UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
Commission File Number 0-24660
LIBERTY TAX CREDIT PLUS II L.P.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3458180
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
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 X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes No X
----- -----
PART I - Financial Information
Item 1. Financial Statements
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
============= ==============
December 31, March 31,
2004 2004
------------- -------------
ASSETS
Operating Assets:
Property and equipment, net of
accumulated depreciation
of $97,417,236 and $102,005,231,
respectively $ 104,498,548 $ 121,262,827
Cash and cash equivalents 2,169,154 1,838,615
Cash held in escrow 7,839,922 8,314,043
Deferred costs, net of accumulated
amortization of $2,181,560 and
$2,214,346, respectively 2,204,248 2,333,029
Other assets 4,198,658 4,306,926
------------- -------------
Total operating assets 120,910,530 138,055,440
------------- -------------
Discontinued Assets (Note 5):
Property and equipment held for sale,
net of accumulated depreciation
of $5,394,086 and $0,
respectively 7,720,738 0
Net assets held for sale 243,342 0
------------- -------------
Total discontinued assets 7,964,080 0
------------- -------------
Total assets $ 128,874,610 $ 138,055,440
============= =============
2
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
============= ==============
December 31, March 31,
2004 2004
------------- -------------
LIABILITIES AND PARTNERS' DEFICIT
Operating Liabilities:
Mortgage notes payable $ 85,411,078 $ 96,557,630
Accounts payable and other
liabilities 7,598,314 7,948,887
Due to local general partners and
affiliates 14,769,828 14,797,705
Due to general partners and affiliates 15,705,212 15,634,778
Due to selling partners 2,579,994 2,574,369
------------- -------------
Total operating liabilities 126,064,426 137,513,369
------------- -------------
Discontinued Liabilities (Note 5):
Mortgage notes payable of asset
held for sale 5,275,000 0
Net liabilities held for sale 2,837,339 0
------------- -------------
Total discontinued liabilities 8,112,339 0
------------- -------------
Total liabilities 134,176,765 137,513,369
------------- -------------
Minority interest 317,373 2,123,287
------------- -------------
Commitments and contingencies (Note 4)
Partners' deficit
Limited partners (115,917.5 BACs
issued and outstanding) (4,532,649) (534,720)
General partners (1,086,879) (1,046,496)
------------- -------------
Total partners' deficit (5,619,528) (1,581,216)
------------- -------------
Total liabilities and partners' deficit $ 128,874,610 $ 138,055,440
============= =============
See accompanying notes to consolidated financial statements.
3
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
============================ ============================
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
2004 2003* 2004 2003*
---------------------------- ----------------------------
Operations:
Revenues
Rentals, net $ 5,948,998 $ 5,898,995 $ 17,805,015 $ 17,465,431
Other 46,285 82,770 218,448 290,503
------------ ------------ ------------ ------------
Total revenue 5,995,283 5,981,765 18,023,463 17,755,934
------------ ------------ ------------ ------------
Expenses
General and ad-
ministrative 1,595,038 1,535,525 4,644,891 4,851,444
General and admini-
strative - related
parties (Note 2) 644,701 655,768 1,901,572 1,915,251
Repairs and main-
tenance 1,338,037 1,498,531 4,093,298 3,780,325
Operating 605,911 575,769 2,270,351 2,120,567
Taxes 206,614 164,666 637,532 581,092
Insurance 444,992 329,287 1,206,244 1,103,460
Interest 1,107,365 1,514,077 3,500,202 4,073,485
Depreciation and
amortization 1,647,508 1,650,039 4,942,742 4,931,191
------------ ------------ ------------ ------------
Total expenses 7,590,166 7,923,662 23,196,832 23,356,815
------------ ------------ ------------ ------------
Loss from operations
before minority interest (1,594,883) (1,941,897) (5,173,369) (5,600,881)
Minority interest in
loss (income) of sub-
sidiaries from operations (89,298) (12,006) 31,832 71,956
------------ ------------ ------------ ------------
Loss from operations (1,684,181) (1,953,903) (5,141,537) (5,528,925)
------------ ------------ ------------ ------------
4
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(continued)
============================ ============================
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
2004 2003* 2004 2003*
---------------------------- ----------------------------
Discontinued operations:
Income (loss) from dis-
continued operations
(including gain (loss)
on sale of properties)
(Notes 3 and 5) 1,272,080 (70,507) 1,103,225 (454,477)
