<PAGE> 1
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, 1999 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.)
100 Second Street S.E., Cedar Rapids, Iowa 52401
-----------------------------------------------------
(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")
------------------------------------------
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 31, 1999, 11,282 units were issued and outstanding. Based on the
book value of $843.65 per unit, the aggregate market value at October 31, 1999
was $9,518,059.
<PAGE> 2
TELECOMMUNICATIONS INCOME FUND XI, L.P.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - September 30, 1999 and December 31, 1998 3
Statements of Operations - three months ended September 30, 1999 and September 30, 1998 4
Statements of Operations - nine months ended September 30, 1999 and September 30, 1998 5
Statement of Changes in Partners' Equity - nine months ended September 30, 1999 6
Statements of Cash Flows - nine months ended September 30, 1999 and September 30, 1998 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
</TABLE>
2
<PAGE> 3
TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 71,830 $ 500,713
Net investment in direct financing leases
and notes receivable (Note B) 11,783,087 4,640,514
Allowance for possible losses (205,342) (87,818)
-------------- -------------
Notes receivable and direct financing leases, net 11,577,745 4,552,696
Other assets 63 -0-
-------------- -------------
TOTAL ASSETS $ 11,649,638 $ 5,053,409
============== =============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C) $ 1,897,482 $ -0-
Due to affiliates 117,380 3,472
Distributions payable to partners 86,141 45,038
Accrued expenses and other liabilities 30,598 10,591
Lease security deposits 183,034 90,810
-------------- -------------
TOTAL LIABILITIES 2,314,635 149,911
-------------- -------------
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 8,920 9,254
Limited partners, 11,055 and 5,784 units issued
and outstanding at September 30, 1999 and
December 31, 1998, respectively 9,326,083 4,894,244
-------------- -------------
TOTAL PARTNERS' EQUITY 9,335,003 4,903,498
-------------- -------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 11,649,638 $ 5,053,409
============== =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
INCOME:
Lease and interest income $ 337,356 $ 100,480
Gain on lease terminations 667 -0-
Other 25,749 3,883
----------- -----------
Total income 363,772 104,363
----------- -----------
EXPENSES:
Management fees 16,796 3,331
Administrative services 21,000 21,000
Interest expense 38,990 8,184
Provision for possible losses 58,153 15,055
Other 24,013 6,886
----------- -----------
Total expenses 158,952 54,456
----------- -----------
Net income $ 204,820 $ 49,907
=========== ===========
Net income per partnership unit (Note D) $ 19.96 $ 12.11
=========== ===========
Weighted average partnership units outstanding 10,259 4,122
</TABLE>
See accompanying notes.
4
<PAGE> 5
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
INCOME:
Lease and interest income $ 722,864 $ 179,960
Gain on lease terminations 667 17,764
Other 43,820 22,182
----------- -----------
Total income 767,351 219,906
----------- -----------
EXPENSES:
Management fees 32,904 6,205
Administrative services 63,000 56,000
Interest expense 43,386 8,184
Provision for possible losses 119,895 66,628
Other 80,840 22,152
----------- -----------
Total expenses 340,025 159,169
----------- -----------
Net income $ 427,326 $ 60,737
=========== ===========
Net income per partnership unit (Note D) $ 50.37 $ 20.03
=========== ===========
Weighted average partnership units outstanding 8,484 3,033
</TABLE>
See accompanying notes.
5
<PAGE> 6
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED PARTNERS TOTAL
PARTNER ----------------------- PARTNERS'
(10 UNITS) UNITS AMOUNT EQUITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 9,254 5,784 $ 4,894,244 $ 4,903,498
Proceeds from sale of limited
partnership interests --- 1,723 1,723,000 1,723,000
Syndication costs incurred --- --- (215,375) (215,375)
Distributions (240) --- (157,473) (157,713)
Net Income 102 --- 76,783 76,885
-----------------------------------------------------------
Balance at March 31, 1999 9,116 7,507 6,321,179 6,330,295
Proceeds from sale of limited
partnership interests --- 2,059 2,059,000 2,059,000
Syndication costs incurred --- --- (257,375) (257,375)
Distributions (240) --- (204,387) (204,627)
Net Income 130 --- 145,491 145,621
-----------------------------------------------------------
Balance at June 30, 1999 9,006 9,566 8,063,908 8,072,914
Proceeds from sale of limited
partnership interests --- 1,489 1,489,000 1,489,000
Syndication costs incurred --- --- (186,125) (186,125)
Distributions (240) --- (245,366) (245,606)
Net Income 154 --- 204,666 204,820
-----------------------------------------------------------
Balance at September 30, 1999 $ 8,920 11,055 $ 9,326,083 $ 9,335,003
===========================================================
</TABLE>
See accompanying notes.
