<PAGE>
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 September 30, 2000
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>
============ ============
September 30, March 31,
2000 2000
------------ ------------
<S> <C> <C>
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $17,990,438 and $16,288,288,
respectively $90,175,652 $91,850,520
Cash and cash equivalents 825,594 971,474
Cash held in escrow 3,220,648 2,823,313
Deferred costs, net of accumulated
amortization of $128,998
and $107,534, respectively 272,013 293,477
Other assets 520,176 695,743
------------ ------------
Total assets $95,014,083 $96,634,527
========== ==========
</TABLE>
2
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
<TABLE>
<CAPTION>
============ ============
September 30, March 31,
2000 2000
------------ ------------
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Mortgage notes payable $58,568,405 $58,753,322
Accounts payable and other
liabilities 1,509,292 1,427,263
Accrued interest 7,989,184 7,759,548
Due to local general partners and
affiliates 2,043,829 1,878,270
Due to general partner and
affiliates 1,830,465 1,520,461
----------- -----------
Total liabilities 71,941,175 71,338,864
----------- -----------
Minority interest 61,109 68,012
----------- -----------
Commitments and contingencies (Note 3)
Partners' capital (deficit):
Limited partners (58,928 BACs
issued and outstanding) 23,305,631 25,499,324
General partner (293,832) (271,673)
----------- -----------
Total partners' capital (deficit) 23,011,799 25,227,651
----------- -----------
Total liabilities and partners'
capital (deficit) $95,014,083 $96,634,527
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
========================= ==========================
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 2,033,406 $ 1,953,667 $ 4,062,930 $ 3,898,257
Other income 70,071 43,353 138,480 79,115
----------- ----------- ----------- -----------
Total revenues 2,103,477 1,997,020 4,201,410 3,977,372
----------- ----------- ----------- -----------
Expenses
General and
administrative 531,772 484,672 1,101,839 975,715
General and
administrative-
related parties
(Note 2) 248,452 233,483 485,954 456,817
Repairs and
maintenance 477,145 460,879 917,167 839,471
Operating 285,502 184,104 559,870 410,879
Taxes 199,786 184,910 374,110 360,008
Insurance 108,191 107,928 225,020 229,749
Financial 448,615 432,047 1,036,591 998,680
Depreciation and
amortization 898,477 906,315 1,723,614 1,762,958
----------- ----------- ----------- -----------
Total expenses 3,197,940 2,994,338 6,424,165 6,034,277
----------- ----------- ----------- -----------
Loss before
minority
interest (1,094,463) (997,318) (2,222,755) (2,056,905)
Minority interest
in loss of
subsidiary
partnerships 3,893 2,849 6,903 5,506
----------- ----------- ----------- -----------
Net loss $(1,090,570) $ (994,469) $(2,215,852) $(2,051,399)
=========== =========== =========== ===========
Net loss-limited
partners $(1,079,664) $ (984,524) $(2,193,693) $(2,030,885)
=========== =========== =========== ===========
Number of BACs
outstanding 58,928 58,928 58,928 58,928
=========== =========== =========== ===========
Net loss per BAC $ (18.33) $ (16.70) $ (37.23) $ (34.46)
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statement of Changes in
Partners' Capital (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
=================================================
Limited General
Total Partners Partner
-------------------------------------------------
<S> <C> <C> <C>
Partners' capital
(deficit) -
April 1, 2000 $25,227,651 $25,499,324 $(271,673)
Net loss (2,215,852) (2,193,693) (22,159)
----------- ----------- ---------
Partners' capital
(deficit) -
September 30,
2000 $23,011,799 $23,305,631 $(293,832)
=========== =========== =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Decrease) increase in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
=============================
Six Months Ended
September 30,
-----------------------------
2000 1999
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,215,852) $(2,051,399)
----------- -----------
Adjustments to reconcile net loss to
net cash provided by
operating activities:
Depreciation and amortization 1,723,614 1,762,958
Minority interest in loss of
subsidiaries (6,903) (5,506)
Increase in accounts payable and
other liabilities 82,029 162,443
Increase in accrued interest 229,636 301,900
(Increase) decrease in cash held in escrow (57,409) 12,141
Decrease in other assets 175,567 50,340
Increase in due to local general
partners and affiliates 34,786 23,118
Decrease in due to local general
partners and affiliates (12,643) (52,577)
Increase in due to
general partner and affiliates 310,004 309,928
----------- -----------
Total adjustments 2,478,681 2,564,745
----------- -----------
Net cash provided by
operating activities 262,829 513,346
----------- -----------
Cash flows from investing activities:
Improvements to property and
equipment (27,282) (38,916)
Increase in cash held
in escrow (339,926) (281,418)
Increase in due to local general
partners and affiliates 152,803 12,071
----------- -----------
Net cash used in investing activities (214,405) (308,263)
----------- -----------
6
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Decrease) increase in Cash and Cash Equivalents
(Unaudited)
(continued)
=============================
Six Months Ended
September 30,
-----------------------------
2000 1999
-----------------------------
<S> <C> <C>
Cash flows from financing activities:
Principal payments of mortgage
notes (184,917) (172,391)
Increase in due to local general
partner and affiliates 0 24,899
Decrease in due to local
general partner and affiliates (9,387) (2,891)
----------- ----------
Net cash used in financing activities (194,304) (150,383)
----------- ----------
Net (decrease) increase in cash and
cash equivalents (145,880) 54,700
Cash and cash equivalents at
beginning of period 971,474 1,051,505
----------- ----------
Cash and cash equivalents at
end of period $ 825,594 $1,106,205
=========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
7
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
(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. Some of such apartment complexes may also be eligible for the
rehabilitation investment credit for certified historic structures. 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
September 30. The Partnership's fiscal quarter ends September 30, in order to
allow adequate time for the subsidiary partnerships financial statements to be
prepared and consolidated. All subsidiaries have fiscal quarters ending June 30.
