SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 Number)
7175 W. JEFFERSON AVENUE, LAKEWOOD, COLORADO 80235
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 980-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Class A
Limited Partner
Interest
(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
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K [ ].
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
Exhibit Index Appears on Page 33
Page 1 of 34 Pages
<PAGE>
Item 1. Business
--------
Northstar Income Fund-I, L.P., a Delaware limited partnership (the
"Partnership"), is engaged in the business of owning and leasing equipment. CAI
Equipment Leasing I Corp. (the "CAI General Partner"), a Colorado corporation
and a wholly owned subsidiary of Capital Associates, Inc. ("CAI"), and Northstar
Equipment Leasing Income Inc. (the "Lehman Brothers General Partner"), a
Delaware corporation and an affiliate of Lehman Brothers Inc. (formerly Shearson
Lehman Brothers Inc.), are the general partners of the Partnership (the "General
Partners" or "general partners").
Capital Associates International, Inc. ("CAII"), an affiliate of the CAI General
Partner, is the sole Class B limited partner of the Partnership. Transfer of the
Class B limited partner interest from Capital Partners Management Company (an
affiliate of the CAI General Partner), its original owner, to CAII occurred
December 26, 1990. In exchange for the Class B limited partner interest, the
Class B limited partner contributed equipment to the Partnership having an
aggregate acquisition value equal to at least $4,899,866 (which represents 10%
of the net offering proceeds received from the sale of Class A limited partner
units and the equipment contributed by the Class B limited partner). CAII is the
largest single investor in the Partnership.
Since its formation in 1988, the Partnership has acquired equipment of various
types under lease to third parties on short-term leases (generally five years or
less). All of the equipment was purchased by CAII directly from manufacturers or
from other independent third parties and sold to the Partnership. The equipment
generally consisted of, but was not limited to, office technology and
manufacturing equipment. The Partnership entered its liquidation period, as
defined in the Partnership Agreement, during 1994. Accordingly, the Partnership
did not purchase any equipment during 1996 and the Partnership will not acquire
any material amount of equipment in future periods.
The Partnership leases equipment to investment grade and noninvestment grade
lessees. Since the Partnership's formation, approximately 75% of the
Partnership's total equipment under lease was leased to investment grade
lessees. Pursuant to the Partnership Agreement, an investment grade lessee is a
company (1) with a credit rating of not less than Baa as determined by Moody's
Investor Services, Inc., (2) that has a comparable credit rating as determined
by other recognized credit rating services or, (3) if the lessee is not rated,
then a lessee whom the general partners believe would have received a rating of
Baa, or better, if the lessee would have been rated.
Upon expiration of an initial lease, the Partnership typically attempts to
re-lease or sell the equipment to the existing lessee. If a re-lease or sale to
the lessee cannot be negotiated, the Partnership attempts to lease or sell the
equipment to a third party.
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.
-2-
<PAGE>
Item 1. Business, continued
--------
The Partnership has no employees. The General Partners jointly manage and
control the affairs of the Partnership. The officers, directors and employees of
the General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to receive certain fees and
expense reimbursements in connection with the performance of these services. See
Item 10 of this Report, "Directors and Executive Officers of the Partnership"
and Item 13 of this Report, "Certain Relationships and Related Transactions".
The Partnership competes in the leasing marketplace as a lessor/seller with a
significant number of other companies, including equipment manufacturers,
leasing companies and financial institutions. The Partnership is in its
liquidation period, as defined in the Partnership Agreement, therefore the
Partnership currently competes mainly on the basis of the expertise of its
General Partners in remarketing equipment. Although the Partnership does not
account for a significant percentage of the leasing market, the General Partners
believe the Partnership's remarketing strategies will enable it to continue to
compete effectively in the remarketing markets.
The Partnership leases equipment to a significant number of lessees. No single
lessee and its affiliates accounted for more than 10% of total revenue of the
Partnership during 1996.
The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2038. However, the General Partners anticipate that all
equipment will be sold prior to that date and that the Partnership will be
liquidated earlier. The General Partners' current intent is to sell the
Partnership's equipment and liquidate the Partnership no later than December 31,
1997.
Item 2. Properties
----------
The Partnership does not own or lease any physical properties other than the
equipment discussed in Item 1 of this Report, "Business".
Item 3. Legal Proceedings
-----------------
Neither the Partnership nor any of the Partnership's equipment is the subject of
any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of the limited partners of the Partnership,
through the solicitation of proxies or otherwise, during the fourth quarter of
1996.
-3-
<PAGE>
Item 5. Market for the Partnership's Common Equity and Related Stockholder
------------------------------------------------------------------
Matters
-------
(a) The Partnership's Class A limited partner units and Class B interest
are not publicly traded. There is no established public trading market
for such units and interest, and none is expected to develop.
(b) As of December 31, 1996, the number of Class A limited partners was
3,339.
(c) Distributions
-------------
During 1996, the Partnership made four (4) quarterly distributions (a
substantial portion of which constituted a return of capital) to Class
A limited partners, as follows:
<TABLE>
<CAPTION>
Distributions
Distributions Per of Cash from Distributions of
$500 Class A limited Operations Cash from Sales
For the Payment Total partner unit (computed (computed on (computed on
Quarter Ended Made During Distributions on weighted average) weighted average) weighted average)
------------- ----------- ------------- ---------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
December 31, 1995 January 1996 $ 823,614 $ 7.86 $ 7.82 $ 0.04
March 31, 1996 April 1996 1,014,098 9.68 6.34 3.34
June 30, 1996 July 1996 681,900 6.51 3.93 2.58
September 30, 1996 October 1996 1,235,365 11.78 5.53 6.25
------------ -------- -------- ---------
$ 3,754,977 $ 35.83 $ 23.62 $ 12.21
=========== ======== ======== ========
</TABLE>
A substantial portion of such distributions is expected to constitute
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 portion of each cash distribution by a
partnership which exceeds its net income for the fiscal period may be
deemed a return of capital for accounting purposes. 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. Total distributions to Class A limited
partners were $54,405,698 from the inception of the Partnership
through December 31, 1996 ($526.22 per weighted average Class A
limited partner unit outstanding).
The distribution for the quarter ended December 31, 1996, totaling
$1,181,479 (cash from sales of $806,292 and cash from operations of
$375,187) was paid to the Class A limited partners during January
1997. Distributions to the General Partners and Class B limited
partner during 1996 are discussed in Item 13 of this Report, "Certain
Relationships and Related Transactions".
