<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17737
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Fiduciary Capital Partners, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 86-0653600
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(State of organization) (I.R.S. Employer
Identification No.)
410 17th Street
Suite 400
Denver, Colorado 80202
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (800) 866-7607
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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 .
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Fiduciary Capital Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1998
Table of Contents
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<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Schedule of Investments -
March 31, 1998 3
Balance Sheets - March 31, 1998 and
December 31, 1997 5
Statements of Operations for the three months
ended March 31, 1998 and 1997 6
Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 7
Statements of Changes in Net Assets for the
three months ended March 31, 1998 and
for the year ended December 31, 1997 8
Selected Per Unit Data and Ratios 9
Notes to Financial Statements 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12
Part II. OTHER INFORMATION
Item 1.Legal Proceedings 17
Item 6.Exhibits and Reports on Form 8-K 17
</TABLE>
2
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIDUCIARY CAPITAL PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
MARCH 31, 1998
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
27,944 sh. KEMET Corporation,
Common Stock(1)* 07/11/91 $ 9,905 $ 516,091
- --------------------------------------------------------------------------------------------------------------------------
9,905 516,091 3.3%
- --------------------------------------------------------------------------------------------------------------------------
75,856 sh. AR Accessories Group,
Inc., Warrants to
Purchase Class B
Common Stock* 07/30/92 104,091 1
27,392 sh. AR Accessories Group,
Inc., Class A Common
Stock* 07/30/92 273,920 1
- --------------------------------------------------------------------------------------------------------------------------
378,011 2 0.0
- --------------------------------------------------------------------------------------------------------------------------
$1,967,040 LMC Operating Corp.,
12.00% Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00 11/04/97 1,967,040 1,967,040
$551,000 LMC Operating Corp.,
12.00% Senior Subordinated
Revolving Notes 02/18/98 &
due 8/20/98 03/18/98 551,000 551,000
260,400 sh. LMC Operating Corp., 7.00%
Cumulative Redeemable
Preferred Stock* 06/10/94 2,596,621 2,284,139
27.28 sh. LMC Operating Corp.,
Common Stock* 02/09/96 545,599 1
52.08 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
- --------------------------------------------------------------------------------------------------------------------------
5,660,261 4,802,181 31.1
- --------------------------------------------------------------------------------------------------------------------------
1,608 sh. Mobile Technology, Inc., 07/06/94 &
Common Stock* 12/28/94 227,438 81,769
4,287 sh. Mobile Technology, Inc.,
Warrants to Purchase 07/06/94 &
Common Stock(2)* 12/28/94 60,492 90,246
- --------------------------------------------------------------------------------------------------------------------------
287,930 172,015 1.1
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
3
<PAGE> 4
FIDUCIARY CAPITAL PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1998
(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,460,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,392,451 1,392,451
11,060.6 sh. R.B.M. Precision Metal
Products, Inc., Warrants to
Purchase Common Stock* 05/24/95 82,955 82,955
- --------------------------------------------------------------------------------------------------------------------------
1,475,406 1,475,406 9.6
- --------------------------------------------------------------------------------------------------------------------------
$3,934,080 Atlas Environmental, Inc.,
13.50% Senior Subordinated
Secured Notes due 1/19/03(4)* 01/25/96 3,841,482 1
407,659 sh. Atlas Environmental, Inc.,
Warrants to Purchase
Common Stock(5)* 01/25/96 40,766 1
- --------------------------------------------------------------------------------------------------------------------------
3,882,248 2 0.0
- --------------------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (49.9% of net assets) 11,693,761 6,965,697 45.1
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY INVESTMENTS:
$4,250,000 Ford Motor Credit Corporation,
5.32% Notes due 4/14/98 03/31/98 4,241,804 4,241,804
$4,250,000 American Express Credit Corp.,
5.35% Notes due 4/14/98 03/31/98 4,241,851 4,241,851
- --------------------------------------------------------------------------------------------------------------------------
Total Temporary Investments (60.8% of net assets) 8,483,655 8,483,655 54.9
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (110.7% of net assets) $20,177,416 $15,449,352 100.0%
==========================================================================================================================
</TABLE>
(1) The KEMET Corporation common stock trades on the NASDAQ National Market
System.
