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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
Commission File Number 0-24660
LIBERTY TAX CREDIT PLUS II L.P.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3458180
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
PART I - Financial Information
Item 1. Financial Statements
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
============ ============
June 30, March 31,
2002 2002
------------ ------------
ASSETS
Property and equipment, net of
accumulated depreciation
of $93,600,451 and $91,748,867,
respectively $140,790,393 $142,589,875
Property and equipment - held
for sale, net of accumulated
depreciation of $0 and
$3,147,094, respectively 0 4,420,312
Cash and cash equivalents 1,363,667 1,253,722
Cash held in escrow 7,799,514 7,386,866
Deferred costs, net of accumulated
amortization of $2,957,859 and
$3,028,056, respectively 3,438,365 3,327,867
Other assets 4,068,930 4,772,891
------------ ------------
Total assets $157,460,869 $163,751,533
============ ============
2
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
============ ============
June 30, March 31,
2002 2002
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities
Mortgage notes payable $104,655,657 $108,447,287
Accounts payable and other
liabilities 7,126,590 7,865,635
Due to local general partners and
affiliates 16,329,101 16,732,003
Due to general partners and affiliates 12,289,461 11,990,078
Due to selling partners 2,351,969 2,350,095
------------ ------------
Total liabilities 142,752,778 147,385,098
------------ ------------
Minority interest 2,417,112 2,516,272
------------ ------------
Commitments and contingencies (Note 5)
Partners' capital (deficit)
Limited partners (115,917.5 BACs
issued and outstanding) 13,198,753 14,742,345
General partners (907,774) (892,182)
------------ ------------
Total partners' capital 12,290,979 13,850,163
------------ ------------
Total liabilities and partners'
capital $157,460,869 $163,751,533
============ ============
See accompanying notes to consolidated financial statements.
3
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
=============================
Three Months Ended
June 30,
-----------------------------
2002 2001
-----------------------------
Revenues
Rentals, net $ 6,682,657 $ 6,823,428
Other 139,362 166,341
Loss on sale of property (Note 4) (96,581) 0
------------ ------------
Total revenue 6,725,438 6,989,769
------------ ------------
Expenses
General and administrative 1,709,213 1,653,551
General and administrative - related
parties (Note 2) 643,512 657,258
Repairs and maintenance 963,206 1,306,984
Operating 811,555 808,217
Taxes 258,387 276,236
Insurance 316,818 307,173
Interest 1,734,762 1,900,926
Depreciation and amortization 1,926,301 1,996,922
------------ ------------
Total expenses 8,363,754 8,907,267
------------ ------------
Loss before minority interest (1,638,316) (1,917,498)
Minority interest in loss of subsidiaries 79,132 86,713
------------ ------------
Net loss $ (1,559,184) $ (1,830,785)
============ ============
Net loss - limited partners $ (1,543,592) $ (1,812,477)
============ ============
Number of units outstanding 115,917.5 115,917.5
============ ============
Net loss per limited partner unit $ (13.32) $ (15.64)
============ ============
See accompanying notes to consolidated financial statements.
4
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Capital (Deficit)
(Unaudited)
============================================
Limited General
Total Partners Partners
--------------------------------------------
Partners' capital
(deficit) -
April 1, 2002 $ 13,850,163 $ 14,742,345 $ (892,182)
Net loss (1,559,184) (1,543,592) (15,592)
------------ ------------ ------------
Partners' capital
(deficit) -
June 30, 2002 $ 12,290,979 $ 13,198,753 $ (907,774)
============ ============ ============
See accompanying notes to consolidated financial statements.