Accounts of the subsidiary partnerships have been adjusted for intercompany
transactions from July 1 through September 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.
Such losses aggregated approximately $6,000 and $6,000 and $12,000 and $12,000
for the three and six months ended September 30, 2000 and 1999, 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
8
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
(Unaudited)
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,
2000.
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 September 30, 2000, the results of operations for the three
and six months ended September 30, 2000 and 1999 and cash flows for the six
months ended September 30, 2000 and 1999, respectively. However, the operating
results for the six months ended September 30, 2000 may not be indicative of the
results for the year.
9
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
(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 and six months ended
September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Partnership manage-
ment fees (a) $136,500 $136,500 $273,000 $273,000
Expense reimburse-
ment (b) 35,926 21,000 62,388 35,601
Local administra-
tive fee (c) 6,500 8,000 13,000 16,000
-------- -------- -------- --------
Total general and
administrative-
General Partner 178,926 165,500 348,388 324,601
-------- -------- -------- --------
Property manage-
ment fees incurred
to affiliates of the
subsidiary
partnerships'
general
partners (d) 69,526 67,983 137,566 132,216
-------- -------- -------- --------
Total general and
administrative-
related parties $248,452 $233,483 $485,954 $456,817
======== ======== ======== ========
</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
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
(Unaudited)
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 $1,478,000 and $1,205,000 were accrued and unpaid as of September
30, 2000 and March 31, 2000, 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.
(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
$149,321 and $154,646 and $299,905 and $303,821 for the three and six months
ended September 30, 2000 and 1999, respectively. Of these fees, $69,526 and
$67,983 and $137,566 and $132,216 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 period ended March 31, 2000.
11
<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 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 September 30, 2000, the Partnership has invested all of its net proceeds
in fifteen Local Partnerships. Approximately $890,000 of the purchase price
remains to be paid to the Local Partnerships (including approximately $631,000
being held in escrow).
For the six months ended September 30, 2000, cash and cash equivalents of the
Partnership and its fifteen consolidated Local Partnerships decreased
approximately $146,000. This decrease is due to improvements to property and
equipment ($27,000), principal payments of mortgage notes ($185,000) and an
increase in cash held in escrow relating to investing activities ($340,000)
which exceeded cash provided by operating activities ($263,000) and a net
increase in due to local general partners and affiliates relating to investing
and financing activities ($143,000). Included in the adjustments to reconcile
the net loss to cash provided by operating activities is depreciation and
amortization ($1,724,000).
At September 30, 2000, there is approximately $156,000 in the working capital
reserves. For the six months ended September 30, 2000, the Partnership did not
receive any distributions. 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 $1,478,000 and $1,205,000 were accrued and unpaid as of September
30, 2000 and March 31, 2000, 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
(see Note 2).
12
<PAGE>
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 and six months ended
September 30, 2000 and 1999 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 4% for both the three and six months ended
September 30, 2000 as compared to the corresponding periods in 1999 primarily
due to rental rate increases.
13
<PAGE>
Other income increased approximately $27,000 and $59,000 for the three and six
months ended September 30, 2000 as compared to the corresponding periods in 1999
primarily due to increases in laundry fee income received at one Local
Partnership in 2000 as well as small increases at two other Local Partnerships.
Total expenses, excluding general and administrative and operating remained
fairly consistent with an increase of approximately 2% for both the three and
six months ended September 30, 2000 as compared to the corresponding periods in
1999.
General and administrative increased approximately $47,000 and $126,000 for the
three and six months ended September 30, 2000 as compared to the corresponding
periods in 1999 primarily due to an increase in salaries at one Local
Partnership and an increase in administration expenses at the Partnership level.
Operating increased approximately $101,000 and $149,000 for the three and six
months ended September 30, 2000 as compared to the corresponding periods in 1999
primarily due to an underaccrual of meter charges at one Local Partnership in
1999.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
14
<PAGE>
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*
(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)
15
<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.
16
<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: October 25, 2000
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Senior Vice President
(principal financial officer)
Date: October 25, 2000
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)