<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 March 31, 1999 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 April 27, 1999, 89,267 units were issued and outstanding. Based on the
book value at March 31, 1999 of $132.26 per unit, the aggregate market value at
April 27, 1999 was $11,806,453.
<PAGE> 2
TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
Page
Part I. FINANCIAL INFORMATION ----
- ------------------------------
Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 1999 and December 31, 1998 3
Statements of Income and Comprehensive Income - three months
ended March 31, 1999 and three months ended March 31, 1998 4
Statement of Changes in Partners' Equity - three months ended
March 31, 1999 5
Statements of Cash Flows - three months ended March 31, 1999
and three months ended March 31, 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 11
Signatures 12
2
<PAGE> 3
TELECOMMUNICATIONS INCOME FUND X, L.P.
BALANCE SHEETS (UNAUDITED)
March 31, 1999 December 31, 1998
-------------- -----------------
ASSETS
Cash and cash equivalents $ 79,905 $ 67,570
Available-for-sale securities 2,016,637 1,451,946
Net investment in direct financing
leases and notes receivable (Note B) 13,065,419 11,475,014
Allowance for possible losses (548,421) (445,718)
----------- -----------
Direct financing leases and notes
receivable, net 12,516,998 11,029,296
Equipment held for sale 57,776 57,776
Other assets 33,652 8,809
----------- -----------
TOTAL ASSETS $14,704,968 $12,615,397
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C) $ 2,292,926 $ 15,433
Outstanding checks in excess of
bank balance -0- 436,199
Due to affiliates 67,156 24,602
Distributions payable to partners 201,076 201,719
Accrued expenses and other liabilities 156,420 110,868
Lease security deposits 167,851 170,958
----------- -----------
TOTAL LIABILITIES 2,885,429 959,779
----------- -----------
PARTNERS' EQUITY, 100,000 units authorized:
General partner, 40 units issued
and outstanding 7,765 7,934
Limited partners, 89,327 and 89,613 units
issued and outstanding at March 31,
1999 and December 31, 1998 10,738,648 11,139,249
Unrealized gain on available-for-sale
securities 1,073,126 508,435
----------- -----------
TOTAL PARTNERS' EQUITY 11,819,539 11,655,618
----------- -----------
TOTAL LIABILITIES & PARTNERS' EQUITY $14,704,968 $12,615,397
=========== ===========
See accompanying notes.
3
<PAGE> 4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
INCOME:
Lease income $ 398,903 $ 693,188
Interest income 54,342 38,620
Gain on lease terminations 1,735 158,834
Other 10,619 11,066
----------- -----------
Total Income 465,599 901,708
----------- -----------
EXPENSES:
Management fees 54,888 67,144
Administrative services 21,000 23,866
Interest 34,867 154,624
Professional fees 47,054 47,107
Provision for possible losses 64,103 13,002
Depreciation -0- 24,368
Other 18,156 53,982
----------- -----------
Total expenses 240,068 384,093
----------- -----------
Net income 225,531 517,615
Other comprehensive income:
Unrealized gain (loss) on
available-for-sale securities 564,691 (44,964)
----------- -----------
Comprehensive income $ 790,222 $ 472,651
=========== ===========
Net income per partnership unit $ 2.52 $ 5.76
=========== ===========
Weighted average partnership
units outstanding 89,471 89,889
See accompanying notes.
