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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X / Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
________________________________ to ________________________
Commission file number: 110-9305
REEVES TELECOM LIMITED PARTNERSHIP
(name changed from Reeves Telecom Associates)
(Exact name of registrant as specified in its charter)
South Carolina 57-0700063
--------------------------------------- ----------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
c/o Grace Property Management, Inc.
P.O. Box 163, 55 Brookville Road
Glen Head, New York 11545
--------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 686-2201
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -----------------------------
Partnership Units None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----------- -----------
On March 15, 1996 the registrant had outstanding 1,829,574 partnership units.
See Item 5. There is no active market for the partnership units. With regard
to recent sales see Item 5. As of March 15, 1996, non-affiliates held
1,189,229 partnership units.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Reeves Telecom Limited Partnership (the "Registrant" or the
"Partnership") is a South Carolina Limited Partnership formed for the purpose
of accepting certain assets and liabilities from its predecessor corporation,
Reeves Telecom Corporation (the "Corporation"). The Corporation sold its
principal assets during the twelve month period ended May 15, 1980 and
distributed cash and the limited partnership units of the Registrant to its
former shareholders as a liquidation distribution. The partnership units were
registered under the Securities Act of 1933 by the filing of a Registration
Statement pursuant to Form S-14 (File No. 2-66452) which became effective April
8, 1980 and pursuant to which a Proxy statement/prospectus dated April 14, 1980
was mailed to all shareholders. Reference is made to said Registration
Statement and said Proxy statement/prospectus for a description of the
liquidation of the Corporation and the formation of the Registrant. The
Registrant was initially organized October 25, 1979, but had only nominal
assets and no liabilities until May 15, 1980. To reflect a change in South
Carolina law, Registrant's name was changed from Reeves Telecom Associates to
Reeves Telecom Limited Partnership on January 21, 1987.
(b) GENERAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership's business may be categorized into two industry
segments: (i) owning, developing, selling, leasing, or otherwise dealing in
real estate, and (ii) owning and operating a golf course and country club. See
the audited financial statements for financial information about each segment.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The principal assets of the Partnership since inception have consisted
of real estate for development located in two sites: Boiling Spring Lakes, in
Brunswick County, North Carolina; and Pimlico Plantation, in Berkeley County,
South Carolina. The Partnership also owns and operates a golf course and
country club in Boiling Spring Lakes, North Carolina (see Item 2,
"Properties").
Prior to mid-1993, in view of limited resources, Management
concentrated on holding down costs and focused on a bulk sale of all or
substantially all of the assets of the Partnership. Local real estate brokers
were relied upon to generate individual lot sales, and the golf course and
country club were leased to an operator. Under this arrangement, lot sales
were slow and operating expenses generally significantly exceeded revenue from
such sales. Were it not for cash generated from activities other than the sale
of real estate during recent years, the Partnership would likely have become
insolvent.
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In June 1993, Management began to place greater emphasis on the sale
of individual lots at both locations and pursued other means of generating
revenue. In addition, the Partnership became increasingly involved in the
management and operation of the golf course and country club.
BOILING SPRING LAKES
LOT SALES
Lots sold during the last five fiscal years are as follows:
NUMBER OF LOTS PROCEEDS
-------------- --------
Fiscal 1995 37 $ 209,055
Transition Quarter 6 27,075
Fiscal 1994 37 314,548
Fiscal 1993 15 101,665
Fiscal 1992 5 8,101
Fiscal 1991 6 51,638
The Transition Quarter is the three month period from October 1, 1994
to December 31, 1994 and reflects the change in the Partnership's fiscal year
end from September 30 to December 31 (see Item 6, "Selected Financial Data").
Accordingly, the above figures, and the figures contained in all tables in this
Item 1, for Fiscal 1995 are for the twelve months ended December 31, 1995 and
the figures for prior fiscal years are for the twelve months ended September 30
of each such year.
Management attributes the increase in the number of lots sold and
revenue from sales in 1993 and subsequent years over prior years to a greater
flexibility in the Partnership's pricing structure of lots and to generally
improved economic conditions in the region.
FOX SQUIRREL COUNTRY CLUB
The Registrant is the owner of Fox Squirrel Country Club ("Fox
Squirrel"). Fox Squirrel's 18 hole golf course serves, along with numerous
recreational lakes and ponds, as the centerpiece of the Boiling Spring Lakes
development.
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Prior to October 1993, Fox Squirrel was leased to an operator. The
Partnership paid the operator a subsidy, which eventually ceased, and beginning
in July 1990 the Partnership began receiving monthly rental payments of $1,000.
During 1992, the monthly rent was increased to $1,500 and the Partnership
assumed certain operating expenses. Because of unfavorable operating
conditions, however, the operator fell behind in payments. In October 1993, at
the request of the operator and to ensure uninterrupted operation of the golf
course and country club, the Partnership began operating Fox Squirrel,
receiving all revenue and paying all expenses relating thereto, and the
operator became an employee of the Partnership, managing Fox Squirrel on behalf
of the Partnership. In November 1995, the Partnership hired a new manager and
golf pro of Fox Squirrel, replacing the former manager, who resigned.
Management views Fox Squirrel as being highly important to the success
of the development. Its attraction as a recreational facility to those who are
considering purchasing or building a home in the region is believed to allow
for more lot sales and a higher sales price per lot than would be the case in
the absence of such a facility. As a consequence, Management currently expects
to continue operating Fox Squirrel.
The Partnership's revenue and operating income from Fox Squirrel for
the last five fiscal years are as follows:
OPERATING
REVENUE INCOME
------- --------
Fiscal 1995 $ 340,699 $ 41,522
Transition Quarter 68,189 (13,269)
Fiscal 1994 345,737 44,175
Fiscal 1993 10,000 10,000
Fiscal 1992 9,000 9,000
Fiscal 1991 12,000 12,000
As previously described, the Transition Quarter is the three month
period from October 1, 1994 to December 31, 1994 and reflects the change in the
Partnership's fiscal year end from September 30 to December 31 beginning with
Fiscal 1995.
The increase in revenue in 1994 and subsequent years over prior years
is attributable to the Partnership assuming operating responsibility for Fox
Squirrel on October 1, 1993. Revenue and operating income after 1993 are not
directly comparable to prior years since the Partnership
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did not operate Fox Squirrel prior to 1994. Rather, a base rent was collected
from the operator under a lease with the Partnership.
OTHER
The Partnership has generated revenue from the sale of timber on
certain unsold lots. While additional revenue from tree cutting continues to be
sought as a means of supplementing revenue from lot sales, Management believes
that tree cutting will not be a source of substantial revenue during the next
fiscal year and cannot be considered a source of on-going revenue in future
years. The amount of revenue generated during the last five fiscal years is as
follows:
REVENUE
-------
Fiscal 1995 $ 35,920
Transition Quarter 15,381
Fiscal 1994 91,611
Fiscal 1993 202,830
Fiscal 1992 -0-
Fiscal 1991 -0-
As previously described, the Transition Quarter is the three month
period from October 1, 1994 to December 31, 1994 and reflects the change in the
Partnership's fiscal year end from September 30 to December 31 beginning with
Fiscal 1995.
During the past 20 years, health standards at Boiling Spring Lakes
have become increasingly stringent regarding septic tanks and on-site sewage
disposal. It is estimated that 70% to 75% of the property which would have
complied with applicable rules and regulations a number of years ago no longer
meets present day health standards. This has had a detrimental effect on the
operations of the Partnership. In a few cases the problem could be cured by
the use of drains, or by the scraping away of hard pan and adding fill dirt.
In most instances, however, health departments have declared a majority of the
areas as irremediable by ordinary measures. In such cases, the only solution
would be to install area-wide sewer systems. While the Partnership does not
have the resources to install a sewer system throughout the development,
Management is investigating the possibility of installing sewer systems in
certain sections of the development.
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PIMLICO PLANTATION
Lots sold during the last five fiscal years are as follows:
NUMBER OF LOTS PROCEEDS
-------------- --------
Fiscal 1995 -0- $ -0-
Transition Quarter -0- -0-
Fiscal 1994 23 202,075
Fiscal 1993 3 29,266
Fiscal 1992 5 40,907
Fiscal 1991 4 29,500
As previously described, the Transition Quarter is the three month
period from October 1, 1994 to December 31, 1994 and reflects the change in the
Partnership's fiscal year end from September 30 to December 31 beginning with
Fiscal 1995.
