1
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 June 30, 2001
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 July 31, 2001, 88,038 units were issued and outstanding. Based on the book
value at June 30, 2001 of $11.79 per unit, the aggregate market value at July
31, 2001 was $1,037,968.
2
TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
Page
Part I. FINANCIAL INFORMATION ----
- -----------------------------
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis)-
June 30, 2001 and December 31, 2000 3
Statement of Changes in Net Assets (Liquidation Basis)-
three and six months ended June 30, 2001 and 2000 4
Statements of Cash Flows-six months ended June 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
3
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF NET ASSETS (LIQUIDATION BASIS) (UNAUDITED)
June 30, 2001 December 31, 2000
------------- -----------------
ASSETS
Cash and cash equivalents $ 95,072 $ 350,601
Available-for-sale equity security 7,756 13,220
Not readily marketable equity securities 18,773 979,657
Net investment in direct financing leases
and notes receivable (Note B) 557,347 2,281,897
Equipment held for sale 528,000 1,702,644
Other assets 272,176 90,750
------------- -------------
TOTAL ASSETS 1,479,124 5,418,769
------------- -------------
LIABILITIES
Accrued expenses and other liabilities 195,883 214,957
Lease security deposits 23,231 28,532
Reserve for estimated costs during the period of liquidation 221,782 350,000
------------- -------------
TOTAL LIABILITIES 440,896 593,489
------------- -------------
CONTINGENCIES (Note C)
NET ASSETS $ 1,038,228 $ 4,825,280
============= =============
See accompanying notes.
3
4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Ended June 30 Six Months Ended June 30
2000 2001 2000 2001
---- ---- ---- ----
Net assets at beginning of period $ 6,595,802 $ 2,013,160 $ 7,881,233 $ 4,825,280
Income from direct financing leases,
interest, and other income 194,037 28,137 285,798 90,151
Distributions to partners (900,000) (300,000) (2,400,000) (899,864)
Withdrawals of limited partners -0- (7,983) (4,109) (10,623)
Change in estimate of liquidation
value of net assets 574,667 (695,086) 701,584 (2,966,716)
------------- ------------- ------------- -------------
Net assets at end of period $ 6,464,506 $ 1,038,228 $ 6,464,506 $ 1,038,228
============= ============= ============= =============
See accompanying notes.
4
5
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, 2001 June 30, 2000
------------- -------------
Operating Activities
Changes in net assets excluding withdrawals and distributions $ (2,876,565) $ 987,382
Adjustments to reconcile to net cash from operating activities:
Adjustment for possible loan and lease losses 1,110,000 -0-
Other liquidation basis adjustments 1,856,716 (701,584)
Changes in operating assets and liabilities:
Other assets 90,363 36,944
Outstanding checks in excess of bank balance -0- 419,560
Due to affiliates -0- (317,474)
Accrued expenses and other liabilities (19,074) (1,346)
Reserve for estimated costs during the period of liquidation (128,218) (182,736)
------------- --------------
Net cash from operating activities 33,222 240,746
------------- --------------
Investing Activities
Repayments of direct financing leases 472,156 1,175,984
Proceeds from early termination of direct financing leases and notes 151,252 4,725,128
Net lease security deposits repaid (5,301) (63,854)
Issuance of notes receivable -0- (135,000)
Repayments of notes receivable 3,629 2,655
------------- --------------
Net cash from investing activities 621,736 5,704,913
------------- --------------
Financing Activities
Borrowings from line of credit -0- 346,936
Repayments of line of credit -0- (2,903,150)
Distributions and withdrawals paid to partners (910,487) (2,603,871)
------------- --------------
Net cash from financing activities (910,487) (5,160,085)
------------- --------------
Net increase (decrease) in cash and cash equivalents (255,529) 785,574
Cash and cash equivalents at beginning of period 350,601 4,147
------------- --------------
Cash and cash equivalents at end of period $ 95,072 $ 789,721
============= ==============
Supplemental disclosures of cash flow information
Interest paid $ -0- $ 55,620
Noncash investing and financing activities:
Non-cash conversion of leases to notes and not
readily marketable equity securities -0- 2,437,062
See accompanying notes.
5
6
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 generally accepted accounting principles in the United States 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 six months ended June 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 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 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.
Management decreased its estimate of the liquidation value of net assets during
the first six months of 2001 by $2,966,716. This decrease is primarily due to
the write-off of securities the Partnership held in Actel Integrated
Communications Inc. ("Actel") and loans to Murdock Communications Corporation
("Murdock") and due to the impairment of equipment held for sale. On April 11,
2001, Actel filed for Chapter 11 bankruptcy. The Partnership had a realized loss
of $947,658 to write-off the carrying value of its 421,181 shares of Actel
preferred stock. The Partnership also wrote off $910,000 representing its
remaining carrying value of notes receivable of Murdock. Murdock's primary asset
was the preferred stock of Actel. Another lessee of the Partnership, LIDS
Corporation, filed for Chapter 11 bankruptcy during the first quarter, resulting
in an increase to the allowance for possible loan and lease losses of $200,000.