The general partners currently anticipate that the Partnership will
generate cash flow from operations and equipment sales during 1997
which, when added to cash and cash equivalents on hand, should provide
sufficient cash to enable the Partnership to meet its current
operating requirements.
-4-
<PAGE>
Item 5. Market for the Partnership's Common Equity and Related Stockholder
------------------------------------------------------------------
Matters, 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 1997 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 1997. Because of portfolio run-off, it is
anticipated that cash from operations in 1997 will decrease relative
to cash from operations in 1996. Therefore, the Partnership is not
expected to have sufficient cash available in 1997 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) and distributions
during the liquidation period will be based upon cash availability and
will vary. The general partners' 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 equal to
less than 25% of the Class B limited partner's capital shown on the
accompanying Balance Sheets.
During 1995, the Partnership made four (4) quarterly distributions (a
substantial portion of which constituted a return of capital) to Class
A limited partners, as follows:
<TABLE>
<CAPTION>
Distributions Per Distributions of Distributions of
$500 Class A limited cash from operations cash from sales
For the Payment Total partner unit (computed (computed on (computed on
Quarter Ended Made During Distributions on weighted average) weighted average) weighted average)
------------- ----------- ------------- ---------------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 January 1995 $ 1,770,854 $ 16.90 $ 13.73 $ 3.17
March 31, 1995 April 1995 1,073,237 10.24 9.15 1.09
June 30, 1995 July 1995 855,522 8.16 7.97 0.19
September 30, 1995 October 1995 1,721,677 16.43 13.30 3.13
----------- ------- ------- ------
$ 5,451,290 $ 51.73 $ 44.15 $ 7.58
=========== ======= ======= ======
</TABLE>
-5-
<PAGE>
Item 6. Selected Financial Data
-----------------------
The following selected financial data relates to 1996 through 1992. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 2,767,465 $ 3,911,086 $ 5,266,986 $ 8,223,119 $ 9,830,321
Net income 1,185,997 1,373,906 1,544,149 1,888,272 1,405,412
Net income per weighted average
Class A limited partner unit outstanding 9.14 10.74 11.20 14.25 11.05
Total assets 4,244,705 6,695,392 11,177,527 18,218,316 24,549,866
Distributions declared to partners 4,501,676 4,721,260 8,118,393 8,160,752 8,160,752
Distributions declared per weighted average
Class A limited partner unit outstanding 39.24 42.98 70.99 70.00 70.00
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
Presented below are schedules (prepared solely to facilitate 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
for the years The effect on Income for the years The effect on
ended December 31, net income of ended December 31, net income of
------------------------------ changes ------------------------ changes
1996 1995 between years 1995 1994 between years
------------ -------------- -------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 567,279 $ 1,050,155 $ (482,876) $ 1,050,155 $ 1,230,819 $ (180,664)
Equipment sales margin 940,938 166,969 773,969 166,969 652,803 (485,834)
Interest income 83,396 131,832 (48,436) 131,832 155,170 (23,338)
Other income 33,310 355,889 (322,579) 355,889 146,000 209,889
Provision for losses - - - - (110,666) 110,666
Management fees paid to general partners (99,174) (132,506) 33,332 (132,506) (155,610) 23,104
Direct services from general partner (65,750) (60,768) (4,982) (60,768) (70,003) 9,235
General and administrative expenses (274,002) (137,665) (136,337) (137,665) (304,364) 166,699
------------ ----------- ---------- ---------- ---------- ----------
Net income $ 1,185,997 $ 1,373,906 $ (187,909) $ 1,373,906 $ 1,544,149 $ (170,243)
=========== =========== =========== =========== =========== ==========
</TABLE>
-6-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations, continued
---------------------
Results of Operations, continued
- ---------------------
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:
Years ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
Operating lease rentals $ 1,577,529 $ 3,122,669 $ 4,113,706
Direct finance lease income 132,292 133,727 199,307
Depreciation and amortization (1,142,542) (2,206,241) (3,082,194)
------------- ------------ ------------
Leasing margin $ 567,279 $ 1,050,155 $ 1,230,819
============= ============ ============
Leasing margin ratio 33% 32% 29%
== == ==
Leasing margin decreased, and is expected to decrease further, primarily as a
result of portfolio run-off.
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 reflects 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:
Years ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
Equipment sales revenue $ 2,396,640 $ 538,504 $ 2,686,138
Cost of equipment sales (1,455,702) (371,535) (2,033,335)
------------ ------------- ------------
Equipment sales margin $ 940,938 $ 166,969 $ 652,803
============= ============= =============
-7-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations, continued
---------------------
Results of Operations, continued
- ---------------------
EQUIPMENT SALES MARGIN, continued
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.
INTEREST INCOME
The decline in interest income is due to decreases in excess cash available for
investment.
OTHER INCOME
Other income consisted of previously charged-off accounts receivable from
Financial News Network.
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 provision for losses were recorded in 1996 or 1995 because no
other-than-temporary losses in the value of equipment were identified in the
quarterly assessments of the Partnership's assets. The provisions for losses
recorded during 1994 related to identified other-than-temporary losses in value
of off-lease equipment, principally telecommunication equipment, and estimates
of asset impairment related principally to office automation, grocery and
semiconductor manufacturing equipment. Certain equipment of these types was
returned at lease termination, as opposed to being renewed or purchased, which
contributed to the Partnership's inability to fully recover the recorded
residual values for the equipment at sale.
-8-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations, continued
---------------------
Results of Operations, continued
- ---------------------
EXPENSES
Management fees paid to general partners decreased due to portfolio run-off.
General and administrative expenses increased in 1996 as compared to 1995 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 and warehouse costs
related to certain equipment returned to the Partnership.
General and administrative expenses decreased in 1995 as compared to 1994
primarily because 1994 included significant expenses attributable to partnership
level taxes paid to the State of Michigan and increased costs for professional
services.
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 1996, 1995 and 1994, the Partnership declared distributions to the
partners of $ 4,501,676, $4,721,260 and $8,118,393, respectively (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.
The general partners currently anticipate that the Partnership will generate
cash flow from operations and equipment sales during 1997 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.
-9-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Partnership anticipates that it will fund 1997 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 1997. Because of
portfolio run-off, it is anticipated that cash from operations in 1997 will
decrease relative to cash from operations in 1996. Therefore, the Partnership is
not expected to have sufficient cash available in 1997 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) and distributions during the liquidation period will
be based upon cash availability and will vary. The general partners' 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 equal to less than 25% of
the Class B limited partner's capital shown on the accompanying Balance Sheet.
