<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 SEPTEMBER 30, 1996 0-20352
------------------ -------------------
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
-------------------------------------------------
(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 or 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 5, 1996 there were 14,175,484 shares outstanding of the
Registrant's common stock, $0.0001 par value.
<PAGE> 2
ALLIED CAPITAL COMMERCIAL CORPORATION
FORM 10-Q INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1996 and December 31, 1995 . . . . . 1
Consolidated Statement of Income - For the Three and Nine Months Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Cash Flows - For the Nine Months Ended
September 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
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 10
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</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>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
<S> <C> <C>
Assets
Investments in mortgage loans, net . . . . . . . . . . . . . . . . . . . . $339,690 $273,510
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 592 12,668
Note receivable from affiliate . . . . . . . . . . . . . . . . . . . . . . -- 4,751
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . 3,587 3,804
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,993 3,158
----- -----
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 348,862 $ 297,891
======== ========
Liabilities
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,271 $ 98,625
Investment management fee payable . . . . . . . . . . . . . . . . . . . . 1,810 1,628
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,323
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . 2,096 2,551
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,621 6,040
Commitments and Contingencies
Shareholders' Equity
Common stock, $0.0001 par value, 50,000,000 shares
authorized; 14,166,024 and 13,733,787 shares issued and
outstanding at 9/30/96 and 12/31/95 . . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 200,486 192,251
Notes receivable from sale of common stock . . . . . . . . . . . . . . . . (6,035) (4,419)
Retained earnings (accumulated distributions in excess of net income). . . 612 (1,109)
--- -------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 195,064 186,724
------- -------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $ 348,862 $ 297,891
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
1
<PAGE> 4
ALLIED CAPITAL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment income:
Interest from mortgage loans:
Stated interest . . . . . . . . . . . . . . . $ 9,994 $ 7,435 $ 27,591 $ 20,122
Discount amortization . . . . . . . . . . . . 1,681 1,008 4,495 3,243
----- ----- ----- -----
Total income from mortgage loans . . . . 11,675 8,443 32,086 23,365
Interest on temporary investments . . . . . . . 119 322 1,067 882
--- --- ----- ---
Total investment income . . . . . . . 11,794 8,765 33,153 24,247
------ ----- ------ ------
Expenses:
Investment management fee . . . . . . . . . . . 1,808 1,479 5,335 4,357
Interest expense . . . . . . . . . . . . . . . 3,045 1,292 7,853 3,188
Other operating expenses . . . . . . . . . . . 625 651 1,741 913
--- --- ----- ---
Total expenses . . . . . . . . . . . . . . . 5,478 3,422 14,929 8,458
----- ----- ------ -----
Income before net realized gains . . . . . . . . 6,316 5,343 18,224 15,789
Net realized gains . . . . . . . . . . . . . . . 528 990 4,588 1,967
--- --- ----- -----
Income before minority interest . . . . . . . . . 6,844 6,333 22,812 17,756
Minority interest . . . . . . . . . . . . . . . . (452) -- (1,883) --
----- ---- ------ ----
Net income . . . . . . . . . . . . . . . . . . . $ 6,392 $ 6,333 $ 20,929 $ 17,756
======= ======- ======== =======
Net income per share . . . . . . . . . . . . . . $ 0.45 $ 0.47 $ 1.50 $ 1.31
====== ====== ====== =======
Weighted average number of shares and
share equivalents outstanding . . . . . . . . . 14,118 13,602 13,957 13,539
====== ====== ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
2
<PAGE> 5
ALLIED CAPITAL COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
September 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,929 $ 17,756
Adjustments to reconcile net income to net cash provided by operating activities:
Discount amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,495) (3,243)
Net gains on disposition of mortgage loans . . . . . . . . . . . . . . . . . (4,588) (2,188)
Net loss on sale of investments . . . . . . . . . . . . . . . . . . . . . . -- 221
Provision for loan loss reserves . . . . . . . . . . . . . . . . . . . . . . 650 500
Minority interest in net income . . . . . . . . . . . . . . . . . . . . . . 1,883 --
Amortization of debt issue costs . . . . . . . . . . . . . . . . . . . . . . 466 --
Changes in assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . (1,815) 5,068
------ -----
Net cash provided by operating activities . . . . . . . . . . . . . . . 13,030 18,114
------ ------
Cash Flows From Investing Activities:
Purchase of mortgage loans and accrued interest. . . . . . . . . . . . . . . (122,182) (71,107)
