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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 March 31, 2001
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.)
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")
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 April 25, 2001, 66,570 units were issued and outstanding. Based on the
book value at March 31, 2001 of $8.07 per unit, the aggregate market value at
April 25, 2001 was $537,220.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis) - March 31, 2001
and December 31, 2000 3
Statements of Changes in Net Assets (Liquidation Basis) - three
months ended March 31, 2001 and 2000 4
Statements of Cash Flows - three months ended
March 31, 2001 and 2000 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
Part II. OTHER INFORMATION
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)
March 31, 2001 December 31, 2000
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ASSETS
Cash and cash equivalents $ 34,703 $ 137,712
Marketable equity security 3,100 5,536
Not readily marketable equity security 7,504 92,030
Net investment in direct financing leases
and notes receivable (Note B) 626,083 729,450
Other assets 25,164 4,826
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TOTAL ASSETS 696,554 969,554
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LIABILITIES
Trade accounts payable 21,260 9,683
Lease security deposits 5,031 9,089
Reserve for estimated costs during the
period of liquidation 132,469 157,138
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TOTAL LIABILITIES 158,760 175,910
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CONTINGENCIES (Note C)
NET ASSETS $ 537,794 $ 793,644
============= =============
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Three Months
Ended Ended
March 31, 2001 March 31, 2000
-------------- --------------
Net assets at beginning of period $ 793,644 $ 1,189,969
Income from direct financing leases 2,364 4,318
Interest and other income 2,375 5,385
Distributions to partners (99,940) -0-
Withdrawals of limited partners (521) (3,933)
Change in estimate of liquidation
value of net assets (160,128) (63,006)
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Net assets at end of period $ 537,794 $ 1,132,733
============= =============
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31, 2001 March 31, 2000
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OPERATING ACTIVITIES
Changes in net assets excluding distributions and withdrawals $ (155,389) $ (53,303)
Adjustments to reconcile to net cash from operating activities:
Non-cash dividend income -0- (2,707)
Provision for possible loan and lease losses 70,000 -0-
Other liquidation basis adjustments 90,128 63,006
Changes in operating assets and liabilities:
Other assets (20,338) (81)
Outstanding checks in excess of bank balance -0- (94,032)
Trade accounts payable 11,577 (2,730)
Due to affiliates -0- (477)
Accrued expenses -0- 2,704
Reserve for estimated costs during the period of liquidation (24,669) (24,318)
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Net cash from operating activities (28,691) (111,938)
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INVESTING ACTIVITIES
Repayments of direct financing leases and notes 20,079 16,296
Proceeds from sale of direct financing leases 10,122 -0-
Security deposits paid (4,058) -0-
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Net cash from investing activities 26,143 16,296
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FINANCING ACTIVITIES
Withdrawals paid to partners (521) -0-
Distributions and withdrawals paid to partners (99,940) (3,933)
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Net cash from financing activities (100,461) (3,933)
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Net decrease in cash and cash equivalents (103,009) (99,575)
Cash and cash equivalents at beginning of period 137,712 135,796
----------- -----------
Cash and cash equivalents at end of period $ 34,703 $ 36,221
=========== ===========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2001
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 three months ended
March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001. 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, 2000.
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.
On April 11, 2001, Actel Integrated Communications, Inc. ("Actel") filed for
Chapter 11 bankruptcy. The Partnership decreased its estimate of the liquidation
value of net assets due to the change in the value of the 34,947 shares of Actel
preferred stock. This stock has been deemed to have no value and $78,630 was
written off in the first quarter. Also, relating to the Actel bankruptcy, the
Partnership increased the provision for possible loan and lease losses by
$70,000 in the first quarter, to write off the remaining carrying value of notes
receivable of Murdock Communications Corporation ("Murdock"). Murdock's primary
asset was the preferred stock of Actel.
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)
March 31, 2001 December 31, 2000
-------------- -----------------
Minimum lease payments receivable $ 112,736 $ 123,016
Estimated unguaranteed residual values 13,048 26,448
Unearned income (14,025) (16,410)
Unamortized initial direct costs 38 57
Notes receivable 540,720 672,236
Adjustment to estimated net realizable value (26,434) (75,897)
---------------- ----------------
Net investment in direct financing
leases and notes receivable $ 626,083 $ 729,450
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NOTE C - CONTINGENCIES
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 Judgment, which was denied. After
filing the suit, the plaintiff transferred assets in lieu of bankruptcy. The
bankruptcy trustee has ruled the litigation will proceed. No loss, if any, has
been recorded in the financial statements with respect to this matter.
