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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998 Commission File Number 0-21458
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
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(Exact name of Registrant as specified in its charter)
Iowa 42-1367356
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Second Street S.E., Cedar Rapids, Iowa 52401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 365-2506
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interest (the "Units")
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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 filings
requirements for the past 90 days.
Yes X No
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As of September 30, 1998, 67,662 Units were issued and outstanding. Based on the
book value of $95.40 per Unit, the aggregate market value at September 30, 1998
was $6,454,731.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Balance sheets - September 30, 1998 and December 31, 1997 3
Statements of income and comprehensive income -
Three months ended September 30, 1998 and
three months ended September 30, 1997 4
Nine months ended September 30, 1998 and
nine months ended September 30, 1997 5
Statement of changes in partners' equity -
nine months ended September 30, 1998 6
Statements of cash flows - nine months ended
September 30, 1998 and nine months ended September 30, 1997 7
Notes to financial statements 8
ITEM 2. Management's discussion and analysis of financial condition and results of operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings 12
SIGNATURES
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
BALANCE SHEETS (UNAUDITED)
September 30, 1998 December 31, 1997
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ASSETS
Cash and cash equivalents $ 425,670 $ 458,893
Available-for-sale security 2,087 65,389
Not readily marketable securities, at cost 191,600 -0-
Net investment in direct financing leases
and notes receivable (Note B) 5,321,592 11,513,511
Allowance for possible losses (140,379) (1,922,056)
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Direct financing leases and notes receivable, net 5,181,213 9,591,455
Equipment leased under operating leases, less
accumulated depreciation of $457,800 at September 30,
1998 and $261,600 at December 31, 1997 (Note C) 840,997 1,041,197
Equipment held for sale 18,436 51,000
Intangibles, less accumulated amortization of $12,372 at
September 30, 1998 and $9,258 at December 31, 1997 346 48,582
Other assets 33,429 384,060
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TOTAL ASSETS $ 6,693,778 $ 11,640,576
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LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note D) $ -0- $ 50,557
Trade accounts payable 4,290 17,336
Due to affiliates 2,696 96,472
Accrued expenses and other liabilities 41,768 202,272
Lease security deposits 190,293 365,752
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Total Liabilities 239,047 732,389
PARTNERS' EQUITY, 100,000 units authorized
General partner, 40 units issued and outstanding 8,981 10,502
Limited partners: 67,622 units at September 30, 1998
and 67,722 units at December 31, 1997
issued and outstanding 6,524,077 10,912,710
Accumulated other comprehensive loss (78,327) (15,025)
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Total partners' equity 6,454,731 10,908,187
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TOTAL LIABILITIES & PARTNERS' EQUITY $ 6,693,778 $ 11,640,576
============ ============
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
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INCOME:
Lease income $ 228,268 $ 480,725
Interest income 8,361 5,150
Gain on lease terminations 222,913 468,399
Other 48,796 27,314
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Total Income 508,338 981,588
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EXPENSES:
Management fees -0- 74,856
Administrative services 20,990 21,000
Interest -0- 40,634
Professional fees 70,641 27,000
Provision for possible losses -0- 18,360
Depreciation 76,255 76,254
Other 18,944 44,833
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Total expenses 186,830 302,937
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Net income 321,508 678,651
Other comprehensive loss:
Unrealized loss on available
for sale security (53,563) -0-
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Comprehensive income $ 267,945 $ 678,651
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Net income per partnership unit $ 4.75 $ 10.00
========= =========
Weighted average partnership units outstanding 67,675 67,879
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
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INCOME:
Lease income $ 804,701 $ 1,660,200
Interest income 30,095 8,300
Gain on lease terminations 397,724 486,921
Other 98,066 33,476
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Total Income 1,330,586 2,188,897
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EXPENSES:
Management fees 58,829 223,193
Administrative services 67,778 66,822
Interest 22,220 136,560
Professional fees 138,052 68,131
Provision for possible losses 64,711 57,283
Depreciation 228,763 230,808
Other 99,539 85,028
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Total expenses 679,892 867,825
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Net income 650,694 1,321,072
Other comprehensive income (loss):
Unrealized gain (loss) on available
