1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission file number - 000-25593
TELECOMMUNICATIONS INCOME FUND XI, L.P.
---------------------------------------
(Exact name of registrant as specified in its charter)
Iowa 39-1904041
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Tama Street, Marion, Iowa 52302
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 319-447-5700
------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities pursuant to section 12 (g) of the Act:
Limited Partnership Interests (the "Units")
-------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.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 1, 2001, 12,588 units were issued and outstanding. Based on the book
value of $717.39 per unit at December 31, 2000, the aggregate market value at
March 1, 2001 was $9,030,505.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Registration Statement on
Form S-1, dated November 26, 1997, are incorporated by reference into Part IV.
2
TELECOMMUNICATIONS INCOME FUND XI, L.P.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
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 Stockholder Matters--------------------------------------------------------5
Item 6. Selected Financial Data--------------------------------------------------------------------5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--------------------------------------------------------------6
Item 7A. Quantitative and Qualitative Disclosures About Market Risk---------------------------------9
Item 8. Financial Statements and Supplementary Data-----------------------------------------------10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure------------------------------------------------25
PART III
Item 10. Directors and Executive Officers of the Registrant----------------------------------------25
Item 11. Executive Compensation--------------------------------------------------------------------26
Item 12. Security Ownership of Certain
Beneficial Owners and Management------------------------------------------------------27
Item 13. Certain Relationships and Related Transactions--------------------------------------------27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.--------------------------28
SIGNATURES --------------------------------------------------------------------------------------29
EXHIBIT INDEX --------------------------------------------------------------------------------------30
2
3
PART I
ITEM 1. BUSINESS
Telecommunications Income Fund XI, L.P., an Iowa limited partnership (the
"Partnership"), was organized on August 26, 1997. The general partner is Berthel
Fisher & Company Leasing, Inc. (the "General Partner"), an Iowa corporation that
has been in operation since 1988. The Partnership's business and the executive
offices of the General Partner are located at 701 Tama Street, Marion, Iowa
52302. Substantially all of the voting stock of the General Partner is owned by
Berthel Fisher & Company ("Berthel Fisher").
The Partnership began offering Units to the public on December 23, 1997. The
General Partner elected to extend the offering period and the closing date to
December 23, 1999. 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 in February of 1998.
The Partnership will operate until December 31, 2012 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.
A significant portion of the Partnership's business is and is intended to be
with customers who are in the telecommunications and automated teller machine
("ATM") industries. 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 Partnership has also had a significant portion of its business in the ATM
industry, where major industry growth has occurred in installing ATM machines
"off premises", such as at supermarkets, hotels, airports, and convenience
stores. Since the major ATM networks have allowed ATM owners to assess
surcharges on transactions, the operation of ATM's has become more lucrative.
Now, in addition to receiving a portion of the interchange fee from the
cardholders' financial institutions, the ATM owner can now receive surcharges on
each transaction.
The principle investment 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 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
3
4
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 intends to acquire primarily telecommunications and ATM
equipment (specifically pay telephones, call processing equipment, and ATM
machines), that is leased to third parties. The Partnership has also acquired
and will acquire other types of equipment that is generally subject to leases.
During 2000 the Partnership acquired equipment subject to leases with a cost of
$4,155,148. 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.
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, call processing systems, and ATM machines to be used in hotels,
hospitals, colleges, universities, correctional institutions, and other
locations. Although the Partnership will concentrate its equipment acquisitions
in telecommunications equipment and ATM machines, it will also acquire other
types of equipment that meet the investment objectives of the Partnership.
The Partnership's equipment leases are concentrated in pay telephones and
computer equipment representing approximately 55% and 15% of the Partnership's
direct finance lease and notes receivable portfolio at December 31, 2000,
respectively. For the year ended December 31, 2000, two customers accounted for
24% of the income from direct financing leases and notes receivable. Engineered
Rubber Products and Alpha Tel-Com accounted for 14% and 10%, respectively.
The leasing industry is highly competitive and the Partnership has fewer assets
than some of its major competitors. The principal methods of competition include
service and price (interest rate). The Partnership operates in one segment.
Pay telephone revenues have decreased due to the impact of wireless
communication, prepaid calling service, and the lack of dial around
compensation. The declining revenue has effected Independent Payphone Providers
and Regional Bell Operating Companies in the same way, and some companies are
removing phones from locations that are no longer profitable. With the Regional
Bell Operating Companies removing many phones,
4
5
this in fact may be an opportunity for many Independent Payphone Providers to
pick up some additional sites. Changes from the 1996 Telecommunications Act are
expected to be implemented soon and may result in increased revenues and
decreased expenses for the Independent Payphone Providers.
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 assets consist entirely of equipment under lease, primarily
ATM machines, telecommunications equipment, and computer equipment, as described
in Item 1.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS
No matters were submitted to a vote of limited partners, through the
solicitation of proxies or otherwise during the year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's units are not publicly traded. There is no market for the
Registrant's units and it is unlikely that any will develop. The General Partner
will resist the development of a public market for the units.
Number of Partners
Title of Class at March 1, 2001
------------------------------------------------
Limited Partner 683
General Partner 1
Distributions are paid to Partners on a monthly basis. Through December 31, 2000
distributions paid or payable to Partners over the life of the Partnership have
been $2,420,032. As of December 31, 2000 the Partnership had accrued
distributions to Partners of $100,744.
