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FOR IMMEDIATE RELEASE:
February 11, 2003
Contact:
John Erickson, Chief Financial Officer (301) 951-6122
American Capital Net Operating Income Increases 15% to $2.57 per Share
for 2002 and 14% to $0.67 per Share For Q4 2002
American Capital Announces 2003 Forecasts
Bethesda, MD - February 11, 2003 - American Capital Strategies Ltd. (Nasdaq: ACAS) announced today its results for the quarter and year ended December 31, 2002, and its forecasts for 2003.
Net operating income (NOI) for the year increased 43% to $103 million compared to $72 million for 2001. NOI for the fourth quarter of 2002 increased 30% to $28 million compared to $21 million for the fourth quarter of 2001. On a diluted per share basis, NOI for the year increased 15% to $2.57 per share compared to $2.24 per share for 2001. This fell within the February 2002 forecast of $2.54 to $2.62 per share. NOI for the fourth quarter of 2002 increased 14% to $0.67 per share compared to $0.59 per share in the fourth quarter of 2001.
"American Capital is committed to steady growth of our net operating income. Our NOI fuels our dividends. Achieving 15% growth in our NOI allowed us to increase our total dividends 12% to $2.57 per share," said Chairman, President and CEO Malon Wilkus. "In 2003, not only do we expect a 9% to 12% increase in our NOI, but we expect a much higher volume of exits, with principal repayments ranging from $250 million to $300 million and net capital gains of $10 million to $30 million. Through February of 2003, we've exited 16%, or $250 million, of our $1.6 billion of investments. As our portfolio has matured, we now expect more frequent capital gains that we intend to retain to contribute to future growth, build our franchise and continue to rationalize the market of providing sub debt and equity to the middle market."
The net increase in shareholders' equity resulting from operations (NOI plus net unrealized appreciation and depreciation and net realized gains and losses of the Company's assets) for the year was $20 million compared to $19 million for the year ended December 31, 2001. On a diluted per share basis, the net increase in shareholders' equity resulting from operations for the year ended December 31, 2002 was $0.50 per share compared to $0.58 per share for the year ended December 31, 2001.
The net increase in shareholders' equity resulting from operations for the fourth quarter was $16 million compared to $19 million in the fourth quarter of 2001. On a diluted per share basis, the net increase in shareholders' equity resulting from operations for the fourth quarter of 2002 was $0.37 per share compared to $0.52 per share in the fourth quarter of 2001.
"American Capital has raised capital in virtually every market condition," said CFO John Erickson. "During the past twelve months, American Capital raised $226 million of equity capital, including $124 million during 2002, and $305 million of debt capital in a market that saw the S&P 500 decline 23% and credit spreads widen substantially. Our continuing access to capital demonstrates that our assets are strong with attractive, stable margins. Investor interest in American Capital has continued to expand. Our shareholder base has grown from approximately 30,000 to 65,000 in 2002; our debt investors increased to 29. We believe we have the lowest cost capital in the industry, which yields tremendous competitive advantages."
In the fourth quarter of 2002, American Capital completed eleven financing transactions totaling $180 million, an increase of 15% over the fourth quarter of 2001's total of $156 million. Fourth quarter 2002 transactions were composed of $77 million of senior debt, $78 million of subordinated debt, $13 million of preferred stock, $1 million of common stock and $11 million of warrants.
"Over the past year, we saw the gains from our consistent investment in people as we continue to grow our franchise across the country," said COO Ira Wagner. "We have a very robust marketing program, generating what we believe is one of the largest volumes, if not the largest volume, of investment opportunities in the industry. In 2002, we expanded our underwriting and due diligence capabilities and continued to build our operations team. These all work together: strong initial diligence, close monitoring and hands-on assistance allow us to reap the greatest rewards from our investments. The numbers support the strategy. During 2002 we invested $245 million in 10 buyouts led by American Capital and funded $197 million in transactions led by 12 equity sponsors, 10 of them for the first time. In addition, we invested another $81 million to fund acquisitions for our portfolio companies. We intend to lay the groundwork for further expansion of our franchise in 2004 through additional growth in personnel during 2003."
The weighted average yieldon the total capital invested during the quarter was 10.4%. The weighted average yieldon American Capital's total capital invested as of December 31, 2002 was 10.3%. Credit quality is good, with the weighted average non-accruing loans outstanding during the year totaling $64 million, compared to our February 2002 forecast of $60 million to $75 million. As of December 31, 2002, 11 loans totaling $73 million were on non-accrual. At December 31, 2002, the weighted average grade of American Capital's loan portfolio increased slightly from December 31, 2001 to 3.0 on a scale of 1 to 4, with 4 being the highest quality.
