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 majority of the proceeds used to purchase the Property were from a $3,454,300 promissory note (the "Lender Financing") maturing on December 31, 1998 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 $1,872,216 and is payable from future sale proceeds, after all accrued interest is paid. The note was due on December 31, 1997 but the Registrant was unable to repay the note. The Lender has extended the due date to December 31, 1998. However, the General Partner does not expect the Partnership to have the liquidity to retire the debt in full. The General Partner plans to negotiate another 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 Partnership's assets. The partnership would then be dissolved.
The Nashville Property is approximately 230 acres of partially developed land and is comprised of two main parcels located in northern Davidson County, Tennessee. During 1997, 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 7 lots remain unsold as of December 31, 1997. 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.
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 had an exclusive contract with Phillips Builders, Inc. pursuant to which Phillips will build new homes in the $140,000 - $180,000 price range. The remaining seven lots are mostly lake front lots and were not included in the Phillips contract. 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 Registrant has no employees. Partnership 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, 1997, Registrant owned two parcels of land in Tennessee, composed of 230 acres in Nashville and 7 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, 1998 there were 190 holders of record of the 1,800 Units of limited partnership interest.
There were no distributions made to Unit holders during 1997. 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,
1997 1996 1995 1994 1993
Total Revenues $ 283,851 335,416 176,707 28,242 (242,235) Net Loss (177,739) (118,124) (260,709) (405,133) - Net Loss per Limited Partner Unit (98.74) (65.62) (144.84) (225.07) (382.23) Total Assets 2,420,214 2,875,140 357,454 3,592,621 3,941,564 Note Payable 3,454,300 3,454,300 3,454,300 3,454,300 3,454,300 to Affiliate Accrued Interest Payable to Affiliate $ 831,855 1,126,627 1,526,399 1,486,171 1,410,944
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Sales
The Registrant sold 17, 39, and 38 lots in 1997, 1996, and 1995 respectively, on the Hendersonville property to Phillips Builders under the terms of the exclusive option contract negotiated in 1991. Gross sales proceeds were $ 436,000, $992,000, and $770,610 in 1997, 1996, and 1995 respectively. Of the lots sold, one of 17 in 1997 and three of the 39 in 1996 were lake front lots which sold for significantly higher prices and carried a higher applicable principal balance. The Registrant also sold 6.14, 2.5, and 3.86 acres in 1997, 1996, and 1995, respectively, of the Nashville property for gross proceeds of $ 500,050, $188,250, and $154,400, respectively. From the proceeds of all sales, $ 645,000, $750,000, and $310,000 in 1997, 1996, and 1995, respectively, was paid to the Lender in interest and the remainder was retained for operations and development. The Applicable Principal Balance assigned to 1997, 1996, and 1995 sales is $275,212, $314,855, and $316,860, respectively. The cumulative Applicable Principal Balance as of December 31, 1997 is $1,866,516 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 1997 and 1996 relate 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 February 28, 1998 the Registrant has cash and cash equivalents of $286,042, of which $225,194 is restricted for future development, leaving an operating cash balance of approximately $60,848. This cash is expected to be sufficient to cover operating expenses and the infrastructure development currently underway. The Registrant has reserved cash of $55,250 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 7 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, 1998 whichever is earlier.
Accrued interest payable relating to the Lender Financing was approximately $831,855 at December 31, 1997. The Registrant made payments totalling $645,000 on the Accrued interest from 1997 sale proceeds. The cumulative Applicable Principal Balance unpaid as of December 31, 1997, is $1,866,516 and is payable from future sales proceeds, after all accrued interest is paid.
The Registrant has retained a portion of the sales 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 sales 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 Lender is required to foreclose the loan and accelerate the amounts due. Currently, the Lender has not foreclosed or accelerated the amounts due under the loan agreement.
We have considered the impact of the Year 2000 issues on our computer systems and applications and developed a remediation plan. We expect the cost of upgrading computers and software to be immaterial to the Partnership.