(2) The warrants have exercise prices of $19.30 per share (1,286 shares) and
$34.30 per share (3,001 shares).
(3) The notes will amortize in three equal annual installments of $486,667
commencing on May 24, 2000.
(4) The notes will amortize in five equal annual installments of $786,816
commencing on January 19, 1999. The accrual of interest on the notes was
discontinued by the Fund effective April 20, 1996.
(5) The Atlas Environmental, Inc. common stock trades over the counter on a
limited basis with quotations provided via the OTC Bulletin Board. The
warrants have an exercise price of $8.00 per share.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
4
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FIDUCIARY CAPITAL PARTNERS, L.P.
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$11,693,761 and $11,138,061,
respectively) $ 6,965,697 $ 6,594,804
Temporary investments, at amortized cost 8,483,655 10,193,557
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Total investments 15,449,352 16,788,361
Cash and cash equivalents 303,471 263,694
Accrued interest receivable 81,293 76,821
Other assets 61,116 66,060
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Total assets $ 15,895,232 $ 17,194,936
============ ============
LIABILITIES:
Payable to affiliates (Notes 2, 3 and 4) $ 75,888 $ 39,123
Accounts payable and accrued liabilities 530,566 484,837
Distributions payable to partners 1,327,456 1,213,701
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Total liabilities 1,933,910 1,737,661
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COMMITMENTS AND CONTINGENCIES (Note 5)
NET ASSETS:
Managing General Partner (68,571) (54,555)
Limited Partners (equivalent $11.68
and $12.91, respectively, per limited
partnership unit based on 1,201,564
units outstanding) 14,029,893 15,511,830
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Net assets 13,961,322 15,457,275
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Total liabilities and net assets $ 15,895,232 $ 17,194,936
============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
5
<PAGE> 6
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 245,939 $ 333,845
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Total investment income 245,939 333,845
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Expenses:
Investment advisory fees (Note 2) 35,765 22,279
Professional fees 88,479 53,007
Fund administration fees (Note 3) 35,843 35,843
Administrative expenses (Note 3) 20,276 20,276
Independent General Partner fees
and expenses (Note 4) 21,277 13,673
Other expenses 15,108 5,732
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Total expenses 216,748 150,810
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NET INVESTMENT INCOME 29,191 183,035
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REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on investments (12,881) --
Net change in unrealized loss
on investments (184,807) (954,850)
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Net loss on investments (197,688) (954,850)
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NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(168,497) $(771,815)
========= =========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
6
<PAGE> 7
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations $ (168,497) $ (771,815)
Adjustments to reconcile net decrease in net assets
resulting from operations to net cash provided by
operating activities:
Accreted discount on portfolio investments (4,700) (10,250)
Change in assets and liabilities:
Accrued interest receivable (4,472) (5,839)
Other assets 4,944 5,011
Payable to affiliates 36,765 757
Accounts payable and accrued liabilities 32,848 (18,181)
Net realized loss on investments 12,881 --
Net change in unrealized loss
on investments 184,807 954,850
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Net cash provided by operating activities 94,576 154,533
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (551,000) --
Sale of temporary investments, net 1,709,902 297,256
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Net cash provided by investing activities 1,158,902 297,256
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (1,213,701) (393,690)
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Net cash used in financing activities (1,213,701) (393,690)
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 39,777 58,099
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 263,694 272,543
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 303,471 $ 330,642
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
7
<PAGE> 8
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 29,191 $ 1,016,693
Net realized (loss) gain on investments (12,881) 3,545,258
Net change in unrealized (loss) gain
on investments (184,807) (3,859,138)
------------ ------------
Net (decrease) increase in net assets
resulting from operations (168,497) 702,813
Repurchase of limited partnership units -- (1,363,640)
Distributions to partners from -
Net investment income (29,191) (1,016,693)
Realized gain on investments (1,298,265) (1,905,894)
Return of capital -- (784,482)
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Total decrease in net assets (1,495,953) (4,367,896)
Net assets:
Beginning of period 15,457,275 19,825,171
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End of period (including no undistributed
net investment income) $ 13,961,322 $ 15,457,275
============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these financial statements.