------------ ------------ ------------ ------------
Net loss: $ (412,101) $ (2,024,410) $ (4,038,312) $ (5,983,402)
============ ============ ============ ============
Loss from operations -
limited partners (1,667,339) (1,934,364) (5,090,122) (5,473,636)
Income (loss) from dis-
continued operations
(including gain (loss) on
sale of properties) -
limited partners 1,259,359 (69,802) 1,092,193 (449,932)
------------ ------------ ------------ ------------
Net loss - limited
partners $ (407,980) $ (2,004,166) $ (3,997,929) $ (5,923,568)
============ ============ ============ ============
Number of units
outstanding 115,917.5 115,917.5 115,917.5 115,917.5
============ ============ ============ ============
Loss from operations
per unit $ (14.38) $ (16.69) $ (43.91) $ (47.22)
Income (loss) from
discontinued operations
(including gain (loss) on
sale of properties)
per unit 10.86 (0.60) 9.42 (3.88)
------------ ------------ ------------ ------------
Net loss
per limited
partner unit $ (3.52) $ (17.29) $ (34.49) $ (51.10)
============ ============ ============ ============
* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
5
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Deficit
(Unaudited)
=========================================
Limited General
Total Partners Partners
-----------------------------------------
Partners' deficit -
April 1, 2004 $(1,581,216) $ (534,720) $(1,046,496)
Net loss (4,038,312) (3,997,929) (40,383)
----------- ----------- -----------
Partners' deficit -
December 31, 2004 $(5,619,528) $(4,532,649) $(1,086,879)
=========== =========== ===========
See accompanying notes to consolidated financial statements.
6
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
===========================
Nine Months Ended
December 31,
---------------------------
2004 2003*
---------------------------
Cash flows from operating activities:
Net loss $(4,038,312) $(5,983,402)
----------- -----------
Adjustments to reconcile net loss
to net cash provided by
operating activities:
(Income) loss from discontinued
operations (1,103,225) 454,477
Depreciation and amortization 4,942,742 4,931,191
Minority interest in loss of
subsidiaries (31,832) (71,956)
Decrease in cash held in escrow 58,734 542,282
Decrease in other assets 101,696 416,930
Increase (decrease) in accounts
payable and other liabilities 146,432 (1,904,522)
Increase in due to local general
partners and affiliates 607,899 2,562,088
Decrease in due to local general
partners and affiliates (433,714) (2,188,047)
Increase in due to general partners
and affiliates 657,230 1,405,155
----------- -----------
Total adjustments 4,945,962 6,147,597
----------- -----------
Net cash provided by operating
activities 907,650 164,196
----------- -----------
Cash flows from investing activities:
Proceeds from sale of properties 600,000 834,392
Acquisitions of property and
equipment (267,628) (457,057)
Decrease (increase) in cash held
in escrow 258,508 (221,427)
----------- -----------
Net cash provided by investing
activities 590,880 155,908
----------- -----------
7
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
===========================
Nine Months Ended
December 31,
---------------------------
2004 2003*
---------------------------
Cash flows from financing activities:
Increase in deferred costs 0 (71,686)
Repayments of mortgage notes (1,172,105) (928,852)
Increase in due to selling
partners 5,625 5,625
(Decrease) increase in capitalization
of consolidated subsidiaries
attributable to minority
interest (1,511) 603,945
----------- -----------
Net cash used in financing activities (1,167,991) (390,968)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 330,539 (70,864)
----------- -----------
Cash and cash equivalents at
beginning of period 1,838,615 1,577,939
----------- -----------
Cash and cash equivalents at
end of period $ 2,169,154 $ 1,507,075
=========== ===========
8
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
===========================
Nine Months Ended
December 31,
---------------------------
2004 2003*
---------------------------
Summarized below are the
components of the discontinued
operations (including (gain)loss on
sale of properties - Notes 3 and 5):
Decrease in property and
equipment - net of accumulated
depreciation $ 4,479,450 $ 8,897,091
Increase in cash and cash equivalents (14,324) 0
Increase in cash held in escrow (21,115) (203,632)
Decrease in deferred costs 8,078 46,653
Increase in other assets (34,772) (118,739)
Decrease in mortgage notes payable (4,699,447) (6,710,473)
(Decrease) increase in accounts payable
and other liabilities (158,249) 2,199,458
Decrease in due to local general
partners and affiliates (202,062) (1,935,892)
Increase in due to general
