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 100 Second Street S.E., Cedar Rapids, Iowa 52401. 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.
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 to obtain the maximum available economic return from its investment in equipment leases to unaffiliated third parties with a view toward: (i) generating cash flow from operations, with the intent to make distributions
ITEM 1. BUSINESS (CONTINUED)
during the Operating Phase (the period which ends when the General Partner elects to begin the liquidation of the Partnership assets); (ii) reinvesting (during the Operating Phase) any undistributed cash flow from operations in additional equipment to be leased to increase the Partnership's assets; (iii) obtaining the residual values of equipment upon sale; (iv) obtaining value from sales of the Partnership's lease portfolio upon entering the Liquidating Phase (the period during which the General Partner will liquidate the Partnership assets); and (v) providing cash distributions to the partners during the liquidating phase.
The Partnership acquires primarily telecommunications equipment (specifically pay telephones and call processing equipment), that is leased to third parties. The Partnership has also acquired other types of equipment that is generally subject to leases. During 1998 the Partnership acquired equipment with a cost of $5,941,745. All of this equipment has been leased.
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 acquires and approves leases on behalf of the Partnership. The General Partner established guidelines to use in approving lessees. Generally, before any lease is approved, there is a review of the potential lessees' financial statements, credit references are checked, and outside business and/or individual credit reports are obtained.
The equipment purchased by the Partnership consists of advanced technology pay telephones and call processing systems to be used in hotels, hospitals, colleges, universities, and correctional institutions. The Partnership has also purchased and leased other types of equipment.
The Partnership's equipment leases are concentrated in the pay telephones, hotel phone equipment, office equipment, and ATM machines, representing approximately 59%, 0%, 20%, and 17% at December 31, 1998, and 69%, 17%, 4%, and 1% at December 31, 1997, respectively, of the Partnership's direct finance lease portfolio. At December 31, 1996, equipment leases in pay telephones and hotel phone equipment represented 70% and 24% of the lease portfolio, respectively. Two customers each accounted for 21% and 18% of income from direct financing leases during the year ended December 31, 1998. These customers are Murdock Communications Corp. and Hansen Lind Meyer, Inc., respectively.
ITEM 1. BUSINESS (CONTINUED)
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 has no employees and utilizes the administrative services of the General Partner for which it pays an administrative service fee.
ITEM 2.
ITEM 2. PROPERTIES
The Partnership does not own or lease any real estate. The Partnership's materially important properties consist entirely of equipment under lease. The carrying value of such equipment is represented by the Partnership's investment in direct financing leases, which was $10,676,681 at December 31, 1998. This was comprised primarily of telecommunications equipment, as described in Item 1.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
A foreclosure proceeding was filed on February 20, 1998 in the Iowa District Court for Linn County located in Cedar Rapids, Iowa against North American Communications Group, Inc. CWC Communications, Inc., North American Communications Corporation (Missouri) d/b/a North American Communications of Georgia, Inc., North American Communications of Mississippi, North American Communications Group, Inc., d/b/a North American Communications of Louisiana, Inc., Troy P. Campbell, Sr. And Archie W. Welch, Jr. for foreclosure of the leased assets. The Partnership included in the foreclosure suit a claim for damages against the guarantors of the leases North American Communications Group, Inc., Troy P. Campbell, Sr. and Archie W. Welch, Jr. in the amount of $4,485,781. The trial court granted defendants Campbell and Welch Motion for Dismissal because of Lack of Personal Jurisdiction and that decision has been appealed. Meanwhile, discovery is proceeding with interrogatories being filed by each side. See Item 7 for additional information regarding the status of the North American Communications Group, Inc. leases.
In December 1998, the Partnership, Telecommunications Income Fund IX, the General Partner, North American Communications Group ("NACG"), and others filed a suit against Shelby County, Tennessee. The County removed that suit from Tennessee State court to Federal Court. The suit alleges, 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. Shelby County has filed an answer and discovery is in the initial stages.
