================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 0-27812
MEDALLION FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE No. 04-3291176
(State of Incorporation) (IRS Employer Identification No.)
437 Madison Ave, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 328-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that 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
--- ---
Number of shares of Common Stock outstanding at the latest practicable date,
August 10, 2001:
Class Outstanding Par Value Shares Outstanding
----------------- --------- ------------------
Common Stock..................................... $.01 ........ 18,182,035
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1
MEDALLION FINANCIAL CORP.
FORM 10-Q
INDEX
PART I..................................................................................................3
FINANCIAL INFORMATION.........................................................................................3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS...............................................................3
CONSOLIDATED BALANCE SHEETS..........................................................................4
CONSOLIDATED STATEMENTS OF OPERATIONS................................................................5
CONSOLIDATED STATEMENTS OF CASH FLOWS................................................................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........................................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........14
PART II................................................................................................30
OTHER INFORMATION............................................................................................30
ITEM 1. Legal Proceedings..............................................................................30
ITEM 2. Changes in Securities and Use of Proceeds......................................................30
ITEM 3. Defaults Upon Senior Securities................................................................30
ITEM 4. Submission of Matters to a Vote of Security Holders............................................30
ITEM 5. Other Information..............................................................................30
ITEM 6. Exhibits and reports on form 8-K...............................................................30
SIGNATURES.............................................................................................32
2
PART I.
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Basis of Preparation
Medallion Financial Corp. (the Company) is a closed-end management
investment company organized as a Delaware corporation. The Company has elected
to be regulated as a business development company under the Investment Company
Act of 1940, as amended (the 1940 Act). The Company conducts its business
through various wholly owned subsidiaries including its primary operating
company, Medallion Funding Corp. (MFC). As an adjunct to the Company's taxicab
medallion finance business, the Company operates a taxicab rooftop advertising
business, Medallion Taxi Media, Inc. (Media).
The financial information is divided into two sections. The first section,
Item 1, includes the unaudited consolidated financial statements of the Company
including related footnotes. The second section, Item 2, consists of
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three and six months ended June 30, 2001.
The consolidated balance sheets of the Company as of June 30, 2001, the
related consolidated statements of operations for the three and six months ended
June 30, 2001, and the consolidated statements of cash flows for the six months
ended June 30, 2001 included in Item 1 have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities Exchange
Commission (SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying consolidated
financial statements include all adjustments (consisting of normal, recurring
adjustments) necessary to summarize fairly the Company's financial position and
results of operations. The results of operations for the three and six months
ended June 30, 2001 or for any other interim period may not be indicative of
future performance. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.
3
MEDALLION FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
=============================================================================================================
June 30, 2001 December 31, 2000
=============================================================================================================
Assets
Medallion loans $272,971,622 $299,302,548
Commercial loans 198,584,956 212,721,373
Equity investments 2,089,465 2,129,685
------------------------------------------------
Net investments 473,646,043 514,153,606
Investment in and loans to unconsolidated subsidiary 4,352,183 1,856,421
------------------------------------------------
Total investments 477,998,226 516,010,027
------------------------------------------------
Cash 81,812,352 15,652,878
Accrued interest receivable 9,250,886 8,701,981
Servicing fee receivable 6,019,796 6,632,516
Fixed assets, net 2,018,755 2,050,808
Goodwill, net 5,384,992 5,650,045
Other assets, net 5,731,489 6,016,747
------------------------------------------------
Total assets $588,216,496 $560,715,002
- -------------------------------------------------------------------------------------------------------------
Liabilities
Accounts payable and accrued expenses $ 7,426,846 $ 7,723,812
Dividends payable - 5,244,281
Accrued interest payable 1,411,085 3,887,589
Commercial paper 237,128 24,066,269
Notes payable to banks 314,720,000 305,700,000
Senior secured notes 45,000,000 45,000,000
SBA debentures payable 31,860,000 21,360,000
------------------------------------------------
Total liabilities 400,655,059 412,981,951
- -------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock (1,000,000 shares of $.01 par value stock - -
authorized - none outstanding)
Common stock (50,000,000 shares of $.01 par value stock 181,822 145,467
authorized - 18,182,035 and 14,546,637 shares outstanding
at June 30, 2001 and December 31, 2000, respectively)
Capital in excess of par value 183,561,561 146,379,377
Accumulated undistributed net investment income 3,818,054 1,208,207
------------------------------------------------
Total shareholders' equity 187,561,437 147,733,051
------------------------------------------------
Total liabilities and shareholders' equity $588,216,496 $560,715,002
=============================================================================================================
Number of common shares 18,182,035 14,546,637
Net asset value per share $10.32 $10.16
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
====================================================================================================================
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------------------------------
2001 2000 2001 2000
====================================================================
Interest and dividend income on investments $11,413,800 $13,726,862 $24,742,979 $28,177,934
Interest income on short-term investments 204,357 59,759 249,309 139,636
--------------------------------------------------------------------
Total investment income 11,618,157 13,786,621 24,992,288 28,317,570
Notes payable to banks 5,694,719 3,468,060 11,485,191 6,772,616
Commercial paper 27,287 2,223,077 182,816 4,504,236
Senior secured notes 838,927 821,865 1,660,792 1,643,730
SBA debentures 451,583 402,768 884,755 812,186
--------------------------------------------------------------------
Total interest expense 7,012,516 6,915,770 14,213,554 13,732,768
--------------------------------------------------------------------
Net interest income 4,605,641 6,870,851 10,778,734 14,584,802
Gain on sale of loans 278,857 818,198 712,037 1,504,296
Equity in earnings (losses) of 116,989 146,865 (310,195) (172,484)
unconsolidated subsidiary
Accretion of negative - 169,916 -0- 350,516
goodwill
Other income 1,017,496 979,249 1,988,742 1,779,156
--------------------------------------------------------------------
Total non-interest income 1,413,342 2,114,228 2,390,584 3,461,484
Salaries and benefits 2,159,230 2,404,565 4,836,306 4,860,546
Professional fees 586,336 478,231 981,583 894,848
Amortization of goodwill 135,095 105,357 267,621 241,935
Administrative and advisory fees 1,882 42,659 5,017 104,200
Other operating expenses 537,805 1,704,205 2,148,662 3,328,634
-------------------------------------------------------------------------
Total non-interest expenses 3,420,348 4,735,017 8,239,189 9,430,163
-------------------------------------------------------------------------
Net investment income 2,598,635 4,250,062 4,930,129 8,616,123
Net realized losses on investments (602,548) (1,063,151) (1,500,961) (816,402)
Net change in unrealized appreciation 382,928 1,013,689 1,276,192 900,978
-------------------------------------------------------------------------
Net realized/unrealized income (loss) (219,620) (49,462) (224,769) 84,576
Income tax provision (benefit) 14,757 (59,883) 51,873 (59,729)
-------------------------------------------------------------------------
Net increase in net assets resulting from
operations $ 2,364,258 $ 4,260,483 $ 4,653,487 $ 8,760,428
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations per share
Basic $0.16 $0.29 $0.31 $0.60
Diluted 0.16 0.29 0.31 0.60
- --------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding
Basic 15,215,002 14,533,384 14,895,144 14,528,906
Diluted 15,220,407 14,581,668 14,903,764 14,586,510
- --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
================================================================================================================
Six Months Ended June 30,
------------------------------------------------
2001 2000
================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations $ 4,653,487 $ 8,760,429
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Depreciation and amortization 246,865 416,099
Amortization of goodwill 270,190 241,935
Amortization of origination costs 588,842 563,404
Accretion of negative goodwill - (350,516)
Net change in unrealized appreciation (1,276,192) (900,978)
Net realized loss on investments 1,500,961 816,402
Gain on sale of loans (712,037) (1,504,296)
Equity in losses of unconsolidated subsidiary 310,195 172,484
Increase in accrued interest receivable (548,905) (2,686,837)
Decrease in receivable from sale of loans - 5,862,843
Decrease (increase) in servicing fee receivable 612,720 (1,722,659)
Decrease (increase) in other assets, net 285,258 (415,121)
Decrease in accounts payable and accrued expenses (486,839) (899,547)
Decrease in accrued interest payable (2,476,504) (2,073,691)
------------------------------------------------
Net cash provided by operating activities 2,968,041 6,279,951
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Originations of investments (48,173,509) (116,039,263)
Proceeds from sales and maturities of investments 88,579,498 94,136,991
Investment in and loans to unconsolidated subsidiary, net (2,805,957) 24,520
Capital expenditures (214,813) (188,537)
------------------------------------------------
Net cash provided by (used in) investing activities 37,385,219 (22,066,289)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) notes payable to banks 9,020,000 (15,300,000)
Proceeds from issuance of SBA debentures 10,500,000 -
Net proceeds from (repayments of) issuances of commercial paper (23,829,141) 43,093,939
Proceeds from exercise of stock options - 185,996
Net proceeds from issuance of stock 37,403,275 -
Payment of declared dividends to current stockholders (7,287,920) (10,520,203)
------------------------------------------------
Net cash provided by financing activities 25,806,214 17,459,732
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 66,159,474 1,673,394
Cash, beginning of period 15,652,878 7,459,284
------------------------------------------------
Cash, end of period $ 81,812,352 $ 9,132,678
- ----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 16,690,058 $ 15,806,458
- ----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(1) Organization of Medallion Financial Corp. and Its Subsidiaries
Medallion Financial Corp. (the Company) is a closed-end management
investment company organized as a Delaware corporation. The Company has elected
to be regulated as a business development company under the Investment Company
Act of 1940, as amended (the 1940 Act). The Company conducts its business
through various wholly owned subsidiaries including its primary operating
company, Medallion Funding Corp. (MFC). As an adjunct to the Company's taxicab
medallion finance business, the Company operates taxicab rooftop advertising
businesses, Medallion Taxi Media, Inc. (Media) and Medallion Media Japan Ltd.
(MMJ). (See Note 3.)
The Company also conducts its business through Business Lenders, LLC (BLL),
licensed under the Small Business Administration (SBA) section 7(a) program,
Medallion Business Credit LLC (MBC), an originator of loans to small businesses
for the purpose of financing inventory and receivables, Medallion Capital, Inc.
(Medallion Capital) which conducts a mezzanine financing business, and
Freshstart Venture Capital Corp. (Freshstart), a Specialized Small Business
Investment Company (SSBIC) which also originates and services medallion and
commercial loans.
During the quarter the Company completed an equity offering of 3,660,000
common shares at $11 per share raising over $40,000,000 of additional capital.
(2) Summary of Significant Accounting Policies
Use of Estimates
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and general practices in the investment company
industry. The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reporting and disclosure of assets and liabilities,
including those that are of a contingent nature, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation and Use of the Equity Method
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, except for Media. All significant
intercompany transactions, balances, and profits have been eliminated in
consolidation. The consolidated statements give retroactive effect to the
merger with Freshstart, by retroactively combining Freshstart with the Company's
financial statements as if the merger had occurred at the beginning of the
earliest period presented.
The Company's investment in Media and MMJ is accounted for under the equity
method. All significant intercompany transactions, balances and profits have
been eliminated in the use of the equity method. As non-investment companies,
Media and MMJ cannot be consolidated with the Company, which is an investment
company under the 1940 Act. Refer to Note 3 for the presentation of financial
information for Media and MMJ.
Investment Valuation
The Company's loans, net of participations and any unearned discount, are
considered investments under the 1940 Act and are recorded at fair value. Loans
are valued at cost less unrealized depreciation. Since no ready market exists
for these loans, the fair value is determined in good faith by the Board of
Directors. In determining the fair value, the Company and Board of Directors
consider factors such as the financial condition of the borrower, the adequacy
of the collateral, individual credit risks, historical loss experience and the
relationships between current and projected market rates and portfolio rates of
interest and maturities.
