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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____.
Commission file number - 0-21458.
TELECOMMUNICATIONS INCOME FUND IX, L.P.
(Exact name of registrant as specified in its charter)
Iowa 42-1367356
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Tama Street, Marion, Iowa 52302
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 319-447-5700
------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities pursuant to section 12(g) of the Act:
Limited Partnership Interests (the "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 (ss.229.405 of this chapter) 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].
As of March 1, 2001, 66,650 units were issued and outstanding. Based on the book
value of $11.91 per unit at December 31, 2000, the aggregate market value at
March 1, 2001 was $793,802.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the prospectus included in the Partnership's Post Effective
Amendment No. 4 to the Registration Statement on Form S-1 filed December 22,
1992 are incorporated by reference into Part IV.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
PART I
Item 1 Business........................................................... 3
Item 2 Properties......................................................... 4
Item 3 Legal Proceedings.................................................. 4
Item 4 Submission of Matters to a Vote of Unit Holders.................... 4
PART II
Item 5 Market for the Registrant's
Common Equity and Related Stockholders Matters..................... 5
Item 6 Selected Financial Data............................................ 5
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 6
Item 7A Quantitative and Qualitative Disclosures About Market Risk......... 8
Item 8 Financial Statements and Supplementary Data........................ 9
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................. 27
PART III
Item 10 Directors and Executive Officers of the Registrant................. 27
Item 11 Executive Compensation............................................. 28
Item 12 Security Ownership of Certain
Beneficial Owners and Management................................... 29
Item 13 Certain Relationships and Related Transactions..................... 29
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 30
SIGNATURES......................................................... 31
EXHIBIT INDEX...................................................... 32
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PART I
ITEM 1. BUSINESS
Telecommunications Income Fund IX, L.P., an Iowa limited partnership (the
"Partnership"), was organized on April 2, 1991. The general partner is Berthel
Fisher & Company Leasing, Inc. (the "General Partner"), an Iowa corporation that
has been in operation since 1988. The Partnership's business and the executive
offices of the General Partner are located at 701 Tama Street, Marion, Iowa
52302. Substantially all of the voting stock of the General Partner is owned by
Berthel Fisher & Company ("Berthel Fisher").
The Partnership began offering Units to the public on October 31, 1991 and
continued to offer Units to the public through April 30, 1993.
The Partnership was originally scheduled to dissolve by December 31, 1999.
However, in November, 1999, the partners voted to extend the Partnership until
December 31, 2005, unless dissolved sooner due to the occurrence of any of the
following events: (i) the vote by limited partners owning a majority of the
Partnership in accordance with the Partnership Agreement; (ii) the withdrawal,
bankruptcy, or dissolution and liquidation or other cessation to exist as a
legal entity of the General Partner (unless any successor general partner
elected in accordance with the provisions of the Partnership Agreement elects to
continue the business of the Partnership); (iii) the final distribution of all
liquidating distributions among the limited partners pursuant to the Partnership
Agreement; or (iv) the sale or disposition of all or substantially all of the
assets of the Partnership without the subsequent reinvestment in equipment.
The Partnership entered the liquidation phase on May 1, 1998 and must be
dissolved by December 31, 2005. During the liquidation process, the orderly
collection of lease payments will continue. Also, early payoff of leases and
sales of equipment will be a priority. If leases can be sold for an adequate
return to the investor, the sale of lease receivables will be pursued. Proceeds
from the sale of net assets, including the sale of any portion of the lease
portfolio, will be distributed to Partners.
The Partnership acquired telecommunications equipment (primarily pay telephones
and call processing equipment) leased to third parties generally under full
payout leases. The Partnership also acquired other types of equipment that is
subject to full payout leases. Full payout leases are leases that are expected
to generate gross rental payments sufficient to recover the purchase price of
the subject equipment and any overhead and acquisition costs.
Equipment acquired by the Partnership is installed in various locations by the
lessees. When the lessee installs the equipment in a location, a site location
agreement gives the lessee the right to have the equipment at this site for a
specified period of time. These site location agreements generally have a three
to five year term. The Partnership, in addition to its ownership of the
equipment, takes an assignment of and a first security interest in these site
location agreements. Therefore, if a lessee defaulted, the Partnership would
have the ability to re-sell or re-lease the equipment in place. This "in place"
value is generally much higher than the residual value of the equipment. The
telecommunications equipment generates revenue primarily through long distance
phone calls. The Partnership's lessee generally receives long distance revenue
from a contracted third party billing company. The Partnership also takes an
assignment of this revenue.
The General Partner acquired and approved leases on behalf of the Partnership.
The General Partner established guidelines to use in approving lessees.
Generally, before any lease was approved, there was a review of the potential
lessees' financial statements, credit references were checked, and outside
business and/or individual credit reports were obtained.
The equipment purchased by the Partnership consists of advanced technology pay
telephones and call processing systems to be used in hotels, hospitals,
colleges, universities, and correctional institutions. The Partnership also
purchased and leased other equipment.
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The Partnership's equipment leases are concentrated in the pay telephone
industry representing approximately 34%, 72%, and 85% of the Partnership's
direct finance lease portfolio at December 31, 2000, 1999, and 1998,
respectively. At December 31, 2000, two customers accounted for 83% of the
Partnership's net investment in direct financing leases and notes receivable.
The leasing industry is very competitive and the Partnership has fewer assets
than some of its major competitors. The principal methods of competition include
service and price (interest rate). The Partnership operates in one segment.
A significant portion of the Partnership's business is with customers who are in
the telecommunications industry. The telecommunications industry, particularly
the pay telephone and long distance facets of the industry, is heavily regulated
by the Federal Communications Commission and by various state public utility
commissions. Regulation is not directed at the ownership or leasing of
telecommunications equipment, but is focused primarily on the business of the
Partnership's customers that operate in the telecommunications industry.
Regulation affects rates that can be charged and the relationship of the
regional Bell operating companies to the rest of the pay telephone industry.
Management does not expect regulation to have any significant negative impact
upon the business of the Partnership.
The Partnership has no employees and utilizes the administrative services of the
General Partner for which it pays an administrative service fee.
ITEM 2. PROPERTIES
The Partnership does not own or lease any real estate. The Partnership's
materially important properties consist entirely of equipment under lease, as
described in Item 1.
ITEM 3. LEGAL PROCEEDINGS
Telcom Management Systems filed a suit against the Partnership, the General
Partner, and others in Federal Court in Dallas, Texas during February 1998. The
plaintiffs purchased equipment from the Partnership out of a bankruptcy for
approximately $450,000. They alleged that when they attempted to sell the
equipment at a later date, the Partnership had not provided good title. The
General Partner filed a Motion for Summary Judgement, which is still pending.
After filing the suit, the plaintiff transferred assets in lieu of bankruptcy.
The bankruptcy trustee is now reviewing the transfer to determine if the
transfer was done in fraud of creditors. The bankruptcy court had granted
several extensions and the litigation was on hold until the trustee had made a
decision, however, in mid September the extension expired and was not renewed.
The Motion for Summary Judgement filed by the General Partner has been denied.
No further action has been taken at this time by the plaintiff. No loss, if any,
has been recorded in the financial statements with respect to this matter.
On January 10, 2000, SA Communications, Inc., a debtor in bankruptcy, filed a
complaint in the United States Bankruptcy Court for the District of Delaware
against the Partnership to avoid transfers and to recover property transferred.
The complaint alleged that on September 10, 1997, the debtor paid a check in the
amount of $45,069.83 to the Partnership which constituted a preferential
transfer in favor of the Partnership. The Partnership filed an answer denying
that the payment constituted a preference. Initially, there was a requirement
that the parties should exchange discovery documents but that exchange of
documents has been continued indefinitely. The Partnership believes that the
payment was received in the ordinary course of business and should not
constitute a preferential transfer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS
No matters were submitted to a vote of limited partners, through the
solicitation of proxies or otherwise during the year covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrants' Units are not publicly traded. There is no market for the
Registrant's Units and it is unlikely that any will develop. The General Partner
will resist the development of a public market for the Units.
