UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR COMMISSION FILE
ENDED DECEMBER 31, 1997 NUMBER 033-26427
TELECOMMUNICATIONS GROWTH & INCOME FUND L.P.
(Name of small business issuer in its charter)
Virginia 54-1482898
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1525 Wilson Boulevard, Arlington, VA 22209
(Address of principal executive offices) (Zip Code)
(703) 247-2900
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Limited Partnership Interest None
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has
been subject to such filing requirements for the past ninety days. Yes x No
Issuer's revenues for its most recent fiscal year: $725,551.
The partnership interests of the Registrant are not traded in any market.
Therefore, the partnership interests had neither a market selling price nor an
average bid or asked price within the 60 days prior to the date of this filing.
As of the close of business January 31, 1998, the registrant had outstanding
5,334 units of limited partnership interests, par value $1,000 per unit.
DOCUMENTS INCORPORATED BY REFERENCE: None
Page 1 of 27
TELECOMMUNICATIONS GROWTH & INCOME FUND L.P.
1997 Form 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters 5
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Item 7. Financial Statements 8
Item 8. Changes in and Disagreements with Accounts on
Accounting and Financial Disclosure 22
Item 9. Directors and Executive Officers of the Registrant 22
Item 10. Executive Compensation 24
PART III
Item 11. Security Ownership of Certain Beneficial
Owners and Management 25
Item 12. Certain Relationships and Related Transactions 25
PART IV
Item 13. Exhibits and Reports on Form 8-K 25
Part I.
Item 1. Business
General
Telecommunications Growth and Income Fund L.P. (the "Partnership"),
a Virginia limited partnership, was organized on December 29, 1988.
Telecommunications Growth and Income Fund Management Limited Partnership
("TGIF" or the "General Partner"), is the Partnership's sole general
partner. Telecommunications Growth and Income Fund, Inc. ("TGIF, Inc.")
is the general partner of TGIF. DeRand Telecommunications Corporation
("DTC"), MT Fund I Limited Partnership ("MTLP") and Pennington/Bass
Telecommunications, Inc. ("PBT") are the sole stockholders of TGIF, Inc.
DTC is wholly owned by DeRand Corporation of America ("DCOA"), which is
also the sole owner of DeRand/Pennington/Bass, Inc. ("D/P/B"), which was
the selling agent of the offering. PBT is wholly owned by two former
executive officers of DCOA and D/P/B. DCOA is deemed to be controlled by
Denison E. Smith and Randall N. Smith, both officers and directors of TGIF,
Inc., by virtue of their individual stock ownership of DCOA.
The Partnership was formed to engage in the business of acquiring,
developing, operating, selling and otherwise investing in communications-
related businesses. The Partnership intended to acquire various
"Communications Businesses" from among the following: franchise cable
television systems and other cable-related businesses, broadcast radio
stations, cellular telephone systems, paging systems, specialized mobile
radio ("SMR"), publishing and various other technologies or devices.
The Partnership's businesses are managed and monitored by the General
Partner which receives a management fee equal to 5% of the gross revenues
attributable to each Communications Business.
Communications Tower
The Partnership owns a general partnership interest in a
communications tower (the "Tower" or "Tower Ventures") located in
Montgomery County, Pennsylvania. The Tower faces competition from other
communications towers or building sites accepting communications equipment
in the Philadelphia area. The Partnership's Tower, however, is the tallest
communications tower or site in the area, making it a more desirable site
than its competitors. The tower is located in an area where current zoning
prohibits the construction of new towers. In addition, the construction
costs of new towers is quite expensive and the possibility of additional
competition is unlikely. Since purchasing the Tower in September 1989, the
Partnership has not lost any tenants to other towers, but has gained two
tenants from competitors by offering a better location at a competitive
price. The Tower was originally constructed as a television broadcasting
tower. The tenant mix on the Tower has expanded to include paging, SMR,
broadcast radio and microwave customers.
The Tower serves various customers, including those providing
broadcast radio, microwave, cellular, paging and two-way radio services to
the greater-Philadelphia metropolitan area. As of December 31, 1997, the
Tower had 24 tenants with 34 leases generating revenue of approximately
$58,000 per month. Revenues for the Tower were $725,551 and $636,588 for
the years ended December 31, 1997 and 1996, respectively.
The accompanying consolidated financial statements include the
results of operations of Tower Ventures for the years ended December 31,
1997 and 1996. The Tower assets include, but are not limited to, the land
and improvements thereon (including one 540-foot steel tower and three
buildings on 1.29 acres), all leases, agreements, consents, licenses and
other contracts specifically related to the Tower.
Specialized Mobile Radio System
The Partnership owns a limited partnership interest in United Mobile
Networks L.P. ("UMN L.P."). UMN L.P. was formed to acquire, own, operate
and sell SMR systems. On November 24, 1993, UMN L.P. entered into a
management agreement and an asset purchase agreement to sell to East Texas
Communications Limited Partnership ("ETCLP"), an unaffiliated third party,
UMN L.P.'s radio communications business located in eastern Texas and
northwestern Louisiana. Closing was completed October 27, 1994, and was
effective July 14, 1994. Subsequently, all the assets of ETCLP were
transferred to Mobex UMN, Inc., a wholly owned subsidiary of Mobex, Inc.,
in exchange for stock in the wholly owned subsidiary.
