FORM 10-K ALLIED CAPITAL CORP - ALD Filed: March 02, 2009 (period: December 31, 2008) Annual report which provides a comprehensive overview of the company for the past year Table of Contents 10-K - 10-K PART I Item 1. Business. Item 1A. Risk Factors. Item 1B. Unresolved Staff Comments Item 2. Properties. Item 3. Legal Proceedings. Item 4. Submission of Matters to a Vote of Security Holders. PART II Item 5. Market For Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Item 6. Selected Financial Data. Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations. Item 7A. Quantitative and Qualitative Disclosure about Market Risk. Item 8. Financial Statements and Supplementary Data. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Item 9A. Controls and Procedures. Item 9B. Other Information. PART III Item 10. Directors, Executive Officers and Corporate Governance. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Item 13. Certain Relationships and Related Transactions, and Director Independence. Item 14. Principal Accountant Fees and Services. PART IV Item 15. Exhibits and Financial Statement Schedules SIGNATURES EXHIBIT INDEX EX-3.2 (EX-3.2) EX-10.21.B (EX-10.21(B)) EX-10.21.C (EX-10.21(C)) EX-10.22.B (EX-10.22(B)) EX-10.23.B (EX-10.23(B)) EX-23 (EX-23) EX-31.1 (EX-31.1) EX-31.2 (EX-31.2) EX-31.3 (EX-31.3) EX-32.1 (EX-32.1) EX-32.2 (EX-32.2) EX-32.3 (EX-32.3) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended December 31, 2008 OR � TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-22832 ALLIED CAPITAL CORPORATION (Exact Name of Registrant as specified in its Charter) Maryland 52-1081052 (State or Other Jurisdiction of (I.R.S. Employer Incorporation) Identification No.) 1919 Pennsylvania Avenue NW Washington, D.C. 20006 (Address of Principal Executive Office) (Zip Code) Registrant’s Telephone Number, Including Area Code: (202) 721-6100 Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange On Which Registered Common Stock, $0.0001 par value New York Stock Exchange Nasdaq Global Select Market Securities Registered Pursuant to Section 12(g) of the Act: NONE Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES � NO ⌧ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES � NO ⌧ Indicate by check mark whether the registrant (1) has filed all reports required 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 ⌧ 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. � Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ⌧ Accelerated filer � Non-accelerated filer � Smaller reporting company � (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES � NO ⌧ The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2008, was approximately $2.4 billion based upon the last sale price for the registrant’s common stock on that date. As of February 27, 2009, there were 178,691,875 shares of the registrant’s common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Source: ALLIED CAPITAL CORP, 10-K, March 02, 2009 Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2009, are incorporated by reference into Part III of this Report. Source: ALLIED CAPITAL CORP, 10-K, March 02, 2009 TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 14 Item 1B. Unresolved Staff Comments 23 Item 2. Properties 23 Item 3. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 25 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6. Selected Financial Data 28 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 71 Item 8. Financial Statements and Supplementary Data 73 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 153 Item 9A. Controls and Procedures 153 Item 9B. Other Information 153 PART III Item 10. Directors, Executive Officers and Corporate Governance 154 Item 11. Executive Compensation 154 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 155 Item 13. Certain Relationships and Related Transactions, and Director Independence 155 Item 14. Principal Accountant Fees and Services 155 PART IV Item 15. Exhibits and Financial Statement Schedules 155 Signatures 161 Source: ALLIED CAPITAL CORP, 10-K, March 02, 2009 PART I Item 1. Business. General We are a business development company, or BDC, in the private equity business and we are internally managed. Specifically, we invest in primarily private middle market companies in a variety of industries through long-term debt and equity capital instruments. As a BDC, we were created to be a source of capital to small and growing businesses in the United States. We have participated in the private equity business since we were founded in 1958. Since then through December 31, 2008, we have invested more than $14 billion in thousands of companies nationwide. We primarily invest in the American entrepreneurial economy, helping to build middle market businesses and support American jobs. At December 31, 2008, our private finance portfolio included investments in 138 companies that generate aggregate annual revenues of over $13 billion and employ more than 90,000 people. We generally invest in established companies with adequate cash flow for debt service. Our investment objective is to achieve current income and capital gains. In order to achieve this objective, we have primarily invested in debt and equity securities of private companies in a variety of industries. However, from time to time, we have invested in companies that are public but lack access to additional public capital. We are internally managed by our management team of senior officers and managing directors. At February 27, 2009, we had 130 employees. We are headquartered in Washington, DC, with offices in New York, NY and Arlington,VA. Current Economic and Market Environment The United States and the global economies are in a state of severe economic recession, which has had a far-reaching impact on the financial services industry. The U.S. capital markets have been experiencing extreme volatility and a lack of liquidity. Like many other financial firms, our current business focus has changed from expanding our portfolio to harvesting capital from our portfolio in order to generate capital to repay our indebtedness and de-lever our balance sheet. Our investing activities, as a result, have been sharply reduced. We believe that accumulating capital in order to pay down our indebtedness is a prudent strategy in this market environment. We experienced a significant reduction in our net worth during the second half of 2008, primarily resulting from net unrealized depreciation on our portfolio, which reflects market conditions. As a result, on December 30, 2008, we entered into amendments relating to our private notes and revolving line of credit, including amendments which added new covenants. The amendments are more fully described below. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources — Amendments to Revolving Line of Credit and Privately Issued Unsecured Notes Payable.” In January 2009 we re-opened discussions with the revolving line of credit lenders and the private noteholders to seek relief under certain terms of both the revolving credit facility and the private notes due to a then-expected covenant default. It was subsequently determined that, at December 31, 2008, our asset coverage was less than the 200% required by the revolving credit facility and the private notes. Asset coverage generally refers to the percentage resulting from assets less accounts payable and other liabilities, divided by total debt. These discussions are continuing and we have expanded the discussions to encompass a more comprehensive restructuring of these debt agreements to provide long-term operational flexibility. As a result of these more comprehensive discussions, we have not completed the documents contemplated by the December 30, 2008 amendments to the revolving credit facility and 1 Source: ALLIED CAPITAL CORP, 10-K, March 02, 2009 private notes, which were to include a grant of a first lien security interest on substantially all of our assets.