Item 1. Business
Raines Lenders, L.P. ("Registrant"), is a Delaware limited partnership organized on December 16, 1988, pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act, Sections 17-101 - 17-1109, Title 6. The General Partner of the Registrant is 222 Raines, Ltd., a Tennessee limited partnership, whose general partners are Steven D. Ezell, Michael A. Hartley and 222 Partners, Inc.
The Registrant's primary business is to lend monies to Raines Road, L.P. an affiliated partnership, which is engaged primarily in the business of acquiring, developing and disposing of certain undeveloped real estate in Memphis, Tennessee (the "Property"). The Registrant's investment objectives are preservation of capital and capital appreciation through lending with a participating interest in a partnership that invests in real estate which is expected to appreciate through the passage of time, growth in the surrounding areas, and the development of the Property prior to resale.
Financial Information about Industry Segments
The Registrant's activity 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 issued a $4,700,000 participating mortgage note (the "Lender Financing"), maturing on December 31, 2001 to Raines Road, L.P., (the "Borrower") an affiliated partnership sharing the same General Partner. The proceeds of the Lender Financing were used by the Borrower, together with the available equity proceeds, to acquire the Property and fund reserves. The Lender Financing entitles the Registrant to receive a priority return of interest and principal, and 50% of the "Net Revenues", if any from sale proceeds of land collateralizing the debt. 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 "Applicable Principal Balance" is a fixed dollar amount assigned in the loan agreement to the Property on a per acre basis to represent a portion of the original principal amount of the Lender Financing. From property sales in 1990, 1991, 1994 and 1997, the cumulative "Applicable Principal Balance" due to the Registrant is $1,677,707 and is payable from future sale proceeds, after all accrued interest is paid.
Due to changes in management's estimates as a result of changes in general economic conditions relating to the property securing the Lender Financing, during the fourth quarter of 1998, the Registrant established an impairment reserve against the balance due on the Lender financing and reversed all interest previously taken into income in 1999. The Lender financing has been placed on non-accrual status in accordance with the Registrant's policy for impaired notes. For further discussion regarding the Registrant's policy for impaired notes, refer to Note 1(d) of the Financial Statements included herein. This policy was accepted upon the recommendation of the Registrant's principal accountants. These adjustments to interest income and the receivable balance are for financial reporting purposes only. Interest income of approximately $564,000 a year will be recognized for loan payment purposes.
The Property securing the Lender Financing consists of approximately 200 acres of partially developed land on Raines Road in Memphis, Tennessee, adjacent to the Memphis International Airport. The Property is zoned for a wide variety of light industrial, warehouse, office-warehouse and distribution uses. All utilities, including water, sewer, electricity and natural gas, are available to the Property.
Competition
Because the Registrant is under agreement to loan all proceeds raised, less operating reserves, to Raines Road, L.P., the Registrant is not involved in activities subject to competition.
The General Partner believes that the Property securing the Lender Financing provides strong competition for purchasers or developers of land in the Memphis Airport Area. There are a number of tracts of competitive industrial land in the area.
Primary competition comes from several industrial parks in the airport sub-market, each offering similar pricing to the Registrant. The General Partner believes that the Property is competitive due to its location, access and low costs of development.
The Registrant has no employees. Mortgage services are being provided under a contractual agreement with Landmark Realty Services Corporation, an affiliate of the General Partner.
Item 2.
Item 2. Properties
The Registrant does not own any property, nor does it intend to own any property in the future.
Item 3.
Item 3. Legal Proceedings
Registrant is not party to any material 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 Registrants' 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 April 3, 1989 of 5,625 Units of Limited Partnership Interests at $1,000 per Unit. The offering of $5,625,000 was fully subscribed and closed on December 15, 1989.
As of February 28, 2000, there were 503 holders of record of the Units of Limited Partnership Interests.
On June 20, 1997, the Registrant distributed $703,125 to the limited partners or $125 per unit. This distribution was made from payments received on the Lender Financing. There were no distributions made in 1999 or 1998. Other than liquidity constraints, there are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of Registrant's Limited Partnership Agreement.