Pursuant to a letter agreement dated September 14, 1993 and amended on
November 22, 1993, the Partnership transferred 23 lots to a major unit holder
in exchange for $10,000 cash and 492,584 partnership units held by such unit
holder. The transaction closed on December 15, 1993 and is valued by the
Partnership at $202,075. See Item 12, "Security Ownership of Certain
Beneficial Owners and Management." The Partnership currently owns only two
lots for sale in Pimlico Plantation. Accordingly, revenue from the sale of
lots in Pimlico Plantation in future years is expected to represent, at best, a
negligible percentage of total revenue.
SEASONALITY
The sale of real estate in North and South Carolina is seasonal. The
Partnership has generally experienced slower than average lot sales in the
period from November to January, inclusive.
Although played year-round, depending upon the climate and weather,
golf is by and large a summer sport. Accordingly, revenue at Fox Squirrel is
generally highest in the period from June to September, inclusive. Revenue is
generally lowest in the period from November to February, inclusive, when
extensive seeding and course repair work is usually performed.
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DEPENDENCE UPON CUSTOMERS
The Partnership is not dependent in any respect upon one or a few
customers, the loss of any one of which might significantly affect the
financial results of the Partnership.
COMPETITION
The real estate markets in Brunswick County, North Carolina and
Berkeley County, South Carolina are extremely competitive. Prospective
residential property owners may buy from real estate developers, who generally
sell lots suitable for building but who may also sell improved properties,
existing homeowners looking to relocate, and others. Property values are
dependent upon, among other factors, proximity to and the nature and quality of
recreational facilities, retail shopping, commercial sites and schools, and the
availability of county water (as opposed to well water) and sewer service (as
opposed to septic systems).
Many real estate developments in the two markets in which the
Partnership operates provide recreational facilities, such as a golf course,
lakes and/or swimming pools, and tennis courts. In many cases, depending upon
the financial resources of the particular developer, such facilities are more
extensive and/or more varied than the Partnership's facilities. Within a
radius of 100 miles of Boiling Spring Lakes are several golf courses designed
by world famous golf course designers, some of which serve as the site of
significant professional golf tournaments, as well as numerous golf courses in
and surrounding the resort community of Myrtle Beach, South Carolina. Lots
associated with such facilities generally command higher sales prices than lots
owned by the Partnership. Management believes that the Partnership can compete
effectively against other real estate developers and golf course operators,
many of whom are believed to have substantially greater resources than the
Partnership, principally on the basis of price and, depending upon the amount
of cash generated from lot sales, by making selective improvements to
recreational facilities, including Fox Squirrel.
LIQUID ASSETS AND RESERVES
As of December 31, 1995, the Partnership held $73,860 in cash.
Current liabilities as of this date totaled $531,467.
The Partnership Agreement obligates the General Partner to distribute
Distributable Cash (as such term is defined in the Partnership Agreement).
Distributable Cash excludes, among other items, reserves established for
working capital, contingent liabilities, taxes, debt service, repairs,
replacements, renewals, capital expenditures or other purposes consistent with
the Partnership Agreement. Such reserves are used solely for calculating
Distributable Cash and are not treated as deductions from income for accounting
purposes. During the first quarter of
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Fiscal 1994, a reserve of $100,000 was established to fund certain capital
expenditures, including, among others, construction of a new maintenance shed
at the golf course and re-roofing of the Fox Squirrel clubhouse. Also in 1994,
the Partnership established a reserve of $20,000 to fund the initial portion of
a regional marketing campaign, one aspect of which involves the construction of
one or more model homes. In Fiscal 1995 a reserve of $250,000 was established
to fund primarily certain capital improvements at Fox Squirrel.
See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," for further discussion of factors
affecting liquidity.
ITEM 2. PROPERTIES
BOILING SPRING LAKES
Boiling Spring Lakes began as a 14,000 acre development which was
commenced by the Corporation in 1962. Part of the tract is now within the
incorporated town of Boiling Spring Lakes, which has approximately eighteen
hundred residents. The town is in Brunswick County, 25 miles south of
Wilmington, North Carolina, and 8 miles west of Southport.
The Registrant presently owns the following real estate: (1) 159.9
acres comprising a surveyed 18 hole sprinklered golf course, club house and
maintenance building, together known as Fox Squirrel; (2) 159 building lots
located near the golf course which have been surveyed and platted and are
suitable for building; (3) 194 acres surrounding the golf course which could be
developed; (4) 3,355 surveyed and platted lots of which approximately 8% are
suitable for building, 6% are conditionally suitable for building and the
balance are unsuitable for building; (5) over 4,000 acres of wetlands and
woodlands which have no development potential; and (6) a sales office.
During 1988, the Partnership reduced the carrying value of the Boiling
Spring Lakes property as a result of an appraisal obtained in December 1988
(see Note 3 of financial statements). During 1993 and 1995 the Partnership
received updated appraisals of the Boiling Spring Lakes property. Based upon
the updated appraisals, no additional reduction to the carrying value was made.
Management intends to emphasize the sale of individual lots at Boiling
Spring Lakes, concentrating first on lots situated on existing paved roads.
Depending upon the Partnership's financial resources, cost estimates, and
projected sales prices, among other things, Management may undertake the
development of additional sections of Boiling Spring Lakes.
During 1995, the Partnership undertook certain improvements to Fox
Squirrel, including paving of the 25,360 linear feet of cart paths. Depending
upon the Partnership's financial resources, revenues from Fox Squirrel, and
cost estimates, among other things, Management may undertake additional
improvement projects at Fox Squirrel.
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In December 1995, Management initiated a pilot project involving the
construction of a house on a lot owned by the Partnership and the immediate
marketing of the house and lot for sale. In January 1996 the Partnership
obtained a loan of approximately $85,000 from a local bank to finance the
construction of the house. In March 1996 a sale contract for the property was
signed and a cash downpayment received by the Partnership. Management intends
to undertake similar projects on a limited basis during Fiscal 1996.
PIMLICO PLANTATION
Following the exchange described in Item 1(c), "Narrative Description
of Business: Pimlico Plantation," the Registrant owns two lots, comprising an
aggregate of approximately 3/4 acre, in this location in Berkeley County, near
Charleston, South Carolina. Pimlico Plantation was developed by the
Corporation and its predecessors. The Registrant is actively marketing these
lots through local real estate brokers.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a party to any material pending legal
proceedings. From time to time the Partnership has been and may become a party
to ordinary routine litigation incidental to its business. Management believes
that the potential liability to the Partnership from any of such proceedings is
immaterial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS
No matters were submitted to a vote of unit holders during Fiscal
1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY MATTERS
As of December 31, 1995, there were 1,335 recorded holders of
partnership units, which has remained substantially unchanged since September
30, 1994. The units are not registered on any exchange, and there is only a
limited over-the-counter market for the units. It is not anticipated that
there will ever be an active public market for the units.
It is the Partnership's experience that the revenues are highly
variable and may not be sufficient in future years to cover expenses and
necessary capital expenditures and that, in the absence of enhanced prospects
for the development as a whole, a bulk sale of assets can not be effected.
Management believes that the best use of the current surplus of cash generated
from operations in 1995 and cash surpluses, if any, generated in the next few
fiscal years is to
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improve the overall value of the Partnership's assets by (i) making certain
improvements at Fox Squirrel, thereby increasing the attractiveness of Fox
Squirrel as a recreational facility to prospective homeowners, (ii) undertaking
certain infrastructure and other improvements in the development, and (iii)
paying down accrued expenses. Management believes that this plan will, in
future years, result in an increase in the number of lots sold, a higher
average sales price per lot, and higher operating income at Fox Squirrel.
There can be no assurance, however, that sufficient cash will be generated from
operations to successfully implement Management's plan.
