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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2002
------------------------------------
Commission File Number 0-18261
TOWER PROPERTIES COMPANY
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(Exact name of registrant as specified in its charter)
Missouri (43-1529759)
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(State of incorporation) (IRS tax number)
Suite 100, 911 Main Street, Kansas City, Missouri 64105
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
(816) 421-8255
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, at the close of the period covered by this report.
178,079 shares of common stock
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$1.00 par value per share, at October 18, 2002
INDEX
Page
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets 3
Consolidated Statements of Income - Nine months 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Income - Three months 6
Consolidated Statements of Cash Flow 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 14
ITEM 4. CONTROLS AND PROCEDURES 14
PART II OTHER INFORMATION 15
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS 15
SIGNATURES 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS
TOWER PROPERTIES COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
ASSETS 2002 2001
------------ ------------
(UNAUDITED)
Investment in Commercial Properties:
Rental Property, Net $ 71,642,165 $ 72,745,287
Tenant Leasehold Improvements, Net 3,672,197 3,657,280
Equipment and Furniture, Net 4,191,660 3,982,516
Construction in Progress 2,794,128 354,834
------------ ------------
Commercial Properties, Net 82,300,150 80,739,917
Real Estate Held for Sale 472,658 472,658
Cash and Cash Equivalents (Related Party) 2,997,320 3,827,520
Investments At Market (Related Party) 4,844,328 4,834,409
Receivables 2,186,459 2,162,624
Income Taxes Receivable 63,660 --
Prepaid Expenses and Other Assets 945,772 975,725
------------ ------------
TOTAL ASSETS $ 93,810,347 $ 93,012,852
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Liabilities:
Mortgage Notes $ 49,214,739 $ 50,879,886
Real Estate Bond Issue 6,400,000 6,400,000
Accounts Payable and Other Liabilities 2,652,441 1,642,007
Income Taxes Payable -- 136,813
Deferred Income Taxes 2,833,601 2,829,733
------------ ------------
Total Liabilities 61,100,781 61,888,439
Commitments and Contingencies
Preferred Stock, No Par Value
Authorized 60,000 Shares, None Issued -- --
Stockholders' Investment:
Common Stock, Par Value $1.00
Authorized 1,000,000 Shares, Issued
183,430 Shares 183,430 183,430
Paid-In Capital 18,479,547 18,478,511
Retained Earnings 12,341,188 10,674,040
Accumulated Other Comprehensive Income 2,428,282 2,422,232
------------ ------------
33,432,447 31,758,213
Less Treasury Stock, At Cost (4,616 and
4,112 shares in 2002 and 2001, respectively) (722,881) (633,800)
------------ ------------
Total Stockholders' Investment 32,709,566 31,124,413
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 93,810,347 $ 93,012,852
============ ============
See accompanying notes to the consolidated financial statements.
3
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
2002 2001
----------- -----------
REVENUES
Rent $15,747,410 $15,651,427
Rent, Related Party 1,464,180 1,290,964
Management and Service Fees 900 693
Management and Service Fees, Related Party 639,439 640,512
Gain on Sale of Real Estate -- 341,825
Interest and Other Income 177,130 176,543
Interest and Other Income, Related Party 154,103 114,456
----------- -----------
Total Revenues 18,183,162 18,216,420
----------- -----------
OPERATING EXPENSES
Operating Expenses 2,842,586 2,894,749
Maintenance and Repairs 3,870,743 3,352,264
Depreciation and Amortization 3,146,829 3,308,216
Taxes Other than Income 1,365,902 1,322,629
General, Administrative and Other 1,203,951 1,042,459
----------- -----------
Total Operating Expenses 12,430,011 11,920,317
OTHER EXPENSE
Interest 2,994,553 3,108,010
Interest, Related Party 25,567 381,591
----------- -----------
Income Before Provision for Income Taxes 2,733,031 2,806,502
PROVISION FOR INCOME TAXES 1,065,883 1,094,534
----------- -----------
NET INCOME $ 1,667,148 $ 1,711,968
=========== ===========
Earnings Per Share:
Basic $ 9.32 $ 9.52
=========== ===========
Diluted $ 9.31 $ 9.51
=========== ===========
Weighted Average Common Shares Outstanding:
Basic 178,846 179,914
=========== ===========
Diluted 179,158 179,942
=========== ===========
See accompanying notes to the consolidated financial statements.
