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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003,
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 0-9305
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 of IRS Employer
incorporation or organization) Identification Number
c/o Grace Property Management, Inc.
55 Brookville Road
Glen Head, New York 11545
-----------------------------------------------------
(Address of principal executive offices and zip code)
(516) 686-2201
----------------------------------------------------
(Registrant's telephone number, including area code)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
On November 9, 2003, the registrant had outstanding 1,812,062 Partnership units.
REEVES TELECOM LIMITED PARTNERSHIP
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at September 30, 2003 and
December 31, 2002 1
Statements of Operations and Partners' Capital for
the Nine Months Ended September 30, 2003 and 2002 2
Statements of Cash Flows for the Nine Months Ended
September 30, 2003 and 2002 3
Statements of Operations and Partners' Capital for
the Three Months Ended September 30, 2003 and 2002 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 18
EXHIBIT 31
EXHIBIT 32
PART 1. FINANCIAL INFORMATION
REEVES TELECOM LIMITED PARTNERSHIP
BALANCE SHEETS
(Unaudited)
September 30, December 31,
2003 2002
------------- ------------
Assets
Cash and cash equivalents $ 745,484 $ 301,924
Prepaid and other current assets -- 18,737
Properties held for sale and property
and equipment:
Properties held for sale 340,622 354,009
Sales property and equipment, net 156,795 124,889
Country club property and
equipment, net -- 442,587
---------- ----------
Total properties held for sale and
property and equipment, net 497,417 921,485
Long term notes receivable 147,166 --
---------- ----------
Total Assets $1,390,067 $1,242,146
========== ==========
Liabilities and Partners' Capital
Accounts payable and accrued expenses $ 62,438 $ 83,895
Accrued expenses, affiliates 34,027 54,762
Deposits on contract, net -- 280,245
Long-term debt -- 108,282
---------- ----------
Total Liabilities 96,465 527,184
Partners' capital 1,293,602 714,962
---------- ----------
Total Liabilities and
Partners' Capital $1,390,067 $1,242,146
========== ==========
The accompanying notes are an integral part of these financial statements.
-1-
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
2003 2002
---------- ----------
Operating revenues:
Property sales $ 336,774 $ 307,010
Rental income 7,063 1,550
Interest income and finance charges 154,157 4,359
Gain on sale of country club 341,221 --
---------- ----------
839,215 312,919
---------- ----------
Operating costs and expenses:
Direct costs of property sold 14,448 8,574
Selling, general and administrative
expenses 234,463 210,597
Depreciation 6,962 1,894
Interest 4,702 7,329
---------- ----------
260,575 228,394
---------- ----------
Net income 578,640 84,525
Partners' capital at beginning of period 714,962 722,601
---------- ----------
Partners' capital at end of period $1,293,602 $ 807,126
========== ==========
Income per partnership unit - basic
and diluted $ 0.32 $ 0.05
========== ==========
Weighted average partnership units
issued and outstanding 1,812,062 1,812,062
---------- ----------
The accompanying notes are an integral part of these financial statements.
-2-
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 578,640 $ 84,525
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 6,962 1,894
Change in assets and liabilities:
Prepaid and other current assets 18,737 (2,984)
Property held for sale 13,387 (8,067)
Accounts payable and
accrued expenses (21,457) (55,395)
Gain on sale of country club (net) 14,585 59,773
--------- ---------
Net cash provided by operating activities 610,854 79,746
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in sales property & equipment,net (38,277) (35,416)
--------- ---------
Net cash used in investing activities (38,277) (35,416)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (108,282) (3,401)
Decrease in accrued expenses, affiliates (20,735) --
--------- ---------
Net cash used in financing activities (129,017) (3,401)
--------- ---------
NET INCREASE IN CASH 443,560 40,929
CASH BALANCE - BEGINNING 301,924 296,993
--------- ---------
CASH BALANCE - ENDING $ 745,484 $ 337,922
========= =========
The accompanying notes are an integral part of these financial statements.
