ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Reeves Telecom Limited Partnership (the "Registrant" or the "Partnership") is a South Carolina Limited Partnership formed for the purpose of accepting certain assets and liabilities from its predecessor corporation, Reeves Telecom Corporation (the "Corporation"). The Corporation sold its principal assets during the twelve month period ended May 15, 1980 and distributed cash and the limited partnership units of the Registrant to its former shareholders as a liquidation distribution. The partnership units were registered under the Securities Act of 1933 by the filing of a Registration Statement pursuant to Form S-14 (File No. 2-66452) which became effective April 8, 1980 and pursuant to which a Proxy statement/prospectus dated April 14, 1980 was mailed to all shareholders. Reference is made to said Registration Statement and said Proxy statement/prospectus for a description of the liquidation of the Corporation and the formation of the Registrant. The Registrant was initially organized October 25, 1979 but had only nominal assets and no liabilities until May 15, 1980. To reflect a change in South Carolina law, Registrant's name was changed from Reeves Telecom Associates to Reeves Telecom Limited Partnership on January 21, 1987.
(b) GENERAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership's business may be categorized into two industry segments: (i) owning, developing, selling, leasing, or otherwise dealing in real estate, and (ii) owning and operating a golf course and country club. See the audited financial statements for financial information about each segment.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The principal assets of the Partnership since inception have consisted of real estate for development located in two sites: Boiling Spring Lakes, in Brunswick County, North Carolina; and Pimlico Plantation, in Berkeley County, South Carolina. The Partnership also owns and operates a golf course and country club in Boiling Spring Lakes, North Carolina (see Item 2, "Properties").
Prior to mid-1993, in view of limited resources, Management concentrated on holding down costs and focused on a bulk sale of all or substantially all of the assets of the Partnership. Local real estate brokers were relied upon to generate individual lot sales, and the golf course and country club were leased to an operator. Under this arrangement, lot sales were slow and operating expenses generally significantly exceeded revenue from such sales. Were it not for cash
generated from activities other than the sale of real estate during recent years, the Partnership would likely have become insolvent.
In June 1993, Management began to place greater emphasis on the sale of individual lots at both locations and pursued other means of generating revenue. In addition, the Partnership became increasingly involved in the management and operation of the golf course and country club.
BOILING SPRING LAKES
LOT SALES
Lots sold during the last five fiscal years are as follows:
The Transition Quarter is the three month period from October 1, 1994 to December 31, 1994 and reflects the change in the Partnership's fiscal year end from September 30 to December 31 (see Item 6, "Selected Financial Data"). Accordingly, the above figures, and the figures contained in all tables in this Item 1, for Fiscal 1995 and Fiscal 1996 are for the twelve months ended December 31 of each such year and the figures for prior fiscal years are for the twelve months ended September 30 of each such year.
Management attributes the increase in the number of lots sold and revenue from sales in 1993 and subsequent years over prior years to a greater flexibility in the Partnership's pricing structure of lots and to generally improved economic conditions in the region.
FOX SQUIRREL COUNTRY CLUB
The Registrant is the owner of Fox Squirrel Country Club ("Fox Squirrel"). Fox Squirrel's 18 hole golf course serves, along with numerous recreational lakes and ponds, as the centerpiece of the Boiling Spring Lakes development.
Prior to October 1993, Fox Squirrel was leased to an operator. The Partnership paid the operator a subsidy, which eventually ceased, and beginning in July 1990 the Partnership began
receiving monthly rental payments of $1,000. During 1992, the monthly rent was increased to $1,500 and the Partnership assumed certain operating expenses. Because of unfavorable operating conditions, however, the operator fell behind in payments. In October 1993, at the request of the operator and to ensure uninterrupted operation of the golf course and country club, the Partnership began operating Fox Squirrel, receiving all revenue and paying all expenses relating thereto, and the operator became an employee of the Partnership, managing Fox Squirrel on behalf of the Partnership. In November 1995, the Partnership hired a new manager and golf pro of Fox Squirrel, replacing the former manager, who resigned. The new manager also leases the kitchen and dining area in the club house from the Partnership. To enable the new dining service to become financially established, lease payments on the kitchen and dining area were waived through 1997. In addition, the Partnership paid for certain improvements to and remodeling of the kitchen and dining area.
Management views Fox Squirrel as being highly important to the success of the development. Its attraction as a recreational facility to those who are considering purchasing or building a home in the region is believed to allow for more lot sales and a higher sales price per lot than would be the case in the absence of such a facility. As a consequence, Management currently expects to continue operating Fox Squirrel.
The Partnership's revenue and operating income from Fox Squirrel for the last five fiscal years are as follows:
As previously described, the Transition Quarter is the three month period from October 1, 1994 to December 31, 1994 and reflects the change in the Partnership's fiscal year end from September 30 to December 31 beginning with Fiscal 1995.
The increase in revenue and variability in operating income in Fiscal 1994 and subsequent years over prior years is attributable to the Partnership assuming operating responsibility for Fox Squirrel on October 1, 1993 and reflects the actual operations of Fox Squirrel. Prior to 1994 a base rent was collected from the operator under a lease with the Partnership. Accordingly, revenue and operating income after 1993 are not directly comparable to prior years.
OTHER
The Partnership has generated revenue from the sale of timber on certain unsold lots. While additional revenue from tree cutting continues to be sought as a means of supplementing revenue from lot sales, Management believes that tree cutting will not be a source of substantial revenue during the next fiscal year and cannot be considered a source of on-going revenue in future years. The amount of revenue generated during the last five fiscal years is as follows:
As previously described, the Transition Quarter is the three month period from October 1, 1994 to December 31, 1994 and reflects the change in the Partnership's fiscal year end from September 30 to December 31 beginning with Fiscal 1995.
During the past 20 years, health standards at Boiling Spring Lakes have become increasingly stringent regarding septic tanks and on-site sewage disposal. It is estimated that 70% to 75% of the property which would have complied with applicable rules and regulations a number of years ago no longer meets present day health standards. This has had a detrimental effect on the operations of the Partnership. In a few cases the problem could be cured by the use of drains, or by the scraping away of hard pan and adding fill dirt. In most instances, however, health departments have declared a majority of the areas as irremediable by ordinary measures. In such cases, the only solution would be to install area-wide sewer systems. While the Partnership does not have the resources to install a sewer system throughout the development, Management is investigating the possibility of installing sewer systems in certain sections of the development and has undertaken preliminary work on the installation of a small, multi-user system in a portion of the development.
PIMLICO PLANTATION
Lots sold during the last five fiscal years are as follows:
As previously described, the Transition Quarter is the three month period from October 1, 1994 to December 31, 1994 and reflects the change in the Partnership's fiscal year end from September 30 to December 31 beginning with Fiscal 1995.
Pursuant to a letter agreement dated September 14, 1993 and amended on November 22, 1993, the Partnership transferred 23 lots to a major unit holder in exchange for $10,000 cash and 492,584 partnership units held by such unit holder. The transaction closed on December 15, 1993 and is valued by the Partnership at $202,075. See Item 12, "Security Ownership of Certain Beneficial Owners and Management." The Partnership currently owns only two lots for sale in Pimlico Plantation. Accordingly, revenue from the sale of lots in Pimlico Plantation in future years is expected to represent, at best, a negligible percentage of total revenue.
SEASONALITY
The sale of real estate in North and South Carolina is seasonal. The Partnership has generally experienced slower than average lot sales in the period from November to January, inclusive.
Although played year-round, depending upon the climate and weather, golf is by and large a summer sport. Accordingly, revenue at Fox Squirrel is generally highest in the period from June to September, inclusive. Revenue is generally lowest in the period from November to February, inclusive, when extensive seeding and course repair work is usually performed.
DEPENDENCE UPON CUSTOMERS
The Partnership is not dependent in any respect upon one or a few customers, the loss of any one of which might significantly affect the financial results of the Partnership.
