<PAGE>
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: MARCH 31, 1996
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 0-20056
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0433017
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3158 REDHILL AVENUE, SUITE 120, COSTA MESA, CA 92626
(Address of principal executive offices)
(714) 662-5565
(Registrant's telephone number,
including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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 CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, March 31, 1996 and December 31, 1995 3
Statement of Operations
For the three months ended March 31, 1996 and 1995 4
Statement of Partners' Equity
For the three months ended March 31, 1996 and 1995 5
Statement of Cash Flows
For the three months ended March 31, 1996 and 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1996 and December 31, 1995
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 1) $ 598,160 $ 1,113,575
Investments in limited partnerships 9,257,315 9,640,622
Other assets 4,084 34,288
---------- ----------
$ 9,859,559 $ 10,788,485
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Payables to limited partnerships $ 5,000 $ 555,000
Accrued fees and expenses due to general
partner and affiliates (Note 3) 619,674 566,653
-------- ---------
Total liabilities 624,674 1,121,653
-------- ---------
Partners' equity (Note 1):
General partner (72,912) (68,593
Limited partners (17,747 units issued
and outstanding) 9,307,797 9,735,425
---------- -----------
Total partners' equity 9,234,885 9,666,832
---------- -----------
$ 9,859,559 $ 10,788,485
---------- -----------
---------- -----------
</TABLE>
UNAUDITED
See Accompanying Notes to Financial Statements
3
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest income $ 6,846 $ 7,465
-------- ---------
OPERATING EXPENSES:
Amortization 13,709 13,709
Asset management fees (Note 3) 52,452 46,291
Legal and accounting 2,000 3,455
Other 632 6,153
-------- ---------
Total operating expenses 68,793 69,608
-------- ---------
Loss from operations (61,947) (62,143)
Equity in loss from limited partnerships (370,000) (253,000)
-------- ---------
Net loss $ (431,947) $ (315,143)
-------- ---------
-------- ---------
Net loss allocated to:
General partner $ (4,319) $ (3,151)
-------- ---------
-------- ---------
Limited partners $ (427,628) $ (311,992)
-------- ---------
-------- ---------
Net loss per weighted limited partner
unit outstanding (17,727 units at
1996 and 1995) $ (24) $ (18)
---- ----
---- ----
</TABLE>
UNAUDITED
See Accompanying Notes to Financial Statements
4
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the Three months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
General Partner Limited Partner Total
--------------- --------------- -----
<S> <C> <C> <C>
Equity (deficit),
December 31, 1995 $ (68,593) $ 9,735,425 $ 9,666,832
Net loss for the Three
months ended March 31, 1996 (4,319) (427,628) (431,947)
-------- -------- ---------
Equity (deficit),
March 31, 1996 $ (72,912) $ 9,307,797 $ 9,234,885
-------- --------- ---------
-------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1995
General Partner Limited Partner Total
--------------- --------------- -----
<S> <C> <C> <C>
Equity (deficit),
December 31, 1994 $ (50,258) $ 11,550,604 $ 11,500,346
Net loss for the
Three months ended
June 30, 1995 (3,151) (311,992) (315,143)
-------- ---------- ----------
Equity (deficit), March 31, 1995 $ (53,409) $ 11,238,612 $ 11,185,203
-------- ---------- ----------
-------- ---------- ----------
</TABLE>
UNAUDITED
See Accompanying Notes to Financial Statements
5
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS
For the Three months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows used by operating activities:
Net loss $ (431,947) $ (315,143)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization 13,707 13,709
Equity in loss of limited partnerships 370,000 253,000
Decease (increase) in interest
receivable 27,802 (366)
Increase in due to general partner
and affiliates 53,023 6,364
-------- ---------
Net cash provided (used) by operating
activities 32,585 (42,436)
-------- ---------
Cash used by investing activities:
Investments in limited partnerships (550,000) (344,583)
Decrease in property deposits
Deposit to cash in escrow
Acquisition fees (327)
Distribution from limited partnership
Net cash used by investing activities (550,000) (344,910)
Cash provided by financing activities:
Decrease in receivable from affiliate 2,000
-------- ---------
Increase in other assets
Net cash provided by financing activities 2,000 0
Net decrease in cash and cash equivalents (515,415) (387,346)
Cash and cash equivalents, beginning of
period 1,113,575 1,692,560
--------- ---------
Cash and cash equivalents, end of period $ 598,160 $ 1,305,214
--------- ---------
--------- ---------
</TABLE>
UNAUDITED
See Accompanying Notes to Financial Statements
6
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
NOTE 1 - ORGANIZATION AND OTHER MATTERS
ORGANIZATION
WNC California Housing Tax Credits II, L.P. (the "Partnership") was formed on
September 13, 1990 under the California Revised Limited Partnership Act. The
Partnership was formed to invest in other local limited partnerships which will
own and operate apartment complexes that qualify for low income housing credits.
