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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 0-15643
NATIONAL LEASE INCOME FUND 6 L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3275922
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich, CT 06830
(Address of principal executive offices)
(203) 862-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check 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 [ ]
<PAGE>
NATIONAL INCOME LEASE FUND 6 L.P.
FORM 10-Q - JUNE 30, 1996
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1996 and December 31, 1995
STATEMENTS OF OPERATIONS - For the three months ended June 30, 1996 and
1995
and the six months ended June 30, 1996 and 1995
STATEMENT OF PARTNERS' EQUITY - For the six months ended
June 30, 1996
STATEMENTS OF CASH FLOWS - For the six months ended
June 30, 1996 and 1995
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Leased equipment
Accounted for under the operating method, net of
accumulated depreciation of $20,137,778 and
$20,081,528 and allowance for equipment
impairment of $20,520,404 and $20,593,401 ........ $ 12,610,812 $ 13,966,770
Accounted for under the financing method ........... -- 90,976
Equipment held for lease or sale - net of accumulated
depreciation of $1,827,573 and an allowance
for equipment impairment of $2,612,619 ........... -- --
Cash and cash equivalents ............................. 3,288,077 3,810,827
Note receivable ....................................... 525,312 770,784
Deferred costs ........................................ 280,935 337,193
Other receivables and prepaid expenses ................ 29,209 31,105
Accounts receivable ................................... 11,242 6,628
------------ ------------
$ 16,745,587 $ 19,014,283
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Distributions payable ................................. $ 712,133 $ 1,212,141
Deferred aircraft upgrade payable ..................... 138,234 361,539
Accounts payable and accrued expenses ................. 55,393 171,432
Deferred income ....................................... 82,421 110,853
Due to affiliates ..................................... 6,635 23,741
------------ ------------
Total liabilities ............................. 994,816 1,879,706
------------ ------------
Commitments and contingencies
Partners' equity
Limited partners' equity (300,005 units issued
and outstanding) .................................... 17,083,438 18,453,407
General partners' deficit ............................. (1,332,667) (1,318,830)
------------ ------------
Total partners' equity ........................ 15,750,771 17,134,577
------------ ------------
$ 16,745,587 $ 19,014,283
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Rental .............................................. $ 769,692 $ 1,226,304 $ 1,560,672 $ 2,506,838
Interest
Other ............................................ 53,339 108,253 117,593 197,789
Financing leases ................................. -- 4,139 776 36,736
Other operating income .............................. 3,011 12,602 3,166 13,317
----------- ----------- ----------- -----------
826,042 1,351,298 1,682,207 2,754,680
----------- ----------- ----------- -----------
Costs and expenses
Depreciation ........................................ 561,249 821,795 1,136,870 1,669,919
General and administrative .......................... 35,849 81,696 136,947 132,696
Fees to affiliates .................................. 67,414 98,212 129,494 209,647
Operating ........................................... 29,168 57,863 80,164 124,343
Provision for equipment impairment .................. 50,000 -- 50,000 8,000
Interest ............................................ 2,647 12,651 7,882 28,513
----------- ----------- ----------- -----------
746,327 1,072,217 1,541,357 2,173,118
----------- ----------- ----------- -----------
79,715 279,081 140,850 581,562
Realized gain on acquisition of
marketable securities ............................... -- 311,792 -- 311,792
Realized gain on sale
marketable securities ............................... -- 40,375 -- 40,375
(Loss) gain on disposition of equipment, net ............. -- (66,283) (54,935) 264,491
----------- ----------- ----------- -----------
Net income ............................................... $ 79,715 $ 564,965 $ 85,915 $ 1,198,220
=========== =========== =========== ===========
Net income attributable to
Limited partners .................................... $ 78,918 $ 559,315 $ 85,056 $ 1,186,238
General partners .................................... 797 5,650 859 11,982
----------- ----------- ----------- -----------
$ 79,715 $ 564,965 $ 85,915 $ 1,198,220
=========== =========== =========== ===========
Net income per unit of limited partnership
interest (300,005 units outstanding) ................ $ 0.26 $ 1.86 $ 0.28 $ 3.95
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
STATEMENT OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
Limited General Total
Partners' Partners' Partners'
Equity Equity Equity
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1996 ...................................... $ 18,453,407 $ (1,318,830) $ 17,134,577
Net income for the six months
ended June 30, 1996 ...................................... 85,056 859 85,915
Distributions to partners for the six months
ended June 30, 1996 ($4.85 per limited
partnership unit) ........................................ (1,455,025) (14,696) (1,469,721)
------------ ------------ ------------
Balance, June 30, 1996 ........................................ $ 17,083,438 $ (1,332,667) $ 15,750,771
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended
June 30,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income .......................................................................... $ 85,915 $ 1,198,220
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation ..................................................................... 1,136,870 1,669,919
Amortization of deferred costs ................................................... 56,258 56,258
