FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9704
ANGELES PARTNERS IX
(Exact name of small business issuer as specified in its charter)
California 95-3417137
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
ANGELES PARTNERS IX
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 1,320
Receivables and deposits 468
Restricted escrows 397
Other assets 497
Investment properties:
Land $ 3,083
Buildings and related personal property 34,990
38,073
Less accumulated depreciation (25,487) 12,586
$15,268
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 108
Tenant security deposit liabilities 116
Accrued property taxes 280
Other liabilities 229
Mortgage notes payable 19,422
Partners' Deficit
General partner's $ (225)
Limited partners' (19,975 units issued
and outstanding) (4,662) (4,887)
$15,268
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES PARTNERS IX
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,905 $ 1,792 $ 3,791 $ 3,553
Other income 87 87 168 172
Total revenues 1,992 1,879 3,959 3,725
Expenses:
Operating 946 1,095 1,727 2,050
General and administrative 76 81 159 150
Depreciation 392 455 920 914
Interest 430 432 856 866
Property taxes 101 109 249 217
Total expenses 1,945 2,172 3,911 4,197
Net income (loss) $ 47 $ (293) $ 48 $ (472)
Net income (loss) allocated to
general partner (1%) $ -- $ (3) $ -- $ (5)
Net income (loss) allocated to
limited partners (99%) 47 (290) 48 (467)
$ 47 $ (293) $ 48 $ (472)
Net income (loss) per limited
Partnership unit $ 2.35 $(14.52) $ 2.40 $(23.38)
See Accompanying Notes to Consolidated Financial Statements
c)
ANGELES PARTNERS IX
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partner's Total
Original capital contributions 20,000 $ 1 $20,000 $20,001
Partners' deficit at
December 31, 1998 19,975 $ (225) $(4,710) $(4,935)
Net income for the six months
ended June 30, 1999 -- -- 48 48
Partners' deficit at
June 30, 1999 19,975 $ (225) $(4,662) $(4,887)
See Accompanying Notes to Consolidated Financial Statements
d)
ANGELES PARTNERS IX
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 48 $ (472)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 920 914
Amortization of loan costs and discounts 48 56
Change in accounts:
Receivables and deposits 33 (39)
Other assets (120) 29
Accounts payable (32) (108)
Tenant security deposit liabilities 2 (2)
Accrued property taxes (3) 37
Other liabilities 28 (53)
Net cash provided by operating activities 924 362
Cash flows from investing activities:
Property improvements and replacements (346) (380)
Net withdrawals from restricted escrows 73 193
Net cash used in investing activities (273) (187)
Cash flows used in financing activities:
Payments on mortgage notes payable (130) (120)
Net increase in cash and cash equivalents 521 55
Cash and cash equivalents at beginning of period 799 683
Cash and cash equivalents at end of period $1,320 $ 738
Supplemental disclosure of cash flow information:
Cash paid for interest $ 800 $ 810
See Accompanying Notes to Consolidated Financial Statements
e)
ANGELES PARTNERS IX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Angeles Partners
IX (the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
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 Angeles Realty Corporation (the "General Partner" or "ARC"),
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three and
six months ended June 30, 1999, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
Principles of Consolidation
The consolidated financial statements of the Partnership include its 99% limited
partnership interest in Houston Pines, Ltd. Houston Pines Ltd. owns the Pines
of Northwest Crossing Apartments, Forest River Apartments and Rosemont Crossing
Apartments. The Partnership may remove the general partner of Houston Pines,
Ltd.; therefore, the partnership is controlled and consolidated by the
Partnership. All significant interpartnership balances have been eliminated.
Minority interest is immaterial and not shown separately in the consolidated
financial statements.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998, and
February 26, 1999, Insignia Financial Group, Inc. ("Insignia") and Insignia
Properties Trust merged into Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the
surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100%
ownership interest in the General Partner. The General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - TRANSACTION WITH AFFILIATES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
Affiliates of the General Partner provide property management and asset
management services to the Partnership. The Partnership Agreement provides for
payments to affiliates for services and as reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership.
The following amounts were paid to the General Partner and/or its affiliates for
the six months ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $201 $189
Reimbursement of services of affiliates, (included in
investment properties, operating expenses and general
and administrative expenses) 94 142
During the six months ended June 30, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of Registrant's
properties for providing property management services. The Registrant paid to
such affiliates approximately $201,000 and $189,000 for the six months ended
June 30, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $94,000 and $142,000 for the
six months ended June 30, 1999 and 1998, respectively. Included in the expense
is approximately $11,000 and $35,000 for construction oversight reimbursements
in the six months ended June 30, 1999 and 1998, respectively.
On April 13, 1998, an affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
The Purchaser offered to purchase up to 8,300 of the outstanding units of
limited partnership interest ("Units") in the Partnership at a purchase price of
$325 per Unit, net to the seller in cash. On May 11, 1998, the tender offer was
closed, and the Purchaser acquired 2,529 Units of limited partnership interest.
