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EX-32.2 - AMERICAN TAX CREDIT PROPERTIES II L P | v210341_ex32-2.htm |
EX-31.2 - AMERICAN TAX CREDIT PROPERTIES II L P | v210341_ex31-2.htm |
EX-31.1 - AMERICAN TAX CREDIT PROPERTIES II L P | v210341_ex31-1.htm |
EX-32.1 - AMERICAN TAX CREDIT PROPERTIES II L P | v210341_ex32-1.htm |
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
30, 2010
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: 0-18405
American Tax Credit
Properties II L.P.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
|
13-3495678
|
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(I.R.S.
Employer
Identification
No.
|
|
Richman
Tax Credit Properties II L.P.
340
Pemberwick Road
Greenwich,
Connecticut
|
06831
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Registrant's
Telephone Number, Including Area Code: (203)
869-0900
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days.
Yes x No ¨
Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit and post such files).
Yes ¨ No
¨
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
Accelerated Filer ¨ Accelerated
Filer ¨ Non-Accelerated
Filer ¨ Smaller
Reporting Company x
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No x
As of
February 11, 2011, there are 55,746 units of limited partnership interest
outstanding.
AMERICAN
TAX CREDIT PROPERTIES II L.P.
PART
I - FINANCIAL
INFORMATION
Table of
Contents
Page
|
|||
Item
1.
|
Financial Statements.
|
||
Balance
Sheets
|
3
|
||
Statements
of Operations
|
4
|
||
Statements
of Cash Flows
|
5
|
||
Notes
to Financial Statements
|
7
|
||
Item
2.
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
|
10
|
|
Item
3.
|
Quantitative and Qualitative Disclosure About
Market Risk.
|
13
|
|
Item
4.
|
Controls and Procedures.
|
14
|
|
Item
4T.
|
Internal Control Over Financial
Reporting.
|
14
|
2
AMERICAN
TAX CREDIT PROPERTIES II L.P.
BALANCE
SHEETS
(UNAUDITED)
December
30,
|
March
30,
|
|||||||
2010
|
2010
|
|||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 370,170 | $ | 292,804 | ||||
Due
from local partnership
|
401,940 | |||||||
Investment
in mutual fund
|
3,060,654 | 2,866,056 | ||||||
Investment
in bond
|
101,238 | |||||||
Interest
receivable
|
2,341 | |||||||
Investment
in local partnerships
|
718,536 | 954,550 | ||||||
$ | 4,252,939 | $ | 4,515,350 | |||||
LIABILITIES
AND PARTNERS' EQUITY (DEFICIT)
|
||||||||
Liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ | 55,024 | $ | 93,332 | ||||
Payable
to general partner and affiliates
|
127,323 | 930,507 | ||||||
182,347 | 1,023,839 | |||||||
Commitments
and contingencies
|
||||||||
Partners'
equity (deficit)
|
||||||||
General
partner
|
(452,275 | ) | (457,856 | ) | ||||
Limited
partners (55,746 units of limited partnership interest
outstanding)
|
4,501,872 | 3,949,367 | ||||||
Accumulated
other comprehensive income
|
20,995 | |||||||
4,070,592 | 3,491,511 | |||||||
$ | 4,252,939 | $ | 4,515,350 |
See Notes
to Financial Statements.
3
AMERICAN
TAX CREDIT PROPERTIES II L.P.
STATEMENTS
OF OPERATIONS
THREE
AND NINE MONTH PERIODS ENDED DECEMBER 30, 2010 AND 2009
(UNAUDITED)
Three
Months
|
Nine
Months
|
Three
Months
|
Nine
Months
|
|||||||||||||
Ended
|
Ended
|
Ended
|
Ended
|
|||||||||||||
December
30,
2010
|
December
30,
2010
|
December
30,
2009
|
December
30,
2009
|
|||||||||||||
REVENUE
|
||||||||||||||||
Interest
|
$ | 12,934 | $ | 32,174 | $ | 915 | $ | 1,868 | ||||||||
Other
income from local partnerships
|
84,520 | 9,600 | 29,714 | |||||||||||||
TOTAL
REVENUE
|
12,934 | 116,694 | 10,515 | 31,582 | ||||||||||||
EXPENSES
|
||||||||||||||||
Administration
fees
|
89,507 | 187,665 | 38,849 | 147,331 | ||||||||||||
Management
fees
|
89,507 | 187,665 | 38,849 | 147,331 | ||||||||||||
Professional
fees
|
16,555 | 56,192 | 29,928 | 75,072 | ||||||||||||
State
of New Jersey filing fee
|
(7,948 | ) | 27,635 | 17,549 | 52,648 | |||||||||||
Printing,
postage and other
|
8,515 | 23,501 | 7,306 | 15,603 | ||||||||||||
TOTAL
EXPENSES
|
196,136 | 482,658 | 132,481 | 437,985 | ||||||||||||
(183,202 | ) | (365,964 | ) | (121,966 | ) | (406,403 | ) | |||||||||
Equity
in income (loss) of investment in local partnerships
|
2,085 | (236,014 | ) | 120,940 | (30,063 | ) | ||||||||||
Loss
prior to gain on sale of limited partner interests/local partnership
properties
|
(181,117 | ) | (601,978 | ) | (1,026 | ) | (436,466 | ) | ||||||||
Gain
on sale of limited partner interests/local partnership
properties
|
1,291,548 | 1,291,548 | 3,252,349 | 3,262,349 | ||||||||||||
NET
INCOME
|
1,110,431 | 689,570 | 3,251,323 | 2,825,883 | ||||||||||||
Other
comprehensive income (loss), net
|
(885 | ) | 20,995 | |||||||||||||
COMPREHENSIVE
INCOME
|
$ | 1,109,546 | $ | 710,565 | $ | 3,251,323 | $ | 2,825,883 | ||||||||
NET
INCOME ATTRIBUTABLE TO
|
||||||||||||||||
General
partner
|
$ | 11,105 | $ | 6,896 | $ | 32,513 | $ | 28,259 | ||||||||
Limited
partners
|
1,099,326 | 682,674 | 3,218,810 | 2,797,624 | ||||||||||||
$ | 1,110,431 | $ | 689,570 | $ | 3,251,323 | $ | 2,825,883 | |||||||||
NET INCOME per unit of
limited partnership interest (55,746 units of limited partnership
interest)
|
$ | 19.72 | $ | 12.25 | $ | 57.75 | $ | 50.19 |
See Notes
to Financial Statements.
