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, 2000
OR
o 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: 0-20057
WNC HOUSING TAX CREDIT FUND II, L.P.
California 33-0391979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 X No .
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
For the Quarter Ended June 30, 2000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
June 30,1999 and March 31, 2000.....................2
Statements of Operations
For the three months ended June 30, 2000 and 1999 ..3
Statement of Partners' Equity (Deficit)
For the three months ended June 30, 2000............4
Statements of Cash Flows
For the three months ended June 30, 2000 and 1999...5
Notes to Financial Statements ...............................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................13
Item 6. Exhibits and Reports on Form 8-K.............................13
Signatures ...................................................14
1
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
--------------------- ---------------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 151,986 $ 150,827
Investments in limited partnerships, net (Note 2) 995,302 1,049,680
------------------- -------------------
$ 1,147,288 $ 1,200,507
=================== ===================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued fees and expenses due to
General Partner and affiliates (Note 3) $ 1,230,866 $ 1,194,613
--------------------- ---------------------
Partners' equity (deficit):
General Partner (60,378) (59,483)
Limited Partners (12,000 units authorized,
7,000 units issued and outstanding) (23,200) 65,377
--------------------- ---------------------
Total partners' equity (83,578) 5,894
--------------------- ---------------------
$ 1,147,288 $ 1,200,507
===================== =====================
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------------ ----------------------
<S> <C> <C>
Interest income $ 1,652 $ 232
Miscellaneous income - 2,872
------------------------ ----------------------
1,652 3,104
------------------------ ----------------------
Operating expenses:
Amortization (Note 2) 5,338 5,338
Asset management fees (Note 3) 36,223 36,226
Other 3,845 4,564
------------------------ ----------------------
Total operating expenses 45,406 46,128
------------------------ ----------------------
Loss from operations (43,754) (43,024)
------------------------ ----------------------
Equity in losses of
limited partnerships (Note 2) (45,718) (49,391)
------------------------ ----------------------
Net loss $ (89,472) $ (92,415)
======================== ======================
Net loss allocated to:
General partner $ (895) $ (924)
======================== ======================
Limited partners $ (88,577) $ (91,491)
======================== ======================
Net loss per limited
partnership unit (7,000 units
issued and outstanding) $ (13) $ (13)
======================== ======================
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the Three Months Ended June 30, 2000
(unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------------------- ------------------- --------------------
<S> <C> <C> <C>
Equity (deficit), March 31, 2000 $ (59,483) $ 65,377 $ 5,894
Net loss for the three months ended
June 30, 2000 (895) (88,577) (89,472)
------------------- ------------------- --------------------
Deficit, June 30, 2000 $ (60,378) $ (23,200) $ (83,578)
=================== =================== ====================
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (89,472) $ (92,415)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization 5,338 5,338
Equity in losses of limited partnerships 45,718 49,391
Change in accrued fees and expense due to
General Partner and affiliates 36,253 40,191
------------------- ------------------
Net cash provided by (used in) operating activities (2,163)
2,505
------------------- ------------------
Cash flows from investing activities:
Distributions from limited partnerships 3,322
2,634
------------------- ------------------
Net increase in cash and cash equivalents 1,159
5,139
Cash and cash equivalents, beginning of period 150,827
175,658
------------------- ------------------
Cash and cash equivalents, end of period $ 151,986 $ 180,797
=================== ==================
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying condensed consolidated unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q for quarterly
reports under Section 13 or 15(d) of the Securities Exchange Act of 1934.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the fiscal year ending March
31, 2001. For further information, refer to the financial statements and
footnotes thereto included in the Partnership's annual report on Form 10-K for
the fiscal year ended March 31, 2000.
Organization
WNC Housing Tax Credit Fund II, L.P., a California Limited Partnership (the
"Partnership"), was formed on January 19, 1990 under the laws of the State of
California. The Partnership was formed to invest primarily in other limited
partnerships (the "Local Limited Partnerships") which own and operate
multifamily housing complexes (the "Housing Complex") that are eligible for low
income housing tax credits. The local general partners (the "Local General
Partners") of each Local Limited Partnership retain responsibility for
maintaining, operating and managing the Housing Complex.
The general partner is WNC Financial Group, L.P., a California partnership (the
"General Partner") of the Partnership. WNC & Associates, Inc. ("WNC") and
Wilfred N. Cooper, Sr. are the partners of the General Partner. Wilfred N.
Cooper, Sr., through the Cooper Revocable Trust, owns 66.8% of the outstanding
stock of WNC. John B. Lester, Jr. was the original limited partner of the
Partnership and owns, through the Lester Family Trust, 28.6% of the outstanding
stock of WNC. Wilfred N. Cooper, Jr., President of WNC, owns 2.1% of the
outstanding stock of WNC. The business of the Partnership is conducted primarily
through WNC, as the Partnership has no employees of its own.