Number of Partners
Title of Class at March 1, 2000
------------------------------------------
Limited Partners 1,156
General Partner 1
Distributions of $300,000, $1,565,000, $8,477,803, $2,035,780, and $2,039,573
were made to investors in 2000, 1999, 1998, 1997, and 1996, respectively. This
represented distributions per unit of $4.49 for 2000, $23.21 for 1999, $125.23
for 1998, and $30.00 for 1996 through 1997.
ITEM 6. SELECTED FINANCIAL DATA
(HISTORICAL COST BASIS)
--------------------------------------------
Three
Months Ended Year Ended Year Ended
Mar. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
------------- ------------- -------------
Total Revenue $ 402,020 $ 2,624,821 $ 3,289,142
Net Income (Loss) 94,123 (220,095) 1,008,207
Provision for Possible Losses 64,711 1,801,233 577,931
Net Income (Loss) per Unit 1.39 (3.25) 14.83
Distributions per Unit 7.50 30.00 30.00
Distributions to Partners 508,064 2,035,780 2,039,573
(LIQUIDATION BASIS) (HISTORICAL COST BASIS)
------------------------------------------- ----------------------------
Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
------------- ------------- ------------- ------------- -------------
Total Assets $ 969,554 $ 1,593,434 $ 3,215,954 $11,640,576 $15,642,179
Line of Credit --- --- --- 50,557 1,060,490
Bank term loan --- --- --- --- 845,149
(LIQUIDATION BASIS)
--------------------------------------------
Year Ended Year Ended Mar. 31, 1998-
Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
------------- ------------- -------------
Change in net assets, excluding
distributions and withdrawals $ (85,161) $ 50,608 $ 235,258
Distributions to Partners 300,000 1,565,000 7,969,739
Distributions per Unit 4.49 23.21 117.73
The selected financial data above was derived from the liquidation basis
financial statements of the Partnership from March 31, 1998 through December 31,
2000 and the historical cost basis financial statements prior to March 31, 1998.
As of March 31, 1998, the Partnership adopted the liquidation basis of
accounting. Under liquidation basis accounting, assets are presented at
estimated net realizable value and liabilities are presented at estimated
settlement amounts. The change to liquidation basis accounting may materially
affect the comparability of the selected financial data.
The above selected financial data should be read in connection with the
financial statements and related notes appearing elsewhere in this report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
On May 1, 1998, the Partnership ceased reinvestment in equipment and leases and
began the orderly liquidation of the Partnership in accordance with the
partnership agreement. As a result, the financial statements beginning with the
second quarter of 1998 have been presented under the liquidation basis of
accounting. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable values and liabilities are stated at their
anticipated settlement amounts.
As discussed above, the Partnership is in liquidation and does not believe a
comparison of results would be meaningful. The Partnership realized $21,706 in
income from direct financing leases, notes receivable, interest, and other
income for the year ended December 31, 2000.
Management decreased its estimate of the liquidation value of net assets during
2000 by $106,867. This decrease in the liquidation value of net assets is
primarily due to a decrease in the estimated net realizable value of equity
securities held by the Partnership. Although management will make every effort
to collect leases, sell equipment and maximize equity positions as quickly as
possible, no assurance can be given that the Partnership will be dissolved prior
to December 31, 2005.
The return on average net assets, excluding the decrease in the estimate of the
liquidation value of net assets discussed above, was 2.2% for the year ended
December 31, 2000. The Partnership will continue to make distributions to the
partners as leases and notes receivable are collected or sold and other assets
are sold. The valuation of assets and liabilities necessarily requires many
estimates and assumptions and there are uncertainties in carrying out the
liquidation of the Partnership's net assets. The actual value of the liquidating
distributions will depend on a variety of factors, including the actual timing
of distributions to the partners. The actual amounts are likely to differ from
the amounts presented in the financial statements. Through December 31, 2000,
there have been distributions totaling $21,048,223. As of December 31, 2000 the
Partnership had $137,712 of cash on hand.
In June, 2000, the Partnership's two leases with Murdock Communications
Corporation ("Murdock") were converted to notes and stock as part of a
restructuring. At the time of the restructuring, the Partnership's net
investment in the contracts totalled $174,811. The Partnership received two
notes and recorded these at their estimated net realizable value of $127,879 and
34,947 (adjusted for a stock split) shares of preferred stock in Actel
Integrated Communications, Inc. ("Actel"), a not readily marketable security.
The estimated net realizable value of the Actel preferred stock was $78,630 at
December 31, 2000. The Partnership is not accruing interest on the notes
receivable due to the uncertainty of Murdock's ability to pay. The Partnership
has also established reserves for 50% of the face value of the notes receivable
due to this uncertainty.
During 1996, management provided a specific reserve of $284,000 related to a
lease with a customer. Due to the uncertainty regarding the amount and timing of
the future payments, the Partnership reclassified its net investment in the
lease at December 31, 1996 of $1,273,643, net of the specific allowance, to
equipment under operating leases. The equipment under this lease was being
depreciated under the straight-line method over its estimated remaining life.
Depreciation expense on this equipment was $65,400 in the first quarter of 1998
and $236,446 in 1997. Also, the Partnership recorded an additional decrease to
the estimated net realizable value of the equipment of $196,200 as of December
31, 1998. Under the operating lease, the customer was to pay the Partnership an
amount based on the percent of the customer's monthly net cash proceeds from
operating the pay phone route. The Partnership received $104,477 in 1997 from
the customer under this arrangement. The customer had not made a payment since
July 1997. The Partnership carried the equipment at a net realizable value of
$775,597 at December 31, 1999.
In August, 2000, the Partnership sold this equipment previously held under
operating leases for $870,000, resulting in a gain on the sale of $94,403. The
buyer was scheduled to make three payments totalling the
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$870,000. They made the first payment at the time of the sale of $130,500, but
did not make the subsequent scheduled payments. Payments totalling $317,115 were
made in 2000, resulting in $552,885 being carried on the statement of net assets
as a note receivable at December 31, 2000 relating to this sale. Management will
continue to monitor this contract and take the necessary steps to protect the
Partnership's investment.
As of December 31, 2000 there was one customer with payments over 90 days past
due. When payments are past due more than 90 days, the Partnership discontinues
recognizing income on those contracts. The Partnership's net investment in this
contract at December 31, 2000 was $43,751. Management believes its reserve is
adequate related to this customer. Management will continue to monitor any past
due contracts and take the necessary steps to protect the Partnership's
investment. In addition, notes receivable of $119,351 were on non-accrual status
due to concern over collectibility, as discussed above.
The General Partner is engaged directly for its own account in the business of
acquiring and leasing equipment. The General Partner serves as the general
partner of Telecommunications Income Fund X, L.P. ("TIF X") and
Telecommunications Income Fund XI, L.P. ("TIF XI"), publicly owned limited
partnerships that are engaged in the equipment leasing business. Also, an
affiliate of the General Partner serves as a general partner of a privately
offered active limited partnership. As of December 31, 2000, the net proceeds of
the private program, TIF X, and TIF XI have been invested in specific equipment.
TIF X entered the liquidation phase on December 31, 1999. The activities of the
General Partner, in regards to its other leasing activities, has had no impact
on the Partnership to date in management's opinion.
The equipment that the Partnership leases is maintained by the lessee, and it is
the lessee's responsibility to keep the equipment upgraded with any improvements
that may be developed. The Partnership generally establishes the equipment's
residual as 10% of the equipment's original cost. This residual value is
generally expected to be realized by the sale of the equipment at the expiration
of the original lease term. The General Partner monitors the maintenance and
upgrades to the equipment and expects the Partnership to realize residual values
of at least 10%.
