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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, 2002
Commission File Number: 0-25574
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TELECOMMUNICATIONS INCOME FUND X, L.P.
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(Exact name of Registrant as specified in its charter)
Iowa 42-1401715
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Tama Street, Marion, Iowa 52302
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 447-5700
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
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As of July 15, 2002, 86,930 units were issued and outstanding. Based on the book
value at June 30, 2002 of $3.20 per unit, the aggregate market value at July 15,
2002 was $278,176.
TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis)-
June 30, 2002 and December 31, 2001 3
Statement of Changes in Net Assets (Liquidation Basis)-
three months ended and six months ended June 30, 2002 and 2001 4
Statements of Cash Flows-six months ended June 30, 2002 and 2001 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Signatures 9
Certification of Chief Executive Officer 10
Certification of Chief Financial Officer 11
2
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF NET ASSETS (LIQUIDATION BASIS) (UNAUDITED)
June 30, 2002 December 31, 2001
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ASSETS
Cash and cash equivalents $ 65,105 $ 46,197
Marketable equity security 16,922 11,281
Not readily marketable equity security 40,957 27,305
Net investment in direct financing leases
and notes receivable (Note B) 288,000 492,538
Other assets 105,579 116,328
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TOTAL ASSETS 516,563 693,649
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LIABILITIES
Accounts payable and accrued expenses 71,372 62,963
Lease security deposits 6,982 21,982
Reserve for estimated costs during the
period of liquidation 160,000 175,000
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TOTAL LIABILITIES 238,354 259,945
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CONTINGENCY (Note C)
NET ASSETS $278,209 $433,704
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See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
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Net assets at beginning of period $ 426,915 $ 2,013,160 $ 433,704 $ 4,825,280
Income from direct financing leases,
interest, and other income 8,208 28,137 14,727 90,151
Distributions to partners -0- (300,000) -0- (899,864)
Withdrawals of limited partners (776) (7,983) (1,283) (10,623)
Change in estimate of liquidation
value of net assets (156,138) (695,086) (168,939) (2,966,716)
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Net assets at end of period $ 278,209 $ 1,038,228 $ 278,209 $ 1,038,228
=========== =========== =========== ===========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, 2002 June 30, 2001
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OPERATING ACTIVITIES
Changes in net assets excluding withdrawals and distributions $ (154,212) $(2,876,565)
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments 168,939 2,966,716
Changes in operating assets and liabilities:
Other assets 10,749 90,363
Accounts payable and accrued expenses 8,409 (19,074)
Reserve for estimated costs during the period of liquidation (112,074) (128,218)
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Net cash from operating activities (78,189) 33,222
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INVESTING ACTIVITIES
Repayments of direct financing leases 77,913 472,156
Proceeds from termination of direct financing leases 11,716 151,252
Net lease security deposits repaid (15,000) (5,301)
Repayments of notes receivable 23,751 3,629
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Net cash from investing activities 98,380 621,736
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FINANCING ACTIVITIES
Distributions and withdrawals paid to partners (1,283) (910,487)
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Net cash from financing activities (1,283) (910,487)
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Net increase (decrease) in cash and cash equivalents 18,908 (255,529)
Cash and cash equivalents at beginning of period 46,197 350,601
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Cash and cash equivalents at end of period $ 65,105 $ 95,072
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash investing and financing activities:
Reclassification of equipment from direct financing
leases to notes receivable $ 129,387 $ -0-
See accompanying notes.
5
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 in the United States 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, 2002 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002. For further information, refer to the financial statements
and notes thereto included in the Partnership's annual report on Form 10-K for
the year ended December 31, 2001.
On December 31, 1999, the Partnership ceased reinvestment in equipment and
leases and began the orderly liquidation of the Partnership in accordance with
the partnership agreement. As a result, the unaudited financial statements have
been presented under the liquidation basis of accounting. Under the liquidation
basis of accounting, assets are stated at their estimated net realizable values
and liabilities include estimated costs associated with carrying out the plan of
liquidation.
NOTE B - NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
The Partnership's net investment in direct financing leases and notes receivable
consists of the following:
(Liquidation Basis) (Liquidation Basis)
June 30, 2002 December 31, 2001
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Minimum lease payments receivable $ 35,760 $ 579,335
Estimated unguaranteed residual values 7,493 65,769
Unamortized initial direct costs 5 2,155
Unearned income (596) (124,298)
Notes receivable 291,644 186,008
Adjustment to net realizable value (46,306) (216,431)
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Net investment in direct financing leases and
notes receivable $ 288,000 $ 492,538
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Note C - CONTINGENCY
The General Partner's parent has approximately $2.2 million of unsecured
subordinated debt due on December 31, 2002 and may not have sufficient liquid
assets to repay such amounts. The General Partner's parent is pursuing
additional financing, refinancing, and asset sales to meet its obligations. No
assurance can be provided that the General Partner's parent will be successful
in its efforts. The inability of the General Partner to continue as a going
concern as a result of the parent's inability to restructure its debts would
require the Partnership to elect a successor general partner.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On December 31, 1999, the Partnership ceased reinvestment in equipment and
leases and began the orderly liquidation of the Partnership in accordance with
the partnership agreement. As a result, the unaudited financial statements have
been presented under the liquidation basis of accounting. Under the liquidation
basis of accounting, assets are stated at their estimated net realizable values
and liabilities include estimated costs associated with carrying out the plan of
liquidation.
