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: 0-20057
WNC HOUSING TAX CREDIT FUND V, L.P., Series 4
California 33-0707612
(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 HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(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.......................3
Statements of Operations
For the Three and Nine Months Ended December 31, 2003
and 2002.................................................4
Statement of Partners' Equity (Deficit)
For the Nine Months Ended December 31, 2003................5
Statements of Cash Flows
For the Nine Months Ended December 31, 2003 and 2002.......6
Notes to Financial Statements ...............................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk..16
Item 4. Procedures and Controls.....................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................16
Item 6. Exhibits and Reports on Form 8-K...........................17
Signatures ........................................................18
2
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(A California Limited Partnership)
BALANCE SHEETS
December 31, 2003 March 31, 2003
---------------------- ---------------------
(unaudited)
ASSETS
Cash and cash equivalents $ 838,178 $ 1,006,242
Investments in limited partnerships net (Note 2) 11,474,789 12,237,450
Other assets 574 574
---------------------- ---------------------
$ 12,313,541 $ 13,244,266
====================== =====================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Payables to limited partnerships (Note 4) $ 139,906 $ 154,741
Accrued fees and expenses due to
General Partner and affiliates (Note 3) 24,446 18,451
---------------------- ---------------------
164,352 173,192
---------------------- ---------------------
Commitments and contingencies
Partners' equity (deficit):
General partner (97,569) (88,350)
Limited partners (22,000 units issued and outstanding) 12,246,758 13,159,424
---------------------- ---------------------
Total Partners' equity 12,149,189 13,071,074
---------------------- ---------------------
$ 12,313,541 $ 13,244,266
====================== =====================
See accompanying notes to financial statements
3
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended December 31, 2003 and 2002
(unaudited)
2003 2002
------------------------------------------ ---------------------------------------
Three Months Nine Months Three Months Nine Months
------------------- ----------------- ---------------- ----------------
Interest income $ 1,751 $ 5,992 $ 3,524 $ 14,982
Miscellaneous income 3,706 11,117 - -
------------------- ----------------- ---------------- ----------------
5,457 17,109 3,524 14,982
------------------- ----------------- ---------------- ----------------
Operating expenses:
Amortization (Note 2) 14,891 44,673 14,891 44,673
Asset management fees (Note 3) 15,125 45,375 15,125 45,375
Legal and accounting 1,231 20,905 2,355 15,906
Write-off advances to Local
Limited Partnerships 141,000 141,000 - -
Other 3,218 6,909 2,037 7,667
------------------- ----------------- ---------------- ----------------
Total operating expenses 175,465 258,862 34,408 113,621
------------------- ----------------- ---------------- ----------------
Loss from operations (170,008) (241,753) (30,884) (98,639)
Equity in losses of
limited partnerships (243,785) (680,132) (204,538) (613,614)
------------------- ----------------- ---------------- ----------------
Net loss $ (413,793) $ (921,885) $ (235,422) $ (712,253)
=================== ================= ================ ================
Net loss allocated to:
General partner $ (4,138) $ (9,219) $ (2,355) $ (7,123)
=================== ================= ================ ================
Limited partners $ (409,655) $ (912,666) $ (233,067) $ (705,130)
=================== ================= ================ ================
Net loss per weighted limited
partner units $ (19) $ (41) $ (11) $ (32)
=================== ================= ================ ================
Outstanding weighted limited
partner units 22,000 22,000 22,000 22,000
=================== ================= ================ ================
See accompanying notes to financial statements
4
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the Nine Months Ended December 31, 2003
(unaudited)
General Limited
Partner Partners Total
------------------- ----------------- ---------------
Partners' equity (deficit) at March 31, 2003 $ (88,350) $ 13,159,424 $ 13,071,074
Net loss (9,219) (912,666) (921,885)
------------------- ----------------- ---------------
Partners' equity (deficit) at December 31, 2003 $ (97,569) $ 12,246,758 $ 12,149,189
=================== ================= ===============
See accompanying notes to financial statements
5
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(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 $ (921,885) $ (712,253)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 44,673 44,673
Equity in losses of limited partnerships 680,132 613,614
Write-off of advances to Local Limited Partnerships 141,000 -
Change in accrued fees and expenses due
to General Partner and affiliates 5,995 (10,820)
