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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 June 30, 1997 Commission File Number 33-40091
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 July 31, 1997, 67,879 Units were issued and outstanding. Based on the
original sales price of $250 per Unit, the aggregate market value at July 31,
1997 was $16,969,750.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited).
Balance sheets - June 30, 1997 and December 31, 1996.
Statements of income - three months ended June 30, 1997 and
three months ended June 30, 1996. Six months ended June 30,
1997 and six months ended June 30, 1996.
Statement of changes in partners' equity - six months ended
June 30, 1997.
Statements of cash flows - six months ended June 30, 1997 and
six months ended June 30, 1996.
ITEM 2. Management's discussion and analysis of financial condition and
results of operations.
SIGNATURES
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
BALANCE SHEETS (UNAUDITED)
June 30, 1997 December 31, 1996
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ASSETS
Cash and cash equivalents $ 66,807 $ 497,144
Available-for-sale security 66,780 60,310
Net investment in direct financing leases (Note B) 14,085,553 13,575,298
Allowance for possible lease losses (292,563) (244,814)
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Direct financing leases net 13,792,990 13,330,484
Equipment leased under operating leases, less
accumulated depreciation of $130,800 at June 30,
1997 and $23,144 at December 31, 1996 1,171,997 1,307,948
Equipment held for sale 141,884 164,487
Intangibles 5,539 7,615
Other assets 236,361 274,191
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TOTAL ASSETS $15,482,358 $15,642,179
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LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C) $ 1,483,132 $ 1,060,490
Trade accounts payable 32,950 4,059
Due to affiliates 29,514 47,719
Accrued expenses and other liabilities 12,822 61,352
Lease security deposits 473,160 439,033
Note payable (Note C) 641,160 845,149
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Total Liabilities 2,672,738 2,457,802
PARTNERS' EQUITY, 100,000 units authorized
General partner, 40 units issued and outstanding 11,610 11,832
Limited partners: 67,839 units issued and outstanding 12,811,069 13,192,649
Gain on redemption of units 575 -0-
Unrealized loss on available-for-sale security (13,634) (20,104)
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Total partners' equity 12,809,620 13,184,377
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TOTAL LIABILITIES & PARTNERS' EQUITY $15,482,358 $15,642,179
============== ============
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
June 30, 1997 June 30, 1996
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INCOME:
Lease income $ 591,120 $ 654,400
Interest income 1,666 43,903
Gain on lease terminations 6,392 14,036
Other 4,900 12,468
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Total Income 604,078 724,807
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EXPENSES:
Management fees 71,102 79,326
Administrative services 21,955 18,086
Interest 52,761 118,839
Professional fees 38,200 38,697
Provision for possible losses (Note B) 7,264 178,377
Depreciation 77,149 78,608
Other 27,911 22,547
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Total expenses 296,342 534,480
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Net income $ 307,736 $ 190,327
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Net income per partnership unit $ 4.53 $ 2.80
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Weighted average partnership units outstanding 67,894 68,007
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
June 30, 1997 June 30, 1996
INCOME:
Lease income $ 1,179,475 $ 1,358,292
Interest income 3,150 43,903
Gain on lease terminations 18,522 39,703
Other 6,162 40,614
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Total Income 1,207,309 1,482,512
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EXPENSES:
Management fees 148,337 156,208
Administrative services 45,822 36,440
Interest 95,926 243,487
Professional fees 41,131 74,815
Provision for possible losses (Note B) 38,923 108,799
Depreciation 154,554 153,879
Other 40,195 42,570
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Total expenses 564,888 816,198
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Net income $ 642,421 $ 666,314
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Net income per partnership unit $ 9.46 $ 9.80
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Weighted average partnership units outstanding 67,898 68,007
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
Unrealized
(Gain) Loss
General Gain on on Available
Partner Limited Partners Redeemed for-Sale Partners'
(40 Units) Units Amount Units Security Equity
---------- ----- ------ ----- -------- ----------
Balance at December 31, 1996 $11,832 67,862 $13,192,649 $ --- $(20,104) $13,184,377
Change in unrealized loss on
available-for-sale security --- --- --- --- 2,366 2,366
Distributions (300) --- (508,965) --- --- (509,265)
Net income 197 --- 334,488 --- --- 334,685
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Balance at March 31, 1997 11,729 67,862 13,018,172 --- (17,738) 13,012,163
Change in unrealized loss on
available-for-sale security --- --- --- --- 4,104 4,104
Distributions (300) --- (508,908) --- --- (509,208)
Redeemed Units --- (23) (5,750) --- --- (5,750)
Gain on redeemed units --- --- --- 575 --- 575
Net income 2nd quarter 1997 181 --- 307,555 --- --- 307,736
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Balance at June 30, 1997 $11,610 67,839 $12,811,069 $575 $(13,634) $12,809,620
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See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30, 1997 June 30, 1996
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OPERATING ACTIVITIES
Net income $ 642,421 $ 666,314
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred organization costs 2,076 2,647
Provision for possible losses 38,923 108,799
Depreciation 154,554 153,879
Gain on lease terminations (18,522) (39,072)
Changes in operating assets and liabilities:
Decrease in other assets 37,830 159,816
Increase in outstanding checks in excess of cash -0- 285,788
Increase in trade accounts payable
excluding equipment purchase cost accrued 28,891 1,456
Decrease in due to affiliates (18,205) (201,910)
Decrease in accrued expenses 48,530) (41,397)
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Net cash provided by operating activities 819,438 1,096,320
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment
for direct financing leases (2,594,844) (4,123,929)
Purchase of equipment for an operating lease -0- (9,802)
Repayments of direct financing leases 1,114,831 1,666,069
Proceeds from sale of direct financing leases 491,844 1,905,154
Advances on notes receivable -0- (171,908)
Net security deposits collected (repaid) 34,127 (13,559)
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Net cash used in investing activities (954,045) (747,975)
FINANCING ACTIVITIES
Distributions paid to partners (509,208) (1,020,106)
Redemption of partnership units (5,175) -0-
Repayment of note payable (203,989) (187,812)
Net proceeds from line-of-credit borrowings 422,642 697,707
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Net cash used by financing activities (295,730) (510,211)
T ---------- -----------
Net decrease in cash and cash equivalents (430,337) (161,866)
Cash and cash equivalents at beginning of period 497,144 161,866
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Cash and cash equivalents at end of period $ 66,807 $ -0-
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SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $ 104,576 $ 237,074
Non-cash activities:
Direct financing lease restructured as a note receivable -0- 1,370,346
Repossession of equipment formerly under lease -0- 200,209
Reclassification of direct financing lease to other receivable -0- 350,000
Forfeiture of security deposit upon write-off of lease -0- 32,585
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
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, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. 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, 1996.
NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES
Components of the net investment in direct financing leases are as follows:
June 30, 1997 December 31, 1996
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Lease payments receivable $ 16,001,152 $ 15,905,074
Estimated unguaranteed residual values of
leased equipment 1,732,663 1,740,217
Unearned lease income (3,676,378) (4,077,214)
Unamortized initial direct costs 28,116 7,221
Allowance for possible losses (292,563) (244,814)
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Net investment in direct financing leases $ 13,792,990 $ 13,330,484
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NOTE C - 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 (9.50% at June 30,
1997). 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.
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS Three Months Ended June 30 Six Months Ended June 30
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1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
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Description:
Lease income $ 591,120 $ 654,400 $1,179,475 $1,358,292
Management fees 71,102 79,326 148,337 156,208
Interest expense 52,761 118,839 95,926 243,487
Professional Fees 38,200 38,697 41,131 74,815
Provision for possible losses 7,264 178,377 38,923 108,799
Depreciation 77,149 78,608 154,554 153,879
Lease income for the six months ended June 30, 1997 remained relatively
consistent with the same period in 1996 as the Partnership's net investment in
leases has also remained stable. Lease income will, however, decline as the
lease portfolio matures and the Partnership nears its liquidation. The
Partnership is currently in it's fifth 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.
Management fees are paid to the General Partner and represent 5% of the gross
rental payments received. Rental payments decreased from $3,124,160 in the six
months ended June 30, 1996 to $2,966,740 for the six months ended June 30,
1997. These decreases are attributable to the early terminations of leases as
well as the termination of fully mature leases. The Partnership has reinvested
the cash received on these pay-offs, which occurred periodically over the six
months.
The decrease in interest expense is a result of the Partnership borrowing less
funds to acquire equipment for investment in direct financing leases. In
addition, the Partnership has used the proceeds of lease terminations to reduce
the balance of its line of credit.
Currently the Partnership provides for possible lease losses at a rate of 1.5%
of equipment purchased for investment in leases. This amounts to $38,923 for
the six months ended June 30, 1997. As discussed in previous reports, the
Partnership realized losses of $124,233 on leases associated with Value Added
Communications as of June 30, 1996. For the period ended June 30, 1996, an
adjustment was also made to reduce the loss reserve to 1.5% of leases and
equipment under operating lease. This adjustment, plus the specific charge for
Value Added Communications, resulted in the $108,799 expense provision.
At June 30, 1997, the allowance for possible lease losses was comprised of a
general reserve of $283,738 and a specific reserve of $8,825 for United
Tele-Systems. The specific reserve of $8,825 was established to cover
anticipated legal costs associated with the sale of the United Tele-Systems
equipment.
Lease payments receivable of 31 or more days past due amounted to $205,729 at
June 30, 1997. This represents 1.29% of the Partnership's lease payments
receivable.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES Six Months Ended
June 30, 1997 June 30, 1996
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Major Cash Sources:
- -------------------
Principal portion of lease payments received $ 1,114,831 $ 1,666,069
Proceeds received on sale of leases 491,841 1,905,154
Net proceeds from debt 218,653 509,895
Major Cash Uses:
- ----------------
Purchase of equipment and leases 2,594,844 4,123,929
Distributions to partners 1,018,473 1,020,106
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The Partnership increased the amount owed on a $6.25 million line-of-credit
agreement by $422,642 in the six month period ended June 30, 1997, leaving an
outstanding balance at June 30, 1997 of $1,483,132. 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, 1997 was $641,160. This note payable requires
monthly payments of $39,996 through its maturity on November 30, 1998.
The Partnership's line of credit agreement is cancelable by the lender after
giving a 90-day notice. The agreement matures in November 1997. The
Partnership has entered into preliminary discussions with the lender and
anticipates renewing the agreement for a yet to be determined term.
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, 1997 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 declined. As
the Partnership approaches the liquidation phase of its life, less equipment
will be purchased for investment in leases. 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, 1997 adequate cash is being generated to make projected
distributions and allow for reinvestment of a portion of the cash to fund
additional leases.
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.
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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.
(Registrant)
Date August 13, 1997 Ronald O. Brendengen/s/
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Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date August 13, 1997 Daniel P. Wegmann/s/
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Daniel P. Wegmann,
Controller