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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2001
| | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________________ to
_________________
Commission file number: 110-9305
REEVES TELECOM LIMITED PARTNERSHIP
(name changed from Reeves Telecom Associates)
-----------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-0700063
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
c/o Grace Property Management, Inc.
55 Brookville Road, Glen Head, New York 11545
---------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 686-2201
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Partnership Units None
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 | |
On March 22, 2002, the Registrant had outstanding 1,812,062 partnership units.
See Item 5. There is no active market for the partnership units. As of March 22,
2002, non-affiliates held 1,171,717 partnership units.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
TABLE OF CONTENTS
Page
----
Special Note on Forward-Looking Statements ........................................ 2
PART I ............................................................................ 2
Item 1. Business ............................................................. 2
Item 2. Properties ........................................................... 12
Item 3. Legal Proceedings .................................................... 14
Item 4. Submission of Matters to a Vote of Unit Holders ...................... 14
PART II ........................................................................... 15
Item 5. Market for Registrant's Partnership Units and Related Security Matters 15
Item 6. Selected Financial Data .............................................. 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................ 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .......... 22
Item 8. Financial Statements and Supplementary Data .......................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................. 23
PART III .......................................................................... 24
Item 10. Directors and Executive Officers of Registrant ...................... 24
Item 11. Executive Compensation .............................................. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management ...... 25
Item 13. Certain Relationships and Related Transactions ...................... 26
PART IV ........................................................................... 28
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K ... 28
SIGNATURES ........................................................................ 31
-1-
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K
contains certain "forward-looking statements" within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and other applicable
securities laws. Such forward-looking statements are usually accompanied by
words such as "anticipates," "believes," "expects," "intends," "projects,"
"strategies," and similar terms that convey uncertainty of future events or
outcomes. The Partnership's future financial condition and results, as well as
any forward-looking statements contained herein, are subject to certain risks
and uncertainties that are beyond the Partnership's control and could cause
actual results to differ materially from those reflected in the forward-looking
statements.
Readers are cautioned not to place undue reliance upon these
forward-looking statements, which reflect Management's analysis only as to the
date hereof. Readers should carefully review the risk factors described in this
Annual Report on Form 10-K (including, without limitation, those listed in Item
1, "Business - Business of Registrant") and other documents the Partnership has
filed and from time to time will file with the Securities and Exchange
Commission which could cause the Partnership's actual results to differ
materially from those in these forward-looking statements. The Partnership
undertakes no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
Reeves Telecom Limited Partnership (the "Registrant" or the "Partnership")
is a South Carolina Limited Partnership formed for the purpose of accepting
certain assets and liabilities from its predecessor corporation, Reeves Telecom
Corporation (the "Corporation"). The Corporation sold its principal assets
during the twelve-month period ended May 15, 1980 and distributed cash and the
limited partnership units of the Partnership to its former shareholders as a
liquidation distribution. The partnership units were registered under the
Securities Act of 1933 by the filing of a Registration Statement pursuant to
Form S-14 (File No. 2-66452) which became effective April 8, 1980 and pursuant
to which a Proxy Statement/Prospectus dated April 14, 1980 was mailed to all
shareholders. Reference is made to said Registration Statement and said Proxy
Statement/Prospectus for a description of the liquidation of the Corporation and
the formation of the Partnership. The Partnership was initially organized
October 25, 1979 but had only nominal assets and no liabilities until May 15,
1980. To reflect a change in South Carolina law, the Partnership's name was
changed from Reeves Telecom Associates to Reeves Telecom Limited Partnership on
January 21, 1987.
-2-
On March 9, 2001, the Partnership sold the assets of Fox Squirrel Country
Club, now known as The Lakes Country Club ("Fox Squirrel/The Lakes"), for
consideration totaling $862,500, comprised of $150,000 in cash and a note
receivable (see Item 1, "Business of Registrant - Boiling Spring Lakes, Fox
Squirrel Country Club/The Lakes Country Club").
BUSINESS OF REGISTRANT
GENERAL
The Partnership's business may be categorized into one industry segment:
owning, developing, selling, leasing, or otherwise dealing in real estate. The
principal asset of the Partnership is real estate for development located in the
City of Boiling Spring Lakes, in Brunswick County, North Carolina, where the
Partnership also owned a golf course and country club (see Item 2,
"Properties").
Prior to mid-1993, in view of limited resources, Management focused on
holding down costs until the Partnership could sell all or substantially all of
its assets in a bulk sale. Local real estate brokers were relied upon to
generate individual lot sales, and the golf course and country club were leased
to a third party operator. Under this arrangement, lot sales were slow and,
generally, operating expenses significantly exceeded revenue from such sales.
Were it not for cash generated from activities other than the sale of real
estate during those years, the Partnership would likely have become insolvent.
Beginning in June 1993, Management has focused on the sale of individual
lots and other means of generating revenue. The Partnership also became
increasingly involved in the management and operation of the golf course and
country club, which were sold in March 2001.
BOILING SPRING LAKES
- - REAL ESTATE SALES
Boiling Spring Lakes began as a 14,000-acre development commenced by the
Corporation in 1962. Most of the land has been sold and that which remains lies
within the City of Boiling Spring Lakes, North Carolina.
During fiscal 2000, the Partnership sold approximately 5,127 acres of land
to The Nature Conservancy in two transactions. The first transaction involved
the sale of certain large tracts of undeveloped land, mostly wetlands and
woodlands, for an aggregate of $1,625,850 and closed in July 2000. The second
transaction involved the sale of certain individual undeveloped lots, small
tracts and certain land suitable for commercial development for an aggregate of
$774,150 and closed in September 2000. Reference is made to the more detailed
information on both
-3-
transactions set forth on Form 8-K filed with the Securities and Exchange
Commission on June 29, 2000.
Other than from the two transactions with The Nature Conservancy, revenue
from real estate sales in Boiling Spring Lakes for each of the last five fiscal
years ended December 31 is shown on Table 1, below (see "Pimlico Plantation,"
below, for revenue from real estate sales in Pimlico Plantation).
TABLE 1: REVENUE FROM REAL ESTATE SALES
BOILING SPRING LAKES
No. of Individual Lots Sold Other Total
----------------------------
Improved Unimproved Parcels Revenues
-------- ---------- ------- --------
Fiscal 2001 0 68 2 $420,743
Fiscal 2000 0 56 1 435,169
Fiscal 1999 1 68 7 555,441
Fiscal 1998 1 52 0 435,046
Fiscal 1997 2 55 0 411,609
As used in Table 1, the term "individual lot" refers to a platted
residential lot comprising about 1/3 acre. The term "improved" refers to an
individual lot on which the construction of a house has been started and, in
some cases, completed. The term "unimproved" refers to an individual lot on
which construction of a house has not yet been started. The term "other parcels"
refers to unplatted parcels, large tracts and commercial lots.
During 2001, the Partnership sold two unplatted parcels comprising
approximately 23 acres for approximately $72,900. During 2000, the Partnership
sold one unplatted one-acre parcel for $25,000. During 1999, the Partnership
sold one improved lot for approximately $130,800, which generated a profit of
approximately $11,200. In addition, during 1999 the Partnership sold four
1/2-acre unimproved commercial lots, one unplatted lot comprising approximately
1 1/2 acres, and two 1/2-acre unplatted lots for an aggregate sales price of
approximately $56,800. During 1998, the Partnership sold one improved lot for
approximately $117,300, which generated a profit of approximately $13,700.
During 1997, the Partnership sold two improved lots; the first for $115,000 and
the second for $128,000, which generated profits of approximately $20,000 and
$17,100, respectively. With respect to the second improved lot, since the
purchaser, and not the Partnership, bore substantially all of he construction
cost of the house, for financial reporting purposes, the Partnership's revenues
reflect only the net proceeds received by the Partnership.
-4-
- - FOX SQUIRREL COUNTRY CLUB / THE LAKES COUNTRY CLUB
Fox Squirrel/The Lakes is a semi-private golf course and country club. Its
18-hole golf course serves as the centerpiece of the Boiling Spring Lakes
development. Management believes that its attraction as a recreational facility
to those who are considering purchasing or building a home in the area allows
the Partnership to generate more lot sales, at a higher sales price per lot,
than would be the case in the absence of such a facility.
On March 9, 2001, the Partnership sold the assets of Fox Squirrel/The
Lakes to WW- Golf & Services, LLC, a South Carolina limited liability company
("WW-Golf"), for consideration totaling $862,500, comprised of $150,000 in cash
and a note receivable (the "Promissory Note"). The Promissory Note has an
initial principal amount of $712,500, bears interest at an annual rate of 9.5%,
and matures on March 9, 2004. WW-Golf is obligated to make payments of principal
and interest as follows: (i) monthly payments of $6,641 per month commencing
April 9, 2001 up to and including February 9, 2004, and (ii) a final payment of
$677,642 on March 9, 2004. The Partnership has a security interest in all of the
assets sold until the Promissory Note has been paid in full. WW-Golf may extend
the maturity of the Promissory Note if the Partnership has not completed
remediation of certain environmental contamination from an underground storage
tank formerly located on the golf club grounds. The Partnership believes that
all necessary remediation work has been completed as of December 31, 2001 and
the Partnership is waiting for a closure letter from the North Carolina
Department of Environment and Natural Resources.
Shortly after acquiring Fox Squirrel/The Lakes, WW-Golf changed the name
of the golf course and country club to The Lakes Country Club. For consistency
and to avoid confusion, the golf course and country club are referred to herein
as Fox Squirrel/The Lakes.
The Partnership's revenue and operating loss from Fox Squirrel/The Lakes
for the last five fiscal years are shown on Table 2, below.
TABLE 2: REVENUE AND OPERATING LOSS
FOX SQUIRREL COUNTRY CLUB / THE LAKES COUNTRY CLUB
Operating
Revenue Loss
--------- -----------
Fiscal 2001 $ 32,511 $ (67,326)
Fiscal 2000 332,462 (214,975)
Fiscal 1999 355,506 (192,953)
Fiscal 1998 437,436 (162,131)
Fiscal 1997 373,972 (78,707)
-5-
The Partnership sold Fox Squirrel/The Lakes on March 9, 2001 and,
accordingly, the results of Fox Squirrel/The Lakes are shown as a discontinued
operation on the Partnership's financial statements for all periods presented.
