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, 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: 0-20056
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
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
(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 II, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
For the Quarter Ended September 30, 2000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
As of September 30, 2000 and March 31, 2000......................2
Statement of Operations
For the three months and six months ended
September 30, 2000 and 1999......................................3
Statement of Partners' Equity (Deficit)
For the six months ended September 30, 2000......................4
Statement of Cash Flows
For the six months ended September 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 Risks.....12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................12
Item 6. Exhibits and Reports on Form 8-K................................12
Signatures .............................................................13
1
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
----------------------- --------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 264,998 $ 314,630
Investments in limited partnerships, net (Note 2) 5,049,865 5,442,623
Other assets 62,055 38,540
----------------------- --------------------
$ 5,376,918 $ 5,795,793
======================= ====================
LIABILITIES AND PARTNERS' EQUITY
(DEFICIT)
Liabilities:
Accrued fees and expenses due to
General Partner and affiliates (Note 3) $ 1,366,557 $ 1,278,242
----------------------- --------------------
Partners' equity (deficit):
General partner (125,159) (120,087)
Limited partners (20,000 units authorized;
17,726 units issued and outstanding) 4,135,520 4,637,638
----------------------- --------------------
Total partners' equity 4,010,361 4,517,551
----------------------- --------------------
$ 5,376,918 $ 5,795,793
======================= ====================
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
--------------------------------- --------------------------------
Three Six Three Six
Months Months Months Months
-------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Interest income $ 4,054 $ 8,385 $ 4,187 $ 8,134
-------------- --------------- -------------- -------------
Operating expenses:
Amortization 13,307 26,614 13,307 26,614
Asset management fees (Note 3) 52,521 105,042 52,521 105,042
Legal and accounting 10,712 12,565 5,378 10,456
Other 1,410 5,210 3,008 6,330
-------------- --------------- -------------- -------------
Total operating expenses 77,950 149,431 74,214 148,442
-------------- --------------- -------------- -------------
Loss from operations (73,896) (141,046) (70,027) (140,308)
-------------- --------------- -------------- -------------
Equity in losses of
limited partnerships (183,072) (366,144) (178,363) (356,726)
-------------- --------------- -------------- -------------
Net loss $ (256,968) $ (507,190) $ (248,390) $ (497,034)
============== =============== ============== =============
Net loss allocated to:
General partner $ (2,570) $ (5,072) $ (2,484) $ (4,970)
============== =============== ============== =============
Limited partners $ (254,398) $ (502,118) $ (245,906) $ (492,064)
============== =============== ============== =============
Net loss per limited partnership
unit $ (14) $ (28) $ (14) $ (28)
============== =============== ============== =============
Outstanding weighted limited
partner units 17,726 17,726 17,726 17,726
============== =============== ============== =============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the Six Months Ended September 30, 2000
(unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------------- ------------------ -----------------
<S> <C> <C> <C>
Partners' equity (deficit) at March 31, 2000 $ (120,087) $ 4,637,638 $ 4,517,551
Net loss (5,072) (502,118) (507,190)
----------------- ------------------ -----------------
Partners' equity (deficit) at September 30, 2000 $ (125,159) $ 4,135,520 $ 4,010,361
================= ================== =================
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (507,190) $ (497,034)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 26,614 26,614
Equity in losses of limited partnerships 366,144 356,726
Change in other assets (23,515) -
Change in asset management fee payable 88,375 105,042
Change in accrued fees and expense due to
General Partner and affiliates (60) (1,990)
---------------- -----------------
Net cash used in operating activities (49,632) (10,642)
---------------- -----------------
Cash flows from investing activities:
Distribution from limited partnerships - 2,619
---------------- -----------------
Net decrease in cash and cash equivalents (49,632) (8,023)
Cash and cash equivalents, beginning of period 314,630 364,853
---------------- -----------------
Cash and cash equivalents, end of period $ 264,998 $ 356,830
================ =================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes paid $ 800 $ 800
================ =================
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 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 and six months ended September 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 California Housing Tax Credits II, L.P., a California Limited Partnership
(the "Partnership"), was formed on September 13, 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
multi-family 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 Tax Credit Partners, L.P. (the "General Partner").
WNC & Associates, Inc. ("WNC") and Wilfred N. Cooper, Sr. are the general
partners of WNC Tax Credit Partners, L.P. 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 shall continue in full force and effect until December 31, 2045
unless terminated prior to that date pursuant to the partnership agreement or
law.
The Partnership Agreement authorized the sale of up to 20,000 units at $1,000
per Unit ("Units"). The offering of Units concluded in January 1993 at which
time 17,726 Units, representing subscriptions in the amount of $17,726,000, had
been accepted. The General Partner has a 1% interest in operating profits and
losses, taxable income and losses, 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 from the
remainder, 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.
6
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 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 the 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.
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 limited partners' capital and amounted to $2,389,519 at the end
of all periods presented.
7
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 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
September 30, 2000 and March 31, 2000, the Partnership had cash equivalents of
$0 and $314,630, respectively.
Concentration of Credit Risk
At September 30, 2000, the Partnership maintained a cash balance at a certain
financial institution in excess of the maximum federally insured amounts.
Net Loss Per Limited Partner 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.
Reporting Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income. This statement establishes
standards for reporting the components of comprehensive income and requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be included in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income includes net income as well as certain items that are reported directly
within a separate component of Partners' equity and bypass net income. The
Partnership adopted the provisions of this statement in 1998. For the periods
presented, the Partnership has no elements of other comprehensive income, as
defined by SFAS No. 130.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of the periods presented, the Partnership has acquired limited partnership
interests in fifteen Local Limited Partnerships each of which owns one Housing
Complex consisting of an aggregate of 786 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 require approval from 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 Limited Partnerships.
