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 December 31, 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: 0-20058
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
California 33-0316953
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
INDEX TO FORM 10 - Q
For the Quarter Ended December 31, 2003
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
December 31, 2003 and March 31, 2003..............................2
Statements of Operations
For the Three and Nine Months Ended December 31, 2003 and 2002....3
Statement of Partners' Deficit
For the Nine Months Ended December 31, 2003.......................4
Statements of Cash Flows
For the Nine Months Ended December 31, 2003 and 2002..............5
Notes to Financial Statements..........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................13
Item 3. Quantitative and Qualitative Disclosures About Market Risks...14
Item 4. Controls and Procedures.......................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................15
Item 6. Exhibits and Reports on Form 8-K..............................15
Signatures............................................................16
1
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
BALANCE SHEETS
December 31, 2003 March 31, 2003
----------------------- -------------------
(unaudited)
ASSETS
Cash and cash equivalents $ 5,242 $ 734
Investments in limited partnerships, net (Note 2) 371,052 453,314
----------------------- -------------------
$ 376,294 $ 454,048
======================= ===================
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accrued fees and expenses due to
General Partner and affiliates (Note 3) $ 1,402,828 $ 1,300,219
----------------------- -------------------
Commitments and contingencies
Partners' deficit:
General partner (75,107) (73,303)
Limited partners (10,000 units authorized,
7,450 units issued and outstanding) (951,427) (772,868)
----------------------- -------------------
Total partners' deficit: (1,026,534) (846,171)
----------------------- -------------------
$ 376,294 $ 454,048
======================= ===================
See accompanying notes to financial statements
2
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three and Nine Months ended December 31, 2003 and 2002
(unaudited)
2003 2003 2002 2002
Three Months Nine Months Three Months Nine Months
------------------- -------------------- ------------------ ------------------
Interest income $ 3 $ 7 $ 7 $ 43
Distribution income - 2,617 - 1,584
------------------- -------------------- ------------------ ------------------
3 2,624 7 1,627
------------------- -------------------- ------------------ ------------------
Operating expenses:
Amortization (Note 2) 1,365 4,077 1,356 4,068
Asset management fees (Note 3) 27,963 83,891 27,964 83,892
Legal and accounting 526 16,451 2,320 16,695
Other 519 2,267 589 3,481
------------------- -------------------- ------------------ ------------------
Total operating expenses 30,373 106,686 32,229 108,136
------------------- -------------------- ------------------ ------------------
Loss from operations (30,370) (104,062) (32,222) (106,509)
Equity in losses of
limited partnerships (Note 2) (25,434) (76,301) (25,738) (90,605)
------------------- -------------------- ------------------ ------------------
Net loss $ (55,804) $ (180,363) $ (57,960) $ (197,114)
=================== ==================== ================== ==================
Net loss allocated to:
General partner $ (558) $ (1,804) $ (579) $ (1,971)
=================== ==================== ================== ==================
Limited partners $ (55,246) $ (178,559) $ (57,381) $ (195,143)
=================== ==================== ================== ==================
Net loss per limited partnership unit (7) (24) (8) (26)
=================== ==================== ================== ==================
Outstanding weighted limited partner
units 7,450 7,450 7,450 7,450
=================== ==================== ================== ==================
See accompanying notes to financial statements
3
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' DEFICIT
For the Nine Months Ended December 31, 2003
(unaudited)
General Limited
Partner Partners Total
----------------- ---------------- ------------------
Partners' deficit at March 31, 2003 $ (73,303) $ (772,868) $ (846,171)
Net loss (1,804) (178,559) (180,363)
----------------- ---------------- ------------------
Partners' deficit at December 31, 2003 $ (75,107) (951,427) $ (1,026,534)
================= ================ ==================
See accompanying notes to financial statements
4
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended December 31, 2003 and 2002
(unaudited)
2003 2002
--------------------- ----------------
Cash flows from operating activities:
Net loss $ (180,363) $ (197,114)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Amortization 4,077 4,068
Equity in losses of limited partnerships 76,301 90,605
Change in accrued fees and expense due to
General Partner and affiliates 102,609 92,752
--------------------- ----------------
Net cash provided by (used in) operating
activities 2,624 (9,689)
--------------------- ----------------
Cash flows from investing activities:
Distributions from limited partnerships 1,884 3,166
--------------------- ----------------
Net increase (decrease) in cash and cash equivalents 4,508 (6,523)
Cash and cash equivalents, beginning of period 734 12,170
--------------------- ----------------
Cash and cash equivalents, end of period $ 5,242 $ 5,647
===================== ================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes paid $ - $ 800
===================== ================
See accompanying notes to financial statements
5
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarter Ended December 31, 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 and nine
months ended December 31, 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 California Housing Tax Credits, L.P., a California Limited Partnership (the
"Partnership"), was formed on September 15, 1988 under the laws of the State of
California. The Partnership was formed to invest primarily in other limited
partnerships (the "Local Limited Partnerships") which own and operate
multi-family housing complexes (the "Housing Complex") that are eligible for
low-income housing tax credits. The local general partners (the "Local General
Partners") of each Local Limited Partnership retain responsibility for
maintaining, operating and managing the Housing Complex.