partners and affiliates 187,787 119,363
Minority interest in loss of subsidiaries (48,571) (1,004,960)
* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
9
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
Note 1 - General
The consolidated financial statements for the nine months ended December 31,
2004 and 2003 include the accounts of Liberty Tax Credit Plus II L.P. (the
"Partnership") and 24 and 26 subsidiary partnerships ("subsidiaries",
"subsidiary partnerships" or "Local Partnerships"), respectively, in which the
Partnership is the limited partner. Through the rights of the Partnership and/or
Related Credit Properties II L.P., a Delaware limited partnership, Liberty
Associates II L.P., a Delaware limited partnership, or Liberty GP II Inc., a
Delaware corporation (each a "General Partner" and collectively, the "General
Partners"), which General Partners have a contractual obligation to act on
behalf of the Partnership, to remove the general partner of the subsidiary
partnerships (each, a "Local General Partner"), and to approve certain major
operating and financial decisions, the Partnership has a controlling financial
interest in each of the subsidiary partnerships. As of December 31, 2004, the
Partnership has disposed of five of its twenty-seven original investments (see
Note 3).
For financial reporting purposes, the Partnership's fiscal quarter ends December
31 in order to allow adequate time for the subsidiaries' financial statements to
be prepared and consolidated. All subsidiary partnerships have fiscal quarters
ending September 30. Accounts of the subsidiary partnerships have been adjusted
for intercompany transactions from October 1 through December 31.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increase (decrease) in capitalization of consolidated subsidiary partnerships
attributable to minority interest arise from cash contributions from and cash
distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority interests'
investment in a subsidiary partnership have been charged to the Partnership.
Such losses aggregated $297,000 and $0 and $737,000 and $0 for the three and
nine months ended December 31, 2004 and 2003, respectively. The Partnership's
investment in each subsidiary is equal to the respective subsidiary partners'
equity less minority interest capital, if any.
10
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
The books and records of the Partnership are maintained on the accrual basis in
accordance with generally accepted accounting principles ("GAAP"). In the
opinion of each of the General Partners, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position of the
Partnership as of December 31, 2004, the results of operations of the
Partnership for the three and nine months ended December 31, 2004 and 2003 and
the cash flows of the Partnership for the nine months ended December 31, 2004
and 2003, respectively. However, the operating results for the nine months ended
December 31, 2004 may not be indicative of the results for the year.
In accordance with FASB 144, the results of discontinued operations are reported
as a separate component of income before extraordinary items on the Consolidated
Statements of Operations. Discontinued operations include the results of
operations and any gain or loss recognized for Local Partnerships that have been
disposed of or are held for sale. A gain or loss recognized on the disposal is
disclosed in the notes to the consolidated financial statements. Adjustments to
amounts previously reported in operations that are directly related to the
disposal of a Local Partnership are reclassified in the current period as
discontinued operations for comparability purposes. Assets and liabilities of a
Local Partnership that are classified as held for sale are presented separately
in the asset and liability sections, respectively, of the Consolidated Balance
Sheets.
Certain information and note disclosures normally included in financial
statements prepared in accordance with GAAP have been omitted or condensed.
These consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Partnership's Annual
Report on Form 10-K for the year ended March 31, 2004.
Rental income is recognized as rent becomes due and charged to tenants accounts
receivable if not received by the due date. Rental income is typically due the
first day of each month, but can vary by property due to the terms of each
tenant's lease. Rental payments received in advance of the due date are deferred
until earned. Rental subsidies are recognized as rental income during the month
in which it is received and applied. The related rental subsidy programs have
expiration dates that terminate upon total disbursement of the assistance
obligation.
