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FOR IMMEDIATE RELEASE:
October 30, 2001
Contact:
John Erickson, Chief Financial Officer (301) 951-6122
AMERICAN CAPITAL NET OPERATING INCOME UP 12% TO $0.56 PER SHARE
Bethesda, MD - October 30, 2001 - American Capital Strategies Ltd. (Nasdaq:ACAS) announced today its results for the quarter ended September 30, 2001. Net operating income for the quarter increased 55% to $19.1 million compared to $12.3 million in the third quarter of 2000. On a diluted per share basis, net operating income for the quarter increased 12% to $0.56 per share compared to $0.50 per share in the third quarter of 2000. Net operating income is an important measure for American Capital since the Company's dividend is generally based on the net operating income.
The decrease in shareholders' equity resulting from operations for the third quarter was $1.5 million compared to $27.3 million in the third quarter of 2000. On a diluted per share basis, the decrease in shareholders' equity resulting from operations for the third quarter of 2001 was $0.04 per share compared to $1.10 in the third quarter of 2000.
On September 12th, American Capital completed a $51 million equity offering underwritten by First Union Securities Inc. American Capital has a market capitalization of nearly $1 billion.
"I am very pleased with our results and the strength American Capital exhibited during a time of economic retrenchment," said Chairman, President and CEO Malon Wilkus. "We closed both buyout and mezzanine transactions, increasing new investments 12% over third quarter 2000. We raised approximately $51 million in a follow-on offering, part of the over $350 million in new capital we raised over the past year; experienced two exit events, one for a 32% annual return and the other for 19%, and initiated a strategic relationship with Gladstone Capital that will help us continue to take advantage of the abundant opportunities to invest in strong middle market businesses. At the same time, we are working hard to help our portfolio companies face the challenges of a difficult economic environment."
In the third quarter of 2001, American Capital completed 12 financing transactions totaling $86.6 million, an increase of 12% over the third quarter of 2000's total of $77.6 million. Third quarter 2001 transactions were composed of $18.8 million of senior debt, including $10.4 million of unfunded commitments, $50.2 million of subordinated debt, including $0.7 million of unfunded commitments, $3.4 million of preferred stock, $7.2 million of warrants, and $7.0 million of common stock.
Earnings for the quarter included net unrealized depreciation of $20.9 million. American Capital recorded unrealized appreciation of $2.0 million at 5 portfolio companies. The unrealized appreciation was offset by $17.1 million of unrealized depreciation at 16 portfolio companies and $5.8 million of unrealized depreciation in interest rate swaps. American Capital enters into interest rate swap agreements as part of its strategy to manage interest rate risks and to fulfill its obligation under the terms of its revolving debt funding facility and asset securitization.
The weighted average interest rate on the total capital invested during the quarter was 13.5%. The weighted average interest rate on total capital invested as of September 30, 2001 was 13.7%. The weighted average cost of borrowing dropped 148 basis points in the third quarter to 5.45%. Credit quality remains strong with only 3 loans totaling $20 million on non-accrual, and at September 30, 2001, the weighted average grade of American Capital's loan portfolio had decreased from 3.1 to 2.9 on a 4.0 scale, with 4.0 being the best.
"Not surprisingly, our portfolio companies' valuations reflect the stress of a difficult economic environment," said CFO John Erickson. "While our view of the economy has grown more pessimistic with the events of September 11th, we have the personnel, systems and investment structure that allows us to be proactive in helping portfolio companies manage the effects of escalating recessionary pressures. Conversely, we are also taking advantage of lower valuations and strong demand for capital when we make our new investments. I believe that our portfolio will be well positioned when the economy recovers."
On February 5th, 2001 American Capital provided the following forecasts and guidance for 2001:
- We anticipate increased demand due to reduced availability of senior debt and growing market share.
- We will continue to increase our average leverage.
- Gains and appreciation are expected to exceed depreciation and losses.
- New Investments are forecast to total $350 million to $415 million.
- Principal payments are forecast to total $75 million to $113 million.
- Annual average non-accruing loans are forecast to total $10 million to $18 million.
- Number of employees is forecast to total 75 to 85.
- NOI per share is forecast to total $2.21 to $2.32.
- NOI return on equity at cost is forecast to total 13.7% to 14.6%.
Of these forecasts and guidance for 2001, we are updating the following:
- Gains and appreciation are no longer expected to exceed depreciation and losses.