COMPETITION
The real estate markets in Brunswick County, North Carolina and Berkeley County, South Carolina are extremely competitive. Prospective residential property owners may buy from real
estate developers, who generally sell lots suitable for building but who may also sell improved properties, existing homeowners looking to relocate, and others. Property values are dependent upon, among other factors, proximity to and the nature and quality of recreational facilities, retail shopping, commercial sites and schools, and the availability of county water (as opposed to well water) and sewer service (as opposed to septic systems).
Many real estate developments in the two markets in which the Partnership operates provide recreational facilities, such as a golf course, lakes and/or swimming pools, and tennis courts. In many cases, depending upon the financial resources of the particular developer, such facilities are more extensive and/or more varied than the Partnership's facilities. Within a radius of 100 miles of Boiling Spring Lakes are several golf courses designed by world famous golf course designers, some of which serve as the site of significant professional golf tournaments, as well as numerous golf courses in and surrounding the resort community of Myrtle Beach, South Carolina. Lots associated with such facilities generally command higher sales prices than lots owned by the Partnership. Management believes that the Partnership can compete effectively against other real estate developers and golf course operators, many of whom are believed to have substantially greater resources than the Partnership, principally on the basis of price and, depending upon the amount of cash generated from lot sales, by making selective improvements to recreational facilities, including Fox Squirrel.
LIQUID ASSETS AND RESERVES
As of December 31, 1996, the Partnership held $133,919 in cash. Current liabilities as of this date totaled $997,568.
The Partnership Agreement obligates the General Partner to distribute Distributable Cash (as such term is defined in the Partnership Agreement). Distributable Cash excludes, among other items, reserves established for working capital, contingent liabilities, taxes, debt service, repairs, replacements, renewals, capital expenditures or other purposes consistent with the Partnership Agreement. Such reserves are used solely for calculating Distributable Cash and are not treated as deductions from income for accounting purposes. During the first quarter of Fiscal 1994, a reserve of $100,000 was established to fund certain capital expenditures, including, among others, construction of a new maintenance shed at the golf course and re-roofing of the Fox Squirrel clubhouse. Also in 1994, the Partnership established a reserve of $20,000 to fund the initial portion of a regional marketing campaign, one aspect of which involves the construction of one or more model homes. In Fiscal 1995 a reserve of $250,000 was established to fund primarily certain capital improvements at Fox Squirrel. In Fiscal 1996, reserves totaling $200,000 were established to fund, principally, certain capital improvements at Fox Squirrel and initial development costs of certain capital projects within the general development.
See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for further discussion of factors affecting liquidity.
ITEM 2.
ITEM 2. PROPERTIES
BOILING SPRING LAKES
Boiling Spring Lakes began as a 14,000 acre development which was commenced by the Corporation in 1962. Part of the tract is now within the incorporated town of Boiling Spring Lakes, which has approximately eighteen hundred residents. The town is in Brunswick County, 25 miles south of Wilmington, North Carolina, and 8 miles west of Southport.
The Registrant presently owns the following real estate: (1) 159.9 acres comprising a surveyed 18 hole sprinklered golf course, club house and maintenance building, together known as Fox Squirrel; (2) 145 building lots located near the golf course which have been surveyed and platted and are suitable for building; (3) 194 acres surrounding the golf course which could be developed; (4) 3,319 surveyed and platted lots of which approximately 8% are suitable for building, 6% are conditionally suitable for building and the balance are unsuitable for building; (5) approximately 4,000 acres of wetlands and woodlands which have no development potential; and (6) a sales office.
During 1988, the Partnership reduced the carrying value of the Boiling Spring Lakes property as a result of an appraisal obtained in December 1988 (see Note 3 of financial statements). During 1993 and 1995 the Partnership received updated appraisals of the Boiling Spring Lakes property. Based upon the updated appraisals, no additional reduction to the carrying value was made.
Management intends to emphasize the sale of individual lots at Boiling Spring Lakes, concentrating first on lots situated on existing paved roads. Depending upon the Partnership's financial resources, cost estimates, and projected sales prices, among other things, Management may undertake the development of additional sections of Boiling Spring Lakes.
During 1995, the Partnership undertook certain improvements to Fox Squirrel, including paving of the 25,360 linear feet of cart paths. During 1996, the Partnership undertook substantial remodeling of the kitchen and dining area of the club house and made further improvements to the golf course. Depending upon the Partnership's financial resources, revenues from Fox Squirrel, and cost estimates, among other things, Management may undertake additional improvement projects at Fox Squirrel.
In December 1995, Management initiated a pilot project involving the construction of a house on a lot owned by the Partnership and the immediate marketing of the house and lot for sale. In January 1996 the Partnership obtained from a local bank a line of credit of $85,000 to finance the construction of the house. The house was sold in June 1996 and the outstanding borrowing under the line of credit was repaid, resulting in a profit to the Partnership greater than would have been the case if the vacant lot alone had been sold. In October 1996 the project was continued by starting the construction of a second house for sale and borrowing under the line
of credit totaled approximately $83,000 at year end. In February 1997 a contract for the property was signed and a cash downpayment received by the Partnership. The sale was closed in March 1997 and resulted in a profit to the Partnership greater than would have been the case if the vacant lot alone had been sold. Management may undertake similar projects on a limited basis during Fiscal 1997.
In March 1997 the Town of Boiling Spring Lakes granted its approval for the construction of several patio homes on contiguous lots owned by the Partnership. Construction is expected to commence on the first patio home in May 1997 and Management expects that additional homes will be started as completed homes are sold.
PIMLICO PLANTATION
Following the exchange described in Item 1(c), "Narrative Description of Business: Pimlico Plantation," the Registrant owns two lots, comprising an aggregate of approximately 3/4 acre, in this location in Berkeley County, near Charleston, South Carolina. Pimlico Plantation was developed by the Corporation and its predecessors. The Registrant is actively marketing these lots through local real estate brokers.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a party to any material pending legal proceedings. From time to time the Partnership has been and may become a party to ordinary routine litigation incidental to its business. Management believes that the potential liability to the Partnership from any of such proceedings is immaterial.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS
No matters were submitted to a vote of unit holders during Fiscal 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY MATTERS
As of December 31, 1996 there were 1,335 recorded holders of partnership units, which has remained substantially unchanged since December 31, 1995. The units are not registered on any exchange, and there is only a limited over-the-counter market for the units. It is not anticipated that there will ever be an active public market for the units.
It is the Partnership's experience that revenues are highly variable and may not be sufficient in future years to cover expenses and necessary capital expenditures and that, in the absence of enhanced prospects for the development as a whole, a bulk sale of assets for cash is extremely difficult to achieve. Management believes that the best use of the current surplus of cash generated from operations in 1996 and cash surpluses, if any, generated in the next few fiscal years is to improve the overall value of the Partnership's assets by (i) making certain improvements at Fox Squirrel, thereby increasing the attractiveness of Fox Squirrel as a recreational facility to prospective homeowners, (ii) undertaking certain infrastructure and other improvements in the development, (iii) undertaking on a limited scale home construction on lots owned by the Partnership to demonstrate the viability of larger scale building programs, and (iv) paying down accrued expenses. Management believes that this plan will, in future years, result in, among other things, an increase in the number of lots sold, a higher average sales price per lot, and higher operating income at Fox Squirrel and the Partnership as a whole. There can be no assurance, however, that sufficient cash will be generated from operations to successfully implement Management's plan.