4
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
UNAUDITED
Nine Month Ended Three Month Ended
9/30/2002 9/30/2001 9/30/2002 9/30/2001
---------- ---------- ---------- ----------
NET INCOME $1,667,148 $1,711,968 $ 18,463 $ 304,895
Unrealized holding gain (loss) on marketable
equity securities arising during the period 9,919 (576,265) (641,033) 85,023
Deferred income tax benefit (expense) (3,869) 224,743 250,003 (33,159)
---------- ---------- ---------- ----------
Comprehensive income $1,673,198 $1,360,446 $ (372,567) $ 356,759
========== ========== ========== ==========
See accompanying notes to the consolidated financial statements.
5
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
2002 2001
---------- ----------
REVENUES
Rent $4,907,201 $5,101,666
Rent, Related Party 497,261 433,379
Management and Service Fees 300 173
Management and Service Fees, Related Party 177,861 192,299
Gain on Sale of Real Estate -- (23,660)
Interest and Other Income 58,215 59,306
Interest and Other Income, Related Party 44,526 61,006
---------- ----------
Total Revenues 5,685,364 5,824,169
---------- ----------
OPERATING EXPENSES
Operating Expenses 1,041,970 993,185
Maintenance and Repairs 1,599,681 1,369,572
Depreciation and Amortization 1,084,611 1,081,244
Taxes Other than Income 461,965 443,789
General, Administrative and Other 468,257 369,625
---------- ----------
Total Operating Expenses 4,656,484 4,257,415
OTHER EXPENSE
Interest 981,873 1,057,509
Interest, Related Party 16,733 9,419
---------- ----------
Income Before Provision for Income Taxes 30,275 499,826
PROVISION FOR INCOME TAXES 11,811 194,931
---------- ----------
NET INCOME $ 18,464 $ 304,895
========== ==========
Earnings Per Share:
Basic $ 0.10 $ 1.70
========== ==========
Diluted $ 0.10 $ 1.70
========== ==========
Weighted Average Common Shares Outstanding:
Basic 178,825 179,812
========== ==========
Diluted 179,156 179,862
========== ==========
See accompanying notes to the consolidated financial statements.
6
TOWER PROPERTIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
2002 2001
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,667,148 $ 1,711,968
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 2,316,144 2,376,066
Amortization 830,684 932,150
Gain on Sale of Real Estate -- (341,825)
Treasury Shares Issued to Directors 9,800 7,680
Change in Balance Sheet Accounts, Net:
Account Receivable (23,835) (26,113)
Prepaid Expenses and Other Assets (16,241) (13,018)
Accounts Payable and Other Liabilities 1,010,433 (758)
Current Income Taxes (200,473) 700,489
------------ ------------
Net Cash Provided by Operating Activities 5,593,660 5,346,639
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Change in Construction in Progress (2,439,293) (14,482)
Proceeds from Sale of Real Estate -- 11,476,340
Additions to Equipment and Furniture, Net (902,966) (1,124,273)
Additions to Rental Property, Net (519,201) (262,533)
Additions to Leasehold Improvements, Net (799,407) (283,211)
Additions to Real Estate Held for Sale -- (76,204)
------------ ------------
Net Cash (Used in) Provided by Investing Activities (4,660,867) 9,715,637
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Mortgage Notes (1,665,147) (1,507,471)
Proceeds from Mortgage Notes -- 7,016,000
Net Change in Line of Credit -- (16,339,616)
Purchase of Treasury Stock (97,846) (205,617)
Additions to Loan Costs -- (110,142)
------------ ------------
Net Cash Used in Financing Activities (1,762,993) (11,146,846)
------------ ------------
NET INCREASE (DECREASE) IN CASH (830,200) 3,915,430
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,827,520 160,510
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,997,320 $ 4,075,940
============ ============
See accompanying notes to the consolidated financial statements.
7
TOWER PROPERTIES COMPANY AND SUBSIDIARIES
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The consolidated financial statements included herein have been prepared by
Tower Properties Company (the Company) and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") have been condensed or omitted, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K as
of and for the year ended December 31, 2001.