Consistent with such plan and in view of the costs associated with a
distribution to all partners, Management believes it would be impractical and
imprudent to make a general distribution prior to the sale of a major asset,
the bulk sale of all or substantially all of the Partnership's assets, or such
time as the Boiling Spring Lakes development, as a whole, has been established
to operate at a level sufficient to consistently generate revenues in excess of
expenses and capital expenditures. However, from time to time in future
periods, in accordance with applicable Securities laws, the Partnership may
utilize excess cash by repurchasing partnership units, either in privately
negotiated transactions or through open market purchases. Since the amount of
excess cash available for such purpose cannot be estimated at this time due to
the highly variable nature of the Partnership's cash flow, there can be no
assurance as to the number of partnership units which will actually be
repurchased, if any such repurchases will, in fact, occur, or the prices at
which such repurchases, if any, will be made. As of the date of this Form
10-K, no filings have been made with the Securities and Exchange Commission
with respect to any such planned repurchases.
ITEM 6. SELECTED FINANCIAL DATA
Since the Registrant is a liquidation partnership, the current
operations and financial status cannot meaningfully be compared to the
activities of its predecessor in interest, Reeves Telecom Corporation.
Further, the Registrant believes that a short summary of only a few financial
items would not be meaningful since this is not a typical operating entity.
The Registrant recommends that unit holders review the audited financial
statements and notes set forth in this report.
The Partnership's fiscal year end was changed from September 30 to
December 31 beginning with 1995. For financial reporting purposes, a
transition quarter, covering the period from October 1, 1994 to December 31,
1994, was employed. The change in fiscal year end reflects Management's desire
to avoid having to make certain deposits to the U.S. Internal Revenue Service
(the "IRS") required by Code Section 7519 and the regulations thereunder of the
Internal Revenue Code of 1986, as amended (the "Code"). The Code requires that
any limited partnership having a fiscal year end other than December 31 and
which generates income taxable to its partners during any fiscal year make such
a deposit in respect of such fiscal year. By changing its fiscal year end to
December 31, the Partnership was able to reclaim $9,481 held on deposit by the
IRS for income deferred through September 30, 1993. Furthermore, the
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Partnership will not be required to make future deposits in the event that
income taxable to its partners is generated in the current or future years,
although there can be no assurance that the Partnership will, in fact, generate
such income.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
audited financial statements of the Partnership and the notes thereto, included
elsewhere in this Form 10-K.
The Partnership has continued to liquidate its assets through real
estate sales. In the past, Management has concentrated its efforts on
effecting a bulk sale of the Partnership's real estate holdings to a single
buyer. It is Management's belief, however, that in the absence of enhanced
prospects for the development as a whole, a bulk sale of assets can not be
effected. In June 1993, Management began to place greater emphasis on the sale
of individual lots and pursued other means of generating revenue.
For the 12 months ended December 31, 1995 and September 30, 1994, the
number of lots sold were 37 and 60, respectively, and revenue from such sales
were $209,055 and $516,623 respectively. The substantial decrease is due to
the exchange in December 1993 of lots for cash and partnership units described
in Item 1(c), "Narrative Description of Business: Pimlico Plantation."
Excluding Pimlico Plantation, the number of lots sold during the 12 months
ended September 30, 1994 was 37 and revenue from lot sales were $314,548.
Management attributes the decline in revenue to the different mix of lots sold
as to location and asking price during the two periods. Individual lots
adjacent to or near the golf course, for example, generally command a higher
asking price than lots which are not so situated. Lots sold during 1994 were
generally located nearer the golf course than lots sold during 1995.
During 1995, the Partnership earned $35,920 in revenues from the sale
of timber on certain unsold lots and unplatted woodlands, compared to $91,611
in the prior year. The decrease reflects a reduction in the number of trees
suitable for cutting. While additional revenue from tree cutting continues to
be sought as a means of supplementing revenue from lot sales, Management
believes that tree cutting will not be a source of substantial revenues during
the next fiscal year and cannot be considered a source of on-going revenue
beyond 1995.
Revenue from Fox Squirrel for Fiscal 1995 and 1994 were $340,699 and
$345,737, respectively. The slight decline was largely attributable to
unusually rainy weather in early 1995, resulting in lower than expected revenue
from greens fees and cart rentals, as well as to lower concession sales
following the opening of regular dining service at the club house.
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The Partnership's operating expenses for 1995 were $742,263, compared
to $857,515 in 1994. The decline in operating expenses is due principally to
three factors: lower direct cost of land sold owing to lower revenue from lot
sales, lower repairs and maintenance expense as a result of recent capital
expenditures, and lower salaries and payroll taxes resulting from reduced
incentive bonus payments.
Income from timber sales in 1995 declined 61% from 1994 due to the
lower number of trees available for cutting.
The operation of Fox Squirrel added approximately $300,000 in
operating expenses to the Partnership during 1995 and 1994 over 1993's level.
Revenues from the golf course are highly dependent upon weather conditions.
Since adverse weather may significantly reduce revenues while expenses may not
be reduced as quickly, nor as greatly, as needed to prevent Fox Squirrel from
incurring a deficit in the future, there can be no assurance that the
Partnership will realize a profit at Fox Squirrel or that the Partnership will
realize a positive return on its investment in improvements at Fox Squirrel.
Furthermore, the Partnership's other overhead costs remain and there can be no
assurance that revenues from lot sales can be supplemented from revenues from
tree cutting or other sources. Based upon current cash requirements, it is
apparent that revenues from lot sales and income from Fox Squirrel may be
inadequate in future years to cover operating expenses and commitments for
capital expenditures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14, "Exhibits, Financial Statement Schedules, and Reports on
Form 8-K," for response to this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in accountants or any disagreements with
accountants on account and financial disclosure.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) IDENTIFICATION OF GENERAL PARTNER
PRINCIPAL OCCUPATION
PERIOD OF PAST FIVE YEARS-
SERVICE AS A BUSINESS EXPERIENCE
GENERAL AND OTHER
PARTNER PREVIOUS
NAME AGE COMMENCED DIRECTORSHIPS
---- --- --------- -------------
Grace Property N/A May 15, 1980 A Delaware
Management, Inc. corporation engaged
in the business of
real estate
management. It is
owned 50% by the
Bank of Butterfield
Executor & Trustee
Company, as
trustee for John S.
Grace, and 50% by
the Estate of Oliver
R. Grace, Mr.
Grace being a
former director of
Registrant's
predecessor.
(b) INDEMNIFICATION OF EXECUTIVE OFFICERS
None
ITEM 11. EXECUTIVE COMPENSATION
NAME CAPACITY GENERAL PARTNER'S FEES
- ------------------------ --------------------------- ------------------------
Grace Property General Partner $ 60,000
Management, Inc.
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Mr. Ralph McDermid resigned as a General Partner effective June 1,
1994. The amount of General Partner's fees accrued for fiscal 1994 for Mr.
McDermid was $16,000. Pursuant to a letter agreement dated August 6, 1994
between Mr. McDermid and the Partnership, the Partnership paid Mr. McDermid
$50,000 in September 1994 and $50,000 in September 1995 in lieu of $147,000 in
accrued but unpaid General Partner's fees owed to Mr. McDermid as of June 1,
1994.
The Registrant has no on-going plan or arrangement with respect to
future remuneration to Grace Property Management. Except for a $25,000 payment
in April 1990 and except as discussed in the preceding paragraph, the General
Partners' fees have not been paid since January 1986, although they have been
provided for in the accompanying financial statements. As of December 31, 1995,
the fees accrued but not paid totaled $312,668. The Registrant has no group
life insurance plan. The Registrant has no pension or profit sharing plan.
The Registrant has no options, warrants, or appreciation rights outstanding.
No Management person is indebted to the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1995, the Partnership has outstanding 1,829,574
partnership units. Information with respect to the principal holders of record
known to the Partnership to beneficially own more than five (5%) percent of the
outstanding voting securities is set forth below.
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OF BENEFICIAL PERCENT OF
OWNER OWNERSHIP CLASS
--------------------------- --------------------------- ---------------------------
Estate of Oliver R. Grace *436,480 units are owned 23.9%
515 Madison Avenue by the Estate of Oliver R.
20th Floor Grace, Mr. Grace's widow
New York, NY 10022 and a company he formerly
controlled
* The Estate of Oliver R. Grace beneficially owns 436,480 units
(including 44,750 units held in trusts of which the Estate of Oliver R. Grace
is the trustee). In addition, other members of the family beneficially own an
additional 203,865 units, which represents approximately 11.1% of the units
outstanding. The Estate of Oliver R. Grace disclaims beneficial ownership with
respect to these additional units as well as the 44,750 units held in certain
trusts.
