SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------------
Commission file number 0-18558
---------------------------------------------------------
Northstar Income Fund-I, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1105225
- - ------------------------------------ ------------------------------------
(State of organization) (I.R.S. Employer Identification No.)
7175 West Jefferson Avenue, Suite 3000
Lakewood, Colorado 80235
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 980-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 filing
requirements for the past 90 days. Yes x No
--- ---.
Exhibit Index Appears on Page 11
Page 1 of 12 Pages
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Quarterly Report on Form 10-Q
for the Quarter Ended
September 30, 1995
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Balance Sheets-September 30, 1995 and December 31, 1994 3
Statements of Income-Three and Nine months ended
September 30, 1995 and 1994 4
Statements of Cash Flows-Nine months ended
September 30, 1995 and 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
3
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
------------- ------------
ASSETS
Cash and cash equivalents $ 2,726,943 $ 2,923,146
Accounts receivable, net 119,276 255,573
Net investment in direct finance leases 865,839 1,659,152
Equipment on operating leases, net 4,564,913 6,339,656
----------- ------------
Total assets $ 8,276,971 $ 11,177,527
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 126,032 $ 313,083
Payable to affiliates 15,782 12,339
Rents and sale proceeds received in advance 105,937 73,499
Distributions payable to partners 1,821,901 1,901,420
----------- ------------
Total liabilities 2,069,652 2,300,341
----------- ------------
Partners' Capital (Deficit):
General partners (578,739) (578,739)
Limited partners:
Class A 4,632,688 7,323,704
Class B 2,153,370 2,132,221
----------- ------------
Total partners' capital 6,207,319 8,877,186
----------- ------------
Total liabilities and partners' capital $ 8,276,971 $ 11,177,527
=========== ============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NORTHSTAR INCOME FUND-I L.P.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine months ended
----------------------------- -------------------------
September 30, September 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Operating lease rentals $ 881,447 $ 999,234 $ 2,399,117 $ 3,263,536
Direct financing lease income 37,095 47,270 107,495 154,401
Equipment sales margin 77,416 57,282 165,077 625,905
Interest income 36,039 25,363 106,094 109,453
Other income 355,889 - 355,889 146,000
----------- ----------- ----------- -----------
Total revenue 1,387,886 1,129,149 3,133,672 4,299,295
----------- ----------- ----------- -----------
Expenses:
Depreciation and amortization 545,539 717,465 1,670,314 2,486,351
Provision for losses - - - 110,666
Management fees paid to general partners 43,253 27,014 105,343 111,000
Direct services from general partners 13,899 13,836 49,198 57,598
General and administrative 29,747 114,192 111,404 247,840
----------- ----------- ----------- -----------
Total expenses 632,438 872,507 1,936,259 3,013,455
----------- ----------- ----------- -----------
Net income $ 755,448 $ 256,642 $ 1,197,413 $ 1,285,840
=========== =========== =========== ===========
Net income allocated:
To the general partners $ 63,767 $ 78,252 $ 135,355 $ 248,365
To the Class A limited partners 644,375 166,191 989,421 966,520
To the Class B limited partner 47,306 12,199 72,637 70,955
----------- ----------- ----------- -----------
$ 755,448 $ 256,642 $ 1,197,413 $ 1,285,840
=========== =========== =========== ===========
Net income per
weighted average Class A
limited partner unit outstanding $ 6.15 $ 1.59 $ 9.44 $ 9.22
=========== =========== =========== ===========
Weighted average Class A
limited partner units outstanding 104,802 104,802 104,802 104,802
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
---------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 3,750,595 $ 6,043,053
------------ -------------
Cash flows from investing activities:
Purchases from affiliate of equipment on operating leases - (234,693)
------------ -------------
Net cash used in investing activities - (234,693)
------------ -------------
Cash flows from financing activities:
Distributions to partners (3,946,798) (6,900,542)
------------ -------------
Net cash used in financing activities (3,946,798) (6,900,542)
------------ -------------
Net decrease in cash and cash equivalents (196,203) (1,092,182)
Cash and cash equivalents at beginning of period 2,923,146 4,429,998
------------ -------------
Cash and cash equivalents at end of period $ 2,726,943 $ 3,337,816
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information
and disclosures required by generally accepted accounting principles for
annual financial statements. In the opinion of the general partners, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. The balance sheet at
December 31, 1994 has been derived from the audited financial statements
included in the Partnership's 1994 Form 10-K. For further information,
refer to the financial statements of Northstar Income Fund-I, L.P. (the
"Partnership"), and the related notes, included within the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1994, (the
"1994 Form 10-K") previously filed with the Securities and Exchange
Commission.
