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, 1998
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 (I.R.S. Employer
incorporation or organization) Identification No.)
Richman Tax Credit Properties II L.P.
599 West Putnam Avenue, 3rd Floor
Greenwich, Connecticut 06830
(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 .
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Table of Contents Page
Balance Sheets as of December 30, 1998 (Unaudited)
and March 30, 1998 (Unaudited)......................................3
Statements of Operations for the three and
nine month periods ended December 30, 1998 (Unaudited)
and December 30, 1997 (Unaudited)...................................4
Statements of Cash Flows for the nine months
ended December 30, 1998 (Unaudited)
and December 30, 1997 (Unaudited)...................................5
Notes to Financial Statements as of December 30, 1998 (Unaudited)......7
AMERICAN TAX CREDIT PROPERTIES II L.P.
BALANCE SHEETS
(UNAUDITED)
December 30, March 30,
Notes 1998 1998
----- ------------ ------------
ASSETS
Cash and cash equivalents $ 596,950 $ 513,536
Investments in bonds available-for-sale 3 4,041,173 4,270,266
Investment in local partnerships 4 13,590,637 15,304,416
Interest receivable 64,617 74,378
------------- -------------
$ 18,293,377 $ 20,162,596
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 636,932 $ 639,905
Payable to general partner 563,358 546,015
Other 48,600 55,600
------------- -------------
1,248,890 1,241,520
------------- -------------
Commitments and contingencies 4
Partners' equity (deficit)
General partner (323,747) (304,342)
Limited partners (55,746 units of limited partnership
interest outstanding) 17,226,172 19,147,253
Accumulated other comprehensive income, net 2,3 142,062 78,165
------------- -------------
17,044,487 18,921,076
------------- -------------
$ 18,293,377 $ 20,162,596
============= =============
See Notes to Financial Statements.
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
December 30, December 30, December 30, December 30,
Notes 1998 1998 1997 1997
----- ------------ ------------ ------------- -------------
REVENUE
Interest $ 80,253 $ 262,677 $ 87,207 $ 267,002
Other income from local partnerships 4 388 388
------------ ------------ ------------ ------------
TOTAL REVENUE 80,253 263,065 87,207 267,390
------------ ------------ ------------ ------------
EXPENSES
Administration fees 74,826 224,479 74,826 224,479
Management fees 74,826 224,479 74,826 224,479
Professional fees 21,222 63,787 30,342 59,308
Printing, postage and other 10,272 29,752 9,934 24,987
------------ ------------ ------------ ------------
TOTAL EXPENSES 181,146 542,497 189,928 533,253
------------ ------------ ------------ ------------
Loss from operations (100,893) (279,432) (102,721) (265,863)
Equity in loss of investment in local
partnerships 4 (603,810) (1,661,054) (571,913) (2,085,294)
------------ ------------ ------------ ------------
NET LOSS (704,703) (1,940,486) (674,634) (2,351,157)
Other comprehensive income (loss) 2,3 (65,887) 63,897 45,772 193,886
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (770,590) $ (1,876,589) $ (628,862) $ (2,157,271)
============ ============ ============ ============
NET LOSS ATTRIBUTABLE TO
General partner $ (7,047) $ (19,405) $ (6,746) $ (23,512)
Limited partners (697,656) (1,921,081) (667,888) (2,327,645)
------------ ------------ ------------ ------------
$ (704,703) $ (1,940,486) $ (674,634) $ (2,351,157)
============ ============ ============ ============
NET LOSS per unit of limited partnership
interest (55,746 units of limited
partnership interest) $ (12.51) $ (34.46) $ (11.98) $ (41.75)
============ ============ ============ ============
See Notes to Financial Statements.
