<PAGE> 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, 1998 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.)
100 Second Street S.E., 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 September 30, 1998, 89,653 Units were issued and outstanding. Based on
the book value of $127.73 per Unit, the aggregate market value at September 30,
1998 was $11,451,546.
<PAGE> 2
TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
<TABLE>
Page
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Balance sheets - September 30, 1998 and December 31, 1997. 3
Statements of income and comprehensive income -
Three months ended September 30, 1998 and
three months ended September 30, 1997 4
Nine months ended September 30, 1998 and
nine months ended September 30, 1997 5
Statement of changes in partners' equity -
nine months ended September 30, 1998 6
Statements of cash flows - nine months ended September 30, 1998
and nine months ended September 30, 1997 7
Notes to financial statements 8
Item 2. Management's discussion and analysis of financial condition and results
of operations 9
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 12
Signatures
</TABLE>
2
<PAGE> 3
TELECOMMUNICATIONS INCOME FUND X, L.P.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 651,767 $ 5,928
Available-for-sale security 4,496 140,888
Net investment in direct financing leases
and notes receivable(Note B) 11,833,126 21,827,573
Allowance for possible losses (338,637) (3,855,618)
------------- --------------
Direct financing leases and notes receivable, net 11,494,489 17,971,955
Equipment held for sale 38,899 112,000
Intangibles less accumulated amortization
of $28,186 at September 30, 1998 and
$30,489 at December 31, 1997 362 7,009
Other assets 68,113 561,375
------------- --------------
TOTAL ASSETS $ 12,258,126 $ 18,799,155
============= ==============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C) $ -0- $ 5,354,801
Due to affiliates 280,409 23,256
Distributions payable to partners 201,719 202,250
Accrued expenses and other liabilities 151,985 223,092
Lease security deposits 172,467 509,544
Note payable (Note C) -0- 583,233
------------- --------------
TOTAL LIABILITIES 806,580 6,896,176
------------- --------------
PARTNERS' EQUITY, 100,000 units authorized:
General partner, 40 units issued and outstanding 8,523 8,272
Limited partners, 89,613 units at September 30, 1998
and 89,849 units at December 31 1997
issued and outstanding 11,582,350 11,927,080
Gain on redeemed partnership units 29,437 -0-
Accumulated other comprehensive loss (168,764) (32,373)
------------- --------------
TOTAL PARTNERS' EQUITY 11,451,546 11,902,979
------------- --------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 12,258,126 $ 18,799,155
============= ==============
See accompanying notes.
</TABLE>
3
<PAGE> 4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
INCOME:
Lease income $ 397,386 $ 826,356
Interest income 31,745 14,590
Gain on lease terminations 318,827 24,003
Other 19,780 49,792
------------ -------------
Total income 767,738 914,741
------------ -------------
EXPENSES:
Management fees 44,273 99,028
Administrative services 20,999 21,000
Interest 27,318 118,779
Professional fees 25,948 1,292
Provision for possible losses 54,056 17,025
Depreciation 24,368 164,368
Other 40,814 61,021
------------ -------------
Total expenses 237,776 482,513
------------ -------------
Net income 529,962 432,228
Other comprehensive loss:
Unrealized loss on available
for sale security (115,408) -0-
------------ -------------
Comprehensive income $ 414,554 $ 432,228
============ =============
Net income per partnership unit $ 5.91 $ 4.81
============ =============
Weighted average partnership units outstanding 89,680 89,892
</TABLE>
See accompanying notes.
4
<PAGE> 5
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
INCOME:
Lease income $ 1,480,287 $ 2,245,457
Interest income 106,981 14,590
Gain on lease terminations 769,824 61,073
Other 53,559 59,229
------------ ------------
Total income 2,410,651 2,380,349
------------ ------------
EXPENSES:
Management fees 157,665 267,359
Administrative services 67,777 66,822
Interest 252,634 267,646
Professional fees 114,576 66,814
Provision for possible losses 73,059 67,005
Depreciation 73,102 310,348
Other 138,855 108,487
------------ ------------
Total expenses 877,668 1,154,481
------------ ------------
Net income 1,532,983 1,225,868
Other comprehensive loss:
Unrealized loss on available
for sale security (136,392) -0-
------------ ------------
Comprehensive income $ 1,396,591 $ 1,225,868
============ ============
Net income per partnership unit $ 17.07 $ 13.61
============ ============
Weighted average partnership units outstanding 89,800 90,084
</TABLE>
See accompanying notes.
