UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
|
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
|
For
the quarterly period ended March 31, 2005 |
| |
| |
or |
| |
|
|
[
] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
| |
|
|
For
the transition period from ________ to ________ |
| |
| |
Commission
file number 0-9305 |
REEVES
TELECOM LIMITED PARTNERSHIP
(Exact
name of registrant as specified in its charter)
|
South
Carolina |
|
57-0700063 |
|
(State
or other jurisdiction of |
|
IRS
Employer |
|
incorporation
or organization) |
|
Identification
Number |
c/o Grace
Property Management, Inc.
55 Brookville Road
Glen Head, New York
11545
(Address
of principal executive offices and zip code)
(516)
686-2201
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
On May
10, 2005, the registrant had outstanding 1,811,562 partnership
units.
REEVES
TELECOM LIMITED PARTNERSHIP
FORM
10-Q
TABLE OF CONTENTS
Page
|
PART
I. FINANCIAL INFORMATION |
|
| |
|
|
Item
1. |
Condensed Financial
Statements |
|
| |
|
|
| |
Condensed Balance
Sheets at March 31, 2005
(Unaudited)
and December 31, 2004 |
1 |
| |
|
|
| |
Condensed Statements
of Operations and Partners’
Capital (Unaudited)
for the Three Months Ended March 31, 2005 and 2004 |
2 |
| |
|
|
| |
Condensed Statements
of Cash Flows (Unaudited)
for the Three
Months Ended March 31, 2005 and 2004 |
3 |
| |
|
|
| |
Notes
to Condensed
Financial Statements (Unaudited) |
4 |
| |
|
|
|
Item
2. |
Management’s
Discussion and Analysis of Financial
Condition and Results of
Operations |
13 |
| |
|
|
|
Item
3. |
Quantitative
and Qualitative Disclosures About Market Risk |
20 |
| |
|
|
|
Item
4. |
Controls and
Procedures |
22 |
|
|
|
|
PART
II. OTHER INFORMATION |
|
| |
|
|
|
Item
6. |
Exhibits |
24 |
| |
|
|
SIGNATURE |
25 |
PART I.
FINANCIAL INFORMATION
REEVES
TELECOM LIMITED PARTNERSHIP
CONDENSED
BALANCE SHEETS
| |
|
March
31, |
|
December
31, |
|
| |
|
2005 |
|
2004 |
|
| |
|
(Unaudited) |
|
(Audited) |
|
|
Assets |
|
|
|
|
|
| |
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
1,672,812 |
|
$ |
1,210,038 |
|
|
Treasury
securities |
|
|
296,034 |
|
|
294,950 |
|
Properties
held for sale and property and
equipment: |
|
|
|
|
|
|
|
|
Properties
held for sale |
|
|
338,132 |
|
|
350,177 |
|
|
Property
and equipment, net |
|
|
170,748 |
|
|
170,951 |
|
|
Total
properties held for sale and property and equipment, net |
|
|
508,880 |
|
|
521,128 |
|
|
Long
term notes receivable |
|
|
141,452 |
|
|
142,457 |
|
|
Total
Assets |
|
$ |
2,619,178 |
|
$ |
2,168,573 |
|
| |
|
|
|
|
|
|
|
|
Liabilities
and Partners' Capital |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
$ |
36,280 |
|
$ |
155,398 |
|
|
Accrued
expenses, affiliates |
|
|
52,229 |
|
|
33,979 |
|
|
Total
Liabilities |
|
|
88,509 |
|
|
189,377 |
|
| |
|
|
|
|
|
|
|
|
Commitments
and contingencies |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Partners'
capital |
|
|
2,530,669 |
|
|
1,979,196 |
|
Total
Liabilities and Partners'
Capital |
|
$ |
2,619,178 |
|
$ |
2,168,573 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
REEVES
TELECOM LIMITED PARTNERSHIP
CONDENSED
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
FOR THE
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
| |
|
2005 |
|
2004 |
|
|
Operating
revenues: |
|
|
|
|
|
|
Property
sales |
|
$ |
648,226 |
|
$ |
114,443 |
|
|
Rental
income |
|
|
383 |
|
|
2,257 |
|
|
Interest
income |
|
|
9,259 |
|
|
3,664 |
|
|
Other
income |
|
|
1,558 |
|
|
— |
|
| |
|
|
659,426 |
|
|
120,364 |
|
| |
|
|
|
|
|
|
|
|
Operating
costs and expenses: |
|
|
|
|
|
|
|
|
Direct
costs of property sold |
|
|
10,420 |
|
|
3,324 |
|
Selling,
general and administrative expenses |
|
|
95,127 |
|
|
87,663 |
|
|
Depreciation |
|
|
2,406 |
|
|
2,419 |
|
| |
|
|
107,953 |
|
|
93,406 |
|
| |
|
|
|
|
|
|
|
|
Net
income |
|
|
551,473 |
|
|
26,958 |
|
|
Partners'
capital at beginning of period |
|
|
1,979,196 |
|
|
1,310,132 |
|
|
Partners'
capital at end of period |
|
$ |
2,530,669 |
|
$ |
1,337,090 |
|
|
Income
per partnership unit |
|
$ |
0.30 |
|
$ |
0.01 |
|
| |
|
|
|
|
|
|
|
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.
