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, 2005
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.
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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |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|
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Table of Contents Page
- ----------------- ----
Balance Sheets.............................................................. 3
Statements of Operations.................................................... 4
Statements of Cash Flows.................................................... 5
Notes to Financial Statements............................................... 7
2
AMERICAN TAX CREDIT PROPERTIES II L.P.
BALANCE SHEETS
(UNAUDITED)
December 30, March 30,
Notes 2005 2005
------------ ------------ ------------
ASSETS
Cash and cash equivalents $ 544,534 $ 90,086
Investments in bonds 2 1,564,831 1,564,149
Investment in local partnerships 3 3,768,169 4,535,161
Interest receivable 18,250 13,568
------------ ------------
$ 5,895,784 $ 6,202,964
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 600,288 $ 610,118
Payable to general partner and affiliates 1,251,234 1,172,698
Other liabilities 6,600
------------ ------------
1,851,522 1,789,416
------------ ------------
Commitments and contingencies 3,4
Partners' equity (deficit)
General partner (452,421) (448,987)
Limited partners (55,746 units of limited partnership
interest outstanding) 4,487,413 4,827,416
Accumulated other comprehensive income, net 2 9,270 35,119
------------ ------------
4,044,262 4,413,548
------------ ------------
$ 5,895,784 $ 6,202,964
============ ============
See Notes to Financial Statements.
3
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 2005 2005 2004 2004
-------------- -------------- -------------- -------------- --------------
REVENUE
Interest $ 29,129 $ 85,565 $ 39,046 $ 112,812
Other income from local partnerships 3 60,482 67,361 37,807
-------------- -------------- -------------- --------------
TOTAL REVENUE 89,611 152,926 39,046 150,619
-------------- -------------- -------------- --------------
EXPENSES
Administration fees 64,262 192,786 73,608 220,816
Management fees 64,262 192,786 73,608 220,816
Professional fees 24,028 78,790 19,936 64,723
State of New Jersey filing fee 18,690 73,168 31,690 65,302
Printing, postage and other 16,598 35,862 13,526 29,137
-------------- -------------- -------------- --------------
TOTAL EXPENSES 187,840 573,392 212,368 600,794
-------------- -------------- -------------- --------------
(98,229) (420,466) (173,322) (450,175)
Equity in income (loss) of investment in
local partnerships 3 91,885 77,029 (306,490) (607,796)
-------------- -------------- -------------- --------------
NET LOSS (6,344) (343,437) (479,812) (1,057,971)
Other comprehensive loss 2 (8,883) (25,849) (34,444) (108,926)
-------------- -------------- -------------- --------------
COMPREHENSIVE LOSS $ (15,227) $ (369,286) $ (514,256) $ (1,166,897)
============== ============== ============== ==============
NET LOSS ATTRIBUTABLE TO
General partner $ (63) $ (3,434) $ (4,798) $ (10,580)
Limited partners (6,281) (340,003) (475,014) (1,047,391)
-------------- -------------- -------------- --------------
$ (6,344) $ (343,437) $ (479,812) $ (1,057,971)
============== ============== ============== ==============
NET LOSS per unit of limited partnership
interest (55,746 units of limited
partnership interest) $ (0.11) $ (6.10) $ (8.52) $ (18.79)
============== ============== ============== ==============
See Notes to Financial Statements.
4
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 30, 2005 AND 2004
(UNAUDITED)
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 54,352 $ 90,299
Cash used for local partnerships for deferred expenses (6,600) (7,000)
Cash paid for
administration fees (202,277) (182,804)
management fees (104,759) (294,416)
professional fees (87,744) (82,091)
State of New Jersey filing fee (74,970) (86,284)
printing, postage and other expenses (34,936) (29,855)
------------ ------------
Net cash used in operating activities (456,934) (592,151)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to local partnerships (49,923) (135,033)
Cash distributions from local partnerships 69,746 48,342
Proceeds from maturities/redemptions and sales of bonds 637,011
Distribution in connection with sale of local partnership property 891,559
------------ ------------
Net cash provided by investing activities 911,382 530,320
------------ ------------
Net increase (decrease) in cash and cash equivalents 454,448 (41,831)
Cash and cash equivalents at beginning of period 90,086 100,169
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 544,534 $ 58,338
============ ============
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized loss on investments in bonds, net $ (25,849) $ (108,926)
============ ============
- --------------------------------------------------------------------------------
See reconciliation of net loss 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, 2005 AND 2004
(UNAUDITED)
2005 2004
------------ ------------
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES
Net loss $ (343,437) $ (1,057,971)
Adjustments to reconcile net loss to net cash used in operating activities
Equity in (income) loss of investment in local partnerships (77,029) 607,796
Distributions from local partnerships classified as other income (67,361) (37,807)
Gain on redemptions and sales of bonds (7,657)
Amortization of net premium on investments in bonds 1,742 1,614
Accretion of zero coupon bonds (28,273) (28,586)
Decrease (increase) in interest receivable (4,682) 12,116
Increase (decrease)in payable to general partner and affiliates 78,536 (35,588)
Decrease in accounts payable and accrued expenses (9,830) (39,068)
Decrease in other liabilities (6,600) (7,000)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES $ (456,934) $ (592,151)
============ ============
See Notes to Financial Statements.
