SECURITIES AND EXCHANGE COMMISSION
Washington, DC
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2003
OR
- ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17793
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Wilder Richman Historic Properties II, L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3481443
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
599 W. Putnam Avenue
Greenwich, Connecticut 06830
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (203) 869-0900
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 filing requirements
for the past 90 days.
Yes X No
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WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Part I - Financial Information
Table of Contents
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Item 1. Financial Statements Page
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Balance Sheets as of November 30, 2003 (Unaudited)
and February 28, 2003 3
Statements of Operations for the three and nine
month periods ended November 30, 2003 and 2002
(Unaudited) 4
Statements of Cash Flows for the nine months ended
November 30, 2003 and 2002 (Unaudited) 5
Notes to Financial Statements as of November 30, 2003
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
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Item 3. Quantitative and Qualitative Disclosure about Market Risk 11
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Item 4. Controls and Procedures 11
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WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
BALANCE SHEETS
November 30, 2003
(Unaudited) February 28, 2003
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ASSETS
Cash and cash equivalents $ 71,529 $ 85,169
Investment in operating partnerships 1,558,421 2,475,099
Other assets 11,240 11,240
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$ 1,641,190 $ 2,571,508
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LIABILITIES AND PARTNERS' EQUITY
Liabilities
Other liabilities $ 19,375 $ 10,000
Accrued State of New Jersey filing fee 28,050 112,200
Due to related parties 255,025 236,155
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302,450 358,355
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Partners' equity (deficit)
General partner (143,454) (134,538)
Limited partner 1,482,194 2,347,691
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1,338,740 2,213,153
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$ 1,641,190 $ 2,571,508
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See notes to financial statements.
3
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
November 30, 2003 November 30, 2003 November 30, 2002 November 30, 2002
----------------- ----------------- ----------------- -----------------
(Restated) (Restated)
REVENUES
Interest $ 167 $ 853 $ 507 $ 1,762
--------- --------- --------- ---------
EXPENSES
Operating 9,415 42,738 12,287 34,692
State of New Jersey filing fee 28,050 84,150
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37,465 126,888 12,287 34,692
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Loss from operations (37,298) (126,035) (11,780) (32,930)
Equity in income of
operating partnerships 83,839 322,502 246,147 965,134
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NET EARNINGS $ 46,541 $ 196,467 $ 234,367 $ 932,204
========= ========= ========= =========
NET EARNINGS PER UNIT
OF LIMITED PARTNERSHIP
INTEREST $ 57.57 $ 243.10 $ 290.00 $1,153.49
========= ========= ========= =========
See notes to financial statements.
4
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 2003 AND 2002
(Unaudited)
2003 2002
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(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 196,467 $ 932,204
Adjustments to reconcile net earnings to net
cash used in operating activities
Equity in income of operating partnerships (322,502) (965,134)
Increase in other assets (371)
Decrease in accrued State of New Jersey filing fee (84,150)
Increase (decrease) in other liabilities 9,375 (3,065)
Increase in due to related parties 18,870 18,880
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Net cash used in operating activities (181,940) (17,486)
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CASH FLOWS FROM INVESTING ACTIVITIES
Distribution from operating partnerships 1,239,180
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Net cash provided by investing activities 1,239,180
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CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to limited partners (1,060,000)
Distribution to general partner (10,880)
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Net cash used in financing activities (1,070,880)
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Net decrease in cash and cash equivalents (13,640) (17,486)
Cash and cash equivalents at beginning of period 85,169 119,417
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Cash and cash equivalents at end of period $ 71,529 $ 101,931
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See notes to financial statements.
5
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2003
(Unaudited)
1. The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information. They do not include
all information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. The results of operations are impacted significantly by the
results of operations of the Operating Partnerships, which are provided on
an unaudited basis during interim periods. Accordingly, the accompanying
financial statements are dependent on such unaudited information. In the
opinion of the General Partner, the financial statements include all
adjustments necessary to reflect fairly the results of the interim periods
presented. All adjustments are of a normal recurring nature. No
significant events have occurred subsequent to February 28, 2003 and no
material contingencies exist which would require additional disclosures in
the report under Regulation S-X, Rule 10-01 paragraph A-5.
