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 March 31, 2004. | ||
| ¨ | 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 May 6, 2004 was 38,734,329.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004
TABLE OF CONTENTS
| PART I |
3 | |||
| 3 | ||||
| Item 1. |
4 | |||
| Consolidated Balance Sheets – March 31, 2004 and December 31, 2003 |
4 | |||
| Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003 |
5 | |||
| Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2004 and 2003 |
6 | |||
| Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 |
7 | |||
| 8 | ||||
| Consolidated Schedule of Investments as of December 31, 2003 |
14 | |||
| 21 | ||||
| 29 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 | ||
| Item 3. |
46 | |||
| Item 4. |
47 | |||
| PART II |
48 | |||
| Item 1. |
48 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
48 | ||
| Item 3. |
48 | |||
| Item 4. |
48 | |||
| Item 5. |
48 | |||
| Item 6. |
49 | |||
| 50 | ||||
2
In this Quarterly Report, the “Company”, “MCG”, “we”, “us” and “our” refer to MCG Capital Corporation and its wholly owned consolidated subsidiaries and its affiliated securitization trusts unless the context otherwise requires.
The following table sets forth selected financial data from our unaudited financial statements. The selected financial data 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 included in this Quarterly Report.
| Three Months Ended March 31, | ||||||
| (dollars in thousands except per share amounts and statistical data) | 2004 |
2003 | ||||
| Income Statement Data: |
||||||
| Operating income |
$ | 22,205 | $ | 18,539 | ||
| Net operating income before investment gains and losses |
9,841 | 10,946 | ||||
| Net income |
2,097 | 8,897 | ||||
| Per Common Share Data: |
||||||
| Earnings per common share basic and diluted |
0.06 | 0.30 | ||||
| Net operating income before investment gains and losses per common share basic and diluted |
0.26 | 0.36 | ||||
| Net asset value per common share (a) |
11.76 | 11.49 | ||||
| Cash dividends declared per common share |
0.42 | 0.40 | ||||
| Selected Period-End Balances: |
||||||
| Total investment portfolio |
$ | 684,573 | $ | 648,422 | ||
| Total assets |
767,499 | 731,581 | ||||
| Borrowings |
289,235 | 354,908 | ||||
| Other Data (at period-end): |
||||||
| Number of portfolio companies |
83 | 77 | ||||
| Number of employees |
88 | 56 | ||||
| (a) | Based on common shares outstanding at period-end. |
3
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets (unaudited)
(in thousands, except per share amounts)
| March 31, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 37,862 | $ | 60,072 | ||||
| Cash, securitization accounts |
24,757 | 33,434 | ||||||
| Investments at fair value |
||||||||
| Commercial loans (cost of $618,059 and $615,253, respectively) |
605,046 | 605,551 | ||||||
| Investments in equity securities (cost of $120,313 and $112,850, respectively) |
94,517 | 93,391 | ||||||
| Unearned income on commercial loans |
(14,990 | ) | (16,416 | ) | ||||
| Total investments |
684,573 | 682,526 | ||||||
| Interest receivable |
6,168 | 5,717 | ||||||
| Other assets |
14,139 | 9,166 | ||||||
| Total assets |
$ | 767,499 | $ | 790,915 | ||||
| Liabilities |
||||||||
| Borrowings |
$ | 289,235 | $ | 304,131 | ||||
| Interest payable |
887 | 1,185 | ||||||
| Dividends payable |
16,268 | 16,267 | ||||||
| Other liabilities |
5,612 | 5,382 | ||||||
| Total liabilities |
312,002 | 326,965 | ||||||
| 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, 38,733 issued and outstanding on March 31, 2004 and 38,732 issued and outstanding on December 31, 2003 |
387 | 387 | ||||||
| Paid-in capital |
540,766 | 529,168 | ||||||
| Stockholder loans |
(5,153 | ) | (5,293 | ) | ||||
| Unearned compensation—restricted stock |
(11,504 | ) | (4,911 | ) | ||||
| Distributions in excess of earnings |
(30,190 | ) | (26,240 | ) | ||||
| Net unrealized depreciation on investments |
(38,809 | ) | (29,161 | ) | ||||
| Total stockholders’ equity |
455,497 | 463,950 | ||||||
| Total liabilities and stockholders’ equity |
$ | 767,499 | $ | 790,915 | ||||
See notes to consolidated financial statements (unaudited).
