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Nearly $2.7 billion invested, $476 million in dividends paid since 1997 IPO.
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Vol. 5 No. 2
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(800) 248-9340
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May 2004
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Capital Resources Over $2.7 Billion
Credit Facilities Increased to $420 Million
Total Q1 2004 Investments $239 Million, 34% Over Q1 2003
American Capital Declares Dividend of $0.70 per Share for Q2
American Capital Net Operating Income $42 Million for Q1 2004,
35% Increase Over Q1 2003
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Table of Contents
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American Capital Comments on New Business Development Companies
American Capital's Credit Facilities Increased to $420 Million
Total Q1 2004 Investments $239 Million, 34% Over Q1 2003
American Capital Declares Dividend of $0.70 per Share for Q2
American Capital Net Operating Income $42 Million for Q1 2004; 35% Increase Over Q1 2003
Corporate News
American Capital Names Frank Do Senior Vice President, Managing Director in Los Angeles
Office; Hires Associates
American Capital Stockholders Elect Directors, Approve Increase in Authorized Shares
New Investments
$15.6 Million in TransFirst Holdings, Inc., Premier Provider of Electronic Processing Services
$46 Million in Buyout of Cottman Transmission Systems, Second Largest Franchisor of
Automotive Transmission Repair Centers in North America
$13 Million in Interior Specialists, Inc., Leading Interior Design Service Provider
$16 Million in Corrpro Companies, Inc., Leading Provider of Corrosion Protection Products &
Services
$27 Million in T-NETIX, Inc., Leading Provider of Telecommunications Products & Services to
Correctional Facilities
Exit Events
Atlantech International, Inc.
American Capital Realizes Losses on Previously Depreciated Assets
Charts
Current Investments
Total Returns to Investors
Investment Value
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American Capital Comments on New Business Development Companies
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In an April 16 press release American Capital commented on new Business Development Companies.
"This is an appropriate time to welcome the new BDCs that have recently gone public and those that may follow. They will accelerate the growing investor interest in BDCs," said Malon Wilkus, American Capital Chairman, President and CEO. "We have long thought it inevitable that private equity and mezzanine partnerships would ultimately adopt the BDC structure. Compared to typical private equity and mezzanine partnerships, BDCs can retain their capital, enjoy greater access and lower cost of capital and offer investors greater transparency, control and liquidity. BDCs can also offer debt and equity and longer term capital to companies. In addition, internally managed BDCs, like American Capital, are free of the many conflicts that exist between the general and limited partners of these partnerships. We expect many of the new BDCs to provide capital to larger companies outside the market targeted by American Capital and therefore not be our direct competitors...Overall, we believe this is a positive development for American Capital."
"In 2003, mezzanine and equity partnerships raised approximately $24 billion of capital, one of the lowest levels in years. The capital raised by BDCs should serve over time to replace, not augment, these levels," said American Capital COO Ira Wagner. "With our most recent announced investment, our 92 portfolio companies now have combined revenues of over $7 billion and about $1 billion of EBITDA. We continue to have a robust pipeline of financing opportunities, which has grown 103% over the past 12 months to over $6 billion."
For more information, see slides 21-23 in American Capital's Q1 2004 Shareholder Presentation, at http://www.acas.com/investor_relations/shareholder_presentations.cfm.
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American Capital's Credit Facilities Increased to $420 million
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In March, American Capital closed a $70 million secured credit facility. Branch Banking and Trust Company, a subsidiary of BB&T Corporation (NYSE: BBT), is the agent and lead lender in the facility. LaSalle Bank N.A., a subsidiary of ABN AMRO NV (NYSE: ABN), Fifth Third Bank, a subsidiary of Fifth Third Bancorp (Nasdaq: FITB), and Hibernia National Bank, a subsidiary of Hibernia Corporation (NYSE: HIB), are also lenders in the facility.
The facility has a three year commitment with a one year revolving term and is priced at LIBOR plus 200 basis points. The facility is secured by certain senior and subordinated debt assets of American Capital and has an advance rate of 80%, subject to certain customary conditions.
