FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(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, 1999
[ ] 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 0-19243
UNITED INVESTORS INCOME PROPERTIES II
(Exact name of small business issuer as specified in its charter)
Missouri 43-1542903
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
a)
UNITED INVESTORS INCOME PROPERTIES II
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 785
Receivables and deposits 21
Other assets 26
Investment in joint ventures 2,118
Investment properties:
Land $ 432
Buildings and related personal property 2,700
3,132
Less accumulated depreciation (807)
2,325
$ 5,275
Liabilities and Partners' Capital (Deficit)
Liabilities
Other liabilities $ 25
Partners' Capital (Deficit)
General partner's $ (16)
Limited partners' (32,601 units
issued and outstanding) 5,266 5,250
$ 5,275
See Accompanying Notes to Financial Statements
b)
UNITED INVESTORS INCOME PROPERTIES II
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 129 $ 128 $ 259 $ 255
Other income 7 7 13 16
Total revenues 136 135 272 271
Expenses:
Operating 7 16 12 22
General and administrative 59 19 92 35
Depreciation 27 28 55 56
Impairment loss on property
held for investment
("Note I") 790 -- 790 --
Impairment loss on property
held for sale ("Note H") 195 -- 195 --
Total expenses 1,078 63 1,144 113
Equity in net income
of joint ventures 30 37 67 68
Net (loss) income $ (912) $ 109 $ (805) $ 226
Net (loss) income allocated to
general partner (1%) $ (9) $ 1 $ (8) $ 2
Net (loss) income allocated to
limited partners (99%) (903) 108 (797) 224
$ (912) $ 109 $ (805) $ 226
Net (loss) income per limited
partnership unit $(27.70) $ 3.31 $(24.45) $ 6.87
Distributions per limited
partnership unit $ 4.18 $ 4.27 $ 8.47 $ 8.56
See Accompanying Notes to Financial Statements
c)
UNITED INVESTORS INCOME PROPERTIES II
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 32,601 $ -- $ 8,150 $ 8,150
Partners' (deficit) capital at
December 31, 1998 32,601 $ (5) $ 6,339 $ 6,334
Partners' distribution -- (3) (276) (279)
Net loss for the six months
ended June 30, 1999 -- (8) (797) (805)
Partners' (deficit) capital at
June 30, 1999 32,601 $ (16) $ 5,266 $ 5,250
See Accompanying Notes to Financial Statements
d)
UNITED INVESTORS INCOME PROPERTIES II
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net (loss) income $(805) $ 226
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Equity in net income of joint ventures (67) (68)
Depreciation 55 56
Impairment loss on property held for investment 790 --
Impairment loss on property held for sale 195 --
Change in accounts:
Other assets (4) (10)
Accrued liabilities -- (11)
Net cash provided by operating activities 164 193
Cash flows provided by investing activities:
Distributions from joint ventures, net of advances 91 62
Cash flows used in financing activities:
Partners' distributions (279) (282)
Net decrease in cash and cash equivalents (24) (27)
Cash and cash equivalents at beginning of period 809 834
Cash and cash equivalents at end of period $ 785 $ 807
See Accompanying Notes to Financial Statements
e)
UNITED INVESTORS INCOME PROPERTIES II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of United Investors Income
Properties II (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. 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 United Investor Real Estate, Inc. (the
"General Partner"), a Delaware corporation, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1999, are not necessarily indicative of the results that may be expected for
the fiscal year ended December 31, 1999. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1998.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. ("Insignia") and Insignia
Properties Trust merged into Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the
surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100%
ownership interest in the General Partner. The General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - INVESTMENT IN CORINTH SQUARE JOINT VENTURE
The Partnership owns a 65% interest in Corinth Square, a joint venture with
United Investors Income Properties, an affiliated partnership, in which the
General Partner is also the sole general partner. The joint venture owns a
24,000 square foot medical office building located in Prairie Village, Kansas.
Corinth Square is accounted for using the equity method of accounting.