Realized gain on acquisition and sale of marketable securities ................... -- (352,167)
Loss (gain) on disposition of equipment, net ..................................... 54,935 (264,491)
Provision for equipment impairment ............................................... 50,000 8,000
Changes in assets and liabilities
Other receivables and prepaid expenses ........................................... 1,896 (8,517)
Accounts receivable .............................................................. (4,614) 16,911
Accounts payable and accrued expenses ............................................ (74,623) (109,446)
Deferred income .................................................................. (28,432) 2,883
Due to affiliates ................................................................ (17,106) (12,287)
Accrued interest payable ......................................................... -- (169,524)
----------- -----------
Net cash provided by operating activities ................................. 1,261,099 2,035,759
----------- -----------
Cash flows from investing activities
Purchase of leased equipment - upgrades ............................................. (223,305) (336,867)
Proceeds from sale of marketable securities ......................................... -- 83,142
Proceeds from disposition of leased equipment ....................................... 196,829 3,531,881
Notes receivable .................................................................... 245,472 118,544
Minimum lease payments received on financing
leases, net of interest earned ................................................... 8,300 192,985
Other non-operating payments receipts ............................................... (41,416) (20,184)
----------- -----------
Net cash provided by investing activities ................................. 185,880 3,569,501
----------- -----------
Cash flows from financing activities
Distributions to partners ........................................................... (1,969,729) (4,545,530)
----------- -----------
Net (decrease) increase in cash and cash equivalents ..................................... (522,750) 1,059,730
Cash and cash equivalents, beginning of period ........................................... 3,810,827 4,042,653
----------- -----------
Cash and cash equivalents, end of period ................................................. $ 3,288,077 $ 5,102,383
=========== ===========
Supplemental disclosure of cash flow information
Interest paid ....................................................................... $ 7,882 $ 171,549
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
Supplemental disclosure of noncash investing activities.
The lessee of the Partnership's two 727-227 jet aircraft made certain initial
modifications to such aircraft during 1993, for which the Partnership is
required to repay through the application of rental credits in accordance with
its lease terms, over a 36 month period with interest at 9.31% per annum. The
cost of initial modifications for both aircraft aggregated approximately
$1,308,000.
<PAGE>
NATIONAL INCOME LEASE FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
1 INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussion should be read in conjunction with
the financial statements, related footnotes and discussions contained
in the National Lease Income Fund 6 L.P. (the "Partnership") annual
report on Form 10-K for the year ended December 31, 1995. The results
of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Leases
The Partnership accounts for all of its leases in accordance with the
operating and financing methods. For operating leases, rental revenue
is recognized on a straight-line basis and expenses (including
depreciation) are charged to operations as incurred.
For financing leases, unearned income is recognized as revenue over the
respective lease term so as to produce a constant rate of return on the
net investment. For the six months ended June 30, 1996 and 1995, rental
revenue earned on a month-to-month basis comprised approximately 3% of
total rental revenue recognized for each period.
Leased equipment and equipment held for lease or sale
The cost of leased equipment and equipment held for lease or sale
represents the initial cost of the equipment to the Partnership plus
miscellaneous acquisition and closing costs, and is carried at the
lower of depreciated cost or net realizable value.
Depreciation is computed using the straight-line method over the
estimated useful lives of such assets (five years for equipment for
management information systems, eight years for telephone equipment and
aerial lift platforms, 12 years for intercity buses and 13 to 18 years
for aircraft and aircraft-related equipment). The Partnership
capitalizes major additions to its aircraft and depreciates such
capital improvements over the remaining estimated useful life of such
aircraft.
When equipment is sold or otherwise disposed of, the cost and
accumulated depreciation (and any related allowance for equipment
impairment) are removed from the accounts and any gain or loss on such
sale or disposal is reflected in operations. Normal maintenance and
repairs are charged to operations as incurred. The Partnership provides
allowances for equipment impairment based upon a quarterly review of
all equipment in its portfolio, when management believes that, based
<PAGE>
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
upon market analysis, appraisal reports and leases currently in place
with respect to specific equipment, the investment in such equipment
may not be recoverable.
Deferred costs
Deferred costs represent the payments made by the Partnership, based
upon the terms of a certain lease, for maintenance which enhanced the
marketability with respect to the return of certain aircraft leased to
Alaska Airlines, Inc. ("Alaska"). Deferred costs are amortized over the
terms of the remarketed lease.
Note receivable
Note receivable represents financing provided by the Partnership to a
lessee of certain aircraft for modifications made to such aircraft.