WNC & Associates, Inc. ("Associates") and Wilfred N. Cooper, Sr. are the general
partners of the Partnership (the "General Partners"). The chairman and president
own substantially all of the outstanding stock of Associates. The business of
the Partnership is conducted primarily through the General Partners as the
Partnership has no employees of its own.
The Partnership shall continue to be in full force and effect until December 31,
2037 unless terminated prior to that date pursuant to the partnership agreement
or law.
The Partnership Agreement authorized the sale of up to 10,000 units at $1,000
per Unit ("Units"). The offering of Units concluded in October 1990 at which
time 7,450 Units representing subscriptions in the amount of $7,450,000, had
been accepted. The General Partners have a 1% interest in operating profits and
losses, taxable income and losses, in cash available for distribution from the
Partnership and tax credits of the Partnership. 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 investments (as defined
in the Partnership Agreement) and the General Partners have received proceeds
equal to their capital contributions from the remainder, any additional sale or
refinancing proceeds will be distributed 99% to the limited partners (in
proportion to their respective investments) and 1% to the General Partners.
6
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended December 31, 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.
7
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarter Ended December 31, 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 such as any 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. 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 and are being amortized over 30 years (see Note 2).
Equity in losses of Local Limited Partnerships for the periods ended December
31, 2003 and 2002 have been recorded by the Partnership based on nine months of
results estimated by management of the Partnership. Management's estimate for
the nine-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 of 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 is
accelerated to the extent of losses available (see Note 2).
Offering Expenses
- -----------------
Offering expenses consist of underwriting commissions, legal fees, printing,
filing and recordation fees, and other costs incurred with selling limited
partnership interests in the Partnership. WNC 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 $946,704 at the end of all periods
presented.
8
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarter Ended December 31, 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
maturities of three months or less when purchased to be cash equivalents. As of
December 31 and March 31, 2003, the Partnership had no cash equivalents.
Net Loss Per Limited Partner Unit
- ---------------------------------
Net loss per limited partnership 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 years presented, as defined by SFAS No. 130.
Impact of 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 effect on the
Partnership'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.
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.
9
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Impact of New Accounting Pronouncements, continued
- --------------------------------------------------
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 financial 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
implementation of SFAS No. 148 is not expected to have a material effect on the
Partnership's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46 ("FIN46"), "Consolidation
of Variable Interest Entities," FIN 46 provides guidance on when a company
should include the assets, liabilities, and activities of a variable interest
entity ("VIE") in its financial statements and when it should disclose
information about its relationship with a VIE. A VIE is a legal structure used
to conduct activities or hold assets, which must be consolidated by a company if
it is the primary beneficiary because it absorbs the majority of the entity's
expected losses, the majority of the expected returns, or both. The provisions
of FIN 46 were effective February 1, 2003 for all arrangements entered into
after January 31, 2003. FIN 46 is effective in the second quarter of 2004 for
those arrangements entered into prior to January 31, 2003. We are currently
reviewing whether we have relationships with VIEs and, if so, whether we should
consolidate them and disclose information about them as the primary beneficiary
or disclose information about them as an interest holder. We may have to
consolidate some of our equity investments in partnerships based on recent
interpretations from accounting professionals. We currently record the amount of
our investment in these partnerships as an asset on our balance sheet, recognize
our share of partnership income or losses in our income statement, and disclose
how we account for material types of these investments in our 2003 financial
statements. However, we do not yet know the extent of the impact of
consolidating the assets and liabilities of these partnerships on our balance
sheet because of the complexities of applying FIN 46, the evolving
interpretations from accounting professionals, and the nuances of each
individual partnership.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
As of the periods presented, the Partnership has acquired limited partnership
interests in eleven Local Limited Partnerships each of which owns one Housing
Complex consisting of an aggregate of 433 apartment units. The respective Local
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.
