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 June 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
June 30, 1997
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets-June 30, 1997 and December 31, 1996 3
Statements of Income-Three and Six months ended
June 30, 1997 and 1996 4
Statements of Cash Flows-Six months ended
June 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
June 30, December 31,
1997 1996
----------- ------------
Cash and cash equivalents $ 1,039,567 $ 2,456,349
Accounts receivable 248,504 278,149
Equipment held for sale or re-lease 250,238 324,180
Net investment in direct finance leases 78,731 131,963
Leased equipment, net 774,562 1,054,064
----------- -----------
Total assets $ 2,391,602 $ 4,244,705
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 182,995 $ 672,315
Payable to affiliates 7,588 22,881
Rents received in advance 7,224 18,188
Distributions payable to partners 246,499 1,317,168
----------- -----------
Total liabilities 444,306 2,030,552
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General partners (578,739) (578,739)
Limited partners:
Class A 531,436 790,910
Class B 1,994,599 2,001,982
----------- -----------
Total partners' capital 1,947,296 2,214,153
----------- -----------
Total liabilities and partners' capital $ 2,391,602 $ 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 Six months ended
June 30, June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Operating lease rentals $ 233,779 $ 350,437 $ 472,706 $ 879,624
Direct financing lease income 9,731 44,951 21,321 83,372
Equipment sales margin 49,360 95,600 91,906 267,101
Interest income 12,238 52,812 27,847 78,338
---------- ---------- ---------- ----------
Total revenue 305,108 543,800 613,780 1,308,435
---------- ---------- ---------- ----------
EXPENSES:
Depreciation and amortization 136,747 310,434 290,807 656,661
Provision for losses - - - -
Management fees paid to general partners 12,261 23,937 25,544 47,283
Direct services from general partners 14,836 19,726 30,282 36,152
General and administrative 59,461 125,280 115,099 174,730
---------- ---------- ---------- ----------
Total expenses 223,305 479,377 461,732 914,826
---------- ---------- ---------- ----------
NET INCOME $ 81,803 $ 64,423 $ 152,048 $ 393,609
========== ========== ========== ==========
NET INCOME ALLOCATED:
To the general partners $ 8,629 $ 25,821 $ 14,663 $ 64,011
To the Class A limited partners 68,170 35,962 127,989 307,056
To the Class B limited partner 5,004 2,640 9,396 22,542
---------- ---------- ---------- ----------
$ 81,803 $ 64,423 $ 152,048 $ 393,609
========== ========== ========== ==========
Net income per weighted average Class A
limited partner unit outstanding $ 0.65 $ 0.34 $ 1.22 $ 2.93
========== ========== ========== ==========
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)
Six months ended
--------------------------
June 30, June 30,
1997 1996
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 72,792 $ 1,789,846
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (1,489,574) (1,945,138)
----------- -----------
Net cash used in financing activities (1,489,574) (1,945,138)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,416,782) (155,292)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,456,349 1,729,305
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,039,567 $ 1,574,013
=========== ===========
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 six months net income
ended June 30, of changes ended June 30, of changes
-------------------------- between -------------------------- between
1997 1996 periods 1997 1996 periods
------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 106,763 $ 84,954 $ 21,809 $ 203,220 $ 306,335 $(103,115)
Equipment sales margin 49,360 95,600 (46,240) 91,906 267,101 (175,195)
Interest income 12,238 52,812 (40,574) 27,847 78,338 (50,491)
Management fees paid to general partners (12,261) (23,937) 11,676 (25,544) (47,283) 21,739
Direct services from general partners (14,836) (19,726) 4,890 (30,282) (36,152) 5,870
General and administrative (59,461) (125,280) 65,819 (115,099) (174,730) 59,631
Provision for losses - - - - - -
--------- --------- --------- --------- --------- ---------
Net income $ 81,803 $ 64,423 $ 17,380 $ 152,048 $ 393,609 $(241,561)
========= ========= ========= ========= ========= =========
</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:
Three months ended Six months ended
June 30, June 30,
---------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Operating lease rentals $ 233,779 $ 350,437 $ 472,706 $ 879,624
Direct finance lease income 9,731 44,951 21,321 83,372
Depreciation and amortization (136,747) (310,434) (290,807) (656,661)
--------- --------- --------- ---------
Leasing margin $ 106,763 $ 84,954 $ 203,220 $ 306,335
========= ========= ========= =========
Leasing margin ratio 44% 21% 41% 32%
========= ========= ========= =========
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 for the six months ended June 30, 1997 as compared to
the six months ended June 30, 1996, and is expected to decrease further,
primarily as a result of portfolio run-off. Leasing margin ratio increased
primarily because of remarketing activities.
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 Six months ended
June 30, June 30,
---------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Equipment sales revenue $ 70,486 $ 310,900 $ 173,886 $ 713,692
Cost of equipment sales (21,126) (215,300) (81,980) (446,591)
--------- ---------- --------- ----------
Equipment sales margin $ 49,360 $ 95,600 $ 91,906 $ 267,101
========= ========== ========= ==========
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 during the six months ended June 30, 1997
or the corresponding period in 1996 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 and direct services from general
partners decreased primarily as a result of portfolio run-off. General and
administrative expenses for the three and six months ended June 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 six months ended June 30, 1997, the Partnership declared
distributions to the Partners of $418,905 (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 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 the remainder of 1997. 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 (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 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.
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 June 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: August 13, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,039,567
<SECURITIES> 0
<RECEIVABLES> 248,504
<ALLOWANCES> 0
<INVENTORY> 250,238
<CURRENT-ASSETS> 0
<PP&E> 774,562
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,391,602
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,947,296
<TOTAL-LIABILITY-AND-EQUITY> 2,391,602
<SALES> 91,906
<TOTAL-REVENUES> 613,780
<CGS> 0
<TOTAL-COSTS> 461,732
<OTHER-EXPENSES> 55,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 152,048
<INCOME-TAX> 0
<INCOME-CONTINUING> 152,048
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,048
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
