UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 December 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to ___________
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Commission file number: 0-18405
American Tax Credit Properties II L.P.
--------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3495678
- ----------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Richman Tax Credit Properties II L.P.
599 West Putnam Avenue, 3rd Floor
Greenwich, Connecticut 06830
- ------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 869-0900
--------------
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 filing requirements
for the past 90 days.
Yes X No .
----- -----
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Table of Contents Page
- ----------------- ----
Balance Sheets............................................................3
Statements of Operations..................................................4
Statements of Cash Flows..................................................5
Notes to Financial Statements.............................................7
2
AMERICAN TAX CREDIT PROPERTIES II L.P.
BALANCE SHEETS
(UNAUDITED)
December 30, March 30,
Notes 2002 2002
----- ----------- ------------
ASSETS
Cash and cash equivalents $ 730,069 $ 10,520
Investments in bonds 2 2,754,542 2,792,845
Investment in local partnerships 3 7,564,808 8,101,733
Interest receivable 35,352 47,552
------------ ------------
$ 11,084,771 $ 10,952,650
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 665,977 $ 698,440
Payable to general partner and
affiliates 1,006,528 929,773
Other liabilities 20,600 27,600
------------ ------------
1,693,105 1,655,813
------------ ------------
Commitments and contingencies 3
Partners' equity (deficit)
General partner (400,610) (400,150)
Limited partners (55,746 units of
limited partnership interest
outstanding) 9,616,726 9,662,307
Accumulated other comprehensive income,
net 2 175,550 34,680
------------ ------------
9,391,666 9,296,837
------------ ------------
$ 11,084,771 $ 10,952,650
============ ============
See Notes to Financial Statements.
3
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
December December December December
Notes 30, 2002 30, 2002 30, 2001 30, 2001
----- --------- --------- --------- --------
REVENUE
Interest $ 47,036 $ 137,549 $ 55,351 $ 164,190
Other income from local
partnerships 3 2,520 34,792 23,624
----- ------ ------ ------
TOTAL REVENUE 49,556 172,341 55,351 187,814
------ ------- ------ -------
EXPENSES
Administration fees 74,827 224,480 74,827 224,480
Management fees 74,827 224,480 74,827 224,480
Professional fees 19,047 37,138 21,650 49,455
Printing, postage and other 13,022 24,201 8,602 27,802
------ ------- ------ -------
TOTAL EXPENSES 181,723 510,299 179,906 526,217
------- ------- ------- -------
Loss from operations (132,167) (337,958) (124,555) (338,403)
Equity in loss of investment
in local partnerships 3 (236,303) (554,614) (119,357) (1,095,389)
Loss prior to gain on disposal
of local partnership interest (368,470) (892,572) (243,912) (1,433,792)
Gain on disposal of local
partnership interest 3 114,531 846,531
------- ------- ------- ---------
NET LOSS (253,939) (46,041) (243,912) (1,433,792)
Other comprehensive income
(loss) 2 12,246 140,870 (39,150) 37,881
------ ------- -------- ------
COMPREHENSIVE INCOME (LOSS) $ (241,693) $ 94,829 $ (283,062) $(1,395,911)
============ =========== ============ =============
NET LOSS ATTRIBUTABLE TO
General partner $ (2,539) $ (460) $ (2,439) $ (14,338)
Limited partners (251,400) (45,581) (241,473) (1,419,454)
--------- -------- --------- -----------
$ (253,939) $ (46,041) $ (243,912) $(1,433,792)
NET LOSS per unit of limited
partnership interest (55,746
units of limited partnership
interest) $ (4.51) $ (.82) $ (4.33) $ (25.46)
=========== =========== =========== ===========
See Notes to Financial Statements.
4
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 123,655 $ 141,807
Cash used for local partnerships for deferred
expenses (7,000) (7,000)
Cash paid for
administration fees (215,068) (254,410)
management fees (157,137) (187,137)
professional fees (66,070) (61,711)
printing, postage and other expenses (27,732) (32,432)
----------- -----------
Net cash used in operating activities (349,352) (400,883)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in local partnerships (143,834) (161,865)
Cash distributions from local partnerships 1,007,468 219,187
Maturities/redemptions and sales of bonds 205,267 398,202
----------- -----------
Net cash provided by investing activities 1,068,901 455,524
----------- -----------
Net increase in cash and cash equivalents 719,549 54,641
Cash and cash equivalents at beginning of period 10,520 81,216
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 730,069 $ 135,857
=========== ===========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain on investments in bonds, net $ 140,870 $ 37,881
=========== ===========
- --------------------------------------------------------------------------------
See reconciliation of net loss to net cash used in operating activities on page
6.
