FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1997
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: 0-20058
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
California 33-0316953
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626
(714) 662-5565
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 ____ No X
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets .............................................................3
June 30, 1997 and December 31, 1996
Statement of Operations
For the Three months and six months ended June 30, 1997 and 1996 .... 4
Statement of Partners' Equity
For the Six months ended June 30, 1997 and 1996 ......................5
Statement of Cash Flows
For the Six months ended June 30, 1997 and 1996 ......................6
Notes to Financial Statements ..............................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...........................................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................................12
Signatures ..................................................................13
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
BALANCE SHEETS
June 30, 1997 and December 31, 1996
1997 1996
---- ----
ASSETS
Cash and cash equivalents $ 72,516 $ 83,943
Investment in limited
partnerships - Note 2 2,193,441 2,442,547
Other assets - Note 4 - -
---------- ----------
$ 2,265,957 $ 2,526,490
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accrued fees and expenses due to
general partner and affiliates
- Note 3 $ 644,668 $ 594,248
---------- ----------
Partners' equity (deficit):
General partner (48,628) (45,518)
Limited partners (10,000 units
authorized, 7,450 units issued
and outstanding) 1,669,917 1,977,760
---------- ----------
Total partners' equity 1,621,289 1,932,242
---------- ----------
$ 2,265,957 $ 2,526,490
============ ==========
UNAUDITED
See Accompanying Notes to Financial Statements
3
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
STATEMENT OF OPERATIONS
For the Three and Six Months Ended June 30, 1997 and 1996
1997 1996
---- ----
Three Six Three Six
Months Months Months Months
Interest income $ 578 $ 1,100 $ 852 $ 1,744
------- ------- ------- --------
Operating expenses:
Amortization 3,726 7,452 3,726 7,452
Asset management fees
(Note 4) 27,923 55,846 27,923 55,846
Legal and accounting 3,087 5,087 4,175 5,175
Other 5,919 6,968 6,183 6,455
-------- ------- ------- --------
Total operating expenses 40,655 75,353 42,007 74,928
-------- ------- ------- --------
Loss from operations (40,077) (74,253) (41,155) (73,184)
-------- ------- ------- --------
Equity in loss from
limited partnerships (118,700) (236,700) (105,000) (198,000)
--------- -------- -------- ---------
Net loss $ (158,777) $ (310,953) $ (146,155) $ (271,184)
========= ======== ======== =========
Net loss allocated to:
General partner $ (1,588) $ (3,110) $ (1,462) $ (2,712)
========= ======== ======== =========
Limited partners $ (157,189) $ (307,843) $ (144,693) $ (268,472)
========= ======== ======== =========
Net loss per limited
partner units (7,450 units
issued and outstanding) $ (21) $ (41) $ (19) $ (36)
========= ======== ======== =========
UNAUDITED
See Accompanying Notes to Financial Statements
4
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WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY
For the Six Months Ended June 30, 1997 and 1996
For the Six Months Ended June 30, 1997
General Limited
Partner Partner Total
Equity (deficit), December 31, 1996 $ (45,518) $ 1,977,760 $ 1,932,242
Net loss for the six months ended
June 30, 1997 (3,110) (307,843) (310,953)
-------- ---------- ----------
Equity (deficit), June 30, 1997 $ (48,628) $ 1,669,917 $ 1,621,289
======== ========== ==========
For the Six Months Ended June 30, 1996
General Limited
Partner Partner Total
Equity (deficit), December 31, 1995 $ (39,401) $ 2,583,377 $ 2,543,976
Net loss for the six months ended
June 30, 1996 (2,712) (268,472) (271,184)
-------- ---------- ----------
Equity (deficit), June 30, 1996 $ (42,113) $ 2,314,905 $ 2,272,792
======== ========== ==========
UNAUDITED
See Accompanying Notes to Financial Statements
5
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WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
1997 1996
---- ----
Cash flows used by operating activities:
Net loss $ (310,953) $ (271,184)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in loss of limited partnerships 236,700 198,000
Amortization 7,452 7,452
Asset management fee 55,845 55,846
Change in other assets - 330
Accrued fees and expense due to
general partner and affiliates (5,425) (1,096)
-------- -------
Net cash used by operating activities (16,381) (10,652)
-------- -------
Cash flows provided by investing activities:
Distributions from limited partnerships 4,954 8,035
-------- -------
Net decrease in cash and cash equivalents (11,427) (2,617)
Cash and cash equivalents, beginning of period 83,943 84,504
-------- -------
Cash and cash equivalent, end of period $ 72,516 $ 81,887
======== =======
UNAUDITED
See Accompanying Notes to Financial Statements
6
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
General
- -------
The information contained in the following notes to the financial statements is
condensed from that which would appear in the annual financial statements;
accordingly, the financial statements included herein should be reviewed in
conjunction with the financial statements and related notes thereto contained in
the WNC California Housing Tax Credits, L.P. (the "Partnership") Annual Report
for the year ended December 31, 1996. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The results
of operations for the interim period presented are not necessarily indicative of
the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30, 1997
and the results of operations and changes in cash flows for the six months
ended.