5
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
=============================
Three Months Ended
June 30,
-----------------------------
2002 2001*
-----------------------------
Cash flows from operating activities:
Net loss $(1,559,184) $(1,830,785)
----------- -----------
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Loss on sale of property (Note 4) 96,581 0
Depreciation and amortization 1,926,301 1,996,922
Minority interest in loss of
subsidiaries (79,132) (86,713)
Decrease in other assets 219,138 89,444
Increase in cash held in escrow (480,239) (32,582)
Decrease in accounts payable and
other liabilities (186,527) (812,532)
Increase in due to general partners
and affiliates 298,382 288,873
Increase in due to local general
partners and affiliates 82,622 5,571,446
Decrease in due to local general
partners and affiliates (485,524) (114,621)
----------- -----------
Total adjustments 1,391,602 6,900,237
----------- -----------
Net cash (used in) provided by
operating activities (167,582) 5,069,452
----------- -----------
Cash flows from investing activities:
Proceeds from sale of properties 306,536 0
Acquisitions of property and
equipment (52,102) (30,541)
(Increase) decrease in cash held
in escrow (43,050) 103,911
----------- -----------
Net cash provided by investing
activities 211,384 73,370
----------- -----------
6
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
=============================
Three Months Ended
June 30,
-----------------------------
2002 2001*
-----------------------------
Cash flows from financing activities:
Increase in deferred costs (185,215) (124,500)
Proceeds from mortgage notes 5,364,000 0
Repayments of mortgage notes (5,094,488) (5,521,731)
Increase in due to selling
partners 1,874 1,875
Decrease in capitalization
of consolidated subsidiaries
attributable to minority
interest (20,028) (326,765)
----------- -----------
Net cash provided by (used in)
financing activities 66,143 (5,971,121)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 109,945 (828,299)
Cash and cash equivalents at
beginning of period 1,253,722 2,624,751
----------- -----------
Cash and cash equivalents at
end of period $ 1,363,667 $ 1,796,452
=========== ===========
7
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
=============================
Three Months Ended
June 30,
-----------------------------
2002 2001*
-----------------------------
Summarized below are the components
of the loss on sale of property:
Decrease in property and
equipment, net of accumulated
depreciation $ 47,132 $ 0
Decrease in property and
equipment - held for sale -
net of accumulated depreciation 4,420,312 0
Decrease in rent receivable 20,423 0
Decrease in mortgage escrow
deposits 110,641 0
Decrease in prepaid expenses
and other assets 430,893 0
Decrease in mortgage notes payable (4,061,142) 0
Decrease in accounts payable,
accrued expenses and other
liabilities (555,628) 0
Decrease in tenant's security
deposits payable (10,515) 0
Decrease in due to general partners
of subsidiaries and their affiliates 1,001 0
* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
8
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
Note 1 - General
The consolidated financial statements for the three months ended June 30, 2002
and 2001 include the accounts of Liberty Tax Credit Plus II L.P. (the
"Partnership") and 27 subsidiary partnerships ("subsidiaries", "subsidiary
partnerships" or "Local Partnerships") in which the Partnership is the limited
partner. Through the rights of the Partnership and/or Related Credit Properties
II L.P., a Delaware limited partnership, Liberty Associates II L.P., a Delaware
limited partnership, or Liberty GP II Inc., a Delaware corporation (each a
"General Partner" and collectively, the "General Partners"), which General
Partners have a contractual obligation to act on behalf of the Partnership, to
remove the general partner of the subsidiary partnerships (each, a "Local
General Partner"), and to approve certain major operating and financial
decisions, the Partnership has a controlling financial interest in each of the
subsidiary partnerships.
For financial reporting purposes, the Partnership's fiscal quarter ends June 30
in order to allow adequate time for the subsidiaries' financial statements to be
prepared and consolidated. All subsidiary partnerships have fiscal quarters
ending March 31. Accounts of the subsidiary partnerships have been adjusted for
intercompany transactions from April 1 through June 30.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increase (decrease) in capitalization of consolidated subsidiary partnerships
attributable to minority interest arise from cash contributions from and cash
distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority interests'
investment in a subsidiary partnership have been charged to the Partnership.
Such losses aggregated $157,000 and $194,000 for the three months ended June 30,
2002 and 2001, respectively. The Partnership's investment in each subsidiary is
equal to the respective subsidiary partners' equity less minority interest
capital, if any.
9
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
The books and records of the Partnership are maintained on the accrual basis in
accordance with generally accepted accounting principles ("GAAP"). In the
opinion of each of the General Partners, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position of the
Partnership as of June 30, 2002 and the results of operations and its cash flows
for the three months ended June 30, 2002 and 2001, respectively. However, the
operating results for the three months ended June 30, 2002 may not be indicative
of the results for the year.
Certain information and note disclosures normally included in financial
statements prepared in accordance with GAAP have been omitted or condensed.
These consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Partnership's Annual
Report on Form 10-K for the year ended March 31, 2002.
Note 2 - Related Party Transactions
One of the General Partners has a 1% interest as a special limited partner in
each of the subsidiary partnerships. An affiliate of the General Partners also
has a minority interest in certain subsidiary partnerships.
10
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
The costs incurred to related parties for the three months ended June 30, 2002
and 2001 were as follows:
Three Months Ended
June 30,
-----------------------------
2002 2001
-----------------------------
Partnership management fees (a) $ 374,000 $ 374,000
Expense reimbursement (b) 26,128 32,479
Property management fees incurred to
affiliates of the General Partners (c) 98,044 93,901
Local administrative fee (d) 13,000 13,000
----------- -----------
Total general and administrative-General Partners 511,172 513,380
----------- -----------
Property management fees incurred to affiliates
of the subsidiary partnerships' general
partners (c) 132,340 143,878
----------- -----------
Total general and administrative-related parties $ 643,512 $ 657,258
=========== ===========
(a) The General Partners are entitled to receive a partnership management fee,
after payment of all Partnership expenses, which together with the annual local
administrative fees will not exceed a maximum of 0.5% per annum of invested
assets (as defined in the Partnership Agreement), for administering the affairs
of the Partnership. The partnership management fee, subject to the foregoing
limitation, will be determined by the General Partners in their sole discretion
based upon their review of the Partnership's investments. Partnership management
fees owed to the General Partners amounting to approximately $10,182,000 and
$9,808,000 were accrued and unpaid as of June 30, 2002 and March 31, 2002,
respectively. Without the General Partners' continued accrual without payment,
the Partnership will not be in a position to meet its obligations. The General
Partners have allowed for the accrual without payment of these amounts but are
under no obligation to continue to do so.
