Item 1. Business
Hickory Hills, Ltd. ("Registrant"), is a Tennessee limited partnership organized on September 15, 1987 pursuant to the provisions of the Tennessee Uniform Limited Partnership Act, Chapter 2, Title 61, Tennessee Code Annotated, as amended. The General Partner of Registrant is 222 Hickory, Ltd., a Tennessee limited partnership. 222 Partners, Inc. is the general partner of 222 Hickory, Ltd.
Registrant's primary business is to acquire, develop and dispose of certain undeveloped real properties located in Nashville, Davidson County, Tennessee and Hendersonville, Sumner County, Tennessee (the "Properties"). Registrant's investment objectives are preservation of capital, and capital appreciation through the passage of time, growth in the surrounding areas and the development of the Properties prior to resale.
Financial Information About Industry Segments
The Registrant's activity, investment in land, is within one industry segment and geographical area. Therefore, financial data relating to the industry segment and geographical area is included in Item 6 - Selected Financial Data.
Narrative Description of Business
The Registrant is holding for investment two properties in the metropolitan Nashville, Tennessee area. The Properties will be referred to respectively as the Nashville Property and the Hendersonville Property in the remainder of this report. The Properties are held for resale.
The Nashville Property is approximately 210 acres of partially developed land and is comprised of two main parcels located in northern Davidson County, Tennessee. During 1996 and 1995, grading work was done on the Property as required by prior sales and in 1995, a contribution was made to the City toward the future improvements of Old Hickory Boulevard. All development was specific to the site sold. The General Partner has no plans for development of this property except for what may be required by future sales.
The Hendersonville Property is a residential subdivision on Old Hickory Lake in Hendersonville, Tennessee (the "Harbortowne Development") with 243 lots, of which 24 lots remain unsold as of December 31, 1996. The Property is zoned as residential planned unit development. Roadways for the Property have been paved, and gas, water and sewer lines have been installed. The final phase of road and utility development was completed in 1996. In 1991, the General Partner negotiated an exclusive option contract with Phillips Builders to purchase the remaining lots in Harbortowne Development. The contract requires minimum purchases and allows for price increase based on a time and quantity schedule.
Competition
Nashville Property
There is a significant amount of competition for industrial/office distribution property in northern Davidson County, near the airport and along Brick Church Pike, south of the Property. As competitive sites nearer the City are absorbed, the Registrant's site should experience more activity. The Registrant's prices are comparable to its competition.
Hendersonville Property
There is currently limited competition surrounding the Harbortowne Development. The Registrant has an exclusive contract with Phillips Builders, Inc. pursuant to which Phillips will build new homes in the $140,000 - $180,000 price range. The Property is located one mile to the east of Highway 31-E by-pass which provides excellent access to downtown Nashville. The development offers landscaped home sites, gas heat, and other amenities such as a swimming pool, tennis courts, and clubhouse.
The majority of the proceeds used to purchase the Property were from a $3,454,300 promissory note (the "Lender Financing") maturing on December 31, 1997 to Hickory Lenders, Ltd. (the "Lender"), an affiliated partnership sharing the same General Partner. The principal balance accrues interest at a simple interest rate of 10% per annum. Prior to maturity, the Registrant is not required to make any payments with respect to the Lender Financing, except upon the sale, exchange or condemnation of all or any portion of the Property. From sale proceeds, the Lender receives a priority return of interest and principal, and 55% of the "Net Revenues", if any. Net revenues, as defined by the Participating Loan Agreement, represent the difference between cash proceeds earned and the following, in this order: 1) accrued but unpaid interest and Applicable Principal Balances; 2)accrued preferred return (12%) on the net offering proceeds of the Registrant; and 3) the Applicable Equity Balance. The cumulative Applicable Principal balance due to the Lender is $1,562,428 and is payable from future sale proceeds, after all accrued interest is paid.
With the loan due date approaching at year end, the General Partner plans to negotiate an extension of the loan term. The General Partner does not expect the Registrant to have the liquidity to retire the debt in full on December 31, 1997. Because the Registrant and the Lender share the same general partner, it may be necessary to appoint an independent party to represent the general partner for the Registrant, the Lender or both during the loan negotiations. However, if the loan term is not extended, the lack of payment would constitute a default on the loan agreement. In such an event the Lender is required to foreclose the loan. Currently, the Partnership has not foreclosed or accelerated the amounts due under the loan agreement.