The Company is primarily engaged in owning, developing, leasing and
managing real property located in Johnson County, Kansas and Clay, Jackson and
St. Louis County, Missouri. Substantially all of the improved real estate owned
by the Company and its subsidiaries consists of office buildings, apartment
complexes, a warehouse and a warehouse/office facility, parking facilities and
land held for future sale or development.
2. Interest of $1,467 and $7,892 was capitalized during the first nine months of
2002 and 2001, respectively. Interest of $1,467 and $0 during the three months
ended September 30, 2002 and 2001, respectively.
3. Interest paid during the nine months of 2002 and 2001 for long-term mortgages
amounted to $2,929,754 and $2,934,679, respectively. Interest paid to related
party was $28,525 and $389,545 for the first nine months of 2002 and 2001,
respectively. Income taxes paid during the first nine months of 2002 and 2001
amounted to $1,266,356 and $884,000, respectively.
4. Under SFAS No. 115, the investment in Commerce Bancshares, Inc. common stock
is classified as "available for sale", and is recorded at fair value. The
unrealized gain of $3,980,791 net of tax effects of $1,552,508 is reflected as a
separate component of equity. There was an increase in the net unrealized
holding gain for the nine months from January 1, 2002 to September 30, 2002, of
$6,050, net of deferred taxes, and a decrease in the net unrealized holding gain
of $391,030, net of deferred taxes, for the three months from July 1, 2002 to
September 30, 2002.
5. The Company has outstanding construction commitments of $17,000,000 for
construction of Phase V New Mark apartments and construction commitments of
$7,000,000 for the expansion of the 811 Garage as of September 30, 2002. There
has been $626,000 and $934,000 paid respectively, through September 30, 2002.
The projects began in the third quarter of 2002 and will be completed in the 2nd
quarter of 2004 and the 3rd quarter of 2003, respectively.
8
6. 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 nine months ended September
30, 2001 and 2001:
--------------------------------------------------------------------
SEPTEMBER 30, 2002
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COMMERCIAL CORPORATE
OFFICE APARTMENTS PARKING AND OTHER TOTAL
----------- ----------- ----------- ----------- -----------
REVENUE FROM EXTERNAL CUSTOMERS 11,305,759 4,421,632 867,434 1,588,337 18,183,162
INTEREST EXPENSE 1,577,443 1,081,781 -- 360,896 3,020,120
DEPRECIATION AND AMORTIZATION 1,713,820 957,849 109,365 365,795 3,146,829
SEGMENT INCOME (LOSS) BEFORE TAX 2,417,391 (509,888) 261,676 563,852 2,733,031
CAPITAL EXPENDITURES BY SEGMENT 1,499,673 471,525 193,684 56,692 2,221,574
IDENTIFIABLE SEGMENT ASSETS 49,354,617 24,262,163 2,464,540 17,729,027 93,810,347
--------------------------------------------------------------------
SEPTEMBER 30, 2001
--------------------------------------------------------------------
COMMERCIAL CORPORATE
OFFICE APARTMENTS PARKING AND OTHER TOTAL
----------- ----------- ----------- ----------- -----------
REVENUE FROM EXTERNAL CUSTOMERS 10,448,788 4,838,062 1,406,316 1,523,254 18,216,420
INTEREST EXPENSE 1,708,824 1,136,962 132,694 511,121 3,489,601
DEPRECIATION AND AMORTIZATION 1,810,134 918,688 220,310 359,054 3,308,216
SEGMENT INCOME (LOSS) BEFORE TAX 1,989,489 162,954 487,258 166,801 2,806,502
CAPITAL EXPENDITURES BY SEGMENT 1,288,702 279,298 222 177,999 1,746,221
IDENTIFIABLE SEGMENT ASSETS 47,250,558 25,675,886 2,152,674 18,167,364 93,246,482
9
Following is information for each segment for the three months ended September
30, 2001 and 2001:
--------------------------------------------------------------------
SEPTEMBER 30, 2002
--------------------------------------------------------------------
COMMERCIAL CORPORATE
OFFICE APARTMENTS PARKING AND OTHER TOTAL
----------- ----------- ----------- ----------- -----------
REVENUE FROM EXTERNAL CUSTOMERS 3,502,876 1,429,507 279,277 473,203 5,685,363
INTEREST EXPENSE 520,676 355,683 -- 122,247 998,606
