<PAGE> 1
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, 2000
Commission File Number 000-25593
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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")
------------------------------------------
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 27, 2000, 12,593 units were issued and outstanding. Based on the
book value at September 30, 2000 of $812.76 per unit, the aggregate market value
at October 27, 2000, 2000 was $10,235,086.
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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, 2000 and December 31, 1999 3
Statements of Operations -
three months ended September 30, 2000 and 1999 4
Statements of Operations -
nine months ended September 30, 2000 and 1999 5
Statement of Changes in Partners' Equity - nine months ended September 30, 2000 6
Statements of Cash Flows - nine months ended September 30, 2000 and 1999 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, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 495 $ 1,926
Not readily marketable security 99,787 -0-
Net investment in direct financing leases
and notes receivable (Note B) 13,461,720 13,423,757
Allowance for possible losses (323,440) (239,857)
------------ ------------
Direct financing leases and notes receivable, net 13,138,280 13,183,900
Other assets 1,986 11,079
------------ ------------
TOTAL ASSETS $ 13,240,548 $ 13,196,905
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C) $ 2,391,744 $ 1,973,142
Outstanding checks in excess of bank balance 47,490 196,859
Due to affiliates 6,571 41,913
Distributions payable to partners 100,744 97,527
Accrued expenses and other liabilities 59,113 46,573
Deferred income 95,458 -0-
Lease security deposits 304,343 198,148
------------ ------------
TOTAL LIABILITIES 3,005,463 2,554,162
------------ ------------
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 8,700 9,024
Limited partners, 12,583 units issued
and outstanding 10,226,385 10,633,719
------------ ------------
TOTAL PARTNERS' EQUITY 10,235,085 10,642,743
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 13,240,548 $ 13,196,905
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
REVENUES:
Income from direct financing leases
and notes receivable $308,726 $337,356
Gain on lease terminations 663 667
Other 17,305 25,749
-------- --------
Total revenues 326,694 363,772
-------- --------
EXPENSES:
Management fees 13,762 16,796
Administrative services 36,000 21,000
Interest expense 27,268 38,990
Provision for possible losses 44,080 58,153
Other 68,661 24,013
-------- --------
Total expenses 189,771 158,952
-------- --------
Net income $136,923 $204,820
======== ========
Net income per partnership unit (Note D) $ 10.87 $ 19.96
======== ========
Weighted average partnership units outstanding 12,593 10,259
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
REVENUES:
Income from direct financing leases
and notes receivable $ 886,862 $ 722,864
Gain on lease terminations 70,803 667
Other 69,984 43,820
---------- ----------
Total revenues 1,027,649 767,351
---------- ----------
EXPENSES:
Management fees 105,650 32,904
Administrative services 108,000 63,000
Interest expense 75,718 43,386
Provision for possible losses 82,642 119,895
Other 156,601 80,840
---------- ----------
Total expenses 528,611 340,025
---------- ----------
Net income $ 499,038 $ 427,326
========== ==========
Net income per partnership unit (Note D) $ 39.63 $ 50.37
========== ==========
Weighted average partnership units outstanding 12,593 8,484
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 6
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED PARTNERS TOTAL
PARTNER ---------------- PARTNERS'
(10 UNITS) UNITS AMOUNTS EQUITY
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ 9,024 12,583 $ 10,633,719 $ 10,642,743
Distributions to partners (240) 0 (301,991) (302,231)
Net income 184 0 231,416 231,600
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Balance at March 31, 2000 8,968 12,583 10,563,144 10,572,112
Distributions to partners (240) 0 (301,993) (302,233)
Net income 104 0 130,411 130,515
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Balance at June 30, 2000 8,832 12,583 10,391,562 10,400,394
Distributions to partners (240) 0 (301,992) (302,232)
Net income 108 0 136,815 136,923
---------------------------------------------------------------------------
Balance at September 30, 2000 $ 8,700 12,583 $ 10,226,385 $ 10,235,085
===========================================================================
</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, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 499,038 $ 427,326
Adjustments to reconcile net income to net cash from operating activities:
Gain on lease terminations (70,803) (667)
Deferred income (4,329) -0-
Amortization 470 997
Provision for possible losses 82,642 119,895
Changes in operating assets and liabilities:
Other assets 9,093 (63)
Outstanding checks in excess of bank balance (149,369) -0-
Due to affiliates (35,342) 113,908
Accrued expenses and other liabilities 12,540 20,007
----------- -----------
Net cash from operating activities 343,940 681,403
----------- -----------
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for, direct financing leases (3,808,308) (6,075,398)
Issuance of notes receivable (1,632,189) (1,983,450)
Repayments of direct financing leases 1,242,213 708,444
Repayments of notes receivable 281,912 201,899
Proceeds from termination of direct financing leases and notes receivable 3,949,683 3,231
Net lease security deposits collected 106,195 92,223
----------- -----------
Net cash from investing activities 139,506 (7,053,051)
----------- -----------
FINANCING ACTIVITIES
Borrowings from line of credit 5,253,621 2,729,648
Repayments of line of credit (4,835,019) (832,166)
Proceeds from sale of partnership interests -0- 5,271,000
Syndication costs incurred -0- (658,875)
Distributions paid to partners (903,479) (566,842)
----------- -----------
Net cash from financing activities (484,877) 5,942,765
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,431) (428,883)
Cash and cash equivalents at beginning of period 1,926 500,713
----------- -----------
Cash and cash equivalents at end of period $ 495 $ 71,830
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 74,763 $ 27,909
Not readily marketable security received in lease transaction 99,787 -0-
</TABLE>
See accompanying notes.
7
<PAGE> 8
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, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. 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, 1999.
Certain amounts in the 1999 financial statements have been reclassified to
conform with the 2000 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:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Minimum lease payments receivable $ 10,470,307 $ 11,272,568
Estimated residual values of leased equipment 805,734 876,936
Unamortized initial direct costs 257 738
Unearned income (2,158,596) (2,547,160)
Notes receivable 4,344,018 3,820,675
------------ ------------
Net investment in direct financing leases and notes receivable $ 13,461,720 $ 13,423,757
============ ============
</TABLE>
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, 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
September 30, 2000 was $2,391,744.
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 12,593 for
both the three and nine month periods ended September 30, 2000. Units
outstanding for the three and nine month periods ended September 30, 1999 were
10,259 and 8,484, 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, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Income from direct financing leases and notes receivable $886,862 $722,864
Management fees 105,650 32,904
Administrative services 108,000 63,000
Interest expense 75,718 43,386
Provision for possible losses 82,642 119,895
Other expenses 156,601 80,840
</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
$11,783,087 at September 30, 1999 and $13,461,720 at September 30, 2000.
Equipment acquisitions for investment in direct financing leases and issuance of
notes receivable totalled $5,440,497 for the first nine months of 2000.
The gain on lease terminations of $70,803 is due to several contract payoffs,
primarily in the first quarter of 2000. Proceeds from contract terminations
totalled $3,949,683 for the nine months ended September 30, 2000. The proceeds
were used to reduce the Partnership's line of credit at that time, acquire
equipment for direct financing lease, and issue notes receivable.
The Partnership acquired warrants in a lease transaction during the third
quarter to purchase common stock of a public company. The stock price was above
the exercise price at the commencement of the lease, with the Partnership
recording the warrants at the value received in excess of the exercise cost, or
$99,787. This amount was also recorded as deferred income and is amortized over
the term of the lease. For the third quarter, the Partnership recognized income
on this of $4,329.
Management fees are paid to the General Partner and represent 2% of the gross
rental payments, loan payments, and other financing payments received. These
payments were $5,282,500 the first nine months of 2000. The increased management
fees are due to an increase in the lease and note portfolio and also resulting
from the proceeds received from the contract terminations.
Administrative services of $108,000 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 $12,000 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 nine months of 2000 was
$75,718 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, 2000 was $2,391,744.
Other expenses include data processing, insurance, legal and accounting, and
other general and administrative expenses. Other expenses increased from $80,840
for the nine months ending September 30, 1999, to $156,601 for the same period
of 2000. The increase is primarily the result of collection costs relating to a
large customer that is past due, as described below.
9
<PAGE> 10
At September 30, 2000, 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 $2,857,274. One customer has 10 contracts past due with a total
net investment of $2,633,697. This customer was placed in involuntary bankruptcy
by creditors in October, 2000. The Partnership, in conjunction with a payphone
service provider, is managing the payphone routes of this customer. Management
has not yet determined the value of these routes, but is in the process of
analyzing the revenue-generating capability of the routes to determine the value
to any potential buyers. Management believes its reserve is adequate related to
this customer based on historical collateral values of similar equipment.
However, no assurance can be provided that any amounts recovered, if any, will
be sufficient to cover the Partnership's net investment in these contracts.
Management will continue to monitor the past due contracts and take the
necessary steps to protect the Partnership's investment.
At September 30, 2000, the allowance for possible losses was $323,440 and
represents 2.4% of the lease and note portfolio of $13,461,720. 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 and computer equipment, representing approximately 55% and 15%,
respectively, of the portfolio at September 30, 2000. Four lessees account for
approximately 42% of the Partnership's portfolio at September 30, 2000. One of
these customers is past due over 90 days, as mentioned above, and represents
approximately 20% of the portfolio.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Major Cash Sources:
Proceeds from issuance of units $ -0- $ 5,721,000
Borrowings from line of credit 5,253,621 2,729,648
Repayments of direct financing leases 1,242,213 -0-
Repayments of notes receivable 281,912 -0-
Proceeds from termination of direct financing
leases and notes receivable 3,949,683 -0-
Major Cash Uses:
Payments for syndication costs -0- 65,875
Purchases of equipment for direct financing leases 3,808,308 6,075,398
Issuance of notes receivable 1,632,189 1,983,450
Repayments of line of credit 4,835,019 832,166
Distributions paid to partners 903,479 566,842
</TABLE>
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, with a $4,000 minimum
monthly interest charge beginning in July 1999, and is collateralized by
10
<PAGE> 11
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, 2000 was $2,391,744.
At September 30, 2000, 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
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, 2000.
<TABLE>
<CAPTION>
Assets Liabilities
---------------------------------- -------------------------
Expected Fixed Rate Average Variable Rate Interest
Maturity Date Notes Receivable Interest Rate Line of Credit Rate
------------- ---------------- ------------- -------------- ----
<S> <C> <C> <C> <C>
2000 $ 594,896 15.88% $ -0- -
2001 864,428 15.90% -0- -
2002 962,334 15.96% 2,391,744 10.50%
2003 942,513 16.12% -0- -
2004 and thereafter 979,847 16.29% -0- -
------------- -------------
Total $ 4,344,018 $ 2,391,744
============= =============
Fair Value $ 4,344,018 $ 2,391,744
============= =============
</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, 2000 /s/ Ronald O. Brendengen
----------------- --------------------------------------
Ronald O. Brendengen, Chief Financial
Officer, Treasurer
Date: November 10, 2000 /s/ Daniel P. Wegmann
----------------- --------------------------------------
Daniel P. Wegmann, Controller
12