Such note will be repaid at a rate of 9.31% per annum.
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The corporate general partner of the Partnership, ALI Capital Corp.
(the "Corporate General Partner"), the managing general partner of the
Partnership, ALI Equipment Management Corp. ("Equipment Management")
and Integrated Resources Equipment Group, Inc. ("IREG") are wholly
owned subsidiaries of Presidio Capital Corp. ("Presidio"). Z Square G
Partners II was the associate general partner of the Partnership
through February 27, 1995. On February 28, 1995, Presidio Boram Corp.,
a subsidiary of Presidio, became the associate general partner. Other
limited partnerships and similar investment programs have been formed
by Equipment Management or its affiliates to acquire equipment and,
accordingly, conflicts of interest may arise between the Partnership
and such other limited partnerships. Affiliates of Equipment Management
have also engaged in business related to the management of equipment
and the sale of various types of equipment and may transact business
with the Partnership.
Subject to the rights of the Limited Partners under the Limited
Partnership Agreement, Presidio will control the Partnership through
its direct or indirect ownership of all of the shares of Equipment
Management, the Corporate General Partner and, as of February 28, 1995,
the associate general partner. Presidio is managed by Presidio
Management Company, LLC ("Presidio Management"), a company controlled
by a director of Presidio. Presidio Management is responsible for the
day-to-day management of Presidio and, among other things, has
authority to designate directors of Equipment Management, the Corporate
General Partner and the associate general partner. In March 1996,
Presidio Management assigned its agreement for the day-to-day
management of Presidio to Wexford Management LLC ("Wexford").
Presidio is a liquidating company. Although Presidio has no immediate
plans to do so, it will ultimately seek to dispose of the interests it
acquired from Integrated Resources, Inc. through liquidation; however,
there can be no assurance of the timing of such transaction or the
effect it may have on the Partnership.
In March 1995, Presidio elected new directors for Equipment Management.
Wexford Management Corp., formerly Concurrency Management Corp.,
<PAGE>
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
provides management and administrative services to Presidio, its direct
and indirect subsidiaries, as well as to the Partnership. Effective
January 1, 1996, Wexford Management Corp. assigned its agreement to
provide management and administrative services to Presidio and its
subsidiaries to Wexford. During the six months ended June 30, 1996
reimbursable expenses to Wexford by the Partnership amounted to
$17,891.
The Partnership has a management agreement with IREG, pursuant to which
IREG would receive 5% of annual gross rental revenues on operating
leases; 2% of annual gross rental revenues on full payout leases which
contain net lease provisions; and 1% of annual gross rental revenues if
services are performed by third parties under the active supervision of
Equipment Management, as defined in the Limited Partnership Agreement.
The Partnership incurred equipment management fees of $75,553 and
$121,647 for the six months ended June 30, 1996 and 1995, respectively.
During the operating and sale stage of the Partnership, IREG is
entitled to a partnership management fee equal to 4% of distributable
cash from operations as defined in the Limited Partnership Agreement,
subject to increase after the limited partners have received certain
specified minimum returns on their investment. The Partnership incurred
partnership management fees of $53,941 and $88,000 for the six months
ended June 30, 1996 and 1995, respectively.
The general partners are entitled to 1% of distributable cash from
operations, cash from sales or financing and cash from the equipment
reserve account and, in general, an allocation of 1% of taxable net
income or loss of the Partnership.
During the operating and liquidating stage of the Partnership, IREG may
be entitled to receive certain other fees which are subordinated to the
receipt by the limited partners of their original invested capital and
certain specified minimum returns on their investment.
Upon the ultimate liquidation of the Partnership, the general partners
may be required to remit to the Partnership certain payments
representing capital account deficit restoration based upon a formula
provided within the Limited Partnership Agreement. Such restoration
amount may be less than the recorded general partners' deficit, which
could result in distributions to the limited partners of less than the
recorded equity.
In April 1995, Equipment Management and certain affiliates entered into
an agreement with Fieldstone Private Capital Group, L.P. ("Fieldstone")
pursuant to which Fieldstone performs certain management and
administrative services relating to the Partnership as well as certain
other partnerships in which Equipment Management serves as general
partner. Substantially all costs associated with the retention of
Fieldstone will be paid by Equipment Management.
4 DISTRIBUTIONS TO PARTNERS
Distributions payable to the Limited Partners and General Partners of
$705,012 ($2.35 per unit) and $7,121, respectively, at June 30, 1996,
were paid in August 1996.
