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 June 30, 1996
OR
---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-24660
LIBERTY TAX CREDIT PLUS II L.P.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3458180
- --------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Madison Avenue, New York, New York 10022
- -------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------- ------------
<S> <C> <C>
Property and equipment, net of accumulated depreciation
of $50,736,934 and $48,743,758, respectively $191,287,754 $192,479,831
Cash and cash equivalents 4,010,637 4,498,565
Cash held in escrow 6,565,003 6,382,851
Deferred costs, net of accumulated amortization of $2,930,069
and $2,877,861, respectively 4,437,609 4,479,818
Other assets 4,767,839 4,988,601
------------ ------------
Total assets $211,068,842 $212,829,666
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Mortgage notes payable $119,416,528 $119,895,307
Accounts payable and other liabilities 9,002,735 8,477,781
Due to local general partners and affiliates 10,780,074 10,632,221
Due to general partners and affiliates 1,261,262 1,216,964
Due to selling partners 3,660,539 3,658,664
------------ ------------
Total liabilities 144,121,138 143,880,937
------------ ------------
Minority interest 3,660,565 3,827,457
------------ ------------
Commitments and contingencies (Note 3)
Partners' capital
Limited partners (115,917.5 BACs issued and outstanding) 63,684,951 65,500,743
General partners (397,812) (379,471)
------------ ------------
Total partners' capital 63,287,139 65,121,272
------------ ------------
Total liabilities and partners' capital $211,068,842 $212,829,666
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
-2-
<PAGE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
-----------------------------
1996 1995*
---------- -----------
Revenues
Rentals, net $ 6,096,423 $ 6,036,100
Other 165,546 135,145
------------ ------------
6,261,969 6,171,245
------------ ------------
Expenses
General and administrative 1,506,794 1,534,898
General and administrative-
related parties (Note 2) 246,834 269,014
Repairs and maintenance 816,532 664,690
Operating and other 923,554 804,755
Real estate taxes 251,845 251,838
Insurance 290,403 259,516
Interest 2,085,135 2,089,377
Depreciation and amortization 2,035,385 2,020,036
------------ ------------
8,156,842 7,894,124
------------ ------------
Minority interest in loss of subsidiaries 60,740 71,359
------------ ------------
Net loss $ (1,834,133) $ (1,651,520)
============ ============
Net loss - limited partners $ (1,815,792) $ (1,635,005)
============ ============
Number of BACs outstanding 115,917.50 115,917.50
============== ============
Net loss per BAC $ (15.66) $ (14.10)
============ ============
*Reclassified for comparative purposes
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
Total Limited Partners General Partners
------------- ---------------- ----------------
<S> <C> <C> <C>
Partners' capital - April 1, 1996 $65,121,272 $65,500,743 $ (379,471)
Net loss (1,834,133) (1,815,792) (18,341)
------------- ---------------- ----------------
Partners' capital - June 30, 1996 $ 63,287,139 $ 63,684,951 $ (397,812)
============= ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30
--------------------------------
1996 1995
------------- --------------
<S> <C> <C>
Cash flows provided by operating activities:
Net loss $ (1,834,133) $ (1,651,520)
------------ ------------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 2,035,385 2,020,036
Minority interest in loss of subsidiaries (60,740) (71,359)
Decrease (increase) in other assets 220,762 (72,474)
Increase in cash held in escrow (199,435) (68,399)
Increase in accounts payable and other liabilities 524,954 267,592
Increase in due to general partners and affiliates 44,298 94,237
Increase in due to local general partners and affiliates 193,928 234,702
Decrease in due to local general partners and affiliates (46,075) (43,278)
------------ ------------
Total adjustments 2,713,077 2,361,057
------------ ------------
Net cash provided by operating activities 878,944 709,537
------------ ------------
Cash flows used in investing activities:
Acquisition of property and equipment (801,099) (32,955)
Increase in deferred costs 0 (71,205)
Decrease in cash held in escrow 17,283 0
------------ ------------
Net cash used in investing activities (783,816) (104,160)
------------ ------------
Cash flows used in financing activities:
Repayments of mortgage notes (478,779) (461,686)
Increase (decrease) in due to selling partners 1,875 (569)
Decrease in capitalization of consolidated subsidiaries attributable
to minority interest (106,152) 0
------------ ------------
Net cash used in financing activities (583,056) (462,255)
------------ ------------
Net (decrease) increase in cash and cash equivalents (487,928) 143,122
Cash and cash equivalents at beginning of period 4,498,565 4,374,218
------------ ------------
Cash and cash equivalents at end of period $ 4,010,637 $ 4,517,340
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 1 - General
The consolidated financial statements include the accounts of
Liberty Tax Credit Plus II (the "Partnership") and 27 subsidiary partnerships
("subsidiary partnerships" or "Local Partnerships") in which the Partnership is
the limited partner.