The results of operations for the nine months ended November 30, 2003 are
not necessarily indicative of the results to be expected for the entire
year.
2. The investment in Operating Partnerships as of November 30, 2003 and
February 28, 2003 are as follows:
Amount paid to investee through February 28, 2003 $ 16,388,000
Accumulated cash distributions from Operating Partnerships
through February 28, 2003 (3,180,441)
Equity in accumulated loss of Operating Partnerships
through February 28, 2003 (10,732,460)
------------
Balance, February 28, 2003 2,475,099
Cash distribution from Operating Partnerships for the nine
months ended November 30, 2003 (1,239,180)
Equity in income of operating partnerships for the nine
months ended November 30, 2003 322,502
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Balance, November 30, 2003 $ 1,558,421
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6
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
NOVEMBER 30, 2003
(Unaudited)
Note 2 - continued
The combined balance sheets of the Operating Partnerships as of September
30, 2003 and December 31, 2002 are as follows:
September 30, 2003
(Unaudited) December 31, 2002
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ASSETS
Land $ 1,150,473 $ 1,150,473
Buildings and equipment (net of accumulated
depreciation of $19,379,430 and $18,240,199) 35,583,920 36,723,151
Cash and cash equivalents 6,729,686 7,176,990
Deferred costs 794,464 816,739
Mortgage escrow deposits 2,243,897 1,698,200
Tenant security deposits 792,135 790,510
Other assets 42,550 16,495
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$47,337,125 $48,372,558
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LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgages payable $28,600,000 $28,600,000
Accounts payable and accrued expenses 51,985 261,050
Accrued interest 49,146 13,776
Tenant security deposits payable 790,510 790,510
Due to general partner and affiliates 1,696,102 1,644,420
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31,187,743 31,309,756
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Partners' equity
General partner 14,590,961 14,587,703
Limited partner 1,558,421 2,475,099
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16,149,382 17,062,802
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$47,337,125 $48,372,558
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7
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
NOVEMBER 30, 2003
(Unaudited)
Note 2 - Continued
The combined unaudited statements of earnings of the Operating
Partnerships for the nine months ended September 30, 2003 and 2002 are as
follows:
2003 2002
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(Restated)
REVENUE
Rent $5,204,564 $5,506,930
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5,204,564 5,506,930
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EXPENSES
Administrative 614,878 487,801
Operating 2,461,463 2,203,776
Management fees 232,292 257,013
Interest 408,665 440,438
Depreciation and amortization 1,161,506 1,143,019
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4,878,804 4,523,047
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NET EARNINGS $ 325,760 $ 974,883
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NET EARNINGS ALLOCATED TO
Wilder Richman Historic Properties II, L.P. $ 322,502 $ 965,134
General partner 3,258 9,749
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$ 325,760 $ 974,883
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3. The Partnership is contractually liable for amounts that were partially
omitted from the prior year's financial statements for Investor Services Fees
payable to an affiliate of the General Partner. The adjustment is $7,284 for
the nine months ended November 30, 2002. In addition, the Operating
Partnerships are contractually liable for amounts that were wholly or
partially omitted from the prior year's financial statements for Investor
Services Fees payable to an affiliate of the General Partner and for interest
on loans payable to the Operating General Partner. Net income of the
Operating Partnerships has been reduced by $17,798 for the nine months ended
September 30, 2002. Net income per unit of limited partnership interest has
been reduced by $10 and $31, respectively, for the three and nine month
periods ended November 30, 2002.
4. Additional information, including the audited February 28, 2003 Financial
Statements and the Summary of Significant Accounting Policies, is included in
the Partnership's Annual Report on Form 10-K for the fiscal year ended
February 28, 2003 on file with the Securities and Exchange Commission.
8
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
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Liquidity and Capital Resources
As of November 30, 2003, Wilder Richman Historic Properties II, L.P. (the
"Partnership") experienced few changes in its financial condition as compared to
February 28, 2003, with the exception of the investment in the Operating
Partnerships resulting from the equity in income of operating partnerships for
the nine months ended September 30, 2003, net of distributions received in the
amount of $1,239,180.
