<PAGE> 1
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, 1996
( ) 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 -33-40091.
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.)
425 Second Street S.E., Suite 600, Cedar Rapids, Iowa 52401
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code 319-365-2506
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 (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants 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 21, 1997, 67,902 Units were issued and outstanding. Based on the
original sale price of $250 per Unit, the aggregate market value at March 21,
1997 was $16,975,500.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the prospectus included in the Partnerships Post Effective
Amendment No. 4 to the Registration Statement on Form S-1 filed December 22,
1992 are incorporated by reference into Part IV.
<PAGE> 2
TELECOMMUNICATIONS INCOME FUND IX, L.P.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1 Business 3
Item 2 Properties 5
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Unit Holders 5
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 8 Financial Statements and Supplementary Data 11
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 29
Item 12. Security Ownership of Certain
Beneficial Owners and Management 30
Item 13. Certain Relationships and Related Transactions 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 31
SIGNATURES 32
EXHIBIT INDEX 33
<PAGE> 3
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 425 Second Street S.E.,
Suite 600, Cedar Rapids, Iowa 52401. All of the voting stock of the General
Partner is owned by Berthel Fisher & Company, Inc. ("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 will operate until December 31, 1999 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 business of the Partnership is the acquisition and leasing of equipment,
primarily telecommunications equipment such as pay telephones and call
processing equipment. The Partnership began its primary business activities on
November 29, 1991.
The principle objective of the Partnership is to obtain the maximum available
economic return from its investment in equipment leases to unaffiliated third
parties with a view toward: (i) generating cash flow from operations, with the
intent to make distributions during the Operating Phase (the period which ends
when the General Partner elects to begin the liquidation of the Partnership
assets); (ii) reinvesting (during the Operating Phase) any undistributed cash
flow from operations in additional equipment to be leased to increase the
Partnership's assets; (iii) obtaining the residual values of equipment upon
sale; (iv) obtaining value from sales of the Partnership's lease portfolio upon
entering the Liquidating Phase (the period during which the General Partner
will liquidate the Partnership assets); and (v) providing cash distributions to
the partners during the liquidating phase.
The Partnership acquires telecommunications equipment (primarily pay telephones
and call processing equipment) that is leased to third parties generally under
full payout leases. The Partnership has 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. During
1996, the Partnership acquired equipment with a cost of $5,970,136 that was
leased to its customers.
<PAGE> 4
Item 1. Business (continued)
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 acquires and approves leases on behalf of the Partnership.
The General Partner established guidelines to use in approving lessees.
Generally, before any lease is approved, there is a review of the potential
lessees' financial statements, credit references are checked, and outside
business and/or individual credit reports are 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 has
also purchased and leased hotel satellite television equipment.
The Partnerships telecommunication equipment leases are concentrated in the pay
telephone and hotel industries representing approximately 78% and 7% of the
Partnerships direct finance lease portfolio at December 31, 1996, respectively.
During the year ended December 31, 1996, three customers accounted for over 10%
of the Partnerships income from direct financing leases.
The loss of these leases would have an adverse effect on the Partnership's
business. The Partnership's first security interest in the site location
agreements could, however, in the case of a default, give the Partnership the
ability to re-sell or re-lease the equipment in place, thereby minimizing the
Partnership's potential loss.
The leasing industry is very competitive and the Partnership has fewer assets
than some of its major competitors.
A significant portion of the Partnerships 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
Partnerships customers that operate in the telecommunications industry.
Generally, regulation affects rates that can be charged and the relationship of
the regional Bell operating companies to the rest of the pay telephone
industry. Federal legislation signed by the President in February, 1996
included many provisions that affect the activities of the Partnerships
customers who are independent pay telephone providers. The FCC is currently
proposing regulations affecting long distance rates. The majority of the
customers of the Partnership are currently operating within the range of rates
proposed by the FCC. Some customers are below the proposed range and will be
able to increase their rates. Those customers whose rates exceed the highest
rates permitted by the FCC will reduce their rates, but management does not
expect such reductions to affect those customers ability to make lease
payments. Generally, management does not expect regulation to have any
significant negative impact upon the business of the Partnership.
<PAGE> 5
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. The
carrying value of such equipment is represented by the Partnership's investment
in direct financing leases, net of an allowance for possible losses, and
operating leases that was $14,638,432 at December 31, 1996. This was comprised
primarily of telecommunications equipment, as described in Item 1.
Item 3. Legal Proceedings
The registrant is not a party to any material pending legal proceeding.
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.
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
at
Title of Class March 20, 1997
-----------------------------------------------------------
Limited Partner 1,179
General Partner 1
Distributions of $2,039,573, $2,040,208, $2,040,210, and $1,839,448 were made
to investors in 1996, 1995, 1994 and 1993, respectively. This represented
distributions per unit of $30.00 for each of those years.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec.31, 1992
<S> <C> <C> <C> <C> <C>
Total Revenue $ 3,289,142 $ 2,956,684 $ 2,996,563 $ 2,853,471 $ 1,068,671
Net Income 1,008,207 1,649,729 1,783,703 2,118,543 703,632
Total Assets 15,642,179 20,464,124 18,052,458 19,861,786 13,353,871
Line of Credit 1,060,490 4,113,504 2,812,598 3,933,841 3,275,264
Bank term loan 845,149 1,229,431 --- --- ---
Provision for Possible Losses 577,931 94,156 270,000 --- ---
Distributions to Partners 2,039,573 2, 040,208 2,040,210 1,839,448 696,034
Net Income per Unit 14.83 24.26 26.23 33.79 31.49
Distributions per Unit 30.00 30.00 30.00 30.00 30.00
</TABLE>
The above selected financial data should be read in connection with the
financial statements and related notes appearing elsewhere in this report.