ITEM 4.
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.
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.
Distributions are paid to Partners on a monthly basis. Through December 31, 1998 there have been $11,196,776 of distributions paid to Partners during the life of the Partnership. The Partnership has made distributions during the prior three years to Partners of $27.00 per unit totalling $2,422,973, $2,430,890, and $2,442,420 for 1998, 1997, and 1996, respectively. As of December 31, 1998 the Partnership had accrued distributions to Partners of $201,719.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The above selected financial data should be read in connection with the financial statements and related notes appearing elsewhere in this report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The decline in lease income is due to the Partnership's investment in direct financing leases steadily declining from $25,861,350 at December 31, 1995 to $10,676,681 at December 31, 1998. This decline in lease financing levels is primarily a result of the Partnership's charge-off of a number of leases within its portfolio due to non-payment of lease receivables, and the early termination of various leases which funded distributions to Partners and repayments of borrowings. The Partnership's investment in direct financing leases decreased from $20,323,063 at December 31, 1997, to $10,676,681 at December 31, 1998, primarily due to early lease terminations in 1998. The proceeds from these terminations in 1998 were $10,737,743, which enabled the Partnership to recognize a gain on lease terminations of $768,583 in 1998, compared to $85,520 in 1997 and $260,706 in 1996. While these terminations allowed the Partnership to recognize the gain, it also resulted in the lower lease income recorded in 1998.
At the end of a lease term, the Partnership will attempt to sell the equipment under lease to the lessee for an amount equal to or exceeding the residual value booked. Additionally, from time to time, the Partnership will receive a request from a lessee for an early pay-off of their contract. The General Partner will always quote an amount at least equal to the Partnership's net investment and typically will exceed the net investment as evidenced by the net gains recognized by the Partnership on lease terminations.
Certain lessees have requested early termination of their lease contracts with the Partnership. As the payphone industry matures, the capital structure of these lessees has reached a level whereby they are able to secure financing from other sources. When this occurs, the Partnership will normally quote a buyout to the lessee consisting of the entire contract balance remaining plus the residual value of the assets. If this is not acceptable to the lessee, the Partnership will discount the remaining contract payments plus the residual value of the assets. Under either alternative, the Partnership will recognize a gain on the early termination. In addition to some lessees improving capital structure, some lessees have been acquired by other entities whose capital structure is such that they also desire to refinance the equipment under lease to the Partnership. As such, the Partnership's gain on lease terminations can and will vary from year to year based on the number of requests received to terminate leases as well as the size of the contract being terminated. The Partnership uses the cash generated from these early terminations to purchase equipment for investments in direct financing leases with other lessees.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Partnership had net income in 1998 of $1,664,367, but had comprehensive income of $2,205,175. The difference of $540,808 is attributable to an unrealized gain on securities available for sale. The Partnership currently has two securities classified as available for sale. One of the securities was purchased in 1998 for $770,250 and gained in value by $676,450 during the year. The other security declined in value by $135,642 in 1998. The net unrealized gain of $540,808 is shown on the income statement as other comprehensive income and is taken directly to partner's equity on the balance sheet, along with carrying the assets at market value.
Management fees are paid to the General Partner and represent 5% of the rental and note payments received. Payments received in each of the three years ended December 31 are as follows:
The General Partner receives a monthly reimbursement for administrative services provided to the Partnership.
The decrease in interest expense in 1998 is a result of the Partnership borrowing less funds compared to 1997 and 1996. Proceeds from various lease terminations were also used to reduce the line of credit. The Partnership has a line-of-credit agreement with a bank, allowing it to borrow the lesser of $4.0 million or 40% of the Partnership's qualified accounts, as defined in the agreement. The line-of-credit agreement bears interest at a rate of 1.0% above the prime lending rate and contains a minimum monthly charge of $4,000. The balance outstanding under this line-of-credit agreement at December 31, 1998 was $15,433. In August 1995, the Partnership obtained a term loan of $2,350,000 with a bank secured by certain direct financing leases of the Partnership. This term loan was obtained to capitalize on the favorable interest rate of the term loan of 8.91% and to enable the Partnership to write more lease business and enhance the Partnership's return. This term loan was paid off in August 1998.