6
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2005
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information. They do not include
all information and footnotes required by accounting principles generally
accepted in the United States of America 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, 2005 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, 2005 are not necessarily indicative
of the results that may be expected for the entire year.
2. Investments in Bonds
As of December 30, 2005, certain information concerning investments in
bonds is as follows:
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
- ------------------------ ------------ ------------ ------------ ------------
Corporate debt securities
Within one year $ 800,596 $ 2,584 $ -- $ 803,180
------------ ------------ ------------ ------------
U.S. Treasury debt securities
After one year through five years 754,965 6,686 -- 761,651
------------ ------------ ------------ ------------
$ 1,555,561 $ 9,270 $ -- $ 1,564,831
============ ============ ============ ============
7
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2005
(UNAUDITED)
3. Investment in Local Partnerships
The Partnership originally acquired limited partnership interests in Local
Partnerships representing capital contributions in the aggregate amount of
$46,815,899, which amount includes advances made to certain Local
Partnerships. As of December 30, 2005, the Partnership holds an interest
in forty-eight Local Partnerships that have, as of September 30, 2005,
outstanding mortgage loans payable totaling approximately $72,899,000 and
accrued interest payable on such loans totaling approximately $9,310,000,
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, 2005, the investment in local
partnerships activity consists of the following:
Investment in local partnerships as of March 30, 2005 $ 4,535,161
Advances to Local Partnerships 49,923
Equity in income of investment in local partnerships 77,029*
Cash distributions received from local partnerships (69,746)
Cash distributions classified as other income 67,361
Proceeds in connection with sale of Local Partnership
property (891,559)
-----------
Investment in local partnerships as of December 30, 2005 $ 3,768,169
===========
* The Property owned by Elm Hill Housing Limited Partnership ("Elm Hill")
was sold on March 31, 2005; the Partnership received $891,559 in
connection with the sale. The carrying value of the Partnership's
investment in Elm Hill was adjusted to $891,559 as of the Partnership's
fiscal year ended March 30, 2005; accordingly, no gain in connection with
the sale is reflected in the accompanying statement of operations of the
Partnership for the nine months ended December 30, 2005. In the event that
additional proceeds are distributed to the Partnership in connection with
the final settlement of the sale of Elm Hill, a gain will be recorded at
such time. Elm Hill reported a gain on sale of property of $1,177,998 as
reflected in the combined statement of operations of the Local
Partnerships for the nine months ended September 30, 2005 herein Note 3.
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
$1,843,910 for the nine months ended September 30, 2005 as reflected in
the combined statement of operations of the Local Partnerships reflected
herein Note 3.
The combined unaudited balance sheets of the Local Partnerships as of
September 30, 2005 and December 31, 2004 and the combined unaudited
statements of operations of the Local Partnerships for the three and nine
month periods ended September 30, 2005 and 2004 are reflected on pages 9
and 10, respectively.
8
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2005
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of September 30,
2005 and December 31, 2004 are as follows:
September 30, December 31,
2005 2004
-------------- --------------
ASSETS
Cash and cash equivalents $ 3,876,916 $ 1,884,287
Rents receivable 310,792 540,514
Escrow deposits and reserves 6,364,318 7,165,277
Land 3,762,971 3,906,771
Buildings and improvements (net of accumulated
depreciation of $70,850,208 and $74,031,464) 60,592,701 70,467,866
Intangible assets (net of accumulated amortization
of $631,470 and $864,984) 785,477 1,119,389
Other assets 1,498,518 1,789,317
-------------- --------------
$ 77,191,693 $ 86,873,421
============== ==============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 2,519,534 $ 2,749,291
Due to related parties 3,308,020 4,740,361
Mortgage loans 72,898,933 83,424,391
Notes payable 970,616 971,764
Accrued interest 9,309,819 8,906,296
Other liabilities 656,283 688,695
-------------- --------------
89,663,205 101,480,798
-------------- --------------
Partners' equity (deficit)
American Tax Credit Properties II L.P.