8
<PAGE> 9
FIDUCIARY CAPITAL PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Per Unit Data:
Investment income $ .20 $ .25
Expenses (.18) (.11)
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Net investment income .02 .14
Net realized loss on investments (.01) --
Net change in unrealized (loss) gain
on investments (.15) (.73)
Distributions declared to partners (1.09) (.30)
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Net decrease in net asset value (1.23) (.89)
Net asset value:
Beginning of period 12.91 15.28
------- -------
End of period $ 11.68 $ 14.39
======= =======
Ratios (annualized):
Ratio of expenses to average net assets 5.89% 3.13%
Ratio of net investment income to
average net assets 0.79% 3.80%
Number of limited partnership units at end of period 1,201,564 1,299,176
</TABLE>
The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.
9
<PAGE> 10
FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
FCM Fiduciary Capital Management Company ("FCM"), the Managing General Partner
of Fiduciary Capital Partners, L.P. (the "Fund"), necessary to fairly present
the financial position of the Fund as of March 31, 1998 and the results of its
operations, changes in net assets and its cash flows for the period then ended.
These financial statements should be read in conjunction with the Significant
Accounting Policies and other Notes to Financial Statements included in the
Fund's annual audited financial statements for the year ended December 31, 1997.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM receives a
subordinated monthly fee at the annual rate of 1% of the Fund's available
capital, as defined in the Partnership Agreement. Investment advisory fees of
$35,765 were paid by the Fund for the three months ended March 31, 1998.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of .45% of net proceeds available for investment, as
defined in the Partnership Agreement. Fund administration fees of $35,843 were
paid by the Fund for the three months ended March 31, 1998. FCM is also
reimbursed, subject to various limitations, for administrative expenses incurred
in providing accounting and investor services to the Fund. The Fund reimbursed
FCM for administrative expenses of $20,276 for the three months ended March 31,
1998.
4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES
As compensation for services rendered to the Fund, each of the Independent
General Partners receives from the Fund and Fiduciary Capital Pension Partners,
L.P., an affiliated fund, (collectively, the "Funds") an annual fee of $30,000,
payable monthly in arrears, together with all out-of-pocket expenses. Each
Fund's allocation of these fees and expenses is based on the relative number of
outstanding Units. Fees and expenses paid by the Fund for the three months ended
March 31, 1998 totaled $21,277.
5. COMMITMENTS AND CONTENGENCIES
LMC Commitment During April 1998, the Fund agreed to restructure and increase
its aggregate investment in LMC Operating Corp. ("LMC"). In the restructuring,
$1,639,200 of the Fund's LMC Senior Subordinated Revolving Notes due October 31,
2000 will be converted into additional LMC common stock. LMC will then be
allowed to again draw down the $1,639,200 under the terms of the Revolving Note
agreement to fund working
10
<PAGE> 11
FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(unaudited)
capital requirements and to retire the $551,000 of LMC Senior Subordinated
Revolving Notes due August 20, 1998, which were recently purchased by the Fund.
As a result of the restructuring, the Fund's percentage ownership of LMC's
common stock will increase from approximately 27% to approximately 48%.
