<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 June 30, 2000
------------------------------------------
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 0-17737
--------------------------------------------------------
Fiduciary Capital Partners, L.P.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0653600
----------------------- -----------------
(State of organization) (I.R.S. Employer
Identification No.)
1530 16th Street
Suite 200
Denver, Colorado 80202
---------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (800) 866-7607
--------------
410 17th Street, Suite 400, Denver, Colorado 80202
--------------------------------------------------
(Former address, 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 .
--- ---
<PAGE> 2
Fiduciary Capital Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2000
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Schedule of Investments -
June 30, 2000 3
Balance Sheets - June 30, 2000 and
December 31, 1999 5
Statements of Operations for the three months
ended June 30, 2000 and 1999 6
Statements of Operations for the six months
ended June 30, 2000 and 1999 7
Statements of Cash Flows for the six months
ended June 30, 2000 and 1999 8
Statements of Changes in Net Assets for the
six months ended June 30, 2000 and
for the year ended December 31, 1999 9
Selected Per Unit Data and Ratios 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13
Part II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIDUCIARY CAPITAL PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
JUNE 30, 2000
(unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MANAGED COMPANIES:
$1,967,040 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00(1) 01/13/99 $ 1,967,040 $ 273,200
$41,404 LMC Corporation, 12.00% 02/07/00
Promissory Notes due through
8/7/00(2) 04/11/00 41,404 41,404
93,537 sh. LMC Corporation,
Class B Preferred Stock* 08/09/99 935,370 1
260,400 sh. LMC Corporation,
Class C Preferred Stock* 06/10/94 2,596,621 1
5,523,500 sh. LMC Corporation, 02/09/96
Common Stock* through
08/05/98 3,034,549 1
52.08 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
-------------------------------------------------------------------------------------------------------------------
8,574,985 314,608 24.7%
-------------------------------------------------------------------------------------------------------------------
$1,460,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,426,635 755,955
14,265.6 sh. R.B.M. Precision Metal
Products, Inc., Warrants to
Purchase Common Stock* 05/24/95 82,955 1
14,392 sh. R.B.M. Precision Metal
Products, Inc., Common
Stock* 12/09/98 1 1
-------------------------------------------------------------------------------------------------------------------
1,509,591 755,957 59.4
-------------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (114.5% of net assets) 10,084,576 1,070,565 84.1
-------------------------------------------------------------------------------------------------------------------
</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
JUNE 30, 2000
(unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-MANAGED COMPANIES:
$228,738 Niigata Engineering 12/01/99
Co., Ltd., through
Receivables(4) 01/03/00 202,139 202,139
-------------------------------------------------------------------------------------------------------------------
202,139 202,139 15.9
-------------------------------------------------------------------------------------------------------------------
989,414 sh. WasteMasters, Inc.,
Common Stock(5)* 06/03/98 1,321,795 1
-------------------------------------------------------------------------------------------------------------------
1,321,795 1 0.0
Total Investment in Non-Managed
-------------------------------------------------------------------------------------------------------------------
Companies (21.6% of net assets) 1,523,934 202,140 15.9
-------------------------------------------------------------------------------------------------------------------
Total Investments (136.1% of net assets) $11,608,510 $1,272,705 100.0%
===================================================================================================================
</TABLE>
(1) The accrual of interest on the notes was discontinued by the Fund
effective July 1, 1999.
(2) The Fund has not accrued any interest income on these notes.
(3) The terms of the notes provide for three equal annual installments of
$486,667 commencing on May 24, 2000. However, the Fund is a party to an
Intercreditor and Subordination Agreement with R.B.M. Precision Metal
Products, Inc.'s ("RBM's") other creditors, which prohibits principal
payments on the notes prior to October 31, 2000 and restricts payments
thereafter, based on a number of financial formulas contained in the
Agreement.
(4) These are non-interest bearing receivables, which were purchased from LMC
Corporation ("LMC") at a discount. Payments are due on November 21, 2000,
May 21, 2001 and November 21, 2001 each in the amount of $55,639 and on
May 21, 2002 in the amount of $61,821.
(5) See Note 5 regarding significant issues concerning the ownership and
transferability of this stock.
* Non-income producing security.
The accompanying notes to financial statements are an
integral part of this schedule.
4
<PAGE> 5
FIDUCIARY CAPITAL PARTNERS, L.P.
BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
ASSETS:
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$10,084,576 and $10,031,554,
respectively) $ 1,070,565 $ 1,017,543
Non-managed companies (amortized cost-
$1,523,934 and $1,415,263, respectively) 202,140 93,469
Temporary investments, at amortized cost -- 649,689
------------ ------------
Total investments 1,272,705 1,760,701
Cash and cash equivalents 288,431 218,111
Accrued interest receivable 21,224 21,924
Other assets 6,462 24,333
------------ ------------
Total assets $ 1,588,822 $ 2,025,069
============ ============
LIABILITIES:
Payable to affiliates $ 77,790 $ 33,048
Accounts payable and accrued liabilities 575,906 582,598
Distributions payable to partners -- 310,992
------------ ------------
Total liabilities 653,696 926,638
------------ ------------
COMMITMENTS AND CONTINGENCIES
NET ASSETS:
Managing General Partner (196,777) (196,777)
Limited Partners (equivalent to $1.10
and $1.26, respectively, per limited
partnership unit based on 1,026,273
units outstanding) 1,131,903 1,295,208
------------ ------------
Net assets 935,126 1,098,431
------------ ------------
Total liabilities and net assets $ 1,588,822 $ 2,025,069
============ ============
</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 JUNE 30, 2000 AND 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 63,683 $ 126,697
------------ ------------
Total investment income 63,683 126,697
------------ ------------
Expenses:
Fund administration fees 35,842 35,842
Investment advisory fees 22,450 24,275
Administrative expenses 20,277 20,277
Independent General Partner fees
and expenses 13,187 12,939
Professional fees 2,053 29,608
Other expenses 64,092 12,284
------------ ------------
Total expenses 157,901 135,225
------------ ------------
NET INVESTMENT LOSS (94,218) (8,528)
------------ ------------
REALIZED AND unrealized
GAIN (LOSS) ON investments:
Net realized loss on investments -- (6,155)
Net change in unrealized loss on investments -- 166,795
------------ ------------
Net gain on investments -- 160,640
------------ ------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (94,218) $ 152,112
============ ============
</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 OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 130,308 $ 226,387
------------ ------------
Total investment income 130,308 226,387
------------ ------------
Expenses:
Fund administration fees 71,685 71,685
Investment advisory fees 44,901 48,550
Administrative expenses 40,553 40,553
Independent General Partner fees
and expenses 25,517 37,882
Professional fees 23,693 42,721
Other expenses 87,264 31,708
------------ ------------
Total expenses 293,613 273,099
------------ ------------
NET INVESTMENT LOSS (163,305) (46,712)
------------ ------------
REALIZED AND unrealized
GAIN (LOSS) ON investments:
Net realized loss on investments -- (6,155)
Net change in unrealized loss on investments -- 167,669
------------ ------------
Net gain on investments -- 161,514
------------ ------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (163,305) $ 114,802
============ ============
</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 CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets resulting from operations $ (163,305) $ 114,802
Adjustments to reconcile net (decrease) increase in net assets
resulting from operations to net cash used in
operating activities:
Accreted discount on portfolio investments (24,692) (2,393)
Change in assets and liabilities:
Accrued interest receivable 700 5,515
Other assets 17,871
Payable to affiliates 44,742 16,489
Accounts payable and accrued liabilities (6,692) (577)
Net realized loss on investments -- 6,155
Net change in unrealized loss on investments -- (167,669)
------------ ------------
Net cash used in operating activities (131,376) (1,952)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (225,570) (674,957)
Proceeds from dispositions of portfolio investments 88,569 49,140
Sale of temporary investments, net 649,689 849,079
------------ ------------
Net cash provided by investing activities 512,688 223,262
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (310,992) (672,542)
------------ ------------
Net cash used in financing activities (310,992) (672,542)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 70,320 (451,232)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 218,111 837,202
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 288,431 $ 385,970
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
8
<PAGE> 9
FIDUCIARY CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
AND FOR THE YEAR ENDED DECEMBER 31, 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Decrease in net assets resulting from operations:
Net investment loss $ (163,305) $ (326,228)
Net realized loss on investments -- 493,358
Net change in unrealized loss on
investments -- (7,712,001)
------------ ------------
Net decrease in net assets resulting
from operations (163,305) (7,544,871)
Repurchase of limited partnership units -- (383,736)
Return of capital distributions -- (1,319,805)