The Partnership Agreement authorized the sale of up to 12,000 units at $1,000
per Unit ("Units"). The offering of Units concluded on December 31, 1992 at
which time 7,000 Units representing subscriptions in the amount of $7,000,000
had been accepted. The General Partner has a 1% interest in operating profits
and losses, taxable income and losses, in cash available for distribution from
the Partnership and tax credits of the Partnership. The limited partners will be
allocated the remaining 99% of these items in proportion to their respective
investments.
After the limited partners have received proceeds from a sale or refinancing
equal to their capital contributions and their return on investment (as defined
in the Partnership Agreement) and the General Partner has received proceeds
equal to its capital contribution and a subordinated disposition fee (as
described in Note 3) from the remainder, any additional sale or refinancing
proceeds will be distributed 95% to the limited partners (in proportion to their
respective investments) and 5% to the General Partner.
6
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Risks and Uncertainties
The Partnership's investments in Local Limited Partnerships are subject to the
risks incident to the management and ownership of low-income housing and to the
management and ownership of multi-unit residential real estate. Some of these
risks are that the low income housing credit could be recaptured and that
neither the Partnership's investments nor the Housing Complexes owned by the
Local Limited Partnerships will be readily marketable. To the extent the Housing
Complexes receive government financing or operating subsidies, they may be
subject to one or more of the following risks: difficulties in obtaining tenants
for the Housing Complexes; difficulties in obtaining rent increases; limitations
on cash distributions; limitations on sales or refinancing of Housing Complexes;
limitations on transfers of Local Limited Partnership Interests; limitations on
removal of Local General Partners; limitations on subsidy programs; and possible
changes in applicable regulations. The Housing Complexes are or will be subject
to mortgage indebtedness. If a Local Limited Partnership does not make its
mortgage payments, the lender could foreclose resulting in a loss of the Housing
Complex and low income housing credits. As a limited partner of the Local
Limited Partnerships, the Partnership will have very limited rights with respect
to management of the Local Limited Partnerships, and will rely totally on the
Local General Partners of the Local Limited Partnerships for management of the
Local Limited Partnerships. The value of the Partnership's investments will be
subject to changes in national and local economic conditions, including
unemployment conditions, which could adversely impact vacancy levels, rental
payment defaults and operating expenses. This, in turn, could substantially
increase the risk of operating losses for the Housing Complexes and the
Partnership. In addition, each Local Limited Partnership is subject to risks
relating to environmental hazards and natural disasters which might be
uninsurable. Because the Partnership's operations will depend on these and other
factors beyond the control of the General Partner and the Local General
Partners, there can be no assurance that the anticipated low income housing
credits will be available to Limited Partners.
In addition, Limited Partners are subject to risks in that the rules governing
the low income housing credit are complicated, and the use of credits can be
limited. The only material benefit from an investment in Units may be the low
income housing credits. There are limits on the transferability of Units, and it
is unlikely that a market for Units will develop. All management decisions will
be made by the General Partner.
Method of Accounting For Investments 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 the Local Limited Partnership's results of operations
and for any distributions received. The accounting policies of the Local Limited
Partnerships are consistent with those of the Partnership. Costs incurred by the
Partnership in acquiring the investments are capitalized as part of the
investment account and are being amortized over 30 years(see Note 2).
Offering Expenses
Offering expenses consist of underwriting commissions, legal fees, printing,
filing and recordation fees, and other costs incurred with selling limited
partnership interests in the Partnership. The General Partner is obligated to
pay all offering and organization costs in excess of 15% (including sales
commissions) of the total offering proceeds. Offering expenses are reflected as
a reduction of partners' capital and amounted to $1,056,840 at the end of all
periods presented.
7
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could materially differ from those estimates.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with remaining
maturities of three months or less when purchased to be cash equivalents. As of
June 30, 2000 and March 31, 2000, of $125,000 and $142,285, respectively.
Net Loss Per Limited Partnership Unit
Net loss per limited partnership unit is calculated pursuant to Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Net loss per unit
includes no dilution and is computed by dividing loss available to limited
partners by the weighted average number of units outstanding during the period.
Calculation of diluted net income per unit is not required.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of the periods presented, the Partnership had acquired limited partnership
interests in twenty-seven Local Limited Partnerships, each of which owns one
Housing Complex consisting of an aggregate of 784 apartment units. The
respective general partners of the Local Limited Partnerships manage the
day-to-day operations of the entities. Significant Local Limited Partnership
business decisions, as defined, require the approval of the Partnership. The
Partnership, as a limited partner, is generally entitled to 99%, as specified in
the Local Limited Partnership agreements, of the operating profits and losses,
taxable income and losses and tax credits of the Local Limited Partnerships.