Consistent with such plan and in view of the costs associated with a distribution to all partners, Management believes it would be impractical and imprudent to make a general distribution prior to the sale of a major asset, the bulk sale of all or substantially all of the Partnership's assets, or such time as the Boiling Spring Lakes development, as a whole, has been established to operate at a level sufficient to consistently generate revenues in excess of expenses and capital expenditures. However, from time to time in future periods, in accordance with applicable Securities laws, the Partnership may utilize excess cash by repurchasing partnership units, either in privately negotiated transactions or through open market purchases. Since the amount of excess cash available for such purpose cannot be estimated at this time due to the highly variable nature of the Partnership's cash flow, there can be no assurance as to the number of partnership units which will actually be repurchased, if any such repurchases will, in fact, occur, or the prices at which such repurchases, if any, will be made. As of the date of this Form 10-K, no filings have been made with the Securities and Exchange Commission with respect to any such planned repurchases.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Since the Registrant is a liquidation partnership, the current operations and financial status
cannot meaningfully be compared to the activities of its predecessor in interest, Reeves Telecom Corporation. Further, the Registrant believes that a short summary of only a few financial items would not be meaningful since this is not a typical operating entity. The Registrant recommends that unit holders review the audited financial statements and notes set forth in this report.
The Partnership's fiscal year end was changed from September 30 to December 31 beginning with 1995. For financial reporting purposes, a transition quarter, covering the period from October 1, 1994 to December 31, 1994, was employed. The change in fiscal year end reflects Management's desire to avoid having to make certain deposits to the U.S. Internal Revenue Service (the "IRS") required by Code Section 7519 and the regulations thereunder of the Internal Revenue Code of 1986, as amended (the "Code"). The Code requires that any limited partnership having a fiscal year end other than December 31 and which generates income taxable to its partners during any fiscal year make such a deposit in respect of such fiscal year. By changing its fiscal year end to December 31, the Partnership was able to reclaim $9,481 held on deposit by the IRS for income deferred through September 30, 1993. Furthermore, the Partnership will not be required to make future deposits in the event that income taxable to its partners is generated in the current or future years, although there can be no assurance that the Partnership will, in fact, generate such income.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited financial statements of the Partnership and the notes thereto, included elsewhere in this Form 10-K.
The Partnership has continued to liquidate its assets through real estate sales. In the past, Management concentrated its efforts on effecting a bulk sale of the Partnership's real estate holdings to a single buyer. It is Management's current belief, however, that in the absence of enhanced prospects for the development as a whole, a bulk sale of assets for cash is extremely difficult to achieve. In June 1993, Management began to place greater emphasis on the sale of individual lots and pursued other means of generating revenue.
For the 12 months ended December 31, 1996 and 1995, the number of lots sold were 51 and 37, respectively, and revenues from such sales were $463,051 and $209,055, respectively. Results for 1996 include the sale of a 400 acre parcel for $85,000. Except for such sale, revenue from the sale of lots in 1996 was $378,051. Management attributes the increase in revenue principally to generally improved market conditions in the region and to a more favorable mix of lots sold as to location and asking price. Individual lots adjacent to or near the golf course, for example, generally command a higher asking price than lots which are not so situated. Lots sold during 1996 were generally located nearer to the golf course than lots sold during 1995.
Revenues from Fox Squirrel for Fiscal 1996 and 1995 were $358,580 and $340,699, respectively. Increased revenues from cart rentals and dues more than offset declines in greens fees and other revenues. Revenue from the sale of concessions was $0 in 1996 compared to $23,839 in 1995. This decline is due to the decision in 1995 to lease the dining service to an operator rather than have the Partnership continue to operate the service. To assist the operator in establishing his business, the Partnership has waived lease payments on the kitchen and dining area through 1997. As a further means of assisting the dining service, Fox Squirrel collected revenues in 1996 through a one-time imposition of a "food minimum" from members, whereas no such revenue was collected in 1995.
The Partnership's operating expenses for 1996, exclusive of those relating to Fox Squirrel, were $432,767 compared to $293,277 in 1995. Management attributes the increase principally to a higher fee charged by the general partner, higher compensation in the form of incentive bonuses paid to employees, and higher accounting and administrative expenses relating to the transition of the Partnership's fiscal year end from September 30 to December 31 effective 1995.
Selling, general and administrative expenses at Fox Squirrel were $350,454 for 1996 as compared to $299,177 for 1995. Management attributes the increase in expenses principally to increased maintenance-related expenditures, much of which was of a deferred nature, relating to the golf course. Management expects that maintenance-related expenditures in 1997 will be less than in 1996. Expenses related to concessions declined to $0 in 1996 from $15,695 in 1995, reflecting the decision to lease the dining service to an operator. However, 1996 saw payment of money to the dining service operator collected from the "food minimum" whereas there were no such payments in the prior year. Expenses in 1996 relating to equipment rental were higher than in 1995 due to the replacement of certain aged equipment with leased equipment. Advertising and telephone expenses were higher in 1996 than in 1995, reflecting an intensified marketing campaign to attract golfers to Fox Squirrel.
Direct cost of land sold decreased due to a modification of the formula utilized to determine the cost basis of land sold. Depreciation increased as a result of capital expenditures made in 1995, especially with respect to the cart paths. Interest expense increased in part due to capital leases entered into during 1996 for certain golf course maintenance equipment which replaced obsolete equipment owned by Fox Squirrel, and in part due to interest charged by the general partner and its affiliates on accrued but unpaid expenses outstanding.
During 1996, the Partnership earned $12,866 in revenue from the sale of timber on certain unsold lots and unplatted woodlands, compared to $35,920 in the prior year. The decrease reflects a reduction in the number of trees suitable for cutting. While additional revenue from tree cutting will be sought as a means of supplementing revenue from lot sales, Management believes that tree cutting will not be a source of substantial revenues during 1997 and cannot be considered a source of on-going revenue in future years.
The operation of Fox Squirrel added $300,000 to $400,000 in annual revenue and $300,000 to $350,000 in annual operating expenses over 1993's level . Revenues from the golf course are highly dependent upon weather conditions. Since adverse weather may significantly reduce revenues while expenses may not be reduced as quickly, nor as greatly, as needed to prevent Fox Squirrel from incurring a deficit in the future, there can be no assurance that the Partnership will realize a profit at Fox Squirrel or that the Partnership will realize a positive return on its investment in improvements at Fox Squirrel. Furthermore, the Partnership's other overhead costs remain and there can be no assurance that revenues from lot sales can be supplemented from revenues from tree cutting or other sources. Based upon current cash requirements, it is apparent that revenues from lot sales and income from Fox Squirrel may be inadequate in future years to cover operating expenses and commitments for capital expenditures.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14, "Exhibits, Financial Statement Schedules, and Reports on Form 8-K," for response to this item.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
In January and February 1997 the Partnership sought bids from certain nationally recognized accounting firms, including the then current auditor, KPMG Peat Marwick LLP for auditing the Partnership's financial statements for Fiscal 1996. In February 1997, the Partnership changed auditors from KPMG Peat Marwick LLP to Coopers & Lybrand LLP. The change was not as a result of any disagreements with KPMG Peat Marwick LLP on account and financial disclosure. There have been no such disagreements between the Partnership and Coopers & Lybrand LLP.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of General Partner
(b) INDEMNIFICATION OF EXECUTIVE OFFICERS
None
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Mr. Ralph McDermid resigned as a General Partner effective June 1, 1994. The amount
of General Partner's fees accrued for Fiscal 1994 for Mr. McDermid was $16,000. Pursuant to a letter agreement dated August 6, 1994 between Mr. McDermid and the Partnership, the Partnership paid Mr. McDermid $50,000 in September 1994 and $50,000 in September 1995 in lieu of $147,000 in accrued but unpaid General Partner's fees owed to Mr. McDermid as of June 1, 1994.
The Registrant has no on-going plan or arrangement with respect to future remuneration to Grace Property Management other than to accrue interest on the unpaid balance due to Grace Property Management. Except for a $25,000 payment in April 1990 and except as discussed in the preceding paragraph, the General Partners' fees have not been paid since January 1986, although they have been provided for in the accompanying financial statements. As of December 31, 1996, the fees accrued but not paid to Grace Property Management in respect of General Partner's fees totaled $456,000. The Registrant has no group life insurance plan. The Registrant has no pension or profit sharing plan but does provide for incentive bonus compensation to certain managerial employees for meeting or exceeding pre-designated budget targets. The Registrant has no options, warrants, or appreciation rights outstanding. No Management person is indebted to the Registrant.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1996, the Partnership has outstanding 1,828,248 partnership units. Information with respect to the principal holders of record known to the Partnership to beneficially own more than five (5%) percent of the outstanding voting securities is set forth below.