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 265,428 $ 279,338
Cash used for local partnerships for deferred expenses (7,000) (7,000)
Cash paid for
administration fees (207,136) (187,138)
management fees (207,136) (187,138)
professional fees (75,287) (79,055)
printing, postage and other expenses (38,568) (39,107)
--------- ---------
Net cash used in operating activities (269,699) (220,100)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash distributions and other income from local partnerships 129,915 160,946
Maturity/redemption of bonds 300,000 130,000
Advances to local partnerships (76,802)
Investment in local partnerships (184,503)
Investments in bonds (includes $1,089 of accrued interest) (51,589)
--------- ---------
Net cash provided by investing activities 353,113 54,854
--------- ---------
Net increase (decrease) in cash and cash equivalents 83,414 (165,246)
Cash and cash equivalents at beginning of period 513,536 674,160
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 596,950 $ 508,914
========= =========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain on investments in bonds available-for-sale, net $ 63,897 $ 193,886
========= =========
See reconciliation of net loss to net cash used in operating activities on page 6.
See Notes to Financial Statements.
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS - (Continued)
NINE MONTHS ENDED DECEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
------------ --------------
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES
Net loss $ (1,940,486) $ (2,351,157)
Adjustments to reconcile net loss to net cash used in operating activities
Equity in loss of investment in local partnerships 1,661,054 2,085,294
Distributions from local partnerships classified as other income (388) (388)
Gain on maturity/redemption of investments in bonds (11,403)
Amortization of net premium on investments in bonds 33,839 33,175
Accretion of zero coupon bonds (29,446) (30,957)
Decrease in interest receivable 9,761 10,118
Increase (decrease) in accounts payable and accrued expenses (2,973) 3,474
Increase in payable to general partner 17,343 37,341
Decrease in other liabilities (7,000) (7,000)
------------- ------------
NET CASH USED IN OPERATING ACTIVITIES $ (269,699) $ (220,100)
============= ============
See Notes to Financial Statements.
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 1998
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. The
results of operations are impacted significantly 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 financial statements are dependent on such unaudited information.
In the opinion of the General Partner, the financial statements include all
adjustments necessary to present fairly the financial position as of December
30, 1998 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 three and nine month periods ended December 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year.
Certain reclassifications of amounts have been made to conform to the current
period presentation.
2. Comprehensive Income
On March 31, 1998, the Partnership adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." As a
result, the statements of operations include an amount for other comprehensive
income (loss), as well as comprehensive loss. Other comprehensive income (loss)
consists of revenues, expenses, gains and losses that have affected partners'
equity (deficit) but which are excluded from net loss. Other comprehensive
income (loss) in the accompanying statements of operations for the three and
nine month periods ended December 30, 1998 resulted from a net unrealized gain
(loss) on investments in bonds available-for-sale. Accumulated other
comprehensive income in the accompanying balance sheet as of December 30, 1998
reflects the net unrealized gain on investments in bonds available-for-sale. The
balance sheet as of March 30, 1998 and the statements of operations for the
three and nine month periods ended December 30, 1997 include certain
reclassifications to reflect the adoption of SFAS No. 130.
3. Investments in Bonds Available-For-Sale
As of December 30, 1998, certain information concerning investments in
bonds available-for-sale is as follows:
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
- ----------------------------------------- --------- ----------- ---------- ----------
Corporate debt securities
Within one year $ 201,290 $ 526 $ - $ 201,816
After one year through five years 758,652 23,762 (2,412) 780,002
After five years through ten years 1,666,766 83,558 (202) 1,750,122
After ten years 195,299 - (3,753) 191,546
----------- ----------- ---------- -----------
2,822,007 107,846 (6,367) 2,923,486
----------- ----------- ---------- -----------
U.S. Treasury debt securities
After five years through ten years 512,481 42,642 - 555,123
----------- ----------- ---------- -----------
U.S. government and agency securities
After five years through ten years 564,623 2,307 (4,366) 562,564
----------- ----------- ---------- -----------
$ 3,899,111 $ 152,795 $ (10,733) $ 4,041,173
=========== =========== ========== ===========
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1998
(UNAUDITED)
4. Investment in Local Partnerships
The Partnership owns limited partnership interests in fifty Local
Partnerships representing capital contributions in the aggregate amount of
$45,877,165. As of September 30, 1998, the Local Partnerships have outstanding
mortgage loans payable totaling approximately $91,338,000 and accrued interest
payable on such loans totaling approximately $4,862,000, which are secured by
security interests and liens common to mortgage loans on the Local Partnerships'
real property and other assets.
