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
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended October 1, 1995
Commission File Number 0-24714
KAHLER REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1784272
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20 SW 2nd Avenue, Rochester, MN 55902
(Address of principal executive offices) (Zip Code)
(507) 285-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (2) 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
such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the Registrant's common stock as of
October 1, 1995 was:
Common Stock, $.10 par value - 4,229,192 shares
KAHLER REALTY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
October 1, 1995
PAGE
NUMBER
Index to Report . . . . . . . . . . . . . . . . . . . . . . . 1
Part 1. Financial Information
Consolidated Balance Sheets -
October 1, 1995 and January 1, 1995 . . . . . . . . . . 2 - 3
Consolidated Statements of Operations -
Third Quarter Ended and Nine Months Ended
October 1, 1995 and October 2, 1994 . . . . . . . . . . 4
Consolidated Statements of Cash Flow -
Nine Months Ended
October 1, 1995 and October 2, 1994 . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . 6 - 8
Management's Discussion and Analysis of
Results of Operations and Financial Condition . . . . . 8 - 14
Part II. Other Information
Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART I. FINANCIAL INFORMATION Page 2
KAHLER REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(unaudited)
October 1, January 1,
1995 1995
ASSETS
CURRENT ASSETS
Cash $ 2,881 $ 1,110
Receivables:
Trade, less allowance for doubtful
accounts of $257 and $252, respectively 6,680 5,333
Current portion of notes receivable 151 150
Inventories 2,610 2,498
Prepaid expenses 462 265
Total current assets 12,784 9,356
OTHER ASSETS
Notes receivable, primarily from affiliates 1,338 1,423
Investment in and advances to affiliates 4,225 3,279
Debt service reserve fund 750 750
Intangibles 739 791
Other 2,546 1,823
Total other assets 9,598 8,066
PROPERTY AND EQUIPMENT
Land and improvements 17,026 16,349
Buildings 141,769 136,967
Equipment 49,187 46,977
Formal wear apparel 5,807 4,735
Total 213,789 205,028
Less accumulated depreciation 60,723 54,281
153,066 150,747
Construction in progress 2,044 -
Total property and equipment 155,110 150,747
TOTAL ASSETS $ 177,492 $ 168,169
See Notes to Consolidated Financial Statements
PART I. FINANCIAL INFORMATION Page 3
KAHLER REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(unaudited)
October 1, January 1,
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 9,629 $ 8,559
Accrued liabilities:
Payroll and payroll related liabilities 4,023 2,473
Real estate taxes 3,106 1,996
Other taxes 1,937 806
Notes payable 3,250 5,300
Current portion of long-term debt 2,865 2,767
Current portion of subordinated debt
due to affiliate 500 500
Total current liabilities 25,310 22,401
LONG-TERM DEBT
Obligations of Kahler Realty Corporation 98,526 94,942
Obligations of Subsidiaries - Nonrecourse
to Kahler Realty Corporation 26,508 26,517
Total long-term debt 125,034 121,459
OTHER DEFERRED LIABILITIES
Deferred revenue 131 137
Other 1,379 1,401
Total other deferred liabilities 1,510 1,538
COMMITMENTS AND CONTINGENCIES
SUBORDINATED DEBT DUE TO AFFILIATE 1,000 1,500
STOCKHOLDERS' EQUITY
Common stock, par value $.10
Authorized - 70,000,000 shares;
Issued and outstanding - 4,229,192
and 4,167,598, respectively 423 417
Additional paid-in capital 13,330 13,030
Retained earnings 11,052 7,991
Minimum pension liability adjustment (167) (167)
Total stockholders' equity 24,638 21,271
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 177,492 $ 168,169
See Notes to Consolidated Financial Statements
PART I. FINANCIAL INFORMATION Page 4
KAHLER REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
(unaudited)
Third Quarter Ended Nine Months Ended
October 1 October 2 October 1 October 2
1995 1994 1995 1994
REVENUES
Revenue of owned operations $ 31,143 $ 28,000 $ 93,009 $ 84,345
Other properties managed and/or
partially owned 5,328 4,672 13,690 13,248
Total revenues $ 36,471 $ 32,672 $ 106,699 $ 97,593
REVENUE OF OWNED OPERATIONS
Lodging- rooms $ 15,956 $ 13,980 $ 47,264 $ 41,881
- food and beverage 7,838 6,979 23,919 21,480
- other 3,046 2,552 8,934 7,767
Formal wear, laundry & other 4,163 4,255 12,528 12,700