ITEM 6. SELECTED FINANCIAL DATA
Period from
Aug. 26, 1997
Year Ended Year Ended Year Ended (Date of Incept.) to
Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
------------- ------------- ------------- -------------
Total revenue $ 1,378,819 $ 1,172,549 $ 377,483 $ 77
Net income (loss) (399,728) 676,665 157,464 (407)
Total assets 11,991,088 13,196,905 5,053,409 10,593
Line of credit agreement 2,374,423 1,973,142 0 0
Distributions to partners 1,208,928 886,545 324,559 0
Earnings (loss) per unit (31.74) 72.99 46.18 (40.70)
Distributions per unit 96.00 95.63 95.18 0
The above selected financial data should be read in connection with the
financial statements and related notes appearing elsewhere in this report.
5
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS RESULTS OF OPERATIONS
Year Ended Year Ended Year Ended
Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
------------- ------------- -------------
Lease and notes receivable income $ 1,229,141 $ 1,110,646 $ 286,551
Gain (loss) on lease terminations 70,238 (99) 38,471
Interest and other income 79,440 62,002 52,461
Management fees 124,738 53,677 12,599
Administrative service fees 144,000 84,000 77,000
Other general & administrative expenses 214,798 107,662 33,596
Interest expense 145,390 96,135 9,006
Impairment loss 584,966 0 0
Provision for possible losses 564,655 154,410 87,818
1998 was the first year of actual leasing operations. Lease and notes receivable
income increased in 2000 and 1999 due to the acquisition of equipment for direct
financing leases and the issuance of notes receivable. The Partnership's net
investment in direct financing leases and notes receivable was $4,640,514 at
December 31, 1998, $13,423,757 at December 31, 1999, and $10,480,086 at December
31, 2000. During 1999, the Partnership acquired equipment for direct financing
leases of $7,066,480 and issued notes receivable in the amount of $3,293,410.
During 2000, the Partnership acquired equipment for direct financing leases of
$4,155,148 and issued notes receivable in the amount of $1,752,939. Interest and
other income of $79,440 is primarily interest income on a money market account
and other investments, late charges on lease payments, and loan origination
fees.
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 always quote an amount at
least equal to the Partnership's net investment and typically an amount
exceeding the net investment. 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 which was
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 or issue notes receivable to other customers. For 2000, the
Partnership the proceeds from early contract terminations were $3,948,093,
resulting in a gain of $70,238.
Management fees are paid to the General Partner and represent 2% of the rental
and note payments received. Payments received in the years ended December 31 are
as follows:
2000 1999 1998
---- ---- ----
Rental and note payments received $6,236,900 $2,683,850 $ 629,950
The General Partner received a monthly reimbursement of $7,000 for
administrative services provided to the Partnership in 1998 and 1999 and a
monthly reimbursement of $12,000 in 2000. This administrative fee started in
February 1998 and resulted in expense to the Partnership of $77,000 for 1998,
$84,000 for 1999, and $144,000 for 2000. The increase in administrative fees
paid is due to an increase in administrative costs incurred by the General
Partner on behalf of the Partnership.
6
7
Interest expense in 2000 was $145,390, compared to $96,135 in 1999, and is the
result of increased borrowings on the line of credit agreement. The balance
outstanding on the line of credit at December 31, 2000 was $2,374,423.
In November 2000, the Partnership exercised its right to manage the assets
leased to Alpha Telecommunications, Inc. ("ATI") due to nonpayment of lease
receivables. The remaining net equipment cost, primarily pay phones, is expected
by management to be recovered through the operation and/or sale of the
equipment. Such equipment cost had been adjusted for an impairment loss of
$584,966, to reflect management's estimated fair market value of the equipment.
The Partnership has engaged a company to oversee the operations of the pay phone
routes and to attempt to sell the equipment. No assurance can be provided that
the Partnership will be successful in selling the equipment.
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. The Partnership currently has a loss reserve of
$739,699 or 7.1% of the lease and note portfolio. The Partnership's provision
for possible loan and lease losses was $564,655 in 2000, and is primarily the
result of a lessee that filed for bankruptcy in the fourth quarter of 2000.
Management will continue to monitor this contract and take the necessary steps
to protect the Partnership's investment.
As of December 31, 2000 there were four 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. The Partnership's total net investment in these contracts was
$433,338 at December 31, 2000. One of these customers, whose net investment
totalled $125,617, paid off their contracts in full in February, 2001.
Other general and administrative expenses, consisting of legal and accounting,
data processing, amortization, office supplies, and other miscellaneous
expenses, increased from $107,662 in 1999 to $214,798 in 2000. The increase is
due primarily to legal costs incurred relating to ATI, Inc., as discussed above.
Audit and accounting expense increased from $31,414 in 1999 to $38,350 in 2000.
The General Partner is engaged directly for its own account in the business of
acquiring and leasing equipment. The General Partner also serves as the general
partner of Telecommunications Income Fund IX, L.P. ("TIF IX") and
Telecommunications Income Fund X, L.P. ("TIF X"), publicly owned limited
partnerships that are engaged in the equipment leasing business. Also, an
affiliate of the General Partner is the general partner of a privately offered
active limited partnership. As of December 31, 2000, the net proceeds of the
private program, TIF IX, and TIF X have been invested in specific equipment. TIF
IX is in its liquidation phase and must be dissolved by December 31, 2005. TIF X
entered its liquidation phase on December 31, 1999 and must be dissolved by
December 31, 2002. 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
7
8
the expiration of the original lease term. The General Partner monitors the
maintenance and upgrades to the equipment and expects the Partnership to realize
residual values of at least 10%.
