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, 1997
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 ____
<PAGE>
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,
1997 1997
------------- -------------
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $6,757,611 and $5,929,690,
respectively $ 103,533,770 $ 104,314,397
Cash and cash equivalents 4,216,079 4,622,176
Cash held in escrow 2,866,964 2,867,836
Deferred costs, net of accumulated
amortization of $199,203 and
$175,709, respectively 576,185 599,679
Other assets 397,031 427,412
------------- -------------
Total assets $ 111,590,029 $ 112,831,500
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 40,737,348 $ 39,799,356
Construction loan payable 19,139,371 20,062,725
Accounts payable and other
liabilities 4,955,693 4,949,114
Due to local general partners and
affiliates 3,114,316 3,436,045
Due to general partner and
affiliates 224,083 191,736
------------- -------------
Total liabilities 68,170,811 68,438,976
------------- -------------
Minority interest 296,002 317,189
------------- -------------
Commitments and contingencies (Note 3)
Partners' capital:
Limited partners (58,928 BACs
issued and outstanding) 43,215,933 44,158,531
General partner (92,717) (83,196
------------- -------------
Total partners' capital 43,123,216 44,075,335
------------- -------------
Total liabilities and partners' capital $ 111,590,029 $ 112,831,500
============= =============
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
=============================
Three Months Ended
June 30,
-----------------------------
1997 1996
-----------------------------
Revenues
Rental income $ 1,865,812 $ 1,352,485
Other income 66,506 116,399
----------- -----------
Total revenues 1,932,318 1,468,884
----------- -----------
Expenses
General and administrative 428,846 342,388
General and administrative-
related parties (Note 2) 132,382 96,209
Repairs and maintenance 284,832 238,124
Operating 360,052 172,628
Taxes 165,481 136,590
Insurance 150,790 127,695
Financial, principally interest 513,489 346,778
Depreciation and amortization 851,415 557,183
----------- -----------
Total expenses 2,887,287 2,017,595
----------- -----------
Loss before minority interest (954,969) (548,711)
Minority interest in loss
of subsidiary partnerships 2,850 2,305
----------- -----------
Net loss $ (952,119) $ (546,406)
=========== ===========
Net loss-limited partners $ (942,598) $ (540,942)
=========== ===========
Number of BACs outstanding 58,928 58,928
=========== ===========
Net loss per BAC (16.00) (9.18)
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Capital
(Unaudited)
================================================
Limited General
Total Partners Partner
------------------------------------------------
Partners' capital -
April 1, 1997 $ 44,075,335 $ 44,158,531 $ (83,196)
Net loss (952,119) (942,598) (9,521)
------------ ------------ ------------
Partners' capital -
June 30,
1997 $ 43,123,216 $ 43,215,933 $ (92,717)
============ ============ ============
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Decrease in Cash and Cash Equivalents
(Unaudited)
============================
Three Months Ended
June 30,
----------------------------
1997 1996
----------------------------
Cash flows from operating activities:
Net loss $ (952,119) $ (546,406)
Adjustments to reconcile net loss to
net cash used in
operating activities:
Depreciation and amortization 851,415 557,183
Minority interest in loss of
subsidiaries (2,850) (2,305)
Increase (decrease) in accounts
payable and other liabilities 6,579 (1,298,854)
(Increase) decrease in cash held
in escrow (14,261) 119,018
Decrease (increase) in other assets 30,381 (20,691)
Increase in due to local general
partners and affiliates 8,713 1,003,877
Decrease in due to local general
partners and affiliates (206,142) (1,341,458)
Increase in due to
general partner and affiliates 32,347 28,798
----------- -----------
Total adjustments 706,182 (954,432)
----------- -----------
Net cash used in
operating activities (245,937) (1,500,838)
----------- -----------
Cash flows from investing activities:
Improvements to property and
equipment (47,294) (170,692)
Increase in construction in progress 0 (2,047,171)
Decrease in cash held in escrow 15,133 56,893
Decrease in due to local general
partners and affiliates (124,300) (2,431,792)
----------- -----------
Net cash used in investing activities (156,461) (4,592,762)
----------- -----------
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Decrease in Cash and Cash Equivalents
(continued)
(Unaudited)
==============================
Three Months Ended
June 30,
------------------------------
1997 1996
------------------------------
Cash flows from financing activities:
Proceeds from mortgage notes 217,895 159,360
Principal payments of mortgage
notes (79,903) (244,008)
Proceeds from construction loans 49,425 2,893,800
Principal payments on construction
loans (172,779) 0
Increase in deferred costs 0 (20,701)
Decrease in capitalization
of consolidated subsidiaries
attributable to minority interest (18,337) (78,322)
------------ ------------
Net cash (used in) provided by
financing activities (3,699) 2,710,129
------------ ------------
Net decrease in cash and
cash equivalents (406,097) (3,383,471)
Cash and cash equivalents at
beginning of period 4,622,176 13,646,746
------------ ------------
Cash and cash equivalents at
end of period $ 4,216,079 $ 10,263,275
============ ============
Supplemental disclosure of noncash
financing activities:
Conversion of construction notes
payable to mortgage notes
payable $ 800,000 $ 0
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
Note 1 - General
Independence Tax Credit Plus L.P. II (a Delaware limited partnership) (the
"Partnership") was organized on February 11, 1992, and commenced its public
offering on January 19, 1993. The general partner of the Partnership is Related
Independence Associates L.P., a Delaware limited partnership (the "General
Partner").