See Notes to Financial Statements.
5
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS - (Continued)
NINE MONTHS ENDED DECEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
--------- ----------
RECONCILIATION OF NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES
Net loss $(46,041) $(1,433,792)
Adjustments to reconcile net loss to net cash used
in operating activities
Equity in loss of investment in local
partnerships 554,614 1,095,389
Distributions from local partnerships
classified as other income (34,792) (23,624)
Gain on disposal of local partnership interest (846,531)
Gain on redemption of bonds (4,918)
Amortization of net premium on investments in
bonds 3,352 5,069
Accretion of zero coupon bonds (29,446) (29,446)
Decrease in interest receivable 12,200 6,912
Increase in payable to general partner and
affiliates 76,755 32,413
Decrease in accounts payable and accrued
expenses (32,463) (41,886)
Decrease in other liabilities (7,000) (7,000)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $ (349,352) $ (400,883)
=========== ===========
See Notes to Financial Statements.
6
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2002
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information. They do not include all
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
The results of operations are impacted significantly by the combined results
of operations of the Local Partnerships, which are provided by the Local
Partnerships on an unaudited basis during interim periods. Accordingly, the
accompanying financial statements are dependent on such unaudited
information. In the opinion of the General Partner, the financial statements
include all adjustments necessary to present fairly the financial position as
of December 30, 2002 and the results of operations and cash flows for the
interim periods presented. All adjustments are of a normal recurring nature.
The results of operations for the three and nine month periods ended December
30, 2002 are not necessarily indicative of the results that may be expected
for the entire year.
2. Investments in Bonds
As of December 30, 2002, certain information concerning investments in bonds
is as follows:
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
--------- ---------- ---------- ----------
Description and maturity
Corporate debt securities
Within one year $ 250,114 $ 914 $ -- $ 251,028
After one year through
five years 1,654,022 111,058 (13,607) 1,751,473
----------- ----------- ----------- -----------
1,904,136 111,972 (13,607) 2,002,501
----------- ----------- ----------- -----------
U.S. Treasury debt securities
After five years through
ten years 668,919 76,974 -- 745,893
----------- ----------- ----------- -----------
U.S. government and agency securities
After one year through
five years 5,937 211 -- 6,148
----------- ----------- ----------- -----------
$ 2,578,992 $ 189,157 $ (13,607) $ 2,754,542
=========== =========== =========== ===========
7
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2002
(UNAUDITED)
3. Investment in Local Partnerships
The Partnership originally acquired limited partnership interests in Local
Partnerships representing capital contributions in the aggregate amount of
$46,321,751, which amount includes advances made to certain Local
Partnerships. As of September 30, 2002, the Local Partnerships have
outstanding mortgage loans payable totaling approximately $86,122,000 and
accrued interest payable on such loans totaling approximately $7,343,000,
which are secured by security interests and liens common to mortgage loans on
the Local Partnerships' real property and other assets.
For the nine months ended December 30, 2002, the investment in local
partnerships activity consists of the following:
Investment in local partnerships as of March 30, 2002 $ 8,101,733
Advances to Local Partnerships 143,834
Equity in loss of investment in local
partnerships (554,614)*
Cash distributions received from Local
Partnerships (1,007,468)
Cash distributions classified as gain on
disposal of local partnership 846,531
Cash distributions classified as other income
from local partnerships 34,792
-----------
Investment in local partnerships as of December
30, 2002 $ 7,564,808
===========
*Equity in loss of investment in local partnerships is limited to the
Partnership's investment balance in each Local Partnership; any excess is
applied to other partners' capital in any such Local Partnership. The
amount of such excess losses applied to other partners' capital was
$2,028,573 for the nine months ended September 30, 2002 as reflected in
the combined statement of operations of the Local Partnerships reflected
herein Note 3.
The combined unaudited balance sheets of the Local Partnerships as of
September 30, 2002 and December 31, 2001 and the combined unaudited
statements of operations of the Local Partnerships for the three and nine
month periods ended September 30, 2002 and 2001 are reflected on pages 9 and
10, respectively.