SA Communications filed a suit against the Partnership, the General Partner, and
others alleging the Partnership received a preference of approximately $45,000
prior to the filing of its petition in bankruptcy. The Partnership maintains
that it was receiving regular monthly payments and there was no preference.
Negotiations are in progress with the bankruptcy trustee. No loss, if any, has
been recorded in the financial statements with respect to this matter.
The General Partner has approximately $2,200,000 of notes payable and redeemable
preferred stock maturing in 2001 and may not have sufficient liquid assets to
repay such amounts. The General Partner is pursuing additional financing,
refinancing, and asset sales to meet its obligations. No assurance can be
provided that the General Partner will be successful in its efforts.
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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 $4,739 in
income from direct financing leases, notes receivable, and other income during
the first three months of 2001. This represents an annualized return on average
net assets of approximately 2.8%. Also, management decreased its estimate of the
liquidation value of net assets during the first three months of 2001 by
$160,128. This is primarily due to changes in the estimated net realizable
values of certain equity securities held by the Partnership and changes in the
estimated net investment in direct financing leases and notes receivable, as
discussed in the paragraph below. The Partnership has accrued the estimated
expenses of liquidation, which is $132,469 at March 31, 2001. The General
Partner reviews this estimate and will adjust quarterly, as needed.
On April 11, 2001, Actel Integrated Communications, Inc. ("Actel") filed for
Chapter 11 bankruptcy. The Partnership decreased its estimate of the liquidation
value of net assets due to the change in the value of the 34,947 shares of Actel
preferred stock. This stock has been deemed to have no value and $78,630 was
written off in the first quarter. Also, relating to the Actel bankruptcy, the
Partnership increased the provision for possible loan and lease losses by
$70,000 in the first quarter, to write off the remaining carrying value of notes
receivable of Murdock Communications Corporation ("Murdock"). Murdock's primary
asset was the preferred stock of Actel.
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.
As of March 31, 2001 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 this
contract at March 31, 2001 was $584,473. Management believes its reserve is
adequate related to this customer. Management will continue to monitor any 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
almost exclusively in pay telephones. The pay telephones make up approximately
95% of the portfolio at March 31, 2001.
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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 March 31, 2001.
Carrying Amount Fair Value
Common Stock-Murdock $ 3,100 $ 3,100
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Marketable equity security $ 3,100 $ 3,100
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Carrying Amount Fair Value
Common Stock-Murdock 7,504 7,504
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Not readily marketable equity securities $ 7,504 $ 7,504
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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 an emerging company, the equity price can be volatile. At March 31,2001, the
total amount at risk was $10,604. The Partnership holds 69,473 shares of Murdock
common stock as a marketable equity security and 178,645 shares as not readily
marketable, due to restrictions imposed by rule 144 of the Securities and
Exchange Commission.
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 March 31, 2001.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2001 540,720 12.00%
-----------
Total $ 540,720
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Fair Value $ 540,720
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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 had granted
several extensions and the litigation was on hold until the trustee had made a
decision, however, in mid September of 2000 the extension expired and was not
renewed. The Motion for Summary Judgement filed by the General Partner has been
denied. No further action has been taken at this time by the plaintiff. No loss,
if any, has been recorded in the financial statements with respect to this
matter.
On January 10, 2000, SA Communications, Inc., a debtor in bankruptcy, filed a
complaint in the United States Bankruptcy Court for the District of Delaware
against the Partnership to avoid transfers and to recover property transferred.
The complaint alleged that on September 10, 1997, the debtor paid a check in the
amount of $45,069.83 to the Partnership which constituted a preferential
transfer in favor of the Partnership. The Partnership filed an answer denying
that the payment constituted a preference. Initially, there was a requirement
that the parties should exchange discovery documents but that exchange of
documents has been continued indefinitely. The Partnership believes that the
payment was received in the ordinary course of business and should not
constitute a preferential transfer.
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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: May 9, 2001 Ronald O. Brendengen/s/
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Ronald O. Brendengen, Chief Financial Officer, Treasurer
Date: May 9, 2001 Daniel P. Wegmann/s/
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Daniel P. Wegmann, Controller
Date: May 9, 2001 Timothy J. White/s/
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Timothy J. White, President
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