UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________
Commission file number 0-8444
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Yager/Kuester Public Fund Limited Partnership
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(Exact name of registrant as specified in its charter)
North Carolina 56-1560476
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1300 Altura Road, P.O. Box 1329
Fort Mill, South Carolina 29716-1329
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (803) 547-9100
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes [ ] No [X]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. Not
Applicable.
Documents Incorporated By Reference
- -----------------------------------
Exhibits (4) and (10.1) of Part IV, required by Item 601 of Regulation S-K,
are incorporated by reference from the prospectus of the registrant, dated
December 1, 1987, Registration Number 33-07056-A (hereinafter "Prospectus").
PART I
Item 1. Business. The registrant is a North Carolina limited partnership
formed in July 1986 (hereinafter referred to as the "Partnership"). The
Partnership engaged in a "blind pool offering," the proceeds of which were used
to purchase income-producing real property. During the year ended December 31,
1988, the Partnership received the minimum investment required to remove
subscribers' funds from escrow. The Partnership's offering terminated with a
total subscription of $3,195,000 from investor limited partners. The net
proceeds were used to purchase the properties described in Item 2 below, to pay
the expenses of the offering and to fund the working capital account. The funds
not required for those purposes, totaling $84,273, were returned to investors.
The sole business of the Partnership currently is the operation of the
EastPark Executive Center located in Charlotte, North Carolina ("EastPark").
This commercial office building was purchased with the proceeds of the public
offering and loan funds (described below). The Partnership previously owned a
second office building that was sold on April 24, 1998. (See Item 2 below for a
description of the properties.) The lease terms with the major tenant at
EastPark are summarized below.
EastPark Executive Center, Charlotte, NC - the General Services
Administration ("GSA") has a lease term for a ten (10) year period ending on
October 31, 2004, at a current rental rate of $15.01 per square foot, subject to
its right to early termination of the lease upon ninety (90) days notice. The
Partnership has incurred approximately $1,104,000 in leasehold improvements in
connection with the GSA lease. The GSA lease accounts for approximately 85% of
the rental income related to the EastPark Executive Center. The remaining
leasehold space is leased to two other tenants.
The Partnership has no employees of its own; management of the
Partnership's property is performed by FSK Properties, LLC, an affiliate of FSK
Limited Partnership. Administration of the Partnership is performed by the
General Partners. (See Items 10 and 13 below.)
Item 2. Properties. On June 23, 1989, the Partnership purchased the
EastPark Executive Center, an office complex comprised of two buildings located
in Charlotte, North Carolina with net leasable area of 45,300 square feet, for a
purchase price of $3,155,138 of which $1,500,000 was provided by a first
mortgage loan bearing interest at 10.5% per annum and having a term of 10 years.
This mortgage loan became due in July 1999 and was refinanced with First Union
National Bank. In 1998, the Partnership recorded a loss of $1,392,468 to reflect
the $2,365,800 estimated sales value of the EastPark facility, net of related
costs to sell. In 1999, the Partnership recorded an additional loss of $81,262
to expense additional improvements and to reflect a $2,323,500 estimated sales
value, net of related costs to sell. In 2002, the Partnership incurred
additional improvements of $15,050 that were expensed.
On November 30, 1989, the Partnership acquired the BB&T Bank Building
(formerly the UCB Building), a three-story office building in Greenville, South
Carolina with net leasable area of 39,138 square feet, for a purchase price of
$4,202,544 of which $3,110,000 was provided by a first mortgage loan from United
Omaha. This mortgage loan became due on December 1, 1996 and was refinanced with
First Union National Bank. On April 24, 1998, this property was sold for
$3,471,000, resulting in a loss to the Partnership of $206,428.
In connection with the office building purchases, $26,312 of acquisition
costs were capitalized.
No further purchases of real property are projected and no funds are
available for that purpose. (See Item 7 below, "Status of EastPark Facility" for
recent developments regarding the property.)
Item 3. Legal Proceedings. The Partnership is not involved in any legal
proceedings and was not so involved during the year ended December 31, 2002.
Item 4. Submission of Matters to a Vote of Security Holders. Not
applicable.
2
PART II
Item 5. Market for the Partnership's Common Equity and Related Stockholder
Matters. There is no established public trading market for the Partnership's
securities. The Partnership has approximately 520 limited partners. Cash
distributions made to the limited partners during the recent years are set out
in the Statements of Cash Flow included in the Financial Statements included in
Part II, Item 8 of this Report.
Item 6. Selected Financial Data.