REEVES
TELECOM LIMITED PARTNERSHIP
CONDENSED
STATEMENTS OF CASH FLOWS
FOR THE
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
| |
|
2005 |
|
2004 |
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net
income |
|
$ |
551,473 |
|
$ |
26,958 |
|
Adjustments
to reconcile net income to
net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
2,406 |
|
|
2,419 |
|
|
Accretion
of interest |
|
|
(1,084 |
) |
|
— |
|
|
Change
in assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid
and other current assets |
|
|
— |
|
|
757 |
|
|
|
|
|
1,005 |
|
|
921 |
|
Property held for sale, net |
|
|
10,421 |
|
|
(47,676 |
) |
Accounts
payable and accrued expenses |
|
|
(119,118 |
) |
|
(75,294 |
) |
|
Net
cash provided by operating activities |
|
|
445,103 |
|
|
(91,915 |
) |
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Increase
in sales property & equipment, net |
|
|
(579 |
) |
|
(3,254 |
) |
|
Net
cash used in investing activities |
|
|
(579 |
) |
|
(3,254 |
) |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Increase
in accrued expenses, affiliates |
|
|
18,250 |
|
|
— |
|
|
Net
cash provided by financing activities |
|
|
18,250 |
|
|
— |
|
|
NET
INCREASE (DECREASE) IN CASH |
|
|
462,774 |
|
|
(95,169 |
) |
| |
|
|
|
|
|
|
|
|
CASH
BALANCE - BEGINNING |
|
|
1,210,038 |
|
|
822,517 |
|
|
CASH
BALANCE - ENDING |
|
$ |
1,672,812 |
|
$ |
727,348 |
|
The
accompanying notes are an integral part of these condensed financial
statements.
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, U.S. Treasury securities, 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
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 period ended
March 31, 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005. 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, 2004 as filed with
the Securities and Exchange Commission on March 31, 2005.
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 and other undeveloped land
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.
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, money market accounts, and
U.S. Treasury securities with maturities of 91 days or less 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
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
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 believes that
all remediation work was completed as of December 31, 2001, although thereafter
the North Carolina Department of Environment and Natural Resources (“NCDENR”)
required the Partnership to continue monitoring and testing the subsurface
groundwater periodically, 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.
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
nine years ago and the Partnership has spent over $113,000 in repairs. During
2003 and 2004, the Partnership and the City of Boiling Spring Lakes were in
discussions for the city to take title to the dam. A recent change in the city
administration, however, requires that the new city manager review the matter
before any transfer of title occurs. As a result, the Partnership believes that
the transfer of title to the dam will still take place but that it might not
occur during 2005.
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, and initial residential hook-ups are
expected to begin during the second quarter of 2005. 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. Management expects, however, that, if
applied to the Partnership’s current land holdings, these costs would be
substantial.
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
REEVES
TELECOM LIMITED PARTNERSHIP
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
and
several unless the harm is divisible and there is a reasonable basis for
allocation of responsibility. The cost of investigation, removal, and
decontamination of substances could be substantial. If such substances are found
on the land currently owned by the Partnership, or there is a failure to
properly remove or decontaminate the area, the property could be difficult to
sell, rent, or develop. Some environmental laws create a lien on a contaminated
site in favor of the government for damages and costs 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.
REEVES
TELECOM LIMITED PARTNERSHIP
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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 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.
BUILDING
AND MAINTAINING ROADS
The
Partnership is responsible for maintaining certain roads, most of which are
unpaved, and certain road rights-of-way within the City of Boiling Spring Lakes.