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 Partnership's Annual Report for the year ended December 31, 1995.
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 March 31,
1996 and changes in cash flows for the period then ended. 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.
The general partner is WNC & Associates, Inc. Wilfred N. Cooper Sr., through
the Cooper Revocable Trust, owns 70% of the outstanding stock of WNC &
Associates, Inc. John B. Lester is the original limited partner of the
Partnership and, through the Lester Family Trust, owns 30% of the outstanding
stock of WNC & Associates, Inc.
NOTE 1 - ORGANIZATION AND OTHER MATTERS (CONTINUED)
ALLOCATIONS UNDER THE TERMS OF THE PARTNERSHIP AGREEMENT
The General Partner has a 1% interest in operating profits and losses, taxable
income and loss and in cash available for distribution from 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 sale or refinancing proceeds equal to
their capital contributions and their preferred return (as defined in the
Partnership's Agreement of Limited Partnership) and the general partner has
received a subordinated disposition fee any additional sale or refinancing
proceeds will be distributed 90% to the limited partners (in proportion to their
respective investments) and 10% to the General Partner.
7
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - 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 three months to be cash equivalents.
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
The Partnership had acquired limited partnership interests in fifteen local
limited partnerships at March 31, 1996 and December 31, 1995. Construction of
fifteen residential apartment complexes were completed as of March 31, 1996 and
December 31, 1995. One apartment complex completed construction in May 1995 and
had minimal rental operations during the period ended March 31, 1995.
The Partnership, as a limited partner, is generally entitled to 99% of the
operating profits and losses of the local limited partnerships. The following
is a summary of the Partnership's investment in limited partnerships as of March
31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Investment per balance sheet,
beginning of period $ 9,640,622 $ 11,178,031
Investments in limited partnerships 99,510
Capitalized acquisition fees and costs
Equity in loss of limited partnerships (370,000) (1,579,652)
Distributions (4,039)
Amortization (13,307) (53,228)
--------- ---------
Investment per balance sheet,
end of period $ 9,257,315 $ 9,640,622
--------- ---------
--------- ---------
</TABLE>
8
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)
Selected operating information from the combined financial statements of the
local limited partnerships for the three months ended March 31, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Total revenue $ 662,000 $ 627,000
--------- ---------
Expenses:
Interest expense 223,000 176,000
Depreciation and amortization 321,000 297,000
Operating expense 492,000 410,000
--------- ---------
Total expense 1,036,000 883,000
--------- ---------
Net loss $ (374,000) $ (256,000)
--------- ---------
--------- ---------
Net loss allocable to WNC California
Housing Tax Credits II, L.P $ (370,000) $ (253,000)
--------- ---------
--------- ---------
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS
Under the terms of its Agreement of Limited Partnership, the Partnership is
obligated to the General Partner or its affiliates for the an annual management
fee equal to .5% of the invested assets (defined as the Partnership's capital
contributions plus its allocable percentage of the permanent financing) of the
local limited partnerships. A fee of $52,452 and $46,291 was incurred for the
three months ended March 31, 1996 and 1995, respectively.
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.
9
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary source of capital has been the proceeds from its sale
of limited partnership units (the "Offering"). The Partnership completed
raising funds from investors through its public offering of units of limited
partnership interest ("Units") on January 21, 1993 at which time $17,726,000 was
received from the sale of units. Such funds were, and will be, applied to the
acquisition of investments in partnerships, acquisition fees, the establishment
of reserves, the payment of operating expenses and the payment of expenses of
this offering. The Partnership has acquired limited partnership interests that
require approximately $12,845,000 of capital (or 72% of the proceeds realized
from the sale of units).
Overall, as reflected in its Statement of Cash Flows, the Partnership had a net
decrease in cash and cash equivalents of approximately $515,000 for the three
months ended March 31, 1996. This decrease in cash was due to the Partnership's
investing activities, primarily the payment of capital contributions payable on
investments in limited partnerships. The cash reserves are sufficient to fund
the Partnership's remaining capital contributions. Cash used by the
Partnership's operating activities was minimal compared to the Partnership's
other activities and consisted primarily of payments for operating fees and
expenses. Cash provided from operations consisted primarily of interest
received. The major components of all these activities are discussed in greater
detail below.
As of March 31, 1996, the Partnership had made capital contributions to local
limited partnerships in the amount of approximately $12,840,000
The Partnership's investments will not be 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 local
limited partnerships and the Partnership. These problems may result from a
number of factors, many of which cannot be controlled by the General Partner.
