UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended January 1, 1995
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-24822
KAHLER MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1781923
(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)
Securities registered pursuant to
Section 12(b) of the Act: NONE
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $.10 par value per share
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 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 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. [X]
As of September 25, 1995, the registrant had 100 common shares outstanding. All
100 shares were held by Kahler Realty Corporation, an affiliate of the
registrant.
KAHLER MANAGEMENT CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION J(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
PART I
Item 1.
Business
(a) General Development of Business
"Company" is used in this document to reference Kahler Management Corporation.
"Realty" is used in this document to reference Kahler Realty Corporation.
"Kahler" is used in this document to reference Kahler Corporation, the
predecessor of Realty by merger.
The Company was incorporated under the Minnesota Business Corporation Act of
Minnesota on May 27, 1994. The Company is a wholly owned subsidiary of
Realty. The Company was formed to assume the hotel management operations
after the restructuring, which is described below. The Company is
authorized to issue 30,000,000 shares of stock, consisting of 20,000,000
shares of Common Stock par value $.10, and 10,000,000 shares of Preferred
Stock par value $.10 per share. The Company's executive offices are located
at 20 Second Avenue Southwest, Rochester, Minnesota 55902 and its telephone
number is (507) 285-2700.
During 1994, Kahler pursued a series of transactions to recapitalize and
restructure the operations of Kahler. In connection with these transactions a
registration statement on Form S-1 (File No. 33-82996) was filed with the
Securities and Exchange Commission by Realty and the Company as co-registrants
with respect to the shares to be issued in the merger of Kahler into Realty
and the distribution by dividend of the common stock of the Company to
shareholders of Realty.
This proposed series of transactions was to involve (i) a merger of Kahler
with and into Realty, a newly-formed subsidiary of Kahler, (ii) a series of
asset transfers to separate Kahler's hotels from its hotel management
operations and certain other non-real estate related businesses, (iii) a
distribution by dividend of the common stock of the Company to the
shareholders of Realty, and (iv) a public offering of common stock by Realty.
The purpose of the transaction was to convert Realty into a real estate
investment trust and enable it to have a public offering of its common stock.
The sole reason for the creation of the Company was to facilitate the
restructuring transactions described above. The merger occurred in October,
1994. The asset transfers, the planned public offering, the distribution of
the common stock of the Company and the conversion of Realty into a real
estate investment trust were postponed due to unfavorable market conditions
which adversely affected the planned public offering. As a result, the
Company was a wholly-owned subsidiary of Realty with no assets and no
operations until December 31, 1994.
On December 31, 1994, Realty caused the Company to exercise an option held by
Realty to acquire the Green Oaks Inn and Conference Center, a hotel managed by
another subsidiary of Realty. The Green Oaks property was purchased by the
Company solely as a matter of administrative convenience. In the event that
the restructuring transactions are completed, the Green Oaks property will
be transferred out of the Company to another affiliate of Realty. The Green
Oaks property will not be an asset of the Company at the time of the planned
distribution of the Company's common stock by Realty to Realty's shareholders.
Item 2.
Properties
Green Oaks Inn and Conference Center - Fort Worth, Texas
On July 31, 1994, Realty negotiated a purchase option to acquire the Green
Oaks Inn and Conference Center (Green Oaks), a 284-room property in Ft. Worth,
Texas. Realty has managed Green Oaks since 1990 and had owned the property
prior to that year. Realty assigned its purchase option to the Company and on
December 31, 1994, the Company exercised the purchase option and acquired
Green Oaks. As of the acquisition date, Realty held a mortgage note
receivable from the seller of $2,919,080 (including accrued interest of
$136,080 and net of deferred revenue of $522,000). The Company acquired
the property for $437,602 in cash (provided by Realty), assumption of existing
negative working capital and a lease obligation, and assumption of an
obligation to Realty equal to $2,919,080. Aggregate financing provided by
Realty was therefore $3,356,682.
This hotel is located near the Southwest Regional Navy and Air Force Training
Command and a Lockheed Corp. aircraft plant and is approximately 10 minutes
from downtown Ft. Worth and 25 minutes from Dallas/Fort Worth Airport.
Room rates at the hotel range from $61 to $98. With 16 conference rooms
that can accommodate up to 1,000 people, the hotel primarily seeks to
attract conferences and group meetings as well as individual business
travelers and visitors to the naval air station and Lockheed aircraft plant.
Amenities at the hotel include two swimming pools, two tennis courts, an
exercise room and access to an adjacent public golf course. The Company
leases the site where the hotel is located under a ground lease that expires
December 2014.
