<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
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, 1998 Commission File Number 0-21458
TELECOMMUNICATIONS INCOME FUND IX, L.P.
(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
------------------------------------------------
(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")
------------------------------------------
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 June 30, 1998, 67,742 Units were issued and outstanding. Based on the
book value of $135.02 per Unit, the aggregate market value at June 30, 1998 was
$9,146,690.
<PAGE> 2
TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited).
Balance sheets - June 30, 1998 and December 31, 1997.
Statements of income and comprehensive income -
Three months ended June 30, 1998 and three months ended June
30, 1997. Six months ended June 30, 1998 and six months ended
June 30, 1997.
Statement of changes in partners' equity - six months ended
June 30, 1998.
Statements of cash flows - six months ended June 30, 1998 and
six months ended June 30, 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
2
<PAGE> 3
TELECOMMUNICATIONS INCOME FUND IX, L.P.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 263,640 $ 458,893
Available-for-sale security 55,650 65,389
Not readily marketable securities, at cost 191,600 -0-
Net investment in direct financing leases (Note B) 8,212,296 11,513,511
Allowance for possible lease losses (233,875) (1,922,056)
------------- -----------------
Direct financing leases net 7,978,421 9,591,455
Equipment leased under operating leases, less
accumulated depreciation of $392,400 at June 30,
1998 and $261,600 at December 31, 1997 (Note C) 910,397 1,041,197
Equipment held for sale 29,290 51,000
Intangibles, less accumulated amortization of $11,334
at June 30, 1998 and $9,258 at December 31, 1997 1,385 48,582
Other assets 98,865 384,060
------------- -----------------
TOTAL ASSETS $ 9,529,248 $ 11,640,576
============= =================
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note D) $ -0- $ 50,557
Trade accounts payable 11,943 17,336
Due to affiliates 2,697 96,472
Accrued expenses and other liabilities 131,632 202,272
Lease security deposits 236,286 365,752
------------- -----------------
Total Liabilities 382,558 732,389
PARTNERS' EQUITY, 100,000 units authorized
General partner, 40 units issued and outstanding 10,417 10,502
Limited partners: 67,702 units at June 30, 1998
and 67,222 units at December 31, 1997
issued and outstanding 9,161,037 10,912,710
Accumulated other comprehensive loss (24,764) (15,025)
------------- -----------------
Total partners' equity 9,146,690 10,908,187
------------- -----------------
TOTAL LIABILITIES & PARTNERS' EQUITY $ 9,529,248 $ 11,640,576
============= =================
See accompanying notes.
</TABLE>
3
<PAGE> 4
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
INCOME:
Lease income $ 219,533 $ 591,120
Interest income 10,190 1,666
Gain on lease terminations 166,003 6,392
Other 24,502 4,900
------------- -------------
Total Income 420,228 604,078
------------- -------------
EXPENSES:
Management fees 9,901 71,102
Administrative services 22,912 21,955
Interest 5,403 52,761
Professional fees 35,663 38,200
Provision for possible losses -0- 7,264
Depreciation 76,253 77,149
Other 35,023 27,911
------------- -------------
Total expenses 185,155 296,342
------------- -------------
Net income 235,073 307,736
Other comprehensive income:
Unrealized gain on available
for sale security 11,130 4,104
------------- -------------
Comprehensive income $ 246,203 $ 311,840
============= =============
Net income per partnership unit $ 3.47 $ 4.53
============= =============
Weighted average partnership units outstanding 67,742 67,894
</TABLE>
See accompanying notes.
4
<PAGE> 5
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
INCOME:
Lease income $ 576,433 $1,179,475
Interest income 21,734 3,150
Gain on lease terminations 174,811 18,522
Other 49,270 6,162
---------- ----------
Total Income 822,248 1,207,309
---------- ----------
EXPENSES:
Management fees 58,829 148,337
Administrative services 46,788 45,822
Interest 22,220 95,926
Professional fees 67,411 41,131
Provision for possible losses 64,711 38,923
Depreciation 152,508 154,554
Other 80,595 40,195
---------- ----------
Total expenses 493,052 564,888
---------- ----------
Net income 329,196 642,421
Other comprehensive income (loss):
Unrealized gain (loss) on available
for sale security (9,738) 6,470
Comprehensive income $ 319,458 $ 648,891
Net income per partnership unit $ 4.86 $ 9.46
========== ==========
Weighted average partnership units outstanding 67,742 67,898
</TABLE>
See accompanying notes.
