1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996 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)
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")
------------------------------------------
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
-- --
As of July 31, 1996, 68,007 Units were issued and outstanding. Based on sales
prices of $250 per Unit, the aggregate market value at July 31, 1996 was
$17,001,750.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Balance sheets - June 30, 1996 and December 31, 1995.
Statements of income - three months ended June 30, 1996 and three
months ended June 30, 1995. Six months ended June 30, 1996 and six
months ended June 30, 1995.
Statement of changes in partners' equity - six months ended June 30,
1996.
Statements of cash flows - six months ended June 30, 1996 and six
months ended June 30, 1995.
Item 2. Management's discussion and analysis of financial condition and
results of operations.
Signatures
3
TELECOMMUNICATIONS INCOME FUND IX, L.P.
BALANCE SHEETS(UNAUDITED)
June 30 December 31
1996 1995
---- ----
ASSETS
Cash and cash equivalents $ -0- $ 161,866
Net investment in direct financing leases
(Note B) 17,021,468 18,491,629
Notes receivable (Note C) 1,543,945 1,691
Equipment, less accumulated depreciation
of $304,419 at June 30, 1996 and
$150,540 at December 31, 1995 (Note D) 1,386,099 1,329,967
Other assets 666,508 478,971
----------- -----------
Total assets $20,618,020 $20,464,124
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Payable to affiliates $ 4,985 $ 206,895
Outstanding checks in excess of cash balances 285,788 -0-
Trade accounts payable 32,432 30,976
Other accrued expenses 38,251 79,648
Lease security deposits 495,429 541,573
Long term debt (Note E) 1,041,619 1,229,431
Line of credit agreement (Note E) 4,811,211 4,113,504
----------- -----------
Total liabilities 6,709,715 6,202,027
Partners' equity, 100,000 units authorized
General partner, 40 units issued and
outstanding 12,231 12,439
Limited partners:
67,967 units issued and outstanding 13,896,074 14,249,658
----------- -----------
Total partners' equity 13,908,305 14,262,097
----------- -----------
Total liabilities and partners' equity $20,618,020 $20,464,124
=========== ===========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
June 30 June 30
1996 1995
-------- --------
INCOME:
Lease income $654,400 $731,341
Interest income 43,903 1,428
Other 26,504 24,151
-------- --------
Total Income 724,807 756,920
EXPENSES:
Management fees 79,326 108,263
Administrative services 18,086 18,714
Interest 118,839 95,131
Professional fees 38,697 30,428
Provision for possible losses
(Note B) 178,377 54,922
Depreciation 78,608 -0-
Other 22,547 22,977
-------- --------
Total expenses 534,480 330,435
-------- --------
Net income $190,327 $426,485
======== ========
Net income per partnership unit $ 2.80 $ 6.27
======== ========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
June 30 June 30
1996 1995
---------- ----------
INCOME:
Lease income $1,358,292 $1,335,345
Interest income 43,903 5,807
Other 80,317 36,010
---------- ----------
Total Income 1,482,512 1,377,162
EXPENSES:
Management fees 156,208 211,072
Administrative services 36,440 37,428
Interest 243,487 155,637
Professional fees 74,815 30,428
Provision for possible losses
(Note B) 108,799 58,738
Depreciation 153,879 -0-
Other 42,570 40,972
---------- ----------
Total expenses 816,198 534,275
---------- ----------
Net income $ 666,314 $ $842,887
========== ==========
Net income per partnership unit $ 9.80 $ 12.39
========== ==========
See accompanying notes.
6
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
General Limited Partners
Partner ----------------
(40 Units) Units Amount Total
---------------------------------------------------------------------------
Balance at December 31, 1995 $12,439 67,967 $14,249,658 $14,262,097
Distributions (300) -0- (509,753) (510,053)
Net income 1st quarter 1996 280 -0- 475,707 475,987
--------------------------------------------
Balance at March 31, 1996 $12,419 67,967 $14,215,612 $14,228,031
Distributions (300) -0- (509,753) (510,053)
Net income 2nd quarter 1996 112 -0- 190,215 190,327
--------------------------------------------
Balance at June 30, 1996 $12,231 67,967 $13,896,074 $13,908,305
============================================
See accompanying notes.
