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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, 1999 Commission File Number 0-21458
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 August 3, 1999, 67,450 units were issued and outstanding. Based on the
book value of $28.90 per unit, the aggregate market value at August 3, 1999 was
$1,949,305.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements (unaudited).
Statements of Net Assets - June 30, 1999 and
December 31, 1998 (Liquidation Basis) 3
Statement of Income and Comprehensive Income -
three months ended March 31, 1998 (Going Concern Basis) 4
Statements of Changes in Net Assets - three months ended June
30, 1998 and three and six months ended June 30, 1999
(Liquidation Basis) 5
Statements of Cash Flows - six months ended June 30, 1999
and six months ended June 30, 1998 6
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II. OTHER INFORMATION
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ITEM 1. Legal proceedings 9
SIGNATURES 10
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (UNAUDITED)
(Liquidation Basis) (Liquidation Basis)
June 30, 1999 December 31, 1998
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ASSETS
Cash and cash equivalents $ 466,921 $ 711,589
Available-for-sale securities 111,527 112,403
Not readily marketable equity security 191,600 191,600
Direct financing leases and notes receivable, net (Note B) 673,126 1,424,765
Equipment leased under operating leases 775,597 775,597
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TOTAL ASSETS 2,218,771 3,215,954
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LIABILITIES
Outstanding checks in excess of bank balance -0- 89,627
Trade accounts payable 27,191 4,844
Accrued expenses and other liabilities 30,700 34,533
Lease security deposits 37,233 65,370
Reserve for estimated costs during the
period of liquidation 174,142 300,000
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TOTAL LIABILITIES 269,266 494,374
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NET ASSETS $ 1,949,505 $ 2,721,580
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See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(GOING CONCERN BASIS)
(UNAUDITED)
Three Months Ended
March 31, 1998
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Income:
Lease income $ 356,900
Interest income 11,544
Gain on lease terminations 8,808
Other 24,768
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Total Income 402,020
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Expenses:
Management fees 48,928
Administrative services 23,866
Interest 16,817
Professional fees 31,748
Provision for possible losses 64,711
Depreciation 76,255
Other 45,572
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Total expenses 307,897
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Net income 94,123
Other comprehensive loss:
Unrealized loss on available-for-sale securities (20,869)
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Comprehensive income $ 73,254
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Net income per partnership unit $ 1.39
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Weighted average partnership units outstanding 67,742
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See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1999
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NET ASSETS AS OF BEGINNING OF PERIOD $ 10,288,026 $ 2,068,327 $ 2,721,580
Income from direct financing leases 219,533 39,445 92,915
Interest and other income 34,692 2,850 17,447
Distributions to partners (1,569,356) (135,000) (895,000)
Withdrawals of limited partners -0- -0- (12,132)
Change in estimate of liquidation value of net assets (65,123) (26,117) 24,695
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NET ASSETS AT END OF PERIOD 8,907,772 $ 1,949,505 $ 1,949,505
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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
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June 30, 1999 June 30, 1998
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OPERATING ACTIVITIES
Changes in net assets excluding distributions and withdrawals $ 110,362 $ 415,984
Adjustments to reconcile to net cash from operating activities:
Amortization -0- 1,038
Provision for possible losses -0- 64,711
Depreciation -0- 75,566
Gain on lease terminations -0- (8,808)
Changes in operating assets and liabilities:
Other assets -0- (6,509)
Outstanding checks in excess of bank balance (89,627) -0-
Trade accounts payable
excluding non-cash items 22,347 (5,393)
Due to affiliates -0- (93,775)
Accrued expenses (3,833) (70,640)
Reserve for estimated costs during the period of liquidation (125,858) -0-
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Net cash from operating activities (86,609) 372,174
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INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment
for direct financing leases -0- (1,085,333)
Repayments of direct financing leases and notes 278,660 554,848
Proceeds from sale of direct financing leases 498,550 2,178,294
Security deposits paid (28,137) (87,259)
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Net cash from investing activities 749,073 1,560,550
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FINANCING ACTIVITIES
Distributions and withdrawals paid to partners (907,132) (2,077,420)
Net payments on line-of-credit -0- (50,557)
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Net cash from financing activities (907,132) (2,127,977)
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Net decrease in cash and cash equivalents (244,668) (195,253)
Cash and cash equivalents at beginning of period 711,589 458,893
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Cash and cash equivalents at end of period $ 466,921 $ 263,640
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SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $ -0- $ 17,457
North American miscellaneous receivable write off -0- (291,704)
North American security deposits written off -0- 42,207
Notes receivable converted to investment in
not readily marketable equity security -0- 191,600
Change in estimate of liquidation value of net assets-
primarily leases 24,695 -0-
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
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, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. 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, 1998.