------------ ------------
Total decrease in net assets (163,305) (9,248,412)
Net assets:
Beginning of period 1,098,431 10,346,843
------------ ------------
End of period (including no undistributed
net investment income) $ 935,126 $ 1,098,431
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
9
<PAGE> 10
FIDUCIARY CAPITAL PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per Unit Data:
Investment income $ .06 $ .11 $ .13 $ .20
Expenses (.15) (.12) (.29) (.24)
------------- ------------- ------------- -------------
Net investment loss (.09) (.01) (.16) (.04)
Net realized loss on investments -- (.01) -- (.01)
Net change in unrealized loss on investments -- .15 -- .15
Distributions declared to partners -- (.30) -- (.60)
------------- ------------- ------------- -------------
Net decrease in net asset value (.09) (.17) (.16) (.50)
Net asset value:
Beginning of period 1.19 9.18 1.26 9.51
------------- ------------- ------------- -------------
End of period $ 1.10 $ 9.01 $ 1.10 $ 9.01
============= ============= ============= =============
Ratios (annualized):
Ratio of expenses to average net assets 64.30% 5.47% 57.52% 5.49%
Ratio of net investment loss to average
net assets (38.37)% (0.03)% (31.99)% (0.94)%
Number of limited partnership units at
end of period 1,026,273 1,109,694 1,026,273 1,109,694
</TABLE>
The accompanying notes to financial statements are an
integral part of these selected per unit data and ratios.
10
<PAGE> 11
FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(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 June 30, 2000 and the results
of its operations, changes in net assets and its cash flows for the periods
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,
1999.
2. INVESTMENT ADVISORY FEES
As compensation for its services as investment adviser, FCM is entitled to
receive, subject to certain limitations, 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 $44,901 are payable to FCM
for the six months ended June 30, 2000. The payment of these fees has been
deferred pursuant to the applicable subordination provisions until the Limited
Partners receive distributions equal to a cumulative non-compounded 6% return
on their adjusted capital contributions, as defined in the Partnership
Agreement.
3. FUND ADMINISTRATION FEES
As compensation for its services as fund administrator, FCM receives a monthly
fee at the annual rate of 0.45% of net proceeds available for investment, as
defined in the Partnership Agreement. Fund administration fees of $71,685 were
paid by the Fund for the six months ended June 30, 2000. 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 $40,553 for the six months ended
June 30, 2000.
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 six months ended
June 30, 2000 totaled $25,517.
11
<PAGE> 12
FIDUCIARY CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
(unaudited)
5. COMMITMENTS AND CONTINGENCIES
LMC Corporation During February 2000, the Fund agreed to advance up to $111,502
to LMC. $41,404 of these advances was structured as the purchase of promissory
notes, and additional advances totaling $43,316 were expensed by the Fund.
Remaining amounts to be advanced, as of June 30, 2000, total $26,782.
WasteMasters, Inc. ("WasteMasters") The Fund acquired its WasteMasters stock,
which trades on the OTC Bulleting Board System, from Nikko Trading of America
Corporation ("Nikko") on June 3, 1998. The stock was subject to a 24-month
lock-up period through May 2000. Upon expiration of the lock-up period, the
Fund requested that WasteMasters issue the Fund a new stock certificate without
the restrictive legend that existed on the Fund's original certificate, so that
the stock could be sold. To date, WasteMasters has refused to comply with this
request. WasteMasters and Nikko have been in litigation with each other. During
March 2000, the court involved with this litigation authorized the cancellation
of certain WasteMasters stock that had been issued to Nikko, including the
shares that Nikko had previously transferred to the Fund. At this time, the
Fund is uncertain as to how, or when, these issues regarding the ownership and
transferability of its WasteMasters stock will be resolved.
12
<PAGE> 13
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 June 30, 2000, the Fund held portfolio investments in two Managed
Companies and two Non-Managed Companies, with an aggregate original cost of
approximately $11.6 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 136.1% of the
Fund's net assets.
As of June 30, 2000, the Fund's remaining liquid assets were invested in money
market funds. These funds are available to fund the annual repurchase offer, to
fund follow-on investments in existing portfolio companies, to pay Fund
expenses and for distribution to the partners.
Pursuant to the terms of the Fund's periodic unit repurchase policy, the Fund
has annually offered 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. If Units in excess of this amount are tendered, Units are purchased on a
pro rata basis after giving priority to Limited Partners owning less than 100
Units.
