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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, 2000
Commission File Number 0-21458
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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.)
701 Tama Street, Marion, Iowa 52302
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 447-5700
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 July 17, 2000, 66,714 units were issued and outstanding. Based on the book
value at June 30, 2000 of $16.90 per unit, the aggregate market value at July
17, 2000 was $1,127,467.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis) - June 30, 2000
and December 31, 1999 3
Statements of Changes in Net Assets (Liquidation Basis) - three months
and six months ended June 30, 2000 and 1999 4
Statements of Cash Flows - six months ended
June 30, 2000 and 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Part II. OTHER INFORMATION
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, 2000 December 31, 1999
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ASSETS
Cash and cash equivalents $ 117,456 $ 135,796
Marketable equity security 5,650 31,394
Not readily marketable equity securities 343,399 268,620
Net investment in direct financing leases
and notes receivable (Note B) 189,942 382,027
Equipment leased under operating leases 775,597 775,597
Other assets 6,215 -0-
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TOTAL ASSETS 1,438,259 1,593,434
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LIABILITIES
Outstanding checks in excess of bank balance -0- 94,490
Trade accounts payable 6,621 9,535
Due to affiliates -0- 477
Accrued expenses and other liabilities 575 21,075
Lease security deposits 11,102 18,888
Reserve for estimated costs during the
period of liquidation 201,986 259,000
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TOTAL LIABILITIES 220,284 403,465
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NET ASSETS $ 1,217,975 $ 1,189,969
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See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000
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Net assets at beginning of period $ 2,068,327 $ 1,132,733 $ 2,721,580 $ 1,189,969
Income from direct financing leases 39,445 3,573 92,915 7,891
Interest and other income 2,850 13,243 17,447 18,628
Distributions to partners (135,000) -0- (895,000) -0-
Withdrawals of limited partners -0- (6,234) (12,132) (10,167)
Change in estimate of liquidation
value of net assets (26,117) 74,660 24,695 11,654
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Net assets at end of period $ 1,949,505 $ 1,217,975 $ 1,949,505 $ 1,217,975
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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
JUNE 30, 2000 JUNE 30, 1999
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OPERATING ACTIVITIES
Changes in net assets excluding distributions and withdrawals $ 38,173 $ 110,362
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments (11,654) -0-
Non-cash dividend income (4,974) -0-
Changes in operating assets and liabilities:
Other assets (6,215) -0-
Outstanding checks in excess of bank balance (94,490) (89,627)
Trade accounts payable (2,914) 22,347
Due to affiliates (477) -0-
Accrued expenses (20,500) (3,833)
Reserve for estimated costs during the period of liquidation (57,014) (125,858)
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Net cash from operating activities (160,065) (86,609)
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INVESTING ACTIVITIES
Repayments of direct financing leases and notes 96,786 278,660
Proceeds from sale of direct financing leases 62,892 498,550
Security deposits paid (7,786) (28,137)
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Net cash from investing activities 151,892 749,073
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FINANCING ACTIVITIES
Distributions and withdrawals paid to partners (10,167) (907,132)
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Net cash from financing activities (10,167) (907,132)
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Net decrease in cash and cash equivalents (18,340) (244,668)
Cash and cash equivalents at beginning of period 135,796 711,589
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Cash and cash equivalents at end of period $ 117,456 $ 466,921
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SUPPLEMENTAL DISCLOSURES:
Other changes in estimate of liquidation value of net assets $ -0- $ 24,695
Non-cash conversion of leases to notes and
not readily marketable equity security 174,811 -0-
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
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, 2000 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000. 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, 1999.
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 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 include estimated costs associated with carrying out the plan of
liquidation.
NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
The Partnership's net investment in direct financing leases and notes receivable
consists of the following:
(Liquidation Basis) (Liquidation Basis)
June 30, 2000 December 31, 1999
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Minimum lease payments receivable $ 171,681 $ 562,302
Estimated unguaranteed residual values 26,449 29,955
Unearned income (23,127) (104,530)
Unamortized initial direct costs 91 607
Notes receivable 142,717 32,835
Adjustment to estimated net realizable value (127,869) (139,142)
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Net investment in direct financing
leases and notes receivable $ 189,942 $ 382,027
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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 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 include estimated costs associated with carrying out the plan of
liquidation.
