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, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - ------- SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-24656
LIBERTY TAX CREDIT PLUS III L.P.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3491408
-------- ----------
(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 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 III L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
---- ----
<S> <C> <C>
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $76,827,662 and $74,148,437,
respectively $227,960,573 $230,502,450
Cash and cash equivalents 3,880,042 4,294,917
Cash held in escrow 16,483,776 15,878,119
Deferred costs, net of accumulated
amortization of $2,149,713
and $2,096,272, respectively 3,554,371 3,608,177
Other assets 2,501,927 2,516,633
------------ ------------
Total assets $254,380,689 $256,800,296
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $197,969,459 $198,396,239
Due to debt guarantor 28,207,690 27,574,312
Accounts payable and other
liabilities 22,380,207 20,494,884
Due to local general partners and
affiliates 13,318,364 14,152,837
Due to general partners and
affiliates 2,361,353 1,975,913
------------ ------------
Total liabilities 264,237,073 262,594,185
------------ ------------
Minority interest 1,921,818 2,181,337
------------ ------------
Commitments and contingencies (Note 4)
Partners' capital:
Limited partners (139,101.5 BACs
issued and outstanding) (10,424,963) (6,660,017)
General Partners (1,353,239) (1,315,209)
------------ ------------
Total partners' capital (11,778,202) (7,975,226)
------------ ------------
Total liabilities and partners'
capital $254,380,689 $256,800,296
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------
1998 1997*
---- -----
<S> <C> <C>
Revenues
Rental income $ 8,084,168 $ 7,963,752
Other 503,972 474,395
------------ ------------
8,588,140 8,438,147
------------ ------------
Expenses
General and administrative 1,720,809 1,689,986
General and administrative-
related parties (Note 2) 946,832 1,021,982
Operating 959,077 949,899
Repairs and maintenance 1,195,136 1,048,254
Real estate taxes 554,301 510,172
Insurance 349,007 380,023
Interest 3,972,617 3,939,459
Depreciation and amortization 2,734,681 2,886,929
------------ -------------
Total Expenses 12,432,460 12,426,704
------------ -------------
Loss before minority interest (3,844,320) (3,988,557)
Minority interest in losses of
subsidiary partnerships 41,344 34,103
------------ ------------
Net Loss $ (3,802,976) $ (3,954,454)
============ ============
Net loss - limited partners $ (3,764,946) $ (3,914,909)
============ ============
Number of BACs outstanding 139,101.5 139,101.5
============ ============
Net loss per BAC $ (27.07) $ (28.14)
============ ============
</TABLE>
*Reclassified for comparative purposes.
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Capital
(Unaudited)
<TABLE>
<CAPTION>
Limited General
Total Partners Partners
----- -------- --------
<S> <C> <C> <C>
Partners' capital -
April 1, 1998 $(7,975,226) $(6,660,017) $(1,315,209)
Net loss (3,802,976) (3,764,946) (38,030)
---------- ---------- ----------
Partners' capital -
June 30, 1998 $(11,778,202) $(10,424,963) $(1,353,239)
=========== =========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,802,976) $(3,954,454)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 2,734,681 2,886,929
Minority interest in loss of
subsidiaries (41,344) (34,103)
Increase in accounts
payable and other liabilities 1,885,323 1,443,686
Increase in cash held in escrow (608,157) (526,736)
Decrease (increase) in other assets 14,706 (161,370)
Increase in due to general partners
and affiliates 385,440 158,335
Increase in due to local
general partners and affiliates 41,494 202,061
Decrease in due to local general
partners and affiliates (875,967) (561,611)
Increase in due to debt guarantor 633,378 587,509
----------- -----------
Net cash provided by
operating activities 366,578 40,246
----------- -----------
Cash flows from investing activities:
Acquisitions of property
and equipment (139,363) (137,291)
Decrease in cash held in escrow 2,500 0
----------- -----------
Net cash used in investing activities (136,863) (137,291)
----------- -----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Cash flows from financing activities:
Principal payments of mortgage
notes payable (426,780) (359,154)
Decrease in deferred costs 365 0
Decrease in capitalization of
consolidated subsidiaries
attributable to minority interest (218,175) (359,694)
---------- ----------
Net cash used in
financing activities (644,590) (718,848)
---------- ----------
Net decrease in cash
and cash equivalents (414,875) (815,893)
Cash and cash equivalents at
beginning of period 4,294,917 6,518,662
---------- ----------
Cash and cash equivalents at
end of period $3,880,042 $5,702,769
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
Note 1 - General
The consolidated financial statements include the accounts of Liberty Tax Credit
Plus III L.P. (the "Partnership") and 61 subsidiary partnerships (the
"subsidiary partnerships", "Local Partnerships" or "subsidiaries") in which the
Partnership holds a 98% limited partnership interest and 1 subsidiary
partnership in which the Partnership holds a 27% limited partnership interest
(the other 71% limited partnership interest is owned by an affiliate of the
Partnership, with the same management). Through the rights of the Partnership
and/or an affiliate of a General Partner, which affiliate 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 June 30.