Revenue and Operating Loss for Fiscal 2001 shown in Table 2 are for the period
from January 1, 2001 until March 9, 2001. Since Revenue and Operating Loss for
each of Fiscal 1997, 1998, 1999 and 2000 are for twelve-month periods, a
comparison of Revenue and Operating Loss for Fiscal 2001 to prior years does not
present an accurate portrayal of the comparative performance of Fox Squirrel/The
Lakes.
In November 1995, the Partnership hired a new manager and golf pro of Fox
Squirrel/The Lakes, replacing the former manager, who resigned. The new manager
also leased the kitchen and dining area in the club house from the Partnership,
which paid for certain improvements to the kitchen and dining area. Although the
lease provided for the payment to the Partnership of monthly lease payments in
varying amounts, the Partnership waived most lease payments to enable the dining
service to become financially established. In February 1998, the manager and the
Partnership agreed to the termination of the manager's employment agreement and
related agreement to lease the kitchen and dining area. The Partnership agreed,
among other things, to purchase certain assets from, and assume certain
liabilities of, the manager in exchange for cash consideration to the manager of
$49,404. As a result of the foregoing, the Partnership became the operator of
the dining service and continued to operate the dining service until Fox
Squirrel/The Lakes was sold in March 2001.
- - OTHER
During Fiscal 2001, the Partnership received $8,920 from the North
Carolina Department of Environment and Natural Resources as reimbursement for a
portion of the costs of removing an underground storage tank. The tank was
removed during Fiscal 2000 in connection with the then-anticipated sale of Fox
Squirrel/The Lakes. The Partnership recorded the reimbursement as Other Revenue
since the reimbursement was received subsequent to the year in which the expense
was incurred.
During Fiscal 2001 and 2000, the Partnership earned $2,550 and $3,400,
respectively, in net rental income. The Partnership recorded such income as
Other Income.
From time to time the Partnership generates revenue from sources other
than real estate sales and Fox Squirrel/The Lakes, including, for example, the
sale of timber and pine straw on certain unsold lots. During Fiscal 1999, the
Partnership earned $1,266 from such sources. While additional revenue from such
sources continues to be sought as a means of supplementing revenue from lot
sales, such activities have not been a material source of revenue during the
past five years due principally to the harvesting of seasoned timber performed
in past years.
The amount of revenue generated from sources other than real estate sales,
Fox Squirrel/The Lakes, and interest income during the last five fiscal years is
shown on Table 3, below.
-6-
TABLE 3: OTHER REVENUE AND OTHER INCOME
BOILING SPRING LAKES
Other Rental Sale of Timber
Revenue Income, Net and Pine Straw
------- ----------- --------------
Fiscal 2001 $8,920 $2,550 $-0-
Fiscal 2000 -0- 3,400 -0-
Fiscal 1999 -0- -0- 1,266
Fiscal 1998 -0- -0- -0-
Fiscal 1997 -0- -0- 694
Since the 1970's, health standards at Boiling Spring Lakes have become
increasingly stringent regarding septic tanks and on-site sewage disposal. It is
estimated that 70% to 75% of the property which would have complied with
applicable rules and regulations a number of years ago no longer meet present
health standards. This has had a detrimental effect on the operations of the
Partnership. In a few cases the problem could be cured by the use of drains, or
by the scraping away of hard pan and adding fill dirt. In most instances,
however, health departments have declared a majority of the areas as
irremediable by ordinary measures. In such cases, the only solution would be to
install area-wide sewer systems. While the Partnership does not have the
resources to install a sewer system covering most or all of the land remaining
in the Partnership's inventory, a small multi-user system has been installed on
certain lots zoned for commercial use. Depending upon the Partnership's
financial resources, the market for real estate in and around Boiling Spring
Lakes and economic conditions generally, among other factors, Management may
consider installing similar multi-user systems in other areas of the development
in the future but currently has no plans to do so.
PIMLICO PLANTATION
Pimlico Plantation began as a development in South Carolina commenced by
the Corporation. Virtually all of the land was sold in past years. As of
December 31, 2001, the Partnership owns one individual lot at Pimlico
Plantation, comprising approximately 3/8 acre. During Fiscal 2001, the
Partnership sold one lot for $20,105. No lot sales or revenue from lot sales
were recorded during any of the four previous fiscal years. In view of the
foregoing, revenue from the sale of land at Pimlico Plantation in future years
is expected to represent, at best, a negligible percentage of total revenue.
-7-
SEASONALITY
The sale of real estate in North Carolina is seasonal. The Partnership has
generally experienced slower than average lot sales in the period from November
to January, inclusive.
MARKETING AND ADVERTISING
The Partnership's marketing and advertising plan emphasizes the print
media to promote the sale of its land and, when available for sale, improved
individual lots.
DEPENDENCE UPON CUSTOMERS
For the year ended December 31, 2000, $2,400,000 in revenue from property
sales was attributable to one buyer. Generally, however, the Partnership is not
dependent in any respect upon one or a few customers, the loss of any one of
which might significantly affect the financial results of the Partnership.
COMPETITION
The real estate market in Brunswick County, North Carolina is extremely
competitive. Prospective residential property owners may buy from real estate
developers, who generally sell lots suitable for building but who may also sell
improved properties, existing homeowners looking to relocate, and others.
Property values are dependent upon, among other factors, proximity to and the
nature and quality of recreational facilities, retail shopping, commercial sites
and schools, and the availability of county water (as opposed to well water) and
sewer service (as opposed to septic systems). Management believes that some of
the Partnership's land has been and/or will be bought by other real estate
developers, who may compete with the Partnership for land sales or sale of
improved properties.
Many real estate developments in the market in which the Partnership
operates provide recreational facilities, such as a golf course, lakes and/or
swimming pools, and tennis courts. In many cases, depending upon the financial
resources of the particular developer, such facilities are more extensive and/or
more varied than the facilities in Boiling Spring Lakes, and the golf courses
are, in some instances, the sites of professional championship tournaments. Lots
associated with such facilities generally command higher sales prices than lots
owned by the Partnership. Management believes that the Partnership can compete
effectively against other real estate developers, many of whom are believed to
have substantially greater resources than the Partnership, principally on the
basis of price.
-8-
GOVERNMENT REGULATION
The real estate development industry is subject to extensive and complex
regulations. The Partnership must comply with various federal, state and local
laws, ordinances, rules and regulations regarding zoning, construction,
population density, availability and installation of utility services such as
water, electricity, gas and waste disposal, the preservation of the natural
terrain, and other related matters. In addition, the Partnership is subject to
laws and regulations relating to the use of wetlands, over which the Army Corps
of Engineers has jurisdiction. The Partnership relies upon its employees, the
General Partner, and various legal and other advisors for the expertise
necessary to comply with all applicable regulations.
ENVIRONMENTAL LAWS AND REGULATIONS
The Partnership is subject to various federal, state and local laws,
ordinances and regulations regarding environmental matters. Under these laws, a
current or previous owner or operator of real estate may be required to
investigate and clean up hazardous or toxic substances or petroleum product
releases at such property, and may be held liable to a governmental entity or to
third parties for property damage and the cost of investigation, removal and
decontamination incurred by such parties. The penalty is imposed whether or not
the owner or operator was aware of, or responsible for, the hazardous or toxic
substances, and the liability under such laws has been interpreted to be joint
and several unless the harm is divisible and there is a reasonable basis for
allocation of responsibility. The costs of investigation, removal and
decontamination of such substances could be substantial. If such substances are
found on real estate or there is a failure to properly remove or decontaminate
the area, the property could be difficult to sell, rent or develop. Some
environmental laws create a lien on a contaminated site in favor of the
government for damages and costs it incurs in connection with such
contamination. The owner or operator of real estate may be subject to common law
claims by third parties based on damages and costs resulting from environmental
contamination emanating from a site. In connection with its ownership of real
estate, the Partnership potentially may be liable for the foregoing costs.
Portions of Boiling Spring Lakes and the surrounding area are known or
believed to be the habitat of various species of flora and fauna which have been
identified as endangered or protected species. Development of the Partnership's
land is subject to various laws and regulations intended to limit disturbance of
endangered and protected species.
EMPLOYEES
As of December 31, 2001, the Partnership has two full-time employees.
Officers and employees of the General Partner and one or more of its affiliates
devote a portion of their time to the management and affairs of the Partnership
but such persons have other responsibilities and will devote only so much of
their time to the business of the Partnership as the General Partner, in its
judgment and experience, determines is reasonably required.
-9-
LIQUID ASSETS AND RESERVES
As of December 31, 2001, the Partnership held $296,993 in cash. Accounts
payable and accrued expenses as of this date totaled $92,633.
The Partnership Agreement obligates the General Partner to distribute
Distributable Cash (as such term is defined in the Partnership Agreement).
Distributable Cash excludes, among other items, reserves established for working
capital, contingent liabilities, taxes, debt service, repairs, replacements,
renewals, capital expenditures or other purposes consistent with the Partnership
Agreement. Such reserves are used solely for calculating Distributable Cash and
are not treated as deductions from income for accounting purposes. At the
beginning of Fiscal 1997, reserves totaling $450,000 had been established. In
each of Fiscal 1997 and 1998, reserves totaling $200,000 were established to
fund, principally, certain capital improvements at Fox Squirrel/The Lakes and
certain capital projects within the development, including a multi- user septic
system installed on eight lots zoned for commercial use. During 1999, a reserve
of $150,000 was established to purchase and refurbish a residential property for
resale. Also during 1999, a reserve of $50,000 was established for certain
capital improvements at Fox Squirrel/The Lakes. During Fiscal 2000, reserves of
$175,000 were established to fund certain capital improvements within the
development. During Fiscal 2001, reserves totaling $100,000 were established to
fund repairs to a dam and certain road repair and improvement work within the
development.
See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," for further discussion of factors affecting
liquidity.
CERTAIN RISK FACTORS
In addition to the risk factors described above, the Partnership's
business is subject to the following principal risks:
- - INCREASED OPERATING COSTS.
The Partnership is responsible for maintaining certain roads, most of
which are unpaved, certain road rights-of-way, and one dam within the City of
Boiling Spring Lakes. In recent years, the Partnership has not spent significant
amounts toward maintaining such roads, rights- of-way and dam, and the amount
required to maintain them may increase substantially, or the failure by the
Partnership to provide proper maintenance in the future may subject the
Partnership to substantially greater risk of litigation from persons adversely
affected by such failure.
- - ZONING AND OTHER REGULATIONS.