At or For
Year Ended December 31,
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2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Summary of Operations
Rental income $ 597,286 $ 586,588 $ 552,906 $ 550,047 $ 685,156
Net income (loss) 127,251 84,672 65,282 (29,038) (1,588,616)
Net income (loss)
per limited
partnership unit 19.72 13.12 10.11 (4.50) (246.12)
Summary of Financial
Position:
Total assets $2,563,234 $2,490,398 $2,508,982 $ 2,490,024 $ 2,570,012
Current maturities of
long-term debt 84,000 1,452,000 60,000 1,585,000 1,145,441
Long-term debt, less
current maturities 1,310,000 -- 1,452,000 -- --
Note Payable -- -- -- -- 500,000
Distribution per
Limited partnership unit -- -- -- -- --
ship unit
Number of limited
partnership units 6,390 6,390 6,390 6,390 6,390
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
During the year ended December 31, 2002, the Partnership continued to fund
working capital requirements and working capital was increased by approximately
$1,436,000 from December 31, 2001. The working capital as of December 31, 2002
was $130,930. The large increase in working capital is mainly attributable to
the reclassification of the current portion of the long-term debt. On June 4,
2002, the General Partners refinanced the existing loan with Wachovia Bank, NA
(formerly First Union National Bank). The new loan matures on December 31, 2004
with interest at the bank's prime rate (currently 4.25%). Monthly principal
payments of $7,000 commenced on August 31, 2002. The new principal payment is
$2,000 higher than the $5,000 previously required.
The cumulative unpaid priority return to the unit holders increased from
$3,137,969 at December 31, 2001 to $3,380,753 at December 31, 2002. This
increase resulted from no distributions being made to partners during the year
pursuant to the Limited Partnership Agreement. Based on current and projected
commercial real estate market conditions, the General Partners believe
3
that it is reasonably unlikely that a sale of the Partnership properties would
produce net sale proceeds sufficient to pay any of such priority return.
Furthermore, the General Partners believe that it is reasonably unlikely that
the Partnership's operating income or any refinancing of Partnership debt would
generate sufficient funds to pay the priority return.
During the year ended December 31, 2002, the Partnership had net income of
$127,251 as compared to the net income of $84,672 in 2001. (See "Results of
Operations" below for explanation of variance.) Rental income, operating
expenses and interest expense for the years ended December 31, 2002 and 2001
resulted exclusively from the operations of the Partnership's commercial real
estate properties. The EastPark Executive Center buildings were 91% leased at
both December 31, 2002 and December 2001.
See Item 13 (Certain Relationships and Related Transactions) for a
discussion regarding leasing commissions, management fees and repair service
fees paid to FSK Properties, LLC, a General Partner of the Partnership, as well
as administrative reimbursements paid to Internet Services Corporation.
In the event that funds derived from operations are insufficient to meet
the Partnership's working capital needs, the General Partners have agreed to
fund the shortfall.
Forward-Looking Statements
This report contains certain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of the Partnership. These forward-looking statements
involve certain risks and uncertainties. Actual results may differ materially
from those contemplated by such forward-looking statements.
Results of Operations
Comparison of 2002 results with 2001.
Net income for the year ended December 31, 2002 increased by approximately
$42,000 or 50% as compared to the same period of the prior year. The main factor
attributing to this increase in net income is lower interest expense. The
current loan has a floating prime interest rate, which has remained low during
2002 due to current market conditions. Rental income increased by approximately
2% due to rental escalations as provided by the current leases. All other
operating expenses were consistent with the prior year.
Comparison of 2001 results with 2000.
Net income for the year ended December 31, 2001 increased by approximately
$19,000 or 30% as compared to the same period of the prior year. Rental income
increased by 6% due to rental escalations as provided by the current leases and
the additional space leased by the GSA during 2001. Repairs and maintenance
increased approximately $38,000 as compared to the prior year due to the
installation of new security lights, gates and signage on the property.
Professional fees increased by approximately $15,000 due to commissions on the
new leases and additional costs of the management company. Interest expense is
down approximately $41,000 due to lower rates on the floating rate loan with
Wachovia.
Critical Accounting Policy and Risk Factors
In the ordinary course of business, the Partnership has made a number of
estimates and assumptions relating to the reporting results of operations and
financial position in preparing its financial statements in conformity with
accounting principles generally accepted in the United States of America. Actual
results could differ significantly from those estimates under different
assumptions and conditions. The Partnership believes the following discussion
addresses the Partnership's most critical accounting policy, which is determined
to be the most important to the portrayal of the Partnership's financial
condition and results and require management's most difficult, subjective and
complex judgements, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.
4
Leased property held for sale.
The Partnership has adopted Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. As
described in the section "Status of EastPark Facility" (see below), the real
estate has been listed with a broker for approximately four years. The ultimate
realizable value requires management to make estimates and assumptions about
market conditions and events that may or may not occur in the future. Management
has used all available information to record the property at a net realizable
value. Because future events cannot be predicted with certainty, there can be no
assurances that an additional write-down of the property will not be necessary.
Status of EastPark Facility
The General Partners remain committed on selling the EastPark facility and
continue to have it listed with a commercial real estate broker. At this time,
the facility is not under contract with any potential buyers. The General
Partners are also working towards extending the leases with the current tenants.
