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FOR IMMEDIATE RELEASE:
October 31, 2000
Contact:
John Erickson, Chief Financial Officer (301) 951-6122
AMERICAN CAPITAL NET OPERATING INCOME INCREASES 16% TO $0.50 PER SHARE
Bethesda, MD -- American Capital Strategies, Ltd. (Nasdaq:ACAS) announced today its results for the quarter ended September 30, 2000. Net operating income for the quarter increased 84% to $12.3 million compared to $6.7 million in the third quarter of 1999. On a diluted per share basis, net operating income for the quarter increased 16% to $0.50 per share compared to $0.43 per share in the third quarter of 1999. The decrease in shareholders' equity resulting from operations for the third quarter of 2000 was $27.3 million compared to an increase of $10.2 million in the third quarter of 1999. On a diluted per share basis, the decrease in shareholders' equity resulting from operations for the quarter was $1.10 per share compared to an increase of $0.66 in the third quarter of 1999. The decrease in shareholders' equity resulting from operations was primarily due to unrealized depreciation at portfolio company Capital.com offset primarily by realized and unrealized appreciation at portfolio company o2wireless Solutions Inc. (Nasdaq: OTWO) associated with its initial public offering.
In the third quarter of 2000, American Capital completed six financing transactions totaling $77.6 million, an increase of 60.3% over the third quarter of 1999's total of $48.4 million. This reflects American Capital's highest level of new investments. Third quarter 2000 transactions were composed of $11.9 million of senior debt, including $1.5 million of unfunded commitments, $49.0 million of subordinated debt, $6.5 million of preferred stock, $1.5 million of common stock and $8.7 million of warrants.
American Capital recorded unrealized appreciation of $21.5 million at nine portfolio companies, including $16.8 million of appreciation on American Capital's investment in o2wireless Solutions Inc. American Capital also enjoyed a realized short term gain of $4.3 million with respect to its investment in o2wireless Solutions. The unrealized appreciation was offset by $65.4 million of depreciation at four portfolio companies, including $62.0 million of depreciation in American Capital's investment in Capital.com. American Capital's total investment in Capital.com equals $1.5 million.
The weighted average interest rate on the total capital invested during the quarter was 14.4%. The weighted average interest rate on American Capital's total capital invested as of September 30, 2000 was 14.3%. At September 30, 2000, the weighted average grade of American Capital's loan portfolio was 3.3 on a 4.0 scale and all loans were current. Credit quality remains strong with no increase in loans graded 2.0 compared to the prior quarter and no loans graded as 1.0, on a scale of 4.0 with 4.0 being the highest quality.
"American Capital's third quarter was distinguished by the IPO of our portfolio company o2wireless Solutions and our ability to maintain a record-breaking pace of new investments," said Chairman and CEO Malon Wilkus. "New investments for 2000 are up by 43% compared to the first three quarters of 1999. There is contraction in the capital markets for middle market companies so we continue to have tremendous investment opportunities. With our overarching emphasis on credit quality, American Capital's portfolio remains strong as we continue to grow. We've added associates and analysts to assist our principals in originating, underwriting and monitoring portfolio companies, and we've continued to work hard to maintain the quality of our portfolio."
"We showed our ability to effectively deploy capital in the third quarter," said American Capital CFO John Erickson. "We increased our net operating income per share by $0.03 over the second quarter in spite of having issued 6.3 million shares of common stock during the second quarter. Additionally, we generated a realized gain of $4.3 million from the partial sale of our o2wireless Solutions position, a 471% compounded rate of return. We are reaching a level of maturation in the portfolio where realized gains will become a more frequent event."
Since its August 1997 IPO, American Capital has invested $520 million in 43 portfolio companies and realized $7.2 million in gains. As of September 30, American Capital shareholders have enjoyed a total return of 99% since the IPO -- an annualized return of 25%. This assumes reinvestment of $4.72 in dividends paid per share.
A brief discussion of American Capital's new investments and other key events follows.
Click her for additional information.
o2Wireless Solutions, Inc. Completes IPO
On August 16, 2000 American Capital portfolio company o2wireless Solutions, Inc. (Nasdaq: OTWO), formerly Clear Holdings, Inc., completed an initial public offering of 6.1 million shares of common stock at a price of $12.00 per share. Atlanta-based o2wireless provides a full range of network services to all sectors of the global wireless telecommunications industry. In November 1999 American Capital made a $17.5 million mezzanine commitment to o2wireless' operating subsidiary, Clear Communications Group, of which $13 million was funded. The mezzanine investment was repaid at the time of the offering. American Capital owns warrants to purchase 2.5 million shares of o2wireless' common stock for a nominal exercise price.