Total consideration under the asset purchase agreement was
$3,200,000, which was paid by $1,000,000 cash and a promissory note for
$1,700,000. The note bears interest at 8% per annum, interest payable
quarterly, beginning October 31, 1994. The principal is payable as
follows: $200,000 on each of December 1, 1996 and 1997, and the balance
on December 1, 1998. Additional consideration is to be paid, computed as
an amount equal to the greater of 15% of the net profit of ETCLP determined
as of the date of the sale of substantially all of the assets of ETCLP, or
as of either the date of a refinancing of certain indebtedness, or November
30, 1998, or $500,000. On December 9, 1993, UMN L.P. received a non-
interest bearing escrow deposit in the amount of $840,000 from ETCLP. The
buyer was to pay the remaining cash due at closing, $160,000, plus
adjustments for capital expenditures, radio purchases and accounts
receivable, less adjustments for accounts payable. These adjustments
increased the purchase price by $173,200. Additional adjustments to the
purchase price were made in accordance with a letter agreement dated July
14, 1994, between ETCLP and UMN L.P. reducing the purchase price by
$350,000. These adjustments resulted in a net payable to ETCLP of $16,800,
which was deducted from the first interest payment due on interest on the
promissory note from ETCLP.
The adjustments contained in the letter agreement, referred to above,
include an amount to reflect a pending lawsuit filed by UMN L.P. against
Ronny Deaton, the former owner of the Business. As a result of these
adjustments, the purchase price was reduced to $3,023,200.
Item 2. Properties
See Item 1.
Item 3. Legal Proceedings
On March 21, 1994, UMN L.P. filed a petition for declaratory
judgement, damages and injunctive relief against Ronny Deaton and his wife
Barbara Deaton, claiming, among other things, that Mr. Deaton violated the
non-compete portion of his employment agreement. Mr. Deaton filed a motion
for summary judgement, which was dismissed on May 9, 1994. On May 12,
1994, UMN L.P.'s motion for temporary injunctive relief was denied. On May
12, 1995, a jury returned a verdict enforcing Mr. Deaton's original
covenant not to compete with the SMR property formerly owned by UMN L.P.
for a period continuing for approximately 18 months. The jury also entered
judgement against Mr. Deaton in favor of UMN L.P. for $630,000 in damages,
attorney fees and costs. On February 8, 1996, the Deatons filed an appeal
with the Texas Appellate Court. On April 17, 1996, the appellate court
ruled that the non-compete and injunction against Ronny Deaton was upheld,
but the injunction against Barbara Deaton was dismissed. The dismissal of
the counter suit the Deatons filed against UMN L.P. was also upheld. The
$100,000 award UMN L.P. received for violation of the non-compete was
dismissed. The appellate court acknowledged the theft of the customer
list, but the portion of the judgement assessing damages in the amount of
$500,000 was reversed and remanded to the trial court for a new trial. UMN
L.P. appealed this decision to the Texas State Supreme Court. On February
21, 1997, the Texas State Supreme Court issued the following decision:
1. The court upheld the lower court's decision that Ronny Deaton
misappropriated the customer list for the UMN L.P. SMR system.
However, because UMN L.P. was never deprived of the use of its
customer list (i.e., Mr. Deaton had only appropriated a duplicate
list while UMN L.P. still retained the original) and, because UMN
L.P. never in fact lost customers as a result of the
misappropriation of its customer list, the court reduced the
damages awarded to UMN L.P. to attorney's fees, approximately
$32,500.
2. The court also upheld the lower court's finding that the UMN L.P.
non-compete agreement was valid and enforceable against Mr.
Deaton.
It is management's belief that this matter has run its course. Mr. Deaton
has been prevented from competing with UMN L.P., in accordance with his
agreement. UMN L.P. has a lien against Mr. Deaton's assets for $32,500,
the amount of its attorneys' fees for this matter.
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
Part II.
Item 5. Market for Registrant's Partnership Interests and Related
Partnership Matters
As of December 31, 1997, the Partnership had 527 investor limited
partners who had subscribed to 5,334 units. There is no established
trading market for the Units. The Partnership distributes cash flow from
operations, refinancing and/or sale proceeds, to the extent available. A
portion of these distributions constitutes a return of capital. There were
four distributions made to limited partners in 1997 totaling $693,420.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the year ended December 31, 1997, Partnership operations
consisted of operating the communications tower owned by Tower Ventures.
The specialized mobile radio businesses owned by UMN L.P. were sold
effective July 14, 1994.
Revenues of the Partnership, which consists of rental revenues from
the Philadelphia tower owned by Tower Ventures, increased $80,963, or
approximately 14%, from $636,588 in 1996 to $725,551 in 1997 and costs and
expenses increased $32,344, or approximately 9%, from $353,676 in 1996 to
$386,020 in 1997. The increase in revenues was attributable to the addition
of new tenants and the addition of equipment by existing tenants, consumer
price index rent adjustments, and increases in utility reimbursements over
1996.
For the year ended December 31, 1997, rental revenue was earned from
34 tenant license agreements with Tower Ventures. During 1997, three new
tenants were added to the Tower, five existing tenants added equipment to
the Tower and five tenants extended their agreements. Minimum future
rental income from noncancelable leases in 1998 is expected to approximate
$606,000.
Operating, general and administrative expense in 1997 consisted of
operating costs of Tower Ventures and UMN L.P. in the amount of $94,664 and
$4,422, respectively. The remaining $72,312 represents legal and
accounting fees of $53,113 and other administrative costs of the
Partnership of $19,199. Management fees, others, increased from $68,076
in 1996 to $75,637 in 1997. These consisted of fees incurred by Tower
Ventures and UMN L.P. of $56,076, and $12,000 in 1996 and $63,637 and
$12,000 in 1997, respectively. Management fees, affiliates, increased from
$37,402 in 1996 to $40,445 in 1997. These fees were incurred by the
Partnership and represent management fees to Telecommunications Growth &
Income Fund Management Limited Partnership, the General Partner.
