<PAGE> 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, 1998
[ ]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
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.)
100 Second Street S.E., Cedar Rapids, Iowa 52401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 319-365-2506
------------
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 (Section 229.405 of this chapter) 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 19, 1999, 89,347 units were issued and outstanding. Based on the
book value at December 31, 1998 of $130.01 per unit, the aggregate market value
at March 19, 1999 was $11,616,003.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Registration Statement on
Form S-1, dated August 27, 1993 are incorporated by reference into Part IV.
<PAGE> 2
TELECOMMUNICATIONS INCOME FUND X, L.P.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
Item 1. Business .........................................................3
Item 2. Properties........................................................5
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..............................6
Item 6. Selected Financial Data.......................................... 6
Item 7. Management's Discussion and Analysis
of Financial Condition and
Results of Operations.........................................7
Item 8. Financial Statements and
Supplementary Data.......................................... 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................29
PART III
Item 10. Directors and Executive
Officers of the Registrant...................................29
Item 11. Executive Compensation.......................................... 31
Item 12. Security Ownership of Certain
Beneficial Owners and Management.............................32
Item 13. Certain Relationships and
Related Transactions.........................................32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.....................................................33
SIGNATURES .............................................................34
EXHIBIT INDEX .............................................................35
</TABLE>
<PAGE> 3
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 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
<PAGE> 4
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.
<PAGE> 5
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. 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. 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. 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.
<PAGE> 6
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.
<TABLE>
<CAPTION>
Number of Partners
at
Title of Class March 19, 1999
-------------- ------------------
<S> <C>
Limited Partner 1,600
General Partner 1
</TABLE>
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. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenue $ 2,802,667 $ 3,045,703 $ 3,704,977 $ 3,828,433 $ 2,261,020
Net Income (Loss) 1,664,367 (1,897,893) 196,197 1,551,153 1,295,435
Total Assets 12,615,397 18,799,155 21,261,096 27,664,248 25,084,132
Line of Credit 15,433 5,354,801 2,607,911 5,685,953 4,109,398
Bank term loan -0- 583,233 1,386,361 2,119,863 -0-
Provision for
Possible Losses 199,060 3,628,090 1,092,551 828,911 360,000
Distributions to Partners 2,422,973 2,430,890 2,442,420 2,442,692 1,555,991
Earnings (Loss) per Unit 18.54 (21.11) 2.17 17.15 21.22
Distributions per Unit 27.00 27.00 27.00 27.00 27.00
</TABLE>
The above selected financial data should be read in connection with the
financial statements and related notes appearing elsewhere in this report.
<PAGE> 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Results of Operations Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Description:
Lease Income $ 1,848,567 $ 2,843,989 $ 3,383,689
Gain on Lease Termination 768,583 85,520 260,706
Management Fees 214,325 353,109 379,655
Administrative Services 84,000 84,000 73,500
Interest Expense 261,211 407,538 692,863
Professional Fees 221,076 131,819 153,717
Provision for
Possible Losses 199,060 3,628,090 1,092,551
Depreciation -0- 51,031 392,774
Impairment Loss 54,224 205,693 621,000
</TABLE>
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.
<PAGE> 8
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:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Rental Payments Received $4,286,480 $7,062,180 $7,593,100
</TABLE>
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
<PAGE> 9
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.
<PAGE> 10
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:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
VAC $ -0- $ -0- $ 646,307
UTS 14,101 -0- 464,000
North American -0- 3,319,159 -0-
Telecable/Continental 50,000 -0- -0-
Property Taxes 50,000 114,677 -0-
----------- ---------- ----------
TOTAL $ 114,101 $3,433,836 $1,110,307
=========== ========== ==========
</TABLE>
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
<PAGE> 11
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.
<PAGE> 12
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.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Major Cash Sources (Uses):
Operations $2,033,964 $1,595,449 $1,938,010
Net Proceeds (payments) from Line of Credit (5,339,368) 2,746,890 (3,078,042)
Repayments/Terminations of Leases 12,747,749 5,275,866 9,006,750
Repayments of Notes Receivable 872,178 5,490 -0-
Purchase of Equipment and Leases (5,941,745) (5,233,450) (4,323,201)
Distributions to Partners (2,422,973) (2,430,890) (2,442,420)
</TABLE>
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.
<PAGE> 13
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.
