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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, 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
(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___
As of November 2, 1999, 67,274 units were issued and outstanding. Based on the
book value of $21.40 per unit, the aggregate market value at November 2, 1999
was $1,439,664.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
PART I. FINANCIAL INFORMATION PAGE
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ITEM 1. Financial Statements (unaudited).
Statements of Net Assets - September 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 and six months ended
September 30, 1998 and three and nine months ended September 30, 1999
(Liquidation Basis) 5
Statements of Cash Flows - nine months ended September 30, 1999
and nine months ended September 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 10
PART II. OTHER INFORMATION
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ITEM 1. Legal Proceedings 10
SIGNATURES 11
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (UNAUDITED)
(Liquidation Basis) (Liquidation Basis)
September 30, 1999 December 31, 1998
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ASSETS
Cash and cash equivalents $ 352,260 $ 711,589
Available-for-sale securities 113,492 112,403
Not readily marketable equity security 191,600 191,600
Direct financing leases and notes receivable, net (Note B) 389,640 1,424,765
Equipment leased under operating leases 775,597 775,597
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TOTAL ASSETS 1,822,589 3,215,954
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LIABILITIES
Outstanding checks in excess of bank balance 176,654 89,627
Trade accounts payable 28,519 4,844
Accrued expenses and other liabilities 29,245 34,533
Lease security deposits 21,670 65,370
Reserve for estimated costs during the
period of liquidation 126,818 300,000
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TOTAL LIABILITIES 382,906 494,374
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NET ASSETS $ 1,439,683 $ 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 SIX MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
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NET ASSETS AS OF
BEGINNING OF PERIOD $ 8,907,772 $ 10,288,026 $ 1,949,505 $ 2,721,580
Income from direct financing leases 228,268 447,801 25,206 118,121
Interest and other income 57,157 91,849 4,339 21,786
Distributions to partners (2,950,000) (4,519,356) (570,000) (1,465,000)
Withdrawals of limited partners (9,904) (9,904) (5,087) (17,219)
Change in estimate of liquidation
value of net assets (79,818) (144,941) 35,720 60,415
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NET ASSETS AT END OF PERIOD $ 6,153,475 $ 6,153,475 $ 1,439,683 $ 1,439,683
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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
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SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
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OPERATING ACTIVITIES
Changes in net assets excluding distributions and withdrawals $ 139,907 $ 417,051
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- 58,927
Outstanding checks in excess of bank balance 87,027 -0-
Trade accounts payable
excluding non-cash items 23,675 (13,046)
Due to affiliates -0- (93,776)
Accrued expenses (5,288) (160,504)
Reserve for estimated costs during the period of liquidation (173,182) -0-
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Net cash from operating activities 72,139 341,159
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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 348,033 1,322,741
Proceeds from sale of direct financing leases 746,418 4,652,930
Security deposits paid (43,700) (175,459)
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Net cash from investing activities 1,050,751 4,714,879
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FINANCING ACTIVITIES
Distributions and withdrawals paid to partners (1,482,219) (5,038,704)
Net payments on line-of-credit -0- (50,557)
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Net cash from financing activities (1,482,219) (5,089,261)
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Net decrease in cash and cash equivalents (359,329) (33,223)
Cash and cash equivalents at beginning of period 711,589 458,893
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Cash and cash equivalents at end of period $ 352,260 $ 425,670
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SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $ -0- $ 22,220
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
Crescent lease buyout of Digital leases -0- 1,860,784
Change in estimate of liquidation value of net assets 60,415 (144,941)
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 nine months ended September 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)
September 30, 1999 December 31, 1998
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Lease payments receivable $ 585,226 $ 1,758,160
Estimated unguaranteed residual values of
leased equipment 44,645 232,568
Unearned lease income (111,926) (320,868)
Unamortized initial direct costs 730 1,628
Notes receivable 32,029 53,867
Allowance for possible losses (117,772) (142,282)
Adjustment to estimated net realizable value (43,292) (158,308)
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Net investment in direct financing leases
and notes receivable $ 389,640 $ 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
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
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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 $45,000 in the first
quarter of 1999 from the sale of assets recovered to date, and credited this to
the allowance for possible loan and lease losses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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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 $29,545 in
income from direct financing leases, notes receivable, interest and other income
during the third quarter of 1999. Income from these sources totalled $139,907
for the first nine months of 1999. Also, management increased its estimate of
the liquidation value of net assets during the third quarter of 1999 by $35,720,
primarily due to 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
12.8% on an annualized basis for the nine months ended September 30, 1999. The
Partnership has accrued the estimated expenses of liquidation, which is $126,818
at September 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 September 30, 1999, three customers were past due over 90 days. The contract
balance remaining on these contracts at September 30, 1999 was $330,896, while
the Partnership's net investment in these contracts was $254,310. One of the
three customers has two contracts with a total contract balance remaining on the
two contracts of $299,308 and a net investment of $222,942. This customer is in
the process of negotiating financing, and as such, the Partnership has not
established reserves for this particular
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customer as of September 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 and computer equipment, representing approximately 71% and 13%,
respectively, of the portfolio at September 30, 1999. One lessee, who is past
due over 90 days, as mentioned above, accounts for approximately 43% of the
Partnership's portfolio at September 30, 1999.
