|American Capital Declares $0.73 Q4 Dividend, Reports Q3 Results|
Bethesda, MD - November 2, 2004 - American Capital Strategies Ltd. (Nasdaq:ACAS)announced today its Board of Directors has declared a fourth quarter 2004 regular dividend of $0.73 per share, payable on December 30, 2004 to record holders as of November 15, 2004. This dividend is a 6% increase over the fourth quarter 2003 regular dividend of $0.69 per share. American Capital has paid a total of $583 million in dividends and paid or declared $15.97 in dividends per share since its August 1997 IPO at $15.00 per share.
In addition, American Capital announced today its results for the quarter ended September 30, 2004. Net operating income (NOI) for the quarter increased 49% to $55 million compared to $37 million for third quarter 2003. On a diluted per share basis, NOI increased 2% to $0.67 per share compared to $0.66 per share for third quarter 2003. NOI before stock-based compensation expense for the quarter increased 52% to $57 million compared to the third quarter 2003. On a diluted per share basis, NOI before stock-based compensation expense for the quarter increased 3% to $0.70 per share. Comparisons to the prior year are impacted by a prescribed change in accounting method for the reporting of interest rate swap agreements adopted in the second quarter of 2004. Investors are encouraged to review the company's reports on Forms 10-Q for more information about this accounting change.
During 2004, American Capital has paid or declared $2.85 per share in dividends. American Capital reiterates its guidance of $2.88 to $3.00 per share in dividends for 2004 paid from ordinary income for tax purposes. As has been customary, American Capital expects to declare a bonus dividend in December. In addition, American Capital reiterates that realized gains in the fourth quarter are anticipated to cover net realized losses of $54 million in the first three quarters of 2004, excluding periodic interest rate swap settlements.
"Over the last twelve months, American Capital has increased shareholder equity from operations by $250 million, a $3.52 increase per diluted share," reported Chairman, CEO and President Malon Wilkus. "This is the result of a lot of hard work by our employees and an improving economic environment. It represents a 19% return on average net asset value per share, a terrific accomplishment. What's more impressive is that we've grown our equity investments in portfolio companies $478 million to $794 million, because we believe capital gains from these investments will propel our growth in the years to come. Another notable item for the quarter was the implementation of a 5% discount for shareholders that wish to reinvest their dividends through our Dividend Reinvestment Plan (DRIP). We note that many brokerage firms do not choose to allow their clients to receive this discount. Our investor relations team did a great job getting a number of brokerage firms to participate and we have included a list at the end of this release."
For the quarter, the net increase in shareholders' equity resulting from operations (NOI plus net appreciation and depreciation and net gains and losses of assets) was $61 million, or $0.74 per diluted share, for third quarter 2004, compared to $27 million, or $0.48 per diluted share, in third quarter 2003.
"We raised more than $1 billion of capital resources in the quarter and enhanced our financial flexibility with two new forms of capital," commented Chief Financial Officer John Erickson. "Our issuance of unsecured debt at investment grade pricing levels has given us access to another source of capital and demonstrates the maturity of American Capital. Investment grade pricing is generally available only to companies with solid track records and substantial capitalization. We also entered into an equity forward agreement with several of our underwriters that will allow us to operate closer to our regulatory limit of 1 to 1 debt to equity, since we now have committed access to equity when we need it. This should allow us to generate higher earnings and dividends for our shareholders without increasing our risk. It was a landmark quarter for enhancing our balance sheet."