The General Partner is not aware of any regulatory issues that may have a
substantial negative impact within the telecommunications industry in which the
Partnership conducts a significant amount of its business. There are, and will
continue to be, regulatory issues within the telecommunications industry that
the General Partner will monitor.
The equipment leases acquired by the Partnership were financed to yield rates of
return between 15% and 20%. The lease terms vary from 36 months to 60 months.
Rates charged on a particular lease depend on a variety of factors, including
the size of the transaction and the financial strength of the lessee. Inflation
affects the cost of equipment purchased and the residual values realized when
leases terminate and equipment is sold.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The recognition of gains or losses resulting from
changes in the values of derivatives is based on the use of each derivative
instrument and whether it qualifies for hedge accounting. In June 1999, the FASB
issued SFAS No. 137, which deferred the effective date of adoption of SFAS No.
133 for one year. The Partnership adopted SFAS No. 133 in the first quarter of
calendar year 2001. The adoption of this standard did not have any material
impact on the Partnership's results of operations, financial position or cash
flows.
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LIQUIDITY AND CAPITAL RESOURCES
Under terms of the Partnership agreement, the Partnership is required to
establish working capital reserves of no less than 1% of the total capital
raised ($169,755 at December 31, 2000). At December 31, 2000, actual cash on
hand was $137,712. However, upon entering the liquidation phase, the General
Partner has prioritized the liquidation of assets and distributing remaining
proceeds to the partners. Management believes that the cash on hand at December
31, 2000 is sufficient to satisfy current operating expenses and costs of the
Partnership.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK EQUITY PRICE
SENSITIVITY The tables provide information about the Partnership's marketable
and not readily marketable equity securities that are sensitive to changes in
prices. The tables present the carrying amounts and fair values as of December
31, 2000.
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock $ 5,536 $ 5,536
----------- -----------
Available-for-sale securities $ 5,536 $ 5,536
=========== ===========
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock $ 13,400 $ 13,400
Preferred Stock-Actel 78,630 78,630
----------- -----------
Not readily marketable securities $ 92,030 $ 92,030
=========== ===========
The Partnership's primary market risk exposure with respect to equity securities
is equity price. The Partnership's general strategy in owning equity securities
is long-term growth in the equity value of emerging companies in order to
increase the rate of return to the limited partners over the life of the
Partnership. The primary risk of the securities held is derived from the
underlying ability of the companies invested in to satisfy debt obligations and
their ability to maintain or improve common equity values. Since the investments
are in emerging companies, the equity prices can be volatile. On September 30,
2000, the Partnership's 1,916 shares of Murdock preferred stock were converted
to common stock at a rate of 89 shares of common stock for each share of
preferred held. The Partnership holds 69,473 shares of Murdock as available for
sale and 178,645 shares as not readily marketable, due to restrictions imposed
by rule 144 of the Securities and Exchange Commission. At December 31, 2000, the
market price of Murdock was $.09375 per share. At December 31, 2000, the total
amount at risk was $97,566.
INTEREST RATE SENSITIVITY
The table below provides information about the Partnership's notes receivable
that are sensitive to changes in interest rates. The table presents the
principal amounts and related weighted average interest rates by expected
maturity dates as of December 31, 2000.
Expected Fixed Rate Weighted Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2001 $ 556,072 13.00%
2002 -0- 13.00%
2003 116,164 13.00%
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Total $ 672,236
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Fair Value $ 672,236
===========
The Partnership manages interest rate risk, its primary risk exposure with
respect to notes receivable, by limiting the terms of notes receivable to no
more than five years.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and related information as of and for the
years ended December 31, 2000, December 31, 1999, and December 31, 1998 are
included in Item 8:
Independent Auditors' Report
Statements of Net Assets as of December 31, 2000 and 1999 (Liquidation
Basis)
Statements of Changes in Net Assets (Liquidation Basis) for the Years Ended
December 31, 2000 and 1999 and for the Period from March 31, 1998
(Initial Adoption of Liquidation Basis) to December 31, 1998
Statements of Operations and Comprehensive Income (Going Concern Basis)
for the Three Months Ended March 31, 1998
Statements of Changes in Partners' Equity (Going Concern Basis)
for the Three Months Ended March 31, 1998
Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and
1998
Notes to Financial Statements
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INDEPENDENT AUDITORS' REPORT
To the Partners
Telecommunications Income Fund IX, L.P.
We have audited the accompanying statements of net assets (liquidation basis) of
Telecommunications Income Fund IX, L.P. (the "Partnership") as of December 31,
2000 and 1999, and the related statements of changes in net assets (liquidation
basis) for the years ended December 31, 2000 and 1999 and for the period from
March 31, 1998 (initial adoption of liquidation basis) to December 31, 1998. In
addition, we have audited the accompanying statements (going concern basis) of
operations and comprehensive income and of changes in partners' equity of the
Partnership for the three months ended March 31, 1998. In addition, we have
audited the accompanying statements of cash flows of the Partnership for each of
the three years in the period ended December 31, 2000. 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.
As discussed in Note 1 to the financial statements, the Partnership agreement
required that the orderly liquidation of the Partnership's net assets begin in
the second quarter of 1998, and the Partnership commenced liquidation shortly
thereafter. As a result, the Partnership changed its basis of accounting from
the going concern basis to the liquidation basis effective March 31, 1998.
In our opinion, such financial statements present fairly, in all material
respects, (1) the net assets of Telecommunications Income Fund IX, L.P. at
December 31, 2000 and 1999, (2) the changes in its net assets for the years
ended December 31, 2000 and 1999 and for the period from March 31, 1998 (initial
adoption of liquidation basis) to December 31, 1998, (3) the results of its
operations for the three months ended March 31, 1998, and (4) its cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America on the
basis described in the preceding paragraph.
As discussed in Note 1 to the financial statements, because of the inherent
uncertainty of valuation when an entity is in liquidation, the amounts
realizable from the disposition of the remaining assets may differ materially
from the amounts shown in the accompanying financial statements.
/s/ Deloitte & Touche LLP
Cedar Rapids, Iowa
March 23, 2001
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 2000 AND 1999 (LIQUIDATION BASIS)
- --------------------------------------------------------------------------------
ASSETS 2000 1999
Cash and cash equivalents $ 137,712 $ 135,796
Marketable equity securities (Note 2) 5,536 31,394
Not readily marketable equity securities (Note 2) 92,030 268,620
Net investment in direct financing leases
and notes receivable (Notes 3 and 4) 729,450 382,027
Equipment leased under operating leases (Note 5) -- 775,597
Other assets 4,826 --
---------- ----------
Total assets 969,554 1,593,434
---------- ----------
LIABILITIES
Outstanding checks in excess of bank balance -- 94,490
Trade accounts payable 9,683 9,535
Due to affiliates -- 477
Accrued expenses and other liabilities -- 21,075
Lease security deposits 9,089 18,888
Reserve for estimated costs during the period of
liquidation 157,138 259,000
---------- ----------
Total liabilities 175,910 403,465
---------- ----------
CONTINGENCIES (Notes 3 and 9)
NET ASSETS $ 793,644 $1,189,969
========== ==========
See notes to financial statements.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CHANGES IN NET ASSETS (LIQUIDATION BASIS)
YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM MARCH 31, 1998
(INITIAL ADOPTION OF LIQUIDATION BASIS) TO DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NET ASSETS AS OF MARCH 31, 1998 (GOING CONCERN BASIS) $10,469,843
Adjustment to liquidation basis (Note 1) (181,817)
-----------
NET ASSETS AS OF MARCH 31, 1998 (LIQUIDATION BASIS) 10,288,026
Income from direct financing leases 539,245
Interest and other income 114,175
Change in estimate of liquidation value of net assets (Note 1) (236,345)
Distributions to partners ($117.73 per unit) (Note 6) (7,969,739)
Withdrawals of limited partners (13,782)
-----------
NET ASSETS AS OF DECEMBER 31, 1998 2,721,580
Income from direct financing leases 124,961
Interest and other income 48,676
Change in estimate of liquidation value of net assets (Note 1) (123,029)
Distributions to partners ($23.21 per unit) (Note 6) (1,565,000)
Withdrawals of limited partners (17,219)
-----------
NET ASSETS AS OF DECEMBER 31, 1999 1,189,969
Income from direct financing leases 13,876
Interest and other income 7,830
Change in estimate of liquidation value of net assets (Note 1) (106,867)
Distributions to partners ($4.49 per unit) (Note 6) (300,000)
Withdrawals of limited partners (11,164)
-----------
NET ASSETS AS OF DECEMBER 31, 2000 $ 793,644
===========
See notes to financial statements.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (GOING CONCERN BASIS)
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
REVENUES:
Income from direct financing leases $ 356,900
Gain on lease terminations 8,808
Interest and other income 36,312
---------
Total revenues 402,020
---------
EXPENSES:
Management and administrative fees 72,794
Other general and administrative expenses 77,320
Interest expense 16,817
Provision for possible loan and lease losses 64,711
Depreciation expense 65,400
Impairment loss on equipment 10,855
---------
Total expenses 307,897
---------
NET INCOME 94,123
OTHER COMPREHENSIVE LOSS -
Unrealized loss on available for sale securities (20,869)
---------
COMPREHENSIVE INCOME $ 73,254
=========
NET INCOME ALLOCATED TO:
General partner $ 90
Limited partners 94,033
---------
$ 94,123
=========
NET INCOME PER PARTNERSHIP UNIT $ 1.39
=========
WEIGHTED AVERAGE PARTNERSHIP UNITS
OUTSTANDING 67,742
=========
See notes to financial statements.
