<PAGE> 1
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, 1996 0-20352
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ALLIED CAPITAL COMMERCIAL CORPORATION
--------------------------------------------------------
(exact name of Registrant as specified in its charter)
MARYLAND 52-1777868
- ----------------------- ----------------------
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
C/O ALLIED CAPITAL ADVISERS, INC.
1666 K STREET, N.W.
9TH FLOOR
WASHINGTON, DC 20006
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(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 5, 1996 there were 13,959,732 shares outstanding of the Registrant's
common stock, $0.0001 par value.
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ALLIED CAPITAL COMMERCIAL CORPORATION
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<S> <C> <C>
Consolidated Balance Sheet as of June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statement of Income - For the Three and Six Months Ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Cash Flows - For the Six Months Ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 3
PART I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
ALLIED CAPITAL COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except number of shares)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Investments in mortgage loans, net . . . . . . . . . . . . . . . . . . . . . $328,358 $273,510
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . 3,647 12,668
Note receivable from affiliate . . . . . . . . . . . . . . . . . . . . . . . -- 4,751
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . 4,507 3,804
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,438 3,158
----- -----
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 342,950 $ 297,891
======== ========
Liabilities
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 139,264 $ 98,625
Investment management fee payable . . . . . . . . . . . . . . . . . . . . . . 1,755 1,628
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,323
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . 2,997 2,551
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,935 6,040
Commitments and Contingencies
Shareholders' Equity
Common stock, $0.0001 par value, 50,000,000 shares
authorized; 13,959,732 and 13,733,787 shares issued and
outstanding at 6/30/96 and 12/31/95 . . . . . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 196,482 192,251
Notes receivable from sale of common stock . . . . . . . . . . . . . . . . . (4,472) (4,419)
Retained Earnings (accumulated distributions in excess of net income) . . . . 988 (1,109)
--- -------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 192,999 186,724
------- -------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . $ 342,950 $ 297,891
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
1
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ALLIED CAPITAL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
For the Three Months Ended ------------------------
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment income:
Interest from mortgage loans:
Stated interest . . . . . . . . . . . . . . . . . . . . . . . . $ 9,417 $ 6,810 $ 17,597 $ 12,687
Discount amortization . . . . . . . . . . . . . . . . . . . . . 1,537 1,157 2,814 2,235
----- ----- ----- -----
Total income from mortgage loans . . . . . . . . . . . . . 10,954 7,967 20,411 14,922
Interest on temporary investments . . . . . . . . . . . . . . . . 312 235 948 560
--- --- --- ---
Total investment income . . . . . . . . . . . . . . . . 11,266 8,202 21,359 15,482
------ ----- ------ ------
Expenses:
Investment management fee . . . . . . . . . . . . . . . . . . . . 1,767 1,533 3,527 2,878
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 2,931 1,140 4,808 1,896
Other operating expenses . . . . . . . . . . . . . . . . . . . . 382 212 1,116 262
--- --- ----- ---
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . 5,080 2,885 9,451 5,036
----- ----- ----- -----
Income before net investment gains . . . . . . . . . . . . . . . . 6,186 5,317 11,908 10,446
Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . 2,253 230 4,060 978
----- --- ----- ---
Income before minority interest . . . . . . . . . . . . . . . . . . 8,439 5,547 15,968 11,424
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . (756) -- (1,431) --
----- --- ------- ---
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,683 $ 5,547 $ 14,537 $ 11,424
======= ======= ======== ========
Net income per share . . . . . . . . . . . . . . . . . . . . . . . $ 0.55 $ 0.41 $ 1.05 $ 0.85
====== ====== ====== ======
Weighted average number of shares and
share equivalents outstanding . . . . . . . . . . . . . . . . . . 13,934 13,479 13,873 13,435
====== ====== ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
2
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ALLIED CAPITAL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,537 $ 11,424
Adjustments to reconcile net income to net cash provided by operating activities:
Discount amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,814) (2,235)
Net gains on disposition of mortgage loans . . . . . . . . . . . . . . . . . . . (4,060) (1,199)
Net loss on sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . -- 221
Provision for loan loss reserves . . . . . . . . . . . . . . . . . . . . . . . . 400 --
Minority interest in net income . . . . . . . . . . . . . . . . . . . . . . . . . 1,431 --
Amortization of deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . 473 --
Changes in assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (3,331) 397
------ ---
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 6,636 8,608
----- -----
Cash Flows From Investing Activities:
Purchase of mortgage loans and accrued interest . . . . . . . . . . . . . . . . . (84,313) (55,274)
Collection of mortgage principal . . . . . . . . . . . . . . . . . . . . . . . . 35,668 17,218
Redemption of U.S. Government securities . . . . . . . . . . . . . . . . . . . . -- 24,054
Net collections under demand note receivable from affiliate . . . . . . . . . . . 4,751 5,927
----- -----
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (43,894) (8,075)
------- ------
Cash Flows From Financing Activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,351) (9,813)
Distribution to minority shareholder (1,813)
Net borrowings under revolving line of credit . . . . . . . . . . . . . . . . . . 65,335 14,761
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,695) --
Proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . . . 515 --
Collections on note receivable from sale of stock . . . . . . . . . . . . . . . . 246 54
--- --
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . 28,237 5,002
------ -----
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . (9,021) 5,535
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . 12,668 979
------ ---
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . $ 3,647 $ 6,514
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
3
<PAGE> 6
ALLIED CAPITAL COMMERCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1. GENERAL:
In the opinion of management, the accompanying unaudited consolidated
financial statements of Allied Capital Commercial Corporation and its
subsidiaries (the Company) contain all adjustments (consisting of only
recurring accruals) necessary to present fairly the Company's
consolidated financial position as of June 30, 1996 and the results of
operations, and cash flows for the periods indicated. Certain
information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. It is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial statements and
consolidated notes thereto included in the Company's December 31, 1995
Annual Report. The results of operations for the six months ended
June 30, 1996 are not necessarily indicative of the operating results
to be expected for the full year. Certain reclassifications have been
made to the 1995 consolidated financial statements in order to conform
to the 1996 presentation.
NOTE 2. INVESTMENT MANAGEMENT AGREEMENT:
On May 3, 1996, the Company reached an agreement with Allied Capital
Advisers, Inc. ("Advisers") to revise the fee schedule under the
investment management arrangement between those entities. The revised
fee schedule applies to fees payable by the Company beginning with the
quarter ended March 31, 1996, and only applies to loans originated or
purchased by the Company on or after January 1, 1996. All other loans
in the Company's portfolio remain subject to the existing fee
schedule.
The revised fee schedule reflects three tiers of management fee
percentages payable to Advisers, based upon a classification of the
outstanding loans (i.e., "Invested Assets") held in the Company's
investment portfolio. This three-tiered schedule is intended to allow
the Company to enter into two new business areas in addition to its
traditional hard-to finance real estate loans for small businesses.
First, the Company will seek to originate or purchase high credit
quality, lower interest rate loans and to be more cost competitive on
these types of loans. Second, it will seek to originate or otherwise
invest, on a limited basis, in loans secured by real estate with more
difficult credit situations that may offer a higher return to the
portfolio.
Class A loans, which have loan-to-value, debt service coverage, and
payment history characteristics that generally are superior to those
of the Company's existing loan portfolio, will incur management fees,
payable quarterly in arrears, at a rate of 1.25% per annum, subject to
adjustment by Advisers to a rate of 1.00% per annum under certain
circumstances.
Class B loans, which have credit characteristics that generally are
comparable to those of the majority of loans held in the Company's
portfolio at December 31, 1995, will incur management fees, payable
quarterly in arrears, at a rate of 2.50% per annum. Most loans fall
into this category, which reflects the existing fee structure for the
Company's portfolio of Invested Assets.