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
---------- ----------
<S> <C> <C>
Common Stock-Company A $1,446,700 $1,446,700
Common Stock-Company B 5,246 5,246
---------- ----------
Total $1,451,946 $1,451,946
========== ==========
</TABLE>
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.
<TABLE>
<CAPTION>
(Principal Amount)
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
<S> <C> <C>
1999 $ 239,324 14.2%
2000 258,648 14.0%
2001 295,368 14.0%
2002 4,993 14.0%
---------
Total $ 798,333
=========
Fair Value $ 798,333
=========
</TABLE>
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. 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
<PAGE> 14
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
<PAGE> 15
TELECOMMUNICATIONS INCOME FUND X, L.P.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS (Note 5) 1998 1997
<S> <C> <C>
Cash and cash equivalents $ 67,570 $ 5,928
Available-for-sale securities 1,451,946 140,888
Net investment in direct financing leases
and notes receivable (Note 2) 11,475,014 21,827,573
Allowance for possible loan and lease losses (Note 3) (445,718) (3,855,618)
------------ ------------
Direct financing leases and notes receivable, net 11,029,296 17,971,955
Equipment held for sale (Note 4) 57,776 112,000
Intangibles, less accumulated amortization of
$37,498 in 1998 and $30,489 in 1997 -- 7,009
Other assets 8,809 561,375
------------ ------------
TOTAL $ 12,615,397 $ 18,799,155
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Line-of-credit agreement (Note 5) $ 15,433 $ 5,354,801
Outstanding checks in excess of bank balance 436,199 --
Due to affiliates 24,602 23,256
Distributions payable to partners 201,719 202,250
Accrued expenses and other liabilities 110,868 223,092
Lease security deposits 170,958 509,544
Note payable (Note 5) -- 583,233
------------ ------------
Total liabilities 959,779 6,896,176
------------ ------------
PARTNERS' EQUITY, 100,000 units authorized (Notes 1 and 6):
General partner, 40 units issued and outstanding 7,934 8,272
Limited partners, 89,613 units in 1998 and 89,849 units
in 1997 issued and outstanding 11,139,249 11,927,080
Unrealized gain (loss) on available-for-sale securities 508,435 (32,373)
------------ ------------
Total partners' equity 11,655,618 11,902,979
------------ ------------
TOTAL $ 12,615,397 $ 18,799,155
============ ============
</TABLE>
See notes to financial statements.
-2-
<PAGE> 16
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
REVENUES:
Income from direct financing leases $ 1,848,567 $ 2,843,989 $ 3,383,689
Gain on lease terminations 768,583 85,520 260,706
Interest and other income 185,517 116,194 60,582
----------- ----------- -----------
Total revenues 2,802,667 3,045,703 3,704,977
----------- ----------- -----------
EXPENSES:
Management and administrative fees (Note 7) 298,325 437,109 461,027
Other general and administrative expenses 325,480 214,135 248,565
Interest expense 261,211 407,538 692,863
Depreciation expense -- 51,031 392,774
Provision for possible loan and lease losses (Note 3) 199,060 3,628,090 1,092,551
Impairment loss on equipment (Note 4) 54,224 205,693 621,000
----------- ----------- -----------
Total expenses 1,138,300 4,943,596 3,508,780
----------- ----------- -----------
NET INCOME (LOSS) 1,664,367 (1,897,893) 196,197
OTHER COMPREHENSIVE INCOME (LOSS) -
Unrealized gain (loss) on available for sale securities 540,808 10,943 (43,316)
----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ 2,205,175 $(1,886,950) $ 152,881
=========== =========== ===========
NET INCOME (LOSS) ALLOCATED TO:
General partner $ 742 $ (842) $ 87
Limited partners 1,663,625 (1,897,051) 196,110
----------- ----------- -----------
$ 1,664,367 $(1,897,893) $ 196,197
=========== =========== ===========
NET INCOME (LOSS) PER PARTNERSHIP UNIT $ 18.54 $ (21.11) $ 2.17
=========== =========== ===========
WEIGHTED AVERAGE PARTNERSHIP UNITS
OUTSTANDING 89,763 89,889 90,455
=========== =========== ===========
</TABLE>
See notes to financial statements.