The Partnership received distributions from Corinth Square of approximately
$39,000 during the six months ended June 30, 1999. There were no distributions
during the six months ended June 30, 1998. The Partnership also advanced
approximately $3,000 during the six months ended June 30, 1999, to Corinth
Square.
The condensed balance sheet of Corinth Square at June 30, 1999, is summarized as
follows (in thousands):
Assets
Commercial property, net $1,724
Other assets 131
Total $1,855
Liabilities and Partners' Capital
Liabilities $ 40
Partners' capital 1,815
Total $1,855
Condensed statements of operations of Corinth Square for the six months ended
June 30, 1999 and 1998, are as follows (in thousands):
1999 1998
Revenue $ 205 $ 188
Costs and expenses 162 166
Net income $ 43 $ 22
NOTE D - INVESTMENT IN COVINGTON PIKE JOINT VENTURE
As of December 31, 1992, the Partnership had advanced approximately $1,058,000
to the General Partner for the benefit of Covington Pike, which was a joint
venture between the General Partner and an unaffiliated party. On January 1,
1993, the General Partner assigned its 55% interest in the joint venture to the
Partnership with no additional consideration beyond the funds advanced as of
December 31, 1992. The $1,058,000 consisted of land and building costs of
approximately $1,032,000 and cash of approximately $26,000. Capital contributed
by the unaffiliated partner was $82. Covington Pike is accounted for using the
equity method of accounting.
The Partnership received distributions of approximately $55,000 and $62,000
during the six months ended June 30, 1999 and 1998, respectively, from Covington
Pike.
The condensed balance sheet of Covington Pike at June 30, 1999, is summarized as
follows (in thousands):
Assets
Commercial property, net $ 814
Other assets 68
Total $ 882
Liabilities and Partners' Capital
Liabilities $ 82
Partners' capital 800
Total $ 882
Condensed statements of operations of Covington Pike for the six months ended
June 30, 1999 and 1998, are as follows (in thousands):
1999 1998
Revenue $ 163 $ 162
Costs and expenses 92 63
Net income $ 71 $ 99
NOTE E - TRANSACTIONS WITH AFFILIATED PARTNERS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following payments were made to affiliates of
the General Partner for the six months ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $ -- $ 5
Reimbursement for services of affiliates
(included in general and administrative
expenses) 28 14
During the six months ended June 30, 1998, affiliates of the General Partner
were entitled to varying percentages of gross receipts from all of the
Registrant's commercial properties as compensation for providing property
management services. These services were provided by affiliates of the General
Partner during the six months ended June 30, 1998, and were approximately
$5,000. Effective October 1, 1998 (the effective date of the Insignia Merger
(see "Note B")) these services for the commercial properties were provided by an
unrelated party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $28,000 and $14,000 for the
six months ended June 30, 1999 and 1998, respectively.
NOTE F - SEGMENT REPORTING
The Partnership has one reportable segment: commercial properties. The
Partnership's commercial property segment consists of two distribution
facilities in Chesapeake, Virginia and Columbia, South Carolina. The Partnership
leases these distribution facilities to a single tenant. The tenant is obligated
under its leases through the years 2000 and 2002 on the South Carolina and
Virginia properties, respectively.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998.
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the six months ended June 30, 1999 and 1998, is shown in
the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
1999 Commercial Other Totals
Rental income $ 259 $ -- $ 259
Other income -- 13 13
Depreciation 55 -- 55
General and administrative expense -- 92 92
Equity in net income of joint ventures -- 67 67
Segment loss (793) (12) (805)
Total assets 2,657 2,618 5,275
1998 Commercial Other Totals
Rental income $ 255 $ -- $ 255
Other income -- 16 16
Depreciation 56 -- 56
General and administrative expense -- 35 35
Equity in net income of joint ventures -- 68 68
Segment profit 177 49 226
Total assets 3,546 2,824 6,370
NOTE G - DISTRIBUTIONS
During the six months ended June 30, 1999, the Partnership distributed cash
generated from operations of approximately $279,000 (approximately $276,000 to
the limited partners or $8.47 per limited partnership unit). During the six
months ended June 30, 1998, the Partnership made a distribution of cash
generated from operations of approximately $282,000 (approximately $279,000 to
the limited partners or $8.56 per limited partnership unit).