The General Partner is not aware of any regulatory issues that may have a
substantial negative impact on the telecommunications businesses to whom the
Partnership leases equipment. There are and will continue to be regulatory
issues in the telecommunications industry that the General Partner will monitor.
The equipment leases or notes acquired by the Partnership have been financed to
yield rates of return between 10% and 17%. The lease terms vary from 36 months
to 60 months. The rate charged on a particular lease or note depends on the size
of the transaction and the financial strength of the lessee. Generally, before
any lease or note 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.
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.
The Partnership has not yet achieved an earnings level that equals or exceeds
its operating distributions being paid to the Partners.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standard Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The recognition of gains or losses resulting from
changes in the values of derivatives is based on the use of each derivative
instrument and whether it qualifies for hedge accounting. In June 1999, the FASB
issued SFAS No. 137, which deferred the effective date of adoption of SFAS No.
133 for one year. The Partnership adopted SFAS No. 133 in the first quarter of
calendar year 2001. The adoption of this standard did not have any material
impact on the Partnership's results of operations, financial position or cash
flows.
LIQUIDITY AND CAPITAL RESOURCES
Year Ended Year Ended Year Ended
Major Cash Sources (Uses): Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
------------- ------------- -------------
Net cash from operating activities $ 518,790 $ 1,092,606 $ 222,122
Contribution and sale of partnership units 0 6,799,000 5,784,000
Proceeds from line of credit borrowings 6,734,105 3,263,945 810,000
Repayments/terminations of leases & notes 6,089,216 1,572,948 994,543
Acquisitions of equip for direct finance leases (4,155,148) (7,066,480) (4,477,922)
Issuance of Notes Receivable (1,752,939) (3,293,410) (1,119,912)
Repayments of line of credit borrowings (6,332,824) (1,290,803) (810,000)
Distributions & withdrawals paid to partners (1,205,711) (834,056) (280,521)
Payment of Syndication Costs 0 (849,875) (723,000)
The Partnership is required to establish working capital reserves of no less
than 1% of the total capital raised to satisfy general liquidity requirements,
operating costs of equipment, and the
8
9
maintenance and refurbishment of equipment. At December 31, 2000, that working
capital reserve, as defined, would be $125,930, and the Partnership had this
amount available to it under its line of credit agreement.
The Partnership obtained a line of credit agreement with a bank in January 1999
that allowed the Partnership to borrow the lesser of $2.0 million, or 32% of the
Partnership's qualified accounts as defined in the agreement, primarily leases
and notes receivable. On October 26, 1999, the agreement was amended to increase
the limit from $2.0 million to $4.4 million (limited by 32% of qualified
accounts) and extend the maturity date from June 30, 2000, to June 30, 2002. The
line of credit agreement bears interest at 1% above the prime rate, with a
$4,000 minimum monthly interest charge beginning in July 1999, 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 agreement is cancelable 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. The balance outstanding on the line of
credit at December 31, 2000 was $2,374,423.
Cash flow from operating activities was $518,790 for 2000 and is derived from
the leasing operations of the Partnership, resulting from the income from direct
financing leases and notes received less operating expenses. During 2000, the
Partnership acquired equipment for direct financing leases of $4,155,148 and
issued notes receivable of $1,752,939, funded from borrowings from the line of
credit, and the proceeds from the repayment and termination of leases and notes.
The proceeds relating to repayments of these leases and notes, including early
terminations totalled $6,089,216 in 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
The table below provides information about the Partnership's notes receivable
and line of credit agreement that are sensitive to changes in interest rates.
The table presents the principal amounts due and related weighted average
interest rates by expected maturity dates as of December 31, 2000.
Assets Liabilities
--------------------------------- -------------------------
Expected Fixed Rate Average Variable Rate Interest
Maturity Date Notes Receivable Interest Rate Line of Credit Rate
------------- ---------------- ------------- -------------- ----
2001 $ 591,225 16.46% $ 0 --
2002 341,818 16.43% 0 --
2003 312,879 16.39% 2,374,423 10.50%
2004 261,411 16.39% 0 --
2005 147,395 16.50% 0 --
---------------- --------------
Total $ 1,654,728 $ 2,374,423
================ ==============
Fair Value $ 1,654,728 $ 2,374,423
================ ==============
The Partnership manages interest rate risk, its primary market risk exposure, 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.
9
10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and related information as of and for the
periods ended December 31, 2000, 1999, and 1998 are included in Item 8:
Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Changes in Partners' Equity
Statements of Cash Flows
Notes to Financial Statements
10
11
INDEPENDENT AUDITORS' REPORT
To the Partners
Telecommunications Income Fund XI, L.P.