The Partnership's fiscal quarter ends June 30. All subsidiary
partnerships have fiscal quarters ending March 31. Accounts of the subsidiary
partnerships have been adjusted for intercompany transactions from April 1
through June 30.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated
subsidiary partnerships attributable to minority interest arises from cash
contributions and cash distributions to the minority interest partners.
Losses attributable to minority interests which exceed the
minority interests' investment in a subsidiary partnership have been charged to
the Partnership. Such losses aggregated $130,000 and $127,000 for the three
months ended June 30, 1996 and 1995, respectively. The Partnership's investment
in each subsidiary partnership is equal to the respective subsidiary
partnership's partners' equity less minority interest capital, if any. In
consolidation, all subsidiary partnership losses are included in the
Partnership's capital account except for losses allocated to minority interest
capital.
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective April 1, 1996, the Partnership adopted SFAS No. 121, consistent with
the required adoption period.
Property and equipment are carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. Cost includes the purchase price, acquisition fees
and expenses, and any other costs incurred in acquiring the properties. As
required by SFAS 121, a provision for loss on impairment of assets is recorded
when estimated amounts recoverable through future operations and sale of the
property on an undiscounted basis are below depreciated cost. However,
depreciated cost, adjusted for such reductions in value, if any, may be greater
than the fair value. Property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is
considered to be impaired and the depreciated cost exceeds estimate fair value.
Through June 30, 1996, the Partnership has not recorded and provisions for loss
in impairment of assets or reduction to estimated fair value.
The books and records of the Partnership are maintained on the
accrual basis in accordance with generally accepted accounting principles. In
the opinion of the general partners of the Partnership (the "General Partners"),
the accompanying unaudited financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position of the Partnership as of June 30, 1996 and the results of
operations and cash flows for the three months ended June 30, 1996 and 1995.
However, the operating results for the three months ended June 30, 1996 may not
be indicative of the results for the year.
-6-
<PAGE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 1 - General (continued)
Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. These consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Partnership's Annual Report on Form 10-K for the year
ended March 31, 1996.
NOTE 2 - Related Party Transactions
One of the General Partners has a 1% interest as a special
limited partner in each of the subsidiary partnerships. An affiliate of the
General Partners also has a minority interest in certain subsidiary
partnerships.
The General Partners and their affiliates perform services for the
Partnership. The costs incurred for the three months ended June 30, 1996 and
1995 are as follows:
Three Months Ended
June 30,
-------------------------
1996 1995*
-------- --------
Partnership management
fees (a) $ 50,000 $ 83,000
Expense reimbursement (b) 31,878 22,335
Property management fees (c) 152,956 155,479
Local administrative fee (d) 12,000 8,200
-------- --------
$246,834 $269,014
======== ========
* Reclassified for comparative purposes
(a) The General Partners are entitled to receive a partnership
management fee, after payment of all Partnership expenses, which together with
the annual local administrative fees will not exceed a maximum of 0.5% per annum
of invested assets (as defined in the Partnership Agreement), for administering
the affairs of the Partnership. The partnership management fee, subject to the
foregoing limitation, will be determined by the General Partners in their sole
discretion based upon their review of the Partnership's investments. Partnership
management fees owed to the General Partners amounting to approximately $932,000
and $882,000 were accrued and unpaid as of June 30, 1996 and March 31, 1996,
respectively.
(b) The Partnership reimburses the General Partners and their
affiliates for actual Partnership operating expenses incurred by the General
Partners and their affiliates on the Partnership's behalf. The amount of
reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. Another affiliate of the General Partners performs asset
monitoring for the Partnership. These services include site visits and
evaluations of the subsidiary partnerships' performance.
(c) Property management fees incurred by subsidiary
partnerships amounted to $373,692 and $355,907 for the three months ended June
30, 1996 and 1995 respectively. Of these fees $152,956 and $155,479
-7-
<PAGE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 2 - Related Party Transactions (continued)
were incurred to affiliates of the subsidiary partnerships' general partners.
Included in amounts incurred to affiliates of the subsidiary partnerships'
general partners are $18,399 and $30,146 for the three months ended June 30,
1996 and 1995, respectively, which were also incurred to affiliates of the
Partnership.