LMC Litigation On January 27, 1998, LMC Holding Co. ("LMC Holding"), which holds
49.75% of the issued and outstanding common stock of LMC, commenced an action
against the Fund, FCPP and each of Paul Bagley, the Chairman of the Board and
Chief Executive Officer of FCM, W. Duke DeGrassi, the President of FCM, and
Donald R. Jackson, the Senior Vice President, Treasurer, Chief Financial Officer
and Compliance Officer of FCM (collectively, the "Individual Defendants"), in
their capacities as officers of FCM, in the First Judicial District Court in and
for Cache County, State of Utah, entitled LMC Holding Co. v. Fiduciary Capital
Partners, L.P., et al., Civil No. 98-0100077 (the "LMC Action"). LMC Holding is
controlled by Paul Wallace, a director of LMC and the trustee of its
discontinued pension plan. FCM believes that the LMC Action was commenced in
response to an action filed by LMC against Mr. Wallace to recover for a
significant underfunding of LMC's discontinued pension plan. The Fund, FCPP and
the Individual Defendants entered into a settlement agreement with LMC Holding,
effective April 20, 1998. The terms of the settlement call for the Board of LMC
to be increased to six members with the Fund and FCPP selecting three directors
and LMC Holding selecting three, until such time as LMC becomes a reporting
company under the Securities Exchange Act of 1934, as amended. As part of the
settlement, the Fund and FCPP have been able to increase their percentage
ownership of LMC pursuant to the restructuring described above. FCM believes
that the additional investment by the Fund and FCPP will be very beneficial to
LMC and allow it to implement a business plan designed to restore LMC to
profitability within the next few years. LMC continues to pursue its legal
action against Mr. Wallace with respect to the underfunding of its discontinued
pension plan.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Fund's unaudited
Financial Statements and the Notes thereto. This report contains, in addition to
historical information, forward-looking statements that include risks and other
uncertainties. The Fund's actual results may differ materially from those
anticipated in these forward-looking statements. While the Fund can not always
predict what factors would cause actual results to differ materially from those
indicated by the forward-looking statements, factors that might cause such a
difference include general economic and business conditions, competition and
other factors discussed elsewhere in this report. Readers are urged to consider
statements that include the terms "believes", "expects", "plans", "anticipates",
"intends" or the like to be uncertain and forward-looking. The Fund undertakes
no obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of anticipated or unanticipated events.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Fund held portfolio investments in six Managed
Companies, with an aggregate cost of approximately $11.7 million. The value of
these portfolio investments, which were made from net offering proceeds and the
reinvestment of proceeds from the sale of other portfolio investments,
represents approximately 49.9% of the Fund's net assets. When acquired, these
portfolio investments generally consisted of high-yield subordinated debt,
linked with an equity participation or a comparable participation feature in
middle market companies. These securities were typically issued in private
placement transactions and were subject to certain restrictions on transfer or
sale, thereby limiting their liquidity. A number of the portfolio companies have
prepaid their subordinated debt that the Fund held. In addition, three of the
portfolio companies have successfully completed initial public offerings
("IPOs") of their stock. The Fund has sold the stock it held in these three
companies, except for a portion of its KEMET Corporation ("KEMET") stock.
As of March 31, 1998, the Fund's remaining assets were invested in short-term
commercial paper. These funds are available to fund follow-on investments, for
distribution to the partners or to fund the annual repurchase offer.
Pursuant to the terms of the Fund's periodic unit repurchase policy, the Fund
will annually offer to purchase from its Limited Partners up to 7.5% of its
outstanding Units for an amount equal to the current net asset value per Unit,
net of a fee (not to exceed 2%) to be retained by the Fund to offset expenses
incurred in connection with the repurchase offer. If the number of tendered
Units in any year exceeds 7.5% of the outstanding Units, the Fund's General
Partners may vote to repurchase up to an additional 2% of the outstanding Units.
The 1998 repurchase offer will be mailed to the Limited Partners during October
1998. The actual redemption of tendered Units will occur on November 20, 1998.
During February 1998, the Fund agreed to purchase $551,000 of LMC's Senior
Subordinated Revolving Notes due August 20, 1998. This investment was funded
during February and March 1998.
During April 1998, the Fund agreed to restructure and increase its aggregate
investment in LMC. In the restructuring, $1,639,200 of the Fund's LMC Senior
Subordinated Revolving Notes due October 31, 2000 will be converted into
additional LMC common stock. LMC will then be allowed to again draw down the
$1,639,200 under the terms of the Revolving Note agreement to fund working
capital requirements and to retire the $551,000 of LMC Senior Subordinated
Revolving Notes due August 20, 1998, which were recently purchased by the Fund.
As a result of the restructuring, the Fund's percentage ownership of LMC's
common stock will increase from approximately 27% to approximately 48%.
12
<PAGE> 13
During the three months ended March 31, 1998, the Fund paid a cash distribution
pertaining to the fourth quarter of 1997, in the amount of $1,213,701, or $1.00
per Unit. The distribution for the first quarter of 1998 will be paid on May 15,
1998. The per Unit distribution rate will vary between $1.00 and $1.13 depending
upon the closing in which the particular Units were issued. This
disproportionate cash distribution results from the Units being issued on
different dates during 1990, and thus being entitled to differing Preferred
Return amounts, as defined in the Fund's Partnership Agreement. These
disproportionate distribution rates will eliminate the remaining Preferred
Return amounts, leaving all Units on an equal basis going forward.
