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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, 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 November 10, 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 September 30, 2004
(Unaudited) and December 31, 2003 1
Condensed Statements of Operations and Partners'
Capital (Unaudited) for the Three Months Ended
September 30, 2004 and 2003 2
Condensed Statements of Operations and Partners'
Capital (Unaudited) for the Nine Months Ended
September 30, 2004 and 2003 3
Condensed Statements of Cash Flows (Unaudited)
for the Nine Months Ended
September 30, 2004 and 2003 4
Notes to Condensed Financial Statements
(Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 23
Item 4. Controls and Procedures 24
PART II. OTHER INFORMATION
Item 6. Exhibits 26
SIGNATURE 27
PART I. FINANCIAL INFORMATION
REEVES TELECOM LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
September 30, December 31,
2004 2003
(Unaudited) (Audited)
------------- ------------
Assets
------
Cash and cash equivalents $1,339,562 $ 822,517
Prepaid and other current assets -- 757
Properties held for sale and property
and equipment:
Properties held for sale 339,700 327,840
Property and equipment, net 162,829 161,937
---------- ----------
Total properties held for sale and
property and equipment, net 502,529 489,777
Long term notes receivable 143,440 146,265
---------- ----------
Total Assets $1,985,531 $1,459,316
========== ==========
Liabilities and Partners' Capital
- ---------------------------------
Accounts payable and accrued expenses $ 38,998 $ 115,109
Accrued expenses, affiliates 34,028 34,075
---------- ----------
Total Liabilities 73,026 149,184
Commitments and contingencies
Partners' capital 1,912,505 1,310,132
---------- ----------
Total Liabilities and
Partners' Capital $1,985,531 $1,459,316
========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
-1-
REEVES TELECOM LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
2004 2003
---------- ----------
Operating revenues:
Property sales $ 506,830 $ 222,964
Rental income 2,295 2,473
Interest income and finance charges 5,467 3,224
---------- ----------
514,592 228,661
---------- ----------
Operating costs and expenses:
Direct costs of property sold 21,028 11,025
Selling, general and administrative
expenses 92,101 92,236
Depreciation 2,406 2,360
Interest -- 1,194
---------- ----------
115,535 106,815
---------- ----------
Net income 399,057 121,846
Partners' capital at beginning of period 1,513,448 1,171,756
---------- ----------
Partners' capital at end of period $1,912,505 $1,293,602
========== ==========
Income per partnership unit $ 0.22 $ 0.07
========== ==========
Weighted average partnership units
issued and outstanding 1,812,062 1,812,062
---------- ----------
The accompanying notes are an integral part of these condensed financial
statements.
-2-
REEVES TELECOM LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
---------- ----------
Operating revenues:
Property sales $ 928,573 $ 336,774
Rental income 6,885 7,063
Interest income and finance charges 13,864 154,157
Gain on sale of country club -- 341,221
---------- ----------
949,322 839,215
---------- ----------
Operating costs and expenses:
Direct costs of property sold 35,978 14,448
selling, general and administrative
expenses 303,734 234,463
Depreciation 7,237 6,962
Interest -- 4,702
---------- ----------
346,949 260,575
---------- ----------
Net income 602,373 578,640
Partners' capital at beginning of period 1,310,132 714,962
---------- ----------
Partners' capital at end of period $1,912,505 $1,293,602
========== ==========
Income per partnership unit $ 0.34 $ 0.32
========== ==========
Weighted average partnership units
issued and outstanding 1,812,062 1,812,062
---------- ----------
The accompanying notes are an integral part of these condensed financial
statements.
-3-
REEVES TELECOM LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 602,373 $ 578,640
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 7,237 6,962
Change in assets and liabilities:
Prepaid and other current assets 757 18,737
Note receivable 2,825 --
Property held for sale (13,162) 13,387
Accounts payable and
accrued expenses (76,111) (21,457)
Gain on sale of country club (net) -- 14,585
---------- ---------
Net cash provided by operating activities 523,919 610,854
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in property & equipment, net (6,827) (38,277)
---------- ---------
Net cash used in investing activities (6,827) (38,277)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt -- (108,282)
Decrease in accrued expenses, affiliates (47) (20,735)
---------- ---------
Net cash used in financing activities (47) (129,017)
---------- ---------
NET INCREASE IN CASH 517,045 443,560
CASH BALANCE - BEGINNING 822,517 301,924
---------- ---------
CASH BALANCE - ENDING $1,339,562 $ 745,484
========== =========
The accompanying notes are an integral part of these condensed financial
statements.
