<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 June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
Commission File Number 0-24650
INDEPENDENCE TAX CREDIT PLUS L.P. III
(Exact name of registrant as specified in its charter)
Delaware 13-3746339
--------------------------------- ---------------------
(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
--- ---
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
============ ============
June 30, March 31,
2000 2000
------------ ------------
<S> <C> <C>
ASSETS
Property and equipment - at cost,
less accumulated depreciation
of $9,571,572 and $8,939,838,
respectively $76,252,381 $76,888,110
Cash and cash equivalents 2,975,379 3,327,734
Investments available-for-sale 200,000 1,300,000
Cash held in escrow 4,696,976 3,094,867
Deferred costs, less accumulated
amortization of $284,800
and $275,806, respectively 839,274 848,268
Other assets 500,576 608,331
------------ ------------
Total assets $85,464,586 $86,067,310
============ ============
</TABLE>
2
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
<TABLE>
<CAPTION>
============ ============
June 30, March 31,
2000 2000
------------ ------------
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Mortgage notes payable $36,692,383 $36,525,788
Construction loan payable 8,035,079 8,035,079
Accounts payable and other
liabilities 4,000,163 4,065,117
Due to local general partners and
affiliates 4,107,500 4,259,677
Due to general partner and affiliates 1,644,576 1,548,316
------------ ------------
Total liabilities 54,479,701 54,433,977
------------ ------------
Minority interest 3,261,148 3,307,079
------------ ------------
Commitments and contingencies (Note 3)
Partners' capital (deficit):
Limited partners (43,440 BACs
issued and outstanding) 27,832,627 28,429,119
General partner (108,890) (102,865)
------------ ------------
Total partners' capital (deficit) 27,723,737 28,326,254
------------ ------------
Total liabilities and partners' capital
(deficit) $85,464,586 $86,067,310
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
===========================
Three Months Ended
June 30,
---------------------------
2000 1999*
---------------------------
<S> <C> <C>
Revenues
Rental income $ 1,495,361 $ 1,251,262
Other income 84,910 103,432
------------ ------------
Total revenues 1,580,271 1,354,694
------------ ------------
Expenses
General and administrative 400,813 336,890
General and administrative-
related parties (Note 2) 215,870 206,269
Repairs and maintenance 218,949 189,898
Operating 181,117 179,613
Taxes 65,220 71,195
Insurance 90,763 100,012
Financial, principally interest 381,455 391,043
Depreciation and amortization 640,728 687,127
Cumulative effect of a change in
accounting principle - amortization
of organization costs 0 139,480
------------ ------------
Total expenses 2,194,915 2,301,527
------------ ------------
Net loss before minority
interest and extraordinary item (614,644) (946,833)
Minority interest in loss (income)
of subsidiary partnerships 12,127 (28,053)
------------ ------------
Net loss $ (602,517) $ (974,886)
============ ============
Limited Partners Share:
Net loss -limited partners $ (596,492) $ (965,137)
============ ============
Number of BACs outstanding 43,440 43,440
============ ============
Net loss per BAC $ (13.73) $ (22.22)
============ ============
</TABLE>
*Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
4
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INDEPENDENCE TAX CREDIT PLUS L.P. III
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 $28,326,254 $28,429,119 $(102,865)
Net loss - three
months ended
June 30, 2000 (602,517) (596,492) (6,025)
------------ ------------ -----------
Partners' capital -
(deficit)
June 30, 2000 $27,723,737 $27,832,627 $(108,890)
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
===========================
Three Months Ended
June 30,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(602,517) $(974,886)
------------ ------------
Adjustments to reconcile net loss to
net cash (used in) provided by operating
activities:
Depreciation and amortization 640,728 687,127
Extraordinary item-cumulative
effect of a change in accounting
principal-amortization of organization
costs 0 139,480
Minority interest in (loss) income
of subsidiaries (12,127) 28,053
Decrease in accounts
payable and other liabilities (28,343) (7,209)
Increase (decrease) in cash held
in escrow (386,205) 190,971
Decrease in other assets 107,755 330,401
Increase in due to local general
partners and affiliates 134,872 82,161
Decrease in due to local general
partners and affiliates (25,770) (92,069)
Increase due to general partner
and affiliates 96,260 94,007
------------ ------------
Total adjustments 527,170 1,452,922
------------ ------------
Net cash (used in) provided by
operating activities (75,347) 478,036
------------ ------------
</TABLE>
6
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(continued)
<TABLE>
<CAPTION>
===========================
Three Months Ended
June 30,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
