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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 June 30, 1998 Commission File Number 0-25574
TELECOMMUNICATIONS INCOME FUND X, L.P.
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(Exact name of Registrant as specified in its charter)
Iowa 0-25574
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Second Street S.E., Cedar Rapids, Iowa 52401
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(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")
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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 June 30, 1998, 89,813 Units were issued and outstanding. Based on the book
value of $129.80 per Unit, the aggregate market value at June 30, 1998 was
$11,662,760.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Balance sheets - June 30, 1998 and December 31, 1997.
Statements of income and comprehensive income - Three months ended June
30, 1998 and three months ended June 30, 1997.
Six months ended June 30, 1998 and six months ended June 30, 1997.
Statement of changes in partners' equity - six months ended June 30,
1998.
Statements of cash flows - six months ended June 30, 1998 and six
months ended June 30, 1997.
Notes to financial statements.
Item 2. Management's discussion and analysis of financial condition and results
of operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Signatures
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TELECOMMUNICATIONS INCOME FUND X, L.P.
BALANCE SHEETS (UNAUDITED)
June 30, 1998 December 31, 1997
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ASSETS
Cash and cash equivalents $ 201,914 $ 5,928
Available-for-sale security 119,905 140,888
Net investment in direct financing leases
and notes receivable(Note B) 14,357,302 21,827,573
Allowance for possible losses (530,154) (3,855,618)
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Direct financing leases and notes receivable, net 13,827,148 17,971,555
Equipment held for sale 63,266 112,000
Intangibles less accumulated amortization
of $25,971 at June 30, 1998 and $30,489
at December 31, 1997 2,577 7,009
Other assets 110,917 561,375
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TOTAL ASSETS $ 14,325,727 $ 18,799,155
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LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C) $ 1,906,398 $ 5,354,801
Due to affiliates 21,663 23,256
Distributions payable to partners 202,079 202,250
Accrued expenses and other liabilities 155,699 223,092
Lease security deposits 223,437 509,544
Note payable (Note C) 153,691 583,233
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TOTAL LIABILITIES 2,662,967 6,896,176
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PARTNERS' EQUITY, 100,000 units authorized:
General partner, 40 units issued and outstanding 8,426 8,272
Limited partners, 89,773 units at June 30, 1998
and 89,849 units at December 31 1997
issued and outstanding 11,697,823 11,927,080
Accumulated other comprehensive loss (43,489) (32,373)
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TOTAL PARTNERS' EQUITY 11,662,760 11,902,979
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TOTAL LIABILITIES AND PARTNERS' EQUITY $ 14,325,727 $ 18,799,155
============ ============
See accompanying notes
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
June 30, 1998 June 30, 1997
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INCOME:
Lease income $ 389,713 $ 684,184
Interest income 36,616 -0-
Gain on lease terminations 292,163 133
Other 22,713 241
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Total income 741,205 684,558
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EXPENSES:
Management fees 46,248 78,002
Administrative services 22,912 21,955
Interest 70,692 80,386
Professional fees 41,521 58,956
Provision for possible losses 6,001 45,480
Depreciation 24,366 131,234
Other 44,059 29,542
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Total expenses 255,799 445,555
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Net income 485,406 239,003
Other comprehensive income:
Unrealized gain on available
for sale security 23,980 -0-
Comprehensive income $ 509,386 $ 239,003
============ ============
Net income per partnership unit $ 5.40 $ 2.66
============ ============
Weighted average partnership units outstanding 89,833 90,007
See accompanying notes
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
Six Months Ended
June 30, 1998 June 30, 1997
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INCOME:
Lease income $ 1,082,901 $ 1,419,101
Interest income 75,236 -0-
Gain on lease terminations 450,997 37,070
Other 33,779 9,437
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Total income 1,642,913 1,465,608
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EXPENSES:
Management fees 113,392 168,331
Administrative services 46,778 45,822
Interest 225,316 148,867
Professional fees 88,628 65,522
Provision for possible losses 19,003 49,980
Depreciation 48,734 145,980
Other 98,041 47,466
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Total expenses 639,892 671,968
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Net income 1,003,021 793,640
Other comprehensive loss:
Unrealized loss on available
for sale security (20,984) -0-
Comprehensive income $ 982,037 $ 793,640
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Net income per partnership unit $ 11.16 $ 8.80
============ ============
Weighted average partnership units outstanding 89,861 90,164
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
Unrealized
Gain (Loss)
General Gain on on Available
Partner Limited Partners Redeemed for-Sale Partners'
(40 Units) Units Amount Units Security Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ 8,272 89,849 $ 11,927,080 $ -0- $ (32,373) $ 11,902,979
Net income 358 -- 517,257 -0- -0- 517,615
Distributions (270) -- (606,481) -0- -0- (606,751)
Change in accumulated
comprehensive loss -0- -- -0- -0- (44,964) (44,964)
------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 1998 8,360 89,849 11,837,856 -0- (77,337) 11,768,879
Withdrawal of limited partners -0- (76) (19,000) -0- -0- (19,000)