4
<PAGE> 5
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
General Unrealized Total
Partner Limited Partners Gain on Partners'
(40 Units) Units Amount Securities Equity
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 7,934 89,613 $11,139,249 $ 508,435 $11,655,618
Net income 101 -- 225,430 -- 225,531
Distributions to partners (270) -- (603,977) -- (604,247)
Withdrawal of limited partners -- (286) (22,054) -- (22,054)
Change in unrealized gain on
available-for-sale securities -- -- -- 564,691 564,691
----------------------------------------------------------
Balance at March 31, 1999 $ 7,765 89,327 $10,738,648 $1,073,126 $11,819,539
==========================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
OPERATING ACTIVITIES
Net Income $ 225,531 $ 517,615
Adjustments to reconcile net income to
net cash from operating activities:
Amortization 4,821 2,130
Provision for possible losses 64,103 13,002
Gain on lease terminations (1,735) (158,834)
Depreciation -0- 24,368
Changes in operating assets and liabilities:
Other assets (24,843) (93,518)
Outstanding checks in excess of
bank balance (436,199) -0-
Due to affiliates 42,554 545,753
Accrued expenses and other liabilities 45,552 (3,183)
----------- -----------
Net cash from operating activities (80,216) 847,333
----------- -----------
INVESTING ACTIVITIES
Acquisitions of, and purchases of
equipment for direct financing leases (1,886,783) (433,415)
Repayments of direct financing leases 621,313 552,721
Proceeds from early termination of
direct financing leases 30,705 1,357,825
Net lease security deposits repaid (3,107) (47,831)
Issuance of notes receivable (376,000) -0-
Repayments of notes receivable 55,875 -0-
----------- -----------
Net cash from investing activities (1,557,997) 1,429,300
----------- -----------
FINANCING ACTIVITIES
Borrowings from line of credit 3,208,930 -0-
Net repayments of line of credit (931,437) (1,415,231)
Repayments of long term debt -0- (212,453)
Distributions and withdrawals paid
to partners (626,945) (606,751)
----------- -----------
Net cash from financing activities 1,650,548 (2,234,435)
----------- -----------
Net increase in cash and cash equivalents 12,335 42,198
Cash and cash equivalents at beginning
of period 67,570 5,928
----------- -----------
Cash and cash equivalents at end of period $ 79,905 $ 48,126
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 19,407 $ 152,259
North American miscellaneous
receivable written-off -0- 483,913
North American security deposits on
leases written-off -0- 99,071
Unrealized gain (loss) on securities
available for sale 564,691 (44,964)
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, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. 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, 1998.
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:
March 31, 1999 December 31, 1998
-------------- -----------------
Lease payments receivable $14,053,368 $12,713,308
Estimated residual values of
leased equipment 781,244 644,853
Unamortized initial direct costs 19,526 22,840
Unearned lease income (2,907,177) (2,704,320)
Notes receivable 1,118,458 798,333
----------- -----------
Net investment in direct financing
leases and notes receivable $13,065,419 $11,475,014
=========== ===========
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. 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 that 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 was 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 during 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. The Partnership received a
settlement of $105,000 in the first quarter of 1999, and credited this to the
allowance for possible loan and lease losses.
7
<PAGE> 8
Note C -- CREDIT ARRANGEMENTS
The Partnership has a line-of-credit agreement with a bank that carries interest
at 1% over prime (8.75% at March 31, 1999). The agreement was amended August 26,
1998 to extend the maturity date to June 30, 2000, reduce the borrowing amount
to the lesser of $4.0 million, or 40% of the Partnership's Qualified Accounts,
as defined in the agreement, and require minimum monthly interest payments of
$4,000 beginning in December 1998. The agreement is cancelable by the lender
after giving a 90-day notice and is collateralized by substantially all assets
of the Partnership. The line-of-credit is guaranteed by the General Partner and
certain affiliates of the General Partner. The General Partner believes amounts
available under the line of credit are adequate for the foreseeable future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended
Description March 31, 1999 March 31, 1998
----------- -------------- --------------
Lease and interest income $ 453,245 $ 731,808
Gain on lease terminations 1,735 158,834
Management fee expense 54,888 67,144
Interest expense 34,867 154,624
Provision for possible losses 64,103 13,002
Other expenses 18,155 53,982
Lease and interest income decreased for the three-month period ended March 31,
1999 as compared to the same period in 1998 due to a decrease in the net
investment in direct financing leases and notes receivable. The decrease in net
investment in direct financing leases is attributable to the early termination
of certain leases in 1998 at the request of the lessees and the write-off of the
NACG leases discussed in Note B to the financial statements. The early
terminations enabled the Partnership to recognize gains on terminations of
$158,834 in the first quarter of 1998. The net investment in leases and notes
decreased from $17,575,044 at March 31, 1998 to $13,065,419 at March 31, 1999.
