10-Q 1 d10q.txt FORM 10-Q -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 --------------- FORM 10-Q --------------- [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JUNE 30, 2001 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) TWO NORTH RIVERSIDE PLAZA, SUITE 600, 60606-2607 CHICAGO, ILLINOIS (ZIP CODE) (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. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- BALANCE SHEETS (All dollars rounded to nearest 00s)

~~March~~June 3130, 2001 December 31, (Unaudited) 2000 --------------------------------------------------- ASSETS Cash and cash equivalents $6,~~255~~275,~~500~~600 $6,187,600 Other assets 1,300 1,300 --------------------------------------------------- $6,~~256~~276,~~800~~900 $6,188,900 --------------------------------------------------- LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses $ ~~102~~87,~~100~~600 $ 86,000 Due to Affiliates 26,~~100~~200 1,400 Other liabilities 2,800 1,300 --------------------------------------------------- ~~107~~96,~~000~~600 88,700 --------------------------------------------------- Partners' capital: General Partner 79,~~200~~500 78,700 Limited Partners (84,886 Units issued and outstanding) 6,~~070~~100,~~600~~800 6,021,500 --------------------------------------------------- 6,~~149~~180,~~800~~300 6,100,200 --------------------------------------------------- $6,~~256~~276,~~800~~900 $6,188,900 ---------------------------------------------------

STATEMENTS OF PARTNERS' CAPITAL For the six months ended June 30, 2001 (Unaudited) and the year ended December 31, 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 ~~quarter~~six months ended ~~March~~June 3130, 2001 ~~500~~800 4979,~~100~~300 4980,~~600~~100 ------------------------------------------------------------------------------ Partners' capital, ~~March~~June 3130, 2001 $79,~~200~~500 $6,~~070~~100,~~600~~800 $6,~~149~~180,~~800~~300 ------------------------------------------------------------------------------

The accompanying notes are an integral part of the financial statements 3 STATEMENTS OF INCOME AND EXPENSES For the quarters ended June 30, 2001 and 2000 (Unaudited) (All dollars rounded to nearest 00s except per Unit amounts)

2001 2000 -------------------------------------------------------------------------- Income: Interest $8569,~~900~~400 $9291,~~700~~200 -------------------------------------------------------------------------- Expenses: General and administrative: Affiliates 15,~~800~~200 2,~~900~~800 Nonaffiliates 3432,600 28,500 -------------------------------------------------------------------------- 37,~~600~~800 31,300 -------------------------------------------------------------------------- 36Income before state income tax expense 31,~~300~~600 4059,~~500~~900 State income tax expense 1,100 1,900 -------------------------------------------------------------------------- Net income $4930,~~600~~500 $5258,~~200~~000 -------------------------------------------------------------------------- Net income allocated to General Partner $ ~~500~~300 $ ~~500~~600 -------------------------------------------------------------------------- Net income allocated to Limited Partners $4930,~~100~~200 $5157,~~700~~400 -------------------------------------------------------------------------- Net income allocated to Limited Partners per Unit (84,886 Units outstanding) $ 0.5836 $ 0.6168 --------------------------------------------------------------------------

STATEMENTS OF INCOME AND EXPENSES For the six months ended June 30, 2001 and 2000 (Unaudited) (All dollars rounded to nearest 00s except per Unit amounts)

2001 2000 ----------------------------------------------------------------------------- ~~Cash flows from operating activities~~Income: ~~Net~~Interest ~~income~~ $ 49155,~~600~~300 $ 52183,~~200~~900 ~~Adjustments~~---------------------------------------------------------------------------- ~~to reconcile net income to net cash provided by operating activities~~Expenses: ~~Changes~~General ~~in assets~~ and ~~liabilities~~administrative: ~~Increase~~Affiliates ~~(decrease) in accounts payable and accrued expenses 16~~7,~~100~~000 ~~(26~~5,~~200) Increase (decrease) in due to Affiliates~~ 700 (3Nonaffiliates 64,~~000)~~900 ~~Increase (decrease) in other liabilities 1~~66,~~500~~100 -- --------------------------------------------------------------------------~~---~~ ~~Net cash provided by operating activities 67~~71,900 2371,~~000~~800 ----------------------------------------------------------------------------- ~~Cash~~Income ~~flows~~before ~~from~~state ~~investing~~income ~~activities:~~tax ~~Decrease~~expense in83,400 ~~investments~~112,100 inState ~~debt~~income ~~securities~~tax --expense 983,~~100~~300 1,900 ----------------------------------------------------------------------------- Net ~~cash~~income ~~provided~~$ ~~by investing activities -- 98~~80,100 $110,200 ----------------------------------------------------------------------------- Net ~~cash~~income ~~from~~allocated ~~financing~~to ~~activities~~General --Partner --$ 800 $ 1,100 ----------------------------------------------------------------------------- Net ~~increase~~income inallocated ~~cash~~to ~~and~~Limited ~~cash~~Partners ~~equivalents~~$ 6779,~~900~~300 ~~121~~$109,100 ~~Cash and cash equivalents at the beginning of the period 6,187,600 3,017,500~~ ----------------------------------------------------------------------------- ~~Cash~~Net ~~and~~income ~~cash~~allocated ~~equivalents~~to atLimited ~~the~~Partners ~~end~~per ofUnit ~~the~~(84,886 ~~period~~Units outstanding) $~~6,255,500~~ 0.93 $~~3,138,600~~ 1.29 -----------------------------------------------------------------------------

