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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 March 31, 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, 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 LEASE INCOME FUND 6 L.P.
FORM 10-Q - MARCH 31, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 1997 and December 31, 1996 .................
STATEMENTS OF OPERATIONS - For the three months ended
March 31, 1997 and 1996 ..........................................
STATEMENT OF PARTNERS' EQUITY - For the three months ended
March 31, 1997 ...................................................
STATEMENTS OF CASH FLOWS - For the three months ended
March 31, 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 1 - LEGAL PROCEEDINGS ...............................................
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
March 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Leased equipment - net
Accounted for under the operating method,
net of accumulated depreciation of
$21,265,028 and $20,728,187 and
allowance for equipment impairment
of $20,431,885 ............................ $10,940,286 $11,477,127
Equipment held for lease or sale - netof accumulated
depreciation of $1,781,000 and an allowance
for equipemtn impairment of $2,595,000 .... -- --
Cash and cash equivalents .......................... 3,370,235 3,481,745
Deferred costs ..................................... 196,548 224,677
Note receivable .................................... 166,344 271,288
Other receivables and prepaid expenses ............. 15,731 34,612
Accounts receivable ................................ 2,788 2,788
----------- -----------
$14,691,932 $15,492,237
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Distributions payable .............................. $ 696,981 $ 757,588
Deferred aircraft upgrade payable .................. 100,000 100,000
Accounts payable and accrued expenses .............. 79,090 109,017
Deferred income .................................... 69,250 69,250
Due to affiliates .................................. 3,591 71,527
----------- -----------
Total liabilities ........................... 948,912 1,107,382
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (as restated)(300,005
units issued and outstanding) .............. 13,595,740 14,231,157
General partners' equity (as restated) ............. 147,280 153,698
----------- -----------
Total partners' equity ...................... 13,743,020 14,384,855
----------- -----------
$14,691,932 $15,492,237
=========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 6 L.P.
STATEMENTS OF OPERATIONS
For the three months ended
March 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues
Rental ....................................... $ 721,289 $ 790,980
Interest
Other ..................................... 45,846 64,254
Financing leases .......................... -- 776
Other operating income ....................... -- 155
--------- ---------
767,135 856,165
--------- ---------
Costs and expenses
Depreciation ................................. 536,841 575,621
Fees to affiliates ........................... 65,065 62,080
Operating .................................... 55,335 50,996
General and administrative ................... 54,748 101,098
Interest ..................................... -- 5,235
--------- ---------
711,989 795,030
--------- ---------
55,146 61,135
Loss on disposition of equipment, net ............. -- (54,935)
--------- ---------
Net income ........................................ $ 55,146 $ 6,200
========= =========
Net income attributable to
Limited partners ............................. $ 54,595 $ 6,138
General partners
551 62
--------- ---------
$ 55,146 $ 6,200
========= =========
Net income per unit of limited partnership interest
(300,005 units outstanding) .................. $ 0.18 $ 0.02
========= =========
See notes to financial statements.
</TABLE>
<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 three months
ended March 31, 1997 .................... 54,595 551 55,146
Distributions to partners for the three months
ended March 31, 1997 ($2.30 per limited
partnership unit) ....................... (690,012) (6,969) (696,981)
------------ ------------ ------------
Balance, March 31, 1997 ...................... $ 13,595,740 $ 147,280 $ 13,743,020
============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 6 L.P.
STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income ........................................ $ 55,146 $ 6,200
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation ................................... 536,841 575,621
Amortization of deferred costs ................. 28,129 28,129
Loss on disposition of equipment, net .......... -- 54,935
Changes in assets and liabilities
Other receivables and prepaid expenses ......... 18,881 6,304
Accounts receivable ............................ -- 6,209
Accounts payable and accrued expenses .......... (29,927) (37,789)
Deferred income ................................ -- (30,361)
Due to affiliates .............................. (67,936) (25,920)
----------- -----------
Net cash provided by operating activities 541,134 583,328
----------- -----------
Cash flows from investing activities
Purchase of leased equipment - upgrades ........... -- (110,358)
Proceeds from disposition of leased equipment ..... -- 196,829
Note receivable .................................. 104,944 121,313
Minimum lease payments received on financing
leases, net of interest earned ................. -- 8,300
Other non-operating payments ...................... -- (14,073)
----------- -----------
Net cash provided by investing activities 104,944 202,011
----------- -----------
Cash flows from financing activities
Distributions to partners ......................... (757,588) (1,212,141)
----------- -----------
Net decrease in cash and cash equivalents ............ (111,510) (426,802)
Cash and cash equivalents, beginning of period ......... $ 3,481,745 3,810,827
----------- -----------
Cash and cash equivalents, end of period ............... $ 3,370,235 $ 3,384,025
=========== ===========
Supplemental disclosure of cash flow information
Interest paid ..................................... $ -- $ 5,235
=========== ===========
See notes to financial statements.
</TABLE>
<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 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, 1996. The results
of operations for the three months ended March 31, 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 three months ended March 31, 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.