-10-
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Financial Statements and
Financial Statement Schedule
Page
Number
------
Financial Statements
--------------------
Independent Auditors' Report 12
Balance Sheets at December 31, 1996 and 1995 13
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 14
Statements of Partners' Capital for the years
ended December 31, 1996, 1995 and 1994 15
Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 16
Notes to Financial Statements 17-25
Financial Statement Schedule
----------------------------
Independent Auditors' Report 26
Schedule II - Valuation and Qualifying Accounts 27
-11-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE PARTNERS
NORTHSTAR INCOME FUND-I, L.P.:
We have audited the accompanying balance sheets of Northstar Income Fund-I L.P.
as of December 31, 1996 and 1995, and the related statements of income,
partners' capital, and cash flows for each of the years in the three-year period
ended December 31, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northstar Income Fund-I, L.P.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
January 31, 1997
-12-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
BALANCE SHEETS
ASSETS
December 31,
--------------------------
1996 1995
---- ----
Cash and cash equivalents $2,456,349 $1,729,305
Accounts receivable 278,149 350,017
Equipment held for sale or re-lease 324,180 14,133
Net investment in direct finance leases 131,963 686,540
Leased equipment, net 1,054,064 3,915,397
---------- ----------
Total assets $4,244,705 $6,695,392
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 672,315 $ 234,234
Payable to affiliates 22,881 10,470
Rents received in advance 18,188 66,876
Distributions payable to partners 1,317,168 853,980
----------- -----------
Total liabilities 2,030,552 1,165,560
----------- -----------
Partners' Capital (Deficit):
General partners (578,739) (578,739)
Limited partners:
Class A 300,000 units authorized;
104,802 units issued and outstanding 790,910 3,945,652
Class B 2,001,982 2,162,919
----------- -----------
Total partners' capital 2,214,153 5,529,832
----------- -----------
Total liabilities and partners' capital $ 4,244,705 $ 6,695,392
=========== ===========
See accompanying notes to financial statements.
-13-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
Operating lease rentals $1,577,529 $3,122,669 $4,113,706
Direct finance lease income 132,292 133,727 199,307
Equipment sales margin 940,938 166,969 652,803
Interest income 83,396 131,832 155,170
Other income 33,310 355,889 146,000
---------- ---------- ----------
Total revenue 2,767,465 3,911,086 5,266,986
---------- ---------- ----------
Expenses:
Depreciation and amortization 1,142,542 2,206,241 3,082,194
Provision for losses - - 110,666
Management fees paid to general partners 99,174 132,506 155,610
Direct services from general partner 65,750 60,768 70,003
General and administrative 274,002 137,665 304,364
---------- ---------- ----------
Total expenses 1,581,468 2,537,180 3,722,837
---------- ---------- ----------
Net income $1,185,997 $1,373,906 $1,544,149
========== ========== ==========
Net income allocated:
To the general partners $ 157,559 $ 165,244 $ 284,144
To the Class A limited partners 958,099 1,125,998 1,173,830
To the Class B limited partner 70,339 82,664 86,175
---------- ---------- ----------
$1,185,997 $1,373,906 $1,544,149
========== ========== ==========
Net income per weighted average Class A
limited partner unit outstanding $ 9.14 $ 10.74 $ 11.20
========== ========== ==========
Weighted average Class A limited partner
units outstanding 104,802 104,802 104,802
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
-14-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Class A
Limited Class A Class B
General Partner Limited Limited
Partners Units Partners Partner Total
-------- ------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Partners' capital,
January 1, 1994 $ (578,739) 104,802 $ 13,526,089 $ 2,504,080 $ 15,451,430
Net income 284,144 - 1,173,830 86,175 1,544,149
Distributions declared to partners (284,144) - (7,376,215) (458,034) (8,118,393)
------------ ------------ ------------ ------------ ------------
Partners' capital,
December 31, 1994 (578,739) 104,802 7,323,704 2,132,221 8,877,186
Net income 165,244 - 1,125,998 82,664 1,373,906
Distributions declared to partners (165,244) - (4,504,050) (51,966) (4,721,260)
------------ ------------ ------------ ------------ ------------
Partners' capital,
December 31, 1995 (578,739) 104,802 3,945,652 2,162,919 5,529,832
Net income 157,559 - 958,099 70,339 1,185,997
Distributions declared to partners (157,559) - (4,112,841) (231,276) (4,501,676)
------------ ------------ ------------ ------------ ------------
Partners' capital,
December 31, 1996 $ (578,739) 104,802 $ 790,910 $ 2,001,982 $ 2,214,153
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,185,997 $ 1,373,906 $ 1,544,149
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,142,542 2,206,241 3,082,194
Provision for losses - - 110,666
Cost of equipment sales 1,455,702 371,535 1,998,808
Recovery of investment in direct finance leases 528,643 657,974 727,947
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 50,844 52,544 (88,217)
Increase (decrease) in accounts payable and
accrued liabilities 438,081 (78,849) 35,732
Decrease in rents received in advance (48,688) (6,623) (413,316)
Increase (decrease) in payable to affiliates 12,411 (1,869) (12,961)
----------- ----------- -----------
Net cash provided by operating activities 4,765,532 4,574,859 6,985,002
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases from affiliate of equipment on operating
leases - - (234,693)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (4,038,488) (5,768,700) (8,257,161)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 727,044 (1,193,841) (1,506,852)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,729,305 2,923,146 4,429,998
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,456,349 $ 1,729,305 $ 2,923,146
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
Organization
Northstar Income Fund-I, L.P. (the "Partnership"), was organized on
August 26, 1988 as a limited partnership under the laws of the State
of Delaware pursuant to an Agreement of Limited Partnership (the
"Partnership Agreement"). The Partnership was formed for the purpose
of owning and leasing equipment. The Partnership will continue until
December 31, 2038 unless terminated earlier in accordance with the
terms of the Partnership Agreement. The General Partners' current
intent is to sell the Partnership's equipment and liquidate the
Partnership no later than December 31, 1997.