Investments in equity securities and stock warrants are recorded at fair
value, represented as cost, plus or minus unrealized appreciation or
depreciation, respectively. The fair value of investments that have no ready
market, are determined by the Board of Directors based upon assets and revenues
of the underlying investee company as well as general market trends for
businesses in the same industry. Included in equity investments at June 30, 2001
are marketable and non-marketable securities of approximately $1,047,000 and
$1,042,000, respectively. Included in equity investments at December 31, 2000
are marketable and non-marketable securities of approximately $1,490,000 and
$640,000, respectively.
7
Because of the inherent uncertainty of valuations, the Board of Directors'
estimates of the values of the investments may differ significantly from the
values that would have been used had a ready market for the investments existed
and these differences could be material.
The Company's investments consist primarily of long-term loans to persons
defined by SBA regulations as socially or economically disadvantaged, or to
entities that are at least 50% owned by such persons. Approximately 57% of the
Company's loan portfolio at June 30, 2001 and 58% at December 31, 2000, had
arisen in connection with the financing of taxicab medallions, taxicabs, and
related assets, of which 80% and 77%, respectively, are in New York City. These
loans are secured by the medallions, taxicabs, and related assets, and are
personally guaranteed by the borrowers, or in the case of corporations,
personally guaranteed by the owners. A portion of the Company's portfolio
represents loans to various commercial enterprises, including dry cleaners,
laundromats, restaurants, garages, and gas stations. These loans are secured by
various equipment and/or real estate and are generally guaranteed by the owners,
and in certain cases, by the equipment dealers. These loans are made primarily
in the metropolitan New York City area. The remaining portion of the Company's
portfolio is from the origination of loans guaranteed by the SBA under its
Section 7(a) program, less the sale of the guaranteed portion of those loans.
Funding for the Section 7(a) program depends on annual appropriations by the
U.S. Congress.
Collateral Appreciation Participation Loans
During the 2000 first half, the Company originated collateral appreciation
participation loans collateralized by Chicago taxi medallions of $30 million, of
which $21 million was syndicated to other financial institutions. In
consideration for modifications from its normal taxi medallion lending terms,
the Company offered loans at higher loan-to-value ratios and is entitled to earn
additional interest income based upon any increase in the value of all $30
million of the collateral. The fair value of the Company's collateral
appreciation participation loan portfolio at June 30, 2001 was $13 million,
which represented approximately 3% of its total loan portfolio. Additional
interest income totaled approximately $250,000 and $950,000 for the 2001 second
quarter and year to date compared with $775,000 and $2,475,000 for the
comparable 2000 periods, and is included in investment income on the
consolidated statements of operations and in accrued interest receivable on the
consolidated balance sheets. The Company believes that the additional interest
income recorded is fully realizable through operation of the collateral or
orderly sales in the market. As a regulated investment company, the Company is
required to mark-to-market these investments on a quarterly basis, just as it
does on all of its other investments. The Company feels that it has adequately
calculated the fair market value on these investments and relies upon
information such as recent and historical medallion sale prices. If there is a
decrease in the value of taxicab medallions, the reduction in the value of the
investments will be reversed against investment income.
Income Recognition
Interest income is recorded on the accrual basis. Loans are placed on non-
accrual status, and all uncollected accrued interest is reversed, when there is
doubt as to the collectibility of interest or principal or if loans are 90 days
or more past due, unless management has determined that they are both well-
secured and in the process of collection. Interest income on non-accrual loans
is recognized when cash is received. At June 30, 2001 total non-accrual loans
were approximately $17,410,872, compared to $13,601,000 in the 2001 first
quarter and $13,197,000 at year-end.
Loan Sales and Servicing Fee Receivable
The principal portion of loans serviced for others by the Company at June
30, 2001 was $232,000,000, unchanged from the prior quarter, and up from
$201,000,000 a year ago.
Receivables from loans sold and gains or losses on loan sales are primarily
attributable to the sale of commercial loans which have been at least partially
guaranteed by the SBA. The Company recognizes gains or losses from the sale of
the SBA-guaranteed portion of a loan at the date of the sales agreement when
control of the future economic benefits embodied in the loan is surrendered.
The estimated net servicing income is based, in part, on management's
estimate of prepayment speeds, including default rates, and accordingly, there
can be no assurance of the accuracy of these estimates. If the prepayment
speeds occur at a faster rate than anticipated, the amortization of the
servicing assets will be accelerated and its value will decline; and as a
result, servicing income during that and subsequent periods would decline. If
prepayments occur slower than anticipated, cash flows would exceed estimated
amounts and income would increase. The constant prepayment rates utilized by the
Company in estimating the lives of the loans depend on the original term of the
loan, industry trends, and the Company's historical data.
8
The activity in the reserve for servicing fee receivable follows:
- ---------------------------------------------------------------------------------------------------------
2001 2000
- ---------------------------------------------------------------------------------------------------------
Balance at January 1, $205,000 $ -
Additions charged to operations 31,000 -
- ---------------------------------------------------------------------------------------------------------
Balance at March 31, 236,000 -
Additions charged to operations 83,000 23,000
- ---------------------------------------------------------------------------------------------------------
Balance at June 30, $319,000 $23,000
- ---------------------------------------------------------------------------------------------------------
Unrealized Appreciation/(Depreciation) and Realized Gains/(Losses) on
Investments
The change in unrealized appreciation/(depreciation) of investments is the
amount by which the fair value estimated by the Company is greater/(less) than
the cost basis of the investment portfolio. Realized gains or losses on
investments are generated through sales of investments, foreclosure on specific
collateral, and write-offs of loans or assets acquired in satisfaction of loans,
net of recoveries. Unrealized depreciation was $6.1 million as of June 30,
2001 and March 31, 2001.
The table below shows changes in the unrealized depreciation balance during
2001:
- ------------------------------------------------------------------------------------------------------
Loans Equity Investments Total
- ------------------------------------------------------------------------------------------------------
Balance as of December 31, 2000 ($6,988,790) ($422,577) ($7,411,367)
Change in unrealized
Appreciation on investments - 176,407 176,407
Depreciation on investments (558,159) - (558,159)
Realized
Gains on investments (3,375) (120,389) (123,764)
Losses on investments 1,384,856 - 1,384,856
Other 236,499 240,779 477,278
- ------------------------------------------------------------------------------------------------------
Balance as of March 31, 2001 (5,928,969) (125,780) (6,054,749)
Change in unrealized
Appreciation on investments 178,623 452,000 630,623
Depreciation on investments (716,369) (92,080) (808,449)
Realized
Losses on investments 323,633 - 323,633
Other (236,369) - (236,369)
-------------------------------------------------
Balance as of June 30, 2001 ($6,379,451) $ 234,140 ($6,145,311)
- ------------------------------------------------------------------------------------------------------
The table below summarizes components of unrealized and realized gains and
losses in the investment portfolio:
- --------------------------------------------------------------------------------------------------------------------------------
Three months Six months
ended ended
June 30, 2001 June 30, 2001
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net unrealized appreciation (depreciation) on investments
Unrealized appreciation $ 630,623 $ 807,030
Unrealized depreciation (808,449) (1,366,608)
Realized gain - (123,764)
Realized loss 323,633 1,708,489
Other 237,121 251,045
--------------------------------------------------
Total $ 382,928 $ 1,276,192
- --------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments
Realized gain ($239,355) ($105,234)
Realized loss (363,193) (1,395,727)
--------------------------------------------------
Total ($602,548) ($1,500,961)
- --------------------------------------------------------------------------------------------------------------------------------
9
Goodwill
Cost of purchased businesses in excess of the fair value of net assets
acquired (goodwill) is amortized on a straight-line basis over fifteen years.
The excess of fair value of net assets over cost of business acquired (negative
goodwill) was accreted on a straight-line basis over approximately four years.
The Company reviews its goodwill for events or changes in circumstances that may
indicate that the carrying amount of the assets may not be recoverable, and if
appropriate, reduces the carrying amount through a charge to income. See note
7.
Federal Income Taxes
The Company has elected to be treated for tax purposes as a regulated
investment company (RIC) under the Internal Revenue Code of 1986, as amended
(the Code). As a RIC, the Company will not be subject to U.S. federal income tax
on any investment company taxable income (which includes, among other things,
dividends and interest reduced by deductible expenses) that it distributes to
its stockholders if at least 90% of its investment company taxable income for
that taxable year is distributed. It is the Company's policy to comply with the
provisions of the Code applicable to regulated investment companies.
Media and MMJ, as non-investment companies, are taxed as regular
corporations.
Net Increase in Net Assets Resulting from Operations per Share (EPS)
Basic earnings per share is computed by dividing net increase in net assets
resulting from operations available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
per share reflect the potential dilution that could occur if option contracts to
issue common stock were exercised and has been computed after giving
consideration to the weighted average dilutive effect of the Company's common
stock and stock options. Basic and diluted EPS for the three and six months
ended June 30, 2001 and 2000 are as follows:
- ------------------------------------------------------------------------------------------------------------------------------
June 30, 2001 June 30, 2000
-----------------------------------------------------------------------------------
Three months ended # of Shares EPS # of Shares EPS
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $2,364,258 $4,260,483
- ------------------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to
common shareholders 2,364,258 15,215,002 $0.16 4,260,483 14,533,384 $0.29
Effect of dilutive stock options 5,405 48,284
- ------------------------------------------------------------------------------------------------------------------------------
Diluted EPS
Income available to
common shareholders $2,364,258 15,220,407 $0.16 $4,260,483 14,581,668 $0.29
- ------------------------------------------------------------------------------------------------------------------------------
Six months ended
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $4,653,487 $8,760,428
- -------------------------------------------------------------------------------------------------------------------------------
Basic EPS
Income available to
common shareholders 4,653,487 14,895,144 $0.31 $8,760,428 14,528,906 $0.60
Effect of dilutive stock options 8,620 57,604
- -------------------------------------------------------------------------------------------------------------------------------
Diluted EPS
Income available to
common shareholders $4,653,487 14,903,764 $0.31 $8,760,428 14,586,510 $0.60
- -------------------------------------------------------------------------------------------------------------------------------
Derivatives
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes new standards regarding accounting and reporting requirements for
derivative instruments and hedging activities. In June 1999, the Board issued
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." The new standard
deferred the effective date of SFAS 133 to fiscal years beginning after June 15,
2000. The Company adopted SFAS 133 beginning January 1, 2001. The cumulative
effect of adoption was not material.
10
The Company is party to certain interest rate cap agreements. These
contracts were entered into as part of the Company's management of interest rate
exposure and effectively limit the amount of interest rate risk that may be
taken on a portion of the Company's outstanding debt. All interest rate caps
are designated as hedges of certain liabilities, however, any hedge
ineffectiveness is charged to earnings in the period incurred. Premiums paid on
the interest rate caps were previously amortized over the lives of the cap
agreements and amortization of these costs was recorded as an adjustment to
interest expense. The amount charged to earnings was $57,000 and $82,000 for
the 2001 second quarter and six months, respectively, compared to $17,000 and
$34,000 for the 2000 second quarter and six months, respectively. Upon adoption
of SFAS 133, the interest rate caps are recorded at fair value, which is
determined based on information provided by the Company's counterparties.
Interest rate settlements, if any, are recorded as a reduction of interest
expense over the lives of the agreements. The fair value of the Company's
interest rate caps as of June 30, 2001 was $0.
Reclassifications
Certain reclassifications have been made to prior year balances to conform
with the current year presentation.