For the nine months ended December 30, 1998, the investment in Local
Partnerships activity consists of the following:
Investment in Local Partnerships as of March 30, 1998 $ 15,304,416
Equity in loss of investment in Local Partnerships (1,584,252)*
Cash distributions received from Local Partnerships (129,915)
Cash distributions classified as other income 388
-------------
Investment in Local Partnerships as of December 30, 1998 $ 13,590,637
=============
*Effective October 1, 1998, in an attempt to avoid potential adverse tax
consequences, the Partnership and the local general partners of 2000-2100
Christian Street Associates (the "2000-2100 Christian Street Local Partnership")
and Christian Street Associates Limited Partnership (the "Christian Street Local
Partnership") agreed to equally share the funding of operating deficits through
June 30, 2000 in the case of the Christian Street Local Partnership and through
September 30, 2000 in the case of the 2000-2100 Christian Street Local
Partnership. Either party's obligation may be cancelled in the event the
anticipated annualized operating deficit exceeds $168,000 in the case of the
Christian Street Local Partnership and $132,000 in the case of the 2000-2100
Christian Street Local Partnership. The Partnership has made advances of $16,500
and $21,000 to the 2000-2100 Christian Street Local Partnership and the
Christian Street Local Partnership, respectively, as of December 30, 1998. In
addition, the Partnership has made advances of $39,302 to Forest Village Housing
Partnership during the nine months ended December 30, 1998. All such advances
have been treated as additional equity in the respective Local Partnerships and
have been included in equity in loss of investment in Local Partnerships in the
accompanying statements of operations for the three and nine month periods ended
December 30, 1998, but are not reflected in the above reconciliation or the
combined statements of operations of the Local Partnerships for the periods
ended September 30, 1998 included in Note 4 herein. Equity in loss of investment
in Local Partnerships is limited to the Partnership's investment balance in each
Local Partnership; any excess is applied to other partners' capital in any such
Local Partnership. The amount of such excess losses applied to other partners'
capital was $532,417 for the nine months ended September 30, 1998 as reflected
in the combined statement of operations of the Local Partnerships reflected
herein Note 4.
The combined unaudited balance sheets of the Local Partnerships as of
September 30, 1998 and December 31, 1997 and the combined unaudited statements
of operations of the Local Partnerships for the three and nine month periods
ended September 30, 1998 and 1997 are reflected on pages 9 and 10, respectively.
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1998
(UNAUDITED)
4. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of September 30,
1998 and December 31, 1997 are as follows:
September 30, December 31,
1998 1997
-------------- --------------
ASSETS
Cash and cash equivalents $ 3,486,342 $ 4,208,629
Rents receivable 640,873 334,976
Escrow deposits and reserves 5,933,461 5,438,953
Land 4,180,673 4,180,673
Buildings and improvements (net of accumulated depreciation of
$46,049,115 and $42,156,402) 94,224,181 97,712,120
Intangible assets (net of accumulated amortization of
$1,025,169 and $962,322) 1,648,203 1,718,369
Other 1,109,771 1,082,118
-------------- --------------
$ 111,223,504 $ 114,675,838
============== ==============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 1,614,819 $ 1,386,630
Due to related parties 4,486,271 4,763,846
Mortgage loans 91,338,418 92,291,126
Notes payable 2,428,750 2,599,572
Accrued interest 4,861,832 4,603,549
Other 678,128 630,192
-------------- --------------
105,408,218 106,274,915
-------------- --------------
Partners' equity (deficit)
American Tax Credit Properties II L.P.
