10-Q 1 c58559e10-q.txt QUARTERLY REPORT 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 SEPTEMBER 30, 2000 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 ------------------------------------------------------- (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 ----- ----- As of October 27, 2000, 66,714 units were issued and outstanding. Based on the book value at September 30, 2000 of $17.84 per unit, the aggregate market value at October 27, 2000 was $1,190,178. 2 TELECOMMUNICATIONS INCOME FUND IX, L.P. INDEX

2 3 TELECOMMUNICATIONS INCOME FUND IX, L.P. STATEMENTS OF NET ASSETS (UNAUDITED)

See accompanying notes. 3 4 TELECOMMUNICATIONS INCOME FUND IX, LP. STATEMENTS OF CHANGES IN NET ASSETS (LIQUIDATION BASIS) (UNAUDITED)

See accompanying notes. 4 5 TELECOMMUNICATIONS INCOME FUND IX, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes. 5 6 TELECOMMUNICATIONS INCOME FUND IX, L.P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 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 nine months ended September 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:

6 7 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 $41,955 in income from direct financing leases, notes receivable, and other income during the first nine months of 2000. This represents an annualized return on average net assets of approximately 4.7%. Also, management decreased its estimate of the liquidation value of net assets during the first nine months of 2000 by $31,548, 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 $177,328 at September 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 recorded these at their estimated net realizable value of $127,879 and 23,983 shares of preferred stock in Actel Integrated Communications, Inc. ("Actel"), a not readily marketable security. The estimated net realizable value of the Actel preferred stock was $137,423, resulting in an increase in management's estimated liquidation value of net assets of $90,491. The notes receivable are accreted over the term of the notes to their face value. This resulted in interest income of $2,730 for the nine months ended September 30, 2000. As of September 30, 2000 there was one customer 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 September 30, 2000 was $48,562. 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. In August, 2000, the Partnership sold equipment previously held under operating leases for $870,000, resulting in a gain on the sale of $94,403. The buyer was scheduled to make three payments totalling the $870,000. They made the first payment at the time of the sale of $130,500, but did not make the second payment of $663,375 scheduled for September 20. At September 30, 2000, $739,500 is carried on the balance sheet as an installment receivable relating to this sale. Management will continue to monitor this contract and take the necessary steps to protect the Partnership's investment. 7 8 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 47%, 36% and 14%, respectively, of the portfolio at September 30, 2000. The Murdock notes were received as part of a restructuring, as discussed above. 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 September 30, 2000.

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 September 30, 2000, the total amount at risk was $210,859. On September 30, 2000, the Partnership's 1,916 shares of Murdock preferred stock were converted to common stock at a rate of 88.88 shares of common for each share of preferred held. The Partnership holds 57,885 shares of Murdock common stock as a marketable equity security and 183,302 shares as not readily marketable, due to restrictions imposed by rule 144 of the Securities and Exchange Commission. At September 30, 2000, the market price of Murdock was $.38 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 September 30, 2000.

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. 8 9 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 the extension expired and was not renewed. The Motion for Summary Judgement is now being considered by the judge. No loss, if any, has been recorded in the financial statements with respect to this matter. 9 10 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 10, 2000 /s/ Ronald O. Brendengen ----------------- ------------------------------------ Ronald O. Brendengen, Chief Financial Officer, Treasurer Date: November 10, 2000 /s/ Daniel P. Wegmann ----------------- ------------------------------------ Daniel P. Wegmann, Controller 10

TELECOMMUNICATIONS INCOME FUND IX LP 10-Q