Capital contributions, net of distributions 42,819,543 45,162,362
Cumulative loss (31,463,842) (37,909,578)
-------------- --------------
11,355,701 7,252,784
-------------- --------------
General partners and other limited partners
Capital contributions, net of distributions 3,046,196 3,016,079
Cumulative loss (26,873,409) (24,876,240)
-------------- --------------
(23,827,213) (21,860,161)
-------------- --------------
(12,471,512) (14,607,377)
-------------- --------------
$ 77,191,693 $ 86,873,421
============== ==============
9
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2005
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the
three and nine month periods ended September 30, 2005 and 2004 are as
follows:
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2005 2005 2004 2004
-------------- -------------- -------------- --------------
REVENUE
Rental $ 4,862,146 $ 15,451,214 $ 5,400,582 $ 16,554,672
Interest and other 204,384 435,483 178,447 533,049
-------------- -------------- -------------- --------------
TOTAL REVENUE 5,066,530 15,886,697 5,579,029 17,087,721
-------------- -------------- -------------- --------------
EXPENSES
Administrative 1,062,362 3,167,720 1,066,897 3,188,660
Utilities 653,609 2,539,120 651,705 2,607,231
Operating and maintenance 1,201,032 3,618,350 1,278,802 3,735,530
Taxes and insurance 686,118 1,968,149 489,631 1,985,690
Financial 1,066,512 3,501,268 1,394,510 4,239,378
Depreciation and amortization 1,091,952 3,367,367 1,170,022 3,518,186
-------------- -------------- -------------- --------------
TOTAL EXPENSES 5,761,585 18,161,974 6,051,567 19,274,675
-------------- -------------- -------------- --------------
Loss from operations before gain on sale
of property (695,055) (2,275,277) (472,538) (2,186,954)
Gain on sales of properties 192,723 1,370,721
-------------- -------------- -------------- --------------
NET LOSS $ (502,332) $ (904,556) $ (472,538) $ (2,186,954)
============== ============== ============== ==============
NET INCOME (LOSS) ATTRIBUTABLE TO
American Tax Credit Properties II L.P.* $ 91,885 $ 1,168,821 $ (6,490) $ (307,796)
General partners and other limited
partners, which includes $477,479,
$1,843,910, $388,672 and $1,550,142
of Partnership loss in excess of
investment (594,217) (2,073,337) (466,048) (1,879,158)
-------------- -------------- -------------- --------------
$ (502,332) $ (904,556) $ (472,538) $ (2,186,954)
============== ============== ============== ==============
The combined results of operations of the Local Partnerships for the nine
months ended September 30, 2005 are not necessarily indicative of the
results that may be expected for an entire operating period.
10
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2005
(UNAUDITED)
3. Investment in Local Partnerships (continued)
Effective October 1, 1998, the Partnership and the local general partners
of 2000-2100 Christian Street Associates ("2000 Christian Street") and
Christian Street Associates Limited Partnership ("Christian Street")
agreed to equally share the funding of operating deficits through June 30,
2000 in the case of Christian Street and through September 30, 2000 in the
case of 2000 Christian Street (the respective "Funding Agreements"). The
Funding Agreements were extended through December 31, 2004. Under the
terms of the Funding Agreements, the Partnership has advanced $540,848 as
of December 30, 2005; no operating deficits have been funded in fiscal
2006. Such advances have been recorded as investment in local partnerships
and have been offset by additional equity in loss of investment in local
partnerships. Effective May 5, 2005, the Partnership withdrew as a limited
partner of Christian Street for consideration of $10; there is no impact
on the Partnership's financial statements as a result of such withdrawal.
Effective January 31, 2006, the Local General Partner of Ann Ell entered
into a Purchase and Sale agreement whereby the Property is expected to be
sold in March 2006. The estimated proceeds to be received by the
Partnership in connection with the sale is expected to range from
approximately $2,500,000 to $3,500,000. The agreement is subject to
various terms and conditions and is subject to termination; accordingly,
there is no assurance that such sale will ultimately take place or that
the estimated proceeds will be realized. The Partnership's investment
balance in Ann Ell, after cumulative equity losses, became zero during the
year ended March 30, 1994.