The Fund's investment period ended on December 31, 1995. Although the Fund has
been permitted to make additional investments in existing portfolio companies
since 1995, the Fund is no longer permitted to acquire investments in new
portfolio companies. Consequently, the Fund has been in a liquidation mode.
During 1999, the General Partners considered a number of possible plans that
would have permitted the Fund to be liquidated by the end of 2000. However, it
was determined that none of these plans was feasible. As a result, it is
currently expected that the Fund will remain in existence until the remaining
debt investments either mature, are sold or are prepaid by the respective
portfolio companies, and the remaining equity investments are sold or otherwise
liquidated.
13
<PAGE> 14
During December 1999, the Fund purchased $117,460 of Niigata Engineering Co.,
Ltd. ("Niigata") receivables from LMC at a cost of $92,767. An additional
$166,917 of Niigata receivables were purchased during January 2000 at a cost of
$151,235. These various receivables were payable on specified dates between May
21, 2000 and May 21, 2002.
The initial payment, in the amount of $55,639, was due from Niigata on May 21,
2000. Niigata initially refused to make the payment, due to various outstanding
claims they have made against LMC, which is in bankruptcy proceedings. LMC
disputes the validity of these claims. Niigata ultimately made the full amount
of the payment to the Fund on June 30, 2000.
During February 2000, the Fund agreed to advance up to $111,502 to LMC in order
to provide operating capital to LMC (see following discussion regarding LMC).
$41,404 of these advances was structured as the purchase of promissory notes,
and additional advances totaling $43,316 were expensed by the Fund. Remaining
amounts to be advanced, as of June 30, 2000, total $26,782.
Payables to affiliates increased $44,742 from $33,048 at December 31, 1999 to
$77,790 at June 30, 2000. This increase resulted primarily from the deferral of
the payment of FCM's subordinated investment advisory fee for the six months
ended June 30, 2000. The payment of these fees will be deferred pursuant to the
applicable subordination provisions until the Limited Partners receive
distributions equal to a cumulative non-compounded 6% return on their adjusted
capital contributions, as defined in the Partnership Agreement.
Distributions payable to partners decreased from $310,992 at December 31, 1999
to zero at June 30, 2000. This decrease resulted from a decrease in the per
Unit distribution rate from $0.30 for the three months ended December 31, 1999
to zero for the three months ended June 30, 2000. It is unlikely that the Fund
will be able to pay quarterly distributions during the remainder of 2000 and
beyond. Distributions will be addressed on a quarterly basis by the General
Partners and will involve the consideration of a number of issues.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Fund's net investment loss was $94,218 for the three months ended June 30,
2000 as compared to a net investment loss of $8,528 for the corresponding
period of the prior year. Net investment loss per limited partnership unit
increased from $0.01 to $0.09 and the ratio of net investment loss to average
net assets increased from 0.03% to 38.37% for the three months ended June 30,
2000 as compared to the corresponding period of the prior year.
The Fund's net investment loss was $163,305 for the six months ended June 30,
2000 as compared to a net investment loss of $46,712 for the corresponding
period of the prior year. Net investment loss per limited partnership unit
increased from $0.04 to $0.16 and the ratio of net investment loss to average
net assets increased from 0.94% to 31.99% for the six months ended June 30,
2000 as compared to the corresponding period of the prior year.
The net investment losses for both the three and six month periods ended June
30, 2000 increased primarily as a result of a decreases in investment income as
compared to the corresponding periods of the prior year. Total expenses also
increased, although by smaller amounts.
14
<PAGE> 15
Investment income decreased $63,014 and $96,079, or 49.7% and 42.4%, for the
three and six month periods ended June 30, 2000, as compared to the
corresponding periods of the prior year. These decreases resulted primarily
from the decision to stop accruing interest on the Fund's LMC debt investments
effective during July 1999 and a decrease in the amount of the Fund's temporary
and money market investments. The amount of the Fund's temporary and money
market investments decreased because of (i) cash distributions made by the Fund
during 1999 that constituted a return of capital, (ii) purchases of additional
LMC follow-on investments (including the Niigata receivables), and (iii) the
Fund's repurchase of 7.52% of its Units during the fourth quarter of 1999. The
negative effect of these items was partially offset by interest income earned
on the Niigata receivables and an increase in the interest income earned on the
RBM Precision Metal Products, Inc. ("RBM") subordinated debt investments. As
discussed below, the Fund did not record any interest income on the RBM notes
during the period from August 25, 1998 through May 24, 1999.
