10-Q 1 c62357e10-q.txt QUARTERLY REPORT 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 MARCH 31, 2001 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 ----------------------------------- (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") ------------------------------------------ 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 19, 2001, 12,588 units were issued and outstanding. Based on the book value at March 31, 2001 of $683.89 per unit, the aggregate market value at April 19, 2001 was $8,608,807. 2 TELECOMMUNICATIONS INCOME FUND XI, L.P. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Balance Sheets - March 31, 2001 and December 30, 2000 3 Statements of Operations - Three months ended March 31, 2001 and 2000 4 Statement of Changes in Partners' Equity - three months ended March, 2001 5 Statements of Cash Flows - three months ended March 31, 2001 and 2000 6 Notes to Financial Statements 7 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 3 TELECOMMUNICATIONS INCOME FUND XI, L.P. BALANCE SHEETS (UNAUDITED)

See accompanying notes. 3 4 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2001 MARCH 31,2000 REVENUES: Income from direct financing leases and notes receivable $ 306,411 $ 321,338 Gain (loss) on lease terminations (115,691) 69,028 Other 26,309 25,949 ----------- ---------- Total revenues 217,029 416,315 ----------- ---------- EXPENSES: Management fees 26,305 74,617 Administrative services 39,000 36,000 Interest expense 50,126 32,313 Depreciation expense 181,887 -0- Provision for possible losses 3,672 23,825 Other 35,444 17,960 ----------- ---------- Total expenses 336,434 184,715 ----------- ---------- Net income (loss) $ (119,405) $ 231,600 =========== ========== Net income (loss) per partnership unit (Note D) $ (9.48) $ 18.39 =========== ========== Weighted average partnership units outstanding 12,591 12,593 =========== ========== See accompanying notes. 4 5 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENT OF CHANGES IN PARTNERS' EQUITY THREE MONTHS ENDED MARCH 31, 2001 (UNAUDITED)

See accompanying notes. 5 6 TELECOMMUNICATIONS INCOME FUND XI, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED)

6 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 three months ended March 31, 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. The Partnership began to depreciate the equipment under operating lease in the first quarter of 2001 Accumulated depreciation as of March 31,2001 was $145,394 based on a depreciable life of three years. 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:

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 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. The amount outstanding under this line of credit at March 31, 2001 was $1,707,807. 7 8 NOTE D - NET INCOME 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 12,591 for the periods from January 1, 2001 to March 31, 2001 compared to 12,593 for the periods from January 1, 2000 to March 31, 2000. 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 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS

The income derived from the partnership lease portfolio was $321,338 for the period ending March 31, 2000 and $306,411 for the period ending March 31, 2001. The Partnership's net investment in direct financing leases and notes receivable was $10,707,014 at March 31, 2000 and $9,562,267 at March 31, 2001. 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 $181,887 for the first quarter 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. Management fees are paid to the General Partner and represent 2% of the gross rental payments, loan payments, and other financing payments received. These rental payments were $1,315,250 the first three months of 2001 compared to $3,730,850 for the first three months 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 $39,000 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 is incurred on the Partnership's line of credit that was obtained in January 1999. Interest expense for the first three months of 2001 was $50,126 compared to $32,313 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 March 31, 2001 was $1,707,807 compared to $412,980 at March 31,2000. At March 31, 2001, five 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 $1,798,724. One customer has a contract past due with a total net investment of $944,286 and represents 10% of the total Partnership net investment. The Partnership increased its allowance for possible losses relating to this customer in the fourth quarter of 2000. Management will continue to monitor the past due contracts and take the necessary steps to protect the Partnership's investment. 9 10 At March 31, 2001, the allowance for possible losses was $740,367 and represents 7.7% of the lease and note portfolio of $9,562,267. 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, office equipment and industrial equipment, representing approximately 51%, 17%, and 11%, respectively, of the portfolio at March 31,2001. Two lessees account for approximately 20% of the Partnership's portfolio at March 31, 2001. One of these customers is past due over 90 days, as mentioned above and represents approximately 10% of the portfolio. LIQUIDITY AND CAPITAL RESOURCES

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 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. The amount outstanding under this line of credit at March 31, 2001 was $1,707,807. In the first quarter of the year 2001, the Partnership sold a portion of the portfolio for $463,947, less a holdback of $73,044, resulting in cash received by the Partnership of $390,903. The buyer retained the holdback to cover any potential bad debts. The holdback of $73,044 is carried on the Partnership's balance sheet in other receivables. The proceeds from this transaction were used to reduce the Partnership's line of credit, which in turn was used to purchase equipment for direct financing leases. At March 31, 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 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 March 31,2001.

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 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: May 9, 2001 /s/ Ronald O. Brendengen ------------ ---------------------------------------------- Ronald O. Brendengen, Chief Financial Officer, Treasurer Date: May 9, 2001 /s/ Daniel P. Wegmann ------------ ---------------------------------------------- Daniel P. Wegmann, Controller Date: May 9, 2001 /s/ Timothy J. White ------------ ---------------------------------------------- Timothy J. White, President 12

TELECOMMUNICATIONS INCOME FUND XI LP 10-Q