4
AMERICAN
TAX CREDIT PROPERTIES II L.P.
STATEMENTS
OF CASH FLOWS
NINE
MONTHS ENDED DECEMBER 30, 2010 AND 2009
(UNAUDITED)
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Interest
received
|
$ | 33,016 | $ | 1,868 | ||||
Cash
paid for
|
||||||||
Administration
fees
|
(722,699 | ) | (372,000 | ) | ||||
Management
fees
|
(455,815 | ) | (394,665 | ) | ||||
Professional
fees
|
(81,219 | ) | (94,893 | ) | ||||
State
of New Jersey filing fee
|
(37,954 | ) | (40,616 | ) | ||||
Printing,
postage and other expenses
|
(26,463 | ) | (19,773 | ) | ||||
Net
cash used in operating activities
|
(1,291,134 | ) | (920,079 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Distributions
received from local partnerships
|
84,520 | 20,114 | ||||||
Investments
in mutual fund
|
(277,283 | ) | ||||||
Redemptions
from mutual fund
|
100,199 | |||||||
Investment
in bond
|
(100,940 | ) | ||||||
Voluntary
advances to local partnerships
|
(106,500 | ) | ||||||
Proceeds
in connection with sale of limited partner interests/local partnership
properties
|
1,693,488 | 3,225,499 | ||||||
Net
cash provided by investing activities
|
1,499,984 | 3,139,113 | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Distributions
to partners
|
(131,484 | ) | ||||||
Net
cash used in financing activities
|
(131,484 | ) | ||||||
Net
increase in cash and cash equivalents
|
77,366 | 2,219,034 | ||||||
Cash
and cash equivalents at beginning of period
|
292,804 | 1,008,523 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 370,170 | $ | 3,227,557 | ||||
SIGNIFICANT
NONCASH INVESTING ACTIVITIES
|
||||||||
Unrealized
gain on investment in mutual fund
|
$ | 17,514 | ||||||
Unrealized
gain on investment in bond
|
$ | 3,481 | ||||||
Increase
in due from local partnership classified as gain on sale of
limited
|
||||||||
partner
interests/local partnership properties
|
$ | 36,850 | ||||||
Increase
in due from local partnership classified as other income
from
|
||||||||
local
partnerships
|
$ | 9,600 |
See
reconciliation of net income to net cash used in operating activities on page
6.
See Notes
to Financial Statements.
5
AMERICAN
TAX CREDIT PROPERTIES II L.P.
STATEMENTS
OF CASH FLOWS - CONTINUED
NINE
MONTHS ENDED DECEMBER 30, 2010 AND 2009
(UNAUDITED)
2010
|
2009
|
|||||||
RECONCILIATION
OF NET INCOME TO NET CASH USED IN OPERATING
ACTIVITIES
|
||||||||
Net
income
|
$ | 689,570 | $ | 2,825,883 | ||||
Adjustments
to reconcile net income to net cash used in operating
activities
|
||||||||
Equity
in loss of investment in local partnerships
|
236,014 | 30,063 | ||||||
Other
income from local partnerships
|
(84,520 | ) | (29,714 | ) | ||||
Gain
on sale of limited partner interests/local partnership
properties
|
(1,291,548 | ) | (3,262,349 | ) | ||||
Amortization
of premium on investment in bond
|
1,433 | |||||||
Interest
purchased at date of investment in bond
|
1,750 | |||||||
Increase
in interest receivable
|
(2,341 | ) | ||||||
Decrease
in payable to general partner and affiliates
|
(803,184 | ) | (127,338 | ) | ||||
Decrease
in accounts payable and accrued expenses
|
(38,308 | ) | (356,624 | ) | ||||
NET
CASH USED IN OPERATING ACTIVITIES
|
$ | (1,291,134 | ) | $ | (920,079 | ) |
See Notes
to Financial Statements.
