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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 29, 2003
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
----------------- --------------
Commission file number: 0-17619
American Tax Credit Properties L.P.
------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3458875
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Richman Tax Credit Properties 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 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 L.P.
BALANCE SHEETS
(UNAUDITED)
June 29, March 30,
Notes 2003 2003
----- -------- ---------
ASSETS
Cash and cash equivalents $ 132,525 $ 112,459
Restricted cash 2 278,257
Marketable equity securities 2 29,850
Investments in bonds 2 813,038 1,222,323
Investment in local partnerships 3 895,782 1,182,145
Interest receivable 7,449 29,706
----------- -----------
$ 2,156,901 $ 2,546,633
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 74,836 $ 127,263
Payable to general partner and affiliates 160,062 79,004
----------- -----------
234,898 206,267
----------- -----------
Commitments and contingencies 3
Partners' equity (deficit)
General partner (347,127) (342,205)
Limited partners (41,286 units of limited
partnership interest outstanding)
interest outstanding) 2,204,401 2,691,695
Accumulated other comprehensive income 2
(loss), net 64,729 (9,124)
----------- -----------
1,922,003 2,340,366
$ 2,156,901 $ 2,546,633
=========== ===========
See Notes to Financial Statements.
3
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 2003 AND 2002
(UNAUDITED)
Notes 2003 2002
----- ---------- ---------
REVENUE
Interest $ 19,565 $ 15,199
Other income from local partnerships 8,750
--------- ---------
TOTAL REVENUE 19,565 23,949
--------- ---------
EXPENSES
Administration fee 45,931 45,931
Management fee 43,867 43,867
Professional fees 13,064 15,568
State of New Jersey filing fee 13,099
Printing, postage and other 12,107 8,002
---------- ---------
TOTAL EXPENSES 128,068 113,368
---------- ---------
Loss from operations (108,503) (89,419)
Loss on conversion of bond to marketable
equity security (66,150)
Equity in loss of investment in local
partnerships 3 (317,563) (36,196)
---------- ---------
NET LOSS (492,216) (125,615)
Other comprehensive income, net 2 73,853 7,914
---------- ---------
COMPREHENSIVE LOSS $(418,363) $(117,701)
========== =========
NET LOSS ATTRIBUTABLE TO
General partner $ (4,922) $ (1,256)
Limited partners (487,294) (124,359)
---------- ---------
$(492,216) $(125,615)
========== =========
NET LOSS per unit of limited partnership
interest (41,286 units of limited partnership
interest) $ (11.80) $ (3.01)
========== =========
See Notes to Financial Statements.
4
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 29, 2003 AND 2002
(UNAUDITED)
2003 2002
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 38,960 $ 50,971
Cash paid for
administration fee (8,740) (8,659)
professional fees (498) (53,266)
State of New Jersey filing fee (78,593)
printing, postage and other expenses (11,606) (12,290)
---------- ----------
Net cash used in operating activities (60,477) (23,244)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in local partnerships (31,200)
Transfer to restricted cash (278,257)
Cash distributions from local partnerships 135,890
Investments in bonds (includes accrued interest of $ 198) (249,573)
Maturities/redemptions and sales of bonds 390,000 251,000
---------- ----------
Net cash provided by investing activities 80,543 137,317
--------- ---------
Net increase in cash and cash equivalents 20,066 114,073
Cash and cash equivalents at beginning of period 112,459 223,677
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 132,525 $ 337,750
========= =========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Investment in marketable equity security $ 29,850
=========
Unrealized gain on investments in bonds, net $ 73,853 $ 7,914
========= =========
_______________________________________________________________________________
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 L.P.
STATEMENTS OF CASH FLOWS - (Continued)
THREE MONTHS ENDED JUNE 29, 2003 AND 2002
(UNAUDITED)
2003 2002
--------- ----------
RECONCILIATION OF NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES
Net loss $(492,216) $(125,615)
Adjustments to reconcile net loss to net cash used
in operating activities
Equity in loss of investment in local partnerships 317,563 36,196
Distributions from local partnerships classified as other income (8,750)
Loss on conversion of bond to marketable equity security 66,150
Amortization of net premium on investments in bonds 1,197 10,887
Accretion of zero coupon bonds (4,059) (4,059)
Decrease in interest receivable 22,257 28,944
Decrease in accounts payable and accrued expenses (52,427) (41,986)
Increase in due to general partner and affiliates 81,058 81,139
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES $ (60,477) $ (23,244)
See Notes to Financial Statements.
