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 March 31, 1996
-------------------------------------------------
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 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 12
Page 1 of 13 Pages
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Quarterly Report on Form 10-Q
for the Quarter Ended
March 31, 1996
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Balance Sheets-March 31, 1996 and December 31, 1995 3
Statements of Income-Three months ended
March 31, 1996 and 1995 4
Statements of Cash Flows-Three months ended
March 31, 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 6. Exhibits and Reports on Form 8-K 11
Signature 13
2
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
ASSETS
Cash and cash equivalents $ 1,942,390 $ 1,729,305
Accounts receivable, net 289,900 350,017
Net investment in direct finance leases 600,157 686,540
Leased equipment, net 3,218,888 3,929,530
----------- -----------
Total assets $ 6,051,335 $ 6,695,392
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 129,910 $ 234,234
Payable to affiliates 8,477 10,470
Rents and sale proceeds received in advance 53,929 66,876
Distributions payable to partners 1,091,158 853,980
----------- -----------
Total liabilities 1,283,474 1,165,560
----------- -----------
Partners' Capital (Deficit):
General partners (578,739) (578,739)
Limited partners:
Class A 3,202,648 3,945,652
Class B 2,143,952 2,162,919
----------- -----------
Total partners' capital 4,767,861 5,529,832
----------- -----------
Total liabilities and partners' capital $ 6,051,335 $ 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)
Three Months Ended
March 31,
--------------------
1996 1995
-------- --------
Revenue:
Operating lease rentals $529,187 $749,438
Direct financing lease income 38,421 37,635
Equipment sales margin 171,501 63,437
Interest income 25,526 38,961
-------- --------
Total revenue 764,635 889,471
-------- --------
Expenses:
Depreciation and amortization 346,227 571,298
Provision for losses - -
Management fees paid to general partners 23,346 34,072
Direct services from general partners 16,426 19,097
General and administrative 49,450 38,518
-------- --------
Total expenses 435,449 662,985
-------- --------
Net income $329,186 $226,486
======== ========
Net income allocated:
To the general partners $ 38,190 $ 39,386
To the Class A limited partners 271,094 174,304
To the Class B limited partner 19,902 12,796
-------- --------
$329,186 $226,486
======== ========
Net income per weighted average Class A
limited partner unit outstanding $ 2.59 $ 1.66
======== ========
Weighted average Class A limited partner
units outstanding 104,802 104,802
======== ========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
-------------------------
1996 1995
----------- -----------
Net cash provided by operating activities $ 1,067,065 $ 1,090,521
----------- -----------
Cash flows from financing activities:
Distributions to partners (853,980) (1,901,420)
----------- -----------
Net cash used in financing activities (853,980) (1,901,420)
----------- -----------
Net increase (decrease) in cash and cash equivalents 213,085 (810,899)
Cash and cash equivalents at beginning of period 1,729,305 2,923,146
----------- -----------
Cash and cash equivalents at end of period $ 1,942,390 $ 2,112,247
=========== ===========
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 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, 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 Income
for the three months The effect on
ended March 31, net income of
---------------------------- changes between
1996 1995 periods
----------- ---------- ---------------
<S> <C> <C> <C>
Leasing margin $ 221,381 $ 215,775 $ 5,606
Equipment sales margin 171,501 63,437 108,064
Interest income 25,526 38,961 (13,435)
Management fees paid to general partners (23,346) (34,072) 10,726
Direct services from general partners (16,426) (19,097) 2,671
General and administrative expenses (49,450) (38,518) (10,932)
Provision for losses - - -
--------- --------- ----------
Net income $ 329,186 $ 226,486 $ 102,700
========= ========= ==========
</TABLE>
The Partnership is in its liquidation period, as set forth in the Partnership
Agreement. As expected, new equipment purchases have discontinued (other than
for upgrades), 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 Partnership leasing revenue and expenses are
declining (referred to in this discussion as "portfolio run-off").
LEASING MARGIN
Leasing margin consists of the following:
Three months ended
March 31,
-------------------------
1996 1995
--------- ----------
Operating lease rentals $ 529,187 $ 749,438
Direct finance lease income 38,421 37,635
Depreciation and amortization (346,227) (571,298)
--------- ---------
Leasing margin $ 221,381 $ 215,775
========= =========
Leasing margin ratio 39% 27%
========= =========
7
<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
The components of leasing margin have decreased and are expected to decrease
further primarily as a result of portfolio run-off. The leasing margin ratio
increased primarily as a result of a larger portion of the portfolio consisting
of remarketed leases with higher leasing margin ratios.
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:
Three months ended
March 31,
-----------------------
1996 1995
--------- ---------
Equipment sale revenue $ 402,792 $ 131,450
Cost of equipment sales (231,291) (68,013)
--------- ---------
Equipment sales margin $ 171,501 $ 63,437
========= =========
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.
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.
8
<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, continued
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 the first three months of 1996 and
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 for the three months ended March 31, 1996
compared to the corresponding period in 1995 increased primarily due to 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 three months ended March 31, 1996, the Partnership declared
distributions to the Partners of $1,091,158 (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
(continued)
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 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) almost entirely out of cash from operations and
cash from sales during the remainder of 1996. Because of the continuing decrease
in the size of the Partnership's lease portfolio, 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 Sheet.
10
<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 March 31, 1996.
11
<PAGE>
Item No. Exhibit Index
- -------- -------------
27 Financial Data Schedule
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: May 8, 1996 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,942,390
<SECURITIES> 0
<RECEIVABLES> 289,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,218,888
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,051,335
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,767,861
<TOTAL-LIABILITY-AND-EQUITY> 6,051,335
<SALES> 171,501
<TOTAL-REVENUES> 764,635
<CGS> 0
<TOTAL-COSTS> 435,449
<OTHER-EXPENSES> 39,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 329,186
<INCOME-TAX> 0
<INCOME-CONTINUING> 329,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329,186
<EPS-PRIMARY> 2.59
<EPS-DILUTED> 2.59
</TABLE>