6
AMERICAN
TAX CREDIT PROPERTIES II L.P.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
30, 2010
(UNAUDITED)
1.
|
Basis
of Presentation
|
The
accompanying unaudited financial statements of American Tax Credit Partnership
II L.P. (the “Partnership”) have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) for
interim financial information. They do not include all information
and footnotes required by GAAP for complete financial statements. The
results of operations are impacted, in part, by the combined results of
operations of the Local Partnerships, which are provided by the Local
Partnerships on an unaudited basis during interim
periods. Accordingly, the accompanying unaudited financial statements
are dependent on such unaudited information. In the opinion of the
General Partner, the accompanying unaudited financial statements include all
adjustments necessary to present fairly the financial position as of December
30, 2010 and the results of operations and cash flows for the interim periods
presented. All adjustments are of a normal recurring
nature. The results of operations for the nine months ended December
30, 2010 are not necessarily indicative of the results that may be expected for
the entire year.
2.
|
Investment
in Local Partnerships
|
The
Partnership originally acquired limited partner interests (the “Local
Partnership Interests”) in fifty Local Partnerships representing capital
contributions in the aggregate amount of $48,460,126, which amount includes
voluntary advances made to certain Local Partnerships and all of which has been
paid. As of December 30, 2010, the Partnership holds a Local
Partnership Interest in thirty-six Local Partnerships. The
Partnership has no legal obligation to fund any operating deficits of the Local
Partnerships.
For the
nine months ended December 30, 2010, the investment in local partnerships
activity consists of the following:
Investment
in local partnerships as of March 30, 2010
|
$ | 954,550 | ||
Equity
in loss of investment in local partnerships
|
(236,014 | )* | ||
Distributions
received from local partnerships
|
(84,520 | ) | ||
Distributions
classified as other income
|
84,520 | |||
Investment
in local partnerships as of December 30, 2010
|
$ | 718,536 |
* In the
event the operations of a Local Partnership result in a loss, equity in loss of
each investment in Local Partnership allocated to the Partnership is recognized
to the extent of the Partnership’s investment balance in each Local
Partnership. Equity in loss in excess of the Partnership’s investment
balance in a Local Partnership is allocated to other partners’ capital in any
such Local Partnership.
In
November 2010, Auburn Hills Townhouses Limited Partnership (“Auburn Hills”) sold
its underlying Property to an affiliate of the Local General Partner of Auburn
Hills, in connection with which the Partnership received $986,622; such amount
is included in gain on sale of limited partner interests/local partnership
properties in the accompanying unaudited statement of operations for the nine
months ended December 30, 2010. There may be additional proceeds
after further resolution of Auburn Hills’ accounts. The Partnership’s
investment balance in Auburn Hills, after cumulative equity losses, became zero
during the year ended March 30, 2005.
In
November 2009, Harborside Housing Limited Partnership (“Harborside”) sold its
underlying Property, in connection with which the Partnership received
$3,215,499 at the date of sale. Of the $401,940 reflected as due from
local partnership in the accompanying unaudited balance sheet as of March 30,
2010, the Partnership received $284,834 in May 2010 and the remaining $117,106
represents withholding tax paid by Harborside to the state in which the
Harborside Property is located on behalf of the Partnership’s
partners. Such amount is included in distributions to partners in the
accompanying unaudited financial statements as of and for the nine months ended
December 30, 2010. In addition, the Local General Partner of
Harborside established a $300,000 escrow pursuant to Harborside’s Purchase and
Sale Contract to protect against potential obligations of Harborside to the
buyer. Such escrow was released to the Partnership and is included in
gain on sale of limited partner interests/local partnership properties in the
accompanying unaudited statement of operations for the nine months ended
December 30, 2010. There may be additional proceeds after further
resolution of Harborside’s accounts. The Partnership’s investment
balance in Harborside, after cumulative equity losses, became zero during the
year ended March 30, 2004.
7
AMERICAN
TAX CREDIT PROPERTIES II L.P.
NOTES
TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER
30, 2010
(UNAUDITED)
2.
|
Investment
in Local Partnerships (Continued)
|
During
the year ended March 30, 2010, Ann Ell Apartments Associates, Ltd. (“Ann Ell”)
sold its underlying Property; the Partnership received no proceeds in connection
with the sale. However, upon final resolution of Ann Ell’s accounts,
the Partnership received $4,926; such amount is included in gain on sale of
limited partner interests/local partnership properties in the accompanying
unaudited statement of operations for the nine months ended December 30,
2010. The Partnership’s investment balance in Ann Ell, after
cumulative equity losses, became zero during the year ended March 30,
1994.
During
the year ended December 31, 2009, Lakeside Housing Limited Partnership
(“Lakeside”) generated taxable income to the Partnership, resulting in $14,378
in withholding tax being paid by Lakeside to the state in which the Lakeside
Property is located on behalf of the Partnership’s partners. Such
amount is included in other income from local partnerships and distributions to
partners in the accompanying unaudited financial statements as of and for the
nine months ended December 30, 2010. The Partnership’s investment
balance in Lakeside, after cumulative equity losses, became zero during the year
ended March 30, 2002.