<PAGE> 6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
<S> <C> <C> <C>
Result of Operations
Description:
Lease Income $ 2,686,350 $ 2,873,830 $ 2,946,230
Gain on Lease Terminations 413,880 23,355 38,445
Management Fees 322,601 441,972 412,813
Admin. Services 81,655 82,307 74,988
Interest Expense 492,210 432,197 363,881
Professional Fees 95,564 45,814 51,908
Other Expense 74,448 59,969 39,270
Provision for Possible Losses 577,931 94,156 270,000
Depreciation 286,526 150,540 -0-
Impairment Loss 350,000 -0- -0-
</TABLE>
Lease income declined in 1996 versus 1995 and 1994 due to the Partnerships
decreased net investment in direct financing leases. As the Partnership ages
and continues to make distributions to the limited partners, available funds
for reinvestment in equipment have decreased and thus, the decrease in the
lease portfolio and associated lease income. In addition, as further described
later in Item 7, in 1995 the Partnership repossessed its equipment under lease
to Telecable/Continental and re-leased the equipment to Payphones of America.
In so doing, the terms of the new lease with Payphones of America allowed them
to make lesser lease payments in order to place the equipment back into a
profitable operating situation and thus the Partnership did not realize income
from this restructured lease during 1995 and under a portion of this lease
during 1996. Also as further discussed later in Item 7, a lessee of the
Partnership, Value-Added Communications, Inc. (VAC), filed Chapter 11
bankruptcy in 1995. This lessees bankruptcy filing did not materially affect
the lease income of the Partnership in 1995 since the Partnership continued to
receive full lease payments with the exception of one monthly payment.
However, the income recorded in 1996 for VAC was $35 compared to $343,516 in
1995. The Partnership continues to originate leases with the excess cash flow
generated by its operations and will do so until the Partnerships liquidation
phase begins. Lease income is expected to continue to gradually decline until
the Partnerships liquidation phase begins when new leases will cease being
written and its existing leases will fully mature or will be sold and
distributions will be made to the Partners. Listed below are the equipment
acquisitions by year:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Equipment acquisitions $ 5,970,136 $ 8,646,868 $ 4,303,300
</TABLE>
At the end of a lease term, the Partnership attempts to sell the equipment
under lease to the lessee for an amount at least equal to the residual value
booked. Additionally, from time to time, the Partnership will receive a
request from a lessee for an early pay-off and the amount quoted by the General
Partner will always be at least equal to the Partnerships net investment and
typically will exceed the net investment as evidenced by the net gains
recognized by the Partnership on lease terminations. As the Partnership and
its leases mature, these gains on terminations are expected to continue to
increase as the residual assets are sold at the end of lease terms.
<PAGE> 7
Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Management fees are paid to the General Partner and represent 5% of the lease
rental payments received. Rental payments declined in 1996 due to the
Partnerships decreased net investment in direct financing leases. Rental
payments received in the three years ended December 31, 1996, 1995, and 1994
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Rental Payments Received $6,452,000 $8,839,440 $8,256,260
</TABLE>
The General Partner receives a monthly reimbursement for administrative
services provided to the Partnership which has remained relatively stable
in each of the three years ended December 31, 1996, 1995 and 1994.
The increase in interest expense is a result of the Partnership borrowing funds
to acquire equipment for investment in direct financing leases. During 1992,
the Partnership obtained a $5 million dollar line of credit with a bank and
this amount was increased to $6.25 million in November, 1993. The provisions
of this credit facility allow the Partnership to borrow up to 32% of the
Partnership's qualified lease receivables, at a rate of 1.0% above the bank's
prime rate. The balance outstanding under this line-of-credit agreement at
December 31, 1996 was $1,060,490. In August, 1995, the Partnership obtained a
term loan of $1,350,000 with a bank secured by certain direct financing leases
of the Partnership. This term loan was obtained to capitalize on the favorable
interest rate of the term loan of 8.91% and to enable the Partnership to write
more lease business and enhance the Partnerships return. This term loan is due
in monthly installments through November, 1998.
Professional fees included payments for independent auditing services, tax
return preparation, and other accounting assistance. In addition, legal fees
were incurred for various regulatory filing requirements of the Partnership
during 1994, 1995 and 1996. The Partnership incurred $60,160 of legal expense
in 1996 associated with the bankruptcy proceedings of two lessees.
Generally accepted accounting principles require a provision be established for
known and inherent risks in the Partnerships lease portfolio. Since there was
no history of a lessee defaulting in the Partnership, and none were foreseen in
the future, a reserve had not been established in years prior to 1994. Two
lessees, Value Added Communications (VAC) and Telecable/Continental,
experienced cash flow problems in 1994 resulting in past due lease payments.
The past due lease payments from Telecable/Continental were converted to notes
receivable during 1994. These notes carried an interest rate of 15% and terms
ranging from three months to one year. At December 31, 1994, a reserve of
$270,000 was recorded to cover the possibility of future losses for leases in
default and other leases.
On October 10, 1995, VAC filed a petition seeking protection under Chapter 11
of the Bankruptcy Act. The Partnerships net investment in its leases with this
customer was $1,676,442 at December 31, 1995 representing approximately 9% of
the Partnerships net investment in direct financing leases. The bankruptcy
courts Order Approving Emergency Sale indicated that of the Partnerships total
net investment in direct financing leases with VAC, $1,053,919 of leases would
be purchased from the Partnership by other unrelated third parties. The
remaining net investment balance of $622,523, comprised of one lease, was
<PAGE> 8
Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
expected to continue to be repaid according to the terms of the original lease.
The revenues generated by the assets under such remaining lease were considered
adequate to repay the lease according to the original terms.
At June 30, 1996, the net investment was reduced to approximately $474,000.
This reduction was due to lease payments received pursuant to a court order
which expired in March 1996, and to sales to unrelated third parties of the
leases and equipment under lease, which resulted in a loss of approximately
$57,000. The remaining $474,000 investment in VAC leases was secured by a
$100,000 certificate of deposit and a guaranty to the Partnership by the site
owner where certain equipment formerly under lease was located. Management
estimated it would recover approximately $350,000 and therefore, a provision
for possible losses of $124,000 was recorded in the second quarter. During the
third quarter of 1996, the Partnership received $100,000 from the certificate
of deposit and a note receivable with a net present value of $201,034 as final
settlement of its claims in the bankruptcy of VAC. An additional $48,966 was
therefore charged to the provision for possible losses with respect to VAC in
the third quarter.