We have audited the accompanying balance sheets of Telecommunications Income
Fund XI, L.P. (the "Partnership") as of December 31, 2000 and 1999, and the
related statements of operations, changes in partners' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Telecommunications Income Fund XI, L.P. at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Cedar Rapids, Iowa
March 23, 2001
11
12
TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
- -------------------------------------------------------------------------------
ASSETS (Note 6) 2000 1999
Cash and cash equivalents $ 503 $ 1,926
Net investment in direct financing leases
and notes receivable (Note 2) 10,480,086 13,423,757
Allowance for possible loan and lease losses (Note 3) (739,699) (239,857)
------------ ------------
Direct financing leases and notes receivable, net 9,740,387 13,183,900
Other receivables 67,742 11,079
Equipment under operating lease (Note 4) 2,182,456 --
------------ ------------
TOTAL $ 11,991,088 $ 13,196,905
------------ ------------
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Line-of-credit agreement (Note 6) $ 2,374,423 $ 1,973,142
Outstanding checks in excess of bank balance 46,201 196,859
Due to affiliates 6,537 41,913
Distributions payable to partners 100,744 97,527
Accrued expenses and other liabilities 127,860 46,573
Lease security deposits 301,236 198,148
------------ ------------
Total liabilities 2,957,001 2,554,162
------------ ------------
CONTINGENCY (Note 11)
PARTNERS' EQUITY, 25,000 units authorized (Note 5):
General partner, 10 units issued and outstanding 7,747 9,024
Limited partners, 12,583 units issued and outstanding 9,026,340 10,633,719
------------ ------------
Total partners' equity 9,034,087 10,642,743
------------ ------------
TOTAL $ 11,991,088 $ 13,196,905
============ ============
See notes to financial statements.
12
13
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
REVENUES:
Income from direct financing leases
and notes receivable $ 1,229,141 $ 1,110,646 $ 286,551
Gain (loss) on lease terminations 70,238 (99) 38,471
Interest and other income 79,440 62,002 52,461
----------- ----------- -----------
Total revenues 1,378,819 1,172,549 377,483
----------- ----------- -----------
EXPENSES:
Management and administrative fees (Note 7) 268,738 137,677 89,599
Other general and administrative expenses 214,798 107,662 33,596
Interest expense 145,390 96,135 9,006
Impairment loss (Note 4) 584,966 -- --
Provision for possible loan and lease losses (Note 3) 564,655 154,410 87,818
----------- ----------- -----------
Total expenses 1,778,547 495,884 220,019
----------- ----------- -----------
NET INCOME (LOSS) $ (399,728) $ 676,665 $ 157,464
=========== =========== ===========
NET INCOME (LOSS) ALLOCATED TO:
General partner $ (317) $ 730 $ 578
Limited partners (399,411) 675,935 156,886
----------- ----------- -----------
$ (399,728) $ 676,665 $ 157,464
=========== =========== ===========
NET INCOME (LOSS) PER PARTNERSHIP UNIT $ (31.74) $ 72.99 $ 46.18
=========== =========== ===========
WEIGHTED AVERAGE PARTNERSHIP UNITS
OUTSTANDING 12,593 9,271 3,410
=========== =========== ===========
See notes to financial statements.
13
14
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- -------------------------------------------------------------------------------
GENERAL
PARTNER LIMITED PARTNERS TOTAL
---------------------------- PARTNERS'
(10 UNITS) UNITS AMOUNT EQUITY
BALANCE AT JANUARY 1, 1998 $ 9,593 1 $ 1,000 $ 10,593
Proceeds from sale of limited partnership interests -- 5,784 5,784,000 5,784,000
Syndication costs incurred (Note 7) -- -- (723,000) (723,000)
Distributions to partner ($95.18 per unit) (Note 5) (917) -- (323,642) (324,559)
Withdrawal of limited partner -- (1) (1,000) (1,000)
Net income 578 -- 156,886 157,464
------------ ------ ------------ -----------
BALANCE AT DECEMBER 31, 1998 9,254 5,784 4,894,244 4,903,498
Proceeds from sale of limited partnership interests -- 6,799 6,799,000 6,799,000
Syndication costs incurred (Note 7) -- -- (849,875) (849,875)
Distributions to partner ($95.63 per unit) (Note 5) (960) -- (885,585) (886,545)
Net income 730 -- 675,935 676,665
------------ ------ ------------ ------------
BALANCE AT DECEMBER 31, 1999 9,024 12,583 10,633,719 10,642,743
Distributions to partner ($96.00 per unit) (Note 5) (960) -- (1,207,968) (1,208,928)
Net income (317) -- (399,411) (399,728)
------------ ------ ------------ ------------
BALANCE AT DECEMBER 31, 2000 $ 7,747 12,583 $ 9,026,340 $ 9,034,087
============ ====== ============ ============
See notes to financial statements.
14
15
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
2000 1999 1998
OPERATING ACTIVITIES:
Net income (loss) $ (399,728) $ 676,665 $ 157,464
Adjustments to reconcile net income (loss) to net
cash from operating activities:
(Gain) loss on lease terminations (70,238) 99 (38,471)
Amortization of intangibles 545 1,229 1,248
Provision for possible loan and lease losses 564,655 154,410 87,818
Impairment loss 584,966 -- --
Changes in operating assets and liabilities:
Other receivables (56,663) (11,079) --
Outstanding checks in excess of bank balance (150,658) 196,859 --
Due to affiliates (35,376) 37,541 4,372
Accrued expenses and other liabilities 81,287 36,882 9,691
----------- ----------- -----------
Net cash from operating activities 518,790 1,092,606 222,122
----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisitions of, and purchases of equipment for, direct financing leases (4,155,148) (7,066,480) (4,477,922)
Repayments of direct financing leases 1,819,409 1,280,730 248,382
Proceeds from termination of direct financing leases 3,948,093 11,731 434,001
Repayments of notes receivable 321,714 280,487 312,160
Issuance of notes receivable (1,752,939) (3,293,410) (1,119,912)
Net lease security deposits collected 103,088 107,338 90,810
----------- ----------- -----------
Net cash from investing activities 284,217 (8,679,604) (4,512,481)
----------- ----------- -----------
FINANCING ACTIVITIES:
Contribution and sale of partnership units -- 6,799,000 5,784,000
Proceeds from borrowings 6,734,105 3,263,945 810,000
Repayment of borrowings (6,332,824) (1,290,803) (810,000)
Proceeds from related party borrowing -- 600,000 --
Repayment of related party borrowing -- (600,000) --
Distributions and withdrawals paid to partners (1,205,711) (834,056) (280,521)
Payment of syndication costs -- (849,875) (723,000)
----------- ----------- -----------
Net cash from financing activities (804,430) 7,088,211 4,780,479
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,423) (498,787) 490,120
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,926 500,713 10,593
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 503 $ 1,926 $ 500,713
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 139,425 $ 79,320 $ 9,006
Noncash investing activities - Conversion of leases to equipment
under operating lease 2,767,422 -- --
See notes to financial statements.
