ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
H&R Block, Inc. is a diversified services corporation that was organized in 1955 under the laws of the State of Missouri (the "Company"). It is the parent corporation in a two-tier holding company structure following a 1993 corporate restructuring. The second-tier holding company is H&R Block Group, Inc., a Delaware corporation and the direct owner of all of the shares of the Company's primary operating subsidiary corporations. Such primary operating subsidiaries consist of CompuServe Incorporated, H&R Block Tax Services, Inc., and Block Financial Corporation. Developments within each of these segments of the Company during fiscal year 1995 are described in the section below entitled "Description of Business."
During the year ended April 30, 1995, the Company was not involved in any bankruptcy, receivership or similar proceedings or any material reclassifications, mergers or consolidations and the Company did not acquire or dispose of any material amount of assets otherwise than in the ordinary course of business.
On April 4, 1995, the Company acquired SPRY, Inc., a private Washington corporation and a provider of Internet access applications for the office, home and publishing markets ("SPRY"). The transaction involved the acquisition by a wholly- owned subsidiary of the Company of all of the outstanding SPRY common and preferred stock in exchange for 401,768 shares of the Company's Delayed Convertible Preferred Stock valued at $54.2 million and cash, including acquisition expenses, of $41.8 million. Additionally, management stock options for 98,900 shares of SPRY common stock were converted to stock options for 51,828 shares of the Company's Delayed Convertible Preferred Stock, valued at approximately $5.6 million. The acquisition was accounted for as a purchase and the Company recorded a charge to earnings of $83.5 million for purchased research and development in connection with the acquisition. Following the end of fiscal year 1995, the Company contributed the stock of SPRY to H&R Block Group, Inc.
Each of the shares of Delayed Convertible Preferred Stock, without par value, issued by the Company in connection with the acquisition of SPRY, is convertible on or after April 5, 1998, into four shares of Common Stock of the Company, subject to adjustment in certain events. The holders of the shares of Delayed Convertible Preferred Stock are not entitled to receive dividends and such shares have no voting rights associated therewith.
SPRY has become the Internet Services Division of CompuServe Incorporated, although it remains a separate legal entity at this time. Such Division is described in the portion of the section below entitled "Description of Business" pertaining to CompuServe Incorporated.
After the close of fiscal year 1995, the Company sold MECA Software, Inc. ("MECA"), a Delaware corporation involved in developing, publishing and marketing personal productivity software products, to Bank of America, N.T. & S.A., and NationsBank, N.A. (Carolinas) for $35 million, subject to certain closing adjustments. MECA's primary product is Managing Your Money (trademark), computer software designed to assist individuals in managing personal finances. The Company has retained ownership of the TaxCut (trademark) and Small Business Attorney (trademark) software products.
On April 12, 1995, Thomas M. Bloch submitted his resignation as President and Chief Executive Officer of the Company, effective August 31, 1995, in order to pursue a number of non- business alternatives. A search committee consisting of three members of the Board of Directors was appointed to assist in the process of selecting a new Chief Executive Officer of the Company.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information required by Item 101(b) of Regulation S-K relating to financial information about industry segments is contained in the Notes to Consolidated Financial Statements in the Company's annual report to security holders for the fiscal year ended April 30, 1995, and is hereby incorporated by reference.
NUMBER OF EMPLOYEES
The Company, including its subsidiaries, has approximately 3,900 regular full-time employees. The highest number of persons employed by the Company during the fiscal year ended April 30, 1995, including seasonal employees, was approximately 91,000.
DESCRIPTION OF BUSINESS
COMPUSERVE INCORPORATED ("COMPUSERVE")
GENERALLY. The Company's computer services segment is comprised of CompuServe Incorporated, its subsidiaries and SPRY, Inc. CompuServe, the information services and computer communications subsidiary based in Columbus, Ohio, operates through three major divisions - CompuServe Information Services, CompuServe Network Services and CompuServe Internet Services (SPRY). CompuServe became a wholly-owned subsidiary of the Company in May 1980 and is presently a wholly-owned subsidiary of H&R Block Group, Inc. From its origins as a computer time- sharing firm, CompuServe has become a leading provider of computer-based information and communications services to businesses and individual owners of personal computers. In addition, the acquisition of SPRY in April 1995 was designed to place CompuServe at the forefront of the Internet industry.
CompuServe's largest division is its Information Services Division. The CompuServe Information Service, the online service for personal computer owners, provides subscribers with access to data services and interactive communication through the use of networked mainframes, servers and personal computers. The world- wide customer base of the online services operated by CompuServe and its international licensee and distributors grew to approximately 3.2 million subscribers at the end of fiscal year 1995, compared to approximately 1.9 million at the end of the previous year. Exclusive of such licensee and distributors, the customer base at fiscal year end was approximately 2.1 million, an increase of 55% over the number of subscribers at the end of fiscal year 1994. Of the 2.1 million subscribers, more than 300,000 are located in Europe, an increase from approximately 100,000 European subscribers at the end of fiscal year 1994.
CompuServe has licensed its core technology and network model relating to its online service into Japan. The Japanese licensee operates its own online service based on the CompuServe technology and model, and pays CompuServe royalties. CompuServe also has arrangements with various distributors in Japan, Australia, Mexico and other parts of the world whose main function is to generate customers for the CompuServe Information Service. While such overseas customers enter into contracts with CompuServe, they generally initiate their connection with the CompuServe Information Service through the distributors' telecommunications networks. CompuServe pays royalties to such distributors for the business that they generate and the associated support services that they provide to CompuServe members in the countries in which they operate.
Among the many services accessible through CompuServe's information system are online shopping services, stock market related services and airline reservation services. Customers can also play computer games, conduct research, send and receive messages, access the Internet and exchange helpful tips about computer use through special interest bulletin boards called "Forums" simply by connecting their personal computers to an ordinary telephone line.
Through its Information Services Division, CompuServe has also developed a wide range of business services that enable companies to link their employees with the information needed to conduct business. The services include electronic mail, internal corporate information systems for diverse applications, and a host of business-related databases. Electronic mail and other communications systems provided by CompuServe allow business users flexible, two-way access to information in operating areas such as sales, marketing, investment research and information management. Through the use of these systems, suppliers and customers are able to access information easily and securely through personal computers and computer terminals.
The Internet Services Division of CompuServe is a leader in the Internet commercialization industry. This Division resulted from the Company's acquisition in April 1995 of SPRY, Inc., the Seattle-based developer of Internet access systems. SPRY's skills in the development of Internet access software and in offering Internet business solutions are being combined with CompuServe's skills in the online and network industries to form a source for consumer Internet access, online content development, software development, online information design, Web server integration, network access and security management. The Internet Services Division produces "Internet In A Box" and "Mosaic In A Box," two popular products for consumers and businesses that provide access to the Internet through Windows computer formats.
CompuServe's Network Services Division provides the infrastructure that supports the CompuServe Information Service and CompuServe Internet Services, as well as value-added packet data network, frame relay and local area network services to corporations and many other diverse organizations. CompuServe's highly sophisticated and efficient telecommunications network links CompuServe subscribers and system users to each other, to CompuServe's central computer facilities or to other computer centers and data bases distributed across the country and around the world. By the end of fiscal year 1995, CompuServe had more than 430 points-of-presence worldwide and more than 42,000 dial ports through which members and customers connect to CompuServe's network and services.
The Network Services Division offers its customers a fast and reliable data communications system that can be customized to meet their particular requirements. The number of clients of the Network Services Division totalled 750 at the end of fiscal year 1995, an increase from the 586 clients at the end of fiscal year 1994. Major products of the Division include X.25, RLA (remote LAN access) and FRAME-Net (trademark) frame relay services.
One of the many applications for which the CompuServe network is utilized by its customers relates to point-of-sale transactions. CompuServe is a leading provider of value-added telecommunications services for point-of-sale authorization of credit card purchases. Using the CompuServe network, a merchant can pass a customer's card through a computer terminal and determine almost instantly whether the card is valid.
Early in fiscal year 1995, CompuServe disposed of CompuServe Data Technologies, a division that marketed database management software, and Collier-Jackson, Inc., a subsidiary of CompuServe that marketed newspaper management and financial software.
Following the end of fiscal year 1995, Robert J. Massey, formerly Executive Vice President, Network Services Division, was elected President and Chief Executive Officer of CompuServe. Mr. Massey succeeded Maurice A. Cox, Jr., who resigned in order to form a venture capital investment company in Ohio.
SERVICE MARKS, TRADEMARKS, PATENTS OR COPYRIGHTS. CompuServe claims ownership of the following trademarks and service marks registered on the principal register of the United States Patent and Trademark Office:
CompuServe B Protocol The Electronic Mall WINCIM B+ Protocol FRAME-Net Forum The Source CB Simulator Alumni Advantage CompuServe Information Manager MacNav InfoPlex
CompuServe also owns or claims numerous unregistered service marks or trademarks.