The Partnership owns approximately 244 acres of undeveloped, unplatted
land intended for residential use and approximately 252 acres of undeveloped,
unplatted land intended for
-10-
commercial use. Should the Partnership be unable to subdivide all or a
substantial portion of such acreage due to changes in zoning or other
regulations, the ability of the Partnership to continue generating revenue from
real estate sales or to effect a bulk sale of all or substantially all of its
assets may be significantly adversely affected. In addition, the Partnership's
operations and ability to effect a bulk sale of all or substantially all of its
assets may be adversely affected in the event of a change in zoning of
significant portions of land owned by the Partnership, and/or may require
significant changes to or the abandonment of the phased development project
described in Item 2, "Properties - Boiling Spring Lakes" or substantially
greater expenditures by the Partnership than currently expected to complete the
phased development project.
- - NEW PROJECTS.
The Partnership may undertake one or more new projects within the
development, including, without limitation, construction of a house on a lot
owned by the Partnership. Management may fail to accurately gauge conditions
prior to undertaking a new project, and therefore may not achieve anticipated
results in the new project. If this were to occur, the Partnership may
experience lower cash flow from operations. To the extent that the Partnership
incurs debt to finance a portion of the capital costs of a new project, the cash
flow from the new project may be inadequate to cover the debt service.
- - FINANCIAL COVENANTS ON INDEBTEDNESS.
Required payments on the Partnership's indebtedness generally is not
reduced if the Partnership's economic performance declines. If the Partnership's
economic performance declines, cash flow from operations will be reduced. Under
such circumstances, the Partnership may not be able to sell some of its assets
quickly enough to avoid default on its indebtedness. If debt service payments
cannot be made, the Partnership may sustain a loss, suffer foreclosure by a
mortgagee, or suffer judgments against the Partnership.
- - REAL ESTATE ASSETS ARE ILLIQUID.
Real estate generally cannot be sold quickly. It may not be possible to
sell land on favorable terms when it is to the Partnership's economic advantage
to do so.
- - UNINSURED DAMAGE TO PROPERTY.
The Partnership maintains comprehensive liability and fire insurance
policies on its assets. However, the Partnership may suffer losses that are not
covered by such policies. For example, losses resulting from war or from
environmental liabilities generally are not covered by insurance. If an
uninsured loss or a loss in excess of insured limits should occur, the
Partnership could lose capital invested in its property, as well as future
revenue from the sale of such property.
-11-
- - STRUCTURE AS A LIMITED PARTNERSHIP.
The Partnership is treated for federal and state income tax purposes as a
limited partnership, and we have taken such steps as are known to us to perfect
such treatment. Changes to laws may adversely affect the treatment of the
Partnership as a limited partnership. No assurance can be given that new tax
laws will not significantly affect our qualification as a limited partnership or
the federal income tax consequences of such qualification. New laws could be
applied retroactively, which means that past operations could be found to be in
violation, which would have a negative effect on the Partnership's business. If
the Partnership were to lose its status as a limited partnership for federal and
state tax purposes, the Partnership would be subject to federal and state income
tax on the Partnership's taxable income at the corporate tax rates.
ITEM 2. PROPERTIES
BOILING SPRING LAKES
Boiling Spring Lakes began as a 14,000-acre development commenced by the
Corporation in 1962. Part of the tract is now within the City of Boiling Spring
Lakes, which has approximately 2,270 residents. The city is in Brunswick County,
25 miles south of Wilmington, North Carolina, and 8 miles west of Southport,
placing the city in the northern portion of the coastal corridor connecting
Wilmington, North Carolina and Myrtle Beach, South Carolina.
As of December 31, 2001, the Partnership owns the following real estate in
Boiling Spring Lakes: (1) approximately 439 acres divided into 1,333 plotted
lots, both recorded and unrecorded; (2) approximately 324 acres of undeveloped
land, including 80 acres that are divided into eight 10-acre tracts; (3)
approximately 255 acres designated for commercial use, including five platted
commercial lots comprising in aggregate approximately 3 acres; (4) a single
family residence comprising 1,648 sq. ft. that is rented out by the Partnership;
(5) a building comprising approximately 500 sq. ft. that is leased to the City
of Boiling Spring Lakes at a rate of $1 per year for use as a post office; and
(6) a sales office comprising approximately 1,269 sq. ft. Although the
Partnership sold the assets of Fox Squirrel/The Lakes in a transaction that
closed on March 9, 2001, Fox Squirrel/The Lakes is treated for accounting
purposes as a discontinued operation until such time as the total consideration
received by the Partnership for such sale equals 25% of the aggregate sale price
of $862,500. Therefore, as of December 31, 2001, the Partnership may be deemed
to be the owner of Fox Squirrel/The Lakes, which is comprised of a surveyed
18-hole sprinklered golf course, club house and maintenance building situated on
approximately 163 acres.
During 1988, the Partnership reduced the carrying value of the Boiling
Spring Lakes property as a result of an appraisal obtained in December 1988 (see
Note 3 of the audited financial statements). During 1993, 1995, 1998 and 2000,
the Partnership received updated
-12-
appraisals of the Boiling Spring Lakes property. Based upon the updated
appraisals, no additional reduction to the carrying value was made.
Management intends to emphasize the sale of individual lots at Boiling
Spring Lakes, concentrating on lots situated on existing paved roads. Depending
upon the Partnership's financial resources, cost estimates, and projected sales
prices, among other things, Management may undertake the development of
additional sections of Boiling Spring Lakes.
To increase lot sales, in 1995 Management initiated a project involving
the construction of a house on a lot owned by the Partnership and the immediate
marketing of the house and lot for sale, with the cost of construction financed
with a line of credit from a local bank. After initial success in 1996, the
Partnership continued the project in 1997, with the sale of two improved lots
during the year; the first was sold for $115,000 and generated a profit of
approximately $20,000, and the second was sold for $128,000 and generated a
profit of approximately $17,100. In Fiscal 1998, the Partnership sold one
improved lot for $117,300, generating a profit of approximately $13,700. During
Fiscal 1999, the Partnership sold one improved lot for approximately $130,800,
generating a profit of approximately $11,200. In view of rising construction
costs and decreased margins, the Partnership elected to suspend the project in
2000 and did not construct any houses during Fiscal 2000 or 2001. Management may
resume the project during Fiscal 2002.
During 1995 and 1996, the Partnership conceived plans for a small, phased
development project involving the construction of 23 patio homes on 13
contiguous lots owned by the Partnership as a means of supplementing revenue
from lot sales. The City of Boiling Spring Lakes granted its approval for the
development in 1996. Construction was delayed for nearly two years due to new
state regulations, promulgated after the city granted its approval but before
construction on the patio homes commenced, which required the Partnership to
file storm water drainage plans with respect to the patio homes project. The
storm water drainage plans were filed during 1997 and final approval was granted
during 1998. The Partnership has postponed construction indefinitely due to the
strong regional real estate market, which has driven patio home construction
costs above what Management believes is prudent. Management expects that, once
construction begins, the Partnership will have one or two patio homes under
construction at any given time, and that once a house is sold, construction will
begin immediately on an additional house.
PIMLICO PLANTATION
Pimlico Plantation is situated in Berkeley County, near Charleston, South
Carolina. Pimlico was developed by the Corporation and its predecessors, and as
a result of land sales has been largely wound down. As of December 31, 2001, the
Partnership owns only one residential lot, comprising approximately 3/8 acre, at
this location. In addition, the Partnership owns two lots, comprising an
aggregate of approximately 2 acres, which are designated as park land.
Management believes that the Partnership's remaining land in Pimlico has limited
value.
-13-
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not currently a party to any material pending legal
proceedings. From time to time the Partnership has been and may become a party
to ordinary routine litigation incidental to its business. Management believes
that the potential liability to the Partnership from any of such proceedings is
immaterial.
In the past, litigation has been filed against the Partnership claiming
breach of contract because lots guaranteed in the sales contract as being "high,
dry and suitable for building" will not pass current county health department
requirements regarding the installation of septic tanks and on-site sewage
disposal systems. Management contends this language does not constitute a
guarantee of soil conditions for sewer purposes and that even if it did,
installation and use of septic tanks on these lots would have been permitted
under county regulations in effect prior to August 1976 and that it had no way
of knowing that stricter regulations would later be enacted. In the event
litigation is filed which results in an unfavorable ruling, possible remedies
could include: refunding the purchase price of the lots; building nitrification
fields with fill dirt that would allow installation of sewage disposal systems
on the lots; providing the litigants with lots that will pass current county
health department requirements; and paying monetary damages. If mandated, the
cost of such remedial action in the aggregate could be substantial. No provision
for this contingent liability has been made in the accompanying financial
statements; however, at December 31, 2001 no suits or claims are pending against
the Partnership related to this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS
No matters were submitted to a vote of unit holders during Fiscal 2001.
[THE REST OF THIS PAGE IS BLANK]
-14-
PART II
ITEM 5. MARKET FOR REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY MATTERS
The partnership units are not registered on any exchange, and there is
only a limited over-the-counter market for the units. It is not anticipated that
there will ever be an active public market for the units.
As of December 31, 2001 there were 1,925 registered holders of partnership
units, including 592 registered holders of an aggregate of 67,129 shares of
Corporation common stock which have yet to be exchanged for partnership units.
The total number of record holders is not substantially changed from December
31, 2000.
It is the Partnership's experience that revenues are highly variable and
may not be sufficient in future years to cover expenses and necessary capital
expenditures and that, in the absence of enhanced prospects for the development
as a whole, a bulk sale of assets for cash is extremely difficult to achieve.
See Part I, Item 2, "Properties - Boiling Spring Lakes." Absent such a sale,
Management believes that the best use of the current cash balance and cash
surpluses, if any, generated in future fiscal years is to improve the overall
value of the Partnership's assets by (i) undertaking certain infrastructure and
other improvements in the development, (ii) undertaking on a limited scale home
construction on lots owned by the Partnership to demonstrate the viability of
larger scale building programs, and (iii) keeping accrued expenses as low as
possible. Management believes that this plan will, in future years, result in,
among other things, an increase in the number of lots sold and a higher average
sales price per lot. There can be no assurance, however, that sufficient cash
will be generated from operations to successfully implement Management's plan.
