-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I/aPAquE9aUR5urclQSKScRWdxD85Zdw4sDHEl7AoA9toNnIi0f9tiPI1PRzrtpc jX5d5O5gDmqhpgJTaGGI3w== 0001035704-99-000409.txt : 19990813 0001035704-99-000409.hdr.sgml : 19990813 ACCESSION NUMBER: 0001035704-99-000409 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDUCIARY CAPITAL PARTNERS L P CENTRAL INDEX KEY: 0000841687 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 860653600 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 814-00067 FILM NUMBER: 99685167 BUSINESS ADDRESS: STREET 1: 410 17TH STREET STREET 2: STE 400 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 303-446-59 MAIL ADDRESS: STREET 1: 410 17TH ST. STE 400 STREET 2: 410 17TH ST. STE 400 CITY: DENVER STATE: CO ZIP: 80202 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1999 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, 1999 -------------------------------------------------- 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 86-0653603 ----------------------- ------------------- (State of organization) (I.R.S. Employer Identification No.) 410 17th Street Suite 400 Denver, Colorado 80202 --------------------- ---------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (800) 866-7607 -------------- 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 . --- --- 2 Fiduciary Capital Partners, L.P. Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1999 Table of Contents
Page ---- Part I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) 3 Schedule of Investments - June 30, 1999 3 Schedule of Covered Call Options Written - June 30, 1999 5 Balance Sheets - June 30, 1999 and December 31, 1998 6 Statements of Operations for the three months ended June 30, 1999 and 1998 7 Statements of Operations for the six months ended June 30, 1999 and 1998 8 Statements of Cash Flows for the six months ended June 30, 1999 and 1998 9 Statements of Changes in Net Assets for the six months ended June 30, 1999 and for the year ended December 31, 1998 10 Selected Per Unit Data and Ratios 11 Notes to Financial Statements 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Part II. OTHER INFORMATION Item 6.Exhibits and Reports on Form 8-K 21
2 3 Part I. FINANCIAL INFORMATION Item 1. Financial Statements FIDUCIARY CAPITAL PARTNERS, L.P. SCHEDULE OF INVESTMENTS JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------------------------------------------- Principal Amount/ Investment Amortized % of Total Shares Investment Date Cost Value Investments - --------------------------------------------------------------------------------------------------------------------- MANAGED COMPANIES: 26,629 sh. KEMET Corporation, Common Stock(1)* 07/11/91 $ 9,439 $ 609,971 - --------------------------------------------------------------------------------------------------------------------- 9,439 609,971 5.9% - --------------------------------------------------------------------------------------------------------------------- $1,967,040 LMC Corporation, 12.00% Senior Subordinated 11/01/96 Revolving Notes through due 10/31/00 01/13/99 1,967,040 1,967,040 $620,317 LMC Corporation, 12.00% Senior Subordinated 02/11/99 Revolving Notes through due 10/1/99 (Note 5) 05/25/99 620,317 620,317 260,400 sh. LMC Corporation, 7.00% Cumulative Redeemable Preferred Stock* 06/10/94 2,596,621 2,596,621 5,523,500 sh. LMC Corporation, 02/09/96 Common Stock* through 08/05/98 3,034,549 2,176,469 52.08 sh. LMC Credit Corp., Common Stock* 02/09/96 1 1 - --------------------------------------------------------------------------------------------------------------------- 8,218,528 7,360,448 70.8 - --------------------------------------------------------------------------------------------------------------------- $1,460,000 R.B.M. Precision Metal Products, Inc., 13.00% Senior Subordinated Secured Notes due 5/24/02(2) 05/24/95 1,403,073 732,393 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 - --------------------------------------------------------------------------------------------------------------------- 1,486,029 732,395 7.0 - --------------------------------------------------------------------------------------------------------------------- Total Investments in Managed Companies (88.9% of net assets) 9,713,996 8,702,814 83.7 - ---------------------------------------------------------------------------------------------------------------------