-------------------- ----------------------
Net cash used in operating activities (50,085) (64,786)
-------------------- ----------------------
Cash flows from investing activities:
Payables to limited partnerships (14,835) (9,733)
Due from affiliate - (15,761)
Distributions from limited partnerships 37,856 20,953
Advances to Local Limited Partnerships (141,000) -
-------------------- ----------------------
Net cash provided by (used in) investing activities (117,979) (4,541)
-------------------- ----------------------
Net decrease in cash and cash equivalents (168,064) (69,327)
-------------------- ----------------------
Cash and cash equivalents, beginning of period 1,006,242 1,221,951
-------------------- ----------------------
Cash and cash equivalents, end of period $ 838,178 $ 1,152,624
==================== ======================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes Paid $ - $ 800
==================== ======================
See accompanying notes to financial statements
6
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(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 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 Housing Tax Credit Fund V, L.P., Series 4, a California Limited Partnership
(the "Partnership"), was formed on July 26, 1995 under the laws of the state of
California, and commenced operations on July 1, 1996. The Partnership was formed
to invest primarily in other limited partnerships and limited liability
companies (the "Local Limited Partnerships") which own and operate multi-family
housing complexes (the "Housing Complex") that are eligible for low-income
housing credits. The local general partners (the "Local General Partners") of
each Local Limited Partnership retain responsibility for maintaining, operating
and managing the Housing Complex.
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.
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 Associates as the Partnership has no employees of its own.
The financial statements include only activity relating to the business of the
Partnership, and do not give effect to the assets that the partners may have
outside of their interest in the Partnership, or to any obligations, including
income taxes, of the partner.
The partnership agreement authorized the sale of up to 25,000 units at $1,000
per Unit ("Units"). The offering of Units concluded on July 11, 1997 at which
time 22,000 Units representing subscriptions in the amount of $21,914,830, net
of discount of $79,550 for volume purchases and $5,620 for dealer discounts, had
been accepted. The General Partner has a 1% interest in operating profits and
losses, taxable income and losses and in 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 TAX CREDIT FUND V, L.P., SERIES 4
(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.
8
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(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 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 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 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 with selling limited
partnership interests in the Partnership. The General Partner is obligated to
pay all offering and organization costs in excess of 14.5% (including sales
commissions) of the total offering proceeds. Offering expenses are reflected as
a reduction of limited partners' capital and amounted to $2,960,328 at the end
of all periods presented.
9
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(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 maturity
of six months or less when purchased to be cash equivalents. As of December 31
and March 31, 2003, the Partnership had no cash equivalents.
Concentration of Credit Risk
- ----------------------------
At December 31, 2003 and March 31, 2003, the Partnership maintained cash
balances at a certain financial institution in excess of the federally insured
maximum.
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 income 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 TAX CREDIT FUND V, L.P., SERIES 4
(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
- --------------------------------------------------------------
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 ("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 had acquired limited partnership
interests in fourteen Local Limited Partnerships, each of which owns one Housing
Complex consisting of an aggregate of 785 apartment units. As of December 31 and
March 31, 2003, all construction or rehabilitation of the Housing Complexes was
completed. 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, as defined, require the approval from
the Partnership. The Partnership, as a limited partner, is generally
11
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- --------------------------------------------------------
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 49.5% of such amounts.
Equity in losses of the 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 from Local Limited Partnerships are accounted for as a
reduction of the investment balance. Distributions received after the investment
has reached zero are recognized as income.
