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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, 2002
or
[ ] 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). [ ]
On March 19, 2003, the Registrant had outstanding 1,812,062 partnership units.
See Item 5. There is no active market for the partnership units, nor was there
an active market for the partnership units at any time during 2002. As of March
19, 2003, non-affiliates held 1,171,717 partnership units.
The following documents are incorporated by reference into this annual report on
Form 10-K:
1. Registration Statement pursuant to Form S-14 (File No. 2-66452), which
became effective April 8, 1980. This document is incorporated by
reference into Part I, Item 1, "Business - Background."
2. Proxy Statement/Prospectus dated April 14, 1980, which is incorporated
by reference into Part I, Item 1, "Business - Background."
See Part IV, Item 14, "Exhibits, Financial Statements Schedules, and Reports on
Form 8-K" for documents other than proxy statements, registration statements, or
prospectuses that are incorporated by reference into this annual report on Form
10-K.
TABLE OF CONTENTS
Page
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Special Note on Forward-Looking Statements....................................... 1
PART I........................................................................... 1
Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 12
Item 3. Legal Proceedings....................................................... 14
Item 4. Submission of Matters to a Vote of Unit Holders......................... 15
PART II.......................................................................... 16
Item 5. Market for Registrant's Partnership Units and Related Security Matters.. 16
Item 6. Selected Financial Data................................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 18
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............. 24
Item 8. Financial Statements and Supplementary Data............................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................... 25
PART III......................................................................... 26
Item 10. Directors and Executive Officers of Registrant......................... 26
Item 11. Executive Compensation................................................. 26
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters............................................ 27
Item 13. Certain Relationships and Related Transactions......................... 28
Item 14. Controls and Procedures................................................ 29
PART IV.......................................................................... 31
Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K...... 31
SIGNATURES AND CERTIFICATIONS.................................................... 34
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. These 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 in this report, are subject to certain
risks and uncertainties that are beyond the Partnership's control and could
cause the Partnership's 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
BACKGROUND
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.
Page 1
BUSINESS OF REGISTRANT
GENERAL
The Partnership's business may be categorized into two industry
segments: (i) owning, developing, selling, leasing, or otherwise dealing in real
estate, and (ii) owning and operating a golf course and country club. See the
audited financial statements for financial information about each segment. The
principal asset of the Partnership is real estate for development located in the
City of Boiling Spring Lakes, in Brunswick County, North Carolina (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 on an all-cash basis and other means of generating revenue. The
Partnership also became increasingly involved in the management and operation of
the golf course and country club.
The golf course and country club were sold in March 2001. For financial
reporting purposes, the assets that were sold remain on the Partnership's
balance sheet at December 31, 2002 and are classified as assets held for sale or
disposal, and the operations of the golf course and country club are classified
as discontinued operations through the date of sale (see ""Fox Squirrel Country
Club/The Lakes Country Club"").
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 transactions set forth on Form 8-K filed with
the Securities and Exchange Commission on June 29, 2000.
The revenue from real estate sales and type of land sold in Boiling
Spring Lakes for each of the last five fiscal years ended December 31, other
than from the two transactions with The
Page 2
Nature Conservancy described above, 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
AND TYPE OF PROPERTY SOLD
BOILING SPRING LAKES*
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
REVENUE
Individual lots:
Unimproved $250,454 $347,832 $378,732 $317,929 $317,746
Improved -- -- -- 130,865 117,300
Commercial land 65,410 -- -- 70,378 --
Other land -- 72,911 56,437 36,269 --
-------- -------- -------- -------- --------
Total revenue $315,864 $420,743 $435,169 $555,441 $435,046
======== ======== ======== ======== ========
PROPERTY SOLD
Individual lots:
Unimproved 19 68 55 65 52
Improved -- -- -- 1 1
Commercial land (acres) 6 -- -- 4 --
Other land (acres) -- 23 2 2 --
* Excludes the two transactions with The Nature Conservancy in 2000, which
generated gross revenue of $2,400,000.
As used in Table 1 and throughout this Annual Report on Form 10-K: (i)
the term "individual lot" refers to a platted residential lot (a platted
residential lot owned by the Partnership typically comprises approximately
1/3-acre, although some lots are less than 1/4-acre and some comprise up to 5
acres); (ii) the term "unimproved lot" refers to an individual lot on which
construction of a house has not yet been started; (iii) the term "improved lot"
refers to an individual lot on which the construction of a house has been
started and, in some cases, completed; (iv) the term "commercial land" refers to
land zoned or otherwise intended by the
Page 3
Partnership for commercial use; and (v) the term "other land" refers to all
other types of unimproved land of varying sizes.
The one individual improved lot sold during 1999 generated a profit of
approximately $11,200. The one individual improved lot sold during 1998
generated a profit of approximately $13,700.
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 in Boiling Spring Lakes 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
real estate 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.
- FOX SQUIRREL COUNTRY CLUB / THE LAKES COUNTRY CLUB
Fox Squirrel Country Club, now known as 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
Page 4
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, although the North Carolina Department of Environment and
Natural Resources ("NCDENR") has required that Partnership to continue
monitoring and testing the subsurface groundwater. The results of tests
conducted during 2002 and the first two months of 2003 show that the detectable
concentrations of hydrocarbon contamination are substantially below standards.