Although the facility is 91% leased, all current tenants have the option to
terminate their leases currently or within the next year. The GSA has the
election to cancel its lease upon ninety (90) days written notice and accounts
for 85% of the total rental income; accordingly, the General Partners will focus
their lease extension efforts on the GSA. However, no assurances can be given
that a replacement tenant could be found if GSA decides to terminate its lease.
The General Partners will continue to search for the best offer for the property
and manage it at acceptable standards until such time as the Partnership can
sell the property to a qualified buyer.
Item 8. Financial Statements and Supplementary Data. The financial
statements are attached hereto.
5
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 2002
CONTENTS
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INDEPENDENT AUDITOR'S REPORT 1
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FINANCIAL STATEMENTS
Balance sheets 2
Statements of operations 3
Statements of partners' equity 4
Statements of cash flows 5
Notes to financial statements 6 - 12
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[MCGLADREY & PULLEN Logo]
INDEPENDENT AUDITOR'S REPORT
To the Partners
Yager/Kuester Public Fund
Limited Partnership
Fort Mill, South Carolina
We have audited the accompanying balance sheets of Yager/Kuester Public Fund
Limited Partnership as of December 31, 2002 and 2001, and the related statements
of operations, partners' equity and cash flows for each of the three years in
the period ended December 31, 2002. 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 auditing standards generally accepted
in the United States of America. 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 Yager/Kuester Public Fund
Limited Partnership as of December 31, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.
/s/ McGladrey & Pullen, LLP
Charlotte, North Carolina
February 11, 2003
1
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
ASSETS 2002 2001
- -------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents (Note 2) $ 124,060 $ 65,583
Accounts receivable, tenants (Note 8) 42,247 42,091
Securities available for sale (Note 3) 73,426 59,223
----------- -----------
TOTAL CURRENT ASSETS 239,733 166,897
----------- -----------
Investments
Leased property held for sale, net (Notes 4 and 5) 2,287,569 2,287,569
----------- -----------
Other Assets
Deferred charges, net of accumulated amortization of
$12,190 2002 and 2001 (Note 4) 2,810 2,810
Deferred leasing commissions, net of accumulated
amortization of $19,265 2002 and 2001 (Note 4) 33,122 33,122
----------- -----------
35,932 35,932
----------- -----------
$ 2,563,234 $ 2,490,398
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- -------------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt (Note 5) $ 84,000 $ 1,452,000
Accounts payable 10,155 11,793
Accrued expenses 14,648 8,769
----------- -----------
TOTAL CURRENT LIABILITIES 108,803 1,472,562
----------- -----------
Long-Term Debt, less current maturities (Note 5) 1,310,000 --
----------- -----------
Commitment and Contingency (Note 6)
Partners' Equity
General partners (11,721) (12,993)
Limited partners (Note 6) 1,167,367 1,041,388
Other comprehensive income, unrealized (loss) on
investment securities (Note 3) (11,215) (10,559)
----------- -----------
1,144,431 1,017,836
----------- -----------
$ 2,563,234 $ 2,490,398
=========== ===========
See Notes to Financial Statements.
2
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
- -----------------------------------------------------------------------------------
Rental income (Notes 4 and 8) $ 597,286 $ 586,588 $ 552,906
--------- --------- ---------
Operating expenses:
Contract labor 6,000 6,000 6,270
Repairs and maintenance 171,023 176,063 137,222
Management fees (Note 7) 17,865 17,585 16,493
Utilities 98,367 93,370 89,360
Professional fees 67,594 64,702 49,503
Property taxes 40,633 40,633 37,222
Miscellaneous 6,053 5,424 11,307
--------- --------- ---------
407,535 403,777 347,377
--------- --------- ---------
OPERATING INCOME 189,751 182,811 205,529
--------- --------- ---------
Nonoperating income (expense):
Interest and dividend income 4,997 6,019 9,604
Interest expense (67,497) (104,158) (145,143)
Other -- -- (4,708)
--------- --------- ---------
(62,500) (98,139) (140,247)
--------- --------- ---------
NET INCOME 127,251 84,672 65,282
Deduct net income applicable to limited
partners (per limited partner unit
2002 $19.72; 2001 $13.12; 2000 $10.11) 125,979 83,825 64,630
--------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO
GENERAL PARTNERS (PER GENERAL
PARTNER UNIT 2002 $25.46;
2001 $16.94; 2000 $13.14) $ 1,272 $ 847 $ 652
========= ========= =========
See Notes to Financial Statements.