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The General Partner owns 25,000 partnership units, representing
approximately 1.4% of all units issued and outstanding.
In December 1995, following an unsolicited offer from a securities
broker-dealer to sell all of the units it owned to Mr. John S. Grace, the
president of the General Partner, an agreement was reached among Mr. Grace, the
Partnership, and such broker-dealer which provided for, among other things:
(i) a fifteen-year "standstill" by such broker-dealer; (ii) the purchase by
Mr. Grace from such broker-dealer of 22,160 units, representing all of the
units then held by such broker-dealer, for aggregate consideration of
$5,540.00, equivalent to $0.25 per unit; and (iii) the allocation of the
consideration per unit as being $0.10 for the standstill covenant and $0.15 for
the purchase price.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 the Partnership borrowed $200,000 from Mr. John S. Grace,
president of the General Partner, in the form of a promissory note. The note
bears interest at a rate equal to 6% over 12-month LIBOR (currently 12%),
requires quarterly interest payments, and is due on June 1, 1998. The
Partnership may repay any or all of such note without penalty. During 1995,
the Partnership paid $14,000 in interest on such note and pre-paid $30,000 in
December 1995.
For fiscal years 1995, 1994, and 1993, the General Partners elected to
charge the Partnership for services and office space. These charges include
$16,990 in 1995, $38,000 in 1994, and $36,100 in 1993 for legal services,
$7,182 in 1993 for consulting services, and $15,000 in 1995 and 1994 and
$15,154 in 1993 for rent on office space used by various members of the
Partnership's management. The General Partners fees were $60,000, $60,000, and
$63,000 for 1995, 1994, and 1993, respectively (see Item 11, "Executive
Compensation"). These charges have been included in selling, general and
administrative expenses. On January 5, 1994 and September 30, 1994, $45,463
and $15,000, respectively, of accrued rent was paid to an affiliate of the
General Partner.
To fund certain capital expenditures and for working capital purposes,
on August 22, 1994, the Partnership sold 25,000 partnership units to Grace
Property Management, Inc., the General Partner, for an aggregate of $10,000, or
$0.40 per unit.
The Partnership paid a former General Partner $50,000 during 1994 and
an additional $50,000 to September 30, 1995 in lieu of accrued but unpaid
General Partner's fees due to him. See Item 11, "Executive Compensation."
14
16
Except for the preceding items, there were no other transactions
between Management (or the immediate families of Management) and the Registrant
during the fiscal year ended December 31, 1995 or thereafter. Further, there
were no other related party transactions and there existed no indebtedness to
the Registrant from Management (or any member of the immediate family of
Management.)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a)(1) INDEX TO FINANCIAL STATEMENTS
The following financial information is contained within
Exhibit 1, "Audited Financial Statements:"
Page
----
Independent Auditors' Report F-1
Balance Sheet at December 31, 1995, and
September 30, 1994 F-2
Statements of Operations for the fiscal
years ended December 31, 1995 and
September 30, 1994, and 1993 F-3
Statements of Partners' Capital for the
fiscal years ended December 31, 1995 and
September 30, 1994 and 1993 F-4
Statements of Cash Flows for the fiscal
years ended December 31, 1995 and
September 30, 1994, and 1993 F-5
Notes to Financial Statements F-6
The following financial information is contained within
Exhibit 2, "Audited Financial Statements:"
Page
----
Independent Auditors' Report F-1
Balance Sheet at December 31, 1994 F-2
Statement of Operations for the three
months ended December 31, 1994 F-3
15
17
Statements of Partners' Capital for the three
months ended December 31, 1994 F-4
Statements of Cash Flows for the three
months ended December 31, 1994 F-5
Notes to Financial Statements F-6
(a)(2) INDEX TO FINANCIAL SCHEDULES
All schedules required are either contained within the Notes
to Financial Statements included in Exhibits 1 and 2 or are not applicable.
(a)(3) EXHIBITS
A. The Limited Partnership Agreement of Reeves Telecom
Associates sets forth the rights of unit holders. It has been previously filed
as Exhibit B to Amendment No.2 to Registrant's Registration Statement on Form
S-14 dated March 28, 1980 (Registration No.2-66452), which Agreement is
incorporated herein by reference.
B. The Robert C. Cantwell IV, MAI appraisals of the Boiling
Spring Lakes property dated 12/21/88, 7/17/84, and 2/23/82, which were filed as
a part of Form 10-K for September 30, 1988 and which are incorporated herein by
reference.
C. The Robert C. Cantwell IV, MAI appraisal of the Boiling
Spring Lakes property dated September 10, 1993, which appraisal was filed as
part of Form 10-K for September 30, 1993 and which is incorporated herein by
reference.
D. The Robert C. Cantwell IV, MAI appraisal of the Boiling
Spring Lakes property dated July 10, 1995, filed as Exhibit 3 annexed hereto.
(b) REPORTS ON FORM 8-K
No current reports on Form 8-K were filed during the fourth
quarter of the fiscal year ended December 31, 1995.
16
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REEVES TELECOM LIMITED PARTNERSHIP
Signatures Title Date
By: Grace Property
Management, Inc. General Partner March 28, 1995
---------------
By: /s/JOHN S. GRACE
-----------------------
John S. Grace
President
17
19
EXHIBIT 1: AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1995
20
REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
December 31, 1995, September 30, 1994 and 1993
(With Independent Auditors' Report Thereon)
21
REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
Table of Contents
Independent Auditors' Report
Financial Statements:
Balance Sheets
December 31, 1995, September 30, 1994 and 1993
Statements of Operations
Years ended December 31, 1995, September 30, 1994 and 1993
Statements of Partners' Capital
Years ended December 31, 1995, September 30, 1994 and 1993
Statements of Cash Flows
Years ended December 31, 1995, September 30, 1994 and 1993
Notes to Financial Statements
22
(KMPG PEAT MARWICK LLP LETTERHEAD)
Independent Auditors' Report
The Partners
Reeves Telecom Limited Partnership:
We have audited the balance sheets of Reeves Telecom Limited Partnership (the
"Partnership") as of December 31, 1995 and September 30, 1994, and the related
statements of operations, partners' capital and cash flows for the years ended
December 31, 1995, September 30, 1994 and September 30, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the Partnership's management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 1995 and September 30, 1994, and the results of its operations and its cash
flows for the years ended December 31, 1995, September 30, 1994 and 1993, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 12 to the
financial statements, the Partnership's recurring losses from operations and
liquidity position raise substantial doubt about the entity's ability to
continue in existence while attempting to sell the remaining assets of the
Partnership. Management's plans in regard to these matters are also described
in Note 12. The financial statements do not include any adjustments relating
to the recoverability and classification of reported asset amounts or the
amounts and classification of liabilities that might result should the
Partnership be unable to continue in existence.
/s/ KMPG PEAT MARWICK LLP
February 9, 1996
23
REEVES TELECOM LIMITED PARTNERSHIP
Balance Sheets
December 31, 1995 and September 30, 1994
Assets 1995 1994
------ ---- ----
Current assets - cash $ 73,860 178,294
Land held for sale and related buildings
and equipment, net (note 3) 910,183 790,566
Contracts on land sales, net - 1,292
Other assets 1,201 3,412
---------- ------------
$ 985,244 973,564
========== ============
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Accounts payable and accrued expenses (note 4) 527,233 495,338
Current portion of long-term debt (note 5) 4,234 3,974
---------- ------------
Total current liabilities 531,467 499,312
---------- ------------
Long-term debt, excluding current portion (note 5) 172,945 8,473
Partners' capital (notes 1 and 12) - issued and outstanding
1,828,258 units at December 31, 1995 and
September 30, 1994 280,832 465,779
Commitments and contingent liability (note 7)
---------- ------------
$ 985,244 973,564
========== ============
See accompanying notes to financial statements.
