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, 1999
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 L.P.
599 West Putnam Avenue, 3rd Floor
Greenwich, Connecticut
- ---------------------------------------- 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 869-0900
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes X No ___.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES 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
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 30, March 30,
Notes 1999 1999
----- ------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,150,148 $ 739,118
Investments in bonds available-for-sale 2 2,968,578 3,699,324
Investment in local partnerships 3 11,773,337 12,905,421
Interest receivable 51,050 65,900
------------ ------------
$ 15,943,113 $ 17,409,763
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses 4 $ 638,565 $ 645,210
Payable to general partner 684,512 585,806
Other 41,600 48,600
------------ ------------
1,364,677 1,279,616
------------ ------------
Commitments and contingencies 3, 4
Partners' equity (deficit)
General partner (345,737) (331,942)
Limited partners (55,746 units of limited partnership 15,049,214 16,414,878
interest outstanding)
Accumulated other comprehensive income (loss), net 2 (125,041) 47,211
------------ ------------
14,578,436 16,130,147
------------ ------------
$ 15,943,113 $ 17,409,763
============ ============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
December 30, December 30, December 30, December 30,
Notes 1999 1999 1998 1998
REVENUE
<S> <C> <C> <C> <C>
Interest $ 68,545 $ 196,976 $ 80,253 $ 262,677
Other income from local partnerships 3 2,463 11,132 388
----------- ----------- ----------- -----------
TOTAL REVENUE 71,008 208,108 80,253 263,065
----------- ----------- ----------- -----------
EXPENSES
Administration fees 4 74,826 224,479 74,826 224,479
Management fees 74,826 224,479 74,826 224,479
Professional fees 17,116 61,176 21,222 63,787
Printing, postage and other 11,675 32,105 10,272 29,752
----------- ----------- ----------- -----------
TOTAL EXPENSES 178,443 542,239 181,146 542,497
----------- ----------- ----------- -----------
Loss from operations (107,435) (334,131) (100,893) (279,432)
Equity in loss of investment in local
partnerships 3 (271,237) (1,045,328) (603,810) (1,661,054)
----------- ----------- ----------- -----------
NET LOSS (378,672) (1,379,459) (704,703) (1,940,486)
Other comprehensive income (loss) 2 (65,894) (172,252) (65,887) 63,897
----------- ----------- ----------- -----------
COMPREHENSIVE LOSS $ (444,566) $(1,551,711) $ (770,590) $(1,876,589)
=========== =========== =========== ===========
NET LOSS ATTRIBUTABLE TO
General partner $ (3,787) $ (13,795) $ (7,047) $ (19,405)
Limited partners (374,885) (1,365,664) (697,656) (1,921,081)
----------- ----------- ----------- -----------
$ (378,672) $(1,379,459) $ (704,703) $(1,940,486)
=========== =========== =========== ===========
NET LOSS per unit of limited partnership
interest (55,746 units of limited
partnership interest) $ (6.73) $ (24.50) $ (12.51) $ (34.46)
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 199,452 $ 265,428
Cash used for local partnerships for deferred expenses (7,000) (7,000)
Cash paid for
administration fees (184,056) (207,136)
management fees (157,128) (207,136)
professional fees (81,277) (75,287)
printing, postage and other expenses (27,717) (38,568)
----------- -----------
Net cash used in operating activities (257,726) (269,699)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in local partnerships (85,143) (76,802)
Cash distributions and other income from local partnerships 183,031 129,915
Redemption of bonds 570,868 300,000
----------- -----------
Net cash provided by investing activities 668,756 353,113
----------- -----------
Net increase in cash and cash equivalents 411,030 83,414
----------- -----------
Cash and cash equivalents at beginning of period 739,118 513,536
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,150,148 $ 596,950
=========== ===========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain (loss) on investments in bonds available-for-sale, net $ (172,252) $ 63,897
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See reconciliation of net loss to net cash used in operating activities on page
6.
See Notes to Financial Statements.
