Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
-----------------
FORM 10-K
-----------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
Registrant's telephone number, including area code: (312) 207-0020
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership
Units
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated October 19, 1983,
included in the Registrant's Registration Statement on Form S-11 (Registration
No. 2-86361), is incorporated herein by reference in Part IV of this report.
Exhibit Index--Page A-1
================================================================================
PART I
ITEM 1. BUSINESS
The registrant, First Capital Institutional Real Estate, Ltd.- 2 (the
"Partnership"), is a limited partnership organized in 1983 under the Florida
Uniform Limited Partnership Law and the business of the Partnership was to
invest primarily in existing, improved, income-producing real estate, such as
shopping centers, warehouses and office buildings, and, to a lesser extent, in
other types of income-producing real estate. During the year ended 1998, the
Partnership sold all of its remaining real property investments. The
Partnership is currently addressing post sale matters, including monitoring the
remediation of an environmental matter at one of the properties sold during
1997. Upon the successful remediation of the environmental matter and the
resolution of other post closing matters, the Partnership will make a
liquidating distribution and dissolve. Capitalized terms used in this report
have the same meaning as those terms in the Partnership's Registration
Statement.
ITEM 2. PROPERTIES
The Partnership does not currently own any property investments.
ITEM 3. LEGAL PROCEEDINGS
(a & b) The Partnership was not a party to, nor the subject of, any material
pending legal proceedings, nor were any such proceedings terminated during the
quarter ended December 31, 2002. Ordinary routine legal matters incidental to
the business which were not deemed material, were pursued during the quarter
ended December 31, 2002.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a,b,c & d) None.
2
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
There has not been, nor is there expected to be, a public market for units.
As of March 1, 2003, there were 10,968 Holders of Units.
ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
--------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Total revenues $ 108,800 $ 251,900 $ 381,000 $ 405,400 $ 6,477,900
Net (loss) income $ (47,600) $ 90,100 $ 248,900 $ 291,800 $ 7,098,600
Net (loss) income allocated to Limited Partners $ (47,100) $ 89,200 $ 246,400 $ 288,900 $ 6,883,800
Net (loss) income allocated to Limited Partners per Unit
(84,886 Units outstanding) $ (0.55) $ 1.05 $ 2.90 $ 3.40 $ 81.09
Total assets $6,239,300 $6,292,100 $6,188,900 $5,996,300 $19,116,600
Declared distributions to Limited Partners per Unit
(84,886 Units outstanding) (a) None None None None $ 262.36
Return of capital to Limited Partners per Unit (84,886
Units outstanding) (b) None None None None $ 181.27
- -----------------------------------------------------------------------------------------------------------------
a) Distributions to Limited Partners per Unit for the year ended December 31,
1998 included property sale proceeds of $247.36 respectively.
b) For the purposes of this table, return of capital represents either: 1) the
amount by which distributions, if any, exceed net income for the respective
year or 2) total distributions, if any, when the Partnership incurs a net
loss for the respective year. Pursuant to the Partnership Agreement, Capital
Investment is only reduced by distributions of Sale Proceeds. Accordingly,
return of capital as used in the above table does not impact Capital
Investment.
3
ITEM 6. SELECTED FINANCIAL DATA (Continued)
The following table includes a reconciliation of Cash (Deficit) Flow (as
defined in the Partnership Agreement) to cash flow (used for) provided by
operating activities as determined by accounting principles generally accepted
in the United States ("GAAP"):
For the Years Ended December 31,
----------------------------------------------------------
2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Cash (Deficit) Flow (as defined in the Partnership
Agreement) (a) $(47,600) $ 90,100 $ 248,900 $ 291,800 $ 1,477,900
Items of reconciliation:
(Cash Flow) from joint venture (453,100)
Changes in current assets and liabilities:
Decrease (increase) in current assets 4,200 (11,600) 34,500 2,200 64,400
(Decrease) increase in current liabilities (5,200) 13,100 (56,300) (50,900) (133,200)
- ----------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by operating activities $(48,600) $ 91,600 $ 227,100 $ 243,100 $ 956,000
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities -- -- $2,943,000 $ (294,300) $ 21,546,500
- ----------------------------------------------------------------------------------------------------------------
Net cash (used for) financing activities -- -- -- $(13,361,200) $(17,868,500)
- ----------------------------------------------------------------------------------------------------------------
a) Cash (Deficit) Flow is defined in the Partnership Agreement as Partnership
revenues earned from operations (excluding tenant deposits and proceeds from
the sale or disposition of any Partnership properties), minus all expenses
incurred (including Operating Expenses and any reserves of revenues from
operations deemed reasonably necessary by the General Partner), except
depreciation and amortization expenses and capital expenditures, lease
acquisition expenditures and the General Partner's Partnership Management
Fee.