Professional fees include payments for legal expenses, independent auditing services, tax return preparation, and other accounting assistance. Professional fees are higher in 1998 due to increased legal expenses resulting from litigation regarding the non-payment of lease receivables.
On October 10, 1995, a lessee of the Partnership, Value-Added Communication, Inc. ("VAC"), filed a petition seeking protection under Chapter 11 of the Bankruptcy Act. The Partnership's net investment in its leases with this customer was $1,947,904 at December 31, 1995. The bankruptcy court's Order "Approving Emergency Sale" indicated that of the Partnership's total net investment in direct financing leases with VAC, approximately $226,000 of leases would be purchased from the Partnership by an unrelated third party for approximately $121,000 resulting in a loss to the Partnership of $105,000. The remaining net investment balance of approximately $1.7 million was comprised of several leases of equipment in the hospitality telephone industry. This equipment, however, was not in service. Based upon the best information available to management, it appeared the Partnership would incur a loss of approximately $616,000 on these remaining leases. This amount, therefore, together with the loss of $105,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
expected to be realized on the sale of the assets under the other lease, was recorded as a provision for possible losses specifically related to VAC at December 31, 1995. During 1996, as final settlement on the Partnership's claim to the assets under lease, $580,597 was received from parties to the bankruptcy. An additional loss of $646,307 was recognized in the second quarter of 1996.
On May 6, 1996, a lessee of the Partnership, United Tele-Systems of Virginia, Inc. ("UTS"), filed a Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code. The bankruptcy petition was dismissed on May 22, 1996 and, in connection therewith, the Partnership exercised its right to manage the assets leased to UTS. The net investment in the leases at the time the assets were repossessed was approximately $686,000. The Partnership, the General Partner, an affiliated partnership and UTS were named in a lawsuit, filed by another creditor of UTS. The creditor was claiming $360,000 in compensatory damages and $350,000 in punitive damages. Based on offers to purchase the pay telephone equipment and an expected settlement offer related to the lawsuit, the Partnership expected to incur a loss upon the sale or re-lease of this equipment. Management charged $464,000 to the provision for possible loan and lease losses for the expected loss in 1996 and reclassified its net investment in the equipment, net of the specific allowance, to equipment under operating leases pending its ultimate sale or re-lease under a direct finance lease. The Equipment was sold during 1997 to another customer with no additional loss to the Partnership. Also, the lawsuit was settled in 1998 with no additional loss to the Partnership.
In May 1995, the Partnership exercised its right to manage the assets leased to Telecable/Continental due to nonpayment of lease receivables. At the time the Partnership assumed management of these assets, its net investment in the leases and notes receivable approximated $2,400,000 and the Partnership subsequently purchased approximately $200,000 of additional equipment. During 1996, $1,431,000 of this net investment was leased to an unrelated third party under a direct financing lease, which was paid off in December 1996. The remaining net equipment cost, which had been depreciated to $938,693 and relates to hotel satellite television equipment, is expected by management to be recovered through the sale of the equipment. Such equipment cost has been adjusted for an impairment loss of $621,000 in 1996, $205,693 in 1997, and $54,224 in 1998 to reflect management's estimated fair market value of the equipment. The equipment was held for sale by the Partnership throughout 1998.
