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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to
Commission File Number 0-12945
First Capital Institutional Real Estate, Ltd.-2
(Exact name of registrant as specified in its charter)
Florida 59-2313852
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, 60606-2607
Suite 700, (Zip Code)
Chicago, Illinois
(Address of principal executive offices)
(312) 207-0020
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
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 [_]
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated October 19, 1983,
included in the Partnership's Registration Statement on Form S-11, is
incorporated herein by reference in Part I of this report.
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BALANCE SHEETS
(All dollars rounded to nearest 00s)
September 30,
2002 December 31,
(Unaudited) 2001
----------------------------------------------------
ASSETS
Cash and cash equivalents 6,259,900 6,279,200
Other assets 10,100 12,900
----------------------------------------------------
$6,270,000 $6,292,100
----------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and
accrued expenses $ 98,900 $ 94,600
Due to Affiliates 14,700 4,400
Other liabilities 2,800 2,800
----------------------------------------------------
116,400 101,800
----------------------------------------------------
Partners' capital:
General Partner 79,200 79,600
Limited Partners (84,886
Units issued and
outstanding) 6,074,400 6,110,700
----------------------------------------------------
6,153,600 6,190,300
----------------------------------------------------
$6,270,000 $6,292,100
----------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 2002 (Unaudited) and the year ended
December 31, 2001
(All dollars rounded to nearest 00s)
General Limited
Partner Partners Total
-----------------------------------------------------
Partners' capital,
January 1, 2001 $78,700 $6,021,500 $6,100,200
Net income for
the year ended
December 31, 2001 900 89,200 90,100
-----------------------------------------------------
Partners' capital,
December 31, 2001 79,600 6,110,700 6,190,300
Net (loss) for the
nine months ended
September 30, 2002 (400) (36,300) (36,700)
-----------------------------------------------------
Partners' capital,
September 30, 2002 $79,200 $6,074,400 $6,153,600
-----------------------------------------------------
3
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 2002 and 2001
(Unaudited)
(All dollars rounded to nearest 00s except per Unit amounts)
2002 2001
-------------------------------------------------------
Income:
Interest $27,300 $57,300
-------------------------------------------------------
27,300 57,300
-------------------------------------------------------
Expenses:
General and administrative:
Affiliates 5,700 10,000
Nonaffiliates 25,500 36,300
-------------------------------------------------------
31,200 46,300
-------------------------------------------------------
Net (loss) income $(3,900) $11,000
-------------------------------------------------------
Net (loss) income allocated to General
Partner $ (100) $ 100
-------------------------------------------------------
Net (loss) income allocated to Limited
Partners $(3,800) $10,900
-------------------------------------------------------
Net (loss) income allocated to Limited
Partners per Unit (84,886 Units
outstanding) $ (0.04) $ 0.13
-------------------------------------------------------
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 2002 and 2001
(Unaudited)
(All dollars rounded to nearest 00s except per Unit amounts)
2002 2001
---------------------------------------------------------
Income:
Interest $ 85,000 $212,600
---------------------------------------------------------
85,000 212,600
---------------------------------------------------------
Expenses:
General and administrative:
Affiliates 15,200 17,000
Nonaffiliates 106,500 104,500
---------------------------------------------------------
121,700 121,500
---------------------------------------------------------
Net (loss) income $(36,700) $ 91,100
---------------------------------------------------------
Net (loss) income allocated to General
Partner $ (400) $ 900
---------------------------------------------------------
Net (loss) income allocated to Limited
Partners $(36,300) $ 90,200
---------------------------------------------------------
Net (loss) income allocated to Limited
Partners per Unit (84,886 Units
outstanding) $ (0.43) $ 1.06
---------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2002 and 2001
(Unaudited)
(All dollars rounded to nearest 00s)
2002 2001
---------------------------------------------------------
Cash flows from operating
activities:
Net (loss) income $ (36,700) $ 91,100
Adjustments to reconcile net
(loss) income to net cash
(used for) provided by
operating activities:
Changes in assets and
liabilities:
Decrease in other assets 2,800
Increase in accounts
payable and accrued
expenses 4,300 4,800
Increase in due to
Affiliates 10,300 4,100
Increase in other liabilities -- 1,500
---------------------------------------------------------
Net cash (used for)
provided by
operating activities (19,300) 101,500
---------------------------------------------------------
Net cash provided by
investing activities -- --
---------------------------------------------------------
Net cash from financing
activities: -- --
---------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (19,300) 101,500
Cash and cash equivalents at the
beginning of the period 6,279,200 6,187,600
---------------------------------------------------------
Cash and cash equivalents at the
end of the period $6,259,900 $6,289,100
---------------------------------------------------------
4
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2002
1. Summary of significant accounting policies:
Definition of special terms:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
Accounting policies:
The Partnership has disposed of its real estate properties. Upon resolution of
the environmental matter disclosed in Note 3 and other post-closing matters
related to the sales of the Partnership's properties, the Partnership will make
a liquidating distribution and dissolve.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP"). The Partnership
utilizes the accrual method of accounting. Under this method, revenues are
recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and nine months ended September 30, 2002 are not necessarily
indicative of the operating results for the year ending December 31, 2002.
