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 September 30, 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.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
California 33-0433017
WNC CALIFORNIA HOUSING TAX CREDITS II, 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 X No ____
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1996 and December 31, 1995...............3
Statements of Operations
For the nine and three months ended September 30, 1996 and 1995.....4
Statement of Partners' Equity
For the nine ended September 30, 1996 and 1995......................5
Statement of Cash Flows
For the nine months ended September 30, 1996 and 1995...............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.................................13
Signatures............................................................14
<PAGE>
Financial Statements
WNC California Housing Tax Credits II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1996 and December 31, 1995
1996 1995
---- ----
ASSETS
Cash and cash equivalents $ 549,389 $ 1,113,575
Investment in limited
partnerships -( Note 2) 8,428,382 9,640,622
Other assets 3,389 34,288
----- ------
$ 8,981,160 $ 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 3 674,011 566,653
-------- -------
679,011 1,121,653
-------- ---------
Partners' equity (deficit):
General partner (82,240) (68,593)
Limited partners (17,747 units
issued and outstanding) 8,384,389 9,735,425
---------- ---------
Total partners' equity 8,302,149 9,666,832
---------- ---------
$ 8,981,160 $ 10,788,485
========== ==========
UNAUDITED
See Accompanying Notes to Financial Statements
-3-
<PAGE>
WNC California Housing Tax Credits II, L.P.
(A California Limited Partnership)
STATEMENT OF OPERATIONS
For the Three and Nine Months Ended September 30, 1996 and 1995
1996 1995
-------------------- --------------------
Three Nine Three Nine
Months Months Months Months
Interest Income $ 5,715 $ 18,399 $ 24,247 $ 38,582
------------ ----------- --------- ----------
Operating expenses:
Amortization 13,709 41,127 13,709 41,127
Asset management fees (Note 4) 52,451 157,355 52,326 146,920
Legal and accounting - 6,175 4,083 12,037
Other 1,083 12,425 19,605 37,956
----- ------ ------ ------
Total operating expenses 67,243 217,082 89,723 238,040
------ ------- ------ -------
Loss from operations (61,528) (198,683) (65,476) (199,458)
-------- --------- -------- ---------
Equity in loss from
limited partnerships (388,000) (1,166,000) 301,610) (857,000)
--------- ----------- --------- ---------
Net loss $ (449,528) $ (1,364,683) $ (367,086) $ (1,056,458)
========= =========== ========= ===========
Net loss allocated to:
General partner $ (4,495) $ (13,647) $ (3,671) $ (10,565)
======= ======= ======= =======
Limited partners $ (445,033) $ (1,351,036) $ (363,415) $ (1,045,893)
========= =========== ========= ===========
Net loss per limited
partner units (17,747 units
issued and outstanding) $ (25) $ (76) $ (21) $ (59)
==== ==== ==== ====
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
For The Nine Months Ended September 30, 1996 and 1995
For The Nine Months Ended September 30, 1996
General Limited
Partner Partner Total
------- ------- -----
Equity (deficit), December 31, 1995 $ (68,593) $ 9,735,425 $ 9,666,832
Net loss for the nine months ended
September 30, 1996 (13,647) (1,351,036) (1,364,683)
-------- ----------- -----------
Equity (deficit), September 30, 1996 $ (82,240) $ 8,384,389 $ 8,302,149
======== ========== =========
For The Nine Months Ended September 30, 1995
General Limited
Partner Partner Total
------- ------- -----
Equity (deficit), December 31, 1994 $ (50,258) $ 11,550,604 $ 11,500,346
Net loss for the nine months ended (10,565) (1,045,893) (1,056,458)
-------- ----------- -----------
September 30, 1995
Equity (deficit), September 30, 1995 $ (60,823) $ 10,504,711 $ 10,443,888
======== ========== ==========
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 Nine Months Ended September 30, 1996 and 1995
1996 1995
---- ----
Cash flows used by operating activities:
Net loss $ (1,364,683) $ (1,056,458)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in loss of limited partnerships 1,166,000 857,000
Amortization 41,127 41,128
Asset management fee 107,355
Change in other assets (332)
Accrued fees and expense due to
general partner and affiliates 3 108,616
- -------
Net cash used by operating activities (22,505) (50,046)
-------- --------
Cash flows used by investing activities:
Investments in limited partnerships (550,000) (513,295)
Acquisition fees (598)
Distribution from limited partnerships 6,319 1,500
----- -----
Net cash flows used by investing activities: (543,681) (512,393)
--------- ---------
Cash flows used by financing activities:
Decrease in receivable from affiliate 2,000
-----
Net decrease in cash and cash equivalents (564,186) (562,439)
Cash and cash equivalents, beginning of period 1,113,575 1,692,560
---------- ---------
Cash and cash equivalent, end of period $ 549,389 $ 1,130,121
======== =========
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
September 30, 1996
NOTE 1 - ORGANIZATION AND OTHER MATTERS
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 Partnership's Annual Report for the year ended December 31,
1995 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 September 30,
1996 and the results of operations and changes in cash flows for the nine months
ended.
