1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
( )Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission file number - 0-25574
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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.)
701 Tama Street, Marion, Iowa 52302
---------------------------------------------------
(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 pursuant to section 12 (g) of the Act:
Limited Partnership Interests (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 filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K (X).
As of March 1, 2001, 88,284 units were issued and outstanding. Based on the book
value at December 31, 2000 of $54.66 per unit, the aggregate market value at
March 1, 2001 was $4,825,603.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Registration Statement on
Form S-1, dated August 27, 1993 are incorporated by reference into Part IV.
2
TELECOMMUNICATIONS INCOME FUND X, L.P.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business........................................................................................... 3
Item 2. Properties......................................................................................... 4
Item 3. Legal Proceedings.................................................................................. 5
Item 4. Submission of Matters to a Vote of Unit Holders.................................................... 5
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholders Matters......................... 5
Item 6. Selected Financial Data............................................................................ 5
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 6
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................................... 9
Item 8. Financial Statements and Supplementary Data........................................................ 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 28
PART III
Item 10. Directors and Executive Officers of the Registrant................................................. 28
Item 11. Executive Compensation............................................................................. 29
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 30
Item 13. Certain Relationships and Related Transactions..................................................... 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 31
SIGNATURES......................................................................................... 32
EXHIBIT INDEX...................................................................................... 33
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PART I
ITEM 1. BUSINESS
Telecommunications Income Fund X, L.P., an Iowa limited partnership (the
"Partnership"), was organized on April 20, 1993. The general partner is Berthel
Fisher & Company Leasing, Inc. (the "General Partner"), an Iowa corporation that
has been in operation since 1988. The Partnership's business and the executive
offices of the General Partner are located at 701 Tama Street, Marion, Iowa
52302. Substantially all of the voting stock of the General Partner is owned by
Berthel Fisher & Company ("Berthel Fisher").
The Partnership began offering units to the public on August 27, 1993. The
General Partner suspended sales of units effective May 16, 1994, pending a
decision to prepare an offering supplement to the prospectus. This supplement
included updated financial information on the Partnership's lease portfolio and
updated the information in the Prior Performance tables contained in the
Partnership's prospectus dated August 27, 1993. The General Partner filed, on
July 16, 1994, Post-Effective Amendment No. 1 to the registration statement
updating the financial information and requesting an extension of sales to
December 31, 1994. Approval was received on this request effective July 20,
1994.
The Partnership will operate until December 31, 2002 unless dissolved sooner due
to the occurrence of any of the following events: (i) the vote by limited
partners owning a majority of the Partnership in accordance with the Partnership
Agreement; (ii) the withdrawal, bankruptcy, or dissolution and liquidation or
other cessation to exist as a legal entity of the General Partner (unless any
successor general partner elected in accordance with the provisions of the
Partnership Agreement elects to continue the business of the Partnership); (iii)
the final distribution of all liquidating distributions among the limited
partners pursuant to the Partnership Agreement; or (iv) the sale or disposition
of all or substantially all of the assets of the Partnership without the
subsequent reinvestment in equipment.
The business of the Partnership is the acquisition and leasing of equipment,
primarily telecommunications equipment such as pay telephones and call
processing equipment. The Partnership began its primary business activities on
September 29, 1993. The Partnership entered its liquidation phase on December
31, 1999.
A significant portion of the Partnership's business is with customers who are in
the telecommunications industry. The telecommunications industry, particularly
the pay telephone and long distance facets of the industry, is heavily regulated
by the Federal Communications Commission ("FCC") and by various state public
utility commissions. Regulation is not directed at the ownership or leasing of
telecommunications equipment, but is focused primarily on the business of the
Partnership's customers that operate in the telecommunications industry.
Generally, regulation affects rates that can be charged and the relationship of
the regional Bell operating companies to the rest of the pay telephone industry.
Management does not expect regulation to have any significant negative impact
upon the business of the Partnership.
The principle objective of the Partnership is obtaining value from sales of the
Partnership's lease portfolio during the liquidating phase (the period during
which the General Partner will liquidate the Partnership assets) and providing
distributions to the partners during the liquidating phase.
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The Partnership acquired primarily telecommunications equipment (specifically
pay telephones and call processing equipment), leased to third parties generally
under full payout leases. The Partnership also acquired other types of equipment
generally subject to full payout leases. Full payout leases are leases that are
expected to generate gross rental payments sufficient to recover the purchase
price of the equipment and any overhead and acquisition costs.
Equipment acquired by the Partnership is installed in various locations by the
lessees. When the lessee installs the equipment in a location, a site location
agreement gives the lessee the right to have the equipment at this site for a
specified period of time. These site location agreements generally have a three
to five year term. The Partnership, in addition to its ownership of the
equipment, takes an assignment of and a first security interest in these site
location agreements. Therefore, if a lessee defaulted, the Partnership could
have the ability to re-sell or re-lease the equipment in place. This "in place"
value is generally much higher than the residual value of the equipment. The
telecommunications equipment generates revenue primarily through long distance
phone calls. The Partnership's lessee generally receives long distance revenue
from a contracted third party billing company. The Partnership also takes an
assignment of this revenue.
The General Partner acquired and approved leases on behalf of the Partnership.
The General Partner established guidelines to use in approving lessees.
Generally, before any lease was approved, there was a review of the potential
lessees' financial statements, credit references were checked, and outside
business and/or individual credit reports were obtained.
The equipment purchased by the Partnership consists of advanced technology pay
telephones and call processing systems used in hotels, hospitals, colleges,
universities, and correctional institutions. The Partnership has also purchased
and leased other types of equipment.
The Partnership's leases and notes receivable are concentrated in pay
telephones, office equipment, automated teller machines ("ATM"), and the notes
receivable of Murdock Communications Corporation ("Murdock"). The portfolio
related to these sources at December 31, 2000, 1999, and 1998 is outlined in the
table below.
2000 1999 1998
---- ---- ----
Pay telephones 32% 52% 59%
Office equipment -- 9% 20%
ATM machines 1% 20% 17%
Murdock notes receivable 50% -- --
Three customers accounted for 55% of income from direct financing leases during
the year ended December 31, 2000. Avenew, LIDS, and Alpha Tel-Com accounted for
21%, 16%, and 18% of the income, respectively.
The leasing industry is very competitive and the Partnership has fewer assets
than some of its major competitors. The principal methods of competition include
service and price (interest rate). The Partnership operates in one segment.
The Partnership has no employees and utilizes the administrative services of the
General Partner for which it pays an administrative service fee.
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ITEM 2. PROPERTIES
The Partnership does not own or lease any real estate. The Partnership's
materially important assets consist entirely of equipment under lease, primarily
telecommunications equipment, as described in Item 1.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS
No matters were submitted to a vote of limited partners, through the
solicitation of proxies or otherwise during the year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrants' Units are not publicly traded. There is no market for the
Registrant's Units and it is unlikely that any will develop. The General Partner
will resist the development of a public market for the Units.
Number of Partners
Title of Class at March 1, 2001
-------------- -----------------
Limited Partner 1,593
General Partner 1
Through December 31, 2000, $16,657,654 has been paid in distributions to
partners during the life of the Partnership. Distributions to partners were
$32.14 per unit in 2000 and $27.00 per unit during the four prior years.
