PURCHASE, N.Y., Oct. 15, 2015 (GLOBE NEWSWIRE) -- MVC Capital, Inc. (NYSE:MVC), a publicly traded business development company that makes private debt and equity investments, announced today that it has completed its financial restatements and filed its Form 10-K for the fiscal year ending October 31, 2014. The Form 10-K includes restated financial results for fiscal year 2013 and the first three quarters of fiscal year 2014.
Financial Restatement
MVC Capital has restated its financial statements to reflect adjusted valuations of its investments in two controlled/affiliated portfolio companies, MVC Automotive Group B.V. (“MVC Auto”) and SGDA Europe B.V. (“SGDA Europe”). As summarized below, the fair values of these two investments were adjusted for the following periods: the fiscal year ended October 31, 2013 and the fiscal quarters ended January 31, 2013, April 30, 2013, July 31, 2013, January 31, 2014, April 30, 2014 and July 31, 2014.
In addition, the Company has adopted an action plan that includes additional and/or enhanced controls surrounding the valuation process and financial reporting oversight of its controlled/affiliated portfolio companies. As part of this plan, the Company has retained a third party consultant to perform external reviews of certain fair valuations and has incorporated additional review and testing of valuation data included in key documentation relating to the fair valuation of controlled/affiliated portfolio companies.
The table below shows the Company’s net asset value (“NAV”) for July 31, 2014 as originally reported and as restated. For more details about the restatement and its impact on our financial statements, please refer to Item 6 of the Form 10-K for fiscal year 2014.
| ($ in thousands except for per share data) | Q314 Net Asset Value (as published) | Q314 Net Asset Value (as restated) | Change in Net Asset Value | Percent Change in Net Asset Value | Q314 Net Asset Value Per Share (as published) | Q314 Net Asset Value Per Share (as restated) | Change in Net Asset Value Per Share | Percent Change in Net Asset Value Per Share | ||||||||||||||||
| $ | 360.10 | $ | 357.6 | $ | (2.50 | ) | (0.0071 | ) | $ | 15.86 | $ | 15.75 | $ | (0.11 | ) | (0.0071 | ) | |||||||
The table below shows the fair values for the applicable quarter ends for both MVC Auto and SGDA Europe.
| ($ in thousands) | MVC Auto | MVC Auto | SGDA Europe | SGDA Europe | ||||||||
Quarterly Period | FMV (As Published) | FMV (Restated) | FMV (As Published) | FMV (Restated) | ||||||||
| 1/31/2013 | $ | 35,699 | $ | 18,471 | $ | 6,173 | $ | 3,087 | ||||
| 4/30/2013 | $ | 36,364 | $ | 17,919 | $ | 6,787 | $ | 3,849 | ||||
| 7/31/2013 | $ | 36,364 | $ | 16,662 | $ | 6,600 | $ | 3,484 | ||||
| 10/31/2013 | $ | 37,276 | $ | 17,541 | $ | 6,741 | $ | 4,099 | ||||
| 1/31/2014 | $ | 42,144 | $ | 21,107 | $ | 6,684 | $ | 4,748 | ||||
| 4/30/2014 | $ | 34,969 | $ | 21,663 | $ | 7,034 | $ | 4,637 | ||||
| 7/31/2014 | $ | 26,581 | $ | 26,074 | $ | 13,783 | $ | 10,582 | ||||
Summary Fiscal Fourth Quarter and Full Year 2014 and 2013 (Restated) Results
| ($ in thousands except for per share data) | Q4 2014 | Q3 2014 | Q2 2014 | Q1 2014 | Q4 2013 | Q3 2013 | Q2 2013 | Q1 2013 | FY | FY 2013 | |||||||||||||||||||||
| (Restated) | (Restated) | (Restated) | (Restated) | (Restated) | (Restated) | (Restated) | 2014 | (Restated) | |||||||||||||||||||||||
| Total operating income | $ | 4,325 | $ | 5,016 | $ | 5,862 | $ | 4,613 | $ | 4,469 | $ | 7,245 | $ | 6,663 | $ | 6,386 | $ | 19,816 | $ | 24,762 | |||||||||||
| Management fee | $ | 2,121 | $ | 2,144 | $ | 2,227 | $ | 2,189 | $ | 2,109 | $ | 1,986 | $ | 1,758 | $ | 1,979 | $ | 8,681 | $ | 7,833 | |||||||||||