Item 6.
Item 6. Selected Financial Data
For the Year Ended December 31,
1999 1998 1997 1996 1995 Total Revenues- Interest $ 0 489 564,066 564,821 573,513 Net income(loss) (39,996) (1,623,529) 523,182 525,459 534,542 Net income (loss) per limited partner unit (7.11) (288.63) 91.75 93.41 94.02 Distributions per limited partner unit - - 125 - 100 Total assets 5,675,825 5,693,721 7,312,250 7,499,700 6,974,241 Note receivable from affiliate 4,700,000 4,700,000 4,700,000 4,700,000 4,700,000 Interest receivable from affiliate 2,513,634 2,513,634 2,524,934 2,695,434 2,131,434 Allowance for impairment (1,580,711) (1,580,711) - - -
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Due to the nature of the Registrant, the majority of its activity on a regular basis is to earn interest income. There are no interest payments due to the Registrant until the Property securing the Registrant's loan or portions thereof is sold, or until December 31, 2001, whichever is first. Due to changes in managements estimates as a result of changes in general economic conditions relating to the property securing the Lender Financing, during the fourth quarter of 1998, the Registrant established an impairment reserve against the balance due on the Lender financing and reversed all interest previously taken into income in 1998. The Lender financing has been placed on non-accrual status in accordance with the Registrant's policy for impaired notes. For further discussion regarding the Registrant's policy for impaired notes, refer to Note 1(d) of the Financial Statements included herein. This policy was accepted upon the recommendation of the Registrant's principal accountants. These adjustments to interest income and the receivable balance are for financial reporting purposes only. Interest income of approximately $564,000 a year will be recognized for loan payment purposes.
Except for the above fluctuations, the operations of the Registrant have remained comparable through the years. The minimal level of operational expenses are expected to continue in the foreseeable future.
In 1997, the Borrower sold approximately 30 acres. Of the $2.2 million in sale proceeds, $1.1 million was escrowed for development of the sale site and adjacent land, and $734,500 was paid to the Registrant on the Lender Financing. The Borrower did not have any property sales in 1998 or 1996.
From sales in 1990, 1991, 1994 and 1997, the cumulative "Applicable Principal Balance" of $1,677,707 is due and payable from the next available sales proceeds, after all accrued interest is paid.
Financial Condition and Liquidity
At February 28, 2000, the Registrant had approximately $6,841 available in funds to cover operating expenses for 2000. Operating expenses are primarily accounting fees which includes audit and tax, and mortgage servicing fees. The cash reserves are insufficient. If a sale of the property occurs, then funds may be available from a payment on the Lender Financing. The General Partner expects the Registrant to meet operational needs through affiliated loans if necessary.
In 1997, 1994, 1991 and 1990, the Borrower retained a portion of sales proceeds for development and operations and did not distribute all sales proceeds to the Registrant as payments of interest or applicable principal. The Borrower made interest payments of $11,300, $734,500, $600,000, and $1,027,454 on the Lender Financing in 1998, 1997, 1995 and 1991, respectively. The Registrant's and Borrower's joint General Partner believes that using sales proceeds for development and distributing only the Borrower's net available cash was contemplated by the loan agreement. However, the loan agreement is ambiguous on this use of funds; therefore, this treatment could constitute a default on the loan agreement. In such an event, the Registrant is required to foreclose the loan and accelerate the amounts due. Currently, the Registrant has not foreclosed or accelerated the amounts due under the loan agreement and has no plans to do so.
Year 2000
In 1999, the Partnership initiated a plan ("Plan") to identify, and remediate "Year 2000" issues within each of its significant computer programs and certain equipment which contain microprocessors. The Plan addressed the issue of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000, if a program or chip uses only two digits rather than four to define the applicable year. The Partnership divided the Plan into five major phases-assessment, planning, conversion, implementation and testing. The plan was completed in mid 1999. The total remediation costs for the plan were not material to the questions or liquidity of the partnerships. The registrant had no significant operational difficulties related to Year 2000 issues. Management does not expect any future issues or operational problems related to Year 2000 issues. Item 8.