The accompanying notes to financial statements are an integral part of this schedule. 3 4 FIDUCIARY CAPITAL PARTNERS, L.P. SCHEDULE OF INVESTMENTS (CONTINUED) JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------------------------------------------- Principal Amount/ Investment Amortized % of Total Shares Investment Date Cost Value Investments - --------------------------------------------------------------------------------------------------------------------- NON-MANAGED COMPANY: 989,414 sh. WasteMasters, Inc., Common Stock(3)* 06/03/98 1,321,795 1 - --------------------------------------------------------------------------------------------------------------------- Total Investment in Non-Managed Company (0.0% of net assets) 1,321,795 1 0.0 - --------------------------------------------------------------------------------------------------------------------- TEMPORARY INVESTMENTS: $1,700,000 General Electric Capital Corp., 4.96% Notes due 7/13/99 06/29/99 1,697,195 1,697,195 - --------------------------------------------------------------------------------------------------------------------- Total Temporary Investments (17.3% of net assets) 1,697,195 1,697,195 16.3 - --------------------------------------------------------------------------------------------------------------------- Total Investments (106.2% of net assets) $12,732,986 $10,400,010 100.0% =====================================================================================================================
(1) The KEMET Corporation common stock trades on the NASDAQ National Market System. (2) The notes will amortize in three equal annual installments of $486,667 commencing on May 24, 2000. (3) The WasteMasters, Inc. common stock, which trades on the OTC Market System, is subject to a 24 month lock up period, a call option and a right of first refusal. * Non-income producing security. The accompanying notes to financial statements are an integral part of this schedule. 4 5 FIDUCIARY CAPITAL PARTNERS, L.P. SCHEDULE OF COVERED CALLOPTIONS WRITTEN JUNE 30, 1999 (unaudited)
- --------------------------------------------------------------------------------------------------------------------- Shares Subject to Common Stock Expiration Date / Call Investment Exercise Price Value - --------------------------------------------------------------------------------------------------------------------- 21,916 sh. KEMET Corporation July / $17.50 $120,538 4,383 sh. KEMET Corporation October / $17.50 27,394 - --------------------------------------------------------------------------------------------------------------------- Total (premiums received $24,773) $147,932 =====================================================================================================================
The accompanying notes to financial statements are an integral part of this schedule. 5 6 FIDUCIARY CAPITAL PARTNERS, L.P. BALANCE SHEETS JUNE 30, 1999 AND DECEMBER 31, 1998 (unaudited)
1999 1998 ----------- ----------- ASSETS: Investments: Portfolio investments, at value: Managed companies (amortized cost - $9,713,996 and $9,037,112, respectively) $ 8,702,814 $ 7,735,102 Non-managed company (amortized cost- $1,321,795 1 1 Temporary investments, at amortized cost 1,697,195 2,546,274 ----------- ----------- Total investments 10,400,010 10,281,377 Cash and cash equivalents 385,970 837,202 Accrued interest receivable 97,718 103,233 Other assets 6,133 31,859 ----------- ----------- Total assets $10,889,831 $11,253,671 =========== =========== LIABILITIES: Covered call options written, at value (premiums received $24,773) $ 147,932 $ -- Payable to affiliates (Notes 2, 3 and 4) 47,686 31,197 Accounts payable and accrued liabilities 568,839 539,360 Distributions payable to partners 336,271 336,271 ----------- ----------- Total liabilities 1,100,728 906,828 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 5) NET ASSETS: Managing General Partner (212,588) (207,011) Limited Partners (equivalent $9.01 and $9.51, respectively, per limited partnership unit based on 1,109,694 units outstanding) 10,001,691 10,553,854 ----------- ----------- Net assets 9,789,103 10,346,843 ----------- ----------- Total liabilities and net assets $10,889,831 $11,253,671 =========== ===========
The accompanying notes to financial statements are an integral part of this schedule. 6 7 FIDUCIARY CAPITAL PARTNERS, L.P. STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
1999 1998 -------- ----------- INVESTMENT INCOME: Income: Interest $126,697 $ 214,948 -------- ----------- Total investment income 126,697 214,948 -------- ----------- Expenses: Fund administration fees (Note 3) 35,842 35,842 Investment advisory fees (Note 2) 24,275 32,986 Administrative expenses (Note 3) 20,277 20,277 Professional fees 29,608 36,969 Independent General Partner fees and expenses (Note 4) 12,939 14,879 Other expenses 12,284 18,930 -------- ----------- Total expenses 135,225 159,883 -------- ----------- NET INVESTMENT (LOSS) INCOME (8,528) 55,065 -------- ----------- REALIZED AND unrealized GAIN (LOSS) ON investments: Net realized loss on investments (6,155) (2,971,463) Net change in unrealized loss on investments 166,795 2,905,923 -------- ----------- Net gain (loss) on investments 160,640 (65,540) -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $152,112 $ (10,475) ======== ===========