The Operating Partnerships refinanced their respective outstanding mortgage
liabilities as of April 28, 2001 (the "Refinancing"). Prior to the Refinancing,
the annual fixed interest rate of the mortgage was approximately 6.74%. The
total new indebtedness in the amount of $28,600,000 for a term of 30 years was
provided by (a) variable-rate tax-exempt bonds in the amount of $26,435,000, and
(b) variable-rate taxable bonds in the amount of $2,165,000. The initial
interest rates on the tax-exempt and taxable bonds were 5.1% and 6.15%,
respectively. The Operating Partnerships purchased an interest cap which would
limit the interest rates to 6.97% for five years on the tax-exempt portion, and
9.15% for five and one-half years on the taxable portion. A new cap will be
purchased upon the expiration of the current cap in 2006. Proceeds from the new
bond issue enabled the Operating Partnerships to create a reserve for capital
improvements (approximately $1,365,000). In addition, the balance in the
replacement reserve at the date of the Refinancing (approximately $903,000) was
transferred to the capital improvement reserve.
In August 2003, the Operating Partnerships made a cash distribution of
approximately $1,071,000, or approximately $1,325 per Unit based on 2002
operations and because the Property had accumulated approximately $7.2 million
in cash and restricted deposits as of December 31, 2002, primarily as a result
of the low floater interest rate on the Property's mortgages.
However, the Partnership's ability to make future distributions will depend on
the future operating results of the Complex, which will be extremely dependent
on competition, market conditions, needed capital improvements and repairs and
interest rates. There can be no assurance as to whether or not the Partnership
may be able to make future distributions, nor the timing or amount of any
potential distributions to Limited Partners. To the extent cash flow is
generated by the Operating Partnerships, such cash flow may be retained by the
Operating Partnerships or may be distributed at the discretion of management,
pursuant to the terms of the limited partnership agreements of the Operating
Partnerships. For example, as a result of reduced rental rates in the market,
operations thus far in 2003 have declined and the Operating General Partner at
this time is reviewing, based on end of year results, whether or not a
distribution will be made in 2004, and if so, the amount to be distributed.
Although the Property is reporting cash flow for the nine months ended September
30, 2003 (see Results of Operations, below), the Operating Partnerships' cash
and cash equivalents as of September 30, 2003 have decreased by approximately
$447,000 compared to December 31, 2002 as a result of the distributions to
Registrant and a decrease in accounts payable and accrued expenses of
approximately $209,000. The capital improvement escrow and replacement reserve
accounts, which are controlled by the lender for the purpose of funding planned
capital improvements and needed repairs, are approximately $224,000 and
$506,500, respectively, as of September 30, 2003. The principal reserve, which
is controlled by the lender for purposes of amortizing the debt, is
approximately $1,183,500 as of September 30, 2003. The pledged cap escrow
balance, which is controlled by the lender for the purpose of purchasing a cap
in connection with the variable rate debt is approximately $105,000 as of
September 30, 2003. Each of the foregoing reserves and escrows are reflected in
the Operating Partnerships' balance sheet under the caption mortgage escrow
deposits.
Because the rehabilitation of the Property was completed more than ten years
ago, management has been addressing the need for extensive capital improvements.
As a result of the Refinancing, significant capital improvements have been
completed. The improvements that were contemplated as part of the Refinancing
include roof replacement, replacement of the fire/smoke alarm system, elevator
repairs, new entry doors and other repairs throughout the Complex. In addition,
the Operating General Partner has identified other potential significant capital
improvements and repairs totaling approximately $8.5 million throughout the
Complex, which it intends to address over the next few years. Such capital
improvements and repairs would significantly reduce the Operating Partnerships'
cash flow available for distribution. The Operating General Partner believes
that other improvements, whose timing may be discretionary but which may be
important to remain competitive in the rental market, should be made over time
and include kitchen and bath renovations, new appliances, and replacement of
doors and windows. The Operating General Partner anticipates spending
approximately $600,000 by year end 2003 and approximately $1.5 million or more
(originally scheduled for 2003) in 2004 for capital needs, including structural
work on the pump house building, roof and balcony repairs, and steel
restoration. Depending on market conditions, rents may need to be further
adjusted.