The Local
General Partner of Queen Lane Investors (“Queen Lane”) represents that, as a
result of a dispute between the local housing agency (the “Agency”) and the
Local General Partner of Queen Lane regarding the adequacy of certain unit
repairs mandated by the Agency, the Local General Partner of Queen Lane
requested that the Agency cancel the voucher contract in connection with the
Property that provided rent subsidies to tenants under Section 8 of Title II of
the Housing and Community Development Act of 1974. As a result, the
Property has been vacant since October 2007. Two of Queen Lane’s
mortgages matured in 2007 but have not been repaid or formally extended,
representing principal and accrued interest of approximately $2,086,000 as of
January 2011. The Local General Partner of Queen Lane further
represents that the lender has not issued a notice of default and that real
estate taxes are in arrears approximately $22,000 as of January
2011. The Local General Partner of Queen Lane is attempting to
refinance the mortgages and make the necessary repairs to the
Property. The Partnership’s investment balance in Queen Lane, after
cumulative equity losses, became zero during the year ended March 30,
2001.
The
non-mandatory mortgages of Littleton Avenue Community Village, L.P.
(“Littleton”) matured in October 2006 but have not been repaid or formally
extended. Unpaid principal and accrued interest as of January 2011
total approximately $8,475,000. The Local General Partner of
Littleton represents that the City of Newark (the “City”) has commenced a
foreclosure action in connection with delinquent real estate taxes (see
discussion below) but that neither lender has issued a notice of default related
to the mortgages and that negotiations are ongoing in an effort to
refinance. The real estate tax abatement on the Property expired in
June 2007; the City assessed the Property and has charged Littleton for real
estate taxes. The Local General Partner of Littleton reports that
real estate taxes are in arrears approximately $188,000 as of September 2010,
which includes accrued interest of approximately $18,000, and that the City has
sold certain of the tax liens to third parties. Littleton owes taxes
and accrued interest totaling approximately $106,000 to such third
parties. The Partnership’s investment balance in Littleton, after
cumulative equity losses, became zero during the year ended March 30,
1999.
The
Partnership’s equity in loss of its investment in North Hills Farms Limited
Partnership (“North Hills Farms”) of $236,014 represents more than 20% of the
Partnership’s net income for the nine months ended December 30,
2010. The following financial information represents certain
unaudited operating statement data of North Hills Farms for the nine months
ended September 30, 2010:
Revenue
|
$ | 2,225,732 | ||
Net
loss
|
$ | (238,398 | ) |
8
AMERICAN
TAX CREDIT PROPERTIES II L.P.
NOTES
TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER
30, 2010
(UNAUDITED)
3.
|
Investment
in Mutual Fund
|
The
Partnership carries its investment in mutual fund (the “Fund”) at estimated fair
value. The fair value of the Partnership’s investment in mutual fund
is classified within Level 1 of the fair value hierarchy of the guidance on
Fair Value Measurements as defined in Accounting Standards Codification (“ASC”)
Topic 820. Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Partnership has the
ability to access. The Fund’s net asset value (“NAV”) is $10.06 per
share as of December 30, 2010. The unrealized gain of $17,514 is
included as a component of accumulated other comprehensive income in the
accompanying unaudited financial statements as of and for the nine months ended
December 30, 2010.
4.
|
Investment
in Bond
|
The
Partnership carries its investment in bond as available-for-sale because such
investment is used to facilitate and provide flexibility for its obligations,
including resolving circumstances that may arise in connection with the Local
Partnerships. Investment in bond is reflected in the accompanying
unaudited balance sheet as of December 30, 2010 at estimated fair value and is
classified within Level 1 of the fair value hierarchy of the guidance on
Fair Value Measurements (see discussion in Note 3 above). The
unrealized gain of $3,481 is included as a component of accumulated other
comprehensive income in the accompanying unaudited financial statements as of
and for the nine months ended December 30, 2010.
As of
December 30, 2010, certain information concerning investment in bond is as
follows:
Description and maturity
|
Amortized
cost
|
Gross
unrealized
gain
|
Gross
unrealized
loss
|
Estimated
fair
value
|
||||||||||||
Corporate
debt security
|
||||||||||||||||
Callable
in September 2013
|
$ | 97,757 | $ | 3,481 | $ | — | $ | 101,238 |
5.
|
Additional
Information
|
Additional
information, including the audited March 30, 2010 Financial Statements and the
Organization, Purpose and Summary of Significant Accounting Policies, is
included in the Partnership's Annual Report on Form 10-K for the fiscal year
ended March 30, 2010 on file with the Securities and Exchange
Commission. As the result of a correction to the calculation of the
administration fees and management fees under the terms of the Partnership’s
partnership agreement, such fees were under accrued in the cumulative amount of
approximately $84,000 as of March 30, 2010. Such amount is included
in the accompanying statements of operations for the three and nine month
periods ended December 30, 2010. This correction had no impact on
cash flow for any period presented herein this Form 10-Q and the General Partner
has determined the adjustment to be qualitatively
immaterial.
9
AMERICAN
TAX CREDIT PROPERTIES II L.P.