The accompanying notes to financial statements are an integral part of this schedule. 7 8 FIDUCIARY CAPITAL PARTNERS, L.P. STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
1999 1998 -------- ----------- INVESTMENT INCOME: Income: Interest $226,387 $ 460,887 -------- ----------- Total investment income 226,387 460,887 -------- ----------- Expenses: Fund administration fees (Note 3) 71,685 71,685 Investment advisory fees (Note 2) 48,550 68,751 Administrative expenses (Note 3) 40,553 40,553 Professional fees 42,721 125,448 Independent General Partner fees and expenses (Note 4) 37,882 36,156 Other expenses 31,708 34,038 -------- ----------- Total expenses 273,099 376,631 -------- ----------- NET INVESTMENT (LOSS) INCOME (46,712) 84,256 -------- ----------- REALIZED AND unrealized GAIN (LOSS) ON investments: Net realized loss on investments (6,155) (2,984,344) Net change in unrealized loss on investments 167,669 2,721,116 -------- ----------- Net gain (loss) on investments 161,514 (263,228) -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $114,802 $ (178,972) ======== ===========
The accompanying notes to financial statements are an integral part of this schedule. 8 9 FIDUCIARY CAPITAL PARTNERS, L.P. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
1999 1998 --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net increase (decrease) in net assets resulting from operations $ 114,802 $ (178,972) Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash (used in) provided by operating activities: Accreted discount on portfolio investments (2,393) (9,577) Change in assets and liabilities: Accrued interest receivable 5,515 4,097 Other assets 25,726 60,524 Payable to affiliates 16,489 (9,020) Accounts payable and accrued liabilities (577) (1,663) Net realized loss on investments 6,155 2,984,344 Net change in unrealized loss on investments (167,669) (2,721,116) --------- ----------- Net cash (used in) provided by operating activities (1,952) 128,617 --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of portfolio investments (674,957) (1,985,300) Proceeds from dispositions of portfolio investments 49,140 818,812 Sale of temporary investments, net 849,079 4,055,494 --------- ----------- Net cash provided by investing activities 223,262 2,889,006 --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions paid to partners (672,542) (2,541,157) --------- ----------- Net cash used in financing activities (672,542) (2,541,157) --------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (451,232) 476,466 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 837,202 263,694 --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 385,970 $ 740,160 ========= =========== NONCASH INVESTING AND FINANCING ACTIVITIES: Investments exchanged for other investments $ -- $ 1,639,201 ========= ===========
The accompanying notes to financial statements are an integral part of this schedule. 9 10 FIDUCIARY CAPITAL PARTNERS, L.P. STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND FOR THE YEAR ENDED DECEMBER 31, 1998 (unaudited)
1999 1998 ----------- ----------- Increase in net assets resulting from operations: Net investment income $ (46,712) $ 107,781 Net realized loss on investments (6,155) (3,008,930) Net change in unrealized loss on investments 167,669 1,919,453 ----------- ----------- Net increase (decrease) in net assets resulting from operations 114,802 (981,696) Repurchase of limited partnership units -- (893,895) Distributions to partners from - Net investment income -- (129,001) Realized gain on investments -- (1,742,647) Return of capital (672,542) (1,363,193) ----------- ----------- Total decrease in net assets (557,740) (5,110,432) Net assets: Beginning of period 10,346,843 15,457,275 ----------- ----------- End of period (including no undistributed net investment income) $ 9,789,103 $10,346,843 =========== ===========
The accompanying notes to financial statements are an integral part of this schedule. 10 11 FIDUCIARY CAPITAL PARTNERS, L.P. SELECTED PER UNIT DATA AND RATIOS (unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Per Unit Data: Investment income $ .11 $ .18 $ .20 $ .38 Expenses (.12) (.13) (.24) (.31) ---------- ---------- ---------- ---------- Net investment (loss) income (.01) .05 (.04) .07 Net realized loss on investments (.01) (2.45) (.01) (2.46) Net change in unrealized loss on investments .15 2.39 .15 2.24 Distributions declared to partners (.30) (1.00) (.60) (2.09) ---------- ---------- ---------- ---------- Net decrease in net asset value (.17) (1.01) (.50) (2.24) Net asset value: Beginning of period 9.18 11.68 9.51 12.91 ---------- ---------- ---------- ---------- End of period $ 9.01 $ 10.67 $ 9.01 $ 10.67 ========== ========== ========== ========== Ratios (annualized): Ratio of expenses to average net assets 5.47% 4.77% 5.49% 5.35% Ratio of net investment income to average net assets (0.03)% 1.64% (0.94)% 1.20% Number of limited partnership units at end of period 1,109,694 1,201,564 1,109,694 1,201,564