-4-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
NATURE OF OPERATIONS
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 Exchange Act of
1934 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 primarily
from real estate sales including the sale of the golf club 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
-5-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO CONDENSED 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.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying unaudited condensed 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 and nine month periods ended September 30, 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 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.
The accompanying unaudited condensed 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.
PROPERTY SALES
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. The revenue from these sales
are recognized at the closing date unless a deferral is required
pursuant to Statement of Financial Standards No. 66, "Accounting for
Sales of Real Estate." 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.
-6-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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 impairment
may have occurred in accordance with the provisions of Statement of
Financial Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets."
SIGNIFICANT CONCENTRATIONS OF RISK
The Partnership maintains cash deposits in banks in excess of the
federally insured amounts.
CASH AND EQUIVALENTS
For purposes of the Statements 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
90 days at the date of purchase. Cash equivalents are stated at
cost, which approximates market value.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership's long-lived assets, primarily real estate held for
sale, are carried at cost unless circumstances indicate that the
carrying value of the assets may not be recoverable. The Partnership
obtains appraisals periodically (typically, every two years) 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.
The Partnership applies a valuation allowance to land if such land
is unsuitable for the installation of an individual septic system as
determined by testing conducted by the local health department or,
in the absence of such testing, as determined by the Partnership
based upon topography. Land that the Partnership believes to be
-7-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
suitable for the installation of an individual septic system based
upon topography may, by subsequent testing, be determined to be
unsuitable. More typically, land that the Partnership believes to be
unsuitable for septic based upon topography may, by subsequent
testing, be determined to be suitable. The valuation allowance is
allocated among the land held for sale only following each periodic
appraisal, while the determination of a particular lot or parcel of
land as being suitable or unsuitable for septic may be made at any
time prior to the sale of such land. Since the direct cost of land
sold is net of the applicable valuation allowance, the direct cost
of a lot or parcel of land that the Partnership believes to be
suitable for septic that, on the basis of testing, is subsequently
determined to be unsuitable may, therefore, exceed the sales price
of such land, in which case the Partnership would realize a loss on
the sale of such land. To the best of Management's knowledge, the
Partnership has never realized such a loss, and if such a loss or
losses were to occur, Management believes that the aggregate amount
of such losses would not materially affect the Partnership's
financial condition or results from operations.
NOTE 3. 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
-8-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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 4. RECLASSIFICATION
Certain reclassifications have been made in the prior periods to
conform to the current year presentation. These reclassifications
have no effect on net income or partners' capital of the prior
periods.
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES
CONTAMINATION FROM UNDERGROUND STORAGE TANK
On March 9, 2001, the Partnership sold Fox Squirrel Country Club,
which contained contamination from an underground storage tank. The
Partnership completed all remediation work as of December 31, 2001,
although the North Carolina Department of Environment and Natural
Resources ("NCDENR") required the Partnership to monitor and test
the subsurface groundwater periodically thereafter, and to submit
the results of such tests to NCDENR for review. In a "no further
action" letter to the Partnership dated May 4, 2004, NCDENR stated
that its review of a site closure report showed that soil
contamination does not exceed the residential maximum soil
contaminant concentrations under state law, and that contaminated
groundwater has been cleaned up to the level of the standards under
state law, and, accordingly, NCDENR believes that no further action
is warranted for the incident. The "no further action" letter
further states that NCDENR's determination applies unless NCDENR
later determines that the release that resulted in the remediation
work poses an unacceptable or a potentially unacceptable risk to
human health or the environment. The well that was established for
monitoring and testing subsurface groundwater has been closed, and
Management believes that the Partnership will not incur any further
monitoring or testing costs, or other material or potentially
material expenditures relating to the contamination.