The Registrant has no employees. Program management services are being provided under a contractual agreement with Landmark Realty Services Corporation, an affiliate of the General Partner.
Item 2.
Item 2. Properties
As of December 31, 1996, Registrant owned two parcels of land in Tennessee, composed of 235 acres in Nashville (208 acres of which are saleable) and 24 residential lots in Hendersonville. See Item 1 above for more detailed description.
Item 3.
Item 3. Legal Proceedings
Registrant is not a party to, nor is any of Registrant's property the subject of, any legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
The security holders of Registrant did not vote on any matter during the fiscal year covered by this report.
PART II
Item 5.
Item 5. Market for Registrant's Units of Limited Partnership
Interest and Related Security Holder Matters
There is no established market for the Units, and it is not anticipated that any will exist in the future. The Registrant commenced an offering to the public on December 3, 1987 of 1,800 Units of limited partnership interests. The offering of $1,800,000 was fully subscribed on December 3, 1988. As of February 28, 1997 there were 190 holders of record of the 1,800 Units of limited partnership interest.
There were no distributions made to Unit holders during 1996. There are no material restrictions upon Registrant's present or future ability to make distributions in accordance with the provisions of Registrant's Limited Partnership Agreement, other than the obligations to Hickory Lenders, Ltd. with respect to the Lender Financing, as described below.
Item 6.
Item 6. Selected Financial Data
For the Year Ended December 31,
1996 1995 1994 1993 1992
Total Revenues $ 335,416 176,707 28,242 (242,235) (205,627) Net Loss (118,124) (260,709) (405,133) (688,006) (661,750) Net Loss per Limited Partner Unit (65.62) (144.84) (225.07) (382.23) (367.64) Total Assets 2,875,140 3,357,454 3,592,621 3,941,564 4,763,775 Note Payable 3,454,300 3,454,300 3,454,300 3,454,300 3,454,300 to Affiliate Interest $ 1,126,627 1,526,399 1,486,171 1,410,944 1,574,716 Payable to Affiliate
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Sales
The Registrant sold 39, 38, and 43 lots in 1996, 1995, and 1994, respectively, on the Hendersonville property to Phillips Builders under the terms of the exclusive option contract negotiated in 1991. Gross sales proceeds were $992,000, $770,610, and $763,000 in 1996, 1995, and 1994, respectively. Of the lots sold in 1996, three of the 39 were lake front lots which sold for significantly higher prices and carried a higher applicable principal balance. The Registrant also sold 2.5, 3.86 and 1.63 acres in 1996, 1995 and 1994, respectively, of the Nashville property for gross proceeds of $188,250, $154,400 and $47,500, respectively. From the proceeds of all sales, $750,000, $310,000, and $275,000 in 1996, 1995, and 1994, respectively, was paid to the Lender in interest and the remainder was retained for operations and development. The Applicable Principal Balance assigned to 1996, 1995 and 1994 sales is $314,855, $316,860, and $287,438, respectively. The cumulative Applicable Principal Balance as of December 1996 is $1,562,428 and is payable from future sales after all accrued interest is paid.
Comparative Analysis
Except for the fluctuations in sales described above, overall operations of the Registrant have not changed significantly during the last three years. The increase in land maintenance costs in 1996 relates to extensive landscaping. This landscaping was done after the infrastructure development was complete. The landscaping includes a walking trail running throughout the Property, several fences, bushes and trees.
Liquidity
At December 31, 1996 the Registrant has cash and cash equivalents of $401,021, of which $258,676 is restricted for future development, leaving an operating cash balance of approximately $142,345. This cash is expected to be sufficient to cover operating expenses and the infrastructure development currently underway. The Registrant has reserved cash of $53,500 to pay impact fees to the City of Hendersonville in the amount of $250 per lot sold. The impact fees will be used to improve Rockland Road. The fees will be paid to the city when the design work on the road begins.