Net income 336 -- 485,070 -0- -0- 485,406
Distributions (270) -- (606,103) -0- -0- (606,373)
Change in accumulated
comprehensive loss -0- -- -0- -0- 23,982 23,982
Gain on redeemed units -0- -- -0- 9,866 -0- 9,866
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 $ 8,426 89,773 $ 11,697,823 $ 9,866 $ (53,355) $ 11,662,760
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See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
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OPERATING ACTIVITIES
Net Income $ 1,003,021 $ 793,640
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 4,430 4,431
Provision for possible losses 19,003 49,980
Gain on lease terminations (450,997) (37,070)
Depreciation 48,735 145,980
Changes in operating assets and liabilities:
Other assets (33,455) 27,054
Due to affiliates (1,593) (60,484)
Accrued expenses and other liabilities (67,391) 82,795
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Net cash provided by operating activities 521,753 1,006,326
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for,
direct financing leases (633,415) (532,000)
Repayments of direct financing leases 1,107,026 1,809,313
Purchase of equipment for an operating lease -0- (2,800,000)
Proceeds from early termination of direct financing leases 4,487,861 623,672
Net lease security deposits repaid (187,036) (34,313)
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Net cash provided by (used in) investing activities 4,774,436 (933,328)
FINANCING ACTIVITIES
Net proceeds from (payments on) line-of-credit (3,448,403) 1,148,870
Repayments of long term debt (429,542) (392,680)
Distributions paid to partners (1,213,124) (1,217,702)
Redemption of partnership units (9,134) (102,740)
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Net cash used in financing activities (5,100,203) (564,252)
Net increase (decrease) in cash and cash equivalents 195,986 (491,254)
Cash and cash equivalents at beginning of period 5,928 516,612
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Cash and cash equivalents at end of period $ 201,914 $ 25,358
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 253,352 $ 149,775
North American miscellaneous receivable written off 493,913 -0-
North American security deposits of leases written off 99,071 -0-
See accompanying notes
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TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. 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, 1997.
NOTE B -- NET INVESTMENT IN DIRECT FINANCING LEASES
Components of the net investment in direct financing leases are as follows:
June 30, 1998 December 31, 1997
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Lease payments receivable $ 15,391,045 $ 22,500,795
Estimated residual values of leased equipment 1,015,848 2,256,257
Unamortized initial direct costs 49,163 93,855
Unearned lease income (3,124,097) (4,527,844)
Notes receivable 1,025,343 1,504,510
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Net investment in direct financing leases $ 14,357,302 $ 21,827,573
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Note C -- CREDIT ARRANGEMENTS
The Partnership had a line of credit agreement with a bank which expired June
30, 1998. In the absence of a line of credit agreement with the bank, all
payments received by the Partnership are required to go towards reducing the
loan balance with the bank under the expired agreement. The bank could issue a
demand notice whereby the entire line of credit balance would be due
immediately. The Partnership does not anticipate this happening, as the bank is
adequately collateralized on the existing debt. The General Partner is working
to establish a similar agreement with the current lender and is also looking to
other lenders to provide a line of credit to the Partnership.
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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months Ended Six Months Ended
1998 1997 1998 1997
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Results of Operations:
Description
Lease income $ 389,713 $ 684,184 $1,082,901 $1,419,101
Interest income 36,616 -0- 75,236 -0-
Gain on lease terminations 292,163 133 450,997 37,070
Management fee expense 46,248 78,002 113,392 168,331
Interest expense 70,692 80,386 225,316 148,867
Depreciation 24,366 131,234 48,734 145,980
Provision for possible losses 6,001 45,480 19,003 49,980
Lease income declined during the three month period ended June 30, 1998 as
compared to the same period last year, primarily due to the decline in the
Partnership's lease portfolio. The Partnership's net investment in direct
financing leases has declined approximately $5.2 million from the balance at
June 30, 1997. This decrease is attributable to the early termination of certain
leases in 1997 and 1998 at the request of the lessee, which enabled the
Partnership to recognize gains on the 1998 terminations of $450,997.
Management fees paid to the General Partner represent 5% of the lease and note
payments received. These payments have decreased approximately $635,000 in the
second quarter of 1998 compared to the same period a year ago. This decrease is
due to the early termination of leases as described above and other leases being
delinquent in making their lease payments as noted below.
The decrease in interest expense is a result of the Partnership using the
proceeds of various lease terminations to reduce the balance of its line of
credit.
During the second quarter of 1997, the Partnership entered into an agreement to
finance $2.8 million of equipment. The transaction was classified as an
operating lease which generated approximately $93,000 of depreciation in the
second quarter of 1997. This agreement was subsequently restructured and
reclassified to a direct finance lease.
The General Partner has established general and specific loss reserves as
follows:
June 30, 1998 June 30, 1997
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General Reserve $516,053 $374,568
Specific Reserve - UTS 14,101 28,006
Specific Reserve - VAC -0- 21,000
The General Partner has determined all loss reserves are adequate at June 30,
1998.