In 2002, American Capital experienced net realized losses of $21 million, consisting of realized capital gains of $7 million and realized losses of $28 million. The Company's gains resulted from exiting investments in 7 portfolio companies in 2002, reaping compounded annual returns of 22%, 30%, 25%, 64%, 19%, 19% and 37% for a weighted average return of 32%. Realized capital losses of $28 million resulted from exiting investments in four portfolio companies with compounded annual returns of 18%, 18%, -42% and 14%. Since the Company's August 1997 IPO, cumulative net capital losses total $7 million. Net unrealized depreciation totaled $62 million for 2002. Unrealized appreciation totaled $90 million at 21 portfolio companies. Unrealized appreciation was offset by $125 million of unrealized depreciation at 27 portfolio companies and $27 million of unrealized depreciation on interest rate swaps. Interest rate swaps are required by our loan agreements and asset securitizations to lock in interest rate spreads and reduce interest rate risks. They appreciate or depreciate based on relative interest rates. Their fair value will resolve to zero if held to maturity. Since the Company's August 1997 IPO, cumulative net depreciation totals $90 million, $58 million before the effect of interest rate swaps.
For the fourth quarter of 2002, American Capital realized net capital gains of $3 million primarily from investments at three portfolio companies. Net unrealized depreciation for the quarter was $15 million, which consisted of appreciation of $21 million at 11 portfolio companies, $1 million of appreciation on interest rate swaps, and $37 million of depreciation at 20 portfolio companies.
Since its August 1997 IPO, American Capital has invested approximately $1.6 billion in 85 portfolio companies. As of December 31, 2002, American Capital shareholders have enjoyed a total return of 126% since the Company's IPO -- an annualized return of 17%. This assumes reinvestment of $10.33 in dividends paid per share during this period. On January 30, 2003 American Capital declared a $0.67 per share dividend to be paid March 31, 2003 to record shareholders as of March 12, 2003.
Additional information may be found at here.
2003 Forecasts
Discussed below are American Capital's forecasts of results for 2003. The Company does not undertake to provide any additional disclosure regarding its expected forecasted results unless required by law.
American Capital believes the economy is positioned for slow growth in 2003 and that a double dip recession is unlikely, though it remains a risk in light of the potential for war and terrorist threats. At the same time, American Capital believes that the middle market economy is still typified by illiquidity and low valuations, but there are signs that liquidity is improving. The Company does not believe that it is making investments where its loans would be put seriously at risk by a double dip recession or a delay in further recovery of the economy. It is the Company's view that the investing environment continues to provide outstanding opportunities similar to the experience of the past two years. Among other things, multiples are low and debt financing remains constricted. The market continues to place a premium on the liquidity and certainty that American Capital's one-stop ability can often provide. The retrenchment of senior lenders creates opportunities for American Capital to close transactions by funding throughout the capital structure of a company. The substantial growth in new investments experienced by American Capital in 2002 results from these developments. As reflected in our 2003 forecasts below, it is our view that these conditions will persist throughout this year.
Included in the assumptions used in preparing the forecasts below are employee performance related compensation costs in excess of $12 million, evaluated and allocated by the Compensation and Compliance Committee of the Board of Directors among all employees. American Capital's ability to perform is greatly enhanced due to this variable cost.
Net Operating Income
As of the date of this release, American Capital believes it can achieve Net Operating Income (NOI) of $2.79 to $2.87 per share on a diluted basis for 2003 and a return on equity at cost (NOI divided by average shareholders' equity less unrealized appreciation and depreciation) between 15.0% and 16.0%. This projection is based on a number of factors, including those described below:
New Investments
American Capital estimates it will originate between $750 million and $850 million of new investments in 2003. The timing of the new investments is expected to be weighted toward the second half of the year and the yield on these new investments should be comparable with the yield achieved on investments in 2002. The amount of new investments will depend on the market for quality investments, American Capital's capital resources and its success at placing new investments.
Principal Repayments
American Capital forecasts principal repayments ranging from $250 million to $300 million, reflecting the greater portion of senior amortizing debt in our portfolio and the maturing of our portfolio as many portfolio companies are positioning to repay our loans or to sell or recapitalize their companies.
Net Capital Gains
American Capital forecasts $10 million to $30 million in net capital gains, reflecting the maturing of our portfolio as some portfolio companies are positioning to repay our loans or to sell or recapitalize their companies.
Loan Performance
American Capital estimates that from $65 million to $90 million of loans will on average be on non-accrual status with respect to interest payments.
New Employees
In order to manage the growth in the investment portfolio and prepare for growth in 2004, additional employees will be hired in 2003. American Capital anticipates increasing staff from 108 employees to between 130 and 142 employees in 2003, consisting of investment professionals, portfolio management professionals, marketing, technology support and administrative staff.