As a result, the Partnership is waiting for a closure letter from NCDENR,
although it is possible that NCDENR may require the Partnership to conduct
further monitoring and testing.
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
2002 2001 2000 1999 1998
----- -------- --------- --------- ----------
Revenue $-- $ 32,511 $ 332,462 $ 355,506 $ 437,436
Operating loss -- (67,326) (214,975) (192,953) (162,131)
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 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
Page 5
assume certain liabilities of, the manager in exchange for cash consideration to
the manager of $49,404. As a result of the foregoing, in February 1998, 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
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. The amount of revenue
generated from such sources during the last five fiscal years is shown on Table
3, below.
TABLE 3: OTHER REVENUE AND OTHER INCOME
BOILING SPRING LAKES
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
Other revenue $ -- $8,920 $ -- $ -- $ --
Rental income, net 3,766 2,550 3,400 -- --
Sale of timber -- -- -- 1,266 --
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 2002, 2001 and 2000, the Partnership earned $3,766,
$2,550 and $3,400, respectively, in net rental income. The Partnership recorded
such income as Other Income.
During Fiscal 1999, the Partnership earned $1,266 from the sale of pine
straw and timber. 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.
PIMLICO PLANTATION
Page 6
Pimlico Plantation began as a development in South Carolina commenced
by the Corporation. Virtually all of the land was sold in past years. Revenue
from lot sales and the number of lots sold are set forth in Table 4, below.
TABLE 4: REVENUE FROM REAL ESTATE SALES
AND TYPE OF PROPERTY SOLD
PIMLICO PLANTATION
2002 2001 2000 1999 1998
------ ------- ------ ------ ------
Revenue $ -- $20,104 $ -- $ -- $ --
Individual lots sold -- 1 -- -- --
During the first quarter of 2002, the Partnership donated two
park/recreational lots to the Pimlico Civic Club. These two lots had no
realizable value and were carried on the Partnership's balance sheet at no cost.
Consequently, the Partnership recorded no gain or loss from the donation. As of
December 31, 2002, the Partnership owns one individual unimproved lot at Pimlico
Plantation, comprising approximately 3/8-acre. The individual unimproved lot was
sold in March 2003 for approximately $27,000. After such sale, the Partnership
owns no assets in Pimlico Plantation.
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.
Page 7
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, from existing homeowners looking to relocate, and from
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.
RECENT REAL ESTATE MARKET CONDITIONS
As a result of the economic climate in 2002, the real estate market in
which the Partnership operates significantly softened. Despite low interest
rates, demand for buildable residential lots declined significantly, as
indicated by the number of lots sold shown in Table 1, above. Through March 7,
the core market continued to be weak. Market prices for buildable lots have
generally declined from peak levels in the period 2000 to 2002. Management
believes that demand for buildable lots and market prices for such lots in the
southern coastal region of North Carolina will continue to be weak into the
second quarter of 2003.
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
Page 8
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.
AVAILABILITY OF WATER AND SEWER SERVICES
The unavailability of Brunswick County water and public sewer services
to most of the City of Boiling Spring Lakes has been a major inhibiting factor
in the Partnership's efforts to sell and/or develop land in the development.
Virtually all residents are forced to rely upon well water and individual septic
systems. Extension of water and sewer services to the development has been
discussed but there are currently no firm plans to do so. Moreover, a
significant portion of the cost of water distribution and sewer lines to land
owned by the Partnership must be borne by the Partnership
Page 9
or by subsequent purchasers of the land. Since the Partnership does not have the
resources to bear such costs, extension of water distribution and sewer lines to
the Partnership's land is not likely to occur in the reasonable future.
EMPLOYEES
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.
LIQUID ASSETS AND RESERVES
As of December 31, 2002, the Partnership held $301,924 in cash.
Accounts payable and accrued expenses, including accrued expenses owed to
affiliates, as of this date totaled $138,657.
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 1998, reserves totaling $650,000 had been established. In
Fiscal 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.
During Fiscal 2002, reserves totaling $100,000 were established to fund the
additional cost of repairs to the 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
Page 10
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 244 additional acres of
undeveloped, unplatted land intended for 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.
Page 11
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.
- STRUCTURE AS A LIMITED PARTNERSHIP.
The Partnership is treated for federal and state income tax purposes as
a limited partnership, and the General Partner has taken such steps as are known
to it 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 the Partnership's 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
Page 12
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.
The Partnership's principal asset is its undeveloped land in Boiling
Spring Lakes, comprising approximately 985 acres. As of December 31, 2002, the
Partnership owns the following: (1) approximately 433 acres divided into 1,316
plotted lots, both recorded and unrecorded; (2) approximately 304 acres of
undeveloped land, including 60 acres that are divided into six 10-acre tracts;
(3) approximately 247 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. Based upon the original principal amount and the terms of the
Promissory Note taken back by the Partnership at the closing of the transaction,
the Partnership will not receive total consideration equal to 25% of the
aggregate sale price until March 9, 2004, the maturity date of the Promissory
Note. Therefore, as of December 31, 2002, 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 appraisals of the Boiling Spring Lakes
property. Based upon the updated appraisals, no additional reduction to the
carrying value was made. The Partnership expects to obtain an updated appraisal
of the Boiling Spring Lakes property during Fiscal 2003.