| Portfolio fees - asset management | $ | 386 | $ | 153 | $ | 341 | $ | 106 | $ | 105 | $ | 103 | $ | 103 | $ | 106 | $ | 986 | $ | 418 | |||||||||||
| Management fee - asset management | $ | (126 | ) | $ | 17 | $ | 231 | $ | 232 | $ | 233 | $ | 232 | $ | 232 | $ | 232 | $ | 354 | $ | 929 | ||||||||||
| Administrative | $ | 942 | $ | 1,095 | $ | 727 | $ | 908 | $ | 1,024 | $ | 897 | $ | 902 | $ | 890 | $ | 3,672 | $ | 3,712 | |||||||||||
| Interest, fees and other borrowing costs | $ | 2,355 | $ | 2,426 | $ | 2,406 | $ | 2,255 | $ | 2,254 | $ | 2,115 | $ | 1,418 | $ | 937 | $ | 9,442 | $ | 6,724 | |||||||||||
| Net Incentive compensation | $ | 2,339 | $ | 568 | $ | (3,414 | ) | $ | 435 | $ | 2,248 | $ | 3,674 | $ | 794 | $ | (2,888 | ) | $ | (4,750 | ) | $ | 3,828 | ||||||||
| Total waiver by adviser | $ | (37 | ) | $ | (38 | ) | $ | (37 | ) | $ | (38 | ) | $ | (37 | ) | $ | (38 | ) | $ | (37 | ) | $ | (38 | ) | $ | (150 | ) | $ | (150 | ) | |
| Tax expense | $ | - | $ | 1 | $ | - | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 2 | $ | 4 | |||||||||||
| Net operating income (loss) before net realized and unrealized gains | $ | 1,023 | $ | (1,350 | ) | $ | 3,381 | $ | (1,475 | ) | $ | (3,468 | ) | $ | (1,725 | ) | $ | 1,492 | $ | 5,167 | $ | 1,579 | $ | 1,464 | |||||||
| Net increase (decrease) in net assets resulting from operations | $ | (10,614 | ) | $ | 1,738 | $ | (12,651 | ) | $ | 1,685 | $ | 4,319 | $ | 17,081 | $ | 7,143 | $ | (9,273 | ) | $ | (19,842 | ) | $ | 19,269 | |||||||
| Net increase (decrease) in net assets resulting from operations per share | $ | (0.46 | ) | $ | 0.07 | $ | (0.57 | ) | $ | 0.08 | $ | 0.16 | $ | 0.74 | $ | 0.30 | $ | (0.38 | ) | $ | (0.88 | ) | $ | 0.82 | |||||||
| Net asset value per share | $ | 15.15 | $ | 15.75 | $ | 15.89 | $ | 16.57 | $ | 16.63 | $ | 16.57 | $ | 15.84 | $ | 15.62 | $ | 15.15 | $ | 16.63 | |||||||||||
In the fourth quarter of fiscal year 2014, MVC earned $3.5 million in interest income, $60,000 in dividend income and $806,000 in fee and other income, compared to $3.2 million, $104,000 and $1.1 million, respectively, for the same quarter of 2013. The increase in interest income was primarily due to the Company’s focus on making yielding investments.
The Company reported net operating income of $1 million for the fourth quarter of fiscal year 2014, compared to a net operating loss of $3.5 million for the same quarter in 2013. Net operating income for the quarter was primarily due to a reduction in net accrued incentive compensation.
For the fiscal year of 2014, MVC earned $14.2 million in interest income, $1.2 million in dividend income and $4.5 million in fee and other income, compared to $11.1 million, $8.6 million and $5.1 million, respectively, for fiscal year 2013. The decrease in total operating income was primarily due to the reduction in dividend income from one of MVC’s portfolio companies, U.S. Gas & Electric, Inc., which was partially offset by an increase in interest income from additional yielding investments.
MVC reported net operating income of $1.6 million for the fiscal year 2014, compared to $1.5 million for the fiscal year 2013.
Fiscal Fourth Quarter and Full Year 2014 Portfolio Adjustments
As of October 31, 2014, the Company's net assets were $343.9 million or $15.15 per share, compared to $357.6 million, or $15.75 per share, as of July 31, 2014 and $376.1 million, or $16.63 per share, at the end of the same period in the prior year. The Company noted that the net asset value as of October 31, 2014 reflected in its Form 10-K is not the Fund's current net asset value. The reports for the subsequent quarters have not yet been completed and the Company is working expeditiously to file them.
