UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-24660
LIBERTY TAX CREDIT PLUS II L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3458180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securi-
ties 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>
<TABLE>
PART I - Financial Information
Item 1. Financial Statements
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
December 31, March 31,
1998 1998
<S> <C> <C>
ASSETS
Property and equipment, net of
accumulated depreciation
of $70,276,542 and $64,545,022,
respectively $168,242,816 $173,036,778
Construction in progress 0 604,411
Cash and cash equivalents 2,984,303 4,177,583
Cash held in escrow 7,639,155 6,823,943
Deferred costs, net of accumulated
amortization of $3,443,629
and $3,267,108, respectively 3,946,159 4,121,038
Other assets 4,266,448 4,086,783
Total assets $187,078,881 $192,850,536
LIABILITIES AND PARTNERS' CAPITAL
Mortgage notes payable $116,229,894 $117,331,318
Accounts payable and other
liabilities 9,135,793 9,339,821
Due to local general partners and
affiliates 10,736,573 10,135,658
Due to general partners and affiliates 6,537,623 4,957,989
Due to selling partners 3,523,647 3,501,689
Total liabilities 146,163,530 145,266,475
Minority interest 4,073,662 4,700,747
Commitments and contingencies (Note 4)
Partners' capital
Limited partners (115,917.5 BACs
issued and outstanding) 37,503,955 43,485,164
General partners (662,266) (601,850)
Total partners' capital 36,841,689 42,883,314
Total liabilities and partners'
capital $187,078,881 $192,850,536
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Rentals, net $6,347,337 $ 6,302,862 $19,215,481 $18,876,737
Other 189,233 172,124 444,457 434,841
Gain on partial sale
of investment in
subsidiary partner-
ships (Note 3) 0 0 0 154,577
6,536,570 6,474,986 19,659,938 19,466,155
Expenses
General and
administrative 1,690,934 1,539,305 4,993,093 4,857,026
General and
administrative-
related parties
(Note 2) 630,615 637,437 1,940,484 1,960,593
Repairs and
maintenance 1,024,411 938,337 3,351,518 2,891,427
Operating 550,143 521,215 2,145,841 2,173,233
Taxes 269,320 248,381 819,353 800,816
Insurance 303,504 403,367 866,209 995,751
Interest 2,120,570 2,268,146 6,004,326 6,418,022
Depreciation and
amortization 1,921,489 2,043,017 5,908,041 6,131,335
Total Expenses 8,510,986 8,599,205 26,028,865 26,228,203
Loss before minority
interest (1,974,416) (2,124,219) (6,368,927) (6,762,048)
Minority interest in
loss of subsidiaries 73,966 22,186 327,302 99,391
Net loss $(1,900,450) $(2,102,033) $(6,041,625) $(6,662,657)
Net loss-
limited partners $(1,881,446) $(2,081,012) $(5,981,209) $(6,596,030)
Number of BACs
outstanding 115,917.5 115,917.5 115,917.5 115,917.5
Net loss per BAC $ (16.23) $ (17.95) $ (51.60) $ (56.90)
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Capital
(Unaudited)
<CAPTION>
Limited General
Total Partners Partners
<S> <C> <C> <C>
Partners' capital -
April 1, 1998 $42,883,314 $43,485,164 $(601,850)
Net loss (6,041,625) (5,981,209) (60,416)
Partners' capital -
December 31, 1998 $36,841,689 $37,503,955 $(662,266)
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<CAPTION>
Nine Months Ended
December 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,041,625) $ (6,662,657)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Gain on partial sale of investment in
subsidiary partnerships (Note 3) 0 (154,577)
Depreciation and amortization 5,908,041 6,131,335
Minority interest in loss of
subsidiaries (327,302) (99,391)
Increase in other assets (179,665) (246,426)
Increase in cash held
in escrow (994,189) (1,171,454)
(Decrease) increase in accounts
payable and other liabilities (204,028) 137,733
Increase in due to general partners
and affiliates 1,579,634 1,190,859
Increase in due to local general
partners and affiliates 837,106 498,591
Decrease in due to local general
partners and affiliates (236,191) (169,523)
Total adjustments 6,383,406 6,117,147
Net cash provided by (used in)
operating activities 341,781 (545,510)
Cash flows from investing activities:
Proceeds from partial sale of
investment in subsidiary
partnerships 0 1,400,000
Acquisitions of property and
equipment (333,147) (260,135)
Decrease in cash held in escrow 178,977 77,147
Net cash (used in) provided by
investing activities (154,170) 1,217,012
Cash flows from financing activities:
Increase in deferred costs (1,642) (166,976)
Repayments of mortgage notes (1,101,424) (5,219,005)
Proceeds of mortgage notes 0 4,000,000
Increase in due to selling partners 21,958 5,625
Decrease in capitalization
of consolidated subsidiaries
attributable to minority
interest (299,783) (131,894)
Net cash used in
financing activities (1,380,891) (1,512,250)
Net decrease in cash and
cash equivalents (1,193,280) (840,748)
Cash and cash equivalents at
beginning of period 4,177,583 4,956,628
Cash and cash equivalents at
end of period $2,984,303 $4,115,880
Components of partial sale of
investment in subsidiary
partnerships:
Increase in capitalization of
consolidated subsidiaries
attributable to minority
interest $ 0 $1,245,423
Property and equipment
reclassified from
construction in progress 604,411 0
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
LIBERTY TAX CREDIT PLUS II L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(Unaudited)
Note 1 - General
The consolidated financial statements include the accounts of
Liberty Tax Credit Plus II L.P. (the "Partnership") and 27 subsidi-
ary partnerships ("subsidiaries", "subsidiary partnerships" or "Lo-
cal Partnerships") in which the Partnership is the limited partner.