On May 6, 1996, a lessee of the Partnership, United Tele-Systems of Virginia,
Inc. (UTS) filed a Voluntary Petition for Relief under Chapter 11 of the
Bankruptcy Code. This bankruptcy petition was dismissed on May 22, 1996 and,
in connection therewith, the Partnership exercised its right to manage the
assets leased to UTS. The net investment in the leases at the time the assets
were repossessed was approximately $200,000. This equipment is currently being
operated for the Partnership under a short-term management agreement. The
Partnership, the General Partner , an affiliated partnership and UTS have also
been named in a lawsuit, filed by another creditor of UTS. The creditor is
claiming $360,000 in compensatory damages and $350,000 in punitive damages.
Management believes the lawsuit is without merit and intends to vigorously
defend it. Based on offers to purchase the pay telephone equipment and an
expected settlement offer related to the lawsuit to avoid protracted litigation
costs, the Partnership expects to incur a loss upon the sale or re-lease of
this equipment. Management has charged $135,000 to the provision for possible
lease losses for the expected loss. Due to the uncertainty of the fair market
value of the equipment and the outcome of the litigation, there can be no
assurances that the ultimate loss will not exceed $135,000. The Partnerships
net investment in the equipment, net of the specific allowance, has been
reclassified to equipment under operating leases pending its ultimate sale or
release under a direct finance lease.
In 1995, the Partnership exercised its right to manage the assets leased to a
customer due to nonpayment of lease receivables. At the time the Partnership
assumed management of these assets, its net investment in the leases
approximated $1.4 million and the Partnership subsequently purchased
approximately $100,000 of additional equipment. Effective July 1, 1995, a new
lease was executed for this equipment with a new lessee, Payphones of America.
The terms of this new lease were such that it met the criteria of an operating
lease. The equipment under lease is being depreciated under the straight-line
method over its estimated remaining life which is the primary reason for the
increased depreciation expense in 1995 and 1996.
During the third quarter of 1996, Payphones of America was sold and the sale
included those pay telephones under operating lease as discussed above and
others that the Partnership had financed under direct financing leases. The
Partnership financed this purchase for the purchaser, Phone-Tel Technologies
(Phone-Tel), via a direct financing lease which included the Partnership
advancing Phone-Tel an additional $508,905 in cash for other payphone assets
that were not then under lease resulting in the Partnership having a direct
financing lease with Phone-Tel of $3,375,000. Also as part of this
transaction,
<PAGE> 9
Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
the Partnership received 22,260 shares of common stock of Phone-Tel and was
owed $47,602 from the general partner for monies received by the general
partner on behalf of the Partnership. These funds were repaid in October 1996.
The remaining net equipment cost of the assets which continue under operating
lease approximates $686,000, prior to the impairment discussed below and
relates to hotel satellite television equipment. This remaining net equipment
cost is expected to be recovered by the Partnership through the sale of the
equipment. The possibility exists that this transaction will not materialize,
however, managements best current information indicates that this transaction
will be completed. Management has recorded a $350,000 impairment loss to
reflect the estimated fair market value of this equipment.
In March, 1996, the Partnership exercised its right to manage the assets leased
to Inn-Touch Communications, Inc. due to non-payment of lease receivables. The
net investment in this lease at that time approximated $1,370,000. The
Partnership entered into a management agreement with CCN to operate the route.
The Partnership advanced $194,000 to CCN to be used for working capital
purposes. Under this agreement, CCN was to pay the Partnership an amount
based on a percent of CCNs monthly net cash proceeds from operating the route.
The balance of this working capital advance at December 31, 1996 was $187,425.
A charge of $284,308 has been made to the loss reserve to reflect what
Management estimates is recoverable under this agreement.
Management has established specific and general loss allowances at December 31,
1996, as follows:
<TABLE>
<S> <C>
General Reserve $ 222,818
Specific Reserve - Inn-Touch/CCN 21,996
---------
$ 244,814
=========
</TABLE>
Losses or expected losses charged to the loss allowances in 1996 are as
follows:
<TABLE>
<S> <C>
VAC $229,966
Inn-Touch/CCN 284,308
UTS 135,000
Others 47,999
---------
$697,273
=========
</TABLE>
Other expense consists primarily of banking, data processing fees and postage
expense. The data processing costs represent costs incurred for the
maintenance of financial records and investor data.
<PAGE> 10
Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Through December 31, 1996, there have been distributions totaling $8,670,273.
As of December 31, 1996 the Partnership had $497,144 of cash on hand.
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"), a publicly owned
limited partnership that is engaged in the equipment leasing business. Also,
an affiliate of the General Partner serves as a general partner of one
privately offered active limited partnership. As of December 31, 1996, the net
proceeds of the private program and TIF X have been invested in specific
equipment. The activities of the General Partner, in regards to its other
leasing activities, has had no impact on the Partnership to date in managements
opinion.
The equipment that the Partnership leases is maintained by the lessee, and it
is the lessees 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 equipments 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 have been financed to yield
rates of return between 15% and 20%. The lease terms vary from 36 months to 60
months. The rate charged on a particular lease depends on a variety of
factors, of which two of the more significant are 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. The impact of inflation
is mitigated to the extent that any increases in lease related expenses can be
passed on to new lessees as new leases are originated.
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
<S> <C> <C> <C>
Major Cash Sources (Uses):
Operations $ 1,803,251 $ 1,830,610 $ 1,435,986
Net Proceeds (Payments) on
Line of Credit $(3,053,013) $ 1,300,906 $(1,121,243)
Repayments/Terminations of
Direct Financing Leases $10,107,822 $ 6,231,112 $ 5,689,333
Purchase of Equipment and Leases $(5,970,136) $(8,646,868) $(4,303,300)
Distributions to Partners $(2,039,573) $(2,040,208) $(2,040,210)
</TABLE>
<PAGE> 11
Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Under terms of the Partnership agreement, the Partnership is required to
establish working capital reserves of no less than 1% ($170,018 at December 31,
1996) of the gross proceeds from issuance of Units to satisfy general liquidity
requirements, operating costs of equipment, and the maintenance and
refurbishment of equipment. At December 31, 1996, actual cash on hand was
$497,144.
Under terms of the Partnership Agreement, the Partnership may leverage the
lease portfolio with debt of up to 40% of the gross equity proceeds raised.