-3-
REEVES TELECOM LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
2003 2002
----------- -----------
Operating revenues:
Property sales $ 222,964 $ 53,706
Rental income 2,473 1,550
Interest income and finance charges 3,224 1,427
----------- -----------
228,661 56,683
----------- -----------
Operating costs and expenses:
Direct costs of property sold 11,025 1,558
Selling, general and administrative
expenses 92,236 76,175
Depreciation 2,360 649
Interest 1,194 2,435
----------- -----------
106,815 80,817
----------- -----------
Net income (loss) 121,846 (24,134)
Partners' capital at beginning of period 1,171,756 831,260
----------- -----------
Partners' capital at end of period $ 1,293,602 $ 807,126
=========== ===========
Income (loss) per partnership unit -
basic and diluted $ 0.07 $ (0.01)
=========== ===========
Weighted average partnership units
issued and outstanding 1,812,062 1,812,062
----------- -----------
The accompanying notes are an integral part of these financial statements.
-4-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three
month and nine month periods ended September 30, 2003 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2003. For further information, refer to the
consolidated financial statements and notes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December
31, 2002 as filed with the Securities and Exchange Commission on March
31, 2003.
NOTE 2. Sale of Fox Squirrel Country Club/The Lakes Country Club and Disposal
of Business Segment
During the first quarter of 2001, the Partnership completed the sale of
the assets of Fox Squirrel/The Lakes for consideration totaling
$862,500, comprised of $150,000 in cash and a note receivable having an
initial principal amount of $712,500. Since the cash down payment of
$150,000 received by the Partnership represented less than 25% of the
total consideration paid for the assets, the transaction was recorded
on the Partnership's financial statements using the deposit method as
defined in Statement of Financial Accounting Standard No. 66,
"Accounting for Sales of Real Estate" ("SFAS 66"). The deposit method
requires, among other things, that until the total cash received by the
Partnership from the down payment and subsequent 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 at closing
be shown as a deposit on contract, and (c) payments received from the
buyer in respect of the note receivable subsequent to closing be
treated as an increase in the deposit. From March 31, 2001 through
March 31, 2003, the Partnership recorded the transaction using the
deposit method. At March 31, 2003, the assets held by the Partnership
covered by the sale agreement were held at a net book value of
approximately $442,587. During the second quarter of 2003, the
Partnership received an early repayment of principal on the note of
$534,748. Since as of the date of such early repayment the Partnership
has received in excess of 25% of the total consideration paid for the
assets, the transaction has been recorded as a sale of assets on the
Partnership's financial statements for the period ended June 30,
-5-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2003. The operations of Fox Squirrel/The Lakes prior to the sale are
recorded as discontinued operations. During the second quarter of 2003,
the Partnership recognized a gain on the sale totaling $341,221.
-6-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
ITEM 2. Management Discussion and Analysis of Financial Condition and Results
of Operations.
Certain matters discussed herein are forward-looking statements about
the business, financial condition and prospects of the Partnership. The
actual results could differ materially from those indicated by such
forward-looking statements because of various risks and uncertainties.
Such risks and uncertainties may include, but are not limited to,
regional and national economic conditions, changes in consumer demand
for real estate, changes in interest rates and the availability of
credit to the Partnership and/or potential purchasers of real estate,
and changes in state and federal regulations relating to environmental
and health matters. The Partnership cannot control these risks and
uncertainties and, in many cases, cannot predict the risks and
uncertainties that could cause its actual results to differ materially
from those indicated by the 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.
Sale of Fox Squirrel Country Club / The Lakes Country Club
During the first quarter of 2001, the Partnership completed the sale of
the assets of Fox Squirrel/The Lakes for consideration totaling
$862,500, comprised of $150,000 in cash and a note receivable having an
initial principal amount of $712,500. Originally, the note bore
interest at an annual rate of 9.5%, had a maturity date of March 9,
2004, was collateralized by all of the assets sold to the buyer, and
provided for payments of principal and interest as follows: (i) monthly
payments of $6,641 from April 9, 2001 up to and including February 9,
2004, and (ii) a final payment of $677,642 on March 9, 2004. During the
second quarter of 2003, in connection with the buyer's obtaining
financing from a local financial institution (the "Bank"), the terms of
the note were modified to provide for an annual interest rate equal to
the higher of (i) 8.75% and (ii) 2% over the Bank's prime rate, and the
maturity date was extended to June 15, 2008. Assuming that the Bank's
prime rate does not exceed 6.75% (meaning that the interest rate on the
note remains constant at 8.75%), the note as modified provides for
payments of principal and interest as follows: (i) $779 of interest
only on July 9, 2003, (ii) monthly payments of $1,371 from August 9,
2003 up to and including July 9, 2008, and (iii) a final payment of
$125,459 on July 15, 2008. In addition to the foregoing modifications
to the note, the Partnership subordinated its lien priority on the
assets sold to the buyer to that of the Bank. In consideration of the
foregoing, during the second quarter of 2003, the Partnership received
from the buyer an early repayment of principal of $534,748, reducing
the unpaid
-7-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
principal amount outstanding under the note to $147,757 as of the date
of such repayment.