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.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 is also party to an administrative
services agreement with Wexford Management LLC ("Wexford") pursuant to
which Wexford 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. During the three months ended March 31, 1997 and 1996
reimbursable expenses due to Wexford from the Partnership amounted to
$4,922 and $9,800, respectively.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
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.
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 $36,065 and
$38,080 for the three months ended March 31, 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 possible increase after the limited partners have received
certain specified minimum returns on their investment. The Partnership
incurred partnership management fees of $29,000 and $24,000 for the
three months ended March 31, 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 are paid by Equipment Management.
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
4 DISTRIBUTIONS TO PARTNERS
Distributions payable to the Limited Partners and General Partners of
$690,012 ($2.30 per unit) and $6,969, respectively, at March 31, 1997,
were paid in May 1997.
5 PARTNERS' 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.
6 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 March 31, 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 March
31, 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 March 31, 1997 and December 31, 1996. The net carrying
<PAGE>
NATIONAL LEASE INCOME FUND 6 L.P.
NOTES TO FINANCIAL STATEMENTS
6 COMMITMENTS AND CONTINGENCIES (continued)
value of both aircraft aggregated approximately $7,777,000 and
$7,963,000 (net of allowances for equipment impairment aggregating
approximately $10,000,000 provided in prior periods) at March 31, 1997
and December 31, 1996 , respectively.
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 declared a cash distribution of $2.30 per unit of limited
partnership interest totaling $696,981 for the three months ended March 31, 1997
(the "1997 Period"), which represented cash from operations generated during the
current period. As of March 31, 1997, the Partnership had operating reserves of
approximately $1,604,000, which was comprised of undistributed cash from
operations and sales, aggregating approximately $104,000, 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, 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 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 continued to remit weekly payments relating to
the Hawaiian Engines through June 9, 1994.
<PAGE>
Liquidity and Capital Resources (continued)
(i) (continued)
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
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 for 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
due to their condition as well as due to a surplus in the market with
respect to such engines.
At March 31, 1997, 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 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 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 March 31, 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 March
31, 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
<PAGE>
Liquidity and Capital Resources (continued)
(ii) (continued)
Lessor Financing Credits through monthly payments which will be
amortized at the rate of 9.31% per annum over 36 months. Through March
31, 1997, the Partnership had provided financing aggregating
approximately $1,443,000. Such amount, net of amounts repaid, was
reflected on the balance sheet at March 31, 1997 as Note Receivable. At
March 31, 1997, the net carrying value of both aircraft aggregated
approximately $7,777,000. (net of allowances for equipment impairment
aggregating approximately $10,000,000 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
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 March 31, 1997, the net
carrying value of the Southwest Aircraft aggregated approximately
$3,164,000. (net of allowances for equipment impairment aggregating
$10,400,000 previously provided).
As of March 31, 1997, the Partnership remained the owner of four aircraft and
related engines as well as two additional aircraft engines, which in the
aggregate represented almost 100% 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 $10,940,000). All
associated nonrecourse debt related to the aircraft has been repaid. At March
31, 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). 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. 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 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 are 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 increased for the three months ended March 31, 1997 as compared to
the three months ended March 31, 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 three months ended March 31, 1997, as
compared to dispositions that generated losses in the corresponding period of
the prior year.
Revenues decreased overall for the three months ended March 31, 1997 compared to
the corresponding period 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 period.
Interest income on finance leases was eliminated due to expiration of all leases
in accordance with the original lease terms and sale of equipment subsequent to
the prior year's period.
Expenses decreased overall for the three months ended March 31, 1997 as compared
to the corresponding period of the prior year as follows:
<PAGE>
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 were no
dispositions of equipment in the current period as compared to a net loss of
approximately $55,000 on the disposition of equipment in the prior year's
period;
General and administrative expenses decreased sharply for the current period due
to the elimination of costs related to the settlement of the Skyhook litigation
incurred in the prior year's period.
This general decrease in expenses was offset slightly by an increase in certain
expenses as follows:
Operating expenses increased due to an increase in administrative fees relating
to the Air Mike Leases. Interest expense was eliminated due to the repayment of
the principal balance on Air Mike rent credits subsequent to the prior year's
period.
Fees to affiliates increased due to the increase in partnership management fees
resulting from an increase in cash flow from operations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
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: May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,370,235
<SECURITIES> 0
<RECEIVABLES> 169,132
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,751,646
<PP&E> 33,986,314
<DEPRECIATION> 23,046,028
<TOTAL-ASSETS> 14,691,932
<CURRENT-LIABILITIES> 948,912
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,743,020
<TOTAL-LIABILITY-AND-EQUITY> 14,691,932
<SALES> 0
<TOTAL-REVENUES> 767,135
<CGS> 0
<TOTAL-COSTS> 175,148
<OTHER-EXPENSES> 536,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 55,146
<INCOME-TAX> 0
<INCOME-CONTINUING> 55,146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 55,146
<EPS-PRIMARY> 0
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</TABLE>