13
14
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (GOING CONCERN BASIS)
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
UNREALIZED
LOSS ON
GENERAL LIMITED PARTNERS AVAILABLE- TOTAL
PARTNER ----------------------- FOR-SALE PARTNERS'
(40 UNITS) UNITS AMOUNT SECURITIES EQUITY
BALANCE AT JANUARY 1, 1998 $ 10,502 67,722 $ 10,912,710 $ (15,025) $ 10,908,187
Net income 90 -- 94,033 -- 94,123
Distributions to partners ($7.50 per unit)
(Note 6) (300) -- (507,764) -- (508,064)
Withdrawal of limited partner -- (20) (3,534) -- (3,534)
Change in unrealized loss on
available-for-sale securities -- -- -- (20,869) (20,869)
------------ ------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1998 $ 10,292 67,702 $ 10,495,445 $ (35,894) $ 10,469,843
============ ====== ============ ============ ============
See notes to financial statements.
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15
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
OPERATING ACTIVITIES:
Net income (loss)/change in net assets excluding
distributions and withdrawals $ (85,161) $ 50,608 $ (308,512)
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments 106,867 123,029 778,118
Gain on lease terminations -- -- (8,808)
Depreciation of equipment -- -- 65,400
Amortization of intangibles -- -- 1,038
Provision for possible loan and lease losses -- -- 64,711
Impairment loss on equipment -- -- 10,855
Noncash dividend income (9,850) (22,351) --
Changes in operating assets and liabilities:
Other assets (4,826) -- 384,060
Outstanding checks in excess of bank balance (94,490) 4,863 89,627
Trade accounts payable 148 (27,145) 19,344
Due to affiliates (477) 477 (128,308)
Accrued expenses and other liabilities (122,937) (183,687) (167,739)
----------- ----------- -----------
Net cash from operating activities (210,726) (54,206) 799,786
----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisition of, and purchases of equipment for direct financing leases -- -- (2,827,907)
Repayments of direct financing leases 111,496 342,084 1,663,124
Proceeds from sale or termination of direct financing leases 63,251 743,998 9,082,927
Proceeds from sale of equipment under operating lease 336,815 -- --
Repayments of notes receivable 22,043 21,032 489,299
Issuance of notes receivable -- -- (108,475)
Net lease security deposits paid (9,799) (46,482) (300,382)
----------- ----------- -----------
Net cash from investing activities 523,806 1,060,632 7,998,586
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from line-of-credit borrowings -- -- 3,788,403
Repayments of line-of-credit borrowings -- -- (3,838,960)
Distributions and withdrawals paid to partners (311,164) (1,582,219) (8,495,119)
----------- ----------- -----------
Net cash from financing activities (311,164) (1,582,219) (8,545,676)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,916 (575,793) 252,696
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 135,796 711,589 458,893
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 137,712 $ 135,796 $ 711,589
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 45 $ -- $ 17,457
Noncash investing and financing activities:
Direct financing lease converted to investment in not readily
marketable equity security -- -- 191,600
Direct financing lease converted to notes and receivable and
not readily marketable equity security 174,811 -- --
Operating lease converted to note receivable 870,000 -- --
See notes to financial statements.
15
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS - Telecommunications Income Fund IX,
L.P. (the "Partnership") was formed on April 2, 1991 under the Iowa Limited
Partnership Act. The general partner of the Partnership is Berthel Fisher &
Company Leasing, Inc. (the "General Partner"), an Iowa corporation. During
its offering period, the Partnership sold 68,007 units of partnership
interests at a price per unit of $250.
The Partnership operates in one segment. The Partnership's operations are
conducted throughout the United States. The Partnership primarily acquired
equipment for lease to third parties. The lease agreements with individual
customers were generally in excess of $500,000 and certain agreements
exceed 10% of the Partnership's direct finance lease and notes receivable
portfolio (see Note 3). The Partnership ceased reinvestment in equipment
and leases and began the orderly liquidation of Partnership assets on May
1, 1998 as required by the Partnership agreement. Originally, the
Partnership was required to dissolve on December 31, 1999. During November
1999, the limited partners approved an amendment to extend the term of the
Partnership to December 31, 2005 to allow for the orderly liquidation of
the remaining assets.
BASIS OF PRESENTATION - The Partnership began the orderly liquidation of
Partnership assets in the second quarter of 1998 as discussed above. As a
result, on March 31, 1998 the Partnership adopted the liquidation basis of
accounting. The statements of net assets as of December 31, 2000 and 1999
and the statements of changes in net assets for the years ended December
31, 2000 and 1999 and the period from March 31, 1998 to December 31, 1998
have been prepared on the liquidation basis. Accordingly, assets have been
valued at estimated net realizable value and liabilities include estimated
costs associated with carrying out the plan of liquidation.
The net adjustment as of March 31, 1998 required to convert from the going
concern (historical cost) basis to the liquidation basis of accounting was
a decrease in carrying value of $181,817, which is included in the
statement of changes in net assets for the period ended December 31, 1998.
Significant increases (decreases) in the carrying value of net assets are
summarized as follows:
Increase to reflect net realizable value of net investment
in direct financing leases $ 391,588
Write-off of intangible assets (2,423)
Record estimated liabilities associated with carrying
out the liquidation (570,982)
----------
Net decrease in carrying value $ (181,817)
==========
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Changes in the estimated liquidation value of net assets during the years
ended December 31, 2000, 1999 and 1998 are summarized as follows:
2000 1999 1998
Change in estimate of liquidation value of:
Securities $(180,736) $ (26,341) $ -
Direct financing leases and notes receivable 73,869 64,377 -
Equipment leased under operating leases - - (196,200)
Equipment held for sale - - (40,145)
Estimated liabilities associated with carrying
out the liquidation - (161,065) -
--------- --------- ---------
Total $(106,867) $(123,029) $(236,345)
========= ========= =========
The valuation of assets and liabilities necessarily requires many estimates
and assumptions and there are uncertainties in carrying out the liquidation
of the Partnership's net assets. The actual value of the liquidating
distributions will depend on a variety of factors, including the actual
timing of distributions to partners. The actual amounts are likely to
differ from the amounts presented in the financial statements.