Item 8. Financial Statement and Supplementary Data
RAINES LENDERS, L.P. (A Limited Partnership) FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997
INDEX
Page Number
Independent Auditors' Report
Financial Statements Balance Sheets Statements of Operations Statements of Partners' Equity Statements of Cash Flows Notes to Financial Statements
Independent Auditors' Report
The Partners Raines Lenders, L.P.:
We have audited the accompanying balance sheets of Raines Lenders, L.P. (a limited partnership) as of December 31, 1999 and 1998, and the related statements of operations, partners' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. 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 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 Raines Lenders, L.P. at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three- year period ended December 31, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
Nashville, Tennessee January 21, 2000
RAINES LENDERS, L.P. (A Limited Partnership)
Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998
Cash $ 254 362
Note receivable from affiliate (note 3) 4,700,000 4,700,000
Interest receivable from affiliate, net of allowance for impairment of $1,580,711 in 1999 and 1998 932,923 932,923
Loan costs, less accumulated amortization of $188,602 and $170,814 in 1999 and 1998, respectively. 42,648 60,436
Total assets $ 5,675,825 5,693,721
Liabilities and Partners' Equity
Liabilities
Due to affiliate (note 2) $ 27,100 5,000
Partners' equity
Limited partners (5,625 units outstanding) 5,648,725 5,688,721 General partner - -
Total partners' equity 5,648,725 5,688,721
Commitments and contingencies (note 2 and 3)
Total liabilities and partners' equity $ 5,675,825 5,693,721
See accompanying notes to financial statements.
RAINES LENDERS, L.P. (A Limited Partnership)
Statements of Operations
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
Revenue: Interest Income (note 3) $ - 489 564,066
Expenses: Mortgage servicing fee (note 2) 9,000 9,000 9,000 Legal and accounting fees (note 2) 12,520 14,548 11,876 General and administrative 688 1,971 2,220 Amortization 17,788 17,788 17,788 Bad debts - 1,580,711 -
Total expenses 39,996 1,624,018 40,884
Net income (loss) $ (39,996) (1,623,529) 523,182
Net income (loss) allocated to:
General Partner $ - - 7,102 Limited Partner $(39,996) (1,623,529) 516,080 Net income (loss) per limited partner unit $ (7.11) (288.63) 91.75 Weighted average units outstanding 5,625 5,625 5,625
See accompanying notes to financial statements.
RAINES LENDERS, L.P. (A Limited Partnership)
Statements of Partners' Equity
Years ended December 31, 1999, 1998 and 1997
Limited General partners partner Total Units Amounts
Balance at December 31, 1996 5,625 $7,499,295 - 7,499,295
Distributions to partners (note 4) - (703,125) (7,102) (710,227) Net income - 516,080 7,102 523,182
Balance at December 31, 1997 5,625 7,312,250 - 7,312,250
Net loss - (1,623,529) - (1,623,529)
Balance at December 31, 1998 5,625 5,688,721 - 5,688,721
Net Loss - (39,996) - (39,996)
Balance at December 31, 1999 5,625 $5,648,725 - 5,648,725
See accompanying notes to financial statements.
RAINES LENDERS, L.P. (A Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
Cash flows from operating activities:
Net (loss) income $ (39,996) (1,623,529) 523,182 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Bad debt expense - 1,580,711 - Amortization 17,788 17,788 17,788 Decrease in interest receivable from affiliate - 11,300 170,500 Increase (decrease) in accounts payable 22,100 5,000 (405)
Net cash (used in) provided by by operating activities (108) (8,730) 711,065
Cash flows from financing activities Distribution to partners - - (710,227)
Net (decrease)increase in cash (108) (8,730) 838
Cash at beginning of year 362 9,092 8,254 Cash at end of year $ 254 362 9,092
See accompanying notes to financial statements.
