10-Q 1 c58563e10-q.txt QUARTERLY REPORT 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 SEPTEMBER 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 October 27, 2000, 12,593 units were issued and outstanding. Based on the book value at September 30, 2000 of $812.76 per unit, the aggregate market value at October 27, 2000, 2000 was $10,235,086. 2 TELECOMMUNICATIONS INCOME FUND XI, L.P. INDEX

Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Balance Sheets - ~~June~~September 30, 2000 and December 31, 1999 3 Statements of Operations - three months ended ~~June~~September 30, 2000 and 1999 4 Statements of Operations - ~~six~~nine months ended ~~June~~September 30, 2000 and 1999 5 Statement of Changes in Partners' Equity - ~~six~~nine months ended ~~June~~September 30, 2000 6 Statements of Cash Flows - ~~six~~nine months ended ~~June~~September 30, 2000 and 1999 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Signatures 12

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

~~JUNE~~SEPTEMBER 30, 2000 DECEMBER 31, 1999 ------------------ ----------------- ASSETS Cash and cash equivalents $ ~~324,156~~495 $ 1,926 Not readily marketable security 99,787 -0- Net investment in direct financing leases and notes receivable (Note B) 1113,~~172~~461,~~978~~720 13,423,757 Allowance for possible losses (~~278~~323,~~419~~440) (239,857) ------------ ------------ Direct financing leases and notes receivable, net 1013,~~894~~138,~~559~~280 13,183,900 Other assets ~~275~~1,986 11,079 ------------ ------------ TOTAL ASSETS $ 1113,~~218~~240,~~990~~548 $ 13,196,905 ============ ============ LIABILITIES AND PARTNERS' EQUITY LIABILITIES Line of credit agreement (Note C) $ ~~506~~2,~~847~~391,744 $ 1,973,142 Outstanding checks in excess of bank balance ~~-0-~~47,490 196,859 Due to affiliates 206,~~919~~571 41,913 Distributions payable to partners 100,744 97,527 Accrued expenses and other liabilities 4659,~~429~~113 46,573 Deferred income 95,458 -0- Lease security deposits ~~143~~304,~~657~~343 198,148 ------------ ------------ TOTAL LIABILITIES ~~818~~3,~~596~~005,463 2,554,162 ------------ ------------ PARTNERS' EQUITY, 25,000 units authorized: General partner, 10 units issued and outstanding 8,~~832~~700 9,024 Limited partners, 12,583 units issued and outstanding 10,~~391~~226,~~562~~385 10,633,719 ------------ ------------ TOTAL PARTNERS' EQUITY 10,~~400~~235,~~394~~085 10,642,743 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY $ 1113,~~218~~240,~~990~~548 $ 13,196,905 ============ ============

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

THREE MONTHS ENDED --------------------------------------- ~~JUNE~~SEPTEMBER 30, 2000 ~~JUNE~~SEPTEMBER 30, 1999 ------------------ ------------------ REVENUES: Income from direct financing leases and notes receivable $ ~~256~~308,~~798~~726 $ ~~217~~337,~~105~~356 Gain on lease terminations ~~1,112~~663 ~~-0-~~667 Other 2617,~~730~~305 1725,~~578~~749 --------~~---~~ --------~~---~~ Total revenues ~~284~~326,~~640~~694 ~~234~~363,~~683~~772 --------~~---~~ --------~~---~~ EXPENSES: Management fees 1713,~~271~~762 916,~~024~~796 Administrative services 36,000 21,000 Interest expense 1627,~~137~~268 ~~723~~38,990 Provision for possible losses 1444,~~737~~080 3658,~~672~~153 Other 6968,~~980~~661 2124,~~643~~013 --------~~---~~ --------~~---~~ Total expenses ~~154~~189,~~125~~771 89158,~~062~~952 --------~~---~~ --------~~---~~ Net income $ ~~130~~136,~~515~~923 $ ~~145~~204,~~621~~820 ========~~===~~ ========~~===~~ Net income per partnership unit (Note D) $ 10.3687 $ 1619.9896 ========~~===~~ ========~~===~~ Weighted average partnership units outstanding 12,593 810,~~576~~259 ========~~===~~ ========~~===~~