The statements (going concern basis) of operations and comprehensive income
and of changes in partners' equity for the three months ended March 31,
1998 have been prepared using the historical cost (going concern) basis of
accounting on which the Partnership had previously reported its financial
condition and results of operations.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America 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 significantly from those estimated. Material
estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the net realizable values of the
Partnership's assets and the reserve for estimated costs during the period
of liquidation.
Equity securities comprise preferred and common stock investments in two
companies. A prospective buyer may require a substantially lower price than
currently estimated and the operating results and prospects of these
companies may deteriorate. These factors, among others, could have a
material near-term impact on the net realizable value of equity securities.
Most of the Partnership's leases and notes receivable are with customers
that are in the entrepreneurial stage and, therefore, are highly leveraged
and require financing in place of or to supplement financing from banks.
Although the Partnership attempts to mitigate its credit risk through
timely collection efforts, failure of the Partnership's customers to make
scheduled payments under their equipment leases and notes receivable could
have a material near-term impact on the net realizable value of leases and
notes receivable.
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18
Realization of residual values depends on many factors, several of which
are not within the Partnership's control, including general market
conditions at the time of the original contract's expiration, whether there
has been unusual wear and tear on, or use of, the equipment, the cost of
comparable new equipment, the extent, if any, to which the equipment has
become technologically or economically obsolete during the contract term
and the effects of any additional or amended government regulations. These
factors, among others, could have a material near-term impact on the net
realizable value of leases.
CERTAIN RISK CONCENTRATIONS - Two customers represented 83% of the
Partnership's net investment in direct financing leases and notes
receivable at December 31, 2000. Also, 19% of the Partnership's investment
in securities at December 31, 2000 represents equity securities of one of
these customers.
RELATED PARTY TRANSACTIONS - In fulfilling its role as general partner,
Berthel Fisher & Company Leasing, Inc. enters into transactions with the
Partnership in the normal course of business. Further, the Partnership also
enters into transactions with affiliates of Berthel Fisher & Company
Leasing, Inc. These transactions are set forth in the notes that follow.
Management is of the opinion that these transactions are in accordance with
the terms of the Agreement of Limited Partnership.
CASH AND CASH EQUIVALENTS - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
EQUITY SECURITIES - The Partnership's common equity securities are
restricted as to sale in the public market under rule 144 of the Securities
and Exchange Commission. Common equity securities, which can be sold in the
public market within one year, are classified as marketable equity
securities and valued at the published market price, less an estimated
illiquidity discount. Common equity securities, which cannot be sold in the
public market within one year, are classified as not readily marketable and
valued at an estimated discount from the published market price reflective
of their more illiquid nature.
The Partnership's preferred equity securities are valued at their
liquidation preference value or estimated net realizable value, if higher,
based on benchmark comparisons to similar public companies.
NET INVESTMENT IN DIRECT FINANCING LEASES - The Partnership's primary
activity consists of leasing telecommunications equipment under direct
financing leases generally over a period of three to five years. At the
time of closing a direct financing lease, the Partnership recorded the
gross lease contract receivable, the estimated unguaranteed residual value,
and unearned lease income. The unearned lease income represents the excess
of the gross lease receivable plus the estimated unguaranteed residual
value over the cost of the equipment leased. In addition, the Partnership
capitalized all initial direct costs associated with originating the direct
financing lease. The unearned income and initial direct costs are amortized
to income over the lease term so as to produce a constant periodic
rate-of-return on the net investment in the lease. Lessees are responsible
for all taxes, insurance, and maintenance costs.
The realization of the estimated unguaranteed residual value of leased
equipment depends on the value of the leased equipment at the end of the
lease term and is not a part of the contractual agreement with the lessee.
Estimated residual values are based on estimates of amounts historically
realized by the Partnership for similar equipment and are periodically
reviewed by management for possible impairment.
Direct financing leases are accounted for as operating leases for income
tax purposes.
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19
NOTES RECEIVABLE - Notes receivable are carried at the principal balance
outstanding. Interest income on notes receivable is accrued based on the
principal amount outstanding.
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES - The Partnership performed
credit evaluations prior to approval of a loan and lease. Subsequently, the
creditworthiness of the customer and the value of the underlying assets are
monitored on an ongoing basis. Under its lease agreements, the Partnership
retains legal ownership of the leased asset. The Partnership maintains an
allowance for possible loan and lease losses which could arise should
customers become unable to discharge their obligations under the loan and
lease agreements. The allowance for possible loan and lease losses is
maintained at a level deemed appropriate by management to provide for known
and inherent risks in the loan and lease portfolio. The allowance is based
upon a continuing review of past loss experience, current economic
conditions, delinquent loans and leases, an estimate of potential loss
exposure on significant customers in adverse situations, and the underlying
asset value. The consideration of such future potential losses also
includes an evaluation for other than temporary declines in value of the
underlying assets. Loans and leases, which are deemed uncollectible, are
charged off and deducted from the allowance. The provision for possible
loan and lease losses and recoveries are added to the allowance.
NET REALIZABLE VALUE OF NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES
RECEIVABLE - Management, in arriving at the net realizable value of the
Partnership's net investment in direct financing leases and notes
receivable, considered the contractual repayment schedule, the estimated
duration of the liquidation period, the customer concentration risk, and
interest rate levels, among other factors, in arriving at a discount to
apply to the portfolio at December 31, 2000 and 1999 to estimate its net
realizable value.
EQUIPMENT - Equipment leased under operating leases was stated at cost less
accumulated depreciation. The equipment was depreciated using the
straight-line method over the estimated useful lives of the assets (five
years) to the estimated residual value of the equipment at the end of the
lease term. Estimated residual values were based on estimates of amounts
historically realized by the Partnership for similar equipment and were
periodically reviewed by management for possible impairment.
The estimated net realizable value at December 31, 1999 was based on a
purchase offer adjusted for management's best estimate of the final
expected sale price of the equipment.
SALE OF DIRECT FINANCE LEASES - The Partnership at times sells direct
financing leases, on a limited recourse basis, to lenders in return for a
cash payment. In the case of default by the lessee, the lender has a first
lien on the underlying leased equipment. In the event the sale or re-lease
proceeds from the underlying equipment do not satisfy the remaining
lessee's obligation to the lender, the Partnership is responsible for a
predetermined amount of that obligation. When the sale of direct finance
leases occurs, proceeds from the sale, less the net book value of direct
finance leases sold and an estimated loss allowance, are recorded as a
component of gain on early termination.
TAX STATUS - Under present income tax laws, the Partnership is not liable
for income taxes, as each partner recognizes a proportionate share of the
Partnership income or loss in their income tax return. Accordingly, no
provision for income taxes is made in the financial statements of the
Partnership.
NET INCOME PER PARTNERSHIP UNIT - Net income per partnership unit is based
on the weighted average number of units outstanding (including both general
and limited partners' units).
RECLASSIFICATIONS - Certain amounts in the 1999 financial statements have
been reclassified to conform with the 2000 financial statement
presentation.
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20
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS - In June, 1998, the Financial
Accounting Standard Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. The recognition of gains or losses
resulting from changes in the values of derivatives is based on the use of
each derivative instrument and whether it qualifies for hedge accounting.
In June 1999, the FASB issued SFAS No. 137, which deferred the effective
date of adoption of SFAS No. 133 for one year. The Partnership adopted SFAS
No. 133 in the first quarter of calendar year 2001. The adoption of this
standard did not have any impact on the Partnership's results of
operations, financial position or cash flows as the Partnership is on the
liquidation-basis.