At December 31, 1996, the Partnership had the ability to borrow an additional
$4,895,061 under this leverage ratio.
At December 31, 1996, the Partnership had a line of credit agreement with a
bank that allows the Partnership to borrow the lesser of $6.25 million, or 32%
of the Partnership's Qualified Accounts as defined in the agreement. As of
December 31, 1996, the balance outstanding under this line of credit was
$1,060,490. With the exception of those specific assets pledged as security
under the new bank term loan agreement discussed below, this borrowing is
secured by all assets of the Partnership. Before any funds are borrowed, the
Partnership first utilizes all available excess cash. The Partnership's line
of credit is used to acquire additional leases as they become available. The
line of credit matures on November 30, 1997.
In August, 1995, the Partnership obtained a term loan of $1,350,000 with a bank
secured by certain direct financing leases of the Partnership. This term loan
was obtained to capitalize on the favorable interest rate (8.91%) of the term
loan and to enable the Partnership to write more lease business and enhance the
Partnerships return. This term loan is due in monthly installments through
November, 1998. The balance outstanding at December 31, 1996 under this term
loan agreement was $845,149.
During 1996, adequate cash was being generated from rentals to make projected
distributions and allow for investment in equipment for additional leases.
Item 8. Financial Statements and Supplementary Data
The following financial statements and related information as
of and for the years ended December 31, 1996, December 31, 1995 and December
31, 1994 are included in Item 8:
Reports of Independent Auditors
Balance Sheets
Statements of Income
Statements of Changes in Partners' Equity
Statements of Cash Flows
Notes to Financial Statements
<PAGE> 12
INDEPENDENT AUDITORS' REPORT
To the Partners
Telecommunications Income Fund IX, L.P.
We have audited the accompanying balance sheets of Telecommunications Income
Fund IX, L.P. as of December 31, 1996 and 1995, and the related statements of
income, changes in partners' equity 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 1996 and 1995 financial statements present fairly, in all
material respects, the financial position of Telecommunications Income Fund IX,
L.P. at December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP /s/
Cedar Rapids, Iowa
February 28, 1997
<PAGE> 13
[Ernst & Young Letterhead]
Report of Independent Auditors
The Partners
Telecommunications Income Fund IX, L.P.
We have audited the accompanying statements of income, changes in partners'
equity and cash flows of Telecommunications Income Fund IX, L.P. for the year
ended December 31, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
As discussed in Note 1 to the financial statements, the Partnership has
significant transactions with related parties.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of
Telecommunications Income Fund IX, L.P. for the year ended December 31, 1994,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 3, 1995
<PAGE> 14
TELECOMMUNICATIONS INCOME FUND IX, L.P.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
ASSETS (Note 5) 1996 1995
<S> <C> <C>
Cash and cash equivalents $497,144 $ 161,866
Available-for-sale security 60,310 -
Net investment in direct financing leases (Note 2) 13,575,298 18,855,785
Allowance for possible lease losses (Note 3) (244,814) (364,156)
-------------- --------------
Direct financing leases, net 13,330,484 18,491,629
Equipment leased under operating leases, less accumulated
depreciation of $23,144 in 1996 and $150,540 in 1995 1,307,948 1,329,967
Equipment held for sale (Note 4) 164,487 -
Intangibles, less accumulated amortization of
$5,104 in 1996 and $13,204 in 1995 7,615 12,719
Other assets 274,191 467,943
-------------- --------------
TOTAL $15,642,179 $20,464,124
============== ==============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Line-of-credit agreement (Note 5) $1,060,490 $4,113,504
Trade accounts payable 4,059 30,976
Due to affiliates (Note 7) 47,719 206,895
Accrued expenses and other liabilities 61,352 79,648
Lease security deposits 439,033 541,573
Note payable (Note 5) 845,149 1,229,431
-------------- --------------
Total liabilities 2,457,802 6,202,027
-------------- --------------
PARTNERS' EQUITY, 100,000 units authorized (Notes 1,6):
General partner, 40 units issued and outstanding 11,832 12,439
Limited partners, 67,862 units in 1996 and 67,967 units
in 1995 issued and outstanding 13,192,649 14,249,658
Unrealized loss on available-for-sale security (20,104) -
-------------- --------------
Total partners' equity 13,184,377 14,262,097
-------------- --------------
TOTAL $15,642,179 $20,464,124
============== ==============
</TABLE>
See notes to financial statements.
-2-
<PAGE> 15
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
REVENUES:
Income from direct financing leases $2,686,350 $2,873,830 $2,946,230
Gain on lease terminations 413,880 23,355 38,445
Interest and other income 188,912 59,499 11,888
--------------- --------------- --------------
Total revenues 3,289,142 2,956,684 2,996,563
--------------- --------------- --------------
EXPENSES:
Management and administrative fees (Note 7) 404,256 524,279 487,801
Other general and administrative expenses 170,012 105,783 91,178
Interest expense 492,210 432,197 363,881
Provision for possible lease losses (Note 3) 577,931 94,156 270,000
Depreciation expense 286,526 150,540 -
Impairment loss on equipment (Note 4) 350,000 - -
--------------- --------------- --------------
Total expenses 2,280,935 1,306,955 1,212,860
--------------- --------------- --------------
NET INCOME $1,008,207 $1,649,729 $1,783,703
=============== =============== ==============
NET INCOME ATTRIBUTED TO:
General partner $593 $970 $2,283
Limited partners 1,007,614 1,648,759 1,781,420
--------------- --------------- --------------
$1,008,207 $1,649,729 $1,783,703
=============== =============== ==============
NET INCOME PER PARTNERSHIP UNIT $14.83 $24.26 $26.23
=============== =============== ==============
WEIGHTED AVERAGE PARTNERSHIP UNITS
OUTSTANDING 67,990 68,007 68,007
=============== =============== ==============
</TABLE>
See notes to financial statements.
