<PAGE> 1
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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 MARCH 31, 1998
COMMISSION FILE NUMBER: 0-25574
TELECOMMUNICATIONS INCOME FUND X, L.P.
(Exact name of Registrant as specified in its charter)
IOWA
(State or other jurisdiction of
incorporation or organization)
42-1401715
(I.R.S. Employer
Identification No.)
100 SECOND STREET S.E., CEDAR RAPIDS, IOWA
(Address of principal executive offices)
52401
(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 April 24, 1998, 89,873 Units were issued and outstanding. Based on the
original sales price of $250 per Unit, the aggregate market value at April 24,
1998 was $22,468,250.
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<PAGE> 2
TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
Balance sheets -- March 31, 1998 and December 31, 1997
Statements of income and comprehensive income -- three months ended
March 31, 1998 and three months ended March 31, 1997
Statement of changes in partners' equity -- three months ended March
31, 1998
Statements of cash flows -- three months ended March 31, 1998 and
three months ended March 31, 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
2
<PAGE> 3
TELECOMMUNICATIONS INCOME FUND X, L.P.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 48,126 $ 5,928
Available-for-sale security............................... 95,924 140,888
Net investment in direct financing leases and notes
receivable (Note B).................................... 17,575,044 21,827,573
Allowance for possible losses............................. (549,461) (3,855,618)
----------- -----------
Direct financing leases and notes receivable, net......... 17,025,583 17,971,955
Equipment held for sale................................... 87,633 112,000
Intangibles, less accumulated amortization of $23,756 at
March 31, 1998 and $30,489 at December 31, 1997........ 4,792 7,009
Other assets.............................................. 170,980 561,375
----------- -----------
Total Assets................................................ $17,433,038 $18,799,155
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Line of credit agreement (Note C)......................... $ 3,939,570 $ 5,354,801
Due to affiliates......................................... 569,009 23,256
Distributions payable to partners......................... 202,250 202,250
Accrued expenses and other liabilities.................... 219,908 223,092
Lease security deposits................................... 362,642 509,544
Note payable (Note C)..................................... 370,780 583,233
----------- -----------
Total Liabilities...................................... 5,664,159 6,896,176
----------- -----------
Partners' Equity, 100,000 units authorized:
General partner, 40 units issued and outstanding.......... 8,360 8,272
Limited partners, 89,849 units at March 31, 1998 and
December 31, 1997 issued and outstanding............... 11,837,856 11,927,080
Accumulated other comprehensive loss...................... (77,337) (32,373)
----------- -----------
Total Partners' Equity.................................... 11,768,879 11,902,979
----------- -----------
Total Liabilities & Partners' Equity........................ $17,433,038 $18,799,155
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
INCOME:
Lease income.............................................. $693,188 $734,917
Interest income........................................... 38,620 -0-
Gain on lease terminations................................ 158,834 36,937
Other..................................................... 11,066 9,196
-------- --------
Total Income................................................ 901,708 781,050
-------- --------
EXPENSES:
Management fees........................................... 67,144 90,329
Administrative services................................... 23,866 23,867
Interest.................................................. 154,624 68,481
Professional fees......................................... 47,107 6,566
Provision for possible losses............................. 13,002 4,500
Depreciation.............................................. 24,368 14,746
Other..................................................... 53,982 17,924
-------- --------
Total expenses.............................................. 384,093 226,413
-------- --------
Net income.................................................. 517,615 554,637
Other comprehensive income:
Unrealized gain (loss) on available-for-sale security..... (44,964) 5,098
-------- --------
Comprehensive income........................................ $472,651 $559,735
======== ========
Net income per partnership unit............................. $ 5.76 $ 6.14
======== ========
Weighted average partnership units outstanding.............. 89,889 90,368
</TABLE>
See accompanying notes.
