<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
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Commission file number 0-17738
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Fiduciary Capital Pension Partners, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 86-0653603
--------------------- ------------------
(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
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(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 Pension Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2000
Table of Contents
<TABLE>
<CAPTION>
Page
----
Part I. FINANCIAL INFORMATION
<S> <C> <C> <C>
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 PENSION 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:
$1,632,960 LMC Corporation, 12.00%
Senior Subordinated 11/01/96
Revolving Notes through
due 10/31/00(1) 01/13/99 $1,632,960 $ 226,800
$14,096 LMC Corporation, 12.00% 02/07/00
Promissory Notes due through
8/7/00(2) 04/11/00 14,096 14,096
71,961 sh. LMC Corporation,
Class B Preferred Stock* 08/09/99 719,610 1
239,600 sh. LMC Corporation,
Class C Preferred Stock* 06/10/94 2,389,210 1
4,476,500 sh. LMC Corporation, 02/09/96
Common Stock* through
08/05/98 2,465,449 1
47.92 sh. LMC Credit Corp.,
Common Stock* 02/09/96 1 1
-------------------------------------------------------------------------------------------------------------------
7,221,326 240,900 24.1%
-------------------------------------------------------------------------------------------------------------------
$1,290,000 R.B.M. Precision Metal
Products, Inc., 13.00%
Senior Subordinated
Secured Notes due
5/24/02(3) 05/24/95 1,260,520 667,933
12,603.7 sh. R.B.M. Precision Metal
Products, Inc., Warrants to
Purchase Common Stock* 05/24/95 73,295 1
12,717 sh. R.B.M. Precision Metal
Products, Inc., Common
Stock* 12/09/98 1 1
-------------------------------------------------------------------------------------------------------------------
1,333,816 667,935 66.7
-------------------------------------------------------------------------------------------------------------------
Total Investments in Managed Companies (161.7% of net assets) 8,555,142 908,835 90.8
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to financial statements are an
integral part of this schedule.
3
<PAGE> 4
FIDUCIARY CAPITAL PENSION PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
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:
$104,262 Niigata Engineering 12/01/99
Co., Ltd. through
Receivables(4) 01/03/00 92,138 92,138
-------------------------------------------------------------------------------------------------------------------
92,138 92,138 9.2
-------------------------------------------------------------------------------------------------------------------
821,376 sh. WasteMasters, Inc.,
Common Stock(5)* 06/03/98 1,097,307 1
-------------------------------------------------------------------------------------------------------------------
1,097,307 1 0.0
-------------------------------------------------------------------------------------------------------------------
Total Investment in Non-Managed
Companies (16.4% of net assets) 1,189,445 92,139 9.2
-------------------------------------------------------------------------------------------------------------------
Total Investments (178.1% of net assets) $9,744,587 $1,000,974 100.0%
===================================================================================================================
</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 principal payments of
$430,000 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 $25,361 and on May
21, 2002 in the amount of $28,179.
(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 PENSION PARTNERS, L.P.
BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
ASSETS:
<S> <C> <C>
Investments:
Portfolio investments, at value:
Managed companies (amortized cost -
$8,555,142 and $8,530,780,
respectively) $ 908,835 $ 884,473
Non-managed companies (amortized cost -
$1,189,445 and $1,139,911, respectively) 92,139 42,605
Temporary investments, at amortized cost -- 374,820
----------- -----------
Total investments 1,000,974 1,301,898
Cash and cash equivalents 92,061 130,566
Accrued interest receivable 18,057 19,126
Other assets 5,317 20,834
----------- -----------
Total assets $ 1,116,409 $ 1,472,424
=========== ===========
LIABILITIES:
Payable to affiliates $ 65,364 $ 28,161
Accounts payable and accrued liabilities 489,021 493,269
Distributions payable to partners -- 263,575
----------- -----------
Total liabilities 554,385 785,005
----------- -----------
COMMITMENTS AND CONTINGENCIES
NET ASSETS:
Managing General Partner (166,208) (166,208)
Limited Partners (equivalent to $0.84
and $0.98 respectively, per limited
partnership unit based on 869,796
units outstanding) 728,232 853,627
----------- -----------
Net assets 562,024 687,419
----------- -----------
Total liabilities and net assets $ 1,116,409 $ 1,472,424
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
5
<PAGE> 6
FIDUCIARY CAPITAL PENSION 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 $ 51,451 $ 101,425
--------- ---------
Total investment income 51,451 101,425
--------- ---------
Expenses:
Fund administration fees 29,582 29,582
Investment advisory fees 19,185 20,740
Administrative expenses 17,224 17,224
Professional fees 3,285 25,965
Independent General Partner fees
and expenses 11,214 11,005
Other expenses 33,721 12,102
--------- ---------
Total expenses 114,211 116,618
--------- ---------
NET INVESTMENT LOSS (62,760) (15,193)
--------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON investments:
Net realized loss on investments -- (6,222)
Net change in unrealized loss on investments -- 137,608
--------- ---------
Net gain on investments -- 131,386
--------- ---------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (62,760) $ 116,193
========= =========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
6
<PAGE> 7
FIDUCIARY CAPITAL PENSION 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 $ 104,866 $ 180,920
--------- ---------
Total investment income 104,866 180,920
--------- ---------
Expenses:
Fund administration fees 59,164 59,164
Investment advisory fees 38,370 41,481
Administrative expenses 34,448 34,448
Professional fees 22,246 37,548
Independent General Partner fees
and expenses 21,701 32,218
Other expenses 54,332 29,588
--------- ---------
Total expenses 230,261 234,447
--------- ---------
NET INVESTMENT LOSS (125,395) (53,527)
--------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS) ON investments:
Net realized loss on investments -- (6,222)
Net change in unrealized loss on investments -- 138,329
--------- ---------
Net gain on investments -- 132,107
--------- ---------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(125,395) $ 78,580
========= =========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
7
<PAGE> 8
FIDUCIARY CAPITAL PENSION 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> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets resulting from operations $(125,395) $ 78,580
Adjustments to reconcile net (decrease) increase in net assets
resulting from operations to net cash used in
operating activities:
Accreted discount on portfolio investments (16,225) (2,114)
Change in assets and liabilities:
Accrued interest receivable 1,069 4,533
Other assets 15,517 22,108
Payable to affiliates 37,203 14,688
Accounts payable and accrued liabilities (4,248) (411)
Net realized loss on investments -- 6,222
Net change in unrealized loss on investments -- (138,329)
--------- ---------
Net cash used in operating activities (92,079) (14,723)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of portfolio investments (94,602) (520,045)
Proceeds from dispositions of portfolio investments 36,931 40,548
Sale of temporary investments, net 374,820 749,121
--------- ---------
Net cash provided by investing activities 317,149 269,624
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (263,575) (569,900)
--------- ---------
Net cash used in financing activities (263,575) (569,900)
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (38,505) (314,999)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 130,566 628,670
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 92,061 $ 313,671
========= =========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
8
<PAGE> 9
FIDUCIARY CAPITAL PENSION 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> <C>
Decrease in net assets resulting from operations:
Net investment loss $ (125,395) $ (279,357)
Net realized gain on investments -- 410,023
Net change in unrealized loss on
investments -- (6,494,039)
----------- -----------
Net decrease in net assets
resulting from operations (125,395) (6,363,373)
Repurchase of limited partnership units -- (296,973)
Return of capital distributions -- (1,118,426)
----------- -----------
Total decrease in net assets (125,395) (7,778,772)
Net assets:
Beginning of period 687,419 8,466,191
----------- -----------
End of period (including no undistributed
net investment income ) $ 562,024 $ 687,419
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
9
<PAGE> 10
FIDUCIARY CAPITAL PENSION 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 $ .12 $ .18
Expenses (.13) (.12) (.26) (.23)
----------- ----------- ----------- -----------
Net investment loss (.07) (.01) (.14) (.05)
Net realized loss on investments -- (.01) -- (.01)
Net change in unrealized loss on investments -- .14 -- .14
Distributions declared to partners -- (.30) -- (.60)
----------- ----------- ----------- -----------
Net decrease in net asset value (.07) (.18) (.14) (.52)
Net asset value:
Beginning of period 0.91 8.85 0.98 9.19
----------- ----------- ----------- -----------
End of period $ 0.84 $ 8.67 $ 0.84 $ 8.67
=========== =========== =========== ===========
Ratios (annualized):
Ratio of expenses to average net assets 76.60% 5.79% 73.71% 5.72%
Ratio of net investment loss to average
net assets (42.09)% (0.75)% (40.14)% (1.31)%
Number of limited partnership units at
end of period 869,796 940,336 869,796 940,336
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
10
<PAGE> 11
FIDUCIARY CAPITAL PENSION 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 Pension 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 $38,370 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 $59,164 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 $34,448 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 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 $21,701.
