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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998
COMMISSION FILE NUMBER: 0-21458
TELECOMMUNICATIONS INCOME FUND IX, L.P.
(Exact name of Registrant as specified in its charter)
IOWA
(State or other jurisdiction of
incorporation or organization)
42-1367356
(I.R.S. Employer
Identification No.)
100 SECOND STREET S.E., CEDAR RAPIDS, IOWA
(Address of principal executive offices)
52401
(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 April 25, 1998, 67,742 Units were issued and outstanding. Based on the
original sales price of $250 per Unit, the aggregate market value at April 25,
1998 was $16,935,500.
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TELECOMMUNICATIONS INCOME FUND IX, LP.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets -- March 31, 1998 and December 31, 1997
Statements of Income and Comprehensive Income -- three months ended March 31, 1998 and three months
ended March 31, 1997
Statement of Changes in Partners' Equity -- three months ended March 31, 1998
Statements of Cash Flows -- three months ended March 31, 1998 and three months ended March 31, 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal proceedings
Signatures
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
BALANCE SHEETS (UNAUDITED)
MARCH 31 DECEMBER 31
1998 1997
-------- -----------
ASSETS
Cash and cash equivalents................................. $ 394,184 $ 458,893
Available-for-sale security............................... 44,520 65,389
Net investment in direct financing leases and notes
receivable (Note B).................................... 10,380,698 11,513,511
Allowance for possible lease and loan losses.............. (261,171) (1,922,056)
----------- -----------
Direct financing leases and notes receivable, net......... 10,119,527 9,591,455
Equipment leased under operating leases, less accumulated
depreciation of $327,000 at March 31, 1998 and $261,600
at December 31, 1997................................... 975,797 1,041,197
Equipment held for sale................................... 40,145 51,000
Intangibles, less accumulated amortization of $10,296 at
March 31, 1998 and $9,258 at December 31, 1997......... 2,423 48,582
Other assets.............................................. 171,634 384,060
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TOTAL ASSETS................................................ $11,748,230 $11,640,576
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LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C)......................... $ 708,613 $ 50,557
Trade accounts payable.................................... 1,058 17,336
Due to affiliates......................................... 17,914 96,472
Accrued expenses and other liabilities.................... 215,669 202,272
Lease security deposits................................... 335,133 365,752
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Total Liabilities........................................... 1,278,387 732,389
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PARTNERS' EQUITY, 100,000 units authorized
General partner, 40 units issued and outstanding.......... 10,292 10,502
Limited partners: 67,702 units at March 31, 1998 and
67,722 units at December 31, 1997 issued and
outstanding............................................ 10,495,445 10,912,710
Accumulated other comprehensive loss...................... (35,894) (15,025)
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Total partners' equity...................................... 10,469,843 10,908,187
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TOTAL LIABILITIES & PARTNERS' EQUITY........................ $11,748,230 $11,640,576
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See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED
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MARCH 31, MARCH 31,
1998 1997
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Income:
Lease income.............................................. $356,900 $588,355
Interest income........................................... 11,544 1,484
Gain on lease terminations................................ 8,808 12,130
Other..................................................... 24,768 1,262
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Total Income................................................ 402,020 603,231
-------- --------
Expenses:
Management fees........................................... 48,928 77,235
Administrative services................................... 23,866 23,867
Interest.................................................. 16,817 43,165
Professional fees......................................... 31,748 2,931
Provision for possible losses............................. 64,711 31,659
Depreciation.............................................. 76,255 77,405
Other..................................................... 45,572 12,284
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Total expenses.............................................. 307,897 268,546
-------- --------
Net income.................................................. 94,123 334,685
Other comprehensive income:
Unrealized gain (loss) on available-for-sale security..... (20,869) 2,366
-------- --------
Comprehensive income........................................ $ 73,254 $337,051
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Net income per partnership unit............................. $ 1.39 $ 4.93
Weighted average Partnership units outstanding.............. 67,742 67,902
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENT OF CHANGES IN PARTNERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
GENERAL LIMITED PARTNERS ACCUMULATED TOTAL
PARTNER --------------------- COMPREHENSIVE PARTNERS'
(40 UNITS) UNITS AMOUNT LOSS EQUITY
---------- ----- ------ ------------- ---------
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)
------- ------ ----------- -------- -----------
Balance at March 31, 1998........... $10,292 67,702 $10,495,445 $(35,894) $10,469,843
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See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
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MARCH 31, MARCH 31,
1998 1997
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OPERATING ACTIVITIES
Net income for period....................................... $ 94,123 $ 334,685
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred organization costs................. 1,038 1,038
Provision for possible losses............................... 64,711 31,659