for sale security (63,301) -0-
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Comprehensive income $ 587,393 $ 1,321,072
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Net income per partnership unit $ 9.61 $ 19.46
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Weighted average partnership units outstanding 67,720 67,892
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENT OF CHANGES IN PARTNERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998
Accumulated
General Other Total
Partner Limited Partners Comprehensive Partners'
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(40 Units) Units Amount Loss Equity
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Balance at December 31, 1997 $ 10,502 67,722 $ 10,912,710 $ (15,025) $ 10,908,187
Net income 90 -- 94,033 -- 94,123
Distributions (300) -- (507,764) -- (508,064)
Withdrawal of limited partners -- (20) (3,534) -- (3,534)
Change in accumulated
comprehensive loss -- -- -- (20,869) (20,869)
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Balance at March 31, 1998 10,292 67,702 10,495,445 (35,894) 10,469,843
Net income 225 -- 234,848 -- 235,073
Distributions (100) -- (1,569,256) -- (1,569,356)
Change in accumulated
comprehensive loss -- -- -- 11,130 11,130
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Balance at June 30, 1998 10,417 67,702 $ 9,161,037 $ (24,764) $ 9,146,690
Net income 308 -- 321,190 -- 321,498
Distributions (1,744) -- (2,948,256) -- (2,950,000)
Withdrawal of limited partners -- (80) (9,894) -- (9,894)
Change in accumulated
comprehensive loss -- -- -- (53,563) (53,563)
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Balance at September 30, 1998 $ 8,981 67,622 $ 6,524,077 $ (78,327) $ 6,454,731
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See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
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OPERATING ACTIVITIES
Net income $ 650,694 $ 1,321,072
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred organization costs 3,114 3,115
Provision for possible losses 64,711 57,283
Depreciation 228,763 230,808
Gain on lease terminations (397,724) (486,921)
Changes in operating assets and liabilities:
Other assets 58,927 84,753
Increase (decrease) in trade accounts payable
excluding equipment purchase cost accrued (13,046) 49,266
Due to affiliates (93,776) (21,559)
Accrued expenses (160,504) (52,952)
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Net cash provided by operating activities 341,159 1,184,865
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment
for direct financing leases (1,085,333) (3,200,429)
Repayments of direct financing leases 1,322,741 2,474,325
Proceeds from sale or termination of direct financing leases 4,652,930 2,450,406
Advances on notes receivable -0- (165,000)
Repayments of notes receivable -0- 2,495
Net security deposits repaid (175,459) (7,909)
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Net cash used in investing activities 4,714,879 1,553,888
FINANCING ACTIVITIES
Distributions paid to partners (5,025,276) (1,527,565)
Redemption of partnership units (13,428) (5,175)
Repayment of note payable -0- (845,189)
Net payments on line-of-credit borrowings (50,557) (377,072)
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Net cash used by financing activities (5,089,261) (2,755,001)
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Net decrease in cash and cash equivalents (33,223) (16,248)
Cash and cash equivalents at beginning of period 458,893 497,144
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Cash and cash equivalents at end of period $ 425,670 $ 480,896
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SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $ 22,220 $ 149,623
Non-cash activities:
North American miscellaneous receivable write off (291,704) -0-
North American security deposits written off 42,207 -0-
Notes receivable converted to investment in
not readily marketable securities 191,600 -0-
Crescent lease buyout of Digital leases 1,860,784 -0-
See accompanying notes
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Partnership's annual report on Form 10-K
for the year ended December 31, 1997.
NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES
Components of the net investment in direct financing leases are as follows:
September 30, 1998 December 31, 1997
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Lease payments receivable $ 5,607,324 $12,427,455
Estimated unguaranteed residual values of
leased equipment 630,042 1,192,611
Unearned lease income (1,152,809) (2,571,275)
Unamortized initial direct costs 18,978 30,028
Notes receivable 218,057 434,692
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Net investment in direct financing leases
and notes receivable $ 5,321,592 $11,513,511
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NOTE C - EQUIPMENT LEASED UNDER OPERATING LEASES
In March, 1996, the Partnership exercised its right to manage the assets
leased to In-Touch Communications, Inc. due to non-payment of lease receivables.
The Partnership entered into a management agreement with Custom Communications
Network ("CCN") to operate the route. Under this agreement, CCN was to pay the
Partnership an amount based on a percent of CCN's monthly net cash proceeds from
operating the route. The net investment in this lease at that time approximated
$1,370,000. In 1996, a charge of $284,308 was made to the loss reserve to
reflect what management estimated would not be recoverable under this agreement.