-3-
<PAGE> 17
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
GENERAL LIMITED PARTNERS AVAILABLE- TOTAL
PARTNER ---------------------- FOR-SALE PARTNERS'
(40 UNITS) UNITS AMOUNT SECURITIES EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 11,187 90,430 $ 18,626,700 $ -- $ 18,637,887
Net income 87 -- 196,110 -- 196,197
Distributions to partners
($27.00 per unit) (Note 6) (1,080) -- (2,441,340) -- (2,442,420)
Withdrawal of limited partners -- (60) (15,000) -- (15,000)
Change in unrealized loss on
available-for-sale security -- -- -- (43,316) (43,316)
------------ ------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 10,194 90,370 16,366,470 (43,316) 16,333,348
Net loss (842) -- (1,897,051) -- (1,897,893)
Distributions to partners
($27.00 per unit) (Note 6) (1,080) -- (2,429,810) -- (2,430,890)
Withdrawal of limited partners -- (521) (112,529) -- (112,529)
Change in unrealized loss on
available-for-sale security -- -- -- 10,943 10,943
------------ ------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 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 6) (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
============ ====== ============ ============ ============
</TABLE>
See notes to financial statements.
-4-
<PAGE> 18
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,664,367 $ (1,897,893) $ 196,197
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Gain on lease terminations (768,583) (85,520) (260,706)
Depreciation of equipment -- 51,031 392,774
Amortization of intangibles 7,009 8,863 21,626
Provision for possible loan and lease losses 199,060 3,628,090 1,092,551
Impairment loss on equipment 54,224 205,693 621,000
Changes in operating assets and liabilities:
Other assets 552,566 (383,863) 62,691
Due to affiliates 1,346 (66,614) (162,322)
Accrued expenses and other liabilities (112,224) 135,662 (25,801)
Outstanding checks in excess of bank balance 436,199 -- --
------------ ------------ ------------
Net cash from operating activities 2,033,964 1,595,449 1,938,010
------------ ------------ ------------
INVESTING ACTIVITIES:
Investment in available-for-sale security (770,250) -- --
Acquisitions of, and purchases of equipment for,
direct financing leases (5,941,745) (5,233,450) (4,323,201)
Repayments of direct financing leases 2,010,006 3,796,745 3,709,079
Proceeds from termination of direct financing leases 10,737,743 1,479,121 5,297,671
Repayments of notes receivable 872,178 5,490 --
Issuance of notes receivable (166,000) (1,510,000) --
Net lease security deposits collected (paid) (338,586) (41,832) (100,188)
------------ ------------ ------------
Net cash from investing activities 6,403,346 (1,503,926) 4,583,361
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from line-of-credit borrowings 7,797,857 12,124,666 13,838,858
Repayments of line-of-credit borrowings (13,137,225) (9,377,776) (16,916,900)
Repayment of additional borrowings (583,233) (803,128) (733,502)
Distributions and withdrawals paid to partners (2,453,067) (2,545,969) (2,456,178)
------------ ------------ ------------
Net cash from financing activities (8,375,668) (602,207) (6,267,722)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 61,642 (510,684) 253,649
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 5,928 516,612 262,963
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 67,570 $ 5,928 $ 516,612
============ ============ ============
</TABLE>
(Continued)
-5-
<PAGE> 19
TELECOMMUNICATIONS INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONCLUDED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 302,529 $ 387,992 $ 683,925
Noncash investing and financing activities:
Available-for-sale security exchanged for payment on lease -- -- 173,261
Equipment reclassified from direct financing leases to operating leases -- -- 183,027
Equipment reclassified from operating leases to held for sale -- -- 317,693
Equipment reclassified from operating leases to direct financing leases -- -- 1,381,952
Change in unrealized gain (loss) on available-for-sale securities 540,808 10,943 (43,316)
Conversion of leases to notes receivable 2,631,890 -- --
</TABLE>
See notes to financial statements.
-6-
<PAGE> 20
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.
-7-
<PAGE> 21
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.
-8-
<PAGE> 22
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.