(d) Liberty Associates II L.P., a special limited partner of
the subsidiary partnerships, is entitled to receive a local administrative fee
of up to $2,500 per year from each subsidiary partnership.
NOTE 3 - Commitment and Contingencies
The following disclosures include changes and/or additions to
disclosures regarding the subsidiary Partnerships which were included in the
Partnerships Annual Report on Form 10K for the period ended March 31, 1996.
Santa Juanita II Limited Partnership
------------------------------------
A bank filed a suit against the Local Partnership Santa
Juanita II Limited Partnership ("Santa Juanita") for non-payment of the monthly
installments required by a second mortgage loan agreement. During February 1994,
the court issued a judgement against Santa Juanita demanding immediate payment
of the second mortgage note with an outstanding principal balance of $474,656,
plus accrued interest and legal expenses. A significant portion of Santa
Juanita's operating assets is pledged as collateral for this note and
foreclosure by the bank would seriously impair Santa Juanita's continued
existence. In May 1996, the special limited partner of Santa Juanita instituted
proceedings to formally remove the general partner of Santa Juanita and is in
the process of replacing such general partner. The special limited partner is
presently having discussions with the bank for purposes of settling this
judgement. In June 1996, the general partner of Santa Juanita II filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code. It is
managements opinion that no accrual for potential losses is currently warranted
in the financial statements. The financial statements for the 1995 Fiscal Year
for this subsidiary partnership were not audited. The maximum loss which the
Partnership would be liable for is its net investment in Santa Juanita amounting
to approximately $546,000 at June 30, 1996. The Partnerships investment in Santa
Juanita at June 30, 1996 and March 31, 1996 was approximately $546,000 and
$568,000 respectively, and the minority interest balance was zero at each date.
Santa Juanita's net loss amounted to approximately $23,000 and $117,000 for the
three months ended June 30, 1996 and 1995, respectively.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary source of funds include (i) working
capital reserves, (ii) interest earned on the working capital reserves and (iii)
cash distributions from the operations of the Local Partnerships. All these
sources of funds are available to meet obligations of the Partnership.
As of June 30, 1996 the Partnership has invested all of the
net proceeds in twenty-seven Local Partnerships. Approximately $733,000 of the
purchase price remains to be paid (of which $294,250 is held in escrow).
During the three months ended June 30,1996, cash and cash
equivalents of the Partnership and 27 consolidated subsidiary partnerships
decreased approximately $490,000. This decrease was primarily due to
acquisitions of property and equipment ($801,000), repayments of mortgage notes
($479,000) and a decrease in capitalization of consolidated subsidiaries
attributable to minority interest ($106,000), which exceeded cash provided by
operating activities ($879,000). Included in the adjustments to reconcile the
net loss to cash provided by operating activities is depreciation and
amortization in the amount of approximately $2,035,000.
The Partnership established a working capital reserve of
approximately $3,500,000 (3% of gross equity raised) of which approximately
$296,000 and $402,000 was unused at June 30,1996 and March 31, 1996,
respectively. The General Partners believe that these reserves, plus any cash
distributions received from the operations of the Local Partnerships are
sufficient to fund the Partnership's ongoing operations for the foreseeable
future. During the three months ended June 30, 1996 and 1995 respectively,
amounts received from operations of the Local Partnerships were $0 and $7,046,
respectively.
For discussion of contingencies affecting certain Local
Partnerships, see Note 3 to the financial statements. Since the maximum loss the
Partnership would be liable for is its net investment in the respective Local
Partnerships, the resolution of the existing contingencies is not anticipated to
impact future results of operations, liquidity or financial condition in a
material way.
Except as described above, management is not aware of any
trends or events, commitments or uncertainties which have not otherwise been
disclosed, or are likely to impact liquidity in a material way. Management
believes the only impact would be from laws that have not yet been adopted. The
portfolio is diversified by the location of the properties around the United
States so that if one area of the country is experiencing downturns in the
economy, the remaining properties in the portfolio may be experiencing upswings.
However, the geographic diversifications of the portfolio may not protect
against a general downturn in the national economy. The Partnership has fully
invested the proceeds of its offerings in 27 Local Partnerships, all of which
fully have their tax credits in place. The tax credits are attached to the
project for a period of ten years and are transferable with the property during
the remainder of the ten year period. If trends in the real estate market
warranted the sale of a property, the remaining tax credits would transfer to
the new owner, thereby adding significant value to the property on the market,
which are not included in the financial statement carrying amount.