Through the rights of the Partnership and/or a General Partner,
which General Partner has a contractual obligation to act on behalf
of the Partnership, to remove the general partner of the subsidiary
partnerships and to approve certain major operating and financial
decisions, the Partnership has a controlling financial interest in the
subsidiary partnerships.
For financial reporting purposes, the Partnership's fiscal quarter
ends December 31. The Partnership's fiscal quarter ends Decem-
ber 31 in order to allow adequate time for the subsidiaries' finan-
cial statements to be prepared and consolidated. All subsidiary
partnerships have fiscal quarters ending September 30. Accounts
of the subsidiary partnerships have been adjusted for intercom-
pany transactions from October 1 through December 31.
All intercompany accounts and transactions have been eliminated
in consolidation.
Increases (decreases) in the capitalization of consolidated subsidi-
ary partnerships attributable to minority interest arise from cash
contributions from and cash distributions to the minority interest
partners.
Losses attributable to minority interests which exceed the minority
interests' investment in a subsidiary partnership have been
charged to the Partnership. Such losses aggregated $52,000 and
$81,000 and $311,000 and $328,000 for the three and nine months
ended December 31, 1998 and 1997, respectively. The Partner-
ship'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.
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 Partner-
ship (the "General Partners"), the accompanying unaudited finan-
cial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial
position of the Partnership as of December 31, 1998, the results of
operations for the three and nine months ended December 31,
1998 and 1997 and cash flows for the nine months ended Decem-
ber 31, 1998 and 1997. However, the operating results for the nine
months ended December 31, 1998 may not be indicative of the
results for the year.
Certain information and note disclosures normally included in
financial statements prepared in accordance with generally ac-
cepted accounting principles have been omitted or condensed.
These consolidated financial statements should be read in conjunc-
tion with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K for the year ended
March 31, 1998.
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.
<TABLE>
The costs incurred to related parties for the three and nine months
ended December 31, 1998 and 1997 were as follows:
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Partnership manage-
ment fees (a) $374,000 $374,000 $1,122,000 $1,122,000
Expense reimburse-
ment (b) 20,000 27,500 112,859 109,049
Property manage-
ment fees incurred
to affiliates of the
General Partners (c) 87,586 88,487 262,757 291,817
Local administra-
tive fee (d) 13,000 13,000 39,000 39,000
Total general and
administrative-
General Partners 494,586 502,987 1,536,616 1,561,866
Property manage-
ment fees incurred
to affiliates of
the subsidiary
partnerships'
general partners (c) 136,029 134,450 403,868 398,727
Total general and
administrative-
related parties $630,615 $637,437 $1,940,484 $1,960,593
</TABLE>
(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 fore-
going 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 $4,996,000 and $3,874,000
were accrued and unpaid as of December 31, 1998 and March 31,
1998, respectively. Without the General Partner's continued ac-
crual without payment, the Partnership will not be in a position to
meet its obligations. The General Partners have continued allow-
ing the accrual without payment of these amounts but are under
no obligation to do so.
(b) The Partnership reimburses the General Partners and their
affiliates for actual Partnership operating expenses incurred by the
General Partners and their affiliates on the Partnership's behalf.