Equity in losses of the Local Limited Partnerships is recognized in the
financial statements until the related investment account is reduced to a zero
balance. Losses incurred after the investment account is reduced to zero are not
recognized. If the Local Limited Partnerships report net income in future years,
the Partnership will resume applying the equity method only after its share of
such net income equals the share of net losses not recognized during the
period(s) the equity method was suspended.
8
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
The following is a summary of the investment in Local Limited Partnerships and
reconciliation to the limited partnership accounts as of:
<TABLE>
<CAPTION>
June 30,2000 March 31, 2000
------------------- -------------------
<S> <C> <C>
Investments per balance sheet, beginning of period $ 1,049,680 $ 1,460,945
Distributions received (3,322) (5,334)
Equity in losses of limited partnerships (45,718) (384,579)
Amortization of acquisition fees and costs (21,352)
(5,338)
=================== ===================
Investments per balance sheet, end of period $ 995,302 $ 1,049,680
=================== ===================
</TABLE>
Selected financial information for the three months ended June 30 from the
unaudited combined financial statements of the limited partnerships in which the
Partnership has invested is as follows:
<TABLE>
<CAPTION>
2000 1999
------------------- ------------------
<S> <C> <C>
Total revenue $ 740,000 $ 809,000
------------------- ------------------
Interest expense 155,000 235,000
Depreciation 261,000 208,000
Operating expenses 509,000 480,000
------------------- ------------------
Total Expenses 925,000 923,000
------------------- ------------------
Net loss $ (185,000) $ (114,000)
=================== ==================
Net loss allocable to the Partnership $ (183,000) $ (113,000)
=================== ==================
Net loss recognized by the Partnership $ (46,000) $ (49,000)
=================== ==================
</TABLE>
9
<PAGE>
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
(unaudited)
NOTE 3- RELATED PARTY TRANSACTIONS
Under the terms of the Partnership Agreement, the Partnership has paid or is
obligated to the General Partner or its affiliates for the following items:
(a) Annual Asset Management Fee. An annual asset management fee in an
amount equal to 0.5% of invested assets (the sum of the Partnership's
Investment in Local Limited Partnership Interests and the
Partnership's allocable share of the amount of the mortgage loans on
and other debts related to, the Housing Complexes owned by such Local
Limited Partnerships). Fees of $36,223 and $36,226 were incurred
during the three months ended June 30, 2000 and 1999, respectively.
The Partnership made no payments to the General Partner or its
affiliates for those fees during the three months ended June 30, 2000
and 1999.
(b) A subordinated disposition fee in an amount equal to 1% of the sales
price of any real estate sold. Payment of this fee is subordinated to
the limited partners who receive a 6% preferred return (as defined in
the Partnership Agreement) and is payable only if the General Partner
or its affiliates render services in the sales effort. The "accrued
fees and advance due to General Partner and affiliates" presented on
the balance sheet consists of the following:
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
---------------------- -------------------------
<S> <C> <C>
Asset management fee payable $ 1,230,866 $ 1,194,643
Reimbursement due on expenses paid by affiliate - (30)
---------------------- -------------------------
Total related party payables $ 1,230,866 $ 1,194,613
====================== =========================
</TABLE>
NOTE 4 - 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.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report contains forward-looking statements concerning the
Partnership's anticipated future revenues and earnings, adequacy of future cash
flow and related matters. These forward-looking statements include, but are not
limited to, statements containing the words "expect", "believe", "will", "may",
"should", "project", "estimate", and like expressions, and the negative thereof.
These statements are subject to risks and uncertainties that could cause actual
results to differ materially from the statements, including competition, as well
as those risks described in the Partnership's SEC reports, including the
Partnership's Form 10-K filed pursuant to the Securities and Exchange Act of
1934 on June 29, 2000.
The following discussion and analysis compares the results of operations for the
fiscal quarter ended June 30, 2000 and 1999, and should be read in conjunction
with the condensed consolidated financial statements and accompanying notes
included within this report.
Financial Condition
The Partnership's assets at June 30, 2000 consisted primarily of $152,000 in
cash and aggregate investments in the twenty-seven Local Limited Partnerships of
$995,000. Liabilities at June 30, 2000 primarily consisted of $1,231,000 of
accrued annual management fees due to the General Partner.
Results of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999.
The Partnership's net loss for the three months ended June 30, 2000 was
$(89,000), reflecting a decrease of $3,000 from the net loss experienced for the
three months ended June 30, 1999 of $(92,000). The decline in net loss is
primarily due to equity in losses of limited partnerships which declined by
$3,000 to $(46,000) for the three months ended June 30, 2000 from $(49,000) for
the three months ended June 30, 1999. This decrease was a result of the
Partnership not recognizing certain losses of the Local Limited Partnerships.