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31
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(Liquidation Basis) (Historical Cost Basis)
------------------- -----------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total Revenue n/a $ 1,607,766 $ 2,802,667 $ 3,045,703 $ 3,704,977
Net Income (Loss) n/a 542,733 1,664,367 (1,897,893) 196,197
Total Assets 5,418,769 11,828,955 12,647,703 18,799,155 21,261,096
Line of Credit -0- 2,556,214 15,433 5,354,801 2,607,911
Bank term loan -0- -0- -0- 583,233 1,386,361
Provision for Possible Losses 125,000 184,730 199,060 3,628,090 1,092,551
Distributions to Partners 2,850,000 2,409,159 2,422,973 2,430,890 2,442,420
Net Income (Loss) per Unit n/a 6.08 18.54 (21.11) 2.17
Distributions per Unit 32.14 27.00 27.00 27.00 27.00
Change in net assets, excluding
distributions and withdrawals 170,052 n/a n/a n/a n/a
The selected financial data above was derived from the liquidation basis
financial statements of the Partnership as of and for the year ending December
31, 2000, and the historical cost basis financial statements prior to December
31, 1999. As of December 31, 1999, the Partnership adopted the liquidation basis
of accounting. Under liquidation basis accounting, assets are presented at
estimated net realizable value and liabilities are presented at estimated
settlement amounts.
The above selected financial data should be read in connection with the
financial statements and related notes appearing elsewhere in this report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 financial statements beginning with
that date 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 are stated at their anticipated settlement
amounts.
As discussed above, the Partnership is in liquidation and does not believe a
comparison of results would be meaningful. The Partnership realized $416,146 in
income from direct financing leases, notes receivable, interest, and other
income for the year ended December 31, 2000. This represents an annualized
return on average net assets of approximately 6.6%. The Partnership will
continue to make distributions to the partners as leases and notes receivable
are collected or sold and other assets are 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. Through December 31, 2000, there have been distributions totalling
$16,657,654. As of December 31, 2000 the Partnership had $350,601 of cash on
hand.
Management has decreased its estimate of the liquidation value of net assets
during 2000 by $586,198. This was due primarily to changes in the estimated net
realizable values of equity holdings of the Partnership. The Partnership has
accrued the estimated expenses of liquidation, which is $350,000 at December 31,
2000. The General Partner reviews this estimate quarterly and will adjust as
needed.
In June, 2000, the Partnership's leases with Murdock were converted to notes and
stock as part of a restructuring. At the time of the restructuring, the
Partnership's net investment, after accruing for related property taxes, in the
contracts totalled $2,437,062. The Partnership received two notes and recorded
these at their estimated net realizable value of $1,535,828 (the face amount of
the notes totalled $1,820,631) and 421,181 (adjusted for a stock split) shares
of preferred stock in Actel Integrated Communications, Inc. ("Actel"), a not
readily marketable security. The estimated net realizable value of the Actel
preferred stock is $947,658 at December 31, 2000. The Partnership is not
accruing interest on the notes receivable due to the uncertainty of Murdock's
ability to pay. The Partnership has also established reserves for 50% of the
face value of the notes receivable due to this uncertainty. Murdock's primary
asset is a preferred stock investment in Actel.
In November 2000, the Partnership exercised its right to manage the assets
leased to Alpha Telecommunications, Inc. ("ATI") due to nonpayment of lease
receivables. The remaining net equipment cost, primarily pay phones, is expected
by management to be recovered through the sale of the equipment. Such equipment
cost had been adjusted for an impairment loss of $351,041, to reflect
management's estimated net realizable value of the equipment of $1,702,644,
based on recent sales of similar pay phone equipment routes.
As of December 31, 2000, one customer was over 90 days past due. When payments
are past due more than 90 days, the Partnership discontinues recognizing income
on those customer contracts. The Partnership's net investment in this contract
totalled $13,430 at December 31, 2000. However, this customer paid the contract
in full in February, 2001. In addition, notes receivable of $1,535,828 were on
non-accrual status due to concern over collectibility, as discussed above.
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The General Partner is engaged directly for its own account in the business of
acquiring and leasing equipment. The General Partner serves as the general
partner of Telecommunications Income Fund IX, L.P. ("TIF IX") and
Telecommunications Income Fund XI, L.P. ("TIF XI"), publicly owned limited
partnerships that are engaged in the equipment leasing business. TIF IX is
currently in its liquidation phase and must be dissolved by December 31, 2005.
Also, an affiliate of the General Partner is the general partner of a privately
offered active limited partnership. As of December 31, 2000, the net proceeds of
the private program, TIF IX, and TIF XI have been invested in specific
equipment. The activities of the General Partner, in regards to its other
leasing activities, has had no impact on the Partnership to date in management's
opinion.
The equipment that the Partnership leases is maintained by the lessee, and the
lessee is responsible for keeping the equipment upgraded with any improvements
that may be developed. The Partnership generally establishes the equipment's
residual value at 10% of the equipment's original cost. The Partnership
generally expects to realize the residual value by the sale of the equipment at
the expiration of the original lease term. The General Partner monitors the
maintenance and upgrades to the equipment and expects the Partnership to realize
residual values of at least 10%.
The General Partner is not aware of any regulatory issues that may have a
substantial negative impact on the telecommunications businesses to whom the
Partnership leases equipment. There are and will continue to be regulatory
issues in the telecommunications industry that the General Partner will monitor.
The equipment leases or notes acquired by the Partnership were financed to yield
rates of return between 15% and 20%. Lease terms vary from 36 months to 60
months. Rates charged on a particular lease or note depend on the size of the
transaction and the customer's financial strength.
Inflation affects the cost of equipment purchased and the residual values
realized when leases terminate and equipment is sold.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The recognition of gains or losses resulting from
changes in the values of derivatives is based on the use of each derivative
instrument and whether it qualifies for hedge accounting. In June 1999, the FASB
issued SFAS No. 137, which deferred the effective date of adoption of SFAS No.
133 for one year. The Partnership adopted SFAS No. 133 in the first quarter of
calendar year 2001. The adoption of this standard did not have any material
impact on the Partnership's results of operations, financial position or cash
flows.
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LIQUIDITY AND CAPITAL RESOURCES
Year Ended Year Ended Year Ended
Major Cash Sources (Uses): Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
------------- ------------- -------------
Net cash from operating activities $ (208,458) $ 746,219 $ 2,012,147
Net proceeds (payments) from line of credit (2,556,212) 2,540,781 (5,339,368)
Proceeds from contract repayments & terminations 6,436,632 3,873,201 13,641,744
Purchases of equipment for leases -0- (3,204,657) (5,941,745)
Issuance of notes receivable (135,000) (1,483,582) (166,000)
Distributions and withdrawals paid to partners (3,085,663) (2,497,803) (2,453,067)
The Partnership is required to establish working capital reserves of no less
than 1% of the total capital raised to satisfy general liquidity requirements,
operating costs of equipment, and the maintenance and refurbishment of
equipment. At December 31, 2000, that working capital reserve, as defined, would
be $226,025. Actual cash on hand at December 31, 2000 was $350,601.