5 EQUIPMENT SALES - 1996
From January 1 to June 30, 1996, the Partnership sold certain equipment
for management information systems and telecommunication equipment
(originally accounted for as operating and financing leases), which it
had originally purchased for purchase prices aggregating $1,785,997
inclusive of associated acquisition fees, to unaffiliated third parties
for an aggregate sales price of $196,829. Such equipment had net
carrying values aggregating $251,764 (net of allowances for equipment
<PAGE>
impairment aggregating $122,997 provided in prior periods with respect
to such equipment) when sold.
6 COMMITMENTS AND CONTINGENCIES
(a) Hawaiian Airlines, Inc.
On September 21, 1993, Hawaiian Airlines, Inc. ("Hawaiian"), filed for
reorganization under Chapter 11 of the United States Bankruptcy Code
(the "Bankruptcy Code"). Hawaiian had leased two Rolls Royce aircraft
engines (the "Hawaiian Engines"), owned by the Partnership, under two
separate engine leases (the "Hawaiian Leases"). The Hawaiian Engines
were not encumbered by third party debt.
Hawaiian had suffered serious financial difficulties since at least
1990 and had, through June 1994, made rental payments that were less
than the scheduled amounts due, based on a series of proposed
restructuring plans whereby lease rentals under the Hawaiian Leases
were reduced.
In September 1993, the Partnership discovered that one of the Hawaiian
Engines had been substantially damaged and was of nominal net carrying
value. Although such engine was held in storage by Hawaiian, Hawaiian
continued to remit payments on such engine as if it was in use.
Further, in March 1994, the Partnership was notified by Hawaiian that
the second engine was also in storage and in need of substantial
repairs (estimated by the Partnership to cost approximately $800,000).
Hawaiian continued to remit weekly payments relating to the Hawaiian
Engines through June 9, 1994.
On June 27, 1994, Hawaiian filed a motion with the bankruptcy court to
reject the Hawaiian Leases and on July 11, 1994, the bankruptcy court
approved such motion. The Partnership anticipates that it will
encounter severe competition in attempting to sell the Hawaiian Engines
due to their condition as well as due to a surplus in the market with
respect to such engines.
Hawaiian emerged from bankruptcy on September 12, 1994. The Partnership
had filed proofs of claims in Hawaiian's bankruptcy case. Hawaiian and
the Partnership entered into an agreement to settle the Partnership's
claims with respect to the Hawaiian Engines. Hawaiian has settled the
claims through the issuance of Hawaiian stock to the Partnership (see
Note 7). At June 30, 1996, the Hawaiian Engines (net of allowances for
equipment impairment aggregating $2,595,000 provided in prior periods)
were fully depreciated and are all included in Equipment held for sale
or lease.
(b) Continental Micronesia, Inc.
On March 31, 1993, the Partnership leased two Boeing 727-227 Advanced
aircraft to Continental Airlines, Inc. ("Continental") for a term of
approximately 69 months to be used by Continental's Air Micronesia
operation (the "Air Mike Leases").
Such aircraft had been originally leased to Alaska through August 14,
1992. In conjunction with the return of such aircraft by Alaska, it was
<PAGE>
6 COMMITMENTS AND CONTINGENCIES (continued)
determined that certain physical attributes of the aircraft exceeded
the related minimum return conditions provided for in the leases. As a
result, the Partnership paid Alaska approximately $647,000 to reflect
the value associated with such attributes. Such amount has been
reflected on the balance sheets, net of amortization, at June 30, 1996
and December 31, 1995, as Deferred Costs and will be amortized over the
term of the lease with Continental.
Each Air Mike Lease provides for a monthly base rent of $69,250,
subject to adjustments for rental credits relating to initial
modifications (the "Initial Modifications") which include Traffic
Collision Avoidance Systems, windshear detection and upgraded avionics,
aggregating approximately $1,308,000 for both aircraft. Such
modifications were funded by Continental and are being repaid by the
Partnership through the application of rental credits such that
Continental will recoup the aggregate cost of the Initial Modifications
over a 36-month period with interest at 9.31% per annum. As of June 30,
1996, the remaining balance of credit to be applied by Continental
towards such modification costs was approximately $138,000 and was
included on the balance sheet as Deferred Aircraft Upgrade Payable.
Further, Continental has made certain other modifications to such
aircraft for which the Partnership has agreed to provide financing
through credits ("Lessor Financing Credits") against base rental
payments due under the Air Mike Leases. The lessee will then repay any
Lessor Financing Credits through monthly installments which will be
amortized at the rate of 9.31% per annum over 36 months. Through June
30, 1996, the Partnership had provided all the required financing
aggregating approximately $1,443,000. Such amount, net of amounts
repaid, was reflected on the balance sheet at June 30, 1996 as Note
Receivable. At June 30, 1996, the net carrying value of both aircraft
aggregated approximately $8,337,000 (net of allowances for equipment
impairment aggregating approximately $10,009,000 provided in prior
periods).