In May, American Capital announced that subsidiaries of Wachovia Corporation (NYSE: WB) had increased the amount available under American Capital's Commercial Paper Conduit Credit Facility to $350 million from $225 million.
This brings American Capital's total lines of credit to $420 million.
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Total Q1 2004 Investments $239 Million, 34% Over Q1 2003
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American Capital Declares Dividend of $0.70 per Share for Q2
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In May, American Capital announced its Board of Directors declared a second quarter 2004 regular dividend of $0.70 per share, payable on July 1, 2004 to record holders as of May 18, 2004. This dividend is a 3% increase over the second quarter 2003 regular dividend of $0.68 per share. American Capital has paid a total of $476 million in dividends, and paid or declared $14.52 in dividends per share since its August 1997 IPO at $15.00 per share.
For more information about American Capital's dividends click here.
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American Capital Net Operating Income $42 Million for Q1 2004; 35% Increase Over Q1 2003
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In May, American Capital announced its results for the quarter ended March 31, 2004. Net Operating Income (NOI) for the quarter increased 35% to $42 million compared to $31 million for first quarter 2003.
Click here for the complete press release.
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American Capital Names Frank Do Senior Vice President, Managing Director in Los Angeles Office; Hires Associates
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In April, American Capital announced the promotion of Frank Do to Senior Vice President and Managing Director. He will lead American Capital's nine person Los Angeles office.
Frank joined American Capital as a Principal in the Los Angeles office in January 2002. He has more than fourteen years of private equity buyout experience with total invested capital of over $350 million. Prior to joining American Capital, Frank was General Partner at Westar Capital, a private equity firm based in Southern California. Before that, he was a Principal at Chase Capital Partners (now JP Morgan Partners), a private equity firm with approximately $18 billion under management. His investment experience includes middle market buyouts, leveraged recapitalizations, mezzanine debt, growth equity and venture capital. Frank has experience investing in a broad range of industries, including consumer products, information services, specialty retailing, industrial manufacturing, value-added distribution, healthcare services and devices, and capital goods. Frank holds a B.A. in Economics and International Relations from Claremont McKenna College and an M.B.A. from Harvard Business School.
American Capital has hired 11 associates in four of its seven offices in the past year.
Colette Hastings, Scott Kaufman and Vipul Tandon have joined American Capital in the Bethesda, MD office. Colette began her career as a financial analyst in the Mergers & Acquisitions group at CIBC World Markets in New York. Colette holds a B.S. in Commerce, with a concentration in finance, from the McIntire School at the University of Virginia. In addition, Colette completed a second major in Economics from the College of Arts and Sciences during her time at UVA. Scott was a financial analyst in the Investment Banking Group at BB&T Capital Markets in Richmond, VA and earned his B.S., magna cum laude, in Business Administration from the University of Richmond. Vipul joins the Company as an Associate on the Operations Team. He was Vice President of Strategic Planning for Foamex International, the largest manufacturer of polyurethane foams in North America with revenues of over $1.3 billion, and began his career as an analyst with DLJ Merchant Banking Partners. Vipul holds an M.B.A from INSEAD, a B.S. in Economics from the Wharton School of Business and a B.A. in International Relations from the Colleges of Arts and Sciences of the University of Pennsylvania.
Ebony Cambridge and Eric Chen have joined the New York office. Prior to joining American Capital, Ebony was an investment banking analyst in the Industrials group at Salomon Smith Barney, now Citigroup Global Markets. A native of Trinidad and Tobago, she graduated Salutatorian and summa cum laude from the Howard University School of Business with a B.B.A. in Finance. Eric was previously an Associate in the New York office of JP Morgan Partners, focusing on growth, mezzanine and buyout investments. Eric holds a B.S. in International Economics from The School of Foreign Service at Georgetown University and an M.B.A from the Graduate School of Business at Columbia University.
Douglas Bodel is now working in the San Francisco office. Previously, he was a Vice President in the Merchant Banking Group at BNP Paribas in San Francisco. He graduated from McGill University with a B.A. in Economics and Political Science. Douglas is a CFA charterholder.