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 67, 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 45, 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 38, 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 1997, 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 1997, 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 $831,855 was recorded on such obligation as of December 31, 1997.
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 1997.
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 31, 1998 By:/s/Steven D. Ezell President and Director
DATE: March 31, 1998 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 31, 1998 By:/s/Steven D. Ezell President and Director
DATE: March 31, 1998 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, 1997 and 1996, and the related statements of operations, partners' deficit, and cash flows for each of the years in the three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, 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, 1998 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 30, 1998
HICKORY HILLS, LTD. (A Limited Partnership)
Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
Cash and cash equivalents (note 5) $ 180,308 142,345 Restricted cash (note 2) 167,859 258,676 Land and improvements held for investment (notes 4 and 5) 2,071,767 2,473,839 Other assets 280 280
Total assets $ 2,420,214 2,875,140
Liabilities and Partners' Deficit
Liabilities:
Note payable to affiliate (note 5) $ 3,454,300 3,454,300 Accrued interest payable to affiliate (note 5) 831,855 1,126,627 Accrued property taxes 8,852 10,635 Other accrued expenses 101,270 81,902
Total liabilities 4,396,277 4,673,464
Partners' deficit:
Limited partners (1,800 units outstanding) (1,976,163) (1,798,424) General partner 100 100
Total partners' deficit (1,976,063) (1,798,324) Commitments and contingencies (notes 5, 6, and 8)
Total liabilities and partners' deficit $ 2,420,214 2,875,140
See accompanying notes to financial statements.
HICKORY HILLS, LTD. (A Limited Partnership)
Statements of Operations
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
Revenues: Sales of land and improvements $ 936,050 1,180,250 925,010 Cost of sales of land and improvements held for (587,687) (774,505) (707,893) investment Selling expenses(note 3) (78,089) (81,660) (64,648)
Income on sales of land and improvements held for investment 270,274 324,085 152,469
Interest income 12,200 31,331 24,238 Miscellaneous income 1,377 - -
Total revenues 283,851 355,416 176,707
Expenses: Property management fee (note 3) 3,000 3,000 3,000 Legal and accounting (note 3) 13,070 13,782 12,925 General and administrative 4,101 8,270 8,381 Property taxes 27,816 35,058 39,683 Land maintenance fees 63,375 63,202 23,199 Interest (notes 3 and 5) 350,228 350,228 350,228
Total expenses 461,590 473,540 437,416
Net loss $ (177,739) (118,124) (260,709)
Net loss allocated to: Limited partners $ (177,739) (118,124) (260,709) General partner $ - - -
Net loss per limited partner unit $ (98.74) (65.62) (144.84)
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, 1997, 1996, and 1995
Limited General partners partner Total Units Amount 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)
Net loss - (177,739) - (177,739) ------- -------- -------- --------- Balance at December 31, 1997 1,800 $(1,976,163) 100 (1,976,063) ------- -------- -------- --------
See accompanying notes to financial statements.
HICKORY HILLS, LTD. (A Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995 ____ ____ ____ Cash flows from operating activities: Net loss $ (177,739) (118,124) (260,709) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Cost of sales of land and improvements held for investments 587,687 774,505 707,893 Cost of land and improvements held for investment (185,615) (507,369) (244,042) Decrease (increase) in restricted cash 90,817 77,436 (81,261) Decrease (increase) in other assets - 21,013 (20,828) (Decrease) increase in accrued interest payable to affiliate (294,772) (399,772) 40,228 (Decrease) increase in accrued property taxes (1,783) 780 (25,586) Increase in other accrued expenses 19,368 34,802 10,900 ------- ------- -------- Net cash provided by/ (used in) operating activities 37,963 (116,729) 126,595 ------- ------- -------- Net change in cash and cash equivalents 37,963 (116,729) 126,595
Cash and cash equivalents at beginning of year 142,345 259,074 132,479 Cash and cash equivalents at end of year $ 180,308 142,345 259,074
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest $ 645,000 750,000 310,000
See accompanying notes to financial statements.
