<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period Commission file number:
ended SEPTEMBER 30, 1995 0-22832
------------------ ------------------------
ALLIED CAPITAL LENDING CORPORATION
------------------------------------------------------
(exact name of Registrant as specified in its charter)
MARYLAND 52-1081052
- ------------------------------ -------------------
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1666 K STREET, N.W.
9TH FLOOR
WASHINGTON, DC 20006
(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 331-1112
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as 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 _____
On November 3, 1995 there were 4,380,999 shares outstanding of the
Registrant's common stock, $0.0001 par value.
<PAGE>
ALLIED CAPITAL LENDING CORPORATION
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Financial Position as of September 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statement of Operations - For the Three and Nine Months
Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Changes in Net Assets - For the Nine Months
Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 3
Notes to the Consolidated Financial Statements. . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 7
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 7
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 7
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in thousands, except number of shares)
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
(unaudited)
<S> <C> <C>
Assets
Investments at value:
Loans.................................................................. $ 44,996 $ 32,771
Other investment assets................................................ 110 --
-------- --------
Total investments.................................................... 45,106 32,771
Cash and cash equivalents................................................ 1,436 1,297
Accrued interest receivable.............................................. 718 451
Excess servicing asset................................................... 3,384 2,700
Other assets............................................................. 512 400
-------- --------
Total assets......................................................... $ 51,156 $ 37,619
-------- --------
-------- --------
Liabilities
Notes payable............................................................ $ 16,185 $ 3,130
Accounts payable and accrued expenses.................................... 1,431 1,209
Investment advisory fee payable.......................................... 310 230
Dividends and distributions payable...................................... -- 262
-------- --------
Total liabilities.................................................... 17,926 4,831
-------- --------
Commitments and Contingencies
Shareholders' Equity
Common stock, $0.0001 par value; 20,000,000 shares authorized; 4,380,999
and 4,370,385 shares issued and outstanding at 9/30/95 and 12/31/94..... -- --
Additional paid-in capital............................................... 33,202 33,069
Net unrealized depreciation on investments............................... (221) (164)
Undistributed (distributions in excess of) accumulated earnings.......... 249 (117)
-------- --------
Total shareholders' equity........................................... 33,230 32,788
-------- --------
Total liabilities and shareholders' equity........................... $ 51,156 $ 37,619
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Investment Income:
Interest................................................. $ 1,649 $ 1,020 $ 4,335 $ 2,595
Premium income, net...................................... 678 517 1,590 1,591
--------- --------- --------- ---------
Total investment income................................ 2,327 1,537 5,925 4,186
--------- --------- --------- ---------
Expenses:
Investment advisory fee.................................. 310 211 807 581
Legal and audit fees..................................... 48 27 98 89
Interest expense......................................... 306 2 559 12
Other operating expenses................................. 83 55 256 176
--------- --------- --------- ---------
Total expenses......................................... 747 295 1,720 858
--------- --------- --------- ---------
Net investment income...................................... 1,580 1,242 4,205 3,328
Net realized (losses) recoveries on investments............ (114) (8) (153) (16)
--------- --------- --------- ---------
Net investment income before net unrealized appreciation on
investments............................................... 1,466 1,234 4,052 3,312
Net unrealized appreciation on investments................. (64) 74 (57) 79
--------- --------- --------- ---------
Net increase in net assets resulting from operations....... $ 1,402 $ 1,308 $ 3,995 3,391
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share......................................... $ 0.32 $ 0.30 $ 0.91 $ 0.77
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of shares and share equivalents
outstanding............................................... 4,381 4,381 4,381 4,381
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------
1995 1994
<S> <C> <C>
Increase in Net Assets Resulting from Operations:
Net investment income............................................................. $ 4,205 $ 3,328
Net realized losses on investments................................................ (153) (16)
Net change in unrealized appreciation on investments.............................. (57) 79
--------- ---------
Net increase in net assets resulting from operations............................ 3,995 3,391
Distributions to Shareholders....................................................... (3,686) (3,276)
Capital Share Transactions.......................................................... 133 --
--------- ---------
Net Increase (Decrease) in Net Assets............................................... 442 115
Net assets at beginning of period................................................... 32,788 32,955
--------- ---------
Net assets at end of period......................................................... $ 33,230 $ 33,070
--------- ---------
--------- ---------
Net asset value per share........................................................... $ 7.59 $ 7.55
--------- ---------
--------- ---------
Shares outstanding at end of period................................................. 4,381 4,378
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 1. GENERAL
In the opinion of management, the accompanying unaudited
consolidated financial statements of Allied Capital Lending Corporation
(the Company) contain all adjustments necessary to present fairly the
Company's financial position as of September 30, 1995 and the results of
operations and changes in net assets for the periods indicated. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1994
Annual Report. The results of operations for the nine months ended
September 30, 1995 are not necessarily indicative of the operating
results to be expected for the full year. Certain reclassifications have
been made to the 1994 financial statements in order to conform to the
1995 presentation.
