UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the Quarter Ended June 30, 2003. | ||
| ¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| Commission File Number: 0-33377 | ||
MCG CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware |
54-1889518 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 1100 Wilson Boulevard, Suite 3000 Arlington, VA |
22209 | |
| (Address of principal executive office) | (Zip Code) | |
| (703) 247-7500 | ||
| (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 and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares of the registrant’s Common Stock, $.01 par value, outstanding as of August 6, 2003 was 31,254,910.
MCG CAPITAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003
TABLE OF CONTENTS
| PART I |
3 | |||
| 3 | ||||
| Item 1. | 4 | |||
| Consolidated Balance Sheets – June 30, 2003 and December 31, 2002 |
4 | |||
| Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002 |
5 | |||
| Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2003 and 2002 |
6 | |||
| Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 |
7 | |||
| Consolidated Schedules of Investments as of June 30, 2003 and December 31, 2002 |
8 | |||
| 17 | ||||
| 27 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 | ||
| Item 3. | 43 | |||
| Item 4. | 44 | |||
| PART II | 45 | |||
| Item 1. | 45 | |||
| Item 2. | 45 | |||
| Item 3. | 45 | |||
| Item 4. | 45 | |||
| Item 5. | 46 | |||
| Item 6. | 46 | |||
| Signatures | 47 | |||
2
PA RT I. FINANCIAL INFORMATION
In this Quarterly Report, the “Company”, “MCG”, “we”, “us” and “our” refer to MCG Capital Corporation and its wholly owned subsidiaries and its affiliated securitization trusts unless the context otherwise requires.
Selected Consolidated Financial and Other Data
The selected consolidated financial and other data below should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements (unaudited) and notes thereto.
| Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||
| (dollars in thousands except per share data) | 2003 |
2002 |
2003 |
2002 | ||||||||
| Income Statement Data: |
||||||||||||
| Operating income |
$ | 19,636 | $ | 19,433 | $ | 38,175 | $ | 36,487 | ||||
| Net operating income before investment gains and losses |
11,684 | 11,450 | 22,630 | 21,405 | ||||||||
| Net income/Net increase in stockholders’ equity resulting from earnings |
8,989 | 9,426 | 17,886 | 13,147 | ||||||||
| Per Common Share Data: |
||||||||||||
| Earnings per common share: |
||||||||||||
| basic |
$ | 0.30 | $ | 0.34 | $ | 0.59 | $ | 0.49 | ||||
| diluted |
0.30 | 0.34 | 0.59 | 0.48 | ||||||||
| Net operating income before investment gains and losses per common share basic and diluted |
0.39 | 0.42 | 0.75 | 0.79 | ||||||||
| Net asset value per common share (a) |
11.42 | 12.62 | 11.42 | 12.62 | ||||||||
| Cash dividends declared per common share |
0.41 | 0.47 | 0.81 | 0.88 | ||||||||
| Selected Period-End Balances: |
||||||||||||
| Total investment portfolio |
$ | 620,365 | $ | 683,020 | ||||||||
| Total assets |
707,866 | 731,025 | ||||||||||
| Borrowings |
333,204 | 316,395 | ||||||||||
| Other data: |
||||||||||||
| Number of portfolio companies |
76 | 78 | ||||||||||
| Number of employees |
57 | 59 | ||||||||||
| (a) | Based on common shares outstanding at period-end. |
3
Item 1. Financial Statements (unaudited)
MCG Capital Corporation
(in thousands, except per share data) (unaudited)
| June 30, 2003 |
December 31, 2002 |
|||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 54,777 | $ | 9,389 | ||||
| Cash, securitization accounts |
17,026 | 43,170 | ||||||
| Investments: |
||||||||
| Commercial loans, at fair value (cost of $597,095 and $694,977, respectively) |
587,892 | 668,803 | ||||||
| Investments in equity securities, at fair value (cost of $60,541 and $37,014, respectively) |
43,417 | 20,067 | ||||||
| Unearned income on commercial loans |
(10,944 | ) | (12,778 | ) | ||||
| Total investments |
620,365 | 676,092 | ||||||
| Interest receivable |
5,899 | 5,866 | ||||||
| Other assets |
9,799 | 10,476 | ||||||
| Total assets |
$ | 707,866 | $ | 744,993 | ||||
| Liabilities |
||||||||
| Borrowings |
$ | 333,204 | $ | 363,838 | ||||
| Interest payable |
1,086 | 1,527 | ||||||
| Dividends payable |
12,813 | 13,129 | ||||||
| Other liabilities |
3,882 | 5,249 | ||||||
| Total liabilities |
350,985 | 383,743 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ Equity |
||||||||
| Preferred stock, par value $.01, authorized 1 share, none issued and outstanding |
— | — | ||||||
| Common stock, par value $.01, authorized 100,000 shares, 31,252 issued and outstanding on June 30, 2003 and 31,259 issued and outstanding on December 31, 2002 |
313 | 313 | ||||||
| Paid-in capital |
419,841 | 419,961 | ||||||
| Stockholder loans |
(5,437 | ) | (5,513 | ) | ||||
| Unearned compensation—restricted stock |
(6,586 | ) | (8,566 | ) | ||||
| Distributions in excess of earnings |
(24,924 | ) | (1,824 | ) | ||||
| Net unrealized depreciation on investments |
(26,326 | ) | (43,121 | ) | ||||
| Total stockholders’ equity |
356,881 | 361,250 | ||||||
| Total liabilities and stockholders’ equity |
$ | 707,866 | $ | 744,993 | ||||
See notes to consolidated financial statements.