5
<PAGE> 6
TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENT OF CHANGES IN PARTNERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
General Limited Partners Accumulated Total
Partner ------------------- Comprehensive Partners'
(40 Units) Units Amount Loss Equity
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Net income 225 -- 234,848 -- 235,073
Distributions (100) -- (1,569,256) -- (1,569,356)
Change in accumulated
comprehensive loss -- -- -- 11,130 11,130
------------------------------------------------------------------
Balance at June 30, 1998 $10,417 67,702 $ 9,161,037 $(24,764) $ 9,146,690
</TABLE>
See accompanying notes.
6
<PAGE> 7
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 329,196 $ 642,421
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred organization costs 2,076 2,076
Provision for possible losses 64,711 38,923
Depreciation 152,508 154,554
Gain on lease terminations (174,811) (18,522)
Changes in operating assets and liabilities:
(Increase) decrease in other assets (6,509) 37,830
Increase (decrease) in trade accounts payable
excluding equipment purchase cost accrued (5,393) 28,891
(Decrease) in due to affiliates (93,775) (18,205)
(Decrease) in accrued expenses (70,640) (48,530)
----------- -----------
Net cash provided by operating activities 372,174 819,438
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment
for direct financing leases (1,085,333) (2,594,844)
Repayments of direct financing leases 554,848 1,114,831
Proceeds from sale of direct financing leases 2,178,294 491,844
Net security deposits collected (repaid) (87,259) 34,127
----------- -----------
Net cash provided by (used in) investing activities 1,560,550 (954,045)
FINANCING ACTIVITIES
Distributions paid to partners (2,077,420) (509,208)
Redemption of partnership units -0- (5,175)
Repayment of note payable -0- (203,989)
Net proceeds from line-of-credit borrowings (50,557) 422,642
----------- -----------
Net cash used by financing activities (2,127,977) (295,730)
----------- -----------
Net decrease in cash and cash equivalents (195,253) (430,337)
Cash and cash equivalents at beginning of period 458,893 497,144
----------- -----------
Cash and cash equivalents at end of period $ 263,640 $ 66,807
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $ 30,620 $ 104,576
Non-cash activities:
North American miscellaneous receivable write off (291,704) -0-
North American security deposits written off 42,207 -0-
Notes receivable converted to investment in
not readily marketable securities 191,600 -0-
</TABLE>
See accompanying notes
7
<PAGE> 8
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 six months ended June 30, 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
Components of the net investment in direct financing leases are as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Lease payments receivable $ 8,884,999 $ 12,427,455
Estimated unguaranteed residual values of
leased equipment 808,881 1,192,611
Unearned lease income (1,722,228) (2,571,275)
Unamortized initial direct costs 23,323 30,028
Notes receivable 217,321 434,692
------------- -----------------
Net investment in direct financing leases
and notes receivable $ 8,212,296 $ 11,513,511
============= =================
</TABLE>
NOTE C - EQUIPMENT LEASED UNDER OPERATING LEASES
In March, 1996, the Partnership exercised its right to manage the assets
leased to In-Touch Communications, Inc. due to non-payment of lease
receivables. The Partnership entered into a management agreement with Custom
Communications Network ("CCN") to operate the route. Under this agreement, CCN
was to pay the Partnership an amount based on a percent of CCN's monthly net
cash proceeds from operating the route. The net investment in this lease at
that time approximated $1,370,000. In 1996, a charge of $284,308 was made to
the loss reserve to reflect what management estimated would be recoverable
under this agreement. The agreement permitted the deferral of some payments
that were due in 1997. Pursuant to the agreement, CCN used cash flow to add pay
telephones to the business. Further, the Partnership's lease position was
increased to include 71% of all of the telephones operated by CCN, including
the telephones added as a result of the payment deferral. During the course of
1997, the number of payphones subject to this lease increased from
approximately 330 to approximately 530. Based upon the normal industry value of
$4,000 per installed pay telephone, the Partnership lease position would be
valued at approximately $1.5 million. This value is well in excess of the
$906,397 carrying value of this lease. CCN
8
<PAGE> 9
continues to operate the phone route as an operating lease described above. As
of June 30, 1998, the number of payphones has increased to approximately 582.