Andy Colmone has joined the Chicago office. Prior to American Capital, Andy spent three and a half years in the Investment Banking division of J.P. Morgan Securities Inc. in the firm's Chicago office. He received a B.S.B.A. in Economics and Finance from Creighton University.
Matthew Frankel, Kurt Lentz and Joshua Phillips are now working in the Los Angeles office. Prior to joining American Capital, Matthew worked as an analyst in the Investment Banking Division of Bear, Stearns & Co. Inc. in Los Angeles. He graduated from The University of Southern California with a B.S. in Business Administration. Prior to American Capital, Kurt worked as an analyst in the Corporate and Leveraged Finance office of CIBC World Markets Corp. in Los Angeles. He graduated from Claremont McKenna College with a B.A. in Economics. Joshua began his career at Jefferies & Company, Inc., where he completed investment banking assignments for middle-market companies in diverse industries. Joshua holds a B.A. in Business Economics from the University of California, Los Angeles and an M.B.A. from Harvard Business School.
Nilesh Parikh has joined the Philadelphia office. Prior to American Capital, Nilesh spent two years in mergers and acquisitions and restructuring at the New York offices of Gleacher Partners and Lazard Freres. He graduated magna cum laude from the Wharton School of the University of Pennsylvania with a B.S. in Economics.
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American Capital Stockholders Elect Directors, Approve Increase in Authorized Shares
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In May, American Capital stockholders re-elected two directors of the Company, increased the Company's total authorized shares of common stock from 70 million to 200 million, approved the Company's 2004 Employee Stock Option Plan and approved a proposal to issue warrants to purchase up to 10 million shares of the Company's common stock. Stockholders also approved the continuation of Ernst & Young LLP as the Company's independent auditors.
Mary C. Baskin and Alvin N. Puryear were re-elected to three year terms on the American Capital Board of Directors. Ms. Baskin is Managing Director of the Ansley Consulting Group, a retained executive search firm. She serves on the American Capital Board's Audit and Compliance Committee. Mr. Puryear is the Lawrence N. Field Professor of Entrepreneurship and Professor of Management at Baruch College of the City University of New York. He serves on the American Capital Board's Executive Committee and the Compensation and Governance Committee.
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AMERICAN CAPITAL STRATEGIES LTD. 2004 PROXY VOTING
| Proposals |
FOR |
WITHHELD |
| Re-elect Director Baskin |
55,838,193 |
681,729 |
| Re-elect Director Puryear |
55,260,852 |
1,259,070 |
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FOR |
AGAINST |
ABSTAIN |
| Adopt 2004 Employee Stock Option Plan |
24,477,408 |
4,913,469 |
501,699 |
Increase Authorized Shares of Common Stock
from 70 Million to 200 Million Shares |
51,691,078 |
4,412,707 |
416,137 |
Issue Warrants to Purchase Up To
10 Million Shares of Common Stock |
26,123,673 |
3,104,317 |
664,586 |
Engage Ernst & Young LLP
as Auditors for 2004 |
55,815,161 |
450,086 |
254,675 |
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$15.6 Million in TransFirst Holdings, Inc., Premier Provider of Electronic Processing Services
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 In April, American Capital invested $15.6 million in TransFirst Holdings, Inc., a leading provider of transaction processing services and payment technologies. American Capital's investment took the form of senior subordinated debt and supported TransFirst's acquisition of the third party and agent bank merchant division of Fifth Third Bank (Nasdaq: FITB) Processing Solutions. Merrill Lynch Capital provided a revolving credit facility and senior term loans; GTCR and management provided senior subordinated debt, while GTCR provided equity financing and is the majority owner.
Founded in 1995, Dallas-based TransFirst is a provider of a complete line of merchant credit and debit transaction processing services, including transaction authorization, transaction data capture and transmission, merchant reporting, merchant acceptance, transaction settlement and clearing, real-time transaction monitoring and transaction charge-back solutions. TransFirst's customer base is made up of more than 760 banks and approximately 150,000 merchants throughout the U.S. It includes customers involved in the health care industry, agent banking, card-not-present services (including merchants involved in mail, telephone and internet sales) and independent sales organizations. In addition to its headquarters, TransFirst also has operating facilities in Colorado, Nebraska, Kansas, Wisconsin and California and employs nearly 350. Since 2000, revenue has grown at a CAGR of approximately 50%.
