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 September 30, 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 November 3, 2004 was 45,357,283.
MCG CAPITAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2004
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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 September 30, |
Nine Months Ended September 30, | |||||||||||
| (dollars in thousands except per share amounts and statistical data) | 2004 |
2003 |
2004 |
2003 | ||||||||
| Income statement data: |
||||||||||||
| Operating income |
$ | 24,837 | $ | 19,904 | $ | 69,826 | $ | 58,079 | ||||
| Net operating income before investment gains and losses |
13,896 | 11,740 | 36,211 | 34,370 | ||||||||
| Net income |
8,803 | 9,913 | 28,543 | 27,799 | ||||||||
| Per common share data: |
||||||||||||
| Earnings per common share basic and diluted |
0.21 | 0.30 | 0.71 | 0.90 | ||||||||
| Net operating income before investment gains and losses per common share basic and diluted |
0.33 | 0.36 | 0.90 | 1.11 | ||||||||
| Net asset value per common share (a) |
12.18 | 11.99 | 12.18 | 11.99 | ||||||||
| Cash dividends declared per common share |
0.42 | 0.42 | 1.26 | 1.23 | ||||||||
| Selected period-end balances: |
||||||||||||
| Total investment portfolio |
$ | 804,675 | $ | 611,927 | ||||||||
| Total assets |
1,049,588 | 801,354 | ||||||||||
| Borrowings |
471,443 | 318,471 | ||||||||||
| Other data (at period-end): |
||||||||||||
| Number of portfolio companies |
94 | 78 | ||||||||||
| Number of employees |
102 | 54 | ||||||||||
| (a) | Based on common shares outstanding at period-end. |
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Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets (unaudited)
(in thousands, except per share amounts)
| September 30, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 111,850 | $ | 60,072 | ||||
| Cash, securitization accounts |
109,852 | 33,434 | ||||||
| Investments at fair value |
||||||||
| Commercial loans, (cost of $718,500 and $615,253, respectively) |
709,041 | 605,551 | ||||||
| Investments in equity securities, (cost of $ 128,955 and $112,850, respectively) |
108,850 | 93,391 | ||||||
| Unearned income on commercial loans |
(13,216 | ) | (16,416 | ) | ||||
| Total investments |
804,675 | 682,526 | ||||||
| Interest receivable |
6,349 | 5,717 | ||||||
| Other assets |
16,862 | 9,166 | ||||||
| Total assets |
$ | 1,049,588 | $ | 790,915 | ||||
| Liabilities |
||||||||
| Borrowings |
$ | 471,443 | $ | 304,131 | ||||
| Interest payable |
634 | 1,185 | ||||||
| Dividends payable |
18,080 | 16,267 | ||||||
| Other liabilities |
7,149 | 5,382 | ||||||
| Total liabilities |
497,306 | 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, 45,356 issued and outstanding on September 30, 2004 and 38,732 issued and outstanding on December 31, 2003 |
454 | 387 | ||||||
| Paid-in capital |
641,157 | 529,168 | ||||||
| Stockholder loans |
(5,051 | ) | (5,293 | ) | ||||
| Unearned compensation—restricted stock |
(8,525 | ) | (4,911 | ) | ||||
| Distributions in excess of earnings |
(46,189 | ) | (26,240 | ) | ||||
| Net unrealized depreciation on investments |
(29,564 | ) | (29,161 | ) | ||||
| Total stockholders’ equity |
552,282 | 463,950 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,049,588 | $ | 790,915 | ||||
See notes to consolidated financial statements (unaudited).
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Consolidated Statements of Operations (unaudited)
(in thousands, except per share amounts)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Operating income |
||||||||||||||||
| Interest and dividend income |
||||||||||||||||
| Non-affiliate investments (less than 5% owned) |
$ | 13,528 | $ | 15,317 | $ | 38,704 | $ | 48,719 | ||||||||
| Affiliate investments (5% to 25% owned) |
754 | 1,341 | 2,406 | 3,426 | ||||||||||||
| Control investments (more than 25% owned) |
5,877 | 1,008 | 16,331 | 2,105 | ||||||||||||
| Total interest and dividend income |
20,159 | 17,666 | 57,441 | 54,250 | ||||||||||||
| Advisory fees and other income |
||||||||||||||||
| Non-affiliate investments (less than 5% owned) and other income |
2,319 | 1,416 | 6,427 | 3,007 | ||||||||||||
| Affiliate investments (5% to 25% owned) |
495 | 762 | 495 | 762 | ||||||||||||
| Control investments (more than 25% owned) |
1,864 | 60 | 5,463 | 60 | ||||||||||||
| Total advisory fees and other income |
4,678 | 2,238 | 12,385 | 3,829 | ||||||||||||
| Total operating income |
24,837 | 19,904 | 69,826 | 58,079 | ||||||||||||
| Operating expenses |
||||||||||||||||
| Interest expense |
2,344 | 2,701 | 6,512 | 7,429 | ||||||||||||
| Employee compensation: |
||||||||||||||||
| Salaries and benefits |
3,469 | 1,759 | 9,697 | 5,800 | ||||||||||||
| Long-term incentive compensation |
2,321 | 1,759 | 10,000 | 4,786 | ||||||||||||
| Total employee compensation |
5,790 | 3,518 | 19,697 | 10,586 | ||||||||||||
| General and administrative expense |
2,807 | 1,945 | 7,406 | 5,694 | ||||||||||||
| Total operating expenses |
10,941 | 8,164 | 33,615 | 23,709 | ||||||||||||
| Net operating income before investment gains and losses |
13,896 | 11,740 | 36,211 | 34,370 | ||||||||||||
| Net realized gains (losses) on investments |
||||||||||||||||
| Non-affiliate investments (less than 5% owned) |
936 | 2,631 | 2,924 | (7,511 | ) | |||||||||||
| Affiliate investments (5% to 25% owned) |
(2,531 | ) | (48 | ) | (2,531 | ) | (48 | ) | ||||||||
| Control investments (more than 25% owned) |
— | (519 | ) | (7,658 | ) | (11,916 | ) | |||||||||
| Total net realized gains (losses) on investments |
(1,595 | ) | 2,064 | (7,265 | ) | (19,475 | ) | |||||||||
| Net change in unrealized appreciation (depreciation) on investments |
||||||||||||||||
| Non-affiliate investments (less than 5% owned) |
(2,274 | ) | 222 | (2,399 | ) | 18,957 | ||||||||||
| Affiliate investments (5% to 25% owned) |
2,182 | (803 | ) | (1,185 | ) | 941 | ||||||||||
| Control investments (more than 25% owned) |
(3,406 | ) | (3,310 | ) | 3,181 | (6,994 | ) | |||||||||
| Total net change in unrealized appreciation (depreciation) on investments |
(3,498 | ) | (3,891 | ) | (403 | ) | 12,904 | |||||||||