During 1996, the Registrant completed Phase IV and V development plans for the Hendersonville Property. Phase IV cost approximately $300,000 and opened up an additional 31 lots. Phase V cost approximately $300,000 and opened up an additional 45 lots. All Phase IV lots sold in 1996 and 24 lots remain in Phase V.
Due to the nature of the Lender Financing, no interest or principal payments are due until the Properties, or portions thereof, are sold and cash is available, or December 31, 1997, whichever is earlier. With the loan due date approaching at year end, the General Partner plans to negotiate an extension of the loan term. The General Partner does not expect the Registrant to have the liquidity to retire the debt in full on December 31, 1997. Because the Registrant and the Lender share the same general partner, it may be necessary to appoint an independent party to represent the general partner for the Registrant, the Lender or both during the loan negotiations. However, if the loan term is not extended, the lack of payment would constitute a default on the loan agreement. In such an event the Lender is required to foreclose the loan. Currently, the Partnership has not foreclosed or accelerated the amounts due under the loan agreement.
Accrued interest payable relating to the Lender Financing was approximately $1.1 million at December 31, 1996. The Registrant made payments totalling $750,000 on the Accrued interest from 1996 sale proceeds. The cumulative Applicable Principal Balance unpaid as of December 31, 1996, is $1,562,428 and is payable from future sale proceeds, after all accrued interest is paid.
The Registrant has retained a portion of the sale proceeds for development of future phases and operations of the properties and did not use all sale proceeds to reduce accrued interest and applicable principal. The Registrant's and Lender's joint general partner believes that this use of sale proceeds was contemplated by the loan agreement. However, the loan agreement is ambiguous on this point; therefore, this treatment could constitute a default on the loan agreement. In such an event the partnership is required to foreclose the loan and accelerate the amounts due. Currently, the Partnership has not foreclosed or accelerated the amounts due under the loan agreement.
The Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" on January 1, 1996. This Statement requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or fair value less estimated costs to sell. The fair value of the assets can be determined externally, using appraisals, or internally using discounted future net cash flows. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Impairment is recognized through the establishment of an allowance for impairment with a corresponding charge to operations. Based upon management's analysis of discounted future net cash flows, the Partnership's land and improvements held for investment does not meet the definitions of impairment under SFAS No. 121. Accordingly, land held for investment is recorded at cost with no allowance for impairment necessary. The adoption of SFAS No. 121 did not have an impact on the Partnership's financial position, results of operations, or liquidity.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Financial Statements required by Item 8 are filed at the end of this report.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Registrant does not have any directors or officers. 222 Hickory, Ltd. is the General Partner. 222 Partners, Inc. is the general partner of the General Partner and, as such, has general responsibility and ultimate authority in matters affecting Registrant's business.
222 Partners, Inc.
222 Partners, Inc. was formed September, 1986 and serves as general partner for several other real estate investment limited partnerships. The directors of 222 Partners, Inc. are W. Gerald Ezell, Steven D. Ezell, and Michael A. Hartley.
W. Gerald Ezell, age 66, serves on the Board of Directors of 222 Partners, Inc. Until November, 1985, Mr. Ezell had been for over 20 years an agency manager for Fidelity Mutual Life Insurance Company and a registered securities principal of Capital Analysts Incorporated, a wholly owned subsidiary of Fidelity Mutual Life Insurance Company.
Steven D. Ezell, age 44, is the President and sole shareholder of 222 Partners, Inc. He has been an officer of 222 Partners Inc. from September 17, 1986 through the current period. Mr. Ezell is President and 50% owner of Landmark Realty Services Corporation. He was for the prior four years involved in property acquisitions for Dean Witter Realty Inc. in New York City, most recently as Senior Vice President. Steven D. Ezell is the son of W. Gerald Ezell.
Michael A. Hartley, age 37, serves as a Secretary/Treasurer and Vice President of 222 Partners, Inc. He has been an officer of 222 Partners, Inc. from September 17, 1986 through the current period. He is Vice President and 50% owner of Landmark Realty Services Corporation. Prior to joining Landmark, Mr. Hartley was Vice President of Dean Witter Realty Inc., a New York-based real estate investment firm.
Item 11.