The following is a summary of the equity method activity of the investment in
Local Limited Partnerships for the periods presented below:
For the Nine Months For the Year
Ended Ended
December 31, 2003 March 31, 2003
------------------------------ ------------------------
Investment per balance sheet, beginning of period $ 12,237,450 $ 13,261,486
Equity in losses of limited partnerships (680,132) (957,485)
Distributions received from limited partnerships (37,856) (6,987)
Amortization of capitalized acquisition fees and costs (44,673) (59,564)
------------------------------ ------------------------
Investment per balance sheet, end of period $ 11,474,789 $ 12,237,450
============================== ========================
12
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- --------------------------------------------------------
Selected financial information for the nine months ended December 31, 2003 and
2002 from the combined condensed financial statements of the limited
partnerships in which the partnership has invested is as follows:
2003 2002
------------------ ------------------
Revenues $ 2,624,000 $ 2,585,000
------------------ ------------------
Expenses:
Interest expense 684,000 706,000
Depreciation and amortization 957,000 939,000
Operating expenses 1,703,000 1,596,000
------------------ ------------------
Total Expenses 3,344,000 3,241,000
------------------ ------------------
Net loss $ (720,000) $ (656,000)
================== ==================
Net loss allocable to the Partnership $ (697,000) $ (614,000)
================== ==================
Net loss recognized by the Partnership $ (680,000) $ (614,000)
================== ==================
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 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 3- RELATED PARTY TRANSACTIONS
- ----------------------------------
Under the terms of the Partnership Agreement, the Partnership has paid or is
obligated to the General Partner or their affiliates for the following items:
(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 Investment in Local Limited Partnerships and the
Partnership's allocable share of the amount of indebtedness related to the
Housing complexes. Asset management fees of $45,375 were incurred for each
of the nine months ended December 31, 2003 and 2002. The Partnership paid
the General Partner or its affiliates $60,500 of these fees during each of
the nine months ended December 31, 2003 and 2002.
13
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarter Ended December 31, 2003
(unaudited)
NOTE 3- RELATED PARTY TRANSACTIONS, continued
- ---------------------------------------------
(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.
Accrued fees and advances due to affiliates of the General Partner included in
the balance sheet consist of the following at:
December 31 2003 March 31, 2003
---------------------- -------------------------
Advances by the General Partner or affiliates $ 1,804 $ 1,890
Due to Limited Partnership 21,206 -
Asset management fees payable 1,436 16,561
---------------------- -------------------------
Total accrued fees and expenses 3 due to
General Partner and affiliates $ 24,446 $ 18,451
====================== =========================
NOTE 4 - PAYABLES TO LIMITED PARTNERSHIPS
- -----------------------------------------
Payables to limited partnerships represent amounts, which are due at various
times based on conditions specified in the Local Limited Partnership agreements.
These contributions are payable in installments and are generally due upon the
limited partnerships achieving certain development and operating benchmarks
(generally within two years of the Partnership's initial investment).
NOTE 5 - 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.
NOTE 6 - WRITE-OFF OF ADVANCES TO LOCAL LIMITED PARTNERSHIPS
- ------------------------------------------------------------
Through December 31, 2003, the Partnership advanced cash in the amount of
$309,139 to two of the Local Limited Partnerships in which it has a limited
partnership interest. Of the $309,139 of advances, $168,139 was written off
during the year ended March 31, 2003 and $141,000 was written off durng the nine
months ended December 31, 2003. These advances were used to pay for repairs and
fund certain recurring and nonrecurring operating expenses. The Partnership
determined the recoverability of these advances to be doubtful and, accordingly,
fully reserved the amount due from the two Local Limited Partnerships.
14
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 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 financial statements and accompanying notes
included within this report.
Financial Condition
The Partnership's assets at December 31, 2003 consisted primarily of $838,000 in
cash and aggregate investments in the fourteen Local Limited Partnerships of
$11,475,000. Liabilities at December 31, 2003 consisted primarily of $140,000 of
payables to limited partnerships and $24,000 of accrued asset management fees
and reimbursements due to the General Partner and affiliates at December 31,
2003.
