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 MARCH 31, 1995 0-18016
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ALLIED CAPITAL CORPORATION II
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(exact name of Registrant as specified in its charter)
MARYLAND 52-1628801
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(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1666 K STREET, N.W.
SUITE 901
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 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 _____
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On May 1, 1995 there were 6,938,191 shares outstanding of the Registrant's
common stock, $1 par value.
ALLIED CAPITAL CORPORATION II AND SUBSIDIARIES
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Financial Position as of March 31, 1995
and December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statement of Operations - For the Three Months Ended
March 31, 1995 and 1994. . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Changes in Net Assets - For the Three Months
Ended March 31, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Cash Flows - For the Three Months Ended
March 31, 1995 and 1994. . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5
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
PART I - Financial Information
Item 1. Financial Statements
ALLIED CAPITAL CORPORATION II AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in thousands, except number of shares)
March 31, 1995 December 31, 1994
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(unaudited)
Assets
Investments at value:
Loans and debt securities. . . . . . . . . . . . . . . . . . . . $82,887 $79,423
Equity securities. . . . . . . . . . . . . . . . . . . . . . . . 7,488 6,714
Other investment assets. . . . . . . . . . . . . . . . . . . . . 2,010 1,993
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Total investments . . . . . . . . . . . . . . . . . . . . 92,385 88,130
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . 5,298 11,591
U.S. government securities . . . . . . . . . . . . . . . . . . . . 747 748
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,386 1,465
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Total assets. . . . . . . . . . . . . . . . . . . . . . . $100,816 $101,934
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Liabilities
Dividends and distributions payable. . . . . . . . . . . . . . . . $ -- $ 2,359
Investment advisory fee payable. . . . . . . . . . . . . . . . . . 591 579
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . 656 297
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 886 1,224
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Total liabilities . . . . . . . . . . . . . . . . . . . . 2,133 4,459
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Commitments and Contingencies
Shareholders' Equity
Common stock, $1 par; 20,000,000 shares
authorized; 6,938,191 shares issued and outstanding at
3/31/95 and 12/31/94. . . . . . . . . . . . . . . . . . . . . . . 6,938 6,938
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 89,860 89,860
Notes receivable from sale of common stock . . . . . . . . . . . . (943) (943)
Net unrealized appreciation on investments . . . . . . . . . . . . 3,690 2,919
Distributions in excess of accumulated earnings. . . . . . . . . . (862) (1,299)
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Total shareholders' equity . . . . . . . . . . . . . . . . 98,683 97,475
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Total liabilities and shareholders' equity . . . . . . . . $100,816 $101,934
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
1
ALLIED CAPITAL CORPORATION II AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
For the Three Months Ended March 31,
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1995 1994
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(unaudited) (unaudited)
Investment and other income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,863 $ 2,043
Other income . . . . . . . . . . . . . . . . . . . . . . . . . 69 --
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Total investment and other income. . . . . . . . . . . . . . 2,932 2,043
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Expenses:
Investment advisory fee. . . . . . . . . . . . . . . . . . . . 591 504
Legal and audit fees . . . . . . . . . . . . . . . . . . . . . 128 64
Other operating expenses . . . . . . . . . . . . . . . . . . . 81 53
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Total expenses . . . . . . . . . . . . . . . . . . . . . . . 800 621
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Net investment income. . . . . . . . . . . . . . . . . . . . . . 2,132 1,422
Net realized gains on investments. . . . . . . . . . . . . . . . 40 80
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Net investment income before net unrealized appreciation
(depreciation) on investments . . . . . . . . . . . . . . . . 2,172 1,502
Net unrealized appreciation (depreciation) on investments. . . . 771 (71)
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Net increase in net assets resulting from operations . . . . . . $ 2,943 $ 1,431
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Earnings per share . . . . . . . . . . . . . . . . . . . . . . . $ 0.42 $ 0.21
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Weighted average number of shares and share equivalents
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 6,945 6,938
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
2
ALLIED CAPITAL CORPORATION II AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
(in thousands, except per share amounts)
For the Three Months Ended March 31,
------------------------------------
1995 1994
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(unaudited) (unaudited)
Operations:
Increase in net assets resulting from operations
Net investment income. . . . . . . . . . . . . . . . . . . . . . . $ 2,132 $ 1,422
Net realized gains on investments. . . . . . . . . . . . . . . . . 40 80
Net unrealized appreciation (depreciation) on investments. . . . . 771 (71)
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Net increase in net assets resulting from operations. . . . . . 2,943 1,431
Distributions to Shareholders. . . . . . . . . . . . . . . . . . . . . (1,735) (1,735)
Capital Share Transactions:
Net decrease in notes receivable from sale of common stock . . . . . -- 30
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Net increase (decrease) in net assets. . . . . . . . . . . . . . . . . 1,208 (274)
Net assets at beginning of period. . . . . . . . . . . . . . . . . . . 97,475 96,225
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Net assets at end of period. . . . . . . . . . . . . . . . . . . . . . $ 98,683 $ 95,951
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Net asset value per share. . . . . . . . . . . . . . . . . . . . . . . $ 14.22 $ 13.83
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Shares outstanding at end of period. . . . . . . . . . . . . . . . . . 6,938 6,938
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