CompuServe will receive its first patent in fiscal year 1996. The patent will cover technology CompuServe invented for seamlessly switching computer transactions among the various servers and mainframe computers that CompuServe operates. CompuServe presently holds no other patents on its technology, although several are presently pending. CompuServe is licensed by others to use various software programs and technology which it uses in various ways in its business.
COMPETITIVE CONDITIONS. The online information, Internet commercialization and value-added network services businesses are highly competitive and consist of a large number of companies. In terms of subscriber base, CompuServe is one of the largest providers of worldwide online information services. CompuServe has two significant competitors in the United States in the online information services industry, as well as numerous smaller competitors. In addition, several large U.S. companies have entered the online information services marketplace, or are about to enter such marketplace. Principal methods of competition in the online industry are price, content, ease of use and customer service.
The value-added network services industry is highly fragmented and no single supplier can be considered to occupy a dominant position in the industry. CompuServe's Internet Services Division competes with many Internet access providers, most of which operate in limited geographic areas. The Internet Services Division also competes with software and publishing companies that develop Internet applications and online content.
H&R BLOCK TAX SERVICES, INC. ("TAX SERVICES")
GENERALLY. The income tax return preparation and related services segment is the original core business of the Company. The services of this segment are provided to the public through a system of offices operated by Tax Services or by others to whom Tax Services has granted franchises. References in this section to "Tax Services" include H&R Block Tax Services, Inc., and its subsidiaries involved in the income tax return preparation business, and references in this section to "H&R Block" include both Tax Services and its franchisees.
Tax Services provides income tax return preparation services, electronic filing services and other services relating to income tax return preparation in many parts of the world. For U.S. returns, H&R Block offers a refund anticipation loan service in conjunction with its electronic filing service. H&R Block also markets its knowledge of how to prepare income tax returns through its income tax training schools. These schools teach taxpayers how to prepare their own income tax returns, as well as provide Tax Services with a source of trained income tax return preparers. During the 1995 fiscal year, 118,316 students enrolled in H&R Block's basic and advanced income tax courses, compared to 133,458 students during fiscal year 1994.
TAXPAYERS SERVED. H&R Block served 17,060,000 taxpayers worldwide during fiscal year 1995, a decrease from the 18,107,000 taxpayers served in fiscal year 1994. "Taxpayers served" includes taxpayers for whom H&R Block prepared income tax returns as well as taxpayers for whom Block provided only electronic filing services.
The decrease in the number of taxpayers served by H&R Block in fiscal year 1995 primarily related to H&R Block's electronic filing and refund anticipation loan ("RAL") services. Under the 1995 RAL program, Tax Services' electronic filing customers who meet certain eligibility criteria are offered the opportunity to apply for loans from Beneficial National Bank in amounts based upon the customer's anticipated federal income tax refunds. Income tax return information is simultaneously transmitted by H&R Block to the Internal Revenue Service and the lending bank. Within a few days after the date of filing, a check in the amount of the loan, less the bank's transaction fee and H&R Block's tax return preparation fee and electronic filing fee, is received by the RAL customer. The Internal Revenue Service ("IRS") then directly deposits the participating customer's actual federal income tax refund into a designated account at the bank in order for the loan to be repaid.
Prior to the 1995 tax season, the IRS used a Direct Deposit Indicator ("DDI") to notify the electronic filer after receiving the taxpayer's electronically filed tax return that the taxpayer's request for direct deposit of the refund would be honored. The bank offering the RAL relied on the DDI to minimize loan losses and the DDI, therefore, enabled such bank to make RALs under relatively favorable terms to taxpayers. In October
1994, the IRS announced that it was eliminating the DDI for the 1995 tax season in an effort to curb fraudulent tax refund claims. During the 1995 tax season, the IRS made further changes to its electronic return processing systems and procedures to crack down on taxpayer fraud believed to be associated with the earned income tax credit ("EITC") claimed on returns. These changes resulted in delays in the IRS's issuance of refunds associated with the EITC. In reaction to the IRS changes, more stringent criteria were adopted in the loan approval process, the bank's transaction fee increased in many cases and, during much of the tax season, RALs were not made available on the portion of a refund amount attributable to the EITC. Consequently, fewer customers chose to apply for RALs and have their returns electronically filed. H&R Block experienced a 21% decline in fiscal year 1995 in the number of returns filed electronically.
TAX RETURN PREPARATION. During the 1995 income tax filing season (January 3 through April 30), H&R Block offices prepared approximately 15,059,000 individual United States and Canadian income tax returns, compared to the preparation of 15,181,000 such returns in fiscal year 1994. About 12,918,000 of the returns prepared in fiscal 1995 were United States returns, constituting 12% of an Internal Revenue Service estimate of total U.S. individual income tax returns filed during that time period. Tax Services and its franchisees prepared approximately 2,141,000 Canadian returns filed with Revenue Canada during the 1995 income tax filing season, compared with 2,144,000 Canadian returns prepared in the previous year. H&R Block also prepares U.S. income tax returns in other countries and Australian tax returns in Australia. The returns prepared at offices in countries outside of the United States and Canada constituted 2.6% of the total returns prepared by H&R Block in the last fiscal year. The following table shows the approximate number of income tax returns prepared at H&R Block offices in the United States and Canada during the last five tax filing seasons:
Tax Season Ended April 30 (in thousands) -------------------------------------- 1991 1992 1993 1994 1995 ------ ------ ------ ------ ------ Returns prepared (U.S. and Canada) 14,589 15,179 15,189 15,181 15,059
During the tax season, most H&R Block offices are open from 9:00 a.m. to 9:00 p.m. weekdays and from 9:00 a.m. to 5:00 p.m. Saturdays and Sundays. Office hours are often extended during peak periods. Most tax preparation business is transacted on a cash basis. The procedures of Tax Services have been developed so that a customer's tax return is prepared in his or her presence, in most instances in less than one hour, on the basis of information furnished by the customer. In all company-owned offices and most franchised offices, tax returns are prepared with the assistance of a computer. After the customer's return has been initially prepared, he or she is advised of the amount of his or her tax due or refund. The return, however, is
retained and reviewed for theoretical accuracy. After completion of this review and after copies of the return have been made, the return is presented to the customer for signature and filing. These post-preparation procedures must be modified somewhat for customers who desire to have their returns electronically filed (see "Electronic Filing," below). If an H&R Block preparer makes an error in the preparation of a customer's tax return that results in the assessment of any interest or penalties on additional taxes due, while H&R Block does not assume the liability for the additional taxes, it guarantees payment of the interest and penalties.
EXECUTIVE TAX SERVICE. In addition to its regular offices, H&R Block offers tax return preparation services at Executive Tax Service offices in the United States and Canada. Appealing to taxpayers with more complicated returns, Executive Tax Service stresses the convenience of appointments, year-round tax service from the same preparer and private office interviews. The number of Executive Tax Service offices increased from 515 in fiscal year 1994 to 528 in 1995. In fiscal 1995, the number of Executive Tax Service clients increased to approximately 552,800, compared to approximately 513,700 in 1994. Tax Services plans to continue to expand the Executive Tax Service segment of its tax return preparation business.
ELECTRONIC FILING. Electronic filing reduces the amount of time required for a taxpayer to receive a federal tax refund and provides assurance to the client that the return, as filed with the Internal Revenue Service, is mathematically accurate. If the customer desires, he or she may have his or her refund deposited by the Treasury Department directly into his or her account at a financial institution designated by the customer. As reported above under "Taxpayers Served," eligible electronic filing customers may also apply for refund anticipation loans at Tax Services' offices through Beneficial National Bank. Tax Services and its franchisees filed approximately 5,941,000 tax returns electronically in 1995, compared to 7,559,000 in fiscal 1994. Approximately 2,325,000 refund anticipation loans were processed in 1995 by H&R Block, compared to 5,554,000 in 1994.
In 1995, H&R Block offered a service to transmit state income tax returns electronically to state tax authorities in 28 states (compared to 18 states in fiscal 1994) and plans to continue to expand this program as more states make this filing alternative available to their taxpayers. H&R Block also offered the electronic filing of U.S. income tax returns at offices located in Europe and the electronic filing of Australian and Canadian income tax returns at its offices in Australia and Canada, respectively.
CASH BACK. In Canada, the Company and its franchisees offer a refund discount ("Cash Back") program to their customers. The procedures which H&R Block must follow in conducting the program are specified by Canadian law. In accordance with current Canadian regulations, if a customer's tax return indicates that such customer is entitled to a tax refund, a check is issued by
H&R Block to the customer for an amount which is equal to the sum of (1) 85% of that portion of the anticipated refund which is less than or equal to $300 and (2) 95% of that portion of the refund in excess of $300. The customer assigns to H&R Block the full amount of the tax refund to be issued by Revenue Canada. The refund check is then sent by Revenue Canada directly to H&R Block and deposited by H&R Block in its bank account. In accordance with the law, the discount is deemed to include both the tax return preparation fee and the fee for tax refund discounting. This program is financed by short-term borrowing. The number of returns discounted under the Cash Back program decreased from 663,951 in fiscal year 1994 to 638,203 in fiscal year 1995.