4
<PAGE> 5
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED PARTNERS ACCUMULATED TOTAL
PARTNER -------------------- COMPREHENSIVE PARTNERS'
(40 UNITS) UNITS AMOUNT LOSS EQUITY
---------- ----- ------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997........ $8,272 89,849 $11,927,080 $(32,373) $11,902,979
Net income.......................... 358 -- 517,257 -- 517,615
Distributions....................... (270) -- (606,481) -- (606,751)
Change in accumulated comprehensive
loss.............................. -- -- -- (44,964) (44,964)
------ ------ ----------- -------- -----------
Balance at March 31, 1998........... $8,360 89,849 $11,837,856 $(77,337) $11,768,879
====== ====== =========== ======== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income.................................................. $ 517,615 $ 554,637
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization.............................................. 2,130 2,216
Provision for possible losses............................. 13,002 4,500
Gain on lease terminations................................ (158,834) (36,937)
Depreciation.............................................. 24,368 14,746
Changes in operating assets and liabilities:
Other assets.............................................. (93,518) 31,887
Due to affiliates......................................... 545,753 (19,602)
Accrued expenses and other liabilities.................... (3,183) 7,240
----------- -----------
Net cash provided by operating activities................... 847,333 558,687
----------- -----------
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for, direct
financing leases....................................... (433,415) (300,000)
Repayments of direct financing leases..................... 552,721 895,830
Proceeds from early termination of direct financing
leases................................................. 1,357,825 616,317
Net lease security deposits repaid........................ (47,831) (38,824)
----------- -----------
Net cash provided by investing activities................. 1,429,300 1,173,323
----------- -----------
FINANCING ACTIVITIES
Net repayments of line-of-credit.......................... (1,415,231) (1,231,088)
Repayments of long term debt.............................. (212,453) (194,429)
Distributions paid to partners............................ (606,751) (610,179)
----------- -----------
Net cash used in financing activities..................... (2,234,435) (2,035,696)
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 42,198 (303,686)
Cash and cash equivalents at beginning of period............ 5,928 516,612
----------- -----------
Cash and cash equivalents at end of period.................. $ 48,126 $ 212,926
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid............................................. $ 152,259 $ 88,183
North American miscellaneous receivable written-off....... 483,913 -0-
North American security deposits on leases written-off.... 99,071 -0-
</TABLE>
See accompanying notes.
6
<PAGE> 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 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 three months ended March 31, 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 AND NOTES RECEIVABLE
Components of the net investment in direct financing leases and notes
receivable are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Lease payments receivable........................ $19,060,356 $22,500,795
Estimated residual values of leased equip........ 1,489,090 2,256,257
Unamortized initial direct costs................. 61,666 93,855
Unearned lease income............................ (4,112,968) (4,527,844)
Notes receivable................................. 1,076,900 1,504,510
----------- -----------
Net investment in direct financing leases and
notes receivable............................... $17,575,044 $21,827,573
=========== ===========
</TABLE>
Due to cash flow problems experienced during 1997 by a lessee of the
Partnership, North American Communications Group, Inc. ("NACG"), the
Partnership, in an attempt to protect the assets leased to NACG, advanced funds
to various entities to whom NACG owed money related to the operation of such
leased assets. In addition, the Partnership assisted in arranging a management
agreement between NACG and another entity to attempt to improve NACG's cash flow
generated by the leased assets. In spite of the funds advanced by the
Partnership and the management agreement, the cash flow of NACG continued to
deteriorate. During the past several months, the General Partner actively
solicited bids from parties to purchase the assets associated with the
Partnership leases to NACG. Based on the value of similar assets and contract
sites, management believed the equipment leased to NACG had substantial value.
However, the offers received were not adequate to cover additional funds which
were required to be advanced to keep the equipment sites operating. The General
Partner, therefore, determined it was no longer economically feasible to
continue to advance funds on behalf of NACG, discontinued doing so and informed
all site operators of that decision. As a result, the Partnership decided to
provide for a specific allowance of $3,319,159 at December 31, 1997 which is
equal to the carrying value of the leases and advances associated with NACG. The
Partnership foreclosed on the assets underlying the leases and charged-off the
lease receivables to the specific allowance in February 1998.
The Partnership and an affiliated partnership, Telecommunications Income
Fund IX, have initiated a foreclosure action against NACG and the guarantors
under the leases and advances seeking the sale of the assets and a judgment
against NACG and the guarantors for any deficiency. Amounts received, if any,
will be credited to the allowance for possible loan and lease losses.
NOTE C -- CREDIT ARRANGEMENTS
The Partnership has a line-of-credit agreement with a bank that carries
interest (9.5% at March 31, 1998) 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 $6.0 million, or 40% of the Partnership's Qualified
Accounts,
7
<PAGE> 8
TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
as defined in the agreement. The agreement expires April 30, 1998 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.
The agreement has been extended for 60 days and is now due to expire Jund 30,
1998.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Description
Lease and interest income........................ 731,808 734,917
Gain on lease terminations....................... 158,834 36,937
Management fee expense........................... 67,144 90,329
Interest expense................................. 154,624 68,481
Other............................................ 53,982 17,924
</TABLE>
Lease and interest income remained steady during the three month period
ended March 31, 1998 as compared to the same period in 1997. The decrease in net
investment in direct financing leases 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 $158,834. During
the first quarter of 1997, the Partnership realized gains of $36,937 on the
early termination of certain leases at the request of the lessee.