Management intends to emphasize the sale of individual lots at Boiling
Spring Lakes, concentrating on lots situated on existing paved roads and rocked
roads. The Partnership intends to continue selling its land on an all-cash
basis.
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
Page 13
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, 2001, or 2002.
Management may resume the project during Fiscal 2003.
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
regional real estate market conditions, which have, among other things, 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,
2002, the Partnership owns only one residential lot, comprising approximately
3/8-acre, at this location. This individual unimproved lot was sold by the
Partnership in March 2003. Consequently, after such sale, the Partnership owns
no assets in Pimlico Plantation.
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
Page 14
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, 2002, 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 2002.
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Page 15
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 are
only limited or sporadic quotations on the 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, 2002 there were 1,943 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, 2001.
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 preserve or 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, (iii) making certain other real
estate-related investments in or near Boiling Spring Lakes, and (iv) keeping
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 Annual
Report on 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.
Page 16
ITEM 6. Selected Financial Data
The selected financial data set forth in Tables 5 and 6, 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 5: SELECTED INCOME STATEMENT DATA
Year Ended December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
-------- --------- ---------- ---------- ----------
Statement of Operations Data:
Revenues:
Property sales $315,864 $ 440,847 $2,835,169 $ 555,441 $ 435,046
Interest income/finance charges 5,399 7,867 10,887 1,250 866
Other revenue 379 8,920 -- -- --
-------- --------- ---------- ---------- ---------
Total revenue 321,642 457,634 2,846,056 556,691 435,912
Expenses:
Direct cost of property sold 8,643 31,757 367,259 163,114 148,013
SG&A 311,525 376,384 511,864 494,740 390,604
Depreciation 2,571 2,462 2,681 3,144 3,262
Interest 10,308 9,801 72,929 81,081 67,817
-------- --------- ---------- ---------- ---------
Total expenses 333,047 420,404 954,733 742,079 609,696
-------- --------- ---------- ---------- ---------
Operating income (loss) (11,405) 37,230 1,891,323 (185,388) (173,784)
Other income, net 3,766 2,550 3,400 1,266 --
-------- --------- ---------- ---------- ---------
Income (loss) from continuing
operations $ (7,639) $ 39,780 $1,894,723 $ (184,122) $(173,784)
Loss from discontinued operations -- (67,326) (214,975) (192,953) (162,131)
-------- --------- ---------- ---------- ---------
Net income (loss) $ (7,639) $ (27,546) $1,679,748 $ (377,075) $(335,915)
======== ========= ========== ========== =========
Per Unit Data
Income (loss) from continuing
operations $ -- $ 0.02 $ 1.04 $ (0.10) $ (0.10)
Net income (loss) $ -- $ (0.02) $ 0.92 $ (0.21) $ (0.18)
Distributions None None None None None
Page 17
Some amounts in Table 5 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 6. SELECTED BALANCE SHEET DATA
At December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Cash, prepaid expenses and other
current assets $ 320,661 $ 312,485 $ 242,772 $ 134,861 $ 82,032
Properties held for sale and
property and equipment, net 921,485 846,591 855,491 960,480 1,025,256
Total assets 1,242,146 1,159,076 1,098,263 1,095,341 1,107,288
Accounts payable and accrued
expenses 138,657 123,051 222,620 1,875,204 1,633,202
Deposit on contract 280,245 200,548 -- -- --
Long-term debt 108,282 112,876 117,454 141,696 18,570
Total liabilities 527,184 436,475 340,074 2,016,900 1,651,772
Partners' capital (deficit) 714,962 722,601 758,189 (921,559) (544,484)
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.
Page 18
- PROPERTY SALES AND REALIZABILITY OF CARRYING VALUE OF PROPERTIES HELD FOR
SALE.
Property sales represent primarily 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. The Partnership obtains appraisals
periodically for the Boiling Spring Lakes property and evaluates the carrying
value of the property based on those appraisals. The Partnership does not expect
to reduce the carrying value of the properties in the near future.
- ACCOUNTING FOR SALE OF FOX SQUIRREL/THE LAKES.
The Partnership closed a sale agreement for Fox Squirrel/The Lakes on
March 9, 2001. Under the agreement, the Partnership received $150,000 in cash
and a note receivable for $712,500. The note receivable accrues interest at
9.75% per annum, payable monthly, maturing on March 9, 2004. The note receivable
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 the note receivable be
treated as an increase in the deposit.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
For the year ended December 31, 2002, revenue from the sale of real
estate was $315,864, all of which is attributable to land sales in Boiling
Spring Lakes. For the year ended December 31, 2001, revenue from the sale of
real estate was $440,847, which is comprised of $420,743 that is attributable to
land sales in Boiling Spring Lakes, and $20,104 that is attributable to land
sales in Pimlico Plantation, SC.