In third quarter 2004, American Capital invested $492 million, composed of $186 million of senior debt, $243 million of subordinated debt, $20 million of preferred stock, $2 million of common stock warrants and $41 million of common stock. Included in the $492 million of new investments are $13 million of senior debt investments that were subsequently sold during the quarter. One investment, totaling $43 million, was in an American Capital-sponsored buyout of a new portfolio company. Twelve investments, totaling $387 million, were in buyouts led by private equity firms. One investment, totaling $18 million, was a direct investment in one portfolio company. Three investments, totaling $10 million, were in investments in existing portfolio companies to finance strategic acquisitions. Two investments, totaling $22 million, were in investments in existing portfolio companies for growth or recapitalizations. Seven investments, totaling $12 million, were for working capital for existing portfolio companies, including $8 million of distress-related investments. Total invested assets at fair value increased 42% to $2.8 billion at September 30, 2004 as compared to $1.9 billion at December 31, 2003.
"The M&A market remains very active, with transactions increasing in our market by approximately 30% year over year based on our in-house proprietary database," said COO Ira Wagner. "We have invested $1.3 billion through the end of the third quarter, testimony to the solid relationships we have developed with a widening circle of private equity firms. We have now closed transactions with 57 private equity firms. This speaks to the significant franchise we have built; a powerful combination of extensive deal sourcing, thorough and timely due diligence, and a first class execution culture that serves our marketplace extremely well. Despite the solid quarter for investment activity with private equity firms, we closed fewer American Capital led buyouts than we anticipated at the beginning of the quarter as a result of maintaining our investment discipline."
The weighted average effective interest rate on American Capital's total investments in debt securities as of September 30, 2004 was 12.7%. At September 30, 2004, the weighted average loan grade of American Capital's loan portfolio remained at 3.0 on a scale of 1 to 4, with 4 being the highest quality. As of September 30, 2004, loans in nine portfolio companies totaling $116 million, with a fair value of $48 million, were on non-accrual. Delinquent and non-accruing loans totaled $147 million, or 7% of total loans, at September 30, 2004 compared to $164 million, or 10% of total loans, at December 31, 2003. American Capital's net asset value per share increased $2.35 from December 31, 2003 to $20.18 at September 30, 2004.
In the third quarter of 2004, American Capital recorded $6 million in total net appreciation, depreciation, gains and losses, or $21 million on portfolio company assets (excluding interest rate swap agreements). This includes net losses of $12 million, comprised of $3 million of gross gains on portfolio investments, $10 million of gross losses on portfolio investments and $5 million of net losses attributable to periodic interest settlements of interest rate swap agreements. Since the Company's August 1997 IPO, cumulative net losses on portfolio company assets have totaled $39 million, not including $14 million from periodic interest rate swap payments.
From its 1997 IPO through the third quarter of 2004, American Capital's annual rate of net loss on portfolio company assets (excluding interest rate swap agreements) was 1.7% of equity based on American Capital's average annual net appreciation, depreciation, gains and losses divided by American Capital's average equity. From American Capital's IPO through the second quarter of 2004, American Capital compares favorably to FDIC insured banks that experienced net losses of more than twice that rate or 5.0% of equity (based on the average annual equity capital and net charge-offs per the FDIC Quarterly Banking Profile data).
In third quarter 2004, net appreciation totaled $18 million, consisting of net appreciation of $19 million from current portfolio companies ($65 million of appreciation at 17 portfolio companies and $46 million of depreciation at 12 portfolio companies), $9 million of net appreciation resulting from the recognition of net losses and $10 million of depreciation on interest rate derivative agreements (consisting of $10 million depreciation attributable to the change in the fair value of the future payment stream and $0.3 million appreciation for the decrease in accrued current periodic interest rate swap payments). Interest rate derivative agreements are required by American Capital's loan agreements and asset securitizations to lock in interest rate spreads on the securitized investments and reduce interest rate risk. Their fair values appreciate or depreciate based on relative market interest rates and their remaining term to maturity. Since the Company's August 1997 IPO, cumulative net depreciation plus net losses totals $87 million, or $52 million on portfolio company assets (excluding interest rate derivative agreements) at September 30, 2004.