Equity in losses of the local limited partnerships is recognized in the
financial statements until the related investments account is reduced to a zero
balance. Losses incurred after the investments 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.
10
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
The following is a summary of the equity method activity of the investments in
Local Limited Partnerships for the periods presented:
For the Nine Months For the Year
Ended Ended
December 31, 2003 March 31, 2003
-------------------------- ---------------------
Investments per balance sheet,
beginning of period $ 453,314 $ 600,843
Equity in losses of limited
partnerships (76,301) (138,939)
Distributions received (1,884) (3,166)
Amortization of paid
acquisition fees and costs (4,077) (5,424)
-------------------------- ---------------------
Investments per balance sheet,
end of period $ 371,052 $ 453,314
========================== =====================
Selected financial information for the nine months ended December 31, 2003 and
2002 from the unaudited combined condensed financial statements of the limited
partnerships in which the partnership has invested is as follows:
COMBINED CONDENSED STATEMENTS OF OPERATIONS
2003 2002
--------------------- --------------------
Revenues $ 1,550,000 $ 1,452,000
--------------------- --------------------
Expenses
Interest expense 290,000 289,000
Depreciation & amortization 493,000 477,000
Operating expenses 1,094,000 1,045,000
--------------------- --------------------
Total expenses 1,877,000 1,811,000
--------------------- --------------------
Net loss $ (327,000) $ (359,000)
===================== ====================
Net loss allocable to the Partnership $ (324,000) $ (356,000)
===================== ====================
Net loss recorded by the Partnership $ (76,000) $ (91,000)
===================== ====================
11
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
Certain Local Limited Partnerships have incurred significant operating losses
and/or 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 Partners may be
required to sustain operations of such Local Limited Partnerships. If additional
capital contributions are not made when they are required, the Partnership's
investments in certain of such Local Limited Partnerships could be impaired, and
the loss and recapture of the related tax credits could occur.
NOTE 3 - 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 its affiliates during the current or future years for the following
fees:
(a) Annual Asset Management Fee. An annual asset management fee in an amount
equal to 0.5% of the Invested Assets of the Partnership, as defined.
"Invested Assets" means the sum of the Partnership's investments in Local
Limited Partnerships and the Partnership's allocable share of the amount of
the mortgage loans on and other debts related to the Housing Complexes
owned by such Local Limited Partnerships. Fees of $83,891 and $83,892 were
incurred during the nine months ended December 31, 2003 and 2002,
respectively. The Partnership paid the General Partners and or their
affiliates $0 of those fees during each ofthe nine months ended December
31, 2003 and 2002.
The accrued fees and expenses due to the General Partners and affiliates consist
of the following as of the dates indicated.
December 31, 2003 March 31, 2003
---------------------- -----------------
Reimbursement for expenses paid by the General
Partners and affiliates $ 28,408 $ 9,690
Asset management fee payable 1,374,420 1,290,529
---------------------- -----------------
$ 1,402,828 $ 1,300,219
====================== =================
The General Partners do not anticipate that the accrued fees will be paid until
such time as capital reserves are in excess of future foreseeable working
capital requirements of the Partnership.
The Partnership currently has insufficient working capital to fund its
operations. WNC has agreed to continue providing advances sufficient enough to
fund the operations and working capital requirements of the Partnership through
at least February 1, 2005.
NOTE 4 - INCOME TAXES
- ---------------------
No provision for income taxes has been made as the liability for income taxes is
an obligation of the partners of the Partnership.