Click here for more information about TransFirst.
Contact L. Thomas Gregory, Principal and Managing Director or call (312) 681-7400.
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$46 Million in Cottman Transmission Systems, LLC, Franchisor of Automotive Transmission Repair Centers
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 In April, American Capital invested $46.2 million in the acquisition of Cottman Transmission Systems LLC, the second largest franchisor of automotive transmission repair centers in North America, from an affiliate of Sentinel Capital Partners LLC. American Capital's investment took the form of senior and junior subordinated debt with warrants and redeemable preferred and common equity. Antares Capital Corporation provided senior term loans.
Cottman Transmission Systems is headquartered in Fort Washington, PA and is the second largest franchisor of automotive transmission repair centers in North America. Founded in 1962, the company has a network of approximately 380 independent franchise centers and four company-operated centers that offer automotive diagnosis and minor and major transmission repairs, ranging from fluid flushing and replacement to transmission rebuilding services. Sales have grown at over 10% a year over the last three years.
Click here for more information about Cottman.
Contact Brian Graff, Managing Director, or call (212) 213-2009.
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$13 Million in Interior Specialists, Inc., Leading Interior Design Service Provider
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 In March, American Capital invested $13 million in Interior Specialists, Inc., a leading provider of outsourced interior design and installation services for homebuilders in the Southwestern U.S. American Capital's investment took the form of senior subordinated debt. The investment supported the acquisition of Interior Specialists by KRG Capital Partners, LLC. The revolving credit facility and senior term loans were provided by Madison Capital Funding LLC and Harris Bank. KRG Capital, Madison Capital, and ISI management also invested in redeemable preferred equity.
Founded in 1983, Carlsbad, CA-headquartered Interior Specialists is one of the largest interior design service providers in the United States. Through its professional designers and installers, ISI provides homebuyers with the entire "colorized" design service, including professional assistance on style and pattern selection, access to instant diagrams and real time pricing on interior selections. ISI then provides homebuilders with material sourcing, complete installation and inspection. ISI also provides homebuyers interior products including flooring, window coverings, countertops and other interior options such as entertainment centers and lighting systems. With 16 strategically located design centers in Southern California, Las Vegas and Arizona and over 200 employees, ISI has seen sales increase more than 20% in the past year.
Click here for more information about ISI.
Contact Darin Winn, Principal and Managing Director, or call (214) 273-6650.
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$16 Million in Leading Provider of Corrosion Protection Products & Services
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 In March, American Capital invested $16 million in Corrpro Companies, Inc. (AMEX: CO), the leading single-source solution provider of corrosion protection related services, systems, equipment and materials. American Capital's investment took the form of senior subordinated debt with warrants and, through a limited liability company established in conjunction with Wingate Partners, redeemable preferred equity with warrants. American Capital's investment supported Wingate Partners' acquisition of voting control of Corrpro. CapitalSource Finance LLC provided a revolving credit facility and a senior term loan and through its affiliates invested equity. American Capital owns approximately 19.2% of Corrpro on a fully diluted basis.
Founded in 1984, Medina, Ohio headquartered Corrpro Companies is the leading provider of corrosion services and products, offering a comprehensive range of corrosion protection services and product offerings, from initial feasibility testing to solution design, installation, maintenance and monitoring of corrosion protection systems. Corrpro has an extremely broad customer base of over 8,000 customers worldwide in a wide variety of industries, including oil and gas, water systems, electric power, public transit, bridges and other concrete structures such as parking garages, piers and coastal balconies and navy ships. Customers include the U.S. Department of Defense, including the Naval Sea Systems Command and Naval Facilities Engineering Command, pipeline and energy companies throughout the world, and water departments in major metropolitan centers throughout the United States. Corrpro employs nearly 900 in 37 operating facilities in the United States, Canada and Europe and reported 2003 sales of over $100 million.
Click here for more information about Corrpro.
Contact Jeff MacDowell, Principal, or call (214) 273-6633.