The Fund currently expects the distribution for the second quarter of 1998,
which is payable during August 1998, to be made at a rate of $1.00 per Unit for
all Limited Partners and that the remaining 1998 distributions will likely be
reduced to a rate of $.30 per Unit per quarter.
The Fund's investment period ended on December 31, 1995. Although the Fund is
permitted to make additional investments in existing portfolio companies after
1995, the Fund is no longer permitted to acquire investments in new portfolio
companies. This impacts the amount of the Fund's quarterly distributions because
all proceeds from dispositions or maturities of investments are distributed to
investors, except to the extent the cash is needed to fund the annual repurchase
offer or to fund any follow-on investments in existing portfolio companies. The
increase in the quarterly distribution rate during 1997 and 1998 represents a
distribution of the proceeds from dispositions or maturities of investments
during 1997.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment income was $29,191 for the three months ended March
31, 1998 as compared to net investment income of $183,035 for the corresponding
period of the prior year. Net investment income per limited partnership unit
decreased from $.14 to $.02 and the ratio of net investment income to average
net assets decreased from 3.80% to 0.79% for the three months ended March 31,
1998 as compared to the corresponding period of the prior year.
Net investment income for the three months ended March 31, 1998 decreased as a
result of both a decrease in investment income and an increase in total
expenses.
Investment income decreased $87,906, or 26.3%, for the three months ended March
31, 1998, as compared to the corresponding period of the prior year. This
decrease resulted primarily from the prepayment of the Fund's Elgin National
Industries Inc. subordinated debt investment during November 1997. The Fund's
total investments also decreased as a result of the Fund's repurchase of 7.51%
of its Units during the fourth quarter of 1997. The negative effect of these
items was partially offset by increases in interest income earned on temporary
investments and on the LMC follow-on investments that were acquired during 1997
and 1998.
Total expenses increased $65,938, or 43.7%, for the three months ended March 31,
1998 as compared to the corresponding period of the prior year. This increase
resulted primarily from increases in investment advisory fees, professional
fees, Independent General Partner fees and expenses and other expenses.
The investment advisory fees paid to FCM increased as a result of the direct
receipt by FCM of consulting fees from LMC during the first quarter of 1997.
Pursuant to the terms of the
13
<PAGE> 14
Fund's investment advisory agreement with FCM, the investment advisory fees
payable to FCM by the Fund are reduced by the amount of any fees that FCM
receives directly from any of the Fund's portfolio companies. The effect of the
decrease (to zero) in the amount of LMC consulting fees received by FCM was
partially offset by the effect of the repurchase of Units by the Fund during the
fourth quarter of 1997 and the realization of additional losses with respect to
the Fund's investment in Canadian's Holdings, Inc. and its subsidiary
("Canadian's"). Both the repurchase of Units and the realization of the
Canadian's loss decreased the amount of the Fund's available capital (as defined
in the Partnership Agreement), which is the base with respect to which the
investment advisory fees are calculated.
Independent General Partner fees and expenses increased because one of the
Fund's three Independent General Partners resigned during the fourth quarter of
1996 and was not replaced until July 1997. The increase in professional fees was
primarily the result of legal fees incurred during the three months ended March
31, 1998 in connection with the LMC litigation. Other expenses increased
primarily as a result of insurance expense associated with a new liability
insurance policy for the Fund's general partners that was initially purchased
during September 1997.
Net Realized Loss on Investments
Beginning July 1, 1997, the Fund began accruing additional Canadian's sales tax
related reserves at a 12% annualized rate, or $12,881 for the three months ended
March 31, 1998. This additional accrued amount was recorded as an additional
realized loss in the Fund's Statement of Operations.
Net Unrealized Gain (Loss) on Investments
FCM values the Fund's portfolio investments on a weekly basis utilizing a
variety of methods. For securities that are publicly traded and for which market
quotations are available, valuations are set by the closing sales, or an average
of the closing bid and ask prices, as of the valuation date.