Total expenses increased $22,676 and $20,514, or 16.8% and 7.5%, for the three
and six month periods ended June 30, 2000, as compared to the corresponding
periods of the prior year. These increases resulted primarily from increases in
other expenses incurred in connection with the Fund's LMC investments. These
increases were partially offset by decreases in professional fees, investment
advisory fees and Independent General Partner fees and expenses.
Net Unrealized 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, 1999, the Fund had recorded $10,335,805 of unrealized loss
on investments. There were no changes to these unrealized losses on investments
during the six months ended June 30, 2000. The cumulative net unrealized loss
on investments as of June 30, 2000 consisted of the following components:
<TABLE>
<CAPTION>
Net Changes in
Unrealized Gain (Loss) Net Unrealized
During the Six Gain (Loss)
Months Ended Recorded As of
Portfolio Company June 30, 2000 June 30, 2000
---------------------- --------------------- --------------------
<S> <C> <C>
LMC $ -- $ (8,260,377)
RBM -- (753,634)
WMI -- (1,321,794)
-------- ------------
$ -- $(10,335,805)
======== ============
</TABLE>
15
<PAGE> 16
LMC experienced significant cash flow shortfalls in December 1999 and January
2000. These cash flow shortfalls, combined with significant reductions in the
cash available under the Company's revolving line of credit with CIT
Corporation, forced a cessation of production of equipment and severely
curtailed LMC's ability to fulfill orders for spare parts.
LMC has held discussions with several potential purchasers of its business, in
whole or in part. While no meaningful purchase offers have been received to
date, LMC has consummated a consignment joint venture arrangement with respect
to its spare parts business. The majority of LMC's employees have been
released.
In an effort to preserve value and facilitate the possible sale of LMC's
business, the Fund agreed to advance up to $111,502 to LMC. $41,404 of these
advances was structured as the purchase of promissory notes, and additional
advances totaling $43,316 were expensed by the Fund. Remaining amounts to be
advanced, as of June 30, 2000, total $26,782.
LMC received a notice of default, dated April 6, 2000, from CIT Corporation
with respect to its revolving line of credit. On April 28, 2000, LMC filed for
Chapter 11 bankruptcy protection.
The Fund wrote its LMC investment down by $540,800 and $317,280 during 1995 and
1997, respectively. As a result of the above-described developments, the Fund
created additional reserves of $7,402,297 against the carrying values of the
Fund's LMC investment during 1999. Thus, the Fund's LMC investment has a net
carrying value of $314,608, versus its cost of $8,574,985.
RBM had a record year for fiscal 1998, with sales of approximately $30 million
and EBITDA of approximately $2.7 million. However, these sales were achieved
primarily through one contract with Digital Equipment Corporation ("DEC").
During August 1998, RBM notified the Fund that anticipated sales to DEC and
other large customers were expected to decline significantly in the upcoming
year. Of particular concern were sales to DEC, which was acquired by Compaq
Computer Corp. As a result of the expected decline in sales, RBM began the
process of restructuring its debt, including the subordinated debt held by the
Fund. The Fund received the quarterly interest payment that was due from RBM on
August 24, 1998. The interest payment that was due during November 1998 was
deferred and subsequently converted to equity pursuant to the restructuring
described below.
During December 1998, RBM and its lenders completed a restructuring under which
a new senior lender, Wells Fargo Business Credit, replaced Bank of America. As
part of this transaction, RBM's principle shareholder, 13i Capital Corporation
("13i"), contributed additional equity to the company and the subordinated
lenders, including the Fund, agreed to accept shares of RBM's common stock as
payment for the next three quarterly interest payments beginning with the
payment that was due during November 1998. As a consequence, the Fund's
ownership of RBM, on a fully diluted basis, increased from 6.6% to 8.1%,
assuming exercise of its warrants. The restructuring was designed to provide
RBM with a period of time in which to secure additional customers and return to
a more stable financial position under which RBM could meet its interest
obligations to its creditors, including the Fund.
As a result of these developments, the Fund recorded aggregate writedowns of
$753,634 relating to RBM during the year ended December 31, 1998.