STATEMENTS OF CASH FLOWS For the six months ended June 30, 2001 and 2000 (Unaudited) (All dollars rounded to nearest 00s)

~~Paid~~2001 ~~Payable~~2000 ----------------------------------------------------------------------------- ~~Reimbursement~~Cash offlows from operating activities: Net income $ 80,100 $ 110,200 Adjustments to reconcile net income to net cash provided by operating activities: Changes in assets and liabilities: Increase (decrease) in accounts payable and accrued expenses 1,600 at(9,800) ~~cost~~Increase (decrease) in due to Affiliates 4,800 (2,900) Increase in other liabilities 1,500 ----------------------------------------------------------------------------- Net cash provided by operating activities 88,000 97,500 ----------------------------------------------------------------------------- Cash flows from investing activities: Decrease in investments in debt securities 2,943,000 --~~Investor~~--------------------------------------------------------------------------- ~~communications~~Net cash provided by investing activities -- 2,943,000 ----------------------------------------------------------------------------- Net cash from financing activities -- -- ----------------------------------------------------------------------------- Net increase in cash and cash equivalents 88,000 3,040,500 Cash and cash equivalents at the beginning of the period 6,187,600 3,017,500 ----------------------------------------------------------------------------- Cash and cash equivalents at the end of the period $16,~~100~~275,600 $26,~~100~~058,000 -----------------------------------------------------------------------------

The accompanying notes are an integral part of the financial statements. 4 NOTES TO FINANCIAL STATEMENTS (Unaudited) June 30, 2001 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 six months ended June 30, 2001 are not necessarily indicative of the operating results for the year ending December 31, 2001. 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, 2000 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 six months ended June 30, 2001 and 2000, 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 six months ended June 30, 2001, the General Partner was allocated Net Profits of $300 and $800, respectively. For the quarter and six months ended June 30, 2000, the General Partner was allocated Net Profits, of $600 and $1,100, respectively. Fees and reimbursements paid and payable by the Partnership to Affiliates during the quarter and six months ended June 30, 2001 were as follows:

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 provided the California Regional Water Quality Control Board (the "Water Board") with its corrective action plan (the "Plan") for the clean up of the site. The Water Board's recommended modifications to the plan have been implemented. Currently, the purchaser is monitoring to determine the extent of the contamination of the groundwater at the site. Upon determination of the groundwater concentrations, the purchaser will submit a revised plan to the Water Board and request its approval. The timing of the completion of the remediation process is contingent upon, among other things, the Water Board's issuance of this approval. Accordingly, 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. 5 ITEM 2. 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, 2000 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 increased by $27,500 and $30,100 for the quarter and six-months ended June 30, 2001 when compared to the quarter and six-months ended June 30, 2000, respectively. The decreases 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 increase in the Partnership's cash position of $88,000 for the six months ended June 30, 2001 was primarily the result of net cash provided by operating activities. Liquid assets (including cash and cash equivalents) of the Partnership as of June 30, 2001 were comprised of amounts held for the Lakewood environmental matter (as hereafter discussed) and Partnership liquidation expenses. The decrease of $9,500 in net cash provided by operating activities for the six months ended June 30, 2001 when compared to the six months ended June 30, 2000 was primarily the result of the decrease in net income partially offset by the timing of the payment of certain of the Partnership's expenses. Net cash provided by investing activities decreased by $2,943,000 for the six months ended June 30, 2001 when compared to the six months ended June 30, 2000. The decrease was primarily due to the maturity of the Partnership's investments in debt securities in 2000. 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 and the other post closing matters are resolved, 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. In line with reduced Cash Flow (as defined in the Partnership Agreement) following the sale of the Partnership's remaining properties, distributions to Partners have been suspended until such time as a liquidating distribution is paid. 2 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: None (b) Reports on Form 8-K There were no reports on Form 8-K filed during the three months ended June 30, 2001. 6 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 /s/ DOUGLAS CROCKER II Date: August 10, 2001 By: ______________________________________ DOUGLAS CROCKER II PRESIDENT AND CHIEF EXECUTIVE OFFICER /s/ PHILIP G. TINKLER Date: August 10, 2001 By: ______________________________________ PHILIP G. TINKLER VICE PRESIDENT--FINANCE AND TREASURER

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