Operating income increased by $56,620 in 1997, from $282,912 in 1996
to 339,532 in 1997.
Interest income decreased from $173,284 in 1996 to $162,308 in 1997
and represents interest earned on the note receivable from the sale of UMN
L.P.'s assets as of July 14, 1994 and income from the Partnership's
investments in short-term U.S. Treasury obligations. Interest expense
decreased from $1,274 in 1996 to $-0- in 1997 as a result of repayment of
the bank Loan on March 18, 1996.
For the years ended December 31, 1997 and 1996, the Partnership had
positive cash flow from operations of $512,182 and $585,984, respectively.
Distributions to limited partners increased from $426,720 in 1996 to
$693,420 in 1997, and from $4,312 to $7,004 to the general partner. These
distributions were funded from operating cash flow without considering
amortization and depreciation and from a principal payment of $200,000 on
January 31, 1997 from the note receivable from the sale of the SMR
businesses. Future distributions will be determined by management based
on operating performance and available positive cash flow.
The Partnership expects that it will continue generating net income
from operations in the future primarily as a result of the income generated
by the Communications Tower operations and from the interest income from
the note receivable from the sale of the SMR businesses. It is the
Partnership's objective to increase the revenues of Tower Ventures through
the addition of new tenants to the Communications Tower, the provision of
additional services to existing tenants, increased rents from existing
tenants as a result of lease renewals at higher rents, and increased rents
occurring as a result of the annual cost of living adjustments in the
existing operating leases.
Financial Condition
On November 9, 1993, Tower Ventures entered into a $1,000,000 line
of credit/term agreement (the "Loan") with a commercial bank. The Loan
bore interest at 8.12%. As of December 31, 1995, the outstanding principal
balance was $76,524. The Loan was paid in full on March 18, 1996.
On October 27, 1994, closing was completed on the sale by UMN L.P.
of the tangible and intangible assets used or held for use in connection
with its communications business. Total consideration under the asset
purchase agreement was $3,200,000, which was to be paid by $1,000,000 cash
and a promissory note for $1,700,000. Additional consideration is to be
paid, computed as an amount equal to the greater of 15% of the net profit
of ETCLP determined as of the date of the sale of substantially all of the
assets of ETCLP, or as of either the date of a refinancing of certain
indebtedness, or November 30, 1998, or $500,000. On December 9, 1993, UMN
L.P. received a non-interest bearing escrow deposit in the amount of
$840,000 from ETCLP. The buyer was to pay the remaining cash due at
closing, $160,000, plus adjustments for capital expenditures, radio
purchases and accounts receivable, less adjustments for accounts payable.
These adjustments increased the purchase price by $173,200. Additional
adjustments to the purchase price were made in accordance with a letter
agreement dated July 14, 1994, between ETCLP and UMN L.P. reducing the
purchase price by $350,000. These adjustments resulted in a net payable
to ETCLP of $16,800, which was deducted from the first interest payment due
on the promissory note from ETCLP on October 31, 1994. ETCLP makes
quarterly interest payments on the outstanding balance of the note
receivable to the Partnership. Two principal payments of $200,000 each
were due on December 1, 1996 and December 1, 1997 and were received by the
Partnership on January 31, 1997 and December 30, 1997, respectively. An
additional principal payment of $1,300,000 is due on December 1, 1998.
At the time of acquisition, the Tower had twelve tenants with leases
generating $34,000 per month. As of January 1, 1998, there were 34 tenant
leases in effect with a current rent roll of approximately $58,000 per
month. Each lease has a cost of living adjustment resulting in annual
increases ranging from 3% to 10%. Management continues to seek additional
tenants for the Tower and operating expenses are generally fixed and
relatively low. Operating cash flow margins for the most recent three
years range from 87% to 88%, and are expected to continue at that level.
The Partnership has current assets in excess of current liabilities
of $304,500 at December 31, 1997. The Partnership expects to generate
positive cash flows for 1998. The sale of UMN L.P. assets is expected to
generate additional cash over the next two years of a minimum of $1.3
million. As a result, future cash flows are expected to be more than
sufficient to cover the Partnership's cash flow needs.
Inflation
Although the Partnership cannot determine the precise effects of
inflation, it is anticipated that there will be increases in operating
costs and general and administrative expenses. Management believes that
any such increases will be adequately provided for through the annual cost
of living increases which are contained in all of the Partnership's
operating leases, by adding revenues from existing lessees or by adding new
lessees to the communications tower.
Item 7. Financial Statements and Supplementary Data
Telecommunications Growth & Income Fund L.P.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
AND FOR THE YEARS THEN ENDED
INDEX
Independent Auditors' Report 10
CONSOLIDATED BALANCE SHEETS 11-12
CONSOLIDATED STATEMENTS OF OPERATIONS 13
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) 14
CONSOLIDATED STATEMENTS OF CASH FLOWS 15-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17-22
INSERT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Partners of
Telecommunications Growth &
Income Fund L.P.
Arlington, Virginia
We have audited the accompanying consolidated balance sheets of
Telecommunications Growth & Income Fund L.P. (a Virginia Limited
Partnership) as of December 31, 1997 and 1996, and the related
consolidated statements of operations, partners' capital (deficit), and
cash flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Telecommunications
Growth & Income Fund L.P. as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Washington, D.C.
