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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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: 0-25574
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TELECOMMUNICATIONS INCOME FUND X, L.P.
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(Exact name of Registrant as specified in its charter)
Iowa 42-1401715
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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, 88,627 units were issued and outstanding. Based on the
book value at September 30, 2000 of $75.26 per unit, the aggregate market value
at October 27, 2000 was $6,670,068.
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TELECOMMUNICATIONS INCOME FUND X, 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 Income and Comprehensive Income (Going Concern Basis)-
three and nine months ended September 30, 1999 4
Statements of Changes in Net Assets (Liquidation Basis)-three
and nine months ended September 30, 2000 5
Statements of Cash Flows-nine months ended September 30, 2000 and 1999 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Signatures 11
</TABLE>
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
(Liquidation Basis) (Liquidation Basis)
September 30, 2000 December 31, 1999
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 623,017 $ 4,147
Marketable equity security 45,326 305,952
Not readily marketable equity securities 1,791,311 778,602
Net investment in direct financing leases
and notes receivable (Note B) 4,627,015 10,652,042
Other assets 105,503 88,212
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TOTAL ASSETS 7,192,172 11,828,955
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LIABILITIES
Line of credit agreement (Note C) -0- 2,556,214
Outstanding checks in excess of bank balance -0- 37,127
Due to affiliates -0- 317,474
Distributions payable to partners -0- 199,762
Accrued expenses and other liabilities 158,339 153,769
Lease security deposits 32,677 133,376
Reserve for estimated costs during the period of liquidation 331,290 550,000
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TOTAL LIABILITIES 522,306 3,947,722
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NET ASSETS $ 6,669,866 $ 7,881,233
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</TABLE>
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(GOING CONCERN BASIS) (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
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<S> <C> <C>
Revenues:
Lease income $ 294,036 $1,043,234
Interest income 45,163 137,275
Gain on lease terminations 1,493 32,102
Other 20,426 33,994
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Total revenues 361,118 1,246,605
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Expenses:
Management fees 62,393 162,806
Administrative services 21,000 63,000
Interest 61,684 146,690
Professional fees 35,018 96,118
Provision for possible losses -0- 76,954
Other 22,466 76,602
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Total expenses 202,561 622,170
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Net income 158,557 624,435
Other comprehensive income:
Unrealized gain on
available-for-sale securities 30,744 28,854
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Comprehensive income $ 189,301 $ 653,289
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Net income per partnership unit $ 1.78 $ 6.99
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Weighted average partnership units outstanding 89,166 89,305
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</TABLE>
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
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Net assets at beginning of period $ 6,464,506 $ 7,881,233
Income from direct financing leases,
interest, and other income 172,042 457,840
Distributions to partners -0- (2,400,000)
Withdrawals of limited partners (7,720) (11,829)
Change in estimate of liquidation
value of net assets 41,038 742,622
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Net assets at end of period $ 6,669,866 $ 6,669,866
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See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, 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
Net Income/changes in net assets excluding withdrawals and distributions $ 1,200,462 $ 624,435
Adjustments to reconcile to net cash from operating activities:
Amortization -0- 5,729
Accretion of notes receivable (32,741) -0-
Provision for possible losses -0- 76,954
Gain on lease terminations -0- (32,102)
Liquidation basis adjustments (742,622) -0-
Changes in operating assets and liabilities:
Other assets (17,291) (25,268)
Outstanding checks in excess of bank balance (37,127) (436,199)
Due to affiliates (317,474) (5,916)
Accrued expenses and other liabilities 4,570 19,383
Reserve for estimated costs during the period of liquidation (218,710) -0-
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Net cash from operating activities (160,933) 227,016
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INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for, direct financing leases -0- (3,111,464)
Repayments of direct financing leases 1,306,885 1,912,706
Proceeds from early termination of direct financing leases and notes 4,872,058 717,619
Net lease security deposits repaid (100,699) 1,687
Issuance of notes receivable (135,000) (997,082)
Repayments of notes receivable 4,364 214,071
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Net cash from investing activities 5,947,608 (1,262,463)
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FINANCING ACTIVITIES
Borrowings from line of credit 346,936 5,282,550
Repayments of line of credit (2,903,150) (2,326,921)
Distributions and withdrawals paid to partners (2,611,591) (1,859,498)
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Net cash from financing activities (5,167,805) 1,096,131
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Net increase in cash and cash equivalents 618,870 60,684
Cash and cash equivalents at beginning of period 4,147 67,570
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Cash and cash equivalents at end of period $ 623,017 $ 128,254
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 55,620 $ 125,537
Unrealized gain on securities available for sale -0- 28,854
Non-cash conversion of leases to notes and not
readily marketable equity securities 2,437,062 -0-
</TABLE>
See accompanying notes.
6
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TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 December 31, 1999, 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 as of
December 31, 1999 and periods subsequent thereto 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 $ 2,470,885 $ 12,223,103
Estimated unguaranteed residual values 246,838 645,025
Unamortized initial direct costs 3,337 24,022
Unearned income (397,374) (2,354,280)
Notes receivable 3,342,897 1,773,820
Adjustment to net realizable value (1,039,568) (1,659,648)
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Net investment in direct financing
leases and notes receivable $ 4,627,015 $ 10,652,042
============ ============
</TABLE>
Note C -- CREDIT ARRANGEMENT
The Partnership had a line-of-credit agreement with a bank carrying interest at
1% over prime. The agreement was amended August 26, 1998 to extend the maturity
date to June 30, 2000, reduce the borrowing amount to the lesser of $4.0
million, or 40% of the Partnership's Qualified Accounts, as defined in the
agreement, and require minimum monthly interest payments of $4,000 beginning in
December 1998. The agreement was cancelable by the lender after giving a 90-day
notice and was collateralized by substantially all assets of the Partnership.
