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 June 30, 1996 Commission File Number 33-62228
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.)
425 Second Street S.E., Suite 600 Cedar Rapids, Iowa 52401
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 365-2506
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, 1996, 90,470 Units were issued and outstanding. Based on sales
prices of $250 per Unit, the aggregate market value at July 31, 1996 was
$22,617,500.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Balance sheets - June 30, 1996 and December 31, 1995.
Statements of income (loss) - three months ended June 30, 1996 and three
months ended June 30, 1995. Six months ended June 30, 1996 and six
months ended June 30, 1995.
Statement of changes in partners' equity - six months ended
June 30, 1996.
Statements of cash flows - six months ended June 30, 1996 and six
months ended June 30, 1995.
Item 2. Managements's discussion and analysis of financial condition and results of operations.
Signatures
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TELECOMMUNICATIONS INCOME FUND X, L.P.
BALANCE SHEETS(UNAUDITED)
June 30 December 31
1996 1995
----------- -----------
ASSETS
Cash and cash equivalents $ -0- $ $262,963
Net investment in direct financing leases
(Note B) 22,575,875 24,672,439
Equipment, less accumulated depreciation
of $352,727 at June 30, 1996 and
$170,646 at December 31, 1995 (Note C) 2,800,228 2,451,145
Other assets 810,277 277,701
----------- -----------
Total assets $26,186,380 $27,664,248
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Payable to affiliates $ 12,351 $ 252,192
Trade accounts payable 41,699 -0-
Outstanding checks in excess of cash balances 9,078 -0-
Other accrued expenses 42,302 113,231
Distributions payable to partners 203,557 203,558
Lease security deposits 514,622 651,564
Long term debt (Note D) 1,761,376 2,119,863
Line of credit agreement (Note D) 5,780,852 5,685,953
----------- -----------
Total liabilities 8,365,837 9,026,361
Partners' equity, 100,000 units authorized
General partner, 40 units issued and
outstanding 10,825 11,187
Limited partners:
90,430 units issued and outstanding 17,809,718 18,626,700
----------- -----------
Total partners' equity 17,820,543 18,637,887
----------- -----------
Total liabilities and partners' equity $26,186,380 $27,664,248
=========== ===========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
June 30 June 30
1996 1995
---------- ---------
INCOME:
Lease income $ 797,403 $934,568
Interest income -0- 1,665
Gain on lease terminations 33,359 -0-
Other 6,339 14,640
---------- ---------
Total Income 837,101 950,873
EXPENSES:
Management fees 84,297 104,424
Administrative services 18,465 23,709
Interest 155,519 166,737
Professional fees 56,851 30,037
Provision for possible losses (Note B) 739,228 59,309
Depreciation 96,757 -0-
Other 27,044 20,402
---------- ---------
Total expenses 1,178,161 404,618
---------- ---------
Net income (loss) $(341,060) $546,255
========== =========
Net income (loss) per partnership unit $( 3.77) $ 6.04
========== =========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
June 30 June 30
1996 1995
---------------- ----------
INCOME:
Lease income $1,699,521 $1,858,976
Interest income -0- 6,725
Gain on lease terminations 230,749 -0-
Other 33,594 21,766
---------------- ----------
Total Income 1,963,864 1,887,467
EXPENSES:
Management fees 177,642 206,025
Administrative services 36,931 47,418
Interest 341,148 289,025
Professional fees 94,676 30,037
Provision for possible losses
(Note B) 673,750 65,103
Depreciation 182,081 -0-
Other 53,634 42,692
---------------- ----------
Total expenses 1,559,862 680,300
---------------- ----------
Net income $ 404,002 $1,207,167
================ ==========
Net income per partnership unit $ 4.47 $ 13.34
================ ==========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
General
Partner Limited Partners
----------------
(40 Units) Units Amount Total
--------------------------------------------------------------------------
Balance at December 31, 1995 $11,187 90,430 $18,626,700 $18,637,887
Distributions (270) -0- (610,403) (610,673)
Net income 1st quarter 1996 329 -0- 744,733 745,062
---------- ------ ----------- -----------
Balance at March 31, 1996 11,246 90,430 18,761,030 18,772,276
Distributions (270) -0- (610,403) (610,673)
Net loss 2nd quarter 1996 (151) -0- (340,909) (341,060)
---------- ------ ----------- -----------
Balance at June 30, 1996 $10,825 90,430 $17,809,718 $17,820,543
========== ====== =========== ===========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
OPERATING ACTIVITIES
Net Income $404,002 $1,207,167
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 13,134 13,944
Provision for possible losses 673,750 65,103
Gain on lease terminations (230,749) -0-
Depreciation 182,081 -0-
Changes in operating assets and liabilities:
