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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 March 31, 2004,
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
------------------------------------------------------
(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 May 7, 2004, 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. Condensed Financial Statements
Condensed Balance Sheets at March 31, 2004 and
December 31, 2003 1
Condensed Statements of Operations and
Partners' Capital for the Three Months Ended
March 31, 2004 and 2003 2
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2004 and 2003 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 20
PART 1. FINANCIAL INFORMATION
REEVES TELECOM LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
March 31, December 31,
2004 2003
(Unaudited) (Audited)
---------- ----------
Assets
------
Cash and cash equivalents $ 727,348 $ 822,517
Prepaid and other current assets -- 757
Properties held for sale and property
and equipment:
Properties held for sale 373,891 327,840
Sales property and equipment, net 164,397 161,937
---------- ----------
Total properties held for sale and
property and equipment, net 538,288 489,777
Long term notes receivable 145,344 146,265
---------- ----------
Total Assets $1,410,980 $1,459,316
========== ==========
Liabilities and Partners' Capital
- ---------------------------------
Accounts payable and accrued expenses $ 39,815 $ 115,109
Accrued expenses, affiliates 34,075 34,075
---------- ----------
Total Liabilities 73,890 149,184
Partners' capital 1,337,090 1,310,132
---------- ----------
Total Liabilities and
Partners' Capital $1,410,980 $1,459,316
========== ==========
The accompanying notes are an integral part of these financial statements.
-1-
REEVES TELECOM LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
2004 2003
----------- -----------
Operating revenues:
Property sales $ 114,443 $ 30,545
Rental income 2,257 2,295
Interest income and finance charges 3,664 651
----------- -----------
120,364 33,491
----------- -----------
Operating costs and expenses:
Direct costs of property sold 3,324 1,410
Selling, general and administrative
expenses 87,663 61,969
Depreciation 2,419 2,301
Interest -- 2,332
----------- -----------
93,406 68,012
----------- -----------
Net income (loss) 26,958 (34,521)
Partners' capital at beginning of period 1,310,132 714,962
----------- -----------
Partners' capital at end of period $ 1,337,090 $ 680,441
=========== ===========
Income (loss) per partnership unit -
basic and diluted $ 0.01 $ (0.02)
=========== ===========
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
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 26,958 $ (34,521)
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
Depreciation 2,419 2,301
Change in assets and liabilities:
Prepaid and other current assets 757 (268)
Note receivable 921 --
Property held for sale, net (47,676) 1,057
Accounts payable and
accrued expenses (75,294) (54,803)
--------- ---------
Net cash used in operating activities (91,915) (86,234)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in sales property & equipment, net (3,254) (19,646)
Deposit on contract -- 19,924
--------- ---------
Net cash provided by (used in) investing
activities (3,254) 278
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt -- (1,244)
Decrease in accrued expenses, affiliates -- (24,314)
--------- ---------
Net cash used in financing activities -- (25,558)
--------- ---------
NET DECREASE IN CASH (95,169) (111,514)
CASH BALANCE - BEGINNING 822,517 301,924
--------- ---------
CASH BALANCE - ENDING $ 727,348 $ 190,410
========= =========
The accompanying notes are an integral part of these financial statements
-3-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Organization and Basis of Presentation
Organization
------------
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 be
transferred, at the discretion of the Board of Directors, 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 sale 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.
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 to its
stockholders cash of $.90 per share on February 29, 1980 and $2.30 per
share on May 14, 1980.
The remaining assets of the Partnership are primarily land held for
sale, note receivable and cash. The cash was generated from real estate
sales including the sale of the golf club as described in Note 2,
below. During the first quarter of 2001, the Partnership sold the golf
club.
The Partnership intends to continue to sell lots in the normal course
of business 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 elect
-4-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
to effect a bulk sale and/or abandonment, the net amount realized could
be less than the carrying value.
The Partnership's Managing General Partner is Grace Property
Management, Inc.
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 of the Partnership's results of operations and
financial condition have been included. Operating results for the three
month period ended March 31, 2004 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2004. 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, 2003 as filed with the Securities and
Exchange Commission on March 30, 2004.