8
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2002
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of September 30,
2002 and December 31, 2001 are as follows:
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Cash and cash equivalents $ 1,684,365 $ 2,127,352
Rents receivable 442,717 431,523
Escrow deposits and reserves 6,223,122 5,755,211
Land 3,930,673 4,180,673
Buildings and improvements (net of
accumulated depreciation of $63,688,965
and $61,229,767) 79,950,961 84,160,541
Intangible assets (net of accumulated
amortization of $1,295,794 and
$1,258,567) 1,414,080 1,407,245
Other assets 1,422,624 1,387,096
------------- -------------
$ 95,068,542 $ 99,449,641
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 2,319,054 $ 1,812,873
Due to related parties 4,112,825 4,165,047
Mortgage loans 86,121,705 88,453,937
Notes payable 1,261,261 1,418,799
Accrued interest 7,342,907 6,958,723
Other liabilities 684,030 710,234
------------- -------------
101,841,782 103,519,613
------------- -------------
Partners' equity (deficit)
American Tax Credit Properties II L.P.
Capital contributions, net of
distributions 44,804,351 45,555,964
Cumulative loss (36,013,623) (35,459,009)
------------- -------------
8,790,728 10,096,955
------------- -------------
General partners and other limited
partners
Capital contributions, net of
distributions 3,053,058 3,098,307
Cumulative loss (18,617,026) (17,265,234)
------------- -------------
(15,563,968) (14,166,927)
------------- -------------
(6,773,240) (4,069,972)
------------- -------------
$ 95,068,542 $ 99,449,641
============= =============
9
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2002
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the three
and nine month periods ended September 30, 2002 and 2001 are as follows:
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2002 2002 2001 2001
------------ ------------- ------------ -------------
REVENUE
Rental $ 5,208,516 $ 15,966,598 $ 5,288,822 $ 15,815,011
Interest and other 158,099 486,457 116,040 441,740
------------ ------------ ------------ ------------
Total Revenue 5,366,615 16,453,055 5,404,862 16,256,751
------------ ------------ ------------ ------------
EXPENSES
Administrative 920,766 2,729,038 844,813 2,568,160
Utilities 633,209 2,349,047 671,246 2,640,263
Operating and maintenance 1,219,122 3,606,329 1,180,799 3,579,404
Taxes and insurance 1,043,009 2,459,656 725,423 2,042,619
Financial 1,440,142 4,578,861 1,566,646 4,638,545
Depreciation and
amortization 1,187,226 3,601,144 1,230,263 3,599,318
------------ ------------ ------------ ------------
Total Expenses 6,443,474 19,324,075 6,219,190 19,068,309
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS BEFORE
GAIN ON SALE OF PROPERTY (1,076,859) (2,871,020) (814,328) (2,811,558)
Gain on sale of property 964,614
------------ ------------ ------------ ------------
NET LOSS $ (1,076,859) $ (1,906,406) $ (814,328) $ (2,811,558)
============ ============ ============ ============
NET LOSS ATTRIBUTABLE TO
American Tax Credit
Properties II L.P. $ (236,303) $ (554,614) $ (119,357) $ (1,095,389)
General partners and
other limited partners,
which includes $964,414
of specially allocated
revenue to a certain
general partner for the
nine month period ended
September 30, 2002, and
$726,958, $2,028,573,
$592,937 and $1,418,754
of Partnership loss in
excess of investment (840,556) (1,351,792) (694,971) (1,716,169)
------------ ------------ ------------ ------------
$ (1,076,859) $ (1,906,406) $ (814,328) $ (2,811,558)
============ ============ ============ ============
The combined results of operations of the Local Partnerships for the three
and nine month periods ended September 30, 2002 are not necessarily
indicative of the results that may be expected for an entire operating
period.
10
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2002
(UNAUDITED)
3. Investment in Local Partnerships (continued)
Effective October 1, 1998, in an attempt to avoid potential adverse tax
consequences, the Partnership and the local general partners of 2000-2100
Christian Street Associates ("2000 Christian Street") and Christian Street
Associates Limited Partnership ("Christian Street") agreed to equally share
the funding of operating deficits through June 30, 2000 in the case of
Christian Street and through September 30, 2000 in the case of 2000 Christian
Street (the respective "Funding Agreements"). The Funding Agreements have
been extended through September 30, 2003. Under the terms of the Funding
Agreements, the Partnership has advanced $255,411 as of December 30, 2002, of
which $60,194 was advanced during the nine months then ended. Such advances
have been recorded as investment in local partnerships and have been offset
by additional equity in loss of investment in local partnerships.