(3) Investment in Unconsolidated Subsidiary
The balance sheets at June 30, 2001 and December 31, 2000 for Media are as
follows:
===============================================================================================================
June 30, December 31,
-----------------------------------------
2001 2000
===============================================================================================================
Cash $ - $ 5,259
Accounts receivable 1,683,348 2,652,055
Equipment, net 3,224,595 3,281,011
Goodwill 1,618,222 1,659,624
Prepaid signing bonuses 1,900,445 1,521,253
Other 3,147,847 2,882,750
Due from parent - 321,723
-----------------------------------------
Total assets $11,574,457 $12,323,675
- ---------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses $ 1,405,643 $ 683,369
Note payable-bank 3,300,000 3,900,000
Notes payable-parent 2,484,234 -
Deferred revenue 2,408,489 5,453,550
-----------------------------------------
Total liabilities 9,598,366 10,036,919
-----------------------------------------
Equity 1,001,000 1,001,000
Retained earnings 975,091 1,285,756
-----------------------------------------
Total equity 1,976,091 2,286,756
-----------------------------------------
Total liabilities and equity $11,574,457 $12,323,675
- ---------------------------------------------------------------------------------------------------------------
The statements of operations of Media for the three months and six months
ended June 30, 2001 and 2000 are as follows:
- ---------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------------------------
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------
Advertising revenue $3,862,841 $2,937,131 $ 7,218,067 $5,213,452
Cost of fleet services 2,063,831 1,260,119 4,231,447 2,423,222
------------------------------------------------------------------
Gross profit 1,799,010 1,677,012 2,986,620 2,790,230
Other operating expenses 1,681,921 1,366,737 3,619,860 2,762,953
------------------------------------------------------------------
Income (loss) before taxes 117,089 310,275 (633,240) 27,277
Income tax provision (benefit) 571 124,110 (322,569) 10,911
------------------------------------------------------------------
Net income (loss) $ 116,518 $ 186,165 ($ 310,671) $ 16,366
- ---------------------------------------------------------------------------------------------
Included in advertising revenue for the 2001 first quarter was
approximately $567,000 related to contracts that were cancelled in prior periods
due to legislative changes and other factors. This revenue was recognized upon
determination that Media had no further obligations under the contracts.
11
In July 2001, the Company acquired certain assets and assumed certain
liabilities of Medallion Media Japan Ltd. (MMJ), a taxi advertising operation
similar to those operated by the Company in the U.S., which has advertising
rights on approximately 7,000 cabs servicing various cities in Japan. The
transaction will be accounted for as a purchase for financial reporting
purposes. The proforma effect of the acquisition is not material to the
Company's consolidated financial position and results of operations. The terms
of the agreement provide for an earn-out payment to the sellers based on average
net income over the next four years.
(4) Commercial Paper, Notes payable to banks, and senior secured notes
Borrowings under the commercial paper, revolving credit, and senior note
agreements are secured by the assets of the Company. The outstanding balances
were as follows as of June 30, 2001 and December 31, 2000.
==================================================================================================================
Description 2001 2000
==================================================================================================================
Commercial paper $ 237,128 $ 24,066,269
Revolving credit agreements 314,720,000 305,700,000
Senior secured notes 45,000,000 45,000,000
- ------------------------------------------------------------------------------------------------------------------
Total $359,957,128 $374,766,269
==================================================================================================================
(a) Commercial Paper
On March 13, 1998, MFC entered into a commercial paper agreement to sell up
to an aggregate principal amount of $195 million in secured commercial paper
through private placements, and coincident with the extension and expansion of
the Revolving Credit Agreement (the Revolver), the commercial paper line was
expanded to $220,000,000. The commercial paper program ranks on a pari passu
basis with the Revolver. During December 2000, MFC'S outstanding commercial
paper began to mature and was replaced by draws on the Revolver at a cost of
7.83%, compared to a cost of 7.10%. On November 22, 2000, Fitch IBCA placed
Medallion's "BBB" senior secured debt rating and "F2" secured commercial paper
rating on negative watch. In addition, in December 2000, Medallion's other
rating agency, Thompson's Bankwatch, was acquired by Fitch IBCA, leaving it with
only one commercial paper rating. Primarily as a result of these factors, a
substantial portion of Medallion's commercial paper did not rollover and has
subsequently been replaced by Medallion's bank facility. On January 18, 2001,
Fitch IBCA lowered the Company's senior secured debt rating and secured
commercial paper rating to "BB+" and "B", respectively, and removed them from
negative watch. At June 30, 2001 and December 31, 2000, MFC had approximately
$237,000 and $24,066,000 outstanding at a weighted average interest rate of
7.21% and 7.10%. MFC's weighted average borrowings related to commercial paper
were $483,804 and $4,048,704 for the 2001 second quarter and year-to-date,
compared to $136,867,503 and $126,089,018 for the respective 2000 periods, with
weighted average interest rates of 7.30%, 7.44%, 6.51%, and 6.58%, respectively.
Commercial paper outstandings are deducted from the Revolver as the Revolver
acts as a liquidity facility for the commercial paper. Subsequent to quarter
end, the commercial paper program matured and was terminated.
(b) Revolving Credit Agreements
On March 27, 1992 (and as subsequently amended), MFC entered into the
Revolver with a group of banks. Effective on February 10, 2000, MFC extended
the Revolver until June 30, 2001 at an aggregate credit commitment amount of
$220,000,000, an increase from $195,000,000 previously, pursuant to the Loan
Agreement dated December 24, 1997. Amounts available under the Revolver are
reduced by amounts outstanding under the commercial paper program as the
Revolver acts as a liquidity facility for the commercial paper program. As of
June 30, 2001 and December 31, 2000, amounts available under the Revolver were
$10,593,000 and $0. On June 29, 2001 MFC renewed the Revolver until June 30,
2002. This renewal clarified and revised certain provisions of the agreements
related to business activities and financial covenants of Medallion and MFC,
adjusted the rate of interest paid on the notes, and established scheduled
reductions in the commitment to $170 million at June 1, 2002. The Revolver may
be extended annually after June 30, 2002 upon the option of the participating
banks and acceptance by MFC. Outstanding borrowings under the Revolver were
$209,170,000 and $195,700,000 at weighted average interest rates of 6.75% and
7.68% at June 30, 2001 and December 31, 2000.
On July 31, 1998, (and as subsequently amended) the Company and MBC entered
into a committed revolving credit agreement (the Loan Agreement) with a group of
banks. The aggregate credit commitment amount was $100,000,000 maturing on June
28, 2000 and was extended on September 22, 2000 to September 21, 2001 at an
increased commitment level of $110,000,000. The Loan Agreement may be extended
annually thereafter upon the option of the participating banks and acceptance by
the Company and MBC. On March 30, 2001 the Company finalized certain amendments
and was granted a waiver of compliance with certain provisions. These
amendments clarified and revised certain provisions of the agreements
12
related to business activities and financial covenants of the Company and MFC,
and adjusted the rate of interest paid on the notes. Outstanding borrowings
under the Loan Agreement were $102,050,000 and $106,500,000 at a weighted
average interest rate of 5.53% and 8.09% at June 30, 2001 and December 31, 2000.
On March 6, 1997, Freshstart established a $5,000,000 line of credit with a
bank at a rate of LIBOR plus 1.75%. Pursuant to the terms of the line of
credit, the Company is required to comply with certain terms, covenants, and
conditions, including maintaining minimum balances with the bank. The line of
credit is unsecured. In connection with the Freshstart merger, the line was
reduced to $3,500,000, and was subsequently paid off in July 2001.
The weighted average interest rate for the Company's consolidated
outstanding revolver borrowings at June 30, 2001 and December 31, 2000 was 6.35%
and 7.83%. During the three months ended June 30, 2001 and 2000, the Company's
weighted average borrowings were $317,219,000 and $179,363,000 with a weighted
average interest rate of 6.78% and 7.78%, respectively.
As of the effective date of the renewals and amendments, Medallion believes
it and MFC are in compliance with the requirements of the renewed and amended
credit facilities, and expect to remain in compliance with the renewed and
amended credit facilities for the foreseeable future. The Company and its
lenders have initiated discussions as to the next renewal of the existing Loan
Agreement which matures in September, 2001. Although, there can be no
assurances, the Company expects a satisfactory result from these discussions.
(c) Senior Secured Notes
On June 1, 1999, MFC issued $22.5 million of Series A senior secured notes
that mature on June 1, 2004, and on September 1, 1999, MFC issued $22.5 million
of Series B senior secured notes that mature on September 1, 2004 (together, the
Notes). The Notes bear a fixed rate of interest of 7.35% and interest is paid
quarterly in arrears. The Notes rank pari passu with the revolvers and
commercial paper through inter-creditor agreements.
(d) Interest Rate Cap Agreements
On June 22, 2000, MFC entered into an interest cap agreement limiting the
Company's maximum LIBOR exposure on $10,000,000 of MFC's revolving credit
facility to 7.25% until June 24, 2002. On July 6, 1999, MFC entered into two
interest rate cap agreements limiting the Company's maximum LIBOR exposure on a
total of $20,000,000 of MFC's revolving credit facility to 6.50% until July 6,
2001. The Company is exposed to credit loss in the event of nonperformance by
the counterparties on the interest rate cap agreements. The Company does not
anticipate nonperformance by any of these parties.
(5) SBA Debentures Payable
Outstanding SBA debentures are as follows at June 30, 2001 and December 31,
2000:
==========================================================================================
Due Date 2001 2000 Interest Rate
==========================================================================================
June 15, 2011 $10,500,000 $ - 6.89%
December 1, 2006 5,500,000 5,500,000 7.08
March 1, 2007 4,210,000 4,210,000 7.38
September 1, 2007 4,060,000 4,060,000 7.76
June 1, 2007 3,000,000 3,000,000 7.07
March 1, 2006 2,000,000 2,000,000 7.08
December 16, 2002 1,300,000 1,300,000 4.51
June 1, 2005 520,000 520,000 6.69
December 1, 2005 520,000 520,000 6.54
June 1, 2006 250,000 250,000 7.71
----------------------------------------------------
Total SBA debentures $31,860,000 $21,360,000 7.09
- ------------------------------------------------------------------------------------------
During the 2001 second quarter, Freshstart and Medallion Capital were
approved by the SBA to receive $36,000,000 each in funding over a period of 5
years. Medallion Capital drew down $10,500,000 during June 2001, and in July,
2001 Freshstart drew down $7,485,000. The rates will be set permanently for a
10 year period at the 10 Year Treasury Rate plus
13
130 basis points in September, 2001. The interim interest rates are 4.351% and
4.28% for the Medallion Capital and Freshstart draws, respectively.
(6) Segment Reporting
The Company has two reportable business segments, lending and taxicab
rooftop advertising. The lending segment originates and services secured
taxicab medallion and commercial loans. The taxicab rooftop advertising segment
sells advertising space to advertising agencies and companies in several major
markets across the United States. The segment represents the unconsolidated
subsidiaries Medallion Taxi Media, Inc. and Medallion Media Japan, Ltd. The
accounting policies of the operating segments are the same as those described in
the summary of significant accounting policies. The lending segment is presented
in the consolidated financial statements of the Company. Financial information
relating to the taxicab rooftop advertising segment is presented in Note 3, and
represents an immaterial part of total Company revenues, expenses, income,
assets and liabilities.
(7) NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has adopted Statements of
Financial Accounting Standards (SFAS) 141, "Business Combinations" and SFAS 142,
"Goodwill and Intangible Assets" which the Company intends to adopt January 1,
2002 as required. The new standards prohibit pooling accounting for mergers and
requires the use of the purchase method of accounting for all prospective
acquisitions, which requires that all assets acquired and liabilities assumed in
a business combination be recorded at fair value with any excess amounts
recorded as goodwill. The standard further requires that amortization of all
goodwill cease, and in lieu of amortization, goodwill must be evaluated for
impairment in each reporting period. Management intends to evaluate its
goodwill for impairment quarterly, and does not believe that such valuation will
have a material impact on the Company's consolidated results of operations or
financial position.
(8) SUBSEQUENT EVENTS
On August 7, 2001, the Company's Board of Directors declared a common stock
dividend of $0.15 per share payable September 10, 2001 to shareholders' of
record on August 31, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the notes to those statements and other financial information
appearing elsewhere in this report.
This report contains forward-looking statements relating to future events
and future performance of the Company within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of The Securities Exchange Act of 1934,
including, without limitation, statements regarding the Company's expectations,
beliefs, intentions or future strategies that are signified by the words
"expects," "anticipates," "intends," "believes" or similar language. Actual
results could differ materially from those anticipated in such forward-looking
statements. All forward-looking statements included in this document are based
on information available to the Company on the date hereof, and the Company
assumes no obligation to update any forward-looking statements. The Company
cautions investors that its business and financial performance are subject to
substantial risks and uncertainties. In evaluating the Company's business,
prospective investors should carefully consider the information set forth in our
annual report on Form 10-K for the year for the year ended December 31, 2000
under the caption "Investment Considerations" in addition to the other
information set forth herein.