Item
2. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Material Changes in
Financial Condition
As of
December 30, 2010, American Tax Credit Properties II L.P. (the “Registrant”)
experienced a significant change in financial condition as compared to March 30,
2010 primarily as a result of proceeds received in connection with the sale of
the properties owned by Auburn Hills Townhouses Limited Partnership (“Auburn
Hills”), Harborside Housing Limited Partnership (“Harborside”) and Ann Ell
Apartments Associates, Ltd. (“Ann Ell”) (see discussion below under Results of Operations
and Local Partnership
Matters), partially offset by the payment of deferred administration and
management fees. Principal changes in assets are comprised of
periodic transactions and adjustments and equity in income (loss) from
operations of the local partnerships (the “Local Partnerships”), which own
low-income multifamily residential complexes (the “Properties”) that qualified
for the low-income tax credit in accordance with Section 42 of the Internal
Revenue Code (the “Low-income Tax Credit”). During the nine months
ended December 30, 2010, Registrant received cash from interest revenue,
distributions from Local Partnerships, redemptions from a mutual fund and
proceeds in connection with the sale of the Properties owned by Auburn Hills,
Harborside and Ann Ell and utilized cash for operating expenses, withholding
taxes treated as distributions to partners (see discussion below under Local Partnership
Matters) and investments in a mutual fund and a bond. Cash and
cash equivalents, investment in mutual fund and investment in bond increased, in
the aggregate, by approximately $373,000 during the nine months ended December
30, 2010 (which includes unrealized gains on investment in mutual fund and
investment in bond in the aggregate of approximately
$21,000). Registrant intends to hold the bond until its call date
(September 2013) and therefore does not expect to realize significant gains or
losses on its investment in bond, if any. During the nine months
ended December 30, 2010, the investment in local partnerships decreased as a
result of Registrant’s equity in the Local Partnerships’ net loss for the nine
months ended September 30, 2010 of $236,014. Payable to general
partner and affiliates represents accrued administration and management fees in
the accompanying unaudited balance sheet as of December 30, 2010.
Results of
Operations
Registrant’s
operating results are dependent, in part, upon the operating results of the
Local Partnerships and are impacted by the Local Partnerships’
policies. In addition, the operating results herein are not
necessarily the same for tax reporting. Registrant accounts for its
investment in local partnerships in accordance with the equity method of
accounting. Accordingly, the investment is carried at cost and is
adjusted for Registrant’s share of each Local Partnership’s results of
operations and by cash distributions received. In the event the
operations of a Local Partnership result in a loss, equity in loss of each
investment in Local Partnership allocated to Registrant is recognized to the
extent of Registrant’s investment balance in each Local
Partnership. Equity in loss in excess of Registrant’s investment
balance in a Local Partnership is allocated to other partners’ capital in any
such Local Partnership.
Cumulative
losses and cash distributions in excess of investment in local partnerships may
result from a variety of circumstances, including a Local Partnership's
accounting policies, subsidy structure, debt structure and operating deficits,
among other things. In addition, the book value of Registrant’s
investment in each Local Partnership (the “Local Partnership Carrying Value”)
may be reduced if the Local Partnership Carrying Value is considered to exceed
the estimated value derived by management. Accordingly, cumulative
losses and cash distributions in excess of the investment or an adjustment to a
Local Partnership’s Carrying Value are not necessarily indicative of adverse
operating results of a Local Partnership.
Registrant’s
operations for the three months ended December 30, 2010 and 2009 resulted in net
income of $1,110,431 and $3,251,323, respectively. The decrease in
net income from fiscal 2009 to fiscal 2010 is primarily attributable to (i) a
decrease in gain on sale of limited partner interests/local partnership
properties of approximately $1,961,000 (see discussion below under Local Partnership
Matters), (ii) a decrease in equity in income of investment in local
partnerships of approximately $119,000, which decrease is attributable to a
decrease in the net operating income of the Local Partnership in which
Registrant continues to have an investment balance and a decrease in voluntary
advances made to a Local Partnership that were written off as additional equity
in loss of investment in local partnerships in fiscal 2009 and (iii) an increase
in administration fees and management fees in the cumulative amount of
approximately $101,000 resulting, in part, from an under accrual as of March 30,
2010, all partially offset by a net decrease in other operating expenses of
approximately $38,000. Other comprehensive loss for the three months
ended December 30, 2010 resulted from unrealized gains (losses) on investment in
mutual fund and investment in bond of $(2,637) and $1,752,
respectively.
10
AMERICAN
TAX CREDIT PROPERTIES II L.P.
Item
2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
(Continued).
Registrant’s
operations for the nine months ended December 30, 2010 and 2009 resulted in net
income of $689,570 and $2,825,883, respectively. The decrease in net
income from fiscal 2009 to fiscal 2010 is primarily attributable to (i) a
decrease in gain on sale of limited partner interests/local partnership
properties of approximately $1,971,000 (see discussion below under Local Partnership
Matters), (ii) an increase in equity in loss of investment in local
partnerships of approximately $206,000, which increase is attributable to an
increase in the net operating loss of the Local Partnership in which Registrant
continues to have an investment balance, partially offset by a decrease in
voluntary advances made to a Local Partnership that were written off as
additional equity in loss of investment in local partnerships in fiscal 2009 and
(iii) an increase in administration fees and management fees in the cumulative
amount of approximately $81,000 resulting, in part, from an under accrual as of
March 30, 2010, all partially offset by (i) an increase in interest revenue and
other income from local partnerships, in the aggregate, of approximately $85,000
and (ii) a net decrease in other operating expenses of approximately
$36,000. Other comprehensive income for the nine months ended
December 30, 2010 resulted from unrealized gains on investment in mutual fund
and investment in bond of $17,514 and $3,481, respectively.