As a result of increasing deficits and declining occupancy caused by
deteriorating physical conditions, Forest Village Housing Partnership
("Forest Village") filed for protection under Chapter 11 of the federal
Bankruptcy Code in the United States Bankruptcy Court, Western District of
Washington (the "Court") on March 25, 1999. Forest Village filed a plan of
reorganization (the "Plan") which was confirmed by the Court on December 14,
1999. The terms of the Plan called for the Partnership to provide up to
$500,000 (the "Bankruptcy Advance"), all of which was previously funded,
which Forest Village utilized to pay certain obligations including all first
mortgage arrears and certain secured and unsecured creditors and to make
necessary repairs to the complex. The Plan also resulted in recasting the
second mortgage and cumulative arrears over a new 30 year amortization period
that reduced Forest Village's mandatory debt service by approximately $77,000
per annum. In addition to the Bankruptcy Advance, the Partnership provided
advances of $282,874 to Forest Village. Such advances, including the
Bankruptcy Advance, were recorded as investment in local partnerships and
were offset by additional equity in loss of investment in local partnerships.
Of all such amounts advanced by the Partnership, $534,500 bore interest at
8.5% and was repayable out of net cash flow from the operations of the
Property. No interest was recorded by the Partnership.
In May 2002, Forest Village sold its underlying Property for $2,600,000. The
combined statement of operations of the Local Partnerships for the nine
months ended September 30, 2002 included herein Note 3 reflects gain on sale
of property of $964,614. The sale proceeds were utilized to repay the
outstanding mortgages in full, post a bond for the purpose of avoiding
Low-income Tax Credit recapture and repay the Partnership for advances
discussed above. The Partnership has received $846,531 in connection with the
sale and the purchaser is required to continue to operate the Property as
low-income pursuant to Section 42 through the remainder of the Compliance
Period. The accompanying financial statements as of and for the nine months
ended December 30, 2002 include gain on disposal of local partnership
interest of $846,531 in connection with Forest Village.
The Partnership advanced $67,000 during the nine months ended December 30,
2002 to Ann Ell Apartments Associates, Ltd. to fund operating deficits.
Cumulative advances as of December 30, 2002 are $409,545. Such advances have
been recorded as investment in local partnerships and have been offset by
additional equity in loss of investment in local partnerships.
The Partnership advanced $16,640 during the nine months ended December 30,
2002 to College Avenue Apartments Limited Partnership to fund operating
deficits. Cumulative advances as of December 30, 2002 are $27,790. Such
advances have been recorded as investment in local partnerships and have been
offset by additional equity in loss of investment in local partnerships.
4. Additional Information
Additional information, including the audited March 30, 2002 Financial
Statements and the Organization, Purpose and Summary of Significant
Accounting Policies, is included in the Partnership's Annual Report on Form
10-K for the fiscal year ended March 30, 2002 on file with the Securities and
Exchange Commission.
11
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Material Changes in Financial Condition
As of December 30, 2002, American Tax Credit Properties II L.P. (the
"Registrant") has not experienced a significant change in financial condition as
compared to March 30, 2002, with the exception of the receipt of $846,531 in
connection with Forest Village Housing Partnership ("Forest Village"); see Local
Partnership Matters below. Principal changes in assets are comprised of periodic
transactions and adjustments and anticipated equity in loss from operations of
the local partnerships (the "Local Partnerships") which own low-income
multifamily residential complexes (the "Properties") that qualify for the
low-income tax credit in accordance with Section 42 of the Internal Revenue Code
(the "Low-income Tax Credit"). During the nine months ended December 30, 2002,
Registrant received cash from interest revenue, maturities/redemptions and sales
of bonds and distributions from Local Partnerships and utilized cash for
operating expenses and advances to certain Local Partnerships (see Local
Partnership Matters below), which advances have been recorded as investment in
local partnerships. Cash and cash equivalents and investments in bonds
increased, in the aggregate, by approximately $681,000 during the nine months
ended December 30, 2002 (which includes proceeds from the sale of Forest Village
(see discussion below under Local Partnership Matters), a net unrealized gain on
investments in bonds of approximately $141,000, amortization of net premium on
investments in bonds of approximately $3,000 and accretion of zero coupon bonds
of approximately $29,000). Notwithstanding circumstances that may arise in
connection with the Properties, Registrant does not expect to realize
significant gains or losses on its investments in bonds, if any. During the nine
months ended December 30, 2002, the investment in local partnerships decreased
as a result of Registrant's equity in the Local Partnerships' net loss for the
nine months ended September 30, 2002 of $554,614 and cash distributions received
from Local Partnerships of $126,145 (exclusive of distributions from Local
Partnerships of $34,792 classified as other income and $846,531 classified as
gain on disposal of local partnership interest), partially offset by advances to
Local Partnerships of $143,834 (see discussion below under Local Partnership
Matters). Accounts payable and accrued expenses includes deferred administration
fees of $593,740, and payable to general partner represents deferred
administration and management fees in the accompanying balance sheet as of
December 30, 2002.