Class C loans, which have credit characteristics that generally are
inferior to those of the Company's loan portfolio at December 31,
1995, will incur management fees, payable quarterly in arrears, at a
rate of 3.50% per annum. These loans are "out of the ordinary," and
therefore require more sophisticated underwriting and/or closer
monitoring than the majority of the Company's existing loans. Class C
loans either represent "turnaround financing" investments or have a
non-performing or sub-performing payment history. The Company plans
to invest in Class C loans only on a limited basis.
The revised fee schedule, however, places a quarterly cap, at a rate
of 2.50% per annum, on the total management fees payable to Advisers
with respect to the Company's holdings of Invested Assets.
Management fees payable to Advisers with respect to the Company's
holdings of cash, cash equivalents, and short-term U.S. government or
agency securities and repurchase agreements collateralized thereby
(i.e.,
4
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ALLIED CAPITAL COMMERCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
"Cash and Interim Investments") are not affected by the revised fee
schedule. Cash and Interim Investments will continue to incur
management fees, payable quarterly in arrears, at a rate of 0.50% per
annum.
NOTE 3. MORTGAGE LOANS:
Management, based on an evaluation of numerous factors including, but
not limited to, general and regional economic conditions, credit
concentrations and mortgage collateral values, increased its loan loss
reserve by $400,000 during the first quarter of 1996. As of June 30,
1996, the Company has a total loan loss reserve equal to $1,412,000 or
0.4% of its net investment in mortgage loans.
NOTE 4. CREDIT FACILITIES:
The Company, in conjunction with Business Mortgage Investors, Inc., a
private real estate investment trust that co-invests in certain
mortgage loans with the Company, has a $40,000,000 revolving line of
credit with two banks. The revolving line of credit bears interest at
LIBOR plus 220 basis points and expires in August 1997. As of June
30, 1996 the Company had drawn $13.5 million under this line of
credit.
The Company, again in conjunction with Business Mortgage Investors,
Inc., renewed its credit facility with an investment bank, whereby the
Company and BMI can borrow up to $80 million using the investments in
mortgage loans as collateral. The terms of the credit facility are
interest only with all principal due at maturity. The credit facility
bears interest at LIBOR plus 170 basis points and expires in March
1997. As of June 30, 1996, the Company had outstanding borrowings
under this facility equal to $51.8 million.
NOTE 5. DISTRIBUTIONS:
The Company's Board of Directors declared a second quarter dividend
equivalent to $0.46 per share. This dividend was paid on June 28,
1996 to shareholders of record as of June 14, 1996. The Company paid
cash of $4,925,000 and distributed new shares of common stock, through
its dividend reinvestment plan, with a value of $1,463,000 for a total
dividend equal to $6,388,000. The Company's Board of Directors also
declared a first quarter dividend equivalent to $0.44 per share. This
dividend was paid on March 29, 1996 to shareholders of record as of
March 15, 1996. The Company paid cash of $4,640,000 and distributed
new shares of common stock, through its dividend reinvestment plan,
with a value of $1,421,000 for a total dividend equal to $6,061,000.
NOTE 6. COMMITMENTS AND CONTINGENCIES:
The Company had loan commitments outstanding equal to $19.6 million at
June 30, 1996 to invest in various mortgage loans with prospective
companies.
NOTE 7. SUBSEQUENT EVENT:
The Company entered into an interest rate swap agreement (the "swap
agreement") with Morgan Guaranty Trust Company of New York to manage
its exposure to interest rate fluctuations associated with its
variable rate lines-of-credit on July 22, 1996. The swap agreement
has a notional amount of $50 million, which will be used to convert
the variable rate (one month LIBOR plus 170 basis points) on the
Company's credit facility to a fixed rate of 6.92%. The swap
agreement terminates July 22, 2001. Net receipts on payments under
the swap agreement will be recognized as an adjustment to interest
expense. The Company will be exposed to credit losses in the event of
counter party nonperformance, but it does not anticipate any such
losses.