With respect to Boiling Spring Lakes, Management attributes the 25%
decrease in revenue from land sales principally to weaker demand for buildable
residential lots during 2002 as compared to 2001, which, in turn, is due
primarily to poorer economic conditions generally.
Page 19
Revenue from the sale of individual unimproved lots was $250,454 for 2002,
compared to $347,832 for 2001. The 28% decrease is due to a smaller number of
lots sold during 2002 than during 2001. The number of individual unimproved lots
sold during 2002 and 2001 was 19 and 68, respectively, a decrease of 72%. An
increase in the average price per lot sold was more than offset by the overall
decrease in total lots sold. Revenue from the sale of commercial land for 2002
and 2001 was $65,410 and $0, respectively. Revenue from the sale of other land
for 2002 and 2001 was $0 and $72,911, respectively.
For the year ended December 31, 2002, direct cost of property sold was
$8,643, all of which relates to land sold in Boiling Spring Lakes. For the year
ended December 31, 2001, direct cost of property sold was to $31,757, of which
amount $31,507 relates to land sold in Boiling Spring Lakes and $250 relates to
land sold in Pimlico Plantation, SC. With respect to Boiling Spring Lakes,
Management attributes the 73% decrease in direct cost of property sold
principally to a smaller number of lots sold during 2002 than during 2001.
Selling, general and administrative expenses for 2002 were $311,525,
compared to $376,384 for 2001. Management attributes the 17% decrease
principally to lower legal fees, which is due primarily to the conclusion during
2001 of certain litigation and the payment during 2001 of legal fees in
connection with the litigation, and that no such legal fees were incurred during
2002; lower general partner's fees, which reflect the fact that following the
sale of Fox Squirrel/The Lakes in 2001, the General Partner has had to devote
less time to the affairs of the Partnership than in the past; and to lower real
estate taxes, which reflect the land sales during 2001.
Depreciation was $2,571 for 2002, compared to $2,462 in 2001.
Management attributes the 4% increase principally to capital expenditures
incurred during 2001 and 2002.
Interest expense was $10,308 for 2002, compared to $9,801 in 2001.
Management attributes the 5% increase in interest expense primarily to a
slightly higher average amount of interest-bearing liabilities outstanding
during 2002 than during 2001.
For the years ended December 31, 2002 and 2001, other income was $3,766
and $2,550, respectively. Management attributes the 48% increase to higher
rental income received in respect of the house owned by the Partnership.
Fox Squirrel/The Lakes is classified as a discontinued operation. The
Partnership's financial results for Fiscal 2002 include none of the operations
of Fox Squirrel/The Lakes, since the assets were sold during 2001, and the
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).
Page 20
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
For the year ended December 31, 2001, revenue from the sale of real
estate was $440,847, which is comprised of $420,743 that is attributable to land
sales in Boiling Spring Lakes, and $20,104 that is attributable to land sales in
Pimlico Plantation, SC. For the year ended December 31, 2000, revenue from the
sale of real estate was $2,835,169, all of which is attributable to land sales
in Boiling Spring Lakes.
With respect to Boiling Spring Lakes, Management attributes the 85%
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 3% decrease in revenue principally to the relative mix of unimproved lots
sold. Lots adjoining or close to the golf course, for example, generally sell
for more than lots that are not close to the golf course, and lots which are
suitable for the installation of individual on-site septic systems generally
sell for more than lots that are not suitable for on-site septic systems. The
Partnership sold a larger number of unimproved lots in 2001 than in 2000, 68 as
compared to 55, but the average sales price per lot in 2001 was $5,115, compared
to $6,886 for 2000. During the year ended December 31, 2002, the Partnership
sold 23 acres of unplatted land for $72,911, compared to only 2 acres of
unplatted land for $56,437 during the year ended December 31, 2000. The
Partnership's sales of unplatted land are sporadic, highly variable, and largely
beyond the Partnership's control. The average sales price per acre of unplatted
land varies widely. As such, year-to-year comparisons may not accurately depict
the Partnership's on-going real estate operations.
Selling, general and administrative expenses for 2001 were $376,384,
compared to $511,864 in 2000. Management attributes the 26% 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.
For the year ended December 31, 2001, direct cost of property sold was
to $31,757, of which amount $31,507 relates to land sold in Boiling Spring Lakes
and $250 relates to land sold in Pimlico Plantation, SC. For the year ended
December 31, 2000, direct cost of property sold was $367,259, all of which
relates to land sold in Boiling Spring Lakes. With respect to Boiling Spring
Lakes, Management attributes the 91% decrease principally to the sale of land to
The Nature Conservancy during 2000.
Page 21
Depreciation was $2,462 in 2001, compared to $2,681 in 2000. Management
attributes the 8% 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 87% 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 7, below.
TABLE 7:
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)
========= =========
Liquidity and Capital Resources
Page 22
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 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. The Partnership did not construct or begin
construction on any house for sale during either 2001 or 2002, and so no lines
of credit were utilized and no debt incurred in connection with any such
construction during those years. In 2003 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, 2002, the unpaid principal on such financing was
$108,282.
