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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 SEPTEMBER 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 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.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis) - September 30, 2000
and December 31, 1999 3
Statements of Changes in Net Assets (Liquidation Basis) - three months
and nine months ended September 30, 2000 and 1999 4
Statements of Cash Flows - nine months ended
September 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
</TABLE>
2
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
(Liquidation Basis) (Liquidation Basis)
September 30, 2000 December 31, 1999
------------------- -------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 249,469 $ 135,796
Marketable equity security 18,451 31,394
Not readily marketable equity securities 192,408 268,620
Net investment in direct financing leases
and notes receivable (Note B) 182,005 382,027
Equipment leased under operating leases -0- 775,597
Installment receivable 739,500 -0-
Other assets 10,877 -0-
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TOTAL ASSETS 1,392,710 1,593,434
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LIABILITIES
Outstanding checks in excess of bank balance -0- 94,490
Trade accounts payable 15,561 9,535
Due to affiliates -0- 477
Accrued expenses and other liabilities 523 21,075
Lease security deposits 9,089 18,888
Reserve for estimated costs during the
period of liquidation 177,328 259,000
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TOTAL LIABILITIES 202,501 403,465
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NET ASSETS $1,190,209 $1,189,969
========== ==========
</TABLE>
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, LP.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 2000 1999 2000
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<S> <C> <C> <C> <C>
Net assets at beginning of period $ 1,949,505 $ 1,217,975 $ 2,721,580 $ 1,189,969
Income from direct financing leases 25,206 2,998 118,121 10,889
Interest and other income 4,339 12,438 21,786 31,066
Distributions to partners (570,000) -0- (1,465,000) -0-
Withdrawals of limited partners (5,087) -0- (17,219) (10,167)
Change in estimate of liquidation
value of net assets 35,720 (43,202) 60,415 (31,548)
----------- ----------- ----------- -----------
Net assets at end of period $ 1,439,683 $ 1,190,209 $ 1,439,683 $ 1,190,209
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Changes in net assets excluding distributions and withdrawals $ 10,407 $ 200,322
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments 31,548 (60,415)
Non-cash dividend income (7,889) -0-
Accretion of notes receivable (2,730) -0-
Changes in operating assets and liabilities:
Other assets (10,877) -0-
Outstanding checks in excess of bank balance (94,490) 87,027
Trade accounts payable 6,026 23,675
Due to affiliates (477) -0-
Accrued expenses (20,552) (5,288)
Reserve for estimated costs during the period of liquidation (81,672) (173,182)
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Net cash from operating activities (170,706) 72,139
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INVESTING ACTIVITIES
Repayments of direct financing leases and notes 118,360 348,033
Proceeds from sale of direct financing leases 55,485 746,418
Sale of equipment under operating lease 130,500 -0-
Security deposits paid (9,799) (43,700)
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Net cash from investing activities 294,546 1,050,751
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FINANCING ACTIVITIES
Distributions and withdrawals paid to partners (10,167) (1,482,219)
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Net cash from financing activities (10,167) (1,482,219)
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Net increase (decrease) in cash and cash equivalents 113,673 (359,329)
Cash and cash equivalents at beginning of period 135,796 711,589
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Cash and cash equivalents at end of period $ 249,469 $ 352,260
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SUPPLEMENTAL DISCLOSURES:
Non-cash conversion of leases to notes and
not readily marketable equity security $ 174,811 $ -0-
Non-cash conversion of equipment to installment receivable 739,500 -0-
</TABLE>
See accompanying notes.
5
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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:
<TABLE>
<CAPTION>
(Liquidation Basis) (Liquidation Basis)
September 30, 2000 December 31, 1999
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<S> <C> <C>
Minimum lease payments receivable $ 140,885 $ 562,302
Estimated unguaranteed residual values 26,448 29,955
Unearned income (19,408) (104,530)
Unamortized initial direct costs 69 607
Notes receivable 130,609 32,835
Adjustment to estimated net realizable value (96,598) (139,142)
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Net investment in direct financing
leases and notes receivable $ 182,005 $ 382,027
========== ===========
</TABLE>
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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 $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
<PAGE> 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.
<TABLE>
<CAPTION>
Carrying Amount Fair Value
--------------- ------------
<S> <C> <C>
Common Stock-Murdock $ 18,451 $ 18,451
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Marketable equity security $ 18,451 $ 18,451
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Carrying Amount Fair Value
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Common Stock-Murdock $ 54,985 $ 54,985
Preferred Stock-Actel 137,423 137,423
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Not readily marketable equity securities $ 192,408 $ 192,408
=========== ===========
</TABLE>
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.
<TABLE>
<CAPTION>
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
<S> <C> <C>
2000 $ -0- 18.00%
2001 11,202 18.00%
2002 -0- 18.00%
2003 119,407 18.00%
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Total $ 130,609
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Fair Value $ 130,609
===========
</TABLE>
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 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.
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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: November 10, 2000 /s/ Ronald O. Brendengen
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Ronald O. Brendengen,
Chief Financial Officer, Treasurer
Date: November 10, 2000 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
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