The amount of reimbursement from the Partnership is limited by
the provisions of the Partnership Agreement. Another affiliate of
the General Partners performs asset monitoring for the Partner-
ship. These services include site visits and evaluations of the sub-
sidiary partnerships' performance.
(c) Property management fees incurred by subsidiary partnerships
amounted to $336,607 and $370,190 and $1,155,728 and $1,126,199
for the three and nine months ended December 31, 1998 and 1997,
respectively. Of these fees $223,615 and $229,937 and $666,625
and $690,544 were incurred to affiliates of the subsidiary partner-
ships' general partners. Included in amounts incurred to affiliates
of the subsidiary partnerships' general partners are $87,586 and
$88,487 and $262,757 and $291,817 for the three and nine months
ended December 31, 1998 and 1997, respectively, which were also
incurred to affiliates of the Partnership.
(d) Liberty Associates II L.P., a special limited partner of the sub-
sidiary partnerships, is entitled to receive a local administrative fee
of up to $2,500 per year from each subsidiary partnership.
Note 3 - Partial sale of Investment in Subsidiary Partnerships
Campeche Isle Apartments, L.P.
In connection with the restructuring of the mortgage debt of
Campeche Isle Apartments Limited Partnership ("Campeche"), the
Partnership raised approximately $1,400,000 by selling a portion
of its limited partnership interest in two subsidiary partnerships.
The Bank of Boston loan obtained in the refinancing matured De-
cember 31, 1998 and was extended until March 31, 1999. The
Partnership has applied for a permanent loan and expects that the
refinancing will be completed prior to maturity of the current
financing. The loan is expected to have a term which is at least
equal to the remaining compliance period of the project which
ends 2004. As of December 31, 1998 advances to Campeche from
the Partnership totaled approximately $1,950,000.
Note 4 - Commitments and Contingencies
There were no material changes and/or additions to disclosures
regarding the subsidiary partnerships which were included in the
Partnership's Annual Report on Form 10-K for the period ended
March 31, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Con-
dition and Results of Operations
Liquidity and Capital Resources
The Partnership's primary sources of funds are rental revenues
which are fully utilized at the property level and cash distributions
from the operations of the Local Partnerships in which the Part-
nership has invested. These sources of funds are available to meet
obligations of the Partnership. During the nine months ended
December 31, 1998 and 1997 respectively, distributions received
from operations of the Local Partnerships were approximately
$212,000 and $264,000, respectively.
As of December 31, 1998 the Partnership has invested all of the net
proceeds in twenty-seven Local Partnerships. Approximately
$368,000 of the purchase price remains to be paid (none of which
is being held in escrow).
During the nine months ended December 31, 1998, cash and cash
equivalents of the Partnership and its 27 consolidated Local Part-
nerships decreased approximately $1,193,000. This decrease was
primarily due to acquisitions of property and equipment
($333,000), repayments of mortgage notes ($1,101,000) and a de-
crease in capitalization of consolidated subsidiaries attributable to
minority interest ($300,000) which exceeded cash provided by
operating activities ($342,000), a decrease in cash held in escrow
relating to investing activities ($179,000) and an increase in due to
selling partners ($22,000). Included in the adjustments to reconcile
the net loss to cash provided by operating activities is depreciation
and amortization ($5,908,000).
Partnership management fees owed to the General Partners
amounting to approximately $4,996,000 and $3,874,000 were ac-
crued and unpaid as of December 31, 1998 and March 31, 1998,
respectively. Without the General Partners continued accrual
without payment, the Partnership will not be in a position to meet
its obligations. The General Partners have continued allowing the
accrual without payment of these amounts but are under no obli-
gation to continue to do so.
Management is not aware of any trends or events, commitments
or uncertainties which have not otherwise been disclosed, that will
or are likely to impact liquidity in a material way. Management
believes the only impact would be from laws that have not yet
been adopted. The portfolio is diversified by the location of the
properties around the United States so that if one area of the coun-
try is experiencing downturns in the economy, the remaining
properties in the portfolio may be experiencing upswings. How-
ever, the geographic diversification of the portfolio may not pro-
tect 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 such ten year period. If the General Partners determined that a
sale of a property is warranted, the remaining tax credits would
transfer to the new owner, thereby adding value to the property
on the market, which are not included in the financial statement
carrying amount.
Results of Operations
Results of operations for the three and nine months ended Decem-
ber 31, 1998 consisted primarily of the results of the Partnership's
investment in twenty-seven Local Partnerships.