Certain Considerations
To achieve the growth noted above in new investments, American Capital will be required to raise additional debt and equity capital. The terms and timing of the future debt and equity issuances cannot be determined and there can be no assurances that the debt or equity markets will be available to the Company on terms it deems favorable. If capital is not available on favorable terms or at the timing as forecasted, American Capital would either have to raise debt or equity capital on unfavorable terms, unfavorable timing, reduce the volume of new investments, or exit existing investments. Any of these events could cause American Capital not to achieve these forecasts.
Forward-Looking Statements
The financial forecasts presented in this release contain statements concerning American Capital's beliefs. Additional risks and other risk factors are described in our filings with the Securities and Exchange Commission. We are not obligated to update our forward-looking statements and we may not. Forward-looking statements that we do not update generally will become less meaningful over time.
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)
|
December 31, 2002 |
December 31, 2001 |
| Assets: |
| Cash and cash equivalents |
$ 13,080 |
$ 14,168 |
Investments at fair value
(cost of $1,334,987 and $882,731, respectively) |
|
|
| Non-Control and Non-Affiliate investments |
557,490 |
492,172 |
| Control Investments |
671,141 |
361,055 |
| Affiliate Investments |
52,083 |
10,572 |
| Interest rate swaps |
(32,255) |
(5,533) |
| Total Investments at fair value |
1,248,459 |
858,266 |
| Interest receivable |
11,552 |
12,957 |
| Other |
45,432 |
18,793 |
|
| Total assets |
$ 1,318,523 |
$ 904,184 |
|
| Liabilities and Shareholders' Equity |
|
| Revolving credit facility |
$ 255,793 |
$ 147,646 |
| Notes payable |
364,171 |
103,495 |
| Accrued dividends payable |
869 |
3,420 |
| Other |
10,031 |
9,358 |
|
| Total liabilities |
630,864 |
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, 44,450 and 38,017 issued, and
43,469 and 38,017 outstanding, respectively |
435 |
380 |
| Capital in excess of par value |
812,150 |
699,291 |
| Notes receivable from sale of common stock |
(9,021) |
(27,143) |
| Distributions in excess of net realized earnings |
(25,718) |
(3,823) |
| Net unrealized depreciation of investments |
(90,187) |
(28,440) |
|
| Total shareholders' equity |
687,659 |
640,265 |
|
| Total liabilities and shareholders' equity |
$ 1,318,523 |
$ 904,184 |
|
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AMERICAN CAPITAL STRATEGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
|
Fourth Quarter 2002 |
Fourth Quarter 2001 |
Year Ended December 31, 2002 |
Year Ended December 31, 2001 |
| Operating income: |
| Interest and dividend income |
| Non-Control/Non-Affiliate investments |
16,225 |
11,717 |
61,416 |
44,354 |
| Control Investments |
15,696 |
12,274 |
59,017 |
42,452 |
| Affiliate Investments |
732 |
144 |
1,635 |
1,480 |
| Total interest and dividend income |
32,653 |
24,135 |
122,068 |
88,286 |
| Fees |
| Non-Control/Non-Affiliate investments |
5,214 |
4,305 |
9,422 |
7,234 |
| Control Investments |
3,057 |
1,789 |
15,073 |
8,646 |
| Affiliate Investments |
3 |
-- |
459 |
71 |
| Total fee income |
8,274 |
6,094 |
24,954 |
15,951 |
| Total operating income |
40,927 |
30,229 |
147,022 |
104,237 |
|
| Operating expenses |
| Interest |
5,142 |
1,839 |
14,321 |
10,343 |
| Salaries and benefits |
4,428 |
4,536 |
18,621 |
14,571 |
| General and administrative |
3,405 |
2,426 |
11,531 |
7,698 |
| Total operating expenses |
12,975 |
8,801 |
44,473 |
32,612 |
|
| Net operating income |
27,952 |
21,428 |
102,549 |
71,625 |
| Net realized (loss) gain on investments |
| Non-Control/Non-Affiliate investments |
2,910 |
5,651 |
(21,992) |
5,962 |
| Control Investments |
(37) |
-- |
1,091 |
-- |
| Affiliate Investments |
6 |
(593) |
160 |
(593) |
| Total net realized (loss) gain on investments |
2,879 |
5,058 |
(20,741) |
5,369 |
|
| Net unrealized appreciation (depreciation) of investments |
| Non-Control/Non-Affiliate investments |
7,575 |
(2,134) |
(11,765) |
(26,043) |
| Control Investments |
(23,223) |
(4,892) |
(49,726) |
(29,804) |
| Affiliate Investments |
533 |
(543) |
(256) |
(2,542) |
| Total net unrealized depreciation of investments |