Pursuant to the agreement, CCN used cash flow to add pay telephones to the
business. During the course of the lease, the number of payphones subject to
this lease increased from approximately 330 to approximately 582 at September
30, 1998. Based upon the normal industry value of $4,000 per installed pay
telephone, the Partnership lease position would be valued at approximately $2.3
million. This value is well in excess of the $840,997 carrying value of this
lease. CCN continues to operate the phone route as an operating lease described
above. Until a definitive agreement or purchase commitment
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is received by the Partnership for the sale of these assets, it will be carried
as an operating lease. To date, the Partnership and CCN are actively pursuing
the sale of the phone base with two interested parties. Additionally, two other
companies have contacted the Partnership regarding their interest should a sale
not be completed. Correspondence has been sent to CCN regarding the
Partnership's interest in completing a sale by year end.
NOTE D - CREDIT ARRANGEMENTS
The Partnership had a line-of-credit agreement with a bank which expired April
30, 1998. The balance due on the agreement was fully paid off and will not be
renewed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS Three Months Ended Nine Months Ended
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September 30 September 30
1 9 9 8 1 9 9 7 1 9 9 8 1 9 9 7
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Description:
Lease income $ 228,268 $ 480,725 $ 804,701 $1,660,200
Gain on lease terminations 222,913 468,399 397,724 486,921
Management fees -0- 74,856 58,829 223,193
Interest expense -0- 40,634 22,220 136,560
Professional Fees 70,641 27,000 138,052 68,131
Provision for possible losses -0- 18,360 64,711 57,283
Depreciation 76,255 76,254 228,763 230,808
As of May 1, 1998, the Partnership is in its liquidation period, as defined in
the Partnership Agreement and, as expected, is not purchasing equipment. Initial
leases are expiring. The Partnership is required to dissolve and distribute all
of its assets no later than December 31, 1999, or earlier, upon the occurrence
of certain events. As a result, both the size of the Partnership's portfolio and
the amount of lease income are declining.
Since the Partnership is in its liquidation phase, management fees paid to the
General Partner have been discontinued. Since the line of credit has been paid
off, interest expense has declined to zero.
The Partnership incurs professional fees each year for the audit of its
financial records and for the preparation of its tax return. During the third
quarter of 1998, the Partnership incurred approximately $47,000 of professional
fees associated with a securitization effort that failed to materialize.
The Partnership was accruing a provision for possible losses based on 1.5% of
equipment purchases. The Partnership currently has a loss reserve of $140,379 or
2.6% of the lease and note portfolios. Management will continue to monitor the
remaining portfolio and adjust the loss reserve if needed.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Partnership received 22,260 shares of common stock of Phonetel Corporation
as part of a lease financing agreement in 1997. The Partnership has been valuing
these shares at market. Due to operational losses sustained by Phonetel, the
market value of Phonetel's common stock has decreased significantly, resulting
in an unrealized loss of approximately $78,000 as of September 30, 1998.
As previously discussed in the Partnership's 10-K report for 1997, the General
Partner provided for a specific loss reserve of $1,596,739 at December 31, 1997,
equal to the carrying value of the assets leased to North American
Communications Group, Inc. The Partnership foreclosed on these assets in
February, 1998 . As a result, the assets were removed from the Partnership's
books and charged to the specific reserve established at December 31, 1997. The
Partnership will continue to attempt to sell these assets and any amounts
received through such efforts will be credited as a recovery of previous
charges.
Lease payments receivable of 31 or more days past due amounted to $86,070
(contract balance remaining of $1,295,463) at September 30, 1998. These
delinquent payments represent 1.53% of the Partnership's lease payments
receivable. The General Partner continues to monitor these leases and will take
whatever steps are necessary to protect the Partnership's interest in these
assets.
As of September 30, 1998, there were eight customers with lease payments of
$19,645 over 90 days past due. When payments on a customer's account are past
due more than 90 days, the Partnership discontinues recognizing income on those
customer's accounts. The contract balance remaining on those accounts was
$590,579. The General Partner is monitoring these contracts and has determined
the Partnership's investment in these contracts is sufficiently collateralized.