Local Partnership
Matters
Registrant's
primary objective, to provide Low-income Tax Credits to its limited partners
(the “Limited Partners”), has been completed. The relevant state tax
credit agency allocated each of the Local Partnerships an amount of Low-income
Tax Credits, which are generally available for a ten year period from the year
the Property is placed in service (the “Ten Year Credit Period”). The
Ten Year Credit Period was fully exhausted with respect to all of the Properties
as of December 31, 2005. The required holding period of each
Property, in order to avoid Low-income Tax Credit recapture, is fifteen years
from the year in which the Low-income Tax Credits commence on the last building
of the Property (the "Compliance Period"). The Compliance Period of
all of the Local Partnerships expired as of December 31, 2006. In
addition, certain of the Local Partnerships entered into agreements with the
relevant state tax credit agencies whereby the Local Partnerships must maintain
the low-income nature of the Properties for a period which exceeds the
Compliance Period (in certain circumstances, up to 50 years from when the
Property is placed in service, but commonly 30 years from the date any such
Property is placed in service), regardless of a sale of the Properties by the
Local Partnerships after the Compliance Period (the “Extended Use
Provisions”). Although the Extended Use Provisions do not extend the
Compliance Period of the respective Local Partnerships, such provisions limit
the number and availability of potential purchasers of the
Properties. Accordingly, a sale of a Property may happen well after
the expiration of the Compliance Period and/or may be significantly
discounted. Registrant is in the process of disposing of its limited
partner interests in the Local Partnerships (the “Local Partnership
Interests”). As of December 30, 2010, Registrant owns thirty-six of
the fifty Local Partnership Interests originally acquired. Registrant
has served a demand on the local general partners (the “Local General Partners”)
of all remaining Local Partnerships to commence a sale process to dispose of the
Properties. In the event a sale cannot be consummated, it is the
General Partner’s intention to sell or assign Registrant’s Local Partnership
Interests. Following the final disposition of its Local Partnership
Interests, Registrant intends to dissolve. It is uncertain as to the
amount, if any, that Registrant will receive with respect to each specific
Property from such sales or assignments. There can be no assurance as
to when Registrant will dispose of its remaining Local Partnership
Interests.
The
Properties are principally comprised of subsidized and leveraged low-income
multifamily residential complexes located throughout the United States and
Puerto Rico. Many of the Local Partnerships receive rental subsidy
payments, including eight that receive payments under Section 8 of Title II of
the Housing and Community Development Act of 1974 ("Section 8”). The
subsidy agreements expire at various times. Since October 1997, the
United States Department of Housing and Urban Development (“HUD”) has issued a
series of directives related to project based Section 8 contracts that define
owners’ notification responsibilities, advise owners of project based Section 8
properties of what their options are regarding the renewal of Section 8
contracts, provide guidance and procedures to owners, management agents,
contract administrators and HUD staff concerning renewal of Section 8 contracts,
provide policies and procedures on setting renewal rents and handling renewal
rent adjustments and provide the requirements and procedures for opting-out of a
Section 8 project based contract. Registrant cannot reasonably
predict legislative initiatives and governmental budget negotiations, the
outcome of which could result in a reduction in funds available for the various
federal and state administered housing programs including the Section 8
program. Such changes could adversely affect the future net operating
income before debt service (“NOI”) and debt structure of any or all Local
Partnerships currently receiving such subsidy or similar
subsidies. The eight Local Partnerships’ Section 8 contracts, certain
of which cover only certain rental units, are currently subject to renewal under
applicable HUD guidelines. Of the eight Local Partnerships noted
above, three have entered into restructuring agreements, resulting in changes to
both rent subsidy and mandatory debt service.
11
AMERICAN
TAX CREDIT PROPERTIES II L.P.
Item
2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
(Continued).
The Local
Partnerships have various financing structures which include (i) required debt
service payments ("Mandatory Debt Service") and (ii) debt service payments that
are payable only from available cash flow subject to the terms and conditions of
the notes, which may be subject to specific laws, regulations and agreements
with appropriate federal and state agencies ("Non-Mandatory Debt Service or
Interest"). Registrant has no legal obligation to fund any operating
deficits of the Local Partnerships.
In
November 2010, Auburn Hills sold its underlying Property to an affiliate of the
Local General Partner of Auburn Hills, in connection with which Registrant
received $986,622; such amount is included in gain on sale of limited partner
interests/local partnership properties in the accompanying unaudited statement
of operations for the nine months ended December 30, 2010. There may
be additional proceeds after further resolution of Auburn Hills’
accounts. Registrant’s investment balance in Auburn Hills, after
cumulative equity losses, became zero during the year ended March 30,
2005.
In
November 2009, Harborside sold its underlying Property, in connection with which
Registrant received $3,215,499 at the date of sale. Of the $401,940
reflected as due from local partnership in the accompanying unaudited balance
sheet as of March 30, 2010, Registrant received $284,834 in May 2010 and the
remaining $117,106 represents withholding tax paid by Harborside to the state in
which the Harborside Property is located on behalf of Registrant’s
partners. Such amount is included in distributions to partners in the
accompanying unaudited financial statements as of and for the nine months ended
December 30, 2010. In addition, the Local General Partner of
Harborside established a $300,000 escrow pursuant to Harborside’s Purchase and
Sale Contract to protect against potential obligations of Harborside to the
buyer. Such escrow was released to Registrant and is included in gain
on sale of limited partner interests/local partnership properties in the
accompanying unaudited statement of operations for the nine months ended
December 30, 2010. There may be additional proceeds after further
resolution of Harborside’s accounts. Registrant’s investment balance
in Harborside, after cumulative equity losses, became zero during the year ended
March 30, 2004.
