American Capital Increases Dividend 9% to $0.82 Reports $0.77 NOI and $1.35 Earnings Per Basic Share in Q1 2006
Bethesda, MD - May 2, 2006 - American Capital Strategies Ltd. (Nasdaq:ACAS) its second quarter 2006 dividend and its results for the first quarter of 2006.
2006 Q2 DIVIDEND DECLARATION
American Capital's Board of Directors has declared a second quarter 2006 regular dividend of $0.82 per share to record holders as of May 30, 2006, payable on July 5, 2006. This dividend is a 9% increase over the second quarter 2005 regular dividend of $0.75 per share. American Capital has paid a total of $1.1 billion in dividends and paid or declared dividends of $20.73 per share since its August 1997 IPO at $15.00 per share. Also, American Capital has reiterated its 2006 dividend guidance of $3.29 per share from ordinary taxable income earned in 2006. The estimated remaining 2006 dividends per share are $0.83 for the third quarter of 2006 and $0.84 for the fourth quarter of 2006.
FIRST QUARTER 2006 RESULTS
In addition, American Capital announced today its results for the quarter ended March 31, 2006. Net operating income (NOI) for the quarter increased 45% to $93 million compared to $64 million for first quarter of 2005. On a basic per share basis, NOI increased 8% to $0.77 per share compared to $0.71 per share in the first quarter of 2005. On a diluted per share basis, NOI increased 10% to $0.77 per share compared to $0.70 per share for the first quarter of 2005. First quarter 2006 dividends were $0.80 per share, a 10% growth over first quarter 2005 dividends of $0.73 per share. American Capital's net asset value per share at March 31, 2006 was $25.30, a $0.93 or 4% growth over the December 31, 2005 net asset value per share of $24.37, and $3.46 or 16% over the March 31, 2005 net asset value per share of $21.84.
For the quarter, the net increase in net assets resulting from operations (NOI plus the cumulative effect of an accounting change and net appreciation and depreciation and net gains and losses on investments) was $162 million, or $1.35 per basic share and $1.34 per diluted share, compared to $112 million, or $1.25 per basic share and $1.22 per diluted share, in the first quarter of 2005.
"We earned $1.35 per basic share for the first quarter and we grew our net operating income per basic share 8% over the first quarter of 2005," said Malon Wilkus, American Capital Chairman, President and CEO. "Those results for our typically lowest performing quarter of the year place us right on plan to achieve our annual goals. We experienced substantial appreciation in the portfolio, in part due to our Dallas-based energy group leading an investment in the first quarter in ASAlliances Biofuels LLC, a firm that is expected to be the third largest producer of ethanol by early 2008. Due to developments in the ethanol and energy markets as well as the valuation of comparable companies, we determined that our investment in ASAlliances Biofuels had nearly doubled in value during the quarter. We are very excited about the prospects for the ethanol industry and our opportunity to participate in its growth through ASAlliances Biofuels."
In the first quarter of 2006, American Capital invested $697 million of committed capital. Also in the first quarter of 2006, American Capital received $369 million of proceeds from exits of portfolio investments.
"The middle market buyout and mezzanine business remains extremely fragmented with attractive investment opportunities for investors. We're pursuing those opportunities while continuing to be highly selective and maintaining our investment discipline," said Ira Wagner, Chief Operating Officer. "Based on our proprietary database of middle market transactions, during 2005 the 20 most active investors other than American Capital made investments in 175 companies. American Capital had the opportunity to review only 48 of those investment opportunities, or 27%. Of the 48 opportunities that we reviewed, we elected not to bid on 29, and we were outbid on the remaining 19. Our market continues to be extremely fragmented with over 600 firms making zero, one or two investments in 2005. We continue to believe that there are opportunities to grow our business and rationalize our industry."
In the first quarter of 2006, American Capital recorded $43 million in portfolio net realized gains and $1 million in net realized gains attributable to interest rate derivatives. In the first quarter of 2006, net unrealized appreciation totaled $24 million, consisting of gross appreciation of $159 million from 29 portfolio companies, $119 million of gross depreciation from 22 portfolio companies, $37 million resulting from the recognition of net realized gains and $21 million of net appreciation on interest rate derivatives.
The weighted average effective interest rate on American Capital's total investments in debt securities as of March 31, 2006 was 12.7%. At March 31, 2006, the weighted average loan grade of American Capital's loan portfolio was 3.1 on a scale of 1 to 4, with 4 being the highest quality, compared to 3.1 as of March 31, 2005. As of March 31, 2006, loans to 14 portfolio companies totaling $177 million, with a fair value of $55 million, were on non-accrual. Delinquent and non-accruing loans totaled $245 million, or 7% of total loans, at March 31, 2006, compared to $120 million, or 5% of total loans, at March 31, 2005.