9
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (continued)
----------------------------------------------------------------
During 2002, the Partnership agreed with the Operating General Partner to hire a
national brokerage and marketing firm to privately solicit offers from major
apartment owners to purchase the Property (on a confidential basis) in order to
determine the current market value of the Property. Approximately 30 companies
with experience in real estate investments in this area were approached. Two of
those solicitations resulted in initial offers to purchase the Property, which
are non-binding and subject to due diligence. Because of the age of the Property
and necessary capital repairs and improvements already identified, the Operating
General Partner believes it is likely the offers would be reduced after due
diligence investigations, and there is no guarantee that either of the offers
would result in a sale of the Property being completed.
Under the Partnership Agreement of the Partnership, a sale of the Property would
require the consent of a majority in interest of the Unit Holders. Accordingly,
on July 1, 2003, the Partnership presented Proxy materials by which Unit Holders
were asked to vote as to whether or not they wanted to pursue a sale of the
Property. Such Proxy materials included an estimate of the amount that would be
available to Unit Holders if a sale were to occur at or near the prices
currently offered based on the Partnership's payables, cash reserves, estimated
closing costs and sales commissions. An estimate of net sales proceeds and an
estimate of a Unit Holder's federal tax results which would be triggered by a
sale were included in the Proxy materials. The due date for Unit Holders to
submit their votes was July 21, 2003. According to the terms of the Partnership
Agreement, the consent of the holders of 51% of the Units is required to approve
a proposed sale. Unit Holders holding 48% of the outstanding units voted in
favor of the proposed sale. The General Partner believes that the fact that
holders of 48% of the units voted in favor of pursuing a sale of the property is
a clear indication that the Partnership should review various sale options.
Because the Operating General Partner has received offers or is aware that
parties are interested in purchasing the Property or Units, the Operating
General Partner commissioned a capital needs assessment which was recently
completed and is being reviewed by the Operating General Partner. Such draft
(but not final) assessment report has identified that approximately $12 million
of potential improvements or replacements to be incurred over the next ten
years. Since this information is likely to be an area of inquest by purchasers,
such information will be made available to potential purchasers of the Property
or Units when the report is made final. The General Partner intends to establish
a 90-day period during which interested parties will have the opportunity (upon
execution of a confidentiality agreement) to perform due diligence and provide
the Partnership with a firm proposal or offer to purchase the real estate or all
the Partnership interests. The General Partner anticipates that the Partnership
would review and respond to any proposals or offers received within 30 to 45
days after the 90-day due diligence period ends. The General Partner may call
for a new vote of the Unit Holders to accept or reject the most favorable
proposal (in the discretion of the General Partner) in a manner that complies
with applicable law.
The Partnership's operating results are dependent upon the operating results of
the Operating Partnerships and are significantly impacted by the Operating
Partnerships' policies. The Partnership accounts for its investment in the
Operating Partnerships in accordance with the equity method of accounting, under
which the investment is carried at cost and is adjusted for the Partnership's
share of the Operating Partnerships' results of operations and by any cash
distributions received.
Results of Operations
For the nine months ended November 30, 2003, the statement of operations of the
Partnership reflects net earnings of $196,467, which includes equity in income
of operating partnerships of $322,502. The Operating Partnerships reported net
earnings during the nine months ended September 30, 2003 of $325,760, inclusive
of depreciation and amortization expense of $1,161,506. The Operating
Partnerships generated cash flow after required debt service payments and
required replacement reserve deposits during the nine months ended September 30,
2003 of approximately $828,000, which includes required deposits to the
principal reserve under the mortgages (approximately $298,000), deposits to
required escrows (approximately $58,000), deposits to a management directed
replacement reserve (approximately $268,000) and deposits to the pledged cap
account (approximately $27,000). The Operating Partnerships' results of
operations for the nine months ended September 30, 2003 reflect a moderate
reduction in interest expense compared to the nine months ended September 30,
2002 due to a decline in the average low floater interest rates. Despite the
lower interest expense in 2003, the Operating Partnerships' net income declined
as a result of a reduction in rents and costs in connection with planned
expenditures. The average interest rates on the low floater bonds for the nine
months ended September 30, 2003 were 1.03% for the tax exempt bonds and 1.28%
for the taxable bonds. The average occupancy for the nine months ended September
30, 2003 was approximately 96%.
For the nine months ended November 30, 2002, the statement of operations of the
Partnership reflects net earnings of $932,204, which includes equity in income
of operating partnerships of $965,134. The Operating Partnerships reported net
earnings during
10
the nine months ended September 30, 2002 of $974,883, inclusive of depreciation
and amortization expense of $1,143,019. The Operating Partnerships generated
cash flow after required debt service payments and required replacement reserve
deposits during the nine months ended September 30, 2002 of approximately
$1,603,000, which includes required deposits to the principal reserve under the
mortgages (approximately $272,000) and deposits to required escrows
(approximately $58,000). The Operating Partnerships' results of operations for
the nine months ended September 30, 2002 reflect a significant reduction in
interest expense compared to the nine months ended September 30, 2001 due to a
decline in the average low floater interest rates. The
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations (continued)
----------------------------------------------------------------
average interest rates on the low floater bonds for the nine months ended
September 30, 2002 were 1.22% for the tax exempt bonds and 1.93% for the taxable
bonds. The average occupancy for the nine months ended September 30, 2002 was
approximately 97%.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires the
Partnership to make certain estimates and assumptions. The following section is
a summary of certain aspects of those accounting policies that may require
subjective or complex judgments and are most important to the portrayal of the
Partnership's financial condition and results of operations. The Partnership
believes that there is a low probability that the use of different estimates or
assumptions in making these judgments would result in materially different
amounts being reported in the financial statements.
o The Partnership accounts for its investment in operating
partnerships in accordance with the equity method of accounting
since the Partnership does not control the operations of an
Operating Partnership.
o If the book value of the Partnership's investment in an Operating
Partnership exceeds the estimated value derived by management, the
Partnership reduces its investment in any such Operating Partnership
and includes such reduction in equity in income (loss) of investment
in operating partnerships.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
The Partnership has market risk sensitivity with regard to financial instruments
concerning potential interest rate fluctuations in connection with the low
floater rates associated with the Operating Partnerships' mortgages. Although an
interest rate cap has been purchased, a change in the low-floater interest rates
of .25% would have an annualized impact of approximately $70,000 on the
Operating Partnerships' results of operations.
Item 4. Controls and Procedures
-----------------------
Evaluation of disclosure controls and procedures
a. Within the 90 days prior to the date of this report, the Partnership's
Chief Executive Officer and Chief Financial Officer carried out an
evaluation of the effectiveness of the Partnership's "disclosure controls
and procedures" as defined in the securities Exchange Act of 1934 Rules
13a-14(c) and 15(d)-14(c). Based on that evaluation, the Partnership's
Chief Executive Officer and Chief Financial Officer have concluded that as
of the date of the evaluation, the Partnership's disclosure controls and
procedures were adequate and effective in timely alerting them to material
information relating to the Partnership required to be included in the
Partnership's periodic SEC filings.
Changes in Internal Controls
b. There were no significant changes in the Partnership's internal controls
or in other factors that could significantly affect the Partnership's
internal controls subsequent to the date of that evaluation.
11
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Part II - Other Information
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Item 1. Legal Proceedings
-----------------
Registrant is not aware of any material legal proceedings.
Item 2. Changes in Securities
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None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
Exhibit 31.1 Rule 13a-14/15d-14(a) Certification of Chief
Executive Officer
Exhibit 31.2 Rule 13a-14/15d-14(a) Certification of Chief
Financial Officer
Exhibit 32.1 Section 1350 Certification of Chief Executive
Officer
Exhibit 32.2 Section 1350 Certification of Chief Financial
Officer
b. Reports on Form 8-K
None
12
Wilder Richman Historic Properties II, L.P.
Form 10-Q
November 30, 2003
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.
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
By: Wilder Richman Historic Corporation
General Partner
Dated: January 14, 2004 /s/ Richard Paul Richman
----------------------------------
Richard Paul Richman
Chief Executive Officer
Dated: January 14, 2004 /s/ Neal Ludeke
----------------------------------
Neal Ludeke
Chief Financial Officer
13