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, 2002
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 ____
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
============= =============
June 30, March 31,
2002 2002
------------- -------------
ASSETS
Property and equipment - at cost,
less accumulated depreciation
of $15,045,912 and $14,367,307,
respectively $ 70,901,664 $ 71,576,597
Cash and cash equivalents 845,811 709,852
Cash held in escrow 5,096,232 5,200,566
Deferred costs, less accumulated
amortization of $400,034
and $385,422, respectively 827,727 842,339
Other assets 783,528 652,721
------------- -------------
Total assets $ 78,454,962 $ 78,982,075
============= =============
2
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
============= =============
June 30, March 31,
2002 2002
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Mortgage notes payable $ 43,103,208 $ 43,168,559
Construction loan payable 600,000 600,000
Accounts payable and other
liabilities 5,183,749 4,920,155
Due to local general partners and
affiliates 2,182,235 2,249,134
Due to general partner and affiliates 3,009,371 2,848,701
------------- -------------
Total liabilities 54,078,563 53,786,549
------------- -------------
Minority interest 3,436,603 3,455,741
------------- -------------
Commitments and contingencies (Note 3)
Partners' capital (deficit):
Limited partners (43,440 BACs
issued and outstanding) 21,116,526 21,908,515
General partner (176,730) (168,730)
-------------- --------------
Total partners' capital (deficit) 20,939,796 21,739,785
------------- -------------
Total liabilities and partners' capital
(deficit) $ 78,454,962 $ 78,982,075
============= =============
See accompanying notes to consolidated financial statements.
3
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
============================
Three Months Ended
June 30,
----------------------------
2002 2001
----------------------------
Revenues
Rental income $ 1,514,416 $ 1,599,113
Other income 44,509 61,601
------------- -------------
Total revenues 1,558,925 1,660,714
------------- -------------
Expenses
General and administrative 422,962 428,810
General and administrative-
related parties (Note 2) 212,330 212,470
Repairs and maintenance 307,281 282,010
Operating 196,730 287,988
Taxes 72,844 69,145
Insurance 84,545 84,243
Financial, principally interest 376,669 379,679
Depreciation and amortization 693,217 697,984
------------- -------------
Total expenses 2,366,578 2,442,329
------------- -------------
Net loss before minority
interest (807,653) (781,615)
Minority interest in loss
of subsidiary partnerships 7,664 8,984
------------- -------------
Net loss $ (799,989) $ (772,631)
============= ==============
Limited Partners Share:
Net loss -limited partners $ (791,989) $ (764,905)
============== ==============
Number of BACs outstanding 43,440 43,440
============= =============
Net loss per BAC $ (18.23) $ (17.61)
============== ==============
See accompanying notes to consolidated financial statements.
4
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DEFICIT)
(Unaudited)
======================================
Limited General
Total Partners Partner
--------------------------------------
Partners' capital -
(deficit)
April 1, 2002 $21,739,785 $21,908,515 $ (168,730)
Net loss - three
months ended
June 30, 2002 (799,989) (791,989) (8,000)
----------- ----------- ------------
Partners' capital -
(deficit)
June 30, 2002 $20,939,796 $21,116,526 $ (176,730)
=========== =========== ============
See accompanying notes to consolidated financial statements.
5
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
============================
Three Months Ended
June 30,
----------------------------
2002 2001
----------------------------
Cash flows from operating activities:
Net loss $ (799,989) $ (772,631)
------------ -------------
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 693,217 697,984
Minority interest in loss
of subsidiaries (7,664) (8,984)
Increase in accounts
payable and other liabilities 263,594 153,998
Decrease in cash held
in escrow 131,002 31,713
Increase in other assets (130,807) (229,893)
Increase in due to local general
partners and affiliates 15,536 36,448
Decrease in due to local general
partners and affiliates (6,438) (11,216)
Increase due to general partner
and affiliates 160,670 122,625
------------ -------------
Total adjustments 1,119,110 792,675
------------ -------------
Net cash provided by
operating activities 319,121 20,044
------------ -------------
Cash flows from investing activities:
Purchase of property
and equipment (3,672) 0
(Increase) decrease in cash held
in escrow (26,668) 30,313
Decrease in due to local general
partners and affiliates (75,997) (100,000)
------------ -------------
Net cash used in investing activities (106,337) (69,687)
------------ -------------
6
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(continued)
============================
Three Months Ended
June 30,
----------------------------
2002 2001
----------------------------
Cash flows from financing activities:
Repayments of mortgage notes (65,351) (41,883)
Decrease in due to local general
partners and affiliates 0 (13,072)
Decrease in capitalization
of consolidated subsidiaries
attributable to minority interest (11,474) (32,492)
------------ ------------
Net cash used in
financing activities (76,825) (87,447)
------------ ------------
Net increase (decrease) in cash and
cash equivalents 135,959 (137,090)
Cash and cash equivalents at
beginning of period 709,852 2,668,404
------------ ------------
Cash and cash equivalents at
end of period $ 845,811 $ 2,531,314
============ ============
7
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(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. 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,
2002. All subsidiaries have fiscal quarters ending March 31, 2002. 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 $6,000 for the three months ended June 30,
2002 and 2001, 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
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(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 year ended March 31, 2002.
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, 2002 and the results of operations and its cash flows
for the three months ended June 30, 2002 and 2001. However, the operating
results for the three months ended June 30, 2002 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, 2002
and 2001 were as follows:
==========================
Three Months Ended
June 30,
--------------------------
2002 2001
--------------------------
Partnership management fees (a) $ 95,500 $ 95,500
Expense reimbursement (b) 39,170 29,625
Local administrative fee (c) 15,000 14,000
------------ -----------
Total general and administrative-
General Partner 149,670 139,125
------------ -----------
Property management fees incurred
to affiliates of the subsidiary
partnerships' general partners (d) 62,660 73,345
------------ -----------
Total general and administrative-
related parties $ 212,330 $ 212,470
============ ===========
9
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
(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 $1,656,000 and $1,561,000 were
accrued and unpaid as of June 30, 2002 and March 31, 2002, respectively. Without
the General Partner's continued allowance 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 to allow 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 $101,308
and $98,819 for the three months ended June 30, 2002 and 2001, respectively. Of
these fees $62,660 and $73,345 were incurred to affiliates of the subsidiary
partnerships' general partners.
10
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
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 year ended March 30, 2002.
Lewis Street L.P.
- -----------------
In January of 1998, Lewis Street Limited Partnership ("Lewis Street") was
informed that it was a defendant in a cause of action for the alleged value of
work and services provided by Phase Three Paul for interference with contractual
relations and for fraud that was brought by the project's original developer.
The complaint seeks damages for the alleged value of work and services provided
in the amount of $296,940 and damages to reputation in the amount of at least
$1,000,000 plus unspecified punitive damages. This litigation will be vigorously
contested by the Local Partnership. Legal counsel for the Local Partnership has
indicated that the ultimate liability, if any, with respect to this possible
action cannot be determined at this time.
11
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 is interest earned on Gross Proceeds
which are invested in tax-exempt money market instruments pending final payments
to Local Partnerships. This source of funds is available to meet obligations of
the Partnership, although it does not generate a significant amount of cash to
the Partnership.
The Partnership has invested all of its net proceeds in twenty Local
Partnerships of which approximately $193,000 remains to be paid to the Local
Partnerships (not including approximately $297,000 being held in escrow).
For the three months ended June 30, 2002, cash and cash equivalents of the
Partnership and its twenty consolidated Local Partnerships increased
approximately $136,000 due to cash provided by operating activities ($319,000)
which exceeded purchases of property and equipment ($4,000), an increase in cash
held in escrow relating to investing activities ($27,000), a decrease in due to
local general partners and affiliates relating to investing activities (76,000),
repayments of mortgage notes ($65,000) and a decrease in capitalization of
consolidated subsidiaries attributable to minority interest ($11,000). Included
in the adjustments to reconcile the net loss to cash provided by operating
activities is depreciation and amortization in the amount of approximately
$693,000.
During the three months ended June 30, 2002, the Partnership received no
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 likely 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 $1,656,000 and $1,561,000 were accrued and unpaid as of June 30,
2002 and March 31, 2002, 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 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.
12
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, 2002
and 2001 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 decreased by approximately 5% for the three months ended June 30,
2002 as compared to 2001, primarily due to an underaccrual of housing rent
subsidies in 2000 at one local partnership.
13
Other income decreased approximately $17,000 for the three months ended June 30,
2002 as compared to 2001, primarily due to lower cash and cash equivalent
balances earning interest at the Partnership level as well as a decrease in
interest rates.
Total expenses, excluding operating, remained fairly consistent with an increase
of approximately 1% for the three months ended June 30, 2002 as compared to
2001.
Operating expense decreased approximately $91,000 for the three months ended
June 30, 2002 as compared to 2001, primarily due to a decrease in fuel costs at
five Local Partnerships.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
14
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*
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*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
**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
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 8, 2002
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and financial officer)
Date: August 8, 2002
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Independence Tax Credit Plus L.P. III
(the "Partnership") on Form 10-Q for the period ending June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of
Related Independence Associates III L.P., the general partner of the
Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Partnership.
/s/ Alan P. Hirmes
Alan P. Hirmes
Principal Executive Officer and Principal Financial Officer
August 8, 2002