The Partnership recognizes that the arrival of the Year 2000 poses a unique
challenge to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and, like other companies, has assessed its
computer applications and business processes to provide for their continued
functionality. An assessment of the readiness of external entities with which it
interfaces, such as vendors, counterparties, customers, payment systems, and
others, is ongoing. The Partnership does not expect the cost to address the Year
2000 to be material.
The Partnership has determined that the software it utilizes in its operations
is compatible with the Year 2000. The Partnership has not yet fully determined
whether the Year 2000 issue has been addressed by all of its customers. If the
Partnership's customers have not addressed this issue, it could lead to
non-payments of amounts owed to the Partnership. The Partnership has contacted
all of its customers regarding this issue. The customers contacted have
indicated various stages of readiness. The Partnership will continue to
determine customer Year 2000 compliance by follow-up with customers who have
indicated non-compliance.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES Nine Months Ended
September 30, 1998 September 30, 1997
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Major Cash Sources:
Principal portion of lease payments received $1,322,741 $2,414,325
Proceeds received on sale of leases 4,652,930 2,450,406
Major Cash Uses:
Purchase of equipment and leases 1,085,333 3,200,429
Distributions to partners 5,025,276 1,527,565
Net payments on debt 50,557 377,072
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Proceeds received from the liquidation of a portion of the lease portfolio have
been used to pay off existing debt and fund distributions to investors.
Effective May 1, 1998, the Partnership moved from the operating phase of its
existence to the liquidation phase. Pursuant to the Partnership Agreement,
operating distributions of 12% were discontinued and liquidation distributions
have begun. No further lease contracts will be originated. Capital liquidating
distributions began in May and will continue until all assets are liquidated.
All payoffs on any leases will be distributed as they are received. As any other
remaining assets are sold and ongoing lease payments are received, all of the
cash received, less expenses to operate the Partnership, will be distributed to
investors as capital reductions. Since May 1, 1998 through September 30, 1998,
the Partnership funded liquidating distributions of $4,350,000 to investors as
capital reductions.
The total return on capital over a leasing partnership's life can only be
determined at the termination of the Partnership, after all the residual cash
flows have been realized. However, all liquidating distributions of the Partners
will be a return of capital.
The General Partner currently anticipates that the Partnership will generate
cash flow from rentals and equipment sales through December 1999, which should
provide sufficient cash to enable the Partnership to meet its current operating
requirements and to fund liquidating distributions of limited partners.
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PART II
Item 1. Legal Proceedings
As reported in the Partnership's 10-K filing for 1997, a foreclosure proceeding
was filed on February 20, 1998 by the Partnership and Telecommunications Income
Fund X, L.P. against the North American Communication Group, Inc. ("NACG").
On February 20, 1998, the Partnership filed a Petition to Foreclose Security
Interests in the amount of $1,862,388 against NACG, CWC Communications, Inc.,
North American Communications Corporation (Missouri) d/b/a North American
Communications of Georgia, Inc., North American Communications of Mississippi,
Incorporated, North American Communications Group, Inc. d/b/a North American
Communications of Louisiana, Inc. Troy P. Campbell, Sr. as Guarantor and Archie
W. Welch, Jr. as Guarantor, in the Iowa District Court for Linn County located
in Cedar Rapids, Iowa. The Defendants appeared in court and asked for additional
time to file their answer, which was granted by the court.
In May 1998, Defendants filed a motion to Dismiss for Lack of Personal
Jurisdiction, which was opposed by the Plaintiff, TIFIX. A Hearing was held July
31, 1998, in order for each side to argue the Motion before the Court. In
August, the Court ruled that it had personal jurisdiction against the corporate
defendants, but that the Court did not have jurisdiction against the individual
Guarantors. As a result of said ruling, the Plaintiff TIFIX filed a Notice of
Appeal on September 14, 1998 and a Brief in support of that Notice will be filed
in the very near future.
The corporate defendants filed an Answer denying the allegations in the
Petition. Discovery is now going forward in the litigation against the corporate
defendants at the same time as the Appeal is moving forward against the
individual Guarantors.
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SIGNATURES
Pursuant to the requirements 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.
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(Registrant)
Date: November 10, 1998 Ronald O. Brendengen/s/
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Ronald O. Brendengen, Chief Financial
Officer, Treasurer
Date: November 10, 1998 Daniel P. Wegmann/s/
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Daniel P. Wegmann, Controller
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