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and their
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement.
11
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
Another affiliate of the General Partners performs asset monitoring for the
Partnership. These services include site visits and evaluations of the
subsidiary partnerships' performance.
(c) Property management fees incurred by subsidiary partnerships amounted to
$393,367 and $408,199 for the three months ended June 30, 2002 and 2001,
respectively. Of these fees, $230,384 and $237,779, respectively, were incurred
to affiliates of the Local General Partners. Included in amounts incurred to
affiliates of the Local General Partners are $98,044 and $93,901 for the three
months ended June 30, 2002 and 2001, respectively, which were also incurred to
affiliates of the Partnership.
(d) Liberty Associates II L.P., a General Partner and a special limited partner
of the subsidiary partnerships, is entitled to receive a local administrative
fee of up to $2,500 per year from each subsidiary partnership.
Note 3 - Mortgage Notes Payable
Metropolitan Towers Associates L.P.
- -----------------------------------
On February 22, 2002, Metropolitan Towers Associates L.P. ("Metropolitan
Towers") refinanced its existing indebtedness by borrowing $5,364,000 from the
Puerto Rico Housing Finance Corporation ("PRHFC"). The loan bears interest at
the rate of 7% per annum and matures on February 1, 2032. Metropolitan Tower's
prior indebtedness of approximately $4,625,000 was repaid, and a Capital
Improvement Account of approximately $387,000 was established.
Note 4 - Sale of Property
On January 18, 2002, the property and the related assets and liabilities of
Campeche Isle Apartments, Limited Partnership ("Campeche") were sold to an
unaffiliated third party for $4,625,000, resulting in a loss of approximately
$97,000.
12
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
Note 5 - Commitments and Contingencies
Alexis Park Apartments
- ----------------------
A hazardous waste issue has affected Alexis for nearly 11 years. Although this
environmental issue is in many respects beyond its control, management believes
that the selected remedy of the United States Environmental Protection Agency is
practical and is not likely to cause significant disruption to the apartment
project's operations beyond what it has experienced over the last several years.
The Local Partnership's congressman, U.S. Senators and the Mayor of Bossier City
have assisted Alexis in preventing this issue from escalating unnecessarily and
management believes that no escalation will occur in the near term. Further, all
indications are that an oil company will bear all costs of remediation and that
the Local Partnership will not be called upon to share in those costs.
Gramco Development Limited Dividend Partnership, L.P.
- -----------------------------------------------------
Gramco Development Limited Dividend Partnership, L.P. ("Gramco") was granted net
funds of $4,867,000. In the event of a substantial violation to the provisions
of certain agreements between Gramco and the Municipality of Bayamon (the
"Municipality") and between the Municipality and HUD, the funds shall become
immediately due and payable at the election of HUD and the Municipality.
Otherwise, the principal amount of the obligation together with any interest
will be forgiven. Proceeds from the loan have been deducted from fixed assets.
Williamsburg Residential, L.P.
- ------------------------------
In November 1996, the Local General Partner of Williamsburg Residential, L.P.
("Williamsburg") stopped making the mortgage note payments which constituted an
event of default. A Reinstatement and Modification Agreement was entered into
effective March 1, 1997. The Partnership has advanced Williamsburg the necessary
funds to keep the mortgage and escrows current and is expected to continue to do
so during 2002. As of June 30, 2002, the Partnership has advanced approximately
$863,000 to Williamsburg.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
Through June 30, 2002, the Partnership has invested all of the net proceeds of
its original offering in twenty-seven Local Partnerships. Through June 30, 2002,
the Partnership has sold the property and the related assets and liabilities of
one Local Partnership.
The Partnership's primary sources of funds are (i) working capital reserves;
(ii) interest earned on working capital reserves; and (iii) cash distributions
from operations of the Local Partnerships. All of these sources of funds are
available to meet obligations of the Partnership. During the three months ended
June 30, 2002, distributions received by the Partnership from operations of the
Local Partnerships were approximately $444,000.