The Partnership's business is to invest in other partnerships ("Local
Partnerships", "subsidiaries" or "subsidiary partnerships") owning leveraged
apartment complexes that are eligible for the low-income housing tax credit
("Tax Credit") enacted in the Tax Reform Act of 1986, some of which complexes
may also be eligible for the historic rehabilitation tax credit.
As of June 30, 1997, the Partnership has acquired an interest in fifteen Local
Partnerships. The Partnership does not intend to acquire additional properties.
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.
The Partnership's fiscal quarter ends June 30. All subsidiaries have fiscal
quarters ending March 31. Accounts of the subsidiaries 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 $6,000 and $2,000 for the three months
ended June 30, 1997 and 1996, respectively. The Partnership's investment in each
subsidiary is equal to the respective subsidiary's partners' equity less
minority interest capital, if any. In consolidation, all subsidiary
7
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
Note 1 - General (continued)
partnership losses are included in the Partnership's capital account except for
losses allocated to minority interest capital.
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 period ended March 31,
1997.
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, 1997 and the results of operations and cash flows for
the three months ended June 30, 1997 and 1996. However, the operating results
for the three months ended June 30, 1997 may not be indicative of the results
for the year.
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, 1997
and 1996 were as follows:
Three Months Ended
June 30,
-------------------------
1997 1996
-------------------------
Partnership management fees (a) $ 12,500 $ 25,000
Expense reimbursement (b) 52,603 26,989
Property management fees (c) 62,279 41,220
Local administrative fee (d) 5,000 3,000
-------- --------
$132,382 $ 96,209
======== ========
(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
8
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
Note 2 - Related Party Transactions (continued)
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 $127,000 and $115,000 were accrued and unpaid as of June 30, 1997
and March 31, 1997, respectively.
(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) Property management fees incurred by the Local Partnerships amounted to
$120,246 and $59,200 for the three months ended June 30, 1997 and 1996,
respectively. Of these fees, $62,279 and $41,220 were incurred to affiliates of
the subsidiary partnerships' general partners.
(d) 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.
Note 3 - Commitments and Contingencies
There were no 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 period ended March 31, 1997.
9
<PAGE>
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 interest earned on proceeds
from the offering which were invested in tax-exempt money market instruments
pending final payments to Local Partnerships and a working capital reserve and
interest thereon. All of these sources of funds are available to meet
obligations of the Partnership.
The Partnership has received $58,928,000 (including volume discounts of $2,000)
in gross proceeds for BACs pursuant to a public offering resulting in net
proceeds available for investment of approximately $46,848,000 after volume
discounts, payment of sales commissions, acquisition fees and expenses,
organization and offering expenses and establishment of a working capital
reserve.
As of June 30, 1997, the Partnership has invested approximately $46,996,000 (not
including acquisition fees of approximately $3,502,000) of net proceeds in
fifteen Local Partnerships of which approximately $3,843,000 remains to be paid
(including approximately $1,167,000 being held in escrow) as certain benchmarks,
such as occupancy level, must be attained prior to the release of the funds. The
Partnership does not intend to acquire additional properties. During the three
months ended June 30, 1997, approximately $424,000 was paid to Local
Partnerships (of which $111,000 was released from escrow). An additional $46,000
was placed into escrow for purchase price payments during the three months ended
June 30, 1997. Although the Partnership will not be acquiring additional
properties, the Partnership may be required to fund potential purchase price
adjustments based on tax credit adjustor clauses. There have been no purchase
price adjustments during the three months ended June 30, 1997.