Consistent with such plan and in view of the costs associated with a
distribution to all partners, Management believes it would be impractical and
imprudent to make a general distribution prior to the sale of all or
substantially all of the Partnership's assets, or such time as the Boiling
Spring Lakes development, as a whole, has been established to operate at a level
sufficient to consistently generate revenues in excess of expenses and capital
expenditures. However, from time to time, in accordance with applicable
securities laws, the Partnership may utilize excess cash by repurchasing
partnership units, although there are currently no plans to do so. Since the
amount of excess cash available for such purpose cannot be estimated at this
time due to the highly variable nature of the Partnership's cash flow, there can
be no assurance as to the number of partnership units which will actually be
repurchased, if any such repurchases will, in fact, occur, or the prices at
which such repurchases, if any, will be made. As of the date of this Form 10-K,
none of the Partnership, the General Partner, or any affiliate of either of the
foregoing has made any filing with the Securities and Exchange Commission with
respect to any planned repurchases of partnership units.
-15-
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth in Tables 4 and 5, below, has been
derived from the Partnership's historical audited financial statements. The
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements and related notes thereto.
TABLE 4: SELECTED INCOME STATEMENT DATA
Year Ended December 31,
-----------------------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- ----------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues:
Property sales $ 440,847 $ 2,835,169 $ 555,441 $ 435,046 $ 411,609
Interest income/finance charges 7,867 10,887 1,250 866 1,651
Other revenue 8,920 -0- -0- -0- -0-
--------- ----------- --------- --------- ---------
Total revenue 457,634 2,846,056 556,691 435,912 413,260
Expenses:
Direct cost of property sold 31,757 367,259 163,114 148,013 113,611
SG&A 376,384 511,864 494,740 390,604 391,067
Depreciation 2,462 2,681 3,144 3,262 3,262
Interest 9,801 72,929 81,081 67,817 56,263
--------- ----------- --------- --------- ---------
Total expenses 420,404 954,733 742,079 609,696 564,203
--------- ----------- --------- --------- ---------
Operating income (loss) 37,230 1,891,323 (185,388) (173,784) (150,943)
Other income, net 2,550 3,400 1,266 -0- 694
--------- ----------- --------- --------- ---------
Income (loss) from continuing
operations $ 39,780 $ 1,894,723 $(184,122) $(173,784) $(150,249)
Loss from discontinued operations (67,326) (214,975) (192,953) (162,131) (78,709)
--------- ----------- --------- --------- ---------
Net income (loss) $ (27,546) $ 1,679,748 $(377,075) $(335,915) $(228,958)
========= =========== ========= ========= =========
Per Unit Data
- -------------
Income (loss) from continuing
operations $ 0.02 $ 1.04 $ (0.10) $ (0.10) $ (0.08)
Net income (loss) $ (0.02) $ 0.92 $ (0.21) $ (0.18) $ (0.13)
Distributions None None None None None
-16-
Some amounts in Table 4 for prior years are reclassified to conform to the
presentation in the current year. Such reclassifications have not resulted in a
change in net income or loss.
TABLE 5: SELECTED BALANCE SHEET DATA
At December 31,
---------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ----------- ----------- -----------
Cash, prepaid expenses and other
current assets $ 312,485 $ 242,772 $ 134,861 $ 82,032 $ 148,131
Properties held for sale and
property and equipment, net 846,591 855,491 960,480 1,025,256 911,197
Total assets 1,159,076 1,098,263 1,095,341 1,107,288 1,059,328
Accounts payable and accrued
expenses 123,051 222,620 1,875,204 1,633,202 1,235,189
Deposit on contract 200,548 -0- -0- -0- -0-
Long-term debt 112,876 117,454 141,696 18,570 32,708
Total liabilities 436,475 340,074 2,016,900 1,651,772 1,267,897
Partners' capital (deficit) 722,601 758,189 (921,559) (544,484) (208,569)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Partnership's audited financial statements and the notes thereto which are
attached to this report. Certain amounts in prior years have been reclassified
to conform to the presentation in the current year.
CRITICAL ACCOUNTING POLICIES
The Partnership's discussion and analysis of its financial condition and
results of operations are based upon the Partnership's financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The Partnership believes the following
critical accounting policies affect its more significant judgments and estimates
used in the preparation of its financial statements.
- - PROPERTY SALES AND REALIZABILITY OF CARRYING VALUE OF PROPERTIES HELD FOR
SALE.
Property sales represent individual building lots sold for cash and the
gross sales price of residential houses built or acquired by the Partnership for
resale. Land cost included in direct
-17-
costs of property sold represents the proportionate amount of the total initial
project costs, after recorded valuation allowances, based on the sales value of
the lot to the total estimated project sales value plus the value per lot of any
capital improvements made subsequent to the initial project costs. The
Partnership obtains appraisals periodically for the Boiling Spring Lakes
properties and evaluates the carrying value of the properties based on those
appraisals. The Partnership does not expect to reduce the carrying value of the
properties in the near future.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
For the years ended December 31, 2001 and 2000, revenue from the sale of
real estate was $440,847 and $2,835,169, respectively. Management attributes the
decrease principally to the sale of land to The Nature Conservancy in two
separate transactions during 2000 as described in Part I, Item 1, "Business of
Registrant - Boiling Spring Lakes." Other than from such transactions, revenue
from the sale of real estate in Fiscal 2000 was $435,169. Management attributes
the 1% increase in revenue principally to a larger number of unimproved
residential lots sold in 2001 than in 2000, 68 as compared to 56, and to the
sale during 2001 of two nonresidential tracts, whereas only one nonresidential
tract was sold in 2000.
Selling, general and administrative expenses for 2001 were $376,384,
compared to $511,864 in 2000. Management attributes the decrease principally to
lower general partner's fees which reflect the fact that following the sale of
Fox Squirrel/The Lakes, the General Partner has had to devote less time to the
affairs of the Partnership than in the past, and lower real estate taxes, which
reflect the land sales during 2001. Direct cost of property sold in 2001 was
$31,757, compared to $367,259 in 2000. Management attributes the decrease
principally to the sale of land to The Nature Conservancy during 2000.
Depreciation was $2,462 in 2001, compared to $2,681 in 2000. Management
attributes the decrease principally to more assets being fully depreciated in
2001 than in the prior year. Interest expense was $9,801 in 2001, compared to
$72,929 in 2000. Management attributes the decrease in interest expense
primarily to a lower average outstanding balance of indebtedness during 2001 to
the General Partner and its affiliates. The General Partner and its affiliates
charge the Partnership interest on accrued but unpaid expenses.
Fox Squirrel/The Lakes is classified as a discontinued operation. The
Partnership's financial results for Fiscal 2001 reflect the operations of Fox
Squirrel/The Lakes only for the period from January 1, 2001 through March 9,
2001, the closing date of the sale. In addition, the results for 2001 include
certain post-closing adjustments totaling $4,390, comprised of $1,580 in
adjustments to revenue (reflecting a revision to the allocation of revenue made
at closing) and $2,810 in adjustments to selling, general and administrative
expenses (reflecting a revision to the allocation of expenses made at closing).
As a result, the Partnership's financial results for 2001 reflect operations of
Fox Squirrel/The Lakes for a significantly shorter period of time than do the
results for 2000. For Fiscal 2001 and 2000, revenues and expenses for Fox
Squirrel/The Lakes are set forth in Table 6.
-18-
TABLE 6:
FOX SQUIRREL COUNTRY CLUB / THE LAKES COUNTRY CLUB
SUMMARY OF REVENUES AND EXPENSES - 2001 AND 2000
For the 12 Months Ended Dec. 31,
--------------------------------
2001 2000
-------- ---------
Revenue $ 32,511 $ 332,462
Expenses:
Direct costs of revenue 5,911 37,759
Selling, general and administrative 82,670 392,106
Depreciation 9,965 55,528
Interest, net 1,291 62,044
-------- ---------
Total expenses 99,837 547,437
-------- ---------
Loss from discontinued operations $(67,326) $(214,975)
======== =========
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
For the years ended December 31, 2000 and 1999, revenue from the sale of
real estate was $2,835,169 and $555,441, respectively. Management attributes the
increase principally to the sale of land to The Nature Conservancy in two
separate transactions during 2000 as described in Part I, Item 1. Other than
from such transactions, revenue from the sale of real estate in Fiscal 2000 was
$435,169. Management attributes the 22% decrease in revenue principally to a
lower number of unimproved residential lots sold in 2000 than in 1999, 56 as
compared to 68, and to the sale during 1999 of one improved lot and seven
nonresidential tracts, whereas only one unimproved lot was sold in 2000. The
decrease in the number of lots sold, in turn, is primarily attributable to a
somewhat weaker regional real estate market during 2000 than in 1999.
Selling, general and administrative expenses for 2000 were $511,864,
compared to $494,740 in 1999. Management attributes the increase principally to
higher legal, accounting and auditing fees, and consulting fees relating to
environmental matters. Direct cost of property sold in 2000 was $367,259,
compared to $163,114 in 1999. Management attributes the increase principally to
the sale of land to The Nature Conservancy during 2000. Depreciation was $2,681
in 2000, compared to $3,144 in 1999. Management attributes the decrease
principally to more assets being fully depreciated in 2000 than in the prior
year. Interest expense was $72,929 in 2000, compared to $81,081 in 1999.
Management attributes the decrease in interest expense primarily to a lower
average outstanding balance of indebtedness during 2000 to the General Partner
and its affiliates. The General Partner and its affiliates charge the
Partnership interest on accrued but unpaid expenses.
-19-
Fox Squirrel/The Lakes is classified as a discontinued operation. For
Fiscal 2000 and 1999, revenues and expenses for Fox Squirrel/The Lakes are set
forth in Table 7.
TABLE 7:
FOX SQUIRREL COUNTRY CLUB / THE LAKES COUNTRY CLUB
SUMMARY OF REVENUES AND EXPENSES - 2000 AND 1999
For the 12 Months Ended Dec. 31,
--------------------------------
2000 1999
--------- ---------
Revenue $ 332,462 $ 355,506
Expenses:
Direct costs of revenue 37,759 34,366
Selling, general and administrative 392,106 371,292
Depreciation 55,528 62,970
Interest, net 62,044 79,831
--------- ---------
Total expenses 547,437 548,459
--------- ---------
Loss from discontinued operations $(214,975) $(192,953)
========= =========
LIQUIDITY AND CAPITAL RESOURCES
The Partnership requires cash primarily for the payment of overhead,
operating expenses and capital expenditures incurred in connection with real
estate sales and, until the sale of Fox Squirrel/The Lakes in March 2001, the
operation of Fox Squirrel/The Lakes. Historically, the Partnership has met its
liquidity requirements by accruing general partners fees and certain other fees
and expenses payable to the General Partner and its affiliates, selling certain
non-real estate assets, and, from time to time, by borrowing from local banks or
the General Partner and/or its affiliates. Cash is generated primarily from
individual lot sales and may not be sufficient to meet future operating costs,
debt service and other cash requirements. The Partnership may seek to increase
the amount of its credit facility, negotiate additional credit facilities, issue
debt on such terms and conditions as the General Partner deems prudent, or seek
other forms of debt or equity financing as the General Partner deems
appropriate.