11
<PAGE> 12
FIDUCIARY CAPITAL PENSION 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 $38,498
to LMC. $14,096 of these advances was structured as the purchase of promissory
notes, and additional advances totaling $16,692 were expensed by the Fund.
Remaining amounts to be advanced, as of June 30, 2000, total $7,710.
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 $9.7 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 178.1% 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 $53,540 of Niigata Engineering Co.,
Ltd. ("Niigata") receivables from LMC at a cost of $42,284. An additional
$76,083 of Niigata receivables were purchased during January 2000 at a cost of
$68,935. These various receivables were payable on specified dates between May
21, 2000 and May 21, 2002.
The initial payment, in the amount of $25,361, 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 $38,498 to LMC in order
to provide operating capital to LMC (see following discussion regarding LMC).
$14,096 of these advances was structured as the purchase of promissory notes,
and additional advances totaling $16,692 were expensed by the Fund. Remaining
amounts to be advanced, as of June 30, 2000, total $7,710.
Payables to affiliates increased $37,203 from $28,161 at December 31, 1999 to
$65,364 at June 30, 2000. This increase resulted primarily from the deferral of
the payment of FCM's subordinated investment advisory fees 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 $263,575 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 $62,760 for the three months ended June 30,
2000 as compared to a net investment loss of $15,193 for the corresponding
period of the prior year. Net investment loss per limited partnership unit
increased from $0.01 to $0.07 and the ratio of net investment loss to average
net assets increased from 0.75% to 42.09% 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 $125,395 for the six months ended June 30,
2000 as compared to a net investment loss of $53,527 for the corresponding
period of the prior year. Net investment loss per limited partnership unit
increased from $0.05 to $0.14 and the ratio of net investment loss to average
net assets increased from 1.31% to 40.14% 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. The impact of the
decreases in investment income was partially offset by small decreases in total
expenses.
14
<PAGE> 15
Investment income decreased $49,974 and $76,054, or 49.3% and 42.0%, 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 7.50% 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 decreased $2,407 and $4,186, or 2.1% and 1.8%, 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 decreases in
professional fees and Independent General Partner fees and expenses and, to a
lesser extent, investment advisory fees. These decreases were partially offset
by increases in other expenses incurred in connection with the Fund's LMC
investments.
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 $8,743,613 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 $ -- $(6,980,426)
RBM -- (665,881)
WMI -- (1,097,306)
-------------- -----------
$ -- $(8,743,613)
============== ===========
</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 $38,498 to LMC. $14,096 of these
advances was structured as the purchase of promissory notes, and additional
advances totaling $16,692 were expensed by the Fund. Remaining amounts to be
advanced, as of June 30, 2000, total $7,710.
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 $459,200 and $282,720 during 1995 and
1997, respectively. As a result of the above-described developments, the Fund
created additional reserves of $6,238,506 against the carrying values of the
Fund's LMC investment during 1999. Thus, the Fund's total LMC investment
currently has a net carrying value of $240,900, versus its cost of $7,221,326.
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 5.9% to 7.2%,
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
$665,881 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 821,376 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 $1,462,049 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 $2,125,574 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 $1,097,306 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 Pension 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
INDEX TO EXHIBITS
<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>