During
the year ended March 30, 2010, Ann Ell sold its underlying Property; Registrant
received no proceeds in connection with the sale. However, upon final
resolution of Ann Ell’s accounts, Registrant received $4,926; such amount is
included in gain on sale of limited partner interests/local partnership
properties in the accompanying unaudited statement of operations for the nine
months ended December 30, 2010. Registrant’s investment balance in
Ann Ell, after cumulative equity losses, became zero during the year ended March
30, 1994.
During
the year ended December 31, 2009, Lakeside Housing Limited Partnership
(“Lakeside”) generated taxable income to Registrant, resulting in $14,378 in
withholding tax being paid by Lakeside to the state in which the Lakeside
Property is located on behalf of Registrant’s partners. Such amount
is included in other income from local partnerships and distributions to
partners in the accompanying unaudited financial statements as of and for the
nine months ended December 30, 2010. Registrant’s investment balance
in Lakeside, after cumulative equity losses, became zero during the year ended
March 30, 2002.
The Local
General Partner of Queen Lane Investors (“Queen Lane”) represents that, as a
result of a dispute between the local housing agency (the “Agency”) and the
Local General Partner of Queen Lane regarding the adequacy of certain unit
repairs mandated by the Agency, the Local General Partner of Queen Lane
requested that the Agency cancel the Section 8 voucher contract in connection
with the Property. As a result, the Property has been vacant since
October 2007. Two of Queen Lane’s mortgages matured in 2007 but have
not been repaid or formally extended, representing principal and accrued
interest of approximately $2,086,000 as of January 2011. The Local
General Partner of Queen Lane further represents that the lender has not issued
a notice of default and that real estate taxes are in arrears approximately
$22,000 as of January 2011. The Local General Partner of Queen Lane
is attempting to refinance the mortgages and make the necessary repairs to the
Property. Registrant’s investment balance in Queen Lane, after
cumulative equity losses, became zero during the year ended March 30,
2001.
The
non-mandatory mortgages of Littleton Avenue Community Village, L.P.
(“Littleton”) matured in October 2006 but have not been repaid or formally
extended. Unpaid principal and accrued interest as of January 2011
total approximately $8,475,000. The Local General Partner of
Littleton represents that the City of Newark (the “City”) has commenced a
foreclosure action in connection with delinquent real estate taxes (see
discussion below) but that neither lender has issued a notice of default related
to the mortgages and that negotiations are ongoing in an effort to
refinance. The real estate tax abatement on the Property expired in
June 2007; the City assessed the Property and has charged Littleton for real
estate taxes. The Local General Partner of Littleton reports that
real estate taxes are in arrears approximately $188,000 as of September 2010,
which includes accrued interest of approximately $18,000, and that the City has
sold certain of the tax liens to third parties. Littleton owes taxes
and accrued interest totaling approximately $106,000 to such third
parties. Registrant’s investment balance in Littleton, after
cumulative equity losses, became zero during the year ended March 30,
1999.
12
AMERICAN
TAX CREDIT PROPERTIES II L.P.
Item
2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
(Continued).
Critical Accounting Policies
and Estimates
The
accompanying unaudited financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”), which requires Registrant to make certain estimates and
assumptions. The following section is a summary of certain aspects of
those accounting policies that may require subjective or complex judgments and
are most important to the portrayal of Registrant’s financial condition and
results of operations. Registrant believes that there is a low
probability that the use of different estimates or assumptions in making these
judgments would result in materially different amounts being reported in the
accompanying unaudited financial statements.
|
·
|
Registrant
accounts for its investment in local partnerships in accordance with the
equity method of accounting.
|
|
·
|
If
the book value of Registrant’s investment in a Local Partnership exceeds
the estimated value derived by management, Registrant reduces its
investment in any such Local Partnership and includes such reduction in
equity in loss of investment in local partnerships. Registrant
makes such assessment at least annually in the fourth quarter of its
fiscal year or whenever there are indications that a permanent impairment
may have occurred. A loss in value of an investment in a Local
Partnership other than a temporary decline would be recorded as an
impairment loss. Impairment is measured by comparing the
investment carrying amount to the estimated residual value of the
investment.
|
|
·
|
Registrant
does not consolidate the accounts and activities of the Local
Partnerships, which are considered Variable Interest Entities as defined
by Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 810; Subtopic 10, because Registrant is not
considered the primary beneficiary. Registrant’s balance in
investment in local partnerships represents the maximum exposure to loss
in connection with such investments. Registrant’s exposure to
loss on the Local Partnerships is mitigated by the condition and financial
performance of the underlying Properties as well as the financial strength
of the Local General Partners. In addition, the Local Partnerships’
partnership agreements grant the Local General Partners the power to
direct the activities that most significantly impact the Local
Partnerships’ economic success.
