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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 447-5700
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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")
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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 April 19, 2001, 12,588 units were issued and outstanding. Based on the
book value at March 31, 2001 of $683.89 per unit, the aggregate market value at
April 19, 2001 was $8,608,807.
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 2001 and December 30, 2000 3
Statements of Operations -
Three months ended March 31, 2001 and 2000 4
Statement of Changes in Partners' Equity - three months ended
March, 2001 5
Statements of Cash Flows - three months ended March 31, 2001
and 2000 6
Notes to Financial Statements 7
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
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS (UNAUDITED)
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
ASSETS
Cash and cash equivalents $ 509 $ 503
Net investment in direct financing leases
and notes receivable (Note B) 9,493,453 10,480,086
Allowance for possible losses (740,367) (739,699)
-------------- -------------
Direct financing leases and notes receivable, net 8,753,086 9,740,387
Other receivables 446,114 67,742
Equipment under operating lease, less accumulated
depreciation of $145,394 and -0- at March 31,
2001 and December 31, 2000, respectively 1,598,979 2,182,456
-------------- -------------
TOTAL ASSETS $ 10,798,688 $ 11,991,088
============== =============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C) $ 1,707,807 $ 2,374,423
Outstanding checks in excess of bank balance 1,454 46,201
Due to affiliates 8,117 6,537
Distributions payable to partners 100,704 100,744
Accrued expenses and other liabilities 86,638 127,860
Lease security deposits 285,214 301,236
-------------- -------------
TOTAL LIABILITIES 2,189,934 2,957,001
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CONTINGENCY (Note E)
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 7,412 7,747
Limited partners, 12,578 and 12,583 units issued
and outstanding at March 31, 2001 and
December 31, 2000, respectively 8,601,342 9,026,340
-------------- -------------
TOTAL PARTNERS' EQUITY 8,608,754 9,034,087
-------------- -------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 10,827,688 $ 11,991,088
============== =============
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31,2000
REVENUES:
Income from direct financing leases
and notes receivable $ 306,411 $ 321,338
Gain (loss) on lease terminations (115,691) 69,028
Other 26,309 25,949
----------- ----------
Total revenues 217,029 416,315
----------- ----------
EXPENSES:
Management fees 26,305 74,617
Administrative services 39,000 36,000
Interest expense 50,126 32,313
Depreciation expense 181,887 -0-
Provision for possible losses 3,672 23,825
Other 35,444 17,960
----------- ----------
Total expenses 336,434 184,715
----------- ----------
Net income (loss) $ (119,405) $ 231,600
=========== ==========
Net income (loss) per partnership unit (Note D) $ (9.48) $ 18.39
=========== ==========
Weighted average partnership units outstanding 12,591 12,593
=========== ==========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
GENERAL LIMITED PARTNERS TOTALS
PARTNER ---------------- PARTNERS'
(10 UNITS) UNITS AMOUNTS EQUITY
- -----------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 7,747 12,583 $ 9,026,340 $ 9,034,087
Distributions to partners (240) 0 (301,912) (302,152)
Net loss (95) 0 (119,310) (119,405)
-
Withdrawals of limited partners 0 (5) (3,776) (3,776)
-----------------------------------------------------
Balance at March 31, 2001 $ 7,412 12,578 $ 8,601,342 $ 8,608,754
=====================================================
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31,2000
-------------- -------------
OPERATING ACTIVITIES
Net income (loss) $(119,405) $ 231,600
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Loss (gain) on lease terminations 115,691 (69,028)
Depreciation and amortization 181,887 192
Provision for possible loan and lease losses 3,672 23,825
Changes in operating assets and liabilities:
Other receivables (92,258) 10,609
Outstanding checks in excess of bank balance (44,747) (21,174)
Due to affiliates 1,580 (29,508)
Accrued expenses and other liabilities (41,222) (2,973)
---------- -----------
Net cash from operating activities 5,198 143,543
---------- -----------
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for,
direct financing leases (244,816) (499,997)
Issuance of notes receivable -0- (919,364)
Repayments of direct financing leases 561,324 338,911
Repayments of notes receivable 65,884 194,771
Proceeds from sale or early termination of direct
financing leases and notes 601,022 3,671,258
Net lease security deposits paid (16,022) (66,198)
---------- -----------
Net cash from investing activities 967,392 2,719,381
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FINANCING ACTIVITIES
Borrowings from line of credit 791,749 2,450,999
Repayments of line of credit (1,458,365) (4,011,160)
Withdrawals paid to partners (3,776) -0-
Distributions paid to partners (302,192) (299,015)
---------- -----------
Net cash from financing activities (972,584) (1,859,176)
---------- -----------
Net increase in cash and cash equivalents 6 1,003,748
Cash and cash equivalents at beginning of period 503 1,926
---------- -----------
Cash and cash equivalents at end of period $ 509 $ 1,005,674
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 58,636 $ 45,128
See accompanying notes.