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
-5-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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, 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.
NOTE 3. Reclassification
Certain reclassifications have been made in the prior period to conform
to the current year presentation. These reclassifications have no
effect on net income or partners' capital of the prior period.
NOTE 4. Commitments and Contingent Liabilities
Contamination From Underground Storage Tank
-------------------------------------------
The Partnership sold Fox Squirrel Country Club on March 9, 2001, which
contained contamination from an underground storage tank. The
Partnership believes that all remediation work had 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. As of the
date of this report, NCDENR has not issued the final closing letter
releasing the Partnership from future monitoring and testing. If the
NCDENR requires additional remediation the Partnership may be
responsible. Management believes that if additional remediation is
required that it would not have a material affect on the financial
statements and no additional expense was accrued in these financial
statements.
-6-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Dam Repairs
-----------
The Partnership is responsible for the maintenance and repair of an
earthen dam designed to retain water in one of the lakes. The dam was
breeched approximately eight years ago and the Partnership has spent
over $105,000 in repairs. The Partnership intends to deed the dam to
the City of Boiling Spring Lakes but the city has required additional
repairs before accepting ownership. The Partnership does not believe
this additional cost will be material.
Commitment For Municipal Water and Sewer Services
-------------------------------------------------
The land owned by the Partnership lacks municipal water and sewer
service. The City of Boiling Spring Lakes plans to begin phasing
municipal water service to certain portions of the development in 2004.
A significant portion of the costs of water distribution and sewer
lines to land owned by the Partnership must be borne by the Partnership
or by subsequent purchasers of the land. As of the date of this report,
the Partnership is unable to determine the magnitude of these costs and
accordingly has not accrued any provision in these financial
statements.
Environmental Matters
---------------------
The Partnership is subject to various federal, state, and local laws,
ordinances, and regulations regarding environmental matters. The
Partnership may be required to investigate and clean up hazardous or
toxic substances or petroleum product releases on land currently or
formerly owned by it, and may be 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 may
be imposed whether or not the Partnership was aware, 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 cost of investigation, removal, and decontamination
of substances could be substantial. If such substances are found on the
land currently owned by the Partnership, 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
-7-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
it incurs in connection with such contamination. The Partnership
may be subject to common law claims by third parties based on damages
and costs resulting from environmental contamination emanating from a
site. As of the date of this report, the Partnership is not aware of
any environmental matters that would have a material affect on the
financial statements and the Partnership has accordingly accrued no
liabilities in these financial statements. However, it is at least
reasonably possible that such matters may exist at the date of this
report and the affect on the Partnership and these financial statements
could be substantial.
Endangered / Protected Species
------------------------------
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. The
Partnership has not made any representations or warranties to buyers of
land as to protected or endangered species. Nevertheless, it is
reasonably possible that one or more such buyers may seek compensation
from the Partnership or seek rescission of their purchase of land from
the Partnership, owing to the presence of protected or endangered
species on or near the land, preventing such buyer from utilizing the
land in the matter intended. If any litigation is instituted seeking
compensation or rescission due to endangered and protected species, the
Partnership believes that it would prevail on the merits. As of the
date of this report, there is no pending litigation and the Partnership
is not aware of any potential claims or actions relating to these
matters. The Partnership has made no provision in the financial
statements related to this contingent liability.