Results of Operations
Registrant's operating results are dependent upon the operating results of the
Local Partnerships and are significantly impacted by the Local Partnerships'
policies. In addition, the operating results herein are not necessarily the same
for tax reporting. Registrant accounts for its investment in local partnerships
in accordance with the equity method of accounting. Accordingly, the investment
is carried at cost and is adjusted for Registrant's share of each Local
Partnership's results of operations and by cash distributions received. Equity
in loss of each investment in Local Partnership allocated to Registrant is
recognized to the extent of Registrant's investment balance in each Local
Partnership. Equity in loss in excess of Registrant's investment balance in a
Local Partnership is allocated to other partners' capital in any such Local
Partnership. As a result, the reported equity in loss of investment in local
partnerships is expected to decrease as Registrant's investment balances in the
respective Local Partnerships become zero. However, the combined statements of
operations of the Local Partnerships reflected in Note 3 to Registrant's
financial statements include the operating results of all Local Partnerships,
irrespective of Registrant's investment balances.
Cumulative losses and cash distributions in excess of investment in local
partnerships may result from a variety of circumstances, including a Local
Partnership's accounting policies, subsidy structure, debt structure and
operating deficits, among other things. In addition, the carrying value of
Registrant's investment in local partnerships may be reduced if the book value
(the "Local Partnership Carrying Value") is considered to exceed the estimated
value derived by management. Accordingly, cumulative losses and cash
distributions in excess of the investment or an adjustment to a Local
Partnership's Carrying Value are not necessarily indicative of adverse operating
results of a Local Partnership. See discussion below under Local Partnership
Matters regarding certain Local Partnerships currently operating below economic
break even levels.
Registrant's operations for the three months ended December 30, 2002 and 2001
resulted in a net loss of $253,939 and $243,912, respectively. The increase in
net loss is primarily attributable to an increase in equity in loss of
investment in local partnerships of approximately $117,000, which increase is
primarily the result of an increase in the net operating losses of certain Local
Partnerships in which Registrant continues to have an investment balance and the
write-off of advances made to certain Local Partnerships, partially offset by an
increase in the nonrecognition of losses in accordance with the equity method of
accounting, all partially offset by a gain on disposal of local partnership
interest of approximately $115,000 in connection with Forest Village. Other
comprehensive income (loss) for the three months ended December 30, 2002 and
2001 resulted from a net unrealized gain (loss) on investments in bonds of
$12,246 and $(39,150), respectively.
12
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Local Partnerships' loss from operations of approximately $1,077,000 for the
three months ended September 30, 2002 was attributable to rental and other
revenue of approximately $5,366,000, exceeded by operating and interest expense
(including interest on non-mandatory debt) of approximately $5,256,000 and
approximately $1,187,000 of depreciation and amortization expense. The Local
Partnerships' loss from operations of approximately $814,000 for the three
months ended September 30, 2001 was attributable to rental and other revenue of
approximately $5,405,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $4,989,000 and approximately
$1,230,000 of depreciation and amortization expense. The results of operations
of the Local Partnerships for the three months ended September 30, 2002 are not
necessarily indicative of the results that may be expected in future periods.
Registrant's operations for the nine months ended December 30, 2002 and 2001
resulted in a net loss of $46,041 and $1,433,792, respectively. The decrease in
net loss is primarily attributable to (i) a gain on disposal of local
partnership interest of $846,531 in connection with Forest Village and (ii) a
decrease in equity in loss of investment in local partnerships of approximately
$541,000, which decrease is primarily the result of an increase in the
nonrecognition of losses in accordance with the equity method of accounting,
partially offset by an increase in the net operating losses of certain Local
Partnerships in which Registrant continues to have an investment balance and the
write-off of advances made to certain Local Partnerships. Other comprehensive
income for the nine months ended December 30, 2002 and 2001 resulted from a net
unrealized gain on investments in bonds of $140,870 and $37,881, respectively.
The Local Partnerships' loss from operations of approximately $2,871,000 for the
nine months ended September 30, 2002 was attributable to rental and other
revenue of approximately $16,453,000, exceeded by operating and interest expense
(including interest on non-mandatory debt) of approximately $15,723,000 and
approximately $3,601,000 of depreciation and amortization expense. The Local
Partnerships' loss from operations of approximately $2,812,000 for the nine
months ended September 30, 2001 was attributable to rental and other revenue of
approximately $16,257,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $15,470,000 and approximately
$3,599,000 of depreciation and amortization expense. The results of operations
of the Local Partnerships for the nine months ended September 30, 2002 are not
necessarily indicative of the results that may be expected in future periods.