The investments in such Local Limited Partnerships had reached $0 at June 30,
2000. Since the Partnership's liability with respect to its investments is
limited, losses in excess of investment are not recognized. Along with the
decrease in equity in losses of limited partnerships, there was an increase in
loss from operations of $1,000 for the three months ended June 30, 2000 to
$(44,000), from $(43,000) for the three months ended June 30, 1999, due to a net
decrease in miscellaneous income.
Cash Flows
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999.
Net cash provided during the three months ended June 30, 2000 was $1,000
compared to cash provided for the three months ended June 30, 1999 of $5,000.
The change was due primarily to an increase in operating expenses paid of
$5,000, offset by an increase in distributions from limited partnerships of
$1,000.
During the three months ended June 30, 2000 and 1999, accrued payables, which
consist primarily of related party management fees due to the General Partner,
increased by $36,000. The General Partner does not anticipate that these accrued
fees will be paid until such time as capital reserves are in excess of future
foreseeable working capital requirements of the partnership.
The Partnership expects its future cash flows, together with its net available
assets at June 30, 2000, to be sufficient to meet all currently foreseeable
future cash requirements.
11
<PAGE>
Impact of Year 2000
WNC & Associates, Inc.
Status of Readiness
Information Technology (IT) Systems. The Partnership relies on the IT systems of
WNC, its ultimate general partner. IT systems include computer hardware and
software used to produce financial reports and tax return information. This
information is then used to generate reports to investors and regulatory
agencies, including the Internal Revenue Service and the Securities and Exchange
Commission. The IT systems of WNC are year 2000 compliant.
Non-IT Systems. The Partnership also relies on the non-IT systems of WNC. Non-IT
systems include machinery and equipment such as telephones, voice mail and
electronic postage equipment. The non-IT systems of WNC are year 2000 compliant.
Service Providers. WNC also relies on the IT and non-IT systems of service
providers. Service providers include utility companies, financial institutions,
telecommunications carriers, municipalities, and other outside vendors. WNC has
obtained verbal assurances from its material service providers (electrical power
provider, financial institutions and telecommunications carriers) that their IT
and non-IT systems are year 2000 compliant. To date, WNC has not encountered
significant year 2000 issues or business disruptions from its service providers.
Costs to Address Year 2000 Issues
The cost to address year 2000 issues for WNC has been less than $25,000.
Risk of Year 2000 Issues
Although WNC has encountered no significant year 2000 issues to date, the most
reasonable and likely result from non-year 2000 compliance of systems of the
service providers noted above would be the disruption of normal business
operations for WNC. This disruption could, in turn, lead to delays in performing
reporting and fiduciary responsibilities on behalf of the Partnership. The worst
case scenario would be the replacement of a service provider. These delays would
likely be temporary and would likely not have a material effect on the
Partnership or WNC.
Local Limited Partnerships
Status of Readiness
To date, WNC and the Partnership have encountered no significant year 2000
issues with respect to the Local Limited Partnerships.
Costs to Address Year 2000 Issues
There has been and will be no cost to the Partnership as a result of assessing
year 2000 issues for the Local Limited Partnerships. Although no significant
year 2000 issues have been encountered to date, the cost to deal with potential
year 2000 issues of the Local Limited Partnerships cannot be estimated at this
time.
12
<PAGE>
Risk of Year 2000 Issues
Although no significant year 2000 issues have been encountered to date, there
can be no assurance that the Partnership will be unaffected by year 2000 issues.
The most reasonable and likely result from non-year 2000 compliance will be the
disruption of normal business operations for the Local Limited Partnerships,
including but not limited to the possible failure to properly collect rents and
meet their obligations in a timely manner. This disruption would, in turn, lead
to delays by the Local Limited Partnerships in performing reporting and
fiduciary responsibilities on behalf of the Partnership. The worst-case scenario
would include the initiation of foreclosure proceedings on the property by
mortgage debt holders. Under these circumstances, WNC or its affiliates will
take actions necessary to minimize the risk of foreclosure, including the
removal and replacement of a Local General Partner by the Partnership. These
delays would likely be temporary and would likely not have a material effect on
the Partnership or WNC.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
NOT APPLICABLE
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
13
<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 HOUSING TAX CREDIT FUND II, L.P.
By: WNC Financial Group, L.P. General Partner of the Registrant
By: WNC & ASSOCIATES, INC. General Partner of WNC Financial Group, L.P.
By: /s/ Will N Cooper, Jr.
Will N Cooper, Jr., President - Chief Operating Officer of
WNC & Associates, Inc.
Date: August 21, 2000
By: /s/ Michael L. Dickenson
Michael L. Dickenson, Vice-President - Chief Financial Officer of
WNC & Associates, Inc.
Date: August 21, 2000
14
