Back to GetFilings.com
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, 2003
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.
[X] Yes [ ] No
Indicate by check mark whether registrant is an accelerated filer (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934).
[ ] Yes [X] No
As of April 14, 2003, 12,369 units were issued and outstanding. Based on the
book value at March 31, 2003 of $161.78 per unit, the aggregate market value at
April 14, 2003 was $2,001,057.
TELECOMMUNICATIONS INCOME FUND XI, L.P.
INDEX
Page
Part I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 2003 and December 30, 2002 3
Statements of Operations - three months ended
March 31, 2003 and 2002 4
Statement of Changes in Partners' Equity -
three months ended March 31, 2003 5
Statements of Cash Flows - three months ended
March 31, 2003 and 2002 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
Item 4. Controls and Procedures 10
Part II. OTHER INFORMATION
- ----------------------------
Item 6. Exhibits 10
Signatures 11
Certifications 12
2
TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS (UNAUDITED)
March 31, December 31,
2003 2002
----------- -----------
ASSETS
Cash and cash equivalents $ 192,431 $ 408,718
Net investment in direct financing leases
and notes receivable (Note B) 2,927,430 3,617,605
Allowance for possible loan and lease losses (994,291) (984,556)
----------- -----------
Direct financing leases and notes receivable, net 1,933,139 2,633,049
Other receivables 91,952 82,931
----------- -----------
TOTAL ASSETS $ 2,217,522 $ 3,124,698
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Due to affiliates $ 8,985 $ 2,065
Distributions payable to partners 98,952 98,952
Accounts payable and accrued expenses 78,914 113,371
Lease security deposits 29,629 36,392
----------- -----------
TOTAL LIABILITIES 216,480 250,780
----------- -----------
CONTINGENCY (Note D)
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 2,208 2,914
Limited partners, 12,359 and 12,359 units issued
and outstanding at March 31, 2003 and
December 31, 2002, respectively 1,998,834 2,871,004
----------- -----------
TOTAL PARTNERS' EQUITY 2,001,042 2,873,918
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 2,217,522 $ 3,124,698
=========== ===========
See accompanying notes.
3
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
---------------------
March 31, March 31,
2003 2002
--------- ---------
REVENUES:
Income from direct financing leases and notes receivable $ 74,605 $ 179,830
Gain on lease terminations 65,595 1,077
Other 4,331 7,181
--------- ---------
Total revenues 144,531 188,088
--------- ---------
EXPENSES:
Management fees 17,226 11,014
Administrative services 38,400 40,750
Interest expense -0- 13,294
Provision for possible loan and lease losses 4,000 170,300
Other 60,925 92,789
--------- ---------
Total expenses 120,551 328,147
--------- ---------
Net income (loss) $ 23,980 $(140,059)
========= =========
Net income (loss) per partnership unit (Note C) $ 1.94 $ (11.29)
========= =========
Weighted average partnership units outstanding 12,369 12,411
========= =========
See accompanying notes.
4
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
General Limited Partners Total
Partner ---------------- Partners'
(10 Units) Units Amounts Equity
- --------------------------------------------------------------------------------------
Balance at December 31, 2002 $ 2,914 12,359 $ 2,871,004 $ 2,873,918
Distributions to partners (725) 0 (896,131) (896,856)
Net income 19 0 23,961 23,980
----------- ----------- ----------- -----------
Balance at March 31, 2003 $ 2,208 12,359 $ 1,998,834 $ 2,001,042
=========== =========== =========== ===========
See accompanying notes.
5
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, March 31,
2003 2002
--------- ---------
Operating Activities
Net income (loss) $ 23,980 $(140,059)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Gain on lease terminations (65,595) (1,077)
Depreciation and amortization 1 3
Provision for possible loan and lease losses 4,000 170,300
Changes in operating assets and liabilities:
Other receivables 16,976 22,713
Outstanding checks in excess of bank balance -0- (12,586)
Due to affiliates 6,920 637
Accounts payable and accrued expenses (34,457) (8,620)
--------- ---------
Net cash from operating activities (48,175) 31,311
--------- ---------
Investing Activities
Purchases of equipment for direct financing leases (37,931) -0-
Issuance of notes receivable -0- (51,224)
Repayments of direct financing leases 169,113 248,118
Repayments of notes receivable 47,337 117,651
Proceeds from sale or early termination of direct financing leases,
notes receivable, and equipment under operating lease 556,988 71,767
Net lease security deposits paid (6,763) (650)
--------- ---------
Net cash from investing activities 728,744 385,662
--------- ---------
Financing Activities
Borrowings from line of credit -0- 454,346
Repayments of line of credit -0- (563,138)
Withdrawals paid to partners -0- (2,013)
Distributions paid to partners (896,856) (297,888)
--------- ---------
Net cash from financing activities (896,856) (408,693)
--------- ---------
Net increase (decrease) in cash and cash equivalents (216,287) 8,280
Cash and cash equivalents at beginning of period 408,718 520
--------- ---------
Cash and cash equivalents at end of period $ 192,431 $ 8,800
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ -0- $ 13,739
Non-cash investing activity:
Reclassification of a portion of the allowance from other receivables 24,999 -0-
See accompanying notes.