3
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Accumulated
Other
Comprehensive General Limited Comprehensive
Total Income (Loss) Partners Partners Income (Loss)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 867,863 $ (14,492) $ 892,933 $ (10,578)
Comprehensive income
Net income 65,282 $ 65,282 652 64,630
Other comprehensive income:
Unrealized gain on securities available
for sale, net of reclassification entry below 3,941 3,941 3,941
-----------
Comprehensive income $ 69,223
------------ =========== --------- ----------- -----------
Balance, December 31, 2000 937,086 (13,840) 957,563 (6,637)
Comprehensive income
Net income 84,672 $ 84,672 847 83,825
Other comprehensive income:
Unrealized loss on securities available
for sale, net of reclassification entry below (3,922) (3,922) (3,922)
-----------
Comprehensive income $ 80,750
------------ =========== --------- ----------- -----------
Balance, December 31, 2001 1,017,836 (12,993) 1,041,388 (10,559)
Comprehensive income
Net income 127,251 $ 127,251 1,272 125,979
Other comprehensive income:
Unrealized loss on securities available
for sale, net of reclassification entry below (656) (656) (656)
-----------
Comprehensive income $ 126,595
------------ =========== --------- ----------- -----------
Balance, December 31, 2002 $ 1,144,431 $ (11,721) $ 1,167,367 $ (11,215)
=========== ========= =========== ===========
Reclassification adjustment 2002 2001 2000
----------- ----------- ---------
Unrealized holding losses arising $ (656) $ (3,922) $ (1,939)
during the period
Less reclassification adjustment for losses
included in net income (loss) -- -- 5,880
----------- ----------- ---------
Net unrealized gain (loss) on investments
securities $ (656) $ (3,922) $ 3,941
=========== =========== =========
See Notes to Financial Statements.
4
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
- -----------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 127,251 $ 84,672 $ 65,282
Adjustments to reconcile net income to net
cash provided by operating activities:
Net realized losses on sale of securities
available for sale -- -- 5,880
Changes in assets and liabilities:
(Increase) decrease in accounts receivable,
tenant and accrued rent receivable (156) 12,068 (15,629)
Increase (decrease) in accounts payable and
accrued expenses 4,241 (39,334) 22,735
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 131,336 57,406 78,268
--------- --------- ---------
Cash Flows From Investing Activities
Purchase of securities available for sale (15,534) (4,877) (36,106)
Proceeds from sale of securities available for sale 675 845 91,119
NET CASH PROVIDED BY (USED IN)
--------- --------- ---------
INVESTING ACTIVITIES (14,859) (4,032) 55,013
--------- --------- ---------
Cash Flows from Financing Activities
Principal payments on long-term borrowings
and notes payable (58,000) (60,000) (73,000)
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (58,000) (60,000) (73,000)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 58,477 (6,626) 60,281
Cash and cash equivalents:
Beginning 65,583 72,209 11,928
--------- --------- ---------
Ending $ 124,060 $ 65,583 $ 72,209
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash payment for interest $ 68,453 $ 110,468 $ 143,932
Supplemental Disclosures of Noncash Transactions:
Net unrealized gain (loss) on securities available
for sale $ (656) $ (3,922) $ 3,941
See Notes to Financial Statements.
5
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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NOTE 1. NATURE OF BUSINESS AND ORGANIZATION, PARTNERSHIP AGREEMENT AND
SIGNIFICANT ACCOUNTING POLICIES
Nature of business and organization: The Partnership is a North Carolina limited
partnership formed in July 1986. The purpose of the Partnership is to acquire,
operate, hold for investment and sell commercial rental property. The
partnership has property located in Charlotte, North Carolina.
The general partners of the Partnership are DRY Limited Partnership, a North
Carolina limited partnership in which Dexter R. Yager, Sr. is the general
partner and FSK Limited Partnership, a North Carolina limited partnership in
which Faison S. Kuester, Jr. is the general partner.
Partnership agreement: Under the terms of the partnership agreement, all taxable
income, tax losses and cash distributions from operations are to be allocated
99% to the limited partners and 1% to the general partners until the limited
partners receive a return of their initial capital contributions and a "Priority
Return". The Priority Return is a sum equal to 8% per annum cumulative, but not
compounded, (prorated for any partial year) of the adjusted capital
contributions of the limited partners, calculated from the last day of the
calendar quarter in which each limited partner is admitted to the Partnership to
the date of payment. Thereafter, taxable income, tax losses and cash
distributions from operations will be allocated 75% to the limited partners and
25% to the general partners.
Upon the sale or refinancing of any future partnership properties, the
partnership agreement specifies certain allocations of net proceeds and taxable
gain or loss from the transaction.
A summary of the Partnership's significant accounting policies follows:
Use of estimates: The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: For purposes of reporting the statements of cash
flows, the Partnership includes all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments
purchased with an original maturity of three months or less as cash and cash
equivalents on the accompanying balance sheets. At various times throughout the
year, the Partnership may have cash balances at financial institutions which
exceed federally-insured amounts.
Accounts receivable, tenant: Accounts receivable are recognized at the
contracted monthly rent amount. Accounts receivable are considered past due when
payment is not received within the contract term. The Partnership does not
charge late fees or interest on past due balances.