Organization
- ------------
The Partnership was formed on September 15, 1988 under the laws of the State of
California. The Partnership was formed to invest, as a limited partner, in other
limited partnerships which will acquire, develop, rehabilitate, own and operate
apartment complexes. All eleven of the apartment complexes qualify for federal
low income housing tax credits and eight of the apartment complexes qualify for
California low income housing tax credits.
WNC & Associates, Inc., a California corporation and Wilfred N. Cooper, Sr. are
the general partners (collectively the "General Partner") of the Partnership.
The Cooper Revocable Trust is the principal shareholder of WNC & Associates,
Inc.
The General Partner has a 1% interest in operating profits and losses of the
Partnership. The limited partners will be allocated the remaining 99% interest
in proportion to their respective investments.
7
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - ORGANIZATION AND OTHER MATTERS, continued
- --------------------------------------------------
Method of Accounting For Investment in Limited Partnerships
- -----------------------------------------------------------
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of each limited partnership's results of operations and
for any distributions received. Costs incurred by the Partnership in acquiring
the investments in limited partnerships are capitalized as part of the
investment.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all bank certificates of deposit with a maturity of
less than six months to be cash equivalents.
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
- -------------------------------------------
As of June 30, 1997, the Partnership had acquired limited partnership interests
in eleven limited partnerships which own and operate eleven apartment complexes.
The Partnership, as a limited partner, is a 99% owner and is entitled to 99% of
the operating profits and losses of the limited partnerships.
The following is a summary of the investment in limited partnerships and
reconciliation to the limited partnership accounts as of June 30, 1997 and
December 31, 1996:
1997 1996
---- ----
Investment balance,
beginning of period $ 2,442,547 $ 2,943,052
Equity in loss of limited
partnership (236,700) (476,567)
Distributions (4,954) (9,034)
Amortization of capitalized
acquisition costs (7,452) (14,904)
---------- ----------
Investment balance,
end of period $ 2,193,441 $ 2,442,547
========== ==========
8
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WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)
- -------------------------------------------------------
Selected financial information for the six months ended June 30, 1997 and 1996
from the combined financial statements of the limited partnerships in which the
partnership has invested is as follows:
1997 1996
---- ----
Total revenue $ 885,000 $ 891,000
---------- ----------
Interest expense 201,000 195,000
Depreciation 305,000 317,000
Operating expenses 618,000 579,000
---------- ----------
Total expenses 1,124,000 1,091,000
---------- ----------
Net loss $ ($239,000) $ (200,000)
========== ==========
Net loss allocable to the
Partnership $ ($236,700) $ ($198,000)
========== ==========
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Under the terms of the Agreement of the Limited Partnership Agreement, the
Partnership is obligated to the general partner or its affiliates for an annual
management fee equal to .5% of the invested assets of the limited partnerships.
A fee of $55,846 was incurred for each six month period ended June 30, 1997 and
1996 and is reflected as an expense of the Partnership.
NOTE 4 - OTHER ASSETS
- ---------------------
Other assets is presented net of accumulated amortization of $59,142 at June 30,
1997 and December 31, 1996.
NOTE 5 - INCOME TAXES
- ---------------------
No provision for income taxes has been made as the liability for income taxes is
an obligation of the partners of the Partnership.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Liquidity and Capital Resources
The Partnership's primary source of capital was the proceeds from its offering.
The Partnership completed raising funds in July 1990 from investors by means of
a public offering. These funds were applied to the acquisition of investments in
eleven limited partnerships, acquisition fees, the establishment of reserves,
the payment of operating expenses and the payment of expenses of this offering.
The Partnership has paid all capital contributions due for its investments in
Limited Partnerships and has no further obligations for its property
investments.
Overall, as reflected in its Statement of Cash Flows, the Partnership had net
decreases in cash and cash equivalents of $11,427 and $2,617 for the six months
ended June 30, 1997 and 1996. The decrease in cash in 1997 and 1996 resulted as
cash used by operating activities exceeded cash provided by investing
activities. Cash used by the Partnership's operating activities consisted
primarily of payments for operating fees and expenses. Cash provided by
investing activities consisted of distributions from limited partnerships; cash
provided operations consisted primarily of interest received on cash deposits.
The major components of all these activities are discussed in greater detail
below.
The Partnership's investments are not readily marketable and may be affected by
adverse general economic conditions which, in turn, could substantially increase
the risk of operating losses for the apartment complexes, the limited
partnerships and the Partnership. These problems may result from a number of
factors, many of which cannot be controlled by the General Partner.