The General Partner owns 25,000 partnership units, representing approximately 1.4% of all units issued and outstanding.
- ------------------
(1)The Estate of Oliver R. Grace beneficially owns 436,480 units (including 44,750 units held in trusts of which the Estate of Oliver R. Grace is the trustee). In addition, other members of the family beneficially own an additional 203,865 units, which represents approximately 11.2% of the units outstanding. The Estate of Oliver R. Grace disclaims beneficial ownership with respect to these additional units as well as the 44,750 units held in certain trusts.
In December 1995, following an unsolicited offer from a securities broker-dealer to sell all of the units it owned to Mr. John S. Grace, the president of the General Partner, an agreement was reached among Mr. Grace, the Partnership, and such broker-dealer which provided for, among other things: (i) a fifteen-year "standstill" by such broker-dealer; (ii) the purchase by Mr. Grace from such broker-dealer of 22,160 units, representing all of the units then held by such broker-dealer, for aggregate consideration of $5,540.00, equivalent to $0.25 per unit; and (iii) the allocation of the consideration per unit as being $0.10 for the standstill covenant and $0.15 for the purchase price.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995 the Partnership borrowed $200,000 from Mr. John S. Grace, president of the General Partner, in the form of a promissory note. The note bears interest at a rate equal to 6% over 12-month LIBOR (12.375% at December 31, 1996), requires quarterly interest payments, and is due on June 1, 1998. The Partnership may repay any or all of such note without penalty. During 1996, the Partnership paid $18,600 in interest on such note and at various times throughout the year made pre-payments of principal totaling, in aggregate, $60,000. In March 1997 the Partnership pre-paid an additional $10,000 in principal and paid $3,300 in interest. During 1995, the Partnership paid $14,000 in interest on such note and pre-paid $30,000 in December 1995.
For fiscal years 1996, 1995 and 1994, the General Partners elected to charge the Partnership for services and office space. These charges include $10,000 in 1996, $10,000 in 1995, and $38,000 in 1994 for legal services and $15,000 in each of 1996, 1995 and 1994 for rent on office space used by various members of the Partnership's management. The General Partners fees were $150,000, $60,000 and $60,000, for 1996, 1995 and 1994, respectively (see Item 11, "Executive Compensation"). In 1996 the General Partner and its affiliates charged the Partnership interest totalling $201,245, representing cumulative interest at an annual rate of 10% on the unpaid balances owed them by the Partnership since 1993. Such interest included $71,208 with respect to 1996, $51,292 with respect to 1995, $10,863 with respect to the Transition Quarter, and $37,797 with respect to 1994. These charges have been included in selling, general and administrative expenses. On January 5, 1994 and September 30, 1994, $45,463 and $15,000, respectively, of accrued rent was paid to an affiliate of the General Partner.
To fund certain capital expenditures and for working capital purposes, on August 22, 1994, the Partnership sold 25,000 partnership units to Grace Property Management, Inc., the General Partner, for an aggregate of $10,000, or $0.40 per unit.
The Partnership paid a former General Partner $50,000 during 1994 and an additional $50,000 to September 30, 1995 in lieu of accrued but unpaid General Partner's fees due to him. See Item 11, "Executive Compensation."
Except for the preceding items, there were no other transactions between Management (or
the immediate families of Management) and the Registrant during the fiscal year ended December 31, 1996 or thereafter. Further, there were no other related party transactions and there existed no indebtedness to the Registrant from Management (or any member of the immediate family of Management.)
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a)(1) INDEX TO FINANCIAL STATEMENTS
The following financial information is contained within Exhibit 1, "Audited Financial Statements:"
(a)(2) INDEX TO FINANCIAL SCHEDULES
All schedules required are either contained within the Notes to Financial Statements included in Exhibit 1 or are not applicable.
(a)(3) EXHIBITS
A. The Limited Partnership Agreement of Reeves Telecom Associates sets forth the rights of unit holders. It has been previously filed as Exhibit B to Amendment No.2 to
Registrant's Registration Statement on Form S-14 dated March 28, 1980 (Registration No.2-66452), which Agreement is incorporated herein by reference.
B. The Robert C. Cantwell IV, MAI appraisals of the Boiling Spring Lakes property dated 12/21/88, 7/17/84, and 2/23/82, which were filed as a part of Form 10-K for September 30, 1988 and which are incorporated herein by reference.
C. The Robert C. Cantwell IV, MAI appraisal of the Boiling Spring Lakes property dated September 10, 1993, which appraisal was filed as part of Form 10-K for September 30, 1993 and which is incorporated herein by reference.
D. The Robert C. Cantwell IV, MAI appraisal of the Boiling Spring Lakes property dated July 10, 1995, which was filed as Exhibit 3 to the Form 10-K for December 31, 1995 and which is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
No current reports on Form 8-K were filed during the fourth quarter of the fiscal year ended December 31, 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.
REEVES TELECOM LIMITED PARTNERSHIP
Signatures Title Date
By: Grace Property Management, Inc. General Partner April 11, 1997 --------------
By: /s/ JOHN S. GRACE --------------------- John S. Grace President
EXHIBIT 1 Audited Financial Statements
REEVES TELECOM LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND SEPTEMBER 30, 1994, AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1994 REEVES TELECOM LIMITED PARTNERSHIP
INDEX
PAGE(S) Report of Independent Accountants 1
Financial Statements
Balance Sheets as of December 31, 1996 and 1995 2
Statements of Operations for the years ended December 31, 1996, 1995 and September 30, 1994, and for the three months ended December 31, 1994 3
Statements of Partners' Capital for the years ended December 31, 1996, 1995, and September 30, 1994, and for the three months ended December 31, 1994 4
Statements of Cash Flows for the years ended December 31, 1996, 1995, and September 30, 1994, and for the three months ended December 31, 1994 5
Notes to Financial Statements 6 - 12
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners Reeves Telecom Limited Partnership
We have audited the balance sheet of Reeves Telecom Limited Partnership (the "Partnership") as of December 31, 1996, and the related statements of operations, partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 10 to the financial statements, the Partnership's recurring losses from operations and liquidity position raise substantial doubt about the entity's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 10. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might result should the Partnership be unable to continue in existence.
/s/ Cooper & Lybrand L.L.P
Raleigh, North Carolina March 27, 1997 REEVES TELECOM LIMITED PARTNERSHIP BALANCE SHEETS December 31, 1996 and 1995
The accompanying notes are an integral part of the financial statements.
REEVES TELECOM LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of the financial statements.
REEVES TELECOM LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL
The accompanying notes are an integral part of the financial statements.
REEVES TELECOM LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the financial statements.
REEVES TELECOM LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
1. PLAN OF LIQUIDATION
On May 17, 1979 the stockholders of Reeves Telecom Corporation (the "Corporation") approved a plan of liquidation (the "Plan") for the Corporation and its subsidiaries. The plan, which was determined by the Internal Revenue Service to qualify as a Section 337 liquidation, authorized the Corporation's Board of Directors to sell the Corporation's assets and distribute any remaining unsold assets to its stockholders and/or a liquidation trust. On May 8, 1980, stockholders at a special meeting approved an amendment to the Plan whereby assets not sold within one year of the date the Plan was approved could, at the discretion of the Board of Directors, be transferred from the Corporation to a South Carolina limited partnership which would undertake to sell the remaining assets on behalf of the stockholders. On May 15, 1980, the Corporation was liquidated and all of its unsold assets and liabilities were transferred to Reeves Telecom Associates, a South Carolina limited partnership (the "Partnership"). Stockholders of the Corporation received one Partnership unit in exchange for each share of common stock. The units are registered under the Securities Act of 1933 but are not listed on any national securities exchange. In January 1987, pursuant to a change in South Carolina law, the Partnership's legal name was changed from Reeves Telecom Associates to Reeves Telecom Limited Partnership.
