10-Q 1 c58557e10-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: 0-25574 ------- TELECOMMUNICATIONS INCOME FUND X, L.P. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Iowa 42-1401715 ----------- ---------- (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, 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. 2 TELECOMMUNICATIONS INCOME FUND X, L.P. INDEX

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

See accompanying notes. 3 4 TELECOMMUNICATIONS INCOME FUND X, L.P. STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (GOING CONCERN BASIS) (UNAUDITED)

See accompanying notes. 4 5 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 ------------------ ------------------ 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 ----------- ----------- Net assets at end of period $ 6,669,866 $ 6,669,866 =========== =========== See accompanying notes. 5 6 TELECOMMUNICATIONS INCOME FUND X, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes. 6 7 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:

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. 7 8 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 8 9 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 10 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 --------------- ---------- Common Stock-Murdock $ 45,326 $ 45,326 ---------- ---------- Total Marketable Equity Security $ 45,326 $ 45,326 ========== ========== Carrying Amount Fair Value --------------- ---------- Common Stock-Murdock $ 135,077 $ 135,077 Preferred Stock-Actel 1,656,234 1,656,234 ---------- ---------- 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% ---------- Total $3,342,897 ========== Fair Value $3,342,897 ========== 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 11 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 ---------------- -------------------------------------- Ronald O. Brendengen, Chief Financial Officer, Treasurer Date: November 8, 2000 /s/ Daniel P. Wegmann ---------------- -------------------------------------- Daniel P. Wegmann, Controller 11

TELECOMMUNICATIONS INCOME FUND X LP 10-Q