10-Q 1 e10-q.txt FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2000 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 registered pursuant to Section 12(g) of the Act: Limited Partnership Interest (the "Units") ------------------------------------------ Title of Class Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes X No --- --- As of July 17, 2000, 12,593 units were issued and outstanding. Based on the book value at June 30, 2000 of $825.89 per unit, the aggregate market value at July 17, 2000 was $10,400,432. 2 TELECOMMUNICATIONS INCOME FUND XI, L.P. INDEX

2 3 TELECOMMUNICATIONS INCOME FUND XI, L.P. BALANCE SHEETS (UNAUDITED)

See accompanying notes. 3 4 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes. 4 5 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes. 5 6 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENT OF CHANGES IN PARTNERS' EQUITY SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)

See accompanying notes. 6 7 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes. 7 8 TELECOMMUNICATIONS INCOME FUND XI, L.P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. For further information, refer to the financial statements and footnotes thereto included in the Partnership's annual report on Form 10-K for the year ended December 31, 1999. Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 financial statement presentation. NOTE B - NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE The Partnership's net investment in direct financing leases and notes receivable consists of the following:

NOTE C - 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, 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. 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 June 30, 2000 was $506,847. NOTE D - NET INCOME PER PARTNERSHIP UNIT Net income per partnership unit is based on the weighted average number of units outstanding (including both general and limited partners) which were 12,593 for both the three and six month periods ended June 30, 2000. Units outstanding for the three and six month periods ended June 30, 1999 were 8,576 and 7,582, respectively. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS

The increase in lease and interest income is due to the acquisition of equipment for investment in direct financing leases and notes receivable. The Partnership's net investment in direct financing leases and notes receivable was $8,391,409 at June 30, 1999 and $11,172,978 at June 30, 2000. Equipment acquisitions for investment in direct financing leases and issuance of notes receivable totalled $2,507,662 for the first six months of 2000. The Partnership had other income of $52,679 for the first six months of 2000, compared to $18,071 for the same period a year ago. Other income consists primarily of interest income on a money market account and other investments, late charges on lease payments, and loan origination fees. The gain on lease terminations of $70,140 is due to several contract payoffs, primarily in the first quarter of 2000. Proceeds from contract terminations totalled $3,687,762 for the six months ended June 30, 2000. The proceeds were used to reduce the Partnership's line of credit, acquire equipment for direct financing lease, and issue notes receivable. The Partnership also had cash and cash equivalents at June 30, 2000 of $324,156, primarily invested in a money market account. Management fees are paid to the General Partner and represent 2% of the gross rental payments, loan payments, and other financing payments received. These payments were $4,594,400 for the first six months of 2000. The increased management fees are due to an increase in the lease and note portfolio and also resulting from the proceeds received from the contract terminations. Administrative services of $72,000 represent fees paid to the General Partner for the operation of the Partnership as defined in the Partnership Agreement. The Partnership pays the General Partner $12,000 per month for these services. The increase in administrative fees paid is due to an increase in administrative costs incurred by the General Partner on behalf of the Partnership. Interest expense is incurred on the Partnership's line of credit that was obtained in January 1999. Interest expense for the first six months of 2000 was $48,450 and is the result of borrowings on the line of credit, with the proceeds of the borrowings used to finance leases and notes receivable. The balance outstanding on the line of credit at June 30, 2000 was $506,847. At June 30, 2000, seven customers were past due over 90 days. The Partnership's net investment in the past due contracts was $3,021,877. One customer has 10 contracts past due with a total net investment of $2,633,699. The payments that are past due for this customer total $535,317 as of June 30, 2000. When a payment is past due more than 90 days, the Partnership discontinues recognizing income on the contract. Management believes its reserve is adequate related to this customer. Management will continue to monitor the past due contracts and take the necessary steps to protect the Partnership's investment. 9 10 At June 30, 2000, the allowance for possible losses was $278,419 and represents 2.5% of the lease and note portfolio of $11,172,978. Management continually reviews its reserves and will make adjustments as needed. The Partnership's portfolio of leases and notes receivable are concentrated in pay telephones and manufacturing equipment, representing approximately 62% and 11%, respectively, of the portfolio at June 30, 2000. Two lessees account for approximately 35% of the Partnership's portfolio at June 30, 2000. One of these customers is past due over 90 days, as mentioned above, and represents approximately 24% of the portfolio. YEAR 2000 ISSUE The Partnership and its General Partner have encountered no problems relating to the year 2000 issue. The Partnership and its General Partner are not aware of any year 2000 problems or situations encountered by its customers, vendors, affiliates, or others. LIQUIDITY AND CAPITAL RESOURCES

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, 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. 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 June 30, 2000 was $506,847. At June 30, 2000, adequate cash is being generated to make projected distributions and allow for reinvestment of a portion of the cash to fund additional leases and notes. However, the Partnership has not yet achieved an earnings level equivalent to its operating distributions to partners. 10 11 ITEM 3. 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 June 30, 2000.

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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. 11 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TELECOMMUNICATIONS INCOME FUND XI, L.P. --------------------------------------- (Registrant) Date: August 2, 2000 /s/ Ronald O. Brendengen -------------- ------------------------------------- Ronald O. Brendengen, Chief Financial Officer, Treasurer Date: August 2, 2000 /s/ Daniel P. Wegmann -------------- ------------------------------------- Daniel P. Wegmann, Controller 12

TELECOMMUNICATIONS INCOME FUND XI LP 10-Q