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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 0-24656
LIBERTY TAX CREDIT PLUS III L.P.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3491408
- ------------------------------- -------------------
(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 III L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
June 30, March 31,
2002 2002
------------ ------------
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $119,498,652 and $116,934,212,
respectively $185,049,253 $187,488,092
Cash and cash equivalents 5,488,223 6,104,774
Cash held in escrow 13,861,503 13,589,564
Deferred costs, net of accumulated
amortization of $2,149,876
and $2,098,206, respectively 3,334,160 3,385,830
Other assets 2,591,181 2,265,062
------------ ------------
Total assets $210,324,320 $212,833,322
============ ============
2
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
June 30, March 31,
2002 2002
------------ ------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $187,562,794 $187,964,269
Due to debt guarantor 43,630,499 42,858,984
Accounts payable and other
liabilities 22,657,429 22,103,625
Due to local general partners and
affiliates 15,894,183 15,900,869
Due to general partners and
affiliates 8,937,041 8,537,001
------------ ------------
Total liabilities 278,681,946 277,364,748
------------ ------------
Minority interest (177,732) 171,145
------------ ------------
Commitments and contingencies
(Note 3)
Partners' deficit:
Limited partners (139,101.5 BACs
issued and outstanding) (66,262,638) (62,820,088)
General Partners (1,917,256) (1,882,483)
------------ ------------
Total partners' deficit (68,179,894) (64,702,571)
------------ ------------
Total liabilities and partners'
deficit $210,324,320 $212,833,322
============ ============
3
See Accompanying Notes to Consolidated Financial Statements.
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
-----------------------------
Three Months Ended
June 30,
-----------------------------
2002 2001*
-----------------------------
Revenues
Rental income $ 8,712,680 $ 8,802,413
Other 380,525 400,629
------------ ------------
Total revenue 9,093,205 9,203,042
------------ ------------
Expenses
General and administrative 2,008,192 2,051,174
General and administrative-
related parties (Note 2) 916,779 916,204
Operating 1,198,230 1,271,223
Repairs and maintenance 1,202,434 1,426,531
Real estate taxes 570,653 594,265
Insurance 376,735 349,037
Interest 3,741,223 3,803,643
Depreciation and amortization 2,616,110 2,687,948
------------ ------------
Total expenses 12,630,356 13,100,025
------------ ------------
Loss before minority interest (3,537,151) (3,896,983)
Minority interest in losses of
subsidiary partnerships 59,828 57,935
------------ ------------
Net loss $ (3,477,323) $ (3,839,048)
============ ============
Net loss - limited partners $ (3,442,550) $ (3,800,658)
============ ============
Number of BACs outstanding 139,101.5 139,101.5
============ ============
Net loss per BAC $ (24.75) $ (27.32)
============ ============
*Reclassified for comparative purposes.
See Accompanying Notes to Consolidated Financial Statements.
4
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Deficit
(Unaudited)
--------------------------------------------
Limited General
Total Partners Partners
--------------------------------------------
Partners' deficit -
April 1, 2002 $(64,702,571) $(62,820,088) $(1,882,483)
Net loss -
three months ended
June 30, 2002 (3,477,323) (3,442,550) (34,773)
------------ ------------ -----------
Partners' deficit -
June 30, 2002 $(68,179,894) $(66,262,638) $(1,917,256)
============ ============ ===========
See Accompanying Notes to Consolidated Financial Statements.
5
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
-----------------------------
Three Months Ended
June 30,
-----------------------------
2002 2001
-----------------------------
Cash flows from operating activities:
Net loss $ (3,477,323) $ (3,839,048)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 2,616,110 2,687,948
Minority interest in loss of
subsidiaries (59,828) (57,935)
Increase (decrease) in accounts
payable and other liabilities 553,804 (19,152)
Increase in cash held in escrow (271,939) (707,036)
Increase in other assets (326,119) (131,082)
Increase in due to general partners
and affiliates 400,040 299,109
Increase in due to local
general partners and affiliates 45,533 497,407
Decrease in due to local general
partners and affiliates (29,050) (27,494)
Increase in due to debt guarantor 771,515 735,365
------------ ------------
Net cash provided by (used in)
operating activities 222,743 (561,918)
------------ ------------
Cash flows from investing activities:
Acquisitions of property
and equipment (125,601) (133,520)
Decrease in due to local general
partners and affiliates (22,624) 0
------------ ------------
Net cash used in investing activities (148,225) (133,520)
------------ ------------
6
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(continued)
-----------------------------
Three Months Ended
June 30,
-----------------------------
2002 2001
-----------------------------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (401,475) (288,750)
Decrease in due to local general
partners and affiliates (545) 0
Decrease in capitalization of
consolidated subsidiaries
attributable to minority interest (289,049) (156,417)
------------ ------------
Net cash used in financing activities (691,069) (445,167)
------------ ------------
Net decrease in cash and
cash equivalents (616,551) (1,140,605)
Cash and cash equivalents at
beginning of period 6,104,774 4,905,819
------------ ------------
Cash and cash equivalents at
end of period $ 5,488,223 $ 3,765,214
============ ============
See Accompanying Notes to Consolidated Financial Statements.