RAINES LENDERS, L.P. (A Limited Partnership) Notes to Financial Statements
December 31, 1999 and 1998
(1) Summary of Significant Accounting Policies
(a) Organization
Raines Lenders, L.P. (the Partnership) is a Delaware limited partnership organized on December 16, 1988, for the purpose of making a participating mortgage loan to Raines Road, L.P., which shares the same General Partner. The General Partner is 222 Raines, Ltd., whose general partners are Steven D. Ezell, Michael A. Hartley and 222 Partners,Inc. The Partnership prepares financial statements and Federal 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. Actual results could differ from those estimates.
(c) Cash
Cash belonging to the Partnership is combined in an account with funds from other partnerships related to the general partner.
(d) Note Receivable from Affiliate
The Partnership, considering current information and events regarding the borrower's ability to repay its obligations, considers a note to be impaired when it is probable that the Partnership will be unable to collect all amounts due according to the contractual terms of the note agreement. When a note is considered to be impaired, the amount of the impairment is measured based upon the estimated fair value of
RAINES LENDERS, L.P. (A Limited Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(d) Note Receivable from Affiliate(continued)
the underlying collateral. When a note is considered impaired, management ceases the accrual of interest income. The Partnership will establish an impairment allowance for the amount that the recorded value of the note plus accrued interest exceeds its estimated fair value. The impairment allowance is established by a charge to earnings. Any cash receipts on impaired notes receivable are applied to reduce the accrued interest due and the principal amount of such notes until the balances have been recovered and are recognized as interest income, thereafter.
During 1998, the Partnership determined that the note receivable was impaired. The amount of the impairment was based on the fair value of the underlying land and improvements of Raines Road, L.P., which serves as collateral for the note. The note receivable from affiliate remained recorded at cost with an allowance for impairment of $1,580,711 against prior accrued interest at December 31, 1999. The note was placed on non-accrual status.
(e) Loan Costs
Loan costs are amortized by the straight-line method over the thirteen year term of the note receivable from affiliate.
(f) Income Taxes
No provision has been 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 provide 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 recognition of interest income and the reserve for impairment.
RAINES LENDERS (A Limited Partnership) Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(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 had 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 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 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 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 $4,947,759 and $4,272,759 at December 31, 1999 and 1998, respectively.
RAINES LENDERS (A Limited Partnership) Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(h) Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period associated with transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. During the years ended December 31, 1999 and 1998, the Partnership had no components of other comprehensive income. Accordingly, comprehensive income for each of the years was the same as net income (loss).
(2) Related Party Transactions
The General Partner and its affiliates have been actively involved in managing the Partnership. Affiliates of the General Partner receive fees for performing certain services. Expenses incurred for these services are as follows:
1999 1998 1997
Mortgage service fee $ 9,000 9,000 9,000 Accounting fees 2,600 2,800 2,100 Due to affiliate 27,100 5,000 -
(3) Note Receivable From Affiliate
The note receivable from affiliate represents a $4,700,000 long-term note receivable from Raines Road, L.P. (the Borrower), an affiliate sharing the same General Partner. The note accrued simple interest at an annual rate of 12% plus additional interest equal to 50% of "net revenues", as defined in the Participating Loan Agreement. The note is secured by a mortgage on land and improvements held for investment by the Borrower and by a security interest in any unrestricted cash reserves or investment securities held by the Borrower. The note is due December 31, 2001.
RAINES LENDERS, L.P. (A Limited Partnership)
Notes to Financial Statements
(3) Note Receivable From Affiliate (continued)
Summarized financial information of Raines Road, L.P. at December 31, 1999 and 1998, and for the years ended December 31, 1999, 1998 and 1997, is presented below:
Assets 1999 1998
Cash $ 5,129 114,342 Restricted cash 143,642 140,769 Accounts receivable from affiliate 2,100 5,000 Land and land improvements held for investment 5,599,928 5,599,928 Total assets $ 5,750,799 5,860,039
Liabilities and Partners' Deficit
Liabilities: Note payable - affiliate $ 4,700,000 4,700,000 Accrued interest payable - affiliate 3,641,634 3,077,634 Accounts payable 29,790 - Accrued property taxes 132,255 133,500 Total liabilities 8,503,679 7,911,134
Partners' deficit: Limited partners (2,752,880) (2,051,095) General partners - - Total partners' deficit (2,752,880) (2,051,095) Total liabilities and partners' deficit $5,750,799 5,860,039
RAINES LENDERS (A Limited Partnership) Notes to Financial Statements
(3) Note Receivable From Affiliate (continued)
Operations 1999 1998 1997
Revenue: Gain on sales of land and improvements $ - 32,995 628,719 Interest and other 6,428 13,751 25,408
Total revenues 6,428 46,746 654,127
Expenses: Interest 564,000 564,000 564,000 Other 144,213 137,764 98,754
Total expenses 708,213 701,764 662,754
Net loss (701,785) (655,018) (8,627)
Cash Flows:
Net cash provided (used) by operating activities $(109,213) 15,664 57,045
Increase (decrease) in cash $(109,213) 15,664 57,045
In 1999 and 1998 there were no land sales and the Partnership paid $0 and $11,300 in interest payments to the Lender, respectively.
