UNITED STATES
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 March 31, 2004
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 | 04-3291176 | |
| (State of Incorporation) | (IRS Employer Identification No.) |
437 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
(212) 328-2100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No. ¨
The number of outstanding shares of registrant’s Common Stock, par value $0.01, as of May 7, 2004 was 18,135,543.
MEDALLION FINANCIAL CORP.
FORM 10-Q
| PART I – FINANCIAL INFORMATION |
3 | |||
| ITEM 1. |
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA | 3 | ||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20 | ||
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 42 | ||
| ITEM 4. |
CONTROLS AND PROCEDURES | 42 | ||
| PART II – OTHER INFORMATION |
42 | |||
| ITEM 1. |
LEGAL PROCEEDINGS | 42 | ||
| ITEM 2. |
CHANGES IN SECURITIES AND USE OF PROCEEDS | 42 | ||
| ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES | 42 | ||
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 42 | ||
| ITEM 5. |
OTHER INFORMATION | 42 | ||
| ITEM 6. |
EXHIBITS AND REPORTS ON FORM 8-K | 43 | ||
| 46 | ||||
| CERTIFICATIONS |
47 | |||
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 (BDC) 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), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans. 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 months ended March 31, 2004.
The consolidated balance sheet of the Company as of March 31, 2004, the related consolidated statements of operations for the three months ended March 31, 2004, and the consolidated statement of cash flows for the three months ended March 31, 2004 included in Item 1 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and 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 necessary to summarize fairly the Company’s financial position and results of operations. The results of operations for the three months ended March 31, 2004 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, 2003.
3
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Interest and dividend income on investments |
$ | 6,284,934 | $ | 6,461,193 | ||||
| Medallion lease income |
105,000 | — | ||||||
| Interest income on short-term investments |
95,314 | 67,091 | ||||||
| Total investment income |
6,485,248 | 6,528,284 | ||||||
| Interest on floating rate borrowings |
1,710,000 | 2,196,778 | ||||||
| Interest on fixed rate borrowings |
1,187,692 | 1,132,393 | ||||||
| Total interest expense |
2,897,692 | 3,329,171 | ||||||
| Net interest income |
3,587,556 | 3,199,113 | ||||||
| Gain on sales of loans |
213,278 | 188,930 | ||||||
| Other income |
550,264 | 1,121,113 | ||||||
| Total noninterest income |
763,542 | 1,310,043 | ||||||
| Salaries and benefits |
2,401,722 | 2,434,388 | ||||||
| Professional fees |
454,532 | 119,979 | ||||||
| Other operating expenses |
1,511,606 | 1,649,710 | ||||||
| Total operating expenses |
4,367,860 | 4,204,077 | ||||||
| Net investment income (loss) before income taxes |
(16,762 | ) | 305,079 | |||||
| Income tax provision |
45,100 | 9,999 | ||||||
| Net investment income (loss) after income taxes |
(61,862 | ) | 295,080 | |||||
| Net realized losses on investments |
(199,234 | ) | (561,565 | ) | ||||
| Net change in unrealized appreciation (depreciation) on investments |
(1,118,591 | ) | 696,505 | |||||
| Net realized/unrealized gain (loss) on investments |
(1,317,825 | ) | 134,940 | |||||
| Net increase (decrease) in net assets resulting from operations |
($1,379,687 | ) | $ | 430,020 | ||||
| Net increase (decrease) in net assets resulting from operations per common share |
||||||||
| Basic |
($0.08 | ) | $ | 0.02 | ||||
| Diluted |
(0.08 | ) | 0.02 | |||||
| Dividends declared per share |
$ | 0.08 | $ | 0.01 | ||||
| Weighted average common shares outstanding |
||||||||
| Basic |
18,219,999 | 18,242,728 | ||||||
| Diluted |
18,219,999 | 18,242,118 | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
MEDALLION FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| March 31, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Medallion loans, at fair value |
$ | 306,330,557 | $ | 288,211,557 | ||||
| Commercial loans, at fair value |
105,403,494 | 85,970,205 | ||||||
| Investment securities, at fair value |
3,226,539 | — | ||||||
| Equity investments, at fair value |
4,982,393 | 4,976,763 | ||||||
| Net investments ($208,420,000 at March 31, 2004 and $251,880,000 at December 31, 2003 pledged as collateral under borrowing arrangements) |
419,942,983 | 379,158,525 | ||||||
| Investment in and loans to Media |
2,612,422 | 3,614,485 | ||||||
| Total investments |
422,555,405 | 382,773,010 | ||||||
| Cash ($615,000 at March 31, 2004 and $605,000 at December 31, 2003 restricted as to use by lender) |
32,486,160 | 47,675,537 | ||||||
| Accrued interest receivable |