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 general partner is WNC Tax Credit Partners, L.P. (the "General
Partner"), a California limited partnership. WNC & Associates, Inc. and Wilfred
N. Cooper are the general partners of WNC Tax Credit Partners, L.P. The Cooper
Revocable Trust owns 70% of the outstanding stock of WNC & Associates, Inc. John
B. Lester, Jr. is the original limited partner of the Partnership and, through
the Lester Family Trust, owns 30% of the outstanding stock of WNC & Associates,
Inc.
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.
The Partnership considers all certificates of deposit with an original
maturity of three months or less as cash equivalents.
-7-
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 30, 1996
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
The Partnership had acquired limited partnership interests in fifteen
local limited partnerships at September 30, 1996 and December 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:
1996 1995
---- ----
Investment balance,
beginning of period $ 9,640,622 $ 11,178,031
Investments in limited partnerships 99,510
Equity in loss of limited
partnership (1,166,000) (1,579,652)
Distributions (6,319) (4,039)
Amortization of capitalized
acquisition costs (39,921) (53,228)
-------- --------
Investment balance,
end of period $ 8,428,382 $ 9,640,622
============ ============
Selected operating information from the combined financial statements of the
local limited partnerships for the nine months ended September 30, 1996 and 1995
is as follows:
1996 1995
---- ----
Total revenue $ 1,986,000 $ 1,848,600
---------- ---------
Interest expense 725,000 547,800
Depreciation 963,000 851,800
Operating expenses 1,477,000 1,315,600
---------- ---------
Total expenses 3,165,000 2,715,200
---------- ---------
Net loss $ 1,179,000) $ (866,600)
=========== =========
Net loss allocable to the
Partnership $(1,166,000) $ (857,000)
=========== =========
-8-
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 30, 1996
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 $157,355 and $146,920 was incurred for the
nine months ended September 30, 1996 and 1995, respectively.
The "accrued fees and expenses due to general partner and affiliates" presented
on the balance sheets consists of the following:
September 30, 1996 December 31, 1995
Selection fees payable $ 1,681
Asset management fee payable $ 672,327 564,972
Reimbursement for expenses paid
by an affiliate 1,684 -0-
----- -
$ 674,011 $ 566,653
========= =========
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>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
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 $564,000 and $562,000 for
the nine months ended September 30, 1996 and 1995. The decreases in cash in 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 September 30, 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.
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.
-10-
<PAGE>
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.
As of September 30, 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 September 30, 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).
As reflected on its Statements of Operations, the Partnership has a loss of
approximately $1,365,000 and $1,056,000 the nine months ended September 30, 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.
-11-
<PAGE>
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.
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 September 30, 1996, the Partnership had invested in fifteen local limited
partnerships. All of which completed construction of their respective apartment
complex as of December 31, 1996.
As of September 30, 1995, the Partnership had invested in fifteen limited
partnerships. All of these had completed construction of their respective
apartment complex as of September 30, 1995 the final 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 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 September
30, 1996.
-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 CALIFORNIA HOUSING TAX CREDITS II, L.P.
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: November 12, 1996
By: /s/ Theodore M. Paul
- ------------------------
Theodore M. Paul Vice-President-Finance
Date: November 12, 1996
-14-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 869660
<NAME> WNC California Housing Tax Credits II, L.P.
<MULTIPLIER> 1
<CURRENCY> US CURRENCY
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 549,389
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 549,389
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,981,160
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,302,149
<TOTAL-LIABILITY-AND-EQUITY> 8,981,160
<SALES> 0
<TOTAL-REVENUES> 18,399
<CGS> 0
<TOTAL-COSTS> 217,082
<OTHER-EXPENSES> 1,166,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,364,683)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,364,683)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,364,683)
<EPS-PRIMARY> (76)
<EPS-DILUTED> 0
</TABLE>