6
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND ORGANIZATION, PARTNERSHIP AGREEMENT AND
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment in securities available for sale: Financial Accounting Standards
Board Statement No. 115 requires that management determine the appropriate
classification of securities at the date individual investment securities are
acquired, and that the appropriateness of such classification be reassessed at
each balance sheet date. Since the Partnership neither buys securities in
anticipation of short-term fluctuations in market prices nor can commit to
holding debt securities to their maturities, the investment in debt and
marketable equity securities have been classified as available for sale in
accordance with Statement No. 115. Available-for-sale securities are stated at
fair value, and unrealized holding gains and losses are reported as a separate
component of partners' equity. Realized gains and losses, including losses from
declines in value of specific securities determined by management to be
other-than-temporary, are included in income. Realized gains and losses are
determined on the basis of the specific securities sold.
Deferred charges: Deferred charges are related to prepaid fees which are
amortized over the length of the related loans, 1 to 10 years, on a
straight-line basis. Amortization was discontinued in 1998 subsequent to the
recognition of impairment (see Note 4).
Deferred leasing commissions: Deferred leasing commissions related to obtaining
specific leases are amortized using the straight-line method over the
noncancelable lease terms which range from three to seven years. Amortization
was discontinued in 1998 subsequent to the recognition of impairment (see Note
4).
Revenue recognition: Rental revenue is recognized evenly over the term of the
lease. In connection with negotiating and obtaining leases, the Partnership's
management may at times grant concessions, such as free rent for a specific
number of months during the lease. These costs are amortized over the life of
the lease.
Disclosures about the fair value of financial instruments: Financial Accounting
Standards Board Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
At December 31, 2002 and 2001, the carrying values of the Partnership's
financial instruments, including accounts receivable which are due on demand and
the mortgage payable which bears interest at market rates, approximate their
fair values.
Partnership equity: The Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share. The Statement specifies the computation,
presentation, and disclosure requirements for earnings per share. Management
believes that Statement No. 128 is analogous to limited partnership units and
accordingly, additional disclosures for partnership units are presented in the
accompanying financial statements.
Income taxes: Under current income tax laws, income or loss of the Partnership
is included in the income tax returns of the partners. Accordingly, the
Partnership will make no provision for federal or state income taxes.
Leased property held for sale: The Partnership has adopted Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Statement No. 144 requires assets to be reported
at the lower of their carrying value or estimated fair value less cost to sell.
7
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND ORGANIZATION, PARTNERSHIP AGREEMENT AND
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications: The Company's policy is to reclassify certain amounts
reported in prior year financial statements when necessary for conformity with
classifications adopted in the current year. These reclassifications do not have
a material effect on prior year financial statements.
NOTE 2. WORKING CAPITAL RESERVE
Per the Partnership Agreement, a minimum working capital reserve of $94,500 must
be maintained to fund any expenditures that the cash flow from properties on
operating leases is insufficient to meet. The combined balance of cash and cash
equivalents and securities available for sale exceeds this requirement at
December 31, 2002 and 2001 by $102,986 and $30,306, respectively.
Securities available for sale may be sold in order to fund future operating cash
flow expenditures.
NOTE 3. SECURITIES AVAILABLE FOR SALE
The following is a summary of the Partnership's securities available for sale as
of December 31, 2002 and 2001:
Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
-------- -------- -------- --------
2002
-------------------------------------------------
Securities available for sale:
Mutual funds $ 82,722 $ -- $(11,282) $ 71,440
Mortgage-backed securities 1,919 67 -- 1,986
-------- -------- -------- --------
$ 84,641 $ 67 $(11,282) $ 73,426
======== ======== ======== ========
2001
-------------------------------------------------
Securities available for sale:
Mutual funds $ 67,189 $ -- $(10,619) $ 56,570
Other equity investments 2,593 60 2,653
-------- -------- -------- --------
$ 69,782 $ 60 $(10,619) $ 59,223
======== ======== ======== ========
At December 31, 2002, the Partnership did not have trading or held to maturity
securities.
8
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. SECURITIES AVAILABLE FOR SALE (CONTINUED)
Gross realized gains and losses from the sale of securities available for sale
for the years ended December 31, 2002, 2001 and 2000 are as follows:
2002 2001 2000
------------------------------------------------------
Realized gains $ - $ - $ -
Realized (losses) - - (5,880)
------------------------------------------------------
$ - $ - $ (5,880)
======================================================
The Partnership has only equity securities. Equity securities have no maturity
date. Therefore, there are no amortized cost or fair values of securities
available for sale as of December 31, 2002 by contractual maturity.
Proceeds from sales of securities available for sale during the years ended
December 31, 2002, 2001 and 2000 are as follows:
2002 2001 2000
------------------------------------------------------
Proceeds from sales of securities available for sale $ 675 $ 845 $ 91,119
======================================================
Dividend income included in nonoperating income (expense) in the accompanying
Statements of Operations totaled $4,795, $5,774 and $9,059 for the years ended
December 31, 2002, 2001 and 2000, respectively.
