10-Q 1 d86729e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2001 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 -------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ------------------- Commission file number 0-17737 ------------------------------------------------------- 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 80202-1306 ---------------- ---------- (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 March 31, 2001 Table of Contents

2 3 Part I. FINANCIAL INFORMATION Item 1. Financial Statements FIDUCIARY CAPITAL PARTNERS, L.P. SCHEDULE OF INVESTMENTS MARCH 31, 2001 (unaudited)

The accompanying notes to financial statements are an integral part of this schedule. 3 4 FIDUCIARY CAPITAL PARTNERS, L.P. SCHEDULE OF INVESTMENTS MARCH 31, 2001 (unaudited)

(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 on these notes. (3) On April 5, 2001, R.B.M. Precision Metal Products, Inc. ("RBM") prepaid these notes at face value, plus accrued interest, and purchased the common stock and warrants for $53,091. (4) These are non-interest bearing receivables, which were purchased from LMC Corporation ("LMC") at a discount. Payments are due on 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 5 FIDUCIARY CAPITAL PARTNERS, L.P. BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (unaudited)

The accompanying notes to financial statements are an integral part of these financial statements. 5 6 FIDUCIARY CAPITAL PARTNERS, L.P. STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (unaudited)

The accompanying notes to financial statements are an integral part of these financial statements. 6 7 FIDUCIARY CAPITAL PARTNERS, L.P. STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (unaudited)

The accompanying notes to financial statements are an integral part of these financial statements. 7 8 FIDUCIARY CAPITAL PARTNERS, L.P. STATEMENTS OF CHANGES IN NET ASSETS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND FOR THE YEAR ENDED DECEMBER 31, 2000 (unaudited)

The accompanying notes to financial statements are an integral part of these financial statements. 8 9 FIDUCIARY CAPITAL PARTNERS, L.P. SELECTED PER UNIT DATA AND RATIOS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (unaudited)