7
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30 June 30
1996 1995
-------------------
OPERATING ACTIVITIES
Net income $666,314 $842,887
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization 2,647 5,019
Provision for possible losses 108,799 58,738
Depreciation 153,879 -0-
Gain on lease terminations (39,072) (7,874)
Changes in operating assets and liabilities:
(Increase) decrease in other assets 159,816 (34,786)
Increase in outstanding checks in excess of cash 285,788 -0-
Increase in trade accounts payable
excluding equipment purchase cost accrued 1,456 -0-
Increase (decrease) in due to affiliates (201,910) 8,755
Increase (decrease) in accrued expenses (41,397) 616
----------- -----------
Net cash provided by operating activities 1,096,320 873,355
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment
for direct financing leases (4,123,929) (4,426,347)
Purchase of equipment for an operating lease (9,802) -0-
Repayments of direct financing leases 1,666,069 2,861,902
Proceeds from early termination of
direct financing leases 1,905,154 -0-
Advances on notes receivable (171,908) -0-
Repayments of notes receivable -0- 25,979
Proceeds from residual asset sale -0- 60,666
Net Security deposits collected (repaid) (13,559) 51,660
----------- -----------
Net cash used in investing activities (747,975) (1,426,140)
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)(CONTINUED)
FINANCING ACTIVITIES
Distributions paid to partners (1,020,106) ( 1,020,104)
Repayment of long-term debt (187,812) -0-
Net (payments on) proceeds from line-of-
credit borrowings 697,707 1,611,244
----------- ------------
Net cash provided by (used in) financing activities (510,211) 591,140
----------- ------------
Net increase (decrease) in cash and cash equivalents (161,866) 38,355
Cash and cash equivalents at beginning of
period 161,866 175,667
----------- ------------
Cash and cash equivalents at end of period $ -0- $ 214,022
=========== ============
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $237,074 $ 143,606
Non-cash activities:
Direct financing lease restructured as a
note receivable $ 1,370,346 $ -0-
Repossession of equipment formerly under lease $200,209 $ -0-
Reclassification of direct financing lease to other
receivable $ 350,000 $ -0-
Forfeiture of security deposit upon write-off of lease $ 32,585 $ -0-
Increase in trade accounts payable attributed
to equipment purchase cost $ -0- $ 15,731
Increase in investment in direct financing
leases due to financing of residual $ -0- $ 25,822
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
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 six months ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES
Components of the net investment in direct financing leases are as follows:
June 30 June 30
1996 1995
----------- -----------
Lease payments receivable $20,765,863 $21,745,015
Estimated unguaranteed residual values of
leased equipment 2,147,080 2,990,007
Unearned lease income (5,560,387) (5,879,237)
Allowance for possible losses ( 331,088) ( 364,156)
----------- -----------
Net investment in direct financing leases $17,021,468 $18,491,629
=========== ===========
In October, 1995, a lessee of the Partnership, Value-Added Communications
("VAC"), filed a Voluntary Petition for Relief under Chapter 11 of the
Bankruptcy Code. At the time of the bankruptcy filing, the Partnership's net
investment in direct financing leases with VAC totaled approximately $1.8
million which amount was reduced to approximately $474,000 at June 30, 1996.
This reduction was made possible through court ordered lease payments, which
payment order expired in March, 1996, and through sales of the leases and
equipment under lease to unrelated third parties. The sales of equipment and
leases resulted in the Partnership incurring a loss of approximately $57,000
which was charged to the provision for possible losses. Prior to the second
quarter of 1996, no amount had been established as a specific reserve for these
VAC leases since it appeared the Partnership would fully recover the amounts it
was due under the reorganization plans then in place. In July, 1996, however,
management re-evaluated its estimate based upon changes in the reorganization
plan. The Partnership's remaining $474,000 investment in VAC leases at June
30, 1996 is secured by a $100,000 certificate of deposit and a guaranty to the
Partnership by the site owner where certain equipment under lease is located.
Management estimates it will recover approximately $350,000 and
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 1996
therefore, a provision for possible losses of $124,233 has been recognized in
the second quarter. This net realizable value of $350,000 has been reclassified
to other receivables and all components of the VAC direct financing leases have
been removed. Since there are no signed agreements in place, there can be no
assurances that the Partnership will not incur additional losses on the
remaining $350,000 receivable. Management, however, believes its estimate of
possible loss is the best estimate currently available.
NOTE C --NOTE RECEIVABLE
In March, 1996, the Partnership repossessed equipment under lease to Inn Touch
Communications, Inc. with a net investment balance of $1,370,346. This
equipment was then financed for a new customer at the Partnership's basis of
$1,370,346 and an additional $94,048 was advanced to this new customer. The
note receivable bears interest at 12% and is due in June, 2001. The new
customer is current on all payments due.