The Partnership had a line of credit agreement with a bank carrying interest at
1% over prime. The agreement was amended August 26, 1998 extending the maturity
date to June 30, 2000, reduced the borrowing amount to the lesser of $4.0
million, or 40% of the Partnership's qualified accounts, as defined in the
agreement, and required minimum monthly interest payments of $4,000 beginning in
December 1998. The agreement was cancelable by the lender after giving a 90-day
notice and was collateralized by substantially all assets of the Partnership.
The line of credit was guaranteed by the General Partner and certain affiliates
of the General Partner. The line of credit was paid off in full during the first
quarter of 2000.
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 financial statements beginning with
that date 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 are stated at their anticipated settlement
amounts.
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
partners. The actual amounts are likely to differ from the amounts presented in
the financial statements.
The Partnership will continue to liquidate its assets in an orderly manner to
achieve the highest price possible for the partners and make distributions as
cash becomes available through sales of assets or collections of lease and notes
receivable.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EQUITY PRICE SENSITIVITY
The table below provides information about the Partnership's marketable and not
readily marketable equity securities that are sensitive to changes in prices.
The table presents the carrying amount and fair value at December 31, 2000.
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock $ 13,220 $ 13,220
------------- -------------
Total Available for Sale $ 13,220 $ 13,220
============= =============
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock $ 31,999 $ 31,999
Preferred Stock-Actel 947,658 947,658
------------- -------------
Total Not Readily Marketable $ 979,657 $ 979,657
============= =============
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's holdings
of equity securities are in emerging companies who operate in the
telecommunications industry and whose prices can be volatile. The Partnership
holds 165,900 shares of Murdock as available for sale and 426,600 shares as not
readily marketable, due to restrictions imposed by rule 144 of the Securities
and Exchange Commission. At December 31, 2000, the market price of Murdock was
$.09375 per share. At December 31, 2000, the total amount at risk was $992,877.
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 December 31, 2000.
Assets
---------------------------------
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2001 $ 135,233 18.0%
2002 10,015 18.0%
2003 1,408,176 18.0%
-------------
Total $ 1,553,424
=============
Fair Value $ 1,553,424
=============
The Partnership is currently not accruing interest income on $1,535,828, or 99%
of these notes receivable as the notes are due from Murdock and the Partnership
is unsure of the collectability of these, as discussed in item 7 above. 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and related information as of and for the
years ended December 31, 2000, 1999, and 1998 are included in Item 8:
Independent Auditors' Report
Statements of Net Assets as of December 31, 2000 and 1999 (Liquidation
Basis)
Statement of Changes in Net Assets (Liquidation Basis) for the year ended
December 31, 2000
Statements of Operations and Comprehensive Income
(Going Concern Basis) Years Ended December 31, 1999, and 1998
Statements of Changes in Partners' Equity (Going Concern Basis)
Years Ended December 31, 1999, and 1998
Statements of Cash Flows
Years Ended December 31, 2000, 1999, and 1998
Notes to Financial Statements
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INDEPENDENT AUDITORS' REPORT
To the Partners
Telecommunications Income Fund X, L.P.
We have audited the accompanying statements of net assets (liquidation basis) of
Telecommunications Income Fund X, L.P. (the "Partnership") as of December 31,
2000, and the related statement of changes in net assets (liquidation basis) for
the year ended December 31, 2000 and 1999. In addition, we have audited the
accompanying statements (going concern basis) of operations and comprehensive
income and of changes in partners' equity of the Partnership for the years ended
December 31, 1999 and 1998. In addition, we have audited the accompanying
statements of cash flows of the Partnership for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Partnership agreement
required that the orderly liquidation of the Partnership's net assets began on
December 31, 1999, and the Partnership commenced liquidation shortly thereafter.
As a result, the Partnership has changed its basis of accounting from the going
concern basis to the liquidation basis effective December 31, 1999.
In our opinion, such financial statements present fairly, in all material
respects, (1) the net assets of Telecommunications Income Fund X, L.P. at
December 31, 2000 and 1999, (2) the changes in its net assets for the year ended
December 31, 2000, (3) the results of its operations for the years ended
December 31, 1999 and 1998, and (4) its cash flows for each of the three years
in the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America on the basis described in the
preceding paragraph.
As discussed in Note 1 to the financial statements, because of the inherent
uncertainty of valuation when an entity is in liquidation, the amounts
realizable from the disposition of the remaining assets may differ materially
from the amounts shown in the accompanying financial statements.
/s/ Deloitte & Touche LLP
Cedar Rapids, Iowa
March 23, 2001
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF NET ASSETS AS OF DECEMBER 31, 2000 AND 1999
(LIQUIDATION BASIS)
- -------------------------------------------------------------------------------
ASSETS 2000 1999
Cash and cash equivalents $ 350,601 $ 4,147
Available-for-sale equity security (Note 2) 13,220 305,952
Not readily marketable equity securities (Note 2) 979,657 778,602
Net investment in direct financing leases
and notes receivable (Notes 3 and 4) 2,281,897 10,652,042
Equipment held for sale (Note 5) 1,702,644 --
Other assets 90,750 88,212
----------- -----------
Total assets 5,418,769 11,828,955
----------- -----------
LIABILITIES
Line-of-credit agreement (Note 6) -- 2,556,214
Outstanding checks in excess of bank balance -- 37,127
Due to affiliates -- 317,474
Distributions payable to partners (Note 7) -- 199,762
Accrued expenses and other liabilities 214,957 153,769
Lease security deposits 28,532 133,376
Reserve for estimated costs during the period of liquidation 350,000 550,000
----------- -----------
Total liabilities 593,489 3,947,722
----------- -----------
CONTINGENCIES (Note 10)
NET ASSETS $ 4,825,280 $ 7,881,233
=========== ===========
See notes to financial statements.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN NET ASSETS (LIQUIDATION BASIS)
YEAR ENDED DECEMBER 31, 2000
- -------------------------------------------------------------------------------
NET ASSETS AS OF DECEMBER 31, 1999 (GOING CONCERN BASIS) $ 9,346,046
Adjustment to liquidation basis (Note 1) (1,464,813)
-----------
NET ASSETS AS OF DECEMBER 31, 1999 (LIQUIDATION BASIS) 7,881,233
Income from direct financing leases 196,982
Interest and other income 219,164
Change in estimate of liquidation value of net assets (Note 1) (586,198)
Distributions to partners ($32.14 per unit) (Note 7) (2,850,000)
Withdrawals of limited partners (35,901)
------------
NET ASSETS AS OF DECEMBER 31, 2000 (LIQUIDATION BASIS) $ 4,825,280
===========
See notes to financial statements.