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

~~SIX~~NINE MONTHS ENDED --------------------------------------- ~~JUNE~~SEPTEMBER 30, 2000 ~~JUNE~~SEPTEMBER 30, 1999 ------------------ ------------------ REVENUES: Income from direct financing leases and notes receivable $~~578~~ 886,~~136~~862 $~~385~~ 722,~~508~~864 Gain on lease terminations 70,~~140~~803 ~~-0-~~667 Other 5269,~~679~~984 1843,~~071~~820 ---------- ---------- Total revenues ~~700~~1,~~955~~027,649 ~~403~~767,~~579~~351 ---------- ---------- EXPENSES: Management fees 91105,~~888~~650 1632,~~108~~904 Administrative services 72108,000 4263,000 Interest expense 4875,~~450~~718 443,~~396~~386 Provision for possible losses 3882,~~562~~642 61119,~~742~~895 Other 87156,~~940~~601 5680,~~827~~840 ---------- ---------- Total expenses ~~338~~528,~~840~~611 ~~181~~340,~~073~~025 ---------- ---------- Net income $~~362~~ 499,~~115~~038 $~~222~~ 427,~~506~~326 ========== ========== Net income per partnership unit (Note D) $ 2839.7663 $ 2950.3537 ========== ========== Weighted average partnership units outstanding 12,593 78,~~582~~484 ========== ==========

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

GENERAL LIMITED PARTNERS TOTAL PARTNER ---------------- PARTNERS' (10 UNITS) UNITS AMOUNTS EQUITY ----------------------------------------------------------------------------------------------------------------~~-------~~ Balance at December 31, 1999 $ 9,024 12,583 $ 10,633,719 $ 10,642,743 Distributions to partners (240) 0 (301,991) (302,231) Net income 184 0 231,416 231,600 ---------------------------------------------------------------------------~~----~~ Balance at March 31, 2000 8,968 12,583 10,563,144 10,572,112 Distributions to partners (240) 0 (301,993) (302,233) Net income 104 0 130,411 130,515 --------------------------------------------------------------------------- Balance at June 30, 2000 8,832 12,583 10,391,562 10,400,394 Distributions to partners (240) 0 (301,992) (302,232) Net income 108 0 136,815 136,923 --------------------------------------------------------------------------- Balance at ~~June~~September 30, 2000 $ 8,~~832~~700 12,583 $ 10,~~391~~226,~~562~~385 $ 10,~~400~~235,~~394~~085 ===========================================================================~~====~~

