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 September 30, 1997
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, Suite 270 Greenwich, CT 06830
(Address of principal executive offices)
(203) 862-7444
(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 LEASE INCOME FUND 6 L.P.
FORM 10-Q - SEPTEMBER 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 1997 and December 31, 1996
STATEMENTS OF OPERATIONS - For the three months ended September 30,
1997 and 1996 and for the nine months ended September 30, 1997 and
1996
STATEMENT OF PARTNERS' EQUITY - For the nine months ended September 30,
1997
STATEMENTS OF CASH FLOWS - For the nine months ended September 30, 1997
and 1996
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 6 L.P.
BALANCE SHEETS
September 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Leased equipment
Accounted for under the operating method, net of
accumulated depreciation of $22,338,695 and
$20,728,187 and allowance for equipment
impairment of $20,431,885 ........................... $ 9,866,619 $11,477,127
Equipment held for lease or sale - net of accumulated
depreciation of $1,781,000 and an allowance
for equipment impairment of $2,595,000 .................. -- --
Cash and cash equivalents .................................. 4,088,651 3,481,745
Deferred costs ............................................. 140,290 224,677
Note receivable ............................................ 31,603 271,288
Other receivables and prepaid expenses ..................... 18,647 34,612
Accounts receivable ........................................ 3,860 2,788
----------- -----------
$14,149,670 $15,492,237
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Deferred aircraft upgrade payable .......................... $ 100,000 $ 100,000
Accounts payable and accrued expenses ...................... 81,989 109,017
Deferred income ............................................ 69,250 69,250
Distributions payable ...................................... -- 757,588
Due to affiliates .......................................... -- 71,527
----------- -----------
Total liabilities ....................................... 251,239 1,107,382
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (as restated) (300,005 units issued
and outstanding) ........................................ 13,749,596 14,231,157
General partners' equity (as restated) ..................... 148,835 153,698
----------- -----------
Total partners' equity .................................. 13,898,431 14,384,855
$14,149,670 $15,492,237
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 6 L.P.
STATEMENTS OF OPERATIONS
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Rental ................................ $ 721,289 $ 756,882 $ 2,163,868 $ 2,317,554
Interest
Other .............................. 49,181 51,844 140,722 169,437
Financing leases.................... -- -- -- 776
Other operating income................. -- 23 -- 3,189
----------- ----------- ----------- -----------
770,470 808,749 2,304,590 2,490,956
----------- ----------- ----------- -----------
Costs and expenses
Depreciation .......................... 536,842 552,804 1,610,508 1,689,674
Operating ............................. 86,847 76,563 173,261 156,727
General and administrative ............ 41,307 45,946 173,070 182,893
Fees to affiliates .................... 36,064 67,186 137,194 196,680
Provision for equipment impairment .... -- -- -- 50,000
Interest .............................. -- 297 -- 8,179
----------- ----------- ----------- -----------
701,060 742,796 2,094,033 2,284,153
----------- ----------- ----------- -----------
69,410 65,953 210,557 206,803
Gain (loss) on disposition of equipment, net -- 7,869 -- (47,066)
----------- ----------- ----------- -----------
Net income ................................. $ 69,410 $ 73,822 $ 210,557 $ 159,737
=========== =========== =========== ===========
Net income attributable to
Limited partners ...................... $ 68,716 $ 73,084 $ 208,451 $ 158,140
General partners ...................... 694 738 2,106 1,597
----------- ----------- ----------- -----------
$ 69,410 $ 73,822 $ 210,557 $ 159,737
=========== =========== =========== ===========
Net income per unit of limited partnership
interest (300,005 units outstanding) .. $ .23 $ .24 $ .69 $ .53
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 6 L.P.
STATEMENT OF PARTNERS' EQUITY
Limited General Total
Partners' Partners' Partners'
Equity Equity Equity
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1997 .............................. $ 15,731,182 $ (1,346,327) $ 14,384,855
Reallocation of partners' equity ...................... (1,500,025) 1,500,025 --
------------ ------------ ------------
Balance, January 1, 1997 (as restated) ................ 14,231,157 153,698 14,384,855
Net income for the nine months
ended September 30, 1997 ......................... 208,451 2,106 210,557
Distributions to partners for the nine months
ended September 30, 1997 ($2.30 per limited
partnership unit) ................................ (690,012) (6,969) (696,981)
------------ ------------ ------------
Balance, September 30, 1997 ........................... $ 13,749,596 $ 148,835 $ 13,898,431
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 6 L.P.