Since its August 1997 IPO through third quarter 2004, American Capital has earned a 15% compounded annual return on 75 exits and prepayments of senior debt, subordinated debt and equity investments, totaling $1.1 billion of invested capital, including interest payments, dividends, fees and net gains on these investments. These exits and prepayments represent 28% of all amounts invested by American Capital since its August 1997 IPO. Proceeds from these exits and prepayments exceeded the associated prior quarter valuation of the investments by $38 million in aggregate, or 4%. Twenty-two percent of these exits and prepayments were from portfolio companies that had at one time been either a loan grade 1 or 2 in American Capital's four point loan grading system, with 1 being the lowest loan grade. Since its IPO through the third quarter of 2004, $34 million of American Capital's accrued payment-in-kind (PIK) interest and dividends and accreted original issue discount (OID) have been repaid, representing 22% of all PIK and OID.
ENGAGEMENT OF HOULIHAN LOKEY HOWARD AND ZUKIN
For the third quarter of 2004, Houlihan Lokey reviewed the Company's valuations of 22 American Capital portfolio company investments having $521 million in fair value as reflected in American Capital's financial statements as of September 30, 2004. Using methods and techniques that are customary for the industry and that Houlihan Lokey considers appropriate under the circumstances, Houlihan Lokey determined that the aggregate fair value assigned to the portfolio company investments by American Capital was within their reasonable range of aggregate value for such companies. Over the last four quarters, Houlihan Lokey has reviewed 82 portfolio companies totaling $1.8 billion in fair value as of their respective valuation dates.
Financial highlights for the quarter are as follows:
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
American Capital provides disclosure of NOI before stock-based compensation because it is useful and relevant to investors as it is an important measure of how we internally evaluate our operating results. Disclosure of NOI before stock-based compensation is not a substitute for NOI or any other measure as prescribed by generally accepted accounting principles (GAAP). The following is a reconciliation of NOI before stock-based compensation expense to NOI:
RECONCILIATION OF NET OPERATING INCOME BEFORE STOCK-BASED COMPENSATION
EXPENSE TO NET OPERATING INCOME
(In thousands, except per share data)
(1)Static pool classification is based on the year the initial investment was made. Subsequent add-on investments are included in the static pool year of the original investment.
ADDITIONAL DIVIDEND INFORMATION
In appreciation of the loyal support of our shareholders, American Capital has amended the Dividend Reinvestment Plan to grant a 5% discount to the market price for reinvested dividends. Brokerages that have confirmed participation in the amended DRIP include:
A summary of American Capital's dividend history follows. For further dividend history, please visit our website. For more information regarding this Plan, please visit our website or call our Shareholder Relations Department at (301) 951-6122.
$15.97 Declared Since August 1997 IPO at $15.00 Per Share
American Capital invites shareholders, prospective shareholders and analysts to attend the American Capital Shareholder Call on Wednesday, November 3 at 11:00 am ET. The dial in number will be (800) 230-1092. International callers should dial (612) 288-0318. Please advise the operator you are dialing in for the American Capital Shareholder Call.
BEFORE THE CALL:
DURING THE CALL:
AFTER THE CALL:
AUDIO ONLY PRESENTATION AVAILABLE AFTER THE SHAREHOLDER CALL:
For further information or questions, please do not hesitate to call our Shareholder Relations department at (301) 951-6122.
Since its August 1997 IPO, American Capital has invested over $3.9 billion in 143 portfolio companies. As of October 31, 2004, American Capital shareholders have enjoyed a total return of 287% since the Company's IPO - an annualized return of 20.7%, assuming reinvestment of dividends. American Capital has paid a total of $583 million in dividends and paid or declared $15.97 dividends per share since its August 1997 IPO at $15 per share.
American Capital is a publicly traded buyout and mezzanine fund with capital resources of approximately $4.3 billion. American Capital is an investor in and sponsor of management and employee buyouts, invests in private equity 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 and Senior Vice President, Business Development, at (800) 248-9340, or visit our website.
SOURCE: American Capital Ltd.http://www.americancapital.com
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