Net Income for the first quarter of 1999 was $225,532, while comprehensive
income was $790,223. The difference of $564,691 is attributable to the
unrealized gain on available-for-sale securities. The Partnership owns two
securities and carries these on the balance sheet at fair value, recording the
unrealized gain as an increase to partners' equity. One security increased in
value $566,100, while the other decreased in value $1,409.
8
<PAGE> 9
Management fees are paid to the General Partner and represent 5% of the gross
rental payments received. Rental payments decreased from $1,342,880 in the three
months ended March 31, 1998 to $1,097,760 for the three months ended March 31,
1999. These decreases are attributed to the early termination of certain leases
as described above.
The decrease in interest expense is a result of the Partnership's lower loan
balances in the 1st quarter of 1999 compared to the same period in 1998. At
March 31, 1998 the balance on the line of credit was $3,939,570, while at March
31, 1999 the balance was $2,292,926. The Partnership had notes payable of
$370,780 outstanding at March 31, 1998 which were paid off in their entirety in
1998, resulting in less interest expense.
The provision for possible losses increased for the first quarter of 1999
compared to the same period a year ago due to the acquisition of leases in 1999.
As discussed in Note B to the financial statements, the Partnership received a
settlement from NACG in the amount of $105,000 in the first quarter of 1999, and
credited this to the allowance for possible loan and lease losses. The
Partnership provides for an estimated reserve, which was $548,421 at March 31,
1999, or 4.2% of the lease and notes receivable portfolio of $13,065,419. The
General Partner has determined all loss reserves are adequate at March 31, 1999.
The General Partner has established general and specific loss reserves as
follows:
March 31, 1999 March 31, 1998
-------------- --------------
General Reserve $ 431,803 $ 534,455
Specific Reserve - UTS 14,101 15,006
Specific Reserve - TeleCable 50,000 -0-
Specific Reserve - Property Taxes 52,517 -0-
----------- ---
Total Reserves $ 548,421 $ 549,461
=========== ===========
At March 31, 1999, one customer was past due over 90 days. The contract balance
remaining for this customer was $25,343 at March 31, 1999, while the
Partnership's net investment in this contract was $22,245. When a payment is
past due more than 90 days, the Partnership discontinues recognizing income on
the contract.
Other expenses decreased primarily due to $25,761 of costs incurred in the first
quarter of 1998 as a result of the foreclosure action against NACG as discussed
in note B to the financial statements.
The Partnership's portfolio of leases and notes receivable are concentrated in
pay telephones, office and computer equipment, and ATM machines, representing
approximately 52%, 21%, and 17%, respectively, of the portfolio at March 31,
1999. Four lessees account for approximately 64% of the Partnership's portfolio
at March 31, 1999.
YEAR 2000 ISSUE: 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. The costs of ensuring systems
are compatible with the Year 2000 are not believed to be material. There are no
non-information technology processes that the Partnership has identified which
would affect its operations. An assessment of the readiness of external entities
which it interfaces with, such as vendors, counterparties, customers, and
others, is ongoing. At present the
9
<PAGE> 10
Partnership does not contemplate that any specific charges will be incurred for
this assessment or any other costs directly related to fixing Year 2000 issues,
and if there are any related expenditures, does not expect them to be
significant.
The Partnership is assessing the impact of the Year 2000 issue on information
technology and non-information technology systems used by lessees. No lessee is
contractually obligated to become Year 2000 compliant or to disclose their
capabilities to the Partnership. The Partnership has not yet determined whether
the Year 2000 issue has been addressed by all of its customers. The Partnership
has contacted some of its customers and will continue to contact its customers
in 1999. In a worst case scenario, the inability of lessees to be Year 2000
compliant could result in delayed or no payment of amounts due to the
Partnership. The Partnership has no contingency plans at this time to alleviate
this worst case scenario should it be encountered.