The Partnership has one reportable segment as the Partnership is in the
disposition phase of its life cycle, wherein it is seeking to resolve
post-closing matters related to the properties sold by the Partnership.
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
Reference is made to the Partnership's Annual Report for the year ended
December 31, 2001 for a description of other accounting policies and additional
details of the Partnership's financial condition, results of operations,
changes in Partners' capital and changes in cash balances for the year then
ended. The details provided in the notes thereto have not changed except as a
result of normal transactions in the interim or as otherwise disclosed herein.
2. Related party transactions:
In accordance with the Partnership Agreement, subsequent to October 19, 1984,
the Termination of the Offering, the General Partner is entitled to 10% of Cash
Flow (as defined in the Partnership Agreement) as a Partnership Management Fee.
For the quarter and nine months ended September 30, 2002 and 2001, the General
Partner was not paid a Partnership Management Fee.
Net Profits (exclusive of Net Profits from the sale or disposition of
Partnership properties) are allocated: first, to the General Partner, in an
amount equal to the greater of the General Partner's Partnership Management Fee
or 1% of such Net Profits; second, the balance, if any, to the Limited
Partners. Net Profits from the sale or disposition of a Partnership property
are allocated: first, prior to giving effect to any distributions of Sale
Proceeds from the transaction, to the General Partner and the Limited Partners
with negative balances in their capital accounts pro rata in proportion to such
respective negative balances, to the extent of the total of such negative
balances; second, to the General Partner, in an amount necessary to make the
balance in its capital account equal to the amount of Sale Proceeds to be
distributed to the General Partner with respect to the sale or disposition of
such property and third, the balance, if any, to the Limited Partners. Net
Losses (exclusive of Net Losses from the sale, disposition or provision for
value impairment of Partnership properties) are allocated 1% to the General
Partner and 99% to the Limited Partners. Net Losses from the sale, disposition
or provision for value impairment of Partnership properties are allocated:
first, prior to giving effect to any distributions of Sale Proceeds from the
transaction, to the extent that the balance in the General Partner's capital
account exceeds its Capital Investment or the balance in the capital accounts
of the Limited Partners exceeds the amount of their Capital Investment (the
"Excess Balances"), to the General Partner and the Limited Partners pro rata in
proportion to such Excess Balances until such Excess Balances are reduced to
zero; second, to the General Partner and the Limited Partners and among them
(in the ratio which balances) until the balance in their capital accounts shall
be reduced to zero; third, the balance, if any, 99% to the Limited Partners and
1% to the General Partner. Notwithstanding the foregoing, in all events there
shall be allocated to the General Partner not less than 1% of Net Profits and
Net Losses from the sale, disposition or provision for value impairment of a
Partnership property. For the quarter and nine months ended September 30, 2002,
the General Partner was allocated Net (Losses) of $(100) and $(400),
respectively. For the quarter and nine months ended September 30, 2001, the
General Partner was allocated Net Profits of $100 and $900, respectively.
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 2002 were as follows:
Paid
--------------
Nine
Quarter Months Payable
-------------------------------------------------
Reimbursement of expenses,
at cost:
--Accounting $-- $2,500 $ 3,000
--Investor communications -- 2,400 11,700
-------------------------------------------------
$-- $4,900 $14,700
-------------------------------------------------
5
3. Environmental matter:
In 1996, the General Partner became aware of the existence of hazardous
substances in the soil and groundwater under Lakewood Square Shopping Center
("Lakewood"). In connection with the 1997 sale of Lakewood, the purchaser
assumed the obligation to remedy the hazardous substances in the manner
required by law, which includes, but is not limited to, payment of all costs in
connection with the remediation work. In addition, the purchaser provided the
Partnership with certain indemnification protection in relation to clean-up
costs and related expenses arising from the presence of these hazardous
substances. At the present time, the General Partner is unaware of any claims
or other matters referred to above against the Partnership. The purchaser has
completed the initial stage of the Remedial Action Plan which was approved by
the Los Angeles Regional Water Quality Control Board ("Water Board"). However,
there can be no assurance as to the timing of the completion of the remediation
process. The General Partner continues to monitor the documentation delivered
by the purchaser regarding the purchaser's activities to remedy the hazardous
substances at Lakewood.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Partnership's Annual Report for the year ended
December 31, 2001 for a discussion of the Partnership's business.
