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 December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-11176
NTS-PROPERTIES III
(Exact name of registrant as specified in its charter)
| 10172 Linn Station Road | |
| 61-1017240 | Louisville, Kentucky 40223 |
| (I.R.S. Employer Identification No.) | (Address of principal executive offices) |
Registrant's telephone number, including area code: (502) 426-4800
Georgia
(State or other jurisdiction of incorporation or organization)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each Class: None
Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
| Limited partnership interests | None | |
| | | |
| (Title of Class) | (Name of each exchange on which registered) |
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 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
(Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
the 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]
Indicate by check mark whether Registrant is an accelerated filer (as defined by Rule 12b-2
of the Securities Exchange Act of 1934).
Yes [ ]
No [X]
State the aggregate market value of the voting and non-voting common equity held by non-
affiliates computed by reference to the price at which the common equity was sold, or the
average bid and asked price of such common equity, as of a specified date within the past 60
days: No aggregate market value can be determined because no established market exists for the
limited partnership interests.
TABLE OF CONTENTS
PART I
| Pages | ||||
| Items 1. and 2. | Business and Properties | 3-10 | ||
| Item 3. | Legal Proceedings | 10-11 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 11 |
PART II
| Item 5. | Market for Registrant's Limited Partnership Interests | |||
| and Related Partner Matters | 12 | |||
| Item 6. | Selected Financial Data | 13 | ||
| Item 7. | Management's Discussion and Analysis of Financial Condition | |||
| and Results of Operations | 14-20 | |||
| Item 7A. | Quantitative and Qualitative Disclosures About | |||
| Market Risk | 21 | |||
| Item 8. | Financial Statements and Supplementary Data | 22-36 | ||
| Item 9. | Change in and Disagreements with Accountants on | |||
| Accounting and Financial Disclosure | 37 |
PART III
| Item 10. | Directors and Executive Officers of the Registrant | 38-39 | ||
| Item 11. | Management Remuneration and Transactions | 40 | ||
| Item 12. | Security Ownership of Certain Beneficial | |||
| Owners and Management | 40-41 | |||
| Item 13. | Certain Relationships and Related Transactions | 41-42 | ||
| Item 14. | Controls and Procedures | 42 |
PART IV
| Item 15. | Exhibits, Financial Statement Schedules and | |||
| Reports on Form 8-K | 43-45 | |||
| Signatures | 46 | |||
| Certifications | 47-48 |
2
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS Some of the statements included in this Form 10-K, particularly those included in Part I, Items 1 and
2 - Business and Properties, and Part II, Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A"), may be considered "forward-looking
statements" because such statements relate to matters which have not yet occurred. For example,
phrases such as "we anticipate," "believe" or "expect" indicate that it is possible that the event
anticipated, believed or expected may not occur. Should such event not occur, then the result which
we expected also may not occur or occur in a different manner, which may be more or less favorable
to us. We do not undertake any obligations to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or circumstances. Any forward-looking statements included in MD&A, or elsewhere in this report, reflect
management's best judgment based on known factors and involve risks and uncertainties. Actual
results could differ materially from those anticipated in any forward-looking statements as a result
of a number of factors, including but not limited to those discussed below. Any forward-looking
information provided by us pursuant to the "safe harbor" provisions established by recent securities
legislation should be evaluated in the context of these factors. See Part II - Item 7 for Cautionary
Statements. PART I Items 1 and 2 - Business and Properties Development of Business NTS-Properties III (the "Partnership") is a limited partnership organized under the laws of the state
of Georgia on June 24, 1982. The General Partner is NTS-Properties Associates, a Georgia limited
partnership (the "General Partner"). The general partners of the General Partner are NTS Capital
Corporation and J.D. Nichols. As of December 31, 2002, the Partnership owned the properties listed
below. As used in this Form 10-K the terms "we," "us" or "our," as the context requires, may refer
to the Partnership or its interests in these properties: 3
We have a fee title interest in the above properties. While we believe that our properties are
adequately covered by property insurance, there is a risk that unknown mold and other microbial
damage may not be covered by our insurance. Please see Part II, Item 7 for a discussion of this
potential liability. As of December 31, 2002, our properties were encumbered by mortgages as shown in the table
below: Currently, our plans for renovations and other major capital expenditures include tenant finish
improvements required by lease negotiations at our properties. Changes to current tenant
improvements are a typical part of any lease negotiation. Improvements generally include a revision
to the current floor plan to accommodate a tenant's needs, new carpeting and paint and/or
wallcovering. The extent and cost of the improvements are determined by the size of the space being
leased and whether the improvements are for a new tenant or incurred because of a lease renewal.
The tenant finish improvements will be funded by cash flow from operations, cash reserves or
additional financing where necessary. In 1999, a tenant occupying approximately 65% of Plainview Center vacated the premises. While
much of the space vacated by this tenant has been re-leased, as of December 31, 2002 Plainview
Center was only 71% occupied. The current configuration of Plainview Center would make it
difficult to lease only a portion of the remaining space, and we are accordingly attempting to lease
substantially all of this space. Leasing this space would require a substantial sum of money,
currently estimated to be $528,000, most of which would be for refinishing the vacated space. We are presently engaged solely in the business of owning and operating commercial real estate.
A presentation of information concerning industry segments is therefore not applicable. See Part II, Item 8 -
Note 9 for information regarding our operating segments. 4
Narrative Description of Business Our current investment objectives are consistent with our original objectives, which are to provide
cash distributions from the operation or financing of our properties, obtain long-term capital gain
treatment on the sale or refinancing of properties, provide limited partners with deferrals of federal
income taxes, and preserve limited partners' capital. Proceeds of any sale or refinancing of our
properties may be distributed to limited partners, or may be used to repay debt or to make capital
improvements to properties. The properties we currently own, which are described in the following section, are the same as those
we originally acquired. Our properties are in a condition suitable for their intended use. We
periodically evaluate whether to retain, refinance, or sell or otherwise dispose of these properties,
with a view toward meeting the above investment objectives, including the making of distributions.
In deciding whether to sell a property, we will consider factors such as potential capital appreciation,
mortgage pre-payment penalties, market conditions, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to the limited partners.
Distributions have been suspended to fund current and future capital improvements and debt
repayment. For information on distributions, see Part II, Item 5 of this Form 10-K. In addition, see
"Potential Consolidation" later in this section for a discussion of our potential consolidation with
other affiliated entities. Description of Real Property As of December 31, 2002, there were seven tenants leasing office space aggregating approximately
98,000 square feet of the net rentable area at NTS Center. All leases provide for tenants to contribute
toward the payment of common area maintenance expenses, insurance, utilities and real estate taxes.
The tenants who occupy NTS Center are professional service entities. The principal
occupations/professions practiced include real estate, telecommunications and grocery chain
management. Three tenants individually lease more than 10% of NTS Center's rentable area. The
occupancy levels at NTS Center as of December 31 were 85% (2002), 94% (2001), 95% (2000),
100% (1999) and 100% (1998). See Part II, Item 7 for average occupancy information. 5
The following table contains approximate data concerning the major tenant leases in effect on
December 31, 2002: As of December 31, 2002, there were ten tenants leasing office space aggregating approximately
68,000 square feet of the net rentable area at Plainview Center. All leases provide for tenants to
contribute toward the payment of common area maintenance expenses, insurance, utilities and real
estate taxes. The tenants who occupy Plainview Center are professional service entities. They
include healthcare services and a victim notification service. One tenant individually leases more
than 10% of Plainview Center's rentable area. The occupancy levels at Plainview Center as of
December 31 were 71% (2002), 75% (2001), 68% (2000), 48% (1999) and 35% (1998). See Part
II, Item 7 for average occupancy information. The following table contains approximate data concerning a major tenant lease in effect on
December 31, 2002: As of December 31, 2002, there were 44 tenants leasing office, warehouse and storage space
aggregating approximately 163,000 square feet of the net rentable area at Peachtree Corporate
Center. All leases provide for tenants to contribute toward the payment of common area
maintenance expenses, insurance, utilities and real estate taxes. The tenants who occupy Peachtree
Corporate Center are professional service entities. The principal occupation/profession practiced
is sales-related services. One tenant individually leases more than 10% of Peachtree Corporate
Center's rentable area. The occupancy levels at Peachtree Corporate Center as of December 31 were
85% (2002), 79% (2001), 83% (2000), 84% (1999) and 89% (1998). See Part II, Item 7 for average
occupancy information. 6
The following table contains approximate data concerning a major tenant lease in effect on
December 31, 2002: Additional operating data regarding our properties is furnished in the following table: Depreciation for book purposes is computed using the straight-line method over the estimated useful
lives of the assets which are 6-30 years for land improvements, 5-30 years for buildings and
improvements, 3-27 years for amenities and the applicable lease term for tenant improvements. Our properties are subject to competition from similar types of properties (including, in certain areas,
properties owned or managed by affiliates of our General Partner) in the respective vicinities in
which they are located. Such competition is generally for the retention of existing tenants at lease
expiration or for new tenants when vacancies occur. We maintain the suitability and competitiveness
of our properties primarily on the basis of effective rents, amenities and service provided to tenants.