STATEMENTS OF CASH FLOWS
For the nine months ended
September 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income ........................................ $ 210,557 $ 159,737
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation ................................... 1,610,508 1,689,674
Amortization of deferred costs ................. 84,387 84,387
Gain on disposition of equipment, net .......... -- 47,066
Provision for equipment impairment ............. -- 50,000
Changes in assets and liabilities
Other receivables and prepaid expenses ......... 15,965 (12,447)
Accounts receivable ............................ (1,072) (4,076)
Accounts payable and accrued expenses .......... (27,028) (40,783)
Deferred income ................................ -- (41,603)
Due to affiliates .............................. (71,527) (20,921)
----------- -----------
Net cash provided by operating activities 1,821,790 1,911,034
----------- -----------
Cash flows from investing activities
Purchase of leased equipment - upgrades ........... -- (261,539)
Proceeds from disposition of leased equipment ..... -- 248,737
Note receivable ................................... 239,685 372,542
Minimum lease payments received on financing
leases, net of interest earned ................. -- 8,300
Other non-operating payments ...................... -- (61,586)
----------- -----------
Net cash provided by investing activities 239,685 306,454
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 6 L.P.
STATEMENTS OF CASH FLOWS
(continued)
For the nine months ended
September 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from financing activities
Distributions to partners ......................... (1,454,569) (2,681,863)
----------- -----------
Net increase (decrease) in cash and cash equivalents ... 606,906 (464,375)
Cash and cash equivalents, beginning of period ......... 3,481,745 3,810,827
----------- -----------
Cash and cash equivalents, end of period ............... $ 4,088,651 $ 3,346,452
=========== ===========
Supplemental disclosure of cash flow information
Interest paid ..................................... $ -- $ 8,179
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
NATIONAL LEASE INCOME 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 discussions 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, 1996. The
results of operations for the nine months ended September 30, 1997 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 nine months ended September 30, 1997 and 1996, rental revenue
earned on a month-to-month basis comprised approximately 1% and 3%,
respectively, of total rental revenue recognized.
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 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.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
upon market analysis, appraisal reports and leases currently in place
with respect to specific equipment, the investment in such equipment
may not be recoverable.
The allowance is inherently subjective and is based upon management's
best estimate of current conditions and assumptions about expected
future conditions. The Partnership may provide for additional losses in
subsequent periods and such losses could be material.
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 is being repaid at a rate of 9.31% per annum.
Recently issued accounting pronouncements
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements. Statement No. 128, "Earnings per Share"
establishes standards for computing and presenting earnings per share,
and is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Statement No. 129, "Disclosure
of Information about Capital Structure" establishes standards for
disclosing information about an entity's capital structure, and is
effective for financial statements for periods ending after December
15, 1997. Statement No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of comprehensive income
and its components, and is effective for fiscal years beginning after
December 15, 1997. Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers, and is effective for financial
statements for periods beginning after December 15, 1997.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Management of the Company does not believe that these new standards
will have a material effect on the Company's reported operating
results, per share amounts, financial position or cash flows.
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 the associate general
partner. On November 2, 1997, the Administrative Services Agreement
between Presidio and Wexford Management LLC ("Wexford"), the
administrator for Presidio expired. Pursuant to that agreement Wexford
had authority to designate directors of Equipment Management, the
Corporate General Partner and the associate general partner. Effective
November 3, 1997, Wexford and Presidio entered into a new
Administrative Services Agreement, dated as of November 3, 1997 (the
"ASA"), which expires on May 3, 1998. Under the terms of the ASA,
Wexford will provide consulting and administrative services to Presidio
and its affiliates, including Equipment Management, the Corporate
General Partner, the associate general partner and the Partnership, for
a term of six months. During the nine months ended September 30, 1997
and 1996, reimbursable expenses due to Wexford from the Partnership
amounted to $20,831 and $25,982, respectively.
Effective November 3, 1997, officers and employees of Wexford that had
served as officers and/or directors of Equipment Management, the
Corporate General Partner and the Associate General Partner tendered
their resignation. On the same date, the Board of Directors appointed
new individuals to serve as officers and/or directors of Equipment
Management, the Corporate General Partner and the Associate General
Partner.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
The Partnership has a management agreement with IREG, pursuant to which
IREG receives 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 $108,194 and
$112,739 for the nine months ended September 30, 1997 and 1996,
respectively.
During the operating and liquidating 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 $29,000 and $83,941 for the nine months
ended September 30, 1997 and 1996, 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
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, other than legal fees, are paid by Equipment Management.
The agreement with Fieldstone was scheduled to terminate November 3,
1997. Equipment Management and certain affiliates are currently
negotiating a possible extension of the agreement. Fieldstone has
indicated that it will continue to perform services in respect of the
Partnership pending the conclusion of such negotiation.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
4 PARTNER'S EQUITY
The General Partners hold a 1% equity interest in the Partnership. At
the inception of the Partnership, the General Partners' equity account
was credited with only the actual capital contributed in cash, $9,950.