DEPRECIATION AND AMORTIZATION 589,702 326,241 43,446 125,222 1,084,611
SEGMENT INCOME (LOSS) BEFORE TAX 313,669 (489,776) 70,401 126,980 30,274
CAPITAL EXPENDITURES BY SEGMENT 826,317 327,378 183,169 21,770 1,358,634
IDENTIFIABLE SEGMENT ASSETS 49,354,617 24,262,163 2,464,540 17,729,027 93,810,347
--------------------------------------------------------------------
SEPTEMBER 30, 2001
--------------------------------------------------------------------
COMMERCIAL CORPORATE
OFFICE APARTMENTS PARKING AND OTHER TOTAL
----------- ----------- ----------- ----------- -----------
REVENUE FROM EXTERNAL CUSTOMERS 3,464,049 1,616,132 243,866 500,122 5,824,169
INTEREST EXPENSE 541,677 374,446 -- 150,805 1,066,928
DEPRECIATION AND AMORTIZATION 619,098 310,721 27,528 123,897 1,081,244
SEGMENT INCOME (LOSS) BEFORE TAX 573,775 (209,959) 59,439 76,571 499,826
CAPITAL EXPENDITURES BY SEGMENT 278,510 129,473 222 47,930 456,135
IDENTIFIABLE SEGMENT ASSETS 47,250,558 25,675,886 2,152,674 18,167,364 93,246,482
7. PROFORMA INFORMATION
On June 20, 2001, the Company sold the Tower Garage to a subsidiary of Commerce
Bancshares, Inc. The unaudited pro forma information below presents the results
of operations without the Tower Garage for the three and nine months ended
September 30, 2001. This pro forma operating results are not necessarily
indicative of what the actual results would have been had the Tower Garage been
sold on January 1, 2001.
Unaudited
---------------------------------
9 months ended 3 months ended
--------------- ---------------
9/30/01 09/30/01
--------------- ---------------
Total Revenue $ 17,652,507 $ 5,863,336
Net Income 1,799,207 328,787
Basic earnings per share $ 9.99 $ 1.83
10
ITEM 2. 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 $12,490,000 line of credit with Commerce Bank, N.A. Commerce Bank has
issued $6,721,000 in letters of credit resulting in $5,769,000 available under
the line at September 30, 2002. At September 30, 2002, the Company had no
outstanding borrowings on the line of credit. This line of credit has been
extended at market rates and terms and management believes the Company could
obtain similar financing arrangements if the Company's relationship with
Commerce Bank, N.A. did not exist. The Company does not utilize any off-balance
sheet financing or leasing transactions of any kind.
Cash provided by operations during the nine months ended September 30, 2002 was
$5,593,660, approximately $247,021 higher than the same period ended September
30, 2001 primarily because of increased net income. Investing activities used
$4,660,867 of cash, primarily due to an increase in capital expenditures.
Financing activities used $1,762,993. The Company has not experienced liquidity
problems during the nine months ended September 30, 2002. The Company does not
anticipate any difficulties in meeting its liquidity needs currently or in the
foreseeable future. The Company has cash on hand of $2,997,320 at September 30,
2002, the credit line described above and cash generated by future operations.
The decrease in cash and cash equivalents is due to changes in the level of
capital expenditures and financing activities in the respective periods, offset
by an increase in cash flows from operating activities, primarily due to the
lease buyout of Kaiser and DEA at our Barkley Place and UMB commercial office
buildings and changes in accounts receivable and current liabilities. Management
believes the Company's current cash position and the properties' ability to
provide operating cash flow should enable the Company to fund anticipated
capital expenditures and service debt in 2002.
The Company's commercial properties are continually evaluated for impairment.
Impairment analyses are based primarily upon current and expected future cash
flows generated by the properties. If future cash flows are negative, it is
possible that properties could become impaired. The Company's lease expirations
for 2002 are not expected to impair any asset values, and the Company expects to
lease available property space in the normal course of business over a
reasonable period of time.