Local Partnership Matters
Registrant's primary objective is to provide Low-income Tax Credits to limited
partners generally over a ten year period. The relevant state tax credit agency
has allocated each of Registrant's Local Partnerships an amount of Low-income
Tax Credits, which are generally available for a ten year period from the year
the Property is placed in service (the "Ten Tear Credit Period"). The Ten Year
Credit Period was fully exhausted by the Local Partnerships as of December 31,
2001. The required holding period of each Property, in order to avoid Low-income
Tax Credit recapture, is fifteen years from the year in which the Low-income Tax
Credits commence on the last building of the Property (the "Compliance Period").
In addition, certain of the Local Partnerships have entered into agreements with
the relevant state tax credit agencies whereby the Local Partnerships must
maintain the low-income nature of the Properties for a period which exceeds the
Compliance Period, regardless of any sale of the Properties by the Local
Partnerships after the Compliance Period. The Properties must satisfy various
requirements including rent restrictions and tenant income limitations (the
"Low-income Tax Credit Requirements") in order to maintain eligibility for the
recognition of the Low-income Tax Credit at all times during the Compliance
Period. Once a Local Partnership has become eligible for the Low-income Tax
Credit, it may lose such eligibility and suffer an event of recapture if its
Property fails to remain in compliance with the Low-income Tax Credit
Requirements. Through December 31, 2002, none of the Local Partnerships have
reported an event of recapture of Low-income Tax Credits.
The Properties are principally comprised of subsidized and leveraged low-income
multifamily residential complexes located throughout the United States and
Puerto Rico. Many of the Local Partnerships receive rental subsidy payments,
including payments under Section 8 of Title II of the Housing and Community
Development Act of 1974 ("Section 8"). The subsidy agreements expire at various
times during and after the Compliance Periods of the Local Partnerships. Since
October 1997, the United States Department of Housing and Urban Development
("HUD") has issued a series of directives related to project based Section 8
contracts that define owners' notification responsibilities, advise owners of
project based Section 8 properties of what their options are regarding the
renewal of Section 8 contracts, provide guidance and procedures to owners,
management agents, contract administrators and HUD staff concerning renewal of
Section 8 contracts, provide policies and procedures on setting renewal rents
and handling renewal rent adjustments and provide the requirements and
procedures for opting-out of a Section 8 project based contract. Registrant
cannot reasonably predict legislative initiatives and governmental budget
negotiations, the outcome of which
13
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
could result in a reduction in funds available for the various federal and state
administered housing programs including Section 8 program. Such changes could
adversely affect the future net operating income before debt service (NOI) and
debt structure of any or all Local Partnerships currently receiving such subsidy
or similar subsidies. Six Local Partnerships' Section 8 contracts, certain of
which cover only certain rental units, are currently subject to renewal under
applicable HUD guidelines. In addition, two Local Partnerships entered into
restructuring agreements during 2001, resulting in both a lower rent subsidy
(resulting in lower NOI) and lower mandatory debt service with no anticipated
material adverse impact to the operating results of the Properties through the
respective Compliance Periods.
The Local Partnerships have various financing structures which include (i)
required debt service payments ("Mandatory Debt Service") and (ii) debt service
payments which are payable only from available cash flow subject to the terms
and conditions of the notes, which may be subject to specific laws, regulations
and agreements with appropriate federal and state agencies ("Non-Mandatory Debt
Service or Interest"). During the nine months ended September 30, 2002, revenue
from operations of the Local Partnerships has generally been sufficient to cover
operating expenses and Mandatory Debt Service. Substantially all of the Local
Partnerships are effectively operating at or above break even levels, although
certain Local Partnerships' operating information reflects operating deficits
that do not represent cash deficits due to their mortgage and financing
structure and the required deferral of property management fees. However, as
discussed below, certain Local Partnerships' operating information indicates
below break even operations after taking into account their mortgage and
financing structure and any required deferral of property management fees.
