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, 1998
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)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
------------- -------------
<S> <C> <C>
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $10,165,299 and $9,334,717,
respectively $ 96,886,967 $ 97,677,550
Cash and cash equivalents 2,467,092 2,651,208
Cash held in escrow 2,501,337 2,560,903
Deferred costs, net of accumulated
amortization of $315,095
and $290,022, respectively 495,477 520,550
Other assets 532,124 560,836
------------- -------------
Total assets $ 102,882,997 $ 103,971,047
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 59,185,557 $ 59,280,374
Accounts payable and other
liabilities 1,384,646 1,566,693
Accrued Interest 5,076,036 4,925,673
Due to local general partners and
affiliates 2,727,823 2,764,688
Due to general partner and
affiliates 306,023 274,463
------------- -------------
Total liabilities 68,680,085 68,811,891
------------- -------------
Minority interest 322,708 295,728
------------- -------------
Commitments and contingencies (Note 3)
Partners' capital:
Limited partners (58,928 BACs
issued and outstanding) 34,065,351 35,038,743
General partner (185,147) (175,315)
------------- -------------
Total partners' capital 33,880,204 34,863,428
------------- -------------
Total liabilities and partners' capital $102,882,997 $ 103,971,047
============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues
Rental income $ 1,843,589 $ 1,865,812
Other income 51,881 66,506
----------- -----------
Total revenues 1,895,470 1,932,318
----------- -----------
Expenses
General and administrative 456,515 428,846
General and administrative-
related parties (Note 2) 103,446 132,382
Repairs and maintenance 382,595 284,832
Operating 221,777 360,052
Taxes 178,560 165,481
Insurance 140,440 150,790
Financial, principally interest 542,726 513,489
Depreciation and amortization 855,655 851,415
----------- -----------
Total expenses 2,881,714 2,887,287
----------- -----------
Loss before minority interest (986,244) (954,969)
Minority interest in loss of
subsidiary partnerships 3,020 2,850
----------- -----------
Net loss $ (983,224) $ (952,119)
=========== ===========
Net loss-limited partners $ (973,392) $ (942,598)
=========== ===========
Number of BACs outstanding 58,928 58,928
=========== ===========
Net loss per BAC $ (16.52) $ (16.00)
=========== ===========
</TABLE>
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)
<TABLE>
<CAPTION>
Limited General
Total Partners Partner
------------ ----------- ----------
<S> <C> <C> <C>
Partners' capital -
April 1, 1998 $34,863,428 $35,038,743 $(175,315)
Net loss (983,224) (973,392) (9,832)
----------- ----------- ----------
Partners' capital -
June 30, 1998 $33,880,204 $34,065,351 $(185,147)
=========== =========== =========
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------
1998 1997*
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (983,224) $ (952,119)
----------- -----------
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 855,655 851,415
Minority interest in loss of
subsidiaries (3,020) (2,850)
Decrease in accounts payable
and other liabilities (182,047) (154,689)
Increase in accrued interest 150,363 161,268
Decrease (increase) in cash held
in escrow 209,510 (14,261)
Decrease in other assets 28,712 30,381
Increase in due to local general
partners and affiliates 139 8,713
Decrease in due to local general
partners and affiliates (39,948) (206,142)
Increase in due to
general partner and affiliates 31,560 32,347
----------- -----------
Total adjustments 1,050,924 706,182
----------- -----------
Net cash provided by (used in)
operating activities 67,700 (245,937)
----------- -----------
Cash flows from investing activities:
Improvements to property and
equipment (39,999) (47,294)
(Increase) decrease in cash held
in escrow (149,944) 15,133
Decrease in due to local general
partners and affiliates 0 (124,300)
----------- -----------
Net cash used in investing activities (189,943) (156,461)
----------- -----------
</TABLE>
*Reclassified for comparative purposes.
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)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------
1998 1997*
--------------------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from mortgage notes 0 217,895
Principal payments of mortgage
notes (94,817) (79,903)
Proceeds from construction loans 0 49,425
Principal payments on construction
loans 0 (172,779)
Increase in due to
local general partner
and affiliates 2,944 0
Increase (decrease) in capitalization
of consolidated subsidiaries
attributable to minority interest 30,000 (18,337)
---------- ----------
Net cash used in financing activities (61,873) (3,699)
---------- ----------
Net decrease in cash and
cash equivalents (184,116) (406,097)
Cash and cash equivalents at
beginning of period 2,651,208 4,622,176
----------- -----------
Cash and cash equivalents at
end of period $ 2,467,092 $ 4,216,079
=========== ===========
Supplemental disclosure of noncash
financing activities:
Conversion of construction notes
payable to mortgage notes
payable $ 0 $ 800,000
</TABLE>
*Reclassified for comparative purposes.