The Partnership may complete some or all of the roads, but there is no
contractual obligation to do so. The Partnership has not set aside any money or
entered into any bond, escrow, or trust agreement to assure completion of the
roads. It may be difficult or impossible for the Partnership to sell lots
located on uncompleted roads. The City of Boiling Springs Lakes will not assume
any road that is not paved with asphalt, and the City need not assume any paved
road. Accordingly, unless and until the Partnership completes a road and has it
paved with asphalt, and the road has been assumed by the City, the Partnership
will be responsible for maintaining such road and the right-of-way. Since 2001,
the Partnership has spent a total of approximately $66,000 for
REEVES
TELECOM LIMITED PARTNERSHIP
NOTES TO
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
rocking and paving roads. The failure by the Partnership
to provide proper maintenance of the roads and rights-of-way which have not been
assumed by the City may subject the Partnership to substantially greater risk of
litigation from persons adversely affected by such failure. If such litigation
were to be initiated, Management believes that the Partnership would prevail but
that the cost of defending the case could be material, and should the
Partnership not prevail, the cost of building any such road could be
material.
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(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, 2004 as filed with the Securities and Exchange Commission on
March 31, 2005, 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
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(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 July 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
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(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.
THREE
MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31,
2004
Revenue
from property sales, and the amount and type of property sold for the three
months ended March 31, 2005 and March 31, 2004 are set forth in the table
below.
| |
|
|
Three
Months Ended March 31, |
|
| |
|
|
2005 |
|
2004 |
|
| |
PROPERTY
SOLD |
|
|
|
|
|
| |
Individual undeveloped lots |
|
|
18 |
|
|
12 |
|
| |
Other
land (acres) |
|
|
50 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
| |
REVENUE |
|
|
|
|
|
|
|
| |
Individual undeveloped lots |
|
$ |
351,752 |
|
$ |
114,443 |
|
| |
Other
land |
|
|
296,474 |
|
|
— |
|
| |
Total
Revenue |
|
$ |
648,226 |
|
$ |
114,443 |
|
During
the three months ended March 31, 2005, the Partnership sold 6 more individual
undeveloped lots than were sold during the same period of 2004, for an increase
of 50%. Management attributes the increase, in part, to a backlog of real estate
transactions that was carried over from the fourth quarter of 2004, and, in
part, to periods of unseasonably warm weather during the first three months of
2005 in the coastal region of North Carolina, which brought potential buyers
from up north in greater numbers than in the same period of 2004. Revenue from
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(Unaudited)
the sale
of individual undeveloped lots increased 207% due principally to the increase in
the number of lots sold and an increase in the average sales price per lot. The
average sales price per lot increased 105%, to $19,542 for the first quarter of
2005 compared to $9,537 for the same period of 2004. 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 first quarter of 2005, the Partnership sold five ten-acre tracts, whereas
the Partnership sold none in the same period of 2004. The Partnership
experiences great volatility in sales of such tracts from year to year as to
revenue and total acreage sold, and often the Partnership records no sales of
such tracts in a fiscal year.
- RENTAL
INCOME
Rental
income for the three months ended March 31, 2005 declined 83% from the same
period of 2004, reflecting the end of the lease for the home owned by the
Partnership. The Partnership is currently seeking to sell the home or lease it
to another party.
-
INTEREST INCOME
Interest
income increased 153%. Management attributes the increase substantially to
higher average cash balances in the Partnership’s interest-bearing bank account
during the first quarter of 2005 than in the first quarter of 2004, and to
interest income earned on Treasury Bills and other Treasury securities during
the first quarter of 2005, whereas no such income was earned in the same period
of 2004.
- DIRECT
COSTS OF PROPERTY SOLD
Direct
costs of property sold for the three months ended March 31, 2005 were $10,420,
compared to $3,324 for the same period of 2004. Management attributes the
increase in costs principally to the greater amount of land sold during the
first quarter of 2005 than in the same period of 2004.
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(Unaudited)
-
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling,
general and administrative expenses were $95,127 for the three months ended
March 31, 2005, compared to $87,663 for the same period of
2004, for a net increase of 9%. The significant changes among the principal
components of selling, general and administrative expenses are as
follows:
- REAL
ESTATE TAXES
Real
estate taxes were $14,986 for the first quarter of 2005, compared to $21,579 for
the same period of 2004. The decrease of approximately 31% is due, in part, to
the sale of land by the Partnership during 2004, and, in part, by the recent
decision by Brunswick County to drop invoicing of property taxes on lots where
the amount of taxes due is de minimus, which decision affected approximately 300
of the Partnership’s individual undeveloped lots.