Item 11. Executive Compensation
During 1996, Registrant was not required to and did not pay remuneration to any executives, partners of the General Partner or any affiliates, except as set forth in Item 13 of this report, "Certain Relationships and Related Transactions."
The General Partner does participate in the Profits, Losses, and Distributions of the Partnership as set forth in the Partnership Agreement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
Name and Amount and Title Address of Nature of Percent of Beneficial Beneficial of Class Owner Ownership Class
Limited Partnership Michael A. Hartley 52.5 Units 2.92% Units Steven D. Ezell 52.5 Units 2.92% 4400 Harding Road (Directly Suite 500 owned) Nashville, TN 37205
(b) Security ownership of management
Name and Amount and Title Address of Nature of Percent of Beneficial Beneficial of Class Owner Ownership Class
Limited Partnership Michael A. Hartley 52.5 Units 2.92% Units Steven D. Ezell 52.5 Units 2.92% (Directly owned)
There are no arrangements known to the Registrant, the operation of which may, at a subsequent date, result in a change in control of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transaction
No affiliated entities have, during 1996, earned compensation for services from the Registrant in excess of $60,000. For a listing of miscellaneous transactions with affiliates refer to Note 3 of the Financial Statements at the end of this report.
The Registrant borrowed $3,454,300 from Hickory Lenders, Ltd., an affiliated partnership, in 1988 and accrued interest payable of $1,126,627 was recorded on such obligation as of December 31, 1996.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page (a) (1) Financial Statements The following Financial Statements are included herein:
Independent Auditors' Report
Financial Statements Balance Sheets Statements of Operations Statements of Partners' Deficit Statements of Cash Flows Notes to Financial Statements
(2) Financial Statement Schedules
Additional financial information furnished pursuant to the requirements of Form 10-K:
Financial Statement Schedule -
Independent Auditors' Report S-1
Schedule III - Real Estate and Accumulated Depreciation S-2
All other Schedules have been omitted because they are inapplicable, not required or the information is included in the Financial Statements or notes thereto.
(3) Exhibits
3 Amended and Restated Certificate and Agreement of Limited Partnership, incorporated by reference to Exhibit A2 to the Prospectus of Registrant dated December 3, 1987 filed pursuant to Rule 424(b) of the Securities and Exchange Commission.
10A Loan Agreement by and among Hickory Hills, Ltd. and Hickory Lenders, Ltd., incorporated by reference to Exhibit 10.1 to Registrant's Form S-18 Registration Statement as Filed on October 23, 1987.
10B Deed of Trust and Security Agreement by and among Hickory Lenders, Ltd. and the Registrant, incorporated by reference to Exhibit 10.2 of the Registrant's Form S-18 Registration Statement as filed on October 23, 1987.
10C Promissory Note of Hickory Hills, Ltd. to Hickory Lenders, Ltd., incorporated by reference to Exhibit 10.3 to Registrant's Form S-18 Registration Statement as filed on October 23, 1987.
22 Subsidiaries-Registrant has no subsidiaries.
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the last quarter of 1996.
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.
HICKORY HILLS, LTD.
By: 222 Hickory, Ltd. General Partner
By: 222 Partners, Inc. General Partner
DATE: March 27, 1997 By:/s/Steven D. Ezell President and Director
DATE: March 27, 1997 By:/s/Michael A. Hartley Vice-President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
HICKORY HILLS, LTD.
By: 222 Hickory, Ltd. General Partner
By: 222 Partners, Inc. General Partner
DATE: March 27, 1997 By:/s/Steven D. Ezell President and Director
DATE: March 27, 1997 By:/s/Michael A. Hartley Vice-President and Director
Supplemental Information to be Furnished with Reports filed Pursuant to Section 15(d) of the Act by Registrant Which Have Not Registered Securities Pursuant to Section 12 of the Act:
No annual report or proxy material has been sent to security holders.
