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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
Commission File Number 33-37704-03
INDEPENDENCE TAX CREDIT PLUS L.P. II
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3646846
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
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 ____
PART I - Financial Information
Item 1. Financial Statements
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
=========== ===========
June 30, March 31,
2002 2002
----------- -----------
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $24,105,934 and $23,242,116,
respectively $84,831,153 $85,521,083
Cash and cash equivalents 1,309,683 1,294,481
Cash held in escrow 3,263,166 3,075,317
Deferred costs, net of accumulated
amortization of $155,635 and
$149,434, respectively 239,477 245,678
Other assets 606,038 659,945
----------- -----------
Total assets $90,249,517 $90,796,504
=========== ===========
2
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
=========== ===========
June 30, March 31,
2002 2002
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Mortgage notes payable $57,952,605 $58,083,474
Accounts payable and other
liabilities 1,575,243 1,377,788
Accrued interest 10,657,892 10,577,930
Due to local general partners and
affiliates 1,901,742 1,750,401
Due to general partner and
affiliates 2,998,219 2,815,108
----------- -----------
Total liabilities 75,085,701 74,604,701
----------- -----------
Minority interest (99,643) (96,595)
----------- -----------
Commitments and contingencies (Note 3)
Partners' capital (deficit):
Limited partners (58,928 BACs
issued and outstanding) 15,634,774 16,649,464
General partner (371,315) (361,066)
----------- -----------
Total partners' capital (deficit) 15,263,459 16,288,398
----------- -----------
Total liabilities and partners'
capital (deficit) $90,249,517 $90,796,504
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
3
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
============================
Three Months Ended
June 30,
----------------------------
2002 2001
----------------------------
Revenues
Rental income $ 2,152,999 $ 2,097,297
Other income 40,121 50,072
----------- -----------
Total revenues 2,193,120 2,147,369
----------- -----------
Expenses
General and administrative 558,559 549,259
General and administrative-
related parties (Note 2) 244,982 246,160
Repairs and maintenance 427,455 405,780
Operating 230,516 366,249
Taxes 176,142 157,554
Insurance 122,223 124,041
Financial 591,211 582,304
Depreciation and amortization 870,019 833,016
----------- -----------
Total expenses 3,221,107 3,264,363
----------- -----------
Loss before minority interest (1,027,987) (1,116,994)
Minority interest in loss of subsidiary
partnerships 3,048 3,538
----------- -----------
Net loss $(1,024,939) $(1,113,456)
=========== ===========
Net loss-limited
partners $(1,014,690) $(1,102,321)
=========== ===========
Number of BACs outstanding 58,928 58,928
=========== ===========
Net loss per BAC $ (17.22) $ (18.71)
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
4
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statement of Changes in
Partners' Capital (Deficit)
(Unaudited)
============================================
Limited General
Total Partners Partner
--------------------------------------------
Partners' capital
(deficit) -
April 1, 2002 $16,288,398 $16,649,464 $ (361,066)
Net loss (1,024,939) (1,014,690) (10,249)
----------- ----------- ------------
Partners' capital
(deficit) -
June 30, 2002 $15,263,459 $15,634,774 $ (371,315)
=========== =========== ============
See Accompanying Notes to Consolidated Financial Statements.