As discussed above, the Partnership is in liquidation and does not believe a
comparison of results would be meaningful. The Partnership realized $26,519 in
income from direct financing leases, notes receivable, and other income during
the first six months of 2000. This represents an annualized return on average
net assets of approximately 4.6%. Also, management increased its estimate of the
liquidation value of net assets during the first six months of 2000 by $11,654,
primarily due to changes in the estimated net realizable values of certain
equity securities held by the Partnership. The Partnership has accrued the
estimated expenses of liquidation, which is $201,986 at June 30, 2000. 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
the partners. The actual amounts are likely to differ from the amounts presented
in the financial statements.
In June, 2000, the Partnership's two leases with Murdock Communications
Corporation ("Murdock") were converted to notes and stock as part of a
restructuring. At the time of the restructuring, the Partnership's net
investment in the contracts totalled $174,811. The Partnership received two
notes and carries these at a discounted cost totalling $127,879 and 23,983
shares of preferred stock in Actel Integrated Communications, Inc. ("Actel"), a
not readily marketable security. The carrying value of the Actel preferred stock
is $137,423, resulting in an increase in management's estimated liquidation
value of net assets of $90,491.
As of June 30, 2000 there were two customers with payments over 90 days past
due. When payments are past due more than 90 days, the Partnership discontinues
recognizing income on those contracts. The Partnership's net investment in these
contracts at June 30, 2000 was $65,242. Management believes its reserve is
adequate related to these customers. Management will continue to monitor the
past due contracts and take the necessary steps to protect the Partnership's
investment.
The Partnership's portfolio of leases and notes receivable are concentrated in
Murdock (an entity in the telecommunications industry), pay telephones and
computer equipment, representing approximately 40%, 42% and 14%, respectively,
of the portfolio at June 30, 2000. The Murdock notes were received as part of a
restructuring, as discussed above.
YEAR 2000 ISSUE
The Partnership and its General Partner have encountered no problems relating to
the year 2000 issue. The Partnership and its General Partner are not aware of
any year 2000 problems or situations encountered by its customers, vendors,
affiliates, or others.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK EQUITY PRICE
SENSITIVITY
The tables provide information about the Partnership's marketable and not
readily marketable equity securities that are sensitive to changes in prices.
The tables present the carrying amounts and fair values as of June 30, 2000.
Carrying Amount Fair Value
Common Stock-Murdock $ 5,650 $ 5,650
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Marketable equity security $ 5,650 $ 5,650
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Carrying Amount Fair Value
Common Stock-Murdock $ 14,376 $ 14,376
Preferred Stock-Murdock 191,600 191,600
Preferred Stock-Actel 137,423 137,423
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Not readily marketable equity securities $ 343,399 $ 343,399
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The Partnership's primary market risk exposure with respect to equity securities
is equity price. The Partnership's general strategy in owning 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. The primary risk of the securities held is derived from the
underlying ability of the entity invested in to satisfy debt obligations and its
ability to maintain or improve common equity values. Since the investments are
in emerging companies, the equity prices can be volatile. At June 30, 2000, the
total amount at risk was $349,049. The Partnership holds 16,371 shares of
Murdock common stock as a marketable equity security and 44,263 shares as not
readily marketable, due to restrictions imposed by rule 144 of the Securities
and Exchange Commission. At June 30, 2000, the market price of Murdock was $.41
per share.
INTEREST RATE SENSITIVITY
The table below provides information about the Partnership's notes receivable
that are sensitive to changes in interest rates. The table presents the
principal amounts and related weighted average interest rates by expected
maturity dates as of June 30, 2000.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
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2000 $ 3,825 12.17%
2001 22,050 12.00%
2002 -0- 12.00%
2003 116,842 12.00%
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Total $ 142,717
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Fair Value $ 142,717
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The Partnership manages interest rate risk, its primary risk exposure with
respect to notes receivable, by limiting the terms of notes receivable to no
more than five years.
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PART II
ITEM 1. LEGAL PROCEEDINGS
Telcom Management Systems filed a suit against the Partnership, the General
Partner, and others in Federal Court in Dallas, Texas during February 1998. The
plaintiffs purchased equipment from the Partnership out of a bankruptcy for
approximately $450,000. They alleged that when they attempted to sell the
equipment at a later date, the Partnership had not provided good title. The
General Partner filed a Motion for Summary Judgement, which is still pending.
After filing the suit, the plaintiff transferred assets in lieu of bankruptcy.
The bankruptcy trustee is now reviewing the transfer to determine if the
transfer was done in fraud of creditors. The bankruptcy court has granted
several extensions and the litigation is on hold until the trustee makes a
decision, then the Motion for Summary Judgement must be responded to. No loss,
if any, has been recorded in the financial statements with respect to this
matter.
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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 7, 2000 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial
Officer, Treasurer
Date: August 7, 2000 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
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