8
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 30, 2000
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
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.
Distributions received by limited partners are accounted for as a reduction of
the investment balance. Distributions received after the investment has reached
zero are recognized as income.
The following is a summary of the equity method activity of the investments in
Local Limited Partnerships for the periods presented:
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
September 30, 2000 March 31, 2000
------------------------ ------------------
<S> <C> <C>
Investments per balance sheet,
beginning of period $ 5,442,623 $ 6,240,560
Distributions received - (7,725)
Equity in losses of limited partnerships (366,144) (736,997)
Amortization of paid
acquisition fees and costs (26,614) (53,215)
------------------------ ------------------
Investments per balance sheet,
end of period $ 5,049,865 $ 5,442,623
======================== ==================
</TABLE>
Selected financial information for the six months ended September 30, 2000 and
1999 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>
Revenues $ 1,539,000 $ 1,518,000
-------------------- ------------------
Expenses:
Operating expenses 1,126,000 1,110,000
Interest expense 462,000 462,000
Depreciation and amortization 642,000 642,000
-------------------- ------------------
Total expenses 2,230,000 2,214,000
-------------------- ------------------
Net loss $ (691,000) $ (696,000)
==================== ==================
Net loss allocable to the Partnership $ (655,000) $ (688,000)
==================== ==================
Net loss recorded by the Partnership $ (366,000) $ (357,000)
==================== ==================
</TABLE>
9
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 30, 2000
(unaudited)
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
Certain Local Limited Partnerships have incurred significant operating losses
and have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership may be required to sustain the operations of
such Local Limited Partnerships. If additional capital contributions are not
made when they are required, the Partnership's investment in certain of such
Local Limited Partnerships could be impaired.
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 the Invested Assets of the Partnership, as defined.
"Invested Assets" means the sum of the Partnership's Investments in Local
Limited Partnerships 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 $105,042 were incurred
during each of the six months September 30, 2000 and 1999. The Partnership
paid the General Partner or its affiliates $16,667 and $0, of those fees
during each of the six months ended September 30, 2000 and 1999,
respectively.
(b) Subordinated Disposition Fee. A subordinated disposition fee in an amount
equal to 1% of the sales price of real estate sold. Payment of this fee to
the General Partner 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 expenses due to general partner and affiliates consists of
the following at:
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
--------------------- -----------------------
<S> <C> <C>
Reimbursement for expenses paid by the
General Partner or an affiliate $ 30 $ 90
Asset management fee payable 1,366,527 1,278,152
===================== =======================
$ 1,366,557 $ 1,278,242
===================== =======================
</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
three and six months ended September 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 September 30, 2000 consisted primarily of $265,000
in cash and aggregate investments in the fifteen Local Limited Partnerships of
$5,050,000. Liabilities at September 30, 2000 primarily consisted of $1,367,000
of accrued annual management fees due to the General Partner.
Results of Operations
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999. The Partnership's net loss for the three months ended September 30,
2000 was $(257,000), reflecting an increase of $9,000 from the net loss of
$(248,000) experienced for the three months ended September 30, 1999. The
increase in net loss is primarily due to equity in losses of limited
partnerships which increased by $5,000 to $(183,000) for the three months ended
September 30, 2000 from $(178,000) for the three months ended September 30,
1999. Along with the increase in equity in losses of limited partnerships, there
was an increase in loss from operations of $4,000 for the three months ended
September 30, 2000 to $(78,000) from $(74,000) for the three months ended
September 30, 1999.
Six Months Ended September 30, 2000 Compared to Six Months Ended September 30,
1999. The Partnership's net loss for the six months ended September 30, 2000 was
$(507,000), reflecting an increase of $10,000 from the net loss of $(497,000)
experienced for the six months ended September 30, 1999. The increase in net
loss is primarily due to equity in losses of limited partnerships which
increased by $9,000 to $(366,000) for the six months ended September 30, 2000
from $(357,000) for the three months ended September 30, 1999. Along with the
increase in equity in losses of limited partnerships, there was an increase in
loss from operations of $1,000 for the six months ended September 30, 2000 to
$(141,000) from $(140,000) for the six months ended September 30, 1999.
Cash Flows
Six Months Ended September 30, 2000 Compared to Six Months Ended September 30,
1999. Net cash used during the six months ended September 30, 2000 was $(50,000)
compared to a net use of cash for the six months ended September 30, 1999 of
$(8,000). The change was due primarily to an increase in funds advanced to one
local limited partnership of $24,000, a increase in expenses paid to the General
Partner and affiliates of $15,000, a decrease in the distributions from limited
partnerships of $3,000.
During the six months ended September 30, 2000, accrued payables, which consist
primarily of asset management fees due to the General Partner, increased by
$88,000. 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 September 30, 2000, to be sufficient to meet all currently foreseeable
future cash requirements.
11
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
NOT APPLICABLE
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
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 II, L.P.
By WNC Tax Credit Partners, L.P. General Partner
By: WNC & ASSOCIATES, INC. General Partner
By: /s/ Will N Cooper, Jr.
Will N Cooper, Jr.,
President - Chief Operating Officer of WNC & Associates, Inc.
Date: November 16, 2000
By: /s/ Michael L. Dickenson
Michael L. Dickenson,
Vice-President - Chief Financial Officer of WNC & Associates, Inc.
Date: November 16, 2000
13