4
MCG Capital Corporation
Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
| Operating income |
||||||||||||||||
| Interest and dividend income |
$ | 18,756 | $ | 18,255 | $ | 36,584 | $ | 33,844 | ||||||||
| Advisory fees and other income |
880 | 1,178 | 1,591 | 2,643 | ||||||||||||
| Total operating income |
19,636 | 19,433 | 38,175 | 36,487 | ||||||||||||
| Operating expenses |
||||||||||||||||
| Interest expense |
2,281 | 2,844 | 4,728 | 5,340 | ||||||||||||
| Employee compensation: |
||||||||||||||||
| Salaries and benefits |
2,157 | 1,842 | 4,041 | 3,863 | ||||||||||||
| Long-term incentive compensation |
1,501 | 1,731 | 3,027 | 3,257 | ||||||||||||
| Total employee compensation |
3,658 | 3,573 | 7,068 | 7,120 | ||||||||||||
| General and administrative expense |
2,013 | 1,566 | 3,749 | 2,622 | ||||||||||||
| Total operating expenses |
7,952 | 7,983 | 15,545 | 15,082 | ||||||||||||
| Net operating income before investment gains and losses |
11,684 | 11,450 | 22,630 | 21,405 | ||||||||||||
| Net realized losses on investments |
(1,843 | ) | — | (21,539 | ) | — | ||||||||||
| Net change in unrealized appreciation (depreciation) on investments |
(852 | ) | (2,024 | ) | 16,795 | (8,258 | ) | |||||||||
| Net investment gains and losses |
(2,695 | ) | (2,024 | ) | (4,744 | ) | (8,258 | ) | ||||||||
| Net income/Net increase in stockholders’ equity resulting from earnings |
$ | 8,989 | $ | 9,426 | $ | 17,886 | $ | 13,147 | ||||||||
| Earnings per common share: |
||||||||||||||||
| Basic |
$ | 0.30 | $ | 0.34 | $ | 0.59 | $ | 0.49 | ||||||||
| Diluted |
$ | 0.30 | $ | 0.34 | $ | 0.59 | $ | 0.48 | ||||||||
| Cash dividends declared per common share |
$ | 0.41 | $ | 0.47 | $ | 0.81 | $ | 0.88 | ||||||||
| Weighted average common shares outstanding |
30,121 | 27,335 | 30,095 | 27,077 | ||||||||||||
| Weighted average common shares outstanding—diluted |
30,121 | 27,436 | 30,095 | 27,171 | ||||||||||||
See notes to consolidated financial statements.
5
MCG Capital Corporation
Consolidated Statement of Stockholders’ Equity (unaudited)
(in thousands, except per share amounts)
| Common Stock |
Paid-in Capital |
Stock- holder Loans |
Unearned Compen- sation— Restricted stock |
Distributions (in excess of) less than earnings |
Net Unrealized Depreciation on Investments |
Total Stockholders’ Equity |
||||||||||||||||||||||||
| Shares |
|
|
Amount |
|||||||||||||||||||||||||||
| Balance December 31, 2001 |
28,287 | $ | 283 | $ | 370,087 | $ | (6,510 | ) | $ | (13,077 | ) | $ | 12,792 | $ | (11,202 | ) | $ | 352,373 | ||||||||||||
| Net income/Net increase (decrease) in stockholders’ equity resulting from earnings (loss) |
21,405 | (8,258 | ) | |||||||||||||||||||||||||||