American Capital Depreciates Investment in Capital.com $62 million
American Capital valued its investment at September 30, 2000 in Capital.com at its original cost of $1.5 million, a depreciation of $62 million from its June 30, 2000 valuation. This depreciation is attributed to numerous factors including the unfavorable financing environment for Internet companies, substantial declines in the valuations of comparable public companies and tremendous declines in the valuations of comparable private companies. Capital.com received a $15 million venture capital investment in December 1999 for 15% ownership and warrants to acquire an additional 5% ownership. Since that investment, Capital.com made significant progress on its business plan. It developed a state-of-the-art financial portal, a network of 32 financial institutions, extensive content, CapitalTV, and an initial marketing campaign. Since the initial venture capital investment, the condition of the capital markets for Internet business models has changed dramatically. Capital.com has been working on raising additional funding, has modified its business plan and initiated staff reductions focused in the content and technology areas.
American Capital Invests $21 Million in Chromas Technologies for Buyout
On September 6, 2000 American Capital invested $18 million to purchase the Chromas Technologies business from Didde Corporation. American Capital provided total financing commitments of up to $21 million. Chromas manufactures digital and analog printing presses for the packaging and labeling industry. Together with the Digital Label Alliance, a research and development consortium of flexible packaging manufacturers it organized, Chromas has recently introduced an innovative digital printing press that allows printers to economically produce short runs of high resolution graphics. American Capital's investment is in the form of a revolving line of credit, senior term loan, senior subordinated debt and common stock in a new corporation formed to complete the transaction. American Capital was the lead investor and owns over 80 percent of Chromas.
American Capital Invests $19.6 Million of Acquisition Financing for Case Logic
On August 28, 2000 American Capital invested $19.6 million in Case Logic, Inc., a designer and marketer of storage products and accessories for the audio, computer, photo/video, DVD, automotive and recreational markets. American Capital's investment took the form of $15.1 million in senior subordinated debt and $4.5 million in junior subordinated debt. KRG Capital Partners, LLC was transaction sponsor, GE Capital and Chase Manhattan provided the senior debt and a revolving credit facility. American Capital joined with Albion Alliance in providing subordinated debt.
American Capital Invests $30 Million for Recapitalization of Cornell Companies
On August 1, 2000 American Capital invested $30 million in the form of seven-year senior subordinated debt with warrants to finance the continued growth of Cornell Companies, Inc. (NYSE: CRN). Cornell is one of the leading private sector providers of correctional, juvenile detention, pre-release and treatment services in the United States. The Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) invested $10 million in senior subordinated debt with warrants alongside American Capital.
Financial highlights for the quarter and year to date period are as follows.
AMERICAN CAPITAL STRATEGIES, LTD.
Balance Sheets
(Unaudited)
(In thousands except per share data)
September 30, December 31,
2000 1999
Assets
Cash and cash equivalents 32,140 2,037
Investments at fair value
(cost of $469,765 and $305,264,
respectively) $510,324 $377,554
Investment in unconsolidated
operating subsidiary 1,805 4,893
Due from unconsolidated operating subsidiary 9,244 2,331
Interest receivable 5,010 2,417
Other 4,997 6,140
Total assets $563,520 $395,372
Liabilities and Shareholders' Equity
Revolving credit facility $135,613 78,545
Accrued dividends payable 11,905 547
Other 6,329 4,535
Total liabilities 153,847 83,627
Shareholders' equity:
Undesignated preferred stock,
$0.01 par value, 5,000 shares authorized,
0 issued and outstanding -- --
Common stock, $.01 par value,
70,000 shares authorized,
and 24,806 and 18,252 issued and
outstanding, respectively 247 183
Capital in excess of par value 380,175 255,922
Notes receivable from sale of common stock (23,680) (23,052)
Undistributed net realized earnings 7,289 1,080
Net unrealized appreciation of investments 45,642 77,612
Total shareholders' equity 409,673 311,745
Total liabilities and shareholders' equity $563,520 $395,372
AMERICAN CAPITAL STRATEGIES, LTD.