2. EQUITY SECURITIES
The Partnership's equity securities consist of the following at December
31, 2000 and 1999:
2000 1999
Marketable equity securities - 69,473 common shares at
December 31, 2000 and 15,084 common shares at
December 31, 1999 of Murdock Communications Corporation,
a call processor that operates in the telecommunications
industry $ 5,536 $ 31,394
======== ========
Not readily marketable equity securities:
178,645 common shares at December 31, 2000 and
40,784 common shares at December 31, 1999 of Murdock
Communications Corporation $ 13,400 $ 77,020
1,916 convertible preferred shares (convertible into 170,524
common shares), 8% cumulative dividend, of Murdock
Communications Corporation at December 31, 1999
at liquidation preference value - 191,600
34,947 Series A convertible preferred shares (convertible into
104,841 common shares) of AcTel Integrated Communications,
Inc., a competitive local exchange carrier which operates
in the telecommunications industry, at December 31, 2000 78,630 -
-------- --------
$ 92,030 $268,620
======== ========
Murdock Communications Corporation's primary asset at December 31, 2000 is
an investment in Series A convertible preferred stock of AcTel
Communications, Inc.
During September 2000, the Partnership converted its 1,916 shares of
convertible preferred shares into common stock of Murdock Communications
Corporation according to the terms of the preferred stock agreement.
20
21
3. NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
The Partnership's net investment in direct financing leases and notes
receivable consists of the following at December 31, 2000 and 1999:
2000 1999
Minimum lease payments receivable $123,016 $562,302
Estimated unguaranteed residual values 26,448 29,955
Unearned income (16,410) (104,530)
Unamortized initial direct costs 57 607
Notes receivable 672,236 32,835
Adjustment to estimated net realizable value (75,897) (139,142)
-------- --------
Net investment in direct financing leases
and notes receivable $729,450 $382,027
======== ========
At December 31, 2000 and 1999, the Partnership's contingent liability under
recourse provisions totals $168,498.
At December 31, 2000, contractual maturities under notes receivable, future
minimum payments to be received under the direct financing leases and the
estimated unguaranteed residuals to be realized at the expiration of the
direct financing leases are as follows:
MINIMUM ESTIMATED
CONTRACTUAL LEASE UNGUARANTEED
PRINCIPAL PAYMENTS RESIDUAL
MATURITIES RECEIVABLE VALUES
Years ending December 31:
2001 $ 555,394 $ 92,139 $21,350
2002 - 26,988 5,096
2003 116,842 3,889 2
--------- -------- -------
Total $ 672,236 $123,016 $26,448
========= ======== =======
The Partnership leases equipment or provides financing to certain companies
for which the General Partner or its affiliates have an ownership interest
in, provide financing to, or provide investment advisory services for such
companies. The Partnership's net investment in direct financing leases and
notes receivable with these companies approximated $136,963 and $299,783 at
December 31, 2000 and 1999, respectively.
Six customers accounted for 10% or more of the amount of income from direct
financing leases during one or more of the years presented, as follows:
2000 1999 1998
Customer A -% 31% 19%
Customer B 35 5 -
Customer C 22 4 -
Customer D - 12 3
Customer E 21 5 -
Customer F - 22 9
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4. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The changes in the allowance for possible loan and lease losses for the
years ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998
Balance at beginning of year $100,343 $142,282 $ 1,922,056
Provision - - 64,711
Charge-offs, net of recoveries (24,446) (41,939) (1,844,485)
-------- -------- -----------
Balance at end of year $ 75,897 $100,343 $ 142,282
======== ======== ===========
The allowance for possible loan and lease losses consisted of specific
allowances of $47,846, $84,147, and $5,075 for certain leases and general
unallocated allowances of $28,051, $16,196, and $137,207 at December 31,
2000, 1999 and 1998, respectively. The allowance at December 31, 2000,
1999, and 1998 is included in the estimated net realizable value adjustment
discussed in Note 3.
Due to cash flow problems experienced during 1997 by a lessee of the
Partnership, North American Communications Group, Inc. ("NACG"), the
Partnership, in an attempt to protect the assets leased to NACG, advanced
funds to various entities to whom NACG owed money related to the operation
of such leased assets. In addition, the Partnership assisted in arranging a
management agreement between NACG and another entity to attempt to improve
NACG's cash flow generated by the leased assets. In spite of the funds
advanced by the Partnership and the management agreement, the cash flow of
NACG continued to deteriorate. The General Partner actively solicited bids
from parties to purchase the assets associated with the Partnership leases
to NACG. Based on the value of similar assets and contract sites,
management believed the equipment leased to NACG had substantial value.
However, the offers received were not adequate to cover additional funds,
which were required to be advanced to keep the equipment sites operating.
The General Partner, therefore, determined it was no longer economically
feasible to continue to advance funds on behalf of NACG, discontinued doing
so, and informed all site operators of that decision. As a result, the
Partnership decided to provide for a specific allowance of $1,596,739 at
December 31, 1997, which is equal to the carrying value of the leases and
advances associated with NACG. Such leases were charged-off against the
allowance in the first quarter of 1998. The Partnership received $45,000
during 1999 from the sale of assets recovered to date and credited this to
the allowance for possible loan and lease losses.
In December 1998, the Partnership, Telecommunications Income Fund X, the
General Partner, NACG, and others filed a suit against Shelby County,
Tennessee ("County"). The suit alleges, among other things, damages for
wrongful termination of the pay phone contract between NACG and Shelby
County and racial discrimination by the County against NACG. The County
filed an answer and the initial discovery has been completed. Management
determined it was not economical to continue to spend Partnership funds in
an effort to obtain additional information or to continue the lawsuit.
At December 31, 2000, four customers were past due over 90 days. The
Partnership's net investment in contracts with these customers totaled
$605,978. Management did not provide a specific allowance at December 31,
2000 related to these customers. Management believes that the underlying
collateral is adequate to recover the Partnership's net investment. If a
lease or note receivable is past due more than 90 days, the Partnership
discontinues recognizing income on the contract.
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23
In June, 2000, the Partnership's two leases with Murdock Communications
Corporation ("Murdock") were converted to notes and stock as part of a
restructuring. At the time of the restructuring, the Partnership's net
investment in the contracts totaled $174,811. The Partnership received two
notes and recorded these at their estimated net realizable value of
$127,879 and 34,947 (adjusted for a stock split) shares of preferred stock
in Actel Integrated Communications, Inc. ("Actel"), a not readily
marketable security. The estimated net realizable value of the Actel
preferred stock was $78,630 at December 31, 2000. The Partnership is not
accruing interest on the notes receivable due to the uncertainty of
Murdock's ability to pay. The Partnership has also established reserves for
50% of the face value of the notes receivable due to this uncertainty and
recorded a specific reserve of $47,846.
5. EQUIPMENT
In May 1995, the Partnership exercised its right to manage the assets
leased to Telecable/Continental due to nonpayment of lease receivables. The
remaining net equipment cost, which had been depreciated to $514,487 and
related to hotel satellite television equipment, was expected by management
to be recovered through the sale of the equipment. Such net equipment cost
had been adjusted for an impairment loss of $350,000 in 1996, $113,487 in
1997, and $51,000 in 1998 ($10,855 in the first quarter and $40,145 as a
decrease to the estimated net realizable value for the period from March
31, 1998 to December 31, 1998) to reflect management's estimated fair
market value of the equipment.
During 1996, management provided a specific reserve of $284,000 related to
a lease with a customer and due to the uncertainty regarding the amount and
timing of future payments reclassified its net investment in the lease at
December 31, 1996 of $1,273,643, net of the specific allowance, to
equipment under operating leases. The equipment under this lease was being
depreciated under the straight-line method over its estimated remaining
life. Depreciation expense in 1997 amounted to $236,446 and $65,400 in the
first quarter of 1998. Also, the Partnership recorded an additional
decrease to the estimated net realizable value of the equipment of $196,200
for the period from March 31, 1998 to December 31, 1998. Under the
operating lease, the customer was to pay the Partnership an amount based on
a percent of the customer's monthly net cash proceeds from operating the
pay phone route. The Partnership had not received any payments since July
1997 from the customer under this arrangement. The Partnership sold the
equipment in 2000 for $870,000 and recognized a gain of $94,403. At
December 31, 2000 the Partnership has an installment receivable of $552,885
relating to the sale included in notes receivable.