5
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS - (Continued)
NINE MONTHS ENDED DECEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES
Net loss $(1,379,459) $(1,940,486)
Adjustments to reconcile net loss to net cash used in operating activities
Equity in loss of investment in local partnerships 1,045,328 1,661,054
Distributions from local partnerships classified as other income (11,132) (388)
Loss (gain) on redemption of bonds 10,000 (11,403)
Amortization of net premium on investments in bonds 6,965 33,839
Accretion of zero coupon bonds (29,339) (29,446)
Decrease in interest receivable 14,850 9,761
Increase in payable to general partner 98,706 17,343
Decrease in accounts payable and accrued expenses (6,645) (2,973)
Decrease in other liabilities (7,000) (7,000)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $ (257,726) $ (269,699)
=========== ===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 1999
(UNAUDITED)
01. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. They do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The results of operations are impacted significantly by the
combined results of operations of the Local Partnerships, which are
provided by the Local Partnerships on an unaudited basis during interim
periods. Accordingly, the accompanying financial statements are dependent
on such unaudited information. In the opinion of the General Partner, the
financial statements include all adjustments necessary to present fairly
the financial position as of December 30, 1999 and the results of
operations and cash flows for the interim periods presented. All
adjustments are of a normal recurring nature. The results of operations for
the three and nine month periods ended December 30, 1999 are not
necessarily indicative of the results that may be expected for the entire
year.
2. Investments in Bonds Available-For-Sale
As of December 30, 1999, certain information concerning investments in
bonds available-for-sale is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Corporate debt securities
Within one year $ 312,698 $ 703 $ (729) $ 312,672
After one year through five years 889,753 12,021 (17,297) 884,477
After five years through ten years 1,213,944 104 (68,662) 1,145,386
After ten years 92,244 -- (4,594) 87,650
----------- ----------- ----------- -----------
2,508,639 12,828 (91,282) 2,430,185
----------- ----------- ----------- -----------
U.S. Treasury debt securities
After five years through ten years 551,457 -- (47,632) 503,825
----------- ----------- ----------- -----------
U.S. government and agency securities
After five years through ten years 33,523 1,045 -- 34,568
----------- ----------- ----------- -----------
$ 3,093,619 $ 13,873 $ (138,914) $ 2,968,578
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
3. Investment in Local Partnerships
The Partnership owns limited partnership interests in fifty Local
Partnerships representing capital contributions in the aggregate amount of
$46,058,127, which includes advances made to certain Local Partnerships. As
of September 30, 1999, the Local Partnerships have outstanding mortgage
loans payable totaling approximately $89,910,000 and accrued interest
payable on such loans totaling approximately $5,665,000, 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, 1999, the investment in local
partnerships activity consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Investment in local partnerships as of March 30, 1999 $ 12,905,421
Investment in local partnerships 85,143
Equity in loss of investment in local partnerships (1,045,328)*
Cash distributions received from Local Partnerships (183,031)
Cash distributions from Local Partnerships classified as other income 11,132
----------------
Investment in local partnerships as of December 30, 1999 $ 11,773,337
================
</TABLE>
* 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
$1,258,076 for the nine months ended September 30, 1999 as reflected in
the combined statement of operations of the Local Partnerships reflected
herein Note 3.
Effective October 1, 1998, in an attempt to avoid potential adverse tax
consequences, the Partnership and the local general partners of 2000-2100
Christian Street Associates ("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"), whereby either
party's obligation may be cancelled in the event the anticipated annualized
operating deficit exceeds $168,000 in the case of Christian Street and
$132,000 in the case of 2000 Christian Street. The Partnership has made
advances of $16,370 and $10,867 under the Funding Agreements to 2000
Christian Street and Christian Street, respectively, during the nine months
ended December 30, 1999 and recorded such advances as investment in local
partnerships.
As a result of increasing deficits and declining occupancy caused by
deteriorating physical conditions, Forest Village Housing Partnership
("Forest Village") filed for protection under Chapter 11 of the federal
Bankruptcy Code in the United States Bankruptcy Court, Western District of
Washington (the "Court") on March 25, 1999. Forest Village filed a plan of
reorganization (the "Plan") which was confirmed by the Court on December
14, 1999. The terms of the Plan call for the Partnership to provide up to
$500,000, all of which is expected to be advanced during 2000, which Forest
Village can utilize to pay certain obligations including all first mortgage
arrears and certain secured and unsecured creditors and to make necessary
repairs to the complex. The Plan also recasts the second mortgage and
cumulative arrears over a new 30 year amortization period that will reduce
Forest Village's mandatory debt service by approximately $77,000 per annum.
As of February 1, 2000, the Partnership has advanced approximately $142,000
to Forest Village under the Plan and the first mortgage is now current.