Collection of mortgage principal . . . . . . . . . . . . . . . . . . . . . . 64,170 46,644
Redemption of U.S. Government securities . . . . . . . . . . . . . . . . . . -- 24,054
Net collections under demand note receivable from affiliate . . . . . . . . 4,751 6,689
Collections on note receivable from sale of stock . . . . . . . . . . . . . 983 173
--- ----
Net cash (used in) provided by investing activities . . . . . . . . . . (52,278) 6,453
-------- -----
Cash Flows From Financing Activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,633) (14,049)
Distribution to minority shareholder . . . . . . . . . . . . . . . . . . . . (2,579) --
Net borrowings under revolving line of credit . . . . . . . . . . . . . . . 83,392 11,096
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . (37,746) --
Proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . 738 745
--- ---
Net cash provided by (used in) financing activities . . . . . . . . . . . 27,172 (2,208)
------ -------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . (12,076) 22,359
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . 12,668 979
------ ---
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . $ 592 $ 23,338
====== ========
</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
September 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 September 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 nine months ended September
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 1.0% 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 2.5% 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 3.5% 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 2.5% per annum, on the total management fees payable to
Advisers with respect to the Company's holdings of Invested Assets.
4
<PAGE> 7
ALLIED CAPITAL COMMERCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
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., "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 0.5% per
annum.
NOTE 3. MORTGAGE LOANS:
As of September 30, 1996, the Company's portfolio of mortgage loans
consisted of Classes A, B and C loans in the amount of $71.4 million,
$268.3 million and zero, respectively. Class B loans include the
Company's mortgage loans that were outstanding at September 30, 1996
that existed at December 31, 1995 and additional mortgage loans that
were acquired or originated in 1996 that have been categorized as
Class B. These classifications do not reflect the existing credit
rating of the mortgage loans but, rather, are used for determining the
management fee.
During the third quarter of 1996, the Company increased its loan
loss reserve by $250,000 and charged off loans with a net cost of
$536,000 for a net decrease in the reserve of $286,000. As of
September 30, 1996, the loan loss reserve equaled $1,126,000 or 0.3% of
the Company's net investments in mortgage loans.
NOTE 4. CREDIT FACILITIES:
The Company, in conjunction with Business Mortgage Investors, Inc.
("BMI"), 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 190 basis points and expires in August 1997. As
of September 30, 1996 the Company had drawn $15.4 million under this
line of credit.
The Company, again in conjunction with BMI, renewed its credit
facility with an investment bank in March 1996. 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 September
30, 1996, the Company had outstanding borrowings under this facility
equal to $68.0 million.
The Company had $60.9 million outstanding non-recourse long-term
indebtedness from Allied Capital Funding, LLC's (an 82%-owned
subsidiary) issuance of commercial mortgage collateralized bonds.
The Company entered into an interest rate swap agreement (the "swap
agreement") with Morgan Guaranty Trust Company of New York in
anticipation of a future long-term financing of its mortgage loans on
July 22, 1996. The swap agreement has a notional amount of $50
million, and the Company pays a fixed rate of 6.92% and receives a rate
of 30-day LIBOR on the notional amount. The swap agreement terminates
July 22, 2001. Net differences under the swap agreement are
recognized as an adjustment to interest expense currently. As of
September 30, 1996, the Company would incur a loss of approximately
$400,000 to terminate the swap agreement. The Company is exposed to
credit losses in the event of counter party nonperformance, but it does
not anticipate any such losses.
5
<PAGE> 8
Allied Capital Commercial Corporation
Notes to the Consolidated Financial Statements
September 30, 1996
(Unaudited)
NOTE 5. DISTRIBUTIONS:
The Company's Board of Directors declared a third quarter dividend
equivalent to $0.48 per share. This dividend was paid on September
30, 1996 to shareholders of record as of September 16, 1996. The
Company paid cash of $5,281,000 and distributed new shares of common
stock, through its dividend reinvestment plan, with a value of
$1,481,000 for a total dividend equal to $6,762,000. The Company's
Board of Directors have declared and paid dividends in 1996
equivalent to $1.38 per share or $19,208,000. The Company has paid
cash of $14,840,000 and distributed new shares of common stock,
through its dividend reinvestment plan, with a value of $4,368,000
related to its 1996 dividends declared and paid.