11
RELATED PARTY TRANSACTIONS
The Company has a variety of related party transactions with Commerce. In
addition to the borrowing arrangement described above, the Company has the
following transactions with Commerce:
o Rentals - The Company leases space to Commerce Bank and its
affiliates. Total rental income derived from these leases for
the nine months ended September 30, 2002 was $1,464,180 and
$497,261 for the three months ended September 30, 2002. Such
leases contain lease rates and other provisions similar to
those of other leases with unrelated parties.
o Management fees - The Company manages certain properties owned
by Commerce under property management agreements. In addition,
the Company is overseeing the rehabilitation of the Commerce
Trust Building. Total fees earned under these arrangements
were $639,439 for the nine months ended September 30, 2002.
Total fees earned for the three months ended September 30,
2002 was $177,861. The Company provides similar services to
unrelated parties and revenues earned under these arrangements
are similar to those earned from other unrelated parties.
o Interest and other income - The Company owns 123,991 shares of
Commerce Bancshares common stock and received dividend income
of approximately $60,000 on such shares through September,
2002 and $20,000 for the three months from July 1, 2002 to
September 30, 2002. In addition, excess funds are deposited in
Commerce Bank, N.A. Interest earned on such deposits
aggregated approximately $68,000 for the nine months and
$18,000 for the three months ended September 30, 2002. The
Company may earn lease commissions and consulting fees on
property owned by or rented by Commerce under a listing
agreement. Total fees earned under these arrangements were
approximately $26,000 for the nine months and $7,000 for the
three months ended September 30, 2002. The Company provides
similar services to unrelated parties and revenues earned
under these arrangements are similar to those earned from
other unrelated parties.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Total revenue decreased $33,258. The lease buyout of tenants at the
Barkley Place and UMB commercial office building for $1,450,000, and an increase
in monthly parking at the 811 Main Garage, offset by the sale of the Tower
Garage in June, 2001, the vacancy of the 9221 Quivira commercial office building
and an increase in vacancy at the apartment complexes resulted in an $269,199
increase in rental income.
Management and service fees increased primarily due to the increase in
construction fees charged for the Trust Building renovation to date, which is
based on invoices billed and processed.
The decrease in the gain on sale of real estate is due to the sale of
the Tower Garage in June, 2001. Real estate commissions earned of $62,442 in
2002 and an increase in cash invested in short term investments accounts for the
increase in interest and other income.
Operating expenses decreased due to a decrease in utilities, offset by
an increase in salaries. Maintenance and repairs increased due to repairs and
snow removal at our apartment complexes, repairs, including caulking, and
elevator and escalator repairs at the Commerce
12
Tower, duct cleaning at the Barkley Place commercial office building, and an
increase in security costs at the 811 Main and Commerce Tower.
Depreciation and amortization decreased primarily due to the sale of
the Tower Garage in June 2001. The change in taxes other than income represents
the increase in real estate taxes of the Woodlands Plaza #1 commercial office
building and the undeveloped land at New Mark, offset by the sale of the Tower
Garage.
General, administrative and other also increased due to an increase in
lease expense in the Commerce Tower commercial office building, an increase in
advertising at our apartment complexes, and an increase in our property and
liability insurance, offset by a decrease in our professional fees and auditing
and accounting fees.
Interest expense, including related party, decreased due to the
decrease in the related party line of credit which was reduced due to the
financing in March, 2001 of the Woodlands Plaza #1 commercial office building
and the pay off of the line of credit due after the sale of the Tower Garage in
June, 2001.
THREE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 2001
Total revenue decreased $138,805. The decrease in occupancy at the
Barkley Place, the vacancy of the 9221 Quivira commercial office building and
the decrease in occupancy at the apartment complexes, offset an increase in
monthly parking at the 811 Main Garage and the lease buyout of the DEA at our
UMB commercial office building resulted in an $130,583 increase in rental
income.
Management and service fees decreased primarily due to the decrease in
construction fees, offset by an increase in management fees due to an additional
adjustment billing.
The decrease in interest and other income is primarily the increase in
real estate commissions earned in the 3rd quarter of 2002 offset by the decrease
in other income as compared to the same period in 2001.