In 1997, the Partnership sold 26.6 acres of land receiving net proceeds of $628,719 and paid $734,500 in interest payments to the Lender.
Due to anticipated future requirements for additional development and operations, the Borrower retained certain proceeds from sales and did not pay additional amounts of interest and/or applicable principal balance to the Partnership. The Partnership's and Borrower's joint general partner believes that retaining sales proceeds for development, and distributing only net available cash to the Partnership, was contemplated by the note agreement. However, the note agreement does not explicitly authorize this use
RAINES LENDERS, L.P. (A Limited Partnership)
Notes to Financial Statements
(3) Note Receivable from Affiliate (continued)
of funds; therefore, this treatment could constitute a default on the note agreement. In such an event, the Partnership is required to accelerate the amounts due or foreclose the loan. To date, the Partnership has not foreclosed or accelerated the amounts due under the note agreement. At December 31, 1999 and 1998, the applicable principal balance due to the Partnership is $1,677,707.
Interest income associated with the note payable from affiliate in 1999 and 1998 was -0-, and $564,000 in 1997.
The Partnership has determined that the note and interest receivable from the affiliate are impaired.
(4) Distributions
For the year ended December 31, 1997, the Partnership made distributions of $710,227. Of this amount, $703,125 ($125 per unit) was allocated to the limited partners and $7,102 was allocated to the general partner. There were no distributions in 1999 and 1998.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Registrant does not have any directors or officers. 222 Raines, Ltd. is the General Partner. Steven D. Ezell, Michael A. Hartley and 222 Partners, Inc. are the general partners of the General Partner and as such have general responsibility and ultimate authority in matters affecting Registrant's business.
The General Partners of 222 Raines, Ltd. are as follows:
Steven D. Ezell
Steven D. Ezell, age 46, is a general partner of 222 Raines, Ltd. He 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. For the prior four years, Mr. Ezell was 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
Michael A. Hartley, age 40, is Secretary/Treasurer and a Vice President of 222 Partners, Inc. He has been an officer of 222 Partners, Inc. from September 17, 1986 through the current period. Mr. Hartley is Vice President and 50% owner of Landmark Realty Services Corporation. Prior to joining Landmark in 1986, Mr. Hartley was Vice President of Dean Witter Realty Inc., a New York- based real estate investment firm.
222 Partners Inc.
222 Partners, Inc. was formed in 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
W. Gerald Ezell, age 69, 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.
Item 11.
Item 11. Executive Compensation
During 1999, 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 Registrant as set forth in the Partnership Agreement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of February 28, 2000 no person or "group" (as that term is used in Section 3(d) (3) of the Securities Exchange Act of 1934) was known by the Registrant to beneficially own more than five percent of the Units of Registrant.
As of the above date, the Registrant knew of no officers or directors of 222 Partners, Inc. that beneficially owned any of the units of the Registrant.
There are no arrangements known by 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 Transactions
During 1999, no affiliated entities have earned compensation for services from the Registrant in excess of $60,000. For a listing of all miscellaneous transactions with affiliates which were less than $60,000 refer to Note 2 to the Financial Statements in Item 8.