- Principal payments are forecast to total $38 million to $77 million.
- Number of employees is forecast to total 59 to 68.
- NOI return on equity at cost is forecast to total 13.4% to 13.7%.
Since our August 1997 IPO, American Capital has invested $860 million in 55 portfolio companies. American Capital shareholders have enjoyed a total return of 153% since the IPO - a compounded annualized return of 25%. This assumes reinvestment of $7.10 in dividends paid per share.
On October 25, 2001, American Capital announced a fourth quarter regular dividend of $.57 per share to be paid on December 31 to shareholders of record on December 12.
"American Capital's flexibility has been an important advantage during these tough economic times," said COO Ira Wagner. "Over the course of the year we have invested $103 million in four buyout transactions led by American Capital; have funded $62.4 million in mezzanine capital in transactions led by other equity sponsors; have invested $68.0 million in mezzanine investments in private companies; and within those investments stepped in to the senior debt in 4 transactions by providing $35.5 million of senior cash flow financing. Our flexibility has allowed us to take advantage of these market conditions to close $86.6 million in the third quarter."
For the quarter American Capital closed:
- $25 million in a buyout that we sponsored;
- $47 million of mezzanine capital in support of private equity sponsored transactions; and
- $15 million in mezzanine capital directly to middle market companies to support growth, acquisitions and recapitalizations.
In addition, American Capital and Gladstone Capital (Nasdaq: GLAD), a newly formed business development company, have agreed to refer middle market investment opportunities to each other. American Capital purchased $3.6 million, or 3 percent, of Gladstone Capital's common stock at its IPO at $15 per share. The two companies will be able to invest a combined $50 million of senior cash flow, mezzanine and equity capital per investment.
Click here for additional information about American Capital's third quarter.
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, 2001 |
December 31, 2000 |
| Assets: |
| Cash and cash equivalents |
$ 6,160 |
$ 11,192 |
Investments at fair value
(cost of $765,161 and $563,331, respectively) |
727,181 |
582,108 |
| Investment in unconsolidated operating subsidiary |
-- |
1,120 |
| Due from unconsolidated operating subsidiary |
12,620 |
7,433 |
| Interest receivable |
9,998 |
4,935 |
| Other |
7,961 |
7,856 |
| Total assets |
$ 763,920 |
$ 614,644 |
|
| Liabilities and Shareholders' Equity |
| Revolving credit facility |
$ 50,908 |
$ 68,002 |
| Notes payable |
110,368 |
87,200 |
| Investment in unconsolidated operating subsidiary |
1,507 |
-- |
| Accrued dividends payable |
-- |
6,163 |
| Other |
8,367 |
8,112 |
| Total liabilities |
171,150 |
169,477 |
|
| 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 35,654 and 28,003 issued and outstanding, respectively |
359 |
280 |
| Capital in excess of par value |
637,886 |
448,587 |
| Notes receivable from sale of common stock |
(18,984) |
(27,389) |
| Distributions in excess of net realized earnings |
(360) |
(341) |
| Net unrealized (depreciation) appreciation of investments |
(26,131) |
24,030 |
|
| Total shareholders' equity |
592,770 |
445,167 |
|
| Total liabilities and shareholders' equity |
$ 763,920 |
$ 614,644 |
|
|
AMERICAN CAPITAL STRATEGIES LTD.
