FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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: 0-21895
WNC HOUSING TAX CREDIT FUND V, L.P., Series 3
California 33-6163848
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
WNC HOUSING TAX CREDIT FUND V, L.P., Series 3
17782 Sky Park Circle
Irvine, CA 92614-6404
(Address of principal executive offices)
(714) 662-5565
(Telephone number)
3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626
(Former name, former address and former fiscal year, if changed since last
report) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--------- ----------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes No X
--------- ----------
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
INDEX TO FORM 10-Q
For the Quarterly Period Ended June 30, 2003
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
June 30, 2003 and March 31, 2003...........................3
Statements of Operations
For the Three Months Ended June 30, 2003 and 2002..........4
Statement of Partners' Equity (Deficit)
For the Three Months Ended June 30, 2003....................5
Statements of Cash Flows
For the Three Months Ended June 30, 2003 and 2002..........6
Notes to Financial Statements...............................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................17
Item 3. Quantitative and Qualitative Disclosures
about Market Risk...........................................20
Item 4. Controls and Procedures.....................................20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................21
Item 6. Exhibits and Reports on Form 8-K............................21
Signatures...........................................................22
Certifications.......................................................23
2
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
BALANCE SHEETS
June 30, 2003 March 31, 2003
----------------------- ---------------------
(unaudited)
ASSETS
Cash and cash equivalents $ 29,055 $ 18,348
Investments in limited partnerships, net (Note 3) 6,442,064 6,780,198
Advances to limited partnership (Note 6) 133,268 133,268
----------------------- ---------------------
$ 6,604,387 $ 6,931,814
======================= =====================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued expenses $ 4,000 $ 4,000
Accrued fees and expenses due to
General Partner and affiliates (Note 4) 296,664 273,603
----------------------- ---------------------
Total liabilities 300,664 277,603
----------------------- ---------------------
Commitments and Contingencies (Note 6)
Partners' equity (deficit):
General Partner (112,454) (108,949)
Limited Partners (25,000 units authorized and
18,000 units issued and outstanding) 6,416,177 6,763,160
----------------------- ---------------------
Total partners' equity 6,303,723 6,654,211
----------------------- ---------------------
$ 6,604,387 $ 6,931,814
======================= =====================
See accompanying notes to financial statements
3
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2003 and 2002
(unaudited)
2003 2002
------------------------ ----------------------------
Three Months Three Months
------------------------ ----------------------------
Interest income $ 22 $ 249
Distribution income 6,874 -
Other income 3,311 -
------------------------ ----------------------------
Total income 10,207 249
------------------------ ----------------------------
Operating expenses:
Amortization (Note 3) 9,645 9,645
Asset management fees (Note 4) 12,375 12,375
Legal and accounting fees 5,559 8,479
Other 5,127 5,760
------------------------ ----------------------------
Total operating expenses 32,706 36,259
------------------------ ----------------------------
Loss from operations (22,499) (36,010)
Equity in losses of limited
partnerships (Note 3) (327,989) (269,024)
------------------------ ----------------------------
Net loss $ (350,488) $ (305,034)
======================== ============================
Net loss allocated to:
General partner $ (3,505) $ (3,050)
======================== ============================
Limited partners $ (346,983) $ (301,984)
======================== ============================
Net loss per limited partner unit $ (19) $ (17)
======================== ============================
Outstanding weighted limited
partner units 18,000 18,000
======================== ============================
See accompanying notes to financial statements
4
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the Three Months Ended June 30, 2003
(unaudited)
General Limited
Partner Partners Total
------------------- ------------------- -------------------
Partners' equity (deficit) at March 31, 2003 $ (108,949) $ 6,763,160 $ 6,654,211
Net loss (3,505) (346,983) (350,488)
------------------- ------------------- -------------------
Partners' equity (deficit) at June 30, 2003 $ (112,454) $ 6,416,177 $ 6,303,723
=================== =================== ===================
See accompanying notes to financial statements
5
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2003 and 2002
(unaudited)
2003 2002
---------------- -----------------
Cash flows from operating activities:
Net loss $ (350,488) $ (305,034)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 9,645 9,645
Equity in losses of limited partnerships 327,989 269,024
Change in accrued expenses - 2,066
Advances to limited partnership - (50,000)
Accrued fees and expenses due to
General Partner and affiliates 23,061 18,539
---------------- -----------------
Net cash used in operating activities 10,207 (55,760)
---------------- -----------------
Cash flows from investing activities:
Distributions from limited partnerships 500 3,706
---------------- -----------------
Net cash provided by investing activities 500 3,706
---------------- -----------------
Net increase (decrease) in cash and cash equivalents 10,707 (52,054)
Cash and cash equivalents, beginning of period 18,348 78,098
---------------- -----------------
Cash and cash equivalents, end of period $ 29,055 $ 26,044
================ =================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes paid $ - $ 800
================ =================
See accompanying notes to financial statements
6
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
General
- -------
The accompanying condensed unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act
of 1934. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended June 30, 2003 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2004. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the fiscal year ended March 31,
2003.
Organization
- ------------
WNC Housing Tax Credit Fund V, L.P., Series 3 ("the Partnership") is a
California Limited Partnership formed under the laws of the State of California
on March 28, 1995, and commenced operations on October 24, 1995. The Partnership
was formed to acquire limited partnership interests in other limited
partnerships or limited liability companies ("Local Limited Partnerships") which
own multifamily apartment complexes that are eligible for low-income housing
federal and, in some cases, California income tax credits (the "Low-income
Housing Credit").
WNC & Associates, Inc. ("Associates") is the general partner of the Partnership
(the "General Partner"). The chairman and president own substantially all of the
outstanding stock of Associates. The business of the Partnership is conducted
primarily through the General Partner as the Partnership has no employees of its
own.