NOTE 2. CONSOLIDATION
During the second quarter of 1995, ACLC Limited Partnership (the
Partnership) was formed by the Company so that the Company could
participate in the U.S. Small Business Administration's (SBA) 504 loan
program. The Company is the general partner and has a 99% interest in
the Partnership. The consolidated financial statements include the
accounts of the Company and the Partnership. All intercompany
transactions have been eliminated upon consolidation.
NOTE 3. DISTRIBUTIONS
The Company's Board of Directors declared a third quarter dividend
equivalent to $0.29 per share that was paid on September 29, 1995 to
shareholders of record as of September 15, 1995. The Company paid cash
of $1,224,000 and distributed new shares of common stock with a value of
$47,000 for a total of $1,271,000 in connection with this dividend. The
Company's Board of Directors also declared a second quarter dividend
equivalent to $0.2825 per share that was paid on June 28, 1995 and a
first quarter dividend equivalent to $0.27 per share that was paid on
March 29, 1995 to shareholders. In connection with these dividends, the
Company paid cash of $2,328,000 and distributed new shares of common
stock with a value of $87,000.
NOTE 4. NOTES PAYABLE
Effective July 26, 1995, the Company modified its secured line of
credit agreement with a bank and on August 31, 1995 renewed its $2
million unsecured line of credit. The Company increased its borrowing
capacity under the secured portion of its credit agreement from $13
million to $15 million. In addition, the interest rate associated with
the secured portion of the credit agreement was changed from the Wall
Street Journal floating prime rate to LIBOR plus 2.2%. As of September
30, 1995, the Company had outstanding borrowings under these agreements
equal to $13,694,000.
On September 27, 1995, the Company entered into a credit agreement
whereby the Company can borrow up to $20 million in order to finance its
investments in small business concerns that qualify under the SBA's 504
and companion loan programs. The credit agreement expires September 27,
1996 and requires the Company to pay interest monthly based upon LIBOR
plus 2%. As of September 30, 1995, the Company had outstanding
borrowings under this facility equal to $2,491,000.
NOTE 5. EARNINGS PER SHARE
Earnings per share is computed assuming all issuances of the
Company's common stock in connection with its dividend reinvestment plan
are outstanding for all periods presented. During 1995, the Company has
issued 10,614 shares of common stock pursuant to the dividend
reinvestment plan. The weighted average number of shares and share
equivalents outstanding for the three and nine months ended September
30, 1994 have been restated to include the 1995 common stock issuances.
In addition, the computation of net assets per
4
<PAGE>
share as of September 30, 1994 has been restated to reflect the issuances
of common stock pursuant to the dividend reinvestment plan during 1995.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Commitments. The Company had loan commitments outstanding equal to
$30.8 million at September 30, 1995 to invest in various existing and
prospective portfolio companies.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Loans increased from $32.8 million at December 31, 1994 to $45.1
million at September 30, 1995, or 38%. The increase in loans is the
result of the Company continuing to increase its investments in loans
using borrowed funds. During the first three quarters of 1995, the
Company has originated new loans of $38 million and sold participations
to the secondary market of $27.5 million. Cash and cash equivalents
remained relatively constant at September 30, 1995 as compared to
December 31, 1994. Net assets increased from $32.9 million at December
31, 1994 to $33.2 million at September 30, 1995, or 1%. This increase
is due primarily to the net increase in net assets resulting from
operations for the nine months ended September 30, 1995 that was in
excess of the first, second and third quarter dividends declared by the
Company's Board of Directors.
The Company continues to explore additional financing sources to
support growth in its investment activity. The Company had available
lines of credit totaling $20.8 million at September 30, 1995. The
Company finalized negotiations with an investment bank during September
1995 and entered into a credit agreement whereby the Company can borrow
up to $20 million to finance its investments in small business concerns
that qualify under the SBA's 504 and companion loan programs. In
addition, the Company is in the process of negotiating a modification to
a commitment for a credit facility from an investment bank so that it
can expand its financing activities under the SBA's 7(a) program.
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 1995 Compared with Third Quarter Ended
September 30, 1994.
Net increase in net assets resulting from operations increased 7%
to $1.4 million for the third quarter ended September 30, 1995 as
compared to $1.3 million for the third quarter of 1994. Earnings per
share increased to $0.32 per share for the third quarter of 1995 as
compared to $0.30 per share for the third quarter of 1994.
Interest income for the third quarter of 1995 increased to $1.6
million or 62% from $1.0 million for the third quarter of 1994. The
increase in interest income results primarily from the increase in the
prime interest rate during 1995 as compared to 1994, and the increase in
the Company's investment in loans. Premium income generated from
selling the guaranteed portion of loans increased 31% to $0.7 million
for the third quarter of 1995 as compared to $0.5 million for the third
quarter of 1994.