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

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2000 ~~JUNE~~SEPTEMBER 30, 1999 ------------------ ------------------ OPERATING ACTIVITIES Net income $ ~~362~~499,~~115~~038 $ ~~222~~427,~~506~~326 Adjustments to reconcile net income to net cash from operating activities: Gain on lease terminations (70,~~140~~803) (667) Deferred income (4,329) -0- Amortization ~~349~~470 ~~725~~997 Provision for possible losses 3882,~~562~~642 61119,~~742~~895 Changes in operating assets and liabilities: Other assets 109,~~804~~093 (~~613~~63) Outstanding checks in excess of bank balance (~~196~~149,~~859~~369) -0- Due to affiliates (2035,~~994~~342) 1113,~~640~~908 Accrued expenses and other liabilities ~~(144)~~12,540 620,~~150~~007 ----------- ----------- Net cash from operating activities ~~123~~343,~~693~~940 ~~292~~681,~~150~~403 ----------- ----------- INVESTING ACTIVITIES Acquisitions of, and purchases of equipment for, direct financing leases (13,~~230~~808,~~485~~308) (26,~~688~~075,~~166~~398) Issuance of notes receivable (1,~~277~~632,~~177~~189) (1,~~476~~983,~~300~~450) Repayments of direct financing leases ~~898~~1,~~646~~242,213 ~~235~~708,~~561~~444 Repayments of notes receivable ~~241~~281,~~823~~912 ~~172~~201,~~352~~899 Proceeds from termination of direct financing leases and notes receivable 3,~~687~~949,~~762~~683 23,~~561~~231 Net lease security deposits collected ~~(paid) (54~~106,~~490)~~195 1892,~~293~~223 ----------- ----------- Net cash from investing activities 2139,~~266,079~~506 (37,~~735~~053,~~699~~051) ----------- ----------- FINANCING ACTIVITIES Borrowings from line of credit 25,~~877~~253,~~596~~621 ~~915~~2,~~394~~729,648 Repayments of line of credit (4,~~343~~835,~~891~~019) (~~610~~832,~~785~~166) Proceeds from sale of partnership interests -0- 35,~~782~~271,000 Syndication costs incurred -0- (~~472~~658,~~750~~875) Distributions paid to partners (~~601~~903,~~247~~479) (~~333~~566,~~477~~842) ----------- ----------- Net cash from financing activities (2484,~~067,542~~877) 35,~~280~~942,~~382~~765 ----------- ----------- Net increase (decrease) in cash and cash equivalents ~~322~~(1,~~230~~431) (~~163~~428,~~167~~883) Cash and cash equivalents at beginning of period 1,926 500,713 ----------- ----------- Cash and cash equivalents at end of period $ ~~324,156~~495 $ ~~337~~71,~~546~~830 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 6074,~~608~~763 $ 427,~~228~~909 Not readily marketable security received in lease transaction 99,787 -0-

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 nine months ended September 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:

~~June~~September 30, 2000 December 31, 1999 ------------------ ----------------- Minimum lease payments receivable $ 810,~~155~~470,~~057~~307 $ 11,272,568 Estimated residual values of leased equipment ~~577~~805,~~283~~734 876,936 Unamortized initial direct costs ~~378~~257 738 Unearned income (12,~~846~~158,~~671~~596) (2,547,160) Notes receivable 4,~~286~~344,~~931~~018 3,820,675 ------------- ------------- Net investment in direct financing leases and notes receivable $ 1113,~~172~~461,~~978~~720 $ 13,423,757 ============= =============

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 September 30, 2000 was $2,391,744. 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 nine month periods ended September 30, 2000. Units outstanding for the three and nine month periods ended September 30, 1999 were 10,259 and 8,484, respectively. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS

~~Six~~Nine Months Ended ~~Six~~Nine Months Ended ~~June~~September 30, 2000 ~~June~~September 30, 1999 ------------------ ------------------ Income from direct financing leases and notes receivable $ ~~578~~886,~~136~~862 $ ~~385~~722,~~508~~864 ~~Gain on lease terminations 70,140 -0-~~ Management fees 91105,~~888~~650 1632,~~108~~904 Administrative services 72108,000 4263,000 Interest expense 4875,~~450~~718 443,~~396~~386 Provision for possible losses 3882,~~562~~642 61119,~~742~~895 Other expenses 156,601 80,840