Capital contributions, net of distributions 44,895,291 45,045,349
Cumulative loss (31,295,325) (29,711,073)
-------------- --------------
13,599,966 15,334,276
-------------- --------------
General partners and other limited partners, including
ATCP & ATCP III
Capital contributions, net of distributions 3,323,950 3,363,369
Cumulative loss (11,108,630) (10,296,722)
-------------- --------------
(7,784,680) (6,933,353)
-------------- --------------
5,815,286 8,400,923
-------------- --------------
$ 111,223,504 $ 114,675,838
============== ==============
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1998
(UNAUDITED)
4. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the
three and nine month periods ended September 30, 1998 and 1997 are as follows:
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1998 1997 1997
------------- ------------ ------------ --------------
REVENUE
Rental $ 5,075,956 $ 15,371,106 $ 4,993,299 $ 15,019,507
Interest and other 118,484 358,951 130,599 351,374
------------- ------------- ------------- --------------
TOTAL REVENUE 5,194,440 15,730,057 5,123,898 15,370,881
------------- ------------- ------------- --------------
EXPENSES
Administrative 843,258 2,615,648 783,192 2,377,229
Utilities 575,702 1,945,842 498,229 1,909,753
Operating, maintenance and other 1,160,151 3,117,221 1,065,494 3,016,073
Taxes and insurance 500,950 1,688,218 581,498 1,783,411
Financial (including amortization of
$23,390, $70,166, $23,134 and $68,782) 1,596,077 4,863,354 1,633,244 4,931,361
Depreciation 1,340,080 3,895,934 1,292,464 4,038,278
------------- ------------- ------------- --------------
TOTAL EXPENSES 6,016,218 18,126,217 5,854,121 18,056,105
------------- ------------- ------------- --------------
NET LOSS $ (821,778) $ (2,396,160) $ (730,223) $ (2,685,224)
============= ============= ============= ==============
NET LOSS ATTRIBUTABLE TO
American Tax Credit Properties II L.P. $ (527,008) $ (1,584,252) $ (571,913) $ (2,085,294)
General partners and other limited partners,
including ATCP & ATCP III, which includes
$177,691, $532,417, $81,671 and $298,283
of Partnership loss in excess of investment (294,770) (811,908) (158,310) (599,930)
------------- ------------- ------------- --------------
$ (821,778) $ (2,396,160) $ (730,223) $ (2,685,224)
============= ============= ============= ==============
The combined results of operations of the Local Partnerships for the three
and nine month periods ended September 30, 1998 are not necessarily indicative
of the results that may be expected for an entire operating period.
5. Additional Information
Additional information, including the audited March 30, 1998 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, 1998 on file with the Securities and Exchange
Commission.
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, 1998, American Tax Credit Properties II L.P. (the
"Registrant") has not experienced a significant change in financial condition as
compared to March 30, 1998. Principal changes in assets are comprised of
periodic transactions and adjustments and anticipated equity in loss from
operations of the local partnerships (the "Local Partnerships") which own
low-income multifamily residential complexes (the "Properties") which qualify
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, 1998, Registrant received cash from interest revenue,
maturity/redemption of bonds and distributions from Local Partnerships and
utilized cash for operating expenses and advances to 2000-2100 Christian Street
Associates and Christian Street Associates Limited Partnership (collectively the
"Christian Street Local Partnerships") and Forest Village Housing Partnership
(the "Forest Village Local Partnership") (see Local Partnership Matters below).
Cash and cash equivalents and investments in bonds available-for-sale decreased,
in the aggregate, by approximately $146,000 during the nine months ended
December 30, 1998 (which included a net unrealized gain on investments in bonds
of approximately $64,000, amortization of net premium on investments in bonds of
approximately $34,000 and accretion of zero coupon bonds of approximately
$29,000). Notwithstanding circumstances that may arise in connection with the
Properties, Registrant does not expect to realize significant gains or losses on
its investments in bonds, if any. During the nine months ended December 30,
1998, 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, 1998 of $1,584,252 and cash distributions received from Local Partnerships
of $129,915 (exclusive of distributions from Local Partnerships of $388
classified as other income). Accounts payable and accrued expenses and payable
to general partner in the accompanying balance sheet as of December 30, 1998
include deferred administration fees and management fees, respectively.
Results of Operations
Registrant's operating results are dependent upon the operating results of
the Local Partnerships and are significantly 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. 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. As a result, the reported equity in loss of investment in Local
Partnerships is expected to decrease as Registrant's investment balances in the
respective Local Partnerships become zero. The combined statements of operations
of the Local Partnerships reflected in Note 4 to Registrant's financial
statements include the operating results of all Local Partnerships, irrespective
of Registrant's investment balances.