Page 23
During Fiscal 2002, the Partnership used $8,409 of cash in operating
activities, compared to $10,366 of cash used in operating activities during
2001. Management attributes the 19% decrease principally to the payment of
certain accrued expenses in respect of 2002.
Cash used in investing activities was $6,410 in Fiscal 2002, compared
to $165,264 of cash provided in Fiscal 2001. The amount for 2002 includes
$79,697 received from WW-Golf in principal and interest paid on the Promissory
Note. The amount for 2001 includes $209,773 received from WW-Golf as part of the
consideration for the sale of Fox Squirrel/The Lakes. Management attributes the
change in cash provided by (used in) investing activities to the receipt during
2001 of $150,000 of the initial down payment from WW-Golf in the transaction
involving Fox Squirrel/The Lakes.
Cash provided by financing activities in Fiscal 2002 was $19,750,
compared to $81,918 of cash used in 2001. Management attributes the change in
cash provided by (used in) financing activities principally to the timing of
payments of accrued expenses to affiliates.
During Fiscal 2003 Management expects capital expenditures to include
approximately $20,000 to complete repairs being made to 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.
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, 2002, 2001 and 2000. 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
Page 24
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, 2002, the Partnership had cash of $301,924,
substantially all of which is deposited in interest-bearing accounts at a local
financial institution, and owed $108,282 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 2002 been higher or lower by 100 basis
points or one percent (1%), the Partnership would have earned approximately
$3,000 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 the Partnership's long-term debt has been estimated
by discounting the future cash flows using the current rates offered for debt
issues with similar characteristics. In particular, the Partnership has been
advised by its lender that the interest rate on a 15-year fixed rate mortgage in
Brunswick County, North Carolina generally as of December 31, 2002 was 6.75%.
Based on such 6.75% borrowing rate, at December 31, 2002, the fair value of the
Partnership's long-term debt is $112,347, compared to the carrying value of
$108,282.
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.
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.
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Page 25
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, below.
TABLE 8: SUMMARY COMPENSATION TABLE
General
Partner's
Name and Position Year Fee
- -------------------------------- ---- ---------
Grace Property Management, Inc., 2002 $ 80,000
General Partner
2001 90,000
2000 161,250
Page 26
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. During 2002, the Partnership paid to the General Partner $60,000,
representing unpaid general partner's fees from October 1, 2001 through June 30,
2002. As of December 31, 2002, general partner's fees accrued but not paid to
Grace Property Management totaled $40,000. 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, 2002, 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, 2002, 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, below.
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%
c/o Lorraine G. Grace, of Oliver R. Grace, Mr. Grace's widow
Executrix and a company he formerly controlled
14 East 90th Street
New York, NY 10128
Page 27
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
For fiscal years 2002, 2001, and 2000, 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
2002 2001 2000
-------- -------- --------
General Partner's fee $ 80,000 $ 90,000 $161,250
Legal services -- 4,500 13,500
Rent for office space 15,000 15,000 15,000
Consulting fees 337 3,982 240,000
Interest on unpaid balances 594 3,254 141,245
Amounts paid by the Partnership to the General Partner and its
affiliates during 2002 reflect amounts previously accrued and unpaid and are
$11,250 for rent and $60,000 for general partner's fees. In addition, an
affiliate of the General Partner was paid $337 for consulting fees in connection
with the sale of Fox Squirrel/The Lakes, as further described later in this
section. At December 31, 2002, amounts accrued and unpaid to the General Partner
and its affiliates are $7,500 for rent, $40,000 for general partner's fees, and
$594 for interest, all of which amounts will be paid by the end of the First
Quarter of Fiscal 2003.
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 General Partner was
paid $3,982 for consulting fees in connection with the sale of Fox
Page 28
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 2002 and 2001, such
additional consulting fee payments totaled $337 and $232, respectively. 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 $370 in Fiscal 2003, and $16,873 in Fiscal 2004. During the First
Quarter of Fiscal 2003, the Partnership paid consulting fees totaling $89.
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, 2002 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).
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this annual report on Form
10-K, the General Partner, under the direction of John S. Grace and Davis P.
Stowell, President and Vice President, respectively, of the General Partner
(since the Partnership has no executive officers, Messrs. Grace and Stowell
carry out the responsibilities of the chief executive officer and chief
financial officer, respectively, of the Partnership), carried out an evaluation
of the effectiveness of the design and operation of the Partnership's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, Messrs. Grace and Stowell concluded that the Partnership's
disclosure controls and procedures are effective. Disclosure controls and
procedures are controls and procedures that are designed to ensure that
information required to be disclosed in the Partnership's reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms. There have been no significant changes in the
Page 29
Partnership's internal controls or in other factors that could significantly
affect internal controls subsequent to the date that evaluation was carried out.