Noncash investing and financing activities
Sale of equipment under operating lease 286,114 -0-
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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 three months ended
March 31, 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.
The Partnership began to depreciate the equipment under operating lease in the
first quarter of 2001 Accumulated depreciation as of March 31,2001 was $145,394
based on a depreciable life of three years.
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:
March 31, 2001 December 31, 2000
-------------- -----------------
Minimum lease payments receivable $ 8,791,934 $ 9,933,179
Estimated residual values of leased equipment 767,444 800,757
Unamortized initial direct costs 33 166
Unearned income (1,651,576) (1,908,744)
Notes receivable 1,585,618 1,654,728
-------------- --------------
Net investment in direct financing leases and
notes receivable $ 9,493,453 $ 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 March
31, 2001 was $1,707,807.
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NOTE D - NET INCOME 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
12,591 for the periods from January 1, 2001 to March 31, 2001 compared to 12,593
for the periods from January 1, 2000 to March 31, 2000.
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
Income from direct financing leases and notes receivable $ 306,411 $ 321,338
Gain (loss) on lease terminations (115,691) 69,028
Management fees 26,305 74,617
Administrative services 39,000 36,000
Interest expense 50,126 32,313
Depreciation expense 181,887 -0-
Provision for possible losses 3,672 23,825
The income derived from the partnership lease portfolio was $321,338 for the
period ending March 31, 2000 and $306,411 for the period ending March 31, 2001.
The Partnership's net investment in direct financing leases and notes receivable
was $10,707,014 at March 31, 2000 and $9,562,267 at March 31, 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 $181,887 for the first quarter 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.
Management fees are paid to the General Partner and represent 2% of the gross
rental payments, loan payments, and other financing payments received. These
rental payments were $1,315,250 the first three months of 2001 compared to
$3,730,850 for the first three 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 $39,000 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 three months of 2001
was $50,126 compared to $32,313 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 March 31, 2001 was $1,707,807 compared to $412,980 at March 31,2000.
At March 31, 2001, five 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
$1,798,724. One customer has a contract past due with a total net investment of
$944,286 and represents 10% of the total Partnership net investment. The
Partnership increased its allowance for possible losses relating to this
customer in the fourth quarter of 2000. Management will continue to monitor the
past due contracts and take the necessary steps to protect the Partnership's
investment.
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At March 31, 2001, the allowance for possible losses was $740,367 and represents
7.7% of the lease and note portfolio of $9,562,267. 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, office equipment and industrial equipment, representing
approximately 51%, 17%, and 11%, respectively, of the portfolio at March
31,2001. Two lessees account for approximately 20% of the Partnership's
portfolio at March 31, 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
Three Months Ended Three Months Ended
March 31,2001 March 31, 2000
------------- --------------
Major Cash Sources:
Borrowings from line of credit 791,749 2,450,999
Repayments of direct financing leases 561,324 338,911
Repayments of notes receivable 65,884 194,771
Proceeds from termination of direct financing
leases and notes receivable 532,208 3,671,258
Major Cash Uses:
Purchases of equipment for direct financing leases 244,816 499,997
Issuance of notes receivable -0- 919,364
Repayments of line of credit 1,458,365 4,011,160
Distributions paid to partners 302,192 299,015
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 March
31, 2001 was $1,707,807.
In the first quarter of the year 2001, the Partnership sold a portion of the
portfolio for $463,947, less a holdback of $73,044, resulting in cash received
by the Partnership of $390,903. The buyer retained the holdback to cover any
potential bad debts. The holdback of $73,044 is carried on the Partnership's
balance sheet in other receivables. The proceeds from this transaction were used
to reduce the Partnership's line of credit, which in turn was used to purchase
equipment for direct financing leases.
At March 31, 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.
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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 March 31,2001.
Assets Liabilities
--------------------------------- --------------------------
Expected Fixed Rate Average Variable Rate Interest
Maturity Date Notes Receivable Interest Rate Line of Credit Rate
------------- ---------------- ------------- -------------- ----
2001 $ 513,069 16.47% $ -0- -
2002 344,695 16.44% -0- -
2003 331,591 16.39% 1,707,807 9.00%
2004 259,347 16.39% -0- -
2005 136,916 16.50% -0- -
------------- -------------
Total $ 1,585,618 $ 1,707,807
============= =============
Fair Value $ 1,585,618 $ 1,707,807
============= =============
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.
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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: May 9, 2001 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial Officer,
Treasurer
Date: May 9, 2001 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
Date: May 9, 2001 /s/ Timothy J. White
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Timothy J. White, President
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