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, subject to either the terms of the leases or to promissory notes which were executed by NACG. The Partnership assisted in arranging a management agreement between NACG and another entity to provide services to customers of NACG associated with the Partnership's leases. In spite of the funds advanced by the Partnership and the management contract, the cash flow of NACG continued to deteriorate. During the last several months of 1997, the General Partner 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 deemed adequate by the General Partner.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Following a refusal by NACG to voluntarily execute a Deed in Lieu of Foreclosure, the General Partner decided to institute a foreclose action against NACG and its affiliates. Finally, the General Partner 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 loss reserve of $3,319,159 at December 31, 1997, which was equal to the carrying value of the leases and advances associated with NACG. The Partnership foreclosed on the assets underlying the leases, and charged off the lease receivables to the specific allowance in February 1998.
The allowance for possible lease losses is based upon a continuing review of past lease loss experience, current economic conditions and the underlying lease asset value of the portfolio. At the end of each quarter a review of the allowance account is conducted. At a minimum it is the Partnership's desire to maintain a loss reserve equal to 1.5 percent of the Partnership's investment in leases and notes, exclusive of any specific reserves. The Partnership currently has a loss reserve (exclusive of specific reserves) of $331,617 or 2.9% of the lease and note portfolio. Management has determined to increase its general allowance due to the loss history of the Partnership.
The Partnership has been unable to collect all of the property taxes it has paid on behalf of customers leasing equipment from the Partnership. As a result, a charge of $50,000 was made in 1998 and $114,677 in 1997 to reflect what management believed to be uncollectible. The Partnership continues to pursue the collection of charged-off tax receivables. Any amounts collected will serve as a recovery against amounts previously written off.
Specific losses or expected losses charged to the provision for possible lease losses are as follows:
As of December 31, 1998 there were no customers with payments owed to the Partnership which 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 continues to monitor the contracts in the Partnership's portfolio and will take the necessary steps to protect the Partnership's investment.
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. Also, an affiliate of the General Partner is the general partner
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of a privately offered active limited partnership. As of December 31, 1998, 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 acquired by the Partnership have been financed to yield rates of return between 15% and 20%. The lease terms vary from 36 months to 60 months. The rate charged on a particular lease depends on the size of the transaction and the financial strength of the lessee.
Inflation affects the cost of equipment purchased and the residual values realized when leases terminate and equipment is sold. The impact of inflation is mitigated as any increases in lease related expenses are passed on to the lessees through corresponding increases in rental rates as new leases are entered into.
YEAR 2000 ISSUE: The Partnership recognizes that the arrival of the Year 2000 poses a unique challenge to the ability of all systems to recognize the date change from December 31, 1999 to January 1, 2000. The cost of ensuring systems are compatible with the Year 2000 are not believed to be material. There are no non-information technology processes that the Partnership has identified which would affect its operations. An assessment of the readiness of external entities which it interfaces with, such as vendors, counterparties, customers, and others, is ongoing. At the present the Partnership does not contemplate that any specific charges will be incurred for this assessment, and if there are any related expenditures, does not expect them to be significant. The Partnership does not expect the Year 2000 impact on external parties to have any material adverse impact on the Partnership.
The Partnership is assessing the impact of the Year 2000 issue on information technology and non-information technology systems used by lessees. No lessee is contractually obligated to become Year 2000 compliant or to disclose their capabilities to the Partnership. The Partnership has not yet determined whether the Year 2000 issue has been addressed by all of its customers. The Partnership has contacted some of its customers and will continue to contact its customers in 1999. If the Partnership's customers have not addressed this issue, it could lead to non-payments of amounts owed to the Partnership.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Partnership has determined that the software it utilizes in its operations is compatible with the Year 2000. The Partnership utilizes an unrelated third party for lease servicing. This third party vendor has been contacted and it has been determined that their lease servicing application is year 2000 compliant. A written confirmation regarding compliance of this application has been received from the software developer.
The Partnership is required to establish working capital reserves of no less than 1% of the proceeds to satisfy general liquidity requirements, operating costs of equipment, and the maintenance and refurbishment of equipment. At December 31, 1998, that working capital reserve, as defined, would be $226,025. Actual cash on hand at December 31, 1998 was $67. While the cash balance is less than the working capital reserve required, the Partnership can borrow on its line of credit to satisfy this requirement.