[THE REST OF THIS PAGE IS BLANK]
Page 30
PART IV
ITEM 15. 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, 2002 and 2001 F-2
Statements of Operations for the years ended
December 31, 2002, 2001 and 2000 F-3
Statements of Partners' Capital/(Deficit) for the
years ended December 31, 2002, 2001 and 2000 F-4
Statements of Cash Flows for the years
ended December 31, 2002, 2001 and 2000 F-5
Notes to Financial Statements F-6-13
Report of Independent Accountants on Supplemental Schedules 55
Valuation and Qualifying Accounts 56
Real Estate and Accumulated Depreciation 57
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, 2002.
Page 31
INDEX TO EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A complete listing of exhibits, including those incorporated by
reference, is shown on Table 12, below. All other exhibits or financial
statement schedules are not applicable.
TABLE 12: LIST OF EXHIBITS
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
3.1 The Limited Partnership Agreement of Reeves Telecom Associates [a]
sets 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 [a]
The 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, [a]
and 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.
10.6 Promissory Note dated March 9, 2001, issued by WW-Golf & [a]
Services, LLC to the Partnership in connection with the sale of the
assets of Fox Squirrel Country Club. Such note was filed as Exhibit
10.6 to Form 10-K filed on March 29, 2001.
Page 32
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
10.7 Indemnification Agreement dated March 9, 2001 between the [a]
Partnership and WW-Golf & Services, 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.
99.2 The Robert C. Cantwell IV, MAI appraisal of the Boiling Spring [a]
Lakes property dated September 10, 1993. Such appraisal was
filed as an exhibit to Form 10-K for September 30, 1993.
99.3 The Robert C. Cantwell IV, MAI appraisal of the Boiling Spring [a]
Lakes property dated July 10, 1995. Such appraisal was filed as
Exhibit 3 to Form 10-K for December 31, 1995.
99.4 P - The Robert C. Cantwell IV, MAI appraisal of the Boiling [a]
Spring Lakes property dated September 1, 1998. Such appraisal
was filed as 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.
99.5 The Robert C. Cantwell IV, MAI appraisal of the Boiling Spring [a]
Lakes property dated as of December 31, 2000. Such appraisal
was filed as Exhibit 99.5 to Form 10-K filed on March 29, 2001.
NOTES:
[a] Incorporated herein by reference.
Page 33
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 26, 2003
By: /s/ JOHN S. GRACE
-----------------------
John S. Grace
President
[THE REST OF THIS PAGE IS BLANK]
Page 34
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, John S. Grace, certify that:
1. I have reviewed this annual report on Form 10-K of Reeves Telecom
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual reports (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
Page 35
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes to internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003 /s/ JOHN S. GRACE
--------------------------------
John S. Grace
President of
Grace Property Management, Inc.,
General Partner
Principal Executive Officer
Page 36
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Davis P. Stowell, certify that:
1. I have reviewed this annual report on Form 10-K of Reeves Telecom
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual reports (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
Page 37
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes to internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003 /s/ DAVIS P. STOWELL
---------------------------------
Davis P. Stowell
Vice President of
Grace Property Management, Inc.,
General Partner
Page 38
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 February
20, 2003, and appearing on page F-1 of this Form 10-K, also included an audit of
the financial statement schedules listed in Item 15 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
Raleigh, North Carolina
February 20, 2003
REEVES TELECOM
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
REEVES TELECOM LIMITED PARTNERSHIP
INDEX
PAGE(S)
-------
Report of Independent Accountants 1
Financial Statements:
Balance Sheets as of December 31, 2002 and 2001 2
Statements of Operations for the years ended December 31, 2002, 2001 and 2000 3
Statements of Partners' Capital/(Deficit) for the years ended December 31, 2002,
2001 and 2000 4
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 5
Notes to Financial Statements 6 - 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Reeves Telecom Limited Partnership:
In our opinion, the accompanying balance sheets and the related statements of
operations, of partners' capital (deficit), and of cash flows present fairly, in
all material respects, the financial position of Reeves Telecom Limited
Partnership (the "Partnership") at December 31, 2002 and 2001, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2002, 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 raises 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
February 20, 2003
Raleigh, North Carolina
F-1
REEVES TELECOM LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
---------- ----------
ASSETS
Cash $ 301,924 $ 296,993
Prepaid expenses and other current assets 18,737 15,492
Properties held for sale and property and equipment:
Properties held for sale 354,009 346,011
Sales property and equipment, net 124,889 57,993
County club property and equipment, net 442,587 442,587
---------- ----------
Total properties held for sale and property and equipment, net 921,485 846,591
---------- ----------
Total assets $1,242,146 $1,159,076