Interest income 140 234 364 517
Total revenue of owned operations 31,143 28,000 93,009 84,345
OPERATING COSTS AND EXPENSES
Lodging- rooms 4,004 3,536 11,592 10,329
- food and beverage 6,156 5,482 18,918 17,024
- other 10,219 8,811 29,385 25,929
Formal wear, laundry & other 3,087 3,266 9,755 10,460
Corporate expenses 1,059 893 2,973 2,587
Depreciation and amortization 2,287 2,140 6,725 6,438
Total operating costs and expenses 26,812 24,128 79,348 72,767
GROSS OPERATING PROFIT 4,331 3,872 13,661 11,578
Interest expense (3,087) (2,929) (9,147) (8,177)
Equity earnings of affiliates 278 152 569 250
Gain (Loss) on sale of assets (4) 12 (35) 23
INCOME FROM OPERATIONS BEFORE INCOME TAXES 1,518 1,107 5,048 3,674
Provision for income taxes 471 330 1,565 1,100
NET INCOME $ 1,047 $ 777 $ 3,483 $ 2,574
PRIMARY INCOME PER COMMON SHARE $ .24 $ .19 $ .81 $ .62
FULLY DILUTED INCOME PER COMMON SHARE $ .24 $ .19 $ .81 $ .62
See Notes to Consolidated Financial Statements.
PART I. FINANCIAL INFORMATION Page 5
KAHLER REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in Thousands)
(unaudited)
Nine Months Nine Months
Ended Ended
October 1, 1995 October 2, 1994
OPERATIONS:
Net income $ 3,483 $ 2,574
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,725 6,438
Common stock issued under employee benefit plans 107 6
Equity in earnings of affiliates (569) (250)
Loss (Gain) on sale of assets 35 (23)
Change in current assets and current liabilities
Receivables (1,347) (1,716)
Inventories (112) (66)
Prepaid expenses (197) (86)
Accounts payable 1,070 244
Accrued liabilities 3,791 2,460
Net cash provided by operating activities 12,986 9,581
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (10,931) (10,675)
Proceeds from sale of property and equipment 4 50
Payment received on notes receivable 84 172
Investment in and advances to affiliates (657) -
Payments received from affiliates 280 280
Payments for intangible assets (24) (61)
Increase in other assets (843) (782)
Net cash used in investing activities (12,087) (11,016)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to preferred shareholders - (224)
Dividends paid to common shareholders (422) (224)
Proceeds from issuance of common stock 199 1,273
Proceeds from new long-term debt and notes payable 5,298 3,809
Principal payments on subordinated debt (500) -
Principal payments on long-term debt (1,625) (1,997)
Net borrowings (payments) under line-of-credit
agreements and short-term notes payable (2,050) 975
Decrease in other liabilities (28) (155)
Net cash provided by financing activities 872 3,457
INCREASE IN CASH 1,771 2,022
CASH AT BEGINNING OF THE PERIOD 1,110 984
CASH AT END OF PERIOD $ 2,881 $ 3,006
See Notes to Consolidated Financial Statements
PART I. FINANCIAL INFORMATION Page 6
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Third Quarter Ended
October 1, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. They do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to consolidated
financial statements included in the Annual Report on Form 10-K of Kahler
Realty Corporation and subsidiaries (the Company) for the year ended
January 1, 1995. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the first nine months ended
October 1, 1995 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1995.
2. All comparative data reflects application of consistent accounting
principles and contains no prior period adjustments.
3. Revenues of the Company are classified into two components. The Company
uses this presentation to show the total scope of the Company's operations.
The components of revenue are:
Revenue of owned operations include revenues from lodging properties in
which the Company has an interest greater than 50%, management fees
generated from properties partially-owned (50% or less) and properties
owned by others. Also included are revenues from Anderson's Formal Wear,
Textile Care Services and interest income.
Other properties managed and/or partially-owned includes all revenue of
properties partially-owned (50% or less) by the Company and the properties
managed for others. Under generally accepted accounting principles, this
revenue is not included in revenue of owned operations and the Company's
interest in partially-owned properties is reflected in the Consolidated
Statements of Operations as equity earnings of affiliates.