Amounts advanced by the Partnership, which are recorded as investment in
local partnerships, accrue interest at 8.5% and are repayable out of net
cash flow from the operations of the property.
8
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of September 30,
1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,363,256 $ 3,806,606
Rents receivable 779,836 585,071
Escrow deposits and reserves 5,759,890 5,572,647
Land 4,180,673 4,180,673
Buildings and improvements (net of accumulated depreciation
of $50,689,043 and $46,950,143) 90,510,327 93,551,328
Intangible assets (net of accumulated amortization of
$1,126,897 and $1,050,154) 1,546,475 1,623,218
Other 1,013,507 1,125,436
------------- -------------
$ 107,153,964 $ 110,444,979
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 1,559,357 $ 1,368,829
Due to related parties 3,833,339 4,488,367
Mortgage loans 89,909,843 90,801,660
Notes payable 2,376,721 2,382,595
Accrued interest 5,664,535 5,065,190
Other 813,844 649,750
------------- -------------
104,157,639 104,756,391
------------- -------------
Partners' equity (deficit)
American Tax Credit Properties II L.P.
Capital contributions, net of distributions 44,893,977 44,985,009
Cumulative loss (32,497,405) (31,452,077)
------------- -------------
12,396,572 13,532,932
------------- -------------
General partners and other limited partners, including
ATCP & ATCP III
Capital contributions, net of distributions 3,232,537 3,283,927
Cumulative loss (12,632,784) (11,128,271)
------------- -------------
(9,400,247) (7,844,344)
------------- -------------
2,996,325 5,688,588
------------- -------------
$ 107,153,964 $ 110,444,979
============= =============
</TABLE>
9
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(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, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1999 1998 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Rental $ 5,064,396 $ 15,199,028 $ 5,075,956 $ 15,371,106
Interest and other 201,993 458,642 118,484 358,951
------------ ------------ ------------ ------------
Total Revenue 5,266,389 15,657,670 5,194,440 15,730,057
------------ ------------ ------------ ------------
EXPENSES
Administrative 856,871 2,564,341 843,258 2,615,648
Utilities 538,507 1,916,697 575,702 1,945,842
Operating, maintenance and other 1,188,427 3,370,936 1,160,151 3,117,221
Taxes and insurance 599,798 1,797,284 500,950 1,688,218
Financial (including amortization of
$23,252, $76,743, $23,390 and $70,166) 1,569,774 4,814,345 1,596,077 4,863,354
Depreciation 1,324,340 3,743,908 1,340,080 3,895,934
------------ ------------ ------------ ------------
Total Expenses 6,077,717 18,207,511 6,016,218 18,126,217
------------ ------------ ------------ ------------
NET LOSS $ (811,328) $ (2,549,841) $ (821,778) $ (2,396,160)
============ ============ ============ ============
NET LOSS ATTRIBUTABLE TO
American Tax Credit Properties II L.P. $ (271,237) $ (1,045,328) $ (527,008) $ (1,584,252)
General partners and other limited
partners, including ATCP & ATCP III,
which includes $476,241, $1,258,076,
$177,691 and $532,417 of Partnership
loss in excess of investment (540,091) (1,504,513) (294,770) (811,908)
------------ ------------ ------------ ------------
$ (811,328) $ (2,549,841) $ (821,778) $ (2,396,160)
============ ============ ============ ============
</TABLE>
The combined results of operations of the Local Partnerships for the three and
nine month periods ended September 30, 1999 are not necessarily indicative of
the results that may be expected for an entire operating period.
10
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
4. Administration Fees
Pursuant to the Partnership Agreement, the Partnership is authorized to
contract for administrative services provided to the Partnership. Since
the inception of the Partnership, such administrative services have been
provided by ML Fund Administrators Inc. ("MLFA"), pursuant to an
Administrative Services Agreement. MLFA discontinued the performance of
its basic services under the Administrative Services Agreement effective
November 23, 1999 with certain transitional services to be continued until
April 30, 2000. The General Partner has transitioned the administrative
services to an affiliate of the General Partner without any changes to the
terms of the Administrative Services Agreement. Under the terms of the
Partnership Agreement, the Partnership currently incurs an annual
Administration Fee and an annual Additional Administration Fee of $209,514
$89,793 respectively.
5. Additional Information
Additional information, including the audited March 30, 1999 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, 1999 on file with the
Securities and Exchange Commission.