The Partnership's management determined that this accounting does not
appropriately reflect the limited partners' and the General Partners'
relative participations in the Partnership's net assets, since it does
not reflect the General Partners' 1% equity interest in the
Partnership. Thus, the Partnership has restated its financial
statements to reallocate $1,500,025 (1% of the gross proceeds raised at
the Partnership's formation) of the partners' equity to the General
Partners' equity account. This reallocation was made as of the
inception of the Partnership and all periods presented in the financial
statements have been restated to reflect the reallocation. The
reallocation has no impact on the Partnership's financial position,
results of operations, cash flows, distributions to partners, or the
partners' tax basis capital accounts.
5 COMMITMENTS AND CONTINGENCIES
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"). Each Air Mike Lease provides for a
monthly base rent of $69,250, subject to adjustments for rent 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 rent 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.
The remaining balance of rent credits to be applied by Continental
towards such modifications was $100,000 as of September 30, 1997 and
December 31, 1996.
In addition, Continental has made certain other modifications to such
aircraft. The Partnership has agreed to provide financing for the rent
credits ("Lessor Financing Credits") against the base rental payments
due under the Air Mike Leases. The lessee is currently repaying Lessor
Financing Credits through monthly installments which are being
amortized at the rate of 9.31% per annum over 36 months. Through
September 30, 1997, the Partnership had provided all the required
financing aggregating approximately $1,443,000. Such amount, net of
amounts repaid, is reflected on the accompanying balance sheets as Note
Receivable at September 30, 1997 and December 31, 1996. The net
carrying value of both aircraft aggregated approximately $7,403,000 and
$7,963,000 (net of allowances for equipment impairment aggregating
approximately $10,000,000 provided in prior periods) at September 30,
1997 and December 31, 1996, respectively.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
5 COMMITMENTS AND CONTINGENCIES (continued)
Continental Micronesia, Inc. (continued)
In April 1993, Continental transferred all of its rights and
obligations under the Air Mike Leases to Air Micronesia, a stand-alone
air carrier affiliated with Continental.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The General Partners hold a 1% equity interest in the Partnership. At the
inception of the Partnership, the General Partners' equity account was credited
with only the actual capital contributed in cash, $9,950. The Partnership's
management determined that this accounting does not appropriately reflect the
limited partners' and the General Partners' relative participations in the
Partnership's net assets, since it does not reflect the General Partners' 1%
equity interest in the Partnership. Thus, the Partnership has restated its
financial statements to reallocate $1,500,025 (1% of the gross proceeds raised
at the Partnership's formation) of the partners' equity to the General Partners'
equity account. This reallocation was made as of the inception of the
Partnership and all periods presented in the financial statements have been
restated to reflect the reallocation. The reallocation has no impact on the
Partnership's financial position, results of operations, cash flows,
distributions to partners, or the partners' tax basis capital accounts.
The Partnership did not declare a cash distribution for the quarter ended
September 30, 1997. As of September 30, 1997, the Partnership had operating
reserves of approximately $2,968,000, which was comprised of undistributed cash
from operations and sales, aggregating approximately $1,468,000, as well as the
general working capital reserve of $1,500,000.
Quarterly cash from operations has reached minimal levels and the costs
associated with making quarterly cash distributions remains fixed. The managing
general partner of the Partnership has decided to discontinue quarterly cash
distributions and instead make periodic cash distributions based upon the
accumulation of cash in the Partnership.
It is the Partnership's intention to maintain reserves sufficient to support the
Partnership's future obligations. The Partnership may, in the future, use
certain of its reserves to upgrade its leased equipment in order to enhance its
value.
The leasing arrangements entered into by the Partnership with respect to its
equipment generally provide 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, most of the Partnership's future
administrative expenses (i.e., accounting and investor services including
printing) are fixed and will not decrease significantly during the Partnership's
future operating period. Other expenses such as insurance and fees to affiliate
will decline during such period.
Set forth below is a description of various transactions which have impacted the
liquidity of the Partnership during 1997 and 1996:
(i) 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").
<PAGE>
Liquidity and Capital Resources (continued)
(i) (continued)
Such aircraft had been originally leased to Alaska Airlines, Inc.