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TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(GOING CONCERN BASIS)
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
1999 1998
REVENUES:
Income from direct financing leases $ 1,314,165 $ 1,848,567
Gain on lease terminations 16,824 768,583
Interest and other income 276,777 185,517
----------- -----------
Total revenues 1,607,766 2,802,667
----------- -----------
EXPENSES:
Management and administrative fees (Note 8) 301,147 298,325
Other general and administrative expenses 183,551 331,716
Interest expense 222,344 254,975
Provision for possible loan and lease losses (Note 4) 184,730 199,060
Impairment loss on equipment (Note 5) -- 54,224
Impairment loss on available-for-sale security 173,261 --
----------- -----------
Total expenses 1,065,033 1,138,300
----------- -----------
NET INCOME 542,733 1,664,367
OTHER COMPREHENSIVE INCOME (LOSS) -
Unrealized gain (loss) on available for sale securities (356,459) 540,808
----------- -----------
COMPREHENSIVE INCOME $ 186,274 $ 2,205,175
=========== ===========
NET INCOME ALLOCATED TO:
General partner $ 243 $ 742
Limited partners 542,490 1,663,625
----------- -----------
$ 542,733 $ 1,664,367
=========== ===========
NET INCOME PER PARTNERSHIP UNIT $ 6.08 $ 18.54
=========== ===========
WEIGHTED AVERAGE PARTNERSHIP UNITS
OUTSTANDING 89,241 89,763
=========== ===========
See notes to financial statements.
-14-
15
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (GOING CONCERN BASIS)
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
UNREALIZED
GAIN (LOSS) ON
GENERAL LIMITED PARTNERS AVAILABLE- TOTAL
PARTNER ----------------------- FOR -SALE PARTNERS'
(40 UNITS) UNITS AMOUNT SECURITIES EQUITY
BALANCE AT JANUARY 1, 1998 $ 8,272 89,849 $ 11,927,080 $ (32,373) $ 11,902,979
Net income 742 -- 1,663,625 -- 1,664,367
Distributions to partners ($27.00 per unit)
(Note 7) (1,080) -- (2,421,893) -- (2,422,973)
Withdrawal of limited partner -- (236) (29,563) -- (29,563)
Change in unrealized gain on
available-for-sale securities -- -- -- 540,808 540,808
------------ -------- ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1998 7,934 89,613 11,139,249 508,435 11,655,618
Net income 243 -- 542,490 -- 542,733
Distributions to partners ($27.00 per unit)
(Note 7) (1,080) -- (2,408,079) -- (2,409,159)
Withdrawal of limited partners -- (870) (86,687) -- (86,687)
Change in unrealized gain on
available-for-sale securities -- -- -- (356,459) (356,459)
------------ -------- ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1999 $ 7,097 88,743 $ 9,186,973 $ 151,976 $ 9,346,046
============ ======== ============ ============ ============
See notes to financial statements.
-15-
16
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- -------------------------------------------------------------------------------
2000 1999 1998
OPERATING ACTIVITIES:
Net income (loss)/change in net assets excluding distributions
and withdrawals $ (170,052) $ 542,733 $ 1,664,367
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments 586,198 -- --
Gain on lease terminations -- (16,824) (768,583)
Amortization of intangibles -- 5,021 7,009
Provision for possible loan and lease losses 125,000 184,730 199,060
Impairment loss on equipment -- -- 54,224
Impairment loss on available-for-sale security 486,041 173,261 --
Changes in operating assets and liabilities:
Other assets (2,538) (47,097) 498,443
Due to affiliates (317,474) 292,872 1,346
Accrued expenses and other liabilities (749,853) 10,595 (79,918)
Outstanding checks in excess of bank balance (37,127) (399,072) 436,199
------------ ------------ ------------
Net cash from operating activities (79,805) 746,219 2,012,147
------------ ------------ ------------
INVESTING ACTIVITIES:
Investment in available-for-sale security -- -- (770,250)
Acquisitions of, and purchases of equipment for,
direct financing leases -- (3,204,657) (5,941,745)
Repayments of direct financing leases 1,547,093 2,685,933 2,031,823
Proceeds from termination of direct financing leases 4,755,524 679,172 10,737,743
Repayments of notes receivable 5,363 508,096 872,178
Issuance of notes receivable (135,000) (1,483,582) (166,000)
Net lease security deposits paid (104,844) (37,582) (338,586)
------------ ------------ ------------
Net cash from investing activities 6,068,136 (852,620) 6,425,163
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from line-of-credit borrowings 346,936 5,981,076 7,797,857
Repayments of line-of-credit borrowings (2,903,150) (3,440,295) (13,137,225)
Repayment of additional borrowings -- -- (583,233)
Distributions and withdrawals paid to partners (3,085,663) (2,497,803) (2,453,067)
------------ ------------ ------------
Net cash from financing activities (5,641,877) 42,978 (8,375,668)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 346,454 (63,423) 61,642
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,147 67,570 5,928
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 350,601 $ 4,147 $ 67,570
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 55,620 $ 199,642 $ 302,529
Noncash investing and financing activities:
Change in unrealized gain (loss) on available-for-sale securities -- (356,459) 540,808
Conversion of leases to notes receivable and not readily marketable
equity security 2,437,062 -- 2,631,890
Repossession of leased equipment 1,702,644 -- --
See notes to financial statements.
-16-
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TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS- Telecommunications Income Fund X,
L.P. (the "Partnership") was formed on April 20, 1993 under the Iowa
Limited Partnership Act. The general partner of the Partnership is Berthel
Fisher & Company Leasing, Inc. (the "General Partner"), an Iowa
corporation. During the offering period, which ended December 31, 1994,
the Partnership sold 90,470 partnership interests at a price per unit of
$250.
The Partnership operates in one segment. The Partnership's operations are
conducted throughout the United States. The Partnership primarily acquired
equipment for lease to third parties under a direct finance arrangement.
The lease agreements with individual customers were generally in excess of
$500,000 and certain agreements exceed 10% of the Partnership's direct
finance lease portfolio (see Note 3). The Partnership ceased reinvestment
in equipment and leases and began the orderly liquidation of Partnership
assets on January 1, 2000 as required by the Partnership agreement. The
Partnership must dissolve on December 31, 2002, or earlier, upon the
occurrence of certain events (see Note 7).
BASIS OF PRESENTATION - The Partnership began the orderly liquidation of
Partnership assets in January 2000 as discussed above. As a result, on
December 31, 1999 the Partnership adopted the liquidation basis of
accounting. The statements of net assets as of December 31, 2000 and 1999
and the statement of changes in net assets for the year ended December 31,
2000 have been prepared on the liquidation basis. Accordingly, assets have
been valued at estimated net realizable value and liabilities include
estimated costs associated with carrying out the plan of liquidation.
The net adjustment as of December 31, 1999 required to convert from the
going concern (historical cost) basis to the liquidation basis of
accounting was a decrease in carrying value of $1,464,813, which is
included in the statement of changes in net assets as of December 31,
1999. Significant increases (decreases) in the carrying value of net
assets are summarized as follows:
Increase to reflect net realizable value of equity securities $ 162,328
Decrease to reflect net realizable value of net investment
in direct financing leases and notes receivable (1,077,141)
Record estimated liabilities associated with carrying
out the liquidation (550,000)
------------
Net decrease in carrying value $ (1,464,813)
============
-17-
18
Changes in the estimated liquidation value of net assets during the year
ended December 31, 2000 is summarized as follows:
2000
Change in estimate of liquidation value of:
Securities $ (992,912)
Direct financing leases and notes receivable 406,714
----------
Total $ (586,198)
==========
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 partners. The actual amounts are
likely to differ from the amounts presented in the financial statements.