11
<PAGE>
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, 1999, American Tax Credit Properties II L.P. (the
"Registrant") has not experienced a significant change in financial condition as
compared to March 30, 1999. Principal changes in assets are comprised of
periodic transactions and adjustments and anticipated equity in loss from
operations of the local partnerships (the "Local Partnerships") which own
low-income multifamily residential complexes (the "Properties") which qualify
for the low-income tax credit in accordance with Section 42 of the Internal
Revenue Code (the "Low-income Tax Credit"). During the nine months ended
December 30, 1999, Registrant received cash from interest revenue, redemption of
bonds and distributions from Local Partnerships and utilized cash for operating
expenses and to fund operating deficits in connection with 2000-2100 Christian
Street Associates ("2000 Christian Street"), Christian Street Associates Limited
Partnership ("Christian Street") and Forest Village Housing Partnership ("Forest
Village") (see Local Partnership Matters below). Cash and cash equivalents and
investments in bonds available-for-sale decreased, in the aggregate, by
approximately $320,000 during the nine months ended December 30, 1999 (which
includes a net unrealized loss on investments in bonds of approximately
$172,000, amortization of net premium on investments in bonds of approximately
$7,000 and accretion of zero coupon bonds of approximately $29,000).
Notwithstanding circumstances that may arise in connection with the Properties,
Registrant does not expect to realize significant gains or losses on its
investments in bonds, if any. During the nine months ended December 30, 1999,
the investment in local partnerships decreased as a result of Registrant's
equity in the Local Partnerships' net loss for the nine months ended September
30, 1999 of $1,045,328 and cash distributions received from Local Partnerships
of $171,899 (exclusive of distributions from Local Partnerships of $11,132
classified as other income from local partnerships), partially offset by
advances to Local Partnerships of $85,143 which are reported as additional
investments in local partnerships). Accounts payable and accrued expenses
includes deferred administration fees of $613,747 and payable to general partner
represents deferred management fees and administration fees in the accompanying
balance sheet as of December 30, 1999.
Results of Operations
Registrant's operating results are dependent upon the operating results of the
Local Partnerships and are significantly impacted by the Local Partnerships'
policies. In addition, the operating results herein are not necessarily the same
for tax reporting. Registrant accounts for its investment in local partnerships
in accordance with the equity method of accounting. Accordingly, the investment
is carried at cost, and is adjusted for Registrant's share of each Local
Partnership's results of operations and by cash distributions received. Equity
in loss of each investment in Local Partnership allocated to Registrant is
recognized to the extent of Registrant's investment balance in each Local
Partnership. Equity in loss in excess of Registrant's investment balance in a
Local Partnership is allocated to other partners' capital in any such Local
Partnership. As a result, the reported equity in loss of investment in local
partnerships is expected to decrease as Registrant's investment balances in the
respective Local Partnerships become zero. The combined statements of operations
of the Local Partnerships reflected in Note 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. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of a Local Partnership. See discussion below under
Local Partnership Matters regarding certain Local Partnerships currently
operating below economic break even levels.
Registrant's operations for the three months ended December 30, 1999 and 1998
resulted in net losses of $378,672 and $704,703, respectively. The decrease in
net loss is primarily attributable to a decrease in equity in loss of investment
in local partnerships of approximately $333,000, which is primarily the result
of an increase in the nonrecognition of losses in excess of Registrant's
investment in local partnerships in accordance with the equity method of
accounting. Other comprehensive loss for the three months ended December 30,
1999 and 1998 resulted from a net unrealized loss on investments in bonds
available-for-sale of $65,894 and $65,887, respectively.
The Local Partnerships' net loss of approximately $811,000 for the three months
ended September 30, 1999 was attributable to rental and other revenue of
approximately $5,266,000 exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $4,729,000 and approximately
$1,348,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $822,000 for the three months ended September 30, 1998 was
attributable to rental and other revenue of approximately $5,194,000, exceeded
by operating and interest expense (including interest on
12
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
non-mandatory debt) of approximately $4,653,000 and approximately $1,363,000 of
depreciation and amortization expense. The results of operations of the Local
Partnerships for the three months ended September 30, 1999 are not necessarily
indicative of the results that may be expected in future periods.