5
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Decrease) Increase in Cash and Cash Equivalents
(Unaudited)
============================
Three Months Ended
June 30,
----------------------------
2002 2001
----------------------------
Cash flows from operating activities:
Net loss $(1,024,939) $(1,113,456)
----------- -----------
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 870,019 833,016
Minority interest in loss of subsidiaries (3,048) (3,538)
Increase in accounts payable and
other liabilities 197,455 290,880
Increase in accrued interest 79,962 49,376
Increase in cash held in escrow (128,930) (252,494)
Decrease in other assets 53,907 84,307
Increase in due to local general
partners and affiliates 20,567 19,814
Decrease in due to local general
partners and affiliates (38,423) (71,915)
Increase in due to
general partner and affiliates 183,111 108,068
----------- -----------
Total adjustments 1,234,620 1,057,514
----------- -----------
Net cash provided by (used in)
operating activities 209,681 (55,942)
----------- -----------
Cash flows from investing activities:
Improvements to property and
equipment (173,888) (66,310)
Increase in cash held
in escrow (58,919) (44,129)
Increase in due to local general
partners and affiliates 192,419 149,783
----------- -----------
Net cash (used in) provided by
investing activities (40,388) 39,344
----------- -----------
6
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Decrease) Increase in Cash and Cash Equivalents
(Unaudited)
(continued)
============================
Three Months Ended
June 30,
----------------------------
2002 2001
----------------------------
Cash flows from financing activities:
Principal payments of mortgage notes (130,869) (81,365)
Increase in due to local general
partner and affiliates 0 2,581
Decrease in due to local general
partner and affiliates (23,222) 0
Decrease in capitalization of
consolidated subsidies attributable
to minority interest 0 (5,000)
----------- -----------
Net cash used in financing activities (154,091) (83,784)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 15,202 (100,382)
Cash and cash equivalents at
beginning of period 1,294,481 955,245
----------- -----------
Cash and cash equivalents at
end of period $ 1,309,683 $ 854,863
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
7
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
Note 1 - General
The consolidated financial statements include the accounts of Independence Tax
Credit Plus L.P. II (the "Partnership") and 15 other limited partnerships
("subsidiary partnerships", "subsidiaries" or "Local Partnerships") owning
leveraged apartment complexes that are eligible for the low-income housing tax
credit. The general partner of the Partnership is Related Independence
Associates L.P., a Delaware limited partnership (the "General Partner"). Through
the rights of the Partnership and/or an affiliate of the General Partner, which
affiliate has a contractual obligation to act on behalf of the Partnership, to
remove the general partner of the subsidiary local partnerships and to approve
certain major operating and financial decisions, the Partnership has a
controlling financial interest in the subsidiary partnerships.
For financial reporting purposes, the Partnership's fiscal quarter ends June 30.
The Partnership's fiscal quarter ends June 30 in order to allow adequate time
for the subsidiary partnerships financial statements to be prepared and
consolidated. All subsidiaries have fiscal quarters ending March 31. Accounts of
the subsidiary partnerships have been adjusted for intercompany transactions
from April 1 through June 30.
All intercompany accounts and transactions with the subsidiary partnerships have
been eliminated in consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
attributable to minority interest arise from cash contributions from and cash
distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority interests'
investment in a subsidiary partnership have been charged to the Partnership.
Such losses aggregated approximately $5,000 and $5,000 for the three months
ended June 30, 2002 and 2001, respectively. The Partnership's investment in each
subsidiary is equal to the respective subsidiary's partners' equity less
minority interest capital, if any. Losses attributable to minority interests
which exceed the minority interests' investment in a subsidiary partnership have
been charged to the Partnership. In consolidation, all subsidiary partnership
losses are included in the Partnership's capital account except for losses
allocated to minority interest capital.
8
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted or condensed. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K for the year ended March 31, 2002.
The books and records of the Partnership are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles. In the
opinion of the General Partner of the Partnership, the accompanying unaudited
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position of the
Partnership as of June 30, 2002 and the results of operations and its cash flows
for the three months ended June 30, 2002 and 2001, respectively. However, the
operating results for the three months ended June 30, 2002 may not be indicative
of the results for the year.
9
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
Note 2 - Related Party Transactions
An affiliate of the General Partner has a .01% interest as a special limited
partner in each of the Local Partnerships.
The costs incurred to related parties for the three months ended June 30, 2002
and 2001 were as follows:
Three Months Ended
June 30,
-------------------------
2002 2001
-------------------------
Partnership management fees (a) $136,500 $136,500
Expense reimbursement (b) 29,420 31,750
Local administrative fee (c) 8,000 8,000
-------- --------
Total general and administrative-General Partner 173,920 176,250
-------- --------
Property management fees incurred to affili-
ates of the subsidiary partnerships' general
partners (d) 71,062 69,910
-------- --------
Total general and administrative-related
parties $244,982 $246,160
======== ========
(a) The General Partner is entitled to receive a partnership management fee,
after payment of all Partnership expenses, which together with the annual local
administrative fees will not exceed a maximum of 0.5% per annum of invested
assets (as defined in the Partnership Agreement), for administering the affairs
of the Partnership. Subject to the foregoing limitation, the partnership
management fee will be determined by the General Partner in its sole discretion
based upon its review of the Partnership's investments. Unpaid partnership
management fees for any year will be accrued without interest and will be
payable from working capital reserves or to the extent of available funds after
the Partnership has made distributions to the limited partners of sale or
refinancing proceeds equal to their original capital contributions plus a 10%
priority return thereon (to the extent not theretofore paid out of cash flow).