All subsidiaries have fiscal quarters ending March 31. Accounts of the
subsidiaries have been adjusted for intercompany transactions from April 1
through June 30. The Partnership's fiscal quarter ends June 30 in order to allow
adequate time for the subsidiaries financial statements to be prepared and
consolidated.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
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 have been charged to the Partnership. Such losses
aggregated approximately $63,000 and $66,000 for the three months ended June 30,
1998 and 1997, respectively. The Partnership's investment in each subsidiary is
generally equal to the respective subsidiary'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.
7
<PAGE>
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
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 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, 1998 and the results of operations and cash flows for
the three months ended June 30, 1998 and 1997. However, the operating results
for the three months ended June 30, 1998 may not be indicative of the results
for the year.
Certain information and note disclosure 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 period ended March 31,
1998.
Note 2 - Related Party Transactions
Liberty Associates IV L.P. ("Liberty Associates"), an affiliate of the General
Partners, has a 1% and .998% interest as a Special Limited Partner in 61 and 1
of the Local Partnerships, respectively. Affiliates of the General Partners also
have a minority interest in certain Local Partnerships.
The costs incurred to related parties for the three months ended June 30, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Partnership management fees (a) $ 358,500 $ 358,500
Expense reimbursement (b) 73,456 125,280
Property management fees (c) 467,876 510,202
Local administrative fee (d) 47,000 28,000
--------- ----------
$ 946,832 $1,021,982
========= ==========
</TABLE>
8
<PAGE>
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
(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. Unpaid partnership
management fees for any year will be accrued without interest and will be
payable only to the extent of available funds after the Partnership has made the
distributions to the limited partners of sale or refinancing proceeds equal to
their original capital contributions plus a 10% priority return thereon (to the
extent not theretofore paid out of cash flow). Partnership management fees owed
to the General Partners amounting to approximately $1,733,000 and $1,374,000
were accrued and unpaid at June 30, 1998 and March 31, 1998, respectively.
Without the General Partners' continued accrual without payment of certain fees
and expense reimbursements, 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 obligation to continue 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 Related General Partner performs asset monitoring for the
Partnership. These services include site visits and evaluations of the
subsidiary partnerships' performance.
(c) The subsidiary partnerships incurred property management fees amounting to
$547,354 and $582,480 for the three months ended June 30, 1998 and 1997,
respectively, of which $467,876 and $510,202 for the three months ended June 30,
1998 and 1997, respectively, were incurred to affiliates of the subsidiary
partnerships' general partners. Included in amounts incurred to affiliates of
the subsidiary partnerships' general partners were $42,334 and $38,975 for the
three months ended June 30, 1998 and 1997, respec-
9
<PAGE>
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
tively, which were also incurred to affiliates of the Related General Partner.
(d) Liberty Associates IV 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 - 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.
10
<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
and (ii) cash distributions from the operations of the Local Partnerships.
As of June 30, 1998 the Partnership has invested all of the net proceeds in 62
Local Partnerships. Approximately $1,229,000 of the purchase price remains to be
paid (which includes approximately $939,000 held in escrow).