4
Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts)
| Three Months Ended March 31, |
||||||||
| 2004 | 2003 | |||||||
| Operating income |
||||||||
| Interest and dividend income |
||||||||
| Non-affiliate investments (less than 5% owned) |
$ | 12,320 | $ | 16,325 | ||||
| Affiliate investments (5% to 25% owned) |
885 | 955 | ||||||
| Control investments (more than 25% owned) |
5,284 | 548 | ||||||
| Total interest and dividend income |
18,489 | 17,828 | ||||||
| Advisory fees and other income |
||||||||
| Non-affiliate investments (less than 5% owned) and other income |
1,619 | 711 | ||||||
| Control investments (more than 25% owned) |
2,097 | — | ||||||
| Total advisory fees and other income |
3,716 | 711 | ||||||
| Total operating income |
22,205 | 18,539 | ||||||
| Operating expenses |
||||||||
| Interest expense |
2,103 | 2,447 | ||||||
| Employee compensation: |
||||||||
| Salaries and benefits |
2,885 | 1,884 | ||||||
| Long-term incentive compensation |
5,551 | 1,526 | ||||||
| Total employee compensation |
8,436 | 3,410 | ||||||
| General and administrative expense |
1,825 | 1,736 | ||||||
| Total operating expenses |
12,364 | 7,593 | ||||||
| Net operating income before investment gains and losses |
9,841 | 10,946 | ||||||
| Net realized gains (losses) on investments |
||||||||
| Non-affiliate investments (less than 5% owned) |
1,904 | (8,299 | ) | |||||
| Control investments (more than 25% owned) |
— | (11,397 | ) | |||||
| Total net realized gains (losses) on investments |
1,904 | (19,696 | ) | |||||
| Net change in unrealized appreciation (depreciation) on investments |
||||||||
| Non-affiliate investments (less than 5% owned) |
(3,493 | ) | 15,079 | |||||
| Affiliate investments (5% to 25% owned) |
(1,420 | ) | 174 | |||||
| Control investments (more than 25% owned) |
(4,735 | ) | 2,394 | |||||
| Total net change in unrealized appreciation (depreciation) on investments |
(9,648 | ) | 17,647 | |||||
| Net investment losses |
(7,744 | ) | (2,049 | ) | ||||
| Net income |
$ | 2,097 | $ | 8,897 | ||||
| Earnings per common share basic and diluted |
$ | 0.06 | $ | 0.30 | ||||
| Cash dividends declared per common share |
$ | 0.42 | $ | 0.40 | ||||
| Weighted average common shares outstanding |
37,823 | 30,067 | ||||||
| Weighted average common shares outstanding and dilutive common stock equivalents |
37,928 | 30,067 | ||||||
See notes to consolidated financial statements (unaudited).
5
Consolidated Statements of Stockholders’ Equity (unaudited)
(in thousands, except per share amounts)
| Common stock |
Paid-in Capital |
Stock- Loans |
Unearned Compen- Restricted stock |
Distributions (in excess of) less than earnings |
Net Unrealized Depreciation on |
Total Stockholders’ Equity |
||||||||||||||||||||||
| Shares |
Amount |
|||||||||||||||||||||||||||
| Balance December 31, 2002 |
31,259 | $ | 313 | $ | 419,961 | $ | (5,513 | ) | $ | (8,566 | ) | $ | (1,824 | ) | $ | (43,121 | ) | $ | 361,250 | |||||||||
| Net income (loss) |
(8,750 | ) | 17,647 | 8,897 | ||||||||||||||||||||||||
| Dividends declared, $0.40 per share |
(11,936 | ) | (11,936 | ) | ||||||||||||||||||||||||
| Amortization of restricted stock awards |
958 | 958 | ||||||||||||||||||||||||||
| Reduction in employee loans |
15 | 15 | ||||||||||||||||||||||||||
| Balance March 31, 2003 |
31,259 | $ | 313 | $ | 419,961 | $ | (5,498 | ) | $ | (7,608 | ) | $ | (22,510 | ) | $ | (25,474 | ) | $ | 359,184 | |||||||||
| Balance December 31, 2003 |
38,732 | $ | 387 | $ | 529,168 | $ | (5,293 | ) | $ | (4,911 | ) | $ | (26,240 | ) | $ | (29,161 | ) | $ | 463,950 | |||||||||
| Net income (loss) |
11,745 | (9,648 | ) | 2,097 | ||||||||||||||||||||||||
| Dividends declared, $0.42 per share |
(15,695 | ) | (15,695 | ) | ||||||||||||||||||||||||
| Dividend reinvestment |
1 | — | 28 | 28 | ||||||||||||||||||||||||
| Amortization of restricted stock awards |
||||||||||||||||||||||||||||