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. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of a Local Partnership. See discussion below under
Local Partnership Matters regarding certain Local Partnerships currently
operating below economic break even levels.
Registrant's operations for the three months ended December 30, 1998 and
1997 resulted in net losses of $704,703 and $674,634, respectively. The increase
in net loss is primarily attributable to an increase in equity in loss of
investment in Local Partnerships of approximately $32,000, which is primarily
the result of advances to certain Local Partnerships recorded as equity in loss
of investment in Local Partnerships and an increase in the net operating losses
of those Local Partnerships in which Registrant has an investment balance,
partially offset by an increase in the nonrecognition of losses in excess of
Registrant's investment in Local Partnerships in accordance with the equity
method of accounting. Other comprehensive income (loss) for the three months
ended December 30, 1998 and 1997 resulted from a net unrealized gain (loss) on
investments in bonds available-for-sale of $(65,887) and $45,772, respectively.
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' net loss of approximately $822,000 for the three
months ended September 30, 1998 was attributable to rental and other revenue of
approximately $5,194,000, exceeded by operating and interest expenses (including
interest on non-mandatory debt) of approximately $4,653,000 and approximately
$1,363,000 of depreciation and amortization expenses. The Local Partnerships'
net loss of approximately $730,000 for the three months ended September 30, 1997
was attributable to rental and other revenue of approximately $5,124,000,
exceeded by operating and interest expenses (including interest on non-mandatory
debt) of approximately $4,538,000 and approximately $1,316,000 of depreciation
and amortization expenses. The results of operations of the Local Partnerships
for the three months ended September 30, 1998 are not necessarily indicative of
the results that may be expected in future periods.
Registrant's operations for the nine months ended December 30, 1998 and
1997 resulted in net losses of $1,940,486 and $2,351,157, respectively. The
decrease in net loss is primarily attributable to a decrease in equity in loss
of investment in Local Partnerships of approximately $424,000, which is
primarily the result of an increase in the nonrecognition of losses in excess of
Registrant's investment in Local Partnerships in accordance with the equity
method of accounting and a decrease in the net operating losses of those Local
Partnerships in which Registrant continues to have an investment balance,
partially offset by advances to certain Local Partnerships recorded as equity in
loss of investment in Local Partnerships. Other comprehensive income for the
nine months ended December 30, 1998 and 1997 resulted from a net unrealized gain
on investments in bonds available-for-sale of $63,897 and $193,886,
respectively.
The Local Partnerships' net loss of approximately $2,396,000 for the nine
months ended September 30, 1998 was attributable to rental and other revenue of
approximately $15,730,000, exceeded by operating and interest expenses
(including interest on non-mandatory debt) of approximately $14,160,000 and
approximately $3,966,000 of depreciation and amortization expenses. The Local
Partnerships' net loss of approximately $2,685,000 for the nine months ended
September 30, 1997 was attributable to rental and other revenue of approximately
$15,371,000, exceeded by operating and interest expenses (including interest on
non-mandatory debt) of approximately $13,949,000 and approximately $4,107,000 of
depreciation and amortization expenses. The results of operations of the Local
Partnerships for the nine months ended September 30, 1998 are not necessarily
indicative of the results that may be expected in future periods.
Local Partnership Matters
The Properties are principally comprised of subsidized and leveraged
low-income multifamily residential complexes located throughout the United
States and Puerto Rico. The rents of the Properties, many of which receive
rental subsidy payments pursuant to subsidy agreements ("HAP Contracts"), are
subject to specific laws, regulations and agreements with federal and state
agencies. Seven Local Partnerships have one or more HAP Contracts, certain of
which cover only certain rental units, which are scheduled to expire in 1999, of
which six Local Partnerships had HAP Contracts extended during 1998. In
addition, the Local Partnerships have various financing structures which include
(i) required debt service payments ("Mandatory Debt Service") and (ii) debt
service payments which 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"). During the nine months ended
September 30, 1998, revenue from operations of the Local Partnerships, Local
General Partner advances and reserves of the Local Partnerships have generally
been sufficient to cover the operating expenses and Mandatory Debt Service with
the exception of the Christian Street Local Partnerships and the Forest Village
Local Partnership. Substantially all of the Local Partnerships are effectively
operating at or near break even levels, although certain Local Partnerships'
operating information reflects operating deficits that do not represent cash
deficits due to their mortgage and financing structure and the required deferral
of property management fees. However, as discussed below, certain Local
Partnerships' operating information indicates below break even operations after
taking into account their mortgage and financing structure and any required
deferral of property management fees.