At December 31, 1998, the Partnership had a line of credit agreement with a bank that allows the Partnership to borrow the lesser of $4.0 million, or 40% of the Partnership's Qualified Accounts as defined in the agreement. As of December 31, 1998, the balance outstanding under this line of credit was $15,433. With the exception of those specific assets pledged as security under the bank term loan agreement discussed below, the line of credit is secured by all assets of the Partnership. Before any funds are borrowed, the Partnership first utilizes all available excess cash. The Partnership's line of credit is used to acquire additional leases as they become available. The line of credit matures on June 30, 2000 and is cancellable by the lender after giving a 90-day notice. The General Partner believes amounts available under the line of credit are adequate for the foreseeable future.
In August 1995, the Partnership obtained a term loan of $2,350,000 with a bank secured by certain direct financing leases of the Partnership. This term loan was obtained to capitalize on the favorable interest rate (8.91%) of the term loan and to enable the Partnership to write more lease business and enhance the Partnership's return. The term loan agreement is collateralized by certain direct financing leases along with a second interest in all other Partnership assets. The agreement is also guaranteed by the General Partner. Covenants under the agreement require the Partnership, among other things, to be profitable, not exceed a 40% debt to original equity raised ratio, and not sell a material portion of its assets. Management obtained a waiver from the lending institution in 1997. This term loan was paid off in August 1998.
Cash flow from operating activities has been less than the distributions to Partners for 1998, 1997, and 1996.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EQUITY PRICE SENSITIVITY The table below provides information about the Partnership's marketable equity securities that are sensitive to changes in prices. The table presents the carrying amount and fair value at December 31, 1998.
The Partnership's primary market risk exposure with respect to marketable equity securities is equity price. The Partnership's general strategy in owning marketable 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. At December 31, 1998, the amount at risk was $1,451,946.
INTEREST RATE SENSITIVITY The table below provides information about the Partnership's notes receivable that are sensitive to changes in interest rates. For notes receivable, the table presents principal cash flows and related weighted average interest by expected maturity dates as of December 31, 1998.
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 and generally requiring full repayment ratably over the term of the note.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and related information as of and for the years ended December 31, 1998, 1997, and 1996 are included in Item 8:
Independent Auditors' Report Balance Sheets Statements of Operations and Comprehensive Income (Loss) Statements of Changes in Partners' Equity Statements of Cash Flows Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Partners Telecommunications Income Fund X, L.P.
We have audited the accompanying balance sheets of Telecommunications Income Fund X, L.P. as of December 31, 1998 and 1997, and the related statements of operations and comprehensive income (loss), changes in partners' equity and cash flows for each of the three years in the period ended December 31, 1998. 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 generally accepted auditing standards. 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.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Telecommunications Income Fund X, L.P. at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa February 19, 1999
TELECOMMUNICATIONS INCOME FUND X, L.P.
BALANCE SHEETS DECEMBER 31, 1998 AND 1997 - --------------------------------------------------------------------------------
See notes to financial statements.
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------
See notes to financial statements.
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------
See notes to financial statements.
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------
(Continued)
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONCLUDED) - --------------------------------------------------------------------------------
See notes to financial statements.
TELECOMMUNICATIONS INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------
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's operations are conducted throughout the United States. The Partnership primarily acquires equipment for lease to third parties under a direct finance arrangement. The lease agreements with individual customers are generally in excess of $500,000 and certain agreements exceed 10% of the Partnership's direct finance lease portfolio (see Note 2). At any time after December 31, 1999 (or earlier if the General Partner determines it to be in the Partnership's best interest), the Partnership will cease reinvestment in equipment and leases and will begin the orderly liquidation of Partnership assets. The Partnership must dissolve on December 31, 2002, or earlier, upon the occurrence of certain events (see Note 6).