The line-of-credit was guaranteed by the General Partner and certain affiliates
of the General Partner. The line-of-credit was paid off in full during the first
quarter of 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On December 31, 1999, 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 as of
December 31, 1999 and periods subsequent thereto 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 $457,840 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 8.4%.
Management increased its estimate of the liquidation value of net assets during
the first nine months of 2000 by $742,622. This was due primarily to changes in
the estimated net realizable values of assets received in exchange for leases
with Murdock Communications Corporation ("Murdock"), as discussed below. The
Partnership has accrued the estimated expenses of liquidation, which is $331,290
at September 30, 2000. The General Partner reviews this estimate and will adjust
quarterly, as needed.
In June, 2000, the Partnership's leases with Murdock were converted to notes and
stock as part of a restructuring. At the time of the restructuring, the
Partnership's net investment, after accruing for related property taxes, in the
contracts totalled $2,437,062. The Partnership received two notes and recorded
these at their estimated net realizable value of $1,535,828 and 289,046 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 is $1,656,234, resulting in an increase in management's
estimated liquidation value of net assets of $755,000. The notes receivable are
accreted over the term of the notes to their face value. This resulted in
interest income of $32,741 for the nine months ended September 30, 2000.
As of September 30, 2000 there were three 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, 2000 was $2,194,501. One customer
has contracts that are past due more than 90 days, with the net investment
totalling $2,061,359, which accounts for approximately 36% of the Partnership's
lease and notes receivable portfolio as of September 30, 2000. This customer was
placed in involuntary bankruptcy by creditors in October, 2000. The Partnership,
in conjunction with a payphone service provider, is managing the payphone routes
of this customer. Management has not yet determined the value of these routes,
but is in the process of analyzing the revenue-generating capability of the
routes to determine the value to any potential buyers. Management believes its
reserve is adequate related to this customer based on historical collateral
values of similar equipment. However, no assurance can be provided that any
amounts recovered, if any, will be sufficient to cover the Partnership's net
investment in these contracts.
The Partnership's portfolio of leases and notes receivable are concentrated in
pay telephones and the notes receivable of Murdock (an entity in the
telecommunications industry), representing approximately 50% and 28%,
respectively, of the portfolio at September 30, 2000. As noted in the preceding
paragraph, one other
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customer accounts for approximately 36% of the Partnership's portfolio at
September 30, 2000 and is past due. No other customers account for more than 10%
of the Partnership's portfolio.
LIQUIDITY AND CAPITAL RESOURCES
Early contract terminations in the first nine months of 2000 resulted in cash
proceeds of $4,872,058. The proceeds were used to pay off the Partnership's
line-of-credit, a note payable to the General Partner, and make distributions to
partners.
The Partnership had a line-of-credit agreement with a bank carrying interest at
1% over prime. The agreement was amended August 26, 1998 to extend the maturity
date to June 30, 2000, reduce the borrowing amount to the lesser of $4.0
million, or 40% of the Partnership's Qualified Accounts, as defined in the
agreement, and require minimum monthly interest payments of $4,000 beginning in
December 1998. The agreement was cancelable by the lender after giving a 90-day
notice and was collateralized by substantially all assets of the Partnership.
The line-of-credit was guaranteed by the General Partner and certain affiliates
of the General Partner. The line-of-credit was paid off in full during the first
quarter of 2000.
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.
9
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EQUITY PRICE SENSITIVITY
The table below provides information about the Partnership's marketable and not
readily marketable equity securities that are sensitive to changes in prices.
The table presents the carrying amount and fair value at September 30, 2000.
Carrying Amount Fair Value
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Common Stock-Murdock $ 45,326 $ 45,326
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Total Marketable Equity Security $ 45,326 $ 45,326
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Carrying Amount Fair Value
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Common Stock-Murdock $ 135,077 $ 135,077
Preferred Stock-Actel 1,656,234 1,656,234
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Total Not Readily Marketable $1,791,311 $1,791,311
========== ==========
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 portfolio is derived from the underlying
ability of the entity invested in to satisfy debt obligations and its ability to
maintain or improve equity values. The Partnership's holdings of equity
securities are in emerging companies whose prices can be volatile. At September
30, 2000, the total amount at risk was $1,836,637. The Partnership holds 142,200
shares of Murdock Communications Corporation ("Murdock") as available for sale
and 450,300 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.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2000 $ 136,016 16.2%
2001 865,865 16.4%
2002 245,224 17.0%
2003 2,095,792 17.2%
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Total $3,342,897
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Fair Value $3,342,897
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The Partnership manages interest rate risk, its primary market risk exposure
with respect to notes receivable, by limiting the terms of notes receivable to
no more than five years.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
10
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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 X, L.P.
(Registrant)
Date: November 8, 2000 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial
Officer, Treasurer
Date: November 8, 2000 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
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