SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
-------------------------------------------------
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 11
Page 1 of 12 Pages
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Quarterly Report on Form 10-Q
for the Quarter Ended
September 30, 1997
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets-September 30, 1997 and December 31, 1996 3
Statements of Income-Three and Nine months ended
September 30, 1997 and 1996 4
Statements of Cash Flows-Nine months ended
September 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
2
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1997 1996
------------- ------------
Cash and cash equivalents $ 1,004,883 $ 2,456,349
Accounts receivable 297,717 278,149
Equipment held for sale or re-lease 225,992 324,180
Net investment in direct finance leases 53,793 131,963
Leased equipment, net 654,113 1,054,064
----------- -----------
Total assets $ 2,236,498 $ 4,244,705
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 215,672 $ 672,315
Payable to affiliates 6,118 22,881
Rents received in advance 710 18,188
Distributions payable to partners 204,537 1,317,168
----------- -----------
Total liabilities 427,037 2,030,552
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General partners (578,739) (578,739)
Limited partners:
Class A 395,826 790,910
Class B 1,992,374 2,001,982
----------- -----------
Total partners' capital 1,809,461 2,214,153
----------- -----------
Total liabilities and partners' capital $ 2,236,498 $ 4,244,705
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NORTHSTAR INCOME FUND-I L.P.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUE:
Operating lease rentals $ 195,136 $ 379,425 $ 667,842 $ 1,259,049
Direct financing lease income 8,472 29,193 29,793 112,565
Equipment sales margin 52,504 211,354 144,410 478,455
Interest income 12,691 18,483 40,538 96,821
---------- ---------- ---------- -----------
Total revenue 268,803 638,455 882,583 1,946,890
---------- ---------- ---------- -----------
EXPENSES:
Depreciation and amortization 138,758 272,832 429,565 929,493
Provision for losses - - - -
Management fees paid to general partners 11,916 18,832 37,460 66,115
Direct services from general partners 15,934 14,281 46,216 50,433
General and administrative 35,493 32,047 150,592 206,777
---------- ---------- ---------- -----------
Total expenses 202,101 337,992 663,833 1,252,818
---------- ---------- ---------- -----------
NET INCOME $ 66,702 $ 300,463 $ 218,750 $ 694,072
========== ========== ========== ===========
NET INCOME ALLOCATED:
To the general partners $ 7,158 $ 47,447 $ 21,821 $ 111,458
To the Class A limited partners 55,471 235,710 183,460 542,766
To the Class B limited partner 4,073 17,306 13,469 39,848
---------- ---------- ---------- -----------
$ 66,702 $ 300,463 $ 218,750 $ 694,072
========== ========== ========== ===========
Net income per weighted average Class A
limited partner unit outstanding $ .53 $ 2.25 $ 1.75 $ 5.18
========== ========== ========== ===========
Weighted average Class A limited partner
units outstanding 104,802 104,802 104,802 104,802
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
---------------------------
September 30,
1997 1996
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 284,606 $ 3,124,438
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (1,736,072) (2,682,860)
------------ ------------
Net cash used in financing activities (1,736,072) (2,682,860)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,451,466) 441,578
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,456,349 1,729,305
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,004,883 $ 2,170,883
============ ============
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, 1996 has been derived from the audited financial statements
included in the Partnership's 1996 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, 1996, (the
"1996 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 Condensed Statements
of Income for The effect on of Income for The effect on
the three months net income the nine months net income
ended September 30, of changes ended September 30, of changes
------------------------- between ------------------------- between
1997 1996 periods 1997 1996 periods
---------- ----------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 64,850 $ 135,786 $ (70,936) $ 268,070 $ 442,121 $ (174,051)
Equipment sales margin 52,504 211,354 (158,850) 144,410 478,455 (334,045)
Interest income 12,691 18,483 (5,792) 40,538 96,821 (56,283)
Management fees paid to
general partners (11,916) (18,832) 6,916 (37,460) (66,115) 28,655
Direct services from
general partners (15,934) (14,281) (1,653) (46,216) (50,433) 4,217
General and administrative (35,493) (32,047) (3,446) (150,592) (206,777) 56,185
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 66,702 $ 300,463 $ (233,761) $ 218,750 $ 694,072 $ (475,322)
========== ========= ========== ========== ========== ==========
</TABLE>
The Partnership is in its liquidation period as defined in the Partnership
Agreement and, as expected, the Partnership is not purchasing additional
equipment, initial leases are expiring and the equipment is being remarketed
(i.e., re-leased, renewed or sold). As a result, both the size of the
Partnership's leasing portfolio and the amount of leasing revenue are declining
(referred to in this discussion as "portfolio run-off").