11
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
Note 2 - Related Party Transactions
One of the General Partners has a 1% interest as a special limited partner in
each of the subsidiary partnerships. An affiliate of the General Partners also
has a minority interest in certain subsidiary partnerships.
The costs incurred to related parties for the three and nine months ended
December 31, 2004 and 2003 classified as "Operations" on the Consolidated
Statements of Operations were as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
2004 2003* 2004 2003*
----------------------- -----------------------
Partnership manage-
ment fees (a) $ 350,000 $ 365,000 $1,050,000 $1,095,000
Expense reimburse-
ment (b) 60,506 67,355 148,336 145,483
Property management
fees incurred to
affiliates of the
General Partners (c) 104,486 100,157 313,456 300,472
Local administrative
fee (d) 10,750 10,500 33,250 31,500
---------- ---------- ---------- ----------
Total general and ad-
ministrative-General
Partners 525,742 543,012 1,545,042 1,572,455
---------- ---------- ---------- ----------
Property management
fees incurred to affili-
ates of the subsidiary
partnerships' general
partners (c) 118,959 112,756 356,530 342,796
---------- ---------- ---------- ----------
Total general and admi-
nistrative-related parties $ 644,701 $ 655,768 $1,901,572 $1,915,251
========== ========== ========== ==========
* Reclassified for comparative purposes.
(a) The General Partners are entitled to receive a partnership management fee,
after payment of all Partnership expenses, which together with the annual local
administrative fees will not exceed a maximum of 0.5% per annum of invested
assets (as defined in the Partnership Agreement), for administering the affairs
of the Partnership. The partnership management fee, subject to the foregoing
limitation, will be determined by the General Partners in their sole discretion
12
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
based upon their review of the Partnership's investments. Partnership management
fees owed to the General Partners amounting to approximately $13,763,000 and
$12,713,000 were accrued and unpaid as of December 31, 2004 and March 31, 2004,
respectively. Without the General Partners' continued accrual without payment,
the Partnership will not be in a position to meet its obligations. The General
Partners have allowed for the accrual without payment of these amounts but are
under no obligation to continue to do so.
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and their
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement.
Another affiliate of the General Partners performs asset monitoring for the
Partnership. These services include site visits and evaluations of the
subsidiary partnerships' performance.
(c) Property management fees incurred by subsidiary partnerships amounted to
$401,164 and $394,949 and $1,198,183 and $1,255,782 for the three and nine
months ended December 31, 2004 and 2003, respectively. Of these fees, $223,445
and $212,913 and $669,986 and $643,268, respectively, were incurred to
affiliates of the Local General Partners. Included in amounts incurred to
affiliates of the Local General Partners are $104,486 and $100,157 and $313,456
and $300,472 for the three and nine months ended December 31, 2004 and 2003,
respectively, which were also incurred to affiliates of the Partnership.
(d) Liberty Associates II L.P., a General Partner and a special limited partner
of the subsidiary partnerships, is entitled to receive a local administrative
fee of up to $2,500 per year from each subsidiary partnership.
Note 3 - Sale of Properties
On December 30, 2004, the property and the related assets and liabilities of
Property Development Associates, L.P. ("Property Development") were sold to an
unaffiliated third party purchaser for $7,097,000, resulting in a loss of
approximately $1,497,000, which will be recognized in the financial statements
13
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
of the Partnership's Annual Report on Form 10-K during the period ended March
31, 2005.
On September 21, 2004, the Partnership's limited partner interest in Alexis Park
Apartments ("Alexis Park") was sold to an unaffiliated third party purchaser for
$1,000,000. This amount consisted of $600,000 paid in cash at the closing and
$400,000 pursuant to two promissory notes of $200,000 each. Both notes compound
interest at 5% and the principal and interest of one note is to be paid annually
from 50% of cash flow, with a maturity in five years, when all unpaid principal
and interest shall become payable. The principal and interest on the second note
is to be paid upon refinancing or sale of the property, but in no event later
than 10 years. The sale resulted in a gain of approximately $606,000.
On March 2, 2004, a letter of intent with an unaffiliated third party was
executed to purchase the property and the related assets and liabilities of
Goodfellow Place Limited Partnership for a purchase price of $100,000 plus the
existing debt. No assurance can be given that the closing will actually occur.