5
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The 1996 reporting periods below include the consolidation of the
operations of Allied Capital Funding, LLC ("Funding"), an 82%-owned
subsidiary of the Company that was established during the fourth
quarter of 1995 for purposes of securitizing a portion of the
Company's loans and the loans of a private REIT. The consolidated
assets, liabilities and operating results include the accounts of the
Company and Funding and are offset by the minority interest in
Funding's ownership.
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
The Company's net income increased 39% to $7.7 million for the quarter
ended June 30, 1996 compared to $5.5 million for the same period of
last year. Net income per share was $0.55 and $0.41 for the quarters
ended June 30, 1996 and 1995, respectively. The increase in the
quarter net income this year from the comparable quarter of the prior
year is due to the interest income earned on the larger commercial
mortgage loan portfolio and the amount of realized gains recognized.
Total investment income for the quarter ended June 30, 1996 increased
37% over the corresponding prior year period. The Company's net
investments in mortgage loans have increased $89 million or 37% to
$328.4 million as of June 30, 1996 from $239.8 million at June
30,1995, of which, $11.2 million represents growth from consolidating
the minority interest in the mortgage loans of Funding. The Company
has financed its investments in mortgage loans primarily through the
use of leverage during the second quarter of 1996.
Total expenses have increased 76% in the current year quarter over the
corresponding period last year. The primary increases in expenses
relate to interest expense. Interest expense increased 157% to $2.9
million from $1.1 million for the quarters ended June 30, 1996 and
1995, respectively. Interest expense continues to increase because
the Company is utilizing leverage in order to increase it investments
in mortgage loans. Total debt has increased to $139.2 million at June
30, 1996 from $64.8 million at June 30, 1995.
Investment management fees increased $0.3 million to $1.8 million from
$1.5 million for the three months ended June 30, 1996 and 1995,
respectively. This increase in investment management fees is directly
related to the substantial growth in the Company's investments in
mortgage loans.
Other operating expenses increased $170,000 to $382,000 for the
quarter ended June 30, 1996 as compared to $212,000 for the quarter
ended June 30, 1995. There was no addition to the Company's loan loss
reserve in the second quarter.
The Company received mortgage loan payoffs during the second quarter
of 1996 totaling $16 million that resulted in realized gains of $2.3
million as compared to realized gains of $0.2 million in the
comparable period of last year.
The Company's consolidated net income has been reduced by the minority
interest ownership in the net earnings of Funding, which has been
consolidated by the Company. The minority interest equaled $0.75
million for the quarter ended June 30, 1996.
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
The Company's net income increased 27.2% to $14.5 million for the six
months ended June 30, 1996 compared to $11.4 million for the same
period of last year, and net income per share was $1.05 and $0.85 for
these periods, respectively. The increase in the net income this year
over the comparable period of the prior year is due to the interest
income earned on the increased commercial mortgage loan portfolio and
the amount of realized gains recognized.
Total investment income for the six months ended June 30, 1996
increased 38% over the corresponding period of the prior year. The
Company's net investments in mortgage loans have increased $89 million
or 20% to $ 328.3 million as of June 30, 1996 from $239.8 million at
June 30,1995, of which, $11.2 million represents an increase from
consolidating the minority interest in the mortgage loans of Funding.
This
6
<PAGE> 9
growth has resulted in a substantial increase in total investment
income. The Company has financed its growth in mortgage loans
primarily through the use of leverage.
Total expenses have increased 88% for the six months ended June 30,
1996 as compared to the corresponding period last year. Interest
expense increased 154% to $4.8 million from $1.9 million for the six
months ended June 30, 1996 and 1995, respectively. Interest expense
continues to increase because the Company is growing its investments
in mortgage loans by utilizing leverage.