16
<PAGE> 17
RBM resumed paying the quarterly interest payments in cash, commencing with the
quarterly interest payment due on August 24, 1999. The Fund placed a $1
aggregate valuation on the RBM common stock that was received in payments of
the interest with respect to the nine-month period beginning August 25, 1998
and ending May 24, 1999.
For its fiscal year ended October 31, 1999, RBM's revenues were $11.6 million
versus a budget of $12.0 million. For the year, RBM's loss was $1.3 million
(pretax) versus a budgeted loss of $1.9 million.
RBM projects sales of approximately $17 million for its fiscal year ended
October 31, 2000, with a positive EBITDA. Sales and cash flows for the quarter
ended January 31, 2000 were slightly below budget.
RBM remains current with its interest payments and is currently in compliance
with all of its senior and subordinated loan covenants. Originally, the Fund's
note was scheduled to be repaid over the three years ending May 2002. However,
RBM did not make the principal payment scheduled for May 2000 on the Fund's
note, because it is not permitted to do so under the terms of an Intercreditor
and Subordination Agreement ("Intercreditor Agreement"), between the Fund and
RBM's other creditors. This Intercreditor Agreement was a stipulated
pre-condition to RBM's debt restructuring, which occurred in late 1998.
13i's CEO has taken over as CEO of RBM. He has hired a number of new
professionals and appears to have stabilized the company. If this continues,
the Fund could possibly receive a partial principal payment in the second
quarter of 2001, since the Intercreditor Agreement permits such payments,
limited to 85% of RBM's EBITDA. There is no assurance that any payments will be
permitted and any such payments are entirely dependent upon RBM's continued
improved performance. The Fund continues to urge a sale of the Company or a
refinancing of the Fund's debt, but has been unable to obtain the agreement of
13i.
During June 1998, the Fund exchanged its Atlas (which was in bankruptcy
proceedings) subordinated notes and warrants for 989,414 shares of common stock
of WasteMasters, a waste management company. The Fund acquired its WasteMasters
stock, which trades on the OTC Bulleting Board System ("WAST"), from Nikko
Trading of America Corporation ("Nikko"). The stock was subject to a 24-month
lock-up period through May 2000. Upon expiration of the lock-up period, the
Fund requested that WasteMasters issue the Fund a new stock certificate without
the restrictive legend that existed on the Fund's original certificate, so that
the stock could be sold. To date, WasteMasters has refused to comply with this
request. WasteMasters and Nikko have been in litigation with each other. During
March 2000, the court involved with this litigation authorized the cancellation
of certain WasteMasters stock that had been issued to Nikko, including the
shares that Nikko had previously transferred to the Fund. At this time, the
Fund is uncertain as to how, or when, these issues regarding the ownership and
transferability of its WasteMasters stock will be resolved.
The WasteMasters common stock closed at $1.78 (an average of the closing bid
and ask prices) on the date of the exchange (June 3, 1998). Based on this
price, the Fund's WasteMasters common stock had a trading value of $1,761,157
on the date of the exchange. However, due to a number of factors, including the
speculative nature of the WasteMasters stock, the two year lock up period and
the relative size of the Fund's stock position versus the daily trading volume,
FCM decided to carry the WasteMasters stock at the same $1 nominal value that
the Atlas securities were previously carried by the Fund.
17
<PAGE> 18
The Fund recorded a realized loss of $2,560,453 on the exchange, which is equal
to the amount of the loss that the Fund claimed for income tax purposes from
the disposition of the Atlas securities. The $1,321,794 balance of the
unrealized loss previously recorded by the Fund with respect to the Atlas
securities continues to be carried by the Fund as an unrealized loss.
The 52-week low for the WasteMasters common stock is $0.02 per share and the
current bid price (July 26, 2000) is $0.25 per share.
18
<PAGE> 19
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
Exhibit No. Description
11.1 Statement of Computation of Net Investment Income Per Limited
Partnership Unit.
27.1 Financial Data Schedule.
(b) The Registrant filed one report on Form 8-K during the second quarter
of the fiscal year ending December 31, 2000. The Registrant filed a
report on Form 8-K on May 2, 2000 to report that LMC filed for Chapter
11 bankruptcy protection.
19
<PAGE> 20
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: August 9, 2000 By: /s/ Donald R. Jackson
------------------------
Donald R. Jackson
Chief Financial Officer
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
11.1 Statement of Computation of Net Investment
Income Per Limited Partnership Unit.
27.1 Financial Data Schedule.
</TABLE>