Cash flows from investing activities:
Decrease (increase) in property
and equipment 3,995 (4,938)
Decrease in investments
available for sale 1,100,000 300,000
Increase in construction in progress 0 (49,136)
(Increase) decrease in cash
held in escrow (1,215,904) 19,062
Decrease in accounts payable
and other liabilities (36,611) (1,174,467)
Decrease in due to local general
partners and affiliates (261,279) (207,100)
------------ ------------
Net cash used in investing activities (409,799) (1,116,579)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgage notes 205,291 88,200
Repayments of mortgage notes (38,696) (42,030)
Proceeds from construction loans 0 90,250
Decrease in due to local general
partners and affiliates 0 (38,846)
Increase in deferred costs 0 (8,425)
Decrease in capitalization
of consolidated subsidiaries
attributable to minority interest (33,804) (12,803)
------------ ------------
Net cash provided by financing
activities 132,791 76,346
------------ ------------
Net decrease in cash and
cash equivalents (352,355) (562,197)
Cash and cash equivalents at
beginning of period 3,327,734 3,802,808
------------ ------------
Cash and cash equivalents at
end of period $2,975,379 $3,240,611
============ ============
</TABLE>
7
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
Note 1 - General
The consolidated financial statements include the accounts of Independence Tax
Credit Plus L.P. III (the "Partnership") and 20 other limited partnerships
("subsidiary partnerships", "subsidiaries" or "Local Partnerships") owning
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 III L.P., a Delaware limited
partnership (the "General Partner"). Through the rights of the Partnership
and/or an affiliate of the General Partner, which affiliate has a contractual
obligation to act on behalf of the Partnership, to remove the general partner of
the subsidiary local partnerships and to approve certain major operating and
financial decisions, the Partnership has a controlling financial interest in the
subsidiary partnerships.
For financial reporting purposes, the Partnership's fiscal quarter ends June 30,
2000. All subsidiaries have fiscal quarters ending March 31, 2000. Accounts of
the subsidiaries have been adjusted for intercompany transactions from April 1
through June 30. The Partnership's fiscal quarter ends June 30 in order to allow
adequate time for the subsidiaries financial statements to be prepared and
consolidated.
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 have been charged to the Partnership. Such losses
aggregated approximately $5,000 and $41,000 for the three months ended June 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. In consolidation, all subsidiary partnership losses are
included in the Partnership's capital account except for losses allocated to
minority interest capital.
8
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted or condensed. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K for the 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 June 30, 2000 and the results of operations and cash flows for
the three months ended June 30, 2000 and 1999. However, the operating results
for the three months ended June 30, 2000 may not be indicative of the results
for the year.
9
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 months ended June 30, 2000
and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
Partnership management fees (a) $94,033 $94,033
Expense reimbursement (b) 38,346 30,938
Local administrative fee (c) 12,000 13,000
------------ ------------
Total general and administrative-
General Partner 144,379 137,971
------------ ------------
Property management fees incurred
to affiliates of the subsidiary
partnerships' general partners (d) 71,491 68,298
------------ ------------
Total general and administrative-
related parties $215,870 $206,269
============ ============
</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 only 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 $952,000 and $858,000 were
accrued and unpaid as of June 30, 2000 and March 31, 2000, respectively. Without
the General Partner's continued allowance
10
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
of 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 allowing the accrual without payment of these amounts but
is under no obligation to continue 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 III 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 Local Partnerships amounted to $96,454
and $94,906 for the three months ended June 30, 2000 and 1999, respectively. Of
these fees $71,491 and $68,298 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 interest earned on Gross
Proceeds which are invested in tax-exempt money market instruments pending final
payments to Local Partnerships, interest earned on working capital reserves and
distributions received from Local Partnerships. All these sources of funds are
available to meet obligations of the Partnership, although none of them
generated a significant amount of cash to the Partnership.