Item 3.
Legal Proceedings
The Company is in the discovery stage of litigation with a telecommunications
company relating to disputed unremitted telephone revenue and fees at the
Company's hotel. 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.
Item 4.
Omitted pursuant to General Instruction J.
PART II
Item 5.
Market for the Registrant's Common Equity and Related Stockholder Matters
There is currently no public market for the Company's Common Stock. All of the
Company's outstanding common stock is held by Kahler Realty Corporation.
Item 6.
Omitted pursuant to General Instruction J.
Item 7.
Management's Discussion and Analysis of Results of Operations and Financial
Condition
On December 31, 1994 the Company acquired the Green Oaks Inn and Conference
Center, a 284-room property in Fort Worth, Texas which Realty has managed
since 1990 and had owned prior to that year. The balance sheet presented at
January 1, 1995 reflects the acquisition. Since the acquisition occurred on
the last day of the year, the Company had no operating activities for 1994.
Liquidity and Capital Resources
The Company's primary source of financing is Realty, the Company's parent
corporation. The two companies have a lending arrangement whereby cash can be
advanced or paid back on a daily basis as evidenced by a demand note between
Realty and the Company. Realty charges the Company an interest rate equal to
the prime lending rate.
The Company is a wholly owned subsidiary of Realty. Realty continues to study
the possibility of converting to a real estate investment trust simultaneously
with a public offering of its common shares. If this restructuring is
successful, the Company would transfer the Green Oaks property to an affiliate
of Realty and would receive a transfer of hotel management and other non-real
estate related assets from Realty to enable Realty to separate its hotels
from its hotel management operations and non-real estate businesses. In
addition, Realty would distribute by dividend approximately 90% of the
common stock of the Company to Realty's shareholders.
Item 8.
Financial Statements and Supplementary Data
Independent Auditors' Report
The Board of Directors and Stockholder
Kahler Management Corporation:
We have audited the accompanying balance sheet of Kahler Management Corporation
(the Company) as of January 1, 1995, and the related statements of operations,
stockholder's equity, and cash flows for the period May 27, 1994 (date of
incorporation) through January 1, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Kahler Management Corporation
as of January 1, 1995, and the results of its operations and its cash flows for
the period May 27, 1994 (date of incorporation) through January 1, 1995 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
September 25, 1995
KAHLER MANAGEMENT CORPORATION
BALANCE SHEET
January 1
ASSETS 1995
CURRENT ASSETS
Cash $ 22,552
Trade receivables less allowance for
doubtful accounts of $3,000 182,926
Inventories 51,193
Prepaid expenses 17,392
Total current assets 274,063
PROPERTY AND EQUIPMENT
Buildings 2,500,000
Equipment 919,478
Total 3,419,478
Less accumulated depreciation -
Total property and equipment 3,419,478
TOTAL ASSETS $ 3,693,541
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 147,754
Accrued liabilities:
Payroll and payroll related liabilities 91,586
Sales tax 72,960
Current portion of capital lease 8,797
Obligations due to affiliate 3,356,682
Total current liabilities 3,677,779
LONG-TERM CAPITAL LEASE OBLIGATION 15,752
STOCKHOLDER'S EQUITY
Common stock, par value $.10
Authorized - 20,000,000 shares;
Issued and outstanding - 100 10
Additional paid-in capital -
Retained earnings -
Total stockholder's equity 10
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,693,541
See Notes to Financial Statements.
KAHLER MANAGEMENT CORPORATION
STATEMENT OF OPERATIONS
May 27, 1994 (date of incorporation)
through January 1, 1995
REVENUE $ -
OPERATING COSTS AND EXPENSES -
NET INCOME $ -
See Notes to Financial Statements
KAHLER MANAGEMENT CORPORATION
STATEMENT OF CASH FLOW
May 27, 1994 (date of incorporation)
through January 1, 1995
OPERATIONS:
Net income $ -
Net cash provided by operating activities -
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for property and equipment (415,060)
Net cash used in investing activities (415,060)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from affiliate 437,602
Proceeds from issuance of common stock 10
Net cash provided by financing activities 437,612
INCREASE IN CASH 22,552
CASH AT BEGINNING OF THE PERIOD -
CASH AT END OF THE PERIOD $ 22,552
Non-cash investing and financing activities (Notes 2 and 3):
Obligation due to affiliate $ 3,356,682
Obligation of seller assumed by the Company (2,919,080)
Net borrowings from affiliate $ 437,602
Total property and equipment $ (3,419,478)
Non-cash obligations assumed by the Company:
Obligation of seller 2,919,080
Negative working capital 60,789
Capital lease 24,549
Payment for property and equipment $ (415,060)
See Notes to Financial Statements.
