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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 SEPTEMBER 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")
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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 October 11, 2002, 86,756 units were issued and outstanding. Based on the
book value at September 30, 2002 of $3.70 per unit, the aggregate market value
at October 11, 2002 was $320,997.
TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
Page
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Part I. FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis)-
September 30, 2002 and December 31, 2001 3
Statement of Changes in Net Assets (Liquidation Basis)-
three months ended and nine months ended September 30, 2002
and 2001 4
Statements of Cash Flows-nine months ended September 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
Item 4. Controls and Procedures 8
Part II. OTHER INFORMATION
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Item 1. Legal Proceedings 8
Item 6. Exhibits 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)
September 30, 2002 December 31, 2001
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ASSETS
Cash and cash equivalents $ 64,502 $ 46,197
Marketable equity security 29,613 11,281
Not readily marketable equity security 71,675 27,305
Net investment in direct financing leases
and notes receivable (Note B) 258,066 492,538
Other assets 109,276 116,328
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TOTAL ASSETS 533,132 693,649
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LIABILITIES
Accounts payable and accrued expenses 67,901 62,963
Lease security deposits 592 21,982
Reserve for estimated costs during the
period of liquidation 143,372 175,000
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TOTAL LIABILITIES 211,865 259,945
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CONTINGENCY (Note C)
NET ASSETS $ 321,267 $ 433,704
============= =============
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Ended September 30 Nine Months Ended September 30
2002 2001 2002 2001
---- ---- ---- ----
Net assets at beginning of period $ 278,209 $ 1,038,228 $ 433,704 $ 4,825,280
Income from direct financing leases,
interest, and other income 2,050 3,317 16,777 93,468
Distributions to partners -0- -0- -0- (899,864)
Withdrawals of limited partners (818) (2,747) (2,101) (13,370)
Change in estimate of liquidation
value of net assets 41,826 (277,011) (127,113) (3,243,727)
----------- ----------- ----------- -----------
Net assets at end of period $ 321,267 $ 761,787 $ 321,267 $ 761,787
=========== =========== =========== ===========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
OPERATING ACTIVITIES
Changes in net assets excluding withdrawals and distributions $ (110,336) $ (3,150,259)
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments 127,113 3,288,727
Changes in operating assets and liabilities:
Other assets 7,052 204,288
Accounts payable and accrued expenses 4,938 (49,301)
Reserve for estimated costs during the period of liquidation (128,702) (220,281)
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Net cash from operating activities (99,935) 73,174
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INVESTING ACTIVITIES
Repayments of direct financing leases 90,095 516,941
Proceeds from termination of direct financing leases 16,913 180,429
Net lease security deposits repaid (21,390) (5,586)
Repayments of notes receivable 34,723 5,545
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Net cash from investing activities 120,341 697,329
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FINANCING ACTIVITIES
Distributions and withdrawals paid to partners (2,101) (913,234)
---------------- ----------------
Net cash from financing activities (2,101) (913,234)
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Net increase (decrease) in cash and cash equivalents 18,305 (142,731)
Cash and cash equivalents at beginning of period 46,197 350,601
---------------- ----------------
Cash and cash equivalents at end of period $ 64,502 $ 207,870
================ ================
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 nine months ended September 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)
September 30, 2002 December 31, 2001
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Minimum lease payments receivable $ 4,122 $ 579,335
Estimated unguaranteed residual values 1,100 65,769
Unamortized initial direct costs 2 2,155
Unearned income (312) (124,298)
Notes receivable 280,672 186,008
Adjustment to net realizable value (27,518) (216,431)
--------------- ---------------
Net investment in direct financing leases and notes receivable $ 258,066 $ 492,538
=============== ===============
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.
6
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 $16,777 in
income from direct financing leases, notes receivable, and other income during
the first nine months of 2002. This represents an annualized return on average
net assets of approximately 5.9%. Management decreased its estimate of the
liquidation value of net assets during the first nine months of 2002 by
$127,113, resulting primarily from an increase in the allowance for possible
loan and lease losses of $95,000, an increase in the reserve for estimated costs
during the period of liquidation of $97,074, and an increase in the estimated
value of equity securities of $62,702. The Partnership has accrued the estimated
expenses of liquidation, which is $143,372 at September 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 September 30, 2002, one customer had payments over 90 days past due and
the Partnership has discontinued recognizing income on this contract. Management
anticipates modifying this agreement to extend the terms and lower the monthly
payments to the customer. The Partnership had a contract with Bax Group, Inc.
with a net investment of $25,397 at June 30, 2002. The Bax Group filed for
bankruptcy and the Partnership realized proceeds of approximately $8,000 on this
contract during the third quarter of 2002. 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 nine months of
2002. Management believes its reserves are adequate as of September 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 nearly 99% of the portfolio at September 30, 2002.
Two customers account for approximately 93% of the Partnership's portfolio of
leases and notes receivable at September 30, 2002.
7
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 security that is sensitive to changes in prices as of
September 30, 2002.
Carrying Amount Fair Value
Common Stock-Murdock Communications Corp. $ 29,613 $ 29,613
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Marketable equity security $ 29,613 $ 29,613
============= =============
Carrying Amount Fair Value
Common Stock-Murdock Communications Corp. $ 71,675 $ 71,675
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Total Not Readily Marketable $ 71,675 $ 71,675
============= =============
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 company 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 September 30, 2002, the total amount at risk was $101,288.
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 September 30, 2002.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2002 $ 159,903 9.1%
2003 110,417 10.4%
2004 3,850 9.5%
2005 4,227 9.5%
2006 2,275 9.5%
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Total $ 280,672
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Fair Value $ 254,000
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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.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
the Partnership's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures within 90 days before the
filing date of this quarterly report. Based on that evaluation, the
Partnership's management, including the Chief Executive Officer and Chief
Financial Officer, concluded that the Partnership's disclosure controls and
procedures were effective in timely alerting them to material information
relating to the Partnership required to be included in the Partnership's
periodic SEC filings. There have been no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect internal controls subsequent to their evaluation.
PART II
ITEM 1. LEGAL PROCEEDINGS None.
ITEM 6. EXHIBITS
Exhibit 99.1 Section 906 Certification of Chief Executive Officer
Exhibit 99.2 Section 906 Certification of Chief Financial Officer
8
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: November 11, 2002 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date: November 11, 2002 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
9
FORM OF SECTION 302 CERTIFICATION
I, Thomas J. Berthel, President and Chief Executive Officer of Berthel Fisher &
Company Leasing, Inc., the General Partner of Telecommunications Income Fund X,
L.P., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telecommunications
Income Fund X, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 11, 2002 /s/ Thomas J. Berthel
President and Chief Executive Officer
Berthel Fisher & Company Leasing, Inc.
General Partner
Telecommunications Income Fund X, L.P.
10
FORM OF SECTION 302 CERTIFICATION
I, Ronald O. Brendengen, Chief Financial Officer of Berthel Fisher & Company
Leasing, Inc., the General Partner of Telecommunications Income Fund X, L.P.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telecommunications
Income Fund X, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
November 11, 2002 /s/ Ronald O. Brendengen
Chief Financial Officer
Berthel Fisher & Company Leasing, Inc.
General Partner
Telecommunications Income Fund X, L.P.
11