Partnership management fees owed to the General Partner amounting to
approximately $2,383,000 and $2,247,000 were accrued and unpaid as of June 30,
2002 and March 31, 2002, respectively. Without the General Partner's advances
and continued accrual without payment of certain fees and expense
reimbursements, the Partnership will not be in a position to meet its
obligations. The General Partner has continued to advance and allow the accrual
without payment of these amounts but is under no obligation to continue to do
so.
10
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
(b) The Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses incurred by the General Partner and its
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement. Another
affiliate of the General Partner performs asset monitoring for the Partnership.
These services include site visits and evaluations of the subsidiary
partnerships' performance.
(c) Independence SLP L.P., a special limited partner of the subsidiary
partnerships, is entitled to receive a local administrative fee of up to $5,000
per year from each subsidiary partnership.
(d) Property management fees incurred by the Local Partnerships amounted to
$147,335 and $151,238 for the three months ended June 30, 2002 and 2001,
respectively. Of these fees, $71,062 and $69,910 were incurred to affiliates of
the subsidiary partnerships' general partners.
Note 3 - Commitments and Contingencies
There were no material changes and/or additions to disclosures regarding the
subsidiary partnerships which were included in the Partnership's Annual Report
on Form 10-K for the year ended March 31, 2002.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Partnership's primary source of funds include working capital reserves,
interest earned on working capital reserves and distributions received from the
Local Partnerships. However, none of these sources provides a material amount of
funds.
As of June 30, 2002, the Partnership has invested all of its net proceeds in
fifteen Local Partnerships. Approximately $503,000 of the purchase price remains
to be paid to the Local Partnerships (including approximately $244,000 being
held in escrow).
For the three months ended June 30, 2002, cash and cash equivalents of the
Partnership and its fifteen consolidated Local Partnerships increased
approximately $15,000. This increase is due to cash provided by operating
activities ($210,000) and a net increase in due to local general partners and
affiliates relating to investing and financing activities ($169,000) which
exceeded improvements to property and equipment ($174,000), principal payments
of mortgage notes ($131,000) and an increase in cash held in escrow relating to
investing activities ($58,000). Included in the adjustments to reconcile the net
loss to cash provided by operating activities is depreciation and amortization
($870,000).
At June 30, 2002, there was approximately $118,000 in the working capital
reserves. For the three months ended June 30, 2002, the Partnership did not
receive any distributions from the Local Partnerships. Management anticipates
receiving distributions in the future, although not to a level sufficient to
permit providing cash distributions to the BACs holders.
Partnership management fees owed to the General Partners amounting to
approximately $2,383,000 and $2,247,000 were accrued and unpaid as of June 30,
2002 and March 31, 2002, respectively. Without the General Partner's advances
and continued accrual without payment of certain fees and expense
reimbursements, the Partnership will not be in a position to meet its
obligations. The General Partner has continued to advance and allow the accrual
without payment of these amounts but are under no obligation to continue to do
so (see Note 2).
12
For a discussion of contingencies affecting certain Local Partnerships, see Note
3 to the financial statements. Since the maximum loss the Partnership would be
liable for is its net investment in the respective Local Partnerships, the
resolution of the existing contingencies is not anticipated to impact future
results of operations, liquidity or financial condition in a material way.
However, the Partnership's loss of its investment in a Local Partnership will
eliminate the ability to generate future Tax Credits from such Local Partnership
and may also result in recapture of Tax Credits, if the investment is lost
before the expiration of the compliance period.