Until a definitive agreement or purchase commitment is received by the
Partnership for the sale of these assets, it will be carried as an operating
lease. To date, the Partnership has not been successful in finding a purchaser.
NOTE D - CREDIT ARRANGEMENTS
The Partnership had a line-of-credit agreement with a bank which expired April
30, 1998. The balance due on the agreement was fully paid off and will not be
renewed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS Three Months Ended June 30 Six Months Ended June 30
- --------------------- -------------------------- ------------------------
1998 1997 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Description:
Lease income $ 219,533 $ 591,120 $ 576,433 $ 1,179,475
Management fees 9,901 71,102 58,829 148,337
Interest expense 5,403 52,761 22,220 95,926
Professional Fees 35,663 38,200 67,411 41,131
Provision for possible losses -0- 7,264 64,711 38,923
Depreciation 76,253 77,149 152,508 154,554
</TABLE>
As of May 1, 1998, the Partnership is in its liquidation period, as defined in
the Partnership Agreement and, as expected, is not purchasing equipment.
Initial leases are expiring. As a result, both the size of the Partnership's
portfolio and the amount of lease income are declining.
Since the Partnership is in its liquidation phase, management fees paid to the
General Partner have been discontinued. Since the line of credit has been paid
off, interest expense will decline to zero.
The Partnership incurs professional fees each year for the audit of its
financial records and for the preparation of its tax return. In addition, legal
fees are incurred and will vary due to the timing of the payments for those
services.
The Partnership was accruing a provision for possible losses based on 1.5% of
equipment purchases. The Partnership currently has a loss reserve of $233,875
or 2.8% of the lease and note portfolios. Management will continue to monitor
the remaining portfolio and adjust the loss reserve if needed.
The Partnership has established specific and general loss allowance as follows:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
General Reserve $228,800 $283,738
Specific Reserve - UTS 5,075 8,825
-------- --------
$233,875 $292,563
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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. 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 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 $776,861
(contract balance remaining of $3,597,133) at June 30, 1998. This represents
8.74% 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 June 30, 1998, there were 25 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 $2,499,934. 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 June 30, 1998.
The Partnership's remaining net investment in these contracts at June 30, 1998
was $1,646,967. The value of the equipment associated with this lease exceeds
the Partnership's remaining net investment in the equipment. Subsequent to June
30, 1998, management has entered into an agreement for the sale of the equipment
associated with the Digital Technologies leases. This sale will be in the form
of a note agreement and will result in a deferred gain of approximately $200,000
for the Partnership.
The General Partner had submitted, to the Securities and Exchange Commission
("SEC"), a preliminary proxy statement proposing plans for the liquidation
process and seeking limited Partner approval to amend the Partnership Agreement
to enable the general partner to conduct certain liquidation plans. The General
Partner notified the SEC on June 11, 1998 that the preliminary proxy statement
was being abandoned. It is the General Partner's intent to liquidate the
Partnership in accordance with the Terms of the Partnership Agreement. The
Partnership is required to dissolve and distribute all of its assets no later
than December 31, 1999, or earlier, upon the occurrence of certain events.
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 and, like other companies, has assessed its
computer applications and business processes to provide for their continued
functionality. An assessment of the readiness of external entities with which it
interfaces, such as vendors, counterparties, customers, payment systems, and
others, is ongoing. The Partnership does not expect the cost to address the Year
2000 to be material.
The Partnership has determined that the software it utilizes in its operations
is compatible with the Year 2000. The Partnership has not yet fully 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-payments of
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
amounts owed to the Partnership. The Partnership has contacted all of its
customers regarding this issue. The customers contacted have indicated various
stages of readiness. The Partnership will continue to determine customer Year
2000 compliance by follow-up with customers who have indicated non-compliance.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES Six Months Ended
June 30, 1998 June 30, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Major Cash Sources:
Principal portion of lease payments received $ 554,848 $1,114,831
Proceeds received on sale of leases 2,178,294 491,841
Net proceeds from debt -0- 218,653
Major Cash Uses:
Purchase of equipment and leases 1,085,333 2,594,844
Distributions to partners 2,077,420 1,018,473
Net payments on debt 50,557 -0-
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds received from the liquidation of a portion the lease portfolio have
been used to pay off existing debt and fund distributions to investors.