6
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 and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. 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, 2003 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2003. For further information, refer to
the financial statements and notes thereto included in the Partnership's annual
report on Form 10-K for the year ended December 31, 2002.
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:
March 31, December 31,
2003 2002
------------ ------------
Minimum lease payments receivable $ 1,913,365 $ 2,343,231
Estimated unguaranteed residual values 215,036 242,762
Unamortized initial direct costs -0- 1
Unearned income (314,632) (360,026)
Notes receivable 1,113,661 1,391,637
------------ ------------
Net investment in direct financing leases
and notes receivable $ 2,927,430 $ 3,617,605
============ ============
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
12,369 for the three months ended March 31, 2003, compared to 12,411 for the
three months ended March 31, 2002.
NOTE D - CONTINGENCY
The General Partner's parent has approximately $2.2 million of unsecured
subordinated debt which was due on December 31, 2002 and does not have
sufficient liquid assets to repay such amounts. The General Partner's parent is
pursuing additional financing, refinancing, and asset sales to meet its
obligations. No assurance can be provided that the General Partner's parent will
be successful in its efforts. The inability of the General Partner to continue
as a going concern as a result of the parent's inability to restructure its
debts would require the Partnership to elect a successor general partner. The
new general partner could require additional fees and charges that would have a
significant negative impact on the Partnership's operations.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
Income derived from direct financing leases and notes receivable was $74,605 for
the three months ending March 31, 2003 compared to $179,830 for the same period
of 2002. The decrease is due to a smaller portfolio of direct financing leases
and notes receivable. The Partnership's net investment in direct financing
leases and notes receivable was $2,927,430 at March 31, 2003 and $7,756,763 at
March 31, 2002. Other income of $4,331 for the first three months of 2003 is
interest income on a money market account and other investments and late charges
on lease payments, and is down from $7,181 a year ago. The Partnership had a
gain on lease terminations for the first quarter of 2003 of $65,595 compared to
a gain of $1,077 for the first quarter of 2002. The gain in 2003 was primarily
due to the payoff of one lessee that had previously been on a non-accrual
status.
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 $861,300 the first three months of 2003 compared to $550,700 for
the first three months of 2002.
Administrative services were $38,400 for the first three months of 2003 compared
to $40,750 for the same period a year ago. This expense represents fees paid
monthly to the General Partner for the operation of the Partnership as defined
in the Partnership Agreement.
Interest expense for the first three months of 2003 was $0 compared to $13,294
for the same period of 2002. This expense was incurred on the Partnership's line
of credit agreement, which was paid in full in June, 2002 and was not renewed.
Other expenses include legal, accounting, data processing, and other
miscellaneous expenses. These costs decreased from $92,789 in 2002 to $60,925 in
2003, primarily due to legal and repossession expenses incurred in 2002 as a
result of past due customers. The Partnership's delinquencies and other
conditions are discussed in more detail in the following paragraphs and in the
Partnership's Form 10-K for the year ended December 31, 2002.
The telecommunications industry has seen a significant downturn in recent years
that has adversely affected the Partnership. The value of payphones and payphone
routes has declined substantially in recent years and is due to various factors,
including but not limited to the following:
o Lack of sufficient dial around revenues for payphone operators
o Decrease in usage of payphones, due to the use of mobile phones, etc.
o Lack of economies of scale being achieved with the cost of lines purchased
from local exchange carriers
o Lack of available capital for payphone operators
o Decrease in the number of payphone operators
Management believes that these conditions may be overcome if current lobbying
efforts are successful and economic conditions become more favorable for
payphone operators. However, no assurance can be given that any of these
conditions may improve or that current values in the telecommunications industry
will not continue to decline.
The allowance for possible loan and lease losses is based upon a continuing
review of past lease loss experience, current economic conditions, and the
underlying lease asset value of the portfolio. At the end of each quarter a
review of the allowance account is conducted. The Partnership has a total
8
allowance of $1,029,687 ($35,396 relating to other receivables) or 34% of the
portfolio of leases and notes and other receivables as of March 31, 2003. The
Partnership's provision for possible loan and lease losses was $4,000 for the
first quarter of 2003 compared to $170,300 for the first quarter of 2002, and is
the result of various lease and note contract delinquencies and bankruptcy
filings by several customers. Management will continue to monitor the portfolio
of leases and notes and adjust the allowance for possible loan and lease losses
accordingly.
At March 31, 2003, 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
$1,044,095. Management will continue to monitor the past due contracts and take
the necessary steps to protect the Partnership's investment.
The telecommunications industry has seen a significant downturn in recent years
that has adversely affected the Partnership. The net investment on the above
delinquencies of $1,044,095 represents approximately 36% of the Partnership's
total portfolio of leases and notes. Management believes its total allowance of
$1,029,687 is adequate for these customers and the remainder of the portfolio
and other receivables at March 31, 2003, based on the underlying collateral
values of the lease and note contracts for past due contracts and historical
loss ratios. However, no assurance can be given that future losses or increases
in the total allowance will not be necessary.