-9-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO CONDENSED 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. In 2004, the City of Boiling Spring Lakes began to phase in
municipal water service to certain portions of the development. In
connection with the first phase of the municipal water system, in
February 2004 the Partnership paid its full assessment of $51,000,
which amount was treated for accounting purposes as an increase in
the cost basis of the land owned by the Partnership in those certain
portions of the development. A significant portion of the costs of
subsequent phases of municipal water distribution as well as 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
-10-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
contaminated site in favor of the government for damages and costs
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 effect 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 effect 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,
allegedly 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 but the
cost of defending such litigation may be 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 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-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
-11-
REEVES TELECOM LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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 a 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.
-12-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
ITEM 2. MANAGEMENT'S 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, the footnotes to the
financial statements contained in this quarterly report, 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 assets sold to the buyer, and
-13-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
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 extend the maturity of the
note beyond March 9, 2004 if by that date the Partnership had
-14-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
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 ("NCDENR") has not furnished a
closure letter formally stating that no further testing of ground
water or remediation is required. NCDENR issued a "no further
action" letter dated May 4, 2004, and, as a result, the
Partnership's indemnification pursuant to the agreement as modified
has ended.
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2003
- REVENUE
- REVENUE FROM PROPERTY SALES
Revenue from property sales, and the amount and type of
property sold for the first nine months of 2004 and 2003 are
set forth in the table below.
Nine Months Ended September 30,
-------------------------------
2004 2003
-------- --------
PROPERTY SOLD
Boiling Spring Lakes, NC:
Individual undeveloped lots 72 14
Commercial land (acres) -- 6.08
Pimlico Plantation, SC:
Individual undeveloped lots -- 1
REVENUE
Boiling Spring Lakes, NC:
Individual undeveloped lots $928,574 $142,216
Commercial land -- 170,013
Pimlico Plantation, SC:
Individual undeveloped lots -- 24,545
-------- --------
Total Revenue $928,574 $336,774
======== ========
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REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
Generally, the real estate market in the southern coastal region of
North Carolina, including Brunswick County, where the Partnership's
property is situated, has recovered from the sluggish 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.
During the first nine months of 2004, the Partnership sold 58 more
individual undeveloped lots than were sold during the same period of
2003, for an increase of 414%. Of the 72 lots sold, three buyers
accounted for 27 lots, for an aggregate of $375,459. Management
attributes the increase to the improvement in the real estate market
in Brunswick County, North Carolina. Revenue from the sale of
individual undeveloped lots increased over 553%, reflecting not only
the relative strength of the market but also the higher average
sales price per lot - $12,897 for the first nine months of 2004 as
compared to $10,158 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.
During the first nine months of 2004, the Partnership sold no
commercial land, whereas the Partnership sold approximately 6 acres
in the same period of 2003 for aggregate revenue of $170,013. The
Partnership experiences great volatility in sales from year to year
as to revenue and acreage, and often the Partnership records no
sales of commercial land in a fiscal year. The price per acre of
commercial land that the Partnership realizes depends upon numerous
factors, including, among others, the size of the tract and its
location.
PIMLICO PLANTATION
The Partnership sold one individual undeveloped lot during the first
nine months of 2003. After such sale, the Partnership no longer
owned any land in Pimlico Plantation, SC.
- RENTAL INCOME
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REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
Rental income for the first nine months of 2004 was substantially
unchanged from the same period of 2003, reflecting scheduled lease
payments.
- INTEREST INCOME AND FINANCE CHARGES
Interest income and finance charges for the first nine months of
2004 decreased 91% from the same period of 2003. Management
attributes the decrease substantially to the fact that, during the
first nine months of 2003, the Partnership recognized the sale of
the assets of Fox Squirrel/The Lakes, which included recognizing the
interest collected on the note receivable from the closing of the
transaction in March 2001 to June 2003. Prior to June 2003, the
Partnership recorded principal and interest in respect of the note
receivable as an increase in the deposit on the sale contract, in
accordance with SFAS No. 66, "Accounting for Sales of Real Estate."