OWNED AND FRANCHISED OFFICES. Most H&R Block offices are similar in appearance and usually contain the same type of furniture and equipment, in accordance with the specifications of Tax Services. Free-standing offices are generally located in business and shopping centers of large metropolitan areas and in the central business areas of smaller communities. All offices are open during the tax season. During the balance of the year only a limited number of offices are open, but through telephone listings, H&R Block personnel are available to provide service to customers throughout the entire year.
In fiscal year 1995, H&R Block also operated 954 offices in department stores, including 777 offices in Sears, Roebuck & Co. stores operated as "Sears Income Tax Service by H&R Block." During the 1995 tax season, the Sears' facilities constituted approximately 8.0% of the tax office locations of H&R Block. Tax Services has entered into a new license agreement with Sears under which Tax Services will continue to operate in Sears locations throughout the United States. Such license agreement expires on December 31, 2004. Tax Services believes its relations with Sears to be excellent and that both parties to the license arrangement view the operations thereunder to date as satisfactory.
On April 15, 1995, there were 9,703 H&R Block offices in operation principally in all 50 states, the District of Columbia, Canada, Australia and Europe, compared to 9,577 offices in operation on April 15, 1994. Of the 9,703 offices, 4,660 were owned and operated by Tax Services and 5,043 were owned and operated by independent franchisees. Of such franchised offices, 3,435 were owned and operated by "satellite" franchisees of Tax Services (described below), 919 were owned and operated by "major" franchisees (described below) and 689 were owned and operated by satellite franchisees of major franchisees. From time to time, Tax Services has acquired the operations of existing franchisees and it will continue to do so if future conditions warrant such acquisitions and satisfactory terms can be negotiated.
Two types of franchises have principally been granted by the tax services segment of the Company. "Major" franchisees entered into agreements with the Company (primarily in the Company's early years) covering larger cities and counties and providing for the payment of franchise royalties based upon a percentage of gross revenues of their offices. Under the agreements, the Company granted to each franchisee the right to the use of the name "H&R Block" and provided a Policy and Procedure Manual and other supervisory services. Tax Services offers to sell furniture, signs, advertising materials, office equipment and supplies to major franchisees. Each major franchisee selects and trains the employees for his or her office or offices. Since March 1993, HRB Royalty, Inc., a wholly-owned subsidiary of Tax Services, has served as the franchisor under the major franchise agreements.
In smaller localities, Tax Services has granted what it terms "satellite" franchises. A satellite franchisee receives from Tax Services signs, designated equipment, specialized forms, local advertising, initial training, and supervisory services and, consequently, pays Tax Services a higher percentage of his or her gross tax return preparation and related service revenues as a franchise royalty than do major franchisees. Many of the satellite franchises of Tax Services are located in cities with populations of 15,000 or less. Some major franchisees also grant satellite franchises in their respective areas.
It has always been the policy of Tax Services to grant tax return preparation franchises to qualified persons without an initial franchise fee; however, the policy of Tax Services is to require a deposit to secure compliance with franchise contracts.
SEASONALITY OF BUSINESS. Since most of the customers of Tax Services file their tax returns during the period from January through April of each year, substantially all of Tax Services' revenues from income tax return preparation, related services and franchise royalties are received during this period. As a result, Tax Services operates at a loss through the first nine months of its fiscal year. Historically, such losses primarily reflect payroll of year-round personnel, training of income tax preparers, rental and furnishing of tax offices, and other costs and expenses relating to preparation for the following tax season.
SERVICE MARKS AND TRADEMARKS. HRB Royalty, Inc., a Delaware corporation and a wholly-owned subsidiary of Tax Services, claims ownership of the following service marks registered on the principal register of the United States Patent and Trademark Office:
H&R Block in Two Distinct Designs The Income Tax People H&R Block Income Tax and Design Income Tax Saver Executive (when used in connection with the preparation of income tax returns for others) Rapid Refund H&R Block and Design Accufile
In addition, HRB Royalty, Inc., claims ownership of the following unregistered service marks and trademarks:
America's Largest Tax Service Nation's Largest Tax Service
Tax Services has a license to use the trade names, service marks and trademarks of HRB Royalty, Inc., in the conduct of the business of Tax Services.
COMPETITIVE CONDITIONS. The tax return preparation and electronic filing business is highly competitive. Tax Services considers its primary source of tax return preparation competition to be the individual who prepares his own tax return. In addition, there are a substantial number of tax return preparation firms. Many of these firms and many firms not otherwise in the tax return preparation business are involved in providing electronic filing and refund anticipation loan services to the public. Commercial tax return preparers and electronic filers are highly competitive with regard to price, service and reputation for quality. Tax Services believes that in terms of the number of offices and tax returns prepared it is the largest tax return preparation firm in the United States. Tax Services also believes that in terms of the number of offices and tax returns electronically filed in fiscal year 1995, it is the largest provider of electronic filing services in the United States.
BLOCK FINANCIAL CORPORATION ("BFC")
GENERALLY. Block Financial Corporation, a Delaware corporation and a subsidiary of H&R Block Group, Inc., was incorporated in May 1992 and such corporation and its subsidiaries are involved in the following businesses:
(1) financial services delivered by technology and financial service delivery technology; and
(2) financial services associated with H&R Block Tax Services, Inc.
BFC is developing technology that will deliver financial services online through existing commercial online services, the Internet or directly through leased networks. Such services could include home banking, electronic bill payment and/or discount brokerage services. BFC expects to focus its future efforts on the development of these technology products.
During fiscal year 1995, the operations of Legal Knowledge Systems, Inc., the developer of TaxCut (trademark) personal income tax return preparation software, were combined with BFC. Following the end of fiscal year 1995, BFC sold MECA Software, Inc., the publisher of the Managing Your Money (trademark) personal finance software. BFC's software business will continue to develop and market TaxCut (trademark), as well as market its Small Business Attorney (trademark) software product. Content associated with these software products are expected to form the basis for future online services.
In excess of 108,000 credit cards were issued by the end of fiscal year 1995 under a co-branding agreement between BFC and Columbus Bank and Trust Company, Columbus, Georgia. A majority of BFC's credit card portfolio consists of CompuServe gold cards. During fiscal year 1995, BFC introduced the Conductor service on CompuServe, a national online electronic credit card statement that provides the cardholder with access to transaction records and credit availability and the ability to download transactions into a personal financial software program. BFC owns an industrial loan company chartered in the State of Utah and has applied for FDIC insurance. Upon receiving such insurance, the industrial loan company may become a direct issuer of bank cards.
The decision by the Internal Revenue Service to eliminate the Direct Deposit Indicator in connection with refund anticipation loans (see the subsection entitled "Taxpayers Served" under "H&R Block Tax Services, Inc.," above), resulted in the decision by BFC not to invest in refund anticipation loans ("RALs") during the 1995 tax season. In 1993 and 1994, BFC purchased interests in a trust to which certain RALs made by Mellon Bank (DE) National Association to H&R Block tax customers in the United States were sold.
Franchise Partner, Inc., a subsidiary of BFC, offers to franchisees of either H&R Block Tax Services, Inc. or one of its subsidiary corporations lines of credit with reasonable interest rates under a program designed to better enable the franchisees to refinance existing business debt, expand or renovate offices or meet off-season cash flow needs. A franchise equity line of credit is secured by the franchise itself.
During fiscal year 1995, BFC provided property and casualty insurance coverage to franchisees of the Tax Services segment through Companion Insurance, Ltd., a captive insurance company domiciled in Bermuda. At May 1, 1995, the operations of such entity were transferred to H&R Block Tax Services, Inc.
COMPETITIVE CONDITIONS. The financial services, software, credit card and lending businesses are highly competitive and consist of a large number of companies. No single supplier can be considered to occupy a dominant position in any of the businesses in which BFC competes.
ITEM 2.

ITEM 2. PROPERTIES.
The executive offices of both the Company and H&R Block Tax Services, Inc., are located at 4410 Main Street, Kansas City, Missouri, in a three-story building owned by Tax Services that was constructed in 1963 and expanded in 1965, 1973 and 1981. The building is again being expanded, with the completion of a new four-story addition expected during fiscal year 1996. Most other offices of Tax Services (except those in department stores) are operated in premises held under short-term leases providing fixed monthly rentals, usually with renewal options.
CompuServe's executive offices are located in an office complex in Columbus, Ohio, owned by CompuServe. CompuServe also owns and occupies two other buildings in the Columbus area. Construction of a new multi-building corporate facility in the Columbus area is underway and CompuServe plans to take occupancy during fiscal year 1996. CompuServe leases office space in other buildings in the Columbus area and in a number of other locations in the United States and Europe. CompuServe owns SC30M computer systems purchased from Systems Concepts, Inc., and has assembled several SC-30 and SC-40 processors on-site via an agreement with such firm. CompuServe also owns central processors manufactured by Digital Equipment Corporation and located in its two main computer centers.