The Partnership advanced $49,923 during the nine months ended December 30,
2005 to College Avenue Apartments Limited Partnership ("College Avenue")
to fund operating deficits. Cumulative advances as of December 30, 2005
are $176,501. Such advances have been recorded as investment in local
partnerships and have been offset by additional equity in loss of
investment in local partnerships. The Local General Partners reported that
the Property owned by College Avenue was sold in July 2005. The
Partnership did not receive any proceeds and there is no impact on the
Partnership's financial statements as a result of such sale. College
Avenue reported a gain on sale of property of $192,723 as reflected in the
combined statements of operations of the Local Partnerships for the three
and nine month periods ended September 30, 2005 herein Note 3.
The Local General Partner of The Pendleton (A Louisiana Partnership in
Commendam) ("Pendleton") reports that one of Pendleton's mortgages, which
was scheduled to commence amortization in May 2004, is twenty months in
arrears (approximately $56,000) as of December 2005. The Local General
Partner represents that no default has been declared on the delinquent
mortgage and that payments on the other mortgages and the real estate
taxes are current.
4. Additional Information
Additional information, including the audited March 30, 2005 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, 2005 on file with the
Securities and Exchange Commission.
11
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, 2005, other than the receipt of $891,559 in connection with
the sale of the Property owned by Elm Hill Housing Limited Partnership ("Elm
Hill") (see discussion below under Local Partnership Matters), American Tax
Credit Properties II L.P. (the "Registrant") did not experience a significant
change in financial condition as compared to March 30, 2005. Principal changes
in assets are comprised of periodic transactions and adjustments, 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") and proceeds in connection with the
sale of the Property owned by Elm Hill. During the nine months ended December
30, 2005, Registrant received cash from interest revenue and distributions from
Local Partnerships and utilized cash for operating expenses and advances to a
Local Partnership (see Local Partnership Matters below). Cash and cash
equivalents and investments in bonds increased, in the aggregate, by
approximately $455,000 during the nine months ended December 30, 2005 (which
includes amortization of net premium on investments in bonds of approximately
$2,000 and accretion of zero coupon bonds of approximately $28,000).
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, 2005,
the investment in local partnerships decreased as a result of proceeds received
in connection with the sale of the Elm Hill Property of $891,559 and cash
distributions received from Local Partnerships of $2,385 (exclusive of
distributions from Local Partnerships of $67,361 classified as other income),
partially offset by Registrant's equity in the Local Partnerships' net income
for the nine months ended September 30, 2005 of $77,029 and advances to a Local
Partnership of $49,923 (see discussion below under Local Partnership Matters).
Accounts payable and accrued expenses includes deferred administration fees of
$518,740, and payable to general partner and affiliates represents deferred
administration and management fees in the accompanying balance sheet as of
December 30, 2005.
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. However, the combined statements of
operations of the Local Partnerships reflected in Note 3 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. 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. 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, 2005 and 2004
resulted in a net loss of $6,344 and $479,812, respectively. The decrease in net
loss is primarily attributable to an increase in other income from local
partnerships of approximately $60,000 and a decrease in equity loss of
investment in local partnerships of approximately $398,000, which decrease is
primarily the result of a (i) an increase in the nonrecognition of losses in
accordance with the equity method of accounting, (ii) a decrease in advances
being made to certain Local Partnerships and being charged to equity in loss of
investment in local partnerships for fiscal 2006 as compared to fiscal 2005 (see
discussion below under Local Partnership Matters) and (iii) a decrease in the
net operating losses of certain Local Partnerships in which Registrant continues
to have an investment balance, all partially offset by. Other comprehensive loss
for the three months ended December 30, 2005 and 2004 resulted from a net
unrealized loss on investments in bonds of $8,883 and $34,444, respectively.