(15,115) |
(7,569) |
(61,747) |
(58,389) |
|
Net increase in shareholders'
equity resulting from operations |
$ 15,716 |
$ 18,917 |
$ 20,061 |
$ 18,605 |
|
| Net operating income per common share: |
| Basic |
$ 0.67 |
$ 0.60 |
$ 2.60 |
$ 2.27 |
| Diluted |
$ 0.67 |
$ 0.59 |
$ 2.57 |
$ 2.24 |
|
| Earnings per common share: |
| Basic |
$ .38 |
$ .53 |
$ .51 |
$ .59 |
| Diluted |
$ .37 |
$ .52 |
$ .50 |
$ .58 |
|
Weighted average shares of common stock
outstanding: |
| Basic |
41,890 |
35,684 |
39,418 |
31,487 |
| Diluted |
41,978 |
36,254 |
39,880 |
32,001 |
|
| Dividends declared per share |
$ .69 |
$ .66 |
$ 2.57 |
$ 2.30 |
|
|
Portfolio Statistics
On a Weighted Average Basis*:
($ in millions) |
Aggregate |
2002
Static Pool |
2001
Static Pool |
2000
Static Pool |
1999
Static Pool |
Pre-1999
Static Pool |
Original Investments and
Commitments at Cost |
$ 1,588 |
$ 573 |
$ 390 |
$ 276 |
$ 178 |
$ 171 |
| Total Exits and Prepayments |
$ 219 |
$ 12 |
$ 38 |
$ 66 |
$ 22 |
$ 81 |
| Realized (Loss) Gain on Investments |
$ (7) |
$ -- |
$ 6 |
$ (25) |
$ 6 |
$ 6 |
Current Cost of Original
Investments |
$ 1,335 |
$ 504 |
$ 339 |
$ 202 |
$ 170 |
$ 120 |
| Fair Value of Investments |
$ 1,281 |
$ 517 |
$ 354 |
$ 159 |
$ 161 |
$ 90 |
| Non-Accruing Loans |
$ 73 |
$ -- |
$ 8 |
$ 24 |
$ 22 |
$ 19 |
|
| Interest Coverage |
2.7 |
3.2 |
2.2 |
2.6 |
3.0 |
2.1 |
| Debt Service Coverage |
1.9 |
2.3 |
1.5 |
1.7 |
1.7 |
1.5 |
| Debt to EBITDA |
5.1 |
4.3 |
5.0 |
5.5 |
5.1 |
9.6 |
| Investment Grade |
3.0 |
3.1 |
3.4 |
3.1 |
3.2 |
2.2 |
|
| Average Age of Companies** |
38 years |
35 years |
41 years |
35 years |
52 years |
36 years |
| Total Sales** |
$ 5,270 |
$ 1,189 |
$ 1,666 |
$ 645 |
$ 1,161 |
$ 609 |
| Average Sales** |
$93 |
$52 |
$145 |
$110 |
$109 |
$74 |
| Total EBITDA** |
$ 621 |
$ 191 |
$ 199 |
$ 110 |
$ 84 |
$ 37 |
| Average EBITDA** |
$13 |
$8 |
$18 |
$19 |
$14 |
$6 |
| Ownership Percentage** |
43% |
49% |
37% |
37% |
45% |
42% |
| % with Senior Lien*** |
24% |
18% |
44% |
10% |
12% |
28% |
| % with Senior or Junior Lien*** |
75% |
75% |
77% |
86% |
65% |
71% |
| Equity Interests at fair value |
$290 |
$117 |
$86 |
$33 |
$42 |
$11 |
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*These amounts do not include investments in which the Company owns only equity.
**Includes the Company's equity investments in Aerus, LLC (formerly Electrolux, LLC) and Baran Group, Ltd (formerly o2wireless Solutions, Inc.)
***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, February 12 at 11:00 am ET, during which a Shareholder Presentation will be made with accompanying slides. To view the accompanying slides go to www.ACAS.com and click on the February 12 Shareholder Call Slide Show button. Slides will be presented one at a time by American Capital as management makes its summary presentation. To hear the audio portion of the Shareholder Presentation, call 888-276-0007. International callers should dial 651-224-7497. Please advise the operator you are dialing in for the American Capital Shareholder Call.
Prior to the Shareholder Call, we encourage you to review the slides that will accompany the Shareholder Presentation by visiting our shareholder website at www.ACAS.com where you should click on the February 12 Shareholder Call Slide Show button. The accompanying slides will be available within several hours after the earnings release.
After the Shareholder Presentation, starting February 13, an archive will be available at www.ACAS.com of the complete streaming presentation with audio and accompanying slide show. In addition, the slide show only will be available in printable and downloadable versions and a downloadable spreadsheet with summary financial data will be available, all of which shareholders may review at their leisure.
For the further convenience of our shareholders, the audio only portion of the Shareholder Call will be available from 9:30 p.m. February 12 until 11:00 p.m. February 21. If you are interested in hearing the recording of the presentation, please dial 800-475-6701 and enter code 673201. International callers may dial 320-365-3844 and enter the same code, 673201.
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 with capital resources exceeding $1.5 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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