Fair value for securities that are not traded in any liquid public markets or
that are privately held are determined pursuant to valuation policies and
procedures that have been approved by the Independent General Partners and
subject to their supervision. There is a range of values that are reasonable for
such investments at any particular time. Each such investment is valued
initially based upon its original cost to the Fund ("cost method"). The cost
method is used until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation. Appraisal valuations are
based upon such factors as the portfolio company's earnings, cash flow and net
worth, the market prices for similar securities of comparable companies and an
assessment of the portfolio company's future financial prospects. In a case of
unsuccessful operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective. The Fund also may use, when
available, third-party transactions in a portfolio company's securities as the
basis of valuation ("private market method"). The private market method is used
only with respect to completed transactions or firm offers made by
sophisticated, independent investors.
As of December 31, 1997, the Fund had recorded $529,763 of unrealized gain and
$5,073,020 of unrealized loss on investments. Therefore, as of December 31,
1997, the Fund had recorded a total net unrealized loss on investments of
$4,543,257.
14
<PAGE> 15
The net increase in unrealized loss on investments during the three months ended
March 31, 1998 and the cumulative net unrealized loss on investments as of March
31, 1998 consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Gain (Loss) Recorded
-------------------------------
During the Three
Months Ended As of
Portfolio Company March 31, 1998 March 31, 1998
- ------------------------------------ --------------- --------------
<S> <C> <C>
KEMET $ (23,577) $ 506,186
ARA (260,222) (378,009)
LMC -- (858,080)
MTI 98,992 (115,915)
Atlas -- (3,882,246)
----------- -----------
$ (184,807) $(4,728,064)
=========== ===========
</TABLE>
KEMET completed an IPO of its common stock during 1992. The stock, which trades
on the NASDAQ National Market System, closed at $18.46875 (an average of the
closing bid and ask prices) on March 31, 1998. This price is down slightly from
the closing price of $19.3125 on December 31, 1997. Based on the $18.46875
closing trading price of the common stock, the 27,944 shares of common stock
that the Fund held at March 31, 1998 had a market value of $516,091.
AR Accessories Group, Inc. ("ARA") reported significantly reduced earnings and
cash flows from operations during 1997. In addition, the price earnings ratios
of comparable companies in its industry declined. As a result of these factors,
the ARA warrants and common stock were written down in value during 1997 to a
carrying value of $260,244.
During February 1998, ARA hired a crisis manager to assist it in addressing
continuing significant declines in the company's sales and profits. The hiring
of the crisis manager was precipitated by ARA's lenders, who notified ARA of
defaults under its credit lines and demanded that ARA repay overadvances that
were made during 1997. The Fund was notified that ARA was considering a number
of options for solving these problems, including a possible bankruptcy filing
and the sale of the company, or certain of its operations.
On March 13, 1998, ARA filed for Chapter 11 bankruptcy protection. It is
currently anticipated that ARA's assets will be sold at auction during May 1998
and that the proceeds will be less than ARA's total outstanding debt.
The Fund's subordinated debt investment in ARA was prepaid in a prior year. The
Fund's only remaining investment in ARA is a common equity position that was
acquired in connection with the Fund's original subordinated debt investment.
Since it is anticipated that all of the proceeds that will be realized from the
liquidation of ARA's assets will likely satisfy only a portion of ARA's debt,
the Fund has written the carrying value of its remaining ARA equity investment
down to a nominal amount ($2) as of March 31, 1998.
On a net cumulative basis, as of December 31, 1997, the Fund's investment in
Mobile Technology, Inc. ("MTI") had been written down in value by $214,907, to a
carrying value of $73,023.
MTI was sold on March 12, 1998. The Fund, which owned less that 0.5% of MTI's
common equity, expected to receive approximately $201,000 from the sale.
However, at the closing a dispute arose over the calculation of the sales price.
The dispute, which revolves primarily around whether the sellers or the buyer
should receive the benefit of warrant exercise proceeds, involves approximately
5% of the anticipated sales proceeds. As a result of these developements, the
MTI investment was written up in value by $98,992 at March 31, 1998, to a
carrying value of $172,015.
15
<PAGE> 16
FCM continually monitors both the Fund's portfolio companies and the markets,
and continually evaluates the decision to hold or sell its traded securities.