12
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' loss from operations of approximately $695,000 for the
three months ended September 30, 2005 was attributable to rental and other
revenue of approximately $5,067,000, exceeded by operating and interest expense
(including interest on non-mandatory debt) of approximately $4,670,000 and
approximately $1,092,000 of depreciation and amortization expense. The Local
Partnerships' net loss of approximately $473,000 for the three months ended
September 30, 2004 was attributable to rental and other revenue of approximately
$5,579,000, exceeded by operating and interest expense (including interest on
non-mandatory debt) of approximately $4,882,000 and approximately $1,170,000 of
depreciation and amortization expense. The results of operations of the Local
Partnerships for the three months ended September 30, 2005 are not necessarily
indicative of the results that may be expected in future periods. Revenue and
expenses of the Local Partnerships have decreased in 2005 as a result of the
sale of the Elm Hill Property and the Property owned by College Avenue
Apartments Limited Partnership ("College Avenue") and Registrant's withdrawal
from Christian Street Associates Limited Partnership ("Christian Street") (see
discussion below under Local Partnership Matters).
Registrant's operations for the nine months ended December 30, 2005 and 2004
resulted in a net loss of $343,437 and $1,057,971, respectively. The decrease in
net loss is primarily attributable to an increase in other income from local
partnerships of approximately $30,000 and a decrease in equity loss of
investment in local partnerships of approximately $685,000, which decrease is
primarily the result of a (i) an increase in the nonrecognition of losses in
accordance with the equity method of accounting, (ii) a decrease in advances
being made to certain Local Partnerships and being charged to equity in loss of
investment in local partnerships for fiscal 2006 as compared to fiscal 2005 (see
discussion below under Local Partnership Matters) and (iii) a decrease in the
net operating losses of certain Local Partnerships in which Registrant continues
to have an investment balance. Other comprehensive loss for the nine months
ended December 30, 2005 and 2004 resulted from a net unrealized loss on
investments in bonds of $25,849 and $108,926, respectively.
The Local Partnerships' loss from operations of approximately $2,275,000 for the
nine months ended September 30, 2005 was attributable to rental and other
revenue of approximately $15,887,000, exceeded by operating and interest expense
(including interest on non-mandatory debt) of approximately $14,795,000 and
depreciation and amortization expense of approximately $3,367,000. The Local
Partnerships' net loss of approximately $2,187,000 for the nine months ended
September 30, 2004 was attributable to rental and other revenue of approximately
$17,088,000, exceeded by operating and interest expense (including interest on
non-mandatory debt) of approximately $15,757,000 and approximately $3,518,000 of
depreciation and amortization expense. The results of operations of the Local
Partnerships for the nine months ended September 30, 2005 are not necessarily
indicative of the results that may be expected in future periods. Revenue and
expenses of the Local Partnerships have decreased in 2005 as a result of the
sale of the Elm Hill and College Avenue Properties and Registrant's withdrawal
from Christian Street (see discussion below under Local Partnership Matters).
Local Partnership Matters
Registrant's primary objective has been to provide Low-income Tax Credits to
limited partners generally over a ten year period. The relevant state tax credit
agency has allocated each of Registrant's 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 substantially fully exhausted by the Local
Partnerships as of December 31, 2001. 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"). In addition, certain of the Local
Partnerships have 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, regardless of
any sale of the Properties by the Local Partnerships after the Compliance
Period. The Properties must satisfy various requirements including rent
restrictions and tenant income limitations (the "Low-income Tax Credit
Requirements") in order to maintain eligibility for the recognition of the
Low-income Tax Credit at all times during the Compliance Period. Once a Local
Partnership has become eligible for the Low-income Tax Credit, it may lose such
eligibility and suffer an event of recapture if its Property fails to remain in
compliance with the Low-income Tax Credit Requirements. It is the General
Partner's intention to sell or assign Registrant's interests in Local
Partnerships subsequent to the expiration of the respective Compliance Periods.
It is uncertain as to the amount, if any, that Registrant will receive with
respect to each specific Property from such sales and assignments.
13
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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 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 during and after the Compliance Periods of the Local Partnerships. 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.
Twelve Local Partnerships' Section 8 contracts, certain of which cover only
certain rental units, are currently subject to renewal under applicable HUD
guidelines. In addition, two Local Partnerships entered into restructuring
agreements in 2001, resulting in both a lower rent subsidy (resulting in lower
NOI) and lower mandatory debt service.
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, 2005, revenue
from operations of the Local Partnerships has generally been sufficient to cover
operating expenses and Mandatory Debt Service. Most of the Local Partnerships
are effectively operating at or above 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.
Christian Street and 2000-2100 Christian Street Associates ("2000 Christian
Street"), which Local Partnerships have certain common general partner interests
and a common first mortgage lender, have experienced ongoing operating deficits.