24
REEVES TELECOM LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1995, September 30, 1994 and 1993
1995 1994 1993
---- ---- ----
Revenues:
Land sales (notes 2, 3 and 7) $ 209,055 516,623 130,931
Profit on land sales recognized under
installment method 6,599 1,000 2,967
Country Club revenue 340,699 345,737 -
Interest income and finance charges 2,281 4,305 4,176
Gain (loss) on cancellations of
land sales contracts - - (2,020)
------------ ------------ ------------
558,634 867,665 136,054
------------ ------------ ------------
Expenses:
Selling, general and administrative
expenses (note 6) 293,277 357,536 293,760
Selling, general and administrative expenses
of Country Club (note 6) 299,177 301,562 -
Direct costs of land sold (note 3) 95,992 184,450 74,825
Depreciation 39,190 13,276 12,224
Interest 14,627 691 2,170
------------ ------------ ------------
742,263 857,515 382,979
------------ ------------ ------------
Income (loss) before other
income and expense (183,629) 10,150 (246,925)
Other income (expense):
Timber sales (note 11) 35,920 91,611 202,830
Loss on disposal of fixed assets - (29,850) (56,652)
Miscellaneous (note 7) 7,765 36,939 14,160
------------ ------------ ------------
43,685 98,700 160,338
------------ ------------ ------------
Net income (loss) $ (139,944) 108,850 (86,587)
============= ============ ============
Income (loss) per partnership unit $ (.08) .06 (.04)
============= ============ ============
Weighted average partnership units outstanding 1,828,258 1,906,366 2,295,842
============= ============ ============
See accompanying notes to financial statements.
25
REEVES TELECOM LIMITED PARTNERSHIP
Statements of Partners' Capital
Years ended December 31, 1995, September 30, 1994 and 1993
1995 1994 1993
---- ---- ----
Partners' capital at beginning of year $ 420,776 539,004 625,591
Net income (loss) (139,944) 108,850 (86,587)
Repurchase of partnership units (492,584
units) at cost of $.39 per unit (note 7) - (192,075) -
Sale of partnership units (25,000 units at
$.40 per unit) - 10,000 -
------------ ------------ ------------
Partners' capital at end of year $ 280,832 465,779 539,004
============= ============ ============
See accompanying notes to financial statements.
26
REEVES TELECOM LIMITED PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 1995, September 30, 1994 and 1993
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (139,944) 108,850 (86,587)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation 39,190 13,276 12,224
Loss on disposal of fixed assets - 29,850 56,652
Gain on transfer of land in exchange for
partnership units - (192,075) -
Change in assets and liabilities:
Other assets, net 1,711 (1,711) -
Contracts on land sales, net 1,292 817 6,549
Accounts payable and accrued expenses 7,630 (47,659) 99,959
---------- ------- -------
Net cash provided by (used in)
operating activities (90,121) (88,652) 88,797
---------- ---------- -------
Cash flows from investing activities:
Land held for sale and related buildings
and equipment (138,300) 25,873 76,426
Payments on notes receivable - - 18,775
---------- ---------- -------
Net cash provided by
investing activities (138,300) 25,873 95,201
---------- ---------- -------
Cash flows from financing activities:
Proceeds from reissuance of partnership units - 10,000 -
Proceeds from issuance of long-term debt 200,000 12,447 -
Repayment of long-term debt (35,268) (31,000) -
---------- ---------- -------
Net cash provided by (used in)
financing activities 164,732 (8,553) -
---------- ---------- -------
Net increase (decrease) in cash (63,689) (71,332) 183,998
Cash at beginning of year 137,549 249,626 65,628
---------- ---------- -------
Cash at end of year $ 73,860 178,294 249,626
========== ========== =======
Supplemental information:
Interest paid $ 14,627 691 2,170
========== ========== =======
Exchange of land for partnership units $ - 192,075 -
========== ========== =======
See accompanying notes to financial statements.
27
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, September 30, 1994 and 1993
(1) Plan of Liquidation
On May 17, 1979 the stockholders of Reeves Telecom Corporation (the
"Corporation") approved a plan of liquidation (the "plan") for the
Corporation and its subsidiaries. The plan, which was determined by the
Internal Revenue Service to qualify as a Section 337 liquidation,
authorized the Corporation's Board of Directors to sell the Corporation's
assets and distribute any remaining unsold assets to its stockholders
and/or a liquidation trust. On May 8, 1980, stockholders at a special
meeting approved an amendment to the plan whereby assets not sold within
one year of the date the plan was approved could, at the discretion of
the Board of Directors, be transferred from the Corporation to a South
Carolina limited partnership which would undertake to sell the remaining
assets on behalf of the stockholders. On May 15, 1980, the Corporation
was liquidated and all of its unsold assets and liabilities were
transferred to Reeves Telecom Associates, a South Carolina limited
partnership (the "Partnership"). Stockholders of the Corporation
received one partnership unit in exchange for each share of common stock.
The units are registered under the Securities Act of 1933 but are not
listed on any national securities exchange. In January 1987, pursuant to
a change in South Carolina law, the Partnership's legal name was changed
from Reeves Telecom Associates to Reeves Telecom Limited Partnership.
Pursuant to the plan, the Corporation sold all of its broadcasting assets
and substantially all of the land held for development and sale at one of
its two land development locations and distributed cash to its
stockholders of $.90 per share on February 29, 1980 and $2.30 per share
on May 15, 1980.
Remaining assets relate primarily to land held for sale, and cash,
generated primarily from the sale of timber and real estate (note 3).
The Partnership's Managing General Partner is Grace Property Management,
Inc.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The accompanying financial statements have been prepared using the
accrual basis of accounting. The Partnership's assets have been
written down, from time to time, to reflect their fair values based
upon appraisals. The Partnership changed its fiscal year end from
September 30, to December 31. This change became effective as of
December 31, 1995.
(b) Land Sales
From July 1960 through 1981 the Partnership and its predecessor
corporation sold land, that had been sub-divided into individual
lots, under installment payment agreements. Buyers agreed to make
periodic payments, usually on a monthly basis generally for a term
of ten years. The payments consisted of amortization of the unpaid
balance of the selling price plus interest thereon at rates which
ranged from 6% to 12%. The Partnership accounts for these sales
using the installment method of accounting. Under this method the
profit realized on the sale is taken into income on a pro-rata
basis as payments of principal are received. Beginning in 1982,
installment land sales were discontinued. All sales during fiscal
1993, 1994 and 1995 have been for cash.
28
2
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies, Continued
Direct costs of land sold on the installment basis, which are used
in the determination of deferred profit, consist of raw land costs,
costs of developing roads, drainage canals and other improvements
(including estimated future development costs to be incurred on
sold lots) and selling costs directly related to the sales. Land
cost included in direct costs of land sold represents the
proportionate amount of the total estimated project costs based on
the sales value of the lot to the total estimated project sales
value. Following the inability of the Partnership to effect a bulk
sale of all of its remaining land holdings, the sale of individual
lots for cash has been emphasized in recent years (note 3) and is
expected to continue at least for the near term.
When a land contract is canceled, operations are charged for the
amount of the unpaid receivable in excess of the sum of the
unamortized deferred profit and the value (lower of cost or market)
of the repossessed lot.
(c) Land Held for Sale and Related Buildings and Equipment
Land held for development or sale is recorded at the lower of cost
less previously established valuation allowances or estimated fair
value. Related buildings 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 25 years for buildings and 5 to 20
years for equipment and land improvements.
(d) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(e) Accounting and Reporting Changes
In March 1995, the FASB issued Statement Number 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. The statement is effective for the year ending
December 31, 1996, and is not expected to have a material impact on
the Partnership's financial statements.
(f) Fair Value of Financial Instruments
The Financial Accounting Standards Board issued SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," ("SFAS
107") in December 1991. SFAS 107 requires disclosures about the
fair value of all financial instruments whether or not recognized
in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other
valuation techniques. The carrying amount of financial instruments
included in accounts payable and accrued expenses are deemed
reasonable estimates of their fair value. The Company adopted the
provisions of SFAS 107 in 1995 as required for companies its size.
