<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 JUNE 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.
SUITE 901
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 August 11, 1995 there were 4,377,334 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 June 30,
1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statement of Operations - For the Three and Six
Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . 2
Consolidated Statement of Changes in Net Assets - For the Six
Months Ended June 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>
June 30, 1995 December 31, 1994
--------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Investments at value:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,576 $ 32,771
Other investment assets . . . . . . . . . . . . . . . . 110 --
--------------- -----------------
Total investments . . . . . . . . . . . . . . . . . 39,686 32,771
Cash and cash equivalents . . . . . . . . . . . . . . . . 1,019 1,297
Accrued interest receivable . . . . . . . . . . . . . . . 694 451
Excess servicing asset . . . . . . . . . . . . . . . . . . 3,014 2,700
Other assets . . . . . . . . . . . . . . . . . . . . . . . 361 400
--------------- -----------------
Total assets . . . . . . . . . . . . . . . . . . . . $ 44,774 $ 37,619
=============== =================
Liabilities
Notes payable . . . . . . . . . . . . . . . . . . . . . . $ 9,915 $ 3,130
Accounts payable and accrued expenses . . . . . . . . . . 1,533 1,209
Investment advisory fee payable . . . . . . . . . . . . . 273 230
Dividends and distributions payable . . . . . . . . . . . -- 262
--------------- -----------------
Total liabilities . . . . . . . . . . . . . . . . . 11,721 4,831
--------------- -----------------
Commitments and Contingencies
Shareholders' Equity
Common stock, $0.0001 par value; 20,000,000 shares
authorized; 4,377,334 and 4,370,385 shares issued and
outstanding at 6/30/95 and 12/31/94 . . . . . . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . . . . . 33,156 33,069
Net unrealized depreciation on investments . . . . . . . . (158) (164)
Undistributed (distributions in excess of) accumulated
earnings . . . . . . . . . . . . . . . . . . . . . . . 55 (117)
--------------- -----------------
Total shareholders' equity . . . . . . . . . . . . . 33,053 32,788
--------------- -----------------
Total liabilities and shareholders' equity . . . . . $ 44,774 $ 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 Ended For the Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment Income:
Interest . . . . . . . . . . . . . . . . . $ 1,464 $ 892 $ 2,686 $ 1,575
Premium income, net . . . . . . . . . . . 307 620 912 1,074
---------- ---------- ---------- ----------
Total investment income . . . . . . . . 1,771 1,512 3,598 2,649
---------- ---------- ---------- ----------
Expenses:
Investment advisory fee . . . . . . . . . 273 190 497 370
Legal and audit fees . . . . . . . . . . . 12 22 50 62
Interest expense . . . . . . . . . . . . . 179 10 253 10
Other operating expenses . . . . . . . . . 76 77 173 121
---------- ---------- ---------- ----------
Total expenses . . . . . . . . . . . . 540 299 973 563
---------- ---------- ---------- ----------
Net investment income . . . . . . . . . . . . 1,231 1,213 2,625 2,086
Net realized (losses) recoveries on
investments . . . . . . . . . . . . . . . (48) 8 (38) (8)
---------- ---------- ----------- ----------
Net investment income before net unrealized
appreciation on investments . . . . . . . 1,183 1,221 2,587 2,078
Net unrealized appreciation on investments . 65 7 6 6
---------- ---------- ---------- ----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . $ 1,248 $ 1,228 $ 2,593 $ 2,084
========== ========== ========== ==========
Earnings per share . . . . . . . . . . . . . $ 0.29 $ 0.28 $ 0.59 $ 0.48
========== ========== ========== ==========
Weighted average number of shares and share
equivalents outstanding . . . . . . . . . 4,377 4,375 4,377 4,375
========== ========== ========== ==========
</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 Six Months Ended June 30,
-----------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Increase in Net Assets Resulting from Operations:
Net investment income . . . . . . . . . . . . . . . . . . . $ 2,625 $ 2,086
Net realized losses on investments . . . . . . . . . . . . (38) (8)
Net change in unrealized appreciation on investments . . . 6 6
------------ ------------
Net increase in net assets resulting from operations . . 2,593 2,084
Distributions to Shareholders . . . . . . . . . . . . . . . . (2,415) (2,184)
Capital Share Transactions . . . . . . . . . . . . . . . . . . 87 --
------------ ------------
Net Increase (Decrease) in Net Assets . . . . . . . . . . . . 265 (100)
Net assets at beginning of period . . . . . . . . . . . . . . 32,788 32,955
------------ ------------
Net assets at end of period . . . . . . . . . . . . . . . . . $ 33,053 $ 32,855
============ ============
Net asset value per share . . . . . . . . . . . . . . . . . . $ 7.55 $ 7.51
============ ============
Shares outstanding at end of period . . . . . . . . . . . . . 4,377 4,375
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 (consisting only of normal
recurring accruals) necessary to present fairly the Company's financial
position as of June 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 condensed
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 six months ended
June 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 condensed 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 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 second quarter
dividend equivalent to $0.2825 per share that was payable on June 30,
1995 to shareholders of record on June 16, 1995. In connection with
this dividend, the Company paid cash of $1,188,000 and distributed new
shares of common stock related to the Company's dividend reinvestment
plan with a value of $48,000 for a total dividend of $1,236,000. The
Company's Board of Directors also declared a first quarter dividend
equivalent to $0.27 per share that was payable on March 31, 1995 to
shareholders of record on March 17, 1995. In connection with this
dividend, the Company paid cash of $1,140,000 and distributed new
shares of common stock pursuant to its dividend reinvestment plan with
a value of $39,000 for a total dividend of $1,179,000.