Competition is expected to increase in the future as a result of the construction of additional
properties in the markets in which we own properties. We have not commissioned a formal market
analysis of competitive conditions in any market in which we own properties, but rely upon the
market condition knowledge of the employees of NTS Development Company who manage and
supervise the leasing for each property. See "Conflict of Interest." NTS Development Company, an affiliate of our General Partner, directs the management of our
properties pursuant to a written agreement (the "Agreement"). NTS Development Company is a
wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols has a controlling interest in NTS
Corporation and is a general partner of NTS-Properties Associates. Under the Agreement, NTS
Development Company establishes rental policies and rates and directs the marketing activity of
leasing personnel. NTS Development Company also coordinates the purchase of equipment and
supplies, maintenance activity, and the selection of all vendors, suppliers and independent
contractors. 7
As compensation for its services, NTS Development Company received $188,331 in property
management fees for the year ended December 31, 2002. The fee is equal to 5% of gross revenues
from our properties. In addition, the Agreement requires us to purchase all insurance relating to the managed properties,
to pay the direct out-of-pocket expenses of NTS Development Company in connection with our
operations, including the cost of goods and materials used for and on our behalf, and to reimburse
NTS Development Company for the salaries, commissions, fringe benefits and related employment
expenses of personnel. The term of the Agreement between NTS Development Company and us was initially for five years,
and renewed thereafter for succeeding one-year periods, until cancelled. The Agreement is subject
to cancellation by either party upon 60-days written notice. As of December 31, 2002, the
Agreement is still in effect. Information about our working capital practices is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations in Part II, Item 7. We do not consider our operations to be seasonal to any material degree. Principals of the General Partner or its affiliates own or operate real estate properties that compete,
directly or indirectly, with properties owned by us. Because we were organized by, and are operated
by the General Partner, conflicts arising from our competition with properties owned by affiliated
partnerships are not resolved through arms-length negotiations, but through the exercise of the
General Partner's judgment consistent with its fiduciary responsibility to the limited partners and
our investment objectives and policies. The General Partner is accountable to the limited partners
as a fiduciary and consequently must exercise good faith and integrity in handling our affairs. A
provision has been made in our Partnership Agreement that the General Partner will not be liable
to us except for acts or omissions performed or omitted fraudulently, in bad faith or with negligence.
The Partnership Agreement provides for indemnification of the General Partner by us for liability
resulting from errors in judgment or certain acts or omissions. The General Partner and its affiliates
have the right to compete with our properties including the right to develop competing properties
now and in the future, in addition to the existing properties which may compete directly or
indirectly. 8
NTS Development Company, an affiliate of the General Partner, acts in a similar capacity for other
affiliated entities in the same geographic region where we have property interests. As a result of the
affiliation between NTS Development Company and our General Partner, there is a conflict of
interest between our General Partner's duty to the limited partners and its incentive to cause us to
retain our properties because of the payment of fees to NTS Development Company. We believe
the agreement with NTS Development Company is on terms no less favorable to us than those which
could be obtained from a third party for similar services in the same geographical region in which
the properties are located. The contract is terminable by either party without penalty upon 60-days
written notice. We have no employees. Under the terms of the property management agreement with NTS
Development Company, NTS Development Company makes its employees available to perform
services for us. In addition to the property management fees that we pay to NTS Development
Company, we reimburse this affiliate for the actual costs of providing such services. See Part II,
Item 8 - Note 7 and Part III, Item 13 for further discussions of related party transactions. Our General Partner, along with the general partners of four other public limited partnerships
affiliated with us, is investigating a consolidation with other affiliated entities. In addition to these
affiliated entities, the consolidation would likely involve several private partnerships and our General
Partner. The new combined entity would own all of the properties currently owned by the public
limited partnerships, and the limited partners or other owners of these entities would receive an
ownership interest in the combined entity. The number of ownership interests to be received by
limited partners and the other owners of the entities participating in the consolidation would likely
be determined based on the relative value of the assets contributed to the combined entity by each
public limited partnership, reduced by any indebtedness assumed by the entity. The majority of the
contributed assets would consist of real estate properties, whose relative values would be based on
appraisals. The potential benefits of consolidating the entities include: reducing the administrative
costs as a percentage of assets and revenues by creating a single public entity; diversifying limited
partners' investments in real estate to include additional markets and types of properties; and
creating an asset base and capital structure that may enable greater access to the capital markets.
There are, however, also a number of potential adverse consequences to a consolidation such as, the
expenses associated with a consolidation and the fact that the duration of the new entity would likely
exceed our anticipated duration, and that the interests of our limited partners in the combined entity
would be smaller on a percentage basis than their interests in us. Further, the new entity may adopt
investment and management policies that are different from those presently used by our General
Partner. A consolidation requires approval of our limited partners and the limited partners and other
equity holders of the other proposed participants to the consolidation. Accordingly, there is no
assurance that the consolidation will occur. 9
Website Information Our Internet website address is www.ntsdevelopment.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available and may
be accessed free of charge through the "About NTS" section of our Internet website as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our
Internet website and the information contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K. On December 12, 2001, three individuals filed an action in the Superior Court of the State of
California for the County of Contra Costa against our General Partner, the general partners of four
public partnerships affiliated with us and several individuals and entities affiliated with us. The
action purports to bring claims on behalf of a class of limited partners based on, among other things,
tender offers made by the public partnerships and an affiliate of our General Partner. The plaintiffs
allege, among other things, that the prices at which limited partnership interests were purchased in
these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief,
including an order directing the disposition of the properties owned by the public partnerships and
the distribution of the proceeds. No amounts have been accrued as a liability for this action in our
financial statements at December 31, 2002. Under an indemnification agreement with our General
Partner, we are responsible for the costs of defending this action. For the year ended December 31,
2002, our share of these legal costs was approximately $25,000, which was expensed. On September 24, 2002, in connection with the above-described lawsuit, the plaintiffs voluntarily
dismissed two of the individuals and one of the entities that had objected to the lawsuit on personal
jurisdiction grounds. This dismissal was the result of an agreement under which some defendants
agreed not to contest jurisdiction and plaintiffs agreed to dismiss other defendants. Additionally,
on October 22, 2002, the court issued an order sustaining the demurrer of our General Partner and
the general partners of two limited partnerships affiliated with us. The effect of this ruling is that
our General Partner and the other two general partners are no longer parties to the lawsuit. On the
same date the court overruled the demurrer of the general partners of two of the partnerships
affiliated with us and one individual and two entities affiliated with us. The entities and individuals
whose demurrers were overruled remain defendants in the lawsuit. These parties believe the lawsuit
is without merit, and are vigorously defending it. On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of
Jefferson County, Kentucky against the general partners of four public partnerships affiliated with
us and several individuals and entities affiliated with us. On March 21, 2003, the complaint was
amended to include our General Partner and the general partner of a partnership that was affiliated
with us but is no longer in existence. In the amended complaint, the plaintiffs purport to bring 10
claims on behalf of a class of limited partners and derivatively on behalf of us and affiliated public
partnerships based on alleged overpayments of fees, prohibited investments, improper failures to
make distributions, purchases of limited partnership interests at insufficient prices and other
violations of the limited partnership agreements. The plaintiffs are seeking, among other things,
compensatory and punitive damages in an unspecified amount, an accounting, the appointment of
a receiver or liquidating trustee, the entry of an order of dissolution against the public partnerships,
a declaratory judgment, and injunctive relief. Our General Partner believes that this action is without
merit, and intends to vigorously defend it. We do not believe there is any other litigation threatened against us other than routine litigation
arising out of the ordinary course of business, some of which is expected to be covered by insurance,
none of which is expected to have a material effect on our financial position or results of operations
except as discussed herein. None. 11
PART II There is no established trading market for the limited partnership interests, nor is one likely to
develop. We had 531 limited partners as of January 31, 2003. Cash distributions and allocations
of income (loss) are made as described in Item 8 - Note 1C. No distributions were paid during 2002 or 2001. Quarterly distributions are determined based on
current cash balances, cash flow being generated by operations and cash reserves needed for future
leasing costs, tenant finish costs and capital improvements. Distributions have been suspended to
fund current and future capital improvements and debt repayment. Our ability to pay distributions
is dependent upon, among other things, our ability to refinance properties on favorable terms. 12
Years ended December 31: The above selected financial data should be read in conjunction with the financial statements and
related notes appearing elsewhere in this Form 10-K report. 13
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations This Management's Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") should be read in conjunction with the Financial Statements in Item 8 and the