The statements (going concern basis) of operations and comprehensive
income and changes in partners' equity for the years ended December 31,
1999 and 1998 have been prepared using the historical cost (going concern)
basis of accounting on which the Partnership had previously reported its
financial condition and results of operations.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ significantly from those estimated.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the net realizable values
of the Partnership's assets and the reserve for estimated costs during the
period of liquidation.
Equity securities comprise preferred and common stock investments in two
companies. A prospective buyer may require a substantially lower price
than currently estimated and the operating results and prospects of these
companies may deteriorate. These factors, among others, could have a
material near-term impact on the net realizable value of equity
securities.
Most of the Partnership's leases and notes receivable are with customers
that are in the entrepreneurial stage and, therefore, are highly leveraged
and require financing in place of or to supplement financing from banks.
Although the Partnership attempts to mitigate its credit risk through
timely collection efforts, failure of the Partnership's customers to make
scheduled payments under their equipment leases and notes receivable could
have a material near-term impact on the net realizable value of leases and
notes receivable.
Realization of residual values depends on many factors, several of which
are not within the Partnership's control, including general market
conditions at the time of the original contract's expiration, whether
there has been unusual wear and tear on, or use of, the equipment, the
cost of comparable new equipment, the extent, if any, to which the
equipment has become technologically or economically obsolete during the
contract term and the effects of any additional or amended government
regulations. Also, the market for pay telephone equipment is volatile.
These factors, among others, could have a material near-term impact on the
net realizable value of leases.
-18-
19
CERTAIN RISK CONCENTRATIONS - The Partnership's portfolio of leases and
notes receivable are concentrated in pay telephones and automated teller
machines, representing approximately 32% and 1% at December 31, 2000, and
52% and 20% at December 31, 1999, of the Partnership's direct finance
lease portfolio.
Four customers account for approximately 81% of the Partnership's net
investment in direct financing leases and notes receivable portfolio at
December 31, 2000. Also, 5% of the Partnership's investment in equity
securities at December 31, 2000 represents securities of one of these
customers.
RELATED PARTY TRANSACTIONS - In fulfilling its role as general partner,
Berthel Fisher & Company Leasing, Inc. enters into transactions with the
Partnership in the normal course of business. Further, the Partnership
also enters into transactions with affiliates of Berthel Fisher & Company
Leasing, Inc. These transactions are set forth in the notes that follow.
Management is of the opinion that these transactions are in accordance
with the terms of the Agreement of Limited Partnership.
CASH AND CASH EQUIVALENTS - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
EQUITY SECURITIES - The Partnership's common equity securities are
restricted as to sale in the public market under rule 144 of the
Securities and Exchange Commission. Common equity securities, which can be
sold in the public market within one year, are classified as marketable
equity securities and valued at the published market prices less an
estimated illiquidity discount. Common equity securities, which cannot be
sold in the public market within one year, are classified as not readily
marketable and valued at an estimated discount from the published market
price reflective of their more illiquid nature.
The Partnership's preferred equity securities are valued at their
liquidation preference value or estimated net realizable value, if higher,
based on benchmark comparisons to similar public companies.
NET INVESTMENT IN DIRECT FINANCING LEASES - The Partnership's primary
activity consists of leasing telecommunications equipment under direct
financing leases generally over a period of three to five years. At the
time of closing a direct financing lease, the Partnership recorded the
gross lease contract receivable, the estimated unguaranteed residual value
and unearned lease income. The unearned lease income represents the excess
of the gross lease receivable plus the estimated unguaranteed residual
value over the cost of the equipment leased. In addition, the Partnership
capitalized all initial direct costs associated with originating the
direct financing lease. The unearned income and initial direct costs are
amortized to income over the lease term so as to produce a constant
periodic rate-of-return on the net investment in the lease. Lessees are
responsible for all taxes, insurance, and maintenance costs.
The realization of the estimated unguaranteed residual value of leased
equipment depends on the value of the leased equipment at the end of the
lease term and is not a part of the contractual agreement with the lessee.
Estimated residual values are based on estimates of amounts historically
realized by the Partnership for similar equipment and are periodically
reviewed by management for possible impairment.
Direct financing leases are accounted for as operating leases for income
tax purposes.
NOTES RECEIVABLE - Notes receivable are carried at the principle balance
outstanding. Interest income on notes receivable is accrued based on the
principle amount outstanding.
-19-
20
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES - The Partnership performed
credit evaluations prior to approval of a loan and lease. Subsequently,
the creditworthiness of the customer and the value of the underlying
assets are monitored on an ongoing basis. Under its lease agreements, the
Partnership retains legal ownership of the leased asset. The Partnership
maintains an allowance for possible loan and lease losses which could
arise should customers become unable to discharge their obligations under
the loan and lease agreements. The allowance for possible loan and lease
losses is maintained at a level deemed appropriate by management to
provide for known and inherent risks in the loan and lease portfolio. The
allowance is based upon a continuing review of past loss experience,
current economic conditions, delinquent loans and leases, an estimate of
potential loss exposure on significant customers in adverse situations,
and the underlying asset value. The consideration of such future potential
losses also includes an evaluation for other than temporary declines in
value of the underlying assets. Loans and leases, which are deemed
uncollectible, are charged off and deducted from the allowance. The
provision for possible loan and lease losses and recoveries are added to
the allowance.
NET REALIZABLE VALUE OF NET INVESTMENT IN DIRECT FINANCING LEASES AND
NOTES RECEIVABLE - Management, in arriving at the net realizable value of
the Partnership's net investment in direct financing leases and notes
receivable, considered the contractual repayment schedule, the estimated
duration of the liquidation period, the customer and industry
concentration risks, and interest rate levels, among other factors, in
arriving at a discount to apply to the portfolio at December 31, 2000 to
estimate its net realizable value.
EQUIPMENT - Equipment leased under operating leases was depreciated using
the straight-line method over the estimated useful lives of the assets
(five years) to the estimated residual value of the equipment at the end
of the lease term. Estimated residual values were based on estimates of
amounts historically realized by the Partnership for similar equipment and
were periodically reviewed by management for possible impairment.
EQUIPMENT HELD FOR SALE - The net realizable value of equipment held for
sale at December 31, 2000 is based on recent sales values for similar pay
telephone equipment.
SALE OF DIRECT FINANCE LEASES - The Partnership at times sells direct
financing leases, on a limited recourse basis, to lenders in return for a
cash payment. In the case of default by the lessee, the lender has a first
lien on the underlying leased equipment. In the event the sale or re-lease
proceeds from the underlying equipment do not satisfy the remaining
lessee's obligation to the lender, the Partnership is responsible for a
predetermined amount of that obligation. When the sale of direct finance
leases occurs, proceeds from the sale, less the net book value of direct
finance leases sold and an estimated loss allowance, are recorded as a
component of gain on early termination of leases.
TAX STATUS - Under present income tax laws, the Partnership is not liable
for income taxes, as each partner recognizes a proportionate share of the
Partnership income or loss in their income tax return. Accordingly, no
provision for income taxes is made in the financial statements of the
Partnership.
NET INCOME PER PARTNERSHIP UNIT - Net income per partnership unit is based
on the weighted average number of units outstanding (including both
general and limited partners' units).