6. LIMITED PARTNERSHIP AGREEMENT
The Partnership was formed pursuant to an Agreement of Limited Partnership
dated as of April 2, 1991 and amended August 12, 1991 (the "Agreement").
The Agreement outlines capital contributions to be made by the partners and
the allocation of cash distributions, net income, and net loss to the
partners. Capital contributions by the partners to the Partnership consist
of the $10,000 contributed by the General Partner and the amounts
contributed by limited partners for the purchase of their units.
Net income or net loss allocated to the limited partners will be
apportioned among them based on the number of limited partnership units
held and on the number of months within the respective year that such units
were held. Any share of Partnership net loss will first be allocated to the
limited partners to the extent of their positive capital account balances.
Any share of additional net loss will be allocated to the General Partner.
Any Partnership net income will first be allocated to partners with
negative capital accounts in proportion to, and to the extent of, such
negative capital accounts. Except as provided below, any additional net
income will then be allocated to the General Partner and limited partners
based on number of units held. During liquidation of the Partnership, when
cash distributions are to be made 80% to the limited partners and 20% to
the
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General Partner (see below), net income will be allocated 80% to the
limited partners and 20% to the General Partner.
During the Partnership's operating phase, to the extent there is cash
available for distribution, cash distributions will be made on a monthly or
quarterly basis in the following order of priority: first, to reimburse the
General Partner for administrative services it provides to the Partnership,
as further described in the Agreement (see Note 7); second, to the limited
partners up to amounts representing a 12% annual return on their adjusted
capital contribution (as defined), of which 8% annually will be cumulative;
and third, to the General Partner, representing a monthly equipment
management fee of 5% of the gross rental payments received by the
Partnership (see Note 7). To the extent that cash is not available to pay
all or a portion of the equipment management fee pursuant to the above
priority distributions, such fee will accrue and accumulate. Any remaining
cash distributions after payment of the above (including arrearages) will
be paid, at the discretion of the General Partner, to the limited partners.
During the Partnership's liquidation phase, cash available for distribution
will be distributed in the following order of priority: first, for payment
of the General Partner's administrative services expense described above;
second, to the limited partners for any arrearage in their 8% cumulative
priority return; third, to the limited partners for 100% of their adjusted
capital contributions; fourth, to the limited partners, distributions
totaling 12% annually, noncompounded, on their adjusted capital
contributions; fifth, to the General Partner for any arrearage in its
equipment management fee; and, sixth, 80% to the limited partners and 20%
to the General Partner (provided, however, that the General Partner will
not receive such amounts unless the limited partners have received total
distributions equal to their capital contribution plus a 12% annualized
return).
7. MANAGEMENT AND SERVICE AGREEMENTS
The Partnership paid an equipment management fee equal to 5% of the amount
of gross rental payments received, to the General Partner during its
operational phase. The Partnership entered its liquidation phase on May 1,
1998 and at that time discontinued the fee. During the year ended December
31, 1998, the management fee was $63,606.
In addition, the General Partner is reimbursed for certain other costs
under an administrative services agreement. Amounts incurred by the
Partnership pursuant to this agreement amounted to $30,000, $60,000, and
$84,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
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8. RECONCILIATION OF FINANCIAL AND INCOME TAX REPORTING BASIS
A reconciliation of the change in net assets (excluding distributions) for
financial reporting purposes with the related amount reported for income
tax purposes for the years ended December 31, 2000, 1999 and 1998 is as
follows:
2000 1999 1998
-------------------- --------------------- -------------------
PER PER PER
AMOUNT UNIT AMOUNT UNIT AMOUNT UNIT
Change in net assets
(excluding
distributions) for
financial reporting
purposes $ (85,161) $ (1.26) $ 50,608 $ .75 $ 308,512 $ 4.56
Adjustment to
convert direct
financing leases to
operating leases
for income tax
purposes (275,501) (4.07) (423,242) (6.27) 1,965,813 29.05
Net change in
allowance for
possible loan and
lease losses 24,445 .36 92,030 1.36 (1,779,774) (26.29)
Gain on lease
terminations 374,384 5.53 - - 303,782 4.49
Net realizable
value adjustments 106,867 1.58 123,029 1.82 (439,031) (6.49)
--------- ------ --------- ------- ---------- ------
Net income (loss)
for income tax
reporting purposes $ 145,034 $ 2.14 $(157,575) $ (2.34) $ 359,302 $ 5.32
========= ====== ========= ======= ========== ======
9. CONTINGENCIES
Telcom Management Systems filed a suit against the Partnership, the General
Partner, and others in Federal Court in Dallas, Texas during February 1998.
The plaintiffs purchased equipment from the Partnership out of a bankruptcy
for approximately $450,000. They alleged that when they attempted to sell
the equipment at a later date, the Partnership had not provided good title.
The General Partner filed a Motion for Summary Judgment, which was denied.
After filing the suit, the plaintiff transferred assets in lieu of
bankruptcy. The bankruptcy trustee has ruled the litigation will proceed.
No loss, if any, has been recorded in the financial statements with respect
to this matter.
SA Communications filed a suit against the Partnership, the General
Partner, and others alleging the Partnership received a preference of
approximately $45,000 prior to the filing of its petition in bankruptcy.
The Partnership maintains that it was receiving regular monthly payments
and there was no preference. Negotiations are in progress with the
bankruptcy trustee. No loss, if any, has been recorded in the financial
statements with respect to this matter.
The General Partner has approximately $2,200,000 of notes payable and
redeemable preferred stock maturing in 2001 and may not have sufficient
liquid assets to repay such amounts. The General Partner is pursuing
additional financing, refinancing, and asset sales to meet its obligations.
No assurance can be provided that the General Partner will be successful in
its efforts.
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10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000 QUARTERS
--------------------------------------------------------------
FIRST SECOND THIRD FOURTH 2000
Income from direct
financing leases $ 4,318 $ 3,573 $ 2,998 $ 2,987 $ 13,876
Interest and other income 5,385 13,243 12,438 (23,236) 7,830
Distributions to partners - - - (300,000) (300,000)
Withdrawals of
limited partners (3,933) (6,234) - (997) (11,164)
Change in estimate
of liquidation value
of net assets (63,006) 74,660 (43,202) (75,319) (106,867)
-------- -------- --------- --------- ---------
Change in net assets $(57,236) $ 85,242 $ (27,766) $(396,565) $(396,325)
======== ======== ========= ========= =========
Interest and other income for the fourth quarter of 2000 includes the
reversal of $35,713 of income recognized for the Murdock Communications
Corporation note receivable, which was estimated to be only 50% collectible
in the fourth quarter.
1999 QUARTERS
------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH 1999
Income from direct
financing leases $ 53,470 $ 39,445 $ 25,206 $ 6,840 $ 124,961
Interest and other income 14,597 2,850 4,339 26,890 48,676
Distributions to partners (760,000) (135,000) (570,000) (100,000) (1,565,000)
Withdrawals of
limited partners (12,132) - (5,087) - (17,219)
Change in estimate of
liquidation value of
net assets 50,812 (26,117) 35,720 (183,444) (123,029)
--------- --------- --------- ---------- -----------
Change in net assets $(653,253) $(118,822) $(509,822) $(249,714) $(1,531,611)
========= ========= ========= ========= ===========
* * * * *
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT
A. The General Partner of the registrant:
Berthel Fisher & Company Leasing, Inc., an Iowa corporation.
B. Executive officers of the General Partner of the Registrant:
Thomas J. Berthel (age 49) - Mr. Berthel is the Chief Executive
Officer and Director of the General Partner, a position he has held since the
General Partner's inception in 1988. Mr. Berthel is also President and a
Director of the General Partner's parent, Berthel Fisher & Company, Inc.