Independent Auditors' Report
The Partners Hickory Hills, Ltd.:
We have audited the accompanying balance sheets of Hickory Hills, Ltd. (a limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' deficit, and cash flows for each of the years in the three-year period ended December 31, 1996. 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 make by 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 Hickory Hills, Ltd. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1, the Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" on January 1, 1996.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 8 to the financial statements, the Partnership has suffered recurring losses from operations, resulting in a net capital deficiency, and a note due in full on December 31, 1997 which the Partnership will be unable to repay, that raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Nashville, Tennessee January 20, 1997
HICKORY HILLS, LTD. (A Limited Partnership)
Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
Cash and cash equivalents (note 5) $ 142,345 259,074 Restricted cash (note 2) 258,676 336,112 Land and improvements held for investment (notes 4 and 5) 2,473,839 2,740,975 Other assets 280 21,293
Total assets $ 2,875,140 3,357,454
Liabilities and Partners' Deficit Liabilities: Note payable to affiliate (note 5) $ 3,454,300 3,454,300 Accrued interest payable to affiliate (note 5) 1,126,627 1,526,399 Accrued property taxes 10,635 9,855 Other accrued expenses 81,902 47,100
Total liabilities 4,673,464 5,037,654
Partners' deficit:
Limited partners (1,800 units outstanding) (1,798,424) (1,680,300) General partner 100 100
Total partners' deficit (1,798,324) (1,680,200) Commitments and contingencies (notes 5, 6, and 8)
Total liabilities and partners' deficit $ 2,875,140 3,357,454
See accompanying notes to financial statements.
HICKORY HILLS, LTD. (A Limited Partnership)
Statements of Operations
Years ended December 31, 1996, 1995, and 1994
1996 1995 1994
Revenues: Sales of land and improvements $1,180,250 925,010 810,500 Cost of land and improvements sold (774,505) (707,893) (743,616) Selling expenses (note 3) (81,660) (64,648) (54,083)
Income on sales of land and improvements held for investment 324,085 152,469 12,801
Interest income 31,331 24,238 15,419 Miscellaneous income - - 22
Total revenues 355,416 176,707 28,242
Expenses: Program management fee (note 3) 3,000 3,000 3,000 Legal and accounting (note 3) 13,782 12,925 11,682 General and administrative 8,270 8,381 6,753 Property taxes 35,058 39,683 35,623 Land maintenance fees 63,202 23,199 26,090 Interest (notes 3 and 5) 350,228 350,228 350,227
Total expenses 473,540 437,416 433,375
Net loss $ (118,124) (260,709) (405,133)
Net loss allocated to: Limited partners $ (118,124) (260,709) (405,133) General partner $ - - -
Net loss per limited partner unit $ (65.62) (144.84) (225.07)
Weighted average units outstanding 1,800 1,800 1,800 See accompanying notes to financial statements.
HICKORY HILLS, LTD. (A Limited Partnership)
Statements of Partners' Deficit
Years ended December 31, 1996, 1995, and 1994
Limited General partners partner Total Units Amount
Balance at December 31, 1993 1,800 $ (1,014,458) 100 (1,014,358)
Net loss - (405,133) - (405,133) ------- -------- -------- -------- Balance at December 31, 1994 1,800 (1,419,591) 100 (1,419,491)
Net loss - (260,709) - (260,709) ------- -------- -------- --------- Balance at December 31, 1995 1,800 (1,608,300) 100 (1,680,200)
Net loss - (118,124) - (118,124) _______ __________ _______ __________ Balance at December 31, 1996 1,800 $(1,798,424) 100 (1,798,324)
See accompanying notes to financial statements.
HICKORY HILLS, LTD. (A Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
1996 1995 1994 ____ ____ ____ Cash flows from operating activities: Net loss $ (118,124) (260,709) (405,133) Adjustments to reconcile net loss to net cash (used) provided by operating activities: Cost of land and improvements sold 774,505 707,893 743,616 Cost of land improvements (507,369) (244,042) (400,576) Decrease (increase) in restricted cash 77,436 (81,261) (254,851) Decrease (increase) other assets 21,013 (20,828) (192) (Decrease) increase in accrued interest payable to affiliate (399,772) 40,228 75,227 Increase (decrease) in accrued property taxes 780 (25,586) (1,862) Increase (decrease) in other accrued expenses 34,802 10,900 (17,175) ------- ------- -------- Net cash provided by (used in) operating activities (116,729) 126,595 (260,946) Net change in cash and cash equivalents (116,729) 126,595 (260,946)
Cash and cash equivalents at beginning of year 259,074 132,479 393,425 Cash and cash equivalents at end of year $ 142,345 259,074 132,479
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest $ 750,000 310,000 275,000
See accompanying notes to financial statements.