NOTE D --EQUIPMENT
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 are such that it meets the criteria of an operating
lease. The equipment under lease is being depreciated under the straight-line
method over its estimated remaining life.
Payphones of America is currently negotiating the sale of its payphone assets,
including those under the lease representing approximately $800,000 of net
equipment cost, under terms which are expected by management to at least
recover the Partnership's net equipment cost. The remaining net equipment cost
of approximately $400,000, which relates to hotel satellite television
equipment, is expected by management to be recovered under a direct finance
lease at a market rate of interest with an entity spun-off from Payphones of
America. The possibility exists that these transactions will not materialize,
however, management's best current information indicates that these
transactions will be completed.
In May, 1996, the Partnership exercised its right to manage the assets leased
to a customer due to default under the lease agreement. The Partnership's net
investment in the leases at the time the assets were repossessed approximated
$200,000. This equipment is currently being serviced for the Partnership under
a short-term management agreement. The Partnership's intent is to sell the
equipment or re-lease the equipment to a new lessee. The Partnership expects
to incur a loss approximating $25,000 upon the sale or re-lease of this
equipment. Although there can be no assurances, management believes the
Partnership's allowance for possible losses is sufficient to cover any
potential losses with respect to this equipment. The Partnership's allowance
for possible losses has not yet been charged for this estimated loss due to
ongoing negotiations.
11
NOTE E --CREDIT ARRANGEMENTS
The Partnership has 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. The line-of-credit expires
November 30, 1997 and carries interest at 1% over prime (9.25% at June 30,
1996). The agreement carries a minimum interest charge of $7,500 per month.
The agreement is cancelable by the lender after giving a 90-day notice and is
secured by substantially all assets of the Partnership. This line-of-credit is
guaranteed by the General Partner and certain affiliates of the General
Partner.
12
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 1996
NOTE E --CREDIT ARRANGEMENTS(continued)
The Partnership also has an installment loan agreement which bears interest at
8.91% and is due in monthly installments through November, 1998. 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 40% debt to original equity raised ratio,
and not sell a material portion of its assets.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
Results of Operations
Description:
Lease income $ 654,400 $ 731,341 $1,358,292 $1,335,345
Management fees $ 79,326 $ 108,263 $ 156,208 $ 211,072
Interest expense $ 118,839 $ 95,131 $ 243,487 $ 155,637
Professional Fees $ 38,697 $ 30,428 $ 74,815 $ 30,428
Provision for possible losses $ 178,377 $ 54,922 $ (15,434) $ 58,738
Depreciation $ 78,608 $ -0- $ 153,879 $ -0-
Lease income for the six months ended June 30, 1996 remained relatively
consistent with the same period in 1995 as the Partnership's net investment in
leases has also remained relatively consistent. Lease income will, however,
decline as the lease portfolio matures and the Partnership nears its
liquidation. The Partnership is currently in it's fourth year of operations
and the liquidation phase must begin no later than April 30, 1998. Initial
leases are expiring and the amount of equipment being re-marketed (i.e.
re-leased, renewed or sold) will increase. As a result, the size of the
Partnership lease portfolio and the amount of lease income will decline. In
addition, the equipment leased under an operating lease since July 1, 1995 has
not generated income for the Partnership since its inception. The Partnership
repossessed this equipment due to a default under the original direct financing
lease agreement and subsequently re-leased the equipment under this operating
lease in order to recover its investment. See Note D for further discussion
and the Partnership's plans with respect to this equipment. Further, the
Partnership has not received lease payments and thus, has not recognized lease
income since March, 1996 on approximately $474,000 of equipment leased to a
lessee, Value-Added Communications, Inc., that filed bankruptcy in 1995 as
further discussed below.
Management fees are paid to the General Partner and represent 5% of the gross
rental payments received. Rental payments decreased from $4,221,440 in the six
months ended June 30, 1995 to $3,124,160 for the six months ended June 30,
1996. These decreases are attributable to the early terminations of
approximately $2 million of leases in the first six months of 1996 as well as
the termination of fully mature leases. The Partnership has reinvested the
cash received on these pay-offs, however, the reinvestments occurred
periodically over the six months.
The increase in interest expense is a result of the Partnership borrowing more
funds to acquire equipment for investment in direct financing leases, the note
receivable and the operating lease.
As discussed in Note D to the financial statements, the Partnership has
repossessed certain equipment formerly under lease. This equipment is now
under terms of an operating lease or is being operated by the Partnership.
As such, depreciation is charged on this equipment in the first six months of
1996 but not in the first six months of 1995 due to the timing of repossession.