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles 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 allowance for possible loan and lease losses and the estimated unguaranteed residual values of the Partnership's leased equipment.
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 the use of a variety of commercial credit reporting agencies when processing the applications of its customers, 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 allowance for possible loan and lease losses.
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. These factors, among others, could have a material near-term impact on the estimated unguaranteed residual values.
CERTAIN RISK CONCENTRATIONS - The Partnership's equipment leases are concentrated in pay telephones, hotel phone equipment, office equipment, and automated teller machines, representing approximately 59%, 0%, 20% and 17% at December 31, 1998 and 69%, 17%, 4% and 1% at December 31, 1997, respectively, of the Partnership's direct finance lease portfolio.
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.
AVAILABLE-FOR-SALE SECURITIES - The Partnership has an investment in marketable equity securities classified as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of partners' equity. At December 31, 1998, the securities had a cost of $943,511 and an estimated fair value of $1,451,946, resulting in an unrealized gain of $508,435 (gross gain of $676,435 and gross loss of $168,000). Fair value is determined using published market prices.
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 records 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 capitalizes 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.
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES - The Partnership performs 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.
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 is stated at lower of cost or estimated fair market value.
INTANGIBLES - Intangibles consisted of organization costs incurred with the formation of the Partnership and financing costs incurred in connection with borrowing agreements. Deferred organization expenses were amortized over a five-year period. Deferred financing costs were amortized over the life of the related debt, which was approximately three years.
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 (LOSS) PER PARTNERSHIP UNIT - Net income (loss) per partnership unit is based on the weighted average number of units outstanding (including both general and limited partners' units).
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. SFAS No. 130 is effective for the Partnership's year ended December 31, 1998. Financial statements for earlier periods provided for comparative purposes have been reclassified to conform with the current year presentation as required by SFAS No. 130.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for the Partnership's year ended December 31, 1998. The Partnership operates in one segment.
In June 1998, the FASB issued 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. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Partnership has not yet determined the effect of SFAS No. 133 on the financial statements.
2. 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, 1998 and 1997:
At December 31, 1998, 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:
The Partnership, General Partner and certain affiliates of the General Partner purchase directly and indirectly a substantial portion of telecommunications equipment under lease from Intellicall, Inc., a publicly-held company. The General Partner's parent and certain limited partners are investors in a limited partnership which owns approximately 5% of the outstanding common stock of Intellicall, Inc. In addition, a principal stockholder of the General Partner's parent is also an investor in this limited partnership.
Additionally, the Partnership leases equipment 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 with these companies approximated $6,276,688 and $4,367,170 at December 31, 1998 and 1997, respectively.
Four customers each account for 10% or more of the amount of income from direct financing leases for the years ended December 31, 1998, 1997 and 1996, as follows:
3. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The changes in the allowance for possible loan and lease losses for the years ended December 31, 1998, 1997 and 1996 are as follows:
The allowance for possible loan and lease losses consisted of specific allowances for leases of $114,102, $3,319,159 and $21,000 and a general unallocated allowance of $331,616, $536,459 and $302,398, respectively, at December 31, 1998, 1997 and 1996.
On October 10, 1995, a lessee of the Partnership, Value-Added Communication, Inc. ("VAC"), filed a petition seeking protection under Chapter 11 of the Bankruptcy Act. The Partnership's net investment in its leases with this customer was $1,947,904 at December 31, 1995. The bankruptcy court's Order "Approving Emergency Sale" indicated that of the Partnership's total net investment in direct financing leases with VAC, approximately $226,000 of leases, would be purchased from the Partnership by an unrelated third party for approximately $121,000 resulting in a loss to the Partnership of $105,000. The remaining net investment balance comprised several leases of equipment in the hospitality telephone industry. This equipment, however, was not in service. Based upon the best information available to management, it appeared the Partnership would sustain some loss with respect to these remaining leases. Management's best estimate of the amount of the loss to the Partnership was that the Partnership may incur a loss of approximately $616,000 on these remaining leases. This amount, therefore, together with the loss of $105,000 expected to be realized on the sale of the assets under the other leases, was recorded as a provision for possible loan and lease losses specifically related to VAC at December 31, 1995. During 1996, as settlement on the Partnership's claim to the assets under lease, $580,597 was received from sale of the assets and from parties to the bankruptcy. Therefore, an additional loss of $646,307 was recognized in 1996.
