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, 1996
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 4000
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, 1996
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets-September 30, 1996 and
December 31, 1995 3
Statements of Income-Three and Nine months ended
September 30, 1996 and 1995 4
Statements of Cash Flows-Nine months ended
September 30, 1996 and 1995 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 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
2
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Cash and cash equivalents $2,170,883 $1,729,305
Accounts receivable, net 259,130 350,017
Net investment in direct finance leases 392,041 686,540
Leased equipment, net 1,858,205 3,929,530
---------- ----------
Total assets $4,680,259 $6,695,392
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 241,072 $ 234,234
Payable to affiliates 8,006 10,470
Rents and sale proceeds received in advance 36,155 66,876
Distributions payable to partners 1,355,629 853,980
----------- -----------
Total liabilities 1,640,862 1,165,560
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General partners (578,739) (578,739)
Limited partners:
Class A 1,557,057 3,945,652
Class B 2,061,079 2,162,919
----------- -----------
Total partners' capital 3,039,397 5,529,832
----------- -----------
Total liabilities and partners' capital $ 4,680,259 $ 6,695,392
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NORTHSTAR INCOME FUND-I L.P.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Operating lease rentals $ 379,425 $ 881,447 $1,259,049 $2,399,117
Direct financing lease income 29,193 37,095 112,565 107,495
Equipment sales margin 211,354 77,416 478,455 165,077
Interest income 18,483 36,039 96,821 106,094
Other income - 355,889 - 355,889
---------- ---------- ---------- ----------
Total revenue 638,455 1,387,886 1,946,890 3,133,672
---------- ---------- ---------- ----------
EXPENSES:
Depreciation and amortization 272,832 545,539 929,493 1,670,314
Provision for losses - - - -
Management fees paid to general partners 18,832 43,253 66,115 105,343
Direct services from general partners 14,281 13,899 50,433 49,198
General and administrative 32,047 29,747 206,777 111,404
---------- ---------- ---------- ----------
Total expenses 337,992 632,438 1,252,818 1,936,259
---------- ---------- ---------- ----------
NET INCOME $ 300,463 $ 755,448 $ 694,072 $1,197,413
========== ========== ========== ==========
NET INCOME ALLOCATED:
To the general partners $ 47,447 $ 63,767 $ 111,458 $ 135,355
To the Class A limited partners 235,710 644,375 542,766 989,421
To the Class B limited partner 17,306 47,306 39,848 72,637
---------- ---------- ---------- ----------
$ 300,463 $ 755,448 $ 694,072 $1,197,413
========== ========== ========== ==========
Net income per weighted average Class A
limited partner unit outstanding $ 2.25 $ 6.15 $ 5.18 $ 9.44
========== ========== ========== ==========
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.
4
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
---------------------------
September 30, September 30,
1996 1995
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,124,438 $ 3,750,595
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (2,682,860) (3,946,798)
----------- -----------
Net cash used in financing activities (2,682,860) (3,946,798)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 441,578 (196,203)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,729,305 2,923,146
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,170,883 $ 2,726,943
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
<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 only of normal recurring adjustments) considered
necessary for a fair presentation have been included. The balance sheet at
December 31, 1995 has been derived from the audited financial statements
included in the Partnership's 1995 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, 1995, (the
"1995 Form 10-K") previously filed with the Securities and Exchange
Commission.
6
<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 Statements of Condensed Statements of
Income for the three months The effect on Income for the nine months The effect on
ended September 30, net income of ended September 30, net income of
---------------------------- changes between ---------------------------- changes between
1996 1995 periods 1996 1995 periods
------------ ------------- ---------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 135,786 $ 373,003 $ (237,217) $ 442,121 $ 836,298 $ (394,177)
Equipment sales margin 211,354 77,416 133,938 478,455 165,077 313,378
Interest income 18,483 36,039 (17,556) 96,821 106,094 (9,273)
Other income - 355,889 (355,889) - 355,889 (355,889)
Management fees paid to
general partners (18,832) (43,253) 24,421 (66,115) (105,343) 39,228
Direct services from general
partners (14,281) (13,899) (382) (50,433) (49,198) (1,235)
General and administrative (32,047) (29,747) (2,300) (206,777) (111,404) (95,373)
Provision for losses - - - - - -
----------- --------- ---------- ---------- ----------- ----------
Net income $ 300,463 $ 755,448 $ (454,985) $ 694,072 $ 1,197,413 $ (503,341)
=========== ========= ========== ========== =========== ==========
</TABLE>
The Partnership is in its liquidation period, as defined in the Partnership
Agreement 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, both the size of the
Partnership's leasing portfolio and the amount of leasing revenue are declining
(referred to in this discussion as "portfolio run-off").