The general partners of the Partnership are CAI Equipment Leasing I
Corp. (the "CAI General Partner"), a wholly owned subsidiary of
Capital Associates, Inc. ("CAI"), and Northstar Equipment Leasing
Income Inc. (the "Northstar General Partner"), an affiliate of Lehman
Brothers Inc. (the "General Partners"). The General Partners manage
the Partnership, including investment of funds, purchase and sale of
equipment, lease negotiation and other administrative duties.
Capital Associates International, Inc. ("CAII"), an affiliate of the
CAI General Partner, is the Class B limited partner. The Class B
limited partner has contributed equipment totaling $4,899,866 (which
represents 10% of the net offering proceeds generated from sales of
Class A limited partner units).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. For leasing entities, this
includes the estimate of residual values, as discussed below. Actual
results could differ from those estimates.
Partnership Cash Distributions and Allocations of Profit and Loss:
Cash Distributions
------------------
During the Reinvestment Period, as defined in the Partnership
Agreement, cash distributions are to be made as follows:
The General Partners and the Class A limited partners receive 3.5% and
96.5%, respectively, of cash from operations until the Class A limited
partners receive annual, cumulative distributions equal to 14% of
their contributed capital. Thereafter, the General Partners and the
Class B limited partner receive 3.5% and 96.5%, respectively, of cash
from operations until the Class B limited partner receives annual
noncumulative distributions equal to 11% of its contributed capital.
The remaining cash from operations is to be reinvested or distributed
to the partners as specified in the Partnership Agreement.
-17-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Partnership Cash Distributions and Allocations of Profit and Loss,
continued
Cash from equipment sales may be distributed to the partners to the
extent necessary to pay any taxes arising from such sales. The
remaining amount is generally to be reinvested.
After the reinvestment period, cash is to be distributed to the
partners in accordance with the terms of the Partnership Agreement,
generally, 3.5% to the General Partners with the remaining 96.5%
allocated 90% to the Class A limited partners and 10% to the Class B
limited partner.
Federal Income Tax Basis Profits and Losses
-------------------------------------------
Profits are first allocated in proportion to, and to the extent of
any, losses incurred during prior periods. Thereafter, the General
Partners, as a class, are generally allocated 3.5% and the Limited
Partners, as a class, are allocated 96.5%. The Class A limited
partners and the Class B limited partner are allocated 90% and 10%,
respectively, of the 96.5%, until the Class A limited partners have
been allocated an amount equal in the aggregate to a 10% annual
cumulative return compounded quarterly on the Class A limited
partners' Adjusted Capital Contributions, as defined in the
Partnership Agreement. The Class A limited partners and the Class B
limited partner receive 10% and 90%, respectively, of the balance of
the 96.5% in profits until the Class B limited partner receives an
allocation equal to a 10% annual cumulative return compounded
quarterly on the Class B limited partners' Adjusted Capital
Contribution, as defined in the Partnership Agreement. The remaining
balance of the 96.5% in profits is shared 40% and 60%, respectively,
between the Class B limited partner and the Class A limited partners.
Losses are first allocated in proportion to, and to the extent of any,
prior profits. Thereafter, losses are generally allocated 91.45% to
the Class A limited partners and 8.55% to the Class B limited partner.
Upon dissolution of the Partnership, the General Partners are required
to contribute additional capital to the Partnership in an amount equal
to the lesser of (1) the aggregate deficit in their capital accounts
at such time, or (2) 1.01% of the limited partners' capital
contributions (which amount is equal to $578,739). During 1992, the
cash distributions to the General Partners would have caused the
aggregate deficit in their capital accounts to exceed $578,739, except
for the deficit limitation described above. In 1991, the Partnership
made a special allocation of $192,087 of gross income to the General
Partners in order to prevent the General Partners' aggregate deficit
capital account balance from exceeding $578,739. In 1993 and
thereafter, the Partnership will allocate the first available dollars
of net income to the General Partners in an amount sufficient (to the
extent there are enough available dollars of gross revenues) to
prevent the General Partners' aggregate deficit capital account
balance from exceeding $578,739 at the close of each such year. All
remaining profits and losses will be shared by the partners in the
manner described in the immediately preceding paragraphs.
-18-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform to the current year's presentation.
Recently Issued Financial Accounting Standards
The Partnership adopted Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of ("SFAS No. 121"), effective
January 1, 1996. SFAS No. 121 requires that long-lived assets,
including operating leases, and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows
expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. Measurement of an impairment loss
for long-lived assets, including operating leases, and identifiable
intangibles held by the Partnership is based on the fair value of the
asset calculated by discounting the expected future cash flows at an
appropriate interest rate. The adoption of this statement did not have
a material effect on the Partnership's financial condition or results
of operations.
Lease Accounting
Statement of Financial Accounting Standards No. 13, Accounting for
Leases, requires that a lessor account for each lease by the direct
finance, sales-type or operating lease method. The Partnership
currently utilizes the direct financing and operating methods for all
of the Partnership's equipment under lease. Direct finance leases are
defined as those leases which transfer substantially all of the
benefits and risks of ownership of the equipment to the lessee. For
all types of leases, the determination of profit considers the
estimated value of the equipment at lease termination, referred to as
the residual value.
The Partnership's accounting methods and their financial reporting effects
are described below.
Net Investment in Direct Finance Leases ("DFLs")
The cost of the equipment, including acquisition fees paid to the
general partners, is recorded as net investment in DFLs on the
accompanying balance sheet. Leasing revenue, which is recognized over
the term of the lease, consists of the excess of lease payments plus
the estimated residual value over the equipment's cost. Earned income
is recognized monthly to provide a constant yield and is recorded as
-19-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Net Investment in Direct Finance Leases ("DFLs")
direct finance lease income on the accompanying income statements.
Residual values are established at lease inception equal to the
estimated value to be received from the equipment following
termination of the initial lease (which in certain circumstances
includes anticipated re-lease proceeds), as determined by the general
partners. In estimating such values, the general partners consider all
relevant information regarding the equipment and the lessee.
Equipment on Operating Leases ("OLs")
The cost of equipment, including acquisition fees paid to the general
partners, is recorded as leased equipment in the accompanying balance
sheets and is depreciated on a straight-line basis over the lease term
to an amount equal to the estimated residual value at the lease
termination date. Leasing revenue consists principally of monthly
rents and is recognized as operating lease rentals in the accompanying
income statements. Residual values are established at lease inception
equal to the estimated value to be received from the equipment
following termination of the initial lease (which in certain
circumstances includes anticipated re-lease proceeds), as determined
by the general partners. In estimating such values, the general
partners consider all relevant information and circumstances regarding
the equipment and the lessee.