On May 6, 1996, a lessee of the Partnership, United Tele-Systems of Virginia, Inc. ("UTS"), filed a Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code. The bankruptcy petition was dismissed on May 22, 1996 and, in connection therewith, the Partnership exercised its right to manage the assets leased to UTS. The net investment in the leases at the time the assets were repossessed was approximately $686,000. The Partnership, the General Partner, an affiliated partnership and UTS were named in a lawsuit, filed by another creditor of UTS. The creditor was claiming $360,000 in compensatory damages and $350,000 in punitive damages. Based on offers to purchase the pay telephone equipment and an expected settlement offer related to the lawsuit, the Partnership expected to incur a loss upon the sale or re-lease of this equipment. Management charged $464,000 to the provision for possible loan and lease losses for the expected loss in 1996 and reclassified its net investment in the equipment, net of the specific allowance, to equipment under operating leases pending its ultimate sale or re-lease under a direct finance lease. This equipment was sold during 1997 to another customer with no additional loss to the Partnership. Also, the lawsuit was settled in 1998 with no additional loss to the Partnership.
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. During the past several months, the General Partner 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 and an affiliated partnership, Telecommunications Income Fund IX, have initiated a foreclosure action against NACG and the guarantors under the leases and advances seeking sale of the assets and a judgment against NACG and the guarantors for any deficiency. Amounts, if any, received will be credited to the allowance for possible loan and lease losses.
4. EQUIPMENT HELD FOR SALE
In May 1995, the Partnership exercised its right to manage the assets leased to Telecable/Continental due to nonpayment of lease receivables. At the time the Partnership assumed management of these assets, its net investment in the leases and notes receivable approximated $2,400,000 and the Partnership subsequently purchased approximately $200,000 of additional equipment. During 1996, $1,431,000 of this net investment was leased to an unrelated third party under a direct financing lease, which was paid off in December 1996. The remaining net equipment cost, which had been depreciated to $938,693 and relates to hotel satellite television equipment, is expected by management to be recovered through the sale of the equipment. Such equipment cost has been adjusted for an impairment loss of $621,000 in 1996, $205,693 in 1997 and $54,224 in 1998, to reflect management's estimated fair market value of the equipment. The equipment was held for sale by the Partnership throughout 1997 and 1998.
5. BORROWING AGREEMENTS
The Partnership has a line-of-credit agreement with a bank which bears interest at a variable rate of 8.75%, 9.5% and 10.13% at December 31, 1998, 1997 and 1996, respectively. The agreement was amended August 26, 1998 to extend the maturity date to June 30, 2000, reduce the borrowing amount to the lesser of $4.0 million or 40% of Qualified Accounts, as defined in the agreement, and require minimum monthly interest payments of $4,000 beginning in December 1998. The agreement is cancellable by the lender after giving a 90-day notice and is collateralized by substantially all assets of the Partnership. The line-of-credit is guaranteed by the General Partner and certain affiliates of the General Partner. The General Partner believes amounts available under the line of credit are adequate for the foreseeable future.
The Partnership also had an installment loan agreement which bore interest at 8.91% and was due in monthly installments through November 1998. The agreement was collateralized by certain direct financing leases and a second interest in all other Partnership assets. The agreement was also guaranteed by the General Partner. The loan was repaid during 1998.
6. 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.
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 7); 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 7). 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).
