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FOR IMMEDIATE RELEASE:
November 5, 2002
Contact:
John Erickson, Chief Financial Officer (301) 951-6122
American Capital Net Operating Income Up 20% to $0.66 Per Share
2003 NOI Guidance $2.79 to $2.87 Per Share
Bethesda, MD - November 5, 2002 - American Capital Strategies Ltd. (Nasdaq:ACAS) announced today its results for the quarter ended September 30, 2002. Net operating income (NOI) for the quarter increased 40% to $26.7 million compared to $19.1 million in the third quarter of 2001. On a diluted per share basis, net operating income for the quarter increased 20% to $0.66 per share compared to $0.55 per share in the third quarter of 2001. American Capital paid a $0.66 per share dividend on October 1, 2002.
The decrease in shareholders' equity resulting from operations for the third quarter was $11.5 million, $0.29 per diluted share, compared to a decrease of $1.6 million, $0.05 per diluted share, in the third quarter of 2001. This decrease includes $0.51 per share depreciation of interest rate swaps, which are required under the company's debt arrangements to lock-in interest rate spreads and reduce interest rate risks. Interest rate swaps appreciate or depreciate based on changes in the relative interest rates. Their fair value will resolve to zero if held to maturity.
Net realized and unrealized depreciation on the company's investment portfolio (which does not include interest rate swaps) totaled $17.7 million, or $0.44 per diluted share. This is composed of unrealized appreciation of $38.8 million at eleven portfolio companies (including $25.7 million of prior depreciation on three portfolio companies that was reversed and realized as a loss), offset by $33.0 million of unrealized depreciation at 18 portfolio companies and further offset by $23.5 million of net realized losses, primarily related to a $25.6 million realized loss on the company's investment in Goldman Industrial Group. In the five years since our IPO through the third quarter, American Capital has realized $10.0 million of net losses on $1.4 billion of cumulative investments or 0.7%.
American Capital also announced today NOI guidance for 2003 of $2.79 to $2.87 per share, representing an approximately 9% to 13% growth over estimated 2002 NOI (estimated assuming $0.67 per share Q4 2002 NOI). This would represent an approximately 14% to 15% forward yield on the current share price. Guidance on other performance measures for 2003 will be announced in February 2003. In addition, American Capital announced NOI guidance for the fourth quarter of 2002 of $0.66 to $0.68 per share.
"At September 30, 2002, American Capital's portfolio investments increased 60% over the same period in 2001, a sign of the remarkable opportunities in the middle market and our growing market share," said Chairman, President and CEO Malon Wilkus. "We are pleased by the performance of our investments through a period impacted by a recession and terrorist attacks. Through the third quarter of this year, we've exited $189 million of $1.4 billion of cumulative investments since our IPO, or 14%. These exited investments included senior debt, subordinated debt and equity. Only one investment had a negative compounded annual internal rate of return (IRR), and the weighted average IRR on all exits totaled 17%. This shows the power of targeting diversified companies with strong historical cash flows and investing with terms that generate attractive interest income, appropriate fees and significant equity interests. We expect a higher volume of exits and greater returns in the year ahead, as we appear to be moving into a healthier economy."
In the third quarter of 2002, American Capital completed eleven financing transactions totaling $144.9 million, an increase of 68% over the third quarter of 2001. Third quarter 2002 transactions were composed of $40.5 million of senior debt, including $3.0 million of unfunded commitments, $63.3 million of subordinated debt, including $0.4 million of unfunded commitments, $29.7 million of preferred stock, $1.4 million of warrants, and $10.0 million of common stock.
The weighted average yield on the capital invested during the quarter was 10.4%. Compared to the third quarter 2001, the weighted average cost of borrowing dropped 230 basis points to 3.4%. With the costs of interest rate swaps, the interest rate spread is 7.5% including the effect of non-accruing loans.