15
16
TELECOMMUNICATIONS INCOME FUND XI, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations- Telecommunications Income Fund XI,
L.P. (the "Partnership") was formed on August 26, 1997 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 its offering period, the Partnership sold 12,583
limited partnership units at a price per unit of $1,000.
The Partnership operates in one segment. 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 Partnership will also provide financing to customers under a note
agreement. On December 23, 2004 (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, 2012, or earlier, upon the occurrence of certain events (see
Note 5).
The Partnership commenced leasing operations in February of 1998.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ significantly from those estimated.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the 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. Also, the used equipment market can be volatile. These
factors, among others, could have a material near-term impact on the
estimated unguaranteed residual values.
16
17
CERTAIN RISK CONCENTRATIONS - The Partnership's portfolio of leases and
notes receivable are concentrated in pay telephones, ATM machines and
office and computer equipment representing approximately 55%, 2%, and 15%
of the portfolio at December 31, 2000 and 45%, 22% and 10% of the
portfolio at December 31, 1999, respectively.
Two customers represented 10% or more of the income from direct financing
leases and notes receivable during the year ended December 31, 2000 (see
Note 2).
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
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.
NET INVESTMENT IN DIRECT FINANCING LEASES - The Partnership's primary
activity consists of leasing 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 principal balance
outstanding. Interest income on notes receivable is accrued based on the
principal 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.
17
18
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, 1998, the Financial
Accounting Standard Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes standards
for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The recognition of
gains or losses resulting from changes in the values of derivatives is
based on the use of each derivative instrument and whether it qualifies
for hedge accounting. In June 1999, the FASB issued SFAS No. 137, which
deferred the effective date of adoption of SFAS No. 133 for one year. The
Partnership adopted SFAS No. 133 in the first quarter of calendar year
2001. The adoption of this standard did not have any impact on the
Partnership's results of operations, financial position or cash flows.
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, 2000 and 1999:
2000 1999
Minimum lease payments receivable $ 9,933,179 $ 11,272,568
Estimated unguaranteed residual values 800,757 876,936
Unamortized initial direct costs 166 738
Unearned income (1,908,744) (2,547,160)
Notes receivable, collateralized primarily by pay telephone
equipment and related site agreements, 9.5% to 17.6%,
maturing through 2005 1,654,728 3,820,675
------------ ------------
Net investment in direct financing leases and notes receivable $ 10,480,086 $ 13,423,757
============ ============
18
19
At December 31, 2000, contractual principal maturities of notes
receivable, future minimum payments to be received under direct financing
leases and the estimated unguaranteed residuals to be realized at the
expiration of direct financing leases are as follows:
Minimum Estimated
Contractual Lease Unguaranteed
Principal Payments Residual
Maturities Receivable Values
Years ending December 31:
2001 $ 591,225 $4,030,571 $ 117,670
2002 341,818 2,868,087 137,893
2003 312,879 2,075,693 86,212
2004 261,411 895,935 430,619
2005 147,395 62,893 28,363
---------- ---------- ----------
Total $1,654,728 $9,933,179 $ 800,757
========== ========== ==========
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 $225,000 and $4,000 at December 31, 2000 and 1999,
respectively.
Five customers accounted for 10% or more of the amount of income from
direct financing leases and notes receivable during one or more of the
periods presented, as follows:
2000 1999 1998
Customer A 4% 17% 7%
Customer B 6 12 --
Customer C 14 9 --
Customer D 2 28 2
Customer E 10 -- --
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, 2000 and 1999 is as follows:
2000 1999 1998
Balance at beginning of year $ 239,857 $ 87,818 $ --
Provision 564,655 154,410 87,818
Charge-offs (64,813) (2,371) --
--------- --------- ---------
Balance at end of year $ 739,699 $ 239,857 $ 87,818
========= ========= =========
The allowance for possible loan and lease losses consisted of specific
allowances for leases and notes receivable of $586,760, $0 and $0 and a
general unallocated allowance of $152,939, $239,857, and $87,818,
respectively, at December 31, 2000, 1999, and 1998.
19
20
In December 2000 one customer with a net investment of $745,480 filed for
bankruptcy. A specific allowance of approximately $433,000 was recorded
for this customer.
At December 31, 2000, the Partnership had four customers with payments
over 90 days past due. The Partnership's net investment in lease contracts
with these customers totaled $433,338. Management has provided a specific
allowance of $90,000 at December 31, 2000 related to these customers.