KAHLER MANAGEMENT CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
May 27, 1994 (date of incorporation)
through January 1, 1995
Common Stock Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Total
Common stock issued 100 $ 10 $ - $ - $ 10
Balance, January 1, 1995 100 $ 10 $ - $ - $ 10
See Notes to Financial Statements.
KAHLER MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
May 27, 1994 (date of incorporation)
through January 1, 1995
Note 1. Organization
The Company was incorporated under the Minnesota Business Corporation Act of
Minnesota on May 27, 1994. The Company is a wholly owned subsidiary of Kahler
Realty Corporation (Realty). The Company was formed to assume Realty's hotel
management operations and non-real estate businesses after a proposed
restructuring, which is described below. The Company is authorized to issue
30,000,000 shares of stock, consisting of 20,000,000 shares of Common Stock
par value $.10, and 10,000,000 shares of Preferred Stock par value $.10 per
share. No preferred stock was issued as of January 1, 1995.
During 1994, Kahler pursued a series of transactions to recapitalize and
restructure the operations of Kahler. In connection with these transactions a
registration statement on Form S-1 (File No. 33-82996) was filed with the
Securities and Exchange Commission by Realty and the Company as co-registrants
with respect to the shares to be issued in the merger of Kahler into Realty
and the distribution by dividend of the common stock of the Company to
shareholders of Realty.
This proposed series of transactions was to involve (i) a merger of Kahler
with and into Realty, a newly-formed subsidiary of Kahler, (ii) a series of
asset transfers to separate Kahler's hotels from its hotel management
operations and certain other non-real estate related businesses, (iii) a
distribution by dividend of the common stock of the Company to the
shareholders of Realty, and (iv) a public offering of common stock by
Realty. The purpose of the transaction was to convert Realty into a real
estate investment trust and enable it to have a public offering of its common
stock.
The sole reason for the creation of the Company is to facilitate the
restructuring transactions described above. The merger occurred in October,
1994. The asset transfers, the planned public offering, the distribution of
the common stock of the Company and the conversion of Realty into a real
estate investment trust were postponed due to unfavorable market conditions
which adversely affected the planned public offering. As a result, the
Company was a wholly-owned subsidiary of Realty with no assets and no
operations until December 31, 1994. On December 31, 1994, Realty caused
the Company to exercise an option held by Realty to acquire the Green Oaks Inn
and Conference Center, a hotel managed by another subsidiary of Realty.
KAHLER MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
May 27, 1994 (date of incorporation)
through January 1, 1995
Realty continues to study the possibility of converting to a real estate
investment trust simultaneously with a public offering of its common shares.
If this restructuring is successful, the Company would transfer the Green Oaks
property to an affiliate of Realty and would receive a transfer of hotel
management and other non-real estate related assets from Realty to enable
Realty to separate its hotels from its hotel management operations and
non-real estate businesses. In addition, Realty would distribute by
dividend approximately 90% of the common stock of the Company to Realty's
shareholders.
Inventories
Inventories are stated at the lower of average cost or market.
Property and equipment
Property and equipment are recorded at cost. Depreciation of property and
equipment is computed on the straight-line method over their estimated useful
lives. The property and equipment was purchased on December 31, 1994, thus
there was no depreciation expense for the year ended January 1, 1995. The
estimated useful lives are:
Building 35 years
Equipment 5 to 12 years
Income per common share
For 1994, no income per common share is presented since the Company has only
one shareholder, Realty.
Fiscal year
The Company's fiscal year ends on the Sunday closest to December 31.
Note 2. Acquisition of Green Oaks Inn and Conference Center
On July 31, 1994, Realty negotiated a purchase option to acquire the Green
Oaks Inn and Conference Center (Green Oaks), a 284-room property in Ft. Worth,
Texas. Realty has managed Green Oaks since 1990 and had owned the property
prior to that year. Realty assigned its purchase option to the Company and on
December 31, 1994 the Company exercised the purchase option and acquired Green
Oaks. As of the acquisition date, Realty held a mortgage note receivable from
the seller of $2,919,080 (including accrued interest of $136,080 and net of
deferred revenue of $522,000). The Company acquired the property for $437,602
in cash (provided by Realty), assumption of existing negative working capital
KAHLER MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
May 27, 1994 (date of incorporation)
through January 1, 1995
and a lease obligation, and assumption of an obligation to Realty equal to
$2,919,080. Aggregate financing provided by Realty was therefore $3,356,682
(Note 3). The balance sheet presented at January 1, 1995 reflects the
acquisition at the time of the purchase.