For the fourth quarter of fiscal year 2014, the Valuation Committee, which is comprised of three independent directors, adjusted the fair values of 18 portfolio companies, resulting in a net decrease of $13.7 million or $.60 per share1. In arriving at these determinations and consistent with the Company's valuation procedures and ASC 820, the Valuation Committee took into account many factors, including the performance of the portfolio companies, as well as the impact of changes in market multiples within certain sectors, fluctuations in currency valuations, particularly in the Euro, and input and methodology changes for certain controlled/affiliated companies.
For the full fiscal year 2014, the fair values of 26 portfolio companies were adjusted, resulting in a net decrease of $27.2 million or $1.20 per share1. The table below shows the changes in portfolio company values during fiscal year 2014 in addition to the changes in the portfolio company values for MVC Auto and SGDA Europe, the only portfolio companies whose values were changed from the previously published fair values.
| Fiscal Year 2014 Portfolio Adjustments | |||||||||||||||||||||||
| Write ups (downs) | Quarter Ended | Cumulative Changes | |||||||||||||||||||||
| Active Deals: | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | FY 2013 | |||||||||||||||||
| Advantage Insurance Holdings LTD | $ | -- | -- | 96,000 | 125,000 | 221,000 | -- | ||||||||||||||||
| Biogenics Reagents | -- | -- | 275,000 | 30,000 | 305,000 | -- | |||||||||||||||||
| Biovation Holdings, Inc. | 59,846 | (19,860 | ) | (129,281 | ) | (660,180 | ) | (749,475 | ) | 90,386 | |||||||||||||
| Centile Holding B.V. | (29,000 | ) | 57,000 | (76,000 | ) | 165,000 | 117,000 | 1,637,000 | |||||||||||||||
| Custom Alloy Corporation | 4,000,000 | (1,340,000 | ) | -- | -- | 2,660,000 | 10,000,000 | ||||||||||||||||
| Equus Total Return, Inc. | -- | -- | 947,999 | (1,200,054 | ) | (252,055 | ) | -- | |||||||||||||||
| Foliofn, Inc. | (1,091,000 | ) | 127,000 | (109,000 | ) | (16,000 | ) | (1,089,000 | ) | (3,808,000 | ) | ||||||||||||
| Freshii USA Inc | 14,600 | 8,531 | -- | -- | 23,131 | (15,219 | ) | ||||||||||||||||
| G3K Displays, Inc. | -- | (5,625,000 | ) | -- | -- | (5,625,000 | ) | -- | |||||||||||||||
| Harmony Health & Beauty, Inc. | -- | -- | -- | -- | 0 | (100,000 | ) | ||||||||||||||||
| JSC Tekers Invest | -- | -- | (499,388 | ) | (5,153,194 | ) | (5,652,582 | ) | (1,000,000 | ) | |||||||||||||
| Morey's Seafood | -- | -- | -- | 252,867 | 252,867 | -- | |||||||||||||||||
| MVC Private Equity Fund, L.P. | 2,204,636 | 910,704 | 358,984 | 75,955 | 3,550,279 | 2,283,092 | |||||||||||||||||
| NPWT Corporation | 35,000 | (74,000 | ) | (109,000 | ) | (21,000 | ) | (169,000 | ) | (205,274 | ) | ||||||||||||
| Octagon Credit Investors, LLC | (1,153,305 | ) | 1,133,657 | (730,000 | ) | -- | (749,648 | ) | 450,000 | ||||||||||||||
| Ohio Medical Corporation | -- | -- | (800,000 | ) | -- | (800,000 | ) | (5,675,000 | ) | ||||||||||||||
| Pre-Paid Legal Services, Inc. | -- | 100,000 | -- | -- | 100,000 | 262,601 | |||||||||||||||||
| RuMe, Inc. | -- | -- | 74,831 | 800,000 | 874,831 | (327,000 | ) | ||||||||||||||||
| Security Holdings, B.V. | (304,000 | ) | 422,000 | (564,000 | ) | 2,128,480 | 1,682,480 | 12,247,000 | |||||||||||||||
| SIA Tekers Invest | (12,000 | ) | 7,000 | (111,000 | ) | (136,000 | ) | (252,000 | ) | 230,000 | |||||||||||||
| Summit Research Labs | -- | -- | -- | 252,809 | 252,809 | -- | |||||||||||||||||
| Turf Products, LLC | (92,000 | ) | -- | -- | 519,150 | 427,150 | 592,000 | ||||||||||||||||
| U.S. Gas & Electric, Inc. | -- | (9,000,000 | ) | -- | -- | (9,000,000 | ) | 11,600,000 | |||||||||||||||
| Velocitius B.V. | (1,874,000 | ) | (606,000 | ) | (198,000 | ) | (5,720,000 | ) | (8,398,000 | ) | (1,860,000 | ) | |||||||||||
| Vestal Manufacturing Enterprises, Inc. | 3,000,000 | -- | 1,450,000 | -- | 4,450,000 | 6,800,000 | |||||||||||||||||
| SUB-TOTAL | 4,758,777 | (13,898,968 | ) | (122,855 | ) | (8,557,167 | ) | (17,820,213 | ) | 33,201,586 | |||||||||||||
| Portfolio Company Values Impacted by the Restatement* | Cumulative Changes | ||||||||||||||||||||||
