10-Q 1 c65981e10-q.txt QUARTERLY REPORT 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 SEPTEMBER 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 October 19, 2001, 12,432 units were issued and outstanding. Based on the book value at September 30, 2001 of $511.57 per unit, the aggregate market value at October 19, 2001 was $6,359,838. TELECOMMUNICATIONS INCOME FUND XI, L.P. INDEX

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

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

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

See accompanying notes. 5 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENT OF CHANGES IN PARTNERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)

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

See accompanying notes. 7 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, 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:

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 is $4,400,000 (limited by 32% of qualified accounts) and matures June 30, 2002. The line of credit agreement bears interest at 1% over the prime rate, with a $4,000 minimum monthly interest charge, 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, 2001 was $1,165,582. 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 12,573 and 12,593 for the nine months ended September 30, 2001, and 2000, respectively. The weighted average number of units for the three months ended September 30, 2001, and 2000, were 12,545 and 12,593, respectively. 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. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income derived from direct financing leases and notes receivable was $782,420 for the nine months ending September 30, 2001 and $886,862 for the same period of 2000. The net investment in direct financing leases and notes receivable was $8,544,171 at September 30, 2001 and $13,461,720 at September 30, 2000. 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 $394,480 for the first three 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 had a tentative agreement to sell the remaining equipment and has written the equipment down to its expected sales price and incurred an impairment loss of $1,084,585. This sale was not consummated and the Partnership continues to pursue buyers for the equipment. No assurance can be provided that the equipment will be sold or that the carrying value of the equipment will be realized. The Partnership also took an additional impairment loss of $100,000 on unrelated equipment under operating lease to write the equipment down to its estimated value. 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 $59,025 the first nine months of 2001 compared to $105,650 for the same period 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 $117,000 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 for the first nine months of 2001 was $106,561 compared to $75,718 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 September 30, 2001 was $1,165,582. At September 30, 2001, 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 $2,660,517. 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 September 30, 2001, the allowance for possible losses was $1,098,461 and represents 12.9% of the lease and note portfolio of $8,544,171. 9

The telecommunications industry has seen a significant downturn in the last year that has adversely affected 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. 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 48%, 16%, and 12%, respectively, of the portfolio at September 30, 2001. Two lessees account for approximately 22% of the Partnership's portfolio at September 30, 2001. One of these customers is past due over 90 days, as mentioned above and represents approximately 11% of the portfolio. 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 is $4,400,000 (limited by 32% of qualified accounts) and matures June 30, 2002. The line of credit agreement bears interest at 1% over the prime rate, with a $4,000 minimum monthly interest charge, 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, 2001 was $1,165,582. At September 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. 10 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 30,2001.

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. 11 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 2, 2001 /s/ Ronald O. Brendengen ----------------------------------- Ronald O. Brendengen, Chief Financial Officer, Treasurer Date: November 2, 2001 /s/ Daniel P. Wegmann ----------------------------------- Daniel P. Wegmann, Controller 12

TELECOMMUNICATIONS INCOME FUND XI LP 10-Q