-3-
<PAGE> 16
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
GENERAL AVAILABLE- TOTAL
PARTNER LIMITED PARTNERS FOR-SALE PARTNERS'
(40 UNITS) UNITS AMOUNT SECURITY EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $11,586 67,967 $14,897,497 $14,909,083
Net income 2,283 - 1,781,420 1,783,703
Distributions to partners
($30.00 per unit) (Note 6) (1,200) - (2,039,010) (2,040,210)
---------- ---------------- -------------- --------------
BALANCE AT DECEMBER 31, 1994 12,669 67,967 14,639,907 14,652,576
Net income 970 - 1,648,759 1,649,729
Distributions to partners
($30.00 per unit) (Note 6) (1,200) - (2,039,008) (2,040,208)
---------- ---------------- -------------- --------------
BALANCE AT DECEMBER 31, 1995 12,439 67,967 14,249,658 14,262,097
Net income 593 - 1,007,614 1,008,207
Distributions to partners
($30.00 per unit) (Note 6) (1,200) - (2,038,373) (2,039,573)
Withdrawal of limited partners - (105) (26,250) (26,250)
Change in unrealized loss on
available-for-sale security - - - $(20,104) (20,104)
---------- ---------------- -------------- ----------- --------------
BALANCE AT DECEMBER 31, 1996 $11,832 67,862 $13,192,649 $(20,104) $13,184,377
========== ================ ============== =========== ==============
</TABLE>
See notes to financial statements.
-4-
<PAGE> 17
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $1,008,207 $1,649,729 $ 1,783,703
Adjustments to reconcile net income to net cash
from operating activities:
Gain on lease terminations (413,880) (23,355) (38,445)
Depreciation of equipment 286,526 150,540 -
Amortization of intangibles 5,104 9,593 26,474
Provision for possible lease losses 577,931 94,156 270,000
Impairment loss on equipment 350,000 - -
Changes in operating assets and liabilities:
Other assets 193,752 (251,184) (173,809)
Trade accounts payable (26,917) 30,976 (432,328)
Due to affiliates (159,176) 177,929 (2,898)
Accrued expenses and other liabilities (18,296) (7,774) 3,289
---------------- ---------------- ----------------
Net cash from operating activities 1,803,251 1,830,610 1,435,986
---------------- ---------------- ----------------
INVESTING ACTIVITIES:
Acquisition of, and purchases of equipment for,
direct financing leases (5,970,136) (8,646,868) (4,303,300)
Repayments of direct financing leases 3,233,298 5,814,344 5,309,844
Proceeds from termination of direct financing leases 6,874,524 416,768 379,489
Repayments of notes receivable - 29,113 55
Issuance of notes receivable - (5,074) -
Net lease security deposits collected (paid) (102,540) 70,677 70,608
---------------- ---------------- ----------------
Net cash from investing activities 4,035,146 (2,321,040) 1,456,696
---------------- ---------------- ----------------
FINANCING ACTIVITIES:
Proceeds from line-of-credit borrowings 15,614,221 13,275,220 8,809,542
Repayments of line-of-credit borrowings (18,667,235) (11,974,314) (9,930,785)
Proceeds from additional borrowings - 1,350,000 -
Repayments of additional borrowings (384,282) (120,569) -
Loan origination costs incurred - (13,500) -
Distributions and withdrawals paid to partners (2,065,823) (2,040,208) (2,040,210)
Other - - (10,000)
---------------- ---------------- ----------------
Net cash from financing activities (5,503,119) 476,629 (3,171,453)
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 335,278 (13,801) (278,771)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 161,866 175,667 454,438
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $497,144 $161,866 $175,667
================ ================ ================
(Continued)
</TABLE>
-5-
<PAGE> 18
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (CONCLUDED)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $498,431 $417,132 $340,880
Noncash investing and financing activities:
Note receivable exchanged for payment on lease - - 133,336
Available-for-sale security exchanged for payment on lease 80,414 - -
Security deposit applied against direct financing leases - - 70,249
Equipment reclassified from direct financing leases to operating leases 1,331,092 1,372,956 -
Equipment reclassified from note receivable to operating leases - 107,551 -
Equipment reclassified from operating leases to held for sale 164,487 - -
Equipment reclassified from operating leases to direct financing leases 552,098 - -
Change in unrealized loss on available-for-sale security (20,104) - -
</TABLE>
See notes to financial statements.
-6-
<PAGE> 19
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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, which ended April 30, 1993, the Partnership
sold 68,007 units of partnership interests at a price per unit of $250.
The Partnership's operations are conducted throughout the United States.
The Partnership acquires primarily telecommunications equipment for lease
to third parties. The lease agreements with individual customers are
generally in excess of $500,000 and certain agreements exceed 10% of the
Partnership's direct finance lease portfolio (see Note 2). At any time
after October 30, 1996 (or earlier if the General Partner determines it to
be in the Partnership's best interest), but no later than April 30, 1998,
the Partnership will cease reinvestment in equipment and leases and will
begin the orderly liquidation of Partnership assets. The Partnership must
dissolve on December 31, 1999, or earlier, upon the occurrence of certain
events. See Note 6.
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 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 allowance for possible lease losses and the
estimated unguaranteed residual values of the Partnership's leased
equipment.
Most of the Partnership's leases in the telecommunications industry are
with customers that are in the entrepreneurial stage and, therefore, are
highly leveraged and require lease financing in place of or to supplement
financing from banks. Although the Partnership attempts to mitigate its
credit risk through the use of a variety of commercial credit reporting
agencies when processing the applications of its customers, failure of the
Partnership's customers to make scheduled payments under their equipment
leases could have a material near-term impact on the allowance for possible
lease losses.
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
estimated unguaranteed residual values.
CERTAIN RISK CONCENTRATIONS - The Partnership's telecommunication equipment
leases are concentrated in the pay telephone and hotel industries
representing approximately 78% and 7% of the Partnership's direct finance
lease portfolio at December 31, 1996, respectively.
-7-
<PAGE> 20
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.
AVAILABLE-FOR-SALE SECURITY - The Partnership has an investment in a
marketable equity security classified as available-for-sale.
Available-for-sale securities are carried at fair value, with unrealized
gains and losses reported as a separate component of partners' equity. At
December 31, 1996, the security had a cost of $80,414 and an estimated fair
value of $60,310, resulting in an unrealized loss of $20,104. Fair value
is determined using published market prices.
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 records 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
capitalizes 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.