January 31, 1998
TELECOMMUNICATIONS GROWTH AND INCOME FUND L.P.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
CASH AND CASH EQUIVALENTS $ 335,062 $ 135,527
RECEIVABLES:
Rent 22,777 10,336
Affiliates 1,844 1,844
Other 20,044 22,755
44,665 34,935
Total current assets 379,727 170,462
LAND 89,005 74,624
BUILDINGS, net of accumulated
depreciation of $111,140 and $97,802 155,605 168,943
COMMUNICATIONS TOWERS, net of accumulated
depreciation of $526,460 and $452,284 831,055 897,630
INTANGIBLE ASSETS, net of accumulated
amortization of $868,334 and $858,334 116,666 126,666
1,192,331 1,267,863
OTHER ASSETS:
Note receivable 1,300,000 1,700,000
Additional consideration receivable 464,759 429,140
Other assets 10,395 11,809
1,775,154 2,140,949
Total Assets $3,347,212 $3,579,274
The accompanying notes are an integral
part of these consolidated financial statements.
TELECOMMUNICATIONS GROWTH AND INCOME FUND L.P.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
1997 1996
CURRENT LIABILITIES:
Accrued liabilities $48,609 $73,552
Accounts payable-affiliates 7,376 7,154
Deferred income 9,617 14,362
Security deposits 9,625 8,625
Total current liabilities 75,227 103,693
MINORITY INTEREST IN TOWER VENTURES
LIMITED PARTNERSHIP 10,656 10,969
MINORITY INTEREST IN UNITED MOBILE
NETWORKS L.P. 11,661 10,257
PARTNERS' CAPITAL (DEFICIT):
General Partner (30,081) (28,034)
Investor Limited Partners 3,279,749 3,482,389
3,249,668 3,454,355
Total Liabilities and Partners'
Capital (Deficit) $3,347,212 $3,579,274
The accompanying notes are an integral
part of these consolidated financial statements.
TELECOMMUNICATIONS GROWTH AND INCOME FUND L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
1997 1996
REVENUES:
Rental income $ 725,551 $ 636,588
COSTS AND EXPENSES:
Operating, general and administrative 171,398 131,659
Management fees
- affiliates 40,445 37,402
- others 75,637 68,076
Depreciation and amortization 98,540 116,539
386,020 353,676
OPERATING INCOME 339,531 282,912
OTHER INCOME (EXPENSES):
Interest income 162,308 173,284
Interest expense - (1,274)
162,308 172,010
INCOME BEFORE ALLOCATION
TO MINORITY INTERESTS 501,839 454,922
MINORITY INTEREST IN TOWER VENTURES
LIMITED PARTNERSHIP (4,697) (3,854)
MINORITY INTEREST IN UNITED MOBILE
NETWORKS L.P. (1,405) (1,515)
NET INCOME $495,737 $449,553
ALLOCATION OF NET INCOME:
General Partner $4,957 $4,496
Investor Limited Partners $490,780 $445,057
Net income per investor Limited Partner Unit $ 92.01 $ 83.44
The accompanying notes are an integral
part of these consolidated financial statements.
TELECOMMUNICATIONS GROWTH AND INCOME FUND L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Investor
General Limited
Partner Partners Total
BALANCE, January 1,
1996 $(28,218) $3,464,052 $3,435,834
Distributions (4,312) (426,720) (431,032)
Net Income 4,496 445,057 449,553
BALANCE, December 31,
1996 $(28,034) $3,482,389 $3,454,355
Distributions (7,004) (693,420) (700,424)
Net Income 4,957 490,780 495,737
BALANCE, December 31,
1997 $(30,081) $3,279,749 $3,249,668
The accompanying notes are an integral
part of these consolidated financial statements.
TELECOMMUNICATIONS GROWTH AND INCOME FUND L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $495,737 $449,553
Adjustments to reconcile income to net
cash provided by operating activities:
Depreciation and amortization 98,540 116,539
Imputed interest on additional consideration
receivable (35,619) (32,889)
Changes in assets and liabilities:
Decrease (increase) in receivables (9,730) 7,168
Increase (decrease) in accrued liabilities (39,324) 49,505
Decrease in deferred revenue (4,745) (5,209)
Increase (decrease) in security deposits 1,000 (1,000)
Increase in minority interests 1,091 2,405
Increase in accounts payable-affiliates 222 916
Decrease (increase) in other assets 5,010 (1,004)
Net cash provided by operating activities 512,182 585,984
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital improvements (7,600) (118,463)
Equipment purchases (4,623) -
Net cash used in investing activities (12,223) (118,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Collections of Note Receivable 400,000 -
Distributions (700,424) (431,032)
Repayment of borrowings - (76,523)
Net cash used in financing activities (300,424) (507,555)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 199,535 (40,034)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 135,527 175,561
CASH AND CASH EQUIVALENTS, END OF PERIOD $335,062 $135,527
The accompanying notes are an integral
part of these consolidated financial statements.
TELECOMMUNICATIONS GROWTH AND INCOME FUND L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
1997 1996
Supplementary information:
Cash paid during the period for interest $ - $ 1,670
The following non-cash activities
resulted from the sale of
of UMN L.P. assets:
Imputed interest receivable $35,619 $32,889
The accompanying notes are an integral
part of these consolidated financial statements.
TELECOMMUNICATIONS GROWTH & INCOME FUND L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Formation
Telecommunications Growth and Income Fund L.P. ("the Partnership") was
formed on December 29, 1988 and shall continue until December 31, 2008,
unless dissolved sooner, in accordance with the Agreement of Limited
Partnership (the "Partnership Agreement"). Telecommunications Growth
and Income Fund Management Limited Partnership ("TGIF") is the "General
Partner" and manager of the Partnership and Telecommunications Growth
and Income Fund, Inc. ("TGIF, Inc.") was the initial limited partner.