The Partnership also decreased its estimate of the liquidation value of net
assets as a result of the impairment of equipment held for sale of $647,548. The
Partnership has a tentative agreement to sell the equipment and has written the
equipment down to its expected sales price. No assurance can be provided that
the sale will be consummated or that the carrying value of the equipment will be
realized.
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)
June 30, 2001 December 31, 2000
------------- -----------------
Minimum lease payments receivable $ 669,384 $ 1,659,567
Estimated unguaranteed residual values 102,972 238,336
Unamortized initial direct costs 2,301 3,120
Unearned income (134,038) (269,101)
Notes receivable 13,966 1,553,424
Adjustment to net realizable value (97,238) (903,449)
---------------- ----------------
Net investment in direct financing
leases and notes receivable $ 557,347 $ 2,281,897
================ ================
6
7
Note C - CONTINGENCIES
SA Communications filed a suit against the Partnership, the General Partner, and
others alleging the Partnership received a preference of approximately $45,000
prior to the filing of its petition in bankruptcy. The Partnership maintains
that it was receiving regular monthly payments and there was no preference.
Negotiations are in progress with the bankruptcy trustee. 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 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 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 $90,151 in
income from direct financing leases, notes receivable, and other income during
the first six months of 2001. This represents an annualized return on average
net assets of approximately 6.1%.
Management decreased its estimate of the liquidation value of net assets during
the first six months of 2001 by $2,966,716. This decrease is primarily due to
the write-off of securities the Partnership held in Actel Integrated
Communications Inc. ("Actel") and loans to Murdock Communications Corporation
("Murdock") and due to the impairment of equipment held for sale. On April 11,
2001, Actel filed for Chapter 11 bankruptcy. The Partnership had a realized loss
of $947,658 to write-off the carrying value of its 421,181 shares of Actel
preferred stock. The Partnership also wrote off $910,000 representing its
remaining carrying value of notes receivable of Murdock. Murdock's primary asset
was the preferred stock of Actel. Another lessee of the Partnership, LIDS
Corporation, filed for Chapter 11 bankruptcy during the first quarter, resulting
in an increase to the allowance for possible loan and lease losses of $200,000.
The Partnership also decreased its estimate of the liquidation value of net
assets as a result of the impairment of equipment held for sale of $647,548. The
Partnership has a tentative agreement to sell the equipment and has written the
equipment down to its expected sales price. No assurance can be provided that
the sale will be consummated or that the carrying value of the equipment will be
realized.
The Partnership has accrued the estimated expenses of liquidation, which is
$221,782 at June 30, 2001. The General Partner reviews this estimate and will
adjust quarterly, as needed. The Partnership will continue to make distributions
to the partners as leases, notes receivable, and equipment 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
7
8
the actual timing of distributions to the partners. The actual amounts are
likely to differ from the amounts presented in the financial statements.
As of June 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 June 30, 2001 was $58,663. Management believes its reserve is
adequate related to these customers. Management will continue to monitor the
past due contracts and take the necessary steps to protect the Partnership's
investment.
The Partnership's portfolio of leases, notes receivable, and equipment under
operating leases are concentrated in pay telephones, representing approximately
91% of the portfolio at June 30, 2001. Two customers account for approximately
78% of the Partnership's portfolio of leases and notes receivable at June 30,
2001.
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 June 30, 2001.
Carrying Amount Fair Value
Common Stock-Murdock $ 7,756 $ 7,756
------------- -------------
Total Available-for-Sale $ 7,756 $ 7,756
============= =============
Carrying Amount Fair Value
Common Stock-Murdock $ 18,773 $ 18,773
------------- -------------
Total Not Readily Marketable $ 18,773 $ 18,773
============= =============
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 common equity values. The Partnership holds 165,900 shares
of Murdock as available for sale and 426,600 shares as not readily marketable,
due to restrictions imposed by rule 144 of the Securities and Exchange
Commission. Murdock is an emerging company whose stock price can be volatile. At
June 30, 2001, the total amount at risk was $26,529.
8
9
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 June 30, 2001.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2001 $ 3,956 14.5%
2002 10,010 14.5%
-------------
Total $ 13,966
=============
Fair Value $ 13,966
=============
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 and generally requiring full repayment ratably over the
term of the note.
PART II
Item 1. LEGAL PROCEEDINGS
SA Communications filed a suit against the Partnership, the General Partner, and
others alleging the Partnership received a preference of approximately $45,000
prior to the filing of its petition in bankruptcy. The Partnership maintains
that it was receiving regular monthly payments and there was no preference.
Negotiations are in progress with the bankruptcy trustee. 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 X, L.P.
(Registrant)
Date: August 13, 2001 Ronald O. Brendengen/s/
--------------- -----------------------------------
Ronald O. Brendengen,
Chief Financial Officer, Treasurer
Date: August 13, 2001 Daniel P. Wegmann/s/
--------------- -----------------------------------
Daniel P. Wegmann, Controller
10