For the three months ended June 30, 1997, cash and cash equivalents of the
Partnership and its fifteen consolidated Local Partnerships decreased
approximately $406,000 primarily due to net cash used in operating activities
($246,000), a decrease in due to local general partners and affiliates relating
to investing activities ($124,000), improvements to property and equipment
($47,000) and a decrease in capitalization of consolidated subsidiaries
attributable to minority interest ($18,000) which exceeded a decrease in cash
held in escrow relating to investing activities ($15,000) and net proceeds from
mortgage notes and construction loans ($15,000). Included in the adjustments to
reconcile the net loss to cash used in operating activities is depreciation and
amortization of approximately $851,000.
10
<PAGE>
A working capital reserve in the original amount of approximately $1,473,000
(2.5% of gross equity) was established from the Partnership's funds available
for investment. At June 30, 1997 and March 31, 1997, approximately $445,000 and
$493,000 of this reserve remains unused, respectively, which includes amounts
which may be required for potential purchase price adjustments based on tax
credit adjustor clauses. The General Partner believes that these reserves, plus
any cash distributions received from the operations of the Local Partnerships,
will be sufficient to fund the Partnership's ongoing operations for the
foreseeable future. During the three months ended June 30, 1997 and 1996,
amounts received from operations of the Local Partnerships were approximately $0
and $16,000, respectively. 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 Partner amounting to
approximately $127,000 and $115,000 were accrued and unpaid as of June 30, 1997
and March 31, 1997, respectively.
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
11
<PAGE>
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, 1997
and 1996 consisted primarily of (1) approximately $28,000 and $70,000,
respectively, of tax-exempt interest income earned on funds not currently
invested in Local Partnerships and (2) the results of the Partnership's
investment in fifteen of fifteen and thirteen of fifteen consolidated Local
Partnerships, respectively.
For the three months ended June 30, 1997 as compared to 1996, rental income and
all categories of expenses increased and the results of operations are not
comparable due to the construction and rent up of properties. In addition,
interest income will decrease in future periods as proceeds are released to the
Local Partnerships. Other income decreased approximately $50,000 for the three
months ended June 30, 1997 as compared to 1996 primarily due to a decrease in
interest income as a result of the release of proceeds to the Local
Partnerships. For the three months ended June 30, 1997 and 1996, zero and two of
the Partnership's fifteen consolidated properties, repectively, had completed
construction and were in various stages of rent up. In addition, three and zero
of the properties, respectively, had completed construction in a previous fiscal
year, but were in various stages of rent up for the three months. Also, for the
three months ended June 30, 1997 and 1996, twelve and ten of the properties had
completed construction and were rented up in a previous fiscal year. As of the
end of the three months ended June 30, 1997 and 1996, zero and three of the
Partnership's fifteen consolidated properties, respectively, were still under
construction and three and five of the properties, respectively, had
construction loans with commitments for permanent financing.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - The litigation described in Note 3 to
the financial statements contained in Part I, Item 1
is incorporated herein by reference.
Item 2. Changes in Securities - 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*
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K (continued)
(a) Exhibits (continued)
(27) Financial Data Schedule (filed herewith).
*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.
14
<PAGE>
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 13, 1997
By:/s/ Alan P. Hirmes
---------------------------------
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: August 13, 1997
By:/s/ Richard A. Palermo
---------------------------------
Richard A. Palermo,
Treasurer
(principal accounting officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
financial statements for Independence Tax Credit Plus L.P. II and is qualified
in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000907045
<NAME> Ind. Tax Credit Plus L.P. II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,083,043
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 397,031
<PP&E> 110,291,381
<DEPRECIATION> 6,757,611
<TOTAL-ASSETS> 111,590,029
<CURRENT-LIABILITIES> 8,294,092
<BONDS> 59,876,719
0
0
<COMMON> 0
<OTHER-SE> 43,419,218
<TOTAL-LIABILITY-AND-EQUITY> 111,590,029
<SALES> 0
<TOTAL-REVENUES> 1,932,318
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,373,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 513,489
<INCOME-PRETAX> (954,969)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (954,969)
<EPS-PRIMARY> (16.00)
<EPS-DILUTED> 0
</TABLE>