The General Partner and TGIF, Inc. purchased their interests in the
Partnership by contributing $1,100 and $100, respectively, to
Partnership capital. The initial limited partner's capital contribution
was returned to TGIF, Inc. upon admission of the investor limited
partners.
TGIF was organized on December 22, 1988, for the purpose of serving as
the General Partner of the Partnership. Denison E. Smith and TGIF, Inc.
were the General Partners of TGIF. Effective December 31, 1992, Mr.
Smith resigned as a General Partner and TGIF, Inc. remained as the sole
General Partner of TGIF. TGIF, Inc. is owned and controlled 60% by
DeRand Telecommunications Corporation ("DTC"), 35% by MT Fund I Limited
Partnership ("MTLP"), and 5% by Pennington/Bass Telecommunications, Inc.
("PBT"). DTC is wholly owned by DeRand Corporation of America ("DCOA"),
which is also the sole owner of DeRand/Pennington/Bass, Inc. ("D/P/B").
Denison E. Smith is an officer of DCOA, DTC and D/P/B. PBT is wholly
owned by two former officers of DCOA and D/P/B. DCOA is deemed to be
controlled by Denison E. Smith and Randall N. Smith, both officers and
directors of TGIF, Inc., by virtue of their individual stock ownership
of DCOA.
Partnership Business
The Partnership was formed to engage in the business of acquiring,
developing, operating, selling and otherwise investing in
communications-related businesses, primarily in the area of franchise
cable television systems and other cable-related businesses, broadcast
radio stations, cellular telephone systems, specialized mobile radio,
publishing and various other technologies or devices.
The Partnership's principal business activities are concentrated in
the Philadelphia, Pennsylvania, metropolitan area through its investment
in Tower Ventures Limited Partnership and in East Texas, through its
investment in United Mobile Networks L.P, which was sold effective July
14, 1994 (see Note 8).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on the
accrual basis of accounting and include the accounts of the Partnership
and its 99% owned subsidiary, Tower Ventures Limited Partnership, a
Pennsylvania limited partnership ("Tower Ventures"), on a consolidated
basis. The remaining 1% limited partnership interest in Tower Ventures
is held by DCOA and Malarkey-Taylor in trust for the Partnership until
the property is refinanced.
On November 9, 1990, the Partnership purchased a 29.5% limited
partnership interest in United Mobile Networks L.P. ("UMN L.P."), a
Delaware limited partnership. On June 29, 1992, the Partnership's
limited partnership interest increased to a 99% limited partnership
interest, pursuant to the Third Amendment to the Limited Partnership
Agreement of UMN L.P. As a result of the provisions of UMN L.P.'s
partnership agreement, the Partnership was deemed to control UMN L.P. as
of November 9, 1990 (date of purchase). Accordingly, the accompanying
consolidated financial statements include the accounts of UMN L.P. since
November 9, 1990 on a consolidated basis.
All intercompany transactions have been eliminated in consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers
all highly liquid instruments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents included
an investment in a mutual fund investing in short-term U.S. Treasury
obligations of $66,140 and $90,740 at December 31, 1997 and 1996,
respectively.
Income Taxes
No provision has been made for Federal and state income taxes since
the Partnership's profits and losses are reported by the individual
partners on their respective income tax returns.
Deferred Rental Income
Deferred rental income represents prepayments of rent by certain
tenants of the communications tower owned by Tower Ventures and is
recognized as revenue in the subsequent month when earned.
Minority Interest in United Mobile Networks L.P.
Minority interest in United Mobile Networks L.P. ("UMN L.P."), as
shown on the balance sheets, reflect the capital account balances
attributable to the 1% interest in UMN L.P. in consolidation and
represents the portion of UMN L.P. not owned by the Partnership.
For the years ended December 31, 1997 and 1996, UMN L.P. reported net
income of $140,487 and $151,509, respectively. The 1% minority
interest of $1,405 and $1,515, respectively, is reflected in the
consolidated statement of operations as Minority interest in UMN L.P.'s
net income.
Minority Interest in Tower Ventures Limited Partnership
Minority interest in Tower Ventures Limited Partnership, as shown on
the balance sheet, reflects the capital account balances attributable to
the 1% interest in Tower Ventures owned by DCOA and Malarkey-Taylor
Associates, Inc.
For the years ended December 31, 1997 and 1996, Tower Ventures
reported net income of $469,737 and $385,391, respectively. The 1%
minority interest of $4,697 and $3,854, respectively, is reflected in
the consolidated statement of operations as Minority interest in Tower
Ventures' net income.
Depreciation and Amortization
Computer equipment is stated at cost and depreciated over an
estimated useful life of 3 years using the straight-line method.
Buildings and the communications towers are stated at cost and
depreciated over estimated useful lives of 20 years using the straight-
line method. Costs assigned to intangible assets are being amortized
using the straight-line method over the remaining estimated useful lives
of from 4 months to 20 years (see Note 3). Repairs and maintenance are
expensed as incurred.
Income per Investor Limited Partner Unit
Income per Investor Limited Partner Unit is calculated by dividing the
allocation of income to Investor Limited Partners by the weighted
average number of units outstanding during the years ended December 31,
1997 and 1996 of 5,334 units.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the 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.
Recent Accounting Pronouncement
During 1996, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS No. 121). This statement
requires that such assets be reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable and that such assets be reported at the lower of carrying
amount or fair value. The Partnership adopted SFAS No. 121 during 1996 and,
based on current circumstances, there is no material
impact on its results of operations or financial position.