7
LIBERTY TAX CREDIT PLUS III 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 III L.P. (the
"Partnership") and 61 and 62 subsidiary partnerships (the "subsidiary
partnerships", "Local Partnerships" or "subsidiaries"), respectively. The
Partnership holds a 98% limited partnership interest in each subsidiary
partnership except one subsidiary partnership, in which the Partnership holds a
27% limited partnership interest (the other 71% limited partnership interest is
owned by an affiliate of the Partnership with the same management). Through the
rights of the Partnership and/or an affiliate of Related Credit Properties III
L.P. and Liberty GP III Inc. (the "General Partners"), which affiliate has a
contractual obligation to act on behalf of the Partnership, to remove the
general partner of each subsidiary partnership (each a "Local General Partner")
and to approve certain major operating and financial decisions, the Partnership
has a controlling financial interest in the subsidiary partnerships.
For financial reporting purposes, the Partnership's fiscal quarter ends June 30.
All subsidiaries have fiscal quarters ending March 31. Accounts of the
subsidiaries have been adjusted for intercompany transactions from April 1
through June 30. 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 intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
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 have been charged to the Partnership. Such losses
aggregated approximately $58,000 and $64,000 for the three months ended June 30,
2002 and 2001, respectively. The Partnership's investment in each subsidiary is
generally equal to the respective subsidiary partners' equity less minority
interest capital, if any. In consolidation, all subsidiary partnership losses
are included in the Partnership's capital account except for losses allocated to
minority interest capital.
8
LIBERTY TAX CREDIT PLUS III 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 of
accounting in accordance with generally accepted accounting principles ("GAAP").
In the opinion of the General Partners of the Partnership, 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. 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 disclosure 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 period ended March 31, 2002.
9
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
Note 2 - Related Party Transactions
Liberty Associates IV L.P. ("Liberty Associates"), an affiliate of the General
Partners, has a 1% and .998% interest as a Special Limited Partner in 60 and 1
of the Local Partnerships, respectively. Affiliates of the General Partners also
have a minority interest in certain Local Partnerships.
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) $358,500 $358,500
Expense reimbursement (b) 46,901 46,500
Local administrative fee (d) 52,000 49,000
-------- --------
Total general and administrative-
General Partners 457,401 454,000
-------- --------
Property management fees incurred
to affiliates of the subsidiary
partnerships' general partners (c) 459,378 462,204
-------- --------
Total general and administrative-
related parties $916,779 $916,204
======== ========
(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. Unpaid partnership
management fees for any year will be accrued without interest and will be
payable only to the extent of available funds after the Partnership has made
distributions to the limited partners of sale or refinancing proceeds equal to
their original capital contributions plus a 10% priority return thereon (to the
extent not theretofore paid out of cash flow). Partnership management fees owed
to the General Partners amounting to approximately $7,394,000 and $7,035,000
were accrued and unpaid at June 30, 2002 and March 31, 2002, respectively.
Without the General Partners' continued accrual without payment of these fees
and expense reimbursements, 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.
10
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
(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. 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) The subsidiary partnerships incurred property management fees amounting to
$579,970 and $576,599 for the three months ended June 30, 2002 and 2001,
respectively, of which $459,378 and $462,204 for the three months ended June 30,
2002 and 2001, respectively, were incurred to affiliates of the Local General
Partners. There were no property management fees incurred to affiliates of the
General Partners.
(d) Liberty Associates IV L.P., 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 - Commitments and Contingencies
The following disclosure includes changes and/or additions to disclosures
regarding the Subsidiary Partnership which were included in the Partnership's
Annual Report on Form 10-K for the period ended March 31, 2002.