On June 7, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 6,303.27 (approximately 31.56% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $356 per unit. The offer expired on July
14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 760 units. As
a result, AIMCO and its affiliates currently own 6,788 units of limited
partnership interest in the Partnership representing approximately 33.98% of the
total outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO.
NOTE D - SEGMENT INFORMATION
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of five apartment complexes
in Texas and Alabama. The Partnership rents apartment units to tenants for terms
that are typically twelve months or less.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998.
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the six months ended June 30, 1999 and 1998, is shown in
the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
1999
Residential Other Totals
Rental income $ 3,791 $ -- $ 3,791
Other income 159 9 168
Interest expense 856 -- 856
Depreciation 920 -- 920
General and administrative expense -- 159 159
Segment income (loss) 198 (150) 48
Total assets 14,887 381 15,268
Capital expenditures for investment
properties 346 -- 346
1998
Residential Other Totals
Rental income $ 3,553 $ -- $ 3,553
Other income 160 12 172
Interest expense 866 -- 866
Depreciation 914 -- 914
General and administrative expense -- 150 150
Segment loss (334) (138) (472)
Total assets 15,209 570 15,779
Capital expenditures for investment
properties 380 -- 380
NOTE E - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the General Partner filed a motion seeking
dismissal of the action. In lieu of responding to the motion, the plaintiffs
filed an amended complaint. The General Partner has filed demurrers to the
amended complaint which were heard during February 1999. No ruling on such
demurrers has been received. The General Partner does not anticipate that costs
associated with this case, if any, will be material to the Partnership's overall
operations.
In July 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. Angeles
Partners IX, et al. The complaint claims that the Partnership and an affiliate
of the General Partner breached certain contractual and fiduciary duties
allegedly owed to the claimant and seeks damages and injunctive relief. This
case was settled on April 9, 1999. The Partnership is responsible for a portion
of the settlement costs. The costs associated with the settlement are included
in total expenses for the six months ended June 30, 1999, and did not have a
material effect on the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of five apartment complexes. The
following table sets forth the average occupancy of the properties for the six
months ended June 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Pines of Northwest Crossing Apartments 97% 95%
Houston, Texas
Panorama Terrace Apartments 97% 89%
Birmingham, Alabama
Forest River Apartments 96% 93%
Gadsden, Alabama
Village Green Apartments 97% 93%
Montgomery, Alabama
Rosemont Crossing Apartments 93% 88%
San Antonio, Texas
The General Partner attributes the increase in occupancy at Panorama Terrace
Apartments, Forest River Apartments, Rosemont Crossing Apartments and Village
Green Apartments to management's aggressive marketing campaigns to attract new
tenants.
RESULTS OF OPERATIONS
The Partnership's net income for the three and six month periods ended June 30,
1999, was approximately $47,000 and $48,000, respectively, versus net losses of
approximately $293,000 and $472,000 for the corresponding periods of 1998. The
increase in net income is due primarily to an increase in total revenues and to
a decrease in total expenses. The increase in total revenues is primarily due
to an increase in rental income. The increase in rental income is primarily due
to increases in average rental rates at The Pines of Northwest Crossing
Apartments, Village Green Apartments, and Rosemont Crossing Apartments and to
increases in average occupancy at all of the Partnership's investment
properties.
Total expenses decreased primarily due to a reduction in operating expenses
partially offset by increased property tax expense. The decrease in operating
expenses is primarily due to a decrease in insurance expense and maintenance
expense. Insurance expense decreased due to a new insurance carrier for all
five of the Partnership's investment properties. The maintenance expense
decrease is attributed to exterior building renovation projects at The Pines of
Northwest Crossing Apartments and Village Green Apartments which were completed
in 1998. Panorama Terrace Apartments and Forest River Apartments also completed
major landscaping projects in 1998. The exterior building repairs and
landscaping projects were necessary to improve the appearance of the properties
in order to remain competitive in the market area. Property tax expense
increased due to an increase in the property value of Panorama Terrace. In
addition, property tax expense at Forest River Apartments was underaccrued in
1998 and the additional 1998 expense was recorded during 1999.
General and administrative expense increased slightly for the six month period
but decreased slightly for the three month comparative period. Included in
general and administrative expenses at both June 30, 1999 and 1998, are
reimbursements to the General Partner allowed under the Partnership Agreement
associated with its management of the Partnership. In addition, costs
associated with the quarterly communications with investors and regulatory
agencies required by the Partnership Agreement are included.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
CAPITAL RESOURCES AND LIQUIDITY
At June 30, 1999, the Partnership had cash and cash equivalents of approximately
$1,320,000 as compared to approximately $738,000 at June 30, 1998. Cash and
cash equivalents increased approximately $521,000 from the Partnership's year
ended December 31, 1998, primarily due to approximately $924,000 of cash
provided by operating activities, which was partially offset by approximately
$273,000 of cash used in investing activities and approximately $130,000 of cash
used in financing activities. Cash used in investing activities consisted of
property improvements and replacements, partially offset by withdrawals from
escrow accounts maintained by the mortgage lender. Cash used in financing
activities consisted of payments of principal made on the mortgages encumbering
the Partnership's properties.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state and local legal and regulatory requirements. Capital
improvements planned for each of the Partnership's properties are detailed
below.