Other assets 53,463 (125,779)
Outstanding checks in excess of cash balances 9,078 -0-
Trade accounts payable, excluding
equipment purchase costs accrued (25,842) (8,639)
Due to affiliates (239,841) (1,662)
Accrued expenses and other liabilities (3,388) 9,375
----------- ---------
Net cash provided by operating activities 835,688 1,159,509
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for,
direct financing leases (3,860,147) (6,374,894)
Repayments of direct financing leases 1,780,947 2,251,649
Purchase of equipment for an operating lease (44,076) -0-
Proceeds from early termination of direct financing leases 2,545,214 129,693
Repayments of notes receivable -0- 9,615
Net lease security deposits collected(repaid) (35,655) 96,011
----------- -----------
Net cash provided by (used in) investing activities 386,283 (3,887,926)
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)(CONTINUED)
FINANCING ACTIVITIES
Net proceeds from (repayments of) line-of-credit 94,899 2,757,262
Repayments of long term debt (358,487) -0-
Deferred costs incurred -0- (18,000)
Distributions paid to partners (1,221,346) (1,205,998)
----------- -----------
Net cash provided by (used in) financing activities (1,484,934) 1,533,264
Net increase (decrease) in cash and cash equivalents (262,963) (1,195,153)
Cash and cash equivalents at beginning of period 262,963 1,457,429
----------- -----------
Cash and cash equivalents at end of period $ -0- $ 262,276
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 344,536 $ 268,092
Noncash investing and financing activities:
Reclassification of direct financing lease to
other receivable $ 400,000 $ -0-
Forfeiture of security deposit upon lease
write-off $ 101,287 $ -0-
Reclassification of direct financing lease to
equipment $ 686,037 $ -0-
Increase (decrease) in trade accounts payable
attributed to equipment purchase costs $ -0- $(586,300)
Increase in accrued distributions to partners $ -0- $ 15,347
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles 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, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES
Components of the net investment in direct financing leases are as follows:
June 30, 1996 December 31, 1995
------------- -----------------
Lease payments receivable $27,802,559 $31,717,972
Acquisition costs 330,633 500,113
Estimated residual values of leased equip. 2,556,002 3,033,772
Unearned lease income (7,657,370) (9,390,507)
Allowance for possible losses (455,949) (1,188,911)
------------ ------------
Net investment in direct financing leases $22,575,875 $24,672,439
=========== ===========
In October, 1995, a lessee of the Partnership, Value-Added Communications
("VAC"), filed a Voluntary Petition for Relief under Chapter 11 of the
Bankruptcy Code. At the time of the bankruptcy filing, the Partnership's net
investment in direct financing leases with VAC totaled approximately $2.1
million which amount was reduced to approximately $1.8 million by March, 1996
through court ordered lease payments which payment order then expired. At
December 31, 1995, the Partnership wrote down its investment in the VAC leases
by $721,000 to a balance of approximately $1.1 million based upon the VAC
reorganization plans in place at that time and thus, Partnership management's
best estimate of recovery. In July, 1996, the reorganization plans of VAC
changed such that the Partnership would recognize a larger loss than originally
estimated. Although no agreements are yet in place, the Partnership has been
offered $400,000 cash by parties to the bankruptcy for the equipment leased to
VAC. Management believes it is in the best interests of the Partnership to
accept this cash offer and therefore, the Partnership's net investment in
direct financing leases has been written down to this net realizable value
resulting in an additional loss of $646,307 on these VAC leases. The
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additional loss is recognized in the second quarter of 1996. This net
realizable value of $400,000 has been reclassified to other receivables. Since
there are no signed agreements in place, there can be no assurances that the
Partnership will not incur additional losses on the remaining $400,000
receivable. Management, however, believes its estimate of possible loss is the
best estimate currently available.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 1996
NOTE C --EQUIPMENT
In 1995, the Partnership exercised its right to manage the assets
leased to a customer due to nonpayment of lease receivables. At the time the
Partnership assumed management of these assets, its net investment in the
leases approximated $2.4 million and the Partnership subsequently purchased
approximately $200,000 of additional equipment. Effective July 1, 1995, a new
lease was executed for this equipment with a new lessee, Payphones of America.