|
Forward-Looking
Information
As a
cautionary note, with the exception of historical facts, the matters discussed
in this quarterly report on Form 10-Q are “forward-looking” statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform
Act”). Forward-looking statements may relate to, among other things,
current expectations, forecasts of future events, future actions, future
performance generally, business development activities, capital expenditures,
strategies, the outcome of contingencies, future financial results, financing
sources and availability and the effects of regulation and
competition. Words such as “anticipate,” “expect,” “intend,” “plan,”
“seek,” “estimate” and other words and terms of similar meaning in connection
with discussions of future operating or financial performance signify
forward-looking statements. Registrant may also provide written
forward-looking statements in other materials released to the
public. Such statements are made in good faith by Registrant pursuant
to the “Safe Harbor” provisions of the Reform Act. Registrant
undertakes no obligation to update publicly or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise. Such forward-looking statements involve known risks,
uncertainties and other factors that may cause Registrant’s actual results of
operations or actions to be materially different from future results of
operations or actions expressed or implied by the forward-looking
statements.
Item
3. Quantitative and Qualitative
Disclosure About Market Risk.
Registrant’s
investment in mutual fund (the “Fund”) is subject to certain
risk. The fixed income securities in which the Fund invests are
subject to interest rate risk, credit risk, prepayment risk, counterparty risk,
municipal securities risk, liquidity risk, management risk, government security
risk and valuation risk. Typically, when interest rates rise, the
market prices of fixed income securities go down. The Fund is
classified as “non-diversified,” and thus may invest most of its assets in
securities issued by or representing a small number of issuers. As a
result, the Fund may be more susceptible to the risks associated with these
particular issuers, or to a single economic, political or regulatory occurrence
affecting these issuers. These risks could adversely affect the
Fund’s net asset value (“NAV”), yield and total return.
13
AMERICAN
TAX CREDIT PROPERTIES II L.P.
Item
3. Quantitative and Qualitative
Disclosure About Market Risk (Continued).
The
market value of Registrant’s investment in bond is subject to fluctuation based
upon changes in interest rates relative to the investment’s maturity date and
the associated bond rating. Since Registrant’s investment in bond is
callable in 2013, the value of such investment may be adversely impacted in an
environment of rising interest rates in the event Registrant decides to
liquidate the investment prior to its call date. Although Registrant
may utilize the investment to pay for its operating expenses and/or for certain
Local Partnership matters, it otherwise intends to hold such investment to its
call date. Therefore, Registrant does not anticipate any material
adverse impact in connection with such investment.
Item
4. Controls and
Procedures.
Disclosure
controls and procedures are controls and procedures that are designed to ensure
that information required to be disclosed by Registrant in reports that
Registrant files or submits under the Exchange Act is recorded, processed,
summarized and timely reported as provided in SEC rules and
forms. Registrant periodically reviews the design and effectiveness
of its disclosure controls and procedures, including compliance with various
laws and regulations that apply to its operations. Registrant makes
modifications to improve the design and effectiveness of its disclosure controls
and procedures, and may take other corrective action, if its reviews identify a
need for such modifications or actions. In designing and evaluating
the disclosure controls and procedures, Registrant recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
Registrant
has carried out an evaluation, under the supervision and the participation of
its management, including the Chief Executive Officer and Chief Financial
Officer of the general partner of the General Partner, of the effectiveness of
the design and operation of its disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of
the three months ended December 30, 2010. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer of the general partner
of the General Partner concluded that Registrant’s disclosure controls and
procedures were effective as of December 30, 2010.
Item
4T. Internal Control Over
Financial Reporting.
There
were no changes in Registrant’s internal control over financial reporting during
the three months ended December 30, 2010 that have materially affected, or
are reasonably likely to materially affect, Registrant’s internal control over
financial reporting.
14
AMERICAN
TAX CREDIT PROPERTIES II L.P.
PART
II - OTHER
INFORMATION
Item
1.
|
Legal
Proceedings.
|
None.
Item
1A. Risk
Factors.
There
have been no material changes from the risk factors previously disclosed in Item
1A of Registrant’s Annual Report on Form 10-K for the year ended March 30,
2010.
Item
2.
|
Unregistered Sales of
Equity Securities and Use of
Proceeds.
|
None.
Item
3.
|
Defaults Upon Senior
Securities.
|
|
None;
see Item 2 of Part I regarding the mortgage defaults of certain Local
Partnerships.
|
Item
4.
|
Removed and
Reserved.
|
Item
5.
|
Other
Information.
|
|
None.
|
Item
6.
|
Exhibits.
|
Exhibit
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
Exhibit
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
Exhibit
32.1 Section 1350 Certification of Chief Executive Officer.
Exhibit
32.2 Section 1350 Certification of Chief Financial Officer.
15
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
AMERICAN
TAX CREDIT PROPERTIES II L.P.
|
|||
(a
Delaware limited partnership)
|
|||
By:
|
Richman
Tax Credit Properties II L.P.,
|
||
General
Partner
|
|||
by:
|
Richman
Tax Credits Inc.,
|
||
general
partner
|
|||
Dated:
February 11, 2011
|
/s/David
Salzman
|
||
by: David
Salzman
|
|||
Chief
Executive Officer
|
|||
Dated:
February 11, 2011
|
/s/James
Hussey
|
||
by: James
Hussey
|
|||
Chief
Financial Officer
|
|||
Dated:
February 11, 2011
|
/s/Richard
Paul Richman
|
||
by: Richard
Paul Richman
|
|||
Director
|
16