7. MANAGEMENT AND SERVICE AGREEMENTS
The Partnership pays an equipment management fee, equal to 5% of the amount of gross rental payments received, to the General Partner. During the years ended December 31, 1998, 1997 and 1996, those management fees aggregated $214,325, $353,109 and $387,527, 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, $84,000 and $73,500 for the years ended December 31, 1998, 1997 and 1996, respectively.
As a part of the issuance of partnership units, the Partnership paid commissions of 10% to Berthel Fisher & Company Financial Services, Inc., a broker-dealer affiliated with the General Partner, and reimbursed other offering expenses of up to 4% of the gross proceeds to the General Partner. These fees have been treated as syndication costs and charged directly to partners' equity.
8. RECONCILIATION OF FINANCIAL AND INCOME TAX REPORTING BASIS
A reconciliation of net income (loss) for financial reporting purposes with the related amount reported for income tax purposes for the years ended December 31, 1998, 1997 and 1996 is as follows:
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value amounts disclosed below are based on estimates prepared by management of the Partnership based on valuation methods appropriate in the circumstances. Generally accepted accounting principles do not require disclosure for lease contracts. The carrying amount for financial instruments included among cash and cash equivalents, line-of-credit agreement, and other short-term payables approximates their fair value because of the short maturity of those instruments or the variable interest rate feature of the instrument. Also, the Partnership's available-for-sale securities are reported at market value. The estimated fair value of other significant financial instruments are based principally on discounted future cash flows at rates commensurate with the credit and interest rate risk involved.
The estimated fair values of the Partnership's other significant financial instruments are as follows at December 31, 1998 and 1997:
* * * * *
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
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 47) - 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 44) - Mr. Brendengen is the Treasurer, 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.
DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Nancy L. Lowenberg (age 40) - Ms. Lowenberg has been elected Vice President and Chief Operating Officer 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. Since 1989, Ms. Lowenberg was Vice President Commercial Loans. As Vice President Commercial Loans, she was relationship manager for 62 accounts with approximately $70,000,000 of committed credit. She had responsibility for credit quality, annual review and maintenance of existing accounts and business development. From 1981-1986, Ms. Lowenberg was employed by Firstar Bank Systems. Ms. Lowenberg received her Bachelor of Science Agricultural Business with a minor in Finance in 1981 from Iowa State University, Ames, Iowa.
ITEM 11.
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:
ITEM 12.
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.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related party transactions are described in Notes 2 and 7 of Notes to Financial Statements.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
Page No.
Balance Sheets at December 31, 1998 and December 31, 1997 15
Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 1998, December 31, 1997 and December 31, 1996 16
Statements of Changes in Partners' Equity for the years ended December 31, 1998, December 31, 1997 and December 31, 1996 17
Statements of Cash Flows for the years ended December 31, 1998, December 31, 1997 and December 31, 1996 18
Notes to Financial Statements 20
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)
6. Reports on Form 8-K No reports on Form 8-K were filed in the fourth quarter of 1998.
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(1) Incorporated herein by reference to Exhibit A in the Partnership's registration statement on Form S-1, effective August 27, 1993
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 24, 1999 -------------------------------------- Thomas J. Berthel President
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Ronald O. Brendengen Date: March 24, 1999 -------------------------------------- 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 24, 1999 - ---------------------------------------------------- Thomas J. Berthel Chief Executive Officer President, Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Nancy L. Lowenberg Date: March 24, 1999 - ---------------------------------------------------- Nancy L. Lowenberg Executive Vice President, General Mgr., Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Ronald O. Brendengen Date: March 24, 1999 - ---------------------------------------------------- Ronald O. Brendengen Treasurer, Director Berthel Fisher & Company Leasing, Inc. Corporate General Partner
/s/ Daniel P. Wegmann Date: March 24, 1999 - -------------------------------------------- Daniel P. Wegmann Controller Berthel Fisher & Company Leasing, Inc. Corporate General Partner
EXHIBIT INDEX
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.