16
<PAGE> 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On January 27, 1998, LMC Holding Co. ("LMC Holding"), which holds 49.75% of the
issued and outstanding common stock of LMC, commenced an action against the
Fund, FCPP and each of Paul Bagley, the Chairman of the Board and Chief
Executive Officer of FCM, W. Duke DeGrassi, the President of FCM, and Donald R.
Jackson, the Senior Vice President, Treasurer, Chief Financial Officer and
Compliance Officer of FCM (collectively, the "Individual Defendants"), in their
capacities as officers of FCM, in the First Judicial District Court in and for
Cache County, State of Utah, entitled LMC Holding Co. v. Fiduciary Capital
Partners, L.P., et al., Civil No. 98-0100077 (the "LMC Action"). LMC Holding is
controlled by Paul Wallace, a director of LMC and the trustee of its
discontinued pension plan. FCM believes that the LMC Action was commenced in
response to an action filed by LMC against Mr. Wallace to recover for a
significant underfunding of LMC's discontinued pension plan. The Fund, FCPP and
the Individual Defendants entered into a settlement agreement with LMC Holding,
effective April 20, 1998. The terms of the settlement call for the Board of LMC
to be increased to six members with the Fund and FCPP selecting three directors
and LMC Holding selecting three, until such time as LMC becomes a reporting
company under the Securities Exchange Act of 1934, as amended. As part of the
settlement, the Fund and FCPP have been able to increase their percentage
ownership of LMC pursuant to the restructuring described above. FCM believes
that the additional investment by the Fund and FCPP will be very beneficial to
LMC and allow it to implement a business plan designed to restore LMC to
profitability within the next few years. LMC continues to pursue its legal
action against Mr. Wallace with respect to the underfunding of its discontinued
pension plan.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
11.1 Statement of Computation of Net Investment Income Per Limited
Partnership Unit.
27.1 Financial Data Schedule.
</TABLE>
(b) The Registrant did not file any reports on Form 8-K during the first quarter
of the fiscal year ending December 31, 1998.
17
<PAGE> 18
SIGNATURE
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.
Fiduciary Capital Partners, L.P.
(Registrant)
By: FCM Fiduciary Capital Management Company
Managing General Partner
Date: May 12, 1998 By: /s/ Donald R. Jackson
---------------------
Donald R. Jackson
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ---------- ----------- ----
<S> <C>
11.1 Statement of Computation of Net Investment
Income Per Limited Partnership Unit.
27.1 Financial Data Schedule.
</TABLE>
E-1
<PAGE> 1
Exhibit No. 11.1
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET
INVESTMENT INCOME PER LIMITED
PARTNERSHIP UNIT
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Investment Income $ 29,191 $ 183,035
Percentage Allocable to Limited Partners 99% 99%
---------- ----------
Net Investment Income Allocable
to Limited Partners $ 28,899 $ 181,205
========== ==========
Weighted Average Number of Limited
Partnership Units Outstanding 1,201,564 1,299,176
========== ==========
Net Investment Income Per Limited
Partnership Unit $ .02 $ .14
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 20,177,416
<INVESTMENTS-AT-VALUE> 15,449,352
<RECEIVABLES> 81,293
<ASSETS-OTHER> 61,116
<OTHER-ITEMS-ASSETS> 303,471
<TOTAL-ASSETS> 15,895,232
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,933,910
<TOTAL-LIABILITIES> 1,933,910
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,201,564
<SHARES-COMMON-PRIOR> 1,201,564
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 366,862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4,728,064)
<NET-ASSETS> 13,961,322
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 245,939
<OTHER-INCOME> 0
<EXPENSES-NET> 216,748
<NET-INVESTMENT-INCOME> 29,191
<REALIZED-GAINS-CURRENT> (12,881)
<APPREC-INCREASE-CURRENT> (184,807)
<NET-CHANGE-FROM-OPS> (197,688)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29,191
<DISTRIBUTIONS-OF-GAINS> 1,298,265
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,495,953)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,665,127
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 35,765
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 216,748
<AVERAGE-NET-ASSETS> 14,709,299
<PER-SHARE-NAV-BEGIN> 12.91
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> (.16)
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 1.07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.68
<EXPENSE-RATIO> 5.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