Pursuant to the Plan, the Corporation sold all of its broadcasting assets and substantially all of the land held for development and sale at one of its two land development locations and distributed cash to its stockholders of $.90 per share on February 29, 1980 and $2.30 per share on May 15, 1980.
Remaining assets relate primarily to land held for sale, and cash, generated primarily from the sale of timber and real estate (Note 3).
The Partnership's Managing General Partner is Grace Property Management, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements have been prepared using the accrual basis of accounting. The Partnership's assets have been written down, from time to time, to reflect their fair values based upon appraisals. The Partnership changed its fiscal year end from September 30, to December 31. This change became effective as of December 31, 1994.
LAND SALES
Land sales represent individual building lots sold for cash. Land cost included in direct costs of land sold represents the proportionate amount of the total project costs, after recorded valuation allowances, based on the sales value of the lot to the total estimated project sales value.
REEVES TELECOM LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LAND HELD FOR SALE AND RELATED BUILDINGS AND EQUIPMENT
Land held for development or sale is recorded at the lower of cost less previously established valuation allowances or estimated fair value. Related buildings and equipment are stated at cost less accumulated depreciation. Depreciation for financial reporting purposes is calculated on the straight-line basis over the estimated useful lives of 8 to 31.5 years for buildings and 5 to 20 years for equipment and land improvements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
ACCOUNTING AND REPORTING CHANGES
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, ("SFAS 121"). The statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management believes the valuation allowance against the property at Boiling Springs Lake, N.C. is adequate.
ADVERTISING COSTS
Advertising costs of $11,627, $12,190, $8,447, and $4,353 were expensed as incurred during the years ended December 31, 1996, 1995 and September 30, 1994, and for the three months ended December 31, 1994, respectively.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
REEVES TELECOM LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
3. LAND HELD FOR SALE AND RELATED BUILDINGS AND EQUIPMENT
During July 1995, the Partnership obtained an appraisal of the Boiling Spring Lakes property. Based upon the updated appraisal, the valuation allowance established in previous years of $1,902,644 was considered adequate. Management believes that based upon the 1996 sales activities and the golf course operations, the valuation allowance continues to be adequate.
A summary of land held for sale and related buildings and equipment at December 31, 1996 and 1995 is as follows:
4. ACCRUED EXPENSES, AFFILIATES
A summary of accrued expenses, affiliates at December 31, 1996 and 1995 is as follows:
General partner fees, brokerage commission, rent and legal fees represent amounts due to the General Partner. See Note 6 for additional information regarding related party transactions.
REEVES TELECOM LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
5. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
In June 1996, the Partnership entered into a revolving credit facility requiring interest only payments at the lender's prime rate plus .5% (8.75% at December 31, 1996) through maturity, which is August 1997. This agreement is collateralized by building lots in Boiling Springs Lakes. At December 31, 1996, the Partnership had fully utilized this revolving credit facility.
Principal maturities of long-term debt for the years subsequent to December 31, 1996 are as follows:
REEVES TELECOM LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
6. RELATED PARTY TRANSACTIONS
The General Partners charged the Partnership for services and office space as follows:
Due to the resignation of a former general partner on July 1, 1994, the Partnership settled accrued general partner fees from prior years at less than the accrued amount. The decrease in general partner fees related to the former partner amounted to $31,000 and is included in other income in 1994. General partners fees and other related charges have been included in selling, general and administrative expenses.
In fiscal 1994, 23 lots at Pimlico Plantation with a carrying value of $15,450 were transferred to a major unitholder in exchange for $10,000 cash and 492,584 units valued at $192,075 held by such unitholder. This transaction was recorded at the fair value of the property transferred. The remaining two lots at Pimlico are on the Partnership's balance sheet at a nominal amount.
7. LITIGATION
In the past, litigation has been filed against the Partnership claiming breach of contract because lots guaranteed in the sales contract as being "high, dry and suitable for building" will not pass current county health department requirements regarding the installation of septic tanks and on-site sewage disposal systems. Management contends this language does not constitute a guarantee of soil conditions for sewer purposes and that even if it did, installation and use of septic tanks on these lots would have been permitted under county regulations in effect prior to August 1976 and that it had no way of knowing that stricter regulations would later be enacted. In the event litigation is filed which results in an unfavorable ruling, possible remedies could include: refunding the purchase price of the lots; building nitrification fields with fill dirt that would allow installation of sewage disposal systems on the lots; providing the litigants with lots that will pass current county health department requirements; and paying monetary damages. If mandated, the cost of such remedial action in the aggregate could be substantial. No provision for this contingent liability has been made in the accompanying financial statements; however, at December 31, 1996 no suits or claims are pending against the Partnership related to this matter.
REEVES TELECOM LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES
Results of operations of the Partnership are taxable to the partners and no recognition of Federal and state income tax is included in the financial statements.
9. LEASES
The Company leases certain office and golf course equipment under operating leases. The minimum lease payments under operating leases for the years subsequent to December 31, 1996 are as follows:
1997 $ 31,549 1998 31,205 1999 30,509 2000 10,100 --------- $ 103,363 =========
Equipment rental and lease expense for the years ending December 31, 1996 and 1995, September 30, 1994 and for the three months ended December 31, 1994 was $28,145, $32,908, $30,279 and 8,831, respectively.
10. LIQUIDITY AND GOING CONCERN ISSUES
Cash generated from Fox Squirrel Country Club and individual lot sales may not be sufficient to meet future operating costs, debt service and other cash requirements. Operating cash flow was negative for fiscal year 1995 and would have been negative for 1996 if certain accrued expenses were not deferred. Further, at December 31, 1996, the current liabilities of the Partnership exceeded its current assets by approximately $837,000. Partner's capital has been reduced to approximately $20,000. No reasonable offer has been received for the assets of the Partnership due principally to the fact that the majority of the land is wetland and that most of the unsold plotted lots do not satisfy current county health standards regarding the installation of septic tanks and on-site sewage disposal systems. If the Partnership's cash flow is less than management's expectations, capital programs presently planned may be either postponed, scaled back, or eliminated, and certain operating expenditures may be either deferred or, in the case of payments to affiliates of the General Partner, accrued. Despite such contingency plans by management, the above mentioned factors indicate that the Partnership may be unable to continue in existence while attempting to complete the sale and liquidation of the Partnership's remaining assets. The financial statements have been prepared assuming the Partnership will continue as a going concern. The Partnerships recurring losses from operations and liquidity position raise substantial doubt about the entity's ability to continue while attempting to sell the remaining assets of the Partnership.
The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might result should the Partnership be unable to continue in existence.
REEVES TELECOM LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, Disclosure About Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Partnership using the methods and assumptions described below. However, considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Partnership could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are by definition short-term and the carrying amount is a reasonable estimate of fair value.
LONG-TERM DEBT
The fair value of long term debt has been estimated by discounting the future cash flows using the current rates offered for debt issues with similar characteristics. The carrying amount of long-term debt approximates fair value at December 31, 1996 and 1995.
REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
December 31, 1994 and the Three months then ended
(With Independent Auditors' Report Thereon) REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
Independent Auditors' Report
Financial Statements:
Balance Sheet December 31, 1994
Statement of Operations Three months ended December 31, 1994
Statement of Partners' Capital Three months ended December 31, 1994
Statement of Cash Flows Three months ended December 31, 1994
Notes to Financial Statements Independent Auditors' Report
The Partners Reeves Telecom Limited Partnership:
We have audited the balance sheet of Reeves Telecom Limited Partnership (the "Partnership") as of December 31, 1994, and the related statement of operations, partners' capital and cash flows for the three months then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Reeves Telecom Limited Partnership as of December 31, 1994, and the results of its operations and its cash flows for the three months then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Reeves Telecom Limited Partnership will continue as a going concern. As discussed in Note 12 to the financial statements, the Partnership's recurring losses from operations in prior years and liquidity position raise substantial doubt about the entity's ability to continue in existence while attempting to sell the remaining assets of the Partnership. Management's plans in regard to these matters are also described in Note 12. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might result should the Partnership be unable to continue in existence.