29
3
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(3) Land Held for Sale and Related Buildings and Equipment
The land held for sale in the Partnership's Boiling Springs Lakes, North
Carolina property consists of the following: (1) 159.9 acres comprising
an 18 hole operating sprinklered golf course together with a club house
and maintenance buildings; (2) 159 detached single family lots located
near the golf course which have been surveyed and platted and are
suitable for building; (3) 194 acres surrounding the golf course which
could be developed; (4) 3,355 surveyed and platted lots of which
approximately 8% are suitable for building, 6% are conditionally suitable
for building and the balance are unsuitable for building; (5) over 4,000
acres of wetlands and woodlands which have no development potential; and
(6) a sales office.
During July 1995, the Partnership obtained an appraisal of the Boiling
Spring Lakes property. Based upon the updated appraisal, the valuation
allowance established in previous years of $1,902,644 was considered
adequate. Management believes that based upon the 1995 sales activities
and the golf course operations, the valuation allowance continues to be
adequate.
A summary of land held for sale and related buildings and equipment at
December 31, 1995 and September 30, 1994 follows:
1995 1994
---- ----
Boiling Spring Lakes:
Land held for sale $ 2,266,541 2,369,934
Other land and land improvements 394,045 221,449
Buildings 201,243 173,578
Equipment 262,121 193,617
------------- -------------
3,123,950 2,958,578
Pimlico Plantation lots 500 500
Less:
Accumulated depreciation 311,623 265,868
Valuation allowance 1,902,644 1,902,644
------------- -------------
$ 910,183 790,566
============= =============
(4) Accounts Payable and Accrued Expenses
A summary of accounts payable and accrued expenses at December 31, 1995
and September 30, 1994 follows:
1995 1994
---- ----
General partner fees $ 312,668 287,668
Legal fees 81,728 86,738
Rent 33,904 15,154
Brokerage commission 30,000 30,000
Taxes, other than taxes on income 45,940 30,408
Accounting fees 17,500 17,500
Other 5,493 27,870
----------- -----------
$ 527,233 495,338
=========== ===========
General Partner fees, brokerage commission, rent, and legal fees
represent amounts due to affiliates of the General Partners.
30
4
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(5) Long-Term Debt
Long-term debt at December 31, 1995 and September 30, 1994 consist of the
following:
1995 1994
---- ----
Unsecured note payable to John S. Grace, an affiliate
of the General Partner, at 12 month LIBOR plus
6% interest, due in June 1998 $ 170,000 -
Note payable secured by equipment purchased in
1994, at 5.09% interest, maturing in
September 1997 7,179 12,447
---------- ----------
177,179 12,447
Less current portion 4,234 3,974
---------- ----------
Noncurrent debt $ 172,945 8,473
========== ==========
There is no accrued interest payable on either of the notes as of
December 31, 1995 or September 30, 1994. The fair value of the
outstanding notes payable approximates its carrying value as of December
31, 1995.
(6) Selling, General and Administrative Expenses
During fiscal 1994, the Partnership took over management of Fox Squirrel
Country Club golf course. During previous years, management of the course
had been on contracted to a third party. Revenues and expenses in 1995
and 1994 reflect the addition of operations of the golf course.
A summary of selling, general and administrative expenses, excluding the
Country Club, for the years ended December 31, 1995 and September 30,
1994 and 1993 follows:
1995 1994 1993
---- ---- ----
Salaries and payroll taxes $ 46,920 69,434 46,080
Fees to General Partners 60,000 60,000 63,000
Legal fees 22,050 38,147 41,766
Real estate taxes 47,796 36,355 39,182
Advertising 16,966 20,980 1,212
General maintenance and repairs - 7,708 956
Accounting and tax preparation fees 16,446 26,387 25,587
Rent 15,000 15,000 15,154
Group insurance 9,266 9,293 8,469
Travel 7,097 5,158 7,078
Insurance - general 10,541 13,867 6,379
Other 41,195 55,207 38,897
---------- ---------- ----------
Total $ 293,277 357,536 293,760
========== ========== ==========
31
5
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(6) Selling, General and Administrative Expenses, Continued
A summary of general and administrative expenses for the Country Club for
the years ended December 31 1995 and September 30, 1994 follows:
1995 1994
---- ----
Salaries and payroll taxes $ 154,133 156,934
Repairs and maintenance 41,728 46,926
Equipment rental and leases 32,908 30,279
Utilities 21,098 20,958
Concessions 15,695 20,183
Advertising 12,190 8,447
Insurance 3,515 5,485
Other 17,910 12,350
---------- ----------
$ 299,177 301,562
========== ==========
(7) Related Party Transactions
For fiscal years 1995, 1994 and 1993, the General Partners charged the
Partnership for services and office space. These charges include $16,990
in 1995, $38,000 in 1994 and $36,100 in 1993 for legal services, $7,182
in 1993 for consulting services provided by affiliates of the General
Partners in connection with the continuing operations of the Partnership,
and $15,000 in 1995, 1994 and 1993 for rent on office space used by
various members of the Partnership's management. The General Partners'
fees were $60,000, $60,000 and $63,000 for fiscal 1995, 1994 and 1993,
respectively. Due to the resignation of a former general partner, the
partnership settled accrued general partner fees from prior years at less
than the accrued amount. The decrease in general partner fees related to
the former partner amounted to $31,000 and is included in other income in
1994. General partners fees and other related charges have been included
in selling, general and administrative expenses.
In fiscal 1994, 23 lots at Pimlico Plantation with a carrying value of
$15,450 were transferred to a major unitholder in exchange for $10,000
cash and 492,584 units valued at $192,075 held by such unitholder. This
transaction was recorded at the fair value of the property transferred.
The remaining two lots at Pimlico are on the Partnership's balance sheet
at a nominal amount.
32
6
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(8) Litigation
In the past, litigation has been filed against the Partnership claiming
breach of contract because lots guaranteed in the sales contract as being
"high, dry and suitable for building" will not pass current county health
department requirements regarding the installation of septic tanks and
on-site sewage disposal systems. Management contends this language does
not constitute a guarantee of soil conditions for sewer purposes and that
even if it did, installation and use of septic tanks on these lots would
have been permitted under county regulations in effect prior to August
1976 and that it had no way of knowing that stricter regulations would
later be enacted. In the event litigation is filed which results in an
unfavorable ruling, possible remedies could include: refunding the
purchase price of the lots; building nitrification fields with fill dirt
that would allow installation of sewage disposal systems on the lots;
providing the litigants with lots that will pass current county health
department requirements; and paying monetary damages. If mandated, the
cost of such remedial action in the aggregate could be substantial. No
provision for this contingent liability has been made in the accompanying
financial statements; however, at December 31, 1995 no suits or claims
are pending against the Partnership related to this matter.
(9) Income Taxes
Results of operations of the Partnership are taxable to the partners and
no recognition of Federal and state income tax is included in the
financial statements.
The Corporation received favorable rulings from the Internal Revenue
Service regarding the qualification of the liquidation under Section 337
of the Internal Revenue Code and the formation of the Partnership for
holding and maintaining the assets during the final liquidation period
discussed in note 1.
(10) Leases
During fiscal 1994, the Partnership entered into two operating leases and
assumed a third operating lease when it took over management of the golf
course. The minimum lease payments under these leases as of December 31,
1995 are as follows:
1996 $ 30,837
1997 15,209
1998 -
1999 -
2000 -
--------
$ 46,046
========
Equipment rental and lease expense for 1995 and 1994 was $32,908 and
$30,279, respectively.
33
7
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(11) Timber Sales
During 1995, 1994 and 1993, the Partnership earned $35,920, $91,611 and
$202,830, respectively, in revenues from the sale of timber on certain
unsold lots and unplatted woodlands. The sale of timber should not be
considered an on-going source of revenue to the Partnership.