Cautionary Statements below. Our most critical business assumption is that our properties' occupancy will remain at a level which
provides for debt payments and adequate working capital, currently and in the future. If occupancy
were to fall below that level and remain at or below that level for a significant period of time, then
our ability to make payments due under our debt agreements and to continue paying daily
operational costs would be greatly affected. We review properties for impairment on a property-by-property basis whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. These circumstances
include, but are not limited to, declines in cash flows and occupancy. We recognize an impairment
of property when the estimated undiscounted operating income before depreciation and amortization
is less than the carrying value of the property. To the extent an impairment has occurred, we charge
to income the excess of the carrying value of the property over its estimated fair value. We may
decide to sell properties that are held for use. The sales prices of these properties may differ from
their carrying values. During the year ended December 31, 2002, we adopted Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board 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." SFAS No. 144 requires one accounting model to be used for long-lived assets
to be disposed of by sale, whether previously held or used or newly acquired, and it broadens the
presentation of discontinued operations to include more disposal transactions. Our adoption of
SFAS No. 144 did not impact the financial statements in 2002. 14
The occupancy levels at our properties as of December 31 were as follows: The average occupancy levels at our properties for the years ended December 31 were as follows: Rental and other income generated by our properties for the years ended December 31 were as
follows: Results of Operations for 2000, 2001 and 2002 If there has not been a material change in a particular line item on the Statements of
Operations from one year to the next, we have omitted any discussion concerning that
individual line item. Rental income increased approximately $486,000, or 15%, in 2001. The increase is primarily a
result of an increase in average occupancy at Plainview Center and Peachtree Corporate Center. The
increase is partially offset by a decrease in the average occupancy at NTS Center. 15
Year-ending occupancy percentages represent occupancy only on a specific date; therefore, the
above analysis considers average occupancy percentages which are more representative of the entire
year's results. In cases of tenants who cease making rental payments or abandon the premises in breach of the lease
terms, we pursue collection through the use of collection agencies or other remedies available by law
when practical. In cases where tenants have vacated as a result of bankruptcy, we have taken legal
action when we thought there could be a possible collection. No significant recoveries were made
during the years ended December 31, 2002, 2001 or 2000. As of December 31, 2002, no action is
being taken against any tenants to collect funds through the remedies discussed above. Other income increased in 2001 as a result of a one-time settlement of certain claims in our favor. Operating expenses decreased approximately $117,000, or 12%, in 2002. The decrease is due
primarily to decreased HVAC repairs (NTS Center, Plainview Center and Peachtree Corporate
Center), decreased utilities (NTS Center and Plainview Center), decreased bad debt expense
(Peachtree Corporate Center), decreased cleaning services (NTS Center and Peachtree Corporate
Center), decreased parking lot repairs (NTS Center and Plainview Center), decreased landscaping,
travel expenses and electrical repairs (Peachtree Corporate Center) and decreased exterior repairs
and painting and interior wallcovering (Plainview Center). The decrease is partially offset by
increased leasing commissions and parking lot repairs (Peachtree Corporate Center) and increased
glass repairs and snow removal services (NTS Center and Plainview Center). Interest expense decreased approximately $123,000, or 20%, in 2002, as a result of additional
principal payments made on our mortgage payable secured by Plainview Center. Professional and administrative expenses increased approximately $39,000, or 49%, in 2002, as a
result of costs incurred for legal fees paid under an indemnification agreement with our General
Partner. Depreciation and amortization expense decreased approximately $156,000, or 12%, in 2002, as the
result of assets (primarily tenant finish improvements) becoming fully depreciated. The decrease
in depreciation and amortization expense is partially offset by assets being placed in service. Assets 16
placed in service are building improvements and tenant improvements at all our properties.
Depreciation and amortization expense increased approximately $102,000, or 8%, in 2001, as the
result of assets being placed in service. Assets placed in service are tenant improvements and
building and land improvements at all our properties. The increase in depreciation and amortization
expense is partially offset by a portion of our assets (primarily tenant finish improvements)
becoming fully depreciated. The aggregate cost of our properties for federal tax purposes is
approximately $28,400,000. The majority of our cash flow is derived from operating activities. Cash flows used in investing
activities consist of amounts spent for capital improvements at our properties. Cash flows used in
financing activities consist of principal payments on mortgages payable, payment of loan costs and
amounts paid to repurchase limited partnership interests. We do not expect any material changes
in the mix and relative cost of capital resources from those in 2002. We do not foresee any material reduction in occupancy levels at any of our properties which would
have a material adverse effect upon our cash flow. However, at Plainview Center, there has been
and will likely continue to be a protracted period for the property to become fully leased again.
Failure to lease the vacant space at Plainview Center may have an adverse effect on our operations.
The extent of the impact on us is unknown at this time. The following table illustrates our cash flows provided by or used in operating activities, investing
activities and financing activities. Net cash provided by operating activities increased approximately $86,000 in 2002 and $1,221,000
in 2001. The increase was primarily driven by increased income from operations before
depreciation. Net cash used in investing activities decreased approximately $389,000 in 2002 and $104,000 in
2001, as a result of decreased capital expenditures. In 2001 we replaced the roofs at Peachtree
Corporate Center for approximately $530,000. In 2000 we incurred approximately $746,000 of
tenant improvements at Plainview Center and NTS Center. Net cash used in financing activities increased approximately $752,000 in 2002 and $956,000 in
2001, as a result of a decrease in funds drawn on the mortgage loan obtained March 2, 1999, due to
a decrease in renovations and tenant finish activity. The increase is also the result of additional
principal payments in 2002. 17
We indefinitely suspended distributions starting December 31, 1996, as a result of the anticipated
decrease in occupancy at Plainview Center. Cash reserves (which consist of unrestricted cash as
shown on our balance sheets as of December 31) were $388,449 and $354,992 on December 31,
2002 and 2001, respectively. Due to the fact that no distributions were made during 2002, 2001 or 2000, the table which presents
that portion of the distribution that represents a return of capital in accordance with Accounting
Principles Generally Accepted in the United States has been omitted. In the next 12 months, we expect the demand on future liquidity to increase as a result of future
leasing activity driven primarily by the potential tenant finish at Plainview Center. There has been
and will likely continue to be a protracted period for Plainview Center to become fully leased again
and substantial funds, currently estimated to be approximately $528,000, will likely be needed for
leasing expenses, especially those needed to refinish space for new tenants. As of December 31,
2002, we had not made any commitments for tenant finish improvements at Plainview Center. As of December 31, 2002, we anticipate making certain building improvements during 2003 totaling
approximately $182,000, which will be funded by cash from operations. These improvements
include restroom renovations and HVAC replacements at NTS Center ($157,000) and HVAC
replacements at Peachtree Corporate Center ($25,000). We are making efforts to increase the occupancy levels at our properties. The leasing and renewal
negotiations for NTS Center and Plainview Center are handled by leasing agents that are employees
of NTS Development Company, in Louisville, Kentucky. At Peachtree Corporate Center in
Norcross, Georgia, we have an off-site leasing agent, who makes calls to potential tenants, negotiates
lease renewals with current tenants and manages local advertising with the assistance of NTS
Development Company's marketing staff. All advertising for the Louisville properties is
coordinated by NTS Development Company's marketing staff located in Louisville, Kentucky. Leases at all our properties provide for tenants to contribute toward the payment of increases in
common area maintenance expenses, insurance, utilities and real estate taxes. These lease provisions
provide limited protection to our operations from the impact of inflation and changing prices. Across the United States there have been recent reports of lawsuits against owners and managers of
multi-family and commercial properties asserting claims of personal injury and property damage
caused by the asserted presence of mold and other microbial organisms in residential units and
commercial space. Some of these lawsuits have resulted in substantial monetary judgments or
settlements. We have not, at present, been named as a defendant in any lawsuit that has alleged the
presence of mold or other microbial organisms. Prior to September 13, 2002, we were insured
against claims arising from the presence of mold due to water intrusion. However, since September
13, 2002, certain of our insurance carriers have excluded from insurance coverage property damage
loss claims arising from the presence of mold, although certain of our insurance carriers do provide
some coverage for personal injury claims. We are in the process of implementing protocols and 18
procedures to prevent the build-up of mold and other microbial organisms in our properties, and are
in the process of implementing more stringent maintenance, housekeeping and notification
requirements for tenants in our properties. We believe that these measures will eliminate, or at least,
minimize any effect that mold or other microbial organisms could have on our tenants. To date, we
have not incurred any material costs or liabilities relating to claims of mold exposure or to abate
mold conditions. Because the law regarding mold is unsettled and subject to change, however, we
can make no assurance that liabilities resulting from the presence of, or exposure to, mold or other
microbial organisms will not have a material adverse effect on our consolidated financial condition
or results of operations and our subsidiaries taken as a whole. Contractual Obligations and Commercial Commitments The following disclosure represents our obligations and commitments to make future payments
under contracts, such as debt and lease agreements, and under contingent commitments, such as debt
guarantees. 19
Our liquidity, capital resources and results of operations are subject to a number of risks and
uncertainties including, but not limited to the following: 20
Our primary market risk exposure with regards to financial instruments is changes in interest rates.