- DIRECT COSTS OF PROPERTY SOLD
Direct costs of property sold for the first nine months of 2004 and 2003
were $35,378 and $14,448, respectively, for an increase of approximately
149%. Management attributes the increase in costs principally to the
greater amount of land sold during the first nine months of 2004 compared
to the same period of 2003.
- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first nine months of
2004 were $303,734, compared to $234,463 for the same period of 2003. The
principal components of the approximately 30% increase are as follows:
- INCOME TAX
During 2004 the Partnership expensed $23,025 in North Carolina and
South Carolina state income taxes due in respect of 2003 for limited
partners, whereas only $5,500 in such taxes was expensed in 2003 for
taxes due in respect of 2002. As a limited partnership, the
Partnership generally passes income tax liability through to its
partners. With respect to 2003 and 2002, however, Management
believes that the administrative cost of allocating such liability
among the partners, and maintaining records therefore, would be
needlessly time-consuming and complex. Management, therefore,
elected to pay such taxes, with
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REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
the result that each partner's pro rata share of the Partnership's
income for each such year would be/has been reduced by a pro rata
share of such taxes paid.
- MISCELLANEOUS EXPENSES
The Partnership incurred $22,710 in miscellaneous expenses during
the first nine months of 2004, compared to $4,461 incurred during
the same period 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, the cost of environmental studies relating to
the endangered species inhabiting portions of Boiling Spring Lakes,
and in part by expenses relating to clearing and mowing of certain
land, and wetlands assessment tests in respect of such land, prior
to the sale of the land. No such expenses were incurred during the
same period of 2003.
- LEGAL FEES
Legal fees were $16,064 for the first nine months of 2004, compared
to $2,200 for the same period of 2003. The increase of approximately
630% is due substantially to the greater compliance requirements of
entities filing periodic reports with the Securities and Exchange
Commission ("SEC").
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2003
- REVENUE
- PROPERTY SALES
Revenue from property sales, and the amount and type of property
sold for the three months ended September 30, 2004 and September 30,
2003 are set forth in the table below.
-18-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
Three Months Ended September 30,
--------------------------------
2004 2003
-------- --------
PROPERTY SOLD
Boiling Spring Lakes, NC:
Individual undeveloped lots 36 5
Commercial land (acres) -- 2.45
Pimlico Plantation, SC:
Individual undeveloped lots -- --
REVENUE
Boiling Spring Lakes, NC:
Individual undeveloped lots $506,830 $ 73,451
Commercial land -- 149,513
Pimlico Plantation, SC:
Individual undeveloped lots -- --
-------- --------
Total Revenue $506,830 $222,964
======== ========
BOILING SPRING LAKES
During the three months ended September 30, 2004, the Partnership
sold 31 more individual undeveloped lots than were sold during the
same period of 2003, for an increase of 620%. Management attributes
the increase to the improvement in the real estate market in
Brunswick County, North Carolina. Revenue from the sale of
individual undeveloped lots increased 590%, reflecting the relative
strength of the market. The average sales price per lot remained
substantially unchanged - $14,079 for the third quarter of 2004 as
compared to $14,690 for the same period of 2003. The 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.
During the third quarter of 2004, the Partnership sold no commercial
land, whereas the Partnership sold approximately 2 acres in the same
period of 2003 for aggregate revenue of $149,513. The Partnership
experiences great volatility in sales from year to year as to
revenue and acreage, and often the Partnership records no sales of
commercial land in a fiscal year. The price per acre of commercial
land that the Partnership
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REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
realizes depends upon numerous factors, including, among others, the
size of the tract and its location.
- RENTAL INCOME
Rental income for the three months ended September 30, 2004 was
substantially unchanged from the same period of 2003, reflecting the
scheduled lease payments.
- INTEREST INCOME AND FINANCE CHARGES
Interest income and finance charges increased 70%. Management
attributes the increase substantially to higher average cash
balances in the Partnership's interest-bearing bank account.
- DIRECT COSTS OF PROPERTY SOLD
Direct costs of property sold for the three months ended September 30,
2004 were $21,027, compared to $11,025 for the same period of 2003.