NOTE H - IMPAIRMENT LOSS ON PROPERTY HELD FOR SALE
On July 23, 1999, Keebler Distribution Center, located in Chesapeake, Virginia,
was sold to an unaffiliated party for $1,550,000. After payment of closing
expenses, the net sales proceeds received by the Partnership were approximately
$1,420,000. For financial statement purposes, the sale resulted in a loss of
approximately $195,000, which has been recognized during the second quarter of
1999. The sale transaction is summarized as follows (amounts in thousands):
Net sales price, net of selling costs $ 1,420
Net real estate (1) (1,615)
Loss (195)
(1) Real estate at cost, net of accumulated depreciation of approximately
$394,000.
The following proforma information reflects the operations of the Partnership
for the six months ended June 30, 1999, as if Keebler Distribution Center,
Virginia had been sold January 1, 1998.
1999 1998
(in thousands, except per unit data)
Revenues $ 143 $ 142
Net (loss) income (707) 142
Net (loss) income per limited
partnership unit (21.47) 4.32
NOTE I - IMPAIRMENT LOSS ON PROPERTY HELD FOR INVESTMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Partnership records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. During the three
months ended June 30, 1999, the Partnership determined that the Keebler
Distribution Center located in Columbia, South Carolina, with a carrying value
of approximately $1,690,000, was impaired and its value was written down by
approximately $790,000 to reflect its fair value at June 30, 1999 of
approximately $900,000. The fair value was based upon current economic
conditions and projected future operational cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of two distribution centers.
The Partnership's joint venture properties consist of an office building and a
mini-storage facility. The following table sets forth the average physical
occupancy of the properties for each of the six month periods ended June 30,
1999 and 1998:
Average Occupancy
1999 1998
Investment Properties
Keebler Distribution Center
Chesapeake, Virginia 100% 100%
Keebler Distribution Center
Columbia, South Carolina 100% 100%
Joint Venture Properties
Corinth Square Professional Building
Prairie Village, Kansas 90% 84%
Covington Pike
Memphis, Tennessee 99% 99%
The Keebler Company vacated the Columbia, South Carolina facility in January of
1996 and the Chesapeake, Virginia facility in August of 1996. The Keebler
Company has indicated its intentions to honor its financial obligations to the
Partnership. Keebler is obligated to continue paying rent on the vacated space
through the years 2000 (Columbia, South Carolina) and 2002 (Chesapeake,
Virginia). Should the tenant fail to honor its lease obligations, operating
results would be adversely affected. The tenant has thus far paid the scheduled
rental payments on the vacated facilities. In addition, Keebler, with approval
from the Partnership, entered into sub-lease agreements effective July 1, 1996,
for the Columbia, South Carolina facility and January 1, 1998, for the
Chesapeake, Virginia facility. The new tenants are obligated to pay rent to
Keebler for the Columbia, South Carolina facility and the Chesapeake, Virginia
facility through December 31, 2000 and October 31, 2002, respectively.
Subsequent to June 30, 1999, the Chesapeake, Virginia facility was sold.
The increase in occupancy at Corinth Square Professional Building is primarily
attributable to a new tenant occupying 1,240 square feet during the latter part
of 1998.