Management believes that the underlying collateral is adequate to recover
the Partnership's net investment for the remaining balances. If a lease or
note receivable is past due more than 90 days, the Partnership
discontinues recognizing income on the contract.
4. EQUIPMENT UNDER OPERATING LEASE
In November 2000, the Partnership exercised its right to manage the assets
leased to Alpha Telecommunications, Inc. due to nonpayment of lease
receivables. The remaining net equipment cost, primarily pay phones, is
expected by management to be recovered through the operation and/or sale
of the equipment. Such equipment cost had been adjusted for an impairment
loss of $584,966, to reflect management's estimated fair market value of
the equipment. The Partnership has engaged a company to oversee the
operations of the pay phone routes and to attempt to sell the equipment.
No assurance can be provided that the Partnership will be successful in
selling the equipment.
5. LIMITED PARTNERSHIP AGREEMENT
The Partnership was formed pursuant to an Agreement of Limited Partnership
dated as of August 26, 1997 (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 will consist of the
$10,000 contributed by the General Partner and the amounts contributed by
limited partners for the purchase of their units ($1,000 per unit).
Net income or net loss allocated to the limited partners (and to the
General Partner) is apportioned among them based on the number of units
held and on the number of days within the fiscal year that they were
limited partners. Any Partnership net loss will first be allocated to the
partners to the extent of their positive capital accounts. Any additional
Partnership 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 Partnership net income
will then be allocated to the partners. During the liquidating phase of
the Partnership, net income earned that results in Partnership assets to
be distributed 80% to the limited partners and 20% to the General Partner
will be allocated 80% to the limited partners and 20% to the General
Partner.
A partner's share of profits, losses and operating distributions to
partners (distributions of up to 9.6% annually made during the operating
phase) is based upon the amount of each partner's adjusted capital
contribution (a partner's capital contribution, reduced by all payments to
the partner that qualify as a liquidating distribution or return of
capital) and each limited partner's admission date (the date a limited
partner is admitted to the Partnership).
20
21
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 9.6% cumulative annual return on
their adjusted capital contribution (as defined); and, third, to the
General Partner, representing a monthly equipment management fee of 2% 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.
The Partnership will cease reinvesting in assets and will not enter into
additional leases during the liquidating phase. The liquidating phase
shall begin at any time after June 23, 2003 (or earlier if the General
Partner determines it to be in the Partnership's best interest), but no
later than December 23, 2004. During the liquidating phase, the
Partnership will proceed with all due and deliberate speed and care to
wind up the Partnership's affairs and to convert all of the Partnership's
assets into cash. Operating distributions will not be paid during the
liquidating phase.
During the liquidating phase, amounts available to be distributed among
the partners after satisfaction of all Partnership liabilities and
obligations and/or the provision of reserves for future or contingent
Partnership liabilities will be distributed in order of priority as
follows:
- - First, payment of the General Partner's expense reimbursement;
- - Second, payment to the partners, to the extent necessary to pay to the
partners during the term of their investment in the Partnership,
operating distributions of 8% annually (on a cumulative, compounded
daily basis) on their adjusted capital contributions;
- - Third, payment to the partners of 100% of their adjusted capital
contributions to the Partnership;
- - Fourth, payment to the partners to the extent they have not received,
during the term of their investment in the Partnership, distributions
totaling 9.6% annually (calculated only through the end of the
operating phase), noncompounded, on their adjusted capital
contributions;
- - Fifth, payment to the General Partner of any unpaid arrearages in its
management fee; and
- - Sixth, payment of any remaining amounts will be made 80% to the limited
partners and 20% to the General Partner; provided, however, the General
Partner will not receive its share of these remaining amounts until
such time as the limited partners have received operating distributions
and liquidating distributions equal to their capital contributions plus
9.6% annually (calculated only through the end of the operating phase)
noncompounded, on their adjusted capital contributions.
21
22
6. BORROWING AGREEMENTS
In January 1999, the Partnership obtained financing under a line of credit
agreement with a bank. The amount available to borrow under the line of
credit was limited to $2,000,000 or 32% of qualified accounts, primarily
leases, and notes receivable. On October 26, 1999, the agreement was
amended to increase the available amount from $2,000,000 to $4,400,000
(limited by 32% of qualified accounts) and extend the maturity from June
30, 2000 to June 30, 2002. The line of credit agreement bears interest at
1% over the prime rate (combined rate of 10.5% and 9.5% at December 31,
2000 and 1999, respectively), with a $4,000 minimum monthly interest
charge which began in July 1999, 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. This
agreement is cancelable 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. The amount outstanding under this
line-of-credit at December 31, 2000 was $2,374,423.
7. MANAGEMENT AND SERVICE AGREEMENTS
The Partnership paid the General Partner acquisition fees of 5% of the
cost of equipment financing provided by the Partnership, which was
$265,066, $490,123, and $265,760 for the years ended December 31, 2000,
1999, and 1998, respectively.
The Partnership also pays an equipment management fee equal to 2% of the
amount of gross rental payments received, to the General Partner. During
the years ended December 31, 2000, 1999, and 1998, those management fees
aggregated $124,738, $53,677, and $12,599, 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 $144,000, $84,000, and
$77,000 for the years ended December 31, 2000, 1999, and 1998,
respectively.
As a part of the issuance of partnership units, the Partnership paid
commissions of 9% to Berthel Fisher & Company Financial Services, Inc., a
broker-dealer affiliated with the General Partner, and reimbursed other
offering expenses of up to 3.5% of the gross proceeds to the General
Partner. These fees, which amounted to $849,875 and $723,000 for the years
ended December 31, 1999 and 1998, respectively, have been treated as
syndication costs and charged directly to partners' equity.