Allowance for Losses
An allowance for losses is maintained at levels determined by the
general partners to adequately provide for any other-than-temporary
declines in asset values. In determining losses, economic conditions,
the activity in the used equipment markets, the effect of actions by
equipment manufacturers, the financial condition of lessees, the
expected courses of action by lessees with regard to leased equipment
at termination of the initial lease term, and other factors which the
general partner believes are relevant, are considered. Asset
chargeoffs are recorded upon the termination or remarketing of the
underlying assets. The lease portfolio is reviewed quarterly to
determine the adequacy of the allowance for losses.
Transactions Subsequent to Initial Lease Termination
After the initial lease term of equipment on lease expires, the
equipment is either sold or re-leased to the existing lessee or
another third party. The remaining net book value of equipment sold is
removed and gain or loss recorded when equipment is sold. The
accounting for re-leased equipment is consistent with the accounting
described under "Net Investment in Direct Finance Leases" and
"Equipment on Operating Leases" above.
-20-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Income Taxes
No provision for income taxes has been made in the financial
statements since taxable income or loss is recorded in the tax returns
of the individual partners.
Cash Equivalents
The Partnership considers short-term, highly liquid investments that
are readily convertible to known amounts of cash to be cash
equivalents.
Cash equivalents of $2,448,000 and $1,539,000 at December 31, 1996 and
1995, respectively, are comprised of an investment in a money market
fund which invests solely in U.S. Government securities having
maturities of 90 days or less.
Equipment Held for Sale or Re-lease
Equipment held for sale or re-lease, recorded at the lower of cost or
market value expected to be realized, consists of equipment previously
leased to end users which has been returned to the Partnership
following lease expiration.
Net Income Per Class A Limited Partner Unit
Net income per Class A limited partner unit is computed by dividing
net income allocated to the Class A limited partners by the weighted
average number of Class A limited partner units outstanding during the
period.
2. Net Investment in Direct Finance Leases
---------------------------------------
The components of the net investment in direct finance leases at December
31, 1996 and 1995 were:
1996 1995
---- ----
Minimum lease payments receivable $ 130,149 $ 367,471
Estimated unguaranteed residual value 32,566 346,635
Unearned lease income (30,752) (27,566)
--------- ---------
$ 131,963 $ 686,540
========= =========
-21-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
2. Net Investment in Direct Finance Leases, continued
---------------------------------------
Minimum lease payments receivable at December 31, 1996 are due in
installments as follows:
Year Ending December 31,
------------------------
1996 $ 113,835
1997 16,314
---------
Total $ 130,149
=========
3. Equipment on Operating Leases
-----------------------------
The Partnership's investments in equipment on operating leases by major
class as of December 31, 1996 and 1995 were:
1996 1995
---- ----
Transportation and industrial equipment $ 3,549,277 $ 9,262,076
Computers and peripherals - 1,083,771
Office furniture and fixtures - 1,094,729
Other 618,437 1,235,855
------------ ------------
4,167,714 12,676,431
Less:
Accumulated depreciation (2,640,962) (8,311,071)
Allowance for losses (472,688) (449,963)
------------ ------------
$ 1,054,064 $ 3,915,397
============ ============
Depreciation expense for 1996, 1995 and 1994 was $ 1,142,542, $2,206,241
and $3,082,194, respectively.
Future minimum lease rentals under noncancelable operating leases at
December 31, 1996 are due in install ments as follows:
Year Ending December 31,
1997 $ 383,254
1998 10,800
---------
Total $ 394,054
=========
Future minimum lease rentals do not include amounts which will be received
under certain equipment leases for rents which may vary according to CAI's
future cost of funds. These contingent rentals amounted to approximately
$2,818, $21,800 and $23,000 during 1996, 1995 and 1994, respectively.
-22-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
4. Transactions With the General Partners and Affiliates
-----------------------------------------------------
Acquisition Fees
----------------
As permitted under terms of the Partnership Agreement, an acquisition fee
is paid to the CAI General Partner for evaluating, selecting, negotiating
and consummating the acquisition of equipment. The fee is equal to 2.25% of
the price of equipment purchased with net offering proceeds and 3% of the
price of equipment purchased with reinvested operating proceeds. There were
no acquisition fees in 1996 or 1995. Acquisition fees totaled $6,836 in
1994, all of which were capitalized by the Partnership as part of the cost
of the equipment on operating leases and net investment in direct finance
leases.
Management Fees
---------------
As permitted under terms of the Partnership Agreement, the general partners
receive management fees equal to 2.675% of monthly gross rentals received
by the Partnership (payable 2% to the CAI General Partner and 0.675% to the
Lehman Brothers General Partner), payable monthly in arrears as
compensation for services rendered in connection with the management of the
Partnership's equipment. Management fees totaled $78,685, $107,761 and
$125,327 in 1996, 1995 and 1994, respectively.
Incentive Management Fee
------------------------
The General Partners receive an incentive management fee equal to 5% of
monthly gross rentals from releases received by the Partnership (payable 4%
to the CAI General Partner and 1% to the Lehman Brothers General Partner),
payable monthly in arrears as compensation for negotiating and consummating
extensions, renewals and re-leases of equipment and monitoring the
subsequent performance of lessees as permitted under the Partnership
Agreement. Incentive management fees totaled $20,489, $24,745 and $30,283
in 1996, 1995 and 1994, respectively.
Direct Services
---------------
The General Partners and their affiliates provide accounting, investor
relations, billing, collecting, asset management and other administrative
services to the Partnership. The Partnership reimburses the General
Partners for these services performed on its behalf as permitted under the
terms of the Partnership Agreement. Such reimbursements totaled $65,750,
$60,768 and $70,003 in 1996, 1995 and 1994, respectively.
Equipment Purchases
-------------------
The Partnership made no equipment purchases in 1996 or 1995. The
Partnership purchased equipment from CAII with a total purchase price of
$234,693 during 1994. The Partnership purchased the equipment at CAII's
cost, plus reimbursement of other acquisition costs, as provided for in the
Partnership Agreement.
-23-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
4. Transactions With the General Partners and Affiliates, continued
-----------------------------------------------------
Payable to Affiliates
---------------------
Payable to affiliates consists primarily of management fees and direct
services payable to the General Partners.