The Partnership shall continue in full force and effect until December 31, 2050
unless terminated prior to that date pursuant to the partnership agreement or
law.
The financial statements include only activities relating to the business of the
Partnership, and do not give effect to the assets that the partners may have
outside of their interests in the Partnerships, or to any obligations, including
income taxes, of the partners.
The partnership agreement authorized the sale of up to 25,000 units at $1,000
per Unit ("Units"). The offering of Units concluded in January 1996, at which
time 18,000 Units representing subscriptions in the amount of $17,558,985, net
of $441,015 of discounts for volume purchases, had been accepted. The General
Partner has 1% interest in operating profits and losses, taxable income and
losses, cash available for distribution from the Partnership and tax credits.
The limited partners will be allocated the remaining 99% of these items in
proportion to their respective investments.
After the limited partners have received proceeds from a sale or refinancing
equal to their capital contributions and their return on investment (as defined
in the Partnership Agreement) and the General Partner has received proceeds
equal to its capital contribution and a subordinated disposition fee (as
described in Note 3) from the remainder, any additional sale or refinancing
proceeds will be distributed 90% to the limited partners (in proportion to their
respective investments) and 10% to the General Partner.
7
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Risks and Uncertainties
- -----------------------
An investment in the Partnership and the Partnership's investments in Local
Limited Partnerships and their Housing Complexes are subject to risks. These
risks may impact the tax benefits of an investment in the Partnership, and the
amount of proceeds available for distribution to the Limited Partners, if any,
on liquidation of the Partnership's investments. Some of those risks include the
following:
The Low-Income Housing Credit rules are extremely complicated. Noncompliance
with these rules results in the loss of future Low-Income Housing Credit s and
the fractional recapture of Low-Income Housing Credits already taken. In most
cases the annual amount of Low-Income Housing Credits that an individual can use
is limited to the tax liability due on the person's last $25,000 of taxable
income. The Local Limited Partnerships may be unable to sell the Housing
Complexes at a profit. Accordingly, the Partnership may be unable to distribute
any cash to its investors. Low-Income Housing Credits may be the only benefit
from an investment in the Partnership.
The Partnership has invested in a limited number of Local Limited Partnerships.
Such limited diversity means that the results of operation of each single
Housing Complex will have a greater impact on the Partnership. With limited
diversity, poor performance of one Housing Complex could impair the
Partnership's ability to satisfy its investment objectives. Each Housing Complex
is subject to mortgage indebtedness. If a Local Limited Partnership failed to
pay its mortgage, it could lose its Housing Complex in foreclosure. If
foreclosure were to occur during the first 15 years, the loss of any remaining
future Low-Income Housing Credits, a fractional recapture of prior Low-Income
Housing Credits, and a loss of the Partnership's investment in the Housing
Complex would occur. The Partnership is a limited partner or non-managing member
of each Local Limited Partnership. Accordingly, the Partnership will have very
limited rights with respect to management of the Local Limited Partnerships. The
Partnership will rely totally on the Local General Partners. Neither the
Partnership's investments in Local Limited Partnerships, nor the Local Limited
Partnerships' investments in Housing Complexes, are readily marketable. To the
extent the Housing Complexes receive government financing or operating
subsidies, they may be subject to one or more of the following risks:
difficulties in obtaining tenants for the Housing Complexes; difficulties in
obtaining rent increases; limitations on cash distributions; limitations on
sales or refinancing of Housing Complexes; limitations on transfers of interests
in Local Limited Partnerships; limitations on removal of Local General Partners;
limitations on subsidy programs; and possible changes in applicable regulations.
Uninsured casualties could result in loss of property and Low-Income Housing
Credits and recapture of Low-Income Housing Credits previously taken. The value
of real estate is subject to risks from fluctuating economic conditions,
including employment rates, inflation, tax, environmental, land use and zoning
policies, supply and demand of similar properties, and neighborhood conditions,
among others.
The ability of Limited Partners to claim tax losses from the Partnership is
limited. The IRS may audit the Partnership or a Local Limited Partnership and
challenge the tax treatment of tax items. The amount of Low-Income Housing
Credits and tax losses allocable to the investors could be reduced if the IRS
were successful in such a challenge. The alternative minimum tax could reduce
tax benefits from an investment in the Partnership. Changes in tax laws could
also impact the tax benefits from an investment in the Partnership and/or the
value of the Housing Complexes.
No trading market for the Units exists or is expected to develop. Investors may
be unable to sell their Units except at a discount and should consider their
Units to be a long-term investment. Individual investors will have no recourse
if they disagree with actions authorized by a vote of the majority of Limited
Partners.
8
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Exit Strategy
- -------------
The IRS compliance period for low-income housing tax credit properties is
generally 15 years from occupancy following construction or rehabilitation
completion. WNC was one of the first in the industry to offer investments using
the tax credit. Now these very first programs are completing their compliance
period.
With that in mind, the Partnership is continuing to review the Partnership's
holdings, with special emphasis on the more mature properties including those
that have satisfied the IRS compliance requirements. The Partnership's review
will consider many factors including extended use requirements on the property
(such as those due to mortgage restrictions or state compliance agreements), the
condition of the property, and the tax consequences to the investors from the
sale of the property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, the Partnership expects to proceed with
efforts to liquidate those properties. The Partnership's objective is to
maximize the investors' return wherever possible and, ultimately, to wind down
those funds that no longer provide tax benefits to investors. To date no
properties in the Partnership have been selected.
Method of Accounting For Investments in Limited Partnerships
- ------------------------------------------------------------
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnerships' results of operations
and for any contributions made and distributions received. The Partnership
reviews the carrying amount of an individual investment in a Local Limited
Partnership for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such investment may not be recoverable.