Total expenses increased to $0.7 million for the third quarter of
1995 as compared to $0.3 million for the third quarter of 1994. The
increase in total expenses is attributable to an increase in the
investment advisory fee and interest expense. The investment advisory
fee increased to $0.3 million for the third quarter of 1995 as compared
to $0.2 million for the third quarter of 1994 and results from the
Company's increase in its investment in loans. Interest expense
increased over prior year levels because the Company is now leveraging
its investments in loans.
Nine Months Ended September 30, 1995 Compared with Nine Months Ended
September 30, 1994.
Net increase in net assets resulting from operations increased 18%
to $4.0 million for the nine months ended September 30, 1995 as compared
to $3.4 million for the nine months ended September 30, 1994. Earnings
per share increased to $0.91 per share for 1995 as compared to $0.77 per
share for 1994.
Interest income for the nine months ended September 30, 1995
increased 67% to $4.3 million from $2.6 million for the nine months
ended September 30, 1994. Total expenses increased 100% to 1.7 million
for 1995 as compared to $0.9 million for 1994. The increases in total
expenses are due to increases in the investment advisory fee and
interest expense. The reasons for increases in these categories are
described in the quarter-to-quarter comparison discussed above.
6
<PAGE>
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not a defendant in any material pending legal
proceeding and no such material proceedings are known to be
contemplated.
Item 2. CHANGES IN SECURITIES
No material changes have occurred in the securities of the Registrant.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
11 Statement of Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1995.
7
<PAGE>
SIGNATURES
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 thereunder duly authorized.
ALLIED CAPITAL LENDING CORPORATION
----------------------------------
(Registrant)
--------------------------------------
Date: November 14, 1995 Jon A. DeLuca
----------------- Senior Vice President and
Chief Financial Officer
8
<PAGE>
SIGNATURES
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 thereunder duly authorized.
ALLIED CAPITAL LENDING CORPORATION
----------------------------------
(Registrant)
s/Jon A. DeLuca
--------------------------------------
Date: November 14, 1995 Jon A. DeLuca
----------------- Senior Vice President and
Chief Financial Officer
8
<PAGE>
Allied Capital Lending Corporation
Exhibit 11 Computation of Earnings Per Common Share
Form 10-Q
September 30, 1995
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary Earnings Per Common Share:
Net Increase in Net Assets Resulting
from Operations...................... $ 1,402,000 $ 1,308,000 $ 3,995,000 $ 3,391,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of shares
outstanding.......................... 4,377,334 4,377,334 4,370,385 4,370,385
Dividend reinvestment plan common
shares issued........................ 3,665 3,665 10,614 10,614
Weighted average number of shares
issuable on exercise of outstanding
stock options........................ -- -- -- --
------------- ------------- ------------- -------------
Weighted average number of shares and
share equivalents outstanding........ 4,380,999 4,380,999 4,380,999 4,380,999
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per Share.................... $ 0.32 $ 0.30 $ 0.91 $ 0.77
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fully Diluted Earnings Per Common Share:
Net Increase in Net Assets Resulting
from Operations...................... $ 1,402,000 $ 1,308,000 $ 3,995,000 $ 3,391,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of shares and
share equivalents outstanding as
computed for primary earnings per
share................................ 4,380,999 4,380,999 4,380,999 4,380,999
Weighted average of additional shares
issuable on exercise of outstanding
stock options........................ -- -- -- --
------------- ------------- ------------- -------------
Weighted average of shares and share
equivalents outstanding, as
adjusted............................. 4,380,999 4,380,999 4,380,999 4,380,999
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per Share.................... $ 0.32 $ 0.30 $ 0.91 $ 0.77
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 45,327
<INVESTMENTS-AT-VALUE> 45,106
<RECEIVABLES> 718
<ASSETS-OTHER> 5,332
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51,156
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 16,185
<OTHER-ITEMS-LIABILITIES> 1,741
<TOTAL-LIABILITIES> 17,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,202
<SHARES-COMMON-STOCK> 4,381
<SHARES-COMMON-PRIOR> 4,370
<ACCUMULATED-NII-CURRENT> 4,205
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (221)
<NET-ASSETS> 33,230
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,335
<OTHER-INCOME> 1,590
<EXPENSES-NET> 1,720
<NET-INVESTMENT-INCOME> 4,205
<REALIZED-GAINS-CURRENT> (153)
<APPREC-INCREASE-CURRENT> (57)
<NET-CHANGE-FROM-OPS> 3,995
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,686
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 10,614
<NET-CHANGE-IN-ASSETS> 442
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 807
<INTEREST-EXPENSE> 559
<GROSS-EXPENSE> 1,720
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 7.55
<PER-SHARE-NII> 0.96
<PER-SHARE-GAIN-APPREC> (0.05)
<PER-SHARE-DIVIDEND> 0.84
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.59
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 9,657
<AVG-DEBT-PER-SHARE> 2.20
</TABLE>
