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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, 2003
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.
[X] Yes [ ] No
Indicate by check mark whether registrant is an accelerated filer (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934).
[ ] Yes [X] No
As of July 23, 2003, 86,512 units were issued and outstanding. Based on the book
value at June 30, 2003 of $3.66 per unit, the aggregate market value at July 23,
2003 was $316,634.
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, 2003 and December 31, 2002 3
Statement of Changes in Net Assets (Liquidation Basis)-
three and six months ended June 30, 2003 and 2002 4
Statements of Cash Flows-six months ended
June 30, 2003 and 2002 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
Item 6. Exhibits 8
Signatures 9
2
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF NET ASSETS (LIQUIDATION BASIS) (UNAUDITED)
June 30, December 31,
2003 2002
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ASSETS
Cash and cash equivalents $110,452 $ 49,000
Not readily marketable equity security 207,375 59,250
Net investment in direct financing leases
and notes receivable (Note B) 66,734 177,900
Other assets 52,011 56,036
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TOTAL ASSETS 436,572 342,186
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LIABILITIES
Accounts payable 29,914 34,797
Lease security deposits 178 592
Reserve for estimated costs during the
period of liquidation 89,838 120,249
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TOTAL LIABILITIES 119,930 155,638
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CONTINGENCY (Note C)
NET ASSETS $316,642 $186,548
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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 Six Months
Ended June 30 Ended June 30
2003 2002 2003 2002
--------- --------- --------- ---------
Net assets at beginning of period $ 174,038 $ 426,915 $ 186,548 $ 433,704
Income from direct financing leases,
interest, and other income 3,457 8,208 10,561 14,727
Withdrawals of limited partners (89) (776) (430) (1,283)
Change in estimate of liquidation
value of net assets 139,236 (156,138) 119,963 (168,939)
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Net assets at end of period $ 316,642 $ 278,209 $ 316,642 $ 278,209
========= ========= ========= =========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, June 30,
2003 2002
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Operating Activities
Changes in net assets excluding withdrawals and distributions $ 130,524 $(154,212)
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments (119,963) 168,939
Changes in operating assets and liabilities:
Other assets 4,025 10,749
Accounts payable (4,883) 8,409
Reserve for estimated costs during the period of liquidation (58,590) (112,074)
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Net cash from operating activities (48,887) (78,189)
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Investing Activities
Repayments of direct financing leases 11,775 77,913
Proceeds from termination of direct financing leases 367 11,716
Net lease security deposits repaid (414) (15,000)
Repayments of notes receivable 99,041 23,751
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Net cash from investing activities 110,769 98,380
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Financing Activities
Withdrawals paid to partners (430) (1,283)
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Net cash from financing activities (430) (1,283)
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Net increase in cash and cash equivalents 61,452 18,908
Cash and cash equivalents at beginning of period 49,000 65,105
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Cash and cash equivalents at end of period $ 110,452 $ 85,228
========= =========
Supplemental disclosures of cash flow information Noncash investing and
financing activities:
Reclassification of equipment from direct financing
leases to notes receivable $ -0- $ 129,387
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, 2003 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2003. 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, 2002.
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, 2003 December 31, 2002
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Minimum lease payments receivable $ 355 $ 3,116
Estimated unguaranteed residual values 750 1,100
Unamortized initial direct costs -0- 1
Unearned income (21) (157)
Notes receivable 145,854 244,896
Adjustment to net realizable value (80,204) (71,056)
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Net investment in direct financing leases and notes receivable $ 66,734 $ 177,900
=============== ===============
Note C - CONTINGENCY
The General Partner's parent has approximately $2.2 million of unsecured
subordinated debt which was due on December 31, 2002 and does 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. The
new general partner could require additional fees and charges that would have a
significant negative impact on the liquidation proceeds received by the limited
partners.
6
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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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 $10,561 in
income from direct financing leases, notes receivable, and other income during
the first six months of 2003. This represents an annualized return on average
net assets of approximately 8.4%. Management increased its estimate of the
liquidation value of net assets during the first six months of 2003 by $119,963,
resulting primarily from an increase in the estimated value of equity securities
of $148,125 offset by an increase in the reserve for estimated costs during the
period of liquidation of $28,179. The Partnership has accrued the estimated
expenses of liquidation, which is $89,838 at June 30, 2003. The General Partner
reviews this estimate and will adjust quarterly, as needed.
Management is attempting to liquidate the remaining assets of the Partnership as
soon as feasibly possible while trying to obtain the highest proceeds possible.
The Partnership will make distributions to the partners, to the extent cash is
available, as leases, notes receivable, equity securities, 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, 2003 the
Partnership had $110,452 of cash on hand.
As of June 30, 2003, no customers were over 90 days past due. When payments are
past due more than 90 days, the Partnership discontinues recognizing income on
those customer contracts. Management believes its reserves are adequate as of
June 30, 2003. Management will 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 is concentrated in
pay telephones, representing 99% of the portfolio at June 30, 2003. One customer
accounts for over 90% of the Partnership's portfolio of leases and notes
receivable at June 30, 2003.
Berthel Fisher & Company, Inc., the parent of the General Partner, has $2.2
million of unsecured debt that was due December 31, 2002. Berthel Fisher &
Company, Inc. has not paid this debt as of the filing of this report and is in
default. Since Berthel Fisher & Company, Inc. is in default, its creditors could
take legal action to enforce their right to repayment. Ultimately, this could
result in the bankruptcy of Berthel Fisher & Company, Inc. Since the General
Partner is a subsidiary of Berthel Fisher & Company, Inc., the bankruptcy of
Berthel Fisher & Company, Inc. could cause the General Partner to be unable to
continue as a going concern. If this were to happen, the Partnership would need
to elect or appoint a new general partner. The new general partner could require
additional fees and charges that would have a significant negative impact on the
liquidation proceeds received by the limited partners.
7
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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Equity Price Sensitivity
The table below provides information about the Partnership's not readily
marketable equity security that is sensitive to price changes as of June 30,
2003.
Carrying Amount Fair Value
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Common Stock-Murdock Communications Corp. $ 207,375 $ 207,375
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Total Not Readily Marketable $ 207,375 $ 207,375
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The Partnership's primary market risk exposure 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. Murdock is a shell company with no operations whose stock
price can be volatile. The Partnership holds 592,500 shares of Murdock and at
June 30, 2003, the total amount at risk was $207,375. Murdock is valued at the
market price less a discount for the lack of marketability. In July, 2003,
Murdock merged with another company (Polar Molecular) that has historically had
operating losses. The Partnership is subject to lock-up agreement with respect
to selling these shares until July, 2004. No assurance can be given that any
value can be realized from the merger.
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, 2003.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
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2003 $ 134,565 8.1%
2004 3,758 9.5%
2005 4,124 9.5%
2006 3,407 9.5%
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Total $ 145,854
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Fair Value $ 66,000
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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
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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 as of June 30, 2003. 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.
PART II
Item 6. Exhibits
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Exhibit 99.1 Certification of Chief Executive Officer
Exhibit 99.2 Certification of Chief Financial Officer
Exhibit 99.3 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
Exhibit 99.4 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
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: August 12, 2003 /s/ Ronald O. Brendengen
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Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date: August 12, 2003 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
9