The Partnership finances construction of houses for sale on lots owned by
the Partnership with construction loans obtained through a line of credit
established with a local bank. From time to time, the bank will make payments to
the contractor for work performed, increasing the amount of the construction
loan and decreasing by the same amount the total available for future borrowing
under the line of credit. Borrowing under the line of credit in respect of any
house is
-20-
repaid at closing of the sale. Under the terms of the line of credit, if the
house is unsold at the time of its completion, interest will accrue for up to
one year after the date of the first draw, after which time the construction
loan converts to a fixed-rate loan. At any given time, the Partnership has not
had more than one construction loan outstanding, with a maximum balance,
including accrued interest, not exceeding $110,000, and has generally succeeded
in selling the house and lot on which it stands prior to the completion of
construction. During 2001, the Partnership did not construct or begin
construction on any house for sale and so no lines of credit were utilized and
no debt incurred in connection with any such construction. In 2002 and
subsequent years, depending upon market conditions and other factors, the
Partnership may seek to have up to two such loans outstanding at any given time
and the maximum amount of any loan is not expected to exceed $120,000.
In March 1999, the Partnership borrowed $120,000 from a local financial
institution to finance the purchase of an improved residential lot. The
Partnership has leased the property to third parties for terms generally of one
year while making monthly payments on the financing. Management expects to
continue leasing the property for the foreseeable future but may elect to sell
the property, at which time the remaining balance on the financing will be
repaid. As of December 31, 2001, the unpaid principal on such financing was
$112,876.
During 2001, the Partnership used $10,336 of cash in operating activities,
compared to $1,859,914 of cash provided by operating activities during 2000. The
amount for 2000 includes $2,400,000 received from The Nature Conservancy as
consideration for the sale of land.
Cash provided by investing activities was $165,264 in 2001, compared to
$68,365 of cash used in 2000. The amount for 2001 includes $209,773 received
from WW-Golf as part of the consideration for the sale of Fox Squirrel/The Lakes
and $9,225 of cash used for transaction costs related to the sale of Fox
Squirrel/The Lakes. Otherwise, cash used in investing activities in 2001 was
$35,284. Management attributes the decrease principally to expenditures made in
2000 relating to the repair of a dam washed out during 2000.
Cash used in financing activities in 2001 was $81,918, compared to
$1,697,520 during 2000. Management attributes the change principally to the
payment of accrued expenses owed to the General Partner and its affiliates
during 2000.
During 2002 Management expects capital expenditures to include
approximately $40,000 to $60,000 to repair a dam, the maintenance of which is
the Partnership's responsibility, and up to approximately $40,000 to improve
certain roads within the development. Such capital expenditures are expected to
be funded from existing cash balances. Other capital projects may be undertaken,
depending upon, among other factors, the Partnership's cash position and
Management's expectations of return on investment.
-21-
IMPACT OF INFLATION
Generally, demand for real estate is adversely affected by increases in
interest rates. To the extent that a significant increase in the rate of
inflation leads to a significant increase in interest rates, the Partnership's
ability to sell real estate may be significantly adversely affected.
Inflation has had only a minor impact on the Partnership's operations
during the fiscal years ended December 31, 2001, 2000 and 1999. Moderate
increases in costs and expenses incurred as a result of inflation have,
Management believes, largely been offset by moderate increases in the sales
prices of land sold.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's principal market risk exposure is to changes in interest
rates, which are highly sensitive to many factors, including governmental
monetary and tax policies, domestic and international economic and political
considerations, and other factors beyond the control of the Partnership. Changes
in the general level of interest rates can affect the Partnership's revenue from
property sales, since the market for real estate in general varies to a large
degree upon the level and stability of interest rates. Generally, when interest
rates are high or are increasing, the market for real estate declines, and when
interest rates are low or are stable, the market for real estate increases. The
Partnership does not enter into derivative contracts for its own account to
hedge against the risk of changes in interest rates.
At December 31, 2001, the Partnership had cash of $296,993, substantially
all of which is deposited in interest-bearing accounts at a local financial
institution, and owed $112,876 to that same institution in the form of long-term
debt secured by a mortgage on an improved residential lot purchased in 1999. The
interest rate earned on the cash balance is variable. The interest rate on the
outstanding principal amount of the loan is fixed at 8.65%. Had the average
level of interest rates during 2001 been higher or lower by 100 basis points or
one percent (1%), the Partnership would have earned approximately $2,900 more or
less, respectively, on its cash balances. Since the interest rate on the
Partnership's outstanding debt is fixed, there would have been no change in
interest expense.
The fair value of long-term debt has been estimated by discounting the
future cash flows using the current rates offered for debt issues with similar
characteristics. Based on the borrowing rates available to the Partnership at
December 31, 2001, the fair value of long-term debt is $115,411, compared to the
carrying value of $112,876.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part III, Item 14, "Exhibits, Financial Statement Schedules, and
Reports on Form 8- K," for response to this item.
-22-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements between the Partnership and
PricewaterhouseCoopers LLP on accounting and financial matters.
[THE REST OF THIS PAGE IS BLANK]
-23-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF GENERAL PARTNER
Period of Service as
Name Age General Partner Commenced
- -------------------------------------- -------------- -----------------------------------
Grace Property Management, Inc. N/A May 15, 1980
Grace Property Management, Inc. is a Delaware corporation engaged in the
business of real estate management. It is owed 90% by Natalie Brinckerhoff, as
trustee for John S. Grace; 5% by the Bank of Butterfield Executor & Trustee
Company, as trustee for John S. Grace, and 5% by the Estate of Oliver R. Grace,
Mr. Grace being a former director of Registrant's predecessor.
The Partnership knows of no late or delinquent Form 3, 4 or 5 filings.
INDEMNIFICATION OF EXECUTIVE OFFICERS
None.
ITEM 11. EXECUTIVE COMPENSATION
The total compensation paid to the General Partner during each of the last
three fiscal years is set forth in Table 8.
TABLE 8: SUMMARY COMPENSATION TABLE
General
Partner's
Name and Position Year Fee
- ------------------------------- ---- ---------
Grace Property Management, Inc., 2001 $ 90,000
General Partner
2000 161,250
1999 175,000
-24-
Prior to Fiscal 2000, except for $25,000 paid in April 1990, the
Partnership had not paid the General Partner its general partner's fee since
January 1986, although they have been provided for in the Partnership's
financial statements. During Fiscal 2000, the Partnership paid to the General
Partner $1,018,500, representing unpaid general partner's fees through June 30,
2000. During 2001, the Partnership paid to the General Partner $143,750,
representing unpaid general partner's fees from July 1, 2000 through September
30, 2001. As of December 31, 2001, general partner's fees accrued but not paid
to Grace Property Management totaled $20,000.
The Partnership has no ongoing plan or arrangement with respect to future
remuneration to Grace Property Management other than to accrue interest (at an
annual rate of 10%, compounded quarterly) on the unpaid balance when cash flow
is insufficient to pay general partner's fees. As of December 31, 2001, the
Partnership had a group life insurance plan in place covering the full-time
employees of the Partnership located in Boiling Spring Lakes. The Partnership
has no pension or profit sharing plan but does provide for incentive bonus
compensation to its employees for meeting or exceeding predesignated budget
targets. The Partnership has no options, warrants, or appreciation rights
outstanding. No Management person is indebted to the Partnership. Other than for
accrued vacation and accrued travel and other expenses, the Partnership is not
indebted to any of its employees.
See Item 13, "Certain Relationships and Related Transactions," for
payments of interest on accrued and unpaid general partner's fees paid to the
General Partner, and for other payments made to affiliates of the General
Partner.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2001, the Partnership has 1,812,062 partnership units
issued and outstanding. Information with respect to the principal holders of
record known to the Partnership to beneficially own more than five percent (5%)
of the outstanding voting securities is set forth in Table 9.
TABLE 9: SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership Class
- ----------------------------- --------------------------------------- ------------
Estate of Oliver R. Grace 421,680 units are owned by the Estate 23.1%
515 Madison Avenue of Oliver R. Grace, Mr. Grace's widow
26th Floor and a company he formerly controlled
New York, NY 10022
-25-
The Estate of Oliver R. Grace beneficially owns 421,680 units (including
39,950 units held in trusts of which the Estate of Oliver R. Grace is the
trustee). In addition, other members of the family beneficially own an
additional 218,665 units, which represents approximately 12.0% of the units
issued and outstanding. The Estate of Oliver R. Grace disclaims beneficial
ownership with respect to these additional units as well as the 39,950 units
held in certain trusts.
The General Partner owns 25,100 partnership units, representing
approximately 1.4% of all units issued and outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 the Partnership borrowed $200,000 from Mr. John S. Grace,
president of the General Partner, in the form of a promissory note due June 1,
1998. The note bore interest at a rate equal to 6% over 12-month LIBOR and
required quarterly interest payments. During 1997, the Partnership paid $11,400
in interest on such note and made prepayments of principal totaling, in
aggregate, $60,000. During 1998, the Partnership paid $3,275 in interest on such
note and repaid $40,000 in principal. At June 1, 1998, $20,000 in principal
remained unpaid. Pursuant to the terms of the promissory note, the interest rate
increased to 9% over 12-month LIBOR on the unpaid balance. At December 31, 1998,
$10,000 in principal and $352 in accrued interest remained unpaid. During 1999,
the Partnership paid the remaining principal and interest totaling $1,078.
For fiscal years 2001, 2000 and 1999, the General Partner and its
affiliates charged the Partnership for general partner's fees, legal services,
office space used by various members of the Partnership's management, and
interest on unpaid balances at an annual rate of 10%, compounded quarterly, as
set forth in Table 10 below (see Item 11, "Executive Compensation"). All of such
charges have been provided for in the Partnership's financial statements.