ALLIED CAPITAL CORPORATION II AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
For the Three Months Ended March 31,
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1995 1994
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(unaudited) (unaudited)
Cash Flows From Operating Activities:
Net increase in net assets resulting from operations . . . . . . . . . . $ 2,943 $ 1,431
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Net unrealized (appreciation) depreciation on investments . . . . . . (771) 71
Net realized gains on investments . . . . . . . . . . . . . . . . . . (40) (80)
Changes in assets and liabilities:
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (921) (962)
Investment advisory fee payable . . . . . . . . . . . . . . . . . . . 12 33
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 359 --
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (338) 827
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Net cash provided by operating activities. . . . . . . . . . . . . 1,244 1,320
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Cash Flows From Investing Activities:
Net increase in investments . . . . . . . . . . . . . . . . . . . . . (3,444) (5,716)
Net redemption of U.S. government securities. . . . . . . . . . . . . 1 10,098
Net payments on notes receivable. . . . . . . . . . . . . . . . . . . -- 30
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Net cash (used in) provided by investing activities. . . . . . . . (3,443) 4,412
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Cash Flows From Financing Activities:
Dividends and distributions paid. . . . . . . . . . . . . . . . . . . (4,094) (3,261)
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Net cash used in financing activities. . . . . . . . . . . . . . . (4,094) (3,261)
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Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . (6,293) 2,471
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . 11,591 10,947
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Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . $ 5,298 $ 13,418
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
ALLIED CAPITAL CORPORATION II AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
NOTE 1. GENERAL
In the opinion of management, the accompanying unaudited
consolidated financial statements of Allied Capital Corporation II and
subsidiaries (the Company) contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the Company's
consolidated financial position as of March 31, 1995 and the results of
operations, changes in net assets, and cash flows 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 consolidated 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 three months ended March 31, 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. DISTRIBUTIONS
The Company's Board of Directors declared a $0.25 per share first
quarter dividend that was paid on March 31, 1995 to shareholders of
record on March 17, 1995.
NOTE 3. COMMITMENTS AND CONTINGENCIES
Loans. The Company had loan commitments outstanding of $6.7 million at
March 31, 1995 to various existing and prospective portfolio companies.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Total investments increased by 5% from $88.1 million at December
31, 1994 to $92.4 million at March 31, 1995. This increase was
primarily due to new investments of $9.7 million, net of repayments and
valuation changes, of approximately $5.4 million. Cash and cash
equivalents and U.S. government securities decreased by 51% from $12.3
million at December 31, 1994 to $6.0 million at March 31, 1995 due to
the increase in investments, net of repayments, and dividends paid to
shareholders. Net assets increased from $97.5 million at December 31,
1994 to $98.7 million at March 31, 1995. This increase is due to the
net increase in net assets resulting from operations for the three
months ended March 31, 1995 exceeding the first quarter dividends
declared and paid.
At March 31, 1995 outstanding commitments for future financings were
$6.7 million. The Company's current cash and short-term investments
combined with its available $25 million line of credit is adequate to
satisfy these commitments, and other future investment opportunities
throughout the year.
RESULTS OF OPERATIONS
The net increase in net assets resulting from operations was $2.9
million and $1.4 million for the three months ended March 31, 1995 and
1994, respectively. The 1995 increase is due primarily to an increase
in net investment income of $.7 million and an increase in unrealized
appreciation of $.8 million. Net investment income increased due to an
increase in investment and other income of $.9 million offset by an
increase in total expenses of $.2 million. Interest income has
increased as the level of invested assets have increased from the first
quarter of 1994. At March 31, 1994, total investments were $76.4
million as compared to $92.4 million at March 31, 1995, an increase of
$16 million or approximately 21%.
PORTFOLIO CHANGES
The following represents portfolio investment balances in the
Company as of March 31, 1995 that have changes in appreciation or
depreciation by more than 10% as compared to the appreciation or
depreciation as of December 31, 1994.
Appreciation (Depreciation)
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Portfolio Company March 31, 1995 December 31, 1994 $ Change Percent Change
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Garden Ridge
Pottery $995,718 $433,125 $562,593 129.9%
June Broadcasting 614,370 411,970 202,400 49.1%
Montgomery Tank
Lines 177,009 123,096 53,913 43.8%
West Virginia Radio
Corporation (200,000) (150,000) (50,000) (33.3%)
6
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
During 1994, in the course of a review of certain regulatory matters,
the Company determined that the board of directors of the Company was
composed of a lesser percentage of non-interested directors than
required by relevant provisions of the Investment Company Act of 1940
(the "1940 Act"). Specifically, certain non-officer directors of the
Company owned stock of Allied Capital Advisers, Inc. ("Advisers"), and
one non-officer director was affiliated with a broker/dealer registered
under the Securities Exchange Act of 1934. Actions were taken promptly
to bring the Company's board of directors into compliance with the
relevant provisions of the 1940 Act. A committee of non-interested
directors of the Company and Allied Capital Corporation was formed to
review this matter. At its own initiative, Advisers also undertook an
audit of compliance with securities laws as they relate to the Company
and its subsidiaries. The Company currently does not believe that this
situation will have a material adverse effect on the operations of the
Company or on its financial position.
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 March 31, 1995
7
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 CORPORATION II
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(Registrant)
s/Jon A. DeLuca
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Date: May 12, 1995 Jon A. DeLuca
Senior Vice President
Chief Financial Officer
8