-20-
21
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS - In June, 1998, the Financial
Accounting Standard Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes standards
for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The recognition of
gains or losses resulting from changes in the values of derivatives is
based on the use of each derivative instrument and whether it qualifies
for hedge accounting. In June 1999, the FASB issued SFAS No. 137, which
deferred the effective date of adoption of SFAS No. 133 for one year. The
Partnership adopted SFAS No. 133 in the first quarter of calendar year
2001. The adoption of this standard did not have any impact on the
Partnership's results of operations, financial position or cash flows as
the Partnership is on the liquidation-basis.
2. EQUITY SECURITIES
The Partnership's equity securities consist of the following at December
31, 2000 and 1999:
2000 1999
Available-for-sale equity security - Murdock Communications Corporation, a call
processing entity operating in the telecommunications industry, 165,900 and
159,975 shares of
common stock at December 31, 2000 and 1999, respectively $ 13,220 $ 305,952
========= =========
Not readily marketable equity securities:
Murdock Communications Corporation, 426,600 and
432,525 shares of common stock at December 31,
2000 and 1999, respectively $ 31,999 $ 778,602
AcTel Integrated Communications, Inc., a competitive local
exchange center operating in the telecommunications industry,
421,181 shares of Series A convertible preferred (convertible
into 1,263,543 common shares) at December 31, 2000 947,658 --
--------- ---------
Total $ 979,657 $ 778,602
========= =========
Murdock Communications Corporation's primary asset at December 31, 2000 is
an investment in Series A convertible preferred stock of Actel Integrated
Communications, Inc.
The Partnership's gross changes in unrealized gain (loss) on
available-for-sale equity securities for the years ended December 31, 1999
and 1998 consists of the following:
1999 1998
Unrealized holding gains during the year $ -- $ 676,450
Unrealized holding losses during the year (including
$48,602 related to reclassifying shares to
not readily marketable) (529,720) (135,642)
Reclassification adjustment for loss included
in net income 173,261 --
---------- ---------
Unrealized gain (loss) on available-for-sale
securities, net $ (356,459) $ 540,808
========== =========
-21-
22
3. 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 at December 31, 2000 and 1999:
2000 1999
Minimum lease payments receivable $ 1,659,567 $ 12,223,103
Estimated unguaranteed residual values 238,336 645,025
Unamortized initial direct costs 3,120 24,022
Unearned income (269,101) (2,354,280)
Notes receivable 1,553,424 1,773,820
Adjustment to net realizable value (903,449) (1,659,648)
------------ ------------
Net investment in direct financing leases and notes receivable $ 2,281,897 $ 10,652,042
============ ============
At December 31, 2000, contractual maturities under notes receivable,
future minimum payments to be received under the direct financing leases
and the estimated unguaranteed residuals to be realized at the expiration
of the direct financing leases are as follows:
NOTES MINIMUM ESTIMATED
RECEIVABLE LEASE UNGUARANTEED
CONTRACTUAL PAYMENTS RESIDUAL
MATURITIES RECEIVABLE VALUES
Years ending December 31:
2001 $ 135,233 $ 1,012,854 $ 130,974
2002 10,015 395,372 8,449
2003 1,408,176 170,396 47,346
2004 -- 80,945 51,567
----------- ----------- ----------
Total $ 1,553,424 $ 1,659,567 $ 238,336
=========== =========== ==========
The Partnership leases equipment and provides financing to certain
companies for which the General Partner or its affiliates have an
ownership interest in, provide financing to, or provide investment
advisory services for such companies. The Partnership's net investment in
direct financing leases and notes receivable with these companies
approximated $1,535,828 and $4,681,696 at December 31, 2000 and 1999,
respectively.
Six customers accounted for 10% or more of the amount of income from
direct financing leases during one or more of the years presented, as
follows:
2000 1999 1998
Customer A 5% 20% 18%
Customer B 7 21 4
Customer C -- 8 21
Customer D 21 10 --
Customer E 16 5 --
Customer F 18 2 --
-22-
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4. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The changes in the allowance for possible loan and lease losses for the
years ended December 31, 2000, 1999, and 1998 are as follows:
2000 1999 1998
Balance at beginning of year $ 582,507 $ 445,718 $ 3,855,618
Provision 182,776 184,730 199,060
Charge-offs, net of recoveries (6,348) (47,941) (3,608,960)
----------- ----------- -----------
Balance at end of year $ 758,935 $ 582,507 $ 445,718
=========== =========== ===========
The allowance for possible loan and lease losses consisted of specific
allowances for leases and notes receivable of $625,512, $380,807 and
$114,102 and a general unallocated allowance of $133,423, $201,700 and
$331,616, respectively, at December 31, 2000, 1999, and 1998. The
allowance at December 31, 2000 is included in the net realizable value
adjustment discussed in Note 3.
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 has 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 was equal to the
carrying value of the leases and advances associated with NACG. Such
leases and advances were charged-off to the allowance for possible loan
and lease losses during 1998. The Partnership received $105,000 in the
first quarter of 1999 from the sale of assets recovered to date, and
credited this to the allowance for possible loan and lease losses.
In December 1998, the Partnership, Telecommunications Income Fund IX, the
General Partner, NACG, and others filed a suit against Shelby County,
Tennessee ("County"). The suit alleged, among other things, damages for
wrongful termination of the pay phone contract between NACG and Shelby
County and racial discrimination by the County against NACG. The County
filed an answer and the initial discovery has been completed. Based on the
facts discovered, it was determined it was not economical to continue to
spend Partnership funds in an effort to obtain additional information or
to continue the lawsuit.
At December 31, 2000, the Partnership had one customer with payments over
90 days past due. The Partnership's net investment in lease contracts with
this customer totaled $13,430. Management has not provided a specific
allowance at December 31, 2000 related to this customer. Management
believes that the underlying collateral is adequate to recover the
Partnership's net investment for the remaining past due customer. If a
lease or note receivable is past due more than 90 days, the Partnership
discontinues recognizing income on the contract. This customer paid in
full in February 2001.
-23-
24
In June, 2000, the Partnership's two leases with Murdock Communications
Corporation ("Murdock") were converted to notes and stock as part of a
restructuring. At the time of the restructuring, the Partnership's net
investment in the contracts after accruing for related property taxes,
totaled $2,437,062. The Partnership received two notes and recorded these
at their estimated net realizable value of $1,535,828 and 421,181
(adjusted for a stock split) shares of preferred stock in Actel Integrated
Communications, Inc. ("Actel"), a not readily marketable security. The
estimated net realizable value of the Actel preferred stock is $947,658 at
December 31, 2000. The Partnership is not accruing interest on the notes
receivable due to the uncertainty of Murdock's ability to pay. The
Partnership has also established reserves for 50% of the face value of the
notes receivable due to this uncertainty and recorded a specific reserve
of $625,512.
5. EQUIPMENT HELD FOR SALE
In November 2000, the Partnership exercised its right to manage the assets
leased to Alpha Telecommunications, Inc. due to nonpayment of lease
receivables. The remaining net equipment cost, primarily pay phones, is
expected by management to be recovered through the sale of the equipment.
Such equipment cost had been adjusted for an impairment loss of $351,041,
to reflect management's estimated net realizable value of the equipment.