On August 15, 2003, the property and the related assets and liabilities of
Polynesian Apartments Associates, Limited Partnership ("Polynesian") were sold
to an unaffiliated third party purchaser for $2,700,000, resulting in a loss of
approximately $287,000.
On August 15, 2003, the property and the related assets and liabilities of
Seagrape Village Associates, Limited Partnership ("Seagrape") were sold to an
unaffiliated third party purchaser for $5,140,000, resulting in a loss of
approximately $260,000.
Note 4 - Commitments and Contingencies
Whittier Plaza Associates
- -------------------------
Whittier Plaza Associates Limited Partnership ("Whittier") has sustained
continuous losses since commencement of operations in 1988. Whittier has
experienced lower rental income than those originally projected, resulting in
increased difficulty in meeting both operating and debt service obligations. The
Local General Partner, pursuant to a development deficit guarantee agreement,
has advanced approximately $469,000 since 1988 to fund operating cash
14
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
shortfalls. In addition, Whittier's management company, an affiliate of the
Local General Partner, has deferred receipt of various fees since 1991 totaling
approximately $99,000.
Westminster Place II - Olive Site, L.P.
- ---------------------------------------
The rental subsidy of Westminster Place II - Olive Site, L.P. ("Westminster")
was depleted during 2004. This subsidy represents approximately 16% of
Westminster's rental revenue. Westminster submitted a rent increase to the
Missouri Housing Development Commission and a 7% rent increase was approved. The
rental increase should facilitate Westminster's ability to meet its financial
obligations, despite the elimination of the rental subsidy.
Gramco Development Limited Dividend Partnership, L.P.
- -----------------------------------------------------
Gramco Development Limited Dividend Partnership, L.P. ("Gramco") was granted net
funds of $4,867,000 by the Municipality of Bayamon (the "Municipality") and the
Department of Housing and Urban Development ("HUD"). In the event of a
substantial violation of the provisions of certain agreements between Gramco and
the Municipality and between the Municipality and HUD, the funds shall become
immediately due and payable at the election of HUD and the Municipality.
Otherwise, the principal amount of the grant together with any interest will be
forgiven. Proceeds from the grant have been deducted from fixed assets.
Williamsburg Residential, L.P.
- ------------------------------
In November 1996, the Local General Partner of Williamsburg Residential, L.P.
("Williamsburg") stopped making the mortgage note payments which constituted an
event of default. A Reinstatement and Modification Agreement was entered into
effective March 1, 1997. The Partnership has advanced Williamsburg the necessary
funds to keep the mortgage and escrows current and it is expected to continue to
do so during 2005. As of December 31, 2004, the Partnership has advanced
approximately $1,256,000 to Williamsburg.
Property Development Associates, L.P.
- -------------------------------------
Property Development Associates, L.P. ("Property Development") was involved as a
defendant in a pending litigation case. This case was filed by the plaintiffs on
December 18, 2002 and served on the defendants on January 6, 2003. Discovery is
ongoing. The plaintiffs have alleged assault and battery as well as wrongful
eviction. The plaintiffs are seeking unspecified damages and have not made a
demand. The judge has now ordered mediation to take place before April 1, 2005;
15
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
however, given the facts and circumstances of this case, it is quite unlikely
mediation will resolve any of the issues. Trial has been rescheduled for October
11, 2005. Property Development intends to vigorously defend the matter. The
potential damages, other than those for the alleged intentional acts of assault
and battery, are covered by insurance. Property Development was sold on December
30, 2004 (see Note 3).
Note 5 - Discontinued Operations
The following table summarizes the financial position and results of operations
of the Local Partnerships that are classified as discontinued operations. As of
December 31, 2004 and for the three and nine month periods ended December 31,
2004, Property Development and Alexis Park were classified as discontinued
operations in the Consolidated Financial Statements. For the three and nine
month periods ended December 31, 2003, Property Development, Alexis Park,
Polynesian and Seagrape were classified as discontinued operations on the
consolidated financial statements.