February 9, 1996 REEVES TELECOM LIMITED PARTNERSHIP
Balance Sheet
December 31, 1994
See accompanying notes to financial statements. REEVES TELECOM LIMITED PARTNERSHIP
Statement of Operations
Three Months ended December 31, 1994
See accompanying notes to financial statements. REEVES TELECOM LIMITED PARTNERSHIP
Statement of Partners' Capital
Three Months ended December 31, 1994
See accompanying notes to financial statements. REEVES TELECOM LIMITED PARTNERSHIP
Statement of Cash Flows
Three Months ended December 31, 1994
See accompanying notes to financial statements
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1994
(1) Plan of Liquidation
On May 17, 1979 the stockholders of Reeves Telecom Corporation (the "Corporation") approved a plan of liquidation (the "plan") for the Corporation and its subsidiaries. The plan, which was determined by the Internal Revenue Service to qualify as a Section 337 liquidation, authorized the Corporation's Board of Directors to sell the Corporation's assets and distribute any remaining unsold assets to its stockholders and/or a liquidation trust. On May 8, 1980, stockholders at a special meeting approved an amendment to the plan whereby assets not sold within one year of the date the plan was approved could, at the discretion of the Board of Directors, be transferred from the Corporation to a South Carolina limited partnership which would undertake to sell the remaining assets on behalf of the stockholders. On May 15, 1980, the Corporation was liquidated and all of its unsold assets and liabilities were transferred to Reeves Telecom Associates, a South Carolina limited partnership (the "Partnership"). Stockholders of the Corporation received one partnership unit in exchange for each share of common stock. The units are registered under the Securities Act of 1933 but are not listed on any national securities exchange. In January 1987, pursuant to a change in South Carolina law, the Partnership's legal name was changed from Reeves Telecom Associates to Reeves Telecom Limited Partnership.
Pursuant to the plan, the Corporation sold all of its broadcasting assets and substantially all of the land held for development and sale at one of its two land development locations and distributed cash to its stockholders of $.90 per share on February 29, 1980 and $2.30 per share on May 15, 1980.
Remaining assets relate primarily to land held for sale, and cash, generated primarily from the sale of timber and real estate (note 3).
The Partnership's Managing General Partner is Grace Property Management, Inc.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The accompanying financial statements have been prepared using the accrual basis of accounting. The Partnership's assets have been written down, from time to time, to reflect their fair values based upon appraisals. The Partnership changed its fiscal year end from September 30, to December 31. This change became effective as of December 31, 1995.
(b) Land Sales
All sales during the three months ended December 31, 1994 have been for cash. Land cost included in direct costs of land sold represents the proportionate amount of the total estimated project costs based on the sales value of the lot to the total estimated project sales value. Following the inability of the Partnership to effect a bulk sale of all of its remaining land holdings, the sale of individual lots for cash has been emphasized in recent years (note 3) and is expected to continue at least for the near term.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(c) Land Held for Sale and Related Buildings and Equipment
Land held for development or sale is recorded at the lower of cost less previously established valuation allowances or estimated fair value. Related buildings and equipment are stated at cost less accumulated depreciation. Depreciation for financial reporting purposes is calculated on the straight-line basis over the estimated useful lives of 8 to 25 years for buildings and 5 to 20 years for equipment and land improvements.
(d) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(e) Accounting and Reporting Changes
In March 1995, the FASB issued Statement Number 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". The statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement is effective for the year ending December 31, 1996, and is not expected to have a material impact on the Partnership's financial statements.
(f) Fair Value of Financial Instruments
The Financial Accounting Standards Board issued SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," ("SFAS 107") in December 1991. SFAS 107 requires disclosures about the fair value of all financial instruments whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. The carrying amount of financial instruments included in accounts payable and accrued expenses are deemed reasonable estimates of their fair value. The Company adopted the provisions of SFAS 107 in 1995 as required for companies its size.
(3) Land Held for Sale and Related Buildings and Equipment
The land held for sale and buildings and equipment in the Partnership's Boiling Springs Lakes, North Carolina property consists of the following: (1) 159.9 acres comprising an 18 hole operating sprinklered golf course together with a club house and maintenance buildings; (2) 164 detached single family lots located near the golf course which have been surveyed and platted and are suitable for building; (3) 194 acres surrounding the golf course which could be developed; (4) 3,387 surveyed and platted lots of which approximately 8% are suitable for building, 6% are conditionally suitable for building and the balance are unsuitable for building; (5) over 4,000 acres of wetlands and woodlands which have no development potential; and (6) a sales office.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(3) Land Held for Sale and Related Buildings and Equipment, Continued
During September 1993, the Partnership obtained an appraisal of the Boiling Spring Lakes property. Based upon the updated appraisal, the valuation allowance established in previous years of $1,902,644 was considered adequate. Management believes that based upon the sales activities and the golf course operations during the three months ended December 31, 1994, the valuation allowance continues to be adequate.
A summary of land held for sale and related buildings and equipment at December 31, 1994 follows:
(4) Accounts Payable and Accrued Expenses
A summary of accounts payable and accrued expenses at December 31, 1994 follows:
General Partner fees, accrued brokerage commission, rent, legal fees, and $7,182 of other represent amounts due to affiliates of the General Partners.
(5) Notes Payable
The note payable at December 31, 1994 relates to equipment purchased during 1994. The note matures in September 1997. The fair value of the note payable approximates its carrying value as of December 31, 1994.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(6) Selling, General and Administrative Expenses
During 1994, the Partnership took over management of Fox Squirrel Country Club golf course. During previous years, management of the course had been on contract.
A summary of selling, general and administrative expenses, excluding the Country Club, for the three months ended December 31, 1994 follows:
A summary of general and administrative expenses for the Country Club for the three months ended December 31, 1994 follows:
For the three months ended December 31, 1994, the General Partners charged the Partnership for services and office space. These charges include $3,750 for rent on office space used by various members of the Partnership's management and $15,000 of General Partners' fees. Both of these charges have been included in selling, general and administrative expenses.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(7) Litigation
In the past, litigation has been filed against the Partnership claiming breach of contract because lots guaranteed in sales contracts as being "high, dry and suitable for building" will not pass current county health department requirements regarding the installation of septic tanks and on-site sewage disposal systems. Management contends this language does not constitute a guarantee of soil conditions for sewer purposes and that even if it did, installation and use of septic tanks on these lots would have been permitted under county regulations in effect prior to August 1976 and that it had no way of knowing that stricter regulations would later be enacted. In the event litigation is filed which results in an unfavorable ruling, possible remedies could include: refunding the purchase price of the lots; building nitrification fields with fill dirt that would allow installation of sewage disposal systems on the lots; providing the litigants with lots that will pass current county health department requirements; and paying monetary damages. If mandated, the cost of such remedial action in the aggregate could be substantial. No provision for this contingent liability has been made in the accompanying financial statements; however, at December 31, 1995 no suits or claims are pending against the Partnership related to this matter.
(8) Income Taxes
Results of operations of the Partnership are taxable to the partners and no recognition of Federal and state income tax is included in the financial statements.
The Corporation received favorable rulings from the Internal Revenue Service regarding the qualification of the liquidation under Section 337 of the Internal Revenue Code and the formation of the Partnership for holding and maintaining the assets during the final liquidation period discussed in note 1.