Recoverability of such investment is measured by a comparison of the carrying
amount to future undiscounted net cash flows expected to be generated. If an
investment is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the investment exceeds
fair value. The accounting policies of the Local Limited Partnerships are
generally consistent with those of the Partnership. Costs incurred by the
Partnership in acquiring the investments are capitalized as part of the
investment account and are being amortized over 30 years (see Note 2).
Losses from Local Limited Partnerships for the periods ended June 30, 2003 and
2002 have been recorded by the Partnership based on three months of results
estimated by management of the Partnership. Management's estimate for the
three-month period is based on either actual unaudited results reported by the
Local Limited Partnerships or historical trends in the operations of the Local
Limited Partnerships. Equity in losses from Local Limited Partnerships allocated
to the Partnership will not be recognized to the extent that the investment
balance would be adjusted below zero. As soon as the investment balance reaches
zero, amortization of the related costs of acquiring the investment are
accelerated to the extent of losses available.
Offering Expenses
- -----------------
Offering expenses consist of underwriting commissions, legal fees, printing,
filing and recordation fees, and other costs incurred in connection with selling
limited partnership interests in the Partnership. The General Partner is
obligated to pay all offering and organization costs in excess of 15% (including
sales commissions) of the total offering proceeds. Offering expenses are
reflected as a reduction of limited partners' capital and amounted to $2,132,000
at the end of all periods presented.
9
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all highly liquid investments with remaining maturity
of three months or less when purchased to be cash equivalents. The Partnership
had no cash equivalents at the end of all periods presented.
Net Loss Per Limited Partner Unit
- ---------------------------------
Net loss per limited partner unit is calculated pursuant to Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Net loss per unit
includes no dilution and is computed by dividing loss available to limited
partners by the weighted average number of units outstanding during the period.
Calculation of diluted net loss per unit is not required.
Reporting Comprehensive Income
- ------------------------------
The Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income established standards for the reporting and display of
comprehensive income (loss) and its components in a full set of general-purpose
financial statements. The Partnership had no items of other comprehensive income
for all periods presented, as defined by SFAS No. 130.
New Accounting Pronouncements
- -----------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations", which requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred with the associated asset retirement costs being capitalized as a part
of the carrying amount of the long-lived asset. SFAS No. 143 also includes
disclosure requirements that provide a description of asset retirement
obligations and reconciliation of changes in the components of those
obligations. The statement is effective for fiscal years beginning after June
15, 2002. The adoption of SFAS No. 143 did not have a material impact on the
Partnerhip's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which addresses accounting and financial reporting for the
impairment or disposal of long-lived assets. This standard was effective for the
Partnership's financial statements beginning January 1, 2002. The implementation
of SFAS No. 144 did not have a material impact on the Partnership's financial
position or results of operations.
10
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
New Accounting Pronouncements, continued
- ----------------------------------------
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 rescinded three previously issued statements and amended SFAS No.
13, "Accounting for Leases." The statement provides reporting standards for debt
extinguishments and provides accounting standards for certain lease
modifications that have economic effects similar to sale-leaseback transactions.
The statement is effective for certain lease transactions occurring after May
15, 2002 and all other provisions of the statement shall be effective for
financial statements issued on or after May 15, 2002. The implementation of SFAS
No. 145 did not have a material impact on the Partnership's financial position
or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which updates accounting and reporting
standards for personnel and operational restructurings. The Partnership adopted
SFAS No. 146 for exit, disposal or other restructuring activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a material
effect on the Partnership's financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The adoption of FIN 45 did not have a
material impact on the Partnership's finacial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment to SFAS No. 123." SFAS
No. 148 provides alternative methods of transition for a voluntary change to the
fair value based method on accounting for stock-based employee compensation. The
adoption of SFAS No. 148 did not have a material impact on the Partnership's
financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." The adoption of FIN 46 did not
have a material impact on the Partnership's financial position or results of
operations.
NOTE 2 - UNCERTAINTY WITH RESPECT TO INVESTMENTS IN ALLIANCE, EVERGREEN AND
- --------------------------------------------------------------------------------
HASTINGS: IMPAIRMENT OF INVESTMENTS
- -----------------------------------
The Partnership had investments accounted for under the equity method,
consisting of 99% limited partnership interests in each of Alliance Apartments
I, Limited Partnership ("Alliance"), Evergreen Apartments I, Limited Partnership
("Evergreen") and Hastings Apartments I, Limited Partnership ("Hastings").
During the year ended March 31, 2000, Alliance, Evergreen and Hastings were
experiencing operational difficulties and negative cash flows from operations,
and ceased paying their lenders. Foreclosure procedures were commenced by two of
these Local Limited Partnerships' lenders. Management performed an evaluation of
the Partnership's remaining investment balances in Alliance, Evergreen and
Hastings, including the cash advances noted above and other anticipated costs
and determined that an impairment adjustment was necessary. An impairment loss
of $995,804 was recognized at March 31, 2000. This impairment loss included
$644,589 in remaining book value of the Partnership's investments in Alliance,
Evergreen and Hastings, $205,080 and $74,631 of cash advances, a $50,000 accrual
for anticipated legal costs, and $21,504 of estimated accounting and other
related costs.
As a result of the foregoing, the Partnership, Alliance, Hastings, and a WNC
subsidiary executed a work-out agreement with their lender (the "Agreement"),
which was effective December 14, 2001. The balance of the indebtedness due and
owing to the lender by Alliance was satisfied by the execution of two promissory
notes. The first note totals $116,000, bears interest at 7% per annum, and
requires principal and interest payments totaling $800 per month through
February 2011, at which date the unpaid principal balance is due. The second
note totals $328,000, bears interest at 1% per annum, and has payments due
monthly out of available cash flow, as defined, with the unpaid principal
balance due February 2011. The balance of the indebtedness due and owing to the
lender by Hastings was also satisfied by the execution of two promissory notes.