Manhattan A Associates ("Manhattan A")
- --------------------------------------
The financial statements for Manhattan A have not been audited for the 2001
Fiscal Year. In August 2001 the Local General Partner of Manhattan A was
replaced as the managing agent. The auditors for Manhattan A have been unable to
obtain all the books and records to complete the audit. Liberty Associates IV,
L.P. has replaced the Local General Partner.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary sources of funds include (i) working capital reserves
and (ii) cash distributions from the operations of the Local Partnerships,
neither of which are substantial in amount.
Through June 30, 2002, the Partnership has invested all of the net proceeds of
its original offering in 62 Local Partnerships. Through June 30, 2002, the
Partnership's limited partnership interest in one Local Partnership was sold.
Approximately $260,000 of the purchase price remains to be paid (which includes
approximately $242,000 held in escrow).
During the three months ended June 30, 2002, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships decreased approximately
$617,000. This decrease was attributable to acquisitions of property and
equipment ($126,000), principal payments of mortgage notes payable ($401,000), a
net decrease in due to Local General Partners and their affiliates relating to
investing and financing activities ($23,000) and a decrease in capitalization of
consolidated subsidiaries attributable to minority interest ($289,000) which
exceeded cash provided by operating activities ($223,000). Included in the
adjustments to reconcile the net loss to cash provided by operating activities
is depreciation and amortization ($2,616,000) and an increase in due to debt
guarantor ($772,000).
The Partnership has working capital reserves of approximately $8,000 at June 30,
2002.
Cash distributions received from the Local Partnerships remain relatively
immaterial. These distributions, as well as the working capital reserves
referred to in the preceding paragraph, will be used towards the future
operating expenses of the Partnership. During the three months ended June 30,
2002, the amounts received from operations of the Local Partnerships
approximated $159,000.
Partnership management fees owed to the General Partners amounting to
approximately $7,394,000 and $7,035,000 were accrued and unpaid at June 30, 2002
and March 31, 2002, respectively. Without the General Partners' continued
accrual without payment of these fees and expense reimbursements, 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.
12
For a discussion of contingencies affecting certain Local Partnerships, see Note
3 to the financial statements. Since the maximum loss the Partnership would be
liable for is its net investment in the respective Local Partnerships, the
resolution of the existing contingencies is not anticipated to impact future
results of operations, liquidity or financial condition in a material way.
However, the Partnership's loss of its investment in a Local Partnership will
eliminate the ability to generate future tax credits from such Local Partnership
and may also result in recapture of tax credits if the investment is lost prior
to the end of the fifteenth anniversary after the beginning of the tax credit
period.
Management is not aware of any trends or 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 for
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
offering in 62 Local Partnerships, one of which has been sold and twenty-four of
which had 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 balance of such ten year period. If the General Partners determine 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
- ---------------------
Results of operations for the three months ended June 30, 2002 and 2001
consisted primarily of the results of the Partnership's investment in the
consolidated Local Partnerships.
During the Fiscal Year ended March 31, 2002, the Partnership's limited
partnership interest in Northwood was sold ("Sold Asset"). Excluding the Sold
Asset, the results of the operations of the Partnership, as well as the Local
Partnerships remained fairly consistent during the three months ended June 30,
2002 as compared to the corresponding period in 2001. The majority of Local
Partnerships' income continues to be in the form of rental income with the
corresponding expenses being divided among operations, depreciation and mortgage
interest.
13
Rental income decreased less than 1% for the three months ended June 30, 2002 as
compared to the corresponding period in 2001. Excluding the Sold Asset, rental
income increased approximately 3% primarily due to rental rate increases.
Total expenses, excluding the Sold Asset, remained fairly consistent with a
decrease of approximately 1% for the three months ended June 30, 2002 as
compared to the corresponding period in 2001.
Repairs and maintenance decreased approximately $224,000 for the three months
ended June 30, 2002 as compared to the corresponding period in 2001, primarily
due to a decrease relating to the Sold Asset.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
None.
14
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 - None
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.
15
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 III L.P.
--------------------------------
(Registrant)
By: RELATED CREDIT PROPERTIES III L.P.,
a General Partner
By:Related Credit Properties III Inc.,
General Partner
Date: August 8, 2002
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Chief Executive Officer
(principal executive and financial officer)
Date: August 8, 2002
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: LIBERTY GP III INC.,
a General Partner
Date: August 8, 2002
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Chief Executive Officer
(principal executive and financial officer)
Date: August 8, 2002
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
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 III 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 III, L.P. and Liberty GP III Inc., each of which is a general
partner of the Partnership, 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
Chief Executive Officer and Chief Financial Officer
August 8, 2002