Water Level Of Lakes
--------------------
The Partnership believes that the lakes within the City of Boiling
Spring Lakes are recreational and scenic attractions to potential
buyers of land from the Partnership. The Partnership's ability to sell
land at its asking prices would be adversely affected to the extent
that the water level in the lakes is substantially below normal for any
length of time. Due to protracted drought or near-
-8-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
drought conditions for several years up to late 2002, nearly all the
lakes within the City of Boiling Spring Lakes had a water level that
was substantially below normal. These conditions resulted in a lowering
of the water table, and sinkholes developed in the bed of Boiling
Spring Lake, the largest lake in the community. Remedial measures taken
by the city combined with heavy precipitation during the fourth quarter
of 2002 solved the current problem and filled the lakes to
approximately normal levels. The Partnership has not made any
representations or warranties to buyers of land as to the water level
in the lakes. Nevertheless, it is reasonably possible that one or more
of such buyers may seek compensation from the Partnership or seek
rescission of their purchase of land from the Partnership, owing to the
water level of the lakes being substantially below normal, whether due
to damage to the dam, protracted drought conditions, or otherwise. If
any litigation is instituted seeking compensation or rescission, the
Partnership believes that it would prevail on the merits but the cost
of defending such litigation may by substantial. As of the date of this
report, there is no pending litigation and the Partnership is not aware
of any potential claims or actions in these matters. The Partnership
has made no provision in the financial statements related to this
contingent liability.
-9-
REEVES TELECOM LIMITED PARTNERSHIP
MARCH 31, 2004
(Unaudited)
ITEM 2. Management Discussion and Analysis of Financial Condition and Results
of Operations.
In addition to historical information, this quarterly report on Form
10-Q contains certain "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 and other
applicable securities laws. These forward-looking statements include,
without limitation, any statement that may predict, forecast, indicate,
or imply future results, performance, achievements, or events, and may
contain forward-looking words or phrases such as "anticipate,"
"believe," "could," "estimate," "expect," "intend," "may," "might,"
"plan," "project," "strategies," "will be," "will continue," "will
likely result," and similar terms that convey uncertainty of future
events or outcomes. These statements represent the Partnership's
(including the General Partner's) beliefs, expectations, intentions,
and plans, and, as such, are not guarantees of future outcomes or
future performance, and are subject to 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 Item 1, "Description of Business - Risk Factors" within
the Partnership's Annual Report on Form 10-K for the year ended
December 31, 2003 as filed with the Securities and Exchange Commission
on March 30, 2004, 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.
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
-10-
REEVES TELECOM LIMITED PARTNERSHIP
MARCH 31, 2004
(Unaudited)
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 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
-11-
REEVES TELECOM LIMITED PARTNERSHIP
MARCH 31, 2004
(Unaudited)
extend the maturity of the note beyond March 9, 2004 if by that date
the Partnership had not completed remediation of such environmental
contamination. The duration of such extension was limited to 20 years.
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
---------------------
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH
31, 2003
- REVENUE
Revenue from property sales, and the amount and type of property sold
for the first three months of 2004 and 2003 are set forth in the table
below.
Three Months Ended March 31,
----------------------------
2004 2003
-------- --------
PROPERTY SOLD
Boiling Spring Lakes, NC:
Individual undeveloped lots 12 2
Pimlico Plantation, SC:
Individual undeveloped lots -- 1
REVENUE
Boiling Spring Lakes, NC:
Individual undeveloped lots $114,443 $ 6,000
Pimlico Plantation, SC:
Individual undeveloped lots -- 24,545
-------- --------
Total Revenue $114,443 $ 30,545
======== ========
- Boiling Spring Lakes, NC
The real estate market in the southern coastal region of North
Carolina, including Brunswick County, where the Partnership's property
is situated, has continued to recover from the sluggish
-12-
REEVES TELECOM LIMITED PARTNERSHIP
MARCH 31, 2004
(Unaudited)
conditions seen during most of 2002 and 2003. Historically low interest
rates and improved economic conditions generally have led to greater
demand for buildable residential lots, though not yet to the level seen
in 2001. While the strength and durability of the market's recovery is
difficult to predict at this time, Management is cautiously optimistic
about prospects for the Partnership's land sales for the balance of
2004 and into 2005.
During the first three months of 2004, the Partnership sold 10 more
individual undeveloped lots than were sold during the same period of
2003, for an increase of 500%. Management attributes the increase to
the significant improvement in the real estate market in Brunswick
County, North Carolina. Revenue from the sale of individual undeveloped
lots increased over 1,800%, reflecting not only the relative strength
of the market but also the higher average sales price per lot - $9,537
for the first three months of 2004 as compared to $3,000 for the same
period of 2003. The higher average sales price per lot reflects 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.