General
We are a specialty finance company that originates and services loans that
finance taxicab medallions and various types of commercial loans. We have a
leading position in taxicab medallion financing. Since 1996, we have increased
our medallion loan portfolio at a compound annual growth rate of approximately
16% and our commercial loan portfolio at a compound annual growth rate of
approximately 35%. Our total assets under our management at June 30, 2001 was
approximately $820 million and has grown from $215 million at the end of 1996, a
compound annual growth rate of approximately 30%.
14
The Company's loan related earnings depend primarily on its level of net
interest income. Net interest income is the difference between the total yield
on the Company's loan portfolio and the average cost of funds. The Company
funds its operations through a wide variety of interest-bearing sources, such as
revolving bank facilities, senior secured notes, and debentures issued to and
guaranteed by the SBA. Net interest income fluctuates with changes in the yield
on Medallion's loan portfolio and changes in the cost of funds, as well as
changes in the amount of interest-bearing assets and interest-bearing
liabilities held by the Company. Net interest income is also affected by
economic, regulatory, and competitive factors that influence interest rates,
loan demand, and the availability of funding to finance the Company's lending
activities. Medallion, like other financial institutions, is subject to
interest rate risk to the degree that its interest-earning assets reprice on a
different basis than its interest-bearing liabilities.
The Company also invests in small businesses in selected industries through
its subsidiary Medallion Capital. Medallion Capital's investments are typically
in the form of secured debt instruments with fixed interest rates accompanied by
warrants to purchase an equity interest for a nominal exercise price (such
warrants are included in "Equity Investments"). Interest income is earned on
the debt investments.
Realized gains or losses on investments are recognized when the investments
are sold or written-off. The realized gains or losses represent the difference
between the proceeds received from the disposition of portfolio assets, if any,
and the cost of such portfolio assets. In addition, changes in unrealized
appreciation or depreciation of investments are recorded and represent the net
change in the estimated fair values of the portfolio assets at the end of the
period as compared with their estimated fair values at the beginning of the
period. Generally, "realized gains (losses) on investments" and "changes in
unrealized appreciation (depreciation) of investments" are inversely related.
When an appreciated asset is sold to realize a gain, a decrease in the
previously recorded unrealized appreciation occurs. Conversely, when a loss
previously recorded as an unrealized loss is realized by the sale or other
disposition of a depreciated portfolio asset, the reclassification of the loss
from "unrealized" to "realized" causes an increase in net unrealized
appreciation and an increase in realized loss.
The Company's income from the taxicab rooftop advertising business,
primarily operated by Media, is reflected on Medallion's books as earnings from
an unconsolidated subsidiary. The Company continues to explore other
opportunities in the taxicab and lending industries, including possible
strategies to participate directly and/or indirectly in the appreciation of
taxicab medallions.
TREND IN LOAN PORTFOLIO
The Company's investment income is driven by the principal amount of and
yields on its loan portfolio. To identify trends in the yields, the portfolio
is grouped by medallion loans, commercial loans, and equity investments. Since
December 31, 1998, medallion loans, while still making up a significant portion
of the total portfolio, have decreased in relation to the total portfolio
composition and commercial loans have increased.
15
The following table illustrates the Company's investments at fair value and
the weighted average portfolio yields calculated using the contractual interest
rates of the loans at the dates indicated:
=============================================================================================================================
Dollars in thousands 6/30/2001 3/31/2001 12/31/2000 6/30/2000
-------------------------------------------------------------------------------------------
Interest Principal Interest Principal Interest Principal Interest Principal
Rate Balance Rate Balance Rate Balance Rate Balance
=============================================================================================================================
Medallion Loans
New York 8.47% $201,686 8.62% $211,103 8.67% $215,607 8.39% $222,125
Freshstart-New York 9.46 15,437 9.17 15,088 9.10 12,851 8.97 14,967
Boston 11.06 14,873 11.16 15,612 11.21 17,279 10.76 14,248
Cambridge 11.82 1,766 11.78 1,742 10.58 927 10.30 1,439
Chicago 9.58 23,653 10.38 24,825 10.47 32,621 11.32 35,812
Newark 11.40 7,483 11.54 9,783 11.59 11,092 11.30 13,916
Other 11.43 7,397 11.42 6,477 11.16 8,230 10.86 7,698
- -----------------------------------------------------------------------------------------------------------------------------
Total Medallion Loans 8.95 272,295 9.12 284,630 9.22 298,607 9.07 310,205
Add: FASB 91 744 712 697 839
Less: Reserve (67) - - -
- -----------------------------------------------------------------------------------------------------------------------------
Medallion Loans, net 272,972 285,342 299,304 311,044
- -----------------------------------------------------------------------------------------------------------------------------
Commercial Loans
Dry Cleaning 12.91 6,117 13.14 6,597 13.26 7,438 13.19 10,173
Laundromat 12.27 7,785 12.23 9,041 12.37 9,844 12.48 12,786
Commercial Secured 11.60 80,677 12.16 88,087 12.84 86,216 12.49 77,380
7 a Loans 9.71 61,079 11.05 60,573 11.50 66,058 11.94 60,584
Asset based receivable 11.38 44,000 12.06 40,611 12.98 43,120 12.38 37,359
Freshstart 9.50 4,104 10.00 5,429 11.00 5,927 11.25 6,025
- -----------------------------------------------------------------------------------------------------------------------------
Total Commercial Loans 11.01 203,762 11.80 210,338 12.41 218,603 12.30 204,307
Add: FASB 91 1,135 974 1,107 1,886
Less: Reserve (6,312) (5,929) (6,989) (7,273)
- -----------------------------------------------------------------------------------------------------------------------------
Commercial loans, net 198,585 205,383 212,721 198,920
- -----------------------------------------------------------------------------------------------------------------------------
Equity investments 1,855 1,855 2,552 3,087
Less: Unrealized appreciation
(depreciation) 234 (125) (423) (725)
-------------------------------------------------------------------------------------------
2,089 1,730 2,129 2,362
- -----------------------------------------------------------------------------------------------------------------------------
Total investments at cost 9.83% 477,912 10.26% 496,823 10.56% 519,762 10.29% 517,599
- -----------------------------------------------------------------------------------------------------------------------------
Add: FASB 91 1,879 1,686 1,804 2,725
Less: Net appreciation
(depreciation) on equities 234 (125) (423) (725)
Less: Reserve (6,379) (5,929) (6,989) (7,273)
- -----------------------------------------------------------------------------------------------------------------------------
Total investments, net $473,646 $492,455 $514,154 $512,326
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Summary
Total Portfolio Yield
The weighted average yield of the total portfolio at June 30, 2001 was
9.83%, a decrease of 43 basis points from 10.26% at March 31, 2001 and a
decrease of 46 basis points from 10.29% at June 30, 2000 and down 73 basis
points from year end, primarily due to the decrease in the yields of the
medallion and commercial loan portfolios resulting from the Federal Reserve's
lowering of interest rates during the quarter. The Company expects to try to
continue increasing both the percentage of commercial loans in the total
portfolio and originating floating and adjustable-rate loans and non-New York
medallion loans.
16
Medallion Loan Portfolio
Medallion loans comprised 57.6% of the total portfolio of $474 million at
June 30, 2001, 58.2% of the $514 million portfolio at December 31, 2000, and
60.2% of the $512 million portfolio of at June 30, 2000. The medallion loan
portfolio decreased by $12 million or 4% from the prior quarter and $23 million
or 8% from a year ago, reflecting a decrease in medallion loan originations in
most markets, and the Company's execution of participation agreements with third
parties of low yielding New York medallion loans. The Company retains a portion
of most of these participating loans and earns a fee for servicing the loans for
the third parties.
The weighted average yield of the medallion loan portfolio at June 30, 2001
was 8.95%, a decrease of 17 basis points from 9.12% at March 31, 2001 and 12
basis points from 9.07% at June 30, 2000. The decreases primarily reflected the
reduction in interest rates during the quarter. At June 30, 2001, 20% of the
medallion loan portfolio represented loans outside New York compared to 21% at
March 31, 2001 and 20% a year ago.
Collateral Appreciation Participation Loans
During the 2000 first half, the Company originated collateral appreciation
participation loans collateralized by Chicago taxi medallions of $30 million, of
which $21 million was syndicated to other financial institutions. In
consideration for modifications from its normal taxi medallion lending terms,
the Company offered loans at higher loan-to-value ratios and is entitled to earn
additional interest income based upon any increase in the value of all $30
million of the collateral. The fair value of the Company's collateral
appreciation participation loan portfolio at June 30, 2001 was $13 million,
which represented 3% of its total loan portfolio. Additional interest income
totaled approximately $250,000 and $950,000 for the second quarter and year to-
date, compared with $775,000 and $2,475,000 for the comparable periods in 2000,
and is included in investment income on the consolidated statements of
operations and in accrued interest receivable on the consolidated balance
sheets. The Company believes that the additional interest income recorded is
fully realizable through operation of the collateral or orderly sales in the
market. As a regulated investment company, the Company is required to mark-to-
market these investments on a quarterly basis, just as it does on all of its
other investments. The Company feels that it has adequately calculated the fair
market value on these investments and relies upon information such as recent and
historical medallion sale prices. If there is a decrease in the value of
taxicab medallions, the reduction in the value of the investments will be
reversed against investment income. The additional interest income is not
reflected in the yield calculations shown in the table above.
Commercial Loan Portfolio
Since 1997, the Company has continued to shift the total portfolio mix
toward a higher percentage of commercial loans, which historically have had
higher yields than its medallion loans. Commercial loans were 42.0% of the
total portfolio at June 30, 2001 compared to 41.7% and 39.3% at March 31, 2001
and June 30, 2000. The increase in the commercial loan portfolio was primarily
due to strong growth in the asset-based lending portfolio and in the SBA Section
7(a) loan program.
The weighted average yield of the commercial loan portfolio at June 30,
2001 was 11.01%, a decrease of 79 basis points from 11.80% in the 2001 first
quarter and 129 basis points from 12.30% in the 2000 second quarter. The
decreases primarily reflected the 275 basis point drop in the prime rate during
2001, and to lesser extent, a shift in the mix within the commercial portfolio
from fixed-rate loans to floating-rate or adjustable-rate loans tied to the
prime rate, and the corresponding sensitivity of the yield to movements in the
prime rate. The Company continues to originate adjustable-rate and floating-
rate loans tied to the prime rate to help mitigate its interest rate risk. At
June 30, 2001, floating-rate loans represented approximately 78% of the
commercial portfolio compared to 77% at March 31, 2001 and year end. Although
this strategy initially produces a lower yield, we believe that this strategy
mitigates interest rate risk by better matching our earning assets to their
adjustable-rate funding sources.
17
Delinquency Trends
The following table shows the trend in loans 90 days or more past due:
=====================================================================================================================
June 30, 2001 March 31, 2001 December 31, 2000
--------------------------------------------------------------------------------------------------
$ % (1) $ % (1) $ % (1)
=====================================================================================================================
Medallion Loans $ 8,530,322 1.79% $11,139,490 2.34% $14,026,909 2.95%
Commercial Loans
SBA Section 7(a)
Loans 11,023,426 2.32 10,837,981 2.28 11,125,653 2.34
Asset based loans - - - - - -
Secured mezzanine
loans 3,803,336 0.80 2,986,829 0.63 3,205,793 0.67
Other commercial
secured loans 6,833,517 1.44 6,895,927 1.45 7,354,045 1.54
--------------------------------------------------------------------------------------------------
Total commercial
loans 21,660,279 4.55 20,720,737 4.35 21,685,491 4.56
- ---------------------------------------------------------------------------------------------------------------------
Total loans 90
days or more past due $30,190,601 6.34% $31,860,227 6.69% $35,712,400 7.50%
- ---------------------------------------------------------------------------------------------------------------------
(1) Percentage is calculated against the total investment portfolio.