On May 3, 1996, the Company reached an agreement with Allied Capital
Advisers, Inc. ("Advisers") to revise the fee schedule under the
investment management arrangement between those entities. The revised
fee schedule applies to fees payable by the Company beginning with the
quarter ended June 30, 1996 and only applies to loans originated or
purchased by the Company on or after January 1, 1996. All other loans
in the Company's portfolio remain subject to the fee schedule in
existence in 1995 and prior periods.
The revised fee schedule reflects three tiers of management fee
percentages payable to Advisers, based upon a classification of the
outstanding loans (i.e., "Invested Assets") held in the Company's
investment portfolio. This three-tiered schedule is intended to allow
the Company to enter into two new business areas. First, the Company
will seek to originate or purchase high credit quality, lower interest
rate loans, and second, it will seek to originate or otherwise invest,
on a limited basis, in loans secured by real estate with more
difficult credit situations that may offer a higher return to the
portfolio.
The revised fee schedule classifies loans into three classes based
upon their respective credit quality and other factors. Fees on the
asset classes range from 1% per annum to 3.5% per annum. The revised
fee schedule, however, places a quarterly cap, at a rate of 2.50% per
annum, on the total management fees payable to Advisers with respect
to the Company's holdings of Invested Assets. The fee schedule in
effect in 1995 and prior years required a fee on all invested assets
at a rate of approximately 2.50% per annum. Similar to the prior fee
schedule, the revised fee schedule calculates investment management
fees on a quarterly basis and fees are payable quarterly in arrears.
The new fee schedule did not alter the fees charged on cash or
temporary investments.
Investment management fees increased $0.6 million to $3.5 million from
$2.9 million for the six months ended June 30, 1996 and 1995,
respectively. This increase in investment management fees is directly
related to the substantial growth in the Company's investments in
mortgage loans.
Other operating expenses increased $0.9 million to $1.1 million for
the six months ended June 30, 1996 as compared to $262,000 for the six
months ended June 30, 1995. This increase resulted from a rise in
normal operating expenses due to the growth of the Company, and from a
$0.4 million addition to the loan loss reserve during the first
quarter of 1996.
The Company received mortgage loan payoffs during the first half of
1996 totaling $35.7 million that resulted in realized gains of $4.1
million as compared to realized gains of $1.0 million in the prior
year period.
The Company's consolidated net income has been reduced by the minority
interest ownership in the net earnings of Funding, which has been
consolidated by the Company. The minority interest equaled $1.4
million for the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Total investments in mortgage loans increased by $54.9 million, or 20%
to $328.4 at June 30, 1996 from $273.5 at December 31, 1995. This
growth in mortgage loans was primarily financed through borrowings
under the Company's credit facilities and mortgage loan principal
repayments.
Cash and cash equivalents decreased to $3.6 million at June 30, 1996
from $12.7 million at December 31, 1995. During the first half of
1996, the Company used $43.9 million in cash for net investing
activities which was funded by draws on its lines of credit. The
Company generated $6.6 million in cash from operations.
7
<PAGE> 10
The Company's total consolidated indebtedness at June 30, 1996 was
$139.2 million. The Company has outstanding non-recourse long-term
indebtedness of $73.9 million from Funding's issuance of commercial
mortgage collateralized bonds, and has $65.3 million in outstanding
recourse short-term lines of credit secured by mortgage loans.
Although it has previously been management's intention to limit
recourse borrowings to no more than 200% of the Company's equity,
management has had the recent opportunity to evaluate certain
situations in which it would be in the best interest of the Company to
exceed the 200% limitation. As a result, management may from time to
time engage in transactions that cause the Company to exceed the 200%
limit for recourse financing in order for the Company to achieve its
growth objectives. The Company will continue to borrow on a
non-recourse basis, as appropriate.
In an effort to manage its exposure to fluctuations in interest rates
in connection with its short-term lines-of-credit, the Company entered
into an interest rate swap agreement in July 1996. The swap agreement
has a notional amount equal to $50 million and converts this amount of
variable rate debt into fixed rate debt with an interest rate equal to
6.92%.