4. Supplemental disclosure of cash flow information.
Cash paid (received) for:
Nine Months Ended Nine Months Ended
October 1, 1995 October 2, 1994
Interest paid $ 9,275 $ 7,777
Interest received (348) (590)
Income taxes 702 669
5. Income per share is computed on a primary share basis using the weighted
average number of outstanding common shares plus common stock equivalents
aggregating 4,340,000 and 3,926,000 for the third quarter of 1995 and 1994,
respectively, and 4,317,000 and 3,832,000 for the nine months ended October
1, 1995 and October 2, 1994.
Income per share for the nine months ended October 1, 1995 is presented on
a fully diluted basis using the weighted average number of outstanding common
shares plus stock equivalents aggregating 4,340,000. Income per share
computed on a fully diluted basis for the third quarter of 1995 and 1994 and
the nine months ended October 2, 1994 is the same as on a primary share
basis.
PART I. FINANCIAL INFORMATION Page 7
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Third Quarter Ended
October 1, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
6. The Board of Directors during the third quarter of 1995 and 1994 declared
quarterly dividends of $.04 and $.02 per share to common shareholders of
record on October 2, 1995 and October 1, 1994, respectively. These dividends
totaling $169 and $82 were paid October 24, 1995 and October 21, 1994. Year
to date 1995 and 1994, the Company paid dividends of $.10 per share, and
$.06 per share, to common shareholders for a total dividend of $422 and
$224, respectively.
During the third quarter of 1994, the Company paid a quarterly dividend of
$0.5625 per share to preferred shareholders of record on September 14, 1994.
This dividend, totaling $65, was paid on September 15, 1994. Year to date
1994, the Company paid dividends of $1.6875 per share to preferred
shareholders for a total dividend of $224. All preferred shareholders
converted their outstanding preferred shares to common stock during 1994.
These dividends have been accounted for as a reduction to retained earnings.
7. Investment in and advances to affiliates represent the Company's
proportionate share of the affiliates' assets and liabilities as adjusted to
reflect the effect of any basis differences. The Company or its subsidiaries
typically serve as a general partner or limited partner of the partnership
and operate the hotels under long-term management contracts.
Ownership October 1, October 2,
Equity investments Interests 1995 1994
Provo Park Hotel, Provo, UT 50.0% $ 3,468 $ 3,221
Best Western Copper King Park
Hotel, Butte, MT 32.9% 632 -
Kahler Park Hotel, Hibbing, MN 25.0% 125 150 Quality Hotel Plaza One,
Rock Island, IL 26.6% - 58
$ 4,225 $ 3,429
The 32.9% equity interest in the 150 room Best Western Copper King Park Hotel
was acquired in the third quarter of 1995.
Combined summarized balance sheet information for the Company's affiliates is
as follows:
Current assets $ 1,596 $ 949
Noncurrent assets 19,767 15,643
Current liabilities 1,887 1,272
Long-term debt, principally mortgages 11,793 9,295
Other long-term liabilities 1,311 1,302
Owner's equity 6,372 4,723
PART I. FINANCIAL INFORMATION Page 8
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Third Quarter Ended
October 1, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Nine Months Ended
October 1, 1995 October 2, 1994
The Company's income from affiliates
before taxes is as follows:
Management fees $ 312 $ 253
Equity in net earnings 569 250
$ 881 $ 503
Combined summarized operating results
reported by these affiliates
are as follows:
Revenues $ 10,353 $ 8,473
Net income 856 196
8. On August 1, 1995 the Company acquired the 112 room full-service Canyon
Springs Park Hotel in Twin Falls, Idaho. The purchase was financed with a
first mortgage of $3.8 million, a note payable to the seller of $400 and
$1.6 million from available cash and lines of credit.
On July 1, 1995, the Company acquired a 32.9% equity interest and took over
the operating responsibility of the 150 room full-service Best Western
Copper King Park Hotel in Butte, Montana.
In April 1995, construction of a 108 room expansion of the Boise Park Suites
Hotel began. Substantially all of the remaining construction cost will be
paid for with a $4.9 million construction and permanent loan.
The Company continues to study the possibility of converting to a real
estate investment trust simultaneously with a public offering of its common
shares. In the event the offering is not completed, offering costs incurred
will be borne by the Company. Offering costs incurred to date are $660.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
General
The management's discussion and analysis of financial condition and results
of operations set forth below follows the presentation of the Company's
Consolidated Statements of Operations. This discussion should be read in
conjunction with this statement and the other Consolidated Financial
Statements and Notes thereto appearing in this Form 10-Q.