TABLE 10: CHARGES BY GENERAL PARTNER AND ITS AFFILIATES
2001 2000 1999
------- -------- --------
General Partner's fee $90,000 $161,250 $175,000
Legal services 4,500 13,500 9,999
Rent for office space 15,000 15,000 15,000
Consulting fees 3,982 240,000 -0-
Interest on unpaid balances 3,254 141,245 158,923
Amounts paid by the Partnership to the General Partner and its affiliates
during 2001 reflect amounts previously accrued and unpaid and are $11,500 for
legal fees, $18,750 for rent, $143,750 for general partner's fees, and $4,517
for interest. In addition, an affiliate of the
-26-
General Partner was paid $3,982 for consulting fees in connection with the sale
of Fox Squirrel/The Lakes, as further described later in this section. At
December 31, 2001, amounts accrued and unpaid to the General Partner and its
affiliates are $3,750 for rent and $20,000 for general partner's fees, and such
amounts were paid in the First Quarter of Fiscal 2002.
Amounts paid by the Partnership to the General Partner and its affiliates
during 2000 reflect amounts previously accrued and unpaid, and are $135,228 for
legal fees, $101,404 for rent, $30,000 for commissions, $1,018,500 for general
partner's fees, and $722,678 for interest. In addition, an affiliate of the
General Partner was paid $240,000 for consulting fees in connection with the
sale of land to The Nature Conservancy, which amount was included in direct
costs of property sold.
In connection with the sale of the assets of Fox Squirrel/The Lakes in
March 2001, an affiliate of the General Partner was paid consulting fees of
$3,750 at closing. The Partnership made further payments of consulting fees to
such affiliate equal to 2 1/2% of the principal payments received in respect of
the promissory note issued by WW-Golf to the Partnership, as and when such
principal payments were collected by the Partnership. During 2001 such
additional consulting fee payments totaled $232. Assuming that all future
payments of principal on the promissory note are received in a timely manner,
the Partnership will pay additional consulting fees to such affiliate of $337 in
Fiscal 2002, $370 in Fiscal 2003, and $16,873 in Fiscal 2004. During the First
Quarter of Fiscal 2002, the Partnership paid consulting fees totaling $81.
Except for the preceding items, there were no transactions between
Management (or the immediate families of Management) and the Partnership during
the fiscal year ended December 31, 2001 or thereafter. Further, there were no
other related party transactions and there existed no indebtedness to the
Partnership from Management (or any member of the immediate family of
Management).
[THE REST OF THIS PAGE IS BLANK]
-27-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The documents filed as part of this report are listed in the Index to
Financial Statements and Supplemental Schedules set forth in Table 11, below.
TABLE 11: INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
Document Page
- -------------------------------------------------------------- ----------
The following financial information is contained within
Exhibit 1, "Audited Financial Statements":
Report of Independent Accountants F-1
Balance Sheets as of December 31, 2001 and 2000 F-2
Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 F-3
Statements of Partners' Capital/(Deficit) for the
years ended December 31, 2001, 2000 and 1999 F-4
Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999 F-5
Notes to Financial Statements F-6 -13
Report of Independent Accountants on Supplemental Schedules 42
Valuation and Qualifying Accounts 43
Real Estate and Accumulated Depreciation 44
All other required supplemental financial schedules are either contained
within the notes to the financial statements or are not applicable.
REPORTS ON FORM 8-K
No current reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 2001.
-28-
INDEX TO EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A complete listing of exhibits, including those incorporated by reference,
is shown on Table 12. All other exhibits or financial statement schedules are
not applicable.
TABLE 12: LIST OF EXHIBITS
Exhibit Description of Exhibit Page
No.
- ----------- ---------------------------------------------------------------------- --------
3.1 The Limited Partnership Agreement of Reeves Telecom Associates sets [a]
forth the rights of unit holders. Such agreement was filed as
Exhibit B to Amendment No.2 to the Partnership's Registration
Statement on Form S-14 dated March 28, 1980 (Registration
No.2-66452).
10.1 Purchase Agreement I between the Partnership, as seller, and The [a]
Nature Conservancy, as purchaser, dated May 1, 2000 relating to the
sale of tracts of wetlands and woodlands. Such agreement was filed
as part of Form 8-K filed on June 21, 2000.
10.2 Purchase Agreement II between the Partnership, as seller, and The [a]
Nature Conservancy, as purchaser, dated May 1, 2000 relating to the
sale of certain individual lots and certain land suitable for
commercial development. Such agreement was filed as part of Form 8-K
filed on June 21, 2000.
10.3 Purchase and Sale Agreement between the Partnership, as seller, and [a]
WW-Golf & Services, LLC, as purchaser, dated October 18, 2000
relating to the sale of the assets of Fox Squirrel Country Club,
with exhibits. Such agreement was filed as Exhibit 10.1 to Form 10-Q
filed on November 14, 2000.
10.4 Amendments No. 1 through 7 to the Purchase and Sale Agreement [a]
relating to the sale of the assets of Fox Squirrel Country Club.
Such amendments were filed as Exhibit 10.4 to Form 10-K filed on
March 29, 2001.
10.5 Loan Agreement between the Partnership, as lender, and WW- Golf & [a]
Services, LLC, as borrower, dated March 9, 2001. Such agreement was
filed as Exhibit 10.5 to Form 10-K filed on March 29, 2001.
Promissory Note dated March 9, 2001, issued by WW-Golf & Services,
10.6 LLC to the Partnership in connection with the sale of the assets of [a]
Fox Squirrel Country Club. Such note was filed as Exhibit 10.6 to
Form 10-K filed on March 29, 2001.
-29-
Exhibit Description of Exhibit Page
No.
- ----------- ---------------------------------------------------------------------- --------
10.7 Indemnification Agreement dated March 9, 2001 between the [a]
Partnership and WW-Golf & Servcies, LLC to the Partnership issued in
connection with the sale of the assets of Fox Squirrel Country Club.
Such agreement was filed as Exhibit 10.7 to Form 10-K filed on March
29, 2001.
16.1 Letter from KPMG Peat Marwick, L.L.P., the former independent [a]
accountant of the Partnership, regarding its concurrence with the
statements made by the Partnership concerning the resignation or
dismissal as the Partnership's principal accountant. Such letter was
filed as part of Form 8-K filed on May 8, 1997.
99.1 The Robert C. Cantwell IV, MAI appraisals of the Boiling Spring [a]
Lakes property dated 12/21/88, 7/17/84, and 2/23/82. Such appraisals
were filed as an exhibit to Form 10-K for September 30, 1988.
The Robert C. Cantwell IV, MAI appraisal of the Boiling Spring Lakes
99.2 property dated September 10, 1993. Such appraisal was filed as an [a]
exhibit to Form 10-K for September 30, 1993.
The Robert C. Cantwell IV, MAI appraisal of the Boiling Spring Lakes
99.3 property dated July 10, 1995. Such appraisal was filed as Exhibit 3 [a]
to Form 10-K for December 31, 1995.
P - The Robert C. Cantwell IV, MAI appraisal of the Boiling Spring
99.4 Lakes property dated September 1, 1998. Such appraisal was filed as [a]
a paper exhibit to Form 10-Q for September 30, 1998 pursuant to a
continuing hardship exemption as provided in Rule 202 of Regulation
S-T.
The Robert C. Cantwell IV, MAI appraisal of the Boiling Spring Lakes
99.5 property dated as of December 31, 2000. Such appraisal was filed as [a]
Exhibit 99.5 to Form 10-K filed on March 29, 2001.
NOTES:
[a] Incorporated herein by reference.
-30-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
REEVES TELECOM LIMITED PARTNERSHIP
Signatures Title Date
- ---------- ----- ----
By: Grace Property Management, Inc. General Partner March 27, 2002
---------------
By: /s/ JOHN S. GRACE
------------------------------
John S. Grace
President
-31-
REEVES TELECOM
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
REEVES TELECOM LIMITED PARTNERSHIP
INDEX
- --------------------------------------------------------------------------------
PAGE(S)
Report of Independent Accountants 1
Financial Statements:
Balance Sheets as of December 31, 2001 and 2000 2
Statements of Operations for the years ended December 31, 2001, 2000 and 1999 3
Statements of Partners' Capital/(Deficit) for the years ended December 31, 2001,
2000 and 1999 4
Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 5
Notes to Financial Statements 6 - 13
[PRICEWATERHOUSECOOPERS LOGO]
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Reeves Telecom Limited Partnership
In our opinion, the financial statements listed in the index appearing under
Item 14 and listed on page 28 of this Form 10-K present fairly, in all material
respects, the financial position of Reeves Telecom Limited Partnership at
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 of America.
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 audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 12 to the
financial statements, the cash generated from individual lot sales may not be
sufficient to meet future operating costs, debt service and other cash
requirements and raise substantial doubt about the entity's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 12. The financial statements do not include any adjustments
relating to the recoverability of reported asset amounts or the amounts of
liabilities that might result should the Partnership be unable to continue as a
going concern.
/s/ PricewaterhouseCoopers LLP
March 15, 2002
Raleigh, North Carolina
REEVES TELECOM LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
- --------------------------------------------------------------------------------
2001 2000
---------- ----------
ASSETS
Cash $ 296,993 $ 223,983
Prepaid expenses and other current assets 15,492 18,789
Properties held for sale and property and equipment:
Properties held for sale 346,011 342,484
Sales property and equipment, net 57,993 60,456
Country club property and equipment, net 442,587 452,551
---------- ----------
Total properties held for sale and property and equipment, net 846,591 855,491
---------- ----------
Total assets $1,159,076 $1,098,263
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 92,633 $ 122,904
Accrued expenses, affiliates 30,418 99,716
Deposit on contract, net 200,548 --
Long-term debt 112,876 117,454
---------- ----------
Total liabilities 436,475 340,074
Commitments and contingencies
Partners' capital - issued and outstanding 1,812,062 and 1,828,148
units at December 31, 2001 and 2000, respectively 722,601 758,189
---------- ----------
Total liabilities and partners' capital $1,159,076 $1,098,263
========== ==========
The accompanying notes are an integral part of these financial statements.