NOTE 4. LEASED PROPERTY HELD FOR SALE
The Partnership leases office facilities under various lease agreements. The
following schedule provides an analysis of the Partnership's investment in
property held for lease by major classes as of December 31, 2002 and 2001,
respectively.
2002 2001
------------------------------------
Land $ 631,028 $ 631,028
Building 2,524,110 2,524,110
Building improvements 1,311,641 1,311,641
------------------------------------
4,466,779 4,466,779
Less accumulated depreciation 705,480 705,480
------------------------------------
3,761,299 3,761,299
Less allowance on impairment of property 1,473,730 1,473,730
------------------------------------
$ 2,287,569 $ 2,287,569
====================================
9
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. LEASED PROPERTY HELD FOR SALE (CONTINUED)
The following is a schedule by year of all minimum future rentals on
noncancelable operating leases as of December 31, 2002:
Year Ending
December 31, Amount
- ------------------------------------------------------------------------------
2003 $ 35,791
The property is currently contracted with a real estate broker. It is the
intention of the General Partners to market and sell the property. The sales
proceeds will be used to pay off debt/liabilities and return partners' equity.
During 2002, the Partnership expensed $15,050 of additional improvements and
upgrades made to the building. The allowance on impairment of property is
subject to potential significant change based upon market conditions. Subsequent
to the recognition of the impairment, depreciation and amortization of the
related assets were discontinued.
NOTE 5. NOTE PAYABLE, BANK, LONG-TERM DEBT AND PLEDGED ASSETS
Long-term debt and pledged assets consists of the following at December 31, 2002
and 2001:
2002 2001
--------------------------------------
Note payable to bank, due in monthly installments of $5,000
plus interest at prime (4.75% at December 31, 2001),
through June 2002, secured by building, guaranteed by
general partner. $ - $ 1,452,000
Note payable to bank, due in monthly installments of $7,000
plus interest at prime (4.25% at December 31, 2002),
through December 2004, secured by building, guaranteed by
general partner. 1,394,000 -
--------------------------------------
1,394,000 1,452,000
Less current maturities 84,000 1,452,000
--------------------------------------
$ 1,310,000 $ -
======================================
NOTE 6. PRIORITY RETURN
The cumulative unpaid priority return to the limited partners is $3,380,753 and
$3,137,969 at December 31, 2002 and 2001, respectively. There were no cash
distributions to the limited partners for the priority return for the years
ended December 31, 2002, 2001 and 2000. Based on current and projected real
estate market conditions, the General Partners believe that it is reasonably
unlikely that a future sale of the Partnership property would produce sufficient
net sales proceeds to pay the priority return.
10
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. RELATED PARTY TRANSACTIONS
Management expenses paid to a General Partner and to Internet Services
Corporation, a related party, in connection with day-to-day operations of the
Partnership amounted to $17,865, $17,585, and $16,493 for the years ended
December 31, 2002, 2001 and 2000, respectively. Also, allocated expenses were
paid to related parties in the amounts of $75,938, $68,638 and $56,569 for the
years ended December 31, 2002, 2001 and 2000, respectively.
NOTE 8. MAJOR TENANTS
Rental income for the years ended December 31, 2002, 2001 and 2000,
respectively, included approximate rentals from the following major tenants
which accounted for 10% or more of the total rental income of the Partnership
for those years:
Approximate Amount of Rental Income
Year Ended December 31,
------------------------------------------------------
2002 2001 2000
------------------------------------------------------
Tenant A $ 506,505 $ 467,000 $ 462,000
Accounts receivable from the major tenant identified above was as follows at
December 31, 2002 and 2001, respectively:
December 31,
--------------------------------------
2002 2001
--------------------------------------
Tenant A $ 42,247 $ 42,091
The major tenant identified above has the option to terminate its lease
agreement with the Partnership two years prior to the end of the lease. If the
option is exercised, the tenant may terminate its lease with the Partnership
after November 30, 2002. The tenant has not exercised this option.
11
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present summarized quarterly data for the years ended
December 31, 2002 and 2001:
YEAR ENDED DECEMBER 31, 2002
Three Months Ended
March 31 June 30 September 30 December 31
-----------------------------------------------------------
Rental income $ 147,625 $148,330 $ 152,650 $ 148,681
Operating expenses 100,100 107,318 106,454 93,663
Nonoperating income 1,213 1,159 1,477 1,148
Nonoperating expenses 17,135 17,512 16,876 15,974
-----------------------------------------------------------
Net income $ 31,603 $ 24,659 $ 30,797 $ 40,192
===========================================================
Net income per limited partner unit $ 4.90 $ 3.82 $ 4.77 $ 6.23
===========================================================
YEAR ENDED DECEMBER 31, 2001
Three Months Ended
March 31 June 30 September 30 December 31
-----------------------------------------------------------
Rental income $ 143,671 $146,628 $ 148,664 $ 147,625
Operating expenses 96,534 113,648 95,015 98,580
Nonoperating income 1,947 1,647 1,067 1,358
Nonoperating expenses 32,697 27,468 24,723 19,270
-----------------------------------------------------------
Net income $ 16,387 $ 7,159 $ 29,993 $ 31,133
===========================================================
Net income per limited partner unit $ 2.56 $ 1.12 $ 4.69 $ 4.75
===========================================================
12
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. Not applicable.