6
<PAGE> 7
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 427,326 $ 60,737
Adjustments to reconcile net income to
net cash from operating activities:
Gain on lease terminations (667) (17,764)
Provision for possible losses 119,895 66,628
Amortization 997 -0-
Changes in operating assets and liabilities:
Other assets (63) (7,103)
Due from affiliates -0- (276,763)
Due to affiliates 113,908 201,815
Accrued expenses and other liabilities 20,007 15,147
------------- --------------
Net cash from operating activities 681,403 42,697
------------- --------------
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for,
direct financing leases (6,075,398) (3,426,580)
Issuance of notes receivable (1,983,450) (752,410)
Repayments of direct financing leases 708,444 142,142
Repayments of notes receivable 201,899 -0-
Proceeds from sales of direct financing leases 3,231 418,485
Net lease security deposits collected 92,223 66,494
------------- --------------
Net cash from investing activities (7,053,051) (3,551,869)
------------- --------------
FINANCING ACTIVITIES
Borrowings from line of credit 2,729,648 -0-
Repayments of line of credit (832,166) -0-
Proceeds from sale of partnership interests 5,271,000 4,607,000
Syndication costs incurred (658,875) (575,875)
Distributions and withdrawal paid to partners (566,842) (161,681)
------------- --------------
Net cash from financing activities 5,942,765 3,869,444
------------- --------------
Net increase (decrease) in cash and cash equivalents (428,883) 360,272
Cash and cash equivalents at beginning of period 500,713 10,593
------------- --------------
Cash and cash equivalents at end of period $ 71,830 $ 370,865
============= ==============
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 27,909 $ 4,596
</TABLE>
See accompanying notes.
7
<PAGE> 8
TELECOMMUNICATIONS INCOME FUND XI, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. These financial statements should be read in conjunction with
the Partnership's annual report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1998.
NOTE B - NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
Components of the net investment in direct financing leases and notes receivable
are as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Lease payments receivable $ 10,872,026 $ 4,560,446
Unamortized initial direct costs 969 1,891
Estimated residual values of leased equipment 855,493 348,889
Unearned lease income (2,534,704) (1,078,464)
Notes receivable 2,589,303 807,752
------------ ------------
Net investment in direct financing leases and notes receivable $ 11,783,087 $ 4,640,514
============ ============
</TABLE>
NOTE C - CREDIT ARRANGEMENTS
In January 1999, the Partnership obtained financing under a line of credit
agreement with a bank. As of September 30, 1999, 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.
NOTE D - NET INCOME PER PARTNERSHIP UNIT
Net income per partnership unit is based on the weighted average number of units
outstanding (including both general and limited partners) which were 10,259 and
8,484 units for the three and nine-month periods ended September 30, 1999,
respectively. Weighted average units outstanding for the three and nine-month
periods ended September 30, 1998 were 4,122 and 3,033 units, respectively.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ -------------------
<S> <C> <C>
Description:
------------
Lease and interest income $722,864 $179,960
Management fees 32,904 6,205
Administrative services 63,000 56,000
Interest expense 43,386 8,184
Provision for possible losses 119,895 66,628
Other expenses 80,840 22,152
</TABLE>
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's net investment in direct financing leases and notes receivable was
$3,633,315 at September 30, 1998, and has increased to $11,783,087 at September
30, 1999. Equipment acquisitions for investment in direct financing leases and
notes receivable totalled $8,058,848 for the first nine months of 1999.
Management fees are paid to the General Partner and represent 2% of the gross
rental and notes receivable payments received. Gross rental and notes receivable
payments for the first nine months of 1999 were $1,645,200. 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 $63,000 for the first nine months of 1999 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 Partnership also pays the General Partner an equipment acquisition fee
equal to 5% of the equipment costs for new leases.
Interest expense totalled $43,386 for the nine months ended September 30, 1999.
The Partnership has utilized its line of credit to acquire equipment for direct
financing leases and issue notes receivable. The balance on the line of credit
at September 30, 1999 was $1,897,482. The Partnership issued a note payable to
the General Partner in August, 1999 in the amount of $300,000. This amount was
also paid back in August, 1999. In September, 1999, the Partnership borrowed
another $100,000 from the General Partner, which remains outstanding at
September 30, 1999. The Partnership incurred $1,808 in interest expense on these
affiliated borrowings. The proceeds were used to fund direct financing leases
and notes receivable.
The provision for possible losses has increased due to the increase in the
Partnership's lease portfolio. At September 30, 1999 the allowance for possible
losses was $205,342 and represents 1.7% of the lease and note portfolio of
$11,783,087. Management continually reviews its reserves and will make
adjustments as needed.
Other expenses include legal fees, audit fees, data processing expenses, and
other professional and administrative expenses. Legal and accounting expenses
were $26,832 for the first nine months of 1999, while data processing expenses
were $39,322 for the same period. The increase in other expenses compared to
9
<PAGE> 10
1998 is due to the increased lease and note volume in 1999, as opposed to the
minimal expenses incurred in 1998 when the Partnership was beginning its
operations.
At September 30, 1999, no customers were past due over 90 days. If a payment is
past due more than 90 days, the Partnership discontinues recognizing income on
the contract.
The Partnership's portfolio of leases and notes receivable are concentrated in
pay telephones, ATM machines, office and computer equipment, and manufacturing
equipment representing approximately 40%, 26%, 15%, and 11%, respectively, of
the portfolio at September 30, 1999. Three lessees account for approximately 53%
of the Partnership's portfolio at September 30, 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. 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. 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,
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.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Major Cash Sources:
Proceeds from issuance of units $ 5,721,000 $ 4,607,000
Borrowings from line of credit 2,729,648 -0-
Major Cash Uses:
Payments for syndication costs 658,875 575,875
Purchases of equipment 6,075,398 3,426,580
Issuance of notes receivable 1,983,450 752,410
Payments on line of credit 832,166 -0-
Distributions and withdrawals paid to partners 566,842 161,681
</TABLE>
10
<PAGE> 11
The demand for equipment leases remains 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.
In January 1999, the Partnership obtained financing under a line of credit
agreement with a bank. As of September 30, 1999, 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.
At September 30, 1999, adequate cash is being generated to make projected
distributions. 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 September 30, 1999.
<TABLE>
<CAPTION>
Expected Maturity Date Principal Balance Due Average Interest Rate
<S> <C> <C>
1999 $ 127,708 15.7 %
2000 552,813 15.7 %
2001 625,808 15.8 %
2002 654,039 16.1 %
2003 and thereafter 628,935 16.5 %
----------
Total $2,589,303
==========
Fair Value $2,589,303
==========
</TABLE>
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
<PAGE> 12
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 10, 1999 /s/ Ronald O. Brendengen
----------------- -------------------------------
Ronald O. Brendengen,
Chief Financial Officer, Treasurer
Date: November 10, 1999 /s/ Daniel P. Wegmann
----------------- --------------------------------
Daniel P. Wegmann, Controller
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of Telecommunications Income Fund XI, L.P. as of
September 30, 1999, and the nine months ended September 30, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 71,830
<SECURITIES> 0
<RECEIVABLES> 11,783,087
<ALLOWANCES> (205,342)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 63
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,649,638
<CURRENT-LIABILITIES> 2,314,635
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,335,003
<TOTAL-LIABILITY-AND-EQUITY> 11,649,638
<SALES> 0
<TOTAL-REVENUES> 767,351
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 176,744
<LOSS-PROVISION> 119,895
<INTEREST-EXPENSE> 43,386
<INCOME-PRETAX> 427,326
<INCOME-TAX> 0
<INCOME-CONTINUING> 427,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 427,326
<EPS-BASIC> 50.37<F1>
<EPS-DILUTED> 50.37<F1>
<FN>
<F1>Net Income (Loss) per Partnership Unit
</FN>
</TABLE>