Leasing Margin
Leasing margin consists of the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Operating lease rentals $ 195,136 $ 379,425 $ 667,842 $ 1,259,049
Direct finance lease income 8,472 29,193 29,793 112,565
Depreciation and amortization (138,758) (272,832) (429,565) (929,493)
---------- ---------- ---------- -----------
Leasing margin $ 64,850 $ 135,786 $ 268,070 $ 442,121
========== ========== ========== ===========
Leasing margin ratio 32% 33% 38% 32%
== == == ==
</TABLE>
7
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Results of Operations, continued
- ---------------------
LEASING MARGIN, continued
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, as well as future
equipment values and on-going lessee creditworthiness. 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 by the
Partnership during this period reflect this low interest rate environment. This
will result in corresponding reductions in the ultimate overall yields to
partners. Annual average 5-year U.S. Treasury yields for the past seven years
were as follows:
Annual average 5-year U.S. Treasury Yield
Year Yield
---- -----
1990 8.37
1991 7.37
1992 6.19
1993 5.14
1994 6.69
1995 6.53
1996 6.18
EQUIPMENT SALES MARGIN
Equipment sales margin consists of the following:
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
Equipment sales revenue $ 65,250 $ 754,575 $ 239,136 $ 1,468,267
Cost of equipment sales (12,746) (543,221) (94,726) (989,812)
--------- ---------- ---------- -----------
Equipment sales margin $ 52,504 $ 211,354 $ 144,410 $ 478,455
========= ========== ========== ===========
8
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Item 2. 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 cash available for
investment.
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 because no other-than-temporary losses in
the value of equipment were identified in the quarterly assessments of the
Partnership's assets.
EXPENSES
Management fees paid to general partners, direct services from general partners
and general and administrative expenses decreased primarily as a result of
portfolio run-off. General and administrative expenses for the nine months ended
September 30, 1996 included $67,194 reimbursed to the CAI general partner for
insurance costs related to prior years.
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
- -------------------------------
The Partnership funds its activities principally with cash from rents, interest
income and sale of off-lease equipment. Available cash and cash reserves of the
Partnership are invested in interest bearing accounts and short-term U.S.
government securities pending distributions to the partners.
During the nine months ended September 30, 1997, the Partnership declared
distributions to the Partners of $623,441 (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 the remainder of 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. 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 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. Because of
portfolio runoff, 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. As the Partnership's equipment is
sold, proceeds from such sales will be distributed also. Although it is the
general partners' current intent is to sell the Partnership's equipment and
liquidate the Partnership no later than December 31, 1997, certain on-going
litigation may cause the Partnership to remain active beyond this date.
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. 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 10% of the
Class B limited partner's capital shown on the accompanying Balance Sheets.
10
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is involved in routine legal proceedings incidental
to the conduct of its business. The general partners believe none of
these legal proceedings will have a material adverse effect on the
financial condition or operations of the Partnership. Other than the
potential delay in the final liquidations.
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) The Partnership did not file any reports on Form 8-K during the
quarter ended September 30, 1997.
11
<PAGE>
NORTHSTAR INCOME FUND-I, L.P.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHSTAR INCOME FUND-I, L.P.
By: CAI Equipment Leasing I Corp.
Dated: November 12, 1997 By: /s/Anthony M. DiPaolo
---------------------
Anthony M. DiPaolo
Senior Vice President
12
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,004,883
<SECURITIES> 0
<RECEIVABLES> 297,717
<ALLOWANCES> 0
<INVENTORY> 225,992
<CURRENT-ASSETS> 0
<PP&E> 654,113
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,236,498
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,809,461
<TOTAL-LIABILITY-AND-EQUITY> 2,236,498
<SALES> 144,410
<TOTAL-REVENUES> 882,583
<CGS> 0
<TOTAL-COSTS> 663,833
<OTHER-EXPENSES> 83,676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 218,750
<INCOME-TAX> 0
<INCOME-CONTINUING> 218,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218,750
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.75
</TABLE>