NOTE 6. COMMITMENTS AND CONTINGENCIES:
The Company had loan commitments outstanding equal to $2.0 million at
September 30, 1996 to invest in various mortgage loans with
prospective companies.
6
<PAGE> 9
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 BMI, 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 SEPTEMBER 30, 1996 AND 1995
The Company's net income increased 1% to $6.4 million for the quarter
ended September 30, 1996 compared to $6.3 million for the same period
of last year. Net income per share was $0.45 and $0.47 for the
quarters ended September 30, 1996 and 1995, respectively. The
weighted average shares used in the calculation of per share amounts
have increased by 4% from 13.6 million shares at September 30, 1995 to
14.1 million at September 30, 1996. This increase in weighted average
shares is primarily due to new shares issued pursuant to the Company's
dividend reinvestment plan, and new shares issued as the result of
exercises of stock options.
Total investment income for the quarter ended September 30, 1996
increased 35% over the corresponding prior year period. This increase
is primarily due to the increase in income from mortgage loans as a
result of an increase in the Company's net investments in mortgage
loans of $113 million or 50% to $339.7 million as of September 30,
1996 from $227 million at September 30, 1995. Approximately $11.2
million of the increase represents growth from consolidating the
minority interest in the mortgage loans of Funding. The Company has
funded the increase in its investments in mortgage loans during the
third quarter of 1996 through the use of leverage.
Total expenses have increased 60% in the current year quarter over the
corresponding period last year due to increases in interest expense
and investment management fees. The primary increase in expenses
relates to interest expense. Interest expense increased 136% to $3.0
million from $1.3 million for the quarters ended September 30, 1996
and 1995, respectively. Interest expense continues to increase
because the Company is incurring debt in order to finance its
investments in mortgage loans and improve its returns to its
shareholders. Total debt has increased to $144.3 million at September
30, 1996 from $61.2 million at September 30, 1995.
Investment management fees increased $0.3 million to $1.8 million from
$1.5 million for the three months ended September 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. At September 30, 1996, the Company was paying
investment management fees at a rate of approximately 2.5% per annum
on assets totaling $264 million, and at a rate of approximately 1.25%
to 1.0% per annum on assets totaling $71 million.
Other operating expenses decreased 4% to $625,000 as compared to
$651,000 for the three months ended September 30, 1996 and 1995,
respectively.
The Company received mortgage loan payoffs during the third quarter of
1996 totaling $28.5 million that resulted in realized gains of $.5
million as compared to realized gains of approximately $1.0 million
from mortgage loan payoffs of approximately $29 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 $0.5
million for the quarter ended September 30, 1996.
7
<PAGE> 10
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The Company's net income increased 17.9% to $20.9 million for the nine
months ended September 30, 1996 compared to $17.8 million for the same
period of last year, and net income per share was $1.50 and $1.31 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 nine months ended September 30, 1996 increased 37% over the
corresponding period of the prior year.
Total expenses have increased 77% for the nine months ended September
30, 1996 as compared to the corresponding period last year. Interest
expense increased 146% to $7.9 million from $3.2 million for the nine
months ended September 30, 1996 and 1995, respectively. Interest
expense has increased because the Company continues to grow its
investments in mortgage loans by increasing its outstanding
indebtedness.
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 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 2.5% per
annum, on the total management fees payable to Advisers with respect
to the Company's holdings of Invested Assets. This is similar to the
fee schedule in effect in 1995 and prior years which required a fee on
all invested assets at a rate of approximately 2.5% per annum. The
revised fee schedule, again, 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 $1.0 million to $5.3 million from
$4.4 million for the nine months ended September 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 $0.8 million to $1.7 million for
the nine months ended September 30, 1996 as compared to $913,000 for
the nine months ended September 30, 1995. This increase resulted from
a rise in normal operating expenses due to the growth of the Company
and from a $150,000 increase in the provision for loan loss reserves
during 1996.