Since the cash down payment of $150,000 received by the Partnership
during the first quarter of 2001 represented less than 25% of the total
consideration paid for the assets, the transaction was recorded on the
Partnership's financial statements using the deposit method as defined
in SFAS 66. From March 31, 2001 through March 31, 2003, the Partnership
recorded the transaction using the deposit method. At March 31, 2003,
the assets held by the Partnership covered by the agreement were held
at a net book value of approximately $442,587. Since as of the date of
the early repayment of principal to the Partnership of $534,748 the
Partnership has received in excess of 25% of the total consideration
paid for the assets, the transaction has been recorded as a sale of
assets on the Partnership's financial statements for the period ended
June 30, 2003. The operations of Fox Squirrel/The Lakes prior to the
sale are recorded as discontinued operations. During the second quarter
of 2003, the Partnership recognized a gain on the sale totaling
$341,221.
In connection with the modification of the note's terms as described
above, the Partnership and the buyer agreed to a modification of the
indemnification agreement relating to certain environmental
contamination from an underground storage tank formerly located on the
grounds of Fox Squirrel/The Lakes. The indemnification agreement
originally provided that the buyer may extend the maturity of the note
beyond March 9, 2004 if by that date the Partnership had not completed
remediation of such environmental contamination. There was no
limitation on the duration of such extension. The agreement as modified
provides that the Partnership's indemnification extends to not later
than June 17, 2005, even if the North Carolina Department of
Environment and Natural Resources has not furnished a closure letter
formally stating that no further testing of ground water or remediation
is required.
Results of Operations
A. NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2002
- REVENUE
Revenue from property sales, and the number and type of property sold
for the first nine months of 2003 and 2002 are set forth in the table
below.
-8-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
Nine Months Ended
September 30,
-------------------
2003 2002
-------- --------
PROPERTY SOLD
Boiling Spring Lakes, NC:
Individual undeveloped lots 14 15
Commercial land (acres) 6.08 6.30
Other land (acres) -- 20.00
Pimlico Plantation, SC:
Individual undeveloped lots 1 --
REVENUE
Boiling Spring Lakes, NC:
Individual undeveloped lots $142,216 $146,826
Commercial land 170,013 65,410
Other land -- 94,774
Pimlico Plantation, SC:
Individual undeveloped lots 24,545 --
-------- --------
Total Revenue $336,774 $307,010
======== ========
Note: During the first quarter of 2002 the Partnership sold
two parcels of undeveloped residential land in Boiling Spring
Lakes, totaling 20.00 acres, for an aggregate of $94,774. In
management's discussion and analysis in the Partnership's
quarterly report on Form 10-Q for the period ended September
30, 2002, such land was included with individual undeveloped
lots. In conformance to the table above, such land is listed
separately.
- Boiling Spring Lakes, NC
Generally, the real estate market in Boiling Spring Lakes, NC was
sluggish for most of 2002 and for much of the first nine months of
2003. Despite low interest rates, demand for buildable residential lots
has remained low compared to 2001 and prior years. While Management
believes that the real estate market in the coastal region of North
Carolina in general has begun to experience a recovery, the extent of
such recovery, and the effect, if any, on the Partnership, is difficult
to predict at this time.
Individual Undeveloped Lots - During the first nine months of 2003, one
less lot was sold than during the same period of 2002. Management
attributes the near constant level of lot sales to a static real estate
market in Brunswick County, North Carolina. Management attributes the
3% decrease in revenue to the relative mix of lots sold. Lots adjoining
or close to the golf course for
-9-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
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
which are not suitable for on-site septic systems.