Rental income increased approximately 1% and 2% for the three
and nine months ended December 31, 1998 as compared to the
corresponding periods in 1997 primarily due to rental rate in-
creases.
Total expenses, excluding repairs and maintenance and insurance
remained fairly consistent with decreases of approximately 1%
and 2% for the three and nine months ended December 31, 1998 as
compared to the corresponding periods in 1997.
Repairs and maintenance increased approximately $460,000 for
the nine months ended December 31, 1998 as compared to the
corresponding period in 1997 primarily due to an increase in re-
pairs required by a loan agreement at one Local Partnership, the
exterior painting of the building at a second Local Partnership and
the interior painting of the building at a third Local Partnership.
Insurance decreased approximately $100,000 and $130,000 for the
three and nine months ended December 31, 1998 as compared to
the corresponding periods in 1997 due to a change in the insur-
ance carrier at one Local Partnership.
A gain on partial sale of investment in subsidiary partnerships in
the amount of approximately $155,000 was recorded for the nine
months ended December 31, 1997 (see Note 3 to the financial
statements).
Year 2000 Compliance
The Partnership utilizes the computer services of an affiliate of the
Partners. The affiliate of the General Partners is in the process of
upgrading its computer information systems to be year 2000 com-
pliant and beyond. The Year 2000 compliance issue concerns the
inability of a computerized system to accurately record dates after
1999. The affiliate of the General Partners recently underwent a
conversion of its financial systems applications and is in the proc-
ess of upgrading and testing the in house software and hardware
inventory. The workstations that experienced problems from this
process were corrected with an upgrade patch. The costs incurred
by the General Partners are not being charged to the Partnership.
In regard to third parties, the Partnership's General Partners are in
the process of evaluating the potential adverse impact that could
result from the failure of material service providers to be year 2000
compliant. A detailed survey and assessment of third party readi-
ness was sent to material third parties in the fourth quarter of
1998. The results of the surveys will be compiled in early 1999.
No estimate can be made at this time as to the impact of the readi-
ness of such third parties. The Partnership's General Partners plan
to have these issues fully assessed by early 1999, at which time the
risks will be addressed and a contingency plan will be imple-
mented if necessary.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceeding - None
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
(a) Exhibits
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K - No reports on Form 8-K were
filed during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LIBERTY TAX CREDIT PLUS II L.P.
(Registrant)
By: RELATED CREDIT PROPERTIES II L.P.,
a General Partner
By: Related Credit Properties II Inc.,
its General Partner
Date: February 3, 1999
By: /s/ Alan P. Hirmes
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: February 3, 1999
By: /s/ Glenn F. Hopps
Glenn F. Hopps,
Treasurer
(principal accounting officer)
and
By: LIBERTY GP II INC.,
a General Partner
Date: February 3, 1999
By: /s/ Alan P. Hirmes
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: February 3, 1999
By: /s/ Glenn F. Hopps
Glenn F. Hopps,
Treasurer
(principal accounting officer)
and
BY: LIBERTY ASSOCIATES II, L.P.
a General Partner
BY: Related Credit Properties II, Inc.,
its General Partner
Date: February 3, 1999
By: /s/ Alan P. Hirmes
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: February 3, 1999
By: /s/ Glenn F. Hopps
Glenn F. Hopps,
Treasurer
(principal accounting officer)
and
By: Liberty GP II Inc.,
its General Partner
Date: February 3, 1999
By: /s/ Alan P. Hirmes
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: February 3, 1999
By: /s/ Glenn F. Hopps
Glenn F. Hopps,
Treasurer
(principal accounting officer)
<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 state-
ments
</LEGEND>
<CIK> 0000832141
<NAME> Liberty Tax Credit Plus II L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,623,458
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,266,448
<PP&E> 238,519,358
<DEPRECIATION> 70,276,542
<TOTAL-ASSETS> 187,078,881
<CURRENT-LIABILITIES> 29,933,636
<BONDS> 116,229,894
0
0
<COMMON> 0
<OTHER-SE> 40,915,351
<TOTAL-LIABILITY-AND-EQUITY> 187,078,881
<SALES> 0
<TOTAL-REVENUES> 19,659,938
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,024,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,004,326
<INCOME-PRETAX> (6,368,927)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,368,927)
<EPS-PRIMARY> (51.60)
<EPS-DILUTED> 0
</TABLE>