Under terms of the partnership agreements, the Local General Partners exceeded
their respective operating deficit guarantees and, as of September 30, 1998, had
advanced in excess of $1,000,000 in the aggregate to Christian Street and 2000
Christian Street. The Local General Partners approached the lender with the
intention to restructure the loans; however, the lender indicated that in
connection with any such restructuring, the respective Local Partnerships would
be responsible for certain costs, which would likely have been significant. If
the Local General Partners were to cease funding the operating deficits,
Registrant would likely have incurred substantial recapture of Low-income Tax
Credits. Effective October 1, 1998, in an attempt to avoid potential adverse tax
consequences, Registrant and the Local General Partners agreed to equally share
the funding of operating deficits through June 30, 2000 in the case of Christian
Street and through September 30, 2000 in the case of 2000 Christian Street (the
respective "Funding Agreements"). The Funding Agreements were extended through
December 31, 2004. The Local General Partners agreed to cause the management
agent to accrue and defer its management fees during the period of the Funding
Agreements and the accrued management fees are excluded when determining the
operating deficits. Effective May 5, 2005, Registrant withdrew as a limited
partner of Christian Street for consideration of $10; there is no impact on
Registrant's financial statements as a result of such withdrawal. The Compliance
Period for Christian Street has expired. 2000 Christian Street reported an
operating deficit of approximately $80,000, excluding accrued management fees of
approximately $13,000, for the nine months ended September 30, 2005. Under the
terms of the Funding Agreement for 2000 Christian Street, Registrant has
advanced $264,315 as of December 30, 2005; no operating deficits have been
funded in fiscal 2006. The Local General Partner represents that payments on the
mortgage and real estate taxes are current. Registrant's investment balances in
2000 Christian Street, after cumulative equity losses, became zero during the
year ended March 30, 1997 and advances made by Registrant have been offset by
additional equity in loss of investment in local partnerships. The Compliance
Period for 2000 Christian Street has expired.
14
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
During the nine months ended September 30, 2005, Ann Ell Apartments Associates,
Ltd. ("Ann Ell") reported an operating deficit of approximately $35,000.
Registrant has made cumulative advances to Ann Ell of $469,545 as of December
30, 2005. The Local General Partner represents that payments on the mortgage and
real estate taxes are current. Effective January 31, 2006, the Local General
Partner of Ann Ell entered into a Purchase and Sale agreement whereby the
Property is expected to be sold in March 2006. The estimated proceeds to be
received by Registrant in connection with the sale is expected to range from
approximately $2,500,000 to $3,500,000. The agreement is subject to various
terms and conditions and is subject to termination; accordingly, there is no
assurance that such sale will ultimately take place or that the estimated
proceeds will be realized. Registrant's investment balance in Ann Ell, after
cumulative equity losses, became zero during the year ended March 30, 1994 and
advances made by Registrant have been offset by additional equity in loss of
investment in local partnerships. The Compliance Period for Ann Ell has expired.
The terms of the partnership agreement of Powelton Gardens Associates ("Powelton
Gardens") require the Local General Partners to fund all operating deficits
through the Compliance Period and to cause the management agent to defer
property management fees in order to avoid a default under the mortgage.
Powelton Gardens reported an operating deficit of approximately $20,000 for the
nine months ended September 30, 2005, which includes property management fees of
approximately $9,000. The Local General Partners have reported that the first
mortgage has been paid in full as of June 2005 and that payments on the real
estate taxes are current. Registrant's investment balance in Powelton Gardens,
after cumulative equity losses, became zero during the year ended March 30,
2002. The Compliance Period for Powelton Gardens has expired.
The terms of the partnership agreement of The Pendleton (A Louisiana Partnership
in Commendam) ("Pendleton") require the Local General Partner to cause the
management agent to defer property management fees in order to avoid a default
under the mortgage. Pendleton reported an operating deficit of approximately
$19,000 for the nine months ended September 30, 2005, which includes property
management fees of approximately $12,000. The Local General Partner reports that
one of Pendleton's mortgages, which was scheduled to commence amortization in
May 2004, is twenty months in arrears (approximately $56,000) as of December
2005. The Local General Partner represents that no default has been declared on
the delinquent mortgage and that payments on the other mortgages and the real
estate taxes are current. Registrant's investment balance in Pendleton, after
cumulative equity losses, became zero during the year ended March 30, 2002. The
Compliance Period for Pendleton has expired.
The terms of the partnership agreement of Trenton Heights Apartments L.P.