=========== ==========
December 31, March 31,
2004 2004
----------- ----------
Assets
Property and equipment - less
accumulated depreciation of
$5,394,086 and $0, respectively $7,720,738 $ 0
Cash and cash equivalents 14,324 0
Cash held in escrow 177,994 0
Deferred costs, net of accumul-
ated amortization of $151,887
and $0, respectively 9,680 0
Other assets 41,344 0
---------- ----------
Total assets $7,964,080 $ 0
========== ==========
Liabilities
Mortgage notes payable 5,275,000 0
Accounts payable and other 338,756 0
Due to general partners and
affiliates 774,583 0
Minority interest 1,724,000 0
---------- ----------
Total liabilities $8,112,339 $ 0
========== ==========
16
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
========================== ==========================
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
2004 2003 2004 2003
-------------------------- --------------------------
Revenues $ 1,441,852 $ 789,620 $ 2,717,607 $ 2,740,684
Gain (loss) on sale of
properties (Note 3) 606,265 (546,734) 606,265 (546,734)
----------- ----------- ----------- -----------
Total revenue 2,048,117 242,886 3,323,872 2,193,950
----------- ----------- ----------- -----------
Total expenses 776,037 1,239,589 2,269,218 3,653,387
----------- ----------- ----------- -----------
Income (loss) before
minority interest 1,272,080 (996,703) 1,054,654 (1,459,437)
Minority interest in
loss of subsidiaries
from discontinued
operations 0 926,196 48,571 1,004,960
----------- ----------- ----------- -----------
Total income
(loss) from discontinued
operations (includ-
ing gain (loss) on
sale of properties) $ 1,272,080 $ (70,507) $ 1,103,225 $ (454,477)
=========== =========== =========== ===========
Income (loss) -
limited partners
from discontinued
operations (includ-
ing gain (loss) on
sale of properties) $1,259,359 $ (69,802) $ 1,092,193 $ (449,932)
=========== =========== =========== ===========
Number of BACs
outstanding 115,917.5 115,917.5 115,917.5 115,917.5
=========== =========== =========== ===========
Income (loss)
discontinued
operations (includ-
ing gain (loss) on
sale of properties)
per BAC $ 10.86 $ (0.60) $9,42 $ (3.88)
=========== =========== =========== ===========
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership has invested all of the net proceeds of its original offering in
twenty-seven Local Partnerships. Through December 31, 2004, the Partnership's
investment in the property and the related assets and liabilities of four Local
Partnerships have been sold and it has sold its limited partnership interest in
one Local Partnership.
The Partnership's primary sources of funds are the cash distributions from
operations of the Local Partnerships in which the Partnership has invested and
net proceeds from sales. These sources are available to meet obligations of the
Partnership. During the nine months ended December 31, 2004, approximately
$1,500 of distributions were received by the Partnership from operations of the
Local Partnerships.
During the nine months ended December 31, 2004, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships increased approximately
$331,000. This increase was due to cash provided by operating activities
($908,000), proceeds from sale of properties ($600,000) a decrease in cash held
in escrow relating to investing activities ($259,000) and an increase in due to
selling partners ($6,000) which exceeded acquisitions of property and equipment
($268,000), repayments of mortgage notes ($1,172,000) and a decrease in
capitalization of consolidated subsidiaries attributable to minority interest
($2,000). In the adjustments to reconcile the net loss to net cash provided by
operating are income from discontinued operations (including gain (loss) on sale
of properties) ($1,103,000) and depreciation and amortization ($4,943,000).
Partnership management fees owed to the General Partners amounting to
approximately $13,763,000 and $12,713,000 were accrued and unpaid as of December
31, 2004 and March 31, 2004, respectively. Without the General Partners
continued accrual without payment, the Partnership will not be in a position to
meet its obligations. The General Partners have allowed for the accrual without
payment of these amounts but are under no obligation to continue to do so.
For a discussion of the sale of properties, see Note 3 to the financial
statements.
Management is not aware of any trends, events, commitments or uncertainties
which have not otherwise been disclosed, that will or are likely to impact
liquidity in a material way. Management believes the only impact would be from
laws that have not yet been adopted. The portfolio is diversified by the
location of the properties around the United States so that if one area of the
country is experiencing downturns in the economy, the remaining properties in
18
the portfolio may be experiencing upswings. However, the geographic
diversification of the portfolio may not protect against a general downturn in
the national economy.