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The terms of the partnership agreements of the Christian Street Local
Partnerships, which Local Partnerships have certain common general partner
interests and a common mortgage lender, require the Local General Partners to
cause the management agent to defer property management fees in order to avoid a
default under the respective mortgages. The properties have experienced ongoing
operating deficits and, as of September 30, 1998, the Local General Partners
have advanced approximately $1,085,000 to the Christian Street Local
Partnerships, which amount includes deferred property management fees. However,
the Local General Partners, which have fulfilled their respective deficit
guarantees, had informed Registrant that they do not intend to continue to
voluntarily fund the operating deficits of the properties. The Local General
Partners had also informed Registrant that the Christian Street Local
Partnerships are current under their respective first mortgage obligations as a
result of the Local General Partners' funding of operating deficits and deferral
of property management fees. The Local General Partners have approached the
lender and are attempting to restructure the loans; however, the lender has
indicated that in connection with any such restructuring, the respective Local
Partnerships would be responsible for certain costs, which may be significant.
There can be no assurance that any such restructuring will be achieved. The
Christian Street Local Partnerships have incurred operating deficits of
approximately $155,000 for the nine months ended September 30, 1998, which
includes property management fees of approximately $30,000. The Christian Street
Local Partnerships have allocated approximately 8.5 years of Low-income Tax
Credits to Registrant through December 31, 1998. Accordingly, if the Local
General Partners cease to fund the operating deficits, Registrant may incur
substantial recapture of Low-income Tax Credits. However, effective October 1,
1998, in an attempt to avoid potential adverse tax consequences, Registrant and
the Local General Partners of the Christian Street Local Partnerships agreed to
equally share the funding of operating deficits through June 30, 2000 in the
case of Christian Street Associates Limited Partnership and through September
30, 2000 in the case of 2000-2100 Christian Street Associates. Either party's
obligation may be cancelled in the event the anticipated annualized operating
deficit exceeds $168,000 in the case of Christian Street Associates Limited
Partnership and $132,000 in the case of 2000-2100 Christian Street Associates.
The Local General Partners of the Christian Street Local Partnerships have
agreed to cause the management agent to accrue and defer its management fees
during the period of the agreements. The accrued management fees will not be
included when determining the operating deficits. In addition, Registrant and
the Local General Partners have each funded $37,500 to the Christian Street
Local Partnerships under the terms of the agreements through December 30, 1998.
Registrant's investment balances in the Christian Street Local Partnerships,
after cumulative equity losses, became zero during the year ended March 30,
1997. Accordingly, such advances have been included in equity in loss of
investment in Local Partnerships in Registrant's statements of operations for
the three and nine month periods ended December 30, 1998. Of Registrant's total
annual Low-income Tax Credits, approximately 9% is allocated from the Christian
Street Local Partnerships and are scheduled to expire in 2000.
During the nine months ended September 30, 1998, the Forest Village Local
Partnership incurred an operating deficit of approximately $35,000, resulting
primarily from costs associated with increased vacancies, tenant turnover and
maintenance costs. Registrant utilized reserves of approximately $39,000 during
the nine months ended December 30, 1998 in connection with the Forest Village
Local Partnership. Registrant's investment balance in the Forest Village Local
Partnership, after cumulative equity losses, became zero during the year ended
March 30, 1995. Since the reimbursement of such amounts is not likely to occur
based upon the anticipated cash flow of such Local Partnership, such
expenditures were included in equity in loss of investment in Local Partnerships
in Registrant's statements of operations for the three and nine month periods
ended December 30, 1998. As of September 30, 1998, the Forest Village Local
Partnership is three months in arrears under its first mortgage and one month in
arrears under its second mortgage. Of Registrant's total annual Low-income Tax
Credits, approximately 1% is allocated from the Forest Village Local
Partnership.
