BETHESDA, Md., Aug. 4 -- American Capital Strategies, Ltd. (Nasdaq:ACAS), announced today the results for the quarter ended June 30, 1998, its third complete quarter of operations as a public company. Net operating income was $3,423,000 or $0.31 per share on total operating income of $3,684,000 compared to net operating income of $2,949,000 and total operating income of $3,292,000 for the quarter ended March 31, 1998. Net operating income increased 16% for the quarter. American Capital also declared and paid a $0.29 per share dividend during the quarter.
During the quarter, American Capital completed four financing transactions totaling $39,095,000 composed of purchases of $31,391,100 of senior debt, subordinated debt and preferred stock at a weighted average interest and dividend rate of 16.6%, and $7,703,900 of warrants. The weighted average interest and dividend rate on the total $39 million of capital invested during the quarter was 13.3%. For the six months ended June 30, 1998, American Capital has completed eight financings totaling $68,810,000.
The investments were made in middle market companies that are leaders in their respective industries. Decorative Surfaces International was purchased from Borden, Inc., and is a leading manufacturer of decorative vinyl and paper products used in a variety of industrial applications. New Piper Aircraft, Inc. is a leading manufacturer of piston-powered aircraft and LA Studios is a leading audio post-production studio. American Capital's investment in each of these companies reflects its ability to attract, structure, underwrite and close transactions that meet the needs of the middle market.
American Capital also implemented a loan grading system during the quarter to allow it to monitor the overall quality of its portfolio. The system ranks each loan based on its analysis of credit quality as either; (4) high quality; (3) satisfactory quality; (2) marginal quality; or (1) poor quality. During the quarter, the weighted average loan grade was 3.25 with all loans receiving either a grade of three or four.
American Capital's President and Chief Executive Officer Malon Wilkus commented, "There were certainly a number of highlights during the quarter. First, we are extremely pleased to have invested $39 million in a buyout transaction, a recapitalization, and two growth financings. We continue to utilize our flexibility to meet the needs of the middle market as evidenced by the fine companies noted above as well as the Electrolux funding we announced yesterday. Additionally, we continued building the American Capital infrastructure by adding a principal and associate in San Francisco and two associates in Bethesda. We are currently averaging 1.2 transactions per principal year. As the many new principals we have hired become productive, we believe we can increase that average over time.
John Erickson, Chief Financial Officer stated, Our strong results are continuing to confirm our business model. We are pleased with our demonstrated ability to deploy our capital at attractive yields in experienced companies with strong business plans. Additionally, we are pleased with our progress during the quarter in expanding analyst coverage for the company. During the quarter, Scott & Stringfellow, Inc., Hilliard & Lyons, and Adrian Day initiated coverage of American Capital and we look forward to adding additional analysts to the team.
American Capital also announced today that Mr. Landon Butler has resigned his position as a member of the board of directors due to other business obligations. Landon Butler stated, "I have been proud to serve as an independent director of American Capital since its inception as a public company. American Capital's management team is talented, disciplined and experienced. I have every confidence that the company will continue to achieve steady and orderly growth. Malon Wilkus commented, "We are sorry to lose Landon and wish him well on his future endeavors."
Financial highlights for the quarter are as follows:
AMERICAN CAPITAL STRATEGIES, LTD.
UNAUDITED FINANCIAL HIGHLIGHTS
(In Thousands Except Share and Per Share Data)
|
Three Months Ended
6/30/98 |
Six Months Ended
6/30/98 |
| Total operating income |
$3,684 |
$6,976 |
| Total operating expenses |
372 |
815 |
| Operating income before equity in earnings of unconsolidated operating subsidiary |
3,312 |
6,161 |
| Equity in earnings of unconsolidated operating subsidiary |
111 |
212 |
| Net operating income |
3,423 |
6,373 |
| Change in unrealized appreciation (depreciation) of investments |
(8) |
20 |
| Net increase in shareholder's equity resulting from operations |
$3,415 |
$6,393 |
| Common stock outstanding |
11,068,757 |
|
| Net operating income per share - basic |
$0.31 |
$0.58 |
| Net increase in shareholders' equity resulting from operations per share - basic |
$0.31 |
$0.58 |
| Total assets |
176,155,000 |
|
| Total shareholders' equity |
151,067,000 |
|
| Net asset value per share |
$13.65 |
|
| Dividends per share |
$0.29 |
|
|
ACAS has elected to be regulated as a Business Development Company under the Investment Company Act of 1940, as amended. On October 1, 1997, ACAS elected to be taxed as a Regulated Investment Company (RIC) pursuant to subchapter M of the Internal Revenue Code. As contemplated by these transactions, ACAS materially changed its business plan and format from structuring and arranging financing for buyout transactions on a fee for services basis to primarily being a lender to and investor in small and medium sized companies. As a result of the changes, ACAS's predominant source of operating income has changed from financial performance and advisory fees to interest and dividends earned from investing the company's assets in debt and equity of small to medium sized businesses and short term government securities.
The results of ACS Capital Investments Corporation (CIC), a subsidiary of ACAS, were consolidated in the financial statements of ACAS through September 30, 1997. As of October 1, 1997, CIC has not been consolidated with ACAS and is accounted for under the equity method due to the change in ACAS' business format. As a result of these changes, the ACAS financial statements for periods through September 30, 1997 are not comparable with the financial statements for periods commencing after October 1, 1997.