Nevertheless, the General Partner anticipates that capital raised from the sale
of the Units is sufficient to fund the Partnership's future investment
commitments and proposed operations.
The Partnership has established working capital reserves of approximately 4.3%
of capital contributions, an amount which is anticipated to be sufficient to
satisfy general working capital and administrative expense requirements of the
Partnership including 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 local limited partnerships for such purposes or to replenish or
increase working capital reserves.
10
<PAGE>
It is not expected that any of the local 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 the 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 local limited partnerships. Accordingly, if
circumstances arise that cause the local limited partnerships to require capital
in addition to that contributed by the Partnership and any equity of the local
general partners, 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
because the apartment complexes owned by the local limited partnerships are
already substantially leveraged), (ii) additional equity contributions or
advances of the local general partners, (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 capital requirement
of the local limited partnerships in question. If such funds are not available,
the local limited partnerships would risk foreclosure on their apartment
complexes if they were unable to re-negotiate the terms of their first mortgages
and any other debt secured by the apartment complexes to the extent the capital
requirements of the local limited partnerships relate to such debt.
The Partnership's capital needs and resources are expected to undergo major
changes at least through 1995 as a result of the completion of its offering of
units and its acquisition of investments. Thereafter, the Partnership's capital
needs and resources are expected to be relatively stable over the holding
periods of the investments.
RESULTS OF OPERATIONS
As of March 31, 1996 the Partnership has acquired 15 local limited partnership
interests. Each of the 15 apartment complexes owned by such local limited
partnerships received or is expected to receive government assistance and each
of them has received a reservation for federal low income housing credits. All
of these had completed construction of their apartment complex as of March 31,
1996.
Consistent with the Partnership's investment objectives, each local limited
partnership is generating or is expected to generate federal low income housing
credits for a period of approximately ten years, commencing with completion of
construction or rehabilitation of its apartment complex(es), and (as discussed
below) is generating or is expected to generate losses until sale of the
apartment complex(es).
11
<PAGE>
As reflected on its Statements of Operations, the Partnership has a loss of
approximately $432,000 and $315,000 the three months ended March 31, 1996 and
1995, respectively. 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 (i) as reserves, or (ii) pending
investment in local limited partnerships. Interest revenue in future years will
be a function of prevailing interest rates and the amount of cash balances. It
is anticipated that the Partnership will maintain cash reserves in an amount not
materially in excess of the minimum amount required by its partnership
agreement, which is 3% of capital contributions.
EXPENSES - The most significant component of operating expenses is, and is
expected to be, the asset management fee (called "Partnership management fee" in
the Statements of Operations). The asset management fee is equal to 0.5% of
invested assets in local limited partnerships; accordingly, the amount to be
incurred in the future is a function of the level of such invested assets (i.e.,
the sum of the Partnership's capital contributions to the local limited
partnerships plus the Partnership's share of the debts related to the apartment
complexes owned by such local limited partnerships).
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 local
limited partnership interests.
Office expenses and legal and accounting consists of the Partnership's
administrative expenses, such as accounting and legal fees, bank charges and
investor reporting expenses.
The amount of the asset management fee is increased over the amounts reported to
date. This is due to the completion of construction on one additional
apartment complex and the commencement of asset management fees on that
building.
EQUITY IN LOSSES FROM LOCAL LIMITED PARTNERSHIPS - The Partnership's equity in
losses from local limited partnerships is equal to 99% of the aggregate net loss
of the local limited partnerships. After rent-up, the local 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 local limited
partnerships are expected to exceed net rental income.
As of March 31, 1995, the Partnership had invested in fifteen local limited
partnerships. Fourteen of these had completed construction of their respective
apartment complex as of March 31, 1995 and one Apartment Complex completed
construction in May 1995, consequently, the 1995 operating results are not
comparable to future periods.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1996.
13
<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.
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(Registrant)
By: WNC Tax Credit Partners, L.P.,
General Partner
By: WNC & ASSOCIATES, INC., General Partner
By:. /s/ John B. Lester, Jr.
------------------------------------
John B. Lester, Jr.,
President
Date: 5/13/96
By: /s/ Theodore M. Paul
------------------------------------
Theodore M. Paul,
Vice President-Finance
Date: 5/13/96
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 598,160
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 598,160
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,859,559
<CURRENT-LIABILITIES> 624,674
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,234,885
<TOTAL-LIABILITY-AND-EQUITY> 9,859,559
<SALES> 0
<TOTAL-REVENUES> 6,846
<CGS> 0
<TOTAL-COSTS> 68,793
<OTHER-EXPENSES> 370,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (431,947)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (431,947)
<EPS-PRIMARY> (24)
<EPS-DILUTED> 0
</TABLE>