"Our portfolio continues to perform well. We have achieved an 18% IRR on the nearly $3 billion of exits and repayments we have experienced since our IPO and our 2001-2006 static pools have experienced $199 million in net realized gains and $78 million in net unrealized appreciation, totaling a 20% IRR, including interest, dividends and fees," said Chief Financial Officer John Erickson. "In the first quarter, our portfolio investments had $43 million of net realized gains and $40 million in net unrealized appreciation. Our net gains on our investments during the quarter have helped our book value per share grow by 4%, or $0.93, to $25.30 per share this quarter and 16%, or $3.46, over the past year. We paid a $0.80 per share dividend for the quarter so shareholders have received $1.73 of return including both the dividend and growth in book value. Strong economic growth and the rising interest rate environment, which we have been experiencing over the past two years, should generally be positive factors for our investment portfolio and I think that is demonstrated by our results."
Since its August 1997 IPO through first quarter 2006, American Capital has earned an 18% compounded annual return, including interest, dividends, fees and net gains, on 124 exits and prepayments of senior debt, subordinated debt and equity investments, totaling $2.9 billion of invested capital. These exits and prepayments represent 31% 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 $50 million in aggregate, or 2%. Eighteen 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 first quarter of 2006, $82 million of American Capital's PIK interest and dividends and accreted OID have been repaid, representing 28% of all PIK and OID recorded.
THIRD PARTY VALUATION OF PORTFOLIO INVESTMENTS
American Capital's Board of Directors is responsible for determining the fair value of American Capital's portfolio investments on a quarterly basis. In that regard, the board has retained Houlihan Lokey Howard & Zukin Financial Advisors Inc. ("Houlihan Lokey") to assist it by having Houlihan Lokey regularly review a designated percentage of our fair value determinations. Houlihan Lokey is a leading valuation firm in the U.S., engaged in approximately 1,000 valuation assignments per year for clients worldwide. Each quarter, Houlihan Lokey reviews American Capital's determination of the fair value of approximately 25% of its portfolio company investments that have been portfolio companies for at least one year and that have a fair value in excess of $10 million. In the first quarter of 2006, Houlihan Lokey reviewed valuations of 21 portfolio company investments having an aggregate $730 million in fair value as of the period end. Over the last four quarters, Houlihan Lokey has reviewed 96 portfolio companies totaling $3.2 billion in fair value as of their respective valuation dates. In addition, Houlihan Lokey representatives attend American Capital's quarterly valuation meetings and provide periodic reports and recommendations to the Audit and Compliance Committee of the Board of Directors.
For those portfolio company investments that Houlihan Lokey has reviewed during the applicable period using the scope of review set forth by American Capital's Board of Directors, the Board has made a fair value determination that is within the aggregate range of fair value for such investments as determined by Houlihan Lokey.
In addition to its standard scope, American Capital engaged Houlihan Lokey to review the value of ASAlliances Biofuels, since American Capital determined that its fair value had risen significantly in the quarter in which the investment was made. The fair value of this investment as determined by American Capital's Board is within the range of fair value for the investment as determined by Houlihan Lokey.
Financial highlights for the quarter are as follows:
AMERICAN CAPITAL STRATEGIES, LTD.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2006, DECEMBER 31, 2005 AND MARCH 31, 2005
(in thousands, except per share data)
Q1 2006 Versus
Q1 Q4 Q4 2005
2006 2005 $ %
(unaudited) (unaudited)
Assets
Investments at fair value (cost
of $5,501,929, $5,134,398 and
$3,564,547, respectively)
Non-Control/Non-Affiliate
investments $2,502,646 $2,135,795 $366,851 17%
Affiliate investments 421,029 449,026 (27,997) -6%
Control investments 2,547,933 2,516,282 31,651 1%
Government securities - - - 0%
Interest rate derivatives 41,622 18,132 23,490 130%
Total investments at fair value 5,513,230 5,119,235 393,995 8%
Cash and cash equivalents 67,830 97,134 (29,304) -30%
Restricted cash 84,030 121,772 (37,742) -31%
Interest receivable 34,585 32,668 1,917 6%
Other 100,467 78,300 22,167 28%
Total assets $5,800,142 $5,449,109 $351,033 6%
Liabilities and Shareholders'
Equity
Debt $2,519,082 $2,466,860 $ 52,222 2%
Interest rate derivatives 4,670 2,140 2,530 118%
Accrued dividends payable 96,601 3,574 93,027 2603%
Other 58,839 78,898 (20,059) -25%
Total liabilities 2,679,192 2,551,472 127,720 5%
Commitments and contingencies
Shareholders' equity:
Undesignated preferred stock,
$0.01 par value, 5,000 shares
authorized, 0 issued and
outstanding - - - 0%
Common stock, $0.01 par value,
200,000 shares authorized,
123,575, 119,123 and 90,977
issued and 123,364, 118,913
and 90,977 outstanding,
respectively 1,234 1,189 45 4%
Capital in excess of par value 3,100,242 2,942,814 157,428 5%
Notes receivable from sale of
common stock (6,655) (6,655) - 0%
Undistributed (distributions
in excess of) net realized
earnings 19,498 (22,408) 41,906 187%
Net unrealized appreciation
(depreciation) of investments 6,631 (17,303) 23,934 138%
Total shareholders' equity 3,120,950 2,897,637 223,313 8%
Total liabilities and
shareholders' equity $5,800,142 $5,449,109 