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing on pages A-1 through A-6.
4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The ordinary business of the Partnership is expected to pass through three
phases: (i) offering of Units and investment in properties, (ii) operation of
properties and (iii) sale or other disposition of properties.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements can be identified by the use of forward-looking terminology such as
"believes", "expects", "prospects", "estimated", "should", "may" or the
negative thereof or other variations thereon or comparable terminology
indicating the Partnership's expectations or beliefs concerning future events.
The Partnership cautions that such statements are qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements. These risks and uncertainties should be considered
in evaluating forward-looking statements and undue reliance should not be
placed on such statements.
The Partnership is in the disposition phase of its life cycle and no longer
receives income generated from real property interests.
Operations
Comparison of the year ended December 31, 2002 to the year ended December 31,
2001
Net income (loss) changed from $90,100 for the year ended December 31, 2001 to
$(47,600) for the year ended December 31, 2002. The change was primarily due to
a decrease in interest earned on the Partnership's short-term investments,
which was due to a decrease in the rates earned on those investments.
Comparison of the year ended December 31, 2001 to the year ended December 31,
2000
Net income decreased by $158,800 for the year ended December 31, 2001 when
compared to the year ended December 31, 2000. The decrease was primarily due to
a decrease in interest earned on the Partnership's short-term investments,
which was due to a decrease in the rates earned on those investments.
Liquidity and Capital Resources
The decrease in the Partnership's cash position of $48,600 for the year ended
December 31, 2002 was the result of net cash used for operating activities.
Liquid assets (including cash and cash equivalents) of the Partnership as of
December 31, 2002 were comprised of amounts reserved for the Lakewood Square
Shopping Center ("Lakewood") (sold in 1997) environmental matter (as hereafter
discussed) and Partnership liquidation expenses.
Net cash provided by (used for) operating activities changed from $91,600 for
the year ended December 31, 2001 to $(48,600) for the year ended December 31,
2002. The change was primarily the result of the decrease in net income, as
previously discussed.
The Partnership has no financial instruments for which there are significant
market risks.
As described in Note 3 of the 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. As a result of this, it will be necessary for the Partnership to
remain in existence and maintain a reserve for any such costs. When the
environmental matter at Lakewood is remediated to the satisfaction of the
Partnership, Limited Partners will receive a final liquidating distribution of
the remaining cash held by the Partnership, less amounts reserved for
administrative expenses and any amounts deemed necessary to resolve, or provide
for, any post-closing matters.
5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report.
See page A-1 "Index of Financial Statements, Schedules and Exhibits."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
6
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) & (e) DIRECTORS
The Partnership has no directors. First Capital Financial, L.L.C. ("General
Partner") (formerly known as First Capital Financial Corporation) is the
general partner of the Partnership. The directors as of March 1, 2003, are
shown in the table below. Directors serve for one year or until their
successors are elected. The next annual meeting of the General Partner will be
held in June 2003.
Name Office
---- --------
Donald J. Liebentritt.... Director
Donald J. Liebentritt, 52, has been President and Chief Executive Officer since
December 2002, a Director since May 2000 and was a Vice President from May 2000
until December 2002. Mr. Liebentritt is President of Equity Group Investments,
L.L.C. ("EGI"), Vice President and Assistant Secretary of Great American
Management and Investment, Inc. ("Great American") and was Principal and
Chairman of Rosenberg and Liebentritt P.C. until its dissolution in 1999.
(b) & (e) EXECUTIVE OFFICERS
The Partnership does not have any executive officers. The executive officers of
the General Partner as of March 1, 2003 are shown in the table. All officers
are elected to serve for one year or until their successors are elected and
qualified.
