UNITED STATES
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 SEPTEMBER 30, 2001
Commission File Number 000-25593
TELECOMMUNICATIONS INCOME FUND XI, L.P.
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(Exact name of Registrant as specified in its charter)
Iowa 39-1904041
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(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
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 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
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - September 30, 2001 and December 30, 2000 3
Statements of Operations -
Three months ended September 30, 2001 and 2000 4
Statements of Operations -
Nine months ended September 30, 2001 and 2000 5
Statement of Changes in Partners' Equity - nine months ended September 30, 2001 6
Statements of Cash Flows - nine months ended September 30, 2001 and 2000 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
TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS (UNAUDITED)
September 30, 2001 December 31, 2000
------------------ -----------------
ASSETS
Cash and cash equivalents $ 518 $ 503
Net investment in direct financing leases
and notes receivable (Note B) 8,544,171 10,480,086
Allowance for possible losses (1,098,461) (739,699)
------------ ------------
Direct financing leases and notes receivable, net 7,445,710 9,740,387
Other receivables 228,986 67,742
Equipment under operating lease 326,993 2,182,456
------------ ------------
TOTAL ASSETS $ 8,002,207 $ 11,991,088
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C) $ 1,165,582 $ 2,374,423
Outstanding checks in excess of bank balance 51,054 46,201
Due to affiliates 3,487 6,537
Distributions payable to partners 99,456 100,744
Accrued expenses and other liabilities 62,734 127,860
Lease security deposits 260,028 301,236
------------ ------------
TOTAL LIABILITIES 1,642,341 2,957,001
------------ ------------
CONTINGENCY (Note E)
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 5,693 7,747
Limited partners, 12,422 and 12,583 units issued
and outstanding at September 30, 2001 and
December 31, 2000, respectively 6,354,173 9,026,340
------------ ------------
TOTAL PARTNERS' EQUITY 6,359,866 9,034,087
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 8,002,207 $ 11,991,088
============ ============
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
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SEPTEMBER 30, 2001 SEPTEMBER 30,2000
------------------ -----------------
REVENUES AND GAINS (LOSSES):
Income from direct financing leases
and notes receivable $ 212,037 $ 308,726
Gain (loss) on lease terminations 44,487 663
Other 7,444 17,305
--------- ---------
Total revenues and gains (losses) 263,968 326,694
--------- ---------
EXPENSES:
Management fees 14,820 13,762
Administrative services 39,000 36,000
Interest expense 23,838 27,268
Depreciation expense 67,199 -0-
Provision for possible losses 110,164 44,080
Impairment loss 480,800 -0-
Other 29,406 68,661
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Total expenses 765,227 189,771
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Net income (loss) $(501,259) $ 136,923
========= =========
Net income (loss) per partnership unit (Note D) $ (39.96) $ 10.87
========= =========
Weighted average partnership units outstanding 12,545 12,593
========= =========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
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SEPTEMBER 30, 2001 SEPTEMBER 30,2000
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REVENUES AND GAINS (LOSSES):
Income from direct financing leases
and notes receivable $ 782,420 $ 886,862
Gain (loss) on lease terminations (166,480) 70,803
Other 41,067 69,984
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Total revenues and gains (losses) 657,007 1,027,649
------------- -------------
EXPENSES:
Management fees 59,025 105,650
Administrative services 117,000 108,000
Interest expense 106,561 75,718
Depreciation expense 394,480 -0-
Provision for possible losses 367,820 82,642
Impairment loss 1,184,585 -0-
Other 104,267 156,601
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Total expenses 2,333,738 528,611
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Net income (loss) $ (1,676,731) $ 499,038
============= =============
Net income (loss) per partnership unit (Note D) $ (133.36) $ 39.63
============= =============
Weighted average partnership units outstanding 12,573 12,593
============= =============
See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2001
(UNAUDITED)
GENERAL LIMITED PARTNERS TOTAL
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
Distributions to partners (240) 0 (301,632) (301,872)
Net loss (839) 0 (1,055,228) (1,056,067)
Withdrawals of limited partners 0 (10) (6,839) (6,839)
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Balance at June 30, 2001 6,333 12,568 7,237,643 7,243,976
Distributions to partners (240) 0 (300,008) (300,248)
Net loss (400) 0 (500,859) (501,259)
Withdrawals of limited partners 0 (146) (82,603) (82,603)
-------------------------------------------------------------------------
Balance at September 30, 2001 $ 5,693 12,422 $ 6,354,173 $ 6,359,866
=========================================================================
See accompanying notes.