HICKORY HILLS, LTD. (A Limited Partnership) Notes to Financial Statements
December 31, 1997 and 1996
(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. In the event that the Partnership has short-term cash deficiencies, the General Partner can defer the collection of fees for certain related party expenses or grant interest-free loans from related parties until cash becomes available.
(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 and improvements held for investment in accordance with 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". 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, 1997 and 1996, the management of the Partnership has reserved cash balances of $55,250 and $53,500, 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 230 and 235 acres at December 31, 1997 and 1996, respectively. In addition, the Partnership owns one tract of land developed into residential lots with 7 and 24 lots remaining at December 31, 1997 and 1996, 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
(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
(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
(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.
Cumulative unpaid preferred returns are $2,214,000 and $1,998,000 at December 31, 1997 and 1996, respectively.
(h) Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
(2) Restricted Cash
At December 31, 1997 and 1996, the Partnership has restricted cash balances of $167,859 and $258,676, 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 1997, 1996, and 1995 are as follows:
1997 1996 1995
Accounting fees $ 2,100 2,100 1,500 Property management fee 3,000 3,000 3,000 Engineering fees 9,025 24,765 - Real estate commissions 42,034 37,290 23,694 Interest expense $350,228 350,228 350,228
(4) Land and Improvements Held for Investment
The components of land and improvements held for investment at December 31, are as follows: 1997 1996
Land $1,180,334 1,538,626 Land Improvements 891,433 935,213 --------- ---------- $2,071,767 2,473,839
The aggregate cost of land and improvements held for investment for Federal income tax purposes was $2,850,629 and $ 3,378,273 at December 31, 1997 and 1996, 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 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. The note maturity date was extended by one year to December 1998. 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, 1998.
During 1997 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 $1,866,516 and $1,591,304 at December 31, 1997 and 1996, 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 not 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 $25,500, in May 1998 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, 1997 and 1996, 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 had a note due on December 31, 1997 and was unable to repay the note. The Lender has extended the due date to December 31, 1998. However, the General Partner does not expect the Partnership to have the liquidity to retire the debt in full. The General Partner plans to negotiate another 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 Partnership's assets. The partnership would then be dissolved.
This uncertainty raises substantial doubt about the Partnership's 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 30, 1998, we reported on the balance sheets of Hickory Hills, Ltd. as of December 31, 1997 and 1996, and the related statements of operations, partners' deficit, and cash flows for each of the years in the three-year period ended December 31, 1997. 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, 1998 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 30, 1998
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HICKORY HILLS, LTD. (A Limited Partnership)
Schedule III
Real Estate and Accumulated Depreciation December 31, 1997
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 ----------- ------ ---- ----------------------------------------- ------- ----------- 7 residential lots in Sumner Co., TN $3,454,300 - - 769,835 104,978 874,813 874,813 - 5/89- 9/87 12/96 230 acres of land in Davidson Co., TN same 1,180,334 - 10,138 6,482 1,180,334 16,620 1,196,954 - 6/95 11/87
Total $3,454,300 1,180,334 - 779,973 111,460 1,180,334 891,433 2,071,767 -
Assets scheduled above represent land and non-depreciable land improvements, therefore accumulated depreciation and depreciable lives are non applicable.
/TABLE
HICKORY HILLS, LTD. (A Limited Partnership)
Schedule III
Real Estate and Accumulated Depreciation
1997 1996 1995
(1) Balance at beginning $2,473,839 2,740,975 3,204,826 of Period Additions during period: Improvements 185,615 507,369 244,042 _______ _______ ________ 185,615 507,369 244,042
Deductions during period: Cost of real estate sold 587,687 774,505 707,893 _______ _______ ________ 587,687 774,505 707,893
Balance at end of period $2,071,767 2,473,839 2,740,975
(2) Aggregate cost for Federal income tax purposes $2,850,629 3,378,273 3,487,713
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