The Partnership performs credit evaluations prior to approval of a 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 property or
leased asset. The Partnership maintains an allowance for possible lease
losses which could arise should customers become unable to discharge their
obligations under the lease agreements. The allowance for possible lease
losses is maintained at a level deemed appropriate by management to provide
for known and inherent risks in the lease portfolio. The allowance is
based upon a continuing review of past lease loss experience, current
economic conditions, and the underlying lease asset value. The
consideration of such future potential losses also includes an evaluation
for other than temporary declines in value of the underlying assets.
Leases which are deemed uncollectible are charged off and deducted from the
allowance. The provision for possible lease losses and recoveries are
added to the allowance.
Direct financing leases are accounted for as operating leases for income
tax purposes.
-8-
<PAGE> 21
EQUIPMENT - Equipment leased under operating leases is stated at cost less
accumulated depreciation. The equipment is 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 are based on estimates of amounts
historically realized by the Partnership for similar equipment and are
periodically reviewed by management for possible impairment.
Equipment held for sale is stated at lower of cost or estimated fair market
value.
INTANGIBLES - Intangibles consist of organization costs incurred with the
formation of the Partnership and financing costs incurred in connection
with borrowing agreements. Deferred organization expenses are being
amortized over a five-year period. Deferred financing costs are being
amortized over the life of the related debt, which is approximately three
years.
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).
2. NET INVESTMENT IN DIRECT FINANCING LEASES
The Partnership's net investment in direct financing leases consists of the
following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Minimum lease payments receivable $15,905,074 $21,745,015
Estimated unguaranteed residual values 1,740,217 2,990,007
Unearned income (4,077,214) (5,879,237)
Unamortized initial direct costs 7,221 -
----------- -----------
Net investment in direct financing leases $13,575,298 $18,855,785
=========== ===========
</TABLE>
At December 31, 1996, 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:
<TABLE>
<CAPTION>
Minimum Estimated
Lease Unguaranteed
Payments Residual
Receivable Values
<S> <C> <C>
Years ending December 31:
1997 $ 5,427,663 $ 422,902
1998 4,338,842 277,592
1999 3,122,824 192,420
2000 2,037,688 504,372
2001 978,057 342,931
----------- ----------
$15,905,074 $1,740,217
=========== ==========
</TABLE>
-9-
<PAGE> 22
The Partnership, General Partner and certain affiliates of the General
Partner purchase directly and indirectly a substantial portion of
telecommunications equipment under lease from Intellicall, Inc., a
publicly-held company. The General Partner's parent and certain limited
partners are investors in a limited partnership which owns approximately 7%
of the outstanding common stock of Intellicall, Inc. In addition, a
principal stockholder of the General Partner's parent is also an investor
in this limited partnership.
Certain limited partners are known by the Partnership to be owners/officers
of companies who lease equipment from the Partnership. These limited
partners hold interests of approximately 4.5% of the Partnership's
outstanding limited partnership units at both December 31, 1996 and 1995.
Additionally, the Partnership leases equipment to certain companies for
which Berthel Fisher & Company Financial Services, Inc., an affiliate of
the General Partner, provides financing and investment advisory services or
for which the General Partner or its affiliates have an ownership interest.
The Company's net investment in direct financing leases with these
companies approximated $447,000 and $4,262,000 at December 31, 1996 and
1995, respectively.
Five customers each account for 10% or more of the amount of income from
direct financing leases during one or more of the periods presented, as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Customer A 7 % 9 % 11 %
Customer B 10 13 14
Customer C - 12 11
Customer D 12 17 -
Customer E 10 4 1
</TABLE>
3. ALLOWANCE FOR POSSIBLE LEASE LOSSES
The changes in the allowance for possible lease losses for the years ended
December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $364,156 $270,000 $ -
Provision 577,931 94,156 270,000
Charge-offs (697,273) - -
---------- ---------- ----------
Balance at end of year $244,814 $364,156 $270,000
========== ========== ==========
</TABLE>
At December 31, 1996, the allowance for possible lease losses consisted of
a specific allowance of $22,000 for a certain lease and a general
unallocated allowance of $222,814. Prior year balances represented general
unallocated allowances.
-10-
<PAGE> 23
On October 10, 1995, a lessee of the Partnership, Value-Added
Communications, Inc. ("VAC") filed a petition seeking protection under
Chapter 11 of the Bankruptcy Act. The Partnership's net investment in its
leases with this customer was $1,676,442 at December 31, 1995 representing
approximately 9% of the Partnership's net investment in direct financing
leases. The bankruptcy court's Order Approving Emergency Sale indicated
that of the Partnership's total net investment in direct financing leases
with VAC, $1,053,919 of leases would be purchased from the Partnership by
other unrelated third parties at no loss to the Partnership. The remaining
net investment balance of $622,523, comprised of one lease, was expected to
continue to be repaid according to the terms of the original lease. The
revenues generated by the assets under such remaining lease were considered
adequate to repay the lease according to the original terms.
During 1996, pursuant to the court order, $1,202,442 of leases were sold to
unrelated third parties which resulted in a loss of approximately $57,000
and was charged to the allowance for possible lease losses. The remaining
$474,000 investment in VAC leases was collateralized by a $100,000
certificate of deposit and a guaranty to the Partnership by the site owner
where certain equipment formerly under lease was located. During the third
quarter of 1996, the Partnership received $100,000 from the certificate of
deposit and a note receivable with a net present value of $201,034 as final
settlement of its claims in the bankruptcy of VAC. Therefore, $172,966 was
charged to the provision for possible lease losses with respect to VAC.