As previously discussed in the Partnership's 10-K Report for 1997, the
Partnership provided for a specific loss reserve of $3,319,159 at December 31,
1997, equal to the carrying value of the assets leased to North
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
American Communications Group, Inc. ("NACG"). The Partnership foreclosed on
these assets in February, 1998. As a result, the assets were removed from the
Partnership's books and charged to the specific reserve established at December
31, 1997. An additional $7,069 of assets associated with NACG were also written
off in the first quarter of 1998. The Partnership will continue to attempt to
sell and/or re-lease these assets. Any amounts received through such efforts
will be treated as a recovery of previous charges.
Lease and note payments receivable of 31 or more days past due amounted to
$1,240,574 (contract balance remaining of $4,022,005) at June 30, 1998. This
represents 7.569% of the Partnership's lease payments receivable. The General
Partner continues to monitor these leases and will take whatever steps are
necessary to protect the Partnership's interest in these assets.
As of June 30, 1998, there were ten customers with payments over 90 days past
due. The contract balance on these accounts was $3,610,426. The General Partner
has reviewed these contracts and determined the Partnership's investment in
these contracts is sufficiently collateralized.
One lessee, Digital Technologies, has 27 contracts with amounts past due over 90
days. The contract balance remaining on these contracts was $2,379,883 at June
20, 1998. The Partnership's net investment in these contracts at June 30, 1998
was $2,311,690. The value of the equipment associated with this lease exceeds
the Partnership's remaining net investment in the equipment. Subsequent to June
30, 1998, management has entered into an agreement for the sale of the equipment
associated with the Digital leases. This sale will be in the form of a note
agreement and will result in a deferred gain of approximately $318,000 for the
Partnership.
The Partnership recognizes that the arrival of the Year 2000 poses a unique
challenge to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and, like other companies, has assessed its
computer applications and business processes to provide for their continued
functionality. An assessment of the readiness of external entities which it
interfaces with, such as vendors, counterparties, customers, payment systems,
and others, is ongoing. The Partnership does not expect the cost to address the
Year 2000 will be material.
The Partnership has determined that the software it utilizes in its operations
is compatible with the Year 2000. The Partnership has not yet fully determined
whether the Year 2000 issue has been addressed by all of its customers. If the
Partnership's customers have not addressed this issue, it could lead to
non-payments of amounts owed to the Partnership. The Partnership has contacted
all of its customers regarding this issue. The customers contacted have
indicated various stages of readiness. The Partnership will continue to
determine customer Year 2000 compliance by follow-up with customers who have
indicated non-compliance.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended
June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------
Major Cash Sources:
Principal portion of lease payments received $1,107,026 $1,809,313
Proceeds received on sale of leases 4,487,861 623,672
Net proceeds from debt -0- 1,148,870
Major Cash Uses:
Purchase of equipment and leases 633,415 3,332,000
Net Payments on debt 3,877,945 392,680
Distributions to partners 1,213,124 1,217,702
- ----------------------------------------------------------------------------------
The Partnership's line of credit agreement with Firstar Bank expired at June 30,
1998. The General Partner is working to establish a similar agreement with the
current lender or other lenders to provide a line of credit agreement to the
Partnership. In the absence of a line of credit agreement with Firstar, all
payments received by the Partnership are required to go towards reducing the
loan balance with Firstar under the expired agreement. The loan balance at
December 31, 1997 was $5,354,801. The Partnership has made payments of
approximately $3,653,411 since the first of the year to reduce the balance to
$1,701,390 at July 31, 1998. If a new line of credit is unattainable,
distributions would need to be reduced to reflect cash flow from the existing
portfolio.
Lease income would also decline due to lack of funds to invest in new leases.
See Footnote C for further discussion.
Digital Technologies has not made a payment since October 1997. The sale of this
equipment (see discussion above) to a new customer will result in a monthly
payment of approximately $70,600, which will help to improve the Partnership's
cash flow situation.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
As reported in the Partnership's 10-K filing for 1997, a foreclosure proceeding
was filed on February 20, 1998 by the Partnership and affiliated partnership,
Telecommunications Income Fund IX, L.P., against the North American
Communication Group, Inc. ("NACG") Leases.
On February 20, 1998, the Partnership filed a Petition to Foreclose Security
Interests in the amount of $4,192,979 against NACG, CWC Communications, Inc.,
North American Communications Corporation (Missouri) d/b/a North American
Communications of Georgia, Inc., North American Communications of Mississippi,
Incorporated, North American Communications Group, Inc. d/b/a North American
Communications of Louisiana, Inc. Troy P. Campbell, Sr. as Guarantor and Archie
W. Welch, Jr. as Guarantor, in the Iowa District Court for Linn County located
in Cedar Rapids, Iowa. The Defendants appeared in court and asked for additional
time to file their answer which was granted by the court.
On approximately May 20, 1998, Defendants filed a Motion to Dismiss For Lack of
Personal Jurisdiction which was opposed by the Plaintiff TIFX. A Hearing was
held July 31, 1998, in order for each side to argue the motion before the court.
The parties are awaiting the decision of the judge from that hearing before the
next step in the foreclosure can take place.
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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.
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(Registrant)
Date August 10, 1998 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date August 10, 1998 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
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