The Partnership's current working capital reserves of approximately $73,000 is
anticipated to be sufficient to satisfy general working capital and
administrative expense requirements of the Partnership excluding payment of the
asset management fee as well as expenses attendant to the preparation of tax
returns and reports to the limited partners and other investor servicing
obligations of the Partnership. Liquidity would, however, be adversely affected
by unanticipated or greater than anticipated operating costs. To the extent that
working capital reserves are insufficient to satisfy the cash requirements of
the Partnership, it is anticipated that additional funds would be sought through
bank loans or other institutional financing. The General Partner may also apply
any cash distributions received from the limited partnerships for such purposes
or to replenish or increase working capital reserves.
It is not expected that any of the limited partnerships in which the Partnership
will invest will generate cash from operations sufficient to provide
distributions to the limited partners in any significant amount. Such cash from
operations, if any, would first be used to meet operating expenses of the
Partnership, including the payment of the asset management fee to the General
Partner.
Under its partnership agreement, the Partnership does not have the ability to
assess its partners for additional capital contributions to provide capital if
needed by the Partnership or limited partnerships. Accordingly, if circumstances
arise that cause the limited partnerships to require capital in addition to that
contributed by the Partnership and any equity of the general partners of the
limited partnerships, the only sources from which such capital needs will be
able to be satisfied (other than the limited reserves available at the
Partnership level) will be (i) third-party debt financing (which may not be
available, as the apartment complexes owned by the limited partnerships are
already substantially leveraged), (ii) additional equity contributions or
advances of the general partners of the limited partnerships, (iii) other equity
source (which could adversely affect the Partnership's interest in tax credits,
cash flow and/or proceeds of sale or refinancing of the apartment complexes and
result in adverse tax consequences to the limited partners), or (iv) the sale or
disposition of the apartment complexes (which could have the same adverse
effects as discussed in (iii) above). There can be no assurance that funds from
any of such sources would be readily available in sufficient amounts to fund the
10
<PAGE>
capital requirement of the limited partnerships in question. If such funds are
not available, the limited partnerships would risk foreclosure on their
apartment complexes if they were unable to renegotiate the terms of their first
mortgages and any other debt secured by the apartment complexes to the extent
the capital requirements of the limited partnerships relate to such debt.
The Partnership's capital needs and resources are expected to be relatively
stable over the holding periods of the investments.
Results of Operations
Consistent with the Partnership's investment objectives, each limited
partnership is generating federal low income housing credits for a period of
approximately ten years, and (as discussed below) is generating losses until
sale of the apartment complex(es). Additionally, eight of the limited
partnerships generated California low income housing credits for a period of
four years.
As reflected on its Statements of Operations, the Partnership has a loss of
approximately $311,000 and $271,000 the six months ended June 30, 1997 and 1996.
The components items of revenue and expense are discussed below.
Revenue - Partnership revenues consisted entirely of interest earned on cash
deposits held in financial institutions as reserves. Interest revenue in future
years will be a function of prevailing interest rates and the amount of cash
balances.
Expenses - The most significant component of operating expenses is, and is
expected to be, the asset management fee. The asset management fee is equal to
0.5% of invested assets in limited partnerships (the sum of the Partnership's
capital contributions to the limited partnerships plus the Partnership's share
of the debts related to the apartment complexes owned by such limited
partnerships). The amount of the asset management fee is expected to be the same
in future periods as the amount of invested assets is expected to remain stable
until disposition of the underlying apartment complexes.
Amortization expense consists of the amortization over a period of 30 years of
the 9% selection fee and other expenses attributable to the acquisition of
limited partnership interests.
Office expenses consists of the Partnership's administrative expenses, such as
bank charges and investor reporting expenses. Although these amounts are
expected to remain consistent on an annual basis, there may be variations
between quarters depending on the timing of preparing and mailing reports to
investors.
Equity in losses from limited partnerships - The Partnership's equity in losses
from limited partnerships is equal to 99% of the aggregate net loss of the
limited partnerships. After rent-up, the limited partnerships are expected to
generate losses during each year of operations; this is so because, although
rental income is expected to exceed cash operating expenses, depreciation and
amortization deductions claimed by the limited partnerships are expected to
exceed net rental income.
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
1. None.
No reports on Form 8-K were filed during the quarter ended June 30,
1997.
12
<PAGE>
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.
WNC CALIFORNIA HOUSING TAX CREDITS, L.P.
By: WNC & Associates, Inc., General Partner
By: /s/ John B. Lester, Jr.
- -----------------------------------------------------
John B. Lester, Jr. President- WNC & Associates, Inc.
Date: August 12, 1997
By: /s/ Theodore M. Paul
- -----------------------------------------------------
Theodore M. Paul Vice President-Finance, WNC & Associates, Inc.
Date: August 12, 1997
13
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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