The increase in delinquencies in the SBA section 7(a) portfolio primarily
reflects the deterioration in the economy and its impact on the small businesses
which constitute the majority of this portfolio. In addition, this business
segment has undergone management changes and staffing losses which exacerbated
the situation. The Company has addressed these concerns by stabilizing
management of the portfolio and refocusing collection efforts. Included in the
SBA Section 7(a) delinquency figures are $5,368,171, $5,391,042 and $6,823,069
at June 30, 2001, March 31, 2001 and December 31, 2000, respectively, which
represent loans repurchased for the purpose of collecting on the SBA guarantee.
Although there can be no assurances as to changes in the trend rate, management
believes that any loss exposures are properly reflected in reported asset
values.
Equity Investments
Equity investments were 0.4%, 0.4%, and 0.5% of Medallion's total portfolio
at June 30, 2001, March 31, 2001 and June 30, 2000. Equity investments are
comprised of common stock and warrants.
Trend in Interest Expense
The Company's interest expense is driven by the interest rate payable on
its LIBOR-based short-term credit facilities with bank syndicates, long-term
notes payable and, to a lesser degree, secured commercial paper and fixed-rate,
long-term debentures issued to or guaranteed by the SBA.
The following table provides the interest rates and interest expense of
Company's major credit facilities for the three months and six months ended June
30, 2001 and June 30, 2000:
====================================================================================================================
Three months ending Six months ending
------------------------------------------------------------------------------------
Average Cost of Funds Interest Expense Average Cost of Funds Interest Expense
====================================================================================================================
June 30, 2001
Notes payable to banks 6.78% $5,694,719 6.92% $11,485,191
Commercial paper 7.30 27,287 7.44 182,816
Senior secured notes 7.45 838,927 7.26 1,660,792
SBA debentures 7.89 451,583 7.05 884,755
- --------------------------------------------------------------------------------------------------------------------
Total 6.93 $7,012,516 6.97 $14,213,554
====================================================================================================================
June 30, 2000
Notes payable to banks 7.77% $3,468,060 7.56% $ 6,772,616
Commercial paper 6.51 2,223,077 6.58 4,504,236
Senior secured notes 7.33 821,865 7.31 1,643,730
SBA debentures 7.23 402,768 7.13 812,186
- --------------------------------------------------------------------------------------------------------------------
Total 7.28 $6,915,770 7.19 $13,732,768
====================================================================================================================
The Company will continue to seek SBA funding to the extent it offers
attractive rates. SBA financing subjects its recipients to limits on the amount
of secured bank debt they may incur. The Company uses SBA funding to fund loans
that qualify under the SBIA and SBA regulations. Further, the Company believes
that its transition to financing operations primarily with short-term LIBOR-
based secured bank debt and secured commercial paper has generally decreased its
interest expense, but has also increased the Company's exposure to the risk of
increases in market interest rates, which Medallion
18
attempts to mitigate with certain hedging strategies. At June 30, 2001, December
31, 2000 and June 30, 2000, short-term LIBOR-based debt including commercial
paper constituted 80.4%, 83.2%, and 82.4% of total debt, respectively.
Medallion's cost of funds is primarily driven by the rates paid on its
various debt instruments and their relative mix and changes in the levels of
average borrowings outstanding. Medallion incurs LIBOR-based debt for terms
generally ranging from 30-90 days. Medallion's debentures issued to or
guaranteed by the SBA typically have initial terms of ten years. Medallion's
cost of funds reflects changes in LIBOR to a greater degree than in the past
because LIBOR-based debt represents a greater proportion of Medallion's debt.
Medallion measures its cost of funds as its aggregate interest expense for all
of its interest-bearing liabilities divided by the face amount of such
liabilities. Medallion analyzes its cost of funds in relation to the average of
the 90 day LIBOR (the LIBOR Benchmark). Medallion's average cost of funds was
6.93% for the 2001 second quarter, compared to 7.44% in the 2001 first quarter
and 7.28% in the 2000 second quarter. The decrease in the second quarter
reflects the lower rate environment resulting from the series of rate drops
initiated by the Federal Reserve Board during 2001, and generally higher spreads
charged on bank debts as a result of the recent credit facility renewals and
amendments, partially offset by the impact of the December 31, 2000 shift from
commercial paper to bank debt.
During the six months in 2001, Medallion's outstanding commercial paper
began to mature and was replaced by draws on bank credit facilities, at higher
costs than if the commercial paper program had been maintained. The commercial
paper was not renewed, partially as a result of the loss of a credit rating due
to the merger of the two rating agencies providing credit ratings to Medallion,
and due to the remaining rating agency placing Medallion's rating on negative
credit watch.
Taxicab Advertising
In addition to its finance business, Medallion also conducts taxicab
rooftop advertising businesses through Media. Taxicab advertising revenue is
affected by the number of taxicab rooftop advertising displays currently showing
advertisements and the rate charged customers for those displays. At June 30,
2001, Media had approximately 10,500 installed displays. Although Media is a
wholly owned subsidiary of Medallion, its results of operations are not
consolidated with Medallion's operations because the Securities and Exchange
Commission regulations prohibit the consolidation of non-investment companies
with investment companies. Medallion expects that Media will continue to expand
its operations by entering new markets on its own or through acquisition of
existing taxicab rooftop advertising companies.
In July 2001, the Company acquired certain assets and assumed certain
liabilities of MMJ, a taxi advertising operation similar to those operated by
the Company in the U.S., which has advertising rights on approximately 7,000
cabs servicing various cities in Japan. The terms of the agreement provide for
an earn-out payment to the sellers based on average net income over the next
four years.
On August 30, 2000, Media purchased all the assets of Out There Media
L.L.C. (Out There), a privately held company headquartered in Cleveland. Out
There has the right to place an advertisement on top of more than 250 taxis in
Cleveland, Columbus, and Toledo, and has contracts with some of the largest taxi
fleets in these cities.
On August 7, 2000, Media entered into an agreement for up to ten years with
Yellow Cab Service Corp., the taxi division of Coach USA, the leading taxi and
bus charter company in the U.S., to sell advertising space on the top of over
2,300 taxicabs throughout the United States. Going forward, as Coach USA
acquires taxi companies around the U.S., Media will have the right to place
advertisements on top of those taxis as well.
Factors Affecting Net Assets
Factors that affect Medallion's net assets include, net realized gain or
loss on investments and change in net unrealized appreciation or depreciation of
investments. Net realized gain or loss on investments is the difference between
the proceeds derived upon sale or foreclosure of a loan or an equity investment
and the cost basis of such loan or equity investment. Change in net unrealized
appreciation or depreciation of investments is the amount, if any, by which
Medallion's estimate of the fair value of its investment portfolio is
above/below the previously established fair value or the cost basis of the
portfolio. Under the 1940 Act and the SBIA, Medallion's loan portfolio and
other investments must be recorded at fair value.
Unlike certain lending institutions, Medallion is not permitted to
establish reserves for loan losses, but adjusts quarterly the valuation of its
loan portfolio to reflect Medallion's estimate of the current value of the total
loan portfolio. Since no ready market exists for Medallion's loans, fair value
is subject to the good faith determination of Medallion. In determining such
fair value, Medallion and its Board of Directors takes into consideration
factors such as the financial condition of its borrowers and the adequacy of its
collateral. Any change in the fair value of portfolio loans or other
investments as determined by Medallion is reflected in net unrealized
depreciation or appreciation of investments and affects net increase in net
assets resulting from operations, but has no impact on net investment income or
distributable income.
19
Consolidated Results of Operations
For the three and six months ended June 30, 2001 and June 30, 2000.
Net increase in net assets resulting from operations was $2.4 million or
$0.16 per diluted common share and $4.7 million or $0.31 per share in the 2001
second quarter and six months, a decrease of $1.9 million or 45% and $4.1
million or 47% from $4.3 million or $0.29 per share and $8.8 million and $0.60
per share in the 2000 periods, primarily reflecting decreased net interest and
non-interest income, partially offset by reduced operating expenses.
Investment income was $11.6 million in the quarter and $25.0 million in the
six months, down $2.2 million or 16% and $3.3 million or 12% from $13.8 million
and $28.3 million in 2000. The decreases compared to 2000 reflected a decreased
level of loans, reduced additional interest income recorded on the collateral
appreciation participation loans, lower yields on the portfolios, and a higher
level of nonaccrual loans. Total net investments at quarter end were $474
million, down $18 million or 4% from the 2001 first quarter and $41 million or
13% from the 2000 second quarter.
The yield on the total portfolio at June 30, 2001 was 9.83% and 9.97% in
the 2001 second quarter and six months, compared to 10.29% and 10.14 in the
comparable 2000 periods. The 2001 decreases primarily reflect the series of
rate drops initiated by the Federal Reserve bank during late 2000 and continuing
through most of 2001, which reduced the prime lending rate by 275 basis points.
Partially offsetting the decreased yield was the continuing movement of
portfolio composition towards higher-yielding commercial loans from lower-
yielding medallion loans. Commercial loans represented 34% of the investment
portfolio at December 31, 1999, compared to 42% at June 30, 2001. Yields on
medallion loans were 8.95% and 9.04% for the 2001 second quarter and six months
compared to 9.07% and 8.96% for the comparable 2000 periods. Yields on
commercial loans were 11.01% and 11.22% for the 2001 second quarter and six
months compared to 12.30% and 12.07% for the 2000 periods. As rates began to
rise, management made a conscious effort to sell or not renew its fixed, lower-
rate medallion loans, and replaced them with floating, higher-rate commercial
loans.
Medallion loans were $273.0 million at June 30, 2001, down $38.1 million or
12.3% from $311.0 million, and were down $12.3 million or 4% from $285.3 million
at March 31, 2001, primarily reflecting reductions in most markets. The
commercial loan portfolio was $198.6 million at quarter end, compared to $193.1
million a year earlier, an increase of $5.5 million or 3%, but was down $6.8
million or 3% from $205.4 million at March 31, 2001. The increase compared to a
year ago was in most commercial lending categories, including $6.7 million in
the asset-based lending business, $5.8 million in other commercial services, and
$2.4 million in the SBA section 7(a) lending program, partially offset by a $9.1
million decrease in dry cleaning and laundromat loans. The decrease compared to
the preceding quarter primarily reflected the maturities and collection efforts
in the secured commercial portfolio, partially offset by an increase of $3.4
million in the asset-based lending business.
During the 2000 first half, we originated collateral appreciation
participation loans collateralized by Chicago taxi medallions of $30.0 million,
of which $21.0 million was syndicated to other financial institutions. In
consideration for modifications from our normal taxi medallion lending terms, we
offered loans at higher loan-to-value ratios, and we are entitled to earn
additional interest income based upon any increase in the value of the taxi
medallion collateral on the entire $30.0 million portfolio. Management's
valuation of the collateral appreciation participation loans increased during
2001 and 2000, and accordingly, additional interest of $250,000 and $950,000 was
recorded as investment income during the 2001 second quarter and six months
compared to $775,000 and $2,475,000 recorded during the 2000 second quarter and
six months.
Interest expense was $7.0 million and $14.2 million the 2001 second quarter
and six months, up $97,000 or 1% and $481,000 or 4% compared to the 2000
periods, primarily reflecting a mix switch from lower cost commercial paper to
higher cost bank debt, an increased level of outstandings which averaged $392
million in the 2001 six months compared to $375 million in the 2000 six months,
and higher bank fees and charges related to the renewals and amendments of the
Revolver, partially offset by lower rates. Medallion's debt is primarily tied
to floating rate indexes, which rose during most of 2000, and began declining
thereafter. The Company's average cost of funds was 6.93% in the quarter and
6.97% year to-date, compared to 7.28% and 7.19% a year ago. Approximately 80%
of Medallion's debt is short-term and floating rate, compared to 82% a year ago.