Disposition Fee
---------------
The CAI General Partner earns a subordinated fee with respect to each sale
of equipment in an amount not to exceed the lesser of (a) 50% of the fee
that would be charged by an unaffiliated party or (b) 3% of the gross
contract price relating to each sale of equipment. The disposition fee has
not and will not be paid to the CAI General Partner until the Class A
limited partners have received cash distributions in an amount equal to
their capital contributions plus an 8% annual, cumulative return compounded
quarterly on their adjusted capital contributions, calculated from the date
that each Class A limited partner is admitted to the Partnership. The
Partnership has not accrued any disposition fees since inception since it
is anticipated that the limited partners will not receive the minimum
distributions described above.
5. Tax Information (Unaudited)
---------------
The following reconciles net income for financial reporting purposes to
income for federal income tax purposes for the years ended December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements $ 1,185,995 $ 1,373,906 $ 1,544,149
Differences due to:
Direct finance leases 481,984 960,182 738,287
Depreciation 115,760 334,595 (347,992)
Provision for losses - - (42,120)
Loss on sale of equipment (3,579) (200,851) 761,539
Other (26,679) 91,387 (92,216)
----------- ----------- -----------
Partnership income for federal income tax purposes $ 1,753,481 $ 2,559,219 $ 2,561,647
=========== =========== ===========
</TABLE>
-24-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
5. Tax Information (Unaudited), continued
---------------
The following reconciles partners' capital for financial reporting purposes
to partners' capital for federal income tax purposes for the years ended
December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Partners' capital per financial statements $ 2,214,153 $ 5,529,832 $ 8,877,186
Differences due to:
Commissions and offering costs 6,792,543 6,792,543 6,792,543
Direct finance leases 8,372,539 7,890,555 6,930,373
Depreciation (10,614,792) (10,730,552) (11,065,147)
Provision for losses 3,652,511 3,652,511 3,652,511
Reduction for excess of fair value over basis
on contributed property (617,411) (617,411) (617,411)
Loss on sale of equipment (988,799) (985,220) (784,369)
Other 43,965 70,644 (20,742)
------------ ------------ ------------
Partners' capital for federal income tax purposes $ 8,854,709 $ 11,602,902 $ 13,764,944
============ ============ ============
</TABLE>
6. Concentration of Credit Risk
----------------------------
Approximately 75% of the Partnership's equipment under lease was leased to
investment grade lessees. Pursuant to the Partnership Agreement, an
investment grade lessee is a company (1) with a credit rating of not less
than Baa, as determined by Moody's Investor Services, Inc. or (2) that has
comparable credit ratings, as determined by other recognized credit rating
services, or (3) which, if not rated by a recognized credit rating service,
then in the opinion of the General Partners, is of comparable credit
quality.
The Partnership's cash balance is maintained with a high credit quality
financial institution. At times such balances may exceed the FDIC insurance
limit due to the receipt of lockbox amounts that have not cleared the
presentment bank (generally for less than two days). As funds become
available, they are invested in a money market mutual fund.
7. Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
Statement of Financial Standards No. 107 ("SFAS No. 107"), Disclosures
about Fair Value of Financial Instruments specifically excludes certain
items from its disclosure requirements such as the Company's investment in
leased assets. The carrying amounts at December 31, 1996 for cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
payable to affiliates, rents and sale proceeds received in advance and
distributions payable to partners approximate their fair values due to the
short maturity of these instruments.
-25-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE PARTNERS
NORTHSTAR INCOME FUND-I, L.P.:
Under date of January 31, 1997, we reported on the balance sheets of Northstar
Income Fund-I, L.P. as of December 31, 1996 and 1995, and the related statements
of income, partners' capital, and cash flows for each of the years in the
three-year period ended December 31, 1996, as contained in the Partnership's
annual report on Form 10-K for the year 1996. In connection with our audits of
the aforementioned financial statements, we have also audited the related
financial statement Schedule II, as listed in the accompanying index. This
financial statement schedule is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/KPMG Peat Marwick LLP
------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
January 31, 1997
-26-
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1994 and 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- ------------------------------- ---------- --------
Additions
Balance at Additions (deductions) Balance
beginning charged to charged to at end
Classification of period expenses other accounts Deductions of period
- -------------- ----------- ----------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
(1) (2) (3)
1996
- ---------------------
Allowance for losses:
Equipment on operating leases $ 449,963 $ - $ 41,725 $ (19,000) $ 472,688
========= =============== ========= ========= =========
1995
- ---------------------
Allowance for losses:
Equipment on operating leases $ 494,215 $ - $ (42,821) $ (1,431) $ 449,963
========= =============== ========= ========= =========
1994
- ---------------------
Allowance for losses:
Accounts receivable $ 150,221 $ - $(150,221) $ -
Equipment on operating leases 475,397 110,666 18,818 (110,666) 494,215
--------- --------------- --------- --------- ---------
Totals $ 625,618 $ 110,666 $(131,403) $(110,666) $ 494,215
========= =============== ========= ========= =========
</TABLE>
(1) Primarily represents reclassifications between allowance categories.
(2) Represents offsetting entries to the individual accounts comprising the
net investment in direct finance leases for adjustments made to
estimated residual values.
(3) Represents allowance charge-offs and write-downs for equipment
impairment.
See accompanying independent auditors' report
-27-
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosures
-----------------------------------------------------
None
Item 10. Directors and Executive Officers of the Partnership
---------------------------------------------------
The Partnership has no officers and directors. The General Partners jointly
manage and control the affairs of the Partnership and have general
responsibility and authority in all matters affecting its business. Information
concerning the directors and executive officers of the General Partners is as
follows:
CAI Equipment Leasing I Corp.
-----------------------------
Name Positions Held
---- --------------
John F. Olmstead President and Director
Dennis J. Lacey Senior Vice President and Director
John E. Christensen Senior Vice President, Principal Financial and
Chief Administrative Officer and Director
Anthony M. DiPaolo Senior Vice President, Assistant Secretary and
Director
Daniel J. Waller Vice President and Director
Richard H. Abernethy Vice President and Director
John A. Reed Vice President, Assistant Secretary and Director
Robert A. Golden Vice President and Director
David J. Anderson Chief Accounting Officer and Secretary
JOHN F. OLMSTEAD, age 52 joined CAII as Vice President in December, 1988, is a
Senior Vice President of CAI and CAII and is head of CAII's Public Equity
division. He has served as Chairman of the Board for Neo-kam Industries, Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has
over 20 years of experience holding various positions of responsibility in the
leasing industry. Mr. Olmstead holds a Bachelor of Science degree from Indiana
University and a Juris Doctorate degree from Indiana Law School.