During the three months ended June 30, 1998, cash and cash equivalents of the
Partnership and its 62 consolidated Local Partnerships decreased by
approximately $415,000. This decrease was primarily attributable to acquisitions
of property and equipment ($139,000), principal payments of mortgage notes
payable ($427,000) and a decrease in capitalization of consolidated subsidiaries
attributable to minority interest ($218,000) which exceeded cash flow provided
by operations ($366,000). Included in the adjustments to reconcile the net loss
to cash provided by operating activities is depreciation and amortization
($2,735,000) and an increase in due to debt guarantor of ($633,000).
The Partnership has a working capital reserve of approximately $275,000 at both
June 30, 1998 and March 31, 1998.
Cash distributions received from the Local Partnerships remain relatively
immaterial. These distributions, as well as the working capital reserves
referred to in the preceding paragraph, will be used to meet the future
operating expenses of the Partnership. During the three months ended June 30,
1998 and 1997, the amounts received from operations of the Local Partnerships
approximated $101,000 and $155,000, respectively.
For a 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.
However, the Partnership's loss of its investment in a Local Partnership will
eliminate the ability to generate future tax credits from such Local
11
<PAGE>
Partnership and may also result in recapture of tax credits if the investment is
lost before the expiration of the compliance period.
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 for
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
diversification of the portfolio may not protect against a general downturn in
the national economy. The Partnership has fully invested the proceeds of its
offering in 62 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 months ended June 30, 1998 and 1997
consisted primarily of (i) the results of the Partnership's investment in the
consolidated Local Partnerships and (ii) interest income earned on the working
capital reserve and funds not fully invested in Local Partnerships as certain
benchmarks, such as occupancy levels, must be attained prior to the Partnership
paying the acquisition costs in full.
Results of operations of the consolidated Local Partnerships for the three
months ended June 30, 1998 continues to be in the form of rental income with
corresponding expenses divided among operations, depreciation and mortgage
interest.
Rental income increased approximately 2% for the three months ended June 30,
1998 as compared to the corresponding period in 1997 primarily due to rental
rate increases.
Total expenses, excluding repairs and maintenance remained fairly consistent
with a decrease of approximately 1% for the three months ended June 30, 1998 as
compared to the corresponding period in 1997.
12
<PAGE>
Repairs and maintenance increased approximately $147,000 for the three months
ended June 30, 1998 as compared to the corresponding period in 1997 primarily
due to parking lot repavement and roof replacement at one Local Partnership,
roof repairs and carpet replacement at a second Local Partnership, as well as a
small increase at a third Local Partnership.
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The General Partners are in the process of working with the
Partnership's service providers to prepare for the year 2000. Based on
information currently available, the Partnership does not expect that it will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant.
13
<PAGE>
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 - 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.
14
<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 III L.P.
(Registrant)
By: RELATED CREDIT PROPERTIES III L.P.,
a General Partner
By: Related Credit Properties III Inc.,
General Partner
Date: August 4, 1998
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Senior Vice President
(principal financial officer)
Date: August 4, 1998
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: LIBERTY GP III INC.,
a General Partner
Date: August 4, 1998
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Senior Vice President
(principal financial officer)
Date: August 4, 1998
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
<PAGE>
and
By: LIBERTY ASSOCIATES IV, L.P.,
a General Partner
By: Related Credit Properties III, L.P.,
its General Partner
By: Liberty GP III Inc.,
a General Partner
Date: August 4, 1998
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Senior Vice President
(principal financial officer)
Date: August 4, 1998
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 III L.P.
and is qualified in its entirety
by reference to such financial
statements
</LEGEND>
<CIK> 0000843076
<NAME> Liberty Tax Credit Plus III L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,880,042
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,985,703
<PP&E> 304,788,235
<DEPRECIATION> 76,827,662
<TOTAL-ASSETS> 254,380,689
<CURRENT-LIABILITIES> 66,267,614
<BONDS> 197,969,459
0
0
<COMMON> 0
<OTHER-SE> (9,856,384)
<TOTAL-LIABILITY-AND-EQUITY> 254,380,689
<SALES> 0
<TOTAL-REVENUES> 8,588,140
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,459,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,972,617
<INCOME-PRETAX> (3,844,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,844,320)
<EPS-PRIMARY> (27.07)
<EPS-DILUTED> 0
</TABLE>