Net interest income was $4.6 million and $10.8 million for the 2001 second
quarter and six months, down $2.3 million or 33% and $3.8 million or 26% from
2000, primarily reflecting the decrease in the loan portfolio, the additional
interest recorded on the collateral appreciation participation loans in 2000 and
higher borrowing costs in 2001.
Medallion had gains on the sale of the guaranteed portion of SBA 7(a) loans
of $279,000 and $712,000 for the 2001 second quarter and six months, down
$539,000 or 66% and $792,000 or 53% from $818,000 and $1.5 million in the 2000
periods. During 2001, $11.0 million of loans were sold under the SBA program
compared to $31.2 million during 2000. The decline in gains on sale reflected
the decrease in loans sold of $20.2 million or 65%, partially offset by an
increase in the level of market-determined premiums received on the sales.
Negative goodwill was fully accreted during 2000, and accordingly, accretion was
$170,000 in the 2000 second quarter and $351,000 in the 2000 six months,
compared to $0 in
20
2001. Other income of $1.0 million in the quarter and $2.0 million in the six
months increased $38,000 or 4% and $210,000 or 12% from 2000, primarily
reflecting an increase in servicing fee income, prepayment fees, late charges,
and other miscellaneous income.
Also included in non-interest income is equity in earnings (losses) of
unconsolidated subsidiary which reflects the operations of the Media division of
Medallion. Media generated $116,000 of net income in the 2001 second quarter
and a ($310,000) loss year-to-date, compared to net income of $147,000 for the
2000 second quarter and a loss of ($172,000) in the 2000 six months. The
decline in profits in the 2001 periods reflected the greater costs associated
with the rapid increase in tops under contract and cities serviced, which
outpaced the increase in revenue, which grew $926,000 or 32% in the quarter and
$2.0 million or 38% in the six months to $3.9 million and $7.2 million,
respectively. During the 2001 second quarter, Media exerted a greater effort to
reduce the amount of deferred revenue by increasing capacity utilization,
resulting in a drop of $3.0 million in deferred revenue. Also included in
advertising revenue for the quarter ended March 31, 2001 was $567,000 related to
contracts that were cancelled in prior periods due to legislative changes and
other factors. This revenue was recognized upon determination that Media had no
further continued obligations under the contract. During 2001, vehicles under
contract increased 2,700 or 35% to 10,500 from 7,800 a year ago. As a result of
the substantial growth in tops inventory, Media's fleet payment costs and
related operating expenses to service those tops increased at a greater rate
than the growth in revenue, resulting in lower profits in the 2001 periods
compared to 2000.
Non-interest expense was $3.4 million and $8.2 million in the 2001 second
quarter and six months, down $1.3 million or 28% and $1.2 million or 13%, from
the 2000 periods. Salaries and benefits expense of $2.2 million and $4.8
million were down $245,000 or 10% and $24,000 or 1% from the comparable 2000
periods, primarily reflecting reduction in headcount and the reduction of
certain incentive compensation accruals. Professional fees of $586,000 and
$982,000 were up $108,000 or 23% and $87,000 or 10% compared with 2000,
primarily reflecting the costs of tax and legal advisory services on various
transactions-related matters. Rent expense of $191,000 in the quarter and
$447,000 in the six months was down $85,000 or 31% and $73,000 or 14% compared
to the 2000 periods, reflecting fewer office locations in 2001 and a lower level
of accrued rent obligations. Amortization of goodwill was $135,000 and $268,000
in the 2001 periods compared to $105,000 and $242,000 a year-ago. The increased
amortization primarily reflects acquisitions recorded in late 2000.
Administration and advisory fees were $2,000 in the quarter and $5,000 in the
six months compared to $43,000 and $104,000 in the 2000 periods, reflecting the
completion of the advisory services contract in early 2000. Other operating
expenses of $538,000 and $2.1 million in the 2001 second quarter and six months
were down $1.2 million compared to both 2000 periods, primarily reflecting the
continued cleanups of financial records and operations, and a general effort to
control expenses. The level of operating expenses recorded in the 2001 second
quarter and six months may not be indicative of the levels for the rest of 2001.
Net unrealized appreciation on investments was $383,000 in the 2001 second
quarter and $1.3 million in the six months, compared to net unrealized
appreciation of $1.0 million and $901,000 for the comparable 2000 periods.
Unrealized appreciation/(depreciation) arises when Medallion makes valuation
adjustments to the investment portfolio. When investments are sold or written-
off, any resulting realized gain/(loss) is grossed up to reflect previously
recorded unrealized components. As a result, movement between periods can
appear distorted. The 2001 second quarter activity resulted from the reversal
of reserves associated with fully reserved loans which were charged off of
$562,000, the increase in valuation of equity portfolio securities of $452,000,
and the reversal of reserves previously established against certain loans of
$179,000, partially offset by the additional reserves of $808,000.
Net realized loss on investments was $603,000 and $1.5 million in the 2001
second quarter and six months compared to losses of $1.1 million and $816,000 in
the 2000 periods, primarily reflecting the charge-off of fully reserved
commercial loans of $561,000. The balance of the increase in the 2001 second
quarter net realized loss of $42,000 represented the direct write-off of various
other commercial loans.
Medallion's net realized/unrealized loss on investments was $220,000 and
$225,000 in the 2001 quarter and six months compared to a net loss of $49,000
and a net gain of $85,000 for the comparable 2000 periods, which primarily
reflected the above.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
Medallion, like other financial institutions, is subject to interest rate
risk to the extent its interest-earning assets (consisting of medallion loans
and commercial loans) reprice on a different basis over time in comparison to
its interest-bearing liabilities (consisting primarily of credit facilities with
bank syndicates, secured commercial paper, senior secured notes and subordinated
SBA debentures).
21
Having interest-bearing liabilities that mature or reprice more frequently
on average than assets may be beneficial in times of declining interest rates,
although such an asset/liability structure may result in declining net earnings
during periods of rising interest rates. Abrupt increases in market rates of
interest may have an adverse impact on our earnings until we are able to
originate new loans at the higher prevailing interest rates. Conversely, having
interest-earning assets that mature or reprice more frequently on average than
liabilities may be beneficial in times of rising interest rates, although this
asset/liability structure may result in declining net earnings during periods of
falling interest rates. This mismatch between maturities and interest rate
sensitivities of our interest-earning assets and interest-bearing liabilities
results in interest rate risk.
The effect of changes in interest rates is mitigated by regular turnover of
the portfolio. Based on past experience, Medallion anticipates that
approximately 40% of the portfolio will mature or be prepaid each year.
Medallion believes that the average life of its loan portfolio varies to some
extent as a function of changes in interest rates. Borrowers are more likely to
exercise prepayment rights in a decreasing interest rate environment because the
interest rate payable on the borrower's loan is high relative to prevailing
interest rates. Conversely, borrowers are less likely to prepay in a rising
interest rate environment.
Interest Rate Cap Agreements
Medallion seeks to manage the exposure of the portfolio to increases in
market interest rates by entering into interest rate cap agreements to hedge a
portion of its variable-rate debt against increases in interest rates and by
incurring fixed-rate debt consisting primarily of subordinated SBA debentures.
The Company entered into interest rate cap agreements limiting our maximum
LIBOR exposure on our revolving credit facility in accordance with the terms
shown in the following table:
=====================================================================================================
LIBOR Effective Maturity
Amount Rate Date Date
- -----------------------------------------------------------------------------------------------------
$10,000,000 6.5 7/6/99 7/6/01
10,000,000 6.5 7/6/99 7/6/01
10,000,000 7.25 6/22/00 6/24/02
- -----------------------------------------------------------------------------------------------------
Medallion will seek to manage interest rate risk by originating adjustable-
rate loans, by incurring fixed-rate indebtedness, by evaluating and purchasing,
if appropriate, additional derivatives, and by revising, if appropriate, its
overall level of asset and liability matching.
In addition, Medallion manages its exposure to increases in market rates of
interest by incurring fixed-rate indebtedness, such as five year senior secured
notes and subordinated SBA debentures. Medallion currently has outstanding $45
million of senior secured notes, half of which mature June 1, 2004, with the
balance maturing on September 1, 2004, at a fixed interest rate of 7.35%, and
SBA debentures in the principal amount of $31.9 million with a weighted average
interest rate of 7.55%. At June 30, 2001, these notes and debentures
constituted 11.5% and 8.1% of Medallion's total indebtedness, respectively.
Liquidity and Capital Resources
Our sources of liquidity are credit facilities with bank syndicates, senior
secured notes, long-term SBA debentures that are issued to or guaranteed by the
SBA, and loan amortization and prepayments. As a RIC, we are required to
distribute at least 90% of our investment company taxable income; consequently,
we primarily rely upon external sources of funds to finance growth. At June 30,
2001, our $391.8 million of outstanding debt was comprised as follows: 80.3%
bank debt, substantially all of which was at variable effective interest rates
with a weighted average interest rate of 6.35%, 11.5% long-term senior secured
notes fixed at an interest rate of 7.35%, 8.1% subordinated SBA debentures, with
fixed-rates of interest with an annual weighted average rate of 7.55%, and 0.01%
secured commercial paper with an annual weighted average interest rate of 7.21%.
Medallion is eligible to seek SBA funding and will seek such funding when the
rates presented are advantageous. In March 2001, we applied and received a
commitment for $72.0 million of additional funding with the SBA ($108.0 million
to be committed by the SBA, subject to the infusion of additional equity capital
into the respective subsidiaries.) Since SBA financing subjects its recipients
to certain regulations, Medallion will seek funding at the subsidiary level. In
June 2001, Medallion Capital drew $10.5 million under these commitments, and in
July 2001, Freshstart Venture Capital Corp. drew $7.5 million.
Currently, Medallion has $18.5 million available under its existing bank
lines of credit. Medallion has observed a practice of minimizing credit
facility fees associated with the unused component of credit facilities by
keeping the unused component as small as possible and periodically increasing
the amounts available under such credit facilities only when
22
necessary to fund portfolio growth. Additionally, Medallion's lead member in the
lending syndicate has approximately doubled its exposure to Medallion and MFC to
$95 million as a result of a merger between such lead member and another bank in
the lending syndicate in September 2000. This bank has asked Medallion to find
an additional participant to reduce its exposure. Medallion is actively seeking
new members for the lending syndicate. As a result, Medallion is currently
unable to expand its borrowing lines until new banks join the lending syndicate
or until other financing initiatives are completed.
Medallion's bank and commercial paper facilities are subject to periodic
reviews by the lending syndicate funding the borrowings and are also subject to
certain covenants and restrictions. On June 29, 2001, MFC renewed its existing
Revolver and on March 30, 2001 Medallion finalized certain amendments and was
granted a waiver of compliance with certain provisions. These renewals and
amendments clarified and revised certain provisions of the agreements related to
business activities and financial covenants of Medallion and MFC, and adjusted
the rate of interest paid on the notes. The Company is in compliance with all
provisions of the note agreement. Medallion and its lenders have initiated
discussions as to the next renewal of the existing bank loans which mature in
September 2001. Although, there can be no assurances, the Company expects a
satisfactory result from these discussions.
On November 22, 2000, Fitch IBCA placed Medallion's "BBB" senior secured
debt rating and "F2" secured commercial paper rating on negative watch. In
addition, in December 2000, Medallion's other rating agency, Thompson's
Bankwatch was acquired by Fitch IBCA, leaving it with only one commercial paper
rating. Primarily as a result of these factors, a substantial portion of
Medallion's commercial paper did not rollover and has subsequently been replaced
by Medallion's bank facility. On January 18, 2001, Fitch IBCA lowered our
senior secured debt rating and secured commercial paper rating to "BB+" and "B",
respectively, and removed them from negative watch. Subsequent to quarter end,
the commercial paper program matured and was terminated.
Medallion believes that its bank credit facilities and cash flow from
operations (after distributions to stockholders) will be adequate to fund the
continuing operations of Medallion's loan portfolio and advertising business.