Fair Values of Financial Instruments
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgement is necessary to interpret market
data and develop estimated fair values. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the
Partnership could realize on disposition of the financial instruments.
The use of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair value amounts.
The fair values of the Partnership's financial instruments, including
cash equivalents, accounts receivable, note receivable, additional
consideration receivable, accounts payable, other accrued expenses, and
deferred income, approximate their carrying values.
Disclosure about fair values of financial instruments is based on
pertinent information available to management as of December 31, 1997.
Although management is not aware of any factors that would significantly
affect the reasonable fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since that date and current estimates of fair value may differ
significantly from the amounts presented herein.
3. INTANGIBLE ASSETS
Costs of the communications businesses owned by Tower Ventures
assigned to leases, goodwill, contracts with the sellers and customer
lists are being amortized using the straight-line method over the
following useful lives:
December 31,
Useful Life
1997 1996
Leases $ 785,000 $ 785,000 4-69 months
Goodwill 200,000 200,000 20 years
985,000 985,000
Less: accumulated amort. (868,334) (858,334)
$ 116,666 $ 126,666
Costs associated with the leases have been fully amortized.
Intangible assets are periodically evaluated based upon cash flows and
other factors for potential impairment.
4. NOTE RECEIVABLE AND OTHER RECEIVABLE
December 31,
1997 1996
Note Receivable:
East Texas Communications Limited Partnership,
interest at 8% receivable in quarterly installments
beginning October 31, 1994, principal payments of
$200,000 on each of December 1, 1996 and 1997,
$1,300,000 due on December 1, 1998 (see Note 9) $1,300,000 $1,700,000
Other Receivable:
East Texas Communications Limited Partnership,
$500,000 additional consideration receivable,
non-interest bearing, valued using interest
imputed at 8%, due no later than November 30,
1998 and could be received prior to November
30, 1998. $ 464,759 $ 429,140
As discussed in Note 8, on November 24, 1993, UMN L.P. entered
into a management agreement and an asset purchase agreement to sell to
East Texas Communications Limited Partnership ("ETCLP"), a Delaware
limited partnership, all of the tangible and intangible assets used or
held for use in connection with UMN L.P.'s radio communications business
(the "Business") located in eastern Texas and northwestern Louisiana.
Total consideration under the asset purchase agreement was $3,200,000,
which was paid by $1,000,000 cash, a promissory note for $1,700,000, and
additional consideration of a minimum of $500,000.
5. LEASE AGREEMENTS
Future minimum rentals to be received under noncancelable tenant
leases held by Tower Ventures at December 31, 1997, are due for the
following years ending December 31, as follows:
1998........................................ $ 601,906
1999........................................ 538,418
2000........................................ 381,884
2001........................................ 163,312
2002........................................ 56,681
$1,742,201
6. RELATED PARTY TRANSACTIONS
The General Partner is entitled to a management fee of 5% of the
gross revenues, not including proceeds from the sale, exchange or other
disposition of the businesses. Management fees for the years ended
December 31, 1997 and 1996 were $40,445 and $37,402, respectively.
The Partnership is charged for costs incurred by affiliates of the
General Partner for operating expenses necessary for the operation of
the Partnership and its Communications Businesses. The costs charged to
the Partnership during the year ended December 31, 1997 were $3,800. No
charges were made to the Partnership during 1996. These costs are
included in operating, general and administrative expense.
7. COMMITMENTS AND CONTINGENCIES
For managing the affairs of the Partnership, including
administrative, record-keeping, accounting, tax and regulatory affairs
and supervisory functions, the General Partner will be paid an annual
property management fee equal to 5% of the gross revenues, as defined in
the Partnership agreement, received by the Partnership which are
directly attributable to such Communications Business. The property
management fee is payable quarterly in arrears.
The General Partner will receive a disposition fee (after the
investor limited partners have received in distributions an amount equal
to their capital contributions plus a return equal to at least 6% of
their adjusted capital contributions, as defined in the Partnership
Agreement, per annum), equal to the lesser of (a) 3% of the sale price
of the Communications Business being sold or (b) amounts payable to a
non-affiliated third party performing comparable services in the same
geographic location.
8. SALE OF COMMUNICATIONS BUSINESS
On November 24, 1993, UMN L.P. entered into a management agreement
and an asset purchase agreement to sell to East Texas Communications
Limited Partnership ("ETCLP"), a Delaware limited partnership, all of the
tangible and intangible assets used or held for use in connection with UMN
L.P.'s radio communications business (the "Business") located in eastern
Texas and northwestern Louisiana. ETCLP is an unaffiliated third party.
Subsequent to the sale, all the assets of ETCLP were transferred to Mobex
UMN, Inc., a wholly owned subsidiary of Mobex, Inc., in exchange for stock
in the wholly owned subsidiary. The Business includes licenses or
management rights with respect to specialized mobile radio ("SMR") channels
located at or above the 800 MHz frequency band, a radio communications
sales and service business, a UHF community repeater business, a tower
leasing business and other related operations and assets. Closing was
completed October 27, 1994, and was effective July 14, 1994. Under the
terms of the management agreement, ETCLP began managing the business on
December 1, 1993, and managed the business until the closing date of the
sale.
Total consideration under the asset purchase agreement was
$3,200,000, which was paid by $1,000,000 cash, a promissory note for
$1,700,000 and an additional amount of $500,000. The promissory note
bears interest at 8% per annum, interest payable quarterly, beginning
October 31, 1994. Two principal payments of $200,000 each were due on
December 1, 1996 and December 1, 1997 and were received by the
Partnership on January 31, 1997 and December 30, 1997, respectively. An
additional principal payment of $1,300,000 is due on December 1, 1998.