Statements of Operations
(Unaudited)
(In thousands except per share data)
|
Three Months
Ended
September 30, 2001 |
Three Months
Ended
September 30, 2000 |
Nine Months
Ended
September 30, 2001 |
Nine Months
Ended
September 30, 2000 |
| Operating income: |
| Interest and dividend income |
$ 22,600 |
$ 15,980 |
$ 63,473 |
$ 40,112 |
| Loan fees |
474 |
976 |
1,833 |
3,255 |
| Total operating income |
23,074 |
16,956 |
65,306 |
43,367 |
|
| Operating expenses: |
| Salaries and benefits |
385 |
687 |
1,599 |
1,615 |
| General and administrative |
737 |
522 |
2,187 |
1,646 |
| Interest |
2,045 |
2,107 |
8,504 |
6,351 |
| Total operating expenses |
3,167 |
3,316 |
12,290 |
9,612 |
|
Operating income before equity in loss of
unconsolidated operating subsidiary |
19,907 |
13,640 |
53,016 |
33,755 |
Equity in loss of unconsolidated
operating subsidiary |
(844) |
(1,308) |
(2,626) |
(3,088) |
|
| Net operating income |
19,063 |
12,332 |
50,390 |
30,667 |
| Net realized gain on investments |
286 |
4,303 |
286 |
4,538 |
| Net unrealized depreciation of investments |
(20,850) |
(43,941) |
(50,185) |
(31,970) |
|
Net (decrease) increase in shareholders'
equity resulting from operations |
$ (1,501) |
$ (27,306) |
$ 491 |
$ 3,235 |
|
| Net operating income per common share: |
| Basic |
$ 0.56 |
$ 0.51 |
$ 1.68 |
$ 1.47 |
| Diluted |
$ 0.56 |
$ 0.50 |
$ 1.68 |
$ 1.44 |
|
| (Loss) earnings per common share: |
| Basic |
$ (0.04) |
$ (1.12) |
$ 0.02 |
$ 0.16 |
| Diluted |
$ (0.04) |
$ (1.10) |
$ 0.02 |
$ 0.15 |
|
| Weighted average shares of common stock outstanding: |
| Basic |
33,965 |
24,359 |
30,073 |
20,854 |
| Diluted |
34,254 |
24,872 |
30,361 |
21,360 |
|
| Dividends declared per common share |
$ 0.56 |
$ 0.49 |
$ 1.64 |
$ 1.43 |
|
|
Portfolio Statistics
On a Weighted Average Basis*:
($ in millions) |
Aggregate** |
2000
Static Pool |
1999
Static Pool |
1998
Static Pool |
| Original Investments at Cost |
$ 824 |
$ 276 |
$ 159 |
$ 157 |
| Total Exits and Prepayments |
$ 73 |
$ 8 |
$ 17 |
$ 48 |
| Current Cost of Original Investments |
$ 740 |
$ 278 |
$ 150 |
$ 110 |
| Realized Gains on Investments |
$ 8.5 |
$ 0.3 |
$ 4.3 |
$ 3.9 |
| Fair Value of Investments |
$ 723 |
$ 252 |
$ 153 |
$ 108 |
| Non-accruing Loans at Cost |
$ 20.0 |
$ 5.0 |
-- |
$ 15.0 |
| Interest Coverage |
2.4 |
2.4 |
2.2 |
2.5 |
| Debt Service Coverage |
1.8 |
2.0 |
1.4 |
1.9 |
| Debt to EBITDA |
5.5 |
6.0 |
5.3 |
6.3 |
| Investment Grade |
2.9 |
2.8 |
3.2 |
2.9 |
|
| Age of Portfolio Companies |
41 years |
43 years |
49 years |
38 years |
| Total Sales |
$ 4,458 |
$ 961 |
$ 1,565 |
$ 861 |
| Average Sales |
$ 112 |
$ 121 |
$ 97 |
$ 88 |
| Total EBITDA |
$ 462 |
$ 217 |
$ 171 |
$ 77 |
| Average EBITDA |
$ 13 |
$ 18 |
$ 10 |
$ 9 |
| Ownership Percentage of Portfolio Companies |
38% |
36% |
40% |
31% |
|
*These amounts do not include investments in which American Capital only owns equity.
**Aggregate consists of Pre-1999 Static Pool, 1999 Static Pool, 2000 Static Pool, and 2001 investments. |
American Capital invites its prospective shareholders, shareholders and analysts to attend the American Capital Shareholder Call on Wednesday, October 31 at 11:00 am ET. The dial in number is 800-230-1092. International callers should dial 612-288-0318. Please advise the operator you are dialing in for the American Capital Shareholder Call.
During the Shareholder Call, we invite you to turn to our shareholder website, and click on the October 31 Shareholder Call Slide Show button. The quarterly shareholder presentation includes a summary slide show to accompany the call that participants may download and print, a longer version with supplementary information, and a downloadable spreadsheet with summary financial data. Participants will also be able to access the complete streaming presentation on our website. The shareholder presentation will be made available shortly after the earnings release on October 30. We hope that you will take the time to review the slides in advance of the Shareholder Call.
For the convenience of our shareholders, there will be a recording available from 9:30 pm October 31 to 11:55 pm November 10. If you are interested in hearing the recording of the presentation, please dial 800-475-6701 and enter code 604184. International callers may dial 320-365-3844 and enter the same code, 604184. We will also have the Shareholder Slide Shows 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.This press release contains forward-looking statements. 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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