LEASING MARGIN
Leasing margin consists of the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating lease rentals $ 379,425 $ 881,447 $ 1,259,049 $ 2,399,117
Direct financing lease income 29,193 37,095 112,565 107,495
Depreciation and amortization (272,832) (545,539) (929,493) (1,670,314)
----------- ----------- ----------- -----------
Leasing margin $ 135,786 $ 373,003 $ 442,121 $ 836,298
=========== =========== =========== ===========
Leasing margin ratio 33% 41% 32% 33%
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LEASING MARGIN, continued
Leasing margin decreased, and is expected to decrease further, primarily as a
result of portfolio run-off. Leasing margin ratio decreased primarily due to a
decline in remarketing revenue from month-to-month rentals. Remarketing revenue
(including month-to-month rentals) will normally vary as initial lease terms
expire. If the variance is large enough, it can disproportionately influence the
leasing margin ratio.
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,
---------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Equipment sales revenue $ 754,575 $ 377,803 $ 1,468,267 $ 533,558
Cost of equipment sales (543,221) (300,387) (989,812) (368,481)
----------- ----------- ----------- ----------
Equipment sales margin $ 211,354 $ 77,416 $ 478,455 $ 165,077
=========== ============ ============ ==========
</TABLE>
The Partnership is in its liquidation period. During the liquidation period, as
initial leases terminate, the equipment is being 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 cannot be projected accurately.
OTHER INCOME
Other income realized during third quarter 1995 consisted of the collection of
previously charged-off accounts receivable from Financial News Network.
8
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 losses.
Residual values are established equal to the estimated value to be received from
the equipment following termination of the lease. In estimating such values, the
Partnership considers all relevant facts regarding the equipment and the lessee,
including, for example, the likelihood that the lessee will re-lease the
equipment. The nature of the Partnership's leasing activities is that it has
credit exposure and residual value exposure and, accordingly, in the ordinary
course of business, it will incur losses from those exposures. The Partnership
performs ongoing quarterly assessments of its assets to identify any
other-than-temporary losses in value.
No provisions for losses were recorded during either the three and nine months
ended September 30, 1996 or the corresponding periods in 1995 because no
other-than-temporary losses in the value of equipment were identified in the
quarterly assessments of the Partnership's assets.
EXPENSES
General and administrative expenses increased primarily due to (i) $67,194
reimbursed to the CAI general partner during the second quarter 1996 for
insurance costs related to prior years and (ii) shipping costs related to
certain equipment returned to the Partnership.
Management fees decreased primarily as a result of portfolio run-off.
Liquidity and Capital Resources
- -------------------------------
The Partnership funds its activities principally with cash from rents, interest
income and sale 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, 1996, the Partnership declared
distributions to the Partners of $3,184,508 (a substantial portion of which
constituted a return of capital). 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. However, as the general partners have
represented for the last several years, a substantial portion of all
distributions to the partners is expected to be a return of capital.
9
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources, continued
- -------------------------------
The general partners currently anticipate that the Partnership will generate
cash flow from operations and equipment sales during 1996 which, when added to
cash and cash equivalents on hand, should provide sufficient cash to enable the
Partnership to meet its current operating requirements.
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 1996 distributions
to the limited partners (a substantial portion of which is expected to
constitute returns of capital) out of cash from operations and cash from sales
during the remainder of 1996. Because of portfolio runoff, it is anticipated
that cash from operations in 1996 will decrease relative to cash from operations
in 1995. Therefore, the Partnership is not expected to have sufficient cash
available in 1996 to fully fund cash distributions to the Class A limited
partners at annualized rates of 14% (see discussion below). The Partnership is
in its liquidation period (as defined in the Partnership Agreement).
Distributions during the liquidation period will be based upon cash availability
and will vary. The General Partner's current intent is to sell the Partnership's
equipment and liquidate the Partnership no later than December 31, 1997. As the
Partnership's equipment is sold, proceeds from such sales will be distributed
also.
The Class B distributions of cash from operations are subordinated to the Class
A limited partners receiving distributions of cash from operations, as scheduled
in the Partnership Agreement (i.e., 14%). Therefore, because of the decrease in
the distributions to the Class A limited partners effective as of March 1994,
CAII, the sole Class B limited partner, ceased receiving distributions of cash
from operations as of March 1994. The general partners currently anticipate that
CAII will receive total future Class B distributions of less than 25% of the
Class B limited partner's capital shown on the accompanying Balance Sheets.
10
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is involved in routine legal proceedings incidental
to the conduct of its business. The general partners believe none of
these legal proceedings will have a material adverse effect on the
financial condition or operations of the Partnership.
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, 1996.
11
<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 1, 1996 By: /s/John E. Christensen
----------------------
John E. Christensen
Senior Vice President,
Chief Administrative Officer and Director
12
<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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,170,883
<SECURITIES> 0
<RECEIVABLES> 259,130
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,858,205
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,680,259
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,039,397
<TOTAL-LIABILITY-AND-EQUITY> 4,680,259
<SALES> 478,455
<TOTAL-REVENUES> 1,946,890
<CGS> 0
<TOTAL-COSTS> 1,252,818
<OTHER-EXPENSES> 116,548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 694,072
<INCOME-TAX> 0
<INCOME-CONTINUING> 694,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 694,072
<EPS-PRIMARY> 5.18
<EPS-DILUTED> 5.18
</TABLE>