It is management's belief that the Company will have access to the
capital resources necessary to expand into new business areas as well
as existing product lines. The Company may seek to obtain additional
funds through additional debt financings or through the use of other
financial instruments. The Company anticipates that adequate cash
will be available to fund its new investments, operating expenses,
debt service obligations and make distributions to shareholders in
accordance with real estate investment trust requirements.
8
<PAGE> 11
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 Commercial Corporation held its annual meeting of
shareholders on May 3, 1996 in Washington, DC. The following
directors were elected as proposed in the proxy material to serve
until the next annual shareholders meeting:
<TABLE>
<CAPTION>
DIRECTOR FOR WITHHELD
-------- --- --------
<S> <C> <C>
David Gladstone 10,745,666 69,443
George C. Williams, Jr. 10,741,160 73,949
John M. Scheurer 10,744,042 71,067
Anthony T. Garcia 10,744,042 71,067
Charles L. Palmer 10,742,862 72,247
John D. Reilly 10,744,042 71,067
Laura W. van Roijen 10,744,040 71,068
</TABLE>
Shareholders also ratified the selection of Arthur Andersen LLP to
serve as independent accountants until the next shareholders
meeting. The Company received: 10,512,363 shares voting for the
ratification; 36,166 shares voting against the ratification; and,
56,291 shares that abstained from voting on the ratification.
Item 5. OTHER INFORMATION
None
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
9
<PAGE> 12
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 COMMERCIAL CORPORATION
-------------------------------------
(Registrant)
/s/ Jon A. DeLuca
--------------------------------
Date: August 12, 1996 Jon A. DeLuca
Executive Vice President and
Chief Financial Officer
10
<PAGE> 1
Allied Capital Commercial Corporation
Exhibit 11 Computation of Earnings Per Common Share
Form 10-Q
June 30, 1996
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------------- ------------------------------
1996 1995 1996 1995
--------------------------------- ------------------------------
<S> <C> <C>
Primary Earnings Per Common Share:
Net Income $7,683,000 $5,547,000 $14,537,000 $11,424,000
================================= ==============================
Weighted average of common
shares outstanding 13,868,103 13,243,314 13,812,438 13,207,497
Dividend reinvestment plan shares issued 0 208,800 0 208,800
Weighted average of common
shares issuable on exercise
of outstanding stock options 65,984 27,067 60,497 18,587
--------------------------------- ------------------------------
Weighted average of common
shares outstanding, as adjusted 13,934,087 13,479,181 13,872,935 13,434,884
================================= ==============================
Net Income per share $0.55 $0.41 $1.05 $0.85
================================= ==============================
Fully Diluted Earnings Per Common Share:
Net Income $7,683,000 $5,547,000 $14,537,000 $11,424,000
================================= =============================
Weighted average common
shares and common share
equivalents as computed for
primary earnings per share 13,934,087 13,479,181 13,872,935 13,434,884
================================= =============================
Weighted average of additional
shares issuable on exercise
of outstanding stock options 9,754 15,542 17,723 25,224
--------------------------------- -----------------------------
Weighted average of Common
shares outstanding, as adjusted 13,934,842 13,494,723 13,890,658 13,460,108
================================= =============================
Net Income per share assuming full dilution $0.55 $0.41 $1.05 $0.85
================================= =============================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet, statements of operations and cash flows and is
qualified in its entirety by reference to such form 10Q for the six months ended
June 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,647
<SECURITIES> 0
<RECEIVABLES> 339,303
<ALLOWANCES> 1,411
<INVENTORY> 0
<CURRENT-ASSETS> 342,950
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 342,950
<CURRENT-LIABILITIES> 4,752
<BONDS> 139,264
0
0
<COMMON> 1
<OTHER-SE> 192,998
<TOTAL-LIABILITY-AND-EQUITY> 342,950
<SALES> 21,359
<TOTAL-REVENUES> 21,359
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,243
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 4,808
<INCOME-PRETAX> 14,537
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,537
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