Name Office
---- ------
Donald J. Liebentritt... President and Chief Executive Officer
Philip Tinkler.......... Vice President--Finance and Treasurer
Donald J. Liebentritt- See Table of Directors above.
Philip Tinkler, 38, has been Vice President of Finance and Treasurer of the
General Partner since April 2001, has been Vice President/ Assistant Treasurer
of Great American since March 2001, and has been Treasurer and Vice President
of Accounting for EGI since May 2000. Mr. Tinkler has been Chief Financial
Officer of Danielson Holding Company since January 2003.
(d) FAMILY RELATIONSHIPS
There are no family relationships among any of the foregoing directors and
officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
There are no involvements in certain legal proceedings among any of the
foregoing directors and officers.
ITEM 11. EXECUTIVE COMPENSATION
(a,b,c,d,g,h,i,j and k) As stated in Item 10, the Partnership has no officers
or directors. Neither the General Partner, nor any director or
officer of the General Partner, received any direct
remuneration from the Partnership during the year ended
December 31, 2002. However, Affiliates of the General Partner
do compensate the directors and officers.
For additional information see Item 13 (a) Certain Relationships and Related
Transactions.
(e and f) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
Equity Compensation Plans
As stated in Item 10, the Partnership has no officers or directors. Neither the
Partnership nor the General Partner maintains an Equity Compensation Plan.
Security Ownership
(a)As of March 1, 2003, no person owned of record or was known by the
Partnership to own beneficially more than 5% of the Partnership's 84,886
Units then outstanding.
(b)The Partnership has no directors or executive officers. As of March 1, 2003,
the executive officers and directors of the General Partner, as a group, did
not own any Units.
(c)None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a)Affiliates of the General Partner were entitled to compensation and
reimbursements of $24,000 from the Partnership for investor communications
and accounting services. Compensation for these services are on terms which
are fair, reasonable and no less favorable to the Partnership than
reasonably could be obtained from unaffiliated persons. As of December 31,
2002, there were no fees and reimbursements due to affiliates.
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
7
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 year ended December 31, 2002, the General
Partner was not paid a Partnership Management Fee, and was allocated Net
Losses of $500.
(b) None.
(c) No management person is indebted to the Partnership.
(d) None.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this Annual Report on Form 10-K, the
General Partner carried out an evaluation, under supervision and with the
participation of the General Partner's management, including the General
Partner's President and Chief Executive Officer and the General Partner'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.
8
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a,c&d) (1,2&3) See Index of Financial Statements, Schedule and Exhibits on
page A-1 of Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the quarter ended December 31,
2002.
9
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.
FIRST CAPITAL INSTITUTIONAL REAL
ESTATE, LTD.--2
BY: FIRST CAPITAL FINANCIAL LLC
GENERAL PARTNER
Dated: March 28, 2003
By: /s/ DONALD J. LIEBENTRITT
-----------------------------
DONALD J. LIEBENTRITT
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/S/ DONALD J. LIEBENTRITT March 28, 2003 President, Chief Executive Officer and
- -------------------------- Director of the General Partner
DONALD J. LIEBENTRITT
/s/ PHILIP TINKLER March 28, 2003 Vice President--Finance and Treasurer
- --------------------------
PHILIP TINKLER
10
INDEX OF FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Pages
--------------------------------------------------- ----------
Report of Independent Auditors A-2
Balance Sheets as of December 31, 2002 and 2001 A-3
Statements of Partners' Capital for the Years Ended
December 31, 2002, 2001 and 2000 A-3
Statements of Income and Expenses for the Years
Ended December 31, 2002, 2001 and 2000 A-4
Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000 A-4
Notes to Financial Statements A-5 to A-6
--------------------------------------------------- ----------
SCHEDULES FILED AS PART OF THIS REPORT
All schedules have been omitted as inapplicable, or for the reason that the
required information is shown in the financial statements or notes thereto.
EXHIBITS FILED AS PART OF THIS REPORT
EXHIBITS (3 & 4) First Amended and Restated Certificate and Agreement of
Limited Partnership as set forth on pages A-1 through A-31 of the Partnership's
definitive Prospectus dated October 19, 1983; Registration Statement No.