6
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 29, 2003
(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 June 29, 2003 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 months ended June 29, 2003 are not
necessarily indicative of the results that may be expected for the entire
year.
2. Investments in Bonds
As of June 29, 2003, certain information concerning investments in bonds is
as follows:
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
------------------------ ---------- ---------- ---------- ----------
Corporate debt securities
After one year through five years $116,081 $ 10,388 $ -- $126,469
-------- -------- -------- --------
U.S. Treasury debt securities
Within one year 333,058 21,113 -- 354,171
-------- -------- -------- --------
U.S. government and agency securities
After one year through five years 299,170 33,228 -- 332,398
-------- -------- -------- --------
$748,309 $ 64,729 $ -- $813,038
======== ======== ======== ========
The Partnership has provided collateral for a standby letter of credit in the
amount of $242,529 issued in connection with Cobbet Hill Associates Limited
Partnership ("Cobbet") under the terms of the financing documents whereby the
lender has required security for future operating deficits, if any, of
Cobbet. The letter of credit is secured by $278,257 in a segregated cash
account classified as restricted cash in the accompanying balance sheet as of
June 29, 2003. As of August 12, 2003, no amounts have been drawn under the
terms of the letter of credit.
In connection with the reorganization of an issuer of one of the
Partnership's investments in bonds, such investment was converted to a
marketable equity security. In connection with such conversion, the
Partnership recognized a loss of $66,150 as reflected in the accompanying
statement of operations for the three months ended June 29, 2003.
7
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 29, 2003
(UNAUDITED)
3. Investment in Local Partnerships
The Partnership originally acquired limited partnership interests in Local
Partnerships representing capital contributions in the aggregate amount of
$35,172,965, which includes advances made to certain Local Partnerships. As
of March 31, 2003, the Local Partnerships have outstanding mortgage loans
payable totaling approximately $72,473,000 and accrued interest payable on
such loans totaling approximately $5,987,000, which are secured by security
interests and liens common to mortgage loans on the Local Partnerships' real
property and other assets.
For the three months ended June 29, 2003, the investment in local
partnerships activity consists of the following:
Investment in local partnerships as of March
30, 2003 $ 1,182,145
Equity in loss of investment in local
partnerships (317,563) *
Advances to local partnerships 31,200
-----------
Investment in local partnerships as of June
29, 2003 $ 895,782
===========
*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 $894,698 for
the three months ended March 31, 2003 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 March
31, 2003 and December 31, 2002 and the combined unaudited statements of
operations of the Local Partnerships for the three months ended March 31,
2003 and 2002 are reflected on pages 9 and 10, respectively.
8
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 29, 2003
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of March 31, 2003
and December 31, 2002 are as follows:
March 31, December 31,
2003 2002
-------------- ---------------
ASSETS
Cash and cash equivalents $ 1,148,433 $ 1,563,601
Rents receivable 199,014 138,465
Escrow deposits and reserves 3,595,997 3,711,505
Land 3,850,061 3,850,061
Buildings and improvements (net of accumulated
depreciation of $53,120,045 and $52,143,396) 55,309,950 55,939,017
Intangible assets (net of accumulated amortization
of $841,545 and $824,571) 1,598,853 1,615,827
Other assets 990,647 990,098
------------ ------------
$ 66,692,955 $ 67,808,574
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 1,580,158 $ 1,469,731
Due to related parties 6,466,394 6,381,473
Mortgage loans 72,473,000 72,804,866
Notes payable 938,877 939,899
Accrued interest 5,986,559 5,804,195
Other liabilities 431,835 377,957
------------ ------------
87,876,823 87,778,121
------------ ------------
Partners' equity (deficit)
American Tax Credit Properties L.P.