NOTE 4. NOTES PAYABLE
Effective July 26, 1995, the Company modified its credit
agreement with a bank and 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%, which was 8.2% on July 26, 1995.
NOTE 5. EARNINGS PER SHARE
Earnings per share is computed assuming that 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 6,949 shares of common stock pursuant to the
dividend reinvestment plan. The weighted average number of shares
and share equivalents outstanding for the three and six months ended
June 30, 1994 have been restated to include the 1995 common stock
issuances. In addition, the computation of net assets per share as
of June 30, 1994 has been restated to reflect the issuances of common
stock pursuant to the dividend reinvestment plan during 1995.
4
<PAGE>
NOTE 6. COMMITMENTS AND CONTINGENCIES
Loans. The Company had loan commitments outstanding equal
to $39 million at June 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
$39.6 million at June 30, 1995, or 21%. The increase in loans is the
result of the Company continuing to increase its investments in loans
using borrowed funds. During the first half of 1995, the Company has
originated new loans of $21.5 million and sold participations to the
secondary market of $14.7 million. Cash and cash equivalents remained
relatively constant at June 30, 1995 as compared to December 31, 1994.
Net assets increased from $32.8 million at December 31, 1994 to
$33.1 million at June 30, 1995, or 1%. This increase is due primarily
to the net increase in net assets resulting from operations for the six
months ended June 30, 1995 that was in excess of the first and second
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 totalling $7.1 million at June 30, 1995. 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 in new product lines, primarily loans under the
SBA's 504 program.
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 1995 Compared with Second Quarter Ended
June 30, 1994.
Net increase in net assets resulting from operations increased
1.6% to $1.3 million for the second quarter ended June 30, 1995 as
compared to $1.2 million for the second quarter of 1994. Earnings per
share increased to $0.29 per share for the second quarter of 1995 as
compared to $0.28 per share for the second quarter of 1994.
Interest income for the second quarter of 1995 increased to $1.5
million or 64% from $0.9 million for the second quarter of 1994. The
increase in interest income results primarily from two factors: 1) the
increase in the prime interest rate during 1995 as compared to 1994;
and 2) the increase in the Company's investment in loans. Premium
income generated from selling the guaranteed portion of loans declined
49% to $0.3 million for the second quarter of 1995 as compared to
$0.6 million for the second quarter of 1994. This decrease is due to
a decline in the number of loans sold.
Total expenses increased 80.6% to $0.5 million for the second
quarter of 1995 as compared to $0.3 million for the second 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 second quarter of 1995
as compared to $0.2 million for the second 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.
Six Months Ended June 30, 1995 Compared with Six Months Ended
June 30, 1994.
Net increase in net assets resulting from operations increased
$0.5 million or 24.4% to $2.6 million for the six months ended June 30,
1995 as compared to $2.1 million for the six months ended June 30,
1994. Earnings per share increased to $0.59 per share for 1995 as
compared to $0.48 per share for 1994.