The executive offices of Block Financial Corporation are located in leased offices at 4435 Main Street, Kansas City, Missouri.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending by or against the Company or any of its subsidiaries.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended April 30, 1995.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages and principal occupations (for the past five years) of the executive officers of the Company, each of whom has been elected to serve at the discretion of the Board of Directors of the Company, are:
NAME AND AGE OFFICE(S) - -------------------- --------------------------- Henry W. Bloch (72) Chairman of the Board since August 1992; Chairman of the Board and Chief Executive Officer from August 1989 through July 1992; Member of the Board of Directors since 1955.
Thomas M. Bloch (41) President and Chief Executive Officer since August 1992; President and Chief Operating Officer from August 1989 through July 1992; Member of the Board of Directors since 1983. See Note 1.
William P. Anderson (46) Senior Vice President and Chief Financial Officer since September 1994; Vice President, Corporate Development and Chief Financial Officer from August 1992 until September 1994; Vice President, Corporate Development from December 1991 until August 1992; See Note 2.
Robert L. Arnold (52) Vice President and Director of Internal Audit since February 1986.
Ozzie Wenich (52) Vice President, Finance and Treasurer since October 1994; Vice President, Corporate Controller and Treasurer from March 1994 until October 1994; Vice President and Corporate Controller from September 1985 until March 1994.
Note 1: On April 12, 1995, Mr. Thomas Bloch announced his resignation as President and Chief Executive Officer, effective August 31, 1995.
Note 2: Mr. Anderson was a partner in KPMG Peat Marwick, accounting firm, from 1984 until December 1991, in Atlanta, Georgia, serving in various capacities, including responsibility for the firm's national corporate finance consulting practice.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The information called for by this item is contained in the Company's annual report to security holders for the fiscal year ended April 30, 1995, under the heading "Common Stock Data," and is hereby incorporated by reference. The Company's Common Stock is traded principally on the New York Stock Exchange. The Company's Common Stock is also traded on the Pacific Stock Exchange. On June 12, 1995, there were 37,514 stockholders of the Company.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this item is contained in the Company's annual report to security holders for the fiscal year ended April 30, 1995, under the heading "Selected Financial Data," and is hereby incorporated by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information called for by this item is contained in the Company's annual report to security holders for the fiscal year ended April 30, 1995, under the headings "Management's Discussion and Analysis of Results of Operations" and "Management's Discussion and Analysis of Liquidity and Capital Resources," and is hereby incorporated by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this item and listed at Item 14(a)1 is contained in the Company's annual report to security holders for the fiscal year ended April 30, 1995, and is hereby incorporated by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There has been no change in the registrant's accountants during the two most recent fiscal years or any subsequent interim time period.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this item is contained in the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after April 30, 1995, in the section titled "Election of Directors" and in Item 4a of Part I of this report, and is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this item is contained in the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after April 30, 1995, in the sections entitled "Directors' Meetings, Compensation and Committees" and "Compensation of Executive Officers," and is incorporated herein by reference, except that information contained in the section entitled "Compensation of Executive Officers" under the subtitles "Performance Graph" and "Compensation Committee Report on Executive Compensation" is not incorporated herein by reference and is not to be deemed "filed" as part of this filing.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this item is contained in the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after April 30, 1995, in the section titled "Election of Directors" and in the section titled "Information Regarding Security Holders," and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this item is contained in the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after April 30, 1995, in the section titled "Election of Directors," and is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of H&R Block, Inc., and subsidiaries are incorporated by reference from the Company's annual report to security holders for the year ended April 30, 1995:
PAGE ---- Consolidated Statements of Earnings 19 Consolidated Balance Sheets 20 Consolidated Statements of Cash Flows 21 Notes to Consolidated Financial Statements 22 Quarterly Financial Data 27 Independent Auditors' Report 29
2. FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule VIII - Valuation and Qualifying Accounts
Schedules not filed herewith are either not applicable, the information is not material or the information is set forth in the financial statements or notes thereto.
3. EXHIBITS
3(a) Restated Articles of Incorporation of H&R Block, Inc., as amended, filed as Exhibit 4(a) to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1991, are incorporated herein by reference.
3(b) Bylaws of H&R Block, Inc., as amended.
4(a) Conformed copy of Rights Agreement dated as of July 14, 1988 between H&R Block, Inc., and Centerre Trust Company of St. Louis, filed on August 9, 1993 as Exhibit 4(c) to the Company's Registration Statement on Form S-8 (File No. 33-67170), is incorporated herein by reference.
4(b) Copy of Amendment to Rights Agreement dated as of May 9, 1990 between H&R Block, Inc. and Boatmen's Trust Company.
4(c) Copy of Second Amendment to Rights Agreement dated September 11, 1991 between H&R Block, Inc. and Boatmen's Trust Company.
4(d) Copy of Third Amendment to Rights Agreement dated May 10, 1995 between H&R Block, Inc. and Boatmen's Trust Company.
4(e) Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock of H&R Block, Inc.
4(f) Form of Certificate of Designation, Preferences and Rights of Delayed Convertible Preferred Stock of H&R Block, Inc.
10(a) The Company's 1984 Long-Term Executive Compensation Plan, as amended (terminated as of September 8, 1993, except with respect to awards then outstanding thereunder), filed as Exhibit 28(a) to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1991, is incorporated herein by reference.
10(b) The Company's 1993 Long-Term Executive Compensation Plan, filed as Exhibit 10 to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1993, is incorporated herein by reference.
10(c) The H&R Block Long-Term Performance Program, as amended, filed as Exhibit 10(c) to the Company's annual report on Form 10-K for the fiscal year ended April 30, 1994, is incorporated herein by reference.
10(d) The H&R Block Deferred Compensation Plan for Directors, as amended, filed as Exhibit 10 to the Company's quarterly report on Form 10-Q for the quarter ended July 31, 1994, is incorporated herein by reference.
10(e) The H&R Block Deferred Compensation Plan for Executives, as amended (Amendments 1 through 5), filed as Exhibit 10(e) to the Company's annual report on Form 10-K for the fiscal year ended April 30, 1994, is incorporated herein by reference.
10(f) The H&R Block Supplemental Deferred Compensation Plan for Executives, filed as Exhibit 10(f) to the Company's annual report on Form 10-K for the fiscal year ended April 30, 1994, is incorporated herein by reference.
10(g) Amendment No. 1 to The H&R Block Supplemental Deferred Compensation Plan for Executives, filed as Exhibit 10(a) to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1994, is incorporated herein by reference.
10(h) The Amended and Restated H&R Block, Inc. Retirement Plan for Non-Employee Directors.
10(i) The Company's 1989 Stock Option Plan for Outside Directors, as amended, filed as Exhibit 28(b) to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1991, is incorporated herein by reference.
10(j) Employment Agreement between HRB Management, Inc. and William F. Evans, filed as Exhibit 10(b) to the Company's quarterly report on Form 10-Q for the quarter ended October 31, 1994, is incorporated herein by reference.
11 Statement re Computation of Per Share Earnings.
13 Those portions of the annual report to security holders for the fiscal year ended April 30, 1995 which are expressly incorporated by reference in this filing.
21 Subsidiaries of the Company.
23 The consent of Deloitte & Touche LLP, Certified Public Accountants, is located immediately after the signature pages contained in this filing.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company did not file any current reports on Form 8-K during the fourth quarter of the year ended April 30, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
H&R BLOCK, INC.
June 21, 1995 By/s/ Thomas M. Bloch -------------------------- Thomas M. Bloch, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE - ------------------------ -------------------------
/s/ Thomas M. Bloch President, Chief - ------------------------ Executive Officer and Thomas M. Bloch Director (principal executive officer)
/s/ G. Kenneth Baum Director - ------------------------ G. Kenneth Baum
/s/ Henry W. Bloch Director - ------------------------ Henry W. Bloch
/s/ Robert E. Davis Director - ------------------------ Robert E. Davis
/s/ Donna R. Ecton Director - ------------------------ Donna R. Ecton
/s/ Henry F. Frigon Director - ------------------------ Henry F. Frigon
/s/ Roger W. Hale Director - ------------------------ Roger W. Hale
(Signed as to each on June 21, 1995)
SIGNATURE TITLE - ------------------------ ------------------------
/s/ Marvin L. Rich Director - ------------------------ Marvin L. Rich
/s/ Frank L. Salizzoni Director - ------------------------ Frank L. Salizzoni
/s/ Morton I. Sosland Director - ------------------------ Morton I. Sosland
/s/ William P. Anderson Senior Vice President - ------------------------ and Chief Financial William P. Anderson Officer (principal financial officer)
/s/ Ozzie Wenich Vice President, Finance - ------------------------ and Treasurer (principal Ozzie Wenich accounting officer)
(Signed as to each on June 21, 1995)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 4 to Registration Statement No. 33-185 of H&R Block, Inc. and subsidiaries (relating to shares of Common Stock issued under the 1984 Long-Term Executive Compensation Plan) on Form S-8, Registration Statement No. 33-33889 of H&R Block, Inc. and subsidiaries (relating to shares of Common Stock issuable under the 1989 Stock Option Plan for Outside Directors) on Form S-8 and Registration Statement No. 33-54985 of H&R Block, Inc. and subsidiaries (relating to shares of Common Stock issued under the 1993 Long-Term Executive Compensation Plan) on Form S-8 of our reports dated June 20, 1995, appearing in and incorporated by reference in this Annual Report on Form 10-K of H&R Block, Inc. and subsidiaries for the year ended April 30, 1995.