Revenues of the Company are classified into two components which are defined
in Note 3 of the Notes to Consolidated Financial Statements. The Company
uses this presentation to show the total scope of the Company's operations.
PART I. FINANCIAL INFORMATION Page 9
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Third Quarter Ended
October 1, 1995
The Company's principal business is the ownership and management of hotel
properties. The following table sets forth certain financial information
from owned operations for the lodging segment, stating the lodging revenue
components as a percentage of total lodging revenue, for the periods
indicated.
Third Quarter First Nine Months
1995 1994 1995 1994
Room revenue 59.4% 59.5% 59.0% 58.9%
Food and beverage revenue 29.2 29.7 29.9 30.2
Other - Golf, rents, phone, etc. 10.7 10.3 10.5 10.4
- Management fees .7 .5 .6 .5
Total lodging revenues 100.0 100.0 100.0 100.0
Lodging operating expenses 75.9 75.8 74.8 74.9
Lodging operating income before
interest, depreciation and
corporate expenses 24.1% 4.2% 25.2% 25.1%
The Company's operations have benefitted from the addition of new management
contracts and the acquisition of new properties. In January 1995, the
Company entered into a management contract with a 127 room property in
Waverly, Iowa. The Company acquired a 32.9% interest in and management
contract with the 150 room Best Western Copper King Park Hotel in Butte,
Montana in July, 1995. In August 1995, the Company acquired the Best Western
Canyon Springs Park Hotel in Twin Falls, Idaho, a 112 room property. In March
1994, the Company acquired Pocatello Park Quality Inn which is a 152 room
property in Pocatello, Idaho. In December 1994, the Company acquired the
Green Oaks Inn and Conference Center in Fort Worth, Texas which it had managed
since 1990.
The following table sets forth certain operating data for the hotels owned and
managed by the Company:
Hotel Operating Data:
Third Quarter First Nine Months
1995 1994 1995 1994
Number of Hotels, period end 22 19 22 19
Room Nights Available 427,235 393,083 1,239,338 1,166,919
Occupancy 72.8% 71.2% 68.7% 67.4%
Average Daily Room Rate
per Occupied Room $ 62.42 $ 60.99 $ 65.39 $ 63.89
Average Daily Revenue
per Available Room $ 45.43 $ 43.41 $ 44.91 $ 43.07
PART I. FINANCIAL INFORMATION Page 10
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Third Quarter Ended
October 1, 1995
Results of Operations
This discussion should be read in conjunction with the Consolidated Statements
of Operations.
Lodging
Total lodging revenue for the third quarter and first nine months of 1995
increased by $3.3 million and $9.0 million or 14.2% and 12.6% compared to the
same periods in 1994. These increases are primarily the result of
acquisitions subsequent to the first nine months in 1994, which are outlined
above. The Company's room revenues also increased due to increased
occupancies and higher rates. The Company's occupancy percentage increased
from 71.2% to 72.8% in the third quarter and from 67.4% to 68.7% for the first
nine months of 1995 compared with the same periods in 1994. The Company's
hotels in the intermountain west states of Utah, Arizona and Idaho, and the
conference center hotel in Texas primarily generated the increase in average
daily room rate and occupancy. This is a result of strong economies in these
areas and good marketing efforts by the Company.
Food and beverage revenues increased by $859 and $2.4 million or 12.3% and
11.4% when comparing the third quarter and the first nine months of 1995 with
the same periods in 1994. This is primarily the result of acquiring new hotel
properties as discussed above.
Lodging operating costs and expenses in the third quarter of 1995 increased
by $2.6 million from $17.8 million to $20.4 million and increased for the
first nine months of 1995 by $6.6 million from $53.3 million to $59.9 million
when comparing the same periods in 1994. This again is primarily due to the
acquisition of new hotel properties.
The gross operating margin for lodging decreased to 24.1% from 24.2% in the
third quarter and increased to 25.2% from 25.1% for the first nine months of
1995 when comparing the same periods in 1994.
Formal Wear, Laundry and Other
Formal wear revenues increased 4.3% to $2.6 million from $2.5 million in the
third quarter and increased by 4.1% to $7.6 million from $7.3 million for the
first nine months when comparing 1995 and 1994. The third quarter of 1995
improvement resulted from an increase in the volume of units shipped of 1.4%
and an increase of revenue per unit of 2.1%. The first nine months of 1995
improvement resulted from an increase in the volume of units shipped of 1.7%
and an increase of revenue per unit of 1.6%.