2. Equipment Purchases
-------------------
The Partnership is in its liquidation period, as defined in the
Partnership Agreement and as set forth in the Prospectus, and made no
equipment purchases during the nine months ended September 30, 1995. It is
not anticipated that the Partnership will acquire any material amount of
equipment in future periods.
3. Bankrupt Lessee
---------------
During November 1995, a lessee filed for bankruptcy protection under
Chapter 11 of the Bankruptcy code. The aggregate net book value of
equipment under two leases with this lessee was $362,332 at September 30,
1995. Potential outcomes are (i) the lessee affirms its leases and the
Partnership collects all rents due under the leases or (ii) the lessee
rejects one or both of the leases and returns the underlying equipment to
the Partnership. If the leases are rejected and the equipment is returned
to the Partnership, it is possible that remarketing proceeds will be less
than the net book value of the equipment. However, if the lessee affirms
the leases, the Partnership would not be subject to a loss. The lessee has
paid its rental payment obligations through September 30, 1995 and is
expected to affirm the leases. However, the lessee has not made their
intentions known in writing at this time and, accordingly, the amount of
loss, if any, cannot be determined as of September 30, 1995. Regardless of
the lessee's decision to accept or reject the leases, the general partner
believes that the ultimate outcome will not have a material adverse impact
on the Partnership's financial position.
7
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- - ---------------------
Presented below are schedules (prepared solely to facilitate the discussion of
results of operations that follows) showing condensed statements of income
categories and analyses of changes in those condensed categories derived from
the Statements of Income:
<TABLE>
<CAPTION>
Condensed Condensed
Statements of Income Statements of Income
for the Three Months The effect on for the Nine Months The effect on
ended September 30, net income of ended September 30, net income of
-------------------- changes between --------------------- changes between
1995 1994 periods 1995 1994 periods
-------- -------- --------------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 373,003 $ 329,039 $ 43,964 $ 836,298 $ 931,586 $ (95,288)
Equipment sales margin 77,416 57,282 20,134 165,077 625,905 (460,828)
Interest income 36,039 25,363 10,676 106,094 109,453 (3,359)
Other income 355,889 - 355,889 355,889 146,000 209,889
Management fees paid
to general partner (43,253) (27,014) (16,239) (105,343) (111,000) 5,657
Direct services from
general partner and
general and
administrative expenses (43,646) (128,028) 84,382 (160,602) (305,438) 144,836
Provision for losses - - - - (110,666) 110,666
---------- ---------- --------- ----------- ----------- ----------
Net income $ 755,448 $ 256,642 $ 498,806 $ 1,197,413 $ 1,285,840 $ (88,427)
========== ========== ========= =========== =========== ==========
</TABLE>
Leasing Margin
- - --------------
The Partnership is in its liquidation period, as set forth in the Prospectus,
and as expected, the Partnership is not purchasing additional equipment, initial
leases are expiring and the equipment is being remarketed (i.e., re-leased,
renewed or sold). As a result, the size of the Partnership's leasing portfolio
and the amount of leasing revenue is declining (referred to in this discussion
as "portfolio run-off").
Leasing margin consists of the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- ---------------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Operating lease rentals $ 881,447 $ 999,234 $ 2,399,117 $ 3,263,536
Direct finance lease income 37,095 47,270 107,495 154,401
Depreciation and amortization (545,539) (717,465) (1,670,314) (2,486,351)
---------- ---------- ------------ ------------
Leasing margin $ 373,003 $ 329,039 $ 836,298 $ 931,586
========== ========== ============ ============
Leasing margin ratio 41% 31% 33% 27%
========== ========== ============ ============
</TABLE>
8
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Leasing Margin, continued
- - -------------------------
Leasing margin increased for the three months ended September 30, 1995 compared
to the three months ended September 30, 1994 primarily as a result of increased
continuous bill rents from remarketing activities.
Leasing margin decreased for the nine months ended September 30, 1995 compared
to the nine months ended September 30, 1994 due to portfolio run-off.
Leasing margin ratio increased primarily as a result of remarketing activities,
which include the rental proceeds from renewing, extending or re-leasing
equipment before and after the end of the initial lease term.
The ultimate rate of return on leases depends, in part, on the general level of
interest rates at the time the leases are originated. Because leasing is an
alternative to financing equipment purchases with debt, lease rates tend to rise
and fall with interest rates (although lease rate movements generally lag
interest rate changes in the capital markets). Interest rates declined from 1990
until the early part of 1994. The lease rates on equipment purchased during this
period reflect this low interest rate environment. This will result in
corresponding reductions in the ultimate overall yields to partners.