The accompanying notes to financial statements are an integral part of these selected per unit data and ratios. 9 10 FIDUCIARY CAPITAL PARTNERS, L.P. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) 1. GENERAL The accompanying unaudited interim condensed financial statements include all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of FCM Fiduciary Capital Management Company ("FCM"), the Managing General Partner of Fiduciary Capital Partners, L.P. (the "Fund"), necessary to fairly present the financial position of the Fund as of March 31, 2001 and the results of its operations, changes in net assets and its cash flows for the period then ended. These financial statements should be read in conjunction with the Significant Accounting Policies and other Notes to Financial Statements included in the Fund's annual audited financial statements for the year ended December 31, 2000. 2. INVESTMENT ADVISORY FEES As compensation for its services as investment adviser, FCM was 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. The investment advisory fees for 2000 were not paid during 2000 due to the failure of the Fund to satisfy the applicable subordination provisions. During March 2001, in connection with the adoption of the plan of liquidation for the Fund, FCM permanently waived its rights to receive any future investment advisory fees from the Fund, retroactive to January 1, 2000. As a result, the quarterly accruals for investment advisory fees that were made during 2000 were reversed as of December 31, 2000 and the Fund did not record any investment advisory fees during the three months ended March 31, 2001. 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 $34,809 were paid by the Fund for the three months ended March 31, 2001. FCM is also reimbursed, subject to various limitations, for administrative expenses incurred in providing accounting and investor services to the Fund. The Fund reimbursed FCM for administrative expenses of $20,041 for the three months ended March 31, 2001. 10 11 FIDUCIARY CAPITAL PARTNERS, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (unaudited) 4. INDEPENDENT GENERAL PARTNER FEES AND EXPENSES As compensation for services rendered to the Fund, each of the Independent General Partners receives from the Fund and Fiduciary Capital Pension Partners, L.P., an affiliated fund, (collectively, the "Funds") an annual fee of $30,000, payable monthly in arrears, together with all out-of-pocket expenses. Each Fund's allocation of these fees and expenses is based on the relative number of outstanding Units. Fees and expenses paid by the Fund for the three months ended March 31, 2001 totaled $12,088. 5. COMMITMENTS AND CONTINGENCIES WasteMasters, Inc. ("WasteMasters") The Fund acquired its WasteMasters stock, which trades on the OTC Bulletin 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. WasteMasters refused to comply with this request because of a court order during March 2000 that authorized the cancellation of all 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 Fund has retained counsel and WasteMasters' attorneys are considering the Fund's request to be treated as a bona fide purchaser of the shares from Nikko. Others are in the same position as the Fund and have requested similar treatment. WasteMasters' attorneys have indicated that they will not be in a position to make a determination as to the Fund's position as a bona fide purchaser until other ongoing litigation is resolved. There can be no assurance that a conclusion favorable to the Fund will be achieved, or that a determination will be made prior to the final liquidation of the Fund. 11 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Fund's unaudited Financial Statements and the Notes thereto. This report contains, in addition to historical information, forward-looking statements that include risks and other uncertainties. The Fund's actual results may differ materially from those anticipated in these forward-looking statements. While the Fund can not always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements, factors that might cause such a difference include general economic and business conditions, competition and other factors discussed elsewhere in this report. Readers are urged to consider statements that include the terms "believes", "expects", "plans", "anticipates", "intends" or the like to be uncertain and forward-looking. The Fund undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2001, the Fund held portfolio investments in two Managed Companies and two Non-Managed Companies, with an aggregate original cost of approximately $5.0 million. The value of these portfolio investments, which were made through the reinvestment of proceeds from the sale of other portfolio investments, represents approximately 98.3% of the Fund's net assets as of March 31, 2001. 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 1995. As provided for in the Partnership Agreement, the Fund's term expired, and the dissolution of the Fund was effective, as of December 31, 2000. The General Partners are proceeding with the liquidation and distribution of the Fund's assets in accordance with a plan of liquidation that was adopted by the General Partners on March 2, 2001. It is currently anticipated that the liquidation of the Fund will be completed prior to December 31, 2001 and that additional distributions to Limited Partners during 2001 will total between $1.25 and $1.75 per Unit. During December 2000, RBM and the Fund began negotiating a transaction in which RBM would prepay the RBM notes held by the Fund and purchase the RBM common stock and warrants held by the Fund. In this transaction, which was consummated on April 5, 2001, RBM (i) prepaid the $1,460,000 of RBM notes held by the Fund at par, plus accrued interest, and (ii) purchased the RBM stock and warrants held by the Fund for $53,091. As of March 31, 2001, the Fund's remaining liquid assets were invested in money market funds. These funds, along with the cash proceeds received during April 2001 from the RBM transaction, are available to fund the 2001 repurchase offer, to pay Fund expenses and for distribution to the partners. The Fund does not anticipate making any additional follow-on investments in existing portfolio companies. 12 13 During April 2001, the Fund declared a cash distribution of $1.25 per Unit, which will be paid to the Fund's partners on May 10, 2001. 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. If, as presently anticipated, the liquidation of the Fund is not completed prior to October 2001, the Fund will make a repurchase offer during October 2001. If the plan of liquidation is proceeding as anticipated, the net asset value per Unit at the time of the repurchase offer is anticipated to be a nominal amount. Payables to affiliates increased $32,695 from $4,097 at December 31, 2000 to $36,792 at March 31, 2001. This increase resulted primarily from an increase in the amount of reimbursements due FCM for expenses incurred on behalf of the Fund. RESULTS OF OPERATIONS Investment Income and Expenses The Fund's net investment loss was $44,097 for the three months ended March 31, 2001 as compared to a net investment loss of $69,087 for the corresponding period of the prior year. Net investment loss per limited partnership unit decreased from $0.07 to $0.04 and the ratio of net investment loss to average net assets decreased from 25.98% to 10.29% for the three months ended March 31, 2001 as compared to the corresponding period of the prior year. The net investment loss for the three months ended March 31, 2001 decreased primarily as a result of a decrease in total expenses as compared to the corresponding period of the prior year. The impact of the decrease in total expenses was partially offset by a decrease in investment income. Investment income decreased $13,789, or 20.7%, for the three months ended March 31, 2001, as compared to the corresponding period of the prior year. This decrease resulted primarily from a decrease in the amount of the Fund's temporary and money market investments and a decrease in the balance of the Niigata Engineering Co., Ltd. ("Niigata") receivables. The amount of the Fund's temporary and money market investments decreased because of (i) a cash distributions made by the Fund during February 2000 that constituted a return of capital, (ii) purchases of additional LMC follow-on investments (including the Niigata receivables), (iii) the Fund's repurchase of 9.31% of its Units during the fourth quarter of 2000, and (iv) operating losses incurred by the Fund. The balance of the Niigata receivables decreased because of payments received from Niigata during May and November of 2000. Total expenses decreased $38,779, or 28.6%, for the three months ended March 31, 2001, as compared to the corresponding period of the prior year. This decrease resulted primarily from decreases in professional and investment advisory fees. 13 14 Professional fees decreased because prior year legal fees included a significant amount of fees incurred in connection with LMC related litigation. The Fund's obligation to pay the monthly investment advisory fees to FCM was subject to the Fund satisfying applicable subordination provisions as set forth in the Partnership Agreement. The investment advisory fees were not paid during 2000 due to the failure of the Fund to satisfy these subordination provisions. During March 2001, in connection with the adoption of the plan of liquidation for the Fund, FCM permanently waived its rights to receive any future investment advisory fees from the Fund, retroactive to January 1, 2000. As a result, the quarterly accruals for investment advisory fees that were made during 2000 were reversed as of December 31, 2000 and the Fund did not record any investment advisory fees during the three months ended March 31, 2001. 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, 2000, the Fund had recorded $3,332,812 of unrealized loss on investments. There were no changes to these unrealized losses on investments during the three months ended March 31, 2001. The cumulative net unrealized loss on investments as of March 31, 2001 consisted of the following components:

14 15 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 LMC's revolving line of credit with CIT, forced a cessation of production of equipment and severely curtailed LMC's ability to fulfill orders for spare parts. Substantially all of LMC's employees were terminated during December 1999 and January 2000. While LMC held discussions with several potential purchasers of its business, in whole or in part, no meaningful offers were received. LMC did consummate a consignment joint venture with respect to its spare parts business during March 2000. LMC received a notice of default, dated April 6, 2000, from CIT with respect to its revolving line of credit. On April 28, 2000, LMC filed for Chapter 11 bankruptcy protection. On November 9, 2000, CIT repossessed LMC's assets that had been pledged as collateral on the line of credit (all of LMC's assets except for its real property). On January 17, 2001, CIT conducted a foreclosure sale of the repossessed assets. The proceeds of the foreclosure sale totaled less than the amount of LMC's indebtedness to CIT. LMC is currently attempting to sell its real property. All proceeds realized from the sale will be payable to LMC's creditors, including the Fund. The Fund wrote its LMC investment down by $540,800 and $317,280 during 1995 and 1997, respectively. As a result of the above discussed developments, the Fund created additional reserves of $7,402,297 and $314,602 against the carrying values of the Fund's LMC investment during the years ended December 31, 1999 and 2000, respectively. As of December 31, 2000, the Fund wrote the cost of all of its LMC equity investments off as realized losses. There is a possibility that the Fund could recover a small portion of its investment in LMC debt during 2001 out of proceeds derived from the sale of LMC's real property. During December 2000, RBM and the Fund began negotiating a transaction in which RBM would prepay the RBM notes held by the Fund and purchase the RBM common stock and warrants held by the Fund. In this transaction, which was consummated on April 5, 2001, RBM (i) prepaid the $1,460,000 of RBM notes held by the Fund at par, plus accrued interest, and (ii) purchased the RBM stock and warrants held by the Fund for $53,091. As of December 31, 2000, the Fund adjusted the carrying value of its RBM investments to amounts equal to the proceeds received from RBM during April 2001. During June 1998, the Fund exchanged its Atlas subordinated notes and warrants for 989,414 shares of common stock in WasteMasters, a waste management company headquartered in El Reno, Oklahoma. The Fund's WasteMasters stock, which was acquired from Nikko Trading of America Corporation ("Nikko"), 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 the stock could be sold. WasteMasters refused to comply with this request because of a court order during March 2000 that authorized the cancellation of all 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 Fund has retained counsel and WasteMasters' attorneys are considering the Fund's request to be treated as a bona fide purchaser of the shares from Nikko. Others are in the same position as the Fund and have requested similar 15 16 treatment. WasteMasters' attorneys have indicated that they will not be in a position to make a determination as to the Fund's position as a bona fide purchaser until other ongoing litigation is resolved. There can be no assurance that a conclusion favorable to the Fund will be achieved, or that a determination will be made prior to the final liquidation of the Fund. The WasteMasters common stock, which trades on the OTC Bulletin Board System ("WASTE"), closed at $1.78 (an average of the closing bid and ask prices) on June 3, 1998 (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, FCM recorded the WasteMasters stock at the same nominal value that the Atlas securities had previously been carried by the Fund. 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 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 (April 30, 2001) is $0.05 per share. 16 17 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. (b) The Registrant filed a report on Form 8-K on March 26, 2001 to report (i) the dissolution of the Partnership, (ii) the adoption of a plan of liquidation by the General Partners, and (iii) the General Partners' decision to permanently suspend the recognition of transfers of Units that were not consummated and approved prior to April 15, 2001. 17 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Fiduciary Capital Partners, L.P. (Registrant) By: FCM Fiduciary Capital Management Company Managing General Partner Date: May 2, 2001 By: /s/ Donald R. Jackson --------------------- Donald R. Jackson Chief Financial Officer 18 19 EXHIBIT INDEX

FIDUCIARY CAPITAL PARTNERS L P 10-Q