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, 1998
(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, 1998, the Partnership has interests 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 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 end 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.
7
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
Such losses aggregated approximately $6,000 and $6,000 for the three months
ended June 30, 1998 and 1997, 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.
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,
1998.
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, 1998 and the results of operations and cash flows for
the three months ended June 30, 1998 and 1997. However, the operating results
for the three months ended June 30, 1998 may not be indicative of the results
for the year.
8
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(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, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------
1998 1997
------------------------
<S> <C> <C>
Partnership management fees (a) $ 12,500 $ 12,500
Expense reimbursement (b) 19,000 52,603
Property management fees (c) 63,946 62,279
Local administrative fee (d) 8,000 5,000
-------- --------
$103,446 $132,382
======== ========
</TABLE>
(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 $175,000 and $163,000 were accrued and unpaid as of June 30, 1998
and March 31, 1998, 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
9
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
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
$149,187 and $120,246 for the three months ended June 30, 1998 and 1997,
respectively. Of these fees, $63,946 and $62,279 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 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 period ended March 31, 1998.
10
<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 these sources of funds are available to meet obligations
of the Partnership.
As of June 30, 1998, the Partnership has approximately $1,916,000 remaining to
be paid (including approximately $758,000 being held in escrow for five Local
Partnerships) 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, 1998, $0 was paid
to Local Partnerships. 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.
For the three months ended June 30, 1998, cash and cash equivalents of the
Partnership and its fifteen consolidated Local Partnerships decreased
approximately $184,000. This decrease is primarily attributable to improvements
to property and equipment ($40,000), an increase in cash held in escrow from
investing activities ($150,000), principal payments from mortgage notes
($95,000), which exceeded an increase in capitalization of consolidated
subsidiaries attributable to minority interest ($30,000) and cash provided by
operating activities ($68,000). Included in the adjustments to reconcile the net
loss to cash provided by operating activities is depreciation and amortization
of approximately $856,000.
At June 30, 1998 and March 31, 1998, there is a balance of approximately
$295,000 and $337,000 in the working capital reserves, 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 cash distributions received and to be received from the
operations of the Local Partnerships, will be sufficient to fund the
Partnership's ongoing operations for the foreseeable future. For the three
months ended June 30, 1998 and 1997 the Partnership did not receive any dis-
11
<PAGE>
tributions. 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 $176,000 and $163,000 were accrued and unpaid as of June 30, 1998
and March 31, 1998, respectively (see Note 2).
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
0liminate 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, 1998
and 1997 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
12
<PAGE>
the form of rental income with the corresponding expenses being divided among
operations, depreciation and mortgage interest.
Rental income decreased approximately 1% for the three months ended June 30,
1998 as compared to the corresponding period in 1997 primarily due to an
increase in vacancy losses at one Local Partnership.
Other income decreased approximately $15,000 for the three months ended June 30,
1998 as compared to the corresponding period in 1997 primarily due to the
forfeiture of security deposits at one Local Partnership in 1997.
Total expenses excluding general and administrative-related parties, repairs and
maintenance and operating remained fairly consistent with an increase of
approximately 3% for the three months ended June 30, 1998 as compared to the
corresponding period in 1997.
General and administrative-related parties decreased approximately $29,000 for
the three months ended June 30, 1998 as compared to the corresponding period in
1997 primarily due to a decrease in expense reimbursements payable to the
General Partner.
Repairs and maintenance increased approximately $98,000 for the three months
ended June 30, 1998 as compared to the corresponding period in 1997 primarily
due to painting expenses at one Local Partnership as well as small increases at
two other Local Partnerships.
Operating decreased approximately $138,000 for the three months ended June 30,
1998 as compared to the corresponding period in 1997 primarily due to the
payment of five years of water bills in the first quarter of 1997 at one Local
Partnership.
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The General Partner is in the process of working with the
Partnership's service providers to prepare for the year 2000. Based on
information currently available, the Partnership does not expect that it will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant.
13
<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 of this quarterly report on Form 10-Q 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*
(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)
14
<PAGE>
**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.
15
<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: July 30, 1998
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: July 30, 1998
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
<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> Independence Tax Credit Plus L.P. II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,968,429
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 532,124
<PP&E> 107,052,266
<DEPRECIATION> 10,165,299
<TOTAL-ASSETS> 102,882,997
<CURRENT-LIABILITIES> 9,494,528
<BONDS> 59,185,557
0
0
<COMMON> 0
<OTHER-SE> 34,202,912
<TOTAL-LIABILITY-AND-EQUITY> 102,882,997
<SALES> 0
<TOTAL-REVENUES> 1,895,470
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,338,988
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 542,726
<INCOME-PRETAX> (986,244)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (986,244)
<EPS-PRIMARY> (16.52)
<EPS-DILUTED> 0
</TABLE>