"In spite of difficult market conditions, we raised $235 million in the third quarter, issuing both debt and equity," said Chief Financial Officer John Erickson. We completed our eighth equity offering, raising $77 million in the third quarter, and completed our third on balance sheet securitization, netting $158 million. Once again, the top tranche, representing 50% of the asset pool, received Aaa/AAA/AAA ratings and the second tranche, representing 25% of the asset pool, received A2/A/A+ ratings from Moody's, S&P and Fitch respectively. Our three securitizations have loans from 55 portfolio companies collateralizing the term debt. I believe these ratings make a strong statement about the quality of our assets."
Since the August 1997 IPO, American Capital has invested $1.4 billion in 71 portfolio companies. American Capital shareholders have enjoyed a total return of 91.0% since the IPO - a compounded annualized return of 13.6%. This assumes reinvestment of $9.64 in dividends paid per share through the third quarter of 2002. Year-to-date, through the third quarter, American Capital has declined 28% versus the S&P 500's 29% decline, assuming dividend reinvestment.
"We are capitalizing on the changing alignment of institutions investing in the middle market," said Chief Operating Officer Ira Wagner. "Our opportunities for investment are robust, our in-house due diligence capabilities are extensive, our ability to invest throughout the capital structure is a competitive advantage and the quality of American Capital personnel is superb. During the third quarter, we completed three new American Capital sponsored buyouts, two mezzanine investments in private equity sponsored buyouts and the strategic acquisition of Kingway Material Handling by Inca, an American Capital portfolio company. The combined Inca/Kingway enterprise should enjoy significant economic synergies; it is the third largest company in the rack industry and is poised to benefit from an upturn in macroeconomic conditions. This acquisition is an example of the value American Capital can add to our portfolio companies."
Also during the quarter, American Capital foreclosed on $24 million of loans extended to employees for the exercise of stock options. American Capital has typically allowed its employees to exercise stock options by borrowing the funds from the company. All such loans are full recourse to the employee and, by law, must at all times be fully collateralized. (Stock option exercise loans are generally the only loans that business development companies may make to an employee; American Capital has made no other loans to employees.) As a result of a decline in the company's stock price during the third quarter of 2002, loans became under collateralized and were accelerated. In connection with the acceleration of the defaulted loans, all of the shares collateralizing the loans were foreclosed upon and collected into treasury and over $700,000 of cash collateral was also collected. No employee loans have been forgiven. Based on ACAS stock price declines subsequent to the foreclosures, employees would have needed to have posted approximately $5 million of additional collateral to maintain fully collateralized loans and avoid foreclosure. Over $1.5 million of additional collateral, including $1.1 million by Mr. Wilkus, has been posted to support the remaining $9 million of stock option loans. Employees continue to own options to purchase 4.2 million ACAS shares with an average strike price of $26.54 per share. Laws governing business development companies require that shareholders approve option plans and require that options be granted with strike prices at then current market values. American Capital's option plan precludes repricing of options.
Additional information about American Capital's third quarter may be found here.
Financial highlights for the quarter and year to date period are as follows.
AMERICAN CAPITAL STRATEGIES, LTD.
