10-Q 1 v044925_10q.txt SECURITIES AND EXCHANGE COMMISSION Washington, DC ------------------------- 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, 2005 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 0-17793 Wilder Richman Historic Properties II, L.P. ------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 13-3481443 ------------------------------ ------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 340 Pemberwick Road Greenwich, Connecticut 06831 ---------------------------------------- ------------------- (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 |_| No |X| Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X| Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| As of June 9, 2006, there were 800 units of limited partnership interest outstanding. WILDER RICHMAN HISTORIC PROPERTIES II, L.P. AND SUBSIDIARIES Part I - Financial Information Table of Contents Item 1. Financial Statements Page Consolidated Balance Sheets as of November 30, 2005 (Unaudited) and February 28, 2005 3 Consolidated Statements of Operations for the three and nine month periods ended November 30, 2005 and 2004 (Unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended November 30, 2005 and 2004 (Unaudited) 6 Notes to Financial Statements as of November 30, 2005 (Unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosure About Market Risk 12 Item 4. Controls and Procedures 12 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements. 3 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

-- continued -- 4 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED (Unaudited)

See notes to consolidated financial statements. 5 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED NOVEMBER 30, 2005 AND 2004 (Unaudited)

-- continued -- 6 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED NINE MONTHS ENDED NOVEMBER 30, 2005 AND 2004 (Unaudited)