Our debt bears interest at a fixed rate with the exception of the $3,500,000 mortgage payable, which
we obtained on May 9, 2000. On December 31, 2002, a hypothetical 100 basis point increase in
interest rates would result in an approximately $300,000 decrease in the fair value of the debt and
would increase interest expense on the variable rate mortgage by approximately $17,000. 21
Item 8 - Financial Statements and Supplementary Data REPORT OF INDEPENDENT AUDITORS To NTS-Properties III: We have audited the accompanying balance sheet of NTS-Properties III (the Partnership) as of
December 31, 2002, and the related statements of operations, partners' equity and cash flows for the
year then ended. Our audit also included the financial statement schedule listed in the index at Item
15(a). These financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on our audit. The
financial statements of the Partnership and the financial statement schedule as of December 31,
2001, and for each of the two years in the period ended December 31, 2001, were audited by other
auditors who have ceased operations and whose report dated March 21, 2002, expressed an
unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United
States. 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 2002 financial statements referred to above present fairly, in all material respects,
the financial position of NTS-Properties III as of December 31, 2002, and the results of its operations
and its cash flows for the year then ended in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein. Louisville, Kentucky 22
This report is a copy of the previously issued Arthur Andersen LLP ("Andersen") Auditors' To NTS-Properties III: We have audited the accompanying balance sheets of NTS-Properties III (a Georgia limited
partnership), as of December 31, 2001 and 2000, and the related statements of operations, partners'
equity and cash flows for each of the three years in the period ended December 31, 2001. These
financial statements and the schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial statements and schedules
based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States. 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 NTS-Properties III as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken
as a whole. The schedule of Real Estate and Accumulated Depreciation included in this filing 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, fairly states in
all material respects the financial data required to be set forth therein in relation to the basic financial
statements taken as a whole. ARTHUR ANDERSEN LLP Louisville, Kentucky 23
NTS-PROPERTIES III The accompanying notes to financial statements are an integral part of these statements. 24
NTS-PROPERTIES III The accompanying notes to financial statements are an integral part of these statements. 25
NTS-PROPERTIES III The accompanying notes to financial statements are an integral part of these statements. 26
NTS-PROPERTIES III The accompanying notes to financial statements are an integral part of these statements. 27
NTS-PROPERTIES III Note 1 - Significant Accounting Policies NTS-Properties III (the "Partnership") is a limited partnership organized under the laws of the state
of Georgia on June 24, 1982. The General Partner is NTS-Properties Associates, a Georgia limited
partnership. The terms "we," "us" or "our," as the context requires, may refer to the Partnership or
its interests in the properties listed below. We are in the business of owning and operating
commercial real estate. The financial statements include the accounts of all wholly-owned properties. Intercompany
transactions and balances have been eliminated. We own and operate the following properties: Net Cash Receipts, as defined in the Partnership Agreement, will be distributed, to the extent made
available, to the limited partners in an amount equal to the greater of 10% per year, non-cumulative,
of their invested capital or their pro rata share of such Net Cash Receipts, as defined in the
Partnership Agreement. The balance of the Net Cash Receipts, as defined in the Partnership
Agreement, would be available for distribution to the General Partner until the General Partner has
received its pro rata share of such Net Cash Receipts. At such time as the limited partners have
received cash distributions equal to their original capital contributions, cash flow would be
distributed 52% to the limited partners and 48% to the General Partner. In general, operating income
and losses (exclusive of depreciation) are allocated to the limited partners and the General Partner
in proportion to their respective distributions of cash for all periods presented in the accompanying
financial statements. In no event, however, will the portion of any item of our income, gain, loss, 28
deduction or credit allocated to the General Partner be less than 1%. Starting December 31, 1996,
we have indefinitely interrupted distributions. Depreciation of the assets acquired on the date operations commenced is allocated directly to the
limited partners and the General Partner based upon their respective tax basis in the property.
Depreciation of assets subsequently acquired is allocated based on the limited partners' interests of
65% and the General Partner's interest of 35%. In the accompanying Statements of Operations, net
income (loss) was allocated 99% to the limited partners and 1% to the General Partner, net of the
effects of depreciation on contributed assets in accordance with the Partnership Agreement. We have received a ruling from the Internal Revenue Service stating that we are classified as a
limited partnership for federal income tax purposes. As such, we make no provision for income
taxes. The taxable income or loss is passed through to the holders of partnership interests for
inclusion on their individual income tax returns. A reconciliation of net income (loss) for financial statement purposes versus that for income tax
reporting is as follows: The preparation of financial statements in accordance with Accounting Principles Generally
Accepted in the United States 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 Partnership has a cash management program which provides for the overnight investment of
excess cash balances. Per an agreement with a bank, excess cash is invested in a repurchase
agreement for U.S. Government or agency securities on a nightly basis. As of December 31, 2002,
approximately $369,000 was transferred into the investment. 29
Cash and equivalents - restricted represents funds which have been escrowed with a mortgage
company for NTS Center's property taxes in accordance with the loan agreement. Land, buildings and amenities are stated at cost as determined by the historical cost of the property
to the General Partner for its interest and by the purchase price of the property for the limited
partners' interests. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 6-30 years for land improvements, 5-30 years for buildings and
improvements, 3-27 years for amenities and the applicable lease term for tenant improvements. Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," specifies circumstances in which certain long-lived assets must
be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds
the sum of its expected future cash flows, the asset's carrying value must be written down to fair
value. Application of this standard during the year ended December 31, 2002 did not result in an
impairment loss. We recognize revenue in accordance with each tenant's lease agreement. Certain of our lease
agreements are structured to include scheduled and specified rent increases over the lease term. For
financial reporting purposes, the income from these leases is being recognized on a straight-line basis
over the lease term. Accrued income from these leases in accounts receivable was approximately
$524,000 and $390,000 on December 31, 2002 and 2001, respectively. All commissions paid to
leasing agents are deferred and amortized on a straight-line basis over the term of the lease to which
they apply. We expense advertising-type costs as incurred. Advertising expense was immaterial to us during
the years ended December 31, 2002, 2001 and 2000. For purposes of reporting cash flows, cash and equivalents include cash on hand and short-term,
highly liquid investments with initial maturities of three months or less. 30
During the year ended December 31, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and the accounting and reporting provisions of Accounting Principles Board 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." SFAS No. 144
requires one accounting model to be used for long-lived assets to be disposed of by sale, whether
previously held or used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. Our adoption of SFAS No. 144 did not impact the
financial statements in 2002. We own and operate commercial properties in Norcross, Georgia, a suburb of Atlanta, and
Jeffersontown, Kentucky, a suburb of Louisville. The following table contains data for tenants
whose rents represent 10% or more of our total revenues: Our financial instruments that are exposed to concentrations of credit risk consist of cash and
equivalents. We maintain our cash accounts primarily with banks located in Kentucky. The total
cash balances are insured by the FDIC up to $100,000 per bank account. We may at times, in certain
accounts, have deposits in excess of $100,000. Between September 30, 1998 and December 31, 2001, we and ORIG, LLC, ("ORIG") an affiliate
of ours, (the "Offerors"), filed four tender offers with the Securities and Exchange Commission.
Through the four tender offers, we repurchased 1,200 Interests for $305,000, at a price ranging from
$250 to $300 per Interest. ORIG purchased 3,303 Interests for $886,300, at a price ranging from
$250 to $300 per Interest. Interests repurchased by us were retired. Interests purchased by ORIG
are being held by it. On May 10, 2002, ORIG commenced a tender offer to purchase up to 2,000 Interests at a price of
$300 per Interest. ORIG had the option to acquire additional Interests on a pro rata basis if more than
2,000 Interests were tendered. The tender offer was scheduled to expire on August 16, 2002. 31
On July 12, 2002, a third party unaffiliated with us or ORIG commenced a tender offer at a price of
$310 per Interest. On July 17, 2002, ORIG amended its tender offer to increase the purchase price
to $315 per Interest. On August 7, 2002, ORIG amended its tender offer to extend the expiration
date from August 16, 2002, to September 16, 2002. ORIG's tender offer expired on September 16, 2002. A total of 669 Interests were tendered. ORIG
accepted all Interests tendered at a purchase price of $315 per Interest for a total of $210,735. We
did not participate in this tender offer. The following schedule provides an analysis of our investment in property held for lease as of
December 31: Mortgages payable as of December 31 consist of the following: Our mortgages may be prepaid but are generally subject to prepayment of a yield-maintenance
premium. 32
Scheduled maturities of debt are as follows: Based on the borrowing rates available to us for mortgages with similar terms and average
maturities, the fair value of long-term debt on December 31, 2002 and 2001 was approximately
$7,705,000 and $8,182,000, respectively. The following is a schedule of minimum future rental income on noncancellable operating leases as
of December 31, 2002: Pursuant to an agreement with us, NTS Development Company, an affiliate of our General Partner,
receives property management fees on a monthly basis. The fees are paid in an amount equal to 5%
of the gross revenues from our properties. Also pursuant to an agreement, NTS Development
Company receives a repair and maintenance fee equal to 5.9% of the costs incurred which relate to
capital improvements. These repair and maintenance fees are capitalized as part of land, buildings
and amenities. We were charged the following amounts pursuant to an agreement with NTS Development Company
for the twelve months ended December 31, 2002, 2001 and 2000. These charges include items
which have been expensed as operating expenses - affiliated or professional and administrative
expenses - affiliated and items which have been capitalized as other assets or as land, buildings and
amenities. 33
During the years ended December 31, 2002, 2001 and 2000, we were charged $6,489, $5,324 and
$4,752, respectively, for property maintenance fees from an affiliate of NTS Development Company. During 2002, NTS Development Company leased 20,368 square feet in NTS Center at a rental rate
of $14.50 per square foot. We received approximately $295,000, or 9%, of total rental income from
NTS Development Company during 2002 and 2001 and $295,000, or 10%, during 2000. Effective November 19, 1999, the NTS Development Company lease at NTS Center was extended
for two years to March 31, 2004, at a rental rate of $14.50 per square foot for 20,368 square feet.