The Partnership has determined that the software it utilizes in its operations
is compatible with the Year 2000. The Partnership utilizes an unrelated third
party for lease servicing. This third party vendor has been contacted and it has
been determined that their lease servicing application is year 2000 compliant. A
written confirmation regarding compliance of this application has been received
from the software developer.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
MAJOR CASH SOURCES:
Proceeds received on sale of leases $ 30,704 $ 1,357,825
Repayments of direct financing leases 677,188 552,721
Borrowings from line of credit 3,208,930 -0-
MAJOR CASH USES:
Purchase of equipment and leases 2,262,783 433,415
Payments on line of credit and other debt 931,437 1,627,684
Distributions and withdrawals
paid to partners 626,945 606,751
The Partnership has a line-of-credit agreement with a bank that carries interest
at 1% over prime (8.75% at March 31, 1999). The agreement was amended August 26,
1998 to extend the maturity date to June 30, 2000, reduce the borrowing amount
to the lesser of $4.0 million, or 40% of the Partnership's Qualified Accounts,
as defined in the agreement, and require minimum monthly interest payments of
$4,000 beginning in December 1998. The agreement is cancelable by the lender
after giving a 90-day notice and is collateralized by substantially all assets
of the Partnership. The line-of-credit is guaranteed by the General Partner and
certain affiliates of the General Partner. The General Partner believes amounts
available under the line of credit are adequate for the foreseeable future.
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.
10
<PAGE> 11
At March 31, 1999, adequate cash is being generated to make projected
distributions, however, net income continues to remain below amounts
distributed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EQUITY PRICE SENSITIVITY
The table provides information about the Partnership's marketable equity
securities that are sensitive to changes in prices. The table presents the
carrying amount and fair value at March 31, 1999.
Carrying Amount Fair Value
Common Stock-Company A $ 2,012,800 $ 2,012,800
Common Stock-Company B 3,837 3,837
----------- -----------
Total $ 2,016,637 $ 2,016,637
=========== ===========
The Partnership's primary market risk exposure with respect to marketable equity
securities is equity price. The Partnership's general strategy in owning
marketable equity securities is long-term growth in the equity value of emerging
companies in order to increase the rate of return to the limited partners over
the life of the Partnership. The primary risk of the portfolio is derived from
the underlying ability of the companies invested in to satisfy debt obligations
and their ability to maintain or improve common equity values. At March 31,
1999, the amount at risk was $2,016,637.
INTEREST RATE SENSITIVITY
The table below provides information about the Partnership's notes receivable
that are sensitive to changes in interest rates. For notes receivable, the table
presents principal cash flows and related weighted average interest by expected
maturity dates as of March 31, 1999.
Average
Expected Maturity Date Principal Balance Due Interest Rate
---------------------- --------------------- -------------
1999 $ 238,025 14.2%
2000 342,190 14.0%
2001 391,367 14.0%
2002 117,222 14.0%
2003 29,654 14.0%
-----------
Total $ 1,118,458
===========
Fair Value $ 1,118,458
===========
The Partnership manages interest rate risk, its primary market risk exposure
with respect to notes receivable, by limiting the terms of notes receivable to
no more than five years and generally requiring full repayment ratably over the
term of the note.
PART II
Item 1. Legal Proceedings
None.
11
<PAGE> 12
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: 5/11/1999 Ronald O. Brendengen /s/
-------------------------------------
Ronald O. Brendengen, Chief Financial
Officer, Treasurer
Date: 5/11/1999 Daniel P. Wegmann /s/
-------------------------------------
Daniel P. Wegmann, Controller
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF TELECOMMUNICATIONS INCOME FUND X, L.P. AS OF
MARCH 31, 1999, AND THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 79,905
<SECURITIES> 2,016,637
<RECEIVABLES> 13,065,419
<ALLOWANCES> (548,421)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 91,428
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,704,968
<CURRENT-LIABILITIES> 2,885,429
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,819,539
<TOTAL-LIABILITY-AND-EQUITY> 14,704,968
<SALES> 465,599
<TOTAL-REVENUES> 465,599
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 141,098
<LOSS-PROVISION> 64,103
<INTEREST-EXPENSE> 34,867
<INCOME-PRETAX> 225,531
<INCOME-TAX> 0
<INCOME-CONTINUING> 225,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225,531
<EPS-PRIMARY> 2.52<F1>
<EPS-DILUTED> 2.52<F1>
<FN>
<F1>Net Income (Loss) per Partnership Unit
</FN>
</TABLE>