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 $11,783,087 at September 30, 1999 and $13,461,720 at September 30, 2000. Equipment acquisitions for investment in direct financing leases and issuance of notes receivable totalled $5,440,497 for the first nine months of 2000. The gain on lease terminations of $70,803 is due to several contract payoffs, primarily in the first quarter of 2000. Proceeds from contract terminations totalled $3,949,683 for the nine months ended September 30, 2000. The proceeds were used to reduce the Partnership's line of credit at that time, acquire equipment for direct financing lease, and issue notes receivable. The Partnership acquired warrants in a lease transaction during the third quarter to purchase common stock of a public company. The stock price was above the exercise price at the commencement of the lease, with the Partnership recording the warrants at the value received in excess of the exercise cost, or $99,787. This amount was also recorded as deferred income and is amortized over the term of the lease. For the third quarter, the Partnership recognized income on this of $4,329. 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 $5,282,500 the first nine 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 $108,000 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 nine months of 2000 was $75,718 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 September 30, 2000 was $2,391,744. Other expenses include data processing, insurance, legal and accounting, and other general and administrative expenses. Other expenses increased from $80,840 for the nine months ending September 30, 1999, to $156,601 for the same period of 2000. The increase is primarily the result of collection costs relating to a large customer that is past due, as described below. 9 10 At September 30, 2000, seven customers were past due over 90 days. When a payment is past due more than 90 days, the Partnership discontinues recognizing income on the contract. The Partnership's net investment in the past due contracts was $2,857,274. One customer has 10 contracts past due with a total net investment of $2,633,697. This customer was placed in involuntary bankruptcy by creditors in October, 2000. The Partnership, in conjunction with a payphone service provider, is managing the payphone routes of this customer. Management has not yet determined the value of these routes, but is in the process of analyzing the revenue-generating capability of the routes to determine the value to any potential buyers. Management believes its reserve is adequate related to this customer based on historical collateral values of similar equipment. However, no assurance can be provided that any amounts recovered, if any, will be sufficient to cover the Partnership's net investment in these contracts. Management will continue to monitor the past due contracts and take the necessary steps to protect the Partnership's investment. At September 30, 2000, the allowance for possible losses was $323,440 and represents 2.4% of the lease and note portfolio of $13,461,720. 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 computer equipment, representing approximately 55% and 15%, respectively, of the portfolio at September 30, 2000. Four lessees account for approximately 42% of the Partnership's portfolio at September 30, 2000. One of these customers is past due over 90 days, as mentioned above, and represents approximately 20% of the portfolio. LIQUIDITY AND CAPITAL RESOURCES

~~Six~~Nine Months Ended ~~Six~~Nine Months Ended ~~June~~September 30, 2000 ~~June~~September 30, 1999 ------------------ ------------------ Major Cash Sources: Proceeds from issuance of units $ -0- $ 35,~~782~~721,000 Borrowings from line of credit 25,~~877~~253,~~596~~621 ~~915~~2,~~394~~729,648 Repayments of direct financing leases ~~898~~1,~~646 235~~242,~~561~~213 -0- Repayments of notes receivable ~~241~~281,~~823~~912 ~~172,352~~-0- Proceeds from termination of direct financing leases and notes receivable 3,~~687~~949,~~762~~683 ~~2,561~~-0- Major Cash Uses: Payments for syndication costs -0- ~~472~~65,~~750~~875 Purchases of equipment for direct financing leases 13,~~230~~808,~~485~~308 26,~~688~~075,~~166~~398 Issuance of notes receivable 1,~~277~~632,~~177~~189 1,~~476~~983,~~300~~450 Repayments of line of credit 4,~~343~~835,~~891~~019 ~~610~~832,~~785~~166 Distributions paid to partners ~~601~~903,~~247~~479 ~~333~~566,~~477~~842

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 10 11 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 September 30, 2000 was $2,391,744. At September 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. 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 September 30, 2000.

Assets Liabilities ---------------------------------- -------------------------- Expected Fixed Rate Average Variable Rate Interest Maturity Date Notes Receivable Interest Rate Line of Credit Rate ------------- ---------------- ------------- -------------- ---- 2000 $ ~~782~~594,~~963~~896 15.88% $ -0- - 2001 ~~856~~864,~~167~~428 15.90% -0- - 2002 ~~953~~962,~~926~~334 15.9996% ~~506~~2,~~847~~391,744 10.50% 2003 ~~897~~942,~~766~~513 16.1712% -0- - 2004 and thereafter ~~796~~979,~~109~~847 16.4029% -0- - ------------- ------------- Total $ 4,~~286~~344,~~931~~018 $ ~~506~~2,~~847~~391,744 ============= ============= Fair Value $ 4,~~286~~344,~~931~~018 $ ~~506~~2,~~847~~391,744 ============= =============

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: November 10, 2000 /s/ Ronald O. Brendengen ----------------- -------------------------------------- Ronald O. Brendengen, Chief Financial Officer, Treasurer Date: November 10, 2000 /s/ Daniel P. Wegmann ----------------- -------------------------------------- Daniel P. Wegmann, Controller 12

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