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 March 31, 2003
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 registered pursuant to Section 12(g) of the Act:
Limited Partnership Interest (the "Units")
------------------------------------------
Title of Class
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filings
requirements for the past 90 days.
[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 April 14, 2003, 86,556 units were issued and outstanding. Based on the
book value at March 31, 2003 of $2.01 per unit, the aggregate market value at
April 14, 2003 was $173,978.
TELECOMMUNICATIONS INCOME FUND X, L.P.
INDEX
Page
----
Part I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements (unaudited)
Statements of Net Assets (Liquidation Basis)-
March 31, 2003 and December 31, 2002 3
Statement of Changes in Net Assets (Liquidation Basis)-
three months ended March 31, 2003 and 2002 4
Statements of Cash Flows-three months ended March 31,
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
Certifications 10
2
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF NET ASSETS (LIQUIDATION BASIS) (UNAUDITED)
March 31, December 31,
2003 2002
-------- --------
ASSETS
Cash and cash equivalents $ 94,335 $ 49,000
Not readily marketable equity security 68,138 59,250
Net investment in direct financing leases
and notes receivable (Note B) 81,253 177,900
Other assets 53,712 56,036
-------- --------
TOTAL ASSETS 297,438 342,186
-------- --------
LIABILITIES
Accounts payable 30,966 34,797
Lease security deposits 434 592
Reserve for estimated costs during the
period of liquidation 92,000 120,249
-------- --------
TOTAL LIABILITIES 123,400 155,638
-------- --------
CONTINGENCY (Note C)
NET ASSETS $174,038 $186,548
======== ========
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENT OF CHANGES IN NET ASSETS
(LIQUIDATION BASIS) (UNAUDITED)
Three Months Ended March 31
2003 2002
--------- ---------
Net assets at beginning of period $ 186,548 $ 433,704
Income from direct financing leases,
interest, and other income 7,104 6,519
Withdrawals of limited partners (341) (507)
Change in estimate of liquidation
value of net assets (19,273) (12,801)
--------- ---------
Net assets at end of period $ 174,038 $ 426,915
========= =========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, March 31,
2003 2002
-------- --------
Operating Activities
Changes in net assets excluding withdrawals and distributions $(12,169) $ (6,282)
Adjustments to reconcile to net cash from operating activities:
Liquidation basis adjustments 19,273 12,801
Changes in operating assets and liabilities:
Other assets 2,324 19,280
Accounts payable (3,831) 72
Reserve for estimated costs during the period of liquidation (56,428) (62,486)
-------- --------
Net cash from operating activities (50,831) (36,615)
-------- --------
Investing Activities
Repayments of direct financing leases 649 68,412
Proceeds from termination of direct financing leases 367 13,931
Net lease security deposits repaid (158) (3,503)
Issuance of notes receivable -0- (15,400)
Repayments of notes receivable 95,649 12,713
-------- --------
Net cash from investing activities 96,507 76,153
-------- --------
Financing Activities
Withdrawals paid to partners (341) (507)
-------- --------
Net cash from financing activities (341) (507)
-------- --------
Net increase in cash and cash equivalents 45,335 39,031
Cash and cash equivalents at beginning of period 49,000 46,197
-------- --------
Cash and cash equivalents at end of period $ 94,335 $ 85,228
======== ========
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 three months ended March 31, 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)
March 31, 2003 December 31, 2002
--------------- ---------------
Minimum lease payments receivable $ 1,338 $ 3,116
Estimated unguaranteed residual values 751 1,100
Unamortized initial direct costs -0- 1
Unearned income (68) (157)
Notes receivable 149,247 244,896
Adjustment to net realizable value (70,015) (71,056)
--------------- ---------------
Net investment in direct financing leases and notes receivable $ 81,253 $ 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 Results
-----------------------------------------------------------------------
of Operations
-------------
On December 31, 1999, the Partnership ceased reinvestment in equipment and
leases and began the orderly liquidation of the Partnership in accordance with
the partnership agreement. As a result, the unaudited financial statements have
been presented under the liquidation basis of accounting. Under the liquidation
basis of accounting, assets are stated at their estimated net realizable values
and liabilities include estimated costs associated with carrying out the plan of
liquidation.