The first note totals $165,000, bears interest at 7% per annum, and requires
principal and interest payments totaling $1,100 per month through September
2011, at which date the unpaid principal is due. The second note totals
$261,000, bears interest at 1% per
11
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 2 - UNCERTAINTY WITH RESPECT TO INVESTMENTS IN ALLIANCE, EVERGREEN AND
- --------------------------------------------------------------------------------
HASTINGS: IMPAIRMENT OF INVESTMENTS, continued
- ----------------------------------------------
annum, and has payments due monthly out of available cash flow, as defined, with
the unpaid principal balance due September 2011. The Partnership and a WNC
subsidiary have executed a guarantee for the payment of both notes of Alliance
and Hastings. In addition, several other commitments were made. Alliance and
Hastings executed a grant deed to the lender in the event that either entity
defaults under the terms and provisions of the notes. The deeds are held in
escrow, and if Alliance or Hastings defaults on either note, the lender may, at
its option, record the respective deed. In addition, the Partnership has
assigned the lender as additional collateral its residual value interests, as
defined, in all of the Local Limited Partnerships. The Partnership and the Local
Limited Partnerships are prohibited from selling, assigning, transferring or
further encumbering the Housing Complexes retained by each Local Limited
Partnership.
As a result of the operating difficulties mentioned above, there is uncertainty
as to additional costs, if any, that the Partnership may incur in connection
with its investment in Alliance and Hastings and as to whether the Partnership
will ultimately retain its interest in these Local Limited Partnerships. In the
event the Partnership does not successfully retain its interest in Alliance and
Hastings, the Partnership would be exposed to the cessation and recapture of the
related tax credits. The Partnership's financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
On July 19, 2001, Evergreen's Housing Complex was sold for a gross sales price
of $1,300,000, which after payment of its outstanding loans and closing costs,
yielded net proceeds to the Partnership of approximately $170,000 in the form of
a return of advances. As the investment in Evergreen together with cash advances
had been previously impaired, the entire proceeds were reflected as a gain on
sale of investments in Limited Partnerships of $169,691, for the period ended
March 31, 2002. Due to the sale of the property, approximately $428,000
(unaudited) of tax credits are no longer available to the Partnership's
investors ($23.80 per Limited Partner Unit). In addition, there can be no
assurance that tax credits and loss deductions previously taken will not be
subject to recapture in the future.
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
As of June 30, 2003, the Partnership has limited partnership interests in 17
Local Limited Partnerships, each of which owns one Housing Complex consisting of
an aggregate of 1,120 apartment units. The respective general partners of the
Local Limited Partnerships manage the day to day operations of the entities.
Significant Local Limited Partnership business decisions require approval from
the Partnership. The Partnership, as a limited partner, is generally entitled to
99%, as specified in the Local Limited Partnership agreements, of the operating
profits and losses, taxable income and losses and tax credits of the Local
Limited Partnerships, except for one of the investments in which it is entitled
to 49.49% of such amounts.
As of September 8, 2003, the Partnership had not obtained audited financial
statements for one of its investments, Cascade Pines, L.P., II ("Cascade
Pines"), as of and for the year ended December 31, 2002. As a result, the
Partnership has not included the financial information of Cascade Pines in the
combined condensed financial statements presented herein. The Partnership's
investment in Cascade Pines totaled $0 (unaudited) at June 30, 2003 and March
31, 2003. The Partnership's estimate of its interest in the results of
operations of Cascade Pines totaled $(1,239,000) (unaudited) for the year ended
March 31, 2003, of which it recorded $567,000 (unaudited) to reduce its
investment in Cascade to zero. The Partnership's estimate of its interest in the
results of operations of Cascade Pines for the three months ended June 30, 2003
totaled $(74,000) (unaudited).
Equity in losses of Local Limited Partnerships is recognized in the financial
statements until the related investment account is reduced to a zero balance.
Losses incurred after the investment account is reduced to zero are not
recognized. If the Local Limited Partnerships report net income in future years,
the Partnership will resume applying the equity method only after its share of
such net income equals the share of net losses not recognized during the
period(s) the equity method was suspended.
Distributions received by limited partners are accounted for as a reduction of
the investment balance. Distributions received after the investment has reached
zero are recognized as income.
12
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
Following is a summary of the equity method activity of the investments in Local
Limited Partnerships for the periods presented below:
For the Three Months For the Year
Ended Ended
June 30, 2003 March 31, 2003
------------------------- ---------------------
Investments in limited partnerships - beginning of period $ 6,780,198 $ 8,970,406
Equity in losses of limited partnerships (327,989) (2,146,243)
Distributions received from limited partnerships (500) (5,385)
Amortization of paid capitalized acquisition fees and costs (9,645) (38,580)
------------------------- ---------------------
Investments in limited partnerships - end of period $ 6,442,064 $ 6,780,198
========================= =====================
Selected information for the three months ended June 30, 2003 and 2002 from the
unaudited combined condensed financial statements of the limited partnerships in
which the Partnership has invested are as follows (Combined condensed financial
information for Cascade Pines was previously included in the 2002 presentation
but has now been excluded in the periods presented below. See above for further
discussion):
COMBINED CONDENSED STATEMENT OF OPERATIONS
2003 2002
---------------- ------------------
(Restated)
Revenue $ 895,000 $ 994,000
---------------- ------------------
Expenses:
Interest expense 247,000 269,000
Depreciation 326,000 329,000
Operating expenses 686,000 613,000
---------------- ------------------
Total expenses 1,259,000 1,211,000
---------------- ------------------
Net loss before Cascade loss $ (364,000) $ (217,000)
================ ==================
Net loss allocable to the Partnership before Cascade loss $ (354,000) $ (202,000)
Cascade Pine loss $ (74,000) $ (90,000)
---------------- ------------------
Total net losses $ (428,000) $ (292,000)
================ ==================
Net loss recorded by the Partnership $ (328,000) $ (269,000)
================ ==================
13
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
Certain Local Limited Partnerships have incurred significant operating losses
and have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership and/or the Local General Partner may be
required to sustain the operations of such Local Limited Partnerships. If
additional capital contributions are not made when they are required, the
Partnership's investment in certain of such Local Limited Partnerships could be
impaired and the loss and recapture of the related tax credits could occur.