On May 1, 1998, the Partnership ceased reinvestment in equipment and leases and
began the orderly liquidation of the Partnership in accordance with the
partnership agreement. As a result, the unaudited financial statements beginning
with the second quarter of 1998 have been presented under the liquidation basis
of accounting. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable values and liabilities are stated at their
anticipated settlement amounts.
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:
(Liquidation Basis) (Liquidation Basis)
June 30, 1999 December 31, 1998
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Lease payments receivable $ 860,659 $ 1,758,160
Estimated unguaranteed residual values of
leased equipment 111,844 232,568
Unearned lease income (155,123) (320,868)
Unamortized initial direct costs 1,112 1,628
Notes receivable 39,360 53,867
Allowance for possible losses (109,933) (142,282)
Adjustment to estimated net realizable value (74,793) (158,308)
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Net investment in direct financing leases
and notes receivable $ 673,126 $ 1,424,765
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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
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deteriorate. 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 that 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 was 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 receivable to the
specific allowance in February 1998.
The Partnership and an affiliated partnership, Telecommunications Income Fund X,
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. The Partnership received a settlement of $45,000
in the first quarter of 1999, and credited this to the allowance for possible
loan and lease losses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On May 1, 1998, the Partnership ceased reinvestment in equipment and leases and
began the orderly liquidation of the Partnership in accordance with the
partnership agreement. As a result, the unaudited financial statements beginning
with the second quarter of 1998 have been presented under the liquidation basis
of accounting. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable values and liabilities are stated at their
anticipated settlement amounts.
As discussed above, the Partnership is in liquidation and does not believe a
comparison of results would be meaningful. The Partnership realized $42,295 in
income from direct financing leases, notes receivable, interest and other income
during the second quarter of 1999. Income from these sources totalled $110,362
for the first six months of 1999. Also, management decreased its estimate of the
liquidation value of net assets during the second quarter of 1999 by $26,117.
This change in estimate was due to several factors including the decreased
market value of the Partnership's marketable securities, losses on the
termination of leases, and an increase in the estimated net realizable value of
the remaining lease and notes receivable portfolio. The return on average net
assets, including the change in estimate of liquidation value of net assets, was
11.6% on an annualized basis for the six months ended June 30, 1999. The
Partnership has accrued the estimated expenses of liquidation, which is $174,142
at June 30, 1999. The General Partner reviews this estimate and will adjust
quarterly, as needed. The Partnership will continue to make distributions to the
partners as leases and notes receivable are collected or sold and other assets
are sold.
The valuation of assets and liabilities necessarily requires many estimates and
assumptions and there are uncertainties in carrying out the liquidation of the
Partnership's net assets. The actual value of the liquidating distributions will
depend on a variety of factors, including the actual timing of distributions to
partners. The actual amounts are likely to differ from the amounts presented in
the financial statements.
At June 30, 1999, four customers were past due over 90 days. The contract
balance remaining on these contracts at June 30, 1999 was $422,088, while the
Partnership's net investment in these contracts was
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$335,294. One of the four customers has two contracts with a total contract
balance remaining on the two contracts of $312,321 and a net investment of
$235,955. This customer is in the process of negotiating financing with a major
lending institution, and as such, the Partnership has not established reserves
for this particular customer as of June 30, 1999. When a payment is past due
more than 90 days, the Partnership discontinues recognizing income on the
contract.
The Partnership's portfolio of leases and notes receivable are concentrated in
pay telephones, representing approximately 78% of the portfolio at June 30,
1999. Two lessees account for approximately 59% of the Partnership's portfolio
at June 30, 1999.
YEAR 2000 ISSUE: 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. The Partnership does not
expect the cost to address the Year 2000 issue to be material since it is
scheduled to terminate by December 31, 1999.
The Partnership has not yet 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-payment of amounts owed to the
Partnership. The Partnership has contacted its customers regarding this issue
and will continue to contact its customers about this issue in 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II
ITEM 1. LEGAL PROCEEDINGS
In December 1998, the Partnership, Telecommunications Income Fund X, the General
Partner, North American Communications Group ("NACG"), and others filed a suit
against Shelby County, Tennessee ("County"). The County removed that suit from
Tennessee State Court to Federal Court. The suit alleges, among other things,
damages for wrongful termination of the pay phone contract between NACG and
Shelby County and racial discrimination by the County against NACG. The County
has filed an answer and discovery is proceeding. The Partnership has hired an
expert to review specific information concerning this lawsuit. Once that
examination is finalized, the Partnership can then make a determination of how
to proceed.
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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: August 9, 1999 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date: August 9, 1999 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
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