6. BORROWING AGREEMENT
The Partnership had a line-of-credit agreement with a bank, which bore
interest at a variable rate of 9.5% and 8.75% at December 31, 1999 and
1998, respectively. The line-of-credit was paid in full and discontinued
during 2000.
7. LIMITED PARTNERSHIP AGREEMENT
The Partnership was formed pursuant to an Agreement of Limited Partnership
dated as of April 20, 1993 and amended August 12, 1993 (the "Agreement").
The Agreement outlines capital contributions to be made by the partners
and the allocation of cash distributions, net income, and net loss to the
partners. Capital contributions by the partners to the partnership consist
of the $10,000 contributed by the General Partner and the amounts
contributed by limited partners for the purchase of their units.
Net income or net loss allocated to the limited partners will be
apportioned among them based on the number of limited partnership units
held and on the number of months within the respective year that such
units were held. Any share of Partnership net loss will first be allocated
to the limited partners to the extent of their positive capital account
balances. Any share of additional net loss will be allocated to the
General Partner. Any Partnership net income will first be allocated to
partners with negative capital accounts in proportion to, and to the
extent of, such negative capital accounts. Except as provided below, any
additional net income will then be allocated to the General Partner and
limited partners based on number of units held. During liquidation of the
Partnership, when cash distributions are to be made 80% to the limited
partners and 20% to the General Partner (see below), net income will be
allocated 80% to the limited partners and 20% to the General Partner.
-24-
25
During the Partnership's operating phase, to the extent there is cash
available for distribution, cash distributions will be made on a monthly
basis in the following order of priority: first, to reimburse the General
Partner for administrative services it provides to the Partnership, as
further described in the Agreement (see Note 8); second, to the limited
partners up to amounts representing a 10.8% cumulative annual return on
their adjusted capital contribution (as defined); and, third, to the
General Partner, representing a monthly equipment management fee of 5% of
the gross rental payments received by the Partnership (see Note 8). To the
extent that cash is not available to pay all or a portion of the equipment
management fee pursuant to the above priority distributions, such fee will
accrue and accumulate. Any remaining cash distributions after payment of
the above (including arrearages) will be paid, at the discretion of the
General Partner, to the limited partners.
During the Partnership's liquidation phase, cash available for
distribution will be distributed in the following order of priority:
first, for payment of the General Partner's administrative services
expense described above; second, to the limited partners for any arrearage
in their 10.8% cumulative priority return; third, to the limited partners
for 100% of their adjusted capital contributions; fourth, to the limited
partners, distributions totaling 10.8% annually, noncompounded, on their
adjusted capital contributions; fifth, to the General Partner for any
arrearage in its equipment management fee; and, sixth, 80% to the limited
partners and 20% to the General Partner (provided, however, that the
General Partner will not receive such amounts unless the limited partners
have received total distributions equal to their capital contribution plus
a 10.8% annualized return).
8. MANAGEMENT AND SERVICE AGREEMENTS
The Partnership paid an equipment management fee, equal to 5% of the
amount of gross rental payments received, to the General Partner. The
Partnership entered its liquidation phase in January 2000 and at that time
discontinued the fee. During the years ended December 31, 2000, 1999, and
1998, those management fees aggregated $0, $217,147 and $214,325,
respectively.
In addition, the General Partner is reimbursed for certain other costs
under an administrative services agreement. Amounts incurred by the
Partnership pursuant to this agreement amounted to $84,000 for each of the
years ended December 31, 2000, 1999, and 1998.
-25-
26
9. RECONCILIATION OF FINANCIAL AND INCOME TAX REPORTING BASIS
A reconciliation of net income/change in net assets excluding
distributions and withdrawal for financial reporting purposes with the
related amount reported for income tax purposes for the years ended
December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
----------------------------- ----------------------------- -------------------------------
PER PER PER
AMOUNT UNIT AMOUNT UNIT AMOUNT UNIT
Net income/change in
net assets excluding
distributions and
withdrawals for
financial reporting $ (170,052) $ 1.92 $ 542,733 $ 6.08 $ 1,664,367 $18.54
purposes
Adjustment to
convert direct
financing leases to
operating leases
for income tax
purposes 526,134 2.10 198,174 2.22 (931,343) (10.37)
Net change in
allowance for
possible loan and
lease losses 176,428 1.99 194,565 2.18 (3,409,900) (37.98)
Gain on lease
terminations 4,293,108 48.41 (74,076) (.83) 673,200 7.49
Impairment of
investment -- -- 173,261 1.94 -- --
Net realizable value
adjustment 586,198 6.61 -- -- -- --
----------- ------ ----------- ------ ----------- ------
Net income (loss)
for income tax
reporting purposes $ 5,411,816 $61.03 $ 1,034,657 $11.59 $(2,003,676) $(22.32)
=========== ====== =========== ====== =========== ======
10. CONTINGENCIES
SA Communications filed a suit against the Partnership, the General
Partner, and others alleging the Partnership received a preference of
approximately $45,000 prior to the filing of its petition in bankruptcy.
The Partnership maintains that it was receiving regular monthly payments
and there was no preference. Negotiations are in progress with the
bankruptcy trustee. No loss, if any, has been recorded in the financial
statements with respect to this matter.
The General Partner has approximately $2,200,000 of notes payable and
redeemable preferred stock maturing in 2001 and may not have sufficient
liquid assets to repay such amounts. The General Partner is pursuing
additional financing, refinancing, and asset sales to meet its
obligations. No assurance can be provided that the General Partner will be
successful in its efforts.
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11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000 QUARTERS
------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH 2000
Income from direct
financing leases,
interest and other
income $ 91,761 $ 194,037 $ 172,042 $ (41,694) $ 416,146
Distributions to partners (1,500,000) (900,000) -- (450,000) (2,850,000)
Withdrawals of limited
partners (4,109) -- (7,720) (24,072) (35,901)
Change in estimate of
liquidation value of
net assets 126,917 574,667 41,038 (1,328,820) (586,198)
------------ ----------- ----------- ------------ ------------
Change in net assets $ (1,285,431) $ (131,296) $ 205,360 $ (1,844,586) $ (3,055,953)
============ =========== =========== ============ ============
Interest and other income for the fourth quarter of 2000 includes the
reversal of $185,537 of income recognized in relationship to the Murdock
Communications Corporation note receivable, which was considered to be
only 50% collectible in the fourth quarter.
Change in estimate of liquidation value of net assets for the fourth
quarter of 2000 includes the $625,512 specific reserve for Murdock
discussed in Note 4 and the $351,401 impairment loss on repossessed
equipment discussed in Note 5.
1999 QUARTERS
------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH 1999
Revenue $ 465,599 $ 419,888 $ 361,118 $ 361,161 $1,607,766
Expenses 240,068 179,541 202,561 442,863 1,065,033
Comprehensive income 790,222 (326,234) 189,301 (467,015) 186,274
Net income applicable
to partnership units 225,531 240,347 158,557 (81,702) 542,733
Net income per
partnership unit $ 2.52 $ 2.69 $ 1.78 $ (0.91) $ 6.08
* * * * *
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28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT
A: The General Partner of the registrant:
Berthel Fisher & Company Leasing, Inc., an Iowa corporation.