HICKORY HILLS, LTD. (A Limited Partnership) Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Organization
Hickory Hills, Ltd. (the Partnership), a Tennessee limited partnership, was organized on September 15, 1987, to acquire three tracts of undeveloped land located in the Nashville metropolitan and Hendersonville, Tennessee areas. The General Partner is 222 Hickory, Ltd., and the general partner of 222 Hickory, Ltd. is 222 Partners, Inc. The Partnership prepares financial statements and income tax returns on the accrual method and includes only those assets, liabilities, and results of operations which relate to the business of the Partnership.
(b) Estimates
Management of the Partnership has made estimates and assumptions to prepare these financial statements in accordance with generally accepted accounting principles. These estimates include the determination of the estimated fair value of the land held for investment in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 121. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
The Partnership considers all short-term investments with original maturities of three months or less at the time of purchase to be cash equivalents. At December 31, 1996 and 1995, the management of the Partnership has reserved cash balances of $53,500 and $43,750, respectively, for payment of impact fees. Cash belonging to the Partnership is combined in an account with funds from other partnerships related to the general partner.
(d) Land and Improvements Held for Investments
Land is recorded at cost and includes two tracts of undeveloped land representing approximately 235 and 237 acres at December 31, 1996 and 1995, respectively. Of these amounts, management believes that 208 and 210 acres are sellable at December 31, 1996 and 1995, respectively. In addition, the Partnership owns one tract of land developed into residential lots with 24 and 63 lots remaining at December 31, 1996 and 1995, respectively. Land costs include amounts to acquire and hold land, including interest and property taxes during the development period. Costs to hold land, including interest and property taxes are charged to expense once development is substantially complete.
HICKORY HILLS, LTD. (A Limited Partnership) Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies (continued)
Land improvement costs include development costs expended subsequent to the acquisition of a tract.
The Partnership adopted the provisions of SFAS NO. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" on January 1, 1996. SFAS No. 121 requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or fair value less estimated costs to sell. The fair value of the assets can be determined externally, using appraisals, or internally using discounted future net cash flows. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets less estimated costs to sell. Impairment is recognized through the establishment of an allowance for impairment with a corresponding charge to operations. Losses upon the sale of the assets are charged to the allowance. Based upon management's analysis of discounted future net cash flows, the Partnership's land and improvements held for investment does not meet definitions of impairment under SFAS No. 121. Accordingly, land held for investment is recorded at cost with no allowance for impairment necessary. The adoption of SFAS No. 121 did not have an impact on the Partnership's financial position, result of operations, or liquidity.
(e) Income Recognition
Income from sales of land and improvements held for investment is generally recorded on the accrual basis when the buyer's financial commitment is sufficient to provide economic substance to the transaction, and when other criteria of SFAS No. 66 "Accounting for Sales of Real Estate" are satisfied. For sales of real estate where both cost recovery is reasonably certain and the collectibility of the contract price is reasonably assured, but the transaction does not meet the remaining requirements to be recorded on the accrual basis, profit is deferred and recognized under the installment method, which recognizes profit as collections of principal are received. If developments subsequent to the adoption of the installment method occur which cause the transaction to meet the requirements of the full accrual method, the remaining deferred profit is recognized at that time. Any losses on sales of real estate are recognized at the time of the sale.
HICKORY HILLS, LTD. (A Limited Partnership)
Notes to Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies (continued)
(f) Income Taxes
No provision has or will be made for Federal or state income taxes since such taxes are the responsibility of the partners. Annually, the partners receive, from the Partnership, IRS Form K-1's which provides them with their respective share of taxable income or losses, deductions, and other tax related information. The only difference between the tax basis and reported amounts of the Partnership's assets and liabilities relates to the valuation of land and improvements held for investment. For income tax purposes certain costs were capitalized as additional land improvement costs.