6
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
2001 2000
----------- -----------
OPERATING ACTIVITIES
Net income (loss) $(1,676,731) $ 499,038
Adjustments to reconcile net income (loss) to net cash from operating activities:
Loss (gain) on lease terminations 166,480 (70,803)
Deferred income -0- (4,329)
Depreciation and amortization 394,539 470
Provision for possible loan and lease losses 367,820 82,642
Impairment loss 1,184,585 -0-
Changes in operating assets and liabilities:
Other receivables 318,149 9,093
Outstanding checks in excess of bank balance 4,853 (149,369)
Due to affiliates (3,050) (35,342)
Accrued expenses and other liabilities (65,126) 12,540
----------- -----------
Net cash from operating activities 691,519 343,940
----------- -----------
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for, direct financing leases (753,277) (3,808,308)
Issuance of notes receivable (532,249) (1,632,189)
Repayments of direct financing leases 1,401,572 1,242,213
Repayments of notes receivable 179,532 281,912
Proceeds from sale or early termination of direct financing leases and notes 1,261,745
3,949,683
Net lease security deposits collected (paid) (41,208) 106,195
----------- -----------
Net cash from investing activities 1,516,115 139,506
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FINANCING ACTIVITIES
Borrowings from line of credit 2,075,843 5,253,621
Repayments of line of credit (3,284,684) (4,835,019)
Distributions and withdrawals paid to partners (998,778) (903,479)
----------- -----------
Net cash from financing activities (2,207,619) (484,877)
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Net increase in cash and cash equivalents 15 (1,431)
Cash and cash equivalents at beginning of period 503 1,926
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Cash and cash equivalents at end of period $ 518 $ 495
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 122,061 $ 74,763
Not readily marketable security received in lease transaction -0- 99,787
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:
September 30, 2001 December 31, 2000
------------------ -----------------
Minimum lease payments receivable $ 7,231,110 $ 9,933,179
Estimated residual values of leased equipment 592,736 800,757
Unamortized initial direct costs 13 166
Unearned income (1,273,911) (1,908,744)
Notes receivable 1,994,223 1,654,728
-------------- --------------
Net investment in direct financing leases and notes receivable $ 8,544,171 $ 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
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
Schedule of Customers that are Over 90 Days Past Due as of September 30, 2001
Net Investment % of Net Investment In Bankruptcy
-------------- ------------------- -------------
Customer A $ 957,832 11.2% Yes
Customer B 762,952 8.9% Yes
Customer C 268,633 3.1% No
Customer D 200,410 2.4% Yes
Customer E 182,484 2.1% No
Customer F 174,677 2.0% Yes
Customer G 113,529 1.3% Yes
------------- ----
$ 2,660,517 31.0%
============= ====
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
Nine Months Ended Nine Months Ended
Major Cash Sources: September 30,2001 September 30, 2000
- ------------------- ----------------- ------------------
Borrowings from line of credit $ 2,075,843 $ 5,253,621
Repayments of direct financing leases 1,401,572 1,242,213
Repayments of notes receivable 179,532 281,912
Proceeds from termination of direct financing
leases and notes receivable 1,261,745 3,949,683
Major Cash Uses:
- ----------------
Purchases of equipment for direct financing leases 753,277 3,808,308
Issuance of notes receivable 532,249 1,632,189
Repayments of line of credit 3,284,684 4,835,019
Distributions and withdrawals paid to partners 998,778 903,479
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.
Assets Liabilities
---------------------------------- ---------------------------
Expected Fixed Rate Average Variable Rate Interest
Maturity Date Notes Receivable Interest Rate Line of Credit Rate
------------- ---------------- ------------- -------------- ---------
2001 $ 367,348 14.88% $ -0- -
2002 418,049 14.62% 1,165,582 7.00%
2003 450,574 14.05% -0- -
2004 348,495 13.19% -0- -
2005 & Thereafter 409,757 11.78% -0- -
------------- -------------
Total $ 1,994,223 $ 1,165,582
============= =============
Fair Value $ 1,994,223 $ 1,165,582
============= =============
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.
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(Registrant)
Date: November 2, 2001 /s/ Ronald O. Brendengen
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Ronald O. Brendengen,
Chief Financial Officer, Treasurer
Date: November 2, 2001 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
12