-28-
<PAGE>
Item 10. Directors and Executive Officers of the Partnership, continued
---------------------------------------------------
DENNIS J. LACEY, age 43, joined CAI as Vice President, Operations, in October
1989. Mr. Lacey was appointed Treasurer on January 1, 1991, Chief Financial
Officer on April 11, 1991, a director on July 19, 1991, and President and Chief
Executive Officer on September 6, 1991. Prior to joining CAI, Mr. Lacey was an
audit partner for the public accounting firm of Coopers & Lybrand. Mr. Lacey is
also a director and senior officer of CAII, CAI Equipment Leasing I Corp., CAI
Equipment Leasing II Corp., CAI Equipment Leasing III Corp., CAI Equipment
Leasing IV Corp., CAI Equipment Leasing V Corp., CAI Leasing Canada, Ltd., CAI
Partners Management Company, CAI Securities Corporation, CAI Lease
Securitization I Corp. and Capital Equipment Corporation (collectively referred
to herein as the "CAI Affiliates"), all of which are first- or second-tier
wholly-owned subsidiaries of CAI.
JOHN E. CHRISTENSEN, age 49, joined CAII as Vice President and Treasurer in
November 1988. He now serves as Senior Vice President, Finance and Chief
Financial Officer of CAI and CAII. Mr. Christensen previously held senior
management positions at Maxicare Health Plans, Inc., Global Marine, Inc. and
Santa Fe International, Inc. Mr. Christensen obtained his MBA in Finance from
the University of Michigan and his Bachelor of Arts degree from Michigan State
University.
ANTHONY M. DIPAOLO, age 37, joined CAII in July 1990 as an Assistant Treasurer
and is currently Senior Vice President-Business Development. He has also held
the positions of Senior Vice President-Controller and Assistant Vice
President-Credit Administration for the Company. Mr. DiPaolo has held financial
management positions as Chief Financial Officer for Mile High Kennel Club, Inc.
from 1988 to 1990 and was Vice President/Controller for VICORP Restaurants, Inc.
from 1986 through 1988. Mr. DiPaolo holds a Bachelor of Science degree in
Accounting from the University of Denver.
DANIEL J. WALLER, age 38, joined CAII in July 1990, as a manager of Investor
Relations. Mr. Waller assumed the responsibility for the asset management
department a short time later, and is currently Vice President, Capital Markets
Group. Prior to joining CAII, Mr. Waller was an audit manager with Coopers &
Lybrand for over three years and gained considerable experience in the leasing
industry. While at Coopers & Lybrand, Mr. Waller held positions with the
International Accounting and Auditing Committee as well as the national Auditing
Directorate. Mr. Waller holds a Bachelor of Arts degree in accounting from the
University of Northern Iowa.
RICHARD H. ABERNETHY, age 42, joined CAII in April 1992 as Equipment Valuation
Manager and currently serves as Vice President of Asset Management. Mr.
Abernethy has thirteen years experience in the leasing industry, including prior
positions with Barclays Leasing Inc., from November 1986 to February 1992, and
Budd Leasing Corporation, from January 1981 to November 1986. Mr. Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.
JOHN A. REED, age 41, joined CAII in January 1990 as the Tax Director and
Assistant Secretary. Mr. Reed is currently the Vice President of Marketing and
is responsible for all lease documentation and management of transaction
structuring and processing. Prior to joining the Marketing Department, Mr. Reed
was Vice President of Credit and Debt Administration. He spent seven and one
half years with Coopers & Lybrand in the Tax Department and served on CAII's tax
consulting engagement during that time. Mr. Reed holds a Bachelor of Arts degree
in Social Sciences and Masters of Science in Accounting, from Colorado State
University.
-29-
<PAGE>
Item 10. Directors and Executive Officers of the Partnership, continued
---------------------------------------------------
ROBERT A. GOLDEN, age 51, is Vice President and the National Sales Manager of
the Company. Mr. Golden joined the Company in 1993 as a Branch Manager. He was
promoted to his current position in September 1994. Prior to joining the
Company, he was an Executive Vice President with the U.S. Funds Group, President
of BoCon Capital Group and Vice President with Ellco/GE Capital for fifteen
years. Mr. Golden is an officer, but not a director, of CAII.
DAVID J. ANDERSON, age 43, joined CAII in August 1990 as Manager of Billing &
Collections and currently serves as Assistant Vice-President/Chief Accounting
Officer. Prior to joining CAII, Mr. Anderson was Vice- President/Controller for
Systems Marketing, Inc., from 1985 to 1990, and previous to that working in
several senior staff positions at the Los Alamos National Laboratory and with
Ernst & Whinney. Mr. Anderson holds a Bachelor of Business Administration degree
in Accounting from the University of Wisconsin.
Northstar Equipment Leasing Income Inc.
---------------------------------------
Name Positions Held
---- --------------
Paul L. Abbott Managing Director
Robert Sternlieb Assistant Vice President
PAUL L. ABBOTT, 51, is a Managing Director of Lehman Brothers. Mr. Abbott joined
Lehman Brothers in August 1988, and is responsible for investment management of
residential, commercial and retail real estate. Prior to joining Lehman
Brothers, Mr. Abbott was a real estate consultant and a senior officer of a
privately held company specializing in the syndication of private real estate
limited partnerships. From 1974 through 1983, Mr. Abbott was an officer of two
life insurance companies and a director of an insurance agency subsidiary. Mr.
Abbott received his formal education in the undergraduate and graduate schools
of Washington University in St. Louis.
ROBERT STERNLIEB, 32, is an Assistant Vice President of Lehman Brothers and is
responsible for asset management within the Diversified Asset Group. Mr.
Sternlieb joined Lehman Brothers in April 1989 as an asset manager. From May
1986 to April 1989, he was a systems analyst at Drexel Burnham Lambert. Mr.
Sternlieb received a B.S. degree in Finance from Lehigh University in 1986.
Item 11. Executive Compensation
----------------------
No compensation was paid by the Partnership to the officers and directors of the
General Partners. See Item 13 of this Report, "Certain Relationships and Related
Transactions", for a description of the compensation and fees paid to the
General Partners and their affiliates by the Partnership during 1996.