Capital contributions, net of distributions 33,988,586 33,964,161
Cumulative loss (32,168,392) (31,850,829)
------------ ------------
1,820,194 2,113,332
------------ ------------
General partners and other limited partners
Capital contributions, net of distributions 599,824 599,824
Cumulative loss (23,603,886) (22,682,703)
------------ ------------
(23,004,062) (22,082,879)
------------ ------------
(21,183,868) (19,969,547)
------------ ------------
$ 66,692,955 $ 67,808,574
============ ============
9
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 29, 2003
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the three
months ended March 31, 2003 and 2002 are as follows:
2003 2002
REVENUE
Rental $ 3,816,781 $ 3,712,141
Interest and other 89,354 61,449
----------- -----------
TOTAL REVENUE 3,906,135 3,773,590
----------- -----------
EXPENSES
Administrative 643,197 605,813
Utilities 557,042 463,343
Operating and maintenance 1,052,749 811,736
Taxes and insurance 501,693 510,255
Financial 1,393,700 1,431,404
Depreciation and amortization 996,500 982,999
----------- -----------
TOTAL EXPENSES 5,144,881 4,805,550
----------- -----------
NET LOSS $(1,238,746) $(1,031,960)
============ ============
NET LOSS ATTRIBUTABLE TO
American Tax Credit Properties L.P. $ (317,563) $ (36,196)
General partners and other limited partners,
which includes $894,698 and $970,250 of
Partnership loss in excess of investment (921,183) (995,764)
------------ ------------
$(1,238,746) $(1,031,960)
============ ============
The combined results of operations of the Local Partnerships for the three
months ended March 31, 2003 are not necessarily indicative of the results
that may be expected for an entire operating period.
10
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 29, 2003
(UNAUDITED)
3. Investment in Local Partnerships (continued)
Cobbet was originally financed with a first mortgage with mandatory monthly
payment terms with the Massachusetts Housing Finance Agency ("MHFA") and a
second mortgage with MHFA under the State Housing Assistance for Rental
Production Program (the "SHARP Operating Loan") whereby proceeds would be
advanced monthly as an operating subsidy (the "Operating Subsidy Payments").
The terms of the SHARP Operating Loan called for declining Operating Subsidy
Payments over its term (not more than 15 years). However, due to the economic
condition of the Northeast region in the early 1990's, MHFA instituted an
operating deficit loan (the "ODL") program that supplemented the scheduled
reduction in the Operating Subsidy Payments. Effective October 1, 1997, MHFA
announced its intention to eliminate the ODL program, such that Cobbet no
longer receives the ODL, without which Cobbet is unable to make the full
mandatory debt service payments on its first mortgage. MHFA notified Cobbet
and, to the Local General Partners' knowledge, other ODL recipients as well,
that MHFA considers such mortgages to be in default. Since the date MHFA
ceased funding the ODL through March 31, 2003, Cobbet has accumulated
approximately $1,686,000 of principal and interest arrearages. On August 7,
2000, the Local General Partners met with MHFA to discuss future capital
improvements and the future of the Property. A contribution payment of
$300,000 was offered by the Partnership, utilizing Partnership and Local
General Partner funds, to help fund the capital improvements. As of June 29,
2003, the Partnership has advanced $150,000 and the Local General Partners
have advanced $125,000. MHFA approved all of the items on the agenda and
indicated a strong interest in pursuing a recapitalization of Cobbet. At
different times over the past few years, the Local General Partners answered
affirmatively to MHFA correspondence concerning the admission of Cobbet in a
recapitalization program, but Cobbet has not qualified due to its project
based Section 8 subsidy. The Partnership's investment balance in Cobbet,
after cumulative equity losses, became zero during the year ended March 30,
1994. By January 1, 2004 the Partnership will have no liability with respect
to Low-income Tax Credit recapture as a result of the Compliance Period
ending on December 31, 2003.
The Partnership advanced $31,200 during the three months ended June 29, 2003
to 4611 South Drexel Limited Partnership to fund operating deficits.
Cumulative advances as of June 29, 2003 are $456,466. 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, 2003 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, 2003 on file with the Securities and
Exchange Commission.
11
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
Material Changes in Financial Condition
- ---------------------------------------
As of June 29, 2003, American Tax Credit Properties L.P. (the "Registrant") has
not experienced a significant change in financial condition as compared to March
30, 2003. 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 three months ended June 29, 2003,
Registrant received cash from interest revenue and maturities/redemptions and
sales of bonds and utilized cash for operating expenses and advances to a Local
Partnership (see Local Partnership Matters below), which advances have been
recorded as investment in local partnerships. Cash and cash equivalents,
restricted cash, marketable equity securities and investments in bonds
decreased, in the aggregate, by approximately $81,000 during the three months
ended June 29, 2003 (which includes a net unrealized gain on investments in
bonds of approximately $74,000, amortization of net premium on investments in
bonds of approximately $1,000, accretion of zero coupon bonds of approximately
$4,000 and a loss of approximately $66,000 upon the conversion of a corporate
debt instrument to an equity security). 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
three months ended June 29, 2003, the investment in local partnerships decreased
as a result of Registrant's equity in the Local Partnerships' net loss for the
three months ended March 31, 2003 of $317,563, partially offset by advances made
to a Local Partnership of $31,200 (see discussion below under Local Partnership
Matters). Payable to general partner and affiliates in the accompanying balance
sheet as of June 29, 2003 represents accrued administration and management fees.