Statements of Operations
(Unaudited)
(In thousands except per share data)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
Operating income:
Interest and dividend income $15,980 $8,414 $40,112 $20,758
Loan fees 976 729 3,255 2,060
Total operating income 16,956 9,143 43,367 22,818
Operating expenses:
Salaries and benefits 687 411 1,615 909
General and administrative 522 382 1,646 1,035
Interest 2,107 1,349 6,351 3,245
Total operating expenses 3,316 2,142 9,612 5,189
Operating income before equity
in loss of unconsolidated
operating subsidiary 13,640 7,001 33,755 17,629
Equity in loss of unconsolidated
operating subsidiary (1,308) (337) (3,088) (1,153)
Net operating income 12,332 6,664 30,667 16,476
Net realized gain on investments 4,303 -- 4,538 867
(Decrease) increase in net unrealized
appreciation of investments (43,941) 3,570 (31,970) 6,077
Net (decrease) increase in shareholders'
equity resulting from operations $(27,306) $10,234 $3,235 $23,420
Net operating income per common share:
Basic $0.51 $0.45 $1.47 $1.33
Diluted $0.50 $0.43 $1.44 $1.28
(Loss) earnings per common share:
Basic $(1.12) $0.69 $0.16 $1.89
Diluted $(1.10) $0.66 $0.15 $1.81
Weighted average shares of
Common stock outstanding
Basic 24,359 14,869 20,854 12,395
Diluted 24,872 15,619 21,360 12,920
Dividends declared per share $0.49 $0.43 $1.43 $1.27
Portfolio Statistics
On a Weighted Average Basis: 2000 1999 Pre -1999
Aggregate** YTD Pool Static Pool Static Pool
Interest Coverage* 2.3 2.2 2.3 2.4
Debt Service Coverage* 1.8 1.7 1.7 2.1
Debt to EBITDA* 4.9 4.7 4.5 5.5
Investment Grade* 3.3 3.1 3.4 3.5
Age of Portfolio Companies 41 years 43 years 42 years 39 years
Average Sales $97 million $131 million $84 million $76 million
American Capital
Ownership Percentage
of Portfolio Companies 31% 31% 34% 27%
* These amounts do not include American Capital's equity investments in o2wireless Solutions, Inc., Capital.com, ACS Equities, LP, and Wrenchead.com where American Capital has equity but no debt.
** Aggregate consists of Pre-1999 Static Pool, 1999 Static Pool and 2000 investments.
American Capital invites its prospective shareholders, shareholders and analysts to participate in the American Capital Analyst Call on Wednesday, November 1 at 11:00 a.m. EST. The dial-in number is 800-450-0818. Please advise the operator you are dialing in for the American Capital Analyst Call. During the Analyst Call, we would like to invite you to turn to our shareholder website and click on the November 1, 2000 Analyst Call Slide Show to view slides displaying information concerning some of the issues that will be discussed during the conference call. This slide show will be made available shortly after the earnings release on October 31st. We would hope that you will take the time to review the slides in advance of the Analyst Call. We do not intend to review all the slides during the Analyst Call so that we can devote more time for questions and answers.
For the convenience of our shareholders, there will be a recording available from November 1 through 11, 2000. If you are interested in hearing the recording of the presentation, please dial 800-475-6701 from within the United States and enter code 543366. International callers may dial 320-365-3844 and enter the same code, 543366. We will also have both the slides and the audio of the Analyst Call available on our website.
For further information or questions, please do not hesitate to call our Shareholder Relations department at 301-951-6122.
American Capital is a publicly traded buyout and mezzanine fund. American Capital is an equity partner in management and employee buyouts; invests in debt and equity of companies led by private equity firms, and provides capital directly to private and small public companies. American Capital funds growth, acquisitions and recapitalizations.
Companies interested in learning more about American Capital's flexible financing and ability to provide senior debt, subordinated debt and equity should contact Mark Opel, Principal, at (800) 248-9340, or visit our website. Capital.com, Inc. is a business finance portal where premier financing sources compete to provide receivable and inventory financing, machinery and equipment loans and leasing, real estate and construction financing, subordinated debt and equity financing for growth, acquisitions, management buyouts, liquidity, recapitalizations, ESOP transactions and SBA loans.
Companies in need of financing or information about financial services should contact Capital.com at info@Capital.com, or call (646)935-1100.
This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements regarding expected results of American Capital Strategies are subject to various factors and uncertainties, including the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional or national economic conditions, or changes in the conditions of the industries in which American Capital has made investments.
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