| Q1 2014 (restated) | Q2 2014 (restated) | Q3 2014 (restated) | Q4 2014 | FY 2014 | Oct-13 (restated) | ||||||||||||||||||
| MVC Automotive Group B.V. | (3,226,165 | ) | (3,444,000 | ) | 4,411,000 | (4,526,000 | ) | (6,785,165 | ) | (16,111,334 | ) | ||||||||||||
| SGDA Europe B.V. | 649,306 | (111,046 | ) | (2,515,711 | ) | (584,896 | ) | (2,562,347 | ) | (3,816,190 | ) | ||||||||||||
| SUB-TOTAL | (2,576,859 | ) | (3,555,046 | ) | 1,895,289 | (5,110,896 | ) | (9,347,512 | ) | (19,927,524 | ) | ||||||||||||
| TOTAL | $ | 2,181,918 | (17,454,014 | ) | 1,772,434 | (13,668,063 | ) | (27,167,725 | ) | $ | 13,274,062 | ||||||||||||
| *MVC Auto and SGDA Europe are the ONLY portfolio company values that were changed from the previously published values. | |||||||||||||||||||||||
Quarterly and Annual Investment Activity
MVC did not make any new investments in the fourth quarter of fiscal year 2014. For the full 2014 fiscal year, MVC made four new investments and 20 follow-on investments totaling $105.8 million, of which $68.8 million or 65% were yielding assets.
During the fourth quarter of fiscal year 2014, MVC did not repurchase any of its shares. For the full 2014 fiscal year, MVC repurchased approximately 310,706 shares at an average price of $13.24, after commissions, for a total cost of $4.1 million. Since implementing a share repurchase program during the second quarter of 2013, the Company has repurchased $20.8 million worth of stock, representing 8% of its market capitalization and 6% of its NAV as of October 31, 2014. The Company has been precluded from purchasing its shares since October 2014 because the Company has not yet made public filings of its fiscal 2014 annual and fiscal 2015 quarterly financials.
Liquidity
As of October 31, 2014, MVC had investments in portfolio companies totaling $447.6 million and cash and cash equivalents of approximately $17.2 million, excluding restricted cash and cash equivalents of $6.3 million.
Dividends
For the 2014 fiscal year, the Company paid dividends totaling $0.540 per share, or approximately $12.2 million.
Additional Disclosures
With the completion of the Form 10-K for Fiscal 2014, the Company is focused on completing the quarterly reports for Fiscal 2015. Ernst & Young, LLP, the Company’s auditor through Fiscal 2014 including the restated periods, has been engaged to review Q1 and Q2 of 2015 to allow for more expedited filings.
Subsequent Events
From November 1, 2014 through July 31, 2015, the Company has made nine new investments and four follow on investments totaling $61.2 million, with average interest rates of 14.6% on the new debt investments. The Company also announced that it monetized two equity investments: Vestal Manufacturing Enterprises, Inc. and Velocitius B.V., and anticipates redeploying capital into income yielding investments.
For additional subsequent event details, please reference the Subsequent Events section of the 10-K.
MVC-G
About MVC Capital, Inc.
MVC Capital is a Business Development Company traded on the New York Stock Exchange that provides long-term debt and equity investment capital to fund growth, acquisitions and recapitalizations of companies in a variety of industries.
Safe Harbor Statement
The information contained in this press release contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements, including: the timing of the filing of the 2015 10-Qs; the actual financial results and valuations to be contained in the reports; MVC Capital's ability to execute its yield investment strategy; the performance of MVC Capital's investments; and changes in economic or financial market conditions and other factors that are enumerated in the Company's periodic filings with the Securities and Exchange Commission. MVC Capital disclaims and does not undertake any obligation to update or revise any forward-looking statement in this press release.
The press release contains unaudited financial results. For ease of review, we have excluded the word "approximately" when rounding the results.
There can be no assurance that MVC will achieve its investment objective.
1Based on shares outstanding as of October 31, 2014.