Nevertheless, Medallion continues to explore additional options, which may
increase available funds for Medallion's growth and expansion strategy. In
addition, to the application for SBA funding described above, these financing
options would provide additional sources of funds for both external expansion
and continuation of internal growth.
During the quarter the Company completed an equity offering of 3,660,000
common shares at $11 per share raising over $40,000,000 of additional capital.
Medallion continues to work with investment banking firms to investigate the
viability of a number of other financing options which include, among others,
the sale or spin-off of certain assets or divisions, and the development of a
securitization conduit program. These financing options would also provide
additional sources of funds for both external expansion and continuation of
internal growth. If none of these financing options occur, management believes
liquidity would still be adequate to fund the continuing operations of
Medallion's loan portfolio and advertising business. Deferred costs related to
these financing options were $395,000 as of June 30, 2001 and were included in
other assets on Medallion's consolidated balance sheets.
23
The following table illustrates sources of available funds for Medallion
and each of the subsidiaries, and amounts outstanding under credit facilities
and their respective end of period weighted average interest rate at June 30,
2001:
=============================================================================================================================
(Dollars in thousands) Medallion
Financial MFC BLL MCC MBC FSVC Total
=============================================================================================================================
Cash $ 36,101 $ 31,027 $3,014 $ 6,294 $3,230 $ 2,146 $ 81,812
Revolving credit lines (1) 110,000 220,000 3,500 333,500
Amounts undisbursed 7,950 10,593 18,543
Amounts outstanding 102,050 209,170 3,500 314,720
Average interest rate 5.53% 6.75% 6.10% 6.35%
Maturity 9/21/01 6/30/02 On Demand 9/01-6/02
Commercial paper 237 237
Average interest rate 7.21% 7.21%
Maturity 7/30 7/30/01
SBA debentures 21,000 10,860 31,860
Average interest rate 7.39% 7.86% 7.55%
Maturity 3/06 - 6/11 12/02 - 9/07 12/02-6/11
Senior secured notes 45,000 45,000
Average interest rate 7.35% 7.35%
Maturity 6/04 - 9/04 7/30/01
- -----------------------------------------------------------------------------------------------------------------------------
Total cash and remaining
amounts undisbursed under
credit facilities 44,051 41,620 3,014 6,294 3,230 2,146 100,355
- -----------------------------------------------------------------------------------------------------------------------------
Total debt outstanding $102,050 $ 254,407 $ 0 $ 21,000 $ 0 $ 14,360 $ 391,817
=============================================================================================================================
(1) Commercial paper outstanding is deducted from revolving credit lines
available as the line of credit acts as a liquidity facility for the commercial
paper.
- -------------------------------------------------------------------------------
Loan amortization, prepayments, and sales also provide a source of funding
for Medallion. Prepayments on loans are influenced significantly by general
interest rates, medallion loan market rates, economic conditions, and
competition. Medallion loan prepayments have slowed since early 1994, initially
because of increases, and then stabilization, in the level of interest rates.
More recently loan prepayments have slowed due to an increase in the percentage
of medallion loans, which are refinanced with Medallion rather than through
other sources of financing. Loan sales are a major focus of the SBA Section
7(a) loan program conducted by BLL, which is primarily set up to originate and
sell loans. Increases in SBA 7(a) loan balances in any given period generally
reflect timing differences in selling and closing transactions.
On June 1, 1999, MFC issued $22.5 million of Series A senior secured notes
that mature on June 1, 2004, and on September 1, 1999, MFC issued $22.5 million
of Series B senior secured notes that mature on September 1, 2004 (together, the
Notes). The Notes bear a fixed rate of interest of 7.35% and interest is paid
quarterly in arrears. The Notes rank pari passu with the revolvers and
commercial paper through inter-creditor agreements. The proceeds of the Notes
were used to prepay certain of the Company's outstanding SBA debentures. See
also a description of amendments referred to above.
Media funds its operations through internal cash flow and inter-company
debt. Media is not a RIC and, therefore, is able to retain earnings to finance
growth.
INVESTMENT CONSIDERATIONS
Interest rate fluctuations may adversely affect the interest rate spread we
receive on our taxicab medallion and commercial loans.
Because we borrow money to finance the origination of loans, our income is
dependent upon the difference between the rate at which we borrow funds and the
rate at which we loan funds. While the loans in our portfolio in most cases
bear interest at fixed-rates or adjustable-rates, we finance a substantial
portion of such loans by incurring indebtedness with floating interest rates
(which adjust at various intervals). As a result, our debt may adjust to a
change in interest rates more quickly than the loans in our portfolio. In
periods of sharply rising interest rates, our costs of funds would increase,
which would reduce our portfolio income before net realized and unrealized
gains. Accordingly, we, like most financial services companies, face the risk of
interest rate fluctuations. Although we intend to continue to manage our
interest rate risk through asset and liability management, including the use of
interest rate caps, general rises in interest rates will tend to reduce our
24
interest rate spread in the short term. In addition, we rely on our
counterparties to perform their obligations under such interest rate caps.
A decrease in prevailing interest rates may lead to more loan prepayments, which
could adversely affect our business.
Our borrowers generally have the right to prepay their loans upon payment
of a fee ranging from 30 to 120 days interest. A borrower is likely to exercise
prepayment rights at a time when the interest rate payable on the borrower's
loan is high relative to prevailing interest rates. In a lower interest rate
environment, we will have difficulty re-lending prepaid funds at comparable
rates, which may reduce the net interest spread we receive.
Because we must distribute our income, we have a continuing need for capital.
We have a continuing need for capital to finance our lending activities.
Our current sources of liquidity are the following:
. bank credit facilities;
. senior secured notes;
. sales of participations in loans;
. fixed-rate, long-term SBA debentures that are issued to or guaranteed by
the SBA;
. a secured commercial paper program; and
. loan amortization and prepayments.
As a RIC, we are required to distribute at least 90% of our investment
company taxable income. Consequently, we primarily rely upon external sources
of funds to finance growth. At June 30, 2001, we had $13,266,000 available
under our $334 million bank credit facilities at variable effective rates of
interest averaging below the prime rate. We minimize credit facility fees
associated with the unused component of credit facilities by keeping the unused
component as small as possible and periodically increasing the amounts available
under the credit facilities only when necessary to fund portfolio growth. In
addition, we are eligible to seek SBA funding. In the event that we seek SBA
funding, no assurance can be given that the funding will be obtained.
We may have difficulty raising capital to finance our planned level of lending
operations.
We may have difficulty raising the capital necessary to finance our planned
level of lending operations. During December 2000, our outstanding commercial
paper began to mature and was replaced by draws on the notes payable to our bank
facility. The commercial paper was not renewed as a result of the loss of a
credit rating due to the merger of our rating agencies and due to the remaining
rating agency lowering our rating.
In addition, we are currently unable to expand our borrowing lines until
new banks join the lending syndicate or a debt offering is completed. Recently
the lead bank in our lending syndicate has recently approximately doubled its
exposure to Medallion and MFC to $95 million as a result of a merger between the
lead bank and another member of the lending syndicate. In September 2000, this
bank asked us to find an additional participant to reduce its exposure. We are
actively seeking new members for the lending syndicate.
Lending to small businesses involves a high degree of risk and is highly
speculative.
Our commercial loan activity has increased in recent years. Lending to
small businesses involves a high degree of business and financial risk, which
can result in substantial losses and should be considered speculative. Our
borrower base consists primarily of small business owners that have limited
resources and that are generally unable to achieve financing from traditional
sources. There is generally no publicly available information about these small
business owners, and we must rely on the diligence of our employees and agents
to obtain information in connection with our credit decisions. In addition,
these small businesses often do not have audited financial statements. Some
smaller businesses have narrower product lines and market shares than their
competition. Therefore, they may be more vulnerable to customer preferences,
market conditions or economic downturns, which may adversely affect the return
on, or the recovery of, our investment in these businesses.
Our borrowers may default on their loans.
We primarily invest in and lend to companies that may have limited
financial resources. Numerous factors may affect a borrower's ability to repay
its loan, including:
. the failure to meet its business plan;
. a downturn in its industry or negative economic conditions;
25
. the death, disability or resignation of one or more of the key members of
management; or
. the inability to obtain additional financing from traditional sources.
Deterioration in a borrower's financial condition and prospects may be
accompanied by deterioration in the collateral for the loan. Expansion of our
portfolio and increases in the proportion of our portfolio consisting of
commercial loans could have an adverse impact on the credit quality of the
portfolio.
We borrow money, which may increase the risk of investing in our common stock.
We use financial leverage through bank syndicates, our senior secured
notes, our commercial paper and our long-term, subordinated SBA debentures.
Leverage poses certain risks for our stockholders:
. it may result in higher volatility of both our net asset value and the
market price of our common stock;
. since interest is paid to our creditors before any income is distributed
to our stockholders, fluctuations in the interest payable to our creditors may
decrease the dividends and distributions to our stockholders; and
. in the event of a liquidation of Medallion, our creditors would have
claims on our assets superior to the claims of our stockholders.
Our failure to remedy certain internal control deficiencies could have an
adverse affect on our business operations.
In performing their audit of our financial statements for the year ended
December 31, 2000, our independent auditors found conditions that they believed
to be significant deficiencies in our internal accounting control structure.
They did not believe that these conditions were material weaknesses. These
conditions arose in part from our conversion of our loan accounting system in
advance of the year 2000. While we believe that we can and will remedy these
conditions in a timely fashion, failure to do so could have an adverse effect on
business operations.
These matters were considered by our independent auditors during their
audit and did not modify their unqualified opinion, dated April 2, 2001, that
our consolidated financial statements present fairly, in all material respects,
the financial position of Medallion and its subsidiaries as of December 31, 2000
and 1999, and the results of our operations and cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.
We have demonstrated improvements in our internal controls and levels of
operation, and have hired additional senior management. We continue to take
active steps to achieve further improvements to our operating policies and
procedures.
Consistent with the Company's on-going focus on improving its operations
and growth, and at the request of BLL's regulatory authority, the Connecticut
Banking Department (the "Department"), the Board of Directors of BLL is
currently adopting plans to improve its financial operations. The Company feels
these plans will be viewed favorably by the Department.
If we are unable to continue to diversify geographically, our business may be
adversely affected if the New York taxicab industry experiences an economic
downturn.
Although we are diversifying from the New York City area, a significant
portion of our taxicab advertising and loan revenue is derived from New York
City taxicabs and medallion loans collateralized by New York City taxicab
medallions. An economic downturn in the New York City taxicab industry could
lead to an increase in defaults on our medallion loans and may also adversely
affect the operation of our taxicab rooftop advertising business. There can be
no assurance that we will be able to sufficiently diversify our operations
geographically.
The loss of certain key members of our senior management could adversely affect
us.
Our success is largely dependent upon the efforts of senior management.
The death, incapacity or loss of the services of certain of these individuals
could have an adverse effect on our operation and financial results. There can
be no assurance that other qualified officers could be hired.
Acquisitions may lead to difficulties that could adversely affect our
operations.
By their nature, corporate acquisitions entail certain risks, including
those relating to undisclosed liabilities, the entry into new markets and
personnel matters. We may have difficulty integrating the acquired operations
or managing problems due to sudden increases in the size of our loan portfolio.
In such instances, we might be required to modify our operating systems and
procedures, hire additional staff, obtain and integrate new equipment and
complete other tasks appropriate for the assimilation of new and increased
business activities. There can be no assurance that we would be successful, if
and when necessary, in minimizing these inherent risks or in establishing
systems and procedures which will enable us to effectively achieve our desired
results in respect of any of these or any future acquisitions.
26
Competition from entities with greater resources and less regulatory
restrictions may decrease our profitability.
We compete with banks, credit unions and other finance companies, some of
which are Small Business Investment Companies, or SBICs, in the origination of
taxicab medallion loans and commercial loans. We also compete with finance
subsidiaries of equipment manufacturers. Many of these competitors have greater
resources than Medallion and certain competitors are subject to less restrictive
regulations than Medallion. As a result, there can be no assurance that we will
be able to continue to identify and complete financing transactions that will
permit us to continue to compete successfully.