As discussed above, the Partnership is in liquidation and does not believe a
comparison of results would be meaningful. The Partnership realized $14,727 in
income from direct financing leases, notes receivable, and other income during
the first six months of 2002. This represents an annualized return on average
net assets of approximately 8.3%. Management decreased its estimate of the
liquidation value of net assets during the first six months of 2002 by $168,939,
resulting primarily from an increase in the allowance for possible loan and
lease losses of $95,000 and an increase in the reserve for estimated costs
during the period of liquidation of $97,074. The Partnership has accrued the
estimated expenses of liquidation, which is $160,000 at June 30, 2002. The
General Partner reviews this estimate and will adjust quarterly, as needed.
The Partnership will continue to make distributions to the partners as leases,
notes receivable, and other assets are collected or sold. The valuation of
assets and liabilities necessarily requires many estimates and assumptions and
there are uncertainties in carrying out the liquidation of the Partnership's net
assets. The actual value of the liquidating distributions will depend on a
variety of factors, including the actual timing of distributions to the
partners. The actual amounts are likely to differ from the amounts presented in
the financial statements.
As of June 30, 2002, one customer had payments over 90 days past due and the
Partnership has discontinued recognizing income on this contract. The
Partnership's net investment in this contract, which is with Bax Group, Inc.,
was $25,397 at June 30, 2002. The Bax Group has filed for bankruptcy and the
Partnership estimates that proceeds will total approximately $8,000 on this
contract. Another lessee, Alpha Tel-Com, filed for bankruptcy during 2001, had a
net investment of $371,840 at March 31, 2002, representing approximately 61% of
the Partnership's portfolio of direct financing leases and notes receivable at
that time. The value of the phones under the Alpha Tel-Com deteriorated
significantly, with the Partnership realizing approximately $125,000 from the
sale of the equipment during the second quarter of 2002. Approximately $113,000
of these proceeds was financed to a new customer under a note agreement. The
deterioration of equipment values for Bax Group and Alpha Tel-Com resulted in
the Partnership increasing the allowance for possible loan and lease losses by
$95,000 during the first six months of 2002. Management believes its reserves
are adequate as of June 30, 2002. Management will continue to monitor any past
due contracts and take the necessary steps to protect the Partnership's
investment.
The Partnership's portfolio of leases and notes receivable are concentrated in
pay telephones, representing approximately 97% of the portfolio at June 30,
2002. Two customers account for approximately 83% of the Partnership's portfolio
of leases and notes receivable at June 30, 2002.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EQUITY PRICE SENSITIVITY
The tables below provide information about the Partnership's marketable and not
readily marketable equity securities that are sensitive to changes in prices as
of June 30, 2002.
Carrying Amount Fair Value
Common Stock-Murdock Communications Corp. $ 16,922 $ 16,922
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Marketable equity security $ 16,922 $ 16,922
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Carrying Amount Fair Value
Common Stock-Murdock Communications Corp. $ 40,957 $ 40,957
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Total Not Readily Marketable $ 40,957 $ 40,957
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The Partnership's primary market risk exposure with respect to equity securities
is equity price. The Partnership's general strategy in owning 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. The Partnership holds
165,900 shares of Murdock as marketable and 426,600 shares as not readily
marketable, due to restrictions imposed by Rule 144 of the Securities and
Exchange Commission. Murdock is a shell company with no operations whose stock
price can be volatile. At June 30, 2002, the total amount at risk was $57,879.
INTEREST RATE SENSITIVITY
The table below provides information about the Partnership's notes receivable
that are sensitive to changes in interest rates. The table presents the
principal amounts and related weighted average interest rates by expected
maturity dates as of June 30, 2002.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
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2002 $ 171,544 9.1%
2003 110,484 10.4%
2004 3,923 9.5%
2005 4,309 9.5%
2006 1,384 9.5%
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Total $ 291,644
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Fair Value $ 251,000
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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.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
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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 9, 2002 /s/ Ronald O. Brendengen
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Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date: August 9, 2002 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Telecommunications Income Fund X (the
"Company") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas
J. Berthel, Chief Executive Officer of Berthel Fisher & Company Leasing, Inc.,
General Partner of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbaines-Oxley Act of 2002, that:
(1) The Company's Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
August 9, 2002 /s/ Thomas J. Berthel
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Thomas J. Berthel
President and Chief Executive Officer
Berthel Fisher & Company Leasing, Inc.
General Partner
Telecommunications Income Fund X, L.P.
10
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Telecommunications Income Fund X (the
"Company") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald
O. Brendengen, Chief Financial Officer of Berthel Fisher & Company Leasing,
Inc., General Partner of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbaines-Oxley Act of 2002,
that:
(1) The Company's Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
August 9, 2002 /s/ Ronald O. Brendengen
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Ronald O. Brendengen
Chief Financial Officer
Berthel Fisher & Company Leasing, Inc.
General Partner
Telecommunications Income Fund X, L.P.
11