-GENERAL
PARTNER FEES
Annual
fees charged by the General Partner, which were $80,000 for each of 2002, 2003,
and 2004, were raised to $150,000 effective January 1, 2005. The approximate 88%
increase reflects, in part, increased costs borne by the General Partner in
respect of the Partnership since 2001, and, in part, the substantial increase in
time devoted by the General Partners’s president to oversight of the Partnership
following the enactment of the Sarbanes-Oxley Act of 2002.
LIQUIDITY
AND CAPITAL RESOURCES
-
GENERAL
At March
31, 2005, the Partnership had $1,672,812 in cash and cash equivalents, and
$296,034 in Treasury securities having a maturity of less than two years. There
was no long-term debt.
Until an
estimate can be made with some degree of certainty as to the costs the
Partnership will have to bear for the future installation of water distribution
and sewer lines, Management expects to continue investing some portion of the
Partnership’s cash balances in Treasury securities having a maturity of less
than two years to provide the Partnership with some liquidity to meet the
assessments for such costs.
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(Unaudited)
- CASH
FLOWS FROM OPERATING ACTIVITIES
Operating
activities provided $445,103 of net cash during the first three months of 2005,
compared to $91,915 of net cash used in operating
activities during the same period of 2004. The change is primarily attributable
to the increase in revenue from property sales for the first three months of
2005 over the same period of 2004.
- CASH
FLOWS FROM INVESTING ACTIVITIES
Investing
activities used net cash of $579 during the first three months of 2005, compared
to $3,254 of net cash used during the same period of 2004. The change is
primarily attributable to the amount spent on repairs made to a dam during the
first three months of 2004, while no such repairs were made during the same
period of 2005.
- CASH
FLOWS FROM FINANCING ACTIVITIES
Financing
activities provided $18,250 of net cash during the first three months of 2005,
compared to no cash used in financing activities during the same period of 2004.
The change is primarily attributable to the increase in the general partner’s
fees beginning January 1, 2005 and the accrual of such higher amount for the
first quarter of 2005.
-
LONG-TERM DEBT
The
Partnership had no long-term debt outstanding during 2005 or 2004.
- NO
DISTRIBUTIONS TO PARTNERS PLANNED; FUTURE INVESTMENTS
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. Management expects, however, that, if applied to the Partnership’s
current land holdings, these costs would be
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(Unaudited)
substantial.
Moreover, it is the Partnership's experience that revenues are highly variable
and may not be sufficient in future years to cover expenses and necessary
capital expenditures, and that a bulk sale of assets for cash is extremely
difficult to achieve. Absent a bulk sale, Management believes that the best use
of the current cash balance and cash surpluses, if any, generated in future
years is to preserve or improve the overall value of the Partnership's assets
by: (a) undertaking certain infrastructure and other improvements in the
development; (b) making certain other real estate-related investments in or near
Boiling Spring Lakes; and (c) pursuing limited scale home construction on lots
owned by the Partnership as market conditions may allow. Management believes
that this plan will, in future years, result in, among other things, an increase
in the number of lots sold and a higher average sales price per lot than would
otherwise be the case. There can be no assurance, however, that sufficient cash
will be generated from operations to successfully implement Management's plan or
that such plan will ultimately prove successful.
Consistent
with the above described plan and in view of the costs associated with a
distribution to all partners, Management believes it would be highly imprudent
to make a distribution to partners prior to the sale of all or substantially all
of the Partnership's assets, or such time as: (a) the Partnership knows with
reasonable certainty the amount and timing of any assessments relating to
installation of water and sewer lines affecting the Partnership’s properties,
and (b) the Partnership’s business has been established to operate at a level
sufficient to consistently generate revenues in excess of expenses and capital
expenditures. However, from time to time, in accordance with applicable
securities laws, the Partnership may utilize excess cash by repurchasing
partnership units, although there are currently no plans to do so. Since the
amount of excess cash available for such purpose cannot be estimated at this
time due to the highly variable nature of the Partnership's cash flow, there can
be no assurance as to the number of partnership units which will actually be
repurchased, if any such repurchases will, in fact, occur, or the prices at
which such repurchases, if any, will be made.