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Partnership has no officers, employees, or directors. However, under the
terms of the Partnership Agreement the Partnership is obligated to the General
Partner or Associates for the following fees:
(a) Annual Asset Management Fee. An annual asset management fee of the greater
of (i) $2,000 per multi-family housing complex or (ii) 0.275% of Gross
Proceeds. The base fee amount will be adjusted annually based on changes in
the Consumer Price Index. However, in no event will the annual asset
management fee exceed 0.2% of Invested Assets. "Invested Assets" means the
sum of the Partnership's Investments in Local Limited Partnerships and the
Partnership's allocable share of the amount of mortgages on and other
indebtedness related to the Housing Complexes. Asset management fees of
$12,375 were incurred during each of the three months ended June 30, 2003
and 2002. The Partnership paid the General Partner or its affiliates $0 of
these fees during the three months ended June 30, 2003 and 2002.
(b) A subordinated disposition fee in an amount equal to 1% of the sales price
of real estate sold. Payment of this fee is subordinated to the limited
partners receiving a preferred return of 14% through December 31, 2006 and
6% thereafter (as defined in the Partnership Agreement) and is payable only
if the General Partner or its affiliates render services in the sales
effort.
The accrued fees and expenses due to the General Partner and affiliates
consisted of the following as of:
June 30, 2003 March 31, 2003
------------------------- ----------------------
Reimbursements for expenses paid by the
General Partner or an affiliate $ 148,164 $ 137,478
Asset management fee payable 148,500 136,125
------------------------- ----------------------
Total $ 296,664 $ 273,603
========================= ======================
NOTE 5 - INCOME TAXES
- ---------------------
No provision for income taxes has been recorded in the accompanying financial
statements, as any liability for income taxes is the obligation of the partners
of the Partnership.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
During 2000, WNC identified a potential problem with a developer who, at the
time, was the local general partner in nine Local Limited Partnerships. The
Partnership has 99% limited partnership investments in nine of those nine Local
Limited Partnerships. Those investments are Alliance Apartments I, Evergreen
Apartments I and Hastings Apartments I. All the properties continue to
experience operating deficits. The local general partner ceased funding the
operating deficits, which placed the Local Limited Partnerships in jeopardy of
foreclosure. Consequently, WNC voted to remove the local general partner and the
management company from the Local Limited Partnerships. After the local general
partner contested its removal, WNC commenced legal action on behalf of the Local
Limited Partnerships and was successful in getting a receiver
14
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
appointed to manage the Local Limited Partnerships and an unaffiliated entity
appointed as property manager. WNC was subsequently successful in attaining a
summary judgment to confirm the removal of the local general partner, the
receiver was discharged and WNC now controls all nine of the Local Limited
Partnerships.
The nine Local Limited Partnerships (hereinafter referred to as "Defendants")
were defendants in a separate lawsuit. The lawsuit was filed by eight other
partnerships in which the local general partner of the Local Limited
Partnerships is or was involved (the "Plaintiffs"). The Plaintiffs allege that
the local general partner accepted funds from the Plaintiffs and improperly
loaned these funds to the Defendants. In July 2001, this lawsuit was settled for
an aggregate amount of $35,000. The Partnerships allocated share of $17,500 had
been accrued in full at March 31, 2001 and paid in full at March 31, 2002. The
Partnership has a lawsuit against the old general partner.
The Partnership has a 99% limited partnership investment in Cascade Pines, L.P.
II ("Cascade"). Cascade is a defendant in a wrongful death lawsuit and related
injury lawsuits. Cascade carries general liability and extended liability
insurance. The wrongful death claim has been compromised, released and
dismissed. Liability insurance covered the settlement. In the related injury
lawsuits, the insurers for both the general liability, limited to $2 million,
and extended liability insurance, limited to a further $15 million, have
acknowledged coverage for the potential loss, should the outcome be unfavorable.
Discovery for the related injury lawsuits is ongoing; management of Cascade and
WNC are unable to determine the outcome of these lawsuits at this time or their
impact, if any, on the Partnership's financial statements. Should Cascade be
unsuccessful in its defense and the insurance coverage proves to be inadequate,
Cascade's assets could be subject to an adverse judgment. This could result in
the loss of the Cascade investment, which could result in the recapture of tax
credits and certain prior tax deductions. The carrying value of its investment
in Cascade is $0 at June 30, 2003. The accompanying financial statements do not
reflect any adjustments that may result from any unfavorable outcome that may
occur upon the ultimate resolution of this uncertainty. The lender has issued a
notice of default as of August 2003.
One Local Limited Partnership, Patten Towers L.P. II ("Patten Towers"), in which
the Partnership owns a 99% interest, has a promissory note payable aggregating
approximately $6,025,000 as of June 30, 2003 which was funded with proceeds from
the issuance of Multifamily Housing Revenue Bonds as of December 31, 2001.
Patten Towers failed to make timely principal payments of approximately $233,000
for the year ended December 31, 2001 in accordance with the note payable.