12
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 Consolidated Financial Statements and the Notes thereto
included elsewhere in this filing.
The following discussion and analysis compares the results of operations for the
three and nine months ended December 31, 2003 and 2002, and should be read in
conjunction with the condensed consolidated financial statements and
accompanying notes included within this report.
Financial Condition
The Partnership's assets at December 31, 2003 consisted primarily of $5,000 in
cash and aggregate investments in the eleven Local Limited Partnerships of
$371,000. Liabilities at December 31, 2003 primarily consisted of $1,403,000 of
accrued asset management fees and expenses due to the General Partner and
affiliates.
Results of Operations
Three Months Ended December 31, 2003 Compared to the Three Months Ended December
31, 2002. The Partnership's net loss for the three months ended December 31,
2003 was $(56,000), reflecting a decrease of approximately $2,000 from the
$(58,000) net loss experienced for the three months ended December 31, 2002. The
decrease in net loss is due to operating expenses which decreased by $2,000 to
$30,000 for the three months ended December 31, 2003 from $32,000 for the three
months ended December 31, 2002.
Nine Months Ended December 31, 2003 Compared to the Nine Months Ended December
31, 2002. The Partnership's net loss for the nine months ended December 31, 2003
was $(180,000), reflecting a decrease of approximately $17,000 from the
$(197,000) net loss experienced for the nine months ended December 31, 2002. The
decline in net loss is primarily due to equity in losses from limited
partnerships which declined by $14,000 to $(76,000) for the nine months ended
December 31, 2003 from $(90,000) for the nine months ended December 31, 2002.
This decrease was a result of the Partnership not recognizing certain losses of
the Local Limited Partnerships. The investments in such Local Limited
Partnerships had reached $0 at December 31, 2003. Since the Partnership's
liability with respect to its investments is limited, losses in excess of
investments are not recognized. Additionally, operating expenses decreased by
$2,000 along with distribution income increasing by approximately $1,000.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Cash Flows
Nine Months Ended December 31, 2003 Compared to Nine Months Ended December 31,
2002. Net increase in cash during the nine months ended December 31, 2003 was
$4,000 compared to a net decrease in cash for the nine months ended December 31,
2002 of $(7,000). The $11,000 change was due primarily to an increase in accrued
fees and expense due to general partner and affiliates of $10,000, along with an
increase in distributions from limited partnerships of $1,000.
During the nine months ended December 31, 2003, accrued payables, which consist
primarily of related party management fees and advances due to the General
Partner, increased by $103,000. The General Partner does not anticipate that
these accrued fees and advances will be paid until such time as capital reserves
are in excess of foreseeable working capital requirements of the partnership.
The Partnership currently has insufficient working capital to fund its
operations. WNC has agreed to continue providing advances sufficient enough to
fund the operations and working capital requirements of the Partnership through
at least February 1, 2005.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
NOT APPLICABLE
Item 4. Controls and Procedures.
Within the 90 days prior to the date of this report, the General Partners of the
Partnership carried out an evaluation, under the supervision and with the
participation of Associates' management, including Associates' 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.
14
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K.
--------------------
1. A current report on Form 8-K was filed on behalf of the registrant on
November 4, 2003 reporting the resignation of the registrant's former
principal independent accountants, and the engagement of new principal
independent accountants under Item 4 of the Form 8-K. An amendment
thereto on Form 8-K/A was filed on November 10, 2003 and November 25,
2003 (under Item 7 and under Items 4 and 7, respectively) to file as
an exhibit the required letter from the former principal independent
accountants. Neither the initial report nor the amendments included
any financial statements.
(b) Exhibits.
---------
31.1 Certification of the Principal Executive Officer pursuant to Rule 13a
-15(e) and 15(d)-15(e), as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
31.2 Certification of the Principal Financial Officer pursuant to Rule
13a-15(e) and 15d-15(e), as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. (filed herewith)
32.1 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)
32.2 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)
15
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 CALIFORNIA HOUSING TAX CREDITS, L.P.
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: February 9, 2004
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha
Vice-President - Chief Financial Officer of WNC & Associates, Inc.
Date: February 9, 2004
16