COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS
- ---------------------
Increased parking spaces due to the demolition of the Texaco station at 600
Main and the increase in rental rates for all surface parking, the completion
of Phase III of the New Mark apartment complex, the expansion of the 9200
Cody warehouse/office facility and the acquisition of the UMB Bank commercial
office building in Clayton, Missouri, offset by the decrease in occupancy
during the first half of 1998 in the 811 Main commercial office
-24-
<PAGE> 25
building, the vacancy of the 916-920 Walnut commercial office buildings and
the vacancy of the 9909 Lakeview warehouse are responsible for the increase
in rental income of $198,753. Parking revenue increased 7% and apartment
rentals increased 6%. The expansion of the 9200 Cody warehouse/office
facility in October, 1997 created a 40% increase in rental income for that
facility. Occupancy in the Commerce Tower is 90%. The Barkley Place, the
UMB Bank and the 811 Main office buildings are 100% 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 is presently vacant.
Phase I and II of the New Mark apartment complex is 78% leased, Phase III of
New Mark is 79% leased, Hillsborough apartments are 95% leased and Peppertree
apartments are 94% leased at year end.
The increase in management and service fees income and other income is due to
the acquisition of the management contract for the Commerce Trust, Commerce
Bank, Osco and Executive Office commercial office buildings for Commerce Bank
N.A.
The Company was granted and received $242,589 for a Kansas City Power and
Light easement on its 6601 College Boulevard commercial office building
location. In addition, the Company sold 197 acres of undeveloped land
located in the New Mark sub-division. These transactions account for the
increase in real estate sales and cost of real estate sold. Interest and
other income has increased primarily due to the construction management fees
earned on Commerce Bank property and department remodels.
Operating expenses increased due to the increase of personnel needed for the
management of the Commerce Bank properties which resulted in an increase in
salaries and employee benefits. Additional maintenance personnel were needed
to support the addition of Phase III New Mark. Utilities increased due to
the addition of Phase III New Mark and the vacancy of the Stanley warehouse.
The increase of $706,128 in maintenance and repairs is primarily due to the
sudden termite damage at the Phase I and II of the New Mark apartment complex
and the necessary repairs made at the 710 Main parking garage.
The increase in depreciation is a direct result of the modernization of the
low and high rise elevators in the Commerce Tower, the expansion of the 9200
Cody warehouse/office facility and the completion of the Phase III of the New
Mark apartment complex. Due to a lack of benefit, management has decided to
close the law library located in the Commerce Tower commercial office
building at year end and write down the law library books in the amount of
$287,422 to an estimated value of $15,000. The decrease in amortization of
leasehold improvements is comprised of 1998 tenant improvements in the
Commerce Tower, Barkley Place and 811 Main commercial office buildings and
the 9200 Cody warehouse expansion as compared to the 1997 improvements which
included the write off of the UtiliCorp space in the Commerce Tower
commercial office building.
The increase in taxes other than income is the Stanley warehouse real estate
taxes previously paid by the tenant in a triple net lease, the acquisition of
the UMB Bank commercial office
-25-
<PAGE> 26
building and the completion of Phase III of the New Mark apartment complex,
offset by the decrease in assessment of the Commerce Tower commercial office
building.
The increase in other interest expense is the interest payments on the
$6,750,000 mortgage loan for the 811 Main commercial office building and
garage, the $5,000,000 mortgage loan on the Phase III of the New Mark
apartment complex and the $775,000 mortgage on the expansion of the 9200 Cody
warehouse/office facility, offset by the capitalized interest during
construction of the Phase III New Mark construction project.
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 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
1999, the Company made modifications to certain properties at a cost of
approximately $9,500.
MARKET RISK DISCLOSURE
The Company is exposed to various market risks, including equity investment
prices and interest rates.
The Company has $3,809,718 of equity securities as of December 31, 1999.
These investments are not hedged and are exposed to the risk of changing
market prices. The Company classifies these securities as
"available-for-sale" for accounting purposes and marks them to market on the
balance sheet at the end of each period. Management estimates that its
investments will generally be consistent with trends and movements of the
overall stock market excluding any unusual situations. An immediate 10%
change in the market price of our equity securities would have a $232,393
effect on comprehensive income.
The Company has approximately $11,465,030 of variable rate debt as of
December 31, 1999. A 100 basis point change in each debt series benchmark
would impact net income on an annual basis by approximately $69,937.
-26-
<PAGE> 27
PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). This statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet at
its fair value. SFAS 133, effective July 1, 2000, requires that changes in
the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. The Company is currently
evaluating the impact of adopting SFAS 133, however, it is not expected to
have a material impact on the Company's financial position and results of
operation.
YEAR 2000
In 1999 the Company successfully completed its Year 2000 ("Y2K") remediation
efforts for all key financial, information and operational systems. The
financial impact of making required systems changes was not material to the
Company's consolidated financial position, results of operations or cash
flows.
To date there have been no significant events related to the Company's key
financial, information and operational systems, nor to the failure of any
vendors including utility providers. No known contingencies exist relating
to the Year 2000 conversion, however, the Company plans to continue to
monitor and report incidents, if any, through the first quarter of 2000.