The terms of this new lease are such that it meets the criteria of an operating
lease. The equipment under lease is being depreciated under the straight-line
method over its estimated remaining life. Payphones of America is currently
negotiating the sale of its payphone assets, including those under the lease
representing approximately $1.3 million of net equipment cost, under terms
which are expected by management to at least recover the Partnership's net
equipment cost. The remaining net equipment cost of approximately $1 million,
which relates to hotel satellite television equipment, is expected by
management to be recovered under a direct finance lease at a market rate of
interest with an entity spun-off from Payphones of America. The possibility
exists that these transactions will not materialize, however, management's
best current information indicates that these transactions will be completed.
In May, 1996, the partnership exercised its right to manage the assets leased
to a customer, United Tele-Systems of Virginia, Inc., due to default under the
lease agreement. The Partnership's net investment in the leases at the time
the assets were repossessed approximated $686,000. This equipment is currently
being serviced for the Partnership under a short-term management agreement.
The Partnership's intent is to sell the equipment or re-lease the equipment to
a new lessee. The Partnership expects to incur a loss upon the sale or
re-lease of this equipment. Although there can be no assurances, management
believes the Partnership's allowance for possible losses is sufficient to cover
any potential losses with respect to this equipment. The Partnership's
allowance for possible losses has not yet been charged for this estimated loss
due to ongoing negotiations with a potential purchaser.
Note D -- CREDIT ARRANGEMENTS
The Partnership has a line-of-credit agreement with a bank that carries
interest (9.25% at June 30, 1996) at 1% over prime, with a minimum interest
charge of $7,500 per month. The line-of-credit agreement allows the Partnership
to borrow to the lesser of $7.25 million, or 32% of the Partnership's Qualified
Accounts, as defined in the agreement. The agreement, which expires November
30, 1997, is cancelable by the lender after giving a 90-day notice and is
secured by substantially all assets of the Partnership. This line-of-credit is
guaranteed by the General Partner and certain affiliates of the General
Partner.
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The Partnership also has an installment loan agreement which bears interest at
8.91% and is due in monthly installments through November, 1998. The agreement
is collateralized by certain direct financing leases and a second interest in
all other Partnership assets. The agreement is also guaranteed by the General
Partner. Covenants under the agreement require the Partnership, among other
things, to be profitable, not exceed 40% debt to original equity raised ratio,
and not sell a material portion of its assets.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
1996 1995 1996 1995
--------- --------- ---------- ----------
Results of Operations:
Description
- - ------------
Lease income $797,403 $934,568 $1,699,521 $1,858,976
Gain on lease termination $ 33,359 $ -0- $ 230,749 $ -0-
Management fee expense $ 84,297 $104,424 $ 177,642 $ 206,025
Interest expense $155,519 $166,737 $ 341,148 $ 289,025
Professional fees $ 56,851 $ 30,037 $ 94,676 $ 30,037
Provision for possible losses $739,228 $ 59,309 $ 673,750 $ 65,103
Depreciation $ 96,757 $ -0- $ 182,081 $ -0-
Lease income declined slightly during the six month and three month periods
ended June 30, 1996 as compared to the same periods in 1995 due to the decrease
in net investment in direct financing leases. The decrease in net investment
in direct financing leases is attributable to the early termination of certain
leases thus far in 1996 at the request of the lessee which enabled the
Partnership to recognize total gains on those terminations of $230,749. The
Partnership will reinvest the proceeds from these sales and proceeds from
regular lease payments in new equipment and continue to increase its lease
portfolio. In addition, the equipment leased under an operating lease since
July 1, 1995 has not generated income for the Partnership since its inception.
The Partnership repossessed this equipment due to a default under the original
direct financing lease agreement and subsequently re-leased the equipment under
this operating lease in order to recover its investment. See Note C for
further discussion and the Parntership's plans with respect to this equipment.
Further, as discussed below, the bankruptcy of a lessee, Value-Added
Communications, Inc. has resulted in the Partnership not receiving lease
payments and thus, not recognizing lease income since March, 1996 on over $1.8
million of leases.
Management fees are paid to the General Partner and represent 5% of the gross
rental payments received. Rental payments decreased from $4,120,500 in the six
months ended June 30, 1995 to $3,552,840 for the six months ended June 30,
1996. These decreases are primarily attributable to the early termination of
certain leases as described above and other lessees being 10-30 days delinquent
in making their lease payments as of June 30, 1996. Although there can be no
assurances, the Partnership expects these delinquent payments to be fully
collected and all future lease payments to be fully collected.