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Continued.
The following table represents lease payments thirty one days or more past due
on June 30, 1996.
31-60 61-90 OVER 90
LESSEE DAYS DAYS DAYS TOTAL
- - ------ ----- ---- ---- -----
Alpha Tel-Com, Inc 5,693 -0- -0- 5,693
The Phone People 5,162 -0- -0- 5,162
Others 4,876 -0- -0- 4,876
----- ---- ---- -----
Total $15,731 $-0- $-0- $15,731
======= ==== ==== =======
The total past due amount represents .08% of the Partnership's lease payments
receivable. While these leases are identified as requiring additional
monitoring, they do not necessarily represent non-performing assets.
In October, 1995, a lessee of the Partnership, Value-Added Communications
("VAC"), filed a Voluntary Petition for Relief under Chapter 11 of the
Bankruptcy Code. At the time of the bankruptcy filing, the Partnership's net
investment in direct financing leases with VAC totaled approximately $1.8
million which amount was reduced to approximately $474,000 at June 30, 1996.
This reduction was made possible through court ordered lease payments, which
payment order expired in March, 1996, and through sales of the leases and
equipment under lease to unrelated third parties. The sales of equipment and
leases resulted in the Partnership incurring a loss of approximately $57,000.
Prior to the second quarter of 1996, no amount had been established as a
specific reserve for these VAC leases since it appeared the Partnership would
fully recover the amounts it was due under the reorganization plans then in
place. In July, 1996, however, management re-evaluated its estimate based upon
changes in the reorganization plan. The Partnership's remaining $474,000
investment in VAC leases at June 30, 1996 is secured by a $100,000 certificate
of deposit and a guaranty to the Partnership by the site owner where certain
equipment under lease is located. Management estimates it will recover
approximately $350,000 and therefore, a provision for possible losses of
$124,233 has been recognized in the second quarter. This net realizable value
of $350,000 has been reclassified to other receivables. Since there are no
signed agreements in place, there can be no assurances that the Partnership
will not incur additional losses on the remaining $350,000 receivable.
Management, however, believes its estimate of possible loss is the best
estimate currently available.
15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Continued.
Liquidity and Capital Resources
Six Months Ended Six Months Ended
June 30 June 30
1996 1995
=======================================================================
Major Cash Sources:
Principal portion of lease payments
received $ 1,666,069 $ 2,861,902
Proceeds received on sale of leases $ 1,905,154 $ -0-
Major Cash Uses:
Purchase of equipment and leases $ 4,123,929 $ 4,410,616
Net proceeds from debt $ 509,895 $ 1,611,244
Distributions to partners $ 1,020,106 $ 1,020,104
======================================================================
The Partnership increased the amount owed on a $6.25 million line-of-credit
agreement by $697,707 in the six month period ended June 30, 1996, leaving an
outstanding balance at June 30, 1996 of $4,811,211. In August, 1995, the
Partnership borrowed $1,350,000 from a bank under terms of a long-term note
payable for purposes of investing in additional leases. The balance due on
this note payable at June 30, 1996 was $1,041,609. This note payable requires
monthly payments of $39,996 through its maturity on November 30, 1998.
At the present time the Partnership has not encountered any significant
competition thus enabling the Partnership to obtain its desired lease rates.
The Partnership is required to establish working capital reserves of no less
than 1% of the gross proceeds to satisfy general liquidity requirements,
operating costs for equipment, and the maintenance and refurbishment of
equipment. At June 30, 1996 that working capital reserve, as defined, would
be $170,018. The Partnership has these funds readily available under its
line-of-credit.
Equipment purchases for investment in direct financing leases has remained
relatively consistent with that of the corresponding period of one year ago due
to the strong demand for equipment financing. All net proceeds from the sale
of Partnership units have been used to acquire equipment. Equipment purchases
are now funded through available excess operating cash and borrowed funds.
At June 30, 1996 adequate cash is being generated to make projected
distributions and allow for reinvestment of a portion of the cash to fund
additional leases.
16
At any time after October 30, 1996, 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. To date,
the General Partner has made preliminary inquiries of certain parties with
respect to a method of liquidation of all or a portion of the Partnership's
assets. No agreements, however, have been entered into and the General Partner
will continue to pursue the best possible liquidation scenario on behalf of the
Partnership.
17
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.
------------------------------------------
(Registrant)
Date____________ ___________________________________________
David R. Harvey, President
Date____________ ___________________________________________
R. Brooks Sherman, Jr., Chief Financial Officer, Treasurer