- Pimlico Plantation, SC
The Partnership sold one individual undeveloped lot during the first
three months of 2003. After such sale, the Partnership no longer owned
any land in Pimlico Plantation, SC.
Rental income for the first three months of 2004 was substantially
unchanged from the same period of 2003, reflecting the scheduled lease
payments.
Interest income and finance charges increased 463%. Management
attributes the increase substantially to the fact that, during the
first three months of 2004, the Partnership recognized interest on the
note receivable held in connection with the sale of Fox Squirrel/The
Lakes in 2001, whereas no such interest income was recognized during
the same period of 2003. As more fully described under "Sale of Fox
Squirrel Country Club/The Lakes Country Club," interest and principal
payments received by the Partnership in respect of the note receivable
were recorded as an increase in the deposit on the sale contract until
June 2003, when the transaction was recorded as a sale in the
Partnership's financial statements. Excluding interest income from the
note receivable, the Partnership earned interest income of $1,228 and
$651 for the three months ended March 31, 2004 and 2003, respectively.
The 89% increase
-13-
REEVES TELECOM LIMITED PARTNERSHIP
MARCH 31, 2004
(Unaudited)
reflects a higher average cash balance held during the first quarter of
2004 than during the first quarter of 2003.
- DIRECT COSTS OF PROPERTY SOLD
Direct costs of property sold for the first three months of 2004 and
2003 were $3,324 and $1,410, respectively. Management attributes the
increase in costs principally to the greater amount of land sold during
the first quarter of 2004 compared to the same period of 2003.
- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $87,663 for the first
three months of 2004, compared to $61,969 for the same period of 2003.
The principal components of the approximately 41% increase are as
follows:
- Real estate taxes - The amount incurred by the
Partnership for the first quarter of 2004 was
$21,579, compared to $15,937 for the first quarter of
2003. Management attributes the increase primarily to
a higher tax rate in effect for 2004 than in 2003.
- Commissions - The Partnership utilizes outside
brokers to supplement its own sales office for
property sales. During the first quarter of 2004, the
Partnership paid $5,000 in commissions to outside
brokers, whereas no such commissions were paid during
the same period of 2003.
- Perk testing and surveying - During the first quarter
of 2004, the Partnership spent $3,720 surveying lots
and testing the suitability of lots for individual
onsite septic systems, compared to $230 during the
same period of 2003. The 1,517% increase reflects
primarily the increase in the number of lots sold.
- Miscellaneous expenses - The Partnership incurred
$7,534 in miscellaneous expenses during the first
quarter of 2004, compared to $1,243 incurred during
the first quarter of 2003. The increase is due in
part to the cost of the appraisal of the real estate
assets owned by the Partnership in Boiling Spring
Lakes. Since the Partnership obtains such an
appraisal once every two to three years, there was no
corresponding expense incurred during the first
quarter of 2003. The increase is also due in part to
the expenditure of $2,520 during the first quarter of
2004 for clearing certain land of brush, while no
such expense was incurred during the same period of
2003.
-14-
REEVES TELECOM LIMITED PARTNERSHIP
MARCH 31, 2004
(Unaudited)
Inflation has had only a minor impact on the Partnership's operations
during the first three months of 2004 and 2003.
Capital Resources and Liquidity
-------------------------------
Operating activities used $91,915 of net cash during the first three
months of 2004, compared to $86,234 of net cash used in operating
activities during the same period of 2003. The change is primarily
attributable to the payment of $51,000 of water assessments by the City
of Boiling Spring Lakes during the firstquarter of 2004 and to an
increase in the aggregate amount of property taxes payable by the
Partnership.
Investing activities used net cash of $3,254 during the first three
months of 2004, compared to $278 of net cash provided by investing
activities during the same period of 2003. The change is primarily
attributable to repairs made to a dam during the first quarter of 2004,
whereas no such expenditure was made during the same period of 2003.
Financing activities used no net cash during the first three months of
2004, compared to $25,558 of net cash used in financing activities
during the same period of 2003. The change is primarily attributable to
the fact that there was no change in the amounts owed to the General
Partner and its affiliates during the first quarter of 2004, whereas
during the first quarter of 2003 the Partnership reduced the amounts
owed to such persons.