The Registrant loaned $4,700,000 to Raines Road, L.P., an affiliated partnership, during 1989. Accrued interest on such loan at December 31, 1999 was $2,513,634.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements See Financial Statements Index in Item 8 hereof.
(2) Financial Statement Schedule See Financial Statement Schedule Index at page 27 hereof.
(3) Exhibits
3 Amended and Restated Certificate and Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Prospectus of Registrant dated April 3, 1989 filed pursuant to Rule 424(b) of the Securities and Exchange Commission.
10A Participating Loan Agreement by and among Raines Road, L.P. and the Registrant, incorporated by reference to Exhibit 10.1 to Registrant's Form S-18 Registration Statement as filed on January 4, 1989.
10B Deed of Trust, Assignment of Leases and Security Agreement by and among Raines Road, L.P. and the Registrant, incorporated by reference to Exhibit 10.2 of the Registrant's Form S-18 Registration Statement as filed on January 3, 1989.
10C Participating Mortgage Note of Owner to Lender incorporated by reference to Exhibit 10.3 to Registrant's Form S-18 Registration Statement as filed on January 4, 1989.
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 1999.
Financial Statement Schedule Filed Pursuant to Item 14(a)(2):
RAINES LENDERS, L.P. (A Limited Partnership)
ADDITIONAL INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
INDEX
Page Number
Additional financial information furnished pursuant to the requirements of Form 10-K:
Financial Statement Schedule -
Independent Auditors' Report S-1 Schedule IV - Mortgage Loans on Real Estate S-2
Financial Statements of Properties Securing Mortgage Loans - Raines Road, L.P
Independent Auditors' Report M-1 Balance Sheets M-2 Statements of Operations M-3 Statements of Partners' Deficit M-4 Statements of Cash Flows M-5 Notes to Financial Statements M-6
All other Schedules have been omitted because they are inapplicable, not required or the information is included in the Financial Statements or notes thereto.
Independent Auditors' Report
The Partners Raines Lenders, L.P.
Under date of January 21, 2000, we reported on the balance sheets of Raines Lenders, L.P. as of December 31, 1999 and 1998, and the related statements of operations, partners' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. 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 information 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 audit.
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.
KPMG LLP
Nashville, Tennessee January 21, 2000
Schedule IV
RAINES LENDERS, L.P. (A Limited Partnership)
Mortgage Loans on Real Estate December 31, 1999
Schedule IV
RAINES LENDERS, L.P. (A Limited Partnership)
Mortgage Loans on Real Estate (continued) December 31, 1999
1999 1998 1997
(1) Balance at beginning of period $ 4,700,000 4,700,000 4,700,000 Balance at end of period $ 4,700,000 4,700,000 4,700,000
(2) Aggregate cost for Federal tax purposes $ 4,302,126 4,302,126 4,302,126
*This represents a promissory note from Raines Road, L.P., an affiliate sharing the same General Partner. This note accrues simple interest at an annual rate of 12% plus additional interest equal to 50% of the "net revenues," as defined in the Participating Loan Agreement. The note is secured by a mortgage on the land in Memphis, Tennessee held by the debtor, subject to a security interest in any unrestricted cash reserves or investment securities held by the debtor. At December 31, 1999, interest of $2,513,634 was accrued on the promissory note. Also at December 31, 1999, a reserve for impairment was established in the amount of $1,580,711. 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, 2001. See note 3 to the financial statements.
See accompanying independent auditors' report.
Independent Auditors' Report
The Partners Raines Road, L.P.:
We have audited the accompanying balance sheets of Raines Road, L.P. (a limited partnership) as of December 31, 1999 and 1998, and the related statements of operations, partners' deficit, and cash flows for each of the years in the three-year period ended December 31, 1999. 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 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 Raines Road, L.P. at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three- year period ended December 31, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
Nashville, Tennessee January 21, 2000
M-1
RAINES ROAD, L.P. (A Limited Partnership)
Balance Sheets
December 31, 1999 and 1998
See accompanying notes to financial statements.
M-2
RAINES ROAD, L.P. (A Limited Partnership)
Statements of Operations
See accompanying notes to financial statements.