The accompanying notes to financial statements are an integral part of these selected per unit data and ratios. 11 12 FIDUCIARY CAPITAL PARTNERS, L.P. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (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, 1999 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, 1998. 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 $48,550 were paid by the Fund for the six months ended June 30, 1999. 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, 1999. 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, 1999. 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, 1999 totaled $37,882. 12 13 FIDUCIARY CAPITAL PARTNERS, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (unaudited) 5. COMMITMENTS AND CONTINGENCIES LMC Commitment LMC Corporation ("LMC") is entitled to draw down a total of $849,750 pursuant to the terms of the Senior Subordinated Revolving Notes due October 1, 1999, which are held by the Fund. As of June 30, 1999, LMC had drawn down $620,317. 13 14 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, 1999, the Fund held portfolio investments in three Managed Companies and one Non-Managed Company, with an aggregate original cost of approximately $11.0 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 88.6% of the Fund's net assets. When acquired, the Fund's portfolio investments generally consisted of high-yield subordinated debt, linked with an equity participation or a comparable participation feature in middle market companies. The 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 June 30, 1999, the Fund's remaining liquid assets were invested in short-term commercial paper. 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. 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. Since the middle of 1997, the Fund has liquidated a significant percentage of its investments and has distributed approximately $5.63 per Unit to the Limited Partners, with the cash coming primarily from the liquidation of these investments. The Fund presently has only four remaining investments in portfolio companies, which are expected to generate only limited amounts of interest income for the Fund during 1999 and future years. 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 14 15 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 Fund previously indicated that it might be unable to fund a repurchase offer during 1999 due to the lack of sufficient liquidity. However, during July 1999, the General Partners determined that the Fund will proceed with the 1999 repurchase offer, which will be completed during the fourth quarter of 1999. The General Partners are presently considering a number of alternative actions through which the Fund could be liquidated during 1999 or 2000. An overall plan of liquidation was adopted at a meeting of the General Partners held in January 1999. The General Partners will follow the requisite regulatory procedures required to liquidate the Fund. These procedures are expected to include requesting an exemptive order from the Securities and Exchange Commission (the "SEC"), which will permit the Fund to act as an operating company instead of an SEC registered investment company. Once this order is obtained, the Fund will finalize its liquidation plan and prepare a proxy statement setting forth the details of the plan as well as the changes required in the Fund's Partnership Agreement. Late in the fourth quarter of 1999 or early in 2000, the Limited Partners will be requested to approve the implementation of the liquidation plan and the Partnership Agreement changes. As currently contemplated, Fund investors would become direct shareholders of LMC as a result of the liquidation plan, if all approvals are received. During February 1999, the Fund agreed to purchase $849,750 of LMC's Senior Subordinated Revolving Notes due October 1, 1999. As of June 30, 1999, $620,317 of this investment had been funded. During April 1999, the Fund began writing covered call options with respect to its shares of KEMET stock. During the three months ended June 30, 1999, the Fund received $29,536 of premiums from the sale of the options and $19,604 from the exercise of the options for 1,315 shares. At June 30, 1999, 26,299 options were outstanding at a strike price of $17.50. Accrued interest receivable decreased $5,515 from $103,233 at December 31, 1998 to $97,718 at June 30, 1999. This decrease resulted primarily from the fact that the quarterly interest payment that was due on the LMC Corporation ("LMC") notes on October 1, 1998 was not received by the Fund until January 1999. The impact of the past due status of this LMC interest payment at December 31, 1998 was partially offset by interest income earned during the three months ended June 30, 1999 on the LMC follow-on investments that were acquired during 1998 and 1999 and by interest accrued on the R.B.M. Precision