Critical Accounting Policies
- ----------------------------
In preparing the consolidated financial statements, management has made
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Set forth below is a summary of the accounting policies
that management believes are critical to the preparation of the consolidated
financial statements. The summary should be read in conjunction with the more
complete discussion of the Partnership's accounting policies included in Note 2
to the consolidated financial statements in the Partnership's Annual Report on
Form 10-K for the year ended March 31, 2004.
Property and Equipment
- ----------------------
Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period interest
and any other costs incurred in acquiring such property and equipment. The cost
of property and equipment is depreciated over their estimated useful lives using
accelerated and straight-line methods. Expenditures for repairs and maintenance
are charged to expense as incurred; major renewals and betterments are
capitalized. At the time property and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are eliminated from the
assets and accumulated depreciation accounts and the profit or loss on such
disposition is reflected in earnings. The Partnership complies with Statement of
Financial Accounting Standards (SFAS) No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". A loss on impairment of assets is recorded when
management estimates amounts recoverable through future operations and sale of
the property on an undiscounted basis are below depreciated cost. Property
investments themselves are reduced to estimated fair value (generally using
discounted cash flows) when the property is considered to be impaired and the
depreciated cost exceeds estimated fair value.
Discontinued Operations
- -----------------------
In accordance with FASB 144, the results of discontinued operations are reported
as a separate component of income before extraordinary items on the Consolidated
Statements of Operations. Discontinued operations include the results of
operations and any gain or loss recognized for Local Partnerships that have been
disposed of or are held for sale. A gain or loss recognized on the disposal is
disclosed in the notes to the consolidated financial statements. Adjustments to
amounts previously reported in operations that are directly related to the
19
disposal of a Local Partnership are reclassified in the current period as
discontinued operations for comparability purposes. Assets and liabilities of a
Local Partnership that are classified as held for sale are presented separately
in the asset and liability sections, respectively, of the Consolidated Balance
Sheets.
Income Taxes
- ------------
The Partnership is not required to provide for, or pay, any federal income
taxes. Net income or loss generated by the Partnership is passed through to the
partners and is required to be reported by them. The Partnership may be subject
to state and local taxes in jurisdictions in which it operates. For income tax
purposes, the Partnership has a fiscal year ending December 31.
Results of Operations
- ---------------------
The results of operations for the three and nine months ended December 31, 2004
and 2003 consisted primarily of the results of the Partnership's investment in
the consolidated Local Partnerships. The results of operations of the
Partnership, as well as the Local Partnerships, remained fairly consistent
during the three and nine months ended December 31, 2004 and 2003, excluding
discontinued operations, other income, repairs and maintenance, taxes, insurance
and interest.
Rental income increased approximately 1% and 2% for the three and nine months
ended December 31, 2004, as compared to the corresponding periods in 2003,
primarily due to rental rate increases.
Other income decreased approximately $36,000 and $72,000 for the three and nine
months ended December 31, 2004, as compared to the corresponding periods in
2003, primarily due to the receipt of insurance proceeds at one Local
Partnership in the second quarter of 2003, the receipt of a one time refund for
water and sewer at a second Local Partnership in the third quarter of 2003 and a
decrease in interest income earned on replacement reserves at a third Local
Partnership during 2004.
Total expenses, excluding repairs and maintenance, taxes, insurance and
interest, remained fairly consistent with an increase of approximately 2% and a
decrease of approximately 1% for the three and nine months ended December 31,
2004 as compared to the corresponding periods in 2003.
Repairs and maintenance decreased approximately $160,000 for the three months
ended December 31, 2004, as compared to the corresponding period in 2003,
primarily due to increased security costs and insurance proceeds from fire
damage at one Local Partnership in the three months ended December 31, 2003.
20
Taxes increased approximately $42,000 and $56,000 for the three and nine months
ended December 31, 2004, as compared to the corresponding periods in 2003,
primarily due to the underaccrual of taxes in the prior year at two Local
Partnerships.