Commercial Land - Acreage sold during the nine months ended September
30, 2003 approximated that for the same period of 2002, while revenue
increased 160%. The Partnership experiences great volatility in sales
from year to year as to revenue and acreage, and often the Partnership
records no sales in a fiscal quarter or even a fiscal year. The price
per acre that the Partnership realizes depends upon numerous factors,
including, among others, the size of the tract and its location. All
6.08 acres sold during the first three quarters of 2003 are situated in
a strip of land along Route 87, the main road through the City of
Boiling Spring Lakes, and have access to a multi-user septic system
completed by the Partnership in 1998, whereas all 6.30 acres sold
during the first three quarters of 2002 are situated elsewhere within
the City and do not have access to such a septic system.
Other Land - Management attributes the decline in revenue to the fact
that no acreage was sold during the first nine months of 2003, whereas
some 20 acres were sold in the same period of 2002. The Partnership
experiences great volatility in sales from year to year as to revenue
and acreage, and often the Partnership records no sales in a fiscal
quarter or even a fiscal year. The price per acre that the Partnership
realizes depends upon numerous factors, including, among others, the
size of the tract, its location, and the extent to which portions of
the tract are suitable for the installation of individual on-site
septic systems.
- Pimlico Plantation, SC
Management attributes the increase in revenue to the fact that one lot
was sold during the first nine months of 2003, whereas no lots were
sold in the same period of 2002. After such sale, the Partnership no
longer owns any land in Pimlico Plantation, SC.
Rental income for the first nine months of 2003 was $7,063, compared to
$1,550 for the same period of 2002. The 356% increase is due primarily
to the vacancy of the rental property for a portion of 2002.
Interest income and finance charges for the first nine months of 2003
were $154,157, compared to $4,359 for the same period of 2002.
Substantially all of the increase is due to the recording of interest
received on the note receivable from the buyer of the assets of Fox
Squirrel/The Lakes following the early repayment of $534,748 of
principal during the second quarter of 2003. Prior to such early
repayment, interest and principal payments received by
-10-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
the Partnership in respect of the note receivable were recorded as an
increase in the deposit, as further described in "Sale of Fox Squirrel
Country Club / The Lakes Country Club" elsewhere in this Item 2.
The Partnership recognized a gain on the sale of the assets of Fox
Squirrel/The Lakes of $341,221. The sale of the assets of Fox
Squirrel/The Lakes was completed on March 9, 2001 and the transaction
was recorded as a sale in the Partnership's financial statements on
June 30, 2003. During the intervening period, the transaction was
recorded using the deposit method as defined in SFAS 66. Accordingly,
there are no financial results of operations of Fox Squirrel/The Lakes
for the first nine months of 2003 or 2002.
- DIRECT COSTS OF PROPERTY SOLD
Direct costs of property sold for the first nine months of 2003 and
2002 were $14,448 and $8,574, respectively. Management attributes the
increase in costs principally to the fact that the cost basis of the
commercial lots sold during 2003 reflect a portion of the cost to build
the multi-user septic system, whereas no such costs were applicable to
commercial lots sold during 2002.
- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $234,463 for the
first nine months of 2003, compared to $210,597 for the same period of
2002. The principal components of the approximately 11% increase are as
follows:
- Real estate taxes - A 21% increase in taxes, or $7,613, is due
primarily to an increase in assessed values of the
Partnership's land in Boiling Spring Lakes following a
reassessment for all of Brunswick County, NC.
- Accounting and auditing fees - A 109% increase, or $8,079, is
due, in part, to the timing of receipt of invoices by the
Partnership relating to accounting and auditing work and, in
part, to higher fees charged to SEC-reporting entities by
accountants and auditors generally following the enactment of
the Sarbanes-Oxley Act of 2002.
- State income taxes - During the first nine months of 2003, the
Partnership paid taxes to the State of North Carolina and the
State of South Carolina totaling $5,500, whereas no such
payments were made during the same period of 2002. For Federal
income tax purposes, the Partnership is taxed as a
partnership; accordingly all federal income taxes are the
responsibility of each partner. However, North Carolina and
-11-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
South Carolina require that the Partnership file a composite
return and pay the tax on behalf of the non-resident partners.
B. THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2002
- REVENUE
Revenue from property sales, and the number and type of property sold
for the third quarter of 2003 and 2002 are set forth in the table
below.
Three Months Ended
September 30,
-------------------
2003 2002
-------- --------
PROPERTY SOLD
Boiling Spring Lakes, NC:
Individual undeveloped lots 5 5
Commercial land (acres) 2.45 --
Other land (acres) -- --
Pimlico Plantation, SC:
Individual undeveloped lots -- --
REVENUE
Boiling Spring Lakes, NC:
Individual undeveloped lots $ 73,451 $ 53,706
Commercial land 149,513 --
Other land -- --
Pimlico Plantation, SC:
Individual undeveloped lots -- --
-------- --------
Total Revenue $222,964 $ 53,706
======== ========
- Boiling Spring Lakes, NC
Individual Undeveloped Lots - The same number of lots were sold during
the third quarter of 2003 as during the same period of 2002. Management
attributes the constant level of lot sales to a static real estate
market in Brunswick County, North Carolina. Management attributes the
37% increase in revenue to the relative mix of 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 which are not suitable for on-site
septic systems.
Commercial Land - The Partnership sold 2.45 acres during the third
quarter of 2003, whereas none were sold during the third quarter
-12-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
of 2002. The Partnership experiences great volatility in sales from
year to year as to revenue and acreage, and often the Partnership
records no sales in a fiscal quarter or even a fiscal year.
Rental income for the third quarter of 2003 and 2002 was $2,473 and
$1,550, respectively. The increase is due principally to the vacancy of
the rental property for a portion of 2002. Interest income and finance
charges for the third quarter of 2003 were $3,224, compared to $1,427
for the same period of 2002. Substantially all of the increase is due
to the higher average cash balances maintained by the Partnership
during 2003 than during 2002.
- DIRECT COSTS OF PROPERTY SOLD
Direct costs of property sold for the three months ended September 30,
2003 were $11,025, compared to $1,558 for the same period of 2002.
Management attributes the increase in costs principally to the fact
that the cost basis of the commercial lots sold during the third
quarter of 2003 reflect a portion of the cost to build the multi-user
septic system, whereas no commercial lots were sold during the third
quarter of 2002.
- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $92,236 for the third
quarter of 2003, compared to $76,175 for the same period of 2002. The
principal components of the approximately 21% increase are as follows:
- Commissions - Payments totaling $5,600 relating to the sale of
commercial land were paid during the third quarter of 2003. No
commercial land was sold - and, hence, no commissions were
paid in respect thereof - during the third quarter of 2002.
- Accounting and auditing fees - A 90% increase, or $6,832, is
due, in part, to the timing of receipt of invoices by the
Partnership relating to accounting and auditing work and, in
part, to higher fees charged to SEC-reporting entities by
accountants and auditors generally following the enactment of
the Sarbanes-Oxley Act of 2002.
- Legal - The Partnership incurred $2,040 in legal expenses
relating primarily to the early repayment of principal and
renegotiation of terms of the note receivable during the third
quarter of 2003, whereas no such fees and expenses were
incurred in the same period of 2002.
-13-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
Inflation has had only a minor impact on the Partnership's operations
during the first nine months of 2003 and 2002.
Capital Resources and Liquidity
Operating activities provided $610,854 of net cash during the first
nine months of 2003, compared to $79,746 of net cash provided by
operating activities during the same period of 2002. The change is
primarily attributable to the early prepayment of principal on the note
receivable relating to the sale of Fox Squirrel Country Club recorded
in 2003.
Investing activities used net cash of $38,277 during the first nine
months of 2003, compared to $35,416 of net cash used during the same
period of 2002. The change is primarily attributable to the timing of
receipt of invoices and payments in connection with work to rebuild an
earthen dam in 2003 and 2002.
Financing activities used $129,017 of net cash during the first nine
months of 2003, compared to $3,401 of net cash used during the same
period of 2002. Payment of accrued expenses to affiliates and early
repayment in full of existing long-term debt during the third quarter
of 2003 represented substantially all of the difference.