Registrant's operations for the nine months ended December 30, 1999 and 1998
resulted in net losses of $1,379,459 and $1,940,486, respectively. The decrease
in net loss is primarily attributable to a decrease in equity in loss of
investment in local partnerships of approximately $616,000, which is primarily
the result of an increase in the nonrecognition of losses in excess of
Registrant's investment in local partnerships in accordance with the equity
method of accounting, partially offset by a decrease in interest revenue of
approximately $66,000. Other comprehensive income (loss) for the nine months
ended December 29, 1999 and 1998 resulted from a net unrealized gain (loss) on
investments in bonds available-for-sale of $(172,252) and $63,897, respectively.
The Local Partnerships' net loss of approximately $2,550,000 for the nine months
ended September 30, 1999 was attributable to rental and other revenue of
approximately $15,658,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $14,387,000 and approximately
$3,821,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $2,396,000 for the nine months ended September 30, 1998
was attributable to rental and other revenue of approximately $15,730,000,
exceeded by operating and interest expense (including interest on non-mandatory
debt) of approximately $14,160,000 and approximately $3,966,000 of depreciation
and amortization expense. The results of operations of the Local Partnerships
for the nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected in future periods.
Local Partnership Matters
Registrant's primary objective is to provide Low-income Tax Credits to limited
partners generally over a ten year period. 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. Through December 31,
1998, none of the Local Partnerships have suffered an event of recapture of
Low-income Tax Credits. The Local Partnerships will have generated substantially
all of the Low-income Tax Credits allocated to limited partners by December 31,
2000.
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. In
October 1997, Congress passed the Multifamily Assisted Housing and Reform and
Affordability Act, whereby the United States Department of Housing and Urban
Development ("HUD") was given the authority to renew certain project based
Section 8 contracts expiring during HUD's fiscal year 1998, where requested by
an owner, for an additional one year term generally at or below existing rent
levels, subject to certain guidelines. In October 1998, HUD issued a directive
related to project based Section 8 contracts expiring during HUD's fiscal year
1999 which defined owners' notification responsibilities, advised owners of
project based Section 8 properties of what their options are regarding the
renewal of Section 8 contracts, provided guidance and procedures to owners,
management agents, contract administrators and HUD staff on renewing Section 8
contracts, provided guidance on setting renewal rents and handling renewal rent
increases and provided the requirements and procedures for opting-out of a
Section 8 project based contract. In January 2000, HUD issued a new notice that
provides updated guidance for those project based Section 8 contracts expiring
during HUD's fiscal year 2000. 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 and debt structure of any
or all Local Partnerships currently receiving such subsidy or similar subsidies.
Seven Local Partnerships' Section 8 contracts, certain of which cover only
certain rental units, are currently subject to annual year-to-year renewals.
13
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Local Partnerships have various financing structures which include (i)
required debt service payments ("Mandatory Debt Service") and (ii) debt service
payments 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, 1999, revenue
from operations of the Local Partnerships have generally been sufficient to
cover operating expenses and Mandatory Debt Service. Substantially all of the
Local Partnerships are effectively operating above or near break even levels,
although certain Local Partnerships' operating information reflects operating
deficits that do not represent cash deficits due to their mortgage and financing
structure and the required deferral of property management fees. However, as
discussed below, certain Local Partnerships' operating information indicates
below break even operations after taking into account their mortgage and
financing structure and any required deferral of property management fees.
Christian Street and 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 have 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 may be significant. Christian Street and 2000 Christian
Street have allocated approximately 9.5 years of Low-income Tax Credits to
Registrant through December 31, 1999. Accordingly, if the Local General Partners
cease to fund the operating deficits, Registrant would likely incur 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 of Christian Street and 2000 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"), whereby either party's obligation may be
cancelled in the event the anticipated annualized operating deficit exceeds
$168,000 in the case of Christian Street and $132,000 in the case of 2000
Christian Street. The Local General Partners of Christian Street and 2000
Christian Street have agreed to cause the management agent to accrue and defer
its management fees during the period of the Funding Agreements. The accrued
management fees are excluded when determining the operating deficits. Christian
Street and 2000 Christian Street reported a combined operating deficit of
approximately $64,000, excluding accrued management fees of approximately
$29,000, for the nine months ended September 30, 1999. Under the terms of the
Funding Agreements, Registrant has funded $32,870 and $31,867 to 2000 Christian
Street and Christian Street, respectively, as of December 30, 1999. Payments on
the mortgage and real estate taxes are current. Registrant's investment balances
in Christian Street and 2000 Christian Street, after cumulative equity losses,
became zero during the year ended March 30, 1997. Christian Street and 2000
Christian Street will have generated approximately $8 and approximately $4 per
Unit per year to the limited partners upon the expiration of their Low-income
Tax Credit allocations in 2000 and 2001, respectively.