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
|
September 30, 2002
Unaudited |
December 31, 2001 |
| Assets: |
| Cash and cash equivalents |
$ 30,940 |
$ 18,890 |
Investments at fair value
(cost of $1,212,790 and $882,796, respectively) |
|
|
| Non-Control and Non-Affiliate investments |
524,672 |
486,639 |
| Control Investments |
602,608 |
361,055 |
| Affiliate Investments |
13,372 |
10,572 |
| Total Investments at fair value |
1,140,652 |
858,266 |
| Interest receivable |
12,851 |
12,957 |
| Other |
29,947 |
14,071 |
|
| Total assets |
$ 1,214,390 |
$ 904,184 |
|
| Liabilities and Shareholders' Equity |
|
| Revolving credit facility |
$ 146,404 |
$ 147,646 |
| Notes payable |
378,402 |
103,495 |
| Accrued dividends payable |
26,898 |
3,420 |
| Other |
12,062 |
9,358 |
|
| Total liabilities |
563,766 |
263,919 |
|
| Commitments and Contingencies |
|
| 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 40,457 and 38,017 issued and outstanding, respectively |
405 |
380 |
| Capital in excess of par value |
761,357 |
699,291 |
| Notes receivable from sale of common stock |
(9,063) |
(27,143) |
| Distributions in excess of net realized earnings |
(27,003) |
(3,823) |
| Net unrealized depreciation of investments |
(75,072) |
(28,440) |
|
| Total shareholders' equity |
650,624 |
640,265 |
|
| Total liabilities and shareholders' equity |
$ 1,214,390 |
$ 904,184 |
|
|
AMERICAN CAPITAL STRATEGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
|
Three Months
Ended
September 30, 2002 |
Three Months
Ended
September 30, 2001 |
Nine Months
Ended
September 30, 2002 |
Nine Months
Ended
September 30, 2001 |
| Operating income: |
| Interest and dividend income |
| Non-Control/Non-Affiliate investments |
13,015 |
10,745 |
45,191 |
32,637 |
| Control Investments |
17,986 |
11,749 |
43,321 |
30,178 |
| Affiliate Investments |
421 |
355 |
903 |
1,336 |
| Total interest and dividend income |
31,422 |
22,849 |
89,415 |
64,151 |
| Fees |
| Non-Control/Non-Affiliate investments |
1,093 |
933 |
4,208 |
2,929 |
| Control Investments |
6,528 |
1,658 |
12,016 |
6,857 |
| Affiliate Investments |
233 |
-- |
456 |
71 |
| Total fee income |
7,854 |
2,591 |
16,680 |
9,857 |
| Total operating income |
39,276 |
25,440 |
106,095 |
74,008 |
|
| Operating expenses: |
| Interest |
3,793 |
2,045 |
9,179 |
8,504 |
| Salaries and benefits |
5,678 |
2,440 |
14,193 |
10,035 |
| General and administrative |
3,107 |
1,842 |
8,126 |
5,272 |
| Total operating expenses |
12,578 |
6,327 |
31,498 |
23,811 |
|
| Net operating income |
26,698 |
19,113 |
74,597 |
50,197 |
| Net realized (loss) gain on investments |
| Non-Control/Non-Affiliate investments |
(25,436) |
287 |
(24,902) |
311 |
| Control Investments |
2,425 |
-- |
1,128 |
-- |
| Affiliate Investments |
(451) |
-- |
154 |
-- |
| Total net realized (loss) gain on investments |
(23,462) |
287 |
(23,620) |
311 |
|
| Net unrealized appreciation (depreciation) of investments |
| Non-Control/Non-Affiliate investments |
2,882 |
(6,425) |
(19,340) |
(23,909) |
| Control Investments |
(16,723) |
(12,608) |
(26,503) |
(24,912) |
| Affiliate Investments |
(919) |
(1,999) |
(789) |
(1,999) |
| Total net unrealized depreciation of investments |
(14,760) |
(21,032) |
(46,632) |
(50,820) |
|
Net increase in shareholders'
equity resulting from operations |
$ (11,524) |
$ (1,632) |
$ 4,345 |
$ (312) |
|
| Net operating income per common share: |
| Basic |
$ 0.66 |
$ 0.56 |
$ 1.93 |
$ 1.67 |
| Diluted |
$ 0.66 |
$ 0.55 |
$ 1.90 |
$ 1.64 |
|
| (Loss) Earnings per common share: |
| Basic |
$ (.29) |
$ (.05) |
$ .11 |
$ (.01) |
| Diluted |
$ (.29) |
$ (.05) |