Consequently, the Local Limited Partnership is in default of its bond covenants
and the property could be foreclosed on by the Bond Trustee to satisfy its
obligations under the bonds. These conditions raise substantial doubt as to the
Local Limited Partnership's ability to continue as a going concern. Patten
Towers is working to refinance the property and to payoff the bonds, but as of
September 8, 2003 the past due principal payments owed have not been paid, and
the bonds are fully payable under the event of default. The lender is working
with Patten Towers to assist in improving property operations and has held off
pursuing foreclosure action against the property. There can be no assurances
that Patten Towers will be successful in its refinancing. Accordingly, Patten
Towers is subject to the risk of foreclosure and sale of the property by the
lender, which would result in the loss and potential recapture of certain tax
losses and the tax credits. As a result, there is an uncertainty as to the
Partnership's ability to ultimately realize the carrying value of its investment
in Patten Towers, which approximated $617,000 at June 30, 2003. The accompanying
financial statements do not reflect any adjustments that may result from any
unfavorable outcome that may occur upon the ultimate resolution of this
uncertainty. At June 30, 2003, the Partnership had advanced $133,268 to Patten
Towers to facilitate a workout plan. A promissory note was executed by the
Partnership and Patten Towers for the aforementioned advances totaling $133,268
plus interest equal to 10% per annum, payable by Patten Towers on demand or by
August 9, 2012.
15
WNC HOUSING CREDIT FUND V, L.P. SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2003
(unaudited)
NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
The Partnership has a 99% limited partnership investment in Heritage Apartments,
L.P. ("Heritage"). Heritage is a defendant in several wrongful death lawsuits
and related injury lawsuits. Heritage carries general liability and extended
liability insurance. Discovery for these lawsuits is ongoing, but the management
of Heritage and WNC are unable to determine the outcome of these lawsuits at
this time or their impact, if any, on the Partnership's financial statements.
Should Heritage be unsuccessful in its defense and the insurer denies coverage
or the insurance coverage proves to be inadequate, the Partnership may be
required to sell its investment or may otherwise lose its investment in Heritage
which approximated $476,000 at June 30, 2003. Loss of the Heritage investment
could result in the cessation and recapture of tax credits and certain prior tax
deductions.
One Local Limited Partnership, Hastings Apartments I, L.P. ("Hastings"),
received a default notice on a loan to the City of Hastings (the "City"). An
affiliate of the sponsor has been named the successor general partner of
Hastings. WNC is negotiating with the City to re-amortize the loan.
The Partnership currently has insufficient working capital to fund its
operations. WNC & Associates, Inc. has agreed to provide advances sufficient
enough to fund the operations and working capital requirements of the
Partnership through November 1, 2004.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
With the exception of the discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other discussions elsewhere in this Form 10-Q contain
forward-looking statements. Such statements are based on current expectations
subject to uncertainties and other factors, which may involve known and unknown
risks that could cause actual results of operations to differ materially from
those projected or implied. Further, certain forward-looking statements are
based upon assumptions about future events, which may not prove to be accurate.
Risks and uncertainties inherent in forward-looking statements include, but are
not limited to, our future cash flows and ability to obtain sufficient
financing, level of operating expenses, conditions in the low-income housing tax
credit property market and the economy in general, as well as legal proceedings.
Historical results are not necessarily indicative of the operating results for
any future period.
Subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by
cautionary statements in this Form 10-Q and in other reports we filed with the
Securities and Exchange Commission. The following discussion should be read in
conjunction with the condensed Financial Statements and the Notes thereto
included elsewhere in this filing.
The following discussion and analysis compares the results of operations for the
three months ended June 30, 2003 and 2002, and should be read in conjunction
with the condensed financial statements and accompanying notes included within
this report.
Uncertainty and Commitments with Respect to Investments in Alliance, Evergreen
and Hastings
The Partnership has two investments accounted for under the equity method,
consisting of 99% limited partnership interests in each of Alliance Apartments
I, Limited Partnership ("Alliance") and Hastings Apartments I, Limited
Partnership ("Hastings"), and previously had a 99% limited partnership
investment in Evergreen Apartments I, Limited Partnership ("Evergreen").
During the year ended March 31, 2000, Alliance, Evergreen and Hastings were
experiencing operational difficulties and negative cash flows from operations,
and ceased paying their lenders. Foreclosure procedures were commenced by these
nine Local Limited Partnerships' lenders. Management performed an evaluation of
the Partnership's remaining investment balances in Alliance, Evergreen and
Hastings, including any anticipated costs and determined that an impairment
adjustment was necessary. An impairment loss of $995,804 was recognized at March
31, 2000. This impairment loss included $644,589 in remaining book value of the
Partnership's investments in Alliance, Evergreen and Hastings, $205,080 and
$74,631 of cash advances, a $50,000 accrual for anticipated legal costs, and
$21,504 of estimated accounting and other related costs.
As a result of the foregoing, the Partnership, Alliance, Hastings, and a WNC
subsidiary executed a work-out agreement with their lender (the "Agreement"),
which was effective December 14, 2001. The balance of the indebtedness due and
owing to the lender by Alliance was satisfied by the execution of two promissory
notes. The first note totals $116,000, bears interest at 7% per annum, and
requires principal and interest payments totaling $800 per month through
February 2011, at which date the unpaid principal balance is due. The second
note totals $328,000, bears interest at 1% per annum, and has payments due
monthly out of available cash flow, as defined, with the unpaid principal
balance due February 2011. The balance of the indebtedness due and owing to the
lender by Hastings was also satisfied by the execution of two promissory notes.