Effective May 1, 1998, the Partnership moved from the operating phase of its
existence to the liquidation phase. Pursuant to the Partnership Agreement,
operating distributions of 12% were discontinued and liquidation distributions
have begun. No further lease contracts will be originated. Capital liquidating
distributions began in May and will continue until all assets are liquidated.
All payoffs on any leases will be distributed as they are received. As any other
remaining assets are sold and ongoing lease payments are received, all of the
cash received will be distributed to investors as capital reductions.
The total return on capital over a leasing partnership's life can only be
determined at the termination of the Partnership, after all the residual cash
flows have been realized. However, all liquidating distributions of the
Partners will be a return of capital.
The General Partner currently anticipates that the Partnership will generate
cash flow from rentals and equipment sales for the remainder of 1998, which
should provide sufficient cash to enable the Partnership to meet its current
operating requirements and to fund liquidating distributions of limited
partners.
Since May 1, 1998 through June 30, 1998, the Partnership funded liquidating
distributions of $1,400,000 to investors as capital reductions.
11
<PAGE> 12
PART II
Item 1. Legal Proceedings
As reported in the Partnership's 10-K filing for 1997, a foreclosure proceeding
was filed on February 20, 1998 by the Partnership and, Telecommunications Income
Fund X, L.P. against the North American Communication Group, Inc. ("NACG").
On February 20, 1998, the Partnership filed a Petition to Foreclose Security
Interests in the amount of $1,862,388 against NACG, CWC Communications, Inc.,
North American Communications Corporation (Missouri) d/b/a North American
Communications of Georgia, Inc., North American Communications of Mississippi,
Incorporated, North American Communications Group, Inc. d/b/a North American
Communications of Louisiana, Inc. Troy P. Campbell, Sr. as Guarantor and Archie
W. Welch, Jr. as Guarantor, in the Iowa District Court for Linn County located
in Cedar Rapids, Iowa. The Defendants appeared in court and asked for
additional time to file their answer, which was granted by the court.
On approximately May 20, 1998, Defendants filed a Motion to Dismiss For Lack of
Personal Jurisdiction, which was opposed by the Plaintiff TIFIX. A Hearing was
held July 31, 1998, in order for each side to argue the motion before the
court. The parties are awaiting the decision of the judge from that hearing
before the next step in the foreclosure can take place.
12
<PAGE> 13
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)
<TABLE>
<S> <C>
Date August 10, 1998 /s/ RONALD O. BRENDENGEN
------------------ -------------------------------------------------------
Ronald O. Brendengen, Chief Financial Officer, Treasurer
Date August 10, 1998 /s/ DANIEL P. WEGMANN
------------------ -------------------------------------------------------
Daniel P. Wegmann, Controller
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEETS OF TELECOMMUNICATIONS INCOME FUND IX, L.P. AS OF JUNE
30, 1998, AND THE UNAUDITED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE
30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 263,640
<SECURITIES> 247,250
<RECEIVABLES> 8,212,296
<ALLOWANCES> (233,875)
<INVENTORY> 0
<CURRENT-ASSETS> 8,489,311
<PP&E> 1,302,737
<DEPRECIATION> 392,400
<TOTAL-ASSETS> 9,529,248
<CURRENT-LIABILITIES> 382,558
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,146,690
<TOTAL-LIABILITY-AND-EQUITY> 9,529,248
<SALES> 0
<TOTAL-REVENUES> 822,248
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 406,121
<LOSS-PROVISION> 64,711
<INTEREST-EXPENSE> 22,220
<INCOME-PRETAX> 329,196
<INCOME-TAX> 0
<INCOME-CONTINUING> 329,196
<DISCONTINUED> 0
<EXTRAORDINARY> (9,738)
<CHANGES> 0
<NET-INCOME> 319,458
<EPS-PRIMARY> 4.86
<EPS-DILUTED> 4.86
</TABLE>