Throughout
the balance of 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
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(Unaudited)
continuing basis, depending upon market conditions and
other factors the General Partner deems relevant, the most efficient and
practical use of the Partnership’s cash.
OFF BALANCE SHEET ARRANGEMENTS
The
Partnership does not utilize off balance sheet arrangements, and there were none
during the first three months of 2005 or 2004.
IMPACT OF
INFLATION
Real
estate market conditions during 2004 and the first quarter of 2005 have
permitted the Partnership to twice raise the asking price of its land, most
recently in January 2005 by approximately fifteen percent (15%) more or less
across the board. To the extent that sales prices reflect in part such increased
asking prices, inflation may be deemed to have had a positive impact on the
Partnership’s operations during the first three months of 2005 and 2004.
Otherwise, inflation has had only a minor impact on the Partnership’s operations
during the first three months of 2005 and 2004.
ITEM
3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Partnership’s principal market risk exposure is to changes in interest rates,
which are highly sensitive to many factors, including governmental monetary and
tax policies, domestic and international economic and political considerations,
and other factors beyond the control of the Partnership. Changes in the general
level of interest rates can affect the Partnership’s revenue from property
sales, since the market for real estate in general varies to a large degree upon
the level and stability of interest rates. Generally, when interest rates are
high or are increasing, the market for real estate declines, and when interest
rates are low or are stable, the market for real estate increases. The
Partnership does not enter into derivative contracts for its own account to
hedge against the risk of changes in interest rates.
The
Partnership’s interest-bearing assets at March 31, 2005 are as
follows:
-
Cash, substantially all of which is deposited at a local financial institution.
The interest rate earned on the cash balance is variable. During the first
quarter of 2005, cash balances averaged $943,843.
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(Unaudited)
-
Treasury
securities. The Partnership invests in 91-day Treasury bills and zero coupon
instruments available through the U.S. Treasury’s
STRIPS program having a maturity of less than two years, all of which are
intended to be held to maturity. The interest rates earned on Treasury Bills and
Treasury STRIPS are set at
the time of purchase. The interest rate earned on a bill or STRIP that matures
may be different from that of a new bill or STRIP in which the proceeds are
reinvested. During the first quarter of 2005, average invested balances were
$497,582 for Treasury Bills and $292,976 for Treasury STRIPS.
-
The note
receivable from the buyer of the assets of Fox Squirrel/The Lakes. The annual
interest rate on the note is equal to the higher of (i) 8.75% and (ii) 2% over
the Bank’s prime rate. During the first quarter of 2005, the interest rate has
not exceeded 8.75%.
Had the
average level of interest rates during the first three months of 2005 been
higher or lower by 100 basis points or one percent (1%), the Partnership would
have earned approximately $3,384 more or less, in interest income based upon
average quarterly balances.
As of
March 31, 2005, Treasury Bills are included on the Partnership’s balance sheet
as a cash equivalent, and are stated at their cost, which approximates
market.
As of
March 31, 2005, Treasury STRIPS are stated on the Partnership’s balance sheet at
their cost, which approximates market. Accreted interest is treated as interest
income.
As of
March 31, 2005, the note receivable from the buyer of the assets of Fox
Squirrel/The Lakes was stated on the Partnership’s balance sheet at $141,452,
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 borrower’s principal bank’s prime rate if the such
bank’s prime rate were to exceed 6.75%. This note receivable, like all variable
rate instruments, is largely insulated from interest rate risk, and will not
decline in value if market interest rates increase; however, should interest
rates decline from what are already historically low rates, the market value of
the note receivable will likely increase. A hypothetical 100 basis point (1%)
increase or decrease in market interest rates from levels at
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(Unaudited)
March 31,
2005 would not cause the fair value of the note receivable to change by a
material amount.
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.
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
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(Unaudited)
reasonable assurance level. There have been no
changes during the first fiscal quarter of 2005 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.
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(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. |
REEVES
TELECOM LIMITED PARTNERSHIP
MARCH 31,
2005
(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 |
| |
|
|
| |
By: |
Grace
Property Management Inc. |
| |
|
|
| |
Title:
|
General
Partner |
|
|
|
| Date: May 12, 2005 |
By: |
/s/ DAVIS P.
STOWELL |
| |
Davis P. Stowell |
| |
President
of General Partner
(Principal
Executive Officer,
Principal
Financial Officer,
Principal
Accounting Officer) |