The first note totals $165,000, bears interest at 7% per annum, and requires
principal and interest payments totaling $1,100 per month through September
2011, at which date the unpaid principal is due. The second note totals
$261,000, bears interest at 1% per annum, and has payments due monthly out of
available cash flow, as defined, with the unpaid principal balance due September
2011. The Partnership and a WNC subsidiary have executed a guarantee for the
payment of both notes of Alliance and Hastings. In addition, several other
commitments were made. Alliance and Hastings executed a grant deed to the lender
in the event that either entity defaults under the terms and provisions of the
notes. The deeds are held in escrow, and if Alliance or Hastings defaults on
either note, the lender may, at its option, record the respective deed. In
addition, the Partnership has given the lender as additional collateral all of
its residual value interests, as defined, in all of the Local Limited
Partnerships. The Partnership and the Local Limited Partnerships are prohibited
from selling, assigning, transferring or further encumbering the Housing
Complexes retained by each Local Limited Partnership.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Uncertainty and Commitments with Respect to Investments in Alliance, Evergreen
and Hastings, continued
As a result of the operating difficulties mentioned above, there is uncertainty
as to additional costs, if any, that the Partnership may incur in connection
with its investment in Alliance and Hastings and as to whether the Partnership
will ultimately retain its interest in these Local Limited Partnerships. In the
event the Partnership does not successfully retain its interest in Alliance and
Hastings, the Partnership would be exposed to the cessation and recapture of the
related tax credits. The Partnership's financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
On July 19, 2001, Evergreen's Housing Complex was sold for a gross sales price
of $1,300,000, which after payment of its outstanding loans and closing costs,
yielded net proceeds to the Partnership of approximately $170,000 in the form of
a return of advances. As the investment in Evergreen together with cash advances
had been previously impaired, the entire proceeds were reflected as a gain on
sale of investments in Local Limited Partnerships of $169,691, for the period
ended March 31, 2002. Due to the sale of the property, approximately $428,000
(unaudited) of tax credits are no longer available to the Partnership's
investors ($23.80 per Limited Partner Unit). In addition, there can be no
assurance that tax credits and loss deductions previously taken will not be
subject to recapture in the future.
Uncertainty with Respect to Investments in Cascade, Patten Towers and Heritage
The Partnership has a 99% limited partnership investment in Cascade Pines, L.P.
II ("Cascade"). Cascade is a defendant in a wrongful death lawsuit and related
injury lawsuits. Cascade carries general liability and extended liability
insurance. The wrongful death claim has been compromised, released and
dismissed. Liability insurance covered the settlement. In the related injury
lawsuits, the insurers for both the general liability, limited to $2 million,
and extended liability insurance, limited to a further $15 million, have
acknowledged coverage for the potential loss, should the outcome be unfavorable.
Discovery for the related injury lawsuits is ongoing; management of Cascade and
WNC are unable to determine the outcome of these lawsuits at this time or their
impact, if any, on the Partnership's financial statements. Should Cascade be
unsuccessful in its defense and the insurance coverage proves to be inadequate,
Cascade's assets could be subject to an adverse judgment. This could result in
the loss of the Cascade investment, which could result in the recapture of tax
credits and certain prior tax deductions. The carrying value of its investment
in Cascade is $0 at June 30, 2003. The Partnership's financial statements,
presented elsewhere herein, do not reflect any adjustments that may result from
any unfavorable outcome that may occur upon the ultimate resolution of this
uncertainty.
One Local Limited Partnership, Patten Towers L.P. II ("Patten Towers"), in which
the Partnership owns a 99% interest, has a promissory note payable aggregating
approximately $6,025,000 which was funded with proceeds from the issuance of
Multifamily Housing Revenue Bonds as of December 31, 2001. Patten Towers failed
to make timely principal payments of approximately $200,000 for the year ended
December 31, 2002 in accordance with the note payable. Consequently, the Local
Limited Partnership is in default of its bond covenants and the property could
be foreclosed on by the Bond Trustee to satisfy its obligations under the bonds.
These conditions raise substantial doubt as to the Local Limited Partnership's
ability to continue as a going concern. Patten Towers is working to refinance
the property and to payoff the bonds, but as of September 8, 2003 the past due
principal payments owed have not been paid, and the bonds are fully payable
under the event of default. The lender is working with Patten Towers to assist
in improving property operations and has held off pursuing foreclosure action
against the property. There can be no assurances that Patten Towers will be
successful in its refinancing. Accordingly, Patten Towers is subject to the risk
of foreclosure and sale of the property by the lender, which would result in the
loss and potential recapture of certain tax losses and the tax credits. As a
result, there is an uncertainty as to the Partnership's ability to ultimately
realize the carrying value of its investment in Patten Towers, which
approximated $617,000 at June 30, 2003. The Partnership's financial statements,
presented elsewhere herein, do not reflect any adjustments that may result from
any unfavorable outcome that may occur upon the ultimate resolution of this
uncertainty. At June 30, 2003, the Partnership had advanced $133,268 to Patten
Towers to facilitate a workout plan. A promissory note was executed by the
Partnership and Patten Towers for the aforementioned advance totaling $132,473
plus interest equal to 10% per annum, payable by Patten Towers on demand or by
August 9, 2012.
The Partnership has a 99% limited partnership investment in Heritage Apartments,
L.P. ("Heritage"). Heritage is a defendant in several wrongful death lawsuits
and related injury lawsuits. Heritage carries general liability and extended
liability insurance. Discovery for these lawsuits is ongoing, but the management
of Heritage and WNC are unable to determine the outcome of these lawsuits at
this time or their impact, if any, on the Partnership's financial statements.
Should Heritage be unsuccessful in its defense and the insurer denies coverage
or the insurance coverage proves to be inadequate, the Partnership may be
required to sell its investment or may otherwise lose its investment in Heritage
which approximated $476,000 at June
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Uncertainty with Respect to Investments in Cascade, Patten Towers and Heritage,
continued
30, 2003. Loss of the Heritage investment could result in the cessation and
recapture of tax credits and certain prior tax deductions.
Financial Condition
The Partnership's assets at June 30, 2003 consisted primarily of $29,000 in
cash, a receivable of $133,000 and aggregate investments in the seventeen Local
Limited Partnerships of $6,442,000. Liabilities at June 30, 2003 primarily
consisted of $152,000 of accrued expenses and $149,000 of accrued asset
management fees and expenses payable to the General Partner and affiliates.
Results of Operations
Three months ended June 30, 2003 Compared to Three months Ended June 30, 2002.