The Company received mortgage loan payments during the first nine
months of 1996 totaling $64.2 million that resulted in realized gains
of $4.6 million as compared to realized gains of $2.0 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 approximated $1.9
million for the nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Total investments in mortgage loans increased by $66.2 million, or 24%
to $339.7 million at September 30, 1996 from $273.5 million 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 $0.6 million at September 30, 1996 from $12.7 million at
December 31, 1995. During the first nine months of 1996, the Company
used $52.3 million in cash for net investing activities
8
<PAGE> 11
which was funded primarily by draws on its lines of credit. The
Company generated $13.0 million in cash from operations.
The Company's total consolidated indebtedness at September 30, 1996
was $144.3 million. The Company has outstanding non-recourse
long-term indebtedness of $60.9 million from Funding's issuance of
commercial mortgage collateralized bonds and $83.4 million in
outstanding recourse short-term lines of credit secured by mortgage
loans. The Company is anticipating using debt in order to finance new
investments in mortgage loans.
In an effort to manage its exposure to fluctuations in interest rates
in anticipation of a future long-term financing, the Company entered
into an interest rate swap agreement in July 1996. The swap agreement
has a notional amount equal to $50 million whereby the company pays a
third party a fixed rate equal to 6.92%, and the Company receives from
the third party a rate equal to the 30-day LIBOR.
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 expand its 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.
Statements included in this filing concerning the Company's future
prospects are "forward looking statements" under the Federal
securities laws. There can be no assurance that future results will
be achieved and actual results could differ materially from forecasts
and estimates. Important factors that could cause actual results to
differ materially are included but are not limited to those listed in
the Company's quarterly reports as filed on Form 10-Q and annual
report as filed on Form 10-K.
9
<PAGE> 12
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
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
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1996.
10
<PAGE> 13
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: November 13, 1996 Jon A. DeLuca
Executive Vice President and
Chief Financial Officer
11
<PAGE> 1
Allied Capital Commercial Corporation
Exhibit 11 Statement of Computation of Earnings Per Common Share
Form 10-Q
September 30, 1996
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------------- --------------------------------
1996 1995 1996 1995
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Primary Earnings Per Common Share:
Net Income $6,392,000 $6,333,000 $20,929,000 $17,756,000
================================= ================================
Weighted average of common
shares outstanding 13,994,734 13,557,925 13,873,519 13,511,697
Weighted average of common
shares issuable on exercise
of outstanding stock options 123,236 43,732 83,287 27,780
--------------------------------- --------------------------------
Weighted average of common
shares outstanding, as adjusted 14,117,970 13,601,657 13,956,806 13,539,477
================================= ================================
Net Income per share $0.45 $0.47 $1.50 $1.31
================================= ================================
Fully Diluted Earnings Per Common Share:
Net Income $6,392,000 $6,333,000 $20,929,000 $17,756,000
================================= ================================
Weighted average common
shares and common share
equivalents as computed for
primary earnings per share 14,117,970 13,601,657 13,956,806 13,539,477
Weighted average of additional
shares issuable on exercise
of outstanding stock options 9,703 15,542 52,858 25,224
--------------------------------- --------------------------------
Weighted average of common
shares outstanding, as adjusted 14,127,673 13,617,199 14,009,664 13,564,701
================================= ================================
Net Income per share assuming full dilut $0.45 $0.47 $1.49 $1.31
================================= ================================
</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 nine months
ended September 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,592
<SECURITIES> 0
<RECEIVABLES> 348,270
<ALLOWANCES> 1,126
<INVENTORY> 0
<CURRENT-ASSETS> 348,862
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 348,862
<CURRENT-LIABILITIES> 3,906
<BONDS> 144,271
0
0
<COMMON> 1
<OTHER-SE> 195,063
<TOTAL-LIABILITY-AND-EQUITY> 348,862
<SALES> 33,153
<TOTAL-REVENUES> 33,153
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,426
<LOSS-PROVISION> 650
<INTEREST-EXPENSE> 7,853
<INCOME-PRETAX> 20,929
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,929
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.49
</TABLE>