Equipment Sales Margin
- - ----------------------
Equipment sales margin consists of the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Equipment sale revenue $ 377,803 $ 405,352 $ 533,558 $ 2,648,018
Cost of equipment sales (300,387) (348,070) (368,481) (2,022,113)
---------- ---------- ---------- ------------
Gain on sale of equipment, net $ 77,416 $ 57,282 $ 165,077 $ 625,905
========== ========== ========== ============
</TABLE>
The Partnership is in its liquidation period. During the liquidation period, as
initial leases terminate, the equipment is remarketed (i.e., re-leased or sold
to either the original lessee or a third party) and, accordingly, the timing and
amount of equipment sales are difficult to predict.
Other Income
- - ------------
Other income, realized during the third quarter 1995 and the first quarter 1994,
consisted of the collection of previously charged-off accounts receivable from
Financial News Network.
9
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Provision for Losses
- - --------------------
The remarketing of equipment for an amount greater than its book value is
reported as equipment sales margin (if the equipment is sold) or as leasing
margin (if the equipment is re-leased). The realization of less than the
carrying value of equipment (which is typically not known until remarketing
subsequent to the initial lease termination has occurred) is recorded as
provision for loss. The Partnership performs ongoing quarterly assessments of
its assets to identify any "other-than-temporary" losses in value.
The provisions for losses recorded during the nine months ended September 30,
1994 related to identified "other-than-temporary" losses in value in off-lease
equipment, principally telecommunication equipment and semiconductor
manufacturing equipment.
Expenses
- - --------
The decrease in general and administrative expenses for the three and nine
months ended September 30, 1995 is primarily attributable to a reduction in
partnership level taxes paid to the State of Michigan and lower costs for
professional services.
Liquidity and Capital Resources
- - -------------------------------
The Partnership funded its activities principally with cash from rents, interest
income and sales of off-lease equipment. Available cash and cash reserves of the
Partnership are invested in interest bearing accounts and short-term U.S.
government securities pending distributions to the partners.
During the nine months ended September 30, 1995, the Partnership declared
distributions to the Partners of $3,867,279 (a substantial portion of which
constituted a return of capital) of which $1,821,901 was paid in October 1995.
Distributions may be characterized for tax, accounting and economic purposes as
a return of capital, a return on capital or both. The total return on capital
over a leasing partnership's life can only be determined at the termination of
the Partnership after all residual cash flows (which include proceeds from the
re-leasing and sale of equipment after initial lease terms expire) have been
realized.
The general partners currently anticipate that the Partnership will generate
cash flow from operations and equipment sales during 1995 which should provide
sufficient cash to enable the Partnership to meet its current operating
requirements.
10
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Liquidity and Capital Resources, continued
- - ------------------------------------------
The general partners have also identified what they believe to be an error in
the allocation of taxable income provision of the Partnership Agreement.
Specifically, the general partners are not allocated income for entire cash
distributions received resulting in a deficit capital account as shown in the
balance sheet. The status of a potential change in the allocation of taxable
income remains unresolved pending further discussions between the CAI General
Partner and the Lehman General Partner.
The Partnership anticipates that it will fund the remaining 1995 distributions
to the limited partners (a substantial portion of which is expected to
constitute returns of capital) almost entirely out of cash from operations and
cash from sales during the remainder of 1995. Because of the continuing decrease
in the size of the Partnership's lease portfolio, it is anticipated that cash
from operations in 1995 will continue to decrease relative to cash from
operations in 1994. Therefore, depending on the results of operations for the
remainder of 1995, the Partnership is not expected to have sufficient cash
available in 1995 to fully fund cash distributions to the Class A limited
partners at annualized rates of 14%. Also, the timing and amount of equipment
sales for the remainder of 1995 cannot be predicted at this time. The
Partnership will continue to make distributions consisting of cash from
operations and cash from sales. The general partners currently anticipate that
future total distributions to the Class A limited partners are expected to be in
the range of an annualized rate of 5% to 8% on their capital contributions.
11
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) The Partnership did not file any reports on Form 8-K during the
quarter ended September 30, 1995.
12
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHSTAR INCOME FUND-I, L.P.
By: CAI Equipment Leasing I Corp.
Dated: November 14, 1995 By: /s/John E. Christensen
-----------------------------------------
John E. Christensen
Senior Vice President,
Chief Administrative Officer and Director
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheets and statements of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,726,943
<SECURITIES> 0
<RECEIVABLES> 119,276
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,564,913
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,276,971
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 6,207,319
<TOTAL-LIABILITY-AND-EQUITY> 8,276,971
<SALES> 165,077
<TOTAL-REVENUES> 3,133,672
<CGS> 0
<TOTAL-COSTS> 1,936,259
<OTHER-EXPENSES> 265,945
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,197,413
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,197,413
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,197,413
<EPS-PRIMARY> 9.44
<EPS-DILUTED> 9.44
</TABLE>