Formal wear operating expenses increased $219 and $451 or approximately 12.8%
and 8.3% when comparing the third quarter and the first nine months of 1995
to the same periods a year ago. The increases are primarily for employee
related expenses and increases in rental expense for the retail stores. As
a percentage of revenue, formal wear expenses increased in the third quarter
to 73.6% from 68.1% and for the first nine months increased to 76.9% from
73.9% for 1995 when compared with the same periods in 1994.
PART I. FINANCIAL INFORMATION Page 11
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Third Quarter Ended
October 1, 1995
Laundry revenues for third quarter of 1995 decreased 12.8% to $1.4 million
from $1.6 million and decreased for the first nine months of 1995 by 9.3% to
$4.4 million from $4.9 million in 1994. This decrease was primarily the
result of downsizing the Utah laundry facility in the fourth quarter of 1994.
This downsizing was the result of the Company's efforts to discontinue laundry
services for unprofitable products and accounts. Offsetting this decrease was
an increase in revenues at the Rochester facility of approximately 3.3% for
the first nine months.
Laundry operating expenses for the third quarter decreased as a percentage of
laundry revenue to 73.8% in 1995 from 90.3% in 1994. For the first nine
months of 1995 operating expenses decreased to 78.6% from 95.0% as a
percentage of revenue compared to 1994. The decreases are primarily due to
greatly improved efficiencies associated with the laundry facility in
Rochester, which opened in April 1993. Productivity measured in pounds
produced per labor hour at the Rochester facility increased to 92.1 in 1995
as compared to 64.8 in 1994, a 42.1% improvement. Also contributing to this
improvement was the downsizing at the Utah facility which was mentioned above.
Interest Income
Interest income for third quarter of 1995 decreased by $94 from 1994 and for
the first nine months decreased $153 in 1995. This resulted primarily from
an increase in interest income from a guarantee agreement with the mortgagor
of the Salt Lake Hilton which was offset by the consolidation of the Green
Oaks Inn & Conference Center which was acquired at the end of 1994. Prior to
the acquisition, the Company held a mortgage receivable and recognized
interest income.
Corporate Expenses
Corporate expenses, primarily professional fees and employee related expenses,
increased in the third quarter by $166 and increased in the first nine months
by $386 when compared with the same periods in 1994.
Depreciation and Amortization
Depreciation and amortization increased to $2.3 million from $2.1 million when
comparing 1995 and 1994 third quarters. Comparing the first nine months for
the same years, depreciation and amortization increased to $6.7 million from
$6.4 million. This is primarily the result of acquiring new hotel properties
as discussed above.
Interest Expense
Interest expense for third quarter and the first nine months for 1995
increased by $158 and $970 respectively when compared to the same periods in
1994. The increase in the amount of interest expense is attributed to the
increase in the prime lending rate, and the debt associated with the
acquisition of Pocatello Park Quality Inn Hotel and Best Western Canyon
Springs Park Hotel.
PART I. FINANCIAL INFORMATION Page 12
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Third Quarter Ended
October 1, 1995
Equity Earnings of Affiliates
Equity earnings of affiliates for the third quarter was $278 in 1995 compared
with $152 in 1994. Equity earnings of affiliates in the first nine months of
1995 was $569 compared with equity earnings of $250 in 1994. This activity
can be further understood by referencing Footnote 7 of the Notes to
Consolidated Financial Statements. For 1995, the Company received equity
earnings of $583 and $32 from Provo Park Hotel and Copper King Park Hotel,
respectively, and incurred an equity loss of $46 from Kahler Park Hotel. For
the same period in 1994, the Company received equity earnings of $415 from
Provo Park Hotel and incurred equity losses of $56 and $109 from Kahler Park
Hotel and Plaza One Hotel, respectively.
Net Income
Net income for the third quarter increased to $1.0 million in 1995 from $777
in 1994. For the nine months of 1995 net income increased to $3.5 million
compared to $2.6 million in 1994. The increase was primarily due to increased
revenues in the lodging and laundry segments, and the improved operating
margin in the laundry segment.
Liquidity and Capital Resources
For this discussion, reference to 1995 represents the first nine months of
1995 and reference to 1994 represents the first nine months of 1994.
Cash Flows
Net cash provided by operating activities increased $3.4 million over 1994
to $13.0 million for 1995. The Company's improved operating income was the
primary contributor to this improvement.