Interest income for the six months ended June 30, 1995 increased
70.5% to $2.7 million from $1.6 million for the six months ended
June 30, 1994. Total expenses increased to $1.0 million for 1995 as
compared to $0.6 million for 1994. The increases in total expenses
are due to increases in 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
Allied Capital Lending Corporation held its annual meeting of
shareholders on May 9, 1995 in Chevy Chase, Maryland. The following
directors were elected as proposed in the proxy material to serve until
the next annual shareholders meeting:
FOR WITHHELD
--------- --------
David Gladstone 3,920,204 7,971
George C. Williams 3,920,148 8,027
Katherine C. Marien 3,920,248 7,927
Jon W. Barker 3,920,023 8,152
Eleanor D. Bierbower 3,920,226 7,949
Robert V. Fleming II 3,920,068 8,107
Anthony T. Garcia 3,920,248 7,927
Frank L. Langhammer 3,920,026 8,149
Arthur H. Keeney III 3,920,006 8,169
Shareholders also ratified the selection of Matthews Carter &
Boyce to serve as independent accountants until the next shareholders
meeting. The Company received 2,670,728 shares voting in favor of
ratification, 4,202 shares voting against the ratification, and 7,330
shares abstaining from voting.
Shareholders also approved the proposed new Investment Advisory
Agreement in order to change certain provisions of the existing
Agreement regarding the payment of origination fees to third parties
and certain other expenses, and to encourage Advisers to provide loan
origination services by providing an origination fee therefor. The
Company received 2,338,462 shares voting in favor of approving the
amendment, 22,884 shares voting against approving the amendment, and
25,827 shares abstaining from voting.
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 June 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)
/s/ Jon A. DeLuca
----------------------------------
Date: August 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
June 30, 1995
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary Earnings Per Common Share:
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . . . . . . $1,248,000 $1,228,000 $2,593,000 $2,084,000
========== ========== ========== ==========
Weighted average number of
shares outstanding . . . . . . . . . . . . . . 4,370,385 4,368,420 4,370,385 4,368,420
Dividend reinvestment plan common shares issued . 6,949 6,949 6,949 6,949
Weighted average number of
shares issuable on exercise
of outstanding stock options . . . . . . . . . -- -- -- --
---------- --------- ---------- ----------
Weighted average number of shares and
share equivalents outstanding . . . . . . . . 4,377,334 4,375,369 4,377,334 4,375,369
========== ========== ========== ==========
Earnings per Share . . . . . . . . . . . . . . . $ 0.29 $ 0.28 $ 0.59 $ 0.48
========== ========== ========== ==========
Fully Diluted Earnings Per Common Share:
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . . . . . $1,248,000 $1,228,000 $2,593,000 $2,084,000
========== ========== ========== ==========
Weighted average number of
shares and share equivalents
outstanding as computed for
primary earnings per share . . . . . . . . 4,377,334 4,375,369 4,377,334 4,375,369
Weighted average of additional
shares issuable on exercise
of outstanding stock options . . . . . . . -- -- -- --
---------- ---------- ---------- ----------
Weighted average of shares and
share equivalents outstanding,
as adjusted . . . . . . . . . . . . . . . . 4,377,334 4,375,369 4,377,334 4,375,369
========== ========== ========== ==========
Earnings per Share . . . . . . . . . . . . . . $ 0.29 $ 0.28 $ 0.59 $ 0.48
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLIED
CAPITAL LENDING CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION--
CONSOLIDATED STATEMENT OF OPERATIONS & CONSOLIDATED STATEMENT OF CHANGES
IN NET ASSETS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 39,844
<INVESTMENTS-AT-VALUE> 39,686
<RECEIVABLES> 694
<ASSETS-OTHER> 361
<OTHER-ITEMS-ASSETS> 4,033
<TOTAL-ASSETS> 44,774
<PAYABLE-FOR-SECURITIES> 1,533
<SENIOR-LONG-TERM-DEBT> 9,915
<OTHER-ITEMS-LIABILITIES> 273
<TOTAL-LIABILITIES> 11,721
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,156
<SHARES-COMMON-STOCK> 4,377
<SHARES-COMMON-PRIOR> 4,370
<ACCUMULATED-NII-CURRENT> 2,625
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (38)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6
<NET-ASSETS> 33,053
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,686
<OTHER-INCOME> 912
<EXPENSES-NET> 973
<NET-INVESTMENT-INCOME> 2,625
<REALIZED-GAINS-CURRENT> (38)
<APPREC-INCREASE-CURRENT> 6
<NET-CHANGE-FROM-OPS> 2,593
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,415
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 7,155
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 497
<INTEREST-EXPENSE> 253
<GROSS-EXPENSE> 973
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 7.49
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 0.59
<PER-SHARE-DIVIDEND> 0.55
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.55
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