The Partnership's net loss for the three months ended June 30, 2003 was
$(350,000), reflecting an increase of $45,000 from the net loss experienced for
the three months ended June 30, 2002 of $(305,000). The $45,000 increase in net
loss is primarily due to an increase in equity in losses of Local Limited
Partnerships of $59,000 to $(328,000) for the three months ended June 30, 2003
from $(269,000) for the three months ended June 30, 2002. The increase in equity
in losses of limited partnerships was offset by a decrease in loss from
operations of $14,000 to $(22,000) for the three months ended June 30, 2003 from
$(36,000) for the three months ended June 30, 2002 due to an increase in total
income of $10,000 and decreases in legal and accounting fees of $3,000 and other
expenses of $1,000 for the three months ended June 30, 2003.
Cash Flows
Three months ended June 30, 2003 Compared to Three months Ended June 30, 2002.
Net increase in cash during the three months ended June 30, 2003 was $11,000
compared to a net decrease in cash for the three months ended June 30, 2002 of
$(52,000). The $63,000 increase was due largely to an increase in cash provided
by operating activities of $66,000, which was offset by a decrease in
distributions of $(3,000) for the three months ended June 30, 2003.
During the three months ended June 30, 2003, accrued payables, which consist of
related party management fees and reimbursements due to the General Partner and
accrued expenses, increased by $23,000. The General Partner does not anticipate
that the accrued fees and reimbursements will be paid until such time as capital
reserves are in excess of foreseeable working capital requirements of the
partnership.
The Partnership does not expect its future cash flows, together with its
available net assets at June 30, 2003 to be sufficient to meet all currently
foreseeable future cash requirements. Accordingly the General Partner has agreed
to provide advances sufficient to fund the operations and working capital
requirements of the Partnership through November 1, 2004.
19
Item 3. Quantitative and Qualitative Disclosures Above Market Risks
NOT APPLICABLE
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, the General
Partner of the Partnership carried out an evaluation, under the
supervision and with the participation of the General Partnership's
management, including the General Partner's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures
pursuant to Exchange Act Rule 13a- 14. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
Partnership's disclosure controls and procedures are effective. There
were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
20
Part II. Other Information
Item 1. Legal Proceedings
During 2000, Associates identified a potential problem with a
developer who, at the time, was the local general partner in nine
Local Limited Partnerships. The Partnership has a 99% limited
partnership interest in nine of those nine Local Limited Partnerships.
Those investments are Alliance Apartments I, Evergreen Apartments I
and Hastings Apartments I. All the properties continue to experience
operating deficits. The local general partner ceased funding the
operating deficits, which placed the Local Limited Partnerships in
jeopardy of foreclosure. Consequently, Associates voted to remove the
local general partner and the management company from the Local
Limited Partnerships. After the local general partner contested its
removal, Associates commenced legal action on behalf of the Local
Limited Partnerships and was successful in getting a receiver
appointed to manage the Local Limited Partnerships and an unaffiliated
entity appointed as property manager. Associates was subsequently
successful in attaining a summary judgment to confirm the removal of
the local general partner, the receiver was discharged and Associates
now controls all nine of the Local Limited Partnerships.
The Partnership has a 99% limited partnership investment in Cascade
Pines, L.P. II ("Cascade"). Cascade is a defendant in a wrongful death
lawsuit and related injury lawsuits. Cascade carries general liability
and extended liability insurance. The wrongful death claim has been
compromised, released and dismissed. Liability insurance covered the
settlement. In the related injury lawsuits, the insurers for both the
general liability, limited to $2 million, and extended liability
insurance, limited to a further $15 million, have acknowledged
coverage for the potential loss, should the outcome be unfavorable.
Discovery for the related injury lawsuits is ongoing, but the
management of Cascade and WNC are unable to determine the outcome of
these lawsuits at this time or their impact, if any, on the
Partnership's financial statements.
The Partnership has a 99% limited partnership investment in Heritage
Apartments, L.P. ("Heritage"). Heritage is a defendant in several
wrongful death lawsuits and related injury lawsuits. Heritage carries
general liability and extended liability insurance. Discovery for
these lawsuits is ongoing, but the management of Heritage and WNC are
unable to determine the outcome of these lawsuits at this time or
their impact, if any, on the Partnership's financial statements.
Should Heritage be unsuccessful in its defense and the insurer denies
coverage or the insurance coverage proves to be inadequate, the
Partnership may be required to sell its investment or may otherwise
lose its investment in Heritage. Loss of the Heritage investment could
result in the cessation and recapture of tax credits and certain prior
tax deductions.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K.
--------------------
1. NONE
(b) Exhibits.
---------
99.1 Certification of the Principal Executive Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002. (filed herewith)
99.2 Certification of the Principal Financial Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002. (filed herewith)
21
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.
WNC HOUSING TAX CREDIT FUND V, L.P., Series 3
By: WNC & ASSOCIATES, INC. General Partner
By: /s/ Wilfred N Cooper, Jr.
-------------------------
Wilfred N Cooper, Jr.
President and Chief Executive Officer of WNC & Associates, Inc.
Date: September 8, 2003
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha
Vice President and Chief Financial Officer of WNC & Associates, Inc.
Date: September 8, 2003
22
CERTIFICATIONS
I, Wilfred N. Cooper, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of WNC Housing
Tax Credit Fund V, L.P. Series 3;
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 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: September 8, 2003
/s/ Wilfred N. Cooper, Jr.,
---------------------------
President and Chief Executive Officer of WNC & Associates, Inc.
23
CERTIFICATIONS
I, Thomas J. Riha, certify that:
1. I have reviewed this quarterly report on Form 10-Q of WNC Housing
Tax Credit Fund V, L.P. Series 3;
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 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: September 8, 2003
/s/ Thomas J. Riha
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Vice-President - Chief Financial Officer of WNC & Associates, Inc.
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