10-Q 1 c64539e10-q.txt QUARTERLY REPORT 1 UNITED STATES 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, 2001 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 31, 2001, 12,578 units were issued and outstanding. Based on the book value at June 30, 2001 of $575.92 per unit, the aggregate market value at July 31, 2001 was $7,243,922. 2 TELECOMMUNICATIONS INCOME FUND XI, L.P. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Balance Sheets - June 30, 2001 and December 30, 2000 3 Statements of Operations - Three months ended June 30, 2001 and 2000 4 Statements of Operations - Six months ended June 30, 2001 and 2000 5 Statement of Changes in Partners' Equity - six months ended June 30, 2001 6 Statements of Cash Flows - six months ended June 30, 2001 and 2000 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Signatures 13 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) THREE MONTHS ENDED ------------------ JUNE 30, 2001 JUNE 30,2000 ------------- ------------ REVENUES and GAINS (LOSSES): Income from direct financing leases and notes receivable $ 263,972 $ 256,798 Gain (loss) on lease terminations (95,276) 1,112 Other 7,314 26,730 ----------- ----------- Total revenues and gains (losses) 176,010 284,640 ----------- ----------- EXPENSES: Management fees 17,900 17,271 Administrative services 39,000 36,000 Interest expense 32,597 16,137 Depreciation expense 145,394 -0- Provision for possible losses 253,984 14,737 Impairment loss 703,785 Other 39,417 69,980 ----------- ----------- Total expenses 1,232,077 154,125 ----------- ----------- Net income (loss) $(1,056,067) $ 130,515 =========== =========== Net income (loss) per partnership unit (Note D) $ (83.90) $ 10.36 =========== =========== Weighted average partnership units outstanding 12,587 12,593 =========== =========== See accompanying notes. 4 5 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENTS OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED ---------------- JUNE 30, 2001 JUNE 30,2000 ------------- ------------ REVENUES and GAINS (LOSSES): Income from direct financing leases and notes receivable $ 570,383 $ 578,136 Gain (loss) on lease terminations (210,967) 70,140 Other 33,623 52,679 ----------- ----------- Total revenues and gains (losses) 393,039 700,955 ----------- ----------- EXPENSES: Management fees 44,205 91,888 Administrative services 78,000 72,000 Interest expense 82,723 48,450 Depreciation expense 327,281 -0- Provision for possible losses 257,656 38,562 Impairment loss 703,785 -0- Other 74,861 87,940 ----------- ----------- Total expenses 1,568,511 338,840 ----------- ----------- Net income (loss) $(1,175,472) $ 362,115 =========== =========== Net income (loss) per partnership unit (Note D) $ (93.39) $ 28.76 =========== =========== Weighted average partnership units outstanding 12,587 12,593 =========== =========== See accompanying notes. 5 6 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENT OF CHANGES IN PARTNERS' EQUITY SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)

See accompanying notes. 6 7 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, JUNE 30, 2001 2000 -------- -------- OPERATING ACTIVITIES Net income (loss) $(1,175,472) $ 362,115 Adjustments to reconcile net income (loss) to net cash from operating activities: Loss (gain) on lease terminations 210,967 (70,140) Depreciation and amortization 327,281 349 Provision for possible loan and lease losses 257,656 38,562 Impairment loss 703,785 -0- Changes in operating assets and liabilities: Other receivables 62,039 10,804 Outstanding checks in excess of bank balance (36,073) (196,859) Due to affiliates (257) (20,994) Accrued expenses and other liabilities (31,643) (144) ----------- ----------- Net cash from operating activities 318,283 123,693 ----------- ----------- INVESTING ACTIVITIES Acquisitions of, and purchases of equipment for, direct financing leases (510,412) (1,230,485) Issuance of notes receivable -0- (1,277,177) Repayments of direct financing leases 1,120,007 898,646 Repayments of notes receivable 141,295 241,823 Proceeds from sale or early termination of direct financing leases and notes 623,418 3,687,762 Net lease security deposits paid (18,088) (54,490) ----------- ----------- Net cash from investing activities 1,356,220 2,266,079 ----------- ----------- FINANCING ACTIVITIES Borrowings from line of credit 1,462,952 2,877,596 Repayments of line of credit (2,522,685) (4,343,891) Withdrawals paid to partners (10,615) -0- Distributions paid to partners (604,144) (601,247) ----------- ----------- Net cash from financing activities (1,674,492) (2,067,542) ----------- ----------- Net increase in cash and cash equivalents 11 322,230 Cash and cash equivalents at beginning of period 503 1,926 ----------- ----------- Cash and cash equivalents at end of period $ 514 $ 324,156 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 96,447 $ 60,608 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, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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, 2000. Certain amounts in the 2000 financial statements have been reclassified to conform to the 2001 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 30, 2001 December 31, 2000 ------------- ----------------- Minimum lease payments receivable $ 8,319,627 $ 9,933,179 Estimated residual values of leased equipment 662,770 800,757 Unamortized initial direct costs 19 166 Unearned income (1,468,497) (1,908,744) Notes receivable 1,510,208 1,654,728 -------------- -------------- Net investment in direct financing leases and notes receivable $ 9,024,127 $ 10,480,086 ============== ============== 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 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. 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, 2001 was $1,314,690. NOTE D - 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) which were 12,587 for the periods from January 1, 2001 to June 30, 2001, compared to 12,593 for the periods from January 1, 2000 to March 31, 2000. 8 9 NOTE E - 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. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS

The income derived from the partnership lease portfolio was $578,136 for the period ending June 30, 2000 and $570,383 for the period ending June 30, 2001. The Partnership's net investment in direct financing leases and notes receivable was $10,480,086 at June 30, 2000 and $9,696,127 at June 30, 2001. 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. The Partnership has engaged a company to oversee the operations of the pay phone routes and to attempt to sell the equipment. Depreciation expense on this equipment was $327,281 for the two quarters of 2001. In March of 2001 the Partnership signed an agreement to sell a portion of these phones for $286,114. The sale resulted in a loss of $115,475. The Partnership has a tentative agreement to sell the equipment and has written the equipment down to its expected sales price and incurred an impairment loss of $703,785. No assurance can be provided that the sale will be consummated or that the carrying value of the equipment will be realized. Management fees are paid to the General Partner and represent 2% of the gross rental payments, loan payments, and other financing payments received. These fees were $44,205 the first six months of 2001 compared to $91,888 for the first six months of 2000. The decreased management fees are due to a decrease in the gross rental payments, loan payments, and other financing payments received. Administrative services of $78,000 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 $13,000 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 2001 was $82,723 compared to $48,450 for the same period of 2000, 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, 2001 was $1,314,690 compared to $2,374,423 at June 30, 2000. 10 11 At June 30, 2001, six 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 $2,194,890. The schedule below itemizes the past due contracts. Management will continue to monitor the past due contracts and take the necessary steps to protect the Partnership's investment. At June 30, 2001, the allowance for possible losses was $1,011,194 and represents 11.2% of the lease and note portfolio of $9,024,127. Schedule of Customers that are Over 90 Days Past Due as of June 30, 2001: Net Investment Percent of NI In Bankruptcy ------------- ------------- ------------- Customer A $ 957,832 10.6% Yes Customer B 511,256 5.7% No Customer C 242,651 2.7% No Customer D 187,451 2.1% No Customer E 175,677 2.0% Yes Customer F 120,023 1.3% Yes ------------ ---- $2,194,890 24.4% ============ ==== The telecommunications industry has seen a significant downturn in the last year that has adversely effected the Partnership. The allowance for possible losses has been increased to reflect the downturn in the industry. The allowance for possible losses has also been adjusted for customers past due over 90 days. The balance in allowance for losses is adjusted by the estimated market value of the underlying equipment. The estimated market value of this equipment is $1,372,651 as of June 30, 2001. Management continually reviews its reserves and will make further adjustments as needed. The Partnership's portfolio of leases and notes receivable are concentrated in pay telephones, office equipment and industrial equipment, representing approximately 47%, 17%, and 10%, respectively, of the portfolio at June 30, 2001. Two lessees account for approximately 20% of the Partnership's portfolio at June 30, 2001. One of these customers is past due over 90 days, as mentioned above and represents approximately 10% of the portfolio. LIQUIDITY AND CAPITAL RESOURCES Six Months Ended Six Months Ended June 30,2001 June 30, 2000 ------------ -------------- Major Cash Sources: Borrowings from line of credit $1,462,952 $2,877,596 Repayments of direct financing leases 1,120,007 898,646 Repayments of notes receivable 141,295 241,823 Proceeds from termination of direct financing leases and notes receivable 623,418 3,687,762 Major Cash Uses: Purchases of equipment for direct financing leases 510,412 1,230,485 Issuance of notes receivable -0- 1,277,177 Repayments of line of credit 2,522,685 4,343,891 Distributions paid to partners 604,144 601,247 11 12 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, 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, 2001 was $1,314,690. At June 30, 2001, 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 June 30,2001.

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. 12 13 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 13, 2001 /s/ Ronald O. Brendengen --------------- ------------------------ Ronald O. Brendengen, Chief Financial Officer, Treasurer Date: August 13, 2001 /s/ Daniel P. Wegmann --------------- ------------------------- Daniel P. Wegmann, Controller

TELECOMMUNICATIONS INCOME FUND XI LP 10-Q