(c) Skyhook, Inc.
In December 1989, Skyhook, Inc., the lessee of certain aerial lift
platforms, defaulted on its lease with the Partnership and shortly
thereafter filed for protection from its creditors pursuant to the
provisions of Chapter 11 of the United States Bankruptcy Code. The
Partnership recovered and disposed of all of the aerial lift platforms.
The lease had been guaranteed by the individual owner of the lessee.
The Partnership filed suit against the individual guarantor in New York
State Supreme Court, Westchester County. The equipment was originally
purchased for a price of approximately $1,523,000 (inclusive of
associated acquisition fees and expenses). During 1993, the guarantor
served an amended answer and counterclaim against the Partnership
alleging lack of commercial reasonableness in the Partnership's
disposition of the equipment and that the original lease transaction
was usurious. The amended answer and counterclaim sought approximately
$1,200,000 in damages. In March 1996, the Partnership and the defendant
settled the litigation. The settlement provides for a payment of $7,000
to the Partnership and a full and final release of any claims against
the Partnership. The action was dismissed with prejudice.
<PAGE>
6 COMMITMENTS AND CONTINGENCIES (continued)
(d) Southwest Airlines Co.
On November 30, 1994, the leases with the Southwest Airlines, Co.
("Southwest") of two Boeing 737-200 aircraft (the "Southwest Aircraft")
were scheduled to expire in accordance with their original terms. The
associated nonrecourse debt was repaid upon the receipt of the final
rental installment. Southwest and the Partnership agreed to extend
Southwest's leases for one additional year for a monthly rent of
approximately 28% of the original lease rate. The Partnership provided
an allowance for equipment impairment of $750,000 to recognize the loss
in value of such aircraft for the year ended December 31, 1994.
On November 30, 1995, the lease extensions with Southwest were
scheduled to expire in accordance with their terms. Southwest and the
Partnership agreed to a two year extension of each lease which provides
for monthly rental of 125% of the previous lease rate.
The net carrying value of the Southwest Aircraft aggregated
approximately $4,213,000 (net of an allowance for equipment impairment
aggregating approximately $10,400,000 previously provided) at June 30,
1996.
7 REALIZED GAIN ON ACQUISITION AND SALE OF MARKETABLE SECURITIES
In June 1995, the Partnership received approximately 86,000 shares of
Class A Common stock in the reorganized Hawaiian Airlines, Inc., in
consideration of its general unsecured claims filed against Hawaiian.
During 1995, the Partnership sold all shares for net proceeds
aggregating $398,377.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership declared a cash distribution of $2.35 per unit of limited
partnership interest totaling $712,133 for the quarter ended June 30, 1996,
which represented cash from operations of $705,721 generated during the current
period as well as from reserves generated in prior periods. As of June 30, 1996,
the Partnership had operating reserves of approximately $1,642,000 which was
comprised of undistributed cash from operations and sales of approximately
$124,000, as well as the general working capital reserve of $1,500,000.
The leasing arrangements entered into by the Partnership with respect to its
equipment generally provided for fixed or minimum rentals, and as such, provide
reasonable assurance that all of the Partnership's operating needs, such as
administrative costs and management fees, will be met in the foreseeable future.
Although expense levels have been reduced, the Partnership anticipates that most
of its future administrative expenses (i.e., accounting and investor services
including printing) are fixed and will not decrease significantly during the
Partnership's future operating periods. Other expenses such as insurance and
fees to affiliates will decline during such periods.
Set forth below is a description of various transactions which have impacted the
liquidity of the Partnership during 1996 and 1995:
(i) On September 21, 1993, Hawaiian Airlines, Inc. ("Hawaiian"), filed for
reorganization under Chapter 11 of the United States Bankruptcy Code.
Hawaiian had leased two Rolls Royce aircraft engines (the "Hawaiian
Engines"), owned by the Partnership, under two separate engine leases
(the "Hawaiian Leases"). The Hawaiian Engines were not encumbered by
third party debt.
Hawaiian had suffered serious financial difficulties since at least
1990 and had, through June 1994, made rental payments that were less
than the scheduled amounts due, based on a series of proposed
restructuring plans whereby lease rentals under the Hawaiian Leases
were reduced. Hawaiian has continued to remit weekly payments relating
to the Hawaiian Engines through June 9, 1994.
On June 27, 1994, Hawaiian filed a motion with the bankruptcy court to
reject the Hawaiian Leases and on July 11, 1994, the bankruptcy court
approved such motion.