PART III
Item 10. Directors and Executive Officers of the Partnership. The
Partnership has no executive officers and directors. The General Partners of the
partnership are DRY Limited Partnership, the sole General Partner of which is
Dexter R. Yager, Sr., and FSK Limited Partnership, the sole General Partner of
which is Faison S. Kuester, Jr.
Following is a brief discussion of the background and experience of Messrs.
Kuester and Yager.
Faison S. Kuester, Jr., 57, graduated from the University of North Carolina
at Chapel Hill with a Bachelor of Arts Degree in History in 1967. He is a
resident of Charlotte, North Carolina. After three years service in the United
States Army as a Lieutenant, Mr. Kuester joined Independence Development
Corporation in 1972 serving as a director of leasing and management for a period
of three years. In 1974, Mr. Kuester formed his own company, Kuester Realty and
Management, in order to lease and manage commercial properties in Charlotte,
North Carolina and surrounding communities. In addition to leasing and managing
various commercial properties, Kuester Realty developed two medical clinics in
the Charlotte area. In 1980, Kuester Properties, Inc. ("KPI") was formed to
specialize in on-site management of apartment communities in the southeastern
United States. The following year Cauble and Kuester Company, Inc. was organized
to lease and manage commercial properties in the metropolitan Atlanta area. This
partnership brought together Cauble and Company, experienced mortgage lenders
and leasing agents in the Atlanta market, and Kuester Realty and Management.
Finally, in 1983, Kuester Development Corporation was formed to allow the
Kuester companies to engage in selective real estate development projects in the
southeastern United States.
Through Kuester Development Corporation, a wholly-owned subsidiary of KPI,
Mr. Kuester has been directly involved with the development of several
commercial real estate properties in North and South Carolina and Georgia. These
include the First United National Bank Building in Wilmington, North Carolina,
two retail office showroom projects, two medical office buildings and
residential condominiums in Charlotte, North Carolina, an office building in
Savannah, Georgia, and an office building in Greenville, South Carolina. Kuester
Development Corporation also has developed over 1000 apartment units throughout
Charlotte, North Carolina since 1983.
In October 1996, Mr. Kuester formed FSK Properties, LLC to provide
management, leasing and brokerage services to his clients. FSK Properties, LLC
serves as property manager of the Partnership property.
Dexter R. Yager, Sr., 63, is the President and founder of D&B Yager
Enterprises, Inc., Mr. Yager's Amway distributorship business. Through D&B Yager
Enterprises, Inc., Mr. Yager has been an independent business owner for Amway
Corporation for over 35 years during which time he has achieved the status of
Founder's Crown Ambassador, which is the highest level attainable as an Amway
distributor. The Amway Corporation, now known as Quixtar, is one of the largest
manufacturers of home care products in the world. He is also a former member and
past president of the Amway Distributor Association Board of Directors. Mr.
Yager has many other family-owned businesses and is responsible for the
development of several businesses, including the following: Yager Personal
Development, Inc., which handles Mr. Yager's services as a speaker at Amway
events, Yager Construction Company, Inc., which is a general building
contractor; and YFP, LLC (f/k/a as The Dexter and Birdie Yager Family Limited
Partnership), which owns various real estate investments and manages real estate
for the Yager family.
Mr. Yager has significant experience in real estate investment for his own
account. Mr. Yager personally, and through partnerships in which he and his wife
own a majority interest, has made investments in raw land, office buildings,
shopping centers, and other commercial and residential real estate having a
market value in excess of $10,000,000. He has made substantial additional real
estate investments through partnerships in which he does not own a majority
interest.
Item 11. Executive Compensation. The Partnership does not employ any
executive officers or directors. Dexter R. Yager, Sr. and Faison S. Kuester have
policy making functions with regard to Partnership operations. See Item 10 for
the relationship of such persons to the Partnership. See Item 13 for a
description of payments made to FSK Properties, LLC for property management
services and to Internet Services Corporation, Inc. for accounting and
management services.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The General Partners initially contributed a total of $2,500 to the capital of
the Partnership, consisting of a $1,600 contribution from DRY Limited
Partnership and $900 from FSK Limited Partnership. The General Partners own a 1%
interest in all items of Partnership income, gain, loss, deductions
20
or credits including 1% of net cash from operations. The General Partners also
own a residual 25% interest in net cash from a sale or refinancing of the
Partnership Property, subordinated to the receipt by the Limited Partners of the
return of their capital contributions and their priority return and to the
payment of any subordinated real estate commissions due to affiliates of the
General Partners.