M-3 RAINES ROAD, L.P. (A Limited Partnership)
Statements of Partners' Deficit
Years ended December 31, 1999, 1998 and 1997
See accompanying notes to financial statements.
M-4
RAINES ROAD, L.P. (A Limited Partnership)
Statements of Cash Flows Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
Cash flows from operating activities: Net loss $ (701,785) (655,018) (8,627) Adjustments to reconcile net loss to net cash provided by (used) in operating activities: Cost of land and improvements held for investment - - (1,224,398) Cost of land and improvements sold - 32,995 1,448,336 (Increase)decrease in restricted cash (2,873) 239,429 (223,957) (Increase)decrease in accounts receivable from affiliate 2,900 (5,000) - Increase (decrease) in accrued interest payable 564,000 552,700 (170,500) Increase (decrease) in accounts payable 29,790 (221,982) 217,126 (Decrease)Increase in accrued property taxes (1,245) 72,540 19,065
Net cash (used in)provided by operating activities (109,213) 15,664 57,045
Net (decrease)increase in cash (109,213) 15,664 57,045 Cash at beginning of year 114,342 98,678 41,633 Cash at end of year $ 5,129 114,342 98,678
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ - 11,300 734,500
See accompanying notes to financial statements.
M-5
RAINES ROAD, L.P. (A Limited Partnership)
Notes to Financial Statements
December 31, 1999 and 1998
(1) Summary of Significant Accounting Policies
(a) Organization
Raines Road, L.P. (the Partnership) is a Delaware limitedpartnership organized on December 16, 1988 to acquire several contiguous, undeveloped tracts of land in Memphis, Tennessee for the purpose of developing and selling parcels of real estate. The General Partner is 222 Raines, Ltd., whose general partners are Steven D. Ezell, Michael A. Hartley, and 222 Partners, Inc. The Partnership prepares financial statements and income tax returns on the accrual method of accounting. The financial statements include only those assets, liabilities and results of operations which relate to the Partnership. In the event that the Partnership has short-term cash deficiencies, the General Partner believes it 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 Partnership's land and improvements. Actual results could differ from those estimates.
(c) Cash
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 Investment
Land and improvements held for investment are recorded at cost and include approximately 200 acres at December 31, 1999 and 1998. Interest expense on the note payable to affiliate, insurance, and property taxes were capitalized as carrying costs of the property during the development period. M-6 RAINES ROAD, L.P. (A Limited Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(d) Land and Improvements Held for Investment(continued)
Costs to hold land, including interest, insurance, and property taxes are charged to expense once the develop- ment of the property is substantially complete. Land improvement costs incurred and capitalized include development costs expended subsequent to the acquisition of a tract of land.
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. Accordingly, land held for investment is recorded at cost with no allowance for impairment necessary.
M-7
RAINES ROAD, L.P. (A Limited Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(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.
(f) Income Taxes
No provision has been made in the financial statements for Federal or state income taxes, since such taxes are the responsibilities of the partners.
Annually, the partners receive, from the Partnership, IRS Form K-1's, which provide 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 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:
M-8
RAINES ROAD, L.P. (A Limited Partnership)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(g) Partnership Allocations(continued)
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 had 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 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 $2,362,500 at December 31, 1999.
M-9
RAINES ROAD, L.P. (A Limited Partnership) Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued) (h) Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise, during a period, associated with transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. During the three years ended December 31, 1999, the Partnership had no components of other comprehensive income. Accordingly, comprehensive income for each of the years was the same as net loss.
(2) 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 are as follows: 1999 1998 1997 Accounting fees $ 2,600 2,100 2,100 Property management fee 3,000 3,000 3,000 Real estate sales commission - - 88,000 Accounts receivable from affiliate 2,100 5,000 -
(3) Restricted Cash
At December 31, 1999 and 1998, the Partnership had restricted cash balances of $143,642 and $140,769, respectively, to be used to fund property improvements consisting of road and utility work. In 1998, the Partnership received excess escrowed development funds from the escrow agent. The development payable related to these escrowed funds, also overestimated, was reduced by the excess cash received. Cost of land sold and land improvements, also effected by this development, was reduced. This restricted cash securs a letter of credit in the same amount to ensure that the required developments are made.