Depreciation................................................ 76,255 77,405
Gain on lease terminations.................................. 8,808 (12,130)
Changes in operating assets and liabilities:
(Increase) Decrease in other assets....................... (79,278) 23,946
Decrease in trade accounts payable excluding equipment
purchase cost accrued.................................. (16,278) (3,362)
Decrease in due to affiliates............................. (78,558) (25,315)
Increase (decrease) in accrued expenses................... 13,397 (22,755)
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Net cash provided by operating activities......... 84,218 405,171
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INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for direct
financing leases.......................................... (1,085,333) (1,739,542)
Repayments of direct financing leases....................... 548,061 986,154
Proceeds from sale of direct financing leases............... 249,941 250,984
Security deposits collected................................. (11,588) 3,495
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Net cash used in investing activities............. (298,919) (498,909)
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FINANCING ACTIVITIES
Distributions paid to partners.............................. (508,064) (509,265)
Repayment of note payable................................... -0- (101,906)
Net proceeds from line-of-credit borrowings................. 658,056 369,548
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Net cash from financing activities................ 149,992 (241,623)
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Net (decrease) in cash and cash equivalents................. (64,709) (335,361)
Cash and cash equivalents at beginning of period............ 458,893 497,144
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Cash and cash equivalents at end of period.................. $ 394,184 $ 161,783
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SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest.................... $ 17,457 $ 55,447
See accompanying notes
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 three months ended March, 31, 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 AND NOTES RECEIVABLE
Components of the net investment in direct financing leases and notes
receivable are as follows:
MARCH 31, 1998 DECEMBER 31, 1997
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Lease payments receivable........................ $11,286,804 $12,427,455
Estimated unguaranteed residual values of leased
equipment...................................... 1,068,446 1,192,611
Unearned lease income............................ (2,329,699) (2,571,275)
Unamortized initial direct costs................. 27,014 30,028
Notes receivable................................. 328,133 434,692
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Net investment in direct financing leases and
notes receivable............................... $10,380,698 $11,513,511
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Due to cash flow problems experienced during 1997 by a lessee of the
Partnership, North American Communications Group, Inc. ("NACG"), the
Partnership, in an attempt to protect the assets leased to NACG, advanced funds
to various entities to whom NACG owed money related to the operation of such
leased assets. In addition, the Partnership assisted in arranging a management
agreement between NACG and another entity to attempt to improve NACG's cash flow
generated by the leased assets. In spite of the funds advanced by the
Partnership and the management agreement, the cash flow of NACG continued to
deteriorate. During the past several months, the General Partner actively
solicited bids from parties to purchase the assets associated with the
Partnership leases to NACG. Based on the value of similar assets and contract
sites, management believed the equipment leased to NACG had substantial value.
However, the offers received were not adequate to cover additional funds which
were required to be advanced to keep the equipment sites operating. The General
Partner, therefore, determined it was no longer economically feasible to
continue to advance funds on behalf of NACG, discontinued doing so and informed
all site operators of that decision. As a result, the Partnership decided to
provide for a specific allowance of $1,596,739 at December 31, 1997 which is
equal to the carrying value of the leases and advances associated with NACG. The
Partnership foreclosed on the assets underlying the leases and charged-off the
lease receivables to the specific allowance in February 1998.
The Partnership and an affiliated partnership, Telecommunications Income
Fund X, have initiated a foreclosure action against NACG and the guarantors
under the leases and advances seeking the sale of the assets and a judgment
against NACG and the guarantors for any deficiency. Amounts received, if any,
will be credited to the allowance for possible loan and lease losses.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE C -- CREDIT ARRANGEMENTS
The Partnership has a line-of-credit agreement with a bank that allows the
Partnership to borrow the lesser of $2 million, or 32% of the Partnership's
Qualified Accounts, as defined in the agreement. The line-of-credit expires
April 30, 1998 and carries interest at 1% over prime (9.50% at March 31, 1998).
The agreement carries a minimum interest charge of $3,000 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31
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1998 1997
---- ----
Description:
Lease income............................................. $356,900 $588,355
Management fees.......................................... 48,928 77,235
Professional fees........................................ 31,748 2,931
Interest expense......................................... 16,817 43,165
Provision for possible losses............................ 64,711 31,659
The Partnership is approaching the date in which it must begin the
liquidation process, as defined in the Partnership Agreement and, as expected,
the Partnership is purchasing less equipment and initial leases are expiring. As
a result, both the size of the Partnership's leasing portfolio and the amount of
lease income are declining. The Partnership's investment in direct financing
leases and notes receivable declined from $14,102,658 at March 31, 1997 to
$10,380,698 at March 31, 1998.