The lease contemplated allowances for certain tenant finishes. Costs related to such tenant finishes
were capitalized within the line item land, buildings and amenities in the accompanying balance
sheets. Such capital expenditures were approximately $7,460 and $4,750 as of and for the years
ended December 31, 2002 and 2001, respectively. We, as an owner of real estate, are subject to various environmental laws of federal, state and local
governments. Compliance by us with existing laws has not had a material adverse effect on our
financial condition and results of operations. However, we cannot predict the impact of new or
changed laws or regulations on our current properties or on properties that we may acquire in the
future. On December 12, 2001, three individuals filed an action in the Superior Court of the State of
California for the County of Contra Costa against our General Partner, the general partners of four
public partnerships affiliated with us and several individuals and entities affiliated with us. The 34
action purports to bring claims on behalf of a class of limited partners based on, among other things,
tender offers made by the public partnerships and an affiliate of our General Partner. The plaintiffs
allege, among other things, that the prices at which limited partnership interests were purchased in
these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief,
including an order directing the disposition of the properties owned by the public partnerships and
the distribution of the proceeds. No amounts have been accrued as a liability for this action in our
financial statements at December 31, 2002. Under an indemnification agreement with our General
Partner, we are responsible for the costs of defending this action. For the year ended December 31,
2002, our share of these legal costs was approximately $25,000, which was expensed. On September 24, 2002, in connection with the above-described lawsuit, the plaintiffs voluntarily
dismissed two of the individuals and one of the entities that had objected to the lawsuit on personal
jurisdiction grounds. This dismissal was the result of an agreement under which some defendants
agreed not to contest jurisdiction and plaintiffs agreed to dismiss other defendants. Additionally,
on October 22, 2002, the court issued an order sustaining the demurrer of our General Partner and
the general partners of two limited partnerships affiliated with us. The effect of this ruling is that
our General Partner and the other two general partners are no longer parties to the lawsuit. On the
same date the court overruled the demurrer of the general partners of two of the partnerships
affiliated with us and one individual and two entities affiliated with us. The entities and individuals
whose demurrers were overruled remain defendants in the lawsuit. These parties believe the lawsuit
is without merit, and are vigorously defending it. On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of
Jefferson County, Kentucky against the general partners of four public partnerships affiliated with
us and several individuals and entities affiliated with us. On March 21, 2003, the complaint was
amended to include our General Partner and the general partner of a partnership that was affiliated
with us but is no longer in existence. In the amended complaint, the plaintiffs purport to bring
claims on behalf of a class of limited partners and derivatively on behalf of us and affiliated public
partnerships based on alleged overpayments of fees, prohibited investments, improper failures to
make distributions, purchases of limited partnership interests at insufficient prices and other
violations of the limited partnership agreements. The plaintiffs are seeking, among other things,
compensatory and punitive damages in an unspecified amount, an accounting, the appointment of
a receiver or liquidating trustee, the entry of an order of dissolution against the public partnerships,
a declaratory judgment, and injunctive relief. Our General Partner believes that this action is without
merit, and intends to vigorously defend it. We do not believe there is any other litigation threatened against us other than routine litigation
arising out of the ordinary course of business, some of which is expected to be covered by insurance,
none of which is expected to have a material effect on our financial position or results of operations
except as discussed herein. 35
Our reportable operating segments include only one segment - Commercial Real Estate Operations. Note 10 - Selected Quarterly Financial Data (Unaudited) 36
None. 37
PART III Because we are a limited partnership and not a corporation, we do not have directors or officers. We
are managed by our General Partner, NTS-Properties Associates. Additionally we have entered into
a management contract with NTS Development Company, an affiliate of our General Partner, to
provide property management services. The General Partners of NTS-Properties Associates are as follows: Mr. Nichols (age 61) is the managing General Partner of NTS-Properties Associates and is Chairman
of the Board of NTS Corporation (since 1985) and NTS Development Company (since 1977). Mr. Aroh (age 73) has been an independent real estate developer for the past 27 years. He is a
partner in other real estate developments with the principals of NTS Development Company. NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation formed in October
1979. J. D. Nichols is Chairman of the Board and the sole director of NTS Capital Corporation. Alliance Realty Corporation was formed in September 1982, and is a wholly-owned subsidiary of
S. N. Alliance, Inc. S.N. Alliance, Inc. is also the parent corporation of Stifle, Nicolas & Company,
Inc. which acted as the dealer manager in connection with the offering of our interests. Mr. Rizzo (age 55) joined Abel Construction during 1995 as the Director of Business Development.
From 1985 to 1995, Mr. Rizzo was an officer of the Huntington Group and prior to 1985 was an
employee of NTS Development Company. 38
The Manager of our properties is NTS Development Company, the executive officers and/or
directors of which are J. D. Nichols, Brian F. Lavin and Gregory A. Wells. Brian F. Lavin (age 49), President of NTS Corporation and NTS Development Company joined the
Manager in June 1997. From November 1994 through June 1997, Mr. Lavin served as President of
the Residential Division of Paragon Group, Inc. and as a Vice President of Paragon's Midwest
Division prior to November 1994. In this capacity, he directed the development, marketing, leasing
and management operations for the firms expanding portfolios. Mr. Lavin attended the University of Missouri where he received his Bachelor's Degree in Business
Administration. He is a licensed Kentucky Real Estate Broker and Certified Property Manager. Mr.
Lavin is a member of the Institute of Real Estate Management, council member of the Urban Land
Institute and member of the National Multi-Housing Council. He has served on the Boards of the
Louisville Science Center, Louisville Ballet, Greater Louisville Inc., National Multi-Housing
Council, Louisville Apartment Association, the Board of Trustees for the Louisville Olmsted Parks
Conservancy, Inc. and currently serves on the Board of Directors and Executive Committee of
Greater Louisville Inc. and Board of Overseers for the University of Louisville. Mr. Wells (age 44), Senior Vice President and Chief Financial Officer of NTS Corporation and NTS
Development Company, joined the Manager in July 1999. From May 1998 through June 1999, Mr.
Wells served as Chief Financial Officer of Hokanson Companies, Inc. and as Secretary and Treasurer
of Hokanson Construction, Inc. in Indianapolis, Indiana from January 1995 through May 1998. In
these capacities, he directed financial and operational activities for commercial real estate, company
owned and third-party managed properties, building and suite renovations, and commercial and
residential construction. Mr. Wells previously served as Vice President of Operations and Treasurer
of Executive Telecom System, Inc., a subsidiary of The Bureau of National Affairs, Inc.