("Trenton Heights") require the Local General Partner to cause the management
agent to defer property management fees in order to avoid a default under the
mortgage. During the nine months ended September 30, 2005, Trenton Heights
incurred an operating deficit of approximately $35,000, which includes property
management fees of approximately $10,000. The Local General Partner represents
that payments on the mortgage and real estate taxes are current. Registrant's
investment balance in Trenton Heights, after cumulative equity losses, became
zero during the year ended March 30, 1999. The Compliance Period for Trenton
Heights has expired.
The terms of the partnership agreement of Patton Place Limited Partnership
("Patton Place") require the Local General Partners to cause the management
agent to defer property management fees in order to avoid a default under the
mortgage. During the nine months ended September 30, 2005, Patton Place incurred
an operating deficit of approximately $13,000, which includes property
management fees of approximately $7,000. The Local General Partners represent
that payments on the mortgage and real estate taxes are current. Registrant's
investment balance in Patton Place, after cumulative equity losses, became zero
during the year ended March 30, 1999. The Compliance Period for Patton Place has
expired.
College Avenue reported an operating deficit of approximately $13,000 for the
six months ended June 30, 2005. Registrant has made cumulative advances to
College Avenue of $176,501 as of December 30, 2005, of which $49,923 was
advanced during the nine months then ended. The Local General Partners reported
that the Property owned by College Avenue was sold in July 2005. Registrant did
not receive any proceeds and there is no impact on Registrant's financial
statements as a result of such sale. College Avenue reported a gain on sale of
property of $192,723 as reflected in the combined statements of operations of
the Local Partnerships for the three and nine month periods ended September 30,
2005 in Note 3 to the accompanying financial statements. Registrant's investment
balance in College Avenue, after cumulative equity losses, became zero during
the year ended March 30, 1999 and advances made by Registrant have been offset
by additional equity in loss of investment in local partnerships. The Compliance
Period for College Avenue has expired.
The Property owned by Elm Hill was sold on March 31, 2005; Registrant received
$891,559 in connection with the sale. In the event that additional proceeds are
distributed to Registrant in connection with the final settlement of the sale of
Elm Hill, a gain will be recorded at such time. Elm Hill reported a gain on sale
of property of $1,177,998 as reflected in the combined statement of operations
of the Local Partnerships for the nine months ended September 30, 2005 in Note 3
to the accompanying financial statements. The Compliance Period for Elm Hill has
expired.
15
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 financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, 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 financial statements.
o Registrant accounts for its investment in local partnerships in
accordance with the equity method of accounting since Registrant
does not control the operations of a Local Partnership.
o 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. 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 sum of the total amount of the remaining tax
credits to be allocated to Registrant and the estimated residual
value of the investment.
o Registrant does not consolidate the accounts and activities of the
Local Partnerships, which are considered Variable Interest Entities
under Financial Accounting Standards Board Interpretation No. 46 -
Revised ("FIN 46R"), "Consolidation of Variable Interest Entities,"
because Registrant is not considered the primary beneficiary.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Registrant has invested a significant portion of its working capital reserves in
corporate bonds and U.S. Treasury instruments. The market value of such
investments is subject to fluctuation based upon changes in interest rates
relative to each investment's maturity date and the associated bond rating.
Since Registrant's investments in bonds have various maturity dates through
2008, the value of such investments may be adversely impacted in an environment
of rising interest rates in the event Registrant decides to liquidate any such
investment prior to its maturity. Although Registrant may utilize reserves to
pay for its operating expenses and/or to assist an under performing Property, it
otherwise intends to hold such investments to their respective maturities.
Therefore, Registrant does not anticipate any material adverse impact in
connection with such investments.
Item 4. Controls and Procedures
As of December 30, 2005, under the direction of the Chief Executive Officer and
Chief Financial Officer, Registrant evaluated the effectiveness of its
disclosure controls and procedures and concluded that such disclosure controls
and procedures were effective as of December 30, 2005. No changes occurred
during the quarter ended December 30, 2005 that materially affected, or are
reasonably likely to materially affect, Registrant's internal control over
financial reporting.
16
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Registrant is not aware of any material legal proceedings.
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 default of a certain
Local Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
None
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
17
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 13, 2006 /s/ David Salzman
------------------------------------------
by: David Salzman
Chief Executive Officer
Dated: February 13, 2006 /s/ Neal Ludeke
------------------------------------------
by: Neal Ludeke
Chief Financial Officer
18