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 December 31, 2002
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 33-89968
INDEPENDENCE TAX CREDIT PLUS L.P. IV
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3809869
- ------------------------------- ---------------------
(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. IV
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
============ ============
December 31, March 31,
2002 2002
------------ ------------
(Unaudited)
ASSETS
Property and equipment - at cost,
net of accumulated depreciation
of $11,296,525 and $9,458,063,
respectively $ 70,090,507 $ 71,923,788
Cash and cash equivalents 1,908,801 2,461,056
Cash held in escrow 3,449,765 3,087,693
Deferred costs, net of accumulated
amortization of $378,913 and
$311,350, respectively 800,203 867,766
Other assets 641,801 425,486
------------ ------------
Total assets $ 76,891,077 $ 78,765,789
============ ============
2
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(continued)
============ ============
December 31, March 31,
2002 2002
------------ ------------
(Unaudited)
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Mortgage notes payable $ 36,583,321 $ 36,739,830
Accounts payable and other
liabilities 7,355,005 6,663,234
Due to local general partners and
affiliates 2,540,668 2,777,814
Due to general partner and affiliates 1,562,992 1,346,115
------------ ------------
Total liabilities 48,041,986 47,526,993
------------ ------------
Minority interest 2,102,363 2,244,151
------------ ------------
Partners' capital (deficit):
Limited partners (45,844 BACs
issued and outstanding) 26,886,794 29,112,232
General partner (140,066) (117,587)
------------ ------------
Total partners' capital (deficit) 26,746,728 28,994,645
------------ ------------
Total liabilities and partners'
capital (deficit) $ 76,891,077 $ 78,765,789
============ ============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
========================== ===========================
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- ---------------------------
2002 2001* 2002 2001*
-------------------------- ---------------------------
Revenues
Rental income $ 1,405,711 $ 1,352,080 $ 4,172,842 $ 4,076,077
Other income
(principally
interest) 52,637 55,078 170,798 218,819
----------- ----------- ----------- -----------
Total revenues 1,458,348 1,407,158 4,343,640 4,294,896
----------- ----------- ----------- -----------
Expenses
General and
administrative 365,266 374,460 1,137,010 1,088,030
General and
administrative-
related parties 144,718 138,917 437,543 431,659
Repairs and
maintenance 229,055 229,672 701,370 764,043
Operating 166,191 151,950 495,405 543,164
Taxes 37,388 37,340 121,327 119,677
Insurance 75,015 70,180 189,778 186,364
Interest 539,316 653,164 1,621,609 1,964,003
Depreciation and
amortization 635,540 620,124 1,906,025 1,871,557
----------- ----------- ----------- -----------
Total expenses 2,192,489 2,275,807 6,610,067 6,968,497
----------- ----------- ----------- -----------
Loss before
minority
interest (734,141) (868,649) (2,266,427) (2,673,601)
Minority interest in
loss of subsidiary
partnerships 2,572 6,463 18,510 19,788
----------- ----------- ----------- -----------
Net loss $ (731,569) $ (862,186) $(2,247,917) $(2,653,813)
=========== =========== =========== ===========
Net loss - limited
partners $ (724,253) $ (853,564) $(2,225,438) $(2,627,275)
=========== =========== =========== ===========
Number of BACs
outstanding 45,844 45,844 45,844 45,844
=========== =========== =========== ===========
Net loss per BAC $ (15.79) $ (18.62) $ (48.54) $ (57.31)
=========== =========== =========== ===========
*Reclassified for comparative purposes.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARIES
Consolidated Condensed Statement of Changes in Partners'
Capital (Deficit)
For the Nine Months Ended December 31, 2002
(Unaudited)
===========================================
Limited General
Total Partners Partner
-------------------------------------------
Partners' capital
(deficit) - April 1,
2002 $ 28,994,645 $ 29,112,232 $ (117,587)
Net loss (2,247,917) (2,225,438) (22,479)
------------ ------------ ------------
Partners' capital
(deficit) -
December 31, 2002 $ 26,746,728 $ 26,886,794 $ (140,066)
============ ============ ============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
=============================
Nine Months Ended
December 31,
-----------------------------
2002 2001*
-----------------------------
Cash flows from operating activities:
Net loss $(2,247,917) $(2,653,813)
----------- -----------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 1,906,025 1,871,557
Minority interest in loss of
subsidiary partnerships (18,510) (19,788)
Increase in cash held in escrow (362,072) (295,907)
Increase in other assets (216,315) (198,978)
Increase in accounts payable
and other liabilities 691,771 864,359
Increase in due to local general
partners and affiliates 0 7,213
Decrease in due to local general
partners and affiliates (39,770) (90,113)
Increase in due to general
partner and affiliates 216,877 33,105
----------- -----------
Total adjustments 2,178,006 2,171,448
----------- -----------
Net cash used in operating activities (69,911) (482,365)
----------- -----------
6
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(continued)
=============================
Nine Months Ended
December 31,
-----------------------------
2002 2001*
-----------------------------
Cash flows from investing activities:
Increase in property and equipment (5,181) (28,388)
Increase in cash held in escrow 0 (30,000)
Increase in due to local general
partners and affiliates 120,797 41,319
Decrease in due to local general
partners and affiliates (318,173) (59,095)
----------- -----------
Net cash used in investing activities (202,557) (76,164)
----------- -----------
Cash flows from financing activities:
Proceeds from mortgage notes 0 546,225
Principal reduction of mortgage notes (156,509) (119,172)
Repayment of construction loans 0 (545,374)
Increase in deferred costs 0 (60,013)
Decrease in capitalization of
consolidated subsidiaries
attributable to minority interest (123,278) (1,714)
----------- -----------
Net cash used in financing
activities (279,787) (180,048)
----------- -----------
Net decrease in cash and cash
equivalents (552,255) (738,577)
Cash and cash equivalents at
beginning of period 2,461,056 3,705,003
----------- -----------
Cash and cash equivalents at
end of period $ 1,908,801 $ 2,966,426
=========== ===========
Supplemental disclosures of
noncash financing activities
Conversion of construction loans
to mortgage notes $ 0 $ 545,374
* Reclassified for comparative purposes.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
7
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002
(Unaudited)
Note 1 - General
The consolidated financial statements include the accounts of Independence Tax
Credit Plus L.P. IV (the "Partnership") and fourteen other limited partnerships
("subsidiary partnerships", "subsidiaries" or "Local Partnerships") owning
affordable apartment complexes that are eligible for the low-income housing tax
credit, some of which apartment complexes may also be eligible for the historic
rehabilitation tax credit. The general partner of the Partnership is Related
Independence L.L.C., a Delaware limited liability company (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 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 December
31. All subsidiaries have fiscal quarters ending September 30. Accounts of the
subsidiaries have been adjusted for intercompany transactions from October 1
through December 31. The Partnership's fiscal quarter ends December 31 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.
Increase (decrease) 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 $1,000 and $2,000, $5,000 and $7,000 for the three and
nine months ended December 31, 2002 and 2001, respectively. The Partnership's
8
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002
(Unaudited)
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.
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 December 31, 2002, its results of operations for the three and
nine months ended December 31, 2002 and 2001 and its cash flows for the nine
months ended December 31, 2002 and 2001. However, the operating results for the
nine months ended December 31, 2002 may not be indicative of the results for the
entire year.
9
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002
(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 nine months ended
December 31, 2002 and 2001 were as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- -------------------
2002 2001 2002 2001
-------------------- -------------------
Partnership manage-
ment fees (a) $ 84,280 $ 83,742 $252,840 $251,226
Expense reimburse-
ment (b) 26,027 25,250 82,951 86,564
Local administrative
fee (c) 12,000 11,000 36,000 33,000
-------- -------- -------- --------
Total general and
administrative-
General Partner 122,307 119,992 371,791 370,790
-------- -------- -------- --------
Property manage-
ment fees incurred
to affiliates of the
subsidiary
partnerships'
general
partners (d) 22,411 18,925 65,752 60,869
-------- -------- -------- --------
Total general and
administrative-
related parties $144,718 $138,917 $437,543 $431,659
======== ======== ======== ========
(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
10
INDEPENDENCE TAX CREDIT PLUS L.P. IV
AND SUBSIDIARIES
Notes to Financial Statements
December 31, 2002
(Unaudited)
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 $1,208,000 and $955,000 were accrued and unpaid as of December 31,
2002 and March 31, 2002, respectively.
(b) The Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses incurred by the General Partner and its
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement. Another
affiliate of the General Partner performs asset monitoring for the Partnership.
These services include site visits and evaluations of the subsidiary
partnerships' performance.
(c) Independence SLP IV 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
$84,472, $82,071, $252,029 and $253,906 for the three and nine months ended
December 31, 2002 and 2001, respectively. Of these fees, $22,411, $18,925,
$65,752 and $60,869 were incurred to affiliates of the subsidiary partnerships'
general partners.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary sources of funds, in addition to operations, include
(i) interest earned on Gross Proceeds which are invested in tax-exempt money
market instruments pending final payments to Local Partnerships and (ii) working
capital reserves and interest earned thereon. All these sources of funds are
available to meet obligations of the Partnership.
As of December 31, 2002, the Partnership has invested approximately $37,814,000
(including approximately $1,161,000 classified as a loan repayable from
sale/refinancing proceeds in accordance with the Contribution Agreement, which
has been eliminated in consolidation, and not including acquisition fees of
approximately $1,771,000) of net proceeds in fourteen Local Partnerships of
which approximately $1,720,000 remains to be paid to the Local Partnerships
(including approximately $741,000 being held in escrow) as certain benchmarks,
such as occupancy level, must be attained prior to the release of the funds.
During the nine months ended December 31, 2002, approximately $109,000 was paid
to the Local Partnerships (none of which was released from escrow).
For the nine months ended December 31, 2002, cash and cash equivalents of the
Partnership and its fourteen consolidated Local Partnerships decreased by
approximately $552,000. This decrease was due to cash used in operations
($70,000), an increase in property and equipment ($5,000), principal reduction
of mortgage notes ($157,000) a net decrease in due to local general partners and
affiliates relating to investing activities ($197,000) and a decrease in
capitalization of consolidated subsidiaries attributed to minority interest
($123,000). Included in the adjustments to reconcile the net loss to cash used
in operating activities is depreciation and amortization of approximately
$1,906,000.
The Partnership has established a working capital reserve from funds available
for investment, which includes amounts which may be required for potential
purchase price adjustments based on tax credit adjustor clauses. At December 31,
2002, there is approximately $251,000 in the working capital reserves. The
General Partner believes that these reserves, plus any cash distributions
received from the operations of the Local Partnerships, will be sufficient to
fund the Partnership's ongoing operations for the foreseeable future not
including fees owed to the General Partner. Cash distributions from the Local
Partnerships will be relatively immaterial. During the nine months ended
12
December 31, 2002, there have been no cash distributions received from the Local
Partnerships.
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 tax credits will be attached to the project for a
period of ten years, and will be 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 is not included
in the financial statement carrying amount.
Results of Operations
- ---------------------
The results of operations for the three and nine months ended December 31, 2002
and 2001 continued to be in the form of rental income with corresponding
expenses divided among operations, depreciation and mortgage interest.
Rental income increased approximately 4% and 2% for the three and nine months
ended December 31, 2002 as compared to the corresponding periods in 2001,
primarily due to rental rate increases.
Other income decreased approximately $2,000 and $48,000 for the three and nine
months ended December 31, 2002 as compared to the corresponding periods in 2001,
primarily due to smaller cash and cash equivalent balances earning interest at
the Partnership level as well as a decrease in transfer fees at the Partnership
level.
Total expenses, excluding interest, remained fairly consistent, with an increase
of approximately 2% and decrease of less than 1% for the three and nine months
ended December 31, 2002 as compared to the corresponding periods in 2001.
Interest expense decreased approximately $114,000 and $342,000 for the three and
nine months ended September 2002 as compared to the corresponding periods in
2001, primarily due to overaccruals at two Local Partnerships in 2001.
13
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
Item 4. Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of Related Independence
L.L.C. which is the General Partner of Independence Tax Credit Plus L.P. IV (the
"Partnership"), has evaluated the Partnership's disclosure controls and
procedures relating to the Partnership's quarterly report on Form 10-Q for the
period ended December 31, 2002 as filed with the Securities and Exchange
Commission and has judged such controls and procedures to be effective as of
December 31, 2002 (the "Evaluation Date").
There have been no significant changes in the internal controls or in other
factors that could significantly affect internal controls relating to the
Partnership since the Evaluation Date.
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
(4) Form of Amended and Restated Agreement of Limited Partnership of
the Partnership (attached to the Prospectus as Exhibit A)*
(10A) Form of Subscription Agreement (attached to the Prospectus as
Exhibit B)*
(10B) Form of Escrow Agreement between the Partnership and the
Escrow Agent**
(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 by reference to the final Prospectus as filed
pursuant to Rule 424 under the Securities Act of 1933.
** Filed as an exhibit to the Registration Statement on Form S-11
of the Partnership (File No. 33-89968) and incorporated herein by reference
thereto.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. IV
------------------------------------
(Registrant)
By: RELATED INDEPENDENCE L.L.C.,
General Partner
Date: February 5, 2003
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Member
(principal executive and financial officer)
Date: February 5, 2003
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
CERTIFICATION
I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of
Related Independence L.L.C. (the "General Partner"), which is the General
Partner of Independence Tax Credit Plus L.P. IV (the "Partnership"), hereby
certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ended
December 31, 2002 of the Partnership;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15-d-14)
for the Partnership and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Partnership is made known to me,
particularly during the period in which this quarterly report was being
prepared;
b) evaluated the effectiveness of the Partnership's disclosure controls
and procedures as of December 31, 2002 (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
Partnership's auditors and to the Board of Directors of the General
Partner:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Partnership's ability to
record, process, summarize and report financial data and have
identified for the Partnership's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Partnership's
internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
February 5, 2003
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. IV
(the "Partnership") on Form 10-Q for the period ended December 31, 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 L.L.C. which is 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.
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and Chief Financial Officer
February 5, 2003