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 83,895 $ 92,633
Accrued expenses, affiliates 54,762 30,418
Deposit on contract, net 280,245 200,548
Long-term debt 108,282 112,876
---------- ----------
Total liabilities 527,184 436,475
Commitments and contingencies
Partners' capital - issued and outstanding 1,812,062
units at December 31, 2002 and 2001 714,962 722,601
---------- ----------
Total liabilities and partners' capital $1,242,146 $1,159,076
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
---------- ---------- -----------
Revenues:
Property sales $ 315,864 $ 440,847 $ 2,835,169
Interest income and finance charges 5,399 7,867 10,887
Other revenue 379 8,920 -
---------- ---------- -----------
321,642 457,634 2,846,056
---------- ---------- -----------
Expenses:
Direct costs of property sold 8,643 31,757 367,259
Selling, general and administrative expenses 311,525 376,384 511,864
Depreciation 2,571 2,462 2,681
Interest 10,308 9,801 72,929
---------- ---------- -----------
333,047 420,404 954,733
---------- ---------- -----------
Operating income (loss) (11,405) 37,230 1,891,323
Rental income 3,766 2,550 3,400
---------- ---------- -----------
Income (loss) from continuing operations (7,639) 39,780 1,894,723
Loss from discontinued operations - (67,326) (214,975)
---------- ---------- -----------
Net income (loss) $ (7,639) $ (27,546) $ 1,679,748
========== ========== ===========
Income per partnership unit from
continuing operations $ - $ 0.02 $ 1.04
========== ========== ===========
Income (loss) per partnership unit $ - $ (0.02) $ 0.92
========== ========== ===========
Weighted average partnership units outstanding 1,812,062 1,814,070 1,828,148
========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL/(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
---------- ---------- ----------
Partners' capital (deficit) at beginning of year $ 722,601 $ 758,189 $ (921,559)
Repurchase of partnership units - (8,042) -
Net income (loss) (7,639) (27,546) 1,679,748
---------- ---------- ----------
Partners' capital at end of year $ 714,962 $ 722,601 $ 758,189
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
--------- --------- -----------
Cash flows from operating activities:
Net income (loss) $ (7,639) $ (27,546) $ 1,679,748
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 2,571 12,427 58,209
Loss on sale of equipment - - 779
Provision for loss on property held for sale - 3,585 9,715
Change in assets and liabilities:
Prepaid and other assets (3,245) 3,297 (13,882)
Property held for sale, net 8,642 28,172 104,651
Accounts payable and accrued expenses (8,738) (30,271) 20,694
--------- --------- -----------
Net cash provided by (used in) operating activities (8,409) (10,336) 1,859,914
--------- --------- -----------
Cash flows from investing activities:
Purchase of land improvements and equipment (86,107) (35,284) (68,365)
Receipt of deposit on contract 79,697 209,773 -
Transaction costs related to the sale of the country club - (9,225) -
--------- --------- -----------
Net cash provided by (used in) investing activities (6,410) 165,264 (68,365)
--------- --------- -----------
Cash flows from financing activities:
Repurchase of partnership units - (8,042) -
Repayment of long-term debt (4,594) (4,578) (24,242)
Increase (decrease) in accrued expenses, affiliates 24,344 (69,298) (1,673,278)
--------- --------- -----------
Net cash provided by (used in) financing activities 19,750 (81,918) (1,697,520)
--------- --------- -----------
Net increase in cash 4,931 73,010 94,029
Cash at beginning of year 296,993 223,983 129,954
--------- --------- -----------
Cash at end of year $ 301,924 $ 296,993 $ 223,983
========= ========= ===========
Supplemental information:
Interest paid $ 9,714 $ 16,761 $ 723,755
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
F-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.
F-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. 144 ("SFAS No. 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets".
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, 2002, the amounts on deposit exceeded the FDIC insurance limit by
approximately $225,000.
ADVERTISING COSTS
Advertising costs of $17,817, $19,570 and $33,018 were expensed as
incurred during the years ended December 31, 2002, 2001 and 2000,
respectively.
F-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, 2002 and 2001 is as follows:
2002 2001
-------- --------
Properties held for sale:
Boiling Springs Lakes land held for sale $791,526 $787,671
Pimlico Plantation lots 250 250
Residential house held for sale 158,260 158,260
-------- --------
950,036 946,181
Less valuation allowance 596,027 600,170
-------- --------
Total properties held for sale 354,009 346,011
-------- --------
Sales property and equipment:
Land and land improvements 125,863 59,895
Buildings 49,844 46,958
Equipment 6,895 6,282
-------- --------
182,602 113,135
Less accumulated depreciation 57,713 55,142
-------- --------
Total sales property and equipment, net 124,889 57,993
-------- --------
County 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 535,450 535,450
-------- --------
Total county club property and equipment, net 442,587 442,587
-------- --------
Total properties held for sale and property
and equipment, net $921,485 $846,591
======== ========
F-8
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
4. ACCRUED EXPENSES, AFFILIATES
A summary of accrued expenses owed to affiliates at December 31, 2002
and 2001 is as follows:
2002 2001
------ ------
General partner fees $ 40,000 $ 20,000
Rent 7,500 3,750
Interest 594 -
Fees to a former general partner 6,668 6,668
-------- --------
$ 54,762 $ 30,418
======== ========
General Partner's fees represent amounts owed to the General Partner.