The increase in interest expense is a result of the Partnership borrowing funds
to acquire equipment for investment in direct financing leases. During the six
month period ended June 30, 1995, the Partnership still had available funds
from limited
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partnership unit sales to invest in equipment whereas during the same period in
1996, new equipment purchases were made primarily with reinvested funds and
new borrowings. (See Notes to Financial Statements - Note D )
As discussed in Note C to the financial statements, the Partnership has
repossessed certain equipment formerly under lease. This equipment is now under
terms of an operating lease or is being operated by the Partnership. As such,
depreciation is charged on this equipment in the first six months of 1996 but
not in the first six months of 1995 due to the timing of repossession.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations (Continued):
The following table represents lease payments thirty one days or more past due
on June 30, 1996.
31-60 61-90 OVER 90
LESSEE DAYS DAYS DAYS TOTAL
- - ------- ------ ---- ---- ------
Various 3,791 -0- -0- 3,791
------ ---- ---- ------
$3,791 $-0- $-0- $3,791
====== ==== ==== ======
The total over 30 days past due represents .01% of the Partnership's lease
payments receivable.
In October, 1995, a lessee of the Partnership, Value-Added Communications
("VAC"), filed a Voluntary Petition for Relief under Chapter 11 of the
Bankruptcy Code. At the time of the bankruptcy filing, the Partnership's net
investment in direct financing leases with VAC totaled approximately $2.1
million which amount was reduced to approximately $1.8 million by March, 1996
through court ordered lease payments which payment order then expired. At
December 31, 1995, the Partnership wrote down its investment in the VAC leases
by $721,000 to a balance of approximately $1.1 million based upon the VAC
reorganization plans in place at that time and thus, Partnership management's
best estimate of recovery. In July, 1996, the reorganization plans of VAC
changed such that the Partnership would recognize a larger loss than originally
estimated. Although no agreements are yet in place, the Partnership has been
offered $400,000 cash by parties to the bankruptcy for the equipment leased to
VAC. Management believes it is in the best interests of the Partnership to
accept this cash offer and therefore, the Partnership's net investment in
direct financing leases has been written down to this net realizable value
resulting in an additional loss of $646,307 on these VAC leases. The additional
loss is recognized in the second quarter of 1996. This net realizable value of
$400,000 has reclassified to other receivables. Since there are no signed
agreements in place, there can be no assurances that the Partnership will not
incur additional losses on the remaining $400,000 receivable. Management,
however, believes its estimate of possible loss is the best estimate currently
available.
In May, 1996, the partnership exercised its right to manage the assets leased
to a customer due to default under the lease agreement. The Partnership's net
investment in the leases at the time the assets were repossessed approximated
$686,000. This equipment is currently being serviced for the Partnership under
a short-term management agreement. The Partnership's intent is to sell the
equipment or re-lease the equipment to a new lessee. The Partnership expects
to incur a loss upon the sale or re-lease of this equipment. Although there
can be no
16
assurances, management believes the Partnership's loss reserve is sufficient to
cover any potential losses with respect to this equipment
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations (Continued):
Liquidity and Capital Resources
Six Months Ended Six Months Ended
June 30 June 30
1996 1995
----------------------------------- ---------------- ----------------
Major Cash Sources:
Principal portion of lease payments
received $1,780,947 $2,251,649
Proceeds received on sale of leases 2,545,214 -0-
Net proceeds from debt -0- 2,757,262
Major Cash Uses:
Purchase of equipment and leases 3,860,147 6,374,894
Net Payments on debt 263,588 -0-
Distributions to partners 1,221,346 1,205,998
----------------------------------- ---------------- ----------------
The Partnership is required to establish working capital reserves of no less
than 1% of the proceeds to satisfy general liquidity requirements, operating
costs of equipment, and the maintenance and refurbishment of equipment. These
funds are available under the Parntership's line-of-credit.
The demand for equipment leases remains strong and the Partnership's available
cash will be used to acquire equipment for investment in direct financing
leases.
At the present time, the Partnership has not encountered any significant
competition. The Partnership, therefore, is able to obtain its desired lease
rates.
At June 30, 1996, adequate cash is being generated to make projected
distributions and allow for reinvestment of a portion of the cash to fund
additional leases. The General Partner expects that income from future rentals
will provide sufficient cash to maintain the historic rate of distributions
into the foreseeable future.
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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_______________ __________________________________________
David R. Harvey, President
Date_______________ _________________________________________
R. Brooks Sherman, Jr., Chief Financial Officer,
Treasurer