M-10 RAINES ROAD, L.P. (A Limited Partnership)
Notes to Financial Statements
(4) Land and Improvements Held for Investment
The components of land and improvements held for investment at December 31, 1998 and 1998 are as follows:
Land and carrying costs $ 3,947,078 Land improvements 1,652,850
$ 5,599,928
Aggregate cost of land and improvements held for investment for federal income tax purposes was $7,392,325 at December 31, 1999 and 1998.
(5) Note Payable - Affiliate
The note payable to affiliate represents a $4,700,000 note payable to Raines Lenders, L.P. (Lender), an affiliate sharing the same General Partner. The note accrues simple interest at an annual rate of 12% plus additional interest equal to 50% of "net revenues", as defined in the Participating Loan Agreement. The note is secured by a mortgage on land and improvements held for investment by the Partnership and by a security interest in any cash reserves or investment securities held by the Partnership. Interest and principal payments become due upon the sale of the collateral or any portion thereof to the extent cash is available, but no later than December 31, 2001. In 1999 and 1998, there were no land sales and the Partnership paid $-0- and $11,300 respectively in interest payments to the Lender. In 1997, the Partnership sold 26.6 acres of land, recognizing a gain of $628,719 and paid $734,500 in interest payments to the Lender. Due to anticipated future requirements for additional development and operations, the Partnership retained certain proceeds from sales and has not paid the additional amounts of interest and/or applicable principal balance to the Lender. The Partnership's and Lender's joint 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
M-11
RAINES ROAD, L.P. (A Limited Partnership)
Notes to Financial Statements
(5) Note Payable - Affiliate(continued)
explicitly authorize this use of funds; therefore, this treatment could constitute a default on the note agreement. In such an event, Lender is required to foreclose the note and accelerate the amounts due. To date, the Lender has not foreclosed or accelerated the amounts due under the note agreement. Of the $4,700,000 total principal balance outstanding, the applicable principal balance due to Lender is $1,677,707 at December 31, 1999 and 1998.
Interest expense associated with the note payable to affiliate in 1999, 1998, and 1997 was $564,000.
M-12
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.
RAINES LENDERS, L.P. By: 222 Raines, Ltd. General Partner
DATE: March 31, 2000 By: /s/ Steven D. Ezell General Partner
DATE: March 31, 2000 By: /s/ Michael A. Hartley General Partner
By: 222 Partners, Inc. General Partner
DATE: March 31, 2000 By: /s/ Michael A. Hartley Secretary/Treasurer
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.
RAINES LENDERS, L.P. By: 222 Raines, Ltd. General Partner
DATE: March 31, 2000 By: /s/ Steven D. Ezell General Partner
DATE: March 31, 2000 By: /s/ Michael A. Hartley General Partner
By: 222 Partners, Inc. General Partner
DATE: March 31, 2000 By: /s/ Michael A. Hartley Secretary/Treasurer
Supplement 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.
Exhibits filed to Item 14(a)(3):
RAINES LENDERS, L.P. (A Delaware Limited Partnership)
Exhibit Index
Exhibit
3 Amended and Restated Certificate and Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Prospectus of Registrant dated April 3, 1989 filed pursuant to Rule 424(b) of the Securities and Exchange Commission.
10A Participating Loan Agreement by and among Raines Road, L.P., incorporated by reference to Exhibit 10.1 to registrant's Form S-18 Registration Statement as filed on January 4, 1989.
10B Deed of Trust, Assignment of Leases and Security Agreement by and among Raines Road, L.P. and the Registrant, incorporated by reference to Exhibit 10.2 of the Registrant's Form S-18 Registration Statement as filed on January 4, 1989.
10C Participating Mortgage Note of Raines Road, L.P. to Raines Lenders, L.P., incorporated by reference to Exhibit 10.3 to Registrant's Form S-18 Registration Statement as filed on January 4, 1989.
22 Subsidiaries-Registrant has no subsidiaries.
27 Financial Data Schedule