(Washington, D.C.). Mr. Wells received a Bachelor's Degree in Business Administration from
George Mason University and is a Certified Public Accountant in Virginia and Kentucky. He
participates in a number of charitable and volunteer activities in the Louisville, Kentucky area. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that certain persons,
including persons who own more than ten percent (10%) of our limited partnership interests, file
initial statements of beneficial ownership (Form 3), and statements of changes in beneficial
ownership (Forms 4 or 5), with the U.S. Securities and Exchange Commission (the "SEC"). The
SEC requires that these persons furnish us with copies of all forms filed with the SEC. To our knowledge, based solely on review of the copies of the forms we received, or written
representations from certain reporting persons, that no additional forms were required for those
persons. 39
The officers and/or directors of our corporate General Partner receive no direct remuneration in such
capacities. We are required to pay a property management fee of 5% based on gross revenues to
NTS Development Company. We are also required to pay NTS Development Company a repair and
maintenance fee on costs related to specific projects and a refinancing fee on net cash proceeds from
the refinancing of any of our properties. Also, NTS Development Company provides certain other
services to us. See Item 8 - Note 7 which describes the calculations of these fees and sets forth
transactions with affiliates of our General Partner for the years ended December 31, 2002, 2001 and
2000. Our General Partner is entitled to receive cash distributions and allocations of profits and losses from
us. See Item 8 - Note 1C which describes the methods used to determine income allocations and cash
distributions. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations, along with Cash Flows and Financial Condition, for information concerning recent
tender offers for our limited partners. The following provides details regarding owners of more than 5% of the total outstanding limited
partnership interests as of January 31, 2003. ORIG, LLC is a Kentucky limited liability company, the members of which are J. D. Nichols (1%),
Barbara M. Nichols (J. D. Nichols' wife) (74%) and Brian F. Lavin (25%). J. D. Nichols and Brian
F. Lavin are the Chairman and President, respectively, of NTS Capital Corporation, a general partner
of NTS Properties Associates, our General Partner. 40
Pursuant to an agreement with us, NTS Development Company, an affiliate of our General Partner,
receives property management fees on a monthly basis. The fees are paid in an amount equal to 5%
of the gross revenues from our properties. Also pursuant to an agreement, NTS Development
Company receives a repair and maintenance fee equal to 5.9% of the costs incurred which relates
to capital improvements. These repair and maintenance fees are capitalized as part of land, buildings
and amenities. We were charged the following amounts pursuant to an agreement with NTS Development Company
for the twelve months ended December 31, 2002, 2001 and 2000. These charges include items
which have been expensed as operating expenses - affiliated or professional and administrative
expenses - affiliated and items which have been capitalized as other assets or as land, buildings and
amenities. 41
During the years ended December 31, 2002, 2001 and 2000, we were charged $6,489, $5,324 and
$4,752, respectively, for property maintenance fees from an affiliate of NTS Development Company. During 2002, NTS Development Company leased 20,368 square feet in NTS Center at a rental rate
of $14.50 per square foot. We received approximately $295,000, or 9%, of total rental income from
NTS Development Company during 2002 and 2001 and $295,000, or 10%, during 2000. Effective November 19, 1999, the NTS Development Company lease at NTS Center was extended
for two years to March 31, 2004, at a rental rate of $14.50 per square foot for 20,368 square feet.
The lease contemplated allowances for certain tenant finishes. Expenses related to such tenant
finishes were capitalized within the line item land, buildings and amenities in the accompanying
balance sheets. Such capital expenditures were approximately $7,460 and $4,750 as of and for the
years ended December 31, 2002 and 2001, respectively. Our affiliate, ORIG, LLC has participated in tender offers for our Interests. See Item 8 - Note 3 for
additional information on these tender offers. The Chief Executive Officer and Chief Financial Officer of NTS Capital Corporation, the General
Partner of our General Partner, have concluded, based on their evaluation within 90 days of the filing
date of this report, that our disclosure controls and procedures are effective for gathering, analyzing
and disclosing the information we are required to disclose in our reports filed under the Securities
Exchange Act of 1934. There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of the previously
mentioned evaluation. 42
PART IV Item 15 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 1 - Financial Statements The financial statements for the year ended December 31, 2002 along with the report from Ernst &
Young LLP dated March 26, 2003, and the financial statements for the years ended December 31,
2001 and 2000 along with a copy of the report from Arthur Andersen LLP dated March 21, 2002,
which has not been reissued, appear in Part II, Item 8. The following schedules should be read in
conjunction with those financial statements. 2 - Financial Statement Schedules All other schedules have been omitted because they are not applicable, are not required, or because
the required information is included in the financial statements or notes thereto. 3 - Exhibits 43
NTS-PROPERTIES III 44
NTS-PROPERTIES III 45
SIGNATURES 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. Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has
been signed below by the following persons on behalf of the registrant in their capacities and on
the date indicated above. We are a limited partnership and no proxy material has been sent to the limited partners. We will
deliver to the limited partners an annual report containing our financial statements and a message
from our General Partner. 46
CERTIFICATION Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 I, Brian F. Lavin, certify that: Date: March 31, 2003 /s/ Brian F. Lavin See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is also attached to this
report. 47
CERTIFICATION Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 I, Gregory A. Wells, certify that: Date: March 31, 2003 /s/ Gregory A. Wells See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is also attached to this
report. 48
Interest Maturity Balance
Property Rate Date on 12/31/02
- ---------------------------------------- ------------------ --------------- ---------------
NTS Center 6.89% 04/10/15 (1) $ 5,639,838
Peachtree Corporate Center N/A N/A N/A
Plainview Center Prime - .25% 03/01/04 $ 1,656,250(2)
(1) Current monthly principal payments are based upon a 17-year amortization schedule. At maturity, we believe the
mortgage will have been repaid based on the current rate of amortization.
(2) In May 2000, we increased the $2,000,000 mortgage payable to $3,500,000 and extended the maturity date from
March 1, 2001 to March 1, 2002. In February 2002, we extended the maturity date from March 1, 2002 to March
1, 2004. The note is secured by Plainview Center and bears interest at Prime - .25%.
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2003 16,937 (14.7%) $15.00
2 2004 20,368 (17.7%) $14.50
3 2004 53,435 (46.4%) $10.62 (2)
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
(2) In accordance with the lease agreement, the tenant pays their own electricity and cleaning costs. The base rent
is therefore below market.
Plainview Center
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2007 47,109 (49.5%) $15.41
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
Peachtree Corporate Center
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2003 22,524 (11.8%) $7.68
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
Additional Operating Data
Peachtree
NTS Plainview Corporate
Center Center Center
------------------ ----------------- -----------------
Federal tax basis $ 9,772,930 $ 7,803,905 $ 10,763,995
Property tax rate .01095 .01095 .03187
Annual property taxes $ 74,135 $ 29,751 $ 102,150
2002 2001 2000 1999 1998
--------------- --------------- ---------------- --------------- ----------------
Total revenues $ 3,898,799 $ 4,126,156 $ 3,480,110 $ 3,228,662 $ 3,698,431
Total expenses (3,491,213) (3,935,642) (3,785,957) (3,923,458) (3,426,517)
--------------- --------------- ---------------- --------------- ----------------
Net income (loss) before
extraordinary item 407,586 190,514 (305,847) (694,796) 271,914
Extraordinary item -- -- -- -- (65,258)
--------------- --------------- ---------------- --------------- ----------------
Net income (loss) $ 407,586 $ 190,514 $ (305,847)$ (694,796)$ 206,656
=============== =============== ================ =============== ================
Net income (loss)
allocated to:
General Partner $ (48,547) $ (66,300)$ (73,364)$ (78,012)$ (93,182)
Limited partners $ 456,133 $ 256,814 $ (232,483)$ (616,784)$ 299,838
Net income (loss) per
limited partnership
Interest $ 36.29 $ 20.30 $ (18.21)$ (46.54)$ 21.64
Weighted average number
of limited partnership
interests 12,570 12,649 12,769 13,253 13,855
Cumulative net income
(loss) allocated to:
General Partner $ (2,754,526) $ (2,705,979)$ (2,639,679)$ (2,566,315)$ (2,488,303)
Limited partners $ 238,319 $ (217,814)$ (474,628)$ (242,145)$ 374,639
Cumulative taxable
income (loss)
allocated to:
General Partner $ (2,126,601) $ (2,343,204)$ (2,633,988)$ (2,689,375)$ (2,578,046)
Limited partners $ (135,019) $ (469,096)$ (940,939)$ (974,971)$ (694,314)
Cumulative distributions
declared:
General Partner $ 206,985 $ 206,985 $ 206,985 $ 206,985 $ 206,985
Limited partners $ 11,349,845 $ 11,349,845 $ 11,349,845 $ 11,349,845 $ 11,349,845
At year end:
Land, buildings and
amenities, net $ 9,730,665 $ 10,481,019 $ 11,000,173 $ 11,316,969 $ 10,219,334
Total assets $ 11,093,987 $ 11,785,309 $ 11,948,281 $ 12,326,606 $ 11,170,156
Mortgages payable $ 7,296,088 $ 8,396,915 $ 8,716,153 $ 8,073,856 $ 6,656,145
2002 (1) 2001 2000
-------------- ------------- -------------
NTS Center (2) 85% 94% 95%
Plainview Center (2) 71% 75% 68%
Peachtree Corporate Center 85% 79% 83%
(1) Current occupancy levels are considered adequate to continue the operation of our properties without additional
financing.
(2) In our opinion, the decrease in year-ending occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
2002 (1) 2001 2000
-------------- ------------- -------------
NTS Center (2) 87% 93% 96%
Plainview Center (2) 70% 73% 52%
Peachtree Corporate Center 84% 82% 80%
(1) Current average occupancy levels are considered adequate to continue the operation of our properties without
additional financing.