During the three months ended June 30, 2002, cash and cash equivalents of the
Partnership and its 27 consolidated Local Partnerships increased approximately
$110,000. This increase was primarily due to proceeds from sale of properties
($307,000) and net proceeds and repayments of mortgage notes ($270,000) which
exceeded cash used in operating activities ($168,000), an increase in deferred
costs ($185,000), acquisitions of property and equipment ($52,000), an increase
in cash held in escrow relating to investing activities ($43,000) and a decrease
in capitalization of consolidated subsidiaries attributable to minority interest
($20,000). In the adjustments to reconcile the net loss to cash used in
operating activities are loss on sale of properties ($97,000) and depreciation
and amortization ($1,926,000).
Partnership management fees owed to the General Partners amounting to
approximately $10,182,000 and $9,808,000 were accrued and unpaid as of June 30,
2002 and March 31, 2002, respectively. Without the General Partners continued
accrual without payment, the Partnership will not be in a position to meet its
obligations. The General Partners have allowed for the accrual without payment
of these amounts but are under no obligation to continue to do so.
For a discussion of the sale of property, see Note 4 to the financial
statements.
14
Management is not aware of any trends, events, commitments or uncertainties
which have not otherwise been disclosed, that will or are likely to impact
liquidity in a material way. Management believes the only impact would be from
laws that have not yet been adopted. The portfolio is diversified by the
location of the properties around the United States so that if one area of the
country is experiencing downturns in the economy, the remaining properties in
the portfolio may be experiencing upswings. However, the geographic
diversification of the portfolio may not protect against a general downturn in
the national economy. The Partnership has fully invested the proceeds of its
offerings in 27 Local Partnerships, all of which fully have their tax credits in
place. The tax credits are attached to the project for a period of ten years and
are transferable with the property during the remainder of such ten year period.
If the General Partners determined that a sale of a property is warranted, the
remaining tax credits would transfer to the new owner, thereby adding value to
the property on the market, which are not included in the financial statement
carrying amount.
Results of Operations
- ---------------------
During the fiscal year ended March 31, 2002, Campeche (the "Sold Asset") sold
its property and related assets and liabilities. The results of operations of
the Partnership, as well as the Local Partnerships, remained fairly consistent
during the three months ended June 30, 2002 and 2001, excluding the Sold Asset,
loss on sale of property, other income, and repairs and maintenance. The results
of operations for the three months ended June 30, 2002 consisted primarily of
the results of the Partnership's investment in twenty-seven Local Partnerships.
Rental income decreased approximately 2% for the three months ended June 30,
2002 as compared to the corresponding period in 2001. Excluding the Sold Asset,
rental income increased approximately 2% for the three months ended June 30,
2002 as compared to the corresponding period in 2001 primarily due to rental
rate increases.
Other income decreased approximately $27,000 for the three months ended June 30,
2002 as compared to the corresponding period in 2001. Excluding the Sold Asset,
other income decreased approximately $23,000 for the three months ended June 30,
2002 as compared to the corresponding period in 2001, primarily due to the
collection of a receivable written off in prior years at one Local Partnership
in 2001 as well as interest income earned on refinancing proceeds held in escrow
at a second Local Partnership in 2001.
Total expenses, excluding the Sold Asset and repairs and maintenance, remained
fairly consistent with a decrease of approximately 2% for the three months ended
June 30, 2002 as compared to the corresponding period in 2001.
15
Repairs and maintenance decreased approximately $344,000 for the three months
ended June 30, 2002 as compared to the corresponding period in 2001. Excluding
the Sold Asset, repairs and maintenance decreased approximately $305,000,
primarily due to a repainting of units and plumbing and security repairs at two
Local Partnerships in 2001.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LIBERTY TAX CREDIT PLUS II L.P.
-------------------------------
(Registrant)
By: RELATED CREDIT PROPERTIES II L.P.,
a General Partner
By:Related Credit Properties II Inc.,
its General Partner
Date: August 9, 2002
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Principal Executive
Officer
(Principal Executive and Financial
Officer)
By: LIBERTY GP II INC.,
a General Partner
Date: August 9, 2002
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
and
By: LIBERTY ASSOCIATES II, L.P.
a General Partner
By:Related Credit Properties II Inc.,
its General Partner
Date: August 9, 2002
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
and
By:Liberty GP II Inc.,
its General Partner
Date: August 9, 2002
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Liberty Tax Credit Plus II L.P. (the
"Partnership") on Form 10-Q for the period ending June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of Related
Credit Properties II Inc. (general partner of each of Related Credit Properties
II L.P. and Liberty Associates II, L.P., General Partners of Registrant) and
Liberty GP II, Inc. (general partner of Liberty Associates II, L.P.), certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Partnership.
/s/ Alan P. Hirmes
Alan P. Hirmes
Principal Executive Officer and Principal Financial Officer
August 9, 2002