/s/ Deloitte & Touche LLP - ------------------------- Kansas City, Missouri July 28, 1995
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders H&R Block, Inc. Kansas City, Missouri
We have audited the consolidated financial statements of H&R Block, Inc. and subsidiaries as of April 30, 1995 and 1994 and for each of the three years in the period ended April 30, 1995, and have issued our report thereon dated June 20, 1995; such consolidated financial statements and report are included in your 1995 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of H&R Block, Inc. and subsidiaries, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP - ------------------------- Kansas City, Missouri June 20, 1995


ITEM 1. BUSINESS. -------- General - ------- PS Partners VI, Ltd. (the "Partnership") is a publicly held limited partnership formed under the California Revised Limited Partnership Act. Commencing in October 1985, 150,000 units of limited partnership interest (the "Units") were offered to the public in an interstate offering. The offering was completed in June 1986.
The Partnership was formed to invest in and operate existing self-service facilities offering storage space for personal and business use (the "mini- warehouses") and to invest up to 40% of the net proceeds of the offering in and operate existing office and industrial properties. The Partnership's investments were made through general partnerships with Storage Equities, Inc., now known as Public Storage, Inc. ("PSI"), a real estate investment trust organized as a corporation under the laws of California. For tax administrative efficiency, the original general partnerships with PSI were consolidated into a single general partnership effective December 31, 1990.
In 1995, there was a series of mergers among Public Storage Management, Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc. In the PSMI Merger, Storage Equities, Inc.'s name was changed to Public Storage, Inc. and it acquired substantially all of PSMI's United States real estate operations and became the operator of the Partnership's mini-warehouse properties.
The Partnership's general partners (the "General Partners") are PSI and B. Wayne Hughes ("Hughes"). PSI became a co-general partner in September 1993, when PSI acquired the interest of PSI Associates, Inc. ("PSA"), an affiliate of PSMI, relating to PSA's general partner capital contribution in the Partnership. Hughes has been a general partner of the Partnership since its inception. Hughes is the chairman of the board and chief executive officer of PSI, and Hughes and members of his family (the "Hughes Family") is the major shareholder of PSI. The Partnership is managed, and its investment decisions are made by Hughes and the executive officers and directors of PSI. The limited partners of the Partnership have no right to participate in the management or conduct of its business affairs.
The Partnership's mini-warehouse properties are managed by PSI and the Partnership's commercial properties are managed by Public Storage Commercial Properties Group, Inc. ("PSCP"), pursuant to Management Agreements. PSI has a 95% economic interest and the Hughes Family has a 5% economic interest in PSCP. PSI believes that it is the largest operator of mini-warehouse facilities in the United States.
PSI's current relationship with the Partnership includes (i) the joint ownership of 32 of the Partnership's 34 properties, (ii) PSI is a co-general partner along with Hughes, who is chairman of the board and chief executive officer of PSI, (iii) as of February 29, 1996, PSI owned approximately 51.11% of the Partnership's limited partnership units and (iv) PSI is the operator of the Partnership's mini-warehouse facilities and owns approximately 95% of the Partnership's commercial property operator (PSCP).
Investments in Facilities - -------------------------
The Partnership owns interests in 34 properties; 32 of such properties are held in a general partnership comprised of the Partnership and PSI. The Partnership purchased its last property in November, 1986. Reference is made to the table in Item 2

ITEM 2. PROPERTIES. ----------
The following table sets forth information as of December 31, 1995 about properties owned by the Partnership. Thirty-two of these properties were acquired jointly with PSI and were contributed to a general partnership comprised of the Partnership and PSI.
(a) Business Park
Weighted average occupancy levels for the mini-warehouse and business park facilities were 88% and 97%, respectively, in both 1995 and 1994. In 1995, the monthly realized rent per square foot for the mini-warehouse and business park facilities averaged $.60 and $.54, respectively, compared to $.58 and $.50, respectively, in 1994.
Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the fourth quarter of 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties to evaluate the environmental condition of, and potential environmental liabilities of, such properties. Based on the assessments, the Partnership believes that it is probable that it will incur costs totaling $217,000 (in addition, approximately $46,000 was expended for the assessments) for known environmental remediation requirements, for which the Partnership has accrued and expensed at the end of 1995. The Partnership expects to expend these funds over the next twelve months. Although there can be no assurance, the Partnership is not aware of any environmental contamination of any of its property sites which individually or in the aggregate would be material to the Partnership's overall business, financial condition, or results of operations.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS. -----------------
No material legal proceeding is pending against the Partnership.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of 1995.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER ------------------------------------------------------ ----------- MATTERS. -------
The Partnership has no common stock.
The Units are not listed on any national securities exchange or quoted on the NASDAQ System, and there is no established public trading market for the Units. Secondary sales activity for the Units has been limited and sporadic. The General Partners monitor transfers of the Units (a) because the admission of the transferee as a substitute limited partner requires the consent of the General Partners under the Partnership's Amended and Restated Agreement of Limited Partnership, (b) in order to ensure compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes and (c) because PSI has purchased Units. However, the General Partners do not have information regarding the prices at which all secondary sale transactions in the Units have been effectuated. Various organizations offer to purchase and sell limited partnership interests (including securities of the type such as the Units) in secondary sales transactions. Various publications such as The Stanger Report summarize and report information (on a monthly, bimonthly or less frequent basis) regarding secondary sales transactions in limited partnership interests (including the Units), including the prices at which such secondary sales transactions are effectuated.
In addition, Dean Witter Reynolds Inc., the dealer-manager for the Partnership's initial offering of Units, has certain information with regard to sale transactions in the Units.
Exclusive of the General Partners' interest in the Partnership, as of December 31, 1995, there were approximately 3,082 record holders of Units.
In July 1995, PSI completed a cash tender offer in which PSI acquired 19,088 of the 150,000 outstanding limited partnership units in the Partnership at $281 per Unit. PSI completed an additional cash tender offer in August 1995, in which PSI acquired an additional 4,712 units in the Partnership at $281 per Unit. As of February 29, 1995, PSI owned 76,670 Units in the Partnership (51.11% of the outstanding Units).
The Partnership makes quarterly distributions of all "Cash Available for Distribution" and will make distributions of all "Cash from Sales or Refinancing." Cash Available for Distribution is cash flow from all sources less cash necessary for any obligations or capital improvements or reserves.
Reference is made to Items 6 and 7 hereof for information on the amount of such distributions.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA. ------------------------
(a) One of the Partnership's properties was foreclosed upon by the mortgage lenders, reducing assets and mortgage notes payable by $4,680,000. The net loss in 1992 includes a non-recurring loss upon foreclosure of this property of $2,256,000, resulting in a $2,233,000 loss allocable to the limited partners, or $14.89 per unit. (b) Limited Partners' per unit data is based on the weighted average number of units outstanding during the period (150,000 units). (c) The General Partners distributed, concurrent with the distributions for the fourth quarter of 1991, a portion of the operating reserve of the Partnership estimated to be $4.00 per Unit.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS. ----------------------
Results of Operations - ---------------------
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994:
The Partnership's net income in 1995 was $2,077,000 compared to net income of $2,097,000 in 1994, representing a decrease of $20,000. The decrease was primarily a result of increases in environmental costs and depreciation expenses, partially offset by increased property operating results.
Net operating income (rental income less cost of operations and management fees and excluding depreciation expense) increased by $389,000 or 5%, as rental income increased by $450,000 or 4%, and cost of operations (including management fees and excluding depreciation expense) increased by $61,000.
Rental income for the Partnership's mini-warehouse operations was $10,700,000 in 1995 compared to $10,368,000 in 1994, representing an increase of $332,000, or 3%. The increase in rental income was primarily attributable to increased rental rates at the mini-warehouse facilities. The monthly average realized rent per square foot for the mini-warehouse facilities was $.60 in 1995 compared to $.58 in 1994. The weighted average occupancy levels at the mini- warehouse facilities remained stable at 88% in both 1995 and 1994. Costs of operations (including management fees) increased $49,000 to $3,955,000 in 1995 from $3,906,000 in 1994. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $283,000 or 5% from $6,462,000 in 1994 to $6,745,000 in 1995.