(12) Liquidity and Going Concern Issues
Cash generated from Fox Squirrel Country Club and individual lot sales
may not be sufficient to meet future operating costs, debt service and
other cash requirements. Operating cash flow was negative for fiscal
years 1995 and 1994 and would have been negative in 1993 were it not for
over $202,000 in revenues from the sale of timber. There are limited
prospects for additional revenue from timber sales beyond 1995. Further,
at December 31, 1995, the current liabilities of the Partnership exceeded
its current assets by approximately $576,000. No reasonable offer has
been received for the assets of the Partnership due principally to the
fact that the majority of the land is wetland and that most of the unsold
plotted lots do not satisfy current county health standards regarding the
installation of septic tanks and on-site sewage disposal systems. If the
Partnership's cash flow is less than Management's expectations, capital
programs presently planned may be either postponed, scaled back, or
eliminated, and certain operating expenditures may be either deferred or,
in the case of payments to affiliates of the General Partner, accrued.
Despite such contingency plans by Management, the above mentioned factors
indicate that the Partnership may be unable to continue in existence
while attempting to complete the sale and liquidation of the
Partnership's remaining assets. The financial statements have been
prepared assuming that Reeves Telecom Limited Partnership will continue
as a going concern. The Partnership's recurring losses from operations
in prior years and liquidity position raise substantial doubt about the
entity's ability to continue in existence while attempting to sell the
remaining assets of the Partnership. The financial statements do not
include any adjustments relating to the recoverability and classification
of reported asset amounts or the amounts and classification of
liabilities that might result should the Partnership be unable to
continue in existence.
34
EXHIBIT 2: AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1994
35
REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
December 31, 1994 and the Three months then ended
(With Independent Auditors' Report Thereon)
36
REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
Table of Contents
Independent Auditors' Report
Financial Statements:
Balance Sheet
December 31, 1994
Statement of Operations
Three months ended December 31, 1994
Statement of Partners' Capital
Three months ended December 31, 1994
Statement of Cash Flows
Three months ended December 31, 1994
Notes to Financial Statements
37
(KPMG PEAT MARWICK LLP LETTERHEAD)
Independent Auditors' Report
The Partners
Reeves Telecom Limited Partnership:
We have audited the balance sheet of Reeves Telecom Limited Partnership (the
"Partnership") as of December 31, 1994, and the related statement of
operations, partners' capital and cash flows for the three months then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the Partnership's management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Reeves Telecom Limited
Partnership as of December 31, 1994, and the results of its operations and its
cash flows for the three months then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that Reeves
Telecom Limited Partnership will continue as a going concern. As discussed in
Note 12 to the financial statements, the Partnership's recurring losses from
operations in prior years and liquidity position raise substantial doubt about
the entity's ability to continue in existence while attempting to sell the
remaining assets of the Partnership. Management's plans in regard to these
matters are also described in Note 12. The financial statements do not include
any adjustments relating to the recoverability and classification of reported
asset amounts or the amounts and classification of liabilities that might
result should the Partnership be unable to continue in existence.
/s/ KPMG PEAT MARWICK LLP
February 9, 1996
38
REEVES TELECOM LIMITED PARTNERSHIP
Balance Sheet
December 31, 1994
Assets
------
Current assets - cash $ 137,549
Land held for sale and related buildings
and equipment, net (note 3) 811,073
Other assets 4,204
-----------
$ 952,826
===========
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Accounts payable and accrued expenses (note 4) 519,603
Notes payable (note 5) 4,025
-----------
Total current liabilities 523,628
-----------
Long-term debt 8,422
Partners' capital (notes 1 and 12) - issued and outstanding
1,828,258 units at December 31, 1994 420,776
-----------
$ 952,826
===========
See accompanying notes to financial statements.
39
REEVES TELECOM LIMITED PARTNERSHIP
Statement of Operations
Three Months ended December 31, 1994
Revenues:
Land sales (note 2) $ 27,075
Country Club revenue 68,189
Interest income and finance charges 593
------------
95,857
------------
Expenses:
Selling, general and administrative
expenses (note 6) 54,317
Selling, general and administrative expenses of
Country Club (note 6) 81,458
Direct costs of land sold 13,900
Depreciation 6,566
------------
156,241
Loss before other income and expense (60,384)
------------
Other income:
Timber sales (note 11) 15,381
------------
Net loss $ (45,003)
============
Loss per partnership unit $ (0.02)
============
Weighted average partnership units outstanding 1,828,258
============
See accompanying notes to financial statements.
40
REEVES TELECOM LIMITED PARTNERSHIP
Statement of Partners' Capital
Three Months ended December 31, 1994
Partners' capital at September 30, 1994 $ 465,779
Net loss (45,003)
---------
Partners' capital at December 31, 1994 $ 420,776
=========
See accompanying notes to financial statements.
41
REEVES TELECOM LIMITED PARTNERSHIP
Statement of Cash Flows
Three Months ended December 31, 1994
Cash flows from operating activities:
Net loss $ (45,003)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 6,566
Change in assets and liabilities:
Contracts on land sales, net 499
Land held for sale and related buildings and equipment (27,073)
Accounts payable and accrued expenses 24,266
-------
Net decrease in cash (40,745)
Cash at beginning of quarter 178,294
-------
Cash at end of quarter $ 137,549
=======
See accompanying notes to financial statements.
42
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1994
(1) Plan of Liquidation
On May 17, 1979 the stockholders of Reeves Telecom Corporation (the
"Corporation") approved a plan of liquidation (the "plan") for the
Corporation and its subsidiaries. The plan, which was determined by the
Internal Revenue Service to qualify as a Section 337 liquidation,
authorized the Corporation's Board of Directors to sell the Corporation's
assets and distribute any remaining unsold assets to its stockholders
and/or a liquidation trust. On May 8, 1980, stockholders at a special
meeting approved an amendment to the plan whereby assets not sold within
one year of the date the plan was approved could, at the discretion of
the Board of Directors, be transferred from the Corporation to a South
Carolina limited partnership which would undertake to sell the remaining
assets on behalf of the stockholders. On May 15, 1980, the Corporation
was liquidated and all of its unsold assets and liabilities were
transferred to Reeves Telecom Associates, a South Carolina limited
partnership (the "Partnership"). Stockholders of the Corporation
received one partnership unit in exchange for each share of common stock.
The units are registered under the Securities Act of 1933 but are not
listed on any national securities exchange. In January 1987, pursuant to
a change in South Carolina law, the Partnership's legal name was changed
from Reeves Telecom Associates to Reeves Telecom Limited Partnership.
Pursuant to the plan, the Corporation sold all of its broadcasting assets
and substantially all of the land held for development and sale at one of
its two land development locations and distributed cash to its
stockholders of $.90 per share on February 29, 1980 and $2.30 per share
on May 15, 1980.
Remaining assets relate primarily to land held for sale, and cash,
generated primarily from the sale of timber and real estate (note 3).
The Partnership's Managing General Partner is Grace Property Management,
Inc.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The accompanying financial statements have been prepared using the
accrual basis of accounting. The Partnership's assets have been
written down, from time to time, to reflect their fair values based
upon appraisals. The Partnership changed its fiscal year end from
September 30, to December 31. This change became effective as of
December 31, 1995.
(b) Land Sales
All sales during the three months ended December 31, 1994 have been
for cash. Land cost included in direct costs of land sold
represents the proportionate amount of the total estimated project
costs based on the sales value of the lot to the total estimated
project sales value. Following the inability of the Partnership to
effect a bulk sale of all of its remaining land holdings, the sale
of individual lots for cash has been emphasized in recent years
(note 3) and is expected to continue at least for the near term.
43
2
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(c) Land Held for Sale and Related Buildings and Equipment
Land held for development or sale is recorded at the lower of cost
less previously established valuation allowances or estimated fair
value. Related buildings 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 25 years for buildings and 5 to 20
years for equipment and land improvements.
(d) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(e) Accounting and Reporting Changes
In March 1995, the FASB issued Statement Number 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. The statement is effective for the year ending
December 31, 1996, and is not expected to have a material impact on
the Partnership's financial statements.
(f) Fair Value of Financial Instruments
The Financial Accounting Standards Board issued SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," ("SFAS
107") in December 1991. SFAS 107 requires disclosures about the
fair value of all financial instruments whether or not recognized
in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other
valuation techniques. The carrying amount of financial instruments
included in accounts payable and accrued expenses are deemed
reasonable estimates of their fair value. The Company adopted the
provisions of SFAS 107 in 1995 as required for companies its size.