During the nine months ended September 30, 1998, Ann Ell Apartments
Associates, Ltd. (the "Ann Ell Local Partnership") incurred an operating deficit
of approximately $40,000. Payments on the mortgage and real estate taxes are
current. Registrant's investment balance in the Ann Ell Local Partnership, after
cumulative equity losses, became zero during the year ended March 30, 1994. Of
Registrant's total annual Low-income Tax Credits, less than 1% is allocated from
the Ann Ell Local Partnership.
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The terms of the partnership agreement of Batesville Family, L.P. (the
"Batesville Local Partnership") require the management agent to defer property
management fees in order to avoid a default under the mortgage. The Batesville
Local Partnership incurred an operating deficit of approximately $21,000 for the
nine months ended September 30, 1998, which includes property management fees of
approximately $1,000. Payments on the mortgage and real estate taxes are
current. Registrant's investment balance in the Batesville Local Partnership,
after cumulative equity losses, became zero during the year ended March 30,
1998. Of Registrant's total annual income Low-income Tax Credits, less than 1%
is allocated from the Batesville Local Partnership.
Littleton Avenue Community Village, L.P. (the "Littleton Local
Partnership") was a defendant in a lawsuit resulting from an accident in 1989
during the construction of the complex owned by the Littleton Local Partnership.
In November 1995 the Littleton Local Partnership and one co-defendant were found
liable in the lawsuit, of which the Littleton Local Partnership's potential
liability was approximately $300,000. The Littleton Local Partnership appealed
the court's decision and filed a lawsuit against the construction period
insurance companies, which were not co-defendants in the lawsuit. The parties
have reached a settlement resulting in no adverse economic impact to the
Littleton Local Partnership.
Adoption of Accounting Standard
On March 31, 1998, Registrant adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. The adoption of SFAS No. 130 has not
materially impacted Registrant's financial position and results of operations.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the year 2000 compliance ("Y2K") issue. As
the year 2000 approaches, such systems may be unable to accurately process
certain data-based information. Many businesses may need to upgrade existing
systems or purchase new ones to correct the Y2K issue. The total cost associated
with Y2K implementation is not expected to materially impact Registrant's
financial position or results of operations in any given year. However, there
can be no assurance that the systems of other entities on which Registrant
relies, including the Local Partnerships which report to Registrant on a
periodic basis for the purpose of Registrant's reporting to its investors, will
be timely converted. There can be no assurance that a failure to convert by
another entity would not have a material adverse impact on Registrant.
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in Part I, Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations, Littleton Avenue
Community Village, L.P. (the "Littleton Local Partnership") was a
defendant in a lawsuit resulting from an accident in 1989 during the
construction of the complex owned by the Littleton Local Partnership.
In November 1995 the Littleton Local Partnership and one co-defendant
were found liable in the lawsuit, of which the Littleton Local
Partnership's potential liability was approximately $300,000. The
Littleton Local Partnership appealed the court's decision and filed a
lawsuit against the construction period insurance companies, which
were not co-defendants in the lawsuit. The parties have reached a
settlement resulting in no adverse economic impact to the Littleton
Local Partnership.
Registrant is not aware of any other material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None; see Item 5 regarding a mortgage default of a Local Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
As discussed in Part I, Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations, the local
general partner of Forest Village Housing Partnership (the "Forest
Village Local Partnership") reports that the Forest Village Local
Partnership is in arrears under its first and second mortgages as
of January 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
None
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.
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 12, 1999 /s/ Richard Paul Richman
---------------- -------------------------
Richard Paul Richman
President, Chief Executive Officer and
Director of the general partner of the
General Partner
Dated: February 12, 1999 /s/ Neal Ludeke
---------------- ----------------
Neal Ludeke
Vice President and Treasurer of the general partner
of the General Partner
(Principal Financial and Accounting
Officer of Registrant)