At March 31, 2004, the Partnership has cash and cash equivalents of
$727,348. The Partnership has no existing credit line with any
financial institution upon which it may draw.
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.
Throughout the balance of 2004, the Partnership may make one or more
real estate-related investments in and around Boiling Spring Lakes with
a view towards enhancing the value of the Partnership's assets. The
Partnership may utilize its own cash balances as well as seek to borrow
from local financial institutions or others to fund such investment(s).
Management expects that any effort to obtain financing will be
successful but there can be no assurances
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REEVES TELECOM LIMITED PARTNERSHIP
MARCH 31, 2004
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that the partnership will be able to obtain borrowed funds on
acceptable terms or at all. Management will evaluate and determine on a
continuing basis, depending upon market conditions and other factors
the General Partner deems relevant, the most efficient and practical
use of the Partnership's cash.
Off Balance Sheet Arrangements
------------------------------
The Partnership does not utilize off balance sheet arrangements, and
there were none during the first three months of 2004 or 2003.
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 March 31, 2004 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 first
quarter of 2004, cash balances averaged $774,932.
- 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 three months
of 2004 been higher or lower by 100 basis points or one percent (1%),
the Partnership would have earned approximately $1,816, more or less,
on its cash balances, based upon average quarterly balances.
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REEVES TELECOM LIMITED PARTNERSHIP
MARCH 31, 2004
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As of March 31, 2004, the note receivable from the buyer of the assets
of Fox Squirrel/The Lakes was stated on the Partnership's balance sheet
at $145,344, the principal amount of the note receivable, which
approximates its market value. The interest rate on the note receivable
cannot decline below 8.75% and will increase to 2% above the Bank's
prime rate if the Bank's prime rate were to exceed 6.75%. This note
receivable, like all variable rate instruments, is largely insulated
from interest rate risk, and will not decline in value if market
interest rates increase, however, should interest rates decline from
what are already historically low rates, the market value of the note
receivable will likely increase. A hypothetical 100 basis point (1%)
increase or decrease in market interest rates from levels at March 31,
2004 would not cause the fair value of the note receivable to change by
a material amount.
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, during the
first quarter 2004, the Partnership had no long term debt outstanding,
and at March 31, 2004, the Partnership has no interest-bearing
liabilities.
ITEM 4. Controls and Procedures
The Partnership maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the
Partnership's Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms, and that such information is
accumulated and communicated to the Partnership's Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, Management recognized that any
controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control
objectives, and Management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within the Partnership have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people or by management
override of the control. The design of any system of controls is also
based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any
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MARCH 31, 2004
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control will succeed in achieving its stated goals under all potential
future conditions. Over time, a control may become inadequate because
of changes in conditions, or the degree of compliance with the policies
or procedures related to the control may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
Since the Registrant is a limited partnership, it has no officers or
directors. Mr. Davis P. Stowell, President of the General Partner,
carries out the functions of the principal executive officer and the
principal financial officer of the Partnership. Mr. Stowell has, as of
the end of the period covered by this quarterly report on Form 10-Q,
evaluated the effectiveness of the disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) and has determined that such
disclosure controls and procedures are effective at the reasonable
assurance level. There have been no changes during the first fiscal
quarter of 2004 that materially affected or are reasonably likely to
affect internal controls over financial reporting. The Partnership does
not believe any significant deficiencies or material weaknesses exist
in its internal controls over financial reporting. Accordingly, no
corrective actions have been taken.
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PART II - OTHER INFORMATION
ITEM 5. Other Information
Mr. Peter Metz resigned as a director of the General Partner effective
as of March 31, 2004. As a result, Mr. Davis P. Stowell, the President
of the General Partner, is the sole director of the Partnership's
general partner.
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 March
31, 2004.
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MARCH 31, 2004
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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 and Sole Director
(Principal Executive Officer,
Principal Financial Officer,
Principal Accounting Officer)
Dated: May 12, 2004
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