During the second quarter of 2003, the Partnership renegotiated the
terms of its loan from a local financial institution to provide for a
lower interest rate. As of April 2, 2003, the note had a balance
outstanding of $107,038, bore interest at a fixed rate of 5.65%, and
provided for equal monthly payments of $1,020 through March 2006, with
a final balloon payment due on the maturity date of April 2, 2006. In
August 2003, the Partnership elected to repay the existing balance of
the note. After giving effect to such repayment, the Partnership has no
long-term debt.
Off Balance Sheet Arrangements
The Partnership does not utilize off balance sheet arrangements, and
there were none during the first nine months of 2003 or 2002.
-14-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership's principal market risk exposure is to changes in
interest rates, which are highly sensitive to many factors, including
governmental monetary and tax policies, domestic and international
economic and political considerations, and other factors beyond the
control of the Partnership. Changes in the general level of interest
rates can affect the Partnership's revenue from property sales, since
the market for real estate in general varies to a large degree upon the
level and stability of interest rates. Generally, when interest rates
are high or are increasing, the market for real estate declines, and
when interest rates are low or are stable, the market for real estate
increases. The Partnership does not enter into derivative contracts for
its own account to hedge against the risk of changes in interest rates.
The Partnership's interest-bearing assets at September 30, 2003 are as
follows:
- Cash, substantially all of which is deposited at a local
financial institution. The interest rate earned on the cash
balance is variable. During the third quarter of 2003, cash
balances averaged $727,908.
- The note receivable from the buyer of the assets of Fox
Squirrel/The Lakes. The stated interest rate on the note was
9.5% until June 17, 2003, when the terms of the note were
modified to provide, among other things, for an annual
interest rate equal to the higher of (i) 8.75% and (ii) 2%
over the Bank's prime rate. Subsequent to the modification of
the note's terms, the interest rate has not exceeded 8.75%.
Had the average level of interest rates during the first nine months of
2003 been higher or lower by 100 basis points or one percent (1%), the
Partnership would have earned approximately $3,361, more or less, on
its cash balances, based upon average quarterly balances.
During the third quarter of 2003, the Partnership repaid the remaining
unpaid balance, or approximately $104,991, of long-term debt secured by
a mortgage on an improved residential lot. As a result, at September
30, 2003, the Partnership has no interest-bearing liabilities. Since
the interest rate on the Partnership's long-term debt was fixed, there
would have been no change in interest expense had the average level of
interest rates during the first nine months of 2003 been higher or
lower by 100 basis points or one percent (1%) but for the renegotiation
of the interest rate in April 2003 to a lower, fixed rate. If interest
rates had been higher or lower by 100 basis points, or one percent
(1%), in April 2003 when the Partnership negotiated the lower fixed
rate, the Partnership's interest expense for the first nine months of
2003 would have been approximately $450 higher or lower, respectively.
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REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
ITEM 4. Controls and Procedures
Within the 90 day period prior to the filing date of this quarterly
report on Form 10-Q, the General Partner, under the direction of Davis
P. Stowell, President of the General Partner, carried out an evaluation
of the effectiveness of the design and operation of the Partnership's
disclosure controls and procedures as defined in Exchange Act Rules
13a-14(c) and 15(d)-14c (since the Partnership has no executive
officers, Mr. Stowell carries out the responsibilities of the chief
executive officer and chief financial officer of the Partnership).
Based upon that evaluation, Mr. Stowell concluded that the
Partnership's disclosure controls and procedures are effective. There
have been no significant changes in the Partnership's internal controls
or in other factors that could significantly affect internal controls
subsequent to the date that evaluation was carried out. The General
Partner intends to periodically evaluate the Partnership's disclosure
controls and procedures as required by the Exchange Act Rules.
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REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31 Certification of Quarterly Report by Principal
Executive Officer and Principal Financial Officer
Pursuant to Exchange Act Rules 13a-14 and 15d-14.
32 Certification of Principal Executive Officer and
Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350*.
* Exhibit 32 is to be treated as "furnished" rather
than "filed" as part of this report.
(b) No reports were filed on Form 8-K for the quarter ended
September 30, 2003.
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REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2003
(Unaudited)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
REEVES TELECOM LIMITED PARTNERSHIP
By: Grace Property Management Inc.
General Partner
By: /s/ DAVIS P. STOWELL
-----------------------------
Davis P. Stowell
President
Dated: November 12, 2003
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