(2) In our opinion, the decrease in average occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
Rental and Other Income
2002 2001 2000
---------------- --------------- ----------------
NTS Center $ 1,309,023 $ 1,432,619 $ 1,481,121
Plainview Center $ 1,219,695 $ 1,244,120 $ 761,801
Peachtree Corporate Center $ 1,366,188 $ 1,436,810 $ 1,233,269
2002 2001 2000
-------------- ------------- --------------
Operating activities $ 1,544,644 $ 1,458,699 $ 237,780
Investing activities (410,360) (799,633) (903,810)
Financing activities (1,100,827) (349,238) 606,662
-------------- ------------- --------------
Net increase (decrease) in cash and equivalents $ 33,457 $ 309,828 $ (59,368)
============== ============= ==============
Payments Due by Period
--------------------------------------------------------------------------
Within One Two - Three Four - Five After 5
Contractual Obligations Total Year Years Years Years
- -------------------------------- ------------- ------------- ------------- ------------- -------------
Long-term debt $ 7,296,088 $ 420,800 $ 2,203,549 $ 765,587 $ 3,906,152
Capital lease obligations -- -- -- -- --
Operating leases (1) -- -- -- -- --
Other long-term obligations (2) -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total contractual cash
obligations $ 7,296,088 $ 420,800 $ 2,203,549 $ 765,587 $ 3,906,152
============= ============= ============= ============= =============
(1) We are party to numerous small operating leases for office equipment such as copiers, postage machines and fax
machines, which represent an insignificant obligation.
(2) We are party to several annual maintenance agreements with vendors for such items as outdoor maintenance and
security systems, which we may or may not renew each year.
Amount of Commitment Expiration Per Period
-----------------------------------------------------------
Total
Other Commercial Amounts Within One Two - Three Four - Five Over 5
Commitments Committed Year Years Years Years
- ------------------------------- -------------- ------------- ------------- ------------- -------------
Line of credit $ -- $ -- $ -- $ -- $ --
Standby letters of credit and
guarantees -- -- -- -- --
Other commercial
commitments (1) -- -- -- -- --
-------------- ------------- ------------- ------------- -------------
Total commercial
commitments $ -- $ -- $ -- $ -- $ --
============== ============= ============= ============= =============
(1) We do not, as a practice, enter into long term purchase commitments for commodities or services. We may from
time to time agree to "fee for service arrangements" which are for a term of greater than one year.
Ernst & Young LLP
March 26, 2003
Report. This report has not been reissued by Andersen.
March 21, 2002
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
----------------- -----------------
ASSETS
Cash and equivalents $ 388,449 $ 354,992
Cash and equivalents - restricted 6,078 16,547
Accounts receivable, net 631,237 519,451
Land, buildings and amenities, net 9,730,665 10,481,019
Other assets 337,558 413,300
----------------- -----------------
TOTAL ASSETS $ 11,093,987 $ 11,785,309
================= =================
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 7,296,088 $ 8,396,915
Accounts payable 128,023 164,580
Security deposits 157,258 141,924
Other liabilities 99,215 76,073
----------------- -----------------
TOTAL LIABILITIES 7,680,584 8,779,492
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' EQUITY 3,413,403 3,005,817
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 11,093,987 $ 11,785,309
================= =================
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- ------------- -------------
REVENUES
Rental income $ 3,581,945 $ 3,652,281 $ 3,165,834
Rental income - affiliated 295,336 295,336 295,336
Interest and other income 21,518 178,539 18,940
------------- ------------- -------------
TOTAL REVENUES 3,898,799 4,126,156 3,480,110
EXPENSES
Operating expenses 845,350 963,207 928,655
Operating expenses - affiliated 318,376 389,479 377,126
Loss on disposal of assets 4,589 7,684 11,230
Interest expense 495,940 618,817 650,428
Management fees 188,331 196,058 169,549
Real estate taxes 206,035 204,214 214,954
Professional and administrative expenses 118,507 79,748 81,067
Professional and administrative expenses -
affiliated 137,511 144,019 122,258
Depreciation and amortization 1,176,574 1,332,416 1,230,690
------------- ------------- -------------
TOTAL EXPENSES 3,491,213 3,935,642 3,785,957
------------- ------------- -------------
Net income (loss) $ 407,586 $ 190,514 $ (305,847)
============= ============= =============
Net income (loss) allocated to the limited
partners $ 456,133 $ 256,814 $ (232,483)
============= ============= =============
Net income (loss) per limited partnership
interest $ 36.29 $ 20.30 $ (18.21)
============= ============= =============
Weighted average number of limited
partnership interests 12,570 12,649 12,769
============= ============= =============
STATEMENTS OF PARTNERS' EQUITY (1)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Limited
Partners' Limited General
Interests Partners Partner Total
------------- ------------- -------------- -------------
PARTNERS' EQUITY/(DEFICIT)
Balances on January 1, 2000 12,770 $ 3,364,770 $ (188,620)$ 3,176,150
Net loss (232,483) (73,364) (305,847)
Repurchase of limited partnership
interests (100) (25,000) -- (25,000)
------------- ------------- -------------- -------------
Balances on December 31, 2000 12,670 3,107,287 (261,984) 2,845,303
Net income (loss) 256,814 (66,300) 190,514
Repurchase of limited partnership
interests (100) (30,000) -- (30,000)
------------- ------------- -------------- -------------
Balances on December 31, 2001 12,570 3,334,101 (328,284) 3,005,817
Net income (loss) 456,133 (48,547) 407,586
------------- ------------- -------------- -------------
Balances on December 31, 2002 12,570 $ 3,790,234 $ (376,831)$ 3,413,403
============= ============= ============== =============
(1) For the periods presented, there are no elements of other comprehensive income as defined by the Financial
Accounting Standards Board, Statement of Financial Accounting Standards Statement No. 130, "Reporting
Comprehensive Income."
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 407,586 $ 190,514 $ (305,847)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for doubtful accounts 12,665 33,560 5,762
Write-off of uncollectible accounts receivable (10,885) (33,560) (21,274)
Loss on disposal of assets 4,589 7,684 11,230
Depreciation and amortization 1,298,636 1,449,773 1,349,422
Changes in assets and liabilities:
Cash and equivalents - restricted 10,469 (11,624) 3,150
Accounts receivable (113,566) (101,951) 2,785
Other assets (66,769) (71,449) (117,673)
Accounts payable (36,557) (64,379) (661,073)
Security deposits 15,334 5,087 (5,736)
Other liabilities 23,142 55,044 (22,966)
------------- ------------- --------------
Net cash provided by operating activities 1,544,644 1,458,699 237,780
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (410,360) (799,633) (903,810)
------------- ------------- --------------
Net cash used in investing activities (410,360) (799,633) (903,810)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgages payable -- 462,945 977,071
Principal payments on mortgages payable (1,100,827) (782,183) (334,774)
Increase in loan costs -- -- (10,635)
Repurchase of limited partnership interests -- (30,000) (25,000)
------------- ------------- --------------
Net cash (used in) provided by financing activities (1,100,827) (349,238) 606,662
------------- ------------- --------------
Net increase (decrease) in cash and equivalents 33,457 309,828 (59,368)
CASH AND EQUIVALENTS, beginning of year 354,992 45,164 104,532
------------- ------------- --------------
CASH AND EQUIVALENTS, end of year $ 388,449 $ 354,992 $ 45,164
============= ============= ==============
Interest paid on a cash basis $ 495,105 $ 617,633 $ 621,449
============= ============= ==============
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
C) Allocation of Net Income (Loss) and Cash Distributions
2002 2001 2000
-------------- ------------- -------------
Net income (loss) $ 407,586 $ 190,514 $ (305,847)
Items handled differently for tax purposes:
Depreciation and amortization 485,293 666,561 593,094
Prepaid rent and other capitalized costs (109,335) (94,198) (125,560)
Loss on disposal of assets (237,278) (10,648) (61,355)
Allowance for doubtful accounts 1,781 -- (15,512)
Other 2,633 10,164 4,828
-------------- ------------- -------------
Taxable income $ 550,680 $ 762,393 $ 89,648
============== ============= =============
E) Use of Estimates in the Preparation of Financial Statements
2002 2001 2000
-------------------------------- ------------------------------- --------------------------------
% of % of % of
Major Tenant: Rents Revenue Rents Revenue Rents Revenue
- ---------------- ------------- -------------- ------------- ------------- -------------- -------------
1 $ 576,534 14.8% $ 568,391 13.8% $ 557,507 16.0%
2 $ 720,020 18.5% $ 696,466 16.9% $ 408,240 11.7%
2002 2001
------------------ ------------------
Land and improvements $ 4,907,512 $ 4,904,502
Buildings and improvements 23,360,818 23,533,808
Amenities 157,187 157,187
------------------ ------------------
28,425,517 28,595,497
Less accumulated depreciation 18,694,852 18,114,478
------------------ ------------------
$ 9,730,665 $ 10,481,019
================== ==================
Note 5 - Mortgages Payable
2002 2001
------------------ ------------------