22
23
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 periods
ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
---------------------------- -------------------------- ------------------------
Per Per Per
Amount Unit Amount Unit Amount Unit
Net income (loss) for
financial reporting
purposes $ (399,728) $ (31.74) $ 676,665 $ 72.99 $ 157,464 $ 46.18
Adjustment to convert
direct financing
leases to operating
leases for income
tax purposes (1,463,116) (116.19) (1,328,591) (143.31) (427,982) (125.51)
Net change in
allowance for
possible loan and
lease losses 499,842 39.69 152,039 16.40 87,818 25.75
Impairment loss on
ATI equipment 584,966 46.45
Gain on lease
terminations 1,556,215 123.58 -- -- 3,809 1.12
----------- ---------- ----------- ---------- ----------- ----------
Net income (loss) for
income tax
reporting purposes $ 778,179 $ 61.79 $ (499,887) $ (53.92) $ (178,891) $ (52.46)
=========== ========== =========== ========== =========== ==========
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value amounts disclosed below are based on estimates prepared by
management based on valuation methods appropriate in the circumstances.
Accounting principles generally accepted in the United States of America
do not require disclosure for lease contracts. The carrying amount for
financial instruments included among cash and cash equivalents and other
short-term payables approximates their fair value because of the short
maturity of those instruments. The carrying value of the Partnership's
line of credit agreement approximates its fair value due to the variable
rate on the debt. The estimated fair value of other significant financial
instruments is based principally on discounted future cash flows at rates
commensurate with the credit and interest rate risk involved.
23
24
The estimated fair values of the Partnership's other significant financial
instruments are as follows at December 31, 2000 and 1999:
2000 1999
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes receivable $1,654,728 $1,654,728 $3,820,675 $3,820,675
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2000 Quarters
--------------------------------------------------------------------
First Second Third Fourth 2000
Revenues $ 416,315 $ 284,640 $ 326,694 $ 351,170 $ 1,378,819
Expenses 184,715 154,125 189,771 1,249,936 1,778,547
Net income 231,600 130,515 136,923 (898,766) (399,728)
Earnings per
partnership unit $ 18.39 $ 10.36 $ 10.87 $ (71.36) $ (31.74)
Expenses for the fourth quarter 2000 include an increase in the allowance
for possible lease and loan losses of approximately $433,000 for a
customer that filed for bankruptcy and a $584,966 impairment loss on
repossessed equipment (see Notes 3 and 4).
1999 Quarters
--------------------------------------------------------------------
First Second Third Fourth 1999
Revenues $ 168,896 $ 234,683 $ 363,772 $ 405,198 $1,172,549
Expenses 92,011 89,062 158,952 155,859 495,884
Net income 76,885 145,621 204,820 249,339 676,665
Earnings per
partnership unit $ 11.69 $ 16.98 $ 19.96 $ 24.36 $ 72.99
11. CONTINGENCY
The General Partner has approximately $2,200,000 of notes payable and
redeemable preferred stock maturing in 2001 and may not have sufficient
liquid assets to repay such amounts. The General Partner is pursuing
additional financing, refinancing, and asset sales to meet its
obligations. No assurance can be provided that the General Partner will be
successful in its efforts.
* * * * *
24
25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. The General Partner of the registrant:
Berthel Fisher & Company Leasing, Inc., an Iowa corporation.
B. Executive officers of the General Partner of the Registrant:
Thomas J. Berthel (age 49) - Mr. Berthel is the Chief Executive Officer and
Director of the General Partner, a position he has held since the General
Partner's inception in 1988. Mr. Berthel is also President and a Director of the
General Partner's parent, Berthel Fisher & Company, Inc. ("Berthel Fisher"),
which he founded in 1985, and Berthel Fisher's other subsidiaries, Berthel
Fisher & Company Financial Services, Inc.; Berthel Fisher & Company Management
Corp.; Berthel Fisher & Company Planning, Inc.; and one other corporation which
acts as general partner of a separate private program. He also serves as the
Chairman of the Board and Director of Amana Colonies Golf Course, Inc. Mr.
Berthel holds a bachelor's degree from St. Ambrose College in Davenport, Iowa
(1974). From 1974 to 1982, Mr. Berthel was President and majority shareholder of
Insurance Planning Services Corporation in Maquoketa, Iowa, which was engaged in
the operation of a securities and insurance business. Mr. Berthel holds a
Financial and Operation Principal license issued by the National Association of
Securities Dealers, Inc. Mr. Berthel is also a Certified Life Underwriter. Mr.
Berthel also serves as an individual general partner of the limited partnership
referred to above. Mr. Berthel received a MBA degree from the University of Iowa
in 1993.