The Partnership had filed proofs of claims in Hawaiian's bankruptcy
case. Hawaiian emerged from bankruptcy on September 12, 1994. Hawaiian
and the Partnership entered into an agreement to settle the
Partnership's claims with respect to the Hawaiian Engines. Hawaiian has
settled the claims through the issuance of Hawaiian stock to the
Partnership. In June 1995, the Partnership received approximately
86,000 shares of Class A Common stock in the reorganized Hawaiian
Airlines, Inc., in consideration of its general unsecured claims filed
against Hawaiian. During 1995, the Partnership sold all shares for net
proceeds aggregating $398,377. The Partnership anticipates that it will
encounter severe competition in attempting to sell the Hawaiian Engines
<PAGE>
Liquidity and Capital Resources (continued)
(i) (continued)
due to their condition as well as due to a surplus in the market with
respect to such engines. At June 30, 1996, the Hawaiian Engines (net of
allowances for equipment impairment aggregating $2,595,000 previously
provided) were fully depreciated.
(ii)On March 31, 1993, the Partnership leased two Boeing 727-227
Advance aircraft to Continental Airlines, Inc. ("Continental") for a
term of approximately 69 months to be used by Continental's Air
Micronesia operation (the "Air Mike Leases").
Such aircraft had been originally leased to Alaska Airlines, Inc.
("Alaska") through August 14, 1992. In conjunction with the return of
such aircraft, it was determined that certain physical attributes of
the aircraft exceeded the related minimum return conditions provided
for in the leases. As a result, the Partnership paid Alaska
approximately $647,000 to reflect the value associated with such
attributes. Such amount has been reflected on the balance sheets on a
gross basis, net of amortization, at June 30, 1996 and December 31,
1995, as Deferred Costs and will be amortized over the term of the
leases with Continental.
Each Air Mike Lease provides for a monthly base rent of $69,250,
subject to adjustments for rental credits relating to initial
modifications (the "Initial Modifications") which include Traffic
Collision Avoidance Systems, windshear detection and upgraded avionics,
aggregating approximately $1,308,000 for both aircraft. Such
modifications were funded by Continental and are being repaid by the
Partnership through the application of rental credits such that
Continental will recoup the aggregate cost of the Initial Modifications
over a 36-month period with interest at 9.31% per annum. As of June 30,
1996, the remaining balance of credit to be applied by Continental
towards such modifications costs was approximately $138,000 and was
included on the balance sheets as Deferred Aircraft Upgrade Payable.
Further, Continental has made certain other modifications to the
aircraft for which the Partnership has agreed to provide financing
through credits ("Lessor Financing Credits") against base rental
payments due under the Air Mike Leases. The lessee will then repay any
Lessor Financing Credits through monthly payments which will be
amortized at the rate of 9.31% per annum over 36 months. Through June
30, 1996, the Partnership had provided financing aggregating
approximately $1,443,000. Such amount, net of amounts repaid, was
reflected on the balance sheet at June 30, 1996 as Note Receivable. At
June 30, 1996, the net carrying value of both aircraft aggregated
approximately $8,337,000 (net of allowances for equipment impairment
aggregating approximately $10,009,000 provided in prior periods).
(iii) On November 30, 1994, the leases with Southwest Airlines, Co.
("Southwest") of two Boeing 737-200 aircraft (the "Southwest Aircraft")
were scheduled to expire in accordance with their original terms. The
associated nonrecourse debt was repaid upon the receipt of the final
rental installment for the initial lease term. Southwest and the
Partnership agreed to extend Southwest's leases for one additional year
<PAGE>
Liquidity and Capital Resources (continued)
for a monthly rent of approximately 28% of the original lease rate. On
November 30, 1995, the extensions with Southwest were scheduled to
expire in accordance with their terms, and Southwest and the
Partnership agreed to extend the leases for two additional years at
125% of the current lease rate. At June 30, 1996, the net carrying
value of the Southwest Aircraft aggregated approximately $4,213,000
(net of allowances for equipment impairment aggregating $10,400,000
previously provided). Liquidity and Capital Resources (continued)
(iv) On October 31, 1994, the lease with Simmons Airlines, Inc.
("Simmons") of two Shorts 360 aircraft (the "Simmons Aircraft") expired
in accordance with its original terms. The associated nonrecourse debt
was repaid upon the receipt of the final rental installment. In
conjunction with the return of the Simmons Aircraft, it was determined
that certain attributes of two of the engines were below certain
thresholds. The Partnership contributed approximately $133,000 in order
to enhance the value of such engines. In April 1995, the Simmons
Aircraft were sold to an unaffiliated third party for net sales
proceeds of $1,425,000. Such aircraft had net carrying values
aggregating approximately $1,493,000 (net of allowances for equipment
impairment aggregating $2,930,000 previously provided) when sold.