Mortgage payable to an insurance company in
monthly installments, bearing interest at 6.89%,
maturing April 10, 2015, secured by land and
buildings. $ 5,639,838 $ 5,920,665
Mortgage payable to a bank in monthly installments,
bearing a variable interest rate of Prime -.25%, due
March 1, 2004, secured by land and a building. The
current rate on December 31, 2002 was 4.00%. 1,656,250 2,476,250
------------------ ------------------
$ 7,296,088 $ 8,396,915
================== ==================
For the Years Ended December 31, Amount
- ------------------------------------ ---------------------------
2003 $ 420,800
2004 1,858,443
2005 345,106
2006 369,649
2007 395,938
Thereafter 3,906,152
---------------------------
$ 7,296,088
===========================
For the Years Ended December 31, Amount
- ------------------------------------ ---------------------------
2003 $ 3,170,549
2004 2,358,504
2005 1,184,277
2006 765,876
2007 450,850
Thereafter 27,110
---------------------------
$ 7,957,166
===========================
Note 7 - Related Party Transactions
For the Years Ended December 31,
---------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Property management fees $ 188,331 $ 196,058 $ 169,549
------------------ ------------------ -----------------
Property management 177,032 222,960 204,586
Leasing 105,341 129,866 133,598
Administrative - operating 29,700 29,839 29,700
Other - operating 6,303 6,814 9,242
------------------ ------------------ -----------------
Total operating expenses - affiliated 318,376 389,479 377,126
------------------ ------------------ -----------------
Professional and administrative expenses - affiliated 137,511 144,019 122,258
------------------ ------------------ -----------------
Repairs and maintenance fees 19,206 38,047 34,762
Leasing commissions 4,135 9,191 75,124
Construction management -- -- 2,912
------------------ ------------------ -----------------
Total related party transactions capitalized 23,341 47,238 112,798
------------------ ------------------ -----------------
Total related party transactions $ 667,559 $ 776,794 $ 781,731
================== ================== =================
For the Quarters Ended
--------------------------------------------------------------------
2002 March 31 June 30 September 30 December 31
- ------------------------------------ --------------- ---------------- --------------- ----------------
Total revenues $ 989,283 $ 957,666 $ 968,216 $ 983,634
Total expenses 869,736 890,978 855,296 875,203
Net income 119,547 66,688 112,920 108,431
Net income allocated to the
limited partners 131,505 79,175 124,944 120,509
Net income per limited
partnership interest 10.46 6.30 9.94 9.59
For the Quarters Ended
--------------------------------------------------------------------
2001 March 31 June 30 September 30 December 31
- ------------------------------------ --------------- ---------------- --------------- ----------------
Total revenues $ 1,107,091 $ 984,026 $ 1,001,311 $ 1,033,728
Total expenses 944,357 1,010,142 974,961 1,006,182
Net income (loss) 162,734 (26,116) 26,350 27,546
Net income (loss) allocated to the
limited partners 178,158 (8,804) 43,138 44,322
Net income (loss) per limited
partnership interest 14.06 (0.69) 3.40 3.53
ORIG, LLC 4,575 Interests (36.38%)
10172 Linn Station Road
Louisville, Kentucky 40223
J. D. Nichols 87.33%
10172 Linn Station Road
Louisville, Kentucky 40223
L. C. Aroh 8.64%
10904 Old Bridge Place
Louisville, Kentucky 40223
Item 13 - Certain Relationships and Related Transactions
A. Toni Rizzo 1.26%
515 Willowhurst Place
Louisville, Kentucky 40223
NTS Capital Corporation 2.67%
10172 Linn Station Road
Louisville, Kentucky 40223
Alliance Realty Corporation 0.10%
500 North Broadway
St. Louis, Missouri 63102
For the Years Ended December 31,
---------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Property management fees $ 188,331 $ 196,058 $ 169,549
------------------ ------------------ -----------------
Property management 177,032 222,960 204,586
Leasing 105,341 129,866 133,598
Administrative - operating 29,700 29,839 29,700
Other - operating 6,303 6,814 9,242
------------------ ------------------ -----------------
Total operating expenses - affiliated 318,376 389,479 377,126
------------------ ------------------ -----------------
Professional and administrative expenses - affiliated 137,511 144,019 122,258
------------------ ------------------ -----------------
Repairs and maintenance fees 19,206 38,047 34,762
Leasing commissions 4,135 9,191 75,124
Construction management -- -- 2,912
------------------ ------------------ -----------------
Total related party transactions capitalized 23,341 47,238 112,798
------------------ ------------------ -----------------
Total related party transactions $ 667,559 $ 776,794 $ 781,731
================== ================== =================
Schedules Page No.
III-Real Estate and Accumulated Depreciation 44-45
Exhibit No.
3. Amended and Restated Agreement and Certificate of Limited Partnership *
of NTS-Properties III.
10. Management Agreement between NTS Development Company *
and NTS-Properties III.
99.1 Certification of Chief Executive Officer Pursuant to Section 906 of the **
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to Section 906 of the **
Sarbanes-Oxley Act of 2002.
4 - Reports on Form 8-K
None.
*
Incorporated by reference to documents filed with the Securities and Exchange Commission
in connection with the filing of the Registration Statements on Form S-11 on June 25, 1982
(effective October 13, 1982) under Commission File No. 2-78152.
** Attached as an exhibit with this Form 10-K.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2002
Peachtree
NTS Plainview Corporate
Center Center Center Total
--------------- --------------- ---------------- ---------------
Encumbrances (A) (B)
Initial cost to partnership:
Land $ 1,379,172 $ 1,217,886 $ 1,408,375 $ 4,005,433
Buildings and improvements 4,963,604 4,512,172 6,231,114 15,706,890
Cost capitalized subsequent to acquisition:
Improvements 3,493,909 2,073,848 3,124,506 8,692,263
Carrying costs -- -- -- --
Gross amount at which carried
December 31, 2002 (C):
Land $ 1,768,899 $ 1,391,193 $ 1,747,420 $ 4,907,512
Buildings, improvements and amenities 8,067,786 6,412,713 9,016,575 23,497,074
--------------- --------------- ---------------- ---------------
Total (E) $ 9,836,685 $ 7,803,906 $ 10,763,995 $ 28,404,586
=============== =============== ================ ===============
Accumulated depreciation $ 6,550,869 $ 4,340,622 $ 7,788,709 $ 18,680,200
=============== =============== ================ ===============
Date of construction N/A N/A N/A
Date acquired 01/83 02/83 01/83
Life at which depreciation in latest (D) (D) (D)
income statement is computed
(A) First mortgage held by an insurance company.
(B) First mortgage held by a bank.
(C) Aggregate cost of real estate for tax purposes is approximately $28,400,000.
(D) Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 6-30
years for land improvements, 5-30 years for buildings and improvements, 3-27 years for amenities and the
applicable lease term for tenant improvements.
(E) Reconciliation, net of accumulated depreciation to financial statements:
Total gross cost on December 31, 2002 $ 28,404,586
Additions to Partnership for computer hardware and software in 1998 and 1999
(no additions in 2002, 2001 or 2000) 20,931
---------------
Balance on December 31, 2002 28,425,517
Less accumulated depreciation - per above (18,680,200)
Less accumulated depreciation for Partnership computer hardware and software (14,652)
---------------
Land, buildings and amenities, net on December 31, 2002 $ 9,730,665
===============
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Real Accumulated
Estate Depreciation
----------------- ------------------
Balances on January 1, 2000 $ 27,196,937 $ 15,879,968
Additions during period:
Improvements 903,810 --
Depreciation (A) -- 1,209,376
Deductions during period:
Retirements (257,456) (246,226)
----------------- ------------------
Balances on December 31, 2000 27,843,291 16,843,118
Additions during period:
Improvements 799,633 --
Depreciation (A) -- 1,311,103
Deductions during period:
Retirements (47,427) (39,743)
----------------- ------------------
Balances on December 31, 2001 28,595,497 18,114,478
Additions during period:
Improvements 410,360 --
Depreciation (A) -- 1,156,125
Deductions during period:
Retirements (580,340) (575,751)
----------------- ------------------
Balances on December 31, 2002 $ 28,425,517 $ 18,694,852
================= ==================
(A) The additions charged to accumulated depreciation on this schedule will differ from the depreciation and
amortization on the Statements of Cash Flows due to the amortization of loan costs and capitalized leasing costs.
NTS-PROPERTIES III
By: NTS-Properties Associates,
General Partner
By: NTS Capital Corporation,
General Partner
/s/ Gregory A. Wells
Gregory A. Wells
Chief Financial Officer of
NTS Capital Corporation
Date: March 31, 2003
Signature Title
/s/ J. D. Nichols
J. D. Nichols General Partner of NTS-Properties Associates and
Chairman of the Board and Sole Director of NTS
Capital Corporation
/s/ Brian F. Lavin
Brian F. Lavin President of NTS Capital Corporation
/s/ Gregory A. Wells
Gregory A. Wells Chief Financial Officer of NTS Capital Corporation
President of NTS Capital Corporation, General Partner of NTS-Properties Associates, General Partner of NTS-Properties
III
Chief Financial Officer of NTS Capital Corporation, General Partner of NTS-Properties Associates, General Partner
of NTS-Properties III