Management fees are paid to the General Partner and represent 5% of the
gross rental payments received. Rental payments decreased from $1,806,580 in the
three months ended March 31, 1997 to $1,342,880 for the three months ended March
31, 1998. These decreases are attributed to the early termination of certain
leases as described above and other lessees being delinquent in making their
lease payments as noted below. 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's higher
loan balances in the 1st quarter of 1998 compared to the same period in 1997,
which is due in part to the non-payment of amounts owed to the Partnership by
various lessees.
The General Partner has established general and specific loss reserves as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
General Reserve.................................... $534,455 $306,898
Specific Reserve -- UTS............................ 15,006 28,006
Specific Reserve -- VAC............................ -0- 21,000
</TABLE>
The General Partner has determined all loss reserves are adequate at March
31, 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
8
<PAGE> 9
TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
in the 1st 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 payments receivable of 31 or more days past due amounted to $770,551
(contract balance remaining of $3,445,521) at March 31, 1998. This represents
4.04% 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 March 31, 1998, there were eight customers with payments over 90 days
past due. The contract balance on these accounts was $2,959,348. 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 March 31, 1998. The Partnership's net investment in these contracts at March
31, 1998 was $2,311,690. The value of the equipment associated with this lease
exceeds the Partnership's remaining net investment in the equipment. In
addition, the lessee is actively seeking a buyer for the equipment. As such, due
to the value of the assets and the potential buyout of this lease, management
has decided not to provide a provision for possible losses for these contracts.
There are no assurances that the sale will materialize, and other events may
occur that may deteriorate the current value of these assets. Management is
monitoring these contracts and will take whatever steps are necessary to protect
the Partnership's investment in these contracts.
The primary reason other expense increased in the first quarter of 1998 was
due to $25,761 of costs incurred as a result of the foreclosure action against
NACG and a $6,900 increase in data processing costs.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
------------------ ------------------
<S> <C> <C>
MAJOR CASH SOURCES:
Principal portion of lease payments received............. $ 552,721 $ 895,830
Proceeds received on sale of leases...................... 1,357,825 616,317
MAJOR CASH USES:
Purchase of equipment and leases......................... 433,415 300,000
Net Payments on debt..................................... 1,627,684 1,425,517
Distributions to partners................................ 606,751 610,179
</TABLE>
The Partnership's line of credit agreement is cancelable by the lender
after giving a 90 day notice. The agreement originally matured in November 1997.
The Partnership has extended the agreement through April 30, 1998. The only
modification was to reduce the borrowing amount to the lessor of $6 million, or
40% of the Partnership's Qualified Accounts, as defined by the agreement.
Management believes amounts available under the line of credit are adequate for
the foreseeable future. The agreement has been extended and is now due to expire
June 30, 1998.
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 Partnership's line of credit.
At March 31, 1998, adequate cash is being generated to make projected
distributions, however, net income continues to remain below amounts
distributed.
9
<PAGE> 10
TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
PART II
ITEM 1. LEGAL PROCEEDINGS
As reported in the Partnership's 10-K filing for 1997, a foreclosure
proceeding was filed February 20, 1998 against the North American Communications
Group, Inc. leases.
10
<PAGE> 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)
<TABLE>
<S> <C>
Date 5-11-98 /s/ RONALD O. BRENDENGEN
------------------------------------------------------------------------------
Ronald O. Brendengen, Chief Financial Officer, Treasurer
Date 5-11-98 /s/ DANIEL P.WEGMANN
------------------------------------------------------------------------------
Daniel P.Wegmann
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET OF TELECOMMUNICATIONS INCOME FUND X, L.P. AND STATEMENTS
OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 48,126
<SECURITIES> 95,924
<RECEIVABLES> 17,575,044
<ALLOWANCES> (549,461)
<INVENTORY> 175,773
<CURRENT-ASSETS> 17,345,406
<PP&E> 471,743
<DEPRECIATION> (384,111)
<TOTAL-ASSETS> 17,433,038
<CURRENT-LIABILITIES> 5,664,159
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,768,879
<TOTAL-LIABILITY-AND-EQUITY> 17,433,038
<SALES> 0
<TOTAL-REVENUES> 901,708
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 216,467
<LOSS-PROVISION> 13,002
<INTEREST-EXPENSE> 154,624
<INCOME-PRETAX> 517,615
<INCOME-TAX> 0
<INCOME-CONTINUING> 517,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 517,615
<EPS-PRIMARY> 5.76
<EPS-DILUTED> 5.76
</TABLE>