Insurance increased approximately $116,000 and $103,000 for the three and nine
months ended December 31, 2004, as compared to the corresponding periods in
2003, primarily due to an increase in premiums at one Local Partnership, an
overaccrual at a second Local Partnership in the quarter ended September 30,
2003 and an underaccrual at a third Local Partnership in the quarter ended
December 31, 2003.
Interest decreased approximately $407,000 and $573,000 for the three and nine
months ended December 31, 2004, as compared to the corresponding periods in
2003, primarily due to an overaccrual at three Local Partnerships in the prior
year.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership does not have any market risk sensitive instruments.
Item 4. Controls and Procedures
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Chief Executive
Officer and Chief Financial Officer of Related Credit Properties II, Inc., the
general partner of Related Credit Properties II L.P., has evaluated the
effectiveness of the Partnership's disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended ("Exchange Act") as of the end of the period covered by
this report. Based on such evaluation, such officer has concluded that, as of
the end of such period, the Partnership's disclosure controls and procedures are
effective.
(b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any changes
in the Partnership's internal control over financial reporting during the fiscal
quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, the Partnership's internal control over
financial reporting.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other information - None
Item 6. Exhibits
(3B) Form of Amended and Restated Agreement of Limited Partnership of
Liberty Tax Credit Plus II L.P. (incorporated by reference to exhibits filed
with Amendment No. 1 to Liberty Tax Credit Plus II L.P.'s Registration Statement
on Form S-11 Registration No. 33-21429).
(31.1) Certification Pursuant to Rule 13a-14(a) or Rule 15d-(14a).
(32.1) Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Title 18 of the United States Code (18 U.S.C. 1350).
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LIBERTY TAX CREDIT PLUS II L.P.
-------------------------------
(Registrant)
By: RELATED CREDIT PROPERTIES II L.P.,
a General Partner
By: Related Credit Properties II Inc.,
its General Partner
Date: February 11, 2005
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President (Chief Executive Officer
and Chief Financial Officer)
By: LIBERTY GP II INC.,
a General Partner
Date: February 11, 2005
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
and
By: LIBERTY ASSOCIATES II, L.P.
a General Partner
By: Related Credit Properties II Inc.,
its General Partner
Date: February 11, 2005
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
and
By: Liberty GP II Inc.,
its General Partner
Date: February 11, 2005
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE
13a-14(a) OR RULE 15d-14(a)
I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of
Related Credit Properties II Inc. the general partner of Related Credit
Properties II L.P. and of Liberty GP II Inc., each of which is a General Partner
of Liberty Tax Credit Plus II L.P. (the "Partnership"), hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending December 31, 2004 of the Partnership;
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 in order 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 Partnership as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Partnership and I
have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under my supervision,
to ensure that material information relating to the Partnership
including its consolidated subsidiaries, is made known to me by others
within those entities, particularly during the period in which this
quarterly report was being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under my
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles; and
c) evaluated the effectiveness of the Partnership's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this quarterly report based on such
evaluation; and
d) disclosed in this quarterly report any change in the Partnership's
internal control over financial reporting that occurred during the
period ending December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, the Partnership's internal
control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the Partnership's auditors and to
the boards of directors of the General Partners:
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Partnership's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Partnership's
internal control over financial reporting.
Date: February 11, 2005
-----------------
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT
TO RULE 13a-14(b) OR RULE 15d-14(b)
AND SECTION 1350 OF TITLE 18
OF THE UNITED STATES CODE (18 U.S.C. 1350)
In connection with the Quarterly Report of Liberty Tax Credit Plus II L.P. (the
"Partnership") on Form 10-Q for the period ending December 31, 2004 as filed
with the Securities and Exchange Commission ("SEC") on the date hereof (the
"Report"), I, Alan P. Hirmes, Chief Executive Officer and Chief Financial
Officer of Related Credit Properties II Inc. (general partner of each of Related
Credit Properties II L.P. and Liberty Associates II, L.P., General Partners of
Registrant) and Liberty GP II, Inc. (general partner of Liberty Associates II,
L.P.), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Partnership.
A signed original of this written statement required by Section 906 has been
provided to the Partnership and will be retained by the Partnership and
furnished to the SEC or its staff upon request.
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
February 11, 2005