Operating expenses increased primarily due to a slight increase in
salaries and benefits as compared to 2001. Maintenance and repairs increased for
this period due to the following: an increase in repairs, duct cleaning at our
Barkley Place commercial office building, caulking and escalator repairs at our
Commerce Tower commercial office building and an increase in repairs at two of
our apartment complexes, trim painting, electrical and parking lot repairs at
New Mark, parking lot repairs and painting of our Peppertree apartments, offset
by the 2001 painting at Hillsborough.
Depreciation and amortization increased slightly due to a decrease in
amortization and an increase in depreciation for furniture and equipment as
compared to the same period in 2001. The change in taxes other than income
represents the increase in real estate taxes of the Woodlands Plaza #1
commercial office building, offset by the sale of the Tower Garage.
General, administrative and other also increased due to an increase in
advertising and leasing, and increase in our property and liability insurance,
offset by a decrease in professional fees.
Interest expense decreased primarily due to the decrease in interest
paid on long term mortgages for the quarter as compared to the same period in
2001.
13
EFFECT OF NEW ACCOUNTING PRONOUNCEMENT
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of
Long-Lived Assets". This statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. While this statement
supersedes SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of" it retains many of the fundamental
provisions of that statement. This statement also supersedes the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for
the disposal of a segment of a business. However, it retains the requirement in
Opinion No. 30 to report separately discontinued operations and extends that
reporting to a component of an entity that either has been disposed of (by sale,
abandonment, or in a distribution to owners) or is classified as held for sale.
SFAS 144 is effective for fiscal years beginning after December 14, 2001, and
was adopted by the Company in the first quarter of 2002. The adoption of SFAS
144 did not have a material impact the Company's financial position and results
of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to various market risks, including equity
investment prices and interest rates.
The Company has 123,991 shares of common stock of Commerce
Bancshares, Inc. with a fair value of $4,844,328 as of September 30, 2002. This
investment is not hedged and is 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 move
consistently with trends and movements of the overall stock market excluding any
unusual situations. An immediate 10% change in the market price of the
securities would have a $296,000 effect on comprehensive income.
The Company has approximately $6,400,000 of variable rate debt as of
September 30, 2002. A 100 basis point change in each debt series benchmark would
impact net income on an annual basis by approximately $39,000. This debt is not
hedged.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the management of the
Company, including the Company's chief executive officer and chief financial
officer, the Company's management has evaluated the effectiveness of the design
and cooperation of the Company's disclosure controls and procedures within 90
days of the filing date of this quarterly report, and, based on their
evaluation, the Company's chief executive officer and chief financial officer
have concluded that these controls and procedures are effective. There were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.
14
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings
incident to the business of the Company, which would involve amounts in the
aggregate which management believes are material to the balance sheets or
statements of income.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit 99.1 - Certification of James M. Kemper, Jr., pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, dated November 14, 2002.
Exhibit 99.2 - Certification of Robert C. Harvey, III, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, dated November 14, 2002.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWER PROPERTIES COMPANY
/s/ Thomas R. Willard
- ------------------------------------------
Thomas R. Willard
President
/s/ Robert C. Harvey, III
- ------------------------------------------
Robert C. Harvey, III
Vice President and Chief Financial Officer
Date: November 14, 2002
16
CERTIFICATION
I, James M. Kemper, Jr., certify that:
1. I have reviewed this quarter report on Form 10-Q of Tower Properties
Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant is made known to us by others within those
entities, particularly during the period in which
this quarterly report is being prepared:
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
(a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ James M. Kemper, Jr.
--------------------------
November 14, 2002 Chief Executive Officer
17
CERTIFICATION
I, Robert C. Harvey, III, certify that:
7. I have reviewed this quarter report on Form 10-Q of Tower
Properties Company;
8. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report.
9. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows the registrant
as of, and for, the periods presented in this quarterly
report;
10. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant is
made known to us by others within those
entities, particularly during the period in
which this quarterly report is being
prepared:
(b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this quarterly report
(the "Evaluation Date"); and
(c) presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
11. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors:
(a) all significant deficiencies in the design
or operation of internal controls which
could adversely affect the registrant's
ability to record, process, summarize and
report financial data and have identified
for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls; and
12. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Robert C. Harvey, III
---------------------------
November 14, 2002 Chief Financial Officer
18