(3) Land Held for Sale and Related Buildings and Equipment
The land held for sale and buildings and equipment in the Partnership's
Boiling Springs Lakes, North Carolina property consists of the following:
(1) 159.9 acres comprising an 18 hole operating sprinklered golf course
together with a club house and maintenance buildings; (2) 164 detached
single family lots located near the golf course which have been surveyed
and platted and are suitable for building; (3) 194 acres surrounding the
golf course which could be developed; (4) 3,387 surveyed and platted lots
of which approximately 8% are suitable for building, 6% are conditionally
suitable for building and the balance are unsuitable for building; (5)
over 4,000 acres of wetlands and woodlands which have no development
potential; and (6) a sales office.
44
3
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(3) Land Held for Sale and Related Buildings and Equipment, Continued
During September 1993, the Partnership obtained an appraisal of the
Boiling Spring Lakes property. Based upon the updated appraisal, the
valuation allowance established in previous years of $1,902,644 was
considered adequate. Management believes that based upon the sales
activities and the golf course operations during the three months ended
December 31, 1994, the valuation allowance continues to be adequate.
A summary of land held for sale and related buildings and equipment at
December 31, 1994 follows:
Boiling Spring Lakes:
Land held for sale $ 2,362,534
Other land and land improvements 222,264
Buildings 173,578
Equipment 227,275
-------------
2,985,651
Pimlico Plantation lots 500
Less:
Accumulated depreciation 272,434
Valuation allowance 1,902,644
-------------
$ 811,073
=============
(4) Accounts Payable and Accrued Expenses
A summary of accounts payable and accrued expenses at December 31, 1994
follows:
General partner fees $ 302,668
Legal fees 86,738
Rent 18,904
Brokerage commission 30,000
Taxes, other than taxes on income 35,925
Accounting fees 17,500
Other 27,868
-----------
$ 519,603
===========
General Partner fees, accrued brokerage commission, rent, legal fees, and
$7,182 of other represent amounts due to affiliates of the General
Partners.
(5) Notes Payable
The note payable at December 31, 1994 relates to equipment purchased
during 1994. The note matures in September 1997. The fair value of the
note payable approximates its carrying value as of December 31, 1994.
45
4
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(6) Selling, General and Administrative Expenses
During 1994, the Partnership took over management of Fox Squirrel Country
Club golf course. During previous years, management of the course had
been on contract.
A summary of selling, general and administrative expenses, excluding the
Country Club, for the three months ended December 31, 1994 follows:
Salaries and payroll taxes $ 12,601
Fees to General Partners 15,000
Advertising 4,353
Accounting and tax preparation fees 7,500
Rent 3,750
Group insurance 2,328
Travel 1,521
Insurance - general 3,742
Other 3,522
----------
Total $ 54,317
==========
A summary of general and administrative expenses for the Country Club for
the three months ended December 31, 1994 follows:
Salaries and payroll taxes $ 39,509
Repairs and maintenance 17,490
Equipment rental and leases 8,831
Utilities 4,053
Concessions 3,431
Advertising 2,051
Insurance 1,171
Other 4,922
----------
$ 81,458
==========
For the three months ended December 31, 1994, the General Partners
charged the Partnership for services and office space. These charges
include $3,750 for rent on office space used by various members of the
Partnership's management and $15,000 of General Partners' fees. Both of
these charges have been included in selling, general and administrative
expenses.
46
5
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(7) Litigation
In the past, litigation has been filed against the Partnership claiming
breach of contract because lots guaranteed in sales contracts as being
"high, dry and suitable for building" will not pass current county health
department requirements regarding the installation of septic tanks and
on-site sewage disposal systems. Management contends this language does
not constitute a guarantee of soil conditions for sewer purposes and that
even if it did, installation and use of septic tanks on these lots would
have been permitted under county regulations in effect prior to August
1976 and that it had no way of knowing that stricter regulations would
later be enacted. In the event litigation is filed which results in an
unfavorable ruling, possible remedies could include: refunding the
purchase price of the lots; building nitrification fields with fill dirt
that would allow installation of sewage disposal systems on the lots;
providing the litigants with lots that will pass current county health
department requirements; and paying monetary damages. If mandated, the
cost of such remedial action in the aggregate could be substantial. No
provision for this contingent liability has been made in the accompanying
financial statements; however, at December 31, 1995 no suits or claims
are pending against the Partnership related to this matter.
(8) Income Taxes
Results of operations of the Partnership are taxable to the partners and
no recognition of Federal and state income tax is included in the
financial statements.
The Corporation received favorable rulings from the Internal Revenue
Service regarding the qualification of the liquidation under Section 337
of the Internal Revenue Code and the formation of the Partnership for
holding and maintaining the assets during the final liquidation period
discussed in note 1.
(9) Leases
As of December 31, 1994, the Partnership was obligated under two lease
agreements, both of which are accounted for as operating leases. The
minimum lease payments under these leases as of December 31, 1994 are as
follows:
1995 $ 30,837
1996 30,837
1997 15,209
1998 -
1999 -
--------
$ 76,883
========
Equipment rental and lease expense for the three months ended December
31, 1994 was $8,831.
47
6
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(10) Golf Course Operations
In 1984, the Partnership entered a written lease agreement with an
operator for the Fox Squirrel Country Club. The Partnership initially
paid to the operator a subsidy, which continued through December 1987.
The subsidy eventually ceased and starting July 1, 1990 the Partnership
began receiving from the operator $1,000 per month rent, which continued
through December 31, 1990. Starting on January 1, 1991 the operator
continued to lease the premises as a month-to-month tenant under an oral
lease with much the same terms as the aforementioned written lease. For
1992, the monthly rent was increased to $1,500. The operator was
obligated to continue paying costs associated with maintaining and
operating the golf club and golf course, while the Partnership was to pay
personal property taxes, real estate taxes, hazard insurance, and
liability insurance. Because of unfavorable operating conditions, the
operator fell behind in payments. At the request of the operator and to
ensure uninterrupted operation of the golf course and country club, in
October 1993 the operator and the Partnership concluded an agreement, the
principal terms of which are that (i) the Partnership would operate the
golf club and golf course, receiving all revenues and incurring all
expenses relating thereto, and (ii) for a period of one year the operator
would be an employee of the Partnership and would manage the golf club
and golf course on behalf of the Partnership. The operator was still an
employee of the Partnership at December 31, 1994; however, the individual
resigned and was replaced in November 1995. The Partnership has a
similar agreement with the new operator.
(11) Timber Sales
During the three months ended December 31, 1994, the Partnership earned
$15,381, in revenues from the sale of timber on certain unsold lots and
unplatted woodlands. Additional contracts for the sale of timber were
signed for 1995 but such contracts should not be considered an on-going
source of revenue to the Partnership.
48
7
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(12) Liquidity and Going Concern Issues
Cash generated from Fox Squirrel Country Club and individual lot sales
may not be sufficient to meet future operating costs, debt service and
other cash requirements. Operating cash flow was positive for the three
months ended December 31, 1994, but was negative for the past two fiscal
years without consideration of cash received from timber sales. There
are limited prospects for additional revenue from timber sales beyond
1995. Further, at December 31, 1994, the current liabilities of the
Partnership exceeded its current assets by approximately $386,000. No
reasonable offer has been received for the assets of the Partnership due
principally to the fact that the majority of the land is wetland and that
many of the unsold plotted lots do not satisfy current county health
standards regarding the installation of septic tanks and on-site sewage
disposal systems. If the Partnership's cash flow is less than
Management's expectations, capital programs presently planned may be
either postponed, scaled back, or eliminated, and certain operating
expenditures may be either deferred or, in the case of payments to
affiliates of the General Partner, accrued. Despite such contingency
plans by Management, the above mentioned factors indicate that the
Partnership may be unable to continue in existence while attempting to
complete the sale and liquidation of the Partnership's remaining assets.
The financial statements have been prepared assuming that Reeves Telecom
Limited Partnership will continue as a going concern. The Partnership's
recurring losses from operations in prior years and liquidity position
raise substantial doubt about the entity's ability to continue in
existence while attempting to sell the remaining assets of the
Partnership. The financial statements do not include any adjustments
relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might
result should the Partnership be unable to continue in existence.
49
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule