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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 JUNE 30, 2000
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")
------------------------------------------
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 July 17, 2000, 12,593 units were issued and outstanding. Based on the book
value at June 30, 2000 of $825.89 per unit, the aggregate market value at July
17, 2000 was $10,400,432.
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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 - June 30, 2000 and December 31, 1999 3
Statements of Operations -
three months ended June 30, 2000 and 1999 4
Statements of Operations -
six months ended June 30, 2000 and 1999 5
Statement of Changes in Partners' Equity - six months ended June 30, 2000 6
Statements of Cash Flows - six months ended June 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>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 324,156 $ 1,926
Net investment in direct financing leases
and notes receivable (Note B) 11,172,978 13,423,757
Allowance for possible losses (278,419) (239,857)
------------ ------------
Direct financing leases and notes receivable, net 10,894,559 13,183,900
Other assets 275 11,079
------------ ------------
TOTAL ASSETS $ 11,218,990 $ 13,196,905
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Line of credit agreement (Note C) $ 506,847 $ 1,973,142
Outstanding checks in excess of bank balance -0- 196,859
Due to affiliates 20,919 41,913
Distributions payable to partners 100,744 97,527
Accrued expenses and other liabilities 46,429 46,573
Lease security deposits 143,657 198,148
------------ ------------
TOTAL LIABILITIES 818,596 2,554,162
------------ ------------
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 8,832 9,024
Limited partners, 12,583 units issued
and outstanding 10,391,562 10,633,719
------------ ------------
TOTAL PARTNERS' EQUITY 10,400,394 10,642,743
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 11,218,990 $ 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
--------------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
REVENUES:
Income from direct financing leases
and notes receivable $ 256,798 $ 217,105
Gain on lease terminations 1,112 -0-
Other 26,730 17,578
----------- -----------
Total revenues 284,640 234,683
----------- -----------
EXPENSES:
Management fees 17,271 9,024
Administrative services 36,000 21,000
Interest expense 16,137 723
Provision for possible losses 14,737 36,672
Other 69,980 21,643
----------- -----------
Total expenses 154,125 89,062
----------- -----------
Net income $ 130,515 $ 145,621
=========== ===========
Net income per partnership unit (Note D) $ 10.36 $ 16.98
=========== ===========
Weighted average partnership units outstanding 12,593 8,576
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
REVENUES:
Income from direct financing leases
and notes receivable $578,136 $385,508
Gain on lease terminations 70,140 -0-
Other 52,679 18,071
-------- --------
Total revenues 700,955 403,579
-------- --------
EXPENSES:
Management fees 91,888 16,108
Administrative services 72,000 42,000
Interest expense 48,450 4,396
Provision for possible losses 38,562 61,742
Other 87,940 56,827
-------- --------
Total expenses 338,840 181,073
-------- --------
Net income $362,115 $222,506
======== ========
Net income per partnership unit (Note D) $ 28.76 $ 29.35
======== ========
Weighted average partnership units outstanding 12,593 7,582
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 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
-------------------------------------------------------------------------------
Balance at June 30, 2000 $ 8,832 12,583 $ 10,391,562 $10,400,394
===============================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 7
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 362,115 $ 222,506
Adjustments to reconcile net income to net cash from operating activities:
Gain on lease terminations (70,140) -0-
Amortization 349 725
Provision for possible losses 38,562 61,742
Changes in operating assets and liabilities:
Other assets 10,804 (613)
Outstanding checks in excess of bank balance (196,859) -0-
Due to affiliates (20,994) 1,640
Accrued expenses and other liabilities (144) 6,150
----------- -----------
Net cash from operating activities 123,693 292,150
----------- -----------
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for, direct financing leases (1,230,485) (2,688,166)
Issuance of notes receivable (1,277,177) (1,476,300)
Repayments of direct financing leases 898,646 235,561
Repayments of notes receivable 241,823 172,352
Proceeds from termination of direct financing leases and notes receivable 3,687,762 2,561
Net lease security deposits collected (paid) (54,490) 18,293
----------- -----------
Net cash from investing activities 2,266,079 (3,735,699)
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FINANCING ACTIVITIES
Borrowings from line of credit 2,877,596 915,394
Repayments of line of credit (4,343,891) (610,785)
Proceeds from sale of partnership interests -0- 3,782,000
Syndication costs incurred -0- (472,750)
Distributions paid to partners (601,247) (333,477)
----------- -----------
Net cash from financing activities (2,067,542) 3,280,382
----------- -----------
Net increase (decrease) in cash and cash equivalents 322,230 (163,167)
Cash and cash equivalents at beginning of period 1,926 500,713
----------- -----------
Cash and cash equivalents at end of period $ 324,156 $ 337,546
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 60,608 $ 4,228
</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 six months ended June
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>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Minimum lease payments receivable $ 8,155,057 $ 11,272,568
Estimated residual values of leased equipment 577,283 876,936
Unamortized initial direct costs 378 738
Unearned income (1,846,671) (2,547,160)
Notes receivable 4,286,931 3,820,675
------------- -------------
Net investment in direct financing leases and notes receivable $ 11,172,978 $ 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 June 30,
2000 was $506,847.
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 six month periods ended June 30, 2000. Units outstanding for
the three and six month periods ended June 30, 1999 were 8,576 and 7,582,
respectively.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Income from direct financing leases and notes receivable $ 578,136 $ 385,508
Gain on lease terminations 70,140 -0-
Management fees 91,888 16,108
Administrative services 72,000 42,000
Interest expense 48,450 4,396
Provision for possible losses 38,562 61,742
</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
$8,391,409 at June 30, 1999 and $11,172,978 at June 30, 2000. Equipment
acquisitions for investment in direct financing leases and issuance of notes
receivable totalled $2,507,662 for the first six months of 2000. The Partnership
had other income of $52,679 for the first six months of 2000, compared to
$18,071 for the same period a year ago. Other income consists primarily of
interest income on a money market account and other investments, late charges on
lease payments, and loan origination fees.
The gain on lease terminations of $70,140 is due to several contract payoffs,
primarily in the first quarter of 2000. Proceeds from contract terminations
totalled $3,687,762 for the six months ended June 30, 2000. The proceeds were
used to reduce the Partnership's line of credit, acquire equipment for direct
financing lease, and issue notes receivable. The Partnership also had cash and
cash equivalents at June 30, 2000 of $324,156, primarily invested in a money
market account.
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 $4,594,400 for the first six 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 $72,000 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 six months of 2000 was
$48,450 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 June 30, 2000 was $506,847.
At June 30, 2000, seven customers were past due over 90 days. The Partnership's
net investment in the past due contracts was $3,021,877. One customer has 10
contracts past due with a total net investment of $2,633,699. The payments that
are past due for this customer total $535,317 as of June 30, 2000. When a
payment is past due more than 90 days, the Partnership discontinues recognizing
income on the contract. Management believes its reserve is adequate related to
this customer. Management will continue to monitor the past due contracts and
take the necessary steps to protect the Partnership's investment.
9
<PAGE> 10
At June 30, 2000, the allowance for possible losses was $278,419 and represents
2.5% of the lease and note portfolio of $11,172,978. 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 manufacturing equipment, representing approximately 62% and
11%, respectively, of the portfolio at June 30, 2000. Two lessees account for
approximately 35% of the Partnership's portfolio at June 30, 2000. One of these
customers is past due over 90 days, as mentioned above, and represents
approximately 24% of the portfolio.
YEAR 2000 ISSUE
The Partnership and its General Partner have encountered no problems relating to
the year 2000 issue. The Partnership and its General Partner are not aware of
any year 2000 problems or situations encountered by its customers, vendors,
affiliates, or others.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Major Cash Sources:
Proceeds from issuance of units $ -0- $ 3,782,000
Borrowings from line of credit 2,877,596 915,394
Repayments of direct financing leases 898,646 235,561
Repayments of notes receivable 241,823 172,352
Proceeds from termination of direct financing
leases and notes receivable 3,687,762 2,561
Major Cash Uses:
Payments for syndication costs -0- 472,750
Purchases of equipment for direct financing leases 1,230,485 2,688,166
Issuance of notes receivable 1,277,177 1,476,300
Repayments of line of credit 4,343,891 610,785
Distributions paid to partners 601,247 333,477
</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
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 June 30,
2000 was $506,847.
At June 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.
10
<PAGE> 11
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 June 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 $ 782,963 15.88% $ -0- -
2001 856,167 15.90% -0- -
2002 953,926 15.99% 506,847 10.50%
2003 897,766 16.17% -0- -
2004 and thereafter 796,109 16.40% -0- -
------------- -------------
Total $ 4,286,931 $ 506,847
============= =============
Fair Value $ 4,286,931 $ 506,847
============= =============
</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
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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: August 2, 2000 /s/ Ronald O. Brendengen
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Ronald O. Brendengen, Chief Financial
Officer, Treasurer
Date: August 2, 2000 /s/ Daniel P. Wegmann
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Daniel P. Wegmann, Controller
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