Results of Operations
Three Months Ended December 31, 2003 Compared to Three Months Ended December 31,
2002. The Partnership's net loss for the three months ended December 31, 2003
was $(414,000), reflecting an increase of $(178,000) from the $(236,000) of net
loss for the three months ended December 31, 2002. The increase in net loss is
due to an increase of equity in losses from limited partnerships, which
increased by approximately $(39,000) to $(244,000) for the three months ended
December 31, 2003 from $(205,000) for the three months ended December 31, 2002.
In addition to the increase in equity in losses from limited partnerships there
was an increase in loss from operations of $(139,000) to $(170,000), for the
three months ended December 31, 2003 from $(31,000) for the three months ended
December 31, 2002. The increase in loss from operations was primarily due to the
$(141,000) write-off in advances to two Local Limited Partnerships for the three
months ended December 31, 2003.
Nine Months Ended December 31, 2003 Compared to Nine Months Ended December 31,
2002. The Partnership's net loss for the nine months ended December 31, 2003 was
$(922,000), reflecting an increase of $(210,000) from the $(712,000) of net loss
for the nine months ended December 31, 2002. The increase in net loss is due to
an increase of equity in losses from limited partnerships, which increased by
approximately $(67,000) to $(680,000) for the nine months ended December 31,
2003 from $(613,000) for the nine months ended December 31, 2002. In addition to
the increase in equity in losses from limited partnerships there was an increase
in loss from operations of $(143,000) to $(242,000), for the nine months ended
December 31, 2003 from $(99,000) for the nine months ended December 31, 2002.
The increase in loss from operations was primarily due to the $(141,000)
write-off in advances to two Local Limited Partnerships for the nine months
ended December 31, 2003. In addition legal and accounting increased by $(5,000)
offset by an decrease of approximately $1,000 in other operating expenses along
with a $2,000 increase in income.
15
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. The net cash used during the nine months ended December 31, 2003 was
$(168,000) compared to cash used for the nine months ended December 31, 2002 of
$(69,000). The change of $(99,000) was due to a decrease of cash used in
operating activities of $15,000 from $(65,000) used in the nine months ended
December 31, 2002 compared to $(50,000) used in the nine months ended December
31, 2003. The decrease in cash used in operating activities is primarily due to
the change of $17,000 in accrued fees and expenses due to General Partner and
affiliates. Additionally, there was a change in cash used in investing
activities of $(114,000) from $(4,000) used in the nine months ended December
31, 2002 compared to $(118,000)used in the nine months ended December 31, 2003.
The change in investing activities was due to an increase in distributions
received from limited partners of $17,000 along with the $(141,000) advances to
two Local Limited Partnships for the nine months ended December 31, 2003
compared to the nine months ended December 31, 2002. Additionally, there was an
increase of $(6,000) used to pay down the note payables to limited partnerships
along with an increase of approximately $16,000 in due from affiliate for the
nine months ended December 31, 2003.
The Partnership expects its future cash flows, together with its net available
assets at December 31, 2003, to be sufficient to meet all currently foreseeable
future cash requirements.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
NOT APPLICABLE
Item 4. Procedures and Controls
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.
Part II. Other Information
Item 1. Legal Proceedings
NONE
16
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 15d-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)
17
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 4
By: WNC & Associates, Inc. General Partner of the Registrant
By: /s/Wilfred N. Cooper, Jr.
-------------------------
Wilfred N. Cooper, Jr.
President and Chief Executive Officer of WNC & Associates, Inc.
Date: February 17, 2004
By: /s/ Thomas J. Riha
------------------
Thomas J. Riha
Vice President and Chief Financial Officer of WNC & Associates, Inc.
Date: February 17, 2004
18