Management fees are paid to the General Partner and represent 5% of the
gross rental payments received. The decline is attributed to the decline in the
Partnership lease portfolio.
The Partnership incurs professional fees each year for the audit of its
financial records and for the preparation of its tax return. The audit fee was
paid in the first quarter of 1998. Last year this fee was paid in the second
quarter of 1997. In addition, legal fees incurred will also vary due to the
timing of the payments for those services. There was approximately $6,200 of
legal fees incurred during the first quarter of 1998 for the NACG litigation.
The decrease in interest expense is a result of the Partnership borrowing
less funds to acquire equipment for investment in direct financing leases.
The Partnership accrued a $31,659 provision for possible losses for the
three months ended March 31, 1997 based on 1.5% of equipment recorded as an
investment in financing leases. Due to the loss history of the Partnership, the
General Partner has determined to increase the Partnership's general loss
allowance to 2% of the Partnership's investment in leases and notes, exclusive
of any specific reserves. The Partnership currently has a general loss reserve
of $256,096 or 2.5% of the lease and note portfolios.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The General Partner has established specific and general loss allowance as
follows:
MARCH 31, 1998 MARCH 31, 1997
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General Reserve.................................... $256,096 $254,477
Specific Reserve -- UTS............................ 5,075 8,825
Specific Reserve -- InnTouch/CCN................... -0- 21,996
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$261,171 $285,298
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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. ("NACG"). 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 and/or re-lease 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 $537,217
(contract balance remaining of $2,982,988) at March 31, 1998. This represents
4.76% 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 March 31, 1998, there were 21 customers with payments 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 $2,194,924. The General
Partner is monitoring these contracts and has determined the Partnership's
investment in these contracts is sufficiently collateralized.
Digital Technologies has 20 contracts with amounts past due over 90 days.
The contract balance remaining on these contracts was $1,726,921 at March 31,
1998. The Partnership's net investment in these contracts at March 31, 1998 was
$1,646,967. The value of the equipment associated with this lease exceeds the
Partnership's remaining net investment in the equipment. In addition, the lessee
is actively seeking a buyer for the equipment. As such, due to the value of the
assets and the potential buyout of this lease, management has decided not to
provide a provision for possible losses for these contracts. There are no
assurances that the sale will materialize, and other events may occur that may
deteriorate the current value of these assets. Management is monitoring these
contracts and will take whatever steps are necessary to protect the
Partnership's investment in these contracts.
The General Partner has submitted to the Securities and Exchange Commission
("SEC"), a proxy statement outlining its plans for the liquidation process of
the Partnership. Once the SEC has approved the proxy document, it will be sent
to the Unit Holders. The General Partner anticipates sending the proxy statement
to Unit Holders in May of this year.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
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Major Cash Sources:
Principal portion of lease payments received............. $ 548,061 $ 986,154
Proceeds received on sale of leases...................... 249,941 250,984
Net proceeds from debt................................... 658,056 -0-
Major Cash Uses:
Purchase of equipment and leases......................... 1,085,333 1,739,542
Net payments on debt..................................... -0- 267,642
Distributions to partners................................ 508,064 509,265
The General Partner does not plan to renew the Partnership's existing
line-of-credit agreement which is due to expire April 30, 1998. Once the
liquidation process begins, a portion of the proceeds received from the
liquidation of the lease portfolio will be used to pay off existing debt. As
such, a line-of credit will not be necessary. Until the liquidation process is
implemented, any short-term borrowing requirement of the Partnership will be
handled by the General Partner.
Effective May 1, 1998, the Partnership will move from the operating phase
of its existence to the liquidation phase. Per the Partnership Agreement,
operating distributions of 12% will not continue and liquidation distributions
will begin. No further lease contracts will be originated. Capital distributions
will begin in May and continue monthly until all assets are liquidated. All
payoffs on any leases will also be distributed as they are received. As any
other remaining assets are sold and ongoing lease payments are received, all of
the cash will be distributed to investors as capital reductions.
PART II
ITEM 1. Legal Proceedings
As reported in the Partnership's 10-K filing for 1997, a foreclosure
proceeding was filed February 20, 1998 against the North American Communications
Group, Inc. leases.
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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 5-11-98 /s/ RONALD O. BRENDENGEN
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Ronald O. Brendengen, Chief Financial Officer, Treasurer
Date 5-11-98 /s/ DANIEL P.WEGMANN
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Daniel P.Wegmann, Controller
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