Our taxicab rooftop advertising business competes with other taxicab
rooftop advertisers as well as with all segments of the out-of-home advertising
industry. We also compete with other types of advertising media, including
cable and network television, radio, newspapers, magazines and direct mail
marketing. Certain of these competitors have also entered into the rooftop
advertising business. Many of these competitors have greater financial
resources than Medallion and offer several forms of advertising as well as
production facilities. There can be no assurance that we will continue to
compete with these businesses successfully.
The valuation of our loan portfolio is subjective and we may not be able to
recover our estimated value in the event of a foreclosure.
Under the 1940 Act, our loan portfolio must be recorded at fair value or
"marked to market." Unlike other lending institutions, we are not permitted to
establish reserves for loan losses. Instead, we adjust quarterly the valuation
of our portfolio to reflect our estimate of the current realizable value of our
loan portfolio. Since no ready market exists for this portfolio, fair value is
subject to the good faith determination of our management and the approval of
our board of directors. Because of the subjectivity of these estimates, there
can be no assurance that in the event of a foreclosure or the sale of portfolio
loans we would be able to recover the amounts reflected on our balance sheet.
In determining the value of our portfolio, the board of directors may take
into consideration various factors such as the financial condition of the
borrower and the adequacy of the collateral. For example, in a period of
sustained increases in market interest rates, our board of directors could
decrease its valuation of the portfolio if the portfolio consists primarily of
fixed-rate loans. Our valuation procedures are designed to generate values
which approximate the value that would have been established by market forces
and are therefore subject to uncertainties and variations from reported results.
Considering these factors, we have determined that the fair value of our
portfolio is below its cost basis. At June 30, 2001, our net unrealized
depreciation on investments was approximately $6.1 million. Based upon current
market conditions and current loan-to-value ratios, our board of directors
believes that the net unrealized depreciation of investments is adequate to
reflect the fair value of the portfolio.
Changes in taxicab industry regulations that result in the issuance of
additional medallions could lead to a decrease in the value of our medallion
loan collateral.
Every city in which we originate medallion loans, and most other major
cities in the United States, limits the supply of taxicab medallions. This
regulation results in supply restrictions that support the value of medallions.
Actions that loosen these restrictions and result in the issuance of additional
medallions into a market could decrease the value of medallions in that market.
If this were to occur, the value of the collateral securing our then outstanding
medallion loans in that market could be adversely affected. We are unable to
forecast with any degree of certainty whether any potential increases in the
supply of medallions will occur.
In New York City, Chicago and Boston, and in other markets where we
originate medallion loans, taxicab fares are generally set by government
agencies. Expenses associated with operating taxicabs are largely unregulated.
As a result, the ability of taxicab operators to recoup increases in expenses is
limited in the short term. Escalating expenses can render taxicab operations
less profitable, and could cause borrowers to default on loans from Medallion,
and could potentially adversely affect the value of Medallion's collateral.
A significant portion of our taxicab advertising and loan revenue is
derived from loans collateralized by New York City taxicab medallions.
According to New York City Taxi and Limousine Commission data, over the past 20
years New York City taxicab medallions have appreciated in value an average of
10.2% each year. However, for sustained periods during that time, taxicab
medallions have declined in value. During the year, the value of New York City
taxicab medallions has declined by approximately 9%.
Our failure to maintain our Subchapter M status could lead to a substantial
reduction in the amount of income distributed to our shareholders.
We, along with some of our subsidiaries, have qualified as regulated
investment companies under Subchapter M of the Internal Revenue Code. Thus, we
will not be subject to federal income tax on investment company taxable income
(which includes, among other things, dividends and interest reduced by
deductible expenses) distributed to our shareholders. If we or those of our
subsidiaries that are also regulated investment companies were to fail to
maintain Subchapter M status
27
for any reason, our respective incomes would become fully taxable and a
substantial reduction in the amount of income available for distribution to us
and to our shareholders would result.
To qualify under Subchapter M, we must meet certain income, distribution
and diversification requirements. However, because we use leverage, we are
subject to certain asset coverage ratio requirements set forth in the 1940 Act.
These asset coverage requirements could, under certain circumstances, prohibit
us from making distributions that are necessary to maintain our Subchapter M
status or require that we reduce our leverage.
In addition, the asset coverage and distribution requirements impose
significant cash flow management restrictions on us and limit our ability to
retain earnings to cover periods of loss, provide for future growth and pay for
extraordinary items. Certain of our loans, including the medallion collateral
appreciation participation loans, could also be re-characterized in a manner
that would generate non-qualifying income for purposes of Subchapter M. In this
event, if such income exceeds the amount permissible, we could fail to satisfy
the requirement that a regulated investment company derive at least 90% of its
gross income from qualifying sources, with the result that we would not meet the
requirements of Subchapter M for qualification as a regulated investment
company. Qualification as a regulated investment company under Subchapter M is
made on an annual basis and, although we and some of our subsidiaries are
qualified as regulated investment companies, no assurance can be given that we
will each continue to qualify for such treatment. Failure to qualify under
Subchapter M would subject us to tax on our income and would have material
adverse effects on our financial condition and results of operations.
Our SBIC subsidiaries may be unable to meet the investment company requirements,
which could result in the imposition of an entity-level tax.
The Small Business Investment Act of 1958 regulates some of our
subsidiaries. The Small Business Investment Act restricts distributions by an
SBIC. Our SBIC subsidiaries that are also regulated investment companies could
be prohibited by SBA regulations from making the distributions necessary to
qualify as a regulated investment company. Each year, in order to comply with
the SBA regulations and the regulated investment company distribution
requirements, we must request and receive a waiver of the SBA's restrictions.
While the current policy of the SBA's Office of SBIC Operations is to grant such
waivers if the SBIC makes certain offsetting adjustments to its paid-in capital
and surplus accounts, there can be no assurance that this will continue to be
the SBA's policy or that our subsidiaries will have adequate capital to make the
required adjustments. If our subsidiaries are unable to obtain a waiver,
compliance with the SBA regulations may result in loss of regulated investment
company status and a consequent imposition of an entity-level tax.
The Internal Revenue Code's diversification requirements may limit our ability
to expand our taxicab rooftop advertising business and our medallion collateral
appreciation participation loan business.
We intend to continue to pursue an expansion strategy in our taxicab
rooftop advertising business. We believe that there are growth opportunities in
this market. However, the asset diversification requirements under Subchapter M
could restrict such expansion. These requirements provide that, as a RIC, not
more than 25% of the value of our total assets may be invested in the securities
(other than U.S. Government securities or securities of other RIC's) of any one
issuer. While our investments in our RIC subsidiaries are not subject to this
diversification test so long as these subsidiaries are RIC's, our investment in
Media is subject to this test.
At the time of our original investment, Media represented approximately 1%
of our total assets, which is in compliance with the diversification test. The
subsequent growth in the value of Media by itself will not re-trigger the test
even if Media represents in excess of 25% of our assets. However, under
Subchapter M, the test must be reapplied in the event that we make a subsequent
investment in Media, lend to it or acquire another taxicab rooftop advertising
business. If we were to fail a subsequent test, we would lose our RIC status.
As a result, our maintenance of RIC status could limit our ability to expand our
taxicab rooftop advertising business. It will be our policy to expand our
advertising business through internally generated growth. We will only consider
an acquisition in this area if we will be able to meet Subchapter M's
diversification requirements.
The fair value of the collateral appreciation participation loan portfolio
at June 30, 2001 was $13.05 million, which represented approximately 3% of the
total loan portfolio. We will continue to monitor the levels of these asset
types in conjunction with the diversification tests.
We depend on cash flow from our subsidiaries to make dividend payments and other
distributions to our shareholders.
We are a holding company and we derive most of our operating income and
cash flow from our subsidiaries. As a result, we rely heavily upon
distributions from our subsidiaries to generate the funds necessary to make
dividend payments and other distributions to our shareholders. Funds are
provided to us by our subsidiaries through dividends and payments on
intercompany indebtedness, but there can be no assurance that our subsidiaries
will be in a position to continue to make these dividend or debt payments.
28
We operate in a highly regulated environment.
We are regulated by the Securities Exchange Commission and the SBA. In
addition, changes in the laws or regulations that govern business development
companies, RIC's or SBIC's may significantly affect our business. Laws and
regulations may be changed from time to time, and the interpretations of the
relevant laws and regulations also are subject to change. Any change in the
laws or regulations that govern our business could have a material impact on our
operations.
29
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, the Company is subject to legal proceedings and claims
in the ordinary course of business. The Company is not currently aware of any
legal proceedings or claims that the Company believes will have, individually or
in the aggregate, a material adverse effect on the Company's financial position
or results of operations.
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on May 22, 2001 (the "Annual
Meeting").
The Company's stockholders were asked to take the following actions at the
meeting:
(1) Elect three Class II Directors to serve until the 2004 annual meeting of
stockholders or until their successors shall otherwise be elected (the
"Board Proposal").
With respect to the Board Proposal, the three individuals nominated for director
were elected by the affirmative vote of a majority of shares of common stock
present at the Annual Meeting.
The nominees and the votes received by each are as follows:
- ---------------------------------------------------------------------------------------------------------------
Votes for Votes withheld
----------------------------------------------------------------------------
Mario M. Cuomo 12,521,311 252,618
Andrew M. Murstein 12,306,008 467,921
Frederick S. Hammer 11,604,203 1,169,726
- ---------------------------------------------------------------------------------------------------------------
The other members of the Board of Directors are Stanley Kreitman, David L.
Rudnick, Alvin M. Murstein, and Benjamin Ward.
ITEM 5. Other Information
None
ITEM 6. Exhibits and reports on form 8-K
(a) Exhibits
30
10.1 Amendment No. 5 to the Amended and Restated Loan Agreement, Limited Waiver
and Consent, dated as of June 29, 2001, among Medallion Funding Corp., the
Lenders thereto, Fleet National Bank and Swing Line Lender. Filed
herewith.
10.2 Amendment No. 2 to the Second Amended and Restate Loan Agreement, Limited
Waiver and Consent, dated as of June 29, 2001, among the Company,
Medallion Business Credit, LLC, Fleet National Bank and Swing Line
Lenders. Filed herewith.
10.3 Second Amendment Agreement, dated as of June 29, 2001, to the Note
Purchase Agreements dated as of June 1, 1999 between the Company and the
Noteholders thereto. Filed herewith.
10.4 Amendment No. 4 to the Amended and Restated Loan Agreement and Consent,
dated as of March 30, 2001, among Medallion Funding Corp., the Banks
thereto and Fleet National Bank. Filed herewith.
10.5 Amendment No. 1 to the Second Amended and Restated Loan Agreement and
Limited Waiver, dated March 30, 2001, among the Company, Medallion
Business Credit, LLC, Fleet National Bank and Swing Line Lenders. Filed
herewith.
10.6 First Amendment Agreement, dated as of March 30, 2001, to the Note
Purchase Agreements dated as of June 1, 1999 between the Company and the
Noteholders thereto. Filed herewith.
10.7 Guaranty, dated as of April 30, 2001, by Medallion Taxi Media in favor of
Fleet National Bank. Filed herewith.
10.8 Guaranty, dated as of April 30, 2001, by Medallion Taxi Media in favor of
the Noteholders thereto. Filed herewith.
10.9 Guaranty, dated April 30, 2001, Medallion Taxi Media in favor of Fleet
National Bank Filed herewith.
31
MEDALLION FINANCIAL CORP.
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 thereunto duly authorized.
MEDALLION FINANCIAL CORP.
Date: August 14, 2001
By: /s/ James E. Jack By: /s/ Larry D. Hall
--------------------------------- ---------------------------------
James E. Jack Larry D. Hall
Executive Vice President and Chief Senior Vice President and Chief
Financial Officer Accounting Officer
Signing on behalf of the registrant as Signing on behalf of the registrant as
principal financial officer. principal accounting officer.
32