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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, 1999 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.)
100 Second Street S.E., Cedar Rapids, Iowa 52401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 365-2506
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 27, 1999, 8,004 units were issued and outstanding. Based on the book
value at March 31, 1999 of $842.13 per unit, the aggregate market value at April
27, 1999 was $6,740,409.
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
INDEX
Page
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 1999 and December 31, 1998 3
Statements of Operations- three months ended March 31, 1999 and March 31, 1998 4
Statement of Changes in Partners' Equity - three months ended March 31, 1999 5
Statement of Cash Flows - three months ended March 31, 1999 and March 31, 1998 6
Notes to financial statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS (UNAUDITED)
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
ASSETS
Cash and cash equivalents $ 678,978 $ 500,713
Net investment in direct financing leases
and notes receivable (Note B) 5,950,717 4,640,514
Allowance for possible losses (112,888) (87,818)
------------ -----------
Notes receivable and direct financing leases, net 5,837,829 4,552,696
Other assets 227 -0-
------------ -----------
TOTAL ASSETS $ 6,517,034 $ 5,053,409
============ ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Due to affiliates $ 4,077 $ 3,472
Distributions payable to partners 57,213 45,038
Accrued expenses and other liabilities 33,888 10,591
Lease security deposits 91,561 90,810
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TOTAL LIABILITIES 186,739 149,911
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PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 9,116 9,254
Limited partners, 7,507 and 5,784 units issued
and outstanding at March 31, 1999 and
December 31, 1998, respectively 6,321,179 4,894,244
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TOTAL PARTNERS' EQUITY 6,330,295 4,903,498
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TOTAL LIABILITIES AND PARTNERS' EQUITY $ 6,517,034 $ 5,053,409
============ ===========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
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INCOME:
Lease and interest income $ 168,403 $ 19,403
Other 493 2,591
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Total income 168,896 21,994
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EXPENSES:
Management fees 7,084 333
Administrative services 21,000 14,000
Provision for possible losses (Note B) 25,070 18,086
Other 38,857 5,154
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Total expenses 92,011 37,573
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Net income (loss) $ 76,885 $(15,579)
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Net income (loss) per partnership unit (Note C) $ 11.69 $ (9.28)
========= ========
Weighted average partnership units outstanding 6,577 1,678
========= ========
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
GENERAL TOTAL
PARTNER LIMITED PARTNERS PARTNERS'
(10 UNITS) UNITS AMOUNT EQUITY
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Balance at December 31, 1998 $ 9,254 5,784 $ 4,894,244 $ 4,903,498
Proceeds from sale of limited
partnership interests -0- 1,723 1,723,000 1,723,000
Syndication costs incurred -0- --- (215,375) (215,375)
Distributions (240) --- (157,473) (157,713)
Net Income 102 --- 76,783 76,885
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Balance at March 31, 1999 $ 9,116 7,507 $ 6,321,179 $ 6,330,295
==================================================================
See accompanying notes.
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
OPERATING ACTIVITIES
Net income (loss) $ 76,885 $ (15,579)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Provision for possible losses 25,070 18,086
Amortization 414 -0-
Changes in operating assets and liabilities:
Other assets (227) (9,608)
Due to affiliates 605 9,826
Accrued expenses and other liabilities 23,297 9,427
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Net cash from operating activities 126,044 12,152
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INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for, direct
financing leases (1,496,401) (599,149)
Issuance of notes receivable -0- (245,088)
Repayments of direct financing leases 110,263 (8,008)
Repayments of notes receivable 75,520 -0-
Net lease security deposits collected 751 15,607
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Net cash from investing activities (1,309,867) (836,638)
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FINANCING ACTIVITIES
Borrowings from line-of-credit 600,000 -0-
Repayments of line-of-credit (600,000) -0-
Proceeds from sale of partnership interests 1,723,000 2,731,000
Syndication costs incurred (215,375) (341,375)
Distributions paid to partners (145,537) (9,938)
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Net cash from financing activities 1,362,088 2,379,687
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Net increase in cash and cash equivalents 178,265 1,555,201
Cash and cash equivalents at beginning of period 500,713 10,593
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Cash and cash equivalents at end of period $ 678,978 $1,565,794
============= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Decrease in accrued expenses and other liabilities due to
equipment purchase costs - $ 361,542
Interest paid $ 3,673 -
See accompanying notes
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TELECOMMUNICATIONS INCOME FUND XI, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles 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, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
NOTE B - NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
Components of the net investment in direct financing leases are as follows:
March 31, 1999
--------------
Lease payments receivable $ 6,064,441
Unamortized initial direct costs 1,558
Estimated residual values of leased equipment 496,214
Unearned lease income (1,365,423)
Notes receivable 753,927
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Net investment in direct financing leases $ 5,950,717
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NOTE C - 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
6,577 and 1,678 units for the periods from January 1, 1999 to March 31, 1999 and
January 1, 1998 to March 31, 1998, respectively.
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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
Description March 31, 1999 March 31, 1998
----------- -------------- --------------
Lease and interest income $168,403 $19,403
Management fees 7,084 333
Administrative services 21,000 14,000
Provision for possible losses 25,070 18,086
Other expenses 38,857 5,154
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
commenced leasing operations in February of 1998 and since the first quarter of
1998 has acquired equipment for investment in leases and notes of $6,249,998.
Equipment acquisitions for investment in direct financing leases totalled
$1,496,401 for the first quarter of 1999.
Management fees are paid to the General Partner and represent 2% of the gross
rental payments received. Rental payments for the first quarter of 1999 were
$354,200. As the lease portfolio has increased due to the acquisition of
equipment, management fees have increased and will continue to increase
accordingly during the operational phase of the Partnership.
Administrative services of $21,000 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 $7,000 per month for these services.
Since leasing operations did not commence until February 1998, no administrative
fee was paid to the General Partner in January 1998.
The provision for possible losses has increased due to the increase in the
Partnerships' lease portfolio. At March 31, 1999 the allowance for possible
losses was $112,888 and represents 1.9% of the lease and note portfolio of
$5,950,717. Management continually reviews its reserves and will make
adjustments as needed.
At March 31, 1999, one customer was past due over 90 days. The contract balance
remaining for this customer was $2,646 at March 31, 1999, while the
Partnership's net investment in this contract was $2,371. When a payment is past
due more than 90 days, the Partnership discontinues recognizing income on the
contract.
Other expenses include interest expense, legal fees, audit fees, data processing
expenses, and other professional and administrative expenses. The majority of
this expense for the first quarter of 1999 was audit fees, which was $23,000.
Interest expense, which is on a line of credit that was obtained in January
1999, was $3,673. Data processing expenses, including fees paid for lease and
loan servicing, were $9,465 for the first quarter.
The Partnership's portfolio of leases and notes receivable are concentrated in
ATM machines, pay telephones, and office and computer equipment, representing
approximately 45%, 23%, and 19%,
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respectively, of the portfolio at March 31, 1999. Three lessees account for
approximately 72% of the Partnership's portfolio at March 31, 1999.
YEAR 2000 ISSUE: The Partnership recognizes that the arrival of the Year 2000
poses a unique challenge to the ability of all systems to recognize the date
change from December 31, 1999 to January 1, 2000. The costs of ensuring systems
are compatible with the Year 2000 are not believed to be material. There are no
non-information technology processes that the Partnership has identified which
would affect its operations. An assessment of the readiness of external entities
which it interfaces with, such as vendors, counterparties, customers, and
others, is ongoing. At present the Partnership does not contemplate that any
specific charges will be incurred for this assessment or any other costs
directly related to fixing Year 2000 issues, and if there are any related
expenditures, does not expect them to be significant.
The Partnership is assessing the impact of the Year 2000 issue on information
technology and non-information technology systems used by lessees. No lessee is
contractually obligated to become Year 2000 compliant or to disclose their
capabilities to the Partnership. The Partnership has not yet determined whether
the Year 2000 issue has been addressed by all of its customers. The Partnership
has contacted some of its customers and will continue to contact its customers
in 1999. In a worst case scenario, the inability of lessees to be Year 2000
compliant could result in delayed or no payment of amounts due to the
Partnership. The Partnership has no contingency plans at this time to alleviate
this worst case scenario should it be encountered.
The Partnership has determined that the software it utilizes in its operations
is compatible with the Year 2000. The Partnership utilizes an unrelated third
party for lease servicing. This third party vendor has been contacted and it has
been determined that their lease servicing application is year 2000 compliant. A
written confirmation regarding compliance of this application has been received
from the software developer.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
Major Cash Sources:
Proceeds from issuance of units $1,723,000 $2,731,000
Borrowings from line of credit 600,000 -0-
Major Cash Uses:
Payments for syndication costs 215,375 341,375
Purchases of equipment 1,496,401 844,237
Payments on line of credit 600,000 -0-
Distributions and withdrawals paid to partners 145,537 9,938
The demand for equipment leases is strong and as Partnership Units continue to
be sold, the Partnership's available cash will be used to acquire equipment for
investment in direct financing leases and issue notes receivable.
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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 limited to $2,000,000 or 32% of qualified accounts, primarily leases and
notes receivable. The line of credit agreement bears interest at 1% over the
prime rate, with a $4,000 minimum interest charge beginning in July 1999, and is
collateralized by substantially all the 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 ageeement expires on June 30, 2000. The General Partner
believes amounts available under the line of credit are adequate for the
foreseeable future.
At March 31, 1999, 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
that are sensitive to changes in interest rates. For notes receivable, the table
presents principal cash flows and related weighted average interest by expected
maturity dates as of March 31, 1999.
Expected Principal Average
Maturity Date Balance Due Interest Rate
---------------- ----------- -------------
1999 $ 136,313 14.42 %
2000 197,597 14.43 %
2001 209,203 14.47 %
2002 171,186 14.82 %
2003 39,628 14.00 %
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Total $ 753,927
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Fair Value $ 753,927
=========
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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
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None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
a. Exhibits
3.1 Amended and Restated Agreement of Limited Partnership
(included as Exhibit A to the Prospectus)*
4.1 Form of Certificate Representing Limited Partnership
Interests in the Registrant*
10.1 Escrow Agreement*
10.2 Amended Contract between the General Partner and the
Partnership*
10.3 Revolving Loan and Security Agreement.
23.1 Consent of Deloitte & Touche, LLP*
23.2 Consent of Bradley & Riley, P.C. included in its opinions
filed as Exhibits 5.1 and 8.1*
24.1 Power of Attorney*
b. Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended March 31, 1999.
* Previously filed.
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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: 5/11/1999 Ronald O. Brendengen/s/
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Ronald O. Brendengen, Chief Financial Officer, Treasurer
Date: 5/11/1999 Daniel P. Wegmann/s/
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Daniel P. Wegmann, Controller
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