(g) Partnership Allocations
Net profits, losses and distribution of cash flow of the Partnership are allocated to the Partners in accordance with the Partnership agreement as follows:
Partnership net profits are allocated first to any partner with a negative balance in their capital account, determined at the end of the taxable year as if the Partnership has distributed cash flow, in proportion to the negative capital balance account of all partners until no partner's capital account is negative. Net profit allocations are then made to the limited partners up to the difference between their capital account balances and the sum of their adjusted capital contributions (capital balance, net of cumulative cash distributions in excess of preferred returns - 12% annual cumulative return on capital contributed). Any remaining net profit allocations are then made to the limited partners until the taxable year in which cumulative profits to the limited partners equal their adjusted capital contribution plus an unpaid preferred return (12% annual cumulative return on capital contributed). Net profits are then allocated to the general partner until the ratio of the general partner's capital account balance to the capital account balances, in excess of adjusted capital contributions and unpaid preferred return, of all limited partners is 27 to 73. Thereafter, profits are generally allocated 27% to the general partner and 73% to the limited partners. Net losses are allocated to the partners in proportion to their positive capital accounts. Partnership distributions are allocated 99% to the limited partners and 1% to the general partner in an amount equal to their preferred return (12% annual, cumulative return on capital contributed), 99% to the limited partners and 1% to the general partner until the limited partners have received
HICKORY HILLS, LTD. (A Limited Partnership)
Notes to Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies (continued)
an amount equal to their adjusted capital contributions, and then 73% to the limited partners and 27% to the general partner.
(h) Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
(2) Restricted Cash
At December 31, 1996 and 1995, the Partnership has restricted cash balances of $258,676 and $336,112, respectively, to be used to fund property improvements, consisting of road and utility work.
(3) Related Party Transactions
The general partner and its affiliates have been actively involved in managing the Partnership. Affiliates of the general partner receive fees and commissions for performing certain services. Expenses incurred for these services during 1996, 1995, and 1994 are as follows:
1996 1995 1994
Accounting fees $ 2,100 1,500 1,500 Program management fee 3,000 3,000 3,000 Engineering fees 24,765 - - Real estate commissions 37,290 23,694 24,315 Interest expense $ 350,228 350,228 350,227
(4) Land and Improvements Held for Investment
The components of land and improvements held for investment at December 31, are as follows: 1996 1995
Land $1,538,626 1,955,823 Land Improvements 935,213 785,152 --------- ---------- $2,473,839 2,740,975
The aggregate cost of land and improvements held for investment for Federal income tax purposes was $ 3,378,273 and $ 3,487,713 at December 31, 1996 and 1995, respectively.
HICKORY HILLS, LTD. (A Limited Partnership) Notes to Financial Statements
(5) Note Payable to Affiliate
The note payable to affiliate represents a $3,454,300 long- term note payable to Hickory Lenders, Ltd. (the Lender), an affiliate sharing the same General Partner. The note accrues simple interest at an annual rate of 10% plus "additional interest" upon the sale of any portion of the collateral equal to 55% of the "net revenues", as defined in the Participating Loan Agreement. The note is secured by a mortgage on the land and improvements held for investment and by a security interest in any unrestricted cash or investment securities held by the Partnership. Interest and principal payments become due upon the sale of the collateral or any portion thereof to the extent cash is available, but no later than December 31, 1997.
During 1996 and prior years, the Partnership retained portions of the net proceeds from sales without paying the applicable principal balance or accrued interest to the Lender. The cumulative principal balance currently payable to the Lender is $1,562,428 and 1,247,573 and $930,713 at December 31, 1996 and 1995, respectively. The General Partner believes that retaining sales proceeds for development and distributing only net available cash to the Lender was contemplated by the note agreement. However, the note agreement does no explicitly authorize the retention of these funds; therefore, this treatment could constitute a default on the note agreement. In such an event the Lender is required to foreclose the loan and accelerate the amounts due or foreclose upon the note. To date, the Lender has not foreclosed or accelerated the amounts due under the loan agreement.
(6) Commitments
The Partnership has granted an exclusive option to a home builder to purchase all remaining lots in the Harbortowne Subdivision in accordance with a specified takedown and pricing schedule. The per lot price will increase to $23,500, and will increase $2,000 annually thereafter.