-27-
<PAGE> 28
<TABLE>
TOWER PROPERTIES COMPANY
SELECTED FINANCIAL DATA
Twelve Months Ending December 31,
<CAPTION>
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenue $20,709,072 $22,262,005 $17,291,972 $16,213,086 $13,152,882
Net Income 76,456 3,027,402 1,537,742 1,505,223 1,510,180
Basic Earnings Per Common Share 0.42 16.85 9.00 8.80 8.84
Diluted Earnings Per Common Share 0.42 16.84 8.96 8.80 8.84
Dividends Per Common Share -- -- -- -- --
Mortgages Notes Payable 47,567,080 41,072,416 41,634,615 26,905,057 19,300,872
Net Equity 29,147,154 29,238,537 25,073,500 22,544,228 20,635,259
Total Assets $93,423,320 $85,100,025 $70,775,619 $63,624,245 $56,504,061
</TABLE>
-28-
<PAGE> 29
<TABLE>
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
<CAPTION>
Cost Capitalized
Subsequent to
Initial Cost to Company Acquisition
-------------------------- ------------------------
Buildings
and Carrying
Description-<FC> Encumbrances Land Improvements Improvements Costs
---------------- ------------ ---- ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
COMMERCIAL OFFICE BUILDINGS
Commerce Tower $ 0 $ 919,920 $18,133,895 $ 2,030,487 $ 0
811 Main 6,211,417 596,387 2,553,247 225,052 0
UMB Bank-Clayton 6,874,733 1,113,734 8,310,720 -- 0
Barkley Place 3,437,487 871,000 4,943,000 59,591 0
6601 College Boulevard 4,889,778 1,000,000 5,950,000 0 0
9200 Cody Warehouse/
office 2,494,570 296,850 2,174,150 1,232,631 0
9909 Lakeview Avenue 2,538,555 652,000 2,773,000 0 0
9221 Quivera 1,118,581 290,738 1,193,130 0 0
Other Rental Properties 0 10,998 41,805 1,540 0
----------- ----------- ----------- ----------- ----------
Sub-Total 27,565,121 5,751,627 46,072,947 3,549,301 0
APARTMENTS
New Mark Apartments,
210 Units 1,915,721 19,768 3,797,495 1,129,920 0
New Mark Apartments III,
140 Units 4,763,269 649,374 5,341,616 30,191 0
New Mark Apartments IV,
24 Units 1,045,000 44,240 1,082,695 --
Hillsborough Apartments,
329 Units 8,921,067 1,161,740 8,485,514 4,007,948 0
Peppertree Apartments,
162 Units 3,356,902 833,243 4,554,674 81,582 0
----------- ----------- ----------- ----------- ----------
Sub-Total 20,001,959 2,708,365 23,261,994 5,249,641 0
PARKING FACILITIES
811 Main 0 149,096 614,122 599,857 0
DRC Texaco & 711 Garage 0 501,513 -- 1,032,056 0
700 Baltimore lot 0 1,109,682 -- 125,000
Tower Garage 0 1,785,418 8,849,684 530,837
Surface lots/8th, 9th &
Walnut parking 0 1,100,242 81,000 748,281 0
----------- ----------- ----------- ----------- ----------
Sub-Total 0 4,645,951 9,544,806 3,036,031 0
----------- ----------- ----------- ----------- ----------
TOTALS $47,567,080 $13,105,943 $78,879,747 $11,834,973 $ 0
=========== =========== =========== =========== ==========
<CAPTION>
Gross Amount at Which Life
Carried at Close on Which
of Period December 31, 1999 Depreciation
---------------------- --------- --------------------------- -------- in Latest
Buildings Income
and Accumulated Date of Date Statement
Description-<FC> Land Improvements Total Depreciation Construction Acquired is Computed
---------------- ---- ------------ ----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL OFFICE BUILDINGS
Commerce Tower $ 919,920 $20,164,382 $ 21,084,302 $14,484,308 1965 1971 18 to 65 Years
811 Main 608,355 2,766,331 3,374,686 2,415,058 1959 1972 45 Years
UMB Bank-Clayton 1,113,734 8,310,720 9,424,454 225,083 1985 1998 40 Years
Barkley Place 871,000 5,002,591 5,873,591 801,893 1988 1994 40 Years
6601 College Boulevard 1,000,000 5,950,000 6,950,000 743,506 1979 1995 40 Years
9200 Cody Warehouse/
office 296,850 3,406,781 3,703,631 389,687 1973 1995 40 Years
9909 Lakeview Avenue 652,000 2,773,000 3,425,000 236,106 1987 1996 40 Years
9221 Quivera 290,738 1,193,130 1,483,868 118,092 1968 1996 40 Years
Other Rental Properties 10,998 43,345 54,343 40,999 Various Various 10 to 40 Years
----------- ----------- ------------ -----------
Sub-Total 5,763,595 49,610,280 55,373,875 19,454,732
APARTMENTS
New Mark Apartments,
210 Units 19,768 4,927,415 4,947,183 2,889,375 1969/1977 1971/1977 8 to 40 Years
New Mark Apartments III,
140 Units 649,374 5,371,807 6,021,181 303,731 1998 1998 40 Years
New Mark Apartments IV,
24 Units 44,240 1,082,695 1,126,935 7,505 1999 1999 40 Years
Hillsborough Apartments,
329 Units 1,161,740 12,493,462 13,655,202 2,006,913 1985 1992 40 Years