Christian Street Associates Limited Partnership ("Christian Street") and
2000-2100 Christian Street Associates ("2000 Christian Street"), which Local
Partnerships have certain common general partner interests and a common first
mortgage lender, have experienced ongoing operating deficits. Under terms of the
partnership agreements, the Local General Partners exceeded their respective
operating deficit guarantees and, as of September 30, 1998, had advanced in
excess of $1,000,000 in the aggregate to Christian Street and 2000 Christian
Street. The Local General Partners approached the lender with the intention to
restructure the loans; however the lender indicated that in connection with any
such restructuring, the respective Local Partnerships would be responsible for
certain costs, which may be significant. If the Local General Partners were to
cease funding the operating deficits, Registrant would likely incur substantial
recapture of Low-income Tax Credits. Effective October 1, 1998, in an attempt to
avoid potential adverse tax consequences, Registrant and the Local General
Partners agreed to equally share the funding of operating deficits through June
30, 2000 in the case of Christian Street and through September 30, 2000 in the
case of 2000 Christian Street (the respective "Funding Agreements"). The Funding
Agreements have been extended through September 30, 2003. The Local General
Partners agreed to cause the management agent to accrue and defer its management
fees during the period of the Funding Agreements and the accrued management fees
are excluded when determining the operating deficits. Christian Street and 2000
Christian Street reported a combined operating deficit of approximately
$120,000, excluding accrued management fees of approximately $31,000, for the
nine months ended September 30, 2002. Under the terms of the Funding Agreements,
Registrant has advanced $255,411 as of December 30, 2002, of which $60,194 was
advanced during the nine months then ended. Payments on the mortgages and real
estate taxes are current. Registrant's investment balances in Christian Street
and 2000 Christian Street, after cumulative equity losses, became zero during
the year ended March 30, 1997 and advances made by Registrant have been offset
by additional equity in loss of investment in local partnerships. Christian
Street and 2000 Christian Street generated approximately $8.2 and approximately
$4.4 per Unit per year to the limited partners upon the expiration of their
Low-income Tax Credit allocations in 2000 and 2001, respectively.
The terms of the partnership agreement of College Avenue Apartments Limited
Partnership ("College Avenue") require the management agent to defer property
management fees in order to avoid a default under the mortgage. College Avenue
reported an operating deficit of approximately $27,000 for the nine months ended
September 30, 2002, which includes property management fees of approximately
$10,000. Registrant has made cumulative advances to College Avenue of $27,790 as
of December 30, 2002, of which $16,640 was advanced during the nine months then
ended. Payments on the mortgage and real estate taxes are current. Registrant's
investment balance in College Avenue, after cumulative equity losses, became
zero during the year ended March 30, 1999 and advances made by Registrant have
been offset by additional equity in loss of investment in local partnerships.
College Avenue generated approximately $1.2 per Unit per year to the limited
partners upon the expiration of its Low-income Tax Credit allocation in 2000.
14
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
As a result of increasing deficits and declining occupancy caused by
deteriorating physical conditions, Forest Village Housing Partnership ("Forest
Village") filed for protection under Chapter 11 of the federal Bankruptcy Code
in the United States Bankruptcy Court, Western District of Washington (the
"Court") on March 25, 1999. Forest Village filed a plan of reorganization (the
"Plan") that was confirmed by the Court on December 14, 1999. The terms of the
Plan called for Registrant to provide up to $500,000 (the "Bankruptcy Advance"),
all of which was previously funded, which Forest Village utilized to pay certain
obligations including all first mortgage arrears and certain secured and
unsecured creditors and to make necessary repairs to the complex. The Plan also
resulted in recasting the second mortgage and cumulative arrears over a new 30
year amortization period that reduced Forest Village's mandatory debt service by
approximately $77,000 per annum. In addition to the Bankruptcy Advance,
Registrant provided advances of $282,874 to Forest Village. Registrant's
investment balance in Forest Village, after cumulative equity losses, became
zero during the year ended March 30, 1995 and advances made by Registrant,
including the Bankruptcy Advance, were offset by additional equity in loss of
investment in local partnerships. Forest Village generated approximately $1.5
per Unit per year to the limited partners upon the expiration of its Low-income
Tax Credit allocation in 2001.
In May 2002, Forest Village sold its underlying Property for $2,600,000. The
combined statement of operations of the Local Partnerships for the nine months
ended September 30, 2002 included in Note 3 in the accompanying financial
statements reflects gain on sale of property of $964,614. The sale proceeds were
utilized to repay the outstanding mortgages in full, post a bond for the purpose
of avoiding Low-income Tax Credit recapture and repay Registrant for advances
noted above. Registrant has received $846,531 in connection with the sale and
the purchaser is required to continue to operate the Property as low-income
pursuant to Section 42 through the remainder of the Compliance Period. The
financial statements as of and for the nine months ended December 30, 2002
include gain on disposal of local partnership interest of $846,531 in connection
with Forest Village.
During the nine months ended September 30, 2002, Ann Ell Apartments Associates,
Ltd. ("Ann Ell") reported an operating deficit of approximately $47,000.