("Berthel Fisher"), which he founded in 1985, and Berthel Fisher's other
subsidiaries, Berthel Fisher & Company Financial Services, Inc.; Berthel Fisher
& Company Management Corp.; Berthel Fisher & Company Planning, Inc.; and one
other corporation which acts as general partner of a separate private program.
He also serves as the Chairman of the Board and Director of Amana Colonies Golf
Course, Inc. Mr. Berthel holds a bachelor's degree from St. Ambrose College in
Davenport, Iowa (1974). From 1974 to 1982, Mr. Berthel was President and
majority shareholder of Insurance Planning Services Corporation in Maquoketa,
Iowa, which was engaged in the operation of a securities and insurance business.
Mr. Berthel holds a Financial and Operation Principal license issued by the
National Association of Securities Dealers, Inc. Mr. Berthel is also a Certified
Life Underwriter. Mr. Berthel also serves as an individual general partner of
the limited partnership referred to above. Mr. Berthel received a MBA degree
from the University of Iowa in 1993.
Ronald O. Brendengen (age 46) - Mr. Brendengen is the Treasurer, Chief
Operating Officer, Chief Financial Officer, and a Director (1988 to present) of
the General Partner. He was elected to his current offices in January 1998. He
had previously served as Secretary (1994 - March, 1995), Treasurer (August 1995
- - 1988) and Chief Financial Officer (1994 - August 1995) of the General Partner.
He served as Controller (1985-1993), Treasurer (1987-present), Chief Financial
Officer, Secretary and a Director (1987-present), and was also elected Chief
Operating Officer in January 1998, of Berthel Fisher & Company, the parent
company of the General Partner. Mr. Brendengen serves as the Treasurer, Chief
Financial Officer and a Director of Berthel Fisher & Company Planning, Inc., the
trust advisor of Berthel Growth & Income Trust I, a company required to file
reports pursuant to the Securities Exchange Act of 1934. He also serves in
various offices and as a Director of each subsidiary of Berthel Fisher &
Company. Mr. Brendengen holds a certified public accounting certificate and
worked in public accounting during 1984 and 1985. From 1979 to 1984, Mr.
Brendengen worked in various capacities for Morris Plan and MorAmerica Financial
Corp., Cedar Rapids, Iowa. Mr. Brendengen attended the University of Iowa before
receiving a bachelor's degree in Accounting and Business Administration with a
minor in Economics from Mt. Mercy College, Cedar Rapids, Iowa, in 1978.
Timothy J. White (age 47) - Mr. White was elected President of the
General Partner on January 26, 2001. From 1999 to 2000, Mr. White was Vice
President of New Markets for Great America Leasing in Cedar Rapids, Iowa. From
1996 to 1999, Mr. White was Vice President of Business Development for GE
Capital in Cedar Rapids, Iowa. From 1993 to 1996, Mr. White was President of
Aloha Capital Corporation in Syracuse, New York. From 1989 to 1993, Mr. White
was Vice President of Sales for Dana Commercial Credit in Troy, Michigan. During
his career, Mr. White has been responsible for the management of a leasing
business in excess of $200 million and sales budgets in excess of $400 million.
Mr. White holds a Bachelor's degree in Business Management from Walsh College in
Troy, Michigan.
Nancy L. Lowenberg (age 42) - Ms. Lowenberg was elected Executive Vice
President of the General Partner beginning January 2, 1997. From September 1986
to December 1996, Ms. Lowenberg was employed by Firstar Bank Iowa, N.A., in
Cedar Rapids. Since 1989, Ms. Lowenberg was Vice President Commercial Loans. As
Vice President Commercial Loans, she was relationship manager for 62 accounts
with approximately $70,000,000 of committed credit. She had responsibility for
credit quality, annual review and maintenance of existing accounts and business
development. From 1981-1986, Ms. Lowenberg was employed by Firstar Bank Systems.
Ms. Lowenberg received her Bachelor of Science Agricultural Business with a
minor in Finance in 1981 from Iowa State University, Ames, Iowa. Ms. Lowenberg
resigned effective February 9, 2000.
27
28
ITEM 11. EXECUTIVE COMPENSATION
Set forth is the information relating to all direct remuneration paid or accrued
by the Registrant during the last three years to the General Partner:
(A) (B) (C) (C1) (C2) (D)
Securities of
property
insurance Aggregate
benefits or of
Cash and Cash reimbursement contingent
Name of individual and Year equivalent forms personal or forms of
capacities which served ended of remuneration Fees benefits remuneration
- ---------------------------------------------------------------------------------------------------
Berthel Fisher & Co. 2000 $0 $ 30,000 $0 $0
Leasing, Inc. 1999 $0 $ 60,000 $0 $0
General Partner 1998 $0 $147,606 $0 $0
28
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person owns of record, or is known by the Registrant to
own beneficially, more than five percent of the Partnership
Units.
(b) The General Partner of the Registrant owns Units of the
Registrant set forth in the following table.
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Ownership Beneficial Ownership Percent of Class
- -------------- -------------------------- -------------------- ----------------
Units Berthel Fisher & Co. Leasing Inc. Forty (40) Units; 0.06%
701 Tama Street
Marion, IA 52302
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related party transactions are described in Notes 3 and 7 of the notes to the
financial statements.
29
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
Page
No.
Statements of Net Assets as of December 31, 2000 and 1999
(Liquidation Basis) 11
Statements of Changes in Net Assets (Liquidation Basis) for the Years Ended
December 31, 2000 and 1999 and for the Period from March 31, 1998
(Initial Adoption of Liquidation Basis) to December 31, 1998 12
Statement of Operations and Comprehensive Income (Going Concern
Basis) for the Three Months Ended March 31, 1998 13
Statement of Changes in Partners' Equity (Going Concern Basis)
for the Three Months Ended March 31, 1998 14
Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 15
Notes to Financial Statements 16
2. Financial Statements Schedules
Information pursuant to Rule 12-09 (Schedule II) is included
in the financial statements and notes thereto.
3. Exhibits
3,4 Amended and Restated Agreement of
Telecommunications Income Fund IX, L.P. currently in
effect dated as of August 12, 1991 (1)
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 2000.
- ------------------
(1) Incorporated herein by reference to Partnership
Exhibit A to the prospectus included in the
Partnership's post effective amendment No. 4 to Form
S-1 registration statement filed on December 22,
1992.
30
31
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.
TELECOMMUNICATIONS INCOME FUND IX, L.P.
(REGISTRANT)
By Berthel Fisher & Company Leasing, Inc.
By: Thomas J. Berthel/s/ Date: March 26, 2001
--------------------------------
Thomas J. Berthel
President, Chief Executive Officer
By Berthel Fisher & Company Leasing, Inc.
By: Ronald O. Brendengen/s/ Date: March 26, 2001
--------------------------------
Ronald O. Brendengen
Chief Operating Officer, Chief Financial
Officer, 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.
/s/ Thomas J. Berthel Date: March 26, 2001
- ----------------------------------------
Thomas J. Berthel
Chief Executive Officer
President, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Ronald O. Brendengen Date: March 26, 2001
- ----------------------------------------
Ronald O. Brendengen
Chief Operating Officer, Chief Financial
Officer, Treasurer, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Daniel P. Wegmann Date: March 26, 2001
- ----------------------------------------
Daniel P. Wegmann
Controller
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Leslie D. Smith Date: March 26, 2001
- ----------------------------------------
Leslie D. Smith
Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
31
32
EXHIBIT INDEX
3,4 Amended and Restated Agreement of
Telecommunications Income Fund IX, L.P. currently in
effect dated as of August 12, 1991 (1)
- ------------------
(1) Incorporated herein by reference to Partnership Exhibit A to the
prospectus included in the Partnership's post effective amendment
No. 4 to Form S-1 registration statement filed on December 22, 1992.
32