The General Partners do not own any Limited Partnership interest in the
Partnership.
Item 13. Certain Relationships and Related Transactions. During the fiscal
year ended December 31, 2002, FSK Properties, LLC received $52,316 for
management fees, commissions and repair service fees. Internet Services
Corporation, Inc. received $41,487 for providing accounting/management services.
Internet Services Corporation is owned equally by three trusts, the beneficial
interests of which inure to the benefit of three children of Dexter R. Yager,
Sr., the sole General Partner of DRY Limited Partnership, which limited
partnership is one of the two general partners of the Partnership. Janitorial
services for the EastPark Executive Center are provided by Marquis Cleaning
Services, which is operated and owned by Dexter R. Yager's nephew.
The General Partners believe that the terms for the above mentioned
services are as favorable as those the Partnership could obtain from
unaffiliated parties.
Item 14. Controls and Procedures. In connection with the preparation of
this report, the person performing the function of principal executive officer
and the person performing the function of the principal financial officer of the
Partnership have evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of a date within 90 days of the filing of this report
and have concluded that the Partnership's disclosure controls and procedures are
suitable and effective for the Partnership, taking into consideration the size
and nature of the Partnership's business and operations
PART IV
Item 15. Exhibits, Financial Statements Schedules and Reports on Form 8-K.
(a)(1) The following financial statements of the Partnership are included
in Part II, Item 8 hereof.
(i) Independent Auditor's Report
(ii) Balance Sheets as of December 31, 2002 and 2001
(iii) Statements of Operations for years ended December 31,
2002, 2001 and 2000
(iv) Statements of Partners' Equity for years ended December 31,
2002, 2001 and 2000
(v) Statements of Cash Flows for years ended December 31, 2002,
2001 and 2000
(vi) Notes to Financial Statements
(a)(2) All schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the financial
statements or notes thereto.
(a)(3) Exhibits:
(4) Instrument defining rights of securities holders - set
forth in the Limited Partnership Agreement which is
contained in the Prospectus incorporated herein by
reference.
(10.1)* Limited Partnership Agreement
(10.2)** Exclusive Leasing and Management Agreement dated October 1,
1994 (EastPark Executive Center).
(10.3)***Listing Agreement of Property for Lease and/or Sale
dated December 22, 1998 (EastPark Executive Center).
(23) Consent of Independent Auditor
(b) Reports on Form 8-K: None.
21
(c) Exhibits: The exhibits listed in Item 14(a)(3) above and not
incorporated herein by reference are filed with this Form 10-K.
(d) Financial Statement Schedules: There are no financial statement
schedules included in this Form 10-K report.
- --------------------------------------------------------------------------------
* Incorporated by reference to Exhibit A of the Partnership's Prospectus dated
December 1, 1987, Registration Number 33-07056-A.
** Incorporated by reference to Exhibit 3 of the Partnership's Form 10-K for
the year ended December 31, 1995.
*** Incorporated by reference to Exhibit 3 of the Partnership's Form 10-K for
the year ended December 31, 1998.
22
CERTIFICATE OF PERSON PERFORMING
FUNCTIONS OF CHIEF EXECUTIVE OFFICER
I, Dexter R. Yager, Sr., certify that:
1. I have reviewed this annual report on Form 10-K of Yager/Kuester Public
Fund Limited;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, is made known to us, particularly during
the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function): a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Dexter R. Yager, Sr.
----------------------------------------
Dexter R. Yager, Sr., General Partner of
DRY Limited Partnership,
the General Partner of Registrant
23
CERTIFICATE OF PERSON PERFORMING
FUNCTIONS OF CHIEF FINANCIAL OFFICER
I, Thomas K. Emery, certify that:
1. I have reviewed this annual report on Form 10-Q of Yager/Kuester Public
Fund Limited;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, is made known to us, particularly during
the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function): a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/Thomas K. Emery
------------------
Thomas K. Emery
(Serving in the function of Principal Accounting Officer)
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
By: FSK Limited Partnership
March 31, 2003 By: /s/ Faison S. Kuester, Jr.
------------------------------
Faison S. Kuester, Jr.
General Partner
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 31, 2003 by the following persons on
behalf of the Partnership and in the capacities and on the dates indicated.
/s/ Thomas K. Emery /s/ Faison S. Kuester
- ---------------------------------------- -----------------------------------
Thomas K. Emery Faison S. Kuester, Jr., General
(Serving in the function of
Principal Accounting Officer) Partner of FSK Limited Partnership,
General Partner of the Partnership
Date March 31, 2003 Date March 31, 2003
--------------------------------- ----------------------------
/s/ Dexter R. Yager, Sr.
-----------------------------------
Dexter R. Yager, Sr., General
Partner of DRY Limited Partnership,
General Partner of the Partnership
Date March 31, 2003
---------------------------