As discussed above, the Partnership is in liquidation and does not believe a
comparison of results would be meaningful. The Partnership realized $7,104 in
income from direct financing leases, notes receivable, and other income during
the first three months of 2003. This represents an annualized return on average
net assets of approximately 14.6%. Management decreased its estimate of the
liquidation value of net assets during the first three months of 2003 by
$19,273, resulting primarily from an increase in the estimated value of equity
securities offset by an increase in the reserve for estimated costs during the
period of liquidation. The Partnership has accrued the estimated expenses of
liquidation, which is $92,000 at March 31, 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 March 31, 2003 the
Partnership had $94,335 of cash on hand.
As of March 31, 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
March 31, 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 nearly 99% of the portfolio at March 31, 2003. One
customer accounts for over 90% of the Partnership's portfolio of leases and
notes receivable at March 31, 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 and asset 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
----------------------------------------------------------
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 March 31,
2003.
Carrying Amount Fair Value
--------------- ----------
Common Stock-Murdock Communications Corp. $ 68,138 $ 68,138
------------- -------------
Total Not Readily Marketable $ 68,138 $ 68,138
============= =============
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
March 31, 2003, the total amount at risk was $68,138. Murdock has filed an S-4
registration with the intent to merge with another company. The Partnership
intends to hold the Murdock shares to determine if any significant value can be
achieved from this potential merger. No assurance can be given that the merger
will be consummated or that any value can be realized if the merger is
consummated.
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 March 31, 2003.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2003 $ 139,257 8.1%
2004 3,886 9.5%
2005 4,268 9.5%
2006 1,836 9.5%
-------------
Total $ 149,247
=============
Fair Value $ 79,000
=============
The Partnership manages interest rate risk, its primary market risk exposure
with respect to notes receivable, by limiting the terms of notes receivable to
no more than five years.
Item 4. Controls and Procedures
-----------------------
An evaluation was performed under the supervision and with the participation of
the Partnership's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures within 90 days before the
filing date of this report. Based on that evaluation, the Partnership's
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that the Partnership's disclosure controls and procedures were
effective in timely alerting them to material information relating to the
Partnership required to be included in the Partnership's periodic SEC filings.
There have been no significant changes in the Company's internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation, and no corrective actions with regards to significant
deficiencies and material weaknesses, of which none were noted, were required.
PART II
Item 6. Exhibits
--------
Exhibit 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
Exhibit 99.2 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.
--------------------------------------
(Registrant)
Date: May 14, 2003 /s/ Ronald O. Brendengen
------------ ----------------------------------
Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date: May 14, 2003 /s/ Daniel P. Wegmann
------------ ----------------------------------
Daniel P. Wegmann, Controller
9
FORM OF SECTION 302 CERTIFICATION
I, Thomas J. Berthel, President and Chief Executive Officer of Berthel Fisher &
Company Leasing, Inc., the General Partner of Telecommunications Income Fund X,
L.P., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telecommunications
Income Fund X, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 14, 2003 /s/ Thomas J. Berthel
-----------------------------------
Thomas J. Berthel
President and Chief Executive
Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income
Fund X, L.P.
10
FORM OF SECTION 302 CERTIFICATION
I, Ronald O. Brendengen, Chief Financial Officer of Berthel Fisher & Company
Leasing, Inc., the General Partner of Telecommunications Income Fund X, L.P.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telecommunications
Income Fund X, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 14, 2003 /s/ Ronald O. Brendengen
-----------------------------------
Ronald O. Brendengen
Chief Financial Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income
Fund X, L.P.
11