HICKORY HILLS, LTD. (A Limited Partnership) Notes to Financial Statements
(7) Fair Value of Financial Instruments
At December 31, 1996 and 1995, the carrying amounts of cash and cash equivalents, restricted cash, and accrued liabilities approximate their fair values because of the short maturity of those financial instruments.
The determination of the estimated fair values of the note payable and the related accrued interest payable was not practicable as the note agreement does not provide for a predictable cash payment stream.
(8) Going Concern
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. The Partnership has a note due on December 31, 1997 and the General Partner does not expect the Partnership to have the liquidity to retire the debt in full. The General Partner plans to negotiate an extension of the loan term. If an extension is not received and the Partnership does not repay the Note, the Lender could foreclose and take the Property. The Partnership would then be dissolved.
This uncertainty raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Independent Auditors' Report
The Partners Hickory Hills, Ltd.:
Under date of January 20, 1997, we reported on the balance sheets of Hickory Hills, Ltd. as of December 31, 1996 and 1995, and the related statements of operations, partners' deficit, and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements and our report thereon are included elsewhere herein. In connection with our audits of the aforementioned financial statements, we have also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1, the Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" on January 1, 1996.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 8 to the financial statements, the Partnership has suffered recurring losses from operations, resulting in a net capital deficiency, and a note due in full on December 31, 1997 which the Partnership will be unable to repay, that raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Nashville, Tennessee January 20, 1997
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HICKORY HILLS, LTD. (A Limited Partnership)
Schedule III
Real Estate and Accumulated Depreciation December 31, 1996
Initial Cost to Cost capitalized Gross amount at Partnership subsequent which carried to acquisition at close of period
Description Encum- Land Building Improve- Carrying Land Building Total Accumu- Date of Date brances and improve- ments costs and improve- lated de- construc-acquired ments ments preciation tion ----------- ------ ---- ----------------------------------------- ------- ----------- 24 residential lots in Sumner Co., TN $3,454,300 $1,134,701 - 3,076,970 428,724 121,250 395,255 516,505 - 5/89- 9/87 12/96 235 acres of land in Davidson Co., TN same $2,181,680 - 82,189 52,221 1,898,321 59,013 1,957,334 - 6/95 11/87
Total $3,454,300 $3,316,381 - 3,159,159 480,945 2,019,571 454,268 2,473,839 - - -
*Certain amounts have been reclassified to conform with current year presentation. /TABLE
HICKORY HILLS, LTD. (A Limited Partnership)
Schedule III
Real Estate and Accumulated Depreciation
1996 1995 1994
(1) Balance at beginning $ 2,740,975 3,204,826 3,547,866 of Period Additions during period: Improvements 507,369 244,042 400,576 _______ _______ ________ 507,369 244,042 400,576
Deductions during period: Cost of real estate sold 774,505 707,893 743,616 _______ _______ ________ 774,505 707,893 743,616
Balance at end of period $ 2,473,839 2,740,975 3,204,826
(2) Aggregate cost for Federal income tax purposes $ 3,378,273 3,487,713 3,808,688
See accompanying independent auditors' report.
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Exhibits filed pursuant to Item 14 (a) (3)
HICKORY HILLS, LTD. (A Limited Partnership)
Exhibit Index
Exhibit
3 Amended and Restated Certificate and Agreement of Limited Partnership, incorporated by reference to Exhibit A2 to the Prospectus of Registrant dated December 3, 1987 filed pursuant to Rule 424(b) of the Securities and Exchange Commission.
10A Loan Agreement by and among Hickory Hills, Ltd. and Hickory Lenders, Ltd., incorporated by reference to Exhibit 10.1 to Registrant's Form S-18 Registration Statement as filed on October 23, 1987.
10B Deed of Trust and Security Agreement by and among Hickory Lenders, Ltd. and the Registrant, incorporated by reference to Exhibit 10.2 of the Registrant's Form S-18 Registration Statement as filed on October 23, 1987.
10C Promissory Note of Hickory Hills, Ltd. to Hickory Lenders, Ltd., incorporated by reference to Exhibit 10.3 to Registrant's Form S-18 Registration Statement as filed on October 23, 1987.
22 Subsidiaries-Registrant has no subsidiaries.
27 Financial Data Schedule