Registrant has made cumulative advances to Ann Ell of $409,545 as of December
30, 2002, of which $67,000 was advanced during the nine months then ended.
Payments on the mortgage and real estate taxes are current. Registrant's
investment balance in Ann Ell, after cumulative equity losses, became zero
during the year ended March 30, 1994 and advances made by Registrant have been
offset by additional equity in loss of investment in local partnerships. Ann Ell
generated approximately $1.7 per Unit per year to the limited partners upon the
expiration of its Low-income Tax Credit allocation in 2001.
The terms of the partnership agreement of Summers Village Limited Partnership
("Summers Village") require the management agent to defer property management
fees in order to avoid a default under the mortgage. During the nine months
ended September 30, 2002, Summers Village incurred an operating deficit of
approximately $14,000, which includes property management fees of approximately
$5,000. Payments on the mortgage and real estate taxes are current. Summers
Village generated less than $1 per Unit per year to the limited partners upon
the expiration of its Low-income Tax Credit allocation in 2000.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires Registrant to
make certain estimates and assumptions. The following section is a summary of
certain aspects of those accounting policies that may require subjective or
complex judgments and are most important to the portrayal of Registrant's
financial condition and results of operations. Registrant believes that there is
a low probability that the use of different estimates or assumptions in making
these judgments would result in materially different amounts being reported in
the financial statements.
o Registrant accounts for its investment in local partnerships in
accordance with the equity method of accounting since Registrant
cannot control the operations of a Local Partnership.
o If the book value of Registrant's investment in a Local Partnership
exceeds the estimated value derived by management, Registrant reduces
its investment in any such Local Partnership and includes such
reduction in equity in loss of investment in local partnerships.
15
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Registrant has invested a significant portion of its working capital reserves in
corporate bonds, U.S. Treasury instruments and U.S. government and agency
securities. The market value of such investments is subject to fluctuation based
upon changes in interest rates relative to each investment's maturity date and
the associated bond rating. Since Registrant's investments in bonds have various
maturity dates through 2008, the value of such investments may be adversely
impacted in an environment of rising interest rates in the event Registrant
decides to liquidate any such investment prior to its maturity. Although
Registrant may utilize reserves to assist an under performing Property, it
otherwise intends to hold such investments to their respective maturities.
Therefore, Registrant does not anticipate any material adverse impact in
connection with such investments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
a. Within the 90 days prior to the date of this report, Registrant's Chief
Executive Officer and Chief Financial Officer carried out an evaluation of
the effectiveness of Registrant's "disclosure controls and procedures" as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and
15(d)-14(c)). Based on that evaluation, Registrant's Chief Executive Officer
and Principal Financial Officer have concluded that as of the date of the
evaluation, Registrant's disclosure controls and procedures were adequate and
effective in timely alerting them to material information relating to
Registrant required to be included in Registrant's periodic SEC filings.
Changes in Internal Controls
b. There were no significant changes in Registrant's internal controls or in
other factors that could significantly affect Registrant's internal controls
subsequent to the date of that evaluation.
16
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 2. Changes in Securities
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
Exhibit 99.1 Certification of Chief Executive Officer
Exhibit 99.2 Certification of Chief Financial Officer
b. Reports on Form 8-K
None
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.
AMERICAN TAX CREDIT PROPERTIES II L.P.
(a Delaware limited partnership)
By: Richman Tax Credit Properties II L.P.,
General Partner
by: Richman Tax Credits Inc.,
general partner
Dated: February 13, 2003 /s/ David Salzman
------------------------------
by: David Salzman
Chief Executive Officer
Dated: February 13, 2003 /s/ Neal Ludeke
-----------------------------
by: Neal Ludeke
Chief Financial Officer
18
CERTIFICATIONS
I, David Salzman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Tax Credit
Properties II L.P. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date (the "Evaluation Date") within 90 days prior
to the filing date of this quarterly report; and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003 /s/ David Salzman
------------------------------
by: David Salzman
Chief Executive Officer
of Richman Tax Credits
Inc., general partner
of Richman Tax Credit
Properties II L.P.,
general partner of the
Company
19
I, Neal Ludeke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Tax Credit
Properties II L.P. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officer and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date (the "Evaluation Date") within 90 days prior
to the filing date of this quarterly report; and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the Evaluation Date, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 13, 2003 /s/ Neal Ludeke
----------------------------
by: Neal Ludeke
Chief Financial Officer
of Richman Tax Credits
Inc., general partner
of Richman Tax Credit
Properties II L.P.,
general partner of the
Company
20