$ .11 |
$ (.01) |
|
Weighted average shares of common stock
outstanding: |
| Basic |
40,269 |
33,965 |
38,585 |
30,073 |
| Diluted |
40,658 |
34,524 |
39,207 |
30,568 |
|
| Dividends declared per share |
$ .66 |
$ .56 |
$ 1.88 |
$ 1.64 |
|
|
Portfolio Statistics
On a Weighted Average Basis*:
($ in millions) |
Aggregate |
2002 YTD
Static Pool |
2001
Static Pool |
2000
Static Pool |
1999
Static Pool |
Pre-1999
Static Pool |
Original Investments and
Commitments |
$ 1,408 |
$ 392 |
$ 390 |
$ 277 |
$ 178 |
$ 171 |
| Total Exits and Prepayments |
$ 189 |
$ 13 |
$ 18 |
$ 63 |
$ 13 |
$ 82 |
| Realized (Loss) Gain on Investments |
$ (10) |
$ -- |
$ -- |
$ (22) |
$ 6 |
$ 6 |
Current Cost of Original
Investments |
$ 1,213 |
$ 381 |
$ 354 |
$ 213 |
$ 151 |
$ 114 |
| Fair Value of Investments |
$ 1,174 |
$ 392 |
$ 370 |
$ 180 |
$ 141 |
$ 91 |
| Non-Accruing Loans |
$ 55 |
$ -- |
$ 10 |
$ 20 |
$ 16 |
$ 9 |
|
| Interest Coverage |
2.5 |
2.9 |
2.3 |
2.2 |
2.8 |
1.6 |
| Debt Service Coverage |
1.7 |
2.2 |
1.5 |
1.3 |
1.9 |
1.2 |
| Debt to EBITDA |
4.9 |
4.1 |
4.7 |
5.9 |
4.7 |
7.8 |
| Investment Grade |
3.0 |
3.0 |
3.1 |
3.0 |
3.2 |
2.7 |
|
| Average Age of Companies** |
40 years |
36 years |
45 years |
36 years |
51 years |
35 years |
| Total Sales** |
$ 5,076 |
$ 718 |
$ 1,780 |
$ 803 |
$ 1,123 |
$ 652 |
| Average Sales** |
$96 |
$41 |
$145 |
$105 |
$109 |
$86 |
| Total EBITDA** |
$ 602 |
$ 128 |
$ 222 |
$ 121 |
$ 92 |
$ 39 |
| Average EBITDA** |
$13 |
$8 |
$18 |
$18 |
$14 |
$8 |
| Ownership Percentage** |
43% |
53% |
34% |
40% |
43% |
39% |
| % with Senior Lien*** |
26% |
18% |
43% |
10% |
20% |
27% |
| % with Senior or Junior Lien*** |
77% |
77% |
72% |
91% |
74% |
72% |
| Equity Interests at fair value |
$271 |
$96 |
$90 |
$36 |
$36 |
$13 |
|
*These amounts do not include investments in which American Capital only owns equity.
**Includes the Company's equity investment in Aeruxs, LLC (formerly Electrolux, LLC) and o2wireless Solutions.
***As a percentage of Company's total debt investments.
American Capital invites its prospective shareholders, shareholders and analysts to attend the American Capital Shareholder Call on Wednesday, November 6 at 11:00 am ET. The dial in number is 888-428-4480. International callers should dial 612-332-0418. 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 November 6 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 November 5. You may wish to 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 p.m. Nov. 6 until 11:55 p.m. Nov. 18. If you are interested in hearing the recording of the presentation, please dial 800-475-6701 and enter code 656482. International callers may dial 320-365-3844 and enter the same code, 656482. We will also have the Shareholder Slide Show with audio accompaniment available on our website at www.ACAS.com starting November 8.
For further information or questions, please do not hesitate to call our Shareholder Relations department at (301) 951-6122.
You Can't Restate a Dividend!
American Capital has declared a $.67 per share dividend to be paid on December 31, 2002 to record holders as of December 12, 2002. This dividend is an 18% increase over the fourth quarter 2001 regular dividend of $0.57 per share. American Capital has paid or declared $10.31 in dividends since its August 1997 IPO at $15.00 per share.
American Capital is a publicly traded buyout and mezzanine fund with capital resources exceeding $1 billion. American Capital is an equity partner in 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 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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