Results of Operations
- ---------------------
In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Asset and for Long-Lived Assets to
Be Disposed Of". Under SFAS No. 121, the Partnership is required to review
long-lived assets and certain identifiable intangibles for impairment whenever
events or changes in circumstances indicate that the book value of an asset may
not be recoverable. An impairment loss should be recognized whenever the review
demonstrates that
-9-
<PAGE>
the book value of a long-lived asset is not recoverable. Effective April 1,
1996, the Partnership adopted SFAS No. 121, consistent with the required
adoption period.
Property and equipment are carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. Cost includes the purchase price, acquisition fees
and expenses, and any other costs incurred in acquiring the properties. As
required by SFAS 121, a provision for loss on impairment of assets is recorded
when estimated amounts recoverable through future operations and sale of the
property on an undiscounted basis are below depreciated cost. However,
depreciated cost, adjusted for such reductions in value, if any, may be greater
than the fair value. Property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is
considered to be impaired and the depreciated cost exceeds estimate fair value.
Through June 30, 1996, the Partnership has not recorded and provisions for loss
in impairment of assets or reduction to estimated fair value.
Results of operations for the three months ended June 30, 1996
consisted primarily of the results of the Partnership's investment in
twenty-seven Local Partnerships.
Rental income increased approximately 1% during the three months
ended June 30, 1996 as compared to the corresponding period in 1995 primarily
due to rental rate increases.
Other income increased approximately $30,000 for the three months
ended June 30, 1996 as compared to the corresponding period in 1995 primarily
due to a real estate tax refund at one Local Partnership.
Total expenses excluding repairs and maintenance, operating and
other, and insurance remained fairly consistent with an decrease of
approximately 1% for the three months ended June 30, 1996 as compared to the
corresponding period one year earlier.
Repairs and maintenance increased approximately $152,000 for the
three months ended June 30, 1996 as compared to the corresponding period in 1995
primarily due to increases at four Local Partnerships. There was an increase at
one Local Partnership due to the repair of facade leaks and the replacement of
leaking deck areas. There was an increase at a second Local Partnership due to
an increase in salaries as a result of the hiring of additional personnel. The
increase at the third Local Partnership was due to plumbing repairs necessary
due to frozen pipes as well as an increase in painting expenses. The increase at
the fourth Local Partnership was due to repairs to one unit which was damaged by
fire.
Operating and other increased approximately $119,000 for the
three months ended June 30, 1996 as compared to the corresponding period in 1995
primarily due to increase in utilities at two Local Partnership's.
Insurance increased approximately $31,000 as compared to the
corresponding period in 1995 primarily due to an underaccrual of insurance
expense at one Local Partnership in 1995.
-10-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings-The litigation described in the Partnership's
Annual Report on Form 10-K for the year ended March 31, 1996 is
incorporated herein by reference.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
(a) Exhibits
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8K - No reports of Form 8-K were filed during
the quarter.
-11-
<PAGE>
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.
LIBERTY TAX CREDIT PLUS II L.P.
-------------------------------
(Registrant)
<TABLE>
<CAPTION>
<S> <C>
By: RELATED CREDIT PROPERTIES II L.P.
a General Partner
By: RELATED CREDIT PROPERTIES II INC.,
a General Partner
Date: August 13, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President
Date: August 13, 1996 By: /s/ Lawrence J. Lipton
----------------------
Lawrence J. Lipton,
Treasurer
(Principal Financial and Accounting Officer)
of Related Credit Properties II Inc.
and
By: LIBERTY G.P. II INC.,
a General Partner
Date: August 13, 1996 By: /s/ Paul L. Abbott
------------------
Paul L. Abbott,
Chairman of the Board, President, Chief
Operating Officer and Director
</TABLE>
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Liberty Tax Credit Plus II L. P.
and is qualified in its entirety by reference to
such financial statements
</LEGEND>
<CIK> 0000832141
<NAME> Liberty Tax Credit Plus II L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,575,640
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,205,448
<PP&E> 242,024,688
<DEPRECIATION> 50,736,934
<TOTAL-ASSETS> 211,068,842
<CURRENT-LIABILITIES> 21,044,071
<BONDS> 123,077,067
0
0
<COMMON> 0
<OTHER-SE> 66,947,704
<TOTAL-LIABILITY-AND-EQUITY> 211,068,842
<SALES> 0
<TOTAL-REVENUES> 6,261,969
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,071,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,085,135
<INCOME-PRETAX> (1,894,873)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,894,873)
<EPS-PRIMARY> (15.66)
<EPS-DILUTED> 0
</TABLE>