Results of Operations
The Partnership realized a net loss for the six months ended June 30, 1999, of
approximately $805,000 as compared to net income of approximately $226,000 for
the six months ended June 30, 1998. For the three months ended June 30, 1999
the Partnership realized a net loss of approximately $912,000 compared to net
income of $109,000 for the three months ended June 30, 1998. The decrease in
net income for the three and six month periods ended June 30, 1999, is due to an
increase in total expenses primarily as a result of an impairment loss realized
on the sale of Keebler Distribution Center in Chesapeake, Virginia and an
impairment loss for the Keebler Distribution Center in Columbia, South Carolina
as discussed below. Excluding the impact of these impairment losses, the
decrease in net income of approximately $36,000 and $46,000, respectively, for
the three and six months ended June 30, 1999, is attributable to an increase in
total expenses. Total expenses increased primarily as a result of an increase in
general and administrative expenses, partially offset by a decrease in operating
expenses. The increase in general and administrative expenses is primarily due
to increases in professional expenses associated with the oversight of the
Partnership, legal expenses associated with the settlement of the Everest
lawsuit which was disclosed in the Partnership's Annual Report on Form 10-KSB
for fiscal year ended December 31, 1998, and increased management reimbursements
to the General Partner. Included in general and administrative expenses at both
June 30, 1999 and 1998 are management reimbursements to the General Partner
allowed under the Partnership Agreement. In addition, costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement are included. The
decrease in operating expense was due primarily to roof repairs completed at
Keebler, Virginia in 1998.
Subsequent to June 30, 1999, Keebler Distribution Center, located in Chesapeake,
Virginia, was sold to an unaffiliated party for $1,550,000. After payment of
closing expenses, the net sales proceeds received by the Partnership were
approximately $1,420,000. For financial statement purposes, the sale resulted
in a loss of approximately $195,000, which has been recognized as an impairment
loss during the second quarter of 1999.
During the three months ended June 30, 1999, the Partnership determined that the
Keebler Distribution Center located in Columbia, South Carolina, with a carrying
value of approximately $1,690,000, was impaired and its value was written down
by approximately $790,000 to reflect its fair value at June 30, 1999 of
approximately $900,000. The fair value was based upon current economic
conditions and projected future operational cash flows.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
Exclusive of cash held by the joint ventures, at June 30, 1999, the Partnership
had cash and cash equivalents of approximately $785,000 as compared to
approximately $807,000 at June 30, 1998. The decrease in cash and cash of
approximately $24,000 from the Partnership's year ended December 31, 1998, is
due to approximately $279,000 of cash used in financing activities offset by
approximately $164,000 cash provided by operating activities and approximately
$91,000 cash provided by investing activities. The cash used in financing
activities was due to distributions made to the partners. Cash provided by
investing activities consisted of distributions from the joint ventures, net of
advances. The Partnership invests its working capital reserves in money market
accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state and local legal and regulatory requirements. During the six months ended
June 30, 1999, the Partnership did not complete any capital improvements at
either of its commercial properties, nor has it budgeted any capital
improvements for the properties in 1999.
The Registrant's current assets are thought to be sufficient for any near-term
needs of the Registrant.
During the six months ended June 30, 1999, the Partnership distributed cash
generated from operations of approximately $279,000 (approximately $276,000 to
the limited partners or $8.47 per limited partnership unit). During the six
months ended June 30, 1998, the Partnership made a distribution of cash
generated from operations of approximately $282,000 (approximately $279,000 to
the limited partners or $8.56 per limited partnership unit). The Partnership's
distribution policy is reviewed on a quarterly basis. Future cash distributions
will depend on the levels of net cash generated from operations, property sales,
financings, and the availability of cash reserves. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations to
permit additional distributions to its partners in 1999 or subsequent periods.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Corporate General Partner and its affiliates for
management and administrative services ("Managing Agent"). Any of the computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 - Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED INVESTORS INCOME PROPERTIES II
By: United Investors Real Estate, Inc.
Its General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance and
Administration
Date: August 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Income Properties II 1999 Second Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000862028
<NAME> UNITED INVESTORS INCOME PROPERTIES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 785
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 3,132
<DEPRECIATION> 807
<TOTAL-ASSETS> 5,275
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,250
<TOTAL-LIABILITY-AND-EQUITY> 5,275
<SALES> 0
<TOTAL-REVENUES> 272
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (805)
<EPS-BASIC> (24.45)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