Rental income for the Partnership's business park operations was $1,912,000 in 1995 compared to $1,794,000 in 1994, representing an increase of $118,000 or 7%. The increase in rental income was primarily attributable to increased rental rates. The monthly average realized rent per square foot for the business park facilities was $.54 in 1995 compared to $.50 in 1994. The weighted average occupancy level at the business park facilities remained stable at 97% in both 1995 and 1994. Cost of operations (including management fees) increased $12,000 to $882,000 in 1995 from $870,000 in 1994. Accordingly, for the Partnership's business park facilities, property net operating income increased by $106,000 or 10% from $924,000 in 1994 to $1,030,000 in 1995.
Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the fourth quarter of 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties to evaluate the environmental condition of, and potential environmental liabilities of, such properties. Based on the assessments, the Partnership believes that it is probable that it will incur costs totaling $217,000 (in addition, approximately $46,000 was expended for the assessments) for known environmental remediation requirements, for which the Partnership has accrued and expensed at the end of 1995. The Partnership expects to expend these funds over the next twelve months. Although there can be no assurance, the Partnership is not aware of any environmental contamination of any of its property sites which individually or in the aggregate would be material to the Partnership's overall business, financial condition, or results of operations.
Minority interest in income was $2,234,000 in 1995 compared to $2,173,000 in 1994, representing an increase of $61,000, or 3%. This increase was primarily the result of improved operations at the Partnership's mini-warehouse facilities which are owned jointly with PSI.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993:
The Partnership's net income in 1994 was $2,097,000 compared to net income of $2,005,000 in 1993, representing an increase of $92,000, or 5%. This increase was primarily due to improved property operations at the Partnership's mini- warehouse facilities partially offset by reduced property operations at the Partnership's business park facilities combined with an increase in minority interest in income for those properties held jointly with PSI.
Property net operating income (rental income less cost of operations and management fees and excluding depreciation expense) increased approximately $196,000 or 3% in 1994 compared to 1993, as rental income increased by $419,000 or 4%, and cost of operations (including management fees) increased by $223,000 or 5%.
Rental income for the Partnership's mini-warehouse operations was $10,368,000 in 1994 compared to $9,859,000 in 1993, representing an increase of $509,000, or 5%. The increase in rental income was primarily attributable to increased occupancy levels at the mini-warehouse facilities combined with increased rental rates. The weighted average occupancy levels at the mini- warehouse facilities were 88% in 1994 compared to 87% in 1993. The monthly average realized rent per square foot for the mini-warehouse facilities was $.58 in 1994 compared to $.56 in 1993. Costs of operations (including management fees) increased $208,000 or 6%, to $3,906,000 in 1994 from $3,698,000 in 1993. Accordingly, for the Partnership's mini-warehouse operations, property net operating income increased by $301,000 or 5% from $6,161,000 in 1993 to $6,462,000 in 1994.
Rental income for the Partnership's business park operations was $1,794,000 in 1994 compared to $1,884,000 in 1993, representing a decrease of $90,000 or 5%. The decrease in rental income was primarily attributable to reduced rental rates. The weighted average occupancy level at the business park facilities was 97% in both 1994 and 1993. The monthly average realized rent per square foot for the business park facilities was $.50 in 1994 compared to $.53 in 1993. Cost of operations (including management fees) increased $15,000 or 2% to $870,000 in 1994 from $855,000 in 1993. Accordingly, for the Partnership's business park facilities, property net operating income decreased by $105,000 or 10% from $1,029,000 in 1993 to $924,000 in 1994.
Minority interest in income was $2,173,000 in 1994 compared to $2,089,000 in 1993, representing an increase of $84,000, or 4%. This increase was primarily the result of improved operations at the Partnership's mini-warehouse facilities which are owned jointly with PSI.
Liquidity and Capital Resources - -------------------------------
The Partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis, primarily by internally generated cash from property operations and existing cash reserves. At December 31, 1995, the Partnership had cash and cash equivalents totaling $2,054,000.
Cash flows from operating activities ($7,763,000 for the year ended December 31, 1995) have been sufficient to meet all current obligations of the Partnership. Total capital improvements were $1,045,000, $1,122,000, and $844,000 in 1995, 1994 and 1993, respectively. The increase in 1995 verses 1993 is mostly due to various repair and refurbishment projects, including work on parking lot and driveway, heating, ventilation, and air conditioning units, roof, and paint at the Signal Hill, California and Tempe, Arizona business park facilities for approximately $335,000. The increase in 1994 verses 1993 is due to the installation of new air conditioning systems at two of the Houston, Texas mini-warehouse facilities for approximately $375,000. During 1996, the Partnership anticipates approximately $833,000 of capital improvements (including PSI's joint venture share of $193,000). During 1995, the Partnership's property manager commenced a program to enhance the visual appearance of the mini-warehouse facilities managed by it. Such enhancements will include new signs, exterior color schemes, and improvements to the rental offices. Included in the 1996 capital improvement budget are estimated costs of $145,000 for such enhancements.
The Partnership expects to continue making quarterly distributions. Total distributions paid to the General Partners and the limited partners (including per Unit amounts) for 1995 and prior years were as follows:
The Partnership, in prior years, made distributions based on anticipated operating cash flows. Beginning in the second quarter of 1989, the distribution level was lowered to a level supported by current operating cash flow after capital improvements and scheduled debt service. The General Partners distributed, concurrently with the distributions for the fourth quarter of 1991, a portion of the operating reserve of the Partnership and adjusted the on-going distribution level. The operating reserve that was distributed was estimated at $4.00 per Unit.
The 1996 distribution level is estimated to be $23.80 per Unit, assuming no material change in property operations.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. -------------------------------------------
The Partnership's financial statements are included elsewhere herein. Reference is made to the Index to Consolidated Financial Statements and Financial Statement Schedules in Item 14(a).
ITEM 9.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. ----------------------------------------------------
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP. ---------------------------------------------------
The Partnership has no directors or executive officers.
The Partnership's General Partners are PSI and B. Wayne Hughes. PSI, acting through its directors and executive officers, and Mr. Hughes manage and make investment decisions for the Partnership. The Partnership's properties are operated by PSI and PSCP, a subsidiary of PSI.
The names of all directors and executive officers of PSI, the offices held by each of them with PSI, and their ages and business experience during the past five years are as follows:
B. Wayne Hughes, age 62, a general partner of the Partnership, has been a director of PSI since its organization in 1980 and was President and Co-Chief Executive Officer from 1980 until November 1991 when he became Chairman of the Board and sole Chief Executive Officer. Mr. Hughes has been a director of Storage Properties, Inc. ("SPI"), a real estate investment trust whose investment adviser is PSI, since 1989. Since 1990, Mr. Hughes has been Chairman of the Board of Public Storage Properties X, Inc., Public Storage Properties XI, Inc., Public Storage Properties XII, Inc., Public Storage Properties XIV, Inc., Public Storage Properties XV, Inc., Public Storage Properties XVI, Inc., Public Storage Properties XVII, Inc., Public Storage Properties XVIII, Inc., Public Storage Properties XIX, Inc., Public Storage Properties XX, Inc., Partners Preferred Yield, Inc., Partners Preferred Yield II, Inc. and Partners Preferred Yield III, Inc. (collectively, the "Public Storage Properties REITs"), real estate investment trusts organized by affiliates of PSMI. Mr. Hughes has been active in the real estate investment field for over 25 years.
Harvey Lenkin, age 59, became President and a director of PSI in November 1991. He has been President of the Public Storage Properties REITs since 1990. He was President of PSMI from January 1978 until September 1988, when he became Chairman of the Board of PSMI and assumed overall responsibility for investment banking and investor relations. In 1989, Mr. Lenkin became President and a director of SPI.
Ronald L. Havner Jr., age 38, a certified public accountant, became an officer of PSI in 1990, Chief Financial Officer in November 1991 and Senior Vice President of PSI in November 1995. He was an officer of PSMI from 1986 to 1995 and Chief Financial Officer of PSMI and its affiliates from 1991 to November 1995. Mr. Havner has been an officer of SPI since 1989 and Chief Financial Officer of SPI since November 1991. He has been a Vice President of the Public Storage Properties REITS since 1990 and was Controller from 1990 to November 1995 when he became Chief Financial Officer.
Hugh W. Horne, age 51, has been a Vice President of PSI since 1980 and was Secretary of PSI from 1980 until February 1992 and became Senior Vice President of PSI in November 1995. He was an officer of PSMI from 1973 to November 1995. Mr. Horne has been a Vice President of SPI since 1989 and of the Public Storage Properties REITs since 1993. He is responsible for managing all aspects of property acquisition for PSI.