The Partnership's portfolio of leases and notes receivable are concentrated in
pay telephones, and office and computer equipment, representing approximately
63%, and 21%, respectively, of the portfolio at March 31, 2003. One lessee
accounts for approximately 15% of the Partnership's portfolio at March 31, 2003,
and this lessee was past due over 90 days.
Berthel Fisher & Company, Inc., the parent of the General Partner, has $2.2
million of unsecured debt that was due December 31, 2002. Berthel Fisher &
Company, Inc. has not paid this debt as of the filing of this report and is in
default. Since Berthel Fisher & Company, Inc. is in default, its creditors could
take legal action to enforce their right to repayment. Ultimately, this could
result in the bankruptcy of Berthel Fisher & Company, Inc. Since the General
Partner is a subsidiary and asset of Berthel Fisher & Company, Inc., the
bankruptcy of Berthel Fisher & Company, Inc. could cause the General Partner to
be unable to continue as a going concern. If this were to happen, the
Partnership would need to elect or appoint a new general partner. The new
general partner could require additional fees and charges that would have a
significant negative impact on the operations of the Partnership.
Liquidity and Capital Resources
The Partnership is required to establish working capital reserves of no less
than 1% of the total capital raised to satisfy general liquidity requirements,
operating costs of equipment, and the maintenance and refurbishment of
equipment. At March 31, 2003, that working capital reserve, as defined, would be
$125,930, and the Partnership had this amount available from its cash and cash
equivalents.
Cash flow from operating activities was a use of cash of $48,175 for the first
three months of 2003, compared to a source of cash of $31,311 for the same
period a year ago, resulting from the income from direct financing leases and
notes received less operating expenses. Cash flow from investing activities was
$728,744 for 2003, compared to $385,662 for 2002. The Partnership used $896,856
of cash for financing activities during the first three months of 2003, compared
to a use of cash of $408,693 a year ago.
9
Given the current market in general as well as the specific telecommunications
market, the General Partner has determined to limit its investment in new leases
and notes receivable at this time. As cash is available, the General Partner
will continue to assess market conditions to determine whether to make
distributions or reinvest in new leases and notes receivable during the
remaining operating phase of the Partnership. Accordingly, during the first
quarter of 2003, the Partnership received proceeds of $556,988 from the
termination of lease and note contracts and made a cash distribution instead of
reinvesting in leases or notes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Interest Rate Sensitivity
The table below presents the principal amounts due and related weighted average
interest rates by expected maturity dates pertaining to the Partnership's notes
receivable as of March 31, 2003.
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2003 $ 236,215 13.90%
2004 280,225 13.99%
2005 241,319 14.68%
2006 162,410 16.96%
2007 and thereafter 193,492 17.00%
-------------
Total $ 1,113,661
=============
Fair Value $ 779,000
=============
The Partnership manages interest rate risk, its primary market risk exposure, by
limiting terms of notes receivable to no more than five years and generally
requiring full repayment ratably over the term of the note.
Item 4. Controls and Procedures
-----------------------
An evaluation was performed under the supervision and with the participation of
the Partnership's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures within 90 days before the
filing date of this report. Based on that evaluation, the Partnership's
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that the Partnership's disclosure controls and procedures were
effective in timely alerting them to material information relating to the
Partnership required to be included in the Partnership's periodic SEC filings.
There have been no significant changes in the Company's internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation, and no corrective actions with regards to significant
deficiencies and material weaknesses, of which none were noted, were required.
Part II. Other Information
Item 6. Exhibits
--------
Exhibit 99.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350
Exhibit 99.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350
10
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 8, 2003 /s/ Ronald O. Brendengen
----------- -----------------------------------
Ronald O. Brendengen,
Chief Financial Officer,
Treasurer
Date: May 8, 2003 /s/ Daniel P. Wegmann
----------- -----------------------------------
Daniel P. Wegmann, Controller
11
FORM OF SECTION 302 CERTIFICATION
I, Thomas J. Berthel, President and Chief Executive Officer of Berthel Fisher &
Company Leasing, Inc., the General Partner of Telecommunications Income Fund XI,
L.P., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telecommunications
Income Fund XI, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 8, 2003 /s/ Thomas J. Berthel
-----------------------------------
Thomas J. Berthel
President and Chief Executive
Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income
Fund XI, L.P.
12
FORM OF SECTION 302 CERTIFICATION
I, Ronald O. Brendengen, Chief Financial Officer of Berthel Fisher & Company
Leasing, Inc., the General Partner of Telecommunications Income Fund XI, L.P.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Telecommunications
Income Fund XI, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 8, 2003 /s/ Ronald O. Brendengen
-----------------------------------
Ronald O. Brendengen
Chief Financial Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income
Fund XI, L.P.
13