1,991,469 | 1,727,719 | ||||||
| Servicing fee receivable |
2,556,439 | 2,663,468 | ||||||
| Fixed assets, net |
1,223,469 | 1,351,887 | ||||||
| Goodwill, net |
5,007,583 | 5,007,583 | ||||||
| Other assets, net |
13,055,113 | 15,295,253 | ||||||
| Total assets |
$ | 478,875,638 | $ | 456,494,457 | ||||
| Liabilities |
||||||||
| Accounts payable and accrued expenses |
$ | 5,392,611 | $ | 5,726,830 | ||||
| Accrued interest payable |
310,476 | 1,197,248 | ||||||
| Floating rate borrowings |
184,877,915 | 230,519,057 | ||||||
| Fixed rate borrowings |
129,524,893 | 56,935,000 | ||||||
| Total liabilities |
320,105,895 | 294,378,135 | ||||||
| Shareholders’ equity |
||||||||
| Preferred Stock (1,000,000 shares of $0.01 par value stock authorized-none outstanding) |
— | — | ||||||
| Common stock (50,000,000 shares of $0.01 par value stock authorized) |
182,598 | 182,524 | ||||||
| Treasury stock at cost (116,451 shares at March 31, 2004 and 30,934 shares at December 31, 2003) |
(1,142,995 | ) | (431,584 | ) | ||||
| Capital in excess of par value |
173,861,837 | 173,831,049 | ||||||
| Cumulative effect of foreign currency translation |
(83,893 | ) | (72,861 | ) | ||||
| Accumulated net investment losses |
(14,047,804 | ) | (11,392,806 | ) | ||||
| Total shareholders’ equity |
158,769,743 | 162,116,322 | ||||||
| Total liabilities and shareholders’ equity |
$ | 478,875,638 | $ | 456,494,457 | ||||
| Number of common shares outstanding |
18,163,743 | 18,242,178 | ||||||
| Net asset value per share |
$ | 8.74 | $ | 8.89 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
MEDALLION FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
| Net increase (decrease) in net assets resulting from operations |
($1,379,687 | ) | $ | 430,020 | ||||
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities: |
||||||||
| Depreciation and amortization |
156,532 | 167,193 | ||||||
| Amortization of origination costs |
291,114 | 244,328 | ||||||
| Increase in net unrealized appreciation on investments |
(58,839 | ) | (2,157,196 | ) | ||||
| Net realized losses on investments |
199,234 | 561,565 | ||||||
| Gains on sales of loans |
(213,278 | ) | (188,930 | ) | ||||
| Increase in unrealized depreciation on Media |
1,177,430 | 1,460,691 | ||||||
| (Increase) decrease in accrued interest receivable |
(263,750 | ) | 523,891 | |||||
| (Increase) decrease in servicing fee receivable |
107,029 | (129,652 | ) | |||||
| Decrease in other assets, net |
630,327 | 1,747,423 | ||||||
| Decrease in accounts payable and accrued expenses |
(334,213 | ) | (135,253 | ) | ||||
| Decrease in accrued interest payable |
(886,771 | ) | (1,171,497 | ) | ||||
| Net cash provided by (used for) operating activities |
(574,872 | ) | 1,352,583 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
| Investments originated |
(57,949,181 | ) | (54,285,924 | ) | ||||
| Proceeds from principal receipts, sales, and maturities of investments |
18,556,300 | 59,428,277 | ||||||
| Investments in and loans to Media, net |
(183,879 | ) | (704,530 | ) | ||||
| Capital expenditures |
(30,635 | ) | (103,188 | ) | ||||
| Net cash provided by (used for) investing activities |
(39,607,395 | ) | 4,334,635 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
| Proceeds from floating rate borrowings |
37,178,875 | 46,839,248 | ||||||
| Repayments of floating rate borrowings |
(82,820,018 | ) | (54,940,176 | ) | ||||
| Repayments of fixed rate borrowings |
— | (2,229,783 | ) | |||||
| Proceeds from the issuance of certificates of deposits |
72,589,895 | — | ||||||
| Proceeds from exercise of stock options |
30,863 | — | ||||||
| Payments of declared dividends |
(1,275,314 | ) | — | |||||
| Purchase of treasury stock at cost |
(711,411 | ) | — | |||||
| Net cash provided by (used for) financing activities |
24,992,890 | (10,330,711 | ) | |||||
| NET DECREASE IN CASH |
(15,189,377 | ) | (4,643,493 | ) | ||||
| CASH, beginning of year |
47,675,537 | 35,369,285 | ||||||
| CASH, end of period |
$ | 32,486,160 | $ | 30,725,792 | ||||
| SUPPLEMENTAL INFORMATION |
||||||||
| Cash paid during the year for interest |
$ | 3,323,189 | $ | 3,406,133 | ||||
| Non-cash investing activities-net transfers from other assets |
1,639,704 | 689,000 | ||||||
The accompanying notes are in integral part of these unaudited consolidated financial statements.
6
MEDALLION FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(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 (BDC) 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), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans. As an adjunct to the Company’s taxi medallion finance business, the Company operates a taxicab rooftop advertising business, Medallion Taxi Media, Inc. (Media), which includes an operating subsidiary in Japan. (See Note 3)
The Company also conducts 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 finan