Interest is accrued on the outstanding balance of the promissory note
and ETCLP makes quarterly interest payments to the Partnership. The
next quarterly interest payment was due and received on January 31,
1998. Additional consideration is to be paid, computed as an amount
equal to the greater of 15% of the net profit of ETCLP determined as of
the date of the sale of substantially all of the assets of ETCLP, or as
of either the date of a refinancing of certain indebtedness, or November
30, 1998, or $500,000. On December 9, 1993, UMN L.P. received a non-
interest bearing escrow deposit in the amount of $840,000 from ETCLP.
The buyer paid the remaining cash due at closing, $160,000, plus
adjustments for capital expenditures, radio purchases and accounts
receivable, less adjustments for accounts payable. These adjustments
increased the purchase price by $173,200. Additional adjustments to the
purchase price were made in accordance with a letter agreement dated
July 14, 1994, between ETCLP and UMN L.P. reducing the purchase price by
$350,000. These adjustments resulted in a net payable to ETCLP of
$16,800, which was deducted from the first interest payment due on
interest on the promissory note from ETCLP.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
None.
Part III.
Item 9. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. The General Partner
manages the Partnership's affairs and has general responsibility and
authority in all matters affecting its business. All management
decisions regarding operations of the Partnership will be made by the
Board of Directors of TGIF, Inc., (the "Board"). On March 19, 1990,
pursuant to a Written Consent in Lieu of Annual Meeting of the
Stockholders of TGIF, Inc., the shareholders elected to increase the
number of directors from 5 to 7. In addition, the Bylaws of TGIF, Inc.
were amended to provide that 4 of the 7 directors in office shall
constitute a quorum for the transaction of business at each and every
meeting and the affirmative vote of 4 of the directors present at every
meeting at which a quorum is present will be required to approve any
investment decision regarding potential acquisitions and dispositions by
the Partnership of Communications Businesses. The consent of Denison E.
Smith is also required for any disposition of a Communications Business.
In addition, Denison E. Smith has the independent right to authorize
the disposition of any Communications Business without the affirmative
vote of the Board.
The officers and directors of TGIF, Inc. are:
Served in Present
Name Capacity Since* Position Held
Randall N. Smith 12/19/88 President, Chief Executive
Officer
12/21/88 and Director
Denison E. Smith 12/19/88 Executive Vice-President
12/21/88 and Director
Mark I. Bass 01/18/89 Director
Lee D. Pennington 12/21/88 Vice-President
B. Eric Sivertsen 12/21/88 Vice-President,Secretary,
Chief Financial Officer
03/19/90 and Director
Clark T. Madigan 12/21/88 Vice-President
03/19/90 and Director
Robert M. Jones 12/21/88 Vice-President and
6/30/94 Director
______________________________________
* Directors hold office until their successors
are elected and qualified. All officers serve
at the pleasure of the Board.
The following constitutes a summary of certain information
regarding the executive officers and directors of TGIF, Inc.
Randall N. Smith - 51, is a cum laude graduate of Harvard
University (B.A., Economics, 1969). He is certified by the College of
Financial Planning as a Certified Financial Planner. Mr. Smith has
served as Chairman of the Board of Directors of DCOA and of D/P/B
(formerly DeRand Investment Corporation of America) since 1971 and 1969,
respectively. He has served as an officer and director of several
subsidiaries and Affiliates, which are engaged in the acquisition,
development and financing of investments in franchise and private cable
television, communications services management, and other
telecommunications systems. During the last several years, Mr. Smith
has been a speaker and writer on investments in telecommunications,
appearing on television shows and at investment seminars and being
published in such investment journals as Financial Planning Magazine and
Financial Product News. Mr. Smith served as a member of the District
Business Conduct Committee of the NASD, District #10. His three year
term ended January, 1989. Mr. Smith serves as President and Chairman of
the Board of DTC. Randall N. Smith and Denison E. Smith are brothers.
Denison E. Smith - 54, is a graduate of the University of Colorado
1965, and the University of Idaho Law School, 1968. He is a member of
the bars of the State of Idaho and the District of Columbia. He has
served as President and Director of DCOA and an officer and Director of
D/P/B since 1971 and 1969, respectively, and has served as an officer
and director for several of DCOA's subsidiaries and Affiliates which are
engaged in the acquisition, development or financing of investments in
franchise and private cable television, communications management
services, and other telecommunications systems. In 1986, Mr. Smith
addressed the World Congress of the International Association of
Financial Planners, discussing investment opportunities in the cellular
telephone industry. Mr. Smith serves as a Vice-President and Director
of DTC. Denison E. Smith and Randall N. Smith are brothers.
Mark I. Bass - 46, CFP, CPA, holds a BBA degree with a major in
Economics from Baylor University and a BBA with a major in Accounting
from Texas Tech University. Mr. Bass was a Senior Vice President of
DCOA from its merger with Pennington/Bass Companies in March 1989 until
March 1992. Previously Mr. Bass was President of Pennington/Bass
Companies, Inc. since its inception in 1975. These companies were
involved in various phases of financial planning and include Associated
Financial Planners, Inc. and Pennington/Bass & Associates. Mr. Bass has
served on the Boards of the International Association for Financial
Planning and the Institute of Certified Financial Planners. He has
authored columns appearing in Financial Planning Magazine and USA Today,
and has appeared on USA Today: The Television Show, discussing the
financial planning industry and providing recommendations for consumer
investments. Mr. Bass has been quoted in Forbes and Changing Times
magazines, the New York Times and Associated Press. In 1987, he was
named one of the top 200 financial planners in the country by Money
Magazine.