Note 3. Financing
Obligations due to affiliate
The Company has a note payable to Realty for $3,356,682 bearing interest only,
at the prime rate, which is due on demand.
Under a separate financing agreement of Realty, the Green Oaks Inn and
Conference Center has been pledged as collateral for their underlying
outstanding loan.
The Company leases a computer under a capital lease. Future minimum lease
payments under this capital lease total $26,532 with annual payments of
$11,371, $11,371 and $3,790 in 1995, 1996 and 1997, respectively. Of the
$26,532 of total minimum lease payments, $1,983 represents interest.
Note 4. Commitments and contingencies
The Company leases the ground for the hotel under an operating lease which
expires in December, 2014. The future minimum lease payments under the
operating lease total $490,000 with annual payments of $29,000 each year.
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
PART III
Items 10, 11, 12 and 13
Omitted pursuant to General Instruction J.
PART IV
Item 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Schedules
The consolidated financial statements, together with the report thereon
of Kahler Management Corporation dated January 1, 1995, appear in Item 8
in this Form 10-K. Financial statement schedules not included in this
Form 10-K have been omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Financial Statements:
Report of Independent Accountants
Balance Sheet, January 1, 1995
Statement of Operations, Year Ended January 1, 1995
Statement of Cash Flows, Year Ended January 1, 1995
Statement of Stockholder's Equity, for the period May 27, 1994 (date
of incorporation) to January 1, 1995
Notes to Financial Statements
2. Financial Statement Schedules
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the footnotes to the consolidated financial statements.
3. Exhibits
Exhibit #
3.1 Articles of Incorporation of Kahler Management
Corporation,(incorporated by reference to Exhibit 3.1 listed on
Page II-7 of Amendment No. 1 to Kahler Management Corporation's
Registration Statement on Form S-1 (File No. 33-82996) filed on
September 6, 1994)
3.2 Bylaws of Kahler Management Corporation (incorporated by
reference to Exhibit 3.2 listed on Page II-7 of Amendment No. 1
to Kahler Management Corporation's Registration Statement on
Form S-1 (File No. 33-82996) filed on September 6, 1994)
4 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4 listed on Page II-7 of Amendment No. 1 to Kahler
Management Corporation's Registration Statement on Form S-1
(File No. 33-82996) filed on September 6, 1994)
10.1 Purchase Agreement dated December 31, 1994 among Green Oaks
Associates and Kahler Management Corporation
10.2 Form of Indemnity Agreement between Kahler Management
Corporation and its directors and officers (incorporated by
reference to Exhibit 10.7 listed on Page II-7 of Amendment No.
1 to Kahler Management Corporation's Registration Statement on
Form S-1 (File No. 33-82996)
filed on September 6, 1994)
10.3 Form of Kahler Management Corporation 1994 Stock Option Plan
(incorporated by reference to Exhibit 10.8 listed on Page II-7
of Amendment No. 1 to Kahler Management Corporation's
Registration Statement on Form S-1 (File No. 33-82996) filed on
September 6, 1994)
10.4 Form of Kahler Management Corporation 1994 Non-Employee
Directors Stock Option Plan (incorporated by reference to
Exhibit 10.9 listed on Page II-7 of Amendment No. 1 to Kahler
Management Corporation's Registration Statement on Form S-1
(File No. 33-82996) filed on September 6, 1994)
10.5 Form of Kahler Management Corporation 1994 Retainer Stock
Payment Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.10 listed on Page II-7 of Amendment No.
1 to Kahler Management Corporation's Registration Statement on
Form S-1 (File No. 33-82996) filed on September 6, 1994)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the fourth quarter.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly this report to be signed on its
behalf by the undersigned thereunto duly authorized.
KAHLER MANAGEMENT CORPORATION
(Registrant)
Dated: September 25, 1995 Harold W. Milner Sigd.
Harold W. Milner
President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Dated: September 25, 1995 Harold W. Milner Sigd.
Harold W. Milner
President, CEO and Director
(principal executive officer)
Dated: September 25, 1995 Paul R. Tieskoetter Sigd.
Paul R. Tieskoetter
Controller and Treasurer
(principal financial and
accounting officer)
Dated: September 25, 1995 John H. Herrell Sigd.
John H. Herrell
Chairman of the Board
Dated: September 25, 1995 Willis K. Drake Sigd.
Willis K. Drake
Director
Dated: September 25, 1995 Alan O. Tuntland Sigd.
Alan O. Tuntland
Director