(v) On July 31, 1995 the lease with Aloha Airlines, Inc. ("Aloha") for
a Boeing 737-200 Advanced aircraft was scheduled to expire in
accordance with its original terms. The Partnership and Aloha entered
into a short-term lease extension of a maximum of two and a half months
terminating on October 15, 1995. During the lease extension Aloha paid
rent on a utilization arrangement based on $225 per cycle with a
monthly minimum of $53,500 and a monthly maximum of $90,000. The
Partnership had the option, which it exercised, to early terminate the
lease on September 7, 1995. Aloha paid the Partnership a financial
adjustment of $515,000 in lieu of complying with certain return
conditions provided for in the lease. Aloha also made an additional
payment of $15,000 for a damaged Auxiliary Power Unit. In September
1995, the Partnership sold the Aloha aircraft to an unaffiliated third
party for net sales proceeds of $2,461,000. Such aircraft had a net
carrying value of approximately $2,719,000 (net of allowances for
equipment impairment aggregating $3,500,000 previously provided) when
sold.
As of June 30, 1996, the Partnership remained the owner of four aircraft and
related engines as well as two additional aircraft engines, which in the
aggregate represented approximately 98% of its remaining equipment, on an
original cost basis. Such foregoing aircraft and engines had an original cost of
approximately $56,820,000 (net carrying value of approximately $12,550,000). All
associated nonrecourse debt related to the aircraft has been repaid.
The substantial costs required to maintain and bring used aircraft into
compliance with FAA noise and maintenance requirements are the primary factors
which have adversely affected the narrow body aircraft market. The Partnership
has encountered severe competition in attempting to re-lease its aircraft as
they have come off lease due to a surplus in the market of narrow-body aircraft
similar to the aircraft owned by the Partnership. Additionally, there is
competition from newer and more fuel efficient aircraft which comply with the
FAA noise requirements. The Partnership also believes that as a result of the
factors listed above there has been a significant decline in the re-sale value
of narrow-body aircraft.
<PAGE>
Liquidity and Capital Resources (continued)
As the Partnership's aircraft come off-lease, the Partnership may need to use a
portion of its operating reserves and/or its cash flow, which would otherwise be
available for distribution, to upgrade or enhance these aircraft if the
Partnership determines that such expenditures are in its best interest in order
to maximize the remarketing value. The Partnership is currently evaluating
strategies, including potential engine upgrades to conform to regulations
covering maintenance and upgrading of aging aircraft. The Partnership's ability
to make distributions may be impacted by its obligation to pay such costs.
At June 30, 1996, the Partnership remained the owner of equipment with an
original cost of approximately $57,709,000 of which approximately $4,440,000 is
off-lease and approximately $338,000 is leased on a month-to-month basis (both
on an original cost basis). The Partnership will continue with its efforts to
maximize the value of its remaining equipment portfolio. The Partnership's
anticipated cash from operations after deducting operating expenses for the
remainder of 1996, based on firm term leases in place, is not sufficient to
maintain previous distribution levels. Distribution levels will fluctuate based
upon remarketing success of the Partnership's equipment including any proceeds
generated by the sale of significant assets (such as aircraft) and requirements
for operating reserves, if any.
At the present time, the level of fees payable to IREG for services rendered to
the Partnership and other affiliated equipment leasing partnerships is
declining. The effect of this situation cannot be determined at this point. The
management agreements between the Partnership and IREG may be terminated by
either party to such agreements.
In April 1995, the Managing General Partner and certain affiliates entered into
an agreement with Fieldstone pursuant to which Fieldstone performs certain
management and administrative services relating to the Partnership as well as
certain other partnerships in which the Managing General Partner serves as
general partner. Substantially all costs associated with the retention of
Fieldstone will be paid by the Managing General Partner.
On February 28, 1995, Presidio Boram Corp., a subsidiary of Presidio, became the
Associate General Partner, upon the withdrawal of Z Square G Partners II, the
former Associate General Partner.
Inflation and changing prices have not had any material effect on the
Partnership's revenues since its inception nor does the Partnership anticipate
any material effect on its business from these factors.
Results of Operations
Net income decreased for the quarter and six months ended June 30, 1996 as
compared to the quarter and six months ended June 30, 1995, as the reduction in
revenue, realized gain on marketable securities and (loss) gain on disposition
of equipment exceeded the reduction in expenses.
Revenues decreased overall for the quarter and six months ended June 30, 1996
compared to the corresponding periods of the prior year. Rental income decreased
due to the expiration of certain leases in accordance with the original terms of
such leases subsequent to the prior year's periods. The sale of the Aloha
aircraft prior to the current period accounted for approximately 88% of the
total rental income reduction.