PART I. FINANCIAL INFORMATION Page 13
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Third Quarter Ended
October 1, 1995
Capital Expenditures
Capital expenditures for 1995 and 1994 totaled approximately $10.9 million and
$10.7 million, respectively. In 1995, $5.7 million, $2.0 million and $2.1
million were used for the acquisition of the Best Western Canyon Springs Park
Hotel, the construction of a 108 suite addition at the Boise Park Suites Hotel
and to remodel and refurbish existing hotels and to purchase laundry and
formal wear equipment, respectively. The remaining $1.1 million was used for
garment purchases. In 1994, approximately $5.2 million and $672 of the funds
were used for the acquisition of Pocatello Park Hotel and laundry equipment,
respectively. Approximately $3.6 million and $1.2 million of funds were used
for refurbishment of existing properties and purchase of garments,
respectively.
Investment in and Advances to Affiliates
The Company received a $280 distribution from the Provo Park Hotel in 1995 and
1994. The Company made an investment of $600 and $57 to affiliates related
to Copper King Park Hotel and Kahler Park Hotel, respectively. See Footnote
7 of Notes to Consolidated Financial Statements for further discussion.
Financing
In 1995 the Company made a scheduled $500 payment on it's subordinated debt,
normal principal retirements of $1.6 million and $2.1 million of repayments
on the lines of credit and short- term notes. In 1995, net cash provided from
proceeds of new long-term debt was $5.3 million. $4.2 million related to the
acquisition of Canyon Springs Park and $1.1 million relates primarily to the
construction of a 108 suite addition to the Boise Park Suites Hotel. In 1994,
net cash provided from proceeds of new long-term debt of $3.8 million and net
borrowing under line-of-credit agreements of $1.7 million relates to the cash
requirements for the acquisition of Pocatello Park Hotel. The Company also
made payments of $750 on an unsecured short term note payable in 1994.
Inflation
Operators of hotels in general possess the ability to adjust room rates
quickly. However, competitive pressures have limited and may in the future
limit the Company's ability to raise rates in the response to inflation.
PART I. FINANCIAL INFORMATION Page 14
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
(Dollars in Thousands Except Per Share Data)
Third Quarter Ended
October 1, 1995
Seasonality
The Company's hotel operations historically have been seasonal in nature,
reflecting higher occupancy rates during the first and third quarters. The
higher occupancy rates during the first quarter are due to increased seasonal
demand at the Sheraton San Marcos Golf Resort and Conference Center and the
greater Salt Lake City area hotels due to winter skiing. The third quarter
typically has higher occupancy rates due to summer vacation travel. In
addition, the formal wear segment is highly seasonal with the greatest amount
of rentals during the second quarter which typically includes higher demand
for high school proms and weddings.
Other
The Company continues to study the possibility of converting to a real estate
investment trust simultaneously with a public offering of its common shares.
In the event the offering is not completed, offering costs incurred will be
borne by the Company. Offering costs incurred to date are $660.
The Company is in the preliminary stage of litigation with a
telecommunications company relating to disputed unremitted telephone revenue
and fees at ten of the Company's hotels. The Company has denied all claims
and has made counter claims relating to breach of contract and intends to
pursue all available alternatives. The outcome of this dispute is uncertain.
In December 1994 the Company received notice of default relating to bond
indebtedness on one of its wholly owned properties. A group of bondholders
have claimed the Company incorrectly calculated added interest for this hotel
for the year 1993 in the amount of approximately $267. The Company denies the
claim. If the bondholders were found judicially correct, the Company would
owe this amount for 1993 and an additional $618 for 1994.
Additionally, the Company is involved in various litigation in the normal
course of business. The Company does not expect the outcome of the matters
described above to have a material adverse effect on the Company's
consolidated financial statements.
The Company is required to adopt Statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS
No. 107, "Disclosure about Fair Value of Financial Instruments" no later than
its fiscal year 1995. In addition, the Company is required to adopt 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"
no later than its fiscal year 1996. The Company has not completed all of the
analysis required to estimate the impact of the new statements. Management
of the Company does not believe that the adoption of these statements will
have any material adverse effect on the financial position or results of
operations of the Company.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
Page 15
KAHLER REALTY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
Third Quarter Ended
October 1, 1995
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on November 14, 1995.
KAHLER REALTY CORPORATION
By: Harold W. Milner By: Steven R. Stenhaug
Harold W. Milner Steven R. Stenhaug
President, CEO Senior Vice President-Treasurer