Ronald O. Brendengen (age 46) - Mr. Brendengen is the Treasurer, Chief Operating
Officer, Chief Financial Officer, and a Director (1988 to present) of the
General Partner. He was elected to his current offices in October 1996. He
served as Treasurer and Chief Financial Officer since October 1996. He has also
served as Secretary (1994 - March, 1995), Treasurer (1988-August 1995) and Chief
Financial Officer (1994 - August 1995) of the General Partner. He served as
Controller (1985-1993), Treasurer (1987-present), Chief Financial Officer,
Secretary and a Director (1987-present), and was also elected Chief Operating
Officer in January 1998, of Berthel Fisher & Company, the parent company of the
General Partner. Mr. Brendengen serves as the Treasurer, Chief Financial Officer
and a Director of Berthel Fisher & Company Planning, Inc., the trust advisor of
Berthel Growth & Income Trust I, a company required to file reports pursuant to
the Securities Exchange Act of 1934. He also serves in various offices and as a
Director of each subsidiary of Berthel Fisher & Company. Mr. Brendengen holds a
certified public accounting certificate and worked in public accounting during
1984 and 1985. From 1979 to 1984, Mr. Brendengen worked in various capacities
for Morris Plan and MorAmerica Financial Corp., Cedar Rapids, Iowa. Mr.
Brendengen attended the University of Iowa before receiving a bachelor's degree
in Accounting and Business Administration with a minor in Economics from Mt.
Mercy College, Cedar Rapids, Iowa, in 1978.
Timothy J. White (age 47) - Mr. White is President of the General Partner since
November 13, 2000. From 1999 to 2000, Mr. White was Vice President of New
Markets for Great America Leasing in Cedar Rapids, Iowa. From 1996 to 1999, Mr.
White was Vice President of Business Development for GE Capital in Cedar Rapids,
Iowa. From 1993 to 1996, Mr. White was President of Aloha Capital Corporation in
Syracuse, New York. From 1989 to 1993, Mr. White was Vice President of Sales for
Dana Commercial Credit in Troy, Michigan. During his career, Mr. White has been
responsible for the management of a leasing business in excess of $200 million
and sales budgets in excess of $400 million. Mr. White holds a Bachelor's degree
in Business Management from Walsh College in Troy, Michigan.
Nancy L. Lowenberg (age 42) - Ms. Lowenberg was Executive Vice President and
General Manager of the General Partner beginning January 2, 1997. From September
1986 to December 1996, Ms. Lowenberg was employed by Firstar Bank Iowa, N.A., in
Cedar Rapids. Since 1989, Ms. Lowenberg was Vice President Commercial Loans. Ms.
Lowenberg resigned from the General Partner effective February 9, 2000.
25
26
ITEM 11. EXECUTIVE COMPENSATION
Set forth is the information relating to all direct remuneration paid or accrued
by the Registrant during the last three years to the General Partner:
(A) (B) (C) (C1) (C2) (D)
Securities of
property
insurance Aggregate
benefits or of
Cash and cash reimbursement contingent
Name of individual Year equivalent forms personal or forms of
and capacities served Ended of remuneration Fees benefits remuneration
- --------------------------------------------------------------------------------------------------
Berthel Fisher & Co. Leasing, Inc. 2000 $ 0 $268,738 $ 0 $ 0
(General Partner) 1999 $ 0 $137,677 $ 0 $ 0
1998 $ 0 $ 89,599 $ 0 $ 0
26
27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of the Partnership Units.
(b) The General Partner of the Registrant owns Units of the Registrant set
forth in the following table.
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Ownership Beneficial Ownership Percent of Class
- -------------- -------------------- -------------------- ----------------
Units Berthel Fisher & Co. Leasing, Inc. Ten (10) Units; .08%
701 Tama Street sole owner.
Marion, IA 52302
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related party transactions are described in Notes 2 and 7 of the notes to the
financial statements.
27
28
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Page No.
Balance Sheets as of December 31, 2000 and 1999 12
Statements of Operations for the years ended
December 31, 2000, 1999, and 1998 13
Statements of Changes in Partners' Equity for the years ended
December 31, 2000 and 1999, and 1998 14
Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998 15
Notes to Financial Statements 16
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 XI, L.P. currently in effect dated as of
November 26, 1997 (1)
10.3 Revolving Loan and Security Agreement incorporated herein
by reference to the Partnership's Form 10-Q filed on May 13,
1999
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of
2000.
- -------------------------------
(1) Incorporated herein by reference to Exhibit A in the Partnership's
registration statement on Form S-1, effective November 26, 1997
28
29
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 XI, L.P.
(REGISTRANT)
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Thomas J. Berthel Date: March 26, 2001
-------------------------------------
Thomas J. Berthel
President, Chief Executive Officer
By Berthel Fisher & Company Leasing, Inc.
By: /s/ Ronald O. Brendengen Date: March 26, 2001
-------------------------------------
Ronald O. Brendengen
Chief Operating Officer, Chief Financial Officer,
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Thomas J. Berthel Date: March 26, 2001
- -----------------------------------------
Thomas J. Berthel
Chief Executive Officer
President, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Ronald O. Brendengen Date: March 26, 2001
- -----------------------------------------
Ronald O. Brendengen
Chief Operating Officer, Chief Financial Officer,
Treasurer, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Daniel P. Wegmann Date: March 26, 2001
- -----------------------------------------
Daniel P. Wegmann
Controller
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
/s/ Leslie D. Smith Date: March 26, 2001
- -----------------------------------------
Leslie D. Smith
Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner
29
30
EXHIBIT INDEX
3,4 Amended and Restated Agreement of
Telecommunications Income Fund XI, L.P. currently in
effect dated as of November 26, 1997 (1)
10.3 Revolving Loan and Security Agreement incorporated herein by
reference to the Partnership's Form 10-Q filed on May 13, 1999
- -------------------------------
(1) Incorporated herein by reference to
Partnership Exhibit A to the prospectus
included in the Partnership's post effective
amendment No. 1 to Form S-1 registration
statement filed on November 26, 1997.
30