2
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
2001 2000 1999
----------- ----------- -----------
Revenues:
Property sales $ 440,847 $ 2,835,169 $ 555,441
Interest income and finance charges 7,867 10,887 1,250
Other revenue 8,920 -- --
----------- ----------- -----------
457,634 2,846,056 556,691
----------- ----------- -----------
Expenses:
Direct costs of property sold 31,757 367,259 163,114
Selling, general and administrative expenses 376,384 511,864 494,740
Depreciation 2,462 2,681 3,144
Interest 9,801 72,929 81,081
----------- ----------- -----------
420,404 954,733 742,079
----------- ----------- -----------
Operating income (loss) 37,230 1,891,323 (185,388)
Other income:
Rental income 2,550 3,400 --
Timber sales -- -- 1,266
----------- ----------- -----------
Income (loss) from continuing operations 39,780 1,894,723 (184,122)
Loss from discontinued operations (67,326) (214,975) (192,953)
----------- ----------- -----------
Net income (loss) $ (27,546) $ 1,679,748 $ (377,075)
=========== =========== ===========
Income (loss) per partnership unit from
continuing operations $ 0.02 $ 1.04 $ (0.10)
=========== =========== ===========
Income (loss) per partnership unit $ (0.02) $ 0.92 $ (0.21)
=========== =========== ===========
Weighted average partnership units outstanding 1,814,070 1,828,148 1,828,148
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
3
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL/(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
2001 2000 1999
----------- ----------- -----------
Partners' capital (deficit) at beginning of year $ 758,189 $ (921,559) $ (544,484)
Repurchase of partnership units (8,042) -- --
Net income (loss) (27,546) 1,679,748 (377,075)
----------- ----------- -----------
Partners' capital (deficit) at end of year $ 722,601 $ 758,189 $ (921,559)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
- -------------------------------------------------------------------------------
2001 2000 1999
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ (27,546) $ 1,679,748 $ (377,075)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 12,427 58,209 66,114
Gain on sale of residential property -- -- (13,364)
Loss on sale of equipment -- 779 --
Provision for loss on property held for sale 3,585 9,715 14,961
Change in assets and liabilities:
Prepaid and other assets 3,297 (13,882) 7,261
Property held for sale, net 28,172 104,651 16,041
Accounts payable and accrued expenses (30,271) 20,694 22,135
----------- ----------- -----------
Net cash provided by (used in) operating activities (10,336) 1,859,914 (263,927)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of land improvements and equipment (35,284) (68,365) (18,976)
Receipt of deposit on contract 209,773 -- --
Transaction costs related to the sale of the country club (9,225) -- --
----------- ----------- -----------
Net cash provided by (used in) investing activities 165,264 (68,365) (18,976)
----------- ----------- -----------
Cash flows from financing activities:
Repurchase of partnership units (8,042) -- --
Proceeds from long-term debt -- -- 120,000
Repayment of long-term debt (4,578) (24,242) (135,929)
Increase (decrease) in accrued expenses, affiliates (69,298) (1,673,278) 358,922
----------- ----------- -----------
Net cash provided by (used in) financing activities (81,918) (1,697,520) 342,993
----------- ----------- -----------
Net increase in cash 73,010 94,029 60,090
Cash at beginning of year 223,983 129,954 69,864
----------- ----------- -----------
Cash at end of year $ 296,993 $ 223,983 129,954
=========== =========== ===========
Supplemental information:
Interest paid $ 16,761 $ 723,755 $ 3,240
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. PLAN OF LIQUIDATION
On May 17, 1979 the stockholders of Reeves Telecom Corporation (the
"Corporation") approved a plan of liquidation (the "Plan") for the
Corporation and its subsidiaries. The plan, which was determined by the
Internal Revenue Service to qualify as a Section 337 liquidation,
authorized the Corporation's Board of Directors to sell the
Corporation's assets and distribute any remaining unsold assets to its
stockholders and/or a liquidation trust. On May 8, 1980, stockholders
at a special meeting approved an amendment to the Plan whereby assets
not sold within one year of the date the Plan was approved could, at
the discretion of the Board of Directors, be transferred from the
Corporation to a South Carolina limited partnership which would
undertake to sell the remaining assets on behalf of the stockholders.
On May 15, 1980, the Corporation was liquidated and all of its unsold
assets and liabilities were transferred to Reeves Telecom Associates, a
South Carolina limited partnership (the "Partnership"). Stockholders of
the Corporation received one Partnership unit in exchange for each
share of common stock. The units are registered under the Securities
Act of 1933 but are not listed on any national securities exchange. In
January 1987, pursuant to a change in South Carolina law, the
Partnership's legal name was changed from Reeves Telecom Associates to
Reeves Telecom Limited Partnership. From the liquidation of the
remaining assets, the Partnership may acquire additional properties or
make distributions to the partners. The Partnership currently has no
intent to acquire additional properties, but is not precluded from
doing so. These financial statements have been prepared on a basis of
going concern.
Pursuant to the Plan, the Corporation sold all of its broadcasting
assets and substantially all of the land held for development and sale
at one of its two land development locations and distributed cash to
its stockholders of $.90 per share on February 29, 1980 and $2.30 per
share on May 15, 1980.
Remaining assets relate primarily to land held for sale and cash,
generated primarily from the sale of timber, real estate and operation
of a golf club (Note 3). During the first quarter of 2001, the
Partnership sold the golf club (Note 13). The Partnership intends to
continue to sell lots in the normal course of business as a plan of
liquidation and, while no assurances can be given, the Partnership
believes the carrying value of the remaining lots is less than their
net realizable value. Should the Partnership change its plans from the
current longer term liquidation approach to a bulk sale and/or
abandonment, the net amount realized could be less than the carrying
value which could result in liabilities exceeding the Partnership's
assets.
The Partnership's Managing General Partner is Grace Property
Management, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared using the
accrual basis of accounting. The Partnership's assets have been written
down, from time to time, to reflect their fair values based upon
appraisals.
6
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount 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.
PROPERTY SALES
Property sales represent individual building lots sold for cash and the
gross sales price of residential houses built or acquired by the
Partnership for resale. Land cost included in direct costs of property
sold represents the proportionate amount of the total initial project
costs, after recorded valuation allowances, based on the sales value of
the lot to the total estimated project sales value plus the value per
lot of any capital improvements made subsequent to the initial project
costs.
PROPERTIES HELD FOR SALE AND PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Depreciation for financial reporting purposes is
calculated on the straight-line basis over the estimated useful lives
of 8 to 31.5 years for buildings and 5 to 20 years for equipment and
land improvements.
The Partnership assesses the realizability of the carrying value of its
properties held for sale and related buildings and equipment whenever
events or changes in circumstance indicate that an impairment may have
occurred in accordance with the provisions of Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of".
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Partnership considers
cash as cash on hand, cash deposited in financial institutions and
money market accounts with maturities of less than ninety days at the
date of purchase. Cash equivalents are stated at cost which
approximates market value.
CONCENTRATIONS
The Partnership's cash is placed in a major domestic bank. At December
31, 2001, the amounts on deposit exceeded the FDIC insurance limit by
approximately $225,000.
For the year ended December 31, 2000, $2,400,000 in revenue from
property sales was attributable to one buyer. Profit on these sales
amounted to $2,080,670 in the year.
ADVERTISING COSTS
Advertising costs of $19,570, $33,018 and $29,830 were expensed as
incurred during the years ended December 31, 2001, 2000 and 1999,
respectively.
RECLASSIFICATIONS
Certain amounts in the 1999 financial statements have been reclassified
to conform with the 2000 and 2001 presentation. The reclassifications
had no effect on previously reported net loss, or partners' capital
(deficit).
7
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. PROPERTIES HELD FOR SALE AND PROPERTY AND EQUIPMENT
During December 2000, the Partnership obtained an appraisal of the
properties held for sale and the country club. Based upon the
appraisal, the valuation allowance established in previous years was
considered adequate.
A summary of properties held for sale and property and equipment at
December 31, 2001 and 2000 is as follows:
2001 2000
-------- --------
Properties held for sale:
Boiling Springs Lakes land held for sale $787,671 $790,348
Pimlico Plantation lots 250 500
Residential house held for sale 158,260 154,676
-------- --------
946,181 945,524
Less valuation allowance 600,170 603,040
-------- --------
Total properties held for sale 346,011 342,484
-------- --------
Sales property and equipment:
Land and land improvements 59,895 59,895
Buildings 46,958 46,958
Equipment 6,282 6,282
-------- --------
113,135 113,135
Less accumulated depreciation 55,142 52,679
-------- --------
Total sales property and equipment, net 57,993 60,456
-------- --------
Country club property and equipment:
Land and land improvements 410,555 410,555
Buildings 250,129 250,129
Equipment 317,353 317,353
-------- --------
978,037 978,037
Less accumulated depreciation 535,450 525,486
-------- --------
Total country club property and equipment, net 442,587 452,551
-------- --------
Total properties held for sale and property
and equipment, net $846,591 $855,491
======== ========
8
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. ACCRUED EXPENSES, AFFILIATES
A summary of accrued expenses owed to affiliates at December 31, 2001
and 2000 is as follows:
2001 2000
------- -------
General partner fees $20,000 $73,750
Legal fees -- 7,000
Rent 3,750 7,500
Interest -- 4,798
Fees to a former general partner 6,668 6,668
------- -------
$30,418 $99,716
======= =======
General Partner's fees represent amounts owed to the General Partner.
Legal fees and rent represent amounts owed to certain affiliates of the
General Partner. From time to time the General Partner and its
affiliates charge the Partnership interest on amounts owed to them by
the Partnership, which interest is accrued by the Partnership as being
owed to such entities. See Note 6 for additional information regarding
related party transactions.
5. LONG-TERM DEBT
Long-term debt at December 31, 2001 and 2000 consists of the following:
2001 2000
-------- --------
8.65% note payable in monthly installments of $1,193,
including interest, maturing March 27, 2005. Collateralized
by property with a net book value of $130,000 at
December 31, 2001 and 2000 $112,876 $116,024
8.57% note payable in monthly installments of $1,430, including
interest, maturing in February 2001, collateralized by equipment
with a net book value of $14,379 at December 31, 2000 -- 1,430
-------- --------
$112,876 $117,454
-------- --------
Principal maturities of long-term debt for the years subsequent to
December 31, 2001 are as follows:
2002 $ 4,752
2003 5,180
2004 5,646
2005 97,298
--------
$112,876
========
9
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
6. RELATED PARTY TRANSACTIONS
The General Partner and its affiliates charged the Partnership for
services and office space for the years ended December 31, 2001, 2000
and 1999 as follows:
2001 2000 1999
-------- -------- --------
General Partner fees $ 90,000 $161,250 $175,000
Legal fees 4,500 13,500 9,999
Office space 15,000 15,000 15,000
Consulting fees 3,982 240,000 --
Interest at 10% 3,254 141,245 158,923
-------- -------- --------
$116,736 $570,995 $358,922
-------- -------- --------
7. LITIGATION
In the past, litigation has been filed against the Partnership claiming
breach of contract because lots guaranteed in the sales contract as
being "high, dry and suitable for building" will not pass current
county health department requirements regarding the installation of
septic tanks and on-site sewage disposal systems. Management contends
this language does not constitute a guarantee of soil conditions for
sewer purposes and that even if it did, installation and use of septic
tanks on these lots would have been permitted under county regulations
in effect prior to August 1976 and that it had no way of knowing that
stricter regulations would later be enacted. In the event litigation is
filed which results in an unfavorable ruling, possible remedies could
include: refunding the purchase price of the lots; building
nitrification fields with fill dirt that would allow installation of
sewage disposal systems on the lots; providing the litigants with lots
that will pass current county health department requirements; and
paying monetary damages. If mandated, the cost of such remedial action
in the aggregate could be substantial. No provision for this contingent
liability has been made in the accompanying financial statements;
however, at December 31, 2001 no suits or claims are pending against
the Partnership related to this matter.