Lee D. Pennington - 67, CFP, was a Senior Vice-President of DCOA
from its merger with Pennington/Bass Companies in March 1989 until March
1992. Previously, he was Chairman of the Board of Pennington/Bass
Companies since its inception in 1975, with offices in the major cities
of Texas and the states of Illinois, Idaho, Arkansas, Georgia, New
Mexico, California and North Carolina. Mr. Pennington has served on the
National Board of Directors of the International Association of
Financial Planners ("IAFP"). He has served on the Board of Trustees of
the Foundation for Financial Planning and as a member of the IAFP
Broker/Dealer Committee. He also has served on the International Board
of Standards & Practices for Certified Financial Planners. Mr.
Pennington has been quoted extensively in national publications such as
Medical Economics and Financial Planning on financial planning and
practice management.
B. Eric Sivertsen - 44, is a graduate of the College of William &
Mary, 1975, and the George Mason University School of Law, 1981. He is
a Vice-President and Director of DTC and has been involved in the
acquisition, development and/or financing of investments in franchise
and private cable television, communications management services, radio
and other telecommunications systems since 1984. During the last
several years, Mr. Sivertsen has been a speaker on investments in
telecommunications, appearing on radio and at investment seminars.
Prior to joining DeRand, he was an attorney in private practice in
McLean, Virginia, first with Sedam & Herge, P.C., from 1981 to 1983,
then with the law offices of James Edward Ablard from 1983 to 1984.
Clark T. Madigan - 58, is President of MTI Capital Corporation.
He was formerly Vice-President, Corporate Finance, and Director at
Malarkey-Taylor from 1985 to November 1990. Prior thereto, he served as
Chairman of the Board and Senior Loan Officer, Manufacturers Hanover
Trust Company of Central New York; Vice President at Marine Midland
Bank; Assistant Vice President at Irving Trust; Group Vice President and
Senior Credit Officer at American Security Bank, Washington, D.C. After
twenty years (1961 to 1981) of commercial and investment banking
experience, Mr. Madigan became an independent financial consultant and
performed the functions of chief financial officer for several
communications companies in the Washington, D.C. area from 1982 to 1985.
After joining Malarkey-Taylor Associates in 1985, he assisted numerous
companies in raising capital, negotiating acquisitions, leveraging
buyouts of limited partner interests, developing limited partnerships
for project financing, mergers and sales of cable systems and strategic
long-term financial planning. He is a graduate of Colgate University,
and graduate degree programs from Dartmouth College, Rutgers University
and New York University Graduate School of Business Administration. Mr.
Madigan is presently a member of the advisory board of the Joseph P.
Kennedy Institute, and he has participated in several community
organizations including the Kiwanis Club and The Greater Washington
Board of Trade.
Robert M. Jones - 54, is Malarkey-Taylor's President and has
served on Malarkey-Taylor's Board of Directors and Executive Committee
as Secretary and/or Treasurer since 1978. Mr. Jones has performed
hundreds of analyses, evaluations and appraisals of existing and
proposed cable television systems and other communication properties of
all types and sizes. He has appeared on various seminars and workshop
panels, published industry articles and provided expert testimony in
arbitration cases and court trials involving valuations and financial
management of communication properties. He is a graduate of Texas Tech
University, (B.B.A., Accounting) and the University of Missouri,
Columbia (M.A., Accounting and Economics) and is a Certified Member of
the American Society of Appraisers.
Item 10. Executive Compensation
The Partnership does not pay the officers or directors of TGIF,
Inc. any remuneration. TGIF, Inc. does not presently pay any
remuneration to any of its officers or directors. See Notes 7 and 8 of
the Financial Statements included in Item 7 hereof for sums paid by the
Partnership to affiliates for services performed.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of January 31, 1998, no person was known by the Partnership to
be the beneficial owner of more than 5 percent of the Units.
As of January 31, 1998, no director or officer owned any of the
Units.
Item 12. Certain Relationships and Related Transactions
All of the directors of TGIF, Inc. are executive officers or
directors of Affiliates that have received or will receive fees for
services provided to the Partnership, as described in Notes 7 and 8 to
the Financial Statements included in Item 7 hereof.
Part IV.
Item 13. Exhibits and Reports on Form 8-K
None.
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 GROWTH &
INCOME FUND L.P.
BY: TELECOMMUNICATIONS GROWTH
& INCOME FUND MANAGEMENT
LIMITED PARTNERSHIP
General Partner
BY: TELECOMMUNICATIONS GROWTH
& INCOME FUND, INC.
General Partner
DATE: January 31, 1998 BY: /s/ Randall N. Smith
Randall N. Smith, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacity and on the dates indicated.
DATE: January 31, 1998 BY: /s/ Randall N. Smith
Randall N. Smith, President, Chief
Executive Officer and Director
DATE: January 31, 1998 BY: /s/ B. Eric Sivertsen
B. Eric Sivertsen, Vice-President,
Secretary, Director and Chief
Financial and Accounting Officer
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<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 335,062
<SECURITIES> 0
<RECEIVABLES> 44,665
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 379,727
<PP&E> 1,713,265
<DEPRECIATION> 637,600
<TOTAL-ASSETS> 3,347,212
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0
0
<COMMON> 0
<OTHER-SE> 3,249,668
<TOTAL-LIABILITY-AND-EQUITY> 3,347,212
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<TOTAL-REVENUES> 725,551
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