As a result of increasing deficits and declining occupancy caused by
deteriorating physical conditions, Forest Village filed for protection under
Chapter 11 of the federal Bankruptcy Code in the United States Bankruptcy Court,
Western District of Washington (the "Court") on March 25, 1999. Forest Village
filed a plan of reorganization (the "Plan") which was confirmed by the Court on
December 14, 1999. The terms of the Plan call for Registrant to provide up to
$500,000, all of which is expected to be advanced during 2000, which Forest
Village can utilize to pay certain obligations including all first mortgage
arrears and certain secured and unsecured creditors and to make necessary
repairs to the complex. The Plan also recasts the second mortgage and cumulative
arrears over a new 30 year amortization period that will reduce Forest Village's
mandatory debt service by approximately $77,000 per annum. As of February 1,
2000, Registrant has advanced approximately $142,000 to Forest Village under the
Plan and the first mortgage is now current. Registrant's investment balance in
Forest Village, after cumulative equity losses, became zero during the year
ended March 30, 1995. Of Registrant's total annual Low-income Tax Credits,
approximately 1% is allocated from Forest Village.
14
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The terms of the partnership agreement of College Avenue Apartments Limited
Partnership ("College Avenue") require the management agent to defer property
management fees in order to avoid a default under the mortgage. College Avenue
reported an operating deficit of approximately $20,000 for the nine months ended
September 30, 1999, which includes property management fees of approximately
$10,000. Payments on the mortgage and real estate taxes are current.
Registrant's investment balance in College Avenue, after cumulative equity
losses, became zero during the year ended March 30, 1999. Of Registrant's total
annual income Low-income Tax Credits, less than 1% is allocated from College
Avenue.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the year 2000 compliance ("Y2K") issue. As
the year 2000 unfolds, certain systems may be unable to accurately process
certain data-based information. Many businesses may need to upgrade existing
systems or purchase new ones to correct the Y2K issue. Registrant has performed
an assessment of its computer software and hardware and believes it has made the
necessary upgrades in an effort to ensure compliance. However, there can be no
assurance that the systems of other entities on which Registrant relies,
including the Local Partnerships which report to Registrant on a periodic basis
for the purpose of Registrant's reporting to its investors, will be sufficiently
converted. To date, Registrant is not aware of any problems caused by Y2K. The
total cost associated with Y2K implementation is not expected to materially
impact Registrant's financial position or results of operations in any given
year. However, there can be no assurance that a failure to convert by Registrant
or another entity would not have a material adverse impact on Registrant.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Registrant has invested a significant portion of its working capital reserves in
corporate bonds, U.S. Treasury instruments and U.S. government and agency
securities. The market value of such investments is subject to fluctuation based
upon changes in interest rates relative to each investment's maturity date.
Since Registrant's investments in bonds have various maturity dates through
2023, 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
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.
The Properties are generally located where there is a demand for low-income
housing. Accordingly, there is a significant likelihood that new low-income
housing properties could be built in the general vicinity of the respective
Properties. As a result, the respective Properties' ability to operate at high
occupancy levels is subject to competition from newly built low-income housing.
15
<PAGE>
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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
As a result of increasing deficits and declining occupancy, Forest
Village Housing Partnership ("Forest Village") filed for protection
under Chapter 11 of the federal Bankruptcy Code in the United States
Bankruptcy Court, Western District of Washington on March 25, 1999.
Forest Village filed a plan of reorganization that was confirmed on
December 14, 1999.
Item 6. Exhibits and Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant 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 Credit Inc.,
general partner
Dated: February 14, 2000 /s/ Richard Paul Richman
------------------------------------------
by: Richard Paul Richman
President, Chief Executive Officer and
Director of the general partner of the
General Partner
Dated: February 14, 2000 /s/ Neal Ludeke
------------------------------------------
by: Neal Ludeke
Vice President and Treasurer of the
general partner of the General
Partner
(Principal Financial and Accounting
Officer of Registrant)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This article contains summary information extracted from the nine months ended
December 30, 1999 Form 10-Q and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
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<NAME> Neal Ludeke
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