8. INCOME TAXES
Results of operations of the Partnership are taxable to the partners
and no recognition of Federal and state income tax is included in the
financial statements.
9. LEASES
The Company leased certain office and golf course equipment under
operating leases related to Fox Squirrel Country Club. In connection
with the sale of the Country Club, the leases were transferred to buyer
(Note 13).
Equipment rental and lease expense for the years ending December 31,
2001, 2000 and 1999 was $6,894, $38,305 and $36,685, respectively.
10
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosure About Fair Value of
Financial Instruments". The estimated fair value amounts have been
determined by the Partnership using the methods and assumptions
described below. However, considerable judgment is required to
interpret market data to develop estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the
amounts the Partnership could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical
to estimate that value:
LONG-TERM DEBT
The fair value of long-term debt has been estimated by discounting the
future cash flows using the current rates offered for debt issues with
similar characteristics. Based on the borrowing rates available to the
Partnership at December 31, 2001, the fair value of long-term debt is
$115,411 compared the carrying value of $112,876. The carrying amount
of long-term debt approximates fair value at December 31, 2000.
11. BUSINESS SEGMENT DATA
The following disclosure is made in accordance with the requirements of
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This Statement
requires that public business enterprises report certain information
about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim
periods. It also requires disclosure of certain information about the
Company's products and services, the geographic areas in which the
Company operates and its major customers. The adoption of this
pronouncement has resulted in a revision of the Company's operating
segments footnote disclosures, but did not have an impact on the
financial statements.
11
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Partnership operates two business segments: property sales and a
country club. Revenues and direct cost are separately stated in the
financial statements. Substantially all revenues during the years ended
December 31, 2001, 2000 and 1999 for both segments have been generated
in the state of North Carolina; the exception to the foregoing is
$20,105 in revenue from property sales in 2001 generated in the state
of South Carolina. Operating income (loss), net income (loss),
depreciation, identifiable assets and capital expenditures by business
segment are summarized as follows:
2001 2000 1999
----------- ----------- -----------
Operating income (loss):
Property sales $ 37,230 $ 1,891,323 $ (185,388)
Country Club (67,326) (214,975) (192,953)
----------- ----------- -----------
Total $ (30,096) $ 1,676,348 $ (378,341)
=========== =========== ===========
Net income (loss):
Property sales $ 39,780 $ 1,894,723 $ (184,122)
Country Club (67,326) (214,975) (192,953)
----------- ----------- -----------
Total $ (27,546) $ 1,679,748 $ (377,075)
=========== =========== ===========
Depreciation:
Property sales $ 2,462 $ 2,681 $ 3,144
Country Club 9,965 55,528 62,970
----------- ----------- -----------
Total $ 12,427 $ 58,209 $ 66,114
=========== =========== ===========
Identifiable assets:
Property sales $ 700,997 $ 616,929 $ 577,174
Country Club 458,079 481,334 518,167
----------- ----------- -----------
Total $ 1,159,076 $ 1,098,263 $ 1,095,341
=========== =========== ===========
Capital expenditures:
Property sales $ 35,284 $ 52,779 $ 3,486
Country Club -- 15,586 15,490
----------- ----------- -----------
Total $ 35,284 $ 68,365 $ 18,976
=========== =========== ===========
12
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
12. LIQUIDITY AND GOING CONCERN ISSUES
Cash generated from individual lot sales may not be sufficient to meet
future operating costs, debt service and other cash requirements. If
the Partnership's cash flow is less than management's expectations,
capital programs presently planned may be either postponed, scaled
back, or eliminated, and certain operating expenditures may be either
deferred or, in the case of payments to affiliates of the General
Partner, accrued. Despite such contingency plans by management, the
above mentioned factors indicate that the Partnership may be unable to
continue in existence while attempting to complete the sale and
liquidation of the Partnership's remaining assets. The Partnership
intends to continue to sell lots in the normal course of business as a
plan of liquidation and, while no assurances can be given, the
Partnership believes the carrying value of the remaining lots is less
than their net realizable value. Should the Partnership change its
plans from the current longer term liquidation approach to a bulk sale
and/or abandonment, the net amount realized could be less than the
carrying value which could result in liabilities exceeding the
Partnership's assets. The financial statements have been prepared
assuming the Partnership will continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability of reported asset amounts or the amounts of liabilities
that might result should the Partnership be unable to continue as a
going concern.
13. DISPOSAL OF BUSINESS SEGMENT
The Partnership closed a sale agreement for Fox Squirrel Country Club
on March 9, 2001. Under the agreement, the Partnership received
$150,000 in cash and a note for $712,500. The note accrues interest at
9.75% per annum, payable monthly, maturing on March 9, 2004. The note
is collateralized by a first mortgage on the country club. Since the
cash down payment represents less than 25% of the total consideration
paid for the assets, the transaction is recorded on the Partnership's
financial statements using the deposit method as defined in SFAS No. 66
"Accounting for Sales of Real Estate". The deposit method requires,
among other things, that until the total cash received by the
Partnership from the down payment and principal payments on the note
receivable is at least 25% of the total consideration paid: (a) the
sold assets remain on the Partnership's balance sheet as assets held
for sale or disposal, (b) cash received from the buyer be shown as a
deposit on contract, and (c) payments received from the buyer in
respect of notes receivable be treated as an increase in the deposit.
At December 31, 2001 the assets held by the Partnership covered by the
agreement were held at a net book value of approximately $443,000. The
operations of Fox Squirrel Country Club through March 9, 2001 are
recorded as discontinued operations.
Country Club revenues were $32,511, $332,462 and $355,506 for the years
ended December 31, 2001, 2000 and 1999, respectively.
13
[PRICEWATERHOUSECOOPERS LOGO]
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Partners of
Reeves Telecom Limited Partnership
Our audits of the financial statements referred to in our report dated March 15,
2002, and appearing on page F-1 of this Form 10-K, also included an audit of the
financial statement schedules listed in Item 14 of this Form 10-K. In our
opinion, these financial statement schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 15, 2002
REEVES TELECOM LIMITED PARTNERSHIP
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Changes Balance at
Beginning Costs and Add End of
Description of Period Expenses Deductions (Deduct) Period
- ------------------------------- ----------- ----------- ------------- -------- ------------
For year ended Dec. 31, 2001
RE valuation allowance $603,040 $3,586 $6,456 $ -0- $600,170
For year ended Dec. 31, 2000
RE valuation allowance 1,871,053 9,715 1,277,728 -0- 603,040
For year ended Dec. 31, 1999
RE valuation allowance 1,871,534 14,961 15,442 -0- 1,871,053
NOTES:
1. Additions to the real estate valuation allowance charged to costs and
expenses reduce the reported book value of certain real estate held for
sale to approximate market.
2. Deductions to the real estate valuation allowance reflect the sale of real
estate to which the valuation allowance applies.
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REEVES TELECOM LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Life Upon
Which
Cost Gross Depreciation
Capitalized Amount Accum- in Latest
Initial Cost Subsequent Carried ulated Income
Encum- to to at End Deprec- Net Date of Statement is
Description brances Partnership Acquisition of Period iation Book Value Acquisition Computed
- ------------------------------------------------------------------------------------------------------------------------------------
Boiling Spring Lakes, NC:
Building lots and land $ -0- $677,155 $110,516 $787,671 $ -0- $787,671 May 1980 N/A
Improved lot held for resale 112,876 130,047 28,213 158,260 -0- 158,260 April 1999 N/A
--------- -------- -------- -------- ---- --------
Subtotal 112,876 807,202 138,729 945,931 -0- 945,931 N/A
Pimlico Plantation, SC:
Building lots and land -0- 250 -0- 250 -0- 250 May 1980 N/A
--------- -------- -------- -------- ---- --------
Beginning of period
Total at December 31, 2001 $112,876 $807,452 $138,729 $946,181 $-0- $946,181
========= ======== ======== ======== ==== ========
NOTES:
1. All building lots and land held for sale are unimproved.
2. The amounts shown for Boiling Spring Lakes do not reflect valuation
allowance of $600,170 at December 31, 2001. See Schedule II, "Valuation
and Qualifying Accounts." The valuation allowance, established in previous
years to reduce the carrying value of the Partnership's land in Boiling
Spring Lakes to approximate market value, is reviewed from time to time to
determine its adequacy and is reduced as land is sold.
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SCHEDULE III, CONTINUED
RECONCILIATION OF GROSS AND NET BOOK VALUE AND ACCUMULATED DEPRECIATION
Gross Accumulated Net
Book Value Depreciation Book Value
---------- ------------ ----------
Year Ended December 31, 2001
Balance at beginning of period $ 945,524 $-0- $ 945,524
Additions during period:
Acquisitions -0- -0- -0-
Improvements 35,284 -0- 35,284
Deductions during period:
Cost of real estate sold 34,627 -0- 34,627
---------- ---------- ----------
Balance at end of period $ 946,181 $-0- $ 946,181
========== ========== ==========
Year Ended December 31, 2000
Balance at beginning of period $2,317,186 $-0- $2,317,186
Additions during period:
Acquisitions -0- -0- -0-
Improvements 10,715 -0- 10,715
Deductions during period:
Cost of real estate sold 1,382,377 -0- 1,382,377
---------- ---------- ----------
Balance at end of period $ 945,524 $-0- $ 945,524
========== ========== ==========
Year Ended December 31, 1999
Balance at beginning of period $2,215,678 $-0- $2,215,678
Additions during period:
Acquisitions 130,047 -0- 130,047
Improvements 14,914 -0- 14,914
Deductions during period:
Cost of real estate sold 43,454 -0- 43,454
---------- ---------- ----------
Balance at end of period $2,317,186 $-0- $2,317,186
========== ========== ==========
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