2-86361, filed pursuant to Rule 424 (b), is incorporated herein by reference.
EXHIBIT (13) Annual Report to Security Holders
The 2002 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
Commission.
EXHIBIT (99.1) Certification of Periodic Financial Report Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
A-1
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Institutional Real Estate, Ltd.--2
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Institutional
Real Estate, Ltd.--2 as of December 31, 2002 and 2001, and the related
statements of income and expenses, partners' capital and cash flows for each of
the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Institutional
Real Estate, Ltd.--2 at December 31, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States.
Chicago, Illinois
February 28, 2003
A-2
BALANCE SHEETS
December 31, 2002 and 2001
(All dollars rounded to nearest 00s)
2002 2001
------------------------------- ---------- ----------
ASSETS
Cash and cash equivalents $6,230,600 $6,279,200
Other assets 8,700 12,900
------------------------------- ---------- ----------
$6,239,300 $6,292,100
------------------------------- ---------- ----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued
expenses $ 93,800 $ 94,600
Due to Affiliates -- 4,400
Other liabilities 2,800 2,800
------------------------------- ---------- ----------
96,600 101,800
------------------------------- ---------- ----------
Partners' capital:
General Partner 79,100 79,600
Limited Partners (84,886 Units
issued and outstanding) 6,063,600 6,110,700
------------------------------- ---------- ----------
6,142,700 6,190,300
------------------------------- ---------- ----------
$6,239,300 $6,292,100
------------------------------- ---------- ----------
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 2002, 2001 and 2000
(All dollars rounded to nearest 00s)
General Limited
Partner Partners Total
----------------------- ------- ---------- ----------
Partners' capital,
January 1, 2000 $76,200 $5,775,100 $5,851,300
Net income for the year
ended December 31,
2000 2,500 246,400 248,900
----------------------- ------- ---------- ----------
Partners' capital,
December 31, 2000 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 year
ended December 31,
2002 (500) (47,100) (47,600)
----------------------- ------- ---------- ----------
Partners' capital,
December 31, 2002 $79,100 $6,063,600 $6,142,700
----------------------- ------- ---------- ----------
The accompanying notes are an integral part of the financial statements.
A-3
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 2002, 2001 and 2000
(All dollars rounded to nearest 00s except per Unit amounts)
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Income:
Interest $108,800 $251,900 381,000
- ---------------------------------------------------------------------------------------------------------------
108,800 251,900 381,000
- ---------------------------------------------------------------------------------------------------------------
Expenses:
General and administrative:
Affiliates 24,000 28,700 9,400
Nonaffiliates 132,400 133,100 122,700
- ---------------------------------------------------------------------------------------------------------------
156,400 161,800 132,100
- ---------------------------------------------------------------------------------------------------------------
Net (loss) income $(47,600) $ 90,100 $248,900
- ---------------------------------------------------------------------------------------------------------------
Net (loss) income allocated to General Partner $ (500) $ 900 $ 2,500
- ---------------------------------------------------------------------------------------------------------------
Net (loss) income allocated to Limited Partners $(47,100) $ 89,200 $246,400
- ---------------------------------------------------------------------------------------------------------------
Net (loss) income allocated to Limited Partners per Unit (84,886 Units outstanding) $ (0.55) $ 1.05 $ 2.90
- ---------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2002, 2001 and 2000
(All dollars rounded to nearest 00s)
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income $ (47,600) $ 90,100 $ 248,900
Adjustments to reconcile net (loss) income to net cash (used for) provided by
operating activities:
Changes in assets and liabilities:
Decrease in rents receivable -- -- 27,800
Decrease (increase) in other assets 4,200 (11,600) 6,700
(Decrease) increase in accounts payable and accrued expenses (800) 8,600 (54,500)
(Decrease) increase in due to Affiliates (4,400) 3,000 (1,800)
Increase in other liabilities -- 1,500 --
- ------------------------------------------------------------------------------------------------------------------
Net cash (used for) provided by operating activities (48,600) 91,600 227,100
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease in investments in debt securities -- -- 2,943,000
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities -- -- 2,943,000
- ------------------------------------------------------------------------------------------------------------------
Net cash from financing activities -- -- --
Net (decrease) increase in cash and cash equivalents (48,600) 91,600 3,170,100
Cash and cash equivalents at the beginning of the year 6,279,200 6,187,600 3,017,500
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $6,230,600 $6,279,200 $6,187,600
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
A-4
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
1. Organization and summary of significant accounting policies:
Definition of special terms:
Capitalized terms used in this report have the same meaning as those terms 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.