-30-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(a) As of the date hereof, no person is known by the Partnership to be the
beneficial owner of more than 5% of the Class A limited partner units of
the Partnership. The Partnership has no directors or officers, and neither
the General Partners nor the Class B limited partner of the Partnership
owns any Class A limited partner units.
CAII, an affiliate of the CAI General Partner, owns 100% of the
Partnership's Class B limited partner interest.
CAI Equipment Leasing I and Northstar Equipment Leasing Income Inc.
own 100% of the Partnership's general partner interest.
The names and addresses of the General Partners and the Class B
limited partner are as follows:
CAI General Partner
-------------------
CAI Equipment Leasing I Corp.
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
Lehman Brothers General Partner
-------------------------------
Northstar Equipment Leasing Income Inc.
c/o Lehman Brothers
3 World Financial Center - 29th Floor
New York, New York 10285
Class B Limited Partner
---------------------
Capital Associates International, Inc.
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
(b) No directors or officers of the CAI General Partner, the Lehman
Brothers General Partner or the Class B limited partner owned any Class
A limited partner units as of February 1, 1997.
(c) The Partnership knows of no arrangements, the operation of which may at a
subsequent date result in a change in control of the Partnership.
-31-
<PAGE>
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The General Partners and their affiliates receive certain types of compensation,
fees or other distributions in connection with the operations of the Partnership
as discussed below:
Management Fee
- --------------
The General Partners receive a monthly fee in an amount equal to 2.675% of gross
rentals received by the Partnership (payable 2.0% to the CAI General Partner and
.675% to the Lehman Brothers General Partner) as compensation for services
rendered in connection with the management of the Partnership's equipment.
Management fees earned by the General Partners totaled $78,685 during 1996.
Incentive Management Fee
- ------------------------
The General Partners receive a monthly fee equal to 5% of monthly gross rentals
from re-leases received by the Partnership (payable 4% to the CAI General
Partner and 1% to the Lehman Brothers General Partner) as compensation for
negotiating and consummating extensions, renewals and re-leases of equipment and
monitoring the subsequent performance of lessees. Incentive management fees
totaled $20,489 during 1996.
Disposition Fee
- ---------------
The CAI General Partner earns a subordinated fee with respect to each sale of
equipment in an amount not to exceed the lesser of (a) 50% of the fee that would
be charged by an unaffiliated party or (b) 3% of the gross contract price
relating to each sale of equipment. The disposition fee has not and will not be
paid to the CAI General Partner until the Class A limited partners have received
cash distributions in an amount equal to their capital contributions plus an 8%
annual, cumulative return compounded quarterly on their adjusted capital
contributions, calculated from the date that each Class A limited partner is
admitted to the Partnership. The Partnership has not accrued any disposition
fees since inception since it is anticipated that the limited partners will not
receive distributions in the aforementioned amounts.
Accountable General and Administrative Expenses
- -----------------------------------------------
The General Partners are entitled to reimbursement of certain expenses paid on
behalf of the Partnership which are incurred in connection with the
Partnership's operations. Such reimbursable expenses amounted to $65,750 during
1996.
Additionally, the General Partners receive 3.5% of Partnership cash
distributions and are allocated certain Partnership net income and gross
revenues (shared 2% to the CAI General Partner and 1.5% to the Lehman Brothers
General Partner) relating to their general partner interests in the Partnership.
Distributions paid and net income allocated to the General Partners totaled
$141,347 and $157,559 respectively, for 1996. Distributions paid and net income
allocated to the Class B limited partner were $142,165 and $70,339,
respectively, for 1996.
-32-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)
and
(d) The following documents are filed as part of this Report:
1. Financial Statements: (Incorporated by reference to Item
8 of this Report, "Financial Statements and
Supplementary Data").
2. Financial Statement Schedule: (Incorporated by reference
to Item 8 of this Report, "Financial Statements and
Supplementary Data").
(b) The Partnership did not file any reports on Form 8-K during
the quarter ended December 31, 1996.
(c) Exhibits required to be filed.
Exhibit Exhibit
Number Name
------ ------
4.1* Amended and Restated Agreement of Limited Partnership
(incorporated by reference to Exhibit 2(a) contained in
the Partnership's Form 8-A Registration Statement,
dated May 4, 1990, Commission File No. 0-18558)
4.2* Amendment No. 1 to Amended and Restated Agreement of
Limited Partnership (incorporated by reference to
Exhibit 4(d) contained in Post-Effective Amendment No.
1 to the Partnership's Form S-1 Registration Statement
dated May 8, 1989, Commission File No. 33-24022)
* Not filed herewith. In accordance with Rule 12b-32 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, reference is made to the document
previously filed with the Commission.
-33-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 7, 1997 Northstar Income Fund-I, L.P.
By: CAI Equipment Leasing I Corp.
By: /s/John F. Olmstead
-------------------
John F. Olmstead
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the general partner
of the Partnership and in the capacities indicated on March 7, 1997.
Signature Title
- --------- -----
/s/John F. Olmstead
- ------------------------
John F. Olmstead President and Director
/s/Dennis J. Lacey
- ------------------------
Dennis J. Lacey Senior Vice President and Director
/s/John E. Christensen
- ------------------------
John E. Christensen Senior Vice President, Principal Financial and
Chief Administrative Officer and Director
/s/Anthony M. DiPaolo
- ------------------------
Anthony M. DiPaolo Senior Vice President, Assistant Secretary and
Director
/s/Daniel J. Waller
- ------------------------
Daniel J. Waller Vice President and Director
/s/Richard H. Abernethy
- ------------------------
Richard H. Abernethy Vice President and Director
/s/John A. Reed
- ------------------------
John A. Reed Vice President, Assistant Secretary and
Director
/s/Robert A. Golden
- ------------------------
Robert A. Golden Vice President and Director
/s/David J. Anderson
- ------------------------
David J. Anderson Chief Accounting Officer and Secretary
-34-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,456,349
<SECURITIES> 0
<RECEIVABLES> 278,149
<ALLOWANCES> 0
<INVENTORY> 324,180
<CURRENT-ASSETS> 0
<PP&E> 1,054,064
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,244,705
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,214,153
<TOTAL-LIABILITY-AND-EQUITY> 4,244,705
<SALES> 940,938
<TOTAL-REVENUES> 2,767,465
<CGS> 0
<TOTAL-COSTS> 1,581,468
<OTHER-EXPENSES> 164,924
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,185,997
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,185,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,185,997
<EPS-PRIMARY> 9.14
<EPS-DILUTED> 9.14
</TABLE>