Obren B. Gerich, age 56, a certified public accountant and certified financial planner, has been a Vice President of PSI since 1980 and became Senior Vice President of PSI in November 1995. He was Chief Financial Officer of PSI until November 1991. Mr. Gerich was an officer of PSMI from 1975 to November 1995. Mr. Gerich has been Vice President and Secretary of SPI since 1989 and was Chief Financial Office of SPI until November 1991. He has been Vice President and Secretary of the Public Storage Properties REITS since 1990 and was Chief Financial Officer until November 1995.
Marvin M. Lotz, age 53, has had overall responsibility for Public Storage's mini-warehouse operations since 1988. He became a Senior Vice President of PSI in November 1995. Mr. Lotz was an officer of PSMI with responsibility for property acquisitions from 1983 until 1988.
Mary Jayne Howard, age 50, has had overall responsibility for Public Storage's commercial property operations since December 1985. She became a Senior Vice President of PSI in November 1995.
David Goldberg, age 46, joined PSMI's legal staff in June 1991, rendering services on behalf of PSI and PSMI. He became a Senior Vice President and General Counsel of PSI in November 1995. From December 1982 until May 1991, he was a partner in the law firm of Sachs & Phelps, then counsel to PSI and PSMI.
John Reyes, age 35, a certified public accountant, joined PSMI in 1990 and has been the Controller of PSI since 1992. He became a Vice President of PSI in November 1995. From 1983 to 1990, Mr. Reyes was employed by Ernst & Young.
Sarah Hass, age 40, became Secretary of PSI in February 1992. She became a Vice President of PSI in November 1995. She joined PSMI's legal department in June 1991, rendering services on behalf of PSI and PSMI. From 1987 until May 1991, her professional corporation was a partner in the law firm of Sachs & Phelps, then counsel to PSI and PSMI, and from April 1986 until June 1987, she was associated with that firm, practicing in the area of securities law. From September 1979 until September 1985, Ms. Hass was associated with the law firm of Rifkind & Sterling, Incorporated.
Robert J. Abernethy, age 55, is President of American Standard Development Company and of Self-Storage Management Company, which develop and operate mini- warehouses. Mr. Abernethy has been a director of PSI since its organization. He is a member of Johns Hopkins University and of the Los Angeles County Metropolitan Transportation Authority and a former member of the board of directors of the Metropolitan Water District of Southern California.
Dann V. Angeloff, age 60, is President of the Angeloff Company, a corporate financial advisory firm. The Angeloff Company has rendered, and is expected to continue to render, financial advisory and securities brokerage services for PSI. Mr. Angeloff is the general partner of a limited partnership that owns a mini-warehouse operated by PSI and which secures a note owned by PSI. Mr. Angeloff has been a director of PSI since its organization. He is a director of Compensation Resource Group, Datametrics Corporation, Nicholas/Applegate Growth Equity Fund, Nicholas/Applegate Investment Trust, Royce Medical Company, Seda Specialty Packaging Corp., and SPI.
William C. Baker, age 62, became a director of PSI in November 1991. From April 1993 through May 1995, Mr. Baker was President of Red Robin International, Inc., an operator and franchiser of casual dining restaurants in the United States and Canada. Since January 1992, he has been Chairman and Chief Executive Officer of Carolina Restaurant Enterprises, Inc., a franchisee of Red Robin International, Inc. From 1976 to 1988, he was a principal shareholder and Chairman and Chief Executive Officer of Del Taco, Inc., an operator and franchiser of fast food
restaurants in California. Mr. Baker is a director of Santa Anita Realty Enterprises, Inc., Santa Anita Operating Company and Callaway Golf Company.
Uri P. Harkham, age 47, became a director of PSI in March 1993. Mr. Harkham has been the President and Chief Executive Officer of the Jonathan Martin Fashion Group, which specializes in designing, manufacturing and marketing women's clothing, since its organization in 1976. Since 1978, Mr. Harkham has been the Chairman of the Board of Harkham Properties, a real estate firm specializing in buying and managing fashion warehouses in Los Angeles and Australia.
Berry Holmes, age 65, is a private investor. Mr. Holmes has been a director of PSI since its organization. He was President and a director of Financial Corporation of Santa Barbara and Santa Barbara Savings and Loan Association through 1983 and was a consultant with Santa Barbara Savings and Loan Association during 1984. Mr. Holmes is a director of SPI.
Pursuant to Articles 16 and 17 of the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"), a copy of which is included in the Partnership's prospectus included in the Partnership's Registration Statement, File No. 2-98968, each of the General Partners continues to serve until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii) withdrawal with the consent of the other general partner and a majority vote of the limited partners, or (iii) removal by a majority vote of the limited partners.
Each director of PSI serves until he resigns or is removed from office by PSI, and may resign or be removed from office at any time with or without cause. Each officer of PSI serves until he resigns or is removed by the board of directors of PSI. Any such officer may resign or be removed from office at any time with or without cause.
There have been no events under any bankruptcy act, no criminal proceedings, and no judgments or injunctions material to the evaluation of the ability of any director or executive officer of PSI during the past five years.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION. ----------------------
The Partnership has no subsidiaries, directors or officers. See Item 13 for a description of certain transactions between the Partnership and the General Partners and their affiliates.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. --------------------------------------------------------------
(a) At February 29, 1996, the following entities owned 5% or more of the Units of the Partnership:
The Partnership is not aware of any other beneficial owners of more than 5% of the Units.
In July 1995, PSI completed a cash tender offer in which PSI acquired 19,088 of the 150,000 outstanding limited partnership units in the Partnership at $281 per Unit. PSI completed an additional cash tender offer in August 1995, in which PSI acquired an additional 4,712 units in the Partnership at $281 per Unit.
(b) The Partnership has no officers and directors.
The General Partners (or their predecessor-in-interest) have contributed $747,000 to the capital of the Partnership representing 1% of the aggregate capital contributions and as a result participate in the distributions to the limited partners and in the Partnership's profits and losses in the same proportion that
the general partners' capital contribution bears to the total capital contribution. Information regarding ownership of the Units by PSI, a General Partner, is set forth under section (a) above.
(c) The Partnership knows of no contractual arrangements, the operation of the terms of which may at a subsequent date result in a change in control of the Partnership, except for articles 16, 17 and 21.1 of the Partnership's Amended Certificate and Agreement of Limited Partnership, a copy of which is included in the Partnership's prospectus included in the Partnership's Registration Statement File No. 2-98968. Those articles provide, in substance, that the limited partners shall have the right, by majority vote, to remove a general partner and that a general partner may designate a successor with the consent of the other general partner and a majority of the limited partners.
The Partnership owns interests in 34 properties, 32 of such properties are held in a general partnership comprised of the Partnership and PSI. Under the terms of the partnership agreement relating to the ownership of the properties, PSI has the right to compel a sale of each property at any time after seven years from the date of acquisition at not less than its independently determined fair market value provided the Partnership receives its share of the net sales proceeds solely in cash. As of December 31, 1995, PSI has the right to require the Partnership to sell all of the joint venture properties on these terms.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ---------------------------------------------- The Partnership Agreement provides that the General Partners and their affiliates are entitled to the following compensation:
1. Incentive distributions equal to 10% of Cash Flow from Operations. 2. Provided the limited partners have received distributions equal to 100% of their investment plus a cumulative 8% per year (not compounded) on their investment (reduced by distributions other than from Cash Flow from Operations), subordinated incentive distributions equal to 15% of remaining Cash from Sales or Refinancings. 3. Provided the limited partners have received distributions equal to 100% of their capital contributions plus a cumulative 6% per year (not compounded) on their investment (reduced by distributions other than distributions from Cash Flow from Operations), brokerage commissions at the lesser of 3% of the sales price of a property or 50% of a competitive commission.
During 1995, approximately $401,000 was paid to PSI with respect to items 1, 2, and 3 above. The Partnership owns interests in 34 properties; 32 of such properties are held in a general partnership comprised of the Partnership and PSI.
The Partnership has Management Agreements with PSI (as successor-in- interest to PSMI) and PSCP. Under the Management Agreements, the Partnership pays PSI (and previously paid PSMI) a fee of 6% of the gross revenues of the mini-warehouse spaces operated for the Partnership, and pays PSCP a fee of 5% of the gross revenues of the Partnership's non-mini-warehouse space. During 1995, the Partnership paid or accrued fees of $560,000 to PSMI, $82,000 to PSI, and $96,000 to PSCP pursuant to the Management Agreements.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. ---------------------------------------------------------------
(a) List of Documents filed as part of the Report. 1. Financial Statements: See Index to Consolidated Financial Statements and Financial Statement Schedules. 2. Financial Statement Schedules: See Index to Consolidated Financial Statements and Financial Statement Schedules. 3. Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K: None
(c) Exhibits: See Exhibit Index contained herein.