On May 6, 1996, a lessee of the Partnership, United Tele-Systems of
Virginia, Inc. ("UTS") filed a Voluntary Petition for Relief under Chapter
11 of the Bankruptcy Code. This bankruptcy petition was dismissed on May
22, 1996 and, in connection therewith, the Partnership exercised its right
to manage the assets leased to UTS. The net investment in the leases at
the time the assets were repossessed was approximately $200,000. This
equipment is currently being operated for the Partnership under a
short-term management agreement. The Partnership, the General Partner, an
affiliated partnership and UTS have also been named in a lawsuit, filed by
another creditor of UTS. The creditor is claiming $360,000 in compensatory
damages and $350,000 in punitive damages. Management believes the lawsuit
is without merit and intends to vigorously defend it. Based on offers to
purchase the pay telephone equipment and an expected settlement offer
related to the lawsuit to avoid protracted litigation costs, the
Partnership expects to incur a loss upon the sale or re-lease of this
equipment. Management has charged $135,000 to the provision for possible
lease losses for the expected loss. Due to the uncertainty of the fair
market value of the equipment and the outcome of the litigation, there can
be no assurances that the ultimate loss will not exceed $135,000. The
Partnership's net investment in the equipment, net of the specific
allowance, has been reclassified to equipment under operating leases
pending its ultimate sale or re-lease under a direct finance lease.
During the fourth quarter of 1996, management of the Partnership provided a
specific allowance for a lease with a certain customer for which the
Partnership had not been receiving lease payments. Management is actively
working with such customer to arrange for a sale of the assets under lease.
A charge of $284,000 was recorded to the provision for possible lease
losses representing management's best estimate of the loss on the expected
sale of the equipment. Also, due to the uncertainty as to the timing and
amount of future payments from such customer and as to the sale of the
assets under lease, the Partnership reclassified its net investment in the
lease at December 31, 1996 of $1,273,463, net of the specific allowance, to
equipment leased under operating leases.
-11-
<PAGE> 24
4. EQUIPMENT HELD FOR SALE
In May 1995, the Partnership exercised its right to manage the assets
leased to Telecable/Continental due to nonpayment of lease receivables. At
the time the Partnership assumed management of these assets, its net
investment in the leases approximated $1,400,000 and the Partnership
subsequently purchased approximately $100,000 of additional equipment.
During 1996, $814,000 of this net investment was leased to an unrelated
party under a direct financing lease, which was paid off in December 1996.
The remaining net equipment cost, which relates to hotel satellite
television equipment, is expected by management to be recovered through the
sale of the equipment. Such net equipment cost has been adjusted for an
impairment loss of $350,000, to reflect management's estimated fair market
value of the equipment.
5. BORROWING AGREEMENTS
The Partnership has a line-of-credit agreement with a bank which bears
interest at a variable rate (10.13% and 9.5% at December 31, 1996 and 1995,
respectively) and allows the Partnership to borrow the lesser of $6.25
million, or 32% of the Partnership's Qualified Accounts, as defined in the
agreement. On September 11, 1995, the line-of-credit agreement was amended
to extend the maturity date to November 30, 1997 and reduce the interest
rate from 2.25% over prime to 1.0% over prime (minimum interest charge of
$7,500 per month). In addition, certain loan covenants were changed. The
agreement is cancellable by the lender after giving a 90-day notice and is
collateralized by substantially all assets of the Partnership. This
line-of-credit is guaranteed by the General Partner and certain affiliates
of the General Partner.
The Partnership also has an installment loan agreement which bears interest
at 8.91% and is due in monthly installments through November 1998 with a
subjective acceleration clause. The agreement is collateralized by certain
direct financing leases and a second interest in all other Partnership
assets. The agreement is also guaranteed by the General Partner.
Covenants under the agreement require the Partnership, among other things,
to be profitable, not exceed a 40% debt to original equity raised ratio,
and not sell a material portion of its assets. The agreement matures as
follows: 1997, $421,778; and 1998, $423,371.
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.
Any Partnership net loss will first be allocated to the limited partners to
the extent of their positive capital account balances. Any 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 General Partner (see
below), net income will be allocated 80% to the limited partners and 20% to
the General Partner. 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.
-12-
<PAGE> 25
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 pays an equipment management fee equal to 5% of the amount
of gross rental payments received, to the General Partner. The General
Partner, in turn, pays 50% of those fees to its parent. During the years
ended December 31, 1996, 1995 and 1994, the management fees aggregated
$322,601, $441,972 and $412,813, respectively.
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 $74,775, $82,307 and
$74,988 for the years ended December 31, 1996, 1995 and 1994, respectively.
As a part of the issuance of partnership units, the Partnership paid
commissions of 10% to Berthel Fisher & Company Financial Services, Inc., a
broker-dealer affiliated with the General Partner, and reimbursed other
offering expenses of up to 4% of the gross proceeds to the General Partner.
These fees have been treated as syndication costs and charged directly to
partners' equity.
-13-
<PAGE> 26
8. RECONCILIATION OF FINANCIAL AND INCOME TAX REPORTING BASIS
A reconciliation of net income for financial reporting purposes with the
related amount reported for income tax purposes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
PER PER PER
AMOUNT UNIT AMOUNT UNIT AMOUNT UNIT
<S> <C> <C> <C> <C> <C> <C>
Net income for
financial reporting
purposes $1,008,207 $14.83 $1,649,729 $24.26 $1,783,703 $26.23
Adjustment to
convert direct
financing leases to
operating leases
for income tax
purposes 179,482 2.64 182,729 2.69 (503,381) (7.40)
Net change in
allowance for
possible lease losses (119,342) (1.76) 94,156 1.38 270,000 3.97
Gain (loss) on
lease terminations 1,618,985 23.81 (659,300) (9.69) (34,565) (.51)
------------- ----------- ------------- ----------- ------------- -----------
Net income for
income tax
reporting purposes $2,687,332 $39.52 $1,267,314 $18.64 $1,515,757 $22.29
============= =========== ============= =========== ============= ===========
</TABLE>
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value amounts disclosed below are based on estimates prepared by
management of the Partnership based on valuation methods appropriate in the
circumstances. Generally accepted accounting principles do not require
disclosure for lease contracts. The carrying amount for financial
instruments included among cash and cash equivalents, line-of-credit
agreement, and other short-term payables approximates their fair value
because of the short maturity of those instruments or the variable interest
rate feature of the instrument. Also, the Partnership's available-for-sale
security is reported at market value. The estimated fair value of other
significant financial instruments are based principally on discounted
future cash flows at rates commensurate with the credit and interest rate
risk involved.