Peppertree Apartments,
162 Units 833,243 4,636,256 5,469,499 801,544 1986 1993 40 Years
----------- ----------- ------------ -----------
Sub-Total 2,708,365 28,511,635 31,220,000 6,009,068
PARKING FACILITIES
811 Main 149,096 1,213,979 1,363,075 1,349,419 1959/1996 1972/1996 15 to 45 Years
DRC Texaco & 711 Garage 501,513 1,032,056 1,533,569 195,931 1959/1997 15 Years
700 Baltimore lot 1,109,682 125,000 1,234,682 613,441 1959 1999 15 Years
Tower Garage 1,785,418 9,380,521 11,165,939 18,437 1999 1999 40 Years
Surface lots/8th, 9th &
Walnut parking 1,848,523 81,000 1,929,523 70,301 Various 1989 20 Years
----------- ----------- ------------ -----------
Sub-Total 5,394,232 11,832,556 17,226,788 2,247,529
----------- ----------- ------------ -----------
TOTALS $13,866,192 $89,954,471 $103,820,663 $27,711,329
=========== =========== ============ ===========
</TABLE>
-29-
<PAGE> 30
TOWER PROPERTIES COMPANY
NOTES TO SCHEDULE III
(A) An analysis of Rental Income Property for the three years ended
December 31, 1999 follows:
<TABLE>
<S> <C>
Balance, December 31, 1996 72,059,597
Net Additions during period -
Land 157,836
Building and Improvements 3,164,612
------------
Balance, December 31, 1997 75,382,045
Net Additions during period -
Land 2,210,712
Building and Improvements 14,568,741
------------
Balance, December 31, 1998 92,161,498
Net Additions during period -
Land 803,573
Building and Improvements 10,855,592
Balance, December 31, 1999 $103,820,663
============
</TABLE>
(B) An analysis of accumulated depreciation reserves applicable to Rental
Income Property for the three years ending December 31, 1999:
<TABLE>
<S> <C>
Balance, December 31, 1996 22,841,620
Net Additions during period -
Provision for depreciation 1,484,679
-----------
Balance, December 31, 1997 24,326,299
Net Additions during period -
Provision for depreciation 1,650,463
-----------
Balance, December 31, 1998 25,976,762
Net Additions during period -
Provision for depreciation 1,734,567
-----------
Balance, December 31, 1999 $27,711,329
===========
</TABLE>
[FN]
<FC> All of the real estate is located in Johnson County, Kansas, Clay,
St. Louis and Jackson County, Missouri.
-30-
<PAGE> 31
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
OFFICERS
James M. Kemper, Jr.
Chairman, and Chief Executive Officer
Thomas R. Willard
President
E. Gibson Kerr
Vice President
Robert C. Harvey III
Chief Financial Officer, Vice President and Secretary
Margaret V. Allinder
Vice President, Assistant Secretary and Controller
Daniel R. Ellerman
Vice President
-31-
<PAGE> 32
PRINCIPAL REAL ESTATE OF
TOWER PROPERTIES COMPANY
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
UMB Bank Building 6 story office building an
parking garage, 7911 Forsyth Blvd.,
Clayton, Missouri
6601 College Boulevard Office Building 6-story office building,
6601 College Blvd.
9221 Quivera Office Building 1-story office building,
9221 Quivera
9200 Cody Warehouse/Office Facility 120,900 square foot warehouse/
office facility
9909 Lakeview Avenue Warehouse 115,000 square foot warehouse
Tower Parking Garage 624 car parking garage
700 Baltimore surface parking lot 276 car surface parking lot
exchanged for 710 Main parking
garage in August, 1999
711 Main Parking Garage 258 car parking garage
New Mark Apartment Complex 350 apartments and an additional
24 apartments completed in 1999,
located at 100th and North Oak
Streets
New Mark Subdivision 110 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.
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, Clay, St. Louis
and Jackson County, Missouri.
-32-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 145,362
<SECURITIES> 3,809,718
<RECEIVABLES> 2,555,254
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,848,968
<PP&E> 114,118,832
<DEPRECIATION> 33,544,480
<TOTAL-ASSETS> 93,423,320
<CURRENT-LIABILITIES> 7,902,491
<BONDS> 53,967,080
0
0
<COMMON> 183,430
<OTHER-SE> 28,963,724
<TOTAL-LIABILITY-AND-EQUITY> 93,423,320
<SALES> 0
<TOTAL-REVENUES> 20,709,072
<CGS> 0
<TOTAL-COSTS> 20,587,285
<OTHER-EXPENSES> 7,643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,659,707
<INCOME-PRETAX> 121,787
<INCOME-TAX> 37,688
<INCOME-CONTINUING> 76,456
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,456
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.42
</TABLE>