B: Executive officers of the General Partner of the Registrant:
Thomas J. Berthel (age 49) - Mr. Berthel is the Chief Executive Officer and
Director of the General Partner, a position he has held since the General
Partner's inception in 1988. Mr. Berthel is also President and a Director of the
General Partner's parent, Berthel Fisher & Company, Inc. ("Berthel Fisher"),
which he founded in 1985, and Berthel Fisher's other subsidiaries, Berthel
Fisher & Company Financial Services, Inc.; Berthel Fisher & Company Management
Corp.; Berthel Fisher & Company Planning, Inc.; and one other corporation which
acts as general partner of a separate private program. He also serves as the
Chairman of the Board and Director of Amana Colonies Golf Course, Inc. Mr.
Berthel holds a bachelor's degree from St. Ambrose College in Davenport, Iowa
(1974). From 1974 to 1982, Mr. Berthel was President and majority shareholder of
Insurance Planning Services Corporation in Maquoketa, Iowa, which was engaged in
the operation of a securities and insurance business. Mr. Berthel holds a
Financial and Operation Principal license issued by the National Association of
Securities Dealers, Inc. Mr. Berthel is also a Certified Life Underwriter. Mr.
Berthel also serves as an individual general partner of the limited partnership
referred to above. Mr. Berthel received a MBA degree from the University of Iowa
in 1993.
Ronald O. Brendengen (age 46) - Mr. Brendengen is the Treasurer, Chief Operating
Officer, Chief Financial Officer, and a Director (1988 to present) of the
General Partner. He was elected to his current offices in October 1996. He
served as Treasurer and Chief Financial Officer since October 1996. He has also
served as Secretary (1994 - March, 1995), Treasurer (1988 - August 1995) and
Chief Financial Officer (1994 - August 1995) of the General Partner. He served
as Controller (1985-1993), Treasurer (1987-present), Chief Financial Officer,
Secretary and a Director (1987-present), and was also elected Chief Operating
Officer in January 1998, of Berthel Fisher & Company, the parent company of the
General Partner. Mr. Brendengen serves as the Treasurer, Chief Financial Officer
and a Director of Berthel Fisher & Company Planning, Inc., the trust advisor of
Berthel Growth & Income Trust I, a company required to file reports pursuant to
the Securities Exchange Act of 1934. He also serves in various offices and as a
Director of each subsidiary of Berthel Fisher & Company. Mr. Brendengen holds a
certified public accounting certificate and worked in public accounting during
1984 and 1985. From 1979 to 1984, Mr. Brendengen worked in various capacities
for Morris Plan and MorAmerica Financial Corp., Cedar Rapids, Iowa. Mr.
Brendengen attended the University of Iowa before receiving a bachelor's degree
in Accounting and Business Administration with a minor in Economics from Mt.
Mercy College, Cedar Rapids, Iowa, in 1978.
Timothy J. White (age 47) - Mr. White was elected President of the General
Partner on January 26, 2001. From 1999 to 2000, Mr. White was Vice President of
New Markets for Great America Leasing in Cedar Rapids, Iowa. From 1996 to 1999,
Mr. White was Vice President of Business Development for GE Capital in Cedar
Rapids, Iowa. From 1993 to 1996, Mr. White was President of Aloha Capital
Corporation in Syracuse, New York. From 1989 to 1993, Mr. White was Vice
President of Sales for Dana Commercial Credit in Troy, Michigan. During his
career, Mr. White has been responsible for the management of a leasing business
in excess of $200 million and sales budgets in excess of $400 million. Mr. White
holds a Bachelor's degree in Business Management from Walsh College in Troy,
Michigan.
Nancy L. Lowenberg (age 42) - Ms. Lowenberg was Executive Vice President and
General Manager of the General Partner beginning January 2, 1997. From September
1986 to December 1996, Ms. Lowenberg was employed by Firstar Bank Iowa, N.A., in
Cedar Rapids. Ms. Lowenberg received her Bachelor of Science Agricultural
Business with a minor in Finance in 1981 from Iowa State University, Ames, Iowa.
Ms. Lowenberg resigned from the General Partner effective February 9, 2000.
-28-
29
ITEM 11. EXECUTIVE COMPENSATION
Set forth is the information relating to all direct remuneration paid or
accrued by the Registrant during the last three years to the General Partner:
(A) (B) (C) (C1) (C2) (D)
Securities of
property
insurance Aggregate
benefits or of
Cash and Cash reimbursement contingent
Name of individual Year equivalent forms personal or forms of
and capacities served Ended of remuneration Fees benefits remuneration
- --------------------- ----- --------------- ---- -------- ------------
Berthel Fisher & Co. Leasing, Inc. 2000 $0 $ 84,000 $0 $0
(General Partner) 1999 $0 $ 301,147 $0 $0
1998 $0 $ 298,325 $0 $0
-29-
30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of the Partnership Units.
(b) The General Partner of the Registrant owns Units of the Registrant set
forth in the following table.
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Ownership Beneficial Ownership of Class
- -------------- -------------------- -------------------- --------
Units Berthel Fisher & Co. Forty (40) Units; 0.05%
Leasing, Inc. sole owner.
701 Tama Street
Marion, IA 52302
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related party transactions are described in Notes 3 and 8 of the notes to the
financial statements.
-30-
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
Page No.
Statements of Net Assets as of December 31, 2000 and 1999
(Liquidation Basis) 12
Statement of Changes in Net Assets (Liquidation Basis)
for the year ended December 31, 2000 13
Statements of Operations and Comprehensive Income
(Going Concern Basis) Years Ended December 31, 1999 and 1998 14
Statements of Changes in Partners' Equity (Going Concern Basis)
Years Ended December 31, 1999, and 1998 15
Statements of Cash Flows
Years Ended December 31, 2000, 1999, and 1998 16
Notes to Financial Statements 17
2. Financial Statements Schedules
Information pursuant to Rule 12-09 (Schedule II) is included in the
financial statements and notes thereto.
3. Exhibits
3,4 Amended and Restated Agreement of Telecommunications
Income Fund X, L.P. currently in effect dated as of August 19, 1993(1)
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 2000.
- ----------
(1) Incorporated herein by reference to Exhibit A in the Partnership's
registration statement on Form S-1, effective August 27, 1993
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32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Thomas J. Berthel Date: March 26, 2001
----------------------------------------
Thomas J. Berthel
President
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Ronald O. Brendengen Date: March 26, 2001
----------------------------------------
Ronald O. Brendengen
Chief Financial Officer, Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Thomas J. Berthel Date: March 26, 2001
- --------------------------------------------
Thomas J. Berthel
Chief Executive Officer
President, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Ronald O. Brendengen Date: March 26, 2001
- --------------------------------------------
Ronald O. Brendengen
Treasurer, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Daniel P. Wegmann Date: March 26, 2001
- --------------------------------------------
Daniel P. Wegmann
Controller
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Leslie D. Smith Date: March 26, 2001
- --------------------------------------------
Leslie D. Smith
Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
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33
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3,4 Amended and Restated Agreement of
Telecommunications Income Fund IX, L.P. currently in
effect dated as of August 12, 1991 (1)
- ----------
(1) Incorporated herein by reference to Partnership Exhibit A to
the prospectus included in the Partnership's post effective
amendment No. 4 to Form S-1 registration statement filed on
December 22, 1992.
-33-