Organization:
The Partnership was formed on August 22, 1983, by the filing of a Certificate
and Agreement of Limited Partnership with the Department of State of the State
of Florida, and commenced the Offering of Units on November 10, 1983. The
Certificate and Agreement, as amended and restated, authorized the sale to the
public of up to 85,000 Units and not less than 1,400 Units pursuant to the
Prospectus. On December 5, 1983, the required minimum subscription level was
reached and Partnership operations commenced. A total of 84,886 Units were sold
prior to Termination of the Offering in October, 1984. The Partnership was
formed to invest primarily in existing, income-producing commercial real estate.
The Partnership has disposed of its real estate properties and upon resolution
of the environmental matter disclosed in Note 3, the Partnership will make a
liquidating distribution and dissolve.
The Partnership Agreement provides that the Partnership will be dissolved on or
before December 2014. The Limited Partners, by a majority vote, may dissolve
the Partnership at any time.
Accounting policies:
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 Partnership is not liable for Federal income taxes as the Partners
recognize their proportionate share of the Partnership's income or loss on
their income tax returns; therefore, no provision for Federal income taxes is
made in the financial statements of the Partnership. It is not practicable for
the Partnership to determine the aggregate tax bases of the Limited Partners;
therefore, the disclosure of the difference between the tax bases and the
reported assets and liabilities of the Partnership would not be meaningful.
Property sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation are removed from the respective accounts. Any gain or
loss on sale is recognized in accordance with GAAP.
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
The Partnership's financial statements include financial instruments, including
receivables and trade liabilities. The fair value of financial instruments,
including cash and cash equivalents, was not materially different from their
carrying values at December 31, 2002 and 2001.
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.
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 or disposition of a Partnership property. For the
years ended December 31, 2002, 2001, and 2000 the General Partner was not paid
a Partnership Management Fee. During the years ended December 31, 2002, 2001,
and 2000 the General Partner was allocated Net (Losses) Profits of $(500), $900
and $2,500, respectively.
A-5
Fees and reimbursements paid and payable by the Partnership to Affiliates for
the years ended December 31, were as follows:
For the Years Ended December 31,
- - -----------------------------------------------
2002 2001 2000
--------------- --------------- ---------------
Paid Payable Paid Payable Paid Payable
- ----------------------------------------------------------------------------------
Reimbursement of expenses, at cost
--Accounting $ 7,000 None $ 2,000 None $ 3,400 None
--Investor communication 21,400 None 23,700 4,400 7,800 1,400
- ----------------------------------------------------------------------------------
$28,400 None $25,700 $4,400 $11,200 $1,400
- ----------------------------------------------------------------------------------
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. However, there can be no
assurance as to the timing of successful completion of the Plan. The General
Partner continues to monitor the documentation delivered by the purchaser
regarding the purchaser's activities to remedy the hazardous substances at
Lakewood.
A-6
FORM OF SECTION 302 CERTIFICATION
I, Donald J. Liebentritt, President and Chief Executive Officer of First
Capital Financial, L.L.C., the managing general partner of First Capital
Institutional Real Estate, Ltd.--2, certify that:
1. I have reviewed this annual report on Form 10-K of First Capital
Institutional Real Estate, Ltd.--2;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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
annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: March 28, 2003
/s/ Donald J. Liebentritt
-----------------------------
Donald J. Liebentritt
President and Chief Executive
Officer
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 annual report on Form 10-K of First Capital
Institutional Real Estate, Ltd.--2;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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
annual 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
annual 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: March 28, 2003
/s/ Philip Tinkler
-----------------------------
Philip Tinkler
Vice President--Finance and
Treasurer