Rent represents 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, 2002 and 2001 consists of the following:
2002 2001
------ ------
8.65% note payable in monthly installments of $1,193,
including interest, maturing March 27, 2005. Collaterized
by property with a net book value of $130,000 at
December 31, 2002 and 2001 $ 108,282 $ 112,876
========= =========
Principal maturities of long-term debt for the years subsequent to
December 31, 2002 are as follows:
2003 $ 5,138
2004 5,601
2005 97,543
---------
$108,282
=========
F-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, 2002, 2001
and 2000 as follows:
2002 2001 2000
-------- -------- --------
General Partner fees $ 80,000 $ 90,000 $161,250
Legal fees - 4,500 13,500
Office space 15,000 15,000 15,000
Consulting fees 337 3,982 240,000
Interest at 10% 594 3,254 141,245
-------- -------- --------
$ 95,931 $116,736 $570,995
======== ======== ========
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, 2002 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,
2002, 2001 and 2000 was $0, $6,894 and $38,305, respectively.
F-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, 2002 and 2001, the fair value of long-term
debt is $112,347 and $115,411, respectively, compared to the carrying
value of $108,282 and $112,876, respectively.
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.
F-11
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The Partnership operates two business segments: property sales and a
country club. Revenues and direct costs are separately stated in the
financial statements. Substantially all revenues during the years ended
December 31, 2002, 2001 and 2000 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:
2002 2001 2000
----------- ----------- -----------
Operating income (loss):
Property sales $ (11,405) $ 37,230 $ 1,891,323
Country Club - (67,326) (214,975)
----------- ----------- -----------
Total $ (11,405) $ (30,096) $ 1,676,348
=========== =========== ===========
Net income (loss):
Property sales $ (7,639) $ 39,780 $ 1,894,723
Country Club - (67,326) (214,975)
----------- ----------- -----------
Total $ (7,639) $ (27,546) $ 1,679,748
=========== =========== ===========
Depreciation:
Property sales $ 2,571 $ 2,462 $ 2,681
Country Club - 9,965 55,528
----------- ----------- -----------
Total $ 2,571 $ 12,427 $ 58,209
=========== =========== ===========
Identifiable assets:
Property sales $ 780,822 $ 700,997 $ 616,929
Country Club 461,324 458,079 481,334
----------- ----------- -----------
Total $ 1,242,146 $ 1,159,076 $ 1,098,263
=========== =========== ===========
Capital expenditures:
Property sales $ 86,107 $ 35,284 $ 52,779
Country Club - - 15,586
----------- ----------- -----------
Total $ 86,107 $ 35,284 $ 68,365
=========== =========== ===========
F-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, 2002 and 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 and $332,462 for the years ended
December 31, 2001 and 2000, respectively.
The promissory note maturity date may be extended 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, although the North Carolina
Department of Environment and Natural Resources ("NCDENR") has required
the Partnership to continue monitoring and testing the subsurface
groundwater. The results of tests conducted during 2002 and the first
two months of 2003 show that detectable concentrations of hydrocarbon
contamination are substantially below standards. As a result, the
Partnership is waiting for a closure letter from NCDENR, although it is
possible that NCDENR may require the Partnership to conduct further
monitoring and testing.
F-13
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, 2002
RE valuation allowance $ 600,170 $ -- $ 4,143 $-- $596,027
For year ended Dec. 31, 2001
RE valuation allowance 603,040 3,586 6,456 -- 600,170
For year ended Dec. 31, 2000
RE valuation allowance 1,871,053 9,715 1,277,728 -- 603,040
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.
Page 55
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 $ -- $666,940 $124,589 $791,529 $-- $791,529 May 1980 N/A
Improved lot held for resale 108,282 130,047 28,213 158,260 -- 158,260 April 1999 N/A
--------- -------- -------- -------- ----- --------
Subtotal 108,282 796,987 152,802 949,789 -- 949,789 N/A
Pimlico Plantation, SC:
Building lots and land -- 250 -- 250 -- 250 May 1980 N/A
---------- -------- -------- -------- ----- --------
Total at December 31, 2002 $108,2820 $797,237 $152,802 $950,039 $-- $950,039
========== ======== ========= ======== ===== ========
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 $596,027 at December 31, 2002. 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.
Page 56
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, 2002
- ----------------------------
Balance at beginning of period $ 946,181 $-- $ 946,181
Additions during period:
Acquisitions -- -- --
Improvements 16,641 -- 16,641
Deductions during period:
Cost of real estate sold 12,783 -- 12,783
---------- -------- ---------
Balance at end of period $ 950,039 $-- $ 950,039
========== ======== ==========
Year Ended December 31, 2001
- ----------------------------
Balance at beginning of period $ 945,524 $-- $ 945,524
Additions during period:
Acquisitions -- -- --
Improvements 35,284 -- 35,284
Deductions during period:
Cost of real estate sold 34,627 -- 34,627
---------- --------- ----------
Balance at end of period $ 946,181 $-- $ 946,181
========== ========= ==========
Year Ended December 31, 2000
- ----------------------------
Balance at beginning of period $2,317,186 $-- $2,317,186
Additions during period:
Acquisitions -- -- --
Improvements 10,715 -- 10,715
Deductions during period:
Cost of real estate sold 1,382,377 -- 1,382,377
---------- ---------- -----------
Balance at end of period $ 945,524 $-- $ 945,524
========== ========== ==========
NOTES:
1. Cost of real estate sold does not reflect valuation allowances. See
Schedule II, "Valuation and Qualifying Accounts."
Page 57