(9) Leases
As of December 31, 1994, the Partnership was obligated under two lease agreements, both of which are accounted for as operating leases. The minimum lease payments under these leases as of December 31, 1994 are as follows:
Equipment rental and lease expense for the three months ended December 31, 1994 was $8,831.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(10) Golf Course Operations
In 1984, the Partnership entered a written lease agreement with an operator for the Fox Squirrel Country Club. The Partnership initially paid to the operator a subsidy, which continued through December 1987. The subsidy eventually ceased and starting July 1, 1990 the Partnership began receiving from the operator $1,000 per month rent, which continued through December 31, 1990. Starting on January 1, 1991 the operator continued to lease the premises as a month-to-month tenant under an oral lease with much the same terms as the aforementioned written lease. For 1992, the monthly rent was increased to $1,500. The operator was obligated to continue paying costs associated with maintaining and operating the golf club and golf course, while the Partnership was to pay personal property taxes, real estate taxes, hazard insurance, and liability insurance. Because of unfavorable operating conditions, the operator fell behind in payments. At the request of the operator and to ensure uninterrupted operation of the golf course and country club, in October 1993 the operator and the Partnership concluded an agreement, the principal terms of which are that (i) the Partnership would operate the golf club and golf course, receiving all revenues and incurring all expenses relating thereto, and (ii) for a period of one year the operator would be an employee of the Partnership and would manage the golf club and golf course on behalf of the Partnership. The operator was still an employee of the Partnership at December 31, 1994; however, the individual resigned and was replaced in November 1995. The Partnership has a similar agreement with the new operator.
(11) Timber Sales
During the three months ended December 31, 1994, the Partnership earned $15,381, in revenues from the sale of timber on certain unsold lots and unplatted woodlands. Additional contracts for the sale of timber were signed for 1995 but such contracts should not be considered an on-going source of revenue to the Partnership.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(12) Liquidity and Going Concern Issues
Cash generated from Fox Squirrel Country Club and individual lot sales may not be sufficient to meet future operating costs, debt service and other cash requirements. Operating cash flow was positive for the three months ended December 31, 1994, but was negative for the past two fiscal years without consideration of cash received from timber sales. There are limited prospects for additional revenue from timber sales beyond 1995. Further, at December 31, 1994, the current liabilities of the Partnership exceeded its current assets by approximately $386,000. No reasonable offer has been received for the assets of the Partnership due principally to the fact that the majority of the land is wetland and that many of the unsold plotted lots do not satisfy current county health standards regarding the installation of septic tanks and on-site sewage disposal systems. If the Partnership's cash flow is less than Management's expectations, capital programs presently planned may be either postponed, scaled back, or eliminated, and certain operating expenditures may be either deferred or, in the case of payments to affiliates of the General Partner, accrued. Despite such contingency plans by Management, the above mentioned factors indicate that the Partnership may be unable to continue in existence while attempting to complete the sale and liquidation of the Partnership's remaining assets. The financial statements have been prepared assuming that Reeves Telecom Limited Partnership will continue as a going concern. The Partnership's recurring losses from operations in prior years and liquidity position raise substantial doubt about the entity's ability to continue in existence while attempting to sell the remaining assets of the Partnership. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might result should the Partnership be unable to continue in existence. REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
December 31, 1995, September 30, 1994 and 1993
(With Independent Auditors' Report Thereon) REEVES TELECOM LIMITED PARTNERSHIP
Financial Statements
Independent Auditors' Report
Financial Statements:
Balance Sheets December 31, 1995, September 30, 1994 and 1993
Statements of Operations Years ended December 31, 1995, September 30, 1994 and 1993
Statements of Partners' Capital Years ended December 31, 1995, September 30, 1994 and 1993
Statements of Cash Flows Years ended December 31, 1995, September 30, 1994 and 1993
Notes to Financial Statements Independent Auditors' Report
The Partners Reeves Telecom Limited Partnership:
We have audited the balance sheets of Reeves Telecom Limited Partnership (the "Partnership") as of December 31, 1995 and September 30, 1994, and the related statements of operations, partners' capital and cash flows for the years ended December 31, 1995, September 30, 1994 and September 30, 1993. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 1995 and September 30, 1994, and the results of its operations and its cash flows for the years ended December 31, 1995, September 30, 1994 and 1993, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 12 to the financial statements, the Partnership's recurring losses from operations and liquidity position raise substantial doubt about the entity's ability to continue in existence while attempting to sell the remaining assets of the Partnership. Management's plans in regard to these matters are also described in Note 12. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might result should the Partnership be unable to continue in existence.
February 9, 1996 REEVES TELECOM LIMITED PARTNERSHIP
Balance Sheets
December 31, 1995 and September 30, 1994
See accompanying notes to financial statements. REEVES TELECOM LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1995, September 30, 1994 and 1993
See accompanying notes to financial statements. REEVES TELECOM LIMITED PARTNERSHIP
Statements of Partners' Capital
Years ended December 31, 1995, September 30, 1994 and 1993
See accompanying notes to financial statements. REEVES TELECOM LIMITED PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 1995, September 30, 1994 and 1993
See accompanying notes to financial statements. REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995, September 30, 1994 and 1993
(1) Plan of Liquidation
On May 17, 1979 the stockholders of Reeves Telecom Corporation (the "Corporation") approved a plan of liquidation (the "plan") for the Corporation and its subsidiaries. The plan, which was determined by the Internal Revenue Service to qualify as a Section 337 liquidation, authorized the Corporation's Board of Directors to sell the Corporation's assets and distribute any remaining unsold assets to its stockholders and/or a liquidation trust. On May 8, 1980, stockholders at a special meeting approved an amendment to the plan whereby assets not sold within one year of the date the plan was approved could, at the discretion of the Board of Directors, be transferred from the Corporation to a South Carolina limited partnership which would undertake to sell the remaining assets on behalf of the stockholders. On May 15, 1980, the Corporation was liquidated and all of its unsold assets and liabilities were transferred to Reeves Telecom Associates, a South Carolina limited partnership (the "Partnership"). Stockholders of the Corporation received one partnership unit in exchange for each share of common stock. The units are registered under the Securities Act of 1933 but are not listed on any national securities exchange. In January 1987, pursuant to a change in South Carolina law, the Partnership's legal name was changed from Reeves Telecom Associates to Reeves Telecom Limited Partnership.
Pursuant to the plan, the Corporation sold all of its broadcasting assets and substantially all of the land held for development and sale at one of its two land development locations and distributed cash to its stockholders of $.90 per share on February 29, 1980 and $2.30 per share on May 15, 1980.
Remaining assets relate primarily to land held for sale, and cash, generated primarily from the sale of timber and real estate (note 3).
The Partnership's Managing General Partner is Grace Property Management, Inc.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting
The accompanying financial statements have been prepared using the accrual basis of accounting. The Partnership's assets have been written down, from time to time, to reflect their fair values based upon appraisals. The Partnership changed its fiscal year end from September 30, to December 31. This change became effective as of December 31, 1995.
(b) Land Sales
From July 1960 through 1981 the Partnership and its predecessor corporation sold land, that had been sub-divided into individual lots, under installment payment agreements. Buyers agreed to make periodic payments, usually on a monthly basis generally for a term of ten years. The payments consisted of amortization of the unpaid balance of the selling price plus interest thereon at rates which ranged from 6% to 12%. The Partnership accounts for these sales using the installment method of accounting. Under this method the profit realized on the sale is taken into income on a pro-rata basis as payments of principal are received. Beginning in 1982, installment land sales were discontinued. All sales during fiscal 1993, 1994 and 1995 have been for cash.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(2) Summary of Significant Accounting Policies, Continued
Direct costs of land sold on the installment basis, which are used in the determination of deferred profit, consist of raw land costs, costs of developing roads, drainage canals and other improvements (including estimated future development costs to be incurred on sold lots) and selling costs directly related to the sales. Land cost included in direct costs of land sold represents the proportionate amount of the total estimated project costs based on the sales value of the lot to the total estimated project sales value. Following the inability of the Partnership to effect a bulk sale of all of its remaining land holdings, the sale of individual lots for cash has been emphasized in recent years (note 3) and is expected to continue at least for the near term.