("Alaska") through August 14, 1992. In connection 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 September 30, 1997 and December
31, 1996, as Deferred Costs and will be amortized over the term of the
lease renewal 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
September 30, 1997, the remaining balance of credit to be applied by
Continental towards such modifications costs was $100,000 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
September 30, 1997, the Partnership had provided financing aggregating
approximately $1,443,000. Such amount, net of amounts repaid, was
reflected on the balance sheet at September 30, 1997 as Note
Receivable. At September 30, 1997, the net carrying value of both
aircraft aggregated approximately $7,403,000 (net of allowances for
equipment impairment aggregating approximately $10,000,000 provided in
prior periods).
(ii) 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
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 then current lease rate. At September 30, 1997, the net
carrying value of the Southwest Aircraft aggregated approximately
$2,464,000 (net of allowances for equipment impairment aggregating
$10,400,000 previously provided).
<PAGE>
Liquidity and Capital Resources (continued)
As of September 30, 1997, the Partnership remained the owner of four aircraft
and related engines as well as two additional aircraft engines, which in the
aggregate represented substantially all 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 $9,867,000). All
associated nonrecourse debt related to the aircraft has been repaid. At
September 30, 1997, the Partnership remained the owner of equipment with an
original cost of approximately $57,013,000 of which approximately $4,376,000 is
off-lease and approximately $194,000 is leased on a month-to-month basis (both
on an original cost basis).
On December 5, 1997, the leases of the Southwest Aircraft are scheduled to
expire in accordance with their terms, but the Partnership has agreed to a short
term extension of such leases to facilitate the orderly return of the aircraft.
The Partnership is currently investigating remarketing opportunities for the
Southwest Aircraft. There can be no assurance that the Partnership will be
successful with respect to its remarketing activities. 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 1997, 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.
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. 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.
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 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.
<PAGE>
Liquidity and Capital Resources (continued)
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, other than legal fees, are paid by the Managing General Partner. The
agreement with Fieldstone was scheduled to terminate November 3, 1997. Equipment
Management and certain affiliates are currently negotiating a possible extension
of the agreement. Fieldstone has indicated that it will continue to perform
services in respect of the Partnership pending the conclusion of such
negotiation.
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 but increased for the nine months ended
September 30, 1997 as compared to the quarter and nine months ended September
30, 1996, as the reduction in revenue was more than offset by the overall
reduction in expenses. Additionally, there were no dispositions of equipment
during the quarter and nine months ended September 30, 1997, as compared to
dispositions that generated losses for the nine months in the corresponding
periods of the prior year.
Revenues decreased overall for the quarter and nine months ended September 30,
1997 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.
Interest income on finance leases was eliminated due to the expiration of all
leases in accordance with the original lease terms and sale of equipment
subsequent to the prior year's periods.
Expenses decreased overall for the quarter and nine months ended September 30,
1997 as compared to the corresponding periods of the prior year as follows:
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 period, as well as to the fact that certain equipment was
fully depreciated during or prior to the current year's period. There was no
provision for equipment impairment recorded in the current nine-month period as
compared to an impairment of $50,000 in the prior year's nine month period.
There were no dispositions of equipment in the current nine-month period as
compared to a net loss of approximately $47,000 on the disposition of equipment
in the prior year's nine-month period;
Fees to affiliates decreased due to the decrease in partnership management fees
which are based on distributions to partners;
<PAGE>
Liquidity and Capital Resources (continued)
Interest expense was eliminated due to the repayment of the principal balance on
Air Mike rent credits subsequent to the prior year's period;
General and administrative expenses decreased for the quarter and nine months
ended September 30, 1997 due to decreases in reimbursable expenses to Wexford
and legal fees.
This general decrease in expenses was offset slightly by an increase in
operating expenses due to an increase in administrative fees relating to the Air
Mike Leases.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K:
Current reports on Form 8-K dated July 25, 1997 and August 28, 1997.
<PAGE>
SIGNATURES
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.
National Lease Income Fund 6 L.P.
By: ALI Equipment Management Corp.
Managing General Partner
/s/Richard Sabella
------------------
Richard Sabella
President
/s/Kevin Reardon
----------------
Kevin Reardon
Vice President, Treasurer and Secretary
(Chief Accounting Officer)
Date: November 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the September 30, 1997 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,088,651
<SECURITIES> 0
<RECEIVABLES> 35,463
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,283,051
<PP&E> 33,986,314
<DEPRECIATION> 24,119,695
<TOTAL-ASSETS> 14,149,670
<CURRENT-LIABILITIES> 251,239
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,898,431
<TOTAL-LIABILITY-AND-EQUITY> 14,149,670
<SALES> 0
<TOTAL-REVENUES> 2,304,590
<CGS> 0
<TOTAL-COSTS> 483,525
<OTHER-EXPENSES> 1,610,508
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 210,557
<INCOME-TAX> 0
<INCOME-CONTINUING> 210,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210,557
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