The estimated fair values of the Partnership's other significant financial
instruments are as follows at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Note payable $845,149 $845,149 $1,229,431 $1,218,943
</TABLE>
-14-
<PAGE> 27
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 45) - 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 41) - Mr. Brendengen is the Treasurer,
Chief Financial Officer and a Director (1988 to present) of the General
Partner. He was elected to his current offices in October, 1996. He has served
as Secretary (1994 - March, 1995), Treasurer (1988 - August 1995) 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) 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 bachelors degree in Accounting and Business Administration
with a minor in Economics from Mt. Mercy College, Cedar Rapids, Iowa, in 1978.
<PAGE> 28
Nancy L. Lowenberg (age 37), has been elected
Vice President and Chief Operating Officer of the General Partner beginning
January 2, 1997. From September 1986 to December 1996, Ms. Lowenberg has been
employed by Firstar Bank Iowa, N.A., in Cedar Rapids, since 1986 as Vice
President Commercial Loans for Iowa. As Vice President Commercial Loans, she
has been relationship manager of 62 accounts with approximately $70,000,000 of
committed credit, with responsibility for annual review and maintenance of
existing accounts and business development. From 1981 to 1986, Ms. Lowenberg
was employed by First Bank Systems. Ms. Lowenberg received her Bachelor of
Science Agricultural Business with a minor in Finance in 1981 from Iowa State
University, Ames, Iowa. B. Executive officers of
the General Partner of the Registrant: (continued)
Lynn Whiteman (age 40) - Ms. Whiteman is Vice President-Operations
of the General Partner, a position she has held since January, 1993. Prior to
January, 1993, Ms. Whiteman was employed with Firstar Bank Cedar Rapids, N.A.,
formerly Merchants National Bank. She spent five years in the Correspondent
Banking Dept. and then seven in the Commercial Loan Dept., most recently as Vice
President Commercial Loans. Ms. Whiteman holds a Bachelors Degree in Business
Administration/Finance from the University of Iowa, Iowa City, Iowa. Effective
February 21, 1997, Ms. Whiteman has resigned from the Company.
Gregory G. Pugh (age 38) - Mr. Pugh was appointed Executive Vice
President in 1995. He has served as Vice President of the General Partner since
October 1990. Mr. Pugh has a Bachelor of Science in Industrial
Administration/Business Management from Iowa State University, Ames, Iowa in
1981. He also has a Masters of Business Administration from Drake University in
Des Moines, Iowa in 1990. Prior to Berthel Fisher & Company, Greg worked at
Norwest Mortgage from 1989 to 1990 as Branch Facilities Specialist in Des
Moines, Iowa. Mr. Pugh was employed by the Principal Financial Group from
1983-1988 in various capacities lastly as a Mortgage Loan Officer. From
1981-1983 Mr. Pugh was employed by Hawkeye Capital Bank, in Des Moines, Iowa.
<PAGE> 29
Item 11. Executive Compensation
Set forth is the information relating to all direct remuneration
paid or accrued by the Registrant during the last year to the
General Partner:
<TABLE>
<CAPTION>
(A) (B) (C) (C1) (C2) (D)
Securities of
property
insurance Aggregate
benefits or of
Cash and Cash reimbursement contingent
Name of Individual Capacities in equivalent forms personal or forms of
persons in group which served of remuneration Fees benefits remuneration
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Berthel Fisher & Co. General Partner $0 $404,256 $0 $0
Leasing, Inc.
</TABLE>
<PAGE> 30
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.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Ownership Beneficial Ownership Percent of Class
<S> <C> <C> <C>
Units Berthel Fisher & Co. Forty (40) Units; 0.06%
Leasing, Inc.
425 2nd Street S.E.
Suite 600
Cedar Rapids, IA 52401
</TABLE>
Item 13. Certain Relationships and Related Transactions
Related party transactions are described in Notes 2 and 7 of Notes to
Financial Statements.
<PAGE> 31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements.
Page
No.
Balance Sheets at December 31, 1996 and 1995 15
Statements of Income for the Years
Ended December 31, 1996, December 31, 1995
and December 31, 1994 16
Statements of Changes in Partners'
Equity for the Years Ended December 31, 1996,
December 31, 1995 and December 31, 1994 17
Statements of Cash Flows for the Years Ended
December 31, 1996, December 31, 1995
and December 31, 1994 18
Notes to Financial Statements 20
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)
___________________
(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.
<PAGE> 32
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 27, 1997
Thomas J. Berthel
President
By Berthel Fisher & Company Leasing, Inc.
By: Ronald O. Brendengen/s/ Date: March 27, 1997
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.
Thomas J. Berthel/s/ Date: March 27, 1997
- --------------------------------------
Thomas J. Berthel
Chief Executive Officer
President, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
Nancy L, Lowenberg/s/ Date: March 27, 1997
- --------------------------------------
Nancy L. Lowenberg
Chief Operating Officer, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
Ronald O. Brendengen/s/ Date: March 27, 1997
- --------------------------------------
Ronald O. Brendengen
Treasurer, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
Gregory G. Pugh/s/ Date: March 27, 1997
- --------------------------------------
Gregory G. Pugh
Executive Vice-President, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
Daniel P. Wegmann/s/ Date: March 27, 1997
- --------------------------------------
Daniel P. Wegmann
Controller
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
<PAGE> 33
EXHIBIT INDEX
Page No.
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
Balance Sheet of Telecommunications Income Fund IX, L.P. as of December 31,
1996, and the audited Statement of Income for the year ended December 31, 1996,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 497,144
<SECURITIES> 60,310
<RECEIVABLES> 13,575,298
<ALLOWANCES> (244,814)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,782,489
<DEPRECIATION> (28,248)
<TOTAL-ASSETS> 15,642,179
<CURRENT-LIABILITIES> 0
<BONDS> 1,905,639
0
0
<COMMON> 0
<OTHER-SE> 13,184,377
<TOTAL-LIABILITY-AND-EQUITY> 15,642,179
<SALES> 3,289,142
<TOTAL-REVENUES> 3,289,142
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,210,794
<LOSS-PROVISION> 577,931
<INTEREST-EXPENSE> 492,210
<INCOME-PRETAX> 1,008,207
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,008,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,008,207
<EPS-PRIMARY> 14.83<F1>
<EPS-DILUTED> 14.83
<FN>
<F1>Net income per Partnership Unit
</FN>
</TABLE>