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. 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 June 29, 2003 and 2002
resulted in net losses of $492,216 and $125,615, respectively. The increase in
net loss is primarily the result of (i) an increase in the equity in loss of
investment in local partnerships of approximately $281,000, 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
(ii) a loss of approximately $66,000 during the three months ended June 29, 2003
on the conversion of an investment in bonds to a marketable equity security
resulting from the corporate restructuring of the bond issuer's debt. Other
comprehensive income for the three months ended June 29, 2003 and 2002 resulted
from a net unrealized gain in investments in bonds of $73,853 and $7,914,
respectively.
12
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
---------------------------------------------------------------
The Local Partnerships' net loss of approximately $1,239,000 for the three
months ended March 31, 2003 was attributable to rental and other revenue of
approximately $3,906,000, exceeded by operating and interest expenses (including
interest on non-mandatory debt) of approximately $4,148,000 and approximately
$997,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $1,032,000 for the three months ended March 31, 2002 was
attributable to rental and other revenue of approximately $3,774,000, exceeded
by operating and interest expenses (including interest on non-mandatory debt) of
approximately $3,823,000 and approximately $983,000 of depreciation and
amortization expense. The results of operations of the Local Partnerships for
the three months ended March 31, 2003 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 Year Credit Period"). The Ten Year
Credit Period was fully exhausted by all of the Properties 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").
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.
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 could result in a reduction in funds
available for the various federal and state administered housing programs
including the 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.
Two Local Partnerships' Section 8 contracts are currently subject to renewal
under applicable HUD guidelines. In addition, two Local Partnerships entered
into restructuring agreements in 2001, resulting in both a lower rent subsidy
(resulting in lower NOI) and lower mandatory debt service.
The Local Partnerships have various financing structures which include (i)
required debt service payments ("Mandatory Debt Service") and (ii) debt service
payments that 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 three months ended March 31, 2003, revenue
from operations of the Local Partnerships has generally been sufficient to cover
operating expenses and Mandatory Debt Service. Most 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.
13
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
---------------------------------------------------------------
4611 South Drexel Limited Partnership ("South Drexel") reported an operating
deficit of approximately $26,000 for the three ended March 31, 2003 due to
vacancies resulting from deferred unit maintenance and associated required
capital improvements. As of June 29, 2003, Registrant has advanced $456,466, of
which $31,200 was advanced during the three months then ended. Payments on the
mortgage and real estate taxes are current. Registrant's investment balance in
South Drexel, after cumulative equity losses, became zero during the year ended
March 30, 1996 and advances made by Registrant have been offset by additional
equity in loss of investment in local partnerships. South Drexel generated
approximately $1.7 per Unit per year of credits to the limited partners upon the
expiration of its Low-income Tax Credit allocation in 2000.
Cobbet Hill Associates Limited Partnership ("Cobbet") was originally financed
with a first mortgage with mandatory monthly payment terms with the
Massachusetts Housing Finance Agency ("MHFA") and a second mortgage with MHFA
under the State Housing Assistance for Rental Production Program (the "SHARP
Operating Loan") whereby proceeds would be advanced monthly as an operating
subsidy (the "Operating Subsidy Payments"). The terms of the SHARP Operating
Loan called for declining Operating Subsidy Payments over its term (not more
than 15 years). However, due to the economic condition of the Northeast region
in the early 1990's, MHFA instituted an operating deficit loan (the "ODL")
program that supplemented the scheduled reduction in the Operating Subsidy
Payments. Effective October 1, 1997, MHFA announced its intention to eliminate
the ODL program, such that Cobbet no longer receives the ODL, without which
Cobbet is unable to make the full mandatory debt service payments on its first
mortgage. MHFA notified Cobbet and, to the Local General Partners' knowledge,
other ODL recipients as well, that MHFA considers such mortgages to be in
default. Since the date MHFA ceased funding the ODL through March 31, 2003,
Cobbet has accumulated approximately $1,686,000 of principal and interest
arrearages. On August 7, 2000, the Local General Partners met with MHFA to
discuss future capital improvements and the future of the Property. A
contribution payment of $300,000 was offered by the Partnership, utilizing
Partnership and Local General Partner funds, to help fund the capital
improvements. As of June 29, 2003, the Partnership has advanced $150,000 and the
Local General Partners have advanced $125,000. MHFA approved all of the items on
the agenda and indicated a strong interest in pursuing a recapitalization of
Cobbet. At different times over the past few years, the Local General Partners
answered affirmatively to MHFA correspondence concerning the admission of Cobbet
in a recapitalization program, but Cobbet has not qualified due to its project
based Section 8 subsidy. The future financial viability of Cobbet is highly
uncertain. By January 1, 2004, Registrant will have no liability with respect to
Low-income Tax Credit recapture as a result of the Compliance Period ending on
December 31, 2003. The property's historic tax credit was allocated in 1988 and
all of the Low-income Tax Credits were allocated since 1989. The Registrant's
investment balance in Cobbet, after cumulative equity losses, became zero during
the year ended March 30, 1994. Cobbet generated approximately $19.2 per Unit per
year of credits to the limited partners upon the expiration of its Low-income
Tax Credit allocation in 1999.