PS PARTNERS VI, LTD., A CALIFORNIA LIMITED PARTNERSHIP INDEX TO EXHIBITS
3.1 Amended and Restated Agreement of Limited Partnership. Previously filed with the Securities and Exchange Commission as an Exhibit to the Storage Equities, Inc. Registration Statement No. 33-43750 and incorporated herein by reference.
10.1 Amended Management Agreement dated February 21, 1995 between Storage Equities, Inc. and Public Storage Management, Inc. Previously filed with the Securities and Exchange Commission as an exhibit to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference.
10.2 Amended Management Agreement dated February 21, 1995 between Storage Equities, Inc, Inc. and Public Storage Commercial Properties Group, Inc. Previously filed with the Securities and Exchange Commission as an exhibit to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference.
10.3 Participation Agreement dated as of October 18, 1985, among Storage Equities, Inc., the Partnership, Public Storage, Inc., B. Wayne Hughes and Kenneth Q. Volk, Jr. Previously filed with the Securities and Exchange Commission as an exhibit to Storage Equities, Inc.'s Annual Report on Form 10-K dated November 30, 1985 and incorporated herein by reference.
27 Financial data schedule. filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PS PARTNERS VI, LTD., a California Limited Partnership Dated: March 25, 1996 By: Public Storage, Inc., General Partner
By: /s/ B Wayne Hughes --------------------------------------- B. Wayne Hughes, Chairman of the Board
By: /s/ B Wayne Hughes --------------------------------------- B. Wayne Hughes, General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Partnership in the capacities and on the dates indicated.
PS PARTNERS VI, LTD. a California Limited Partnership
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a))
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.
Report of Independent Auditors
The Partners PS Partners VI, Ltd., a California Limited Partnership
We have audited the consolidated balance sheets of PS Partners VI, Ltd., a California Limited Partnership, as of December 31, 1995 and 1994 and the related consolidated statements of operations, partners' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PS Partners VI, Ltd., a California Limited Partnership, at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, CA March 11, 1996
PS PARTNERS VI, LTD., a California Limited Partnership CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
See accompanying notes.
PS PARTNERS VI, LTD., a California Limited Partnership CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 1995, 1994, and 1993
See accompanying notes.
PS PARTNERS VI, LTD., a California Limited Partnership CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY For the years ended December 31, 1995, 1994, and 1993
See accompanying notes.
PS PARTNERS VI, LTD., a California Limited Partnership CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1995, 1994, and 1993
See accompanying notes.
PS PARTNERS VI, LTD., a California Limited Partnership CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1995, 1994, and 1993 (Continued)
See accompanying notes.
PS PARTNERS VI, LTD., a California Limited Partnership NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995
1. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------
Description of Partnership --------------------------
PS Partners VI, Ltd., a California Limited Partnership (the "Partnership") was formed with the proceeds of an interstate public offering. PSI Associates II, Inc. ("PSA"), an affiliate of Public Storage Management, Inc., organized the Partnership along with B. Wayne Hughes ("Hughes"). In September 1993, Storage Equities, Inc,, now known as Public Storage, Inc. ("PSI"), a California corporation, acquired the interest of PSA relating to its general partner capital contribution in the Partnership and was substituted as a co-general partner in place of PSA.
In 1995, there was a series of mergers among Public Storage Management, Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc. and their affiliates (collectively, "PSMI"), culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI into Storage Equities, Inc. In the PSMI merger, Storage Equities, Inc.'s name was changed to Public Storage, Inc., and it acquired substantially all of PSMI's United States real estate operations, and became the operator of the Partnership's mini-warehouse properties.
The Partnership has invested in existing mini-warehouse storage facilities which offer self-service storage spaces for lease, usually on a month-to-month basis, to the general public. The Partnership has also invested in an existing office building and two business park facilities which offer industrial and office space for lease.
The Partnership has ownership interests in 34 properties; 32 of which are owned jointly through 14 general partnerships (the "Joint Ventures") with PSI. For tax administrative efficiency, the Joint Ventures were subsequently consolidated into a single general partnership. The Partnership is the managing general partner of the Joint Ventures, with ownership interests in the Joint Ventures ranging from 50% to 90%.
Basis of Presentation ---------------------
The consolidated financial statements include the accounts of the Partnership and the Joint Ventures. PSI's ownership interest in the Joint Ventures is shown as minority interest in general partnerships in the accompanying consolidated balance sheets. All significant intercompany balances and transactions have been eliminated.
Minority interest in income represents PSI's share of net income with respect to the Joint Ventures. Under the terms of the partnership agreements all depreciation and amortization with respect to each Joint Venture is allocated solely to the Partnership until the limited partners recover their initial capital contribution. Thereafter, all depreciation and amortization is allocated solely to PSI until it recovers its initial capital contribution. All remaining depreciation and amortization is allocated to the Partnership and PSI in proportion to their ownership percentages. No amounts have been allocated to PSI with respect to this provision.
Under the terms of the partnership agreements, PSI has the right to compel the sale of each property in the general partnerships at any time after seven years from the date of acquisition at not less than its independently determined fair market value provided the Partnership receives its share of the net proceeds solely in cash. PSI's right to require the Partnership to sell all of the properties owned jointly with the Partnership became exercisable during 1993.
Depreciation and Amortization -----------------------------
The Partnership depreciates the buildings and equipment on the straight- line method over estimated useful lives of 25 and 5 years, respectively. Leasing commissions relating to business park properties are expensed when incurred.
PS PARTNERS VI, LTD., a California Limited Partnership NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995
1. Summary of Significant Accounting Policies and Partnership Matters ------------------------------------------------------------------ (continued) -----------
Revenue Recognition -------------------
Property rents are recognized as earned.
Allocation of Net Income ------------------------
The General Partners' share of net income consists of an amount attributable to their 1% capital contribution and an additional percentage of cash flow (as defined, see Note 2) which relates to the General Partners' share of cash distributions as set forth in the Partnership Agreement. All remaining net income is allocated to the limited partners.
Per Unit Data -------------
Per unit data is based on the number of limited partner units (150,000) outstanding during the periods presented.
Environmental Cost ------------------
Substantially all of the Partnership's facilities were acquired prior to the time that it was customary to conduct environmental investigations in connection with property acquisitions. During the fourth quarter of 1995, an independent environmental consulting firm completed environmental assessments on the Partnership's properties to evaluate the environmental condition of, and potential environmental liabilities of, such properties. Based on the assessments, the Partnership believes that it is probable that it will incur costs totaling $217,000 (in addition, approximately $46,000 was expended for the assessments) for known environmental remediation requirements, for which the Partnership has accrued and expensed at the end of 1995. The Partnership expects to expend these funds over the next twelve months. Although there can be no assurance, the Partnership is not aware of any environmental contamination of any of its property sites which individually or in the aggregate would be material to the Partnership's overall business, financial condition, or results of operations.
Cash Distributions ------------------
The Partnership Agreement provides for quarterly distributions of cash flow from operations (as defined). Cash distributions per limited partner unit were $23.80, $23.80 and $19.40 for 1995, 1994 and 1993, respectively.
Cash and Cash Equivalents -------------------------
For financial statement purposes, the Partnership considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
2. General Partners' Equity ------------------------
The General Partners have a 1% interest in the Partnership. In addition, the General Partners have a 10% interest in cash distributions attributable to operations, exclusive of distributions attributable to sales and refinancing proceeds.
Proceeds from sales and refinancings will be distributed entirely to the limited partners until the limited partners recover their investment plus a cumulative 8% annual return (not compounded); thereafter, the General Partners have a 15% interest in remaining proceeds.
3. Related Party Transactions --------------------------
PSI operates the Partnership's mini-warehouses for a "management fee" equal to 6% of gross revenue (as defined) and Public Storage Commercial Properties Group, Inc. operates the commercial properties for a "management fee" equal to 5% of gross revenue (as defined).
PS PARTNERS VI, LTD., a California Limited Partnership NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995
3. Related Party Transactions (continued) --------------------------------------
PSI has a 95% economic interest, and Hughes and family members of Hughes have a 5% economic interest in PSCP.
4. Taxes Based on Income ---------------------
Taxes based on income are the responsibility of the individual partners and, accordingly, the Partnership's consolidated financial statements do not reflect a provision for such taxes.
Taxable net income was $1,724,000, $1,557,000 and $1,507,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The difference between taxable income and book income is primarily related to timing differences in depreciation expense.
PS PARTNERS VI, LTD. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
PS PARTNERS VI, LTD. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
PS PARTNERS VI, LTD. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
PS PARTNERS VI, LTD. A CALIFORNIA LIMITED PARTNERSHIP REAL ESTATE RECONCILIATION SCHEDULE III (CONTINUED)
(a) The following is a reconciliation of cost and related accumulated depreciation.
GROSS CARRYING COST RECONCILIATION
ACCUMULATED DEPRECIATION RECONCILIATION
(b) The aggregate cost of real estate for Federal income tax purposes is $90,062,000.