Metal Products, Inc. ("RBM") subordinated debt investment at June 30, 1999. (See discussion below concerning interest payments due on the Fund's RBM subordinated debt investment.) Other assets decreased $25,726 from $31,859 at December 31, 1998 to $6,133 at June 30, 1999. This decrease resulted from decreases in both prepaid insurance and deposits. During the six months ended June 30, 1999, the Fund paid cash distributions pertaining to the fourth quarter of 1998 and the first quarter of 1999, each in the amount of $336,271, or $0.30 per Unit. The distribution for the second quarter of 1999 will be paid on August 13, 1999 at a rate of $0.30 per Unit. The Fund's ability to continue to pay quarterly distributions after the second quarter of 1999 is uncertain at this time. The distribution question will be addressed on a quarterly 15 16 basis, and will involve the consideration of a number of issues. A significant portion of the 1999 distributions is expected to constitute a return of capital. RESULTS OF OPERATIONS Investment Income and Expenses The Fund's net investment loss was $(8,528) for the three months ended June 30, 1999 as compared to net investment income of $55,065 for the corresponding period of the prior year. Net investment income (loss) per limited partnership unit decreased from $0.05 to $(0.01) and the ratio of net investment income (loss) to average net assets decreased from 1.64% to (0.03)% for the three months ended June 30, 1999 as compared to the corresponding period of the prior year. The Fund's net investment loss was $(46,712) for the six months ended June 30, 1999 as compared to net investment income of $84,256 for the corresponding period of the prior year. Net investment income (loss) per limited partnership unit decreased from $0.07 to $(0.04) and the ratio of net investment income (loss) to average net assets decreased from 1.20% to (0.94)% for the six months ended June 30, 1999 as compared to the corresponding period of the prior year. Net investment income (loss) for the three and six month periods ended June 30, 1999 decreased primarily as a result of 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 decreases in total expenses. Investment income decreased $88,251 and $234,500, or 41.1% and 50.9%, for the three and six month periods ended June 30, 1999 as compared to the corresponding periods of the prior year. These decreases resulted primarily from the decision not to record interest on the Fund's RBM subordinated debt investment during the period from August 25, 1998 through May 24, 1999 (see discussion below) and a decrease in the amount of the Fund's temporary investments. The amount of the Fund's temporary investments decreased because of (i) return of capital distributions made by the Fund, (ii) purchases of additional LMC follow-on investments, and (iii) the Fund's repurchase of 7.65% of its Units during the fourth quarter of 1998. The negative effect of these items was partially offset by an increase in interest income earned on the LMC follow-on investments that were acquired during 1998 and 1999. Total expenses decreased $24,658 and $103,532, or 15.4% and 27.5%, for the three and six month periods ended June 30, 1999 as compared to the corresponding periods of the prior year. These decreases resulted primarily from decreases in professional fees and investment advisory fees. Professional fees decreased during the three and six month periods ended June 30, 1999 as compared to the corresponding periods of the prior year, primarily because of fees incurred during the prior year in connection with LMC related litigation. The investment advisory fees decreased during the three and six month periods ended June 30, 1999 as compared to the corresponding periods of the prior year, primarily as a result of (i) the repurchase of Units during the fourth quarter of 1998, (ii) the payment of quarterly cash distributions during 1998 that exceeded the Limited Partners' Preferred Returns (as defined in the Fund's Partnership Agreement), and (iii) losses realized by the Fund during the second quarter of 16 17 1998 with respect to the Mobile Technology, Inc., Atlas Environmental, Inc. ("Atlas") and AR Accessories Group, Inc. portfolio investments. All three of these items 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. Realized Gain (Loss) on Investments On April 9, 1999, the Fund wrote covered call options (May / $15.00) with respect to 5,479 shares of its KEMET stock, for which it received $4,763 of premiums. The options for 1,315 of these shares were exercised on May 21, 1999 and the balance expired unexercised. The Fund recorded aggregate gains of $23,901 from these transactions. The Fund incurred approximately $30,000 of realized losses during the three months ended June 30, 1999 as a result of adjustments relating to certain previously held investments. 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, 1998, the Fund had recorded $309,704 of unrealized gain and $2,933,508 of unrealized loss on investments. Therefore, as of December 31, 1998, the Fund had recorded a total net unrealized loss on investments of $2,623,804. 17 18 The decrease in unrealized loss on investments during the three and six month periods ended June 30, 1999 and the cumulative net unrealized loss on investments as of June 30, 1999 consisted of the following components:
Net Changes in Unrealized Gain (Loss) ------------------------------------- Net Unrealized During the Three During the Six Gain (Loss) Months Ended Months Ended Recorded As of Portfolio Company June 30, 1999 June 30, 1999 June 30, 1999 - --------------------------------- ---------------- --------------- -------------- Unrealized gains recorded during prior periods with respect to investments disposed of during the period $(14,574) $(14,574) $ - KEMET 181,369 182,243 477,373 LMC - - (858,080) RBM - - (753,634) WMI - - (1,321,794) -------- -------- ----------- $166,795 $167,669 $(2,456,135) ======== ======== ===========
KEMET stock, which trades on the NASDAQ National Market System, closed at $22.90625 (an average of the closing bid and ask prices) on June 30, 1999. This price is up significantly from the closing prices of $11.46875 and $11.4375 on March 31, 1999 and December 31, 1998, respectively. Based on the $22.90625 closing trading price of the common stock, the 26,629 shares of common stock that the Fund held at June 30, 1999, had a market value of $609,971. As of June 30, 1999, the Fund had written outstanding covered call options with respect to 26,299 shares of KEMET stock. These options, for which the Fund received $24,773 of premiums, had a market value of $147,932 as of June 30, 1999. LMC experienced significant operating problems after the Fund acquired its LMC investment during 1994 and the Fund was involved in a restructuring of its LMC investment during 1995. In the restructuring, the Fund's then existing LMC subordinated debt and warrants were converted into preferred stock and the Fund purchased $545,600 of new common stock. As a result of LMC's operational difficulties and the fact that the Fund's investment was converted from debt securities to equity securities, the Fund wrote its LMC investment down by $540,800 during 1995. LMC has a defined contribution plan (the "Plan"), which was closed during 1995. The current and previous trustees of the Plan failed to assure that the Plan was properly funded. In order to rectify this problem, LMC made demands on the current and previous trustees of the Plan and the previous controlling shareholder that these parties make the necessary payments to the Plan. LMC has filed suit against the current trustee and the former controlling shareholder, whose wholly-owned company currently owns approximately 9% of LMC's common stock, and expects to prevail in this litigation, although there can be no assurance that this will be the case. The Internal Revenue Service ("IRS") performed an audit on the Plan during 1998, in which it reviewed certain of the years with respect to which the Plan was not properly funded. At the conclusion of its audit, the IRS notified LMC that it had determined the underfunding for the years reviewed to be $243,385, plus interest on that amount. The IRS also imposed excise taxes and interest of $16,823, which LMC has paid. LMC is currently in discussions with the IRS concerning 18 19 how and when the $243,385 underfunding, and the related excise taxes and interest, must be paid. If LMC is required to make the payments prior to resolution of the litigation with the current trustee of the Plan, it will have a negative impact on LMC's working capital availability. In addition, it is possible that additional assessments could be made in the future for underfundings of the Plan with respect to earlier years. As a result of this matter and its potential impact on LMC, the Fund recorded an additional $317,280 write down in the value of its LMC investment during 1997. On a cumulative basis, as of June 30, 1999, the Fund's LMC investment has been written down in value by $858,080. The Fund and LMC's other stockholders made follow-on investments in LMC during 1996, 1997, 1998 and 1999 in order to provide LMC with working capital required to fund significant continuing operating losses, develop a new product, finance the downpayment on and move to a new facility and to purchase capital equipment needed to modernize the company's production operations. 