-9-
<PAGE> 23
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:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Minimum lease payments receivable $ 12,713,308 $ 22,500,795
Estimated unguaranteed residual values 644,853 2,256,257
Unamortized initial direct costs 22,840 93,855
Unearned income (2,704,320) (4,527,844)
Notes receivable 798,333 1,504,510
------------ ------------
Net investment in direct financing leases and notes receivable $ 11,475,014 $ 21,827,573
============ ============
</TABLE>
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:
<TABLE>
<CAPTION>
MINIMUM ESTIMATED
LEASE UNGUARANTEED
PAYMENTS RESIDUAL
RECEIVABLE VALUES
---------- --------------
<S> <C> <C>
Years ending December 31:
1999 $ 4,040,739 $ 122,981
2000 3,365,887 226,987
2001 2,774,613 81,117
2002 1,963,653 55,742
2003 568,416 120,014
Thereafter -- 38,012
----------- -----------
Total $12,713,308 $ 644,853
=========== ===========
</TABLE>
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.
-10-
<PAGE> 24
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:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Customer A 18% 9% --%
Customer B -- 15 9
Customer C -- 15 14
Customer D 21 9 --
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year $ 3,855,618 $ 323,398 $ 1,188,911
Provision 199,060 3,628,090 1,092,551
Charge-offs, net of recoveries (3,608,960) (95,870) (1,958,064)
----------- ----------- -----------
Balance at end of year $ 445,718 $ 3,855,618 $ 323,398
=========== =========== ===========
</TABLE>
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.
-11-
<PAGE> 25
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.
-12-
<PAGE> 26
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.
-13-
<PAGE> 27
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.
-14-
<PAGE> 28
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:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- -------------------------- -------------------------
PER PER PER
AMOUNT UNIT AMOUNT UNIT AMOUNT UNIT
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) for
financial reporting
purposes $ 1,664,367 $ 18.54 $(1,897,893) $ (21.11) $ 196,197 $ 2.17
Adjustment to
convert direct
financing leases to
operating leases
for income tax
purposes (931,343) (10.37) (587,372) (6.53) 490,539 5.43
Net change in
allowance for
possible loan and
lease losses (3,409,900) (37.98) 3,532,220 39.29 (865,513) (9.57)
Gain on lease
terminations 673,200 7.49 (715,724) (7.96) 1,314,157 14.54
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)
for income tax
reporting purposes $(2,003,676) $ (22.32) $ 331,231 $ 3.69 $ 1,135,380 $ 12.57
=========== =========== =========== =========== =========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Note payable $ -- $ -- $ 583,233 $ 577,030
Notes receivable 798,333 798,333 1,504,510 1,504,510
</TABLE>
* * * * *
-15-
<PAGE> 29
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 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.
<PAGE> 30
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.
<PAGE> 31
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:
<TABLE>
<CAPTION>
(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
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Berthel Fisher & Co. 1998 $0 $298,325 $0 $0
Leasing, Inc. 1997 $0 $437,109 $0 $0
General Partner 1996 $0 $453,165 $0 $0
</TABLE>
<PAGE> 32
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.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Ownership Beneficial Ownership Percent of Class
- -------------- -------------------- -------------------- ----------------
<S> <C> <C> <C>
Units Berthel Fisher & Co. Forty (40) Units; 0.04%
Leasing, Inc. sole owner.
100 2nd Street S.E.
Cedar Rapids, IA 52401
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related party transactions are described in Notes 2 and 7 of Notes to
Financial Statements.
<PAGE> 33
PART IV
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.
- -----------------------
(1) Incorporated herein by reference to Exhibit A in the Partnership's
registration statement on Form S-1, effective August 27, 1993
<PAGE> 34
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
<PAGE> 35
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
BALANCE SHEET OF TELECOMMUNICATIONS INCOME FUND X, L.P. AS OF DECEMBER 31, 1998,
AND THE AUDITED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 67,570
<SECURITIES> 1,451,946
<RECEIVABLES> 11,475,014
<ALLOWANCES> (445,718)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 104,083
<DEPRECIATION> (37,498)
<TOTAL-ASSETS> 12,615,397
<CURRENT-LIABILITIES> 944,346
<BONDS> 15,433
0
0
<COMMON> 0
<OTHER-SE> 11,655,618
<TOTAL-LIABILITY-AND-EQUITY> 12,615,397
<SALES> 2,802,667
<TOTAL-REVENUES> 2,802,667
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 678,129
<LOSS-PROVISION> 199,060
<INTEREST-EXPENSE> 261,211
<INCOME-PRETAX> 1,664,367
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,664,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,664,367
<EPS-PRIMARY> 18.54<F1>
<EPS-DILUTED> 18.54<F1>
<FN>
<F1>Net Income(Loss) per Partnership Unit
</FN>
</TABLE>