On October 4, 1999, the Partnership mailed proxy materials to limited partners,
asking them to consider and vote to approve an amendment to the partnership
agreement to extend the term of the Partnership to December 31, 2005. The
General Partner believes this extension is necessary to receive the true value
of the remaining assets upon liquidation. The meeting is to be held November 11,
1999 at which time the votes will be tabulated.
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 costs of ensuring systems
are compatible with the year 2000 are not believed to be material. The
Partnership has determined that the software it utilizes in its operations is
compatible with the Year 2000. The Partnership utilizes an unrelated third party
for lease servicing. This third party vendor has been contacted and it has been
determined that their lease servicing application is Year 2000 compliant. A
written confirmation regarding compliance of this application has been received
from the software developer. There are no non-information technology processes
that the Partnership has identified which would affect its operations. An
assessment of the readiness of external entities which it interfaces with, such
as vendors, customers, and others, is ongoing. At present the Partnership does
not contemplate that any specific charges will be incurred for this assessment
or any other costs directly related to fixing year 2000 issues, and if there are
any related expenditures, does not expect them to be significant.
The Partnership is assessing the impact of the year 2000 issue on information
technology and non-information technology systems used by lessees. No lessee is
contractually obligated to become year 2000 compliant or to disclose their
capabilities to the Partnership. The Partnership has not yet determined whether
the year 2000 issue has been addressed by all of its customers. The Partnership
has contacted some of its customers and will continue to contact its customers
in 1999. In a worst case scenario, the inability of lessees to be year 2000
compliant could result in delayed or no payment of amounts due to the
Partnership. The Partnership has no contingency plans at this time to alleviate
this worst case scenario should it be encountered.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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EQUITY PRICE SENSITIVITY
The table provides information about the Partnership's marketable equity
securities that are sensitive to changes in prices. The table presents the
carrying amount and fair value of marketable equity securities at September 30,
1999.
Carrying Amount Fair Value
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Common Stock-Company A $ 112,379 $ 112,379
Common Stock-Company B 1,113 1,113
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Total $ 113,492 $ 113,492
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The Partnership's primary market risk exposure with respect to marketable equity
securities is equity price. The Partnership's general strategy in owning
marketable equity securities is long-term growth in the equity value of emerging
companies in order to increase the rate of return to the limited partners over
the life of the Partnership. In addition to the marketable equity securities,
the Partnership also holds a not readily marketable equity security, and carried
this security at $191,600 at September 30, 1999. The primary risk of the
securities held is derived from the underlying ability of the companies invested
in to satisfy debt obligations and their ability to maintain or improve common
equity values. Since the investments are in emerging companies, the equity
prices can be volatile. At September 30, 1999, the total amount at risk was
$305,092.
PART II
ITEM 1. LEGAL PROCEEDINGS
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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
filed an answer and the initial discovery has been completed. An expert hired by
the Partnership has concluded that based on the facts discovered it is unlikely
that the Partnership and the rest of the plaintiffs would prevail in the
litigation for wrongful termination of the pay phone contract and racial
discrimination against the County. Therefore, it was determined it was not
economical to continue to spend Partnership funds in an effort to obtain
additional information or to continue the lawsuit.
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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, 1999 Ronald O. Brendengen/s/
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Ronald O. Brendengen, Chief Financial
Officer, Treasurer
Date: November 10, 1999 Daniel P. Wegmann/s/
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Daniel P. Wegmann, Controller
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