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 has been 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, Norwest Business Credit, replaced Bank of America. As part of this transaction, RBM's equity sponsor 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 stopped accruing interest on its RBM subordinated debt effective August 24, 1998. In addition, the Fund recorded aggregate writedowns of $753,634 relating to RBM during the year ended December 31, 1998. The Fund did not record any interest income as a result of the receipt of the shares of RBM's common stock in payment of the interest due on its RBM subordinated debt for the period from August 25, 1998 through May 24, 1999, and no value was assigned to the stock. The Fund expects to receive the quarterly interest payment due on August 24, 1999 in cash. As a result, the Fund has accrued the interest due on the debt from the period from May 25, 1999 through June 30, 1999 in the accompanying financial statements. During June 1998, the Fund exchanged its Atlas Environmental, Inc. ("Atlas") (which was in bankruptcy proceedings) subordinated notes and warrants for 989,414 shares of common stock of WasteMasters, Inc. ("WMI"), an Atlanta, Georgia based waste management company. Pursuant to 19 20 the terms of the agreement, the Fund is prohibited from selling its WMI common stock for 24 months. In addition, the Fund granted the entity acquiring the Fund's Atlas securities a call on the Fund's WMI common stock during the 24 month lock up period and a right of first refusal thereafter. The call price is $11.25 per share. The WMI common stock, which trades on the OTC Market System ("WASTE"), 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 WMI 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 WMI stock, the two year lock up period and the relative size of the Fund's stock position versus the daily trading volume, FCM has decided to carry the WMI stock at the same $1 nominal value that the Atlas securities were previously carried by the Fund. The WMI common stock has recently traded near its 52-week low of $0.025 per share. The Fund recorded a realized loss of $2,560,453 on the exchange, which was equal to the amount of the loss which 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. FCM continually monitors both the Fund's portfolio companies and the markets, and continually evaluates the decision to hold or sell its traded securities. Readiness for Year 2000 FCM has completed a review of the accounting and other information systems that are currently being utilized by FCM and the Fund with regard to Year 2000 issues. This review involved both actual tests of parts of the information systems that were conducted by third party consultants and representations received from various software vendors. FCM believes that all of these systems are Year 2000 compliant. All of the costs associated with this review were paid by FCM. FCM also corresponded with appropriate third parties, such as the Fund's custodian and transfer agent, concerning whether their information systems are Year 2000 compliant. These third parties have represented that their information systems are either currently Year 2000 compliant or that they have identified the scope of required upgrades or changes to their information systems that are needed and that they have a plan in place to complete these upgrades on a timely basis. As a result of the above discussed review, Year 2000 issues are not expected to have any material adverse effects on the Fund's results of operations or financial condition. 20 21 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 did not file any reports on Form 8-K during the second quarter of the fiscal year ending December 31, 1999. 21 22 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, 1999 By: /s/ Donald R. Jackson --------------------- Donald R. Jackson Chief Financial Officer 22 23 EXHIBIT INDEX
Exhibit No. Description Page ----------- ----------- ---- 11.1 Statement of Computation of Net Investment Income Per Limited Partnership Unit. 27.1 Financial Data Schedule.
E-1 EX-11.1 2 STATEMENT OF COMPUTATION 1 EXHIBIT 11.1 FIDUCIARY CAPITAL PARTNERS, L.P. STATEMENT OF COMPUTATION OF NET INVESTMENT INCOME PER LIMITED PARTNERSHIP UNIT
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Net Investment (Loss) Income $ (8,528) $ 55,065 $ (46,712) $ 84,256 Percentage Allocable to Limited Partners 99% 99% 99% 99% --------- --------- --------- --------- Net Investment (Loss) Income Allocable to Limited Partners $ (8,443) $ 54,514 $ (46,245) $ 83,413 ========= ========= ========= ========= Weighted Average Number of Limited Partnership Units Outstanding 1,109,694 1,201,564 1,109,694 1,201,564 ========= ========= ========= ========= Net Investment (Loss) Income Per Limited Partnership Unit $ (.01) $ . 05 $ (.04) $ . 07 ======== ========= ========= =========
EX-27.1 3 FINANCIAL DATA SCHEDULE
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 12,732,986 10,400,010 97,718 6,133 385,970 10,889,831 0 0 1,100,728 1,100,728 0 0 1,109,694 1,109,694 0 0 0 0 (2,456,135) 9,789,103 0 226,387 0 273,099 (46,712) (6,155) 167,669 114,802 0 0 0 672,542 0 0 0 (557,740) 0 0 0 0 48,550 0 273,099 9,936,403 9.51 (.04) .14 0 0 .60 9.01 5.49
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