5
<PAGE> 6
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
General Gain on on Available
Partner Limited Partners Redeemed for-Sale Partners'
(40 Units) Units Amount Units Security Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
Withdrawal of limited partners -0- (160) (40,000) -0- -0- (40,000)
Net income 367 -- 529,595 -0- -0- 529,962
Distributions (270) -- (605,068) -0- -0- (605,338)
Change in accumulated
comprehensive loss -0- -- -0- -0- (115,409) (115,409)
Gain on redeemed units -0- -- -0- 19,571 -0- 19,571
----------------------------------------------------------------------------------
Balance at September 30, 1998 $ 8,523 89,613 11,582,350 $ 29,437 (168,764) 11,451,546
==================================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 7
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,532,983 $ 1,225,868
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 6,647 6,647
Provision for possible losses 73,059 67,005
Gain on lease terminations (769,823) (61,073)
Depreciation 73,102 310,348
Changes in operating assets and liabilities:
Other assets 9,349 (340,290)
Due to affiliates 257,153 (45,530)
Accrued expenses and other liabilities (71,107) 91,089
------------- -------------
Net cash provided by operating activities 1,111,363 1,254,064
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for,
direct financing leases (2,668,204) (1,160,272)
Issuance of notes receivable -0- (535,000)
Repayments of direct financing leases 1,429,792 3,036,584
Repayments of notes receivable -0- 5,066
Purchase of equipment for an operating lease -0- (2,800,000)
Proceeds from early termination of direct financing leases 8,896,024 880,728
Net lease security deposits repaid (337,077) (51,386)
------------- -------------
Net cash provided by (used in) investing activities 7,320,535 (624,280)
FINANCING ACTIVITIES
Net proceeds from (payments on) line-of-credit (5,354,801) 1,414,881
Repayments of long term debt (583,233) (595,496)
Distributions paid to partners (1,818,462) (1,824,139)
Redemption of partnership units (29,563) (112,530)
------------- -------------
Net cash used in financing activities (7,786,059) (1,117,284)
Net increase (decrease) in cash and cash equivalents 645,839 (487,500)
Cash and cash equivalents at beginning of period 5,928 516,612
------------- -------------
Cash and cash equivalents at end of period $ 651,767 $ 29,112
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 295,139 $ 266,831
North American miscellaneous receivable written off 493,913 -0-
North American security deposits of leases written off 99,071 -0-
Crescent note conversion of all Digital leases 2,631,890 -0-
</TABLE>
See accompanying notes.
7
<PAGE> 8
TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 nine months ended September 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:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Lease payments receivable $ 13,002,000 $ 22,500,795
Estimated residual values of leased equipment 733,059 2,256,257
Unamortized initial direct costs 28,889 93,855
Unearned lease income (2,913,617) (4,527,844)
Notes receivable 982,795 1,504,510
------------- -------------
Net investment in direct financing leases $ 11,833,126 $ 21,827,573
============= =============
</TABLE>
NOTE C -- CREDIT ARRANGEMENTS
The Partnership had a line of credit agreement with a bank which expired June
30, 1998. On September 3, 1998, the Partnership entered into a similar
agreement with the previous lender. The new line of credit agreement carries
interest at 1% over prime or 9.25% at September 30, 1998. The agreement allows
the Partnership to borrow the lessor of $4.0 million, or 40% of the
Partnership's Qualified Accounts as defined in the agreement. The agreement
expires June 30, 2000 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.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Results of Operations:
Description
- ----------------------
Lease income $397,386 $826,356 $1,480,287 $2,245,457
Interest income 31,745 14,590 106,981 14,590
Gain on lease terminations 318,827 24,003 769,824 61,073
Management fee expense 44,273 99,028 157,665 267,359
Interest expense 27,318 118,779 252,634 267,646
Depreciation 24,368 164,368 73,102 310,348
Provision for possible losses 54,056 17,025 73,059 67,005
</TABLE>
Lease income declined during the three month period ended September 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 $5.9 million from the balance at
September 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 $769,824.