Dunbar Limited Partnership ("Dunbar") and Dunbar Limited Partnership No. 2
("Dunbar 2") (collectively the "Dunbars"), which Local Partnerships have common
general partner interests and each of which restructured their respective
mortgage and housing assistance contracts under the mark to market program in
2001, incurred operating deficits for the three months ended March 31, 2003 of
approximately $39,000 and approximately $43,000, respectively. The Local General
Partner reports that during the process of the Dunbars' debt and subsidy
restructuring, certain operating expenses were not considered in the
underwriting budgets of the Properties when the Mandatory Debt Service and rents
were restructured. The Local General Partner is currently working with HUD and
the lenders to modify the loans and subsidy agreements in an effort to eliminate
or reduce the operating deficits. Payments on the mortgages and real estate
taxes are current. Registrant's investment balances in Dunbar and Dunbar 2,
after cumulative equity losses, became zero during the years ended March 30,
1998 and 1997, respectively. Dunbar and Dunbar 2 generated approximately $7.3
and approximately $8.2 per Unit per year to the limited partners upon the
expiration of their Low-income Tax Credit allocations in 1999. The Compliance
Period in connection with the Dunbars expires on December 31, 2003.
Grove Park Housing, A California Limited Partnership ("Grove Park") reported an
operating deficit of approximately $23,000 for the three months ended March 31,
2003. Payments on the mortgage and real estate taxes are current. Registrant's
investment balance in Grove Park, after cumulative equity losses, became zero
during the year ended March 30, 1995. Grove Park generated approximately $7.6
per Unit per year of credits to the limited partners upon the expiration of its
Low-income Tax Credit allocation in 1999.
14
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
----------------------------------------------------------------------
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 does
not 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.
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 2007, 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 Chief 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.
15
AMERICAN TAX CREDIT PROPERTIES 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; see Item 5 regarding mortgage defaults of a Local Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
As discussed in Part I, Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations, Cobbet Hill
Associates Limited Partnership ("Cobbet") is unable to make the full
mandatory debt service payments on its first mortgage as a result of
the lender's elimination of its operating deficit loan program. The
lender has notified Cobbet that the lender considers such mortgages to
be in default.
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
16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AMERICAN TAX CREDIT PROPERTIES L.P.
(a Delaware limited partnership)
By: Richman Tax Credit Properties L.P.,
General Partner
by: Richman Tax Credit Properties Inc.,
general partner
Dated: August 13, 2003 /s/ David Salzman
------------------------------
by: David Salzman
Chief Executive Officer
Dated: August 13, 2003 /s/ Neal Ludeke
------------------------------
by: Neal Ludeke
Chief Financial Officer
17
CERTIFICATIONS
I, David Salzman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Tax Credit
Properties L.P.
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
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant'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 registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, 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 registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); 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 registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of the registrant'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 registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant'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 registrant's internal
controls; and
6. The registrant'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 date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 13, 2003 /s/ David Salzman
--------------------------
David Salzman
Chief Executive Officer of
Richman Tax Credit
Properties Inc., general
partner of Richman Tax
Credit Properties L.P.,
general partner of the
Registrant
18
I, Neal Ludeke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Tax Credit
Properties L.P.
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
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant'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 registrant, 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 registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); 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 registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of the registrant'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 registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant'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 registrant's internal
controls; and
6. The registrant'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 date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 13, 2003 /s/ Neal Ludeke
-------------------------
Neal Ludeke
Chief Financial Officer of
Richman Tax Credit
Properties Inc., general
partner of Richman Tax
Credit Properties L.P.,
general partner of the
Registrant
19