As of June 30, 2000, the Partnership has invested all of its net proceeds in
twenty Local Partnerships of which approximately $1,768,000 remains to be paid
to the Local Partnerships (not including approximately $1,518,000 being held in
escrow). During the three months ended June 30, 2000, there were no payments to
the Local Partnerships.
For the three months ended June 30, 2000, cash and cash equivalents of the
Partnership and its twenty consolidated Local Partnerships decreased
approximately $352,000 due to cash used in operating activities ($75,000), a
decrease in capitalization of consolidated subsidiaries attributable to minority
interest ($34,000), a net decrease in due to local general partners and
affiliates relating to investing activities ($261,000), a decrease in accounts
payable and other liabilities relating to investing activities ($37,000) and an
increase in cash held in escrow ($1,216,000) which exceeded a decrease in
property and equipment ($4,000), a decrease in investments available for sale
($1,100,000) and net proceeds from mortgage notes ($167,000). Included in the
adjustments to reconcile the net loss to cash used in operating activities is
depreciation and amortization in the amount of approximately $641,000.
During three months ended June 30, 2000, the Partnership received no cash flow
distributions from operations of the Local Partnerships. Management anticipates
receiving distributions in the future, although not to a level sufficient to
permit providing cash distributions to the BACs holders. These distributions
will be set aside as working capital reserves and although not sufficient to
cover all Partnership expenses, will be used to meet the operating expenses of
the Partnership.
Partnership management fees owed to the General Partner amounting to
approximately $952,000 and $858,000 were accrued and unpaid as of June 30, 2000
and March 31, 2000, respectively (see Note 2). Without the General Partner's
continued accrual without payment of certain fees and expense reimbursements,
the Partnership will not be in a position to
12
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meet its obligations. The General Partner has continued allowing the accrual
without payment of these amounts but is under no obligation to continue do so.
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 subsidiary 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 invested the proceeds of its offering
in twenty 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, 2000
and 1999 consisted primarily of the results of the Partnership's investment in
twenty 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 by approximately 20% for the three months ended June 30,
2000 as compared to 1999 primarily due to the rentup of two Local Partnerships
and an increase in occupancy at two Local Partnerships.
13
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Other income decreased approximately $19,000 for the three months ended
June 30, 2000 as compared to 1999 primarily due to an underaccrual of interest
income at one Local Partnership in December 1998 resulting in the recognition of
additional income in three months ended June 30, 1999.
Total expenses excluding general and administrative and repairs and maintenance
remained fairly consistent with a decrease of approximately 4% for the three
months ended June 30, 2000 as compared to 1999.
General and administrative increased approximately $64,000 for the three months
ended June 30, 2000 as compared to 1999 primarily due to the rentup of one Local
Partnership and an underaccrual of accounting fees at the Partnership level.
Repairs and maintenance increased approximately $29,000 for the three months
ended June 30, 2000 as compared to 1999 primarily due to painting, carpet and
floor repairs and an increase in maintenance payroll at four Local Partnerships.
Amortization of organization costs decreased by approximately $139,000 for the
three months ended June 30, 2000 as compared to the corresponding period in 1999
due to the adoption of SOP 98-5, pursuant to which the Partnership is required
to charge all unamortized organization costs as of January 1, 1999.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
14
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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. III as adopted on December 23, 1993*
(3B) Form of Amended and Restated Agreement of Limited Partnership
of Independence Tax Credit Plus L.P. III, attached to the Prospectus as Exhibit
A**
(3C) Certificate of Limited Partnership of Independence Tax Credit
Plus L.P. III as filed on December 23, 1993*
(10A) Form of Subscription Agreement attached to the Prospectus as
Exhibit B**
(10B) Escrow Agreement between Independence Tax Credit Plus L.P. III
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
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**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 this
quarter.
16
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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. III
----------------------------------------
(Registrant)
By: RELATED INDEPENDENCE
ASSOCIATES III L.P., General Partner
By: RELATED INDEPENDENCE
ASSOCIATES III INC., General Partner
Date: August 10, 2000
By:/s/ Alan P. Hirmes
---------------------------------------------
Alan P. Hirmes,
President
(principal executive and financial officer)
Date: August 10, 2000
By:/s/ Glenn F. Hopps
---------------------------------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