Management fees paid to the General Partner represent 5% of the lease and note
payments received. These payments have decreased approximately $1.1 million in
the third 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. Lease income and interest expense will increase as the Partnership
utilizes funds from its line of credit agreement to invest in new leases.
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 $140,000 of depreciation in the
third quarter of 1997. This agreement was subsequently restructured and
reclassified to a direct finance lease.
The Partnership received 47,962 shares of common stock of Phonetel Corporation
as part of a lease financing agreement in 1997. The Partnership has been
valuing these shares at market. Due to operational losses sustained by
Phonetel, the market value of Phonetel's common stock has decreased
significantly, resulting in an unrealized loss of approximately $168,764 as of
September 30, 1998.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The General Partner has established general and specific loss reserves as
follows:
September 30, 1998 September 30, 1997
------------------ ------------------
General Reserve $316,819 $369,403
Specific Reserve - UTS -0- 15,006
Specific Reserve - VAC -0- 21,000
Specific Reserve - Property Taxes 21,818 -0-
The General Partner has determined all loss reserves are adequate at September
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 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
$146,819 (contract balance remaining of $5,364,787) at September 30, 1998. This
represents 1.01% of the Partnership's lease and note 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 September 30, 1998, there were three customers with payments over 90 days
past due. The contract balance on these accounts was $792,754. The General
Partner has reviewed these contracts and determined the Partnership's investment
in these contracts is sufficiently collateralized.
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.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
Nine Months Ended
September 30, 1998 September 30, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Major Cash Sources:
- -------------------
Principal portion of lease payments received $1,429,792 $2,933,812
Proceeds received on sale of leases 8,896,024 880,728
Net proceeds from debt -0- 1,414,881
Major Cash Uses:
- ----------------
Purchase of equipment and leases 2,668,204 1,160,272
Net Payments on debt 5,938,034 595,496
Distributions to partners 1,818,462 1,824,139
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Partnership has entered into a new line of credit agreement which allows it
to borrow the lessor of $4.0 million or 40% of the Partnership's Qualified
Accounts. See footnote C for further discussion. The line of credit agreement
will allow the Partnership to expand its existing portfolio which will, in turn,
increase its cash flow.
11
<PAGE> 12
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.
In May 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. In
August, the Court ruled that it had personal jurisdiction against the corporate
defendants, but that the Court did not have jurisdiction against the individual
Guarantors. As a result of that ruling, the Plaintiff TIFX filed a Notice of
Appeal on September 14, 1998 and a Brief in support of that Notice of Appeal
will be filed in the very near future.
The corporate defendants filed an Answer denying the allegations in the
Petition. Discovery is now going forward in the litigation against the
corporate defendants at the same time as the Appeal is moving forward against
the individual Guarantors.
12
<PAGE> 13
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 10, 1998 Ronald O. Brendengen/s/
----------------- ----------------------------------------------
Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date: November 10, 1998 Daniel P. Wegmann/s/
----------------- ----------------------------------------------
Daniel P. Wegmann, Controller
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEETS OF TELECOMMUNICATIONS INCOME FUND X, L.P. AS OF
SEPTEMBER 30,1998, AND THE UNAUDITED STATEMENTS OF INCOME FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 651,767
<SECURITIES> 4,496
<RECEIVABLES> 11,833,126
<ALLOWANCES> (338,637)
<INVENTORY> 0
<CURRENT-ASSETS> 12,150,752
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,258,126
<CURRENT-LIABILITIES> 806,580
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,451,546
<TOTAL-LIABILITY-AND-EQUITY> 12,258,126
<SALES> 0
<TOTAL-REVENUES> 2,410,651
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 551,975
<LOSS-PROVISION> 73,059
<INTEREST-EXPENSE> 252,634
<INCOME-PRETAX> 1,532,983
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,532,983
<DISCONTINUED> 0
<EXTRAORDINARY> (136,392)
<CHANGES> 0
<NET-INCOME> 1,396,591
<EPS-PRIMARY> 17.07
<EPS-DILUTED> 17.07
</TABLE>