Management is not aware of any trends or events, commitments or uncertainties
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way. Management believes the only impact would be from
laws that have not yet been adopted. The portfolio is diversified by the
location of the properties around the United States so that if one area of the
country is experiencing downturns in the economy, the remaining properties in
the portfolio may be experiencing upswings. However, the geographic
diversification of the portfolio may not protect against a general downturn in
the national economy. The Partnership has fully invested the proceeds of its
offering in fifteen Local Partnerships, all of which fully have their Tax
Credits in place. The Tax Credits are attached to the project for a period of
ten years, and are transferable with the property during the remainder of such
ten-year period. If the General Partner determined that a sale of a property is
warranted, the remaining Tax Credits would transfer to the new owner, thereby
adding value to the property on the market, which are not included in the
financial statement carrying amount.
Results of Operations
- ---------------------
The Partnership's results of operations for the three months ended June 30, 2002
and 2001 consisted primarily of the results of the Partnership's investment in
fifteen consolidated Local Partnerships. The majority of Local Partnership
income continues to be in the form of rental income with the corresponding
expenses being divided among operations, depreciation and mortgage interest.
Rental income increased approximately 3% for the three months ended June 30,
2002 as compared to the corresponding periods in 2001, primarily due to rental
rate increases.
Other income decreased approximately $10,000 for the three months ended June 30,
2002 as compared to the corresponding period in 2001, primarily due to decreases
in interest rates earned on cash balances in 2002.
13
Total expenses, excluding operating and taxes, remained fairly consistent with
an increase of approximately 3% for the three months ended June 30, 2002 as
compared to the corresponding period in 2001.
Operating expenses decreased approximately $136,000 for the three months ended
June 30, 2002 as compared to the corresponding period in 2001, primarily due to
a decrease in utility charges at one Local Partnership as well as an utility
company refund received at another Local Partnership in 2002.
Taxes increased approximately $19,000 for the three months ended June 30, 2002
as compared to the corresponding period in 2001, primarily due to a tax refund
received at one Local Partnership in 2001.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in 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 and Reports on Form 8-K
(a) Exhibits:
(3A) Agreement of Limited Partnership of Independence Tax Credit
Plus L.P. II as adopted on February 11, 1992*
(3B) Form of Amended and Restated Agreement of Limited
Partnership of Independence Tax Credit Plus L.P. II, attached to the Prospectus
as Exhibit A**
(3C) Certificate of Limited Partnership of Independence Tax
Credit Plus L.P. II as filed on February 11, 1992*
(10A) Form of Subscription Agreement attached to the Prospectus
as Exhibit B**
(10B) Escrow Agreement between Independence Tax Credit Plus L.P.
II and Bankers Trust Company*
(10C) Form of Purchase and Sales Agreement pertaining to the
Partnership's acquisition of Local Partnership Interests*
(10D) Form of Amended and Restated Agreement of Limited
Partnership of Local Partnerships*
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15
*Incorporated herein as an exhibit by reference to exhibits filed
with Post-Effective Amendment No. 4 to the Registration Statement on Form S-11
(Registration No. 33-37704)
**Incorporated herein as an exhibit by reference to exhibits
filed with Post-Effective Amendment No. 8 to the Registration Statement on Form
S-11 (Registration No. 33-37704)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
16
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.
INDEPENDENCE TAX CREDIT PLUS L.P. II
------------------------------------
(Registrant)
By: RELATED INDEPENDENCE
ASSOCIATES L.P., General Partner
By: RELATED INDEPENDENCE
ASSOCIATES INC., General Partner
Date: August 8, 2002
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Senior Vice President
(principal financial officer)
Date: August 8, 2002
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Independence Tax Credit Plus L.P. II
(the "Partnership") on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Michael Brenner, Chief Executive Officer of Related Independence Associates
L.P. and Related Independence Associates Inc., each of which is a general
partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Partnership.
/s/ Michael Brenner
Michael Brenner
Chief Executive Officer
August 8, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Independence Tax Credit Plus L.P. II
(the "Partnership") on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Alan P. Hirmes, Chief Financial Officer of Related Independence Associates
L.P. and Related Independence Associates Inc., each of which is a general
partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Partnership.
/s/ Alan P. Hirmes
Alan P. Hirmes
Chief Financial Officer
August 8, 2002