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$27 Million in T-NETIX, Inc., Leading Provider of Telecommunications Products & Services to Correctional Facilities
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 In March, American Capital invested $27 million to support the acquisition of T-NETIX Inc., a leading provider of telecommunications products and services to correctional facilities. American Capital's investment took the form of senior and junior subordinated debt and common equity, and supported the acquisition of T-NETIX by H.I.G. Capital in a going private transaction. Dymas Capital Management provided a revolving credit facility and senior term loans.
T-NETIX, founded in 1986 and headquartered outside of Dallas, TX, provides telecommunications products and services to more than 350 local, county and state public correctional facilities in the U.S. and Canada. Products and services provided to correctional facilities include prison telecommunications equipment and software, security-enhanced call processing, call validation and billing. The company processes over 10 million phone calls per month, employs over 370 people in 35 states and has grown sales by nearly 13% over the past three years.
Click here for more information about T-NETIX.
Contact Darin Winn, Principal and Managing Director, or call (214) 273-6650.
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Atlantech Exit: $4 Million Realized Gain
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In May, American Capital announced that it had realized a $4 million gain on the repayment of its $18.75 million senior subordinated debt investment in Atlantech International, Inc. American Capital retains its preferred equity, common equity and warrant investments totaling approximately 7% diluted ownership in Atlantech. Based on the most recent quarterly valuation of its equity investments in Atlantech, American Capital has earned a total return of 20% on its total investment. The repayment occurred as part of a debt refinancing led by an existing senior lender.
In December 2000, American Capital invested $19.75 million in support of the acquisition of Atlantech by KRG Capital Partners. Atlantech is a holding company for The Tensar Corporation, the largest manufacturer of polymeric earthwork geogrid reinforcement products and systems in the world. Geogrids permit cheaper, faster and more durable construction of transportation and environmental infrastructure projects, including roadways, parking lots, retaining walls and coastal protection systems. Atlantech packages these products with valued-added engineering services to provide complete solutions for its clients. Tensar's customers include municipal, county and state departments of transportation and environmental regulatory agencies, as well as customers from the commercial and industrial sectors.
Click here for more information about American Capital's investment.
Through the first quarter of 2004, American Capital enjoyed a 14% compounded annual return on 59 announced exits and repayments of senior debt, subordinated debt and equity, totaling $708 million since its August 1997 IPO. In the same period, American Capital exited or received prepayments totaling 25% of all announced investments made since its 1997 IPO. Thirty-one percent of these exits and prepayments were from portfolio companies that had at one time been either a loan grade 1 or 2 in its four point loan grading system, with 1 being the lowest loan grade.
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American Capital Realizes Losses on Previously Depreciated Assets
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In April, American Capital announced it had completely exited investments in three portfolio companies, realizing $60 million in losses on debt and equity assets that had been substantially depreciated in previous periods. The unrealized depreciation will be reversed and the realized losses are recorded in the first quarter of 2004, netting to $8 million of loss not previously recognized. These exits removed $37 million of loans from the non-accrual category. American Capital's dividend forecast for 2004 of $2.88 to $3.00 per share will not be impacted by realizing these losses.
For the complete press release click here.
For a chart detailing American Capital's realized gains and losses click here.
For a chart listing American Capital's exited portfolio companies click here.
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Charts
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As of April 30, 2004, American Capital shareholders have enjoyed a total return of 213% since the Company's IPO - an annualized return of 19%, assuming reinvestment of dividends. American Capital has declared a total of $14.52 per share in dividends since its August 1997 IPO.
American Capital is a publicly traded buyout and mezzanine fund with capital resources in excess of $2.7 billion. American Capital is an investor in and sponsor of management and employee buyouts; invests in private equity sponsored buyouts, and provides capital directly to private and small public companies. American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions and recapitalizations.
Companies interested in learning more about American Capital's flexible financing should contact Mark Opel, Principal, at (800) 248-9340, or visit our website.
This newsletter 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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Two Bethesda Metro Center
14th Floor
Bethesda, MD 20814
Phone: (301) 951-6122
Fax: (301) 654-6714
Info@AmericanCapital.com
Nasdaq: ACAS
www.AmericanCapital.com
(800) 248-9340
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