The Pines of Northwest Crossing Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$304,000 of capital improvements over the next few years. Capital improvements
planned for 1999 consist of carpet and vinyl replacement, landscaping, parking
lot repairs, exterior painting, air conditioning units and roof replacement,
which includes certain of the required improvements. These improvements are
budgeted for, but not limited to, approximately $432,000. As of June 30, 1999
approximately $188,000 has been incurred consisting primarily of carpet and
vinyl replacement, parking lots, roof replacement, appliances, air conditioning
units, and exterior painting. These improvements were funded from operating
cash flows.
Panorama Terrace Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$511,000 of capital improvements over the next few years. Capital improvements
planned for 1999 consist of carpet and vinyl replacement, landscaping, parking
lot repairs, roof replacement and other structural repairs, which includes
certain of the required improvements. These improvements are budgeted for, but
not limited to, approximately $527,000. As of June 30, 1999, approximately
$25,000 has been incurred consisting primarily of appliance, and carpet and
vinyl replacements. These improvements were funded from operating cash flows
and replacement reserves.
Forest River Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$235,000 of capital improvements over the next few years. Capital improvements
planned for 1999 consist of carpet and vinyl replacement, landscaping, roof
replacement and other structural improvements, which includes certain of the
required improvements. These improvements are budgeted for, but not limited to,
approximately $209,000. As of June 30, 1999, approximately $49,000 has been
incurred consisting primarily of appliances, carpet and vinyl replacements and
other building improvements. These improvements were funded from operating cash
flows.
Village Green Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$101,000 of capital improvements over the next few years. Capital improvements
planned for 1999 consist of carpet and vinyl replacement, landscaping, perimeter
fencing, and appliances, which includes certain of the required improvements.
These improvements are budgeted for, but not limited to, approximately $191,000.
As of June 30, 1999 approximately $52,000 has been incurred consisting primarily
of appliances, carpet and vinyl replacements and equipment. These improvements
were funded form replacement reserves.
Rosemont Crossing Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$677,000 of capital improvements over the next few years. Capital improvements
planned for 1999 consist primarily of carpet and vinyl replacement, which
includes certain of the required improvements. These improvements are budgeted
for, but not limited to, approximately $60,000. As of June 30, 1999,
approximately $32,000 has been incurred consisting primarily of appliances and
carpet and vinyl replacements. These improvements were funded from operating
cash flows.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $19,422,000, net of discounts, is amortized over
periods ranging from approximately 29 to 30 years with balloon payments due in
2002 and 2003. The General Partner will attempt to refinance such indebtedness
and/or sell the properties prior to such maturity date. If the properties cannot
be refinanced or sold for a sufficient amount, the Partnership may risk losing
such properties through foreclosure.
No cash distributions were paid to the partners during the six months ended June
30, 1999 and 1998. Future cash distributions will depend on the levels of net
cash generated from operations, availability of cash reserves, and the timing of
debt maturities, property sales and/or refinancings. The Partnership's
distribution policy will be reviewed on an annual basis. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations after required capital improvements to permit distributions to its
partners in 1999 or subsequent periods.
Tender Offer
On June 7, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 6,303.27 (approximately 31.56% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $356 per unit. The offer expired on July
14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 760 units. As
a result, AIMCO and its affiliates currently own 6,788 units of limited
partnership interest in the Partnership representing approximately 33.98% of the
total outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the General Partner filed a motion seeking
dismissal of the action. In lieu of responding to the motion, the plaintiffs
filed an amended complaint. The General Partner has filed demurrers to the
amended complaint which were heard during February 1999. No ruling on such
demurrers has been received. The General Partner does not anticipate that costs
associated with this case, if any, will be material to the Partnership's overall
operations.
In July 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. Angeles
Partners IX, et al. The complaint claims that the Partnership and an affiliate
of the General Partner breached certain contractual and fiduciary duties
allegedly owed to the claimant and seeks damages and injunctive relief. This
case was settled on April 9, 1999. The Partnership is responsible for a portion
of the settlement costs. The costs associated with the settlement are included
in total expenses for the six months ended June 30, 1999, and did not have a
material effect on the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGELES PARTNERS IX
By: Angeles Realty Corporation
General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and Administration
Date: August 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Partners IX 1999 Second Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000313499
<NAME> ANGELES PARTNERS IX
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,320
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 38,073
<DEPRECIATION> 25,487
<TOTAL-ASSETS> 15,268
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 19,422
0
0
<COMMON> 0
<OTHER-SE> (4,887)
<TOTAL-LIABILITY-AND-EQUITY> 15,268
<SALES> 0
<TOTAL-REVENUES> 3,959
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 856
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48
<EPS-BASIC> 2.40<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