<PAGE>
Interest income on finance leases decreased due to expiration of all leases in
accordance with the original lease terms and sale of equipment subsequent to the
prior year's periods.
Costs and expenses decreased for the quarter and six months ended June 30, 1996
as compared to the corresponding periods of the prior year as follows:
Fees to affiliates decreased due to the decrease in equipment management fees
resulting from a reduction in rentals on which such fees are based. Depreciation
expense decreased due to the elimination of depreciation expense resulting from
the disposition or sale of certain equipment during or subsequent to the prior
year's periods, as well as to the fact that certain equipment was fully
depreciated during or prior to the current year's periods. Additionally, the
Partnership provided allowances for equipment impairment in the current year's
periods of $50,000 as compared to allowances for equipment impairment of $8,000
for the six months period of the prior year. The Partnership did not recognize
any gain or loss on disposition of equipment during the current quarter as
compared to a loss of approximately $66,300 in the prior year. Loss on the
disposition of equipment was approximately $55,000 for the six month period of
1996 as compared to a net gain of approximately $264,000 in the prior year
period.
Operating expenses decreased due to expenses incurred in the prior year relating
to the return and storage of the Simmons Aircraft. Interest expense decreased
due to increased principal payments on Air Mike rent credits in the current
period. These decreases were offset by an increase in general and administrative
expense for the six months ended June 30, 1996 due to higher level costs in
conjunction with the settlement of the Skyhook litigation.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
(i) During December 1989, Skyhook, Inc., the lessee of certain aerial lift
platforms, defaulted on its lease with the Partnership and shortly thereafter
filed for protection from its creditors pursuant to the provisions of Chapter 11
of the Bankruptcy Code. The Partnership recovered and disposed of all of the
aerial lift platforms. The lease had been guaranteed by the individual owner of
the lessee. The Partnership filed suit against the individual guarantor in New
York State Supreme Court, Westchester County. The equipment was originally
acquired for a purchase price of approximately $1,523,000 (inclusive of
associated acquisition fees and expenses). During 1993, the guarantor served an
amended answer and counterclaim against the Partnership, alleging lack of
commercial reasonableness in the Partnership's disposition of the equipment and
that the original lease transaction was usurious. The amended answer and
counterclaim sought approximately $1,200,000 in damages. In March 1996, the
Partnership and the defendant settled the litigation. The settlement provides
for a payment of $7,000 to the Partnership and a full and final release of any
claims against the Partnership. The action has been dismissed with prejudice.
(ii) The Partnership filed proofs of claims in the Hawaiian Airlines, Inc.
("Hawaiian") bankruptcy case covering the outstanding rentals from October 2,
1990 through September 21, 1993 and covering the casualty value of the damaged
engine, as well as administrative claims covering the use of a second engine
(collectively, the "Hawaiian Engines") and a McDonnell Douglas DC-9-51 aircraft
(the "Hawaiian Aircraft") for periods subsequent to September 21, 1993. The
proofs of claims and the administrative claims also included claims for any
other damages resulting from Hawaiian's actions with respect to the Hawaiian
Engines and the Hawaiian Aircraft either pre- or post-petition. Because of the
foreclosure on the Hawaiian Aircraft, the Partnership has agreed to withdraw its
claims as to the Hawaiian Aircraft, since the Hawaiian Lender filed
substantially duplicate claims. Hawaiian emerged from bankruptcy on September
12, 1994. Hawaiian and the Partnership entered into an agreement to settle the
Partnership`s claims with respect to the Hawaiian Engines. Hawaiian has settled
the claims through the issuance of Hawaiian stock to the Partnership. In June
1995, the Partnership received approximately 86,000 shares of Class A Common
stock in the reorganized Hawaiian Airlines, Inc., in consideration of its
general unsecured claims filed against Hawaiian. During 1995, the Partnership
sold all shares for net proceeds aggregating $398,377.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Lease Income Fund 6 L.P.
By: ALI Equipment Management Corp.
Managing General Partner
/S/ Douglas J. Lambert
------------------
Douglas J. Lambert
President (Principal Executive
and Financial Officer)
Date: August 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the June 30,1996 Form 10-Q of National Lease Income Fund 6 L.P.
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,288,077
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 846,698
<INVENTORY> 0
<CURRENT-ASSETS> 4,134,775
<PP&E> 53,268,994
<DEPRECIATION> 20,137,778
<TOTAL-ASSETS> 16,745,587
<CURRENT-LIABILITIES> 994,816
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,750,771
<TOTAL-LIABILITY-AND-EQUITY> 16,745,587
<SALES> 0
<TOTAL-REVENUES> 1,682,207
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,541,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 85,915
<INCOME-TAX> 0
<INCOME-CONTINUING> 85,915
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,915
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
