UNITED STATES
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 SEPTEMBER 30, 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")
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Title of Class
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filings
requirements for the past 90 days.
Yes X No
----- -----
As of October 19, 2001, 66,500 units were issued and outstanding. Based on the
book value at September 30, 2001 of $.73 per unit, the aggregate market value at
October 19, 2001 was $48,545.
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) - September 30, 2001
and December 31, 2000 3
Statements of Changes in Net Assets (Liquidation Basis) -
three months ended and nine months ended September 30, 2001 and 2000 4
Statements of Cash Flows - nine months ended
September 30, 2001 and 2000 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
2
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (UNAUDITED)
(Liquidation Basis) (Liquidation Basis)
September 30, 2001 December 31, 2000
------------------ -----------------
ASSETS
Cash and cash equivalents $ 51,811 $137,712
Marketable equity security 9,449 5,536
Not readily marketable equity security 22,868 92,030
Net investment in direct financing leases
and notes receivable (Note B) 70,270 729,450
Other assets 7,047 4,826
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TOTAL ASSETS 161,445 969,554
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LIABILITIES
Trade accounts payable 10,262 9,683
Lease security deposits 4,763 9,089
Reserve for estimated costs during the
period of liquidation 97,717 157,138
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TOTAL LIABILITIES 112,742 175,910
-------- --------
CONTINGENCIES (Note C)
NET ASSETS $ 48,703 $793,644
======== ========
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Ended September 30 Nine Months Ended September 30
2001 2000 2001 2000
---- ---- ---- ----
Net assets at beginning of period $ 347,598 $ 1,217,975 $ 793,644 $ 1,189,969
Income from direct financing leases 1,408 2,998 5,773 10,889
Interest and other income 3,761 12,438 6,682 31,066
Distributions to partners (325,000) -0- (424,940) -0-
Withdrawals of limited partners (254) -0- (1,296) (10,167)
Change in estimate of liquidation
value of net assets 21,190 (43,202) (331,160) (31,548)
----------- ----------- ----------- -----------
Net assets at end of period $ 48,703 $ 1,190,209 $ 48,703 $ 1,190,209
=========== =========== =========== ===========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
OPERATING ACTIVITIES
Changes in net assets excluding distributions and withdrawals $ (318,705) $ 10,407
Adjustments to reconcile to net cash from operating activities:
Non-cash dividend income -0- (7,889)
Adjustment for possible loan and lease losses 262,722 -0-
Accretion of notes receivable -0- (2,730)
Other liquidation basis adjustments 68,438 31,548
Changes in operating assets and liabilities:
Other assets (2,221) (10,877)
Outstanding checks in excess of bank balance -0- (94,490)
Trade accounts payable 579 6,026
Due to affiliates -0- (477)
Accrued expenses -0- (20,552)
Reserve for estimated costs during the period of liquidation (59,421) (81,672)
----------- -----------
Net cash from operating activities (48,608) (170,706)
----------- -----------
INVESTING ACTIVITIES
Repayments of direct financing leases and notes 382,302 118,360
Proceeds from sale of direct financing leases 10,967 55,485
Sale of equipment under operating leases -0- 130,500
Security deposits paid (4,326) (9,799)
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Net cash from investing activities 388,943 294,546
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FINANCING ACTIVITIES
Distributions and withdrawals paid to partners (426,236) (10,167)
----------- -----------
Net cash from financing activities (426,236) (10,167)
----------- -----------
Net increase (decrease) in cash and cash equivalents (85,901) 113,673
Cash and cash equivalents at beginning of period 137,712 135,796
----------- -----------
Cash and cash equivalents at end of period $ 51,811 $ 249,469
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Non-cash conversion of leases to notes and $ -0- $ 174,811
not readily marketable equity security
Non-cash conversion of equipment to installment receivable -0- 739,500
See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 nine months ended
September 30, 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 allowance 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.
In August 2000, the Partnership set up a note receivable for $870,000 for
equipment previously held under operating lease. The buyer was scheduled to make
three payments totaling the $870,000. Payments totaling $329,278 were made in
the years 2000 and 2001, resulting in $540,722 being carried on the statement of
net assets as a note receivable at the end of the first quarter of 2001. A new
agreement was signed selling the equipment for $348,000, which has been
collected in full. The new agreement resulted in a loss of $192,722 for the
Partnership.
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)
September 30, 2001 December 31, 2000
------------------ -----------------
Minimum lease payments receivable $ 92,876 $ 123,016
Estimated unguaranteed residual values 13,047 26,448
Unearned income (10,458) (16,410)
Unamortized initial direct costs 8 57
Notes receivable -0- 672,236
Adjustment to estimated net realizable value (25,203) (75,897)
--------- ---------
Net investment in direct financing
leases and notes receivable $ 70,270 $ 729,450
========= =========
6
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 Judgement, which has been denied.
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. 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 $45,070 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. 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.
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 $12,455 in
income from direct financing leases, notes receivable, and other income during
the first nine months of 2001. This represents an annualized return on average
net assets of approximately 3.9%. Also, management decreased its estimate of the
liquidation value of net assets during the first nine months of 2001 by
$331,160. This is primarily due to the change in the estimated net investment in
direct financing leases and notes receivable, as discussed in the paragraphs
below. The Partnership has accrued the estimated expenses of liquidation, which
is $97,717 at September 30, 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
7
was written off in the first quarter. Also, relating to the Actel bankruptcy,
the Partnership increased the allowance 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.
In August 2000, the Partnership set up a note receivable for $870,000 for
equipment previously held under operating lease. The buyer was scheduled to make
three payments totaling the $870,000. Payments totaling $329,278 were made in
the years 2000 and 2001, resulting in $540,722 being carried on the statement of
net assets as a note receivable at the end of the first quarter of 2001. A new
agreement was signed selling the equipment for $348,000, which has been
collected in full. The new agreement resulted in a loss of $192,722 for the
Partnership.
The Partnership will continue to make distributions to the partners as leases
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. Actual amounts are likely to
differ from the amounts presented in the financial statements.
As of September 30, 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 these contracts at September 30, 2001 was $58,407. Management
believes its reserve is adequate related to these customers. 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 in
pay telephones and computer equipment representing 74% and 23%, respectively, of
the portfolio at September 30, 2001.
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 as
of September 30, 2001.
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock $ 9,449 $ 9,449
----------- -----------
Marketable equity security $ 9,449 $ 9,449
=========== ===========
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock $ 22,868 $ 22,868
----------- -----------
Not readily marketable equity securities $ 22,868 $ 22,868
=========== ===========
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 September 30, 2001,
the total amount at risk was $32,317. 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.
8
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 has been denied.
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. 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 $45,070 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. No loss, if any, has been recorded in the financial
statements with respect to this matter.
9
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)
Date: November 2, 2001 Ronald O. Brendengen/s/
---------------- ----------------------------------------------
Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date: November 2, 2001 Daniel P. Wegmann/s/
---------------- ----------------------------------------------
Daniel P. Wegmann, Controller
10