When a land contract is canceled, operations are charged for the amount of the unpaid receivable in excess of the sum of the unamortized deferred profit and the value (lower of cost or market) of the repossessed lot.
(c) Land Held for Sale and Related Buildings and Equipment
Land held for development or sale is recorded at the lower of cost less previously established valuation allowances or estimated fair value. Related buildings and equipment are stated at cost less accumulated depreciation. Depreciation for financial reporting purposes is calculated on the straight-line basis over the estimated useful lives of 8 to 25 years for buildings and 5 to 20 years for equipment and land improvements.
(d) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(e) Accounting and Reporting Changes
In March 1995, the FASB issued Statement Number 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". The statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement is effective for the year ending December 31, 1996, and is not expected to have a material impact on the Partnership's financial statements.
(f) Fair Value of Financial Instruments
The Financial Accounting Standards Board issued SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," ("SFAS 107") in December 1991. SFAS 107 requires disclosures about the fair value of all financial instruments whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. The carrying amount of financial instruments included in accounts payable and accrued expenses are deemed reasonable estimates of their fair value. The Company adopted the provisions of SFAS 107 in 1995 as required for companies its size.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(3) Land Held for Sale and Related Buildings and Equipment
The land held for sale in the Partnership's Boiling Springs Lakes, North Carolina property consists of the following: (1) 159.9 acres comprising an 18 hole operating sprinklered golf course together with a club house and maintenance buildings; (2) 159 detached single family lots located near the golf course which have been surveyed and platted and are suitable for building; (3) 194 acres surrounding the golf course which could be developed; (4) 3,355 surveyed and platted lots of which approximately 8% are suitable for building, 6% are conditionally suitable for building and the balance are unsuitable for building; (5) over 4,000 acres of wetlands and woodlands which have no development potential; and (6) a sales office.
During July 1995, the Partnership obtained an appraisal of the Boiling Spring Lakes property. Based upon the updated appraisal, the valuation allowance established in previous years of $1,902,644 was considered adequate. Management believes that based upon the 1995 sales activities and the golf course operations, the valuation allowance continues to be adequate.
A summary of land held for sale and related buildings and equipment at December 31, 1995 and September 30, 1994 follows:
(4) Accounts Payable and Accrued Expenses
A summary of accounts payable and accrued expenses at December 31, 1995 and September 30, 1994 follows:
General Partner fees, brokerage commission, rent, and legal fees represent amounts due to affiliates of the General Partners.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(5) Long-Term Debt
Long-term debt at December 31, 1995 and September 30, 1994 consist of the following:
There is no accrued interest payable on either of the notes as of December 31, 1995 or September 30, 1994. The fair value of the outstanding notes payable approximates its carrying value as of December 31, 1995.
(6) Selling, General and Administrative Expenses
During fiscal 1994, the Partnership took over management of Fox Squirrel Country Club golf course. During previous years, management of the course had been on contracted to a third party. Revenues and expenses in 1995 and 1994 reflect the addition of operations of the golf course.
A summary of selling, general and administrative expenses, excluding the Country Club, for the years ended December 31, 1995 and September 30, 1994 and 1993 follows:
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(6) Selling, General and Administrative Expenses, Continued
A summary of general and administrative expenses for the Country Club for the years ended December 31 1995 and September 30, 1994 follows:
(7) Related Party Transactions
For fiscal years 1995, 1994 and 1993, the General Partners charged the Partnership for services and office space. These charges include $16,990 in 1995, $38,000 in 1994 and $36,100 in 1993 for legal services, $7,182 in 1993 for consulting services provided by affiliates of the General Partners in connection with the continuing operations of the Partnership, and $15,000 in 1995, 1994 and 1993 for rent on office space used by various members of the Partnership's management. The General Partners' fees were $60,000, $60,000 and $63,000 for fiscal 1995, 1994 and 1993, respectively. Due to the resignation of a former general partner, the partnership settled accrued general partner fees from prior years at less than the accrued amount. The decrease in general partner fees related to the former partner amounted to $31,000 and is included in other income in 1994. General partners fees and other related charges have been included in selling, general and administrative expenses.
In fiscal 1994, 23 lots at Pimlico Plantation with a carrying value of $15,450 were transferred to a major unitholder in exchange for $10,000 cash and 492,584 units valued at $192,075 held by such unitholder. This transaction was recorded at the fair value of the property transferred. The remaining two lots at Pimlico are on the Partnership's balance sheet at a nominal amount.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(8) Litigation
In the past, litigation has been filed against the Partnership claiming breach of contract because lots guaranteed in the sales contract as being "high, dry and suitable for building" will not pass current county health department requirements regarding the installation of septic tanks and on-site sewage disposal systems. Management contends this language does not constitute a guarantee of soil conditions for sewer purposes and that even if it did, installation and use of septic tanks on these lots would have been permitted under county regulations in effect prior to August 1976 and that it had no way of knowing that stricter regulations would later be enacted. In the event litigation is filed which results in an unfavorable ruling, possible remedies could include: refunding the purchase price of the lots; building nitrification fields with fill dirt that would allow installation of sewage disposal systems on the lots; providing the litigants with lots that will pass current county health department requirements; and paying monetary damages. If mandated, the cost of such remedial action in the aggregate could be substantial. No provision for this contingent liability has been made in the accompanying financial statements; however, at December 31, 1995 no suits or claims are pending against the Partnership related to this matter.
(9) Income Taxes
Results of operations of the Partnership are taxable to the partners and no recognition of Federal and state income tax is included in the financial statements.
The Corporation received favorable rulings from the Internal Revenue Service regarding the qualification of the liquidation under Section 337 of the Internal Revenue Code and the formation of the Partnership for holding and maintaining the assets during the final liquidation period discussed in note 1.
(10) Leases
During fiscal 1994, the Partnership entered into two operating leases and assumed a third operating lease when it took over management of the golf course. The minimum lease payments under these leases as of December 31, 1995 are as follows:
Equipment rental and lease expense for 1995 and 1994 was $32,908 and $30,279, respectively.
REEVES TELECOM LIMITED PARTNERSHIP
Notes to Financial Statements
(11) Timber Sales
During 1995, 1994 and 1993, the Partnership earned $35,920, $91,611 and $202,830, respectively, in revenues from the sale of timber on certain unsold lots and unplatted woodlands. The sale of timber should not be considered an on-going source of revenue to the Partnership.
(12) Liquidity and Going Concern Issues
Cash generated from Fox Squirrel Country Club and individual lot sales may not be sufficient to meet future operating costs, debt service and other cash requirements. Operating cash flow was negative for fiscal years 1995 and 1994 and would have been negative in 1993 were it not for over $202,000 in revenues from the sale of timber. There are limited prospects for additional revenue from timber sales beyond 1995. Further, at December 31, 1995, the current liabilities of the Partnership exceeded its current assets by approximately $576,000. No reasonable offer has been received for the assets of the Partnership due principally to the fact that the majority of the land is wetland and that most of the unsold plotted lots do not satisfy current county health standards regarding the installation of septic tanks and on-site sewage disposal systems. If the Partnership's cash flow is less than Management's expectations, capital programs presently planned may be either postponed, scaled back, or eliminated, and certain operating expenditures may be either deferred or, in the case of payments to affiliates of the General Partner, accrued. Despite such contingency plans by Management, the above mentioned factors indicate that the Partnership may be unable to continue in existence while attempting to complete the sale and liquidation of the Partnership's remaining assets. The financial statements have been prepared assuming that Reeves Telecom Limited Partnership will continue as a going concern. The Partnership's recurring losses from operations in prior years and liquidity position raise substantial doubt about the entity's ability to continue in existence while attempting to sell the remaining assets of the Partnership. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amounts and classification of liabilities that might result should the Partnership be unable to continue in existence.