Management attributes the increase in costs principally to the greater
amount of land sold during the third quarter of 2004 compared to the same
period of 2003.
- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $92,101 for the three
months ended September 30, 2004, compared to $92,237 for the same period
of 2003, for a net decrease of less than 1%. The significant changes among
the principal components of selling, general and administrative expenses
are as follows:
- LEGAL FEES
Legal fees were $12,602 for the third quarter of 2004, compared to
$2,040 for the same period of 2003. The increase of approximately
518% is due substantially to the greater compliance requirements of
entities filing periodic reports with the SEC.
- MISCELLANEOUS EXPENSES
The Partnership incurred $7,160 in miscellaneous expenses during the
third quarter of 2004, compared to $344 incurred during the same
period of 2003. The increase is due principally to expenses relating
to clearing and mowing of certain land, wetlands assessment tests in
respect of such
-20-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
land, and the cost of environmental studies relating to the
endangered species inhabiting portions of Boiling Spring Lakes. No
such expenses were incurred during the same period of 2003.
- PERK TESTS AND SURVEYING
During the three months ended September 30, 2004, the Partnership
incurred $5,355 in expenses relating to surveying and perk tests of
land sold during the quarter, as compared to $310 for the same
period of 2003. Perk tests are tests required by the Brunswick
County Health Department to ascertain the suitability of a lot for
an individual septic system. If the suitability of a lot is not
known, the Partnership will typically conduct a perk test shortly
before or shortly after the lot is placed under contract for sale.
During the third quarter of 2004 the Partnership conducted perk
tests in connection with a number of the 36 individual undeveloped
lots sold during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
- GENERAL
At September 30, 2004, the Partnership had $1,339,562 in cash and no
long-term debt.
- CASH FLOWS FROM OPERATING ACTIVITIES
Operating activities provided $523,919 of net cash during the first nine
months of 2004, compared to $610,854 of net cash provided by operating
activities during the same period of 2003. The change is primarily
attributable to the reduction in accrued expenses made in 2004.
- CASH FLOWS FROM INVESTING ACTIVITIES
Investing activities used net cash of $6,827 during the first nine months
of 2004, compared to $38,277 of net cash used in investing activities
during the same period of 2003. The change is primarily attributable to
the relative amount spent on repairs made to a dam during the first nine
months of 2004, which was less than was spent during the same period of
2003.
- CASH FLOWS FROM FINANCING ACTIVITIES
Financing activities used $47 of net cash during the first nine months of
2004, compared to $129,017 of net cash used in financing
-21-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
activities during the same period of 2003. The change is primarily
attributable to the repayment of long-term debt during the first nine
months of 2003 while no such debt was repaid during 2004.
- LONG-TERM DEBT
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.
- FUTURE INVESTMENTS
Throughout the balance of 2004 and in 2005, 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 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 nine months of 2004 or 2003.
IMPACT OF INFLATION
Inflation has had only a minor impact on the Partnership's operations
during the first nine months of 2004 and 2003.
-22-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(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, 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 third quarter of 2004, cash
balances averaged $1,140,660.
- 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 2004 been higher or lower by 100 basis points or one percent
(1%), the Partnership would have earned approximately $6,570, more
or less, on its cash balances, based upon average quarterly
balances.
As of September 30, 2004, the note receivable from the buyer of the
assets of Fox Squirrel/The Lakes was stated on the Partnership's
balance sheet at $143,440, 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,
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REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
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 September 30, 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 nine months of 2004, the Partnership had no
long term debt outstanding, and at September 30, 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 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.
-24-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
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
third 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.
-25-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(Unaudited)
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
31 Rule 13a-14/15d-14(a) Certification as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002*.
* Exhibit 32 is to be treated as "furnished" rather than "filed" as part
of this report.
-26-
REEVES TELECOM LIMITED PARTNERSHIP
SEPTEMBER 30, 2004
(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
Signatures Title
By: Grace Property Management Inc. General Partner
By: /s/ DAVIS P. STOWELL
--------------------------------
Davis P. Stowell
President of General Partner
(Principal Executive Officer,
Principal Financial Officer,
Principal Accounting Officer)
Date: November 12, 2004
-27-