See notes to consolidated financial statements. 7 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2005 (Unaudited) 1. The accompanying unaudited consolidated 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 consolidated 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, 2005 and no material contingencies exist which would require additional disclosures in the report under Regulation S-X, Rule 10-01 paragraph A-5, except as discussed in No. 3 below. The results of operations for the nine months ended November 30, 2005 are not necessarily indicative of the results to be expected for the entire year. Certain prior period amounts in the unaudited consolidated financial statements (see Notes 2 and 3) have been reclassified to conform to the current period presentation. 2. Through February 29, 2004, the Investment in Operating Partnerships was accounted for under the equity method of accounting. Upon the adoption of Financial Accounting Standards Board ("FASB") Interpretation No. 46 (revised), Consolidation of Variable Interest Entities ("FIN 46(R)"), as of March 1, 2004 the Partnership is required to consolidate its financial information with that of the Operating Partnerships. Prior financial information reported by the Partnership for the three and nine month periods ended November 30, 2004 was based on the equity method of accounting. The accompanying financial statements as of and for the three and nine month periods ended November 30, 2004 have been restated to reflect the consolidation of the Partnership's financial information with that of the Operating Partnerships. 3. During October 2005, the Operating General Partner commenced a process to receive proposals for the sale of the Property. As a result, certain of the Operating Partnerships' assets and liabilities are classified as held for sale in the accompanying consolidated balance sheet as of November 30, 2005. An Agreement of Purchase and Sale was negotiated and executed effective April 3, 2006, subject to a due diligence period for the purchaser as well as various other terms and conditions. The Agreement of Purchase and Sale was extended four times, the most recent being on May 24, 2006, resulting in an offer of $69,960,000 and a nonrefundable deposit of $4,390,000. The due diligence period has expired and a closing has been scheduled for July 14, 2006, subject to the approval of the transaction by the Partnership, among other conditions. There can be no assurance that a sale will ultimately take place. The following represents the detail of the assets and liabilities that are classified as discontinued operations because the assets and liabilities of the Operating Partnerships are classified as held for sale as of November 30, 2005: ASSETS Land, building and improvements, net of accumulated depreciation $36,806,364 Tenant security deposits 687,480 Mortgage escrows 2,082,599 Deferred costs, net of accumulated amortization 735,064 ----------- $40,311,507 =========== LIABILITIES Mortgage payable $28,600,000 Tenant security deposits payable 687,480 ----------- $29,287,480 =========== 8 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOVEMBER 30, 2005 (Unaudited) 4. Additional information, including the audited February 28, 2005 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, 2005 on file with the Securities and Exchange Commission. 9 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Liquidity and Capital Resources As of November 30, 2005, Wilder Richman Historic Properties II, L.P. (the "Partnership") experienced few changes in its financial condition as compared to February 28, 2005. However, the Operating General Partner commenced a process during the fourth calendar quarter of 2005 to receive proposals for the sale of the Property and has received offers. See discussion below under "Liquidity and Capital Resources." The Partnership's fiscal year for financial reporting purposes ends on the last day in February, while that of the Operating Partnerships ends on December 31. Accordingly, the results of operations reflected in the accompanying consolidated statements of operations are for the three and nine month periods ended November 30, 2005 and 2004 with respect to the Partnership and for the three and nine month periods ended September 30, 2005 and 2004 with respect to the Operating Partnerships. As a result of the favorable mortgage interest rates, the Operating Partnerships have generated cash flow. However, the Partnership's ability to make distributions is dependent upon the level of interest rates (which increased during the nine months September 30, 2005) and operating results of the Complex, which are extremely dependent on competition, market conditions and needed capital improvements and repairs. Accordingly, there can be no assurance as to whether or not the Partnership may be able to make distributions, nor the timing or amount of any potential distributions to Limited Partners. The Operating General Partner and the General Partner plan to periodically assess the feasibility of making cash flow distributions, based on the results of operations, the physical condition of the Property (see discussion below), the then current and anticipated interest rates, and local market conditions, among other things. 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. Wilder Richman Historic Properties II, L.P. has very limited operating activity; accordingly, the results of operations reflected in the accompanying consolidated statements of operations are highly representative of the Operating Partnerships. The Property generated cash flow from operations (before costs incurred in connection with building improvements) for the nine months ended September 30, 2005 (see Results of Operations, below). The Operating Partnerships' cash and cash equivalents as of September 30, 2005 have decreased by approximately $1,601,000 compared to December 31, 2004, while accounts payable and accrued expenses having decreased by approximately $298,000. The Operating Partnerships made a distribution to the Partnership in the amount of $850,000 during the second quarter (of which, $680,000 was distributed to partners and the remainder was used for working capital) and incurred costs in connection with building improvements of approximately $1,531,000. The replacement reserve account, which is partially controlled by the lender for the purpose of funding planned capital improvements and needed repairs, is approximately $1,110,000, as of September 30, 2005. The principal reserve, which is controlled by the lender for purposes of amortizing the debt, is approximately $2,083,000 as of September 30, 2005. The replacement reserves are reflected in the accompanying consolidated balance sheet as of November 30, 2005 under the caption mortgage escrows and other deposits. The principal reserve is reflected in the accompanying consolidated balance sheet as of November 30, 2005 under the caption assets held for sale. Because the rehabilitation of the Property was completed more than ten years ago, management has been addressing the need for extensive capital improvements. Significant capital improvements have been completed over the past few years, including 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 throughout the Complex, which it intends to undertake 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's objective has been to build up reserves to a level sufficient to reasonably offset the potential adverse impact of future increases in the low floater rates in addition to other contingencies, including capital improvements and potential significant increases in real estate taxes. The Operating General Partner intends to take into account, among other factors, a similar analysis when considering making future annual distributions. 10 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations (continued) As mentioned above, the Operating General Partner commenced a process to receive proposals for the sale of the Property during October 2005 and has received offers. An Agreement of Purchase and Sale was negotiated and executed effective April 3, 2006, subject to a due diligence period for the purchaser as well as various other terms and conditions. The Agreement of Purchase and Sale was extended four times, the most recent being on May 24, 2006, resulting in an offer of $69,960,000 and a nonrefundable deposit of $4,390,000. The due diligence period has expired and a closing has been scheduled for July 14, 2006, subject to the approval of the transaction by the Partnership, among other conditions. There can be no assurance that a sale will ultimately take place. If such transaction is consummated, understanding that there is a reasonable possibility that it may not be consummated, the operations of Registrant would cease. The offer indicates that the carrying amount of the long-lived assets is recoverable based on applying the standard accounting tests for impairment. Results of Operations As discussed above, during October 2005, the Operating General Partner commenced a process to receive proposals for the sale of the Property. As a result, the consolidated statements of operations for the respective periods present discontinued operations for income and expenses specific to the operations of the Property in accordance with generally accepted accounting principles. Although there is a signed contract as of May 24, 2006, there can be no assurance that the Property will be sold in the near future. For the nine months ended November 30, 2005, the consolidated statement of operations of the Partnership reflects net income of $190,212, inclusive of depreciation and amortization expense of $1,247,506. The loss from continuing operations decreased by approximately $136,000 for the nine months ended November 30, 2005 as compared to the nine months ended November 30, 2004 primarily as a result of (i) an increase in interest revenue of approximately $72,000 resulting from higher average cash and mortgage escrows and other deposits balances combined with higher average interest rates, (ii) a decrease in administrative expenses of approximately $37,000 resulting primarily from a decrease in professional fees incurred by the Partnership and (iii) a decrease in the State of New Jersey filing fee of approximately $32,000. Interest expense for the nine months ended September 30, 2005 increased compared to the nine months ended September 30, 2004. The average interest rates on the low floater bonds for the nine months ended September 30, 2005 were 2.26% for the tax exempt bonds and 2.94% for the taxable bonds. Despite the continued favorable interest rates in 2005, the Operating Partnerships' net cash flow declined as a result of the costs incurred in connection with planned capital expenditures. The average occupancy for the nine months ended September 30, 2005 was approximately 95%. The Operating Partnerships generated a cash deficit after required debt service payments and required replacement reserve deposits during the nine months ended September 30, 2005 of approximately $689,000, which includes required deposits to the principal reserve under the mortgages (approximately $356,000), deposits to required escrows (approximately $68,000), deposits to a voluntary replacement reserve account held by the Operating Partnerships (approximately $266,000) and planned capital improvements (approximately $1,531,000). For the nine months ended November 30, 2004, the consolidated statement of operations of the Partnership, which has been restated to reflect consolidated operations of the Partnership and the Operating Partnerships, reflects net income of $242,261, inclusive of depreciation and amortization expense of $1,187,506. The Operating Partnerships utilized replacement reserves of approximately $208,000 in connection with the capital improvements. The average interest rates on the low floater bonds for the nine months ended September 30, 2004 were approximately 1.08% for the tax exempt bonds and approximately 1.23% for the taxable bonds. The average occupancy for the nine months ended September 30, 2004 was approximately 95.8%. The Operating Partnerships generated cash flow after required debt service payments and required replacement reserve deposits during the nine months ended September 30, 2004 of approximately $438,000, which includes required deposits to the principal reserve under the mortgages (approximately $325,000), deposits to required escrows (approximately $58,000), deposits to a voluntary replacement reserve account held by the Operating Partnerships (approximately $270,000) and planned capital improvements (approximately $690,000, of which approximately $659,000 was capitalized). 11 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations (continued) Critical Accounting Policies and Estimates The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, 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 consolidated financial statements. The Partnership records its real estate assets at cost less accumulated depreciation and, if there are indications that impairment exists, adjusts the carrying value of those assets in accordance with Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." See discussion under Liquidity and Capital Resources above regarding the possible disposition of the properties owned by the Operating Partnerships. Under SFAS No. 144, the long-lived assets of the Operating Partnerships are classified as held for sale in the accompanying consolidated balance sheet as of November 30, 2005 and are measured at the lower of their carrying amount or fair value less cost to sell. Once classified as held for sale, depreciation of the assets ceases. Since the classification of such assets as held for sale did not occur until October 5, 2005 and because the balances attributable to the Operating Partnerships are reflected in the accompanying consolidated financial statements as of and for the nine months ended September 30, 2005, the accompanying consolidated statements of operations for the three and nine month periods ended November 30, 2005 include depreciation. 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 As of November 30, 2005, under the direction of the Chief Executive Officer and Chief Financial Officer, Registrant evaluated the effectiveness of its disclosure controls and procedures and concluded that (i) Registrant's disclosure controls and procedures were effective as of November 30, 2005, and (ii) there has been no change in Registrant's internal control over financial reporting during the quarter ended November 30, 2005 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting. 12 WILDER RICHMAN HISTORIC PROPERTIES II, L.P. Part II - Other Information Item 1. Legal Proceedings Registrant is not aware of any material legal proceedings. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer Exhibit 31.2 Rule 13a-14(a)/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 13 Wilder Richman Historic Properties II, L.P. Form 10-Q November 30, 2005 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on it behalf by the undersigned thereunto duly authorized. WILDER RICHMAN HISTORIC PROPERTIES II, L.P. By: Wilder Richman Historic Corporation General Partner Dated: June 9, 2006 /s/ Richard Paul Richman -------------------------------- Richard Paul Richman Chief Executive Officer Dated: June 9, 2006 /s/ Neal Ludeke -------------------------------- Neal Ludeke Chief Financial Officer 14

WILDER RICHMAN HISTORIC PROPERTIES II LP 10-Q