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
The Partnership has substantially completed the disposition phase of its life
cycle. The Partnership has sold its remaining real property investments and is
currently working toward resolution of post closing property sale matters.
Operations
Net income (loss) changed from $11,000 and $91,100 for the quarter and
nine-months ended September 30, 2001 to $(3,900) and $(36,700) for the quarter
and nine-months ended September 30, 2002, respectively. The changes were
primarily due to the decrease in interest earned on the Partnership's
short-term investments, which was due to the decrease in interest rates earned
on those investments.
Liquidity and Capital Resources
The decrease in the Partnership's cash position of $19,300 for the nine months
ended September 30, 2002 was due to net cash used for operating activities.
Liquid assets (including cash and cash equivalents) of the Partnership as of
September 30, 2002 were comprised of amounts held for the Lakewood
environmental matter (as hereafter discussed) and Partnership liquidation
expenses.
Net cash provided by (used for) operating activities changed from $101,500 for
the nine months ended September 30, 2001 to $(19,300) for the nine months ended
September 30, 2002. The change was primarily due to the decrease in net results
as previously discussed.
The Partnership has no financial instruments for which there are significant
market risks.
As described in Note 3 of Notes to Financial Statements, the Partnership is
awaiting resolution of an environmental matter at Lakewood. The General Partner
is continuing to monitor the documentation delivered by the purchaser of
Lakewood regarding the purchaser's activities to remedy the hazardous
substances at Lakewood. There can be no assurance as to the actual timeframe
for the remediation or that it will be completed without cost to the
Partnership. When the environmental matter is satisfactorily remediated, the
Partnership will pay a liquidating distribution to Partners of the remaining
assets held by the Partnership, less amounts reserved for administrative
expenses and any amounts deemed necessary for contingencies and other post
closing matters.
Item 4. Controls and Procedures.
Within the 90 days prior to the date of this Quarterly Report on Form 10-Q,
First Capital Financial, L.L.C. ("FCF"), the general partner of the
Partnership, carried out an evaluation, under supervision and with the
participation of FCF's management, including FCF's President and Chief
Executive Officer and FCF's Vice President--Finance, of the effectiveness of
the design and operation of the Partnership disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the President
and Chief Executive Officer and the Vice President--Finance concluded that the
Partnership disclosure controls and procedures are effective in timely alerting
them to material information relating to the Partnership. There have been no
significant changes to the internal controls of the Partnership or in other
factors that could significantly affect the internal controls subsequent to the
completion of this evaluation.
2
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits: 99.1: Certification Of Periodic Financial Report Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended September
30, 2002.
7
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.
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.-2
By: FIRST CAPITAL FINANCIAL LLC
GENERAL PARTNER
Date: November 13, 2002 /S/ DOUGLAS CROCKER II
By: -------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
Date: November 13, 2002 /S/ PHILIP G. TINKLER
By: -------------------------------------
PHILIP G. TINKLER
Vice President--Finance and Treasurer
8
FORM OF SECTION 302 CERTIFICATION
I, Douglas Crocker, President and Chief Executive Officer of First Capital
Financial, L.L.C., the general partner of First Capital Institutional Real
Estate, Ltd.-2, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Capital
Institutional Real Estate, Ltd.-2;
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
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 registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant'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 registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether 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.
Date: November 13, 2002
/S/ DOUGLAS CROCKER
--------------------------------------
DOUGLAS CROCKER
President and Chief Executive Officer
9
FORM OF SECTION 302 CERTIFICATION
I, Philip Tinkler, Vice President--Finance and Treasurer of First Capital
Financial, L.L.C., the general partner of First Capital Institutional Real
Estate, Ltd.-2, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Capital
Institutional Real Estate, Ltd.-2;
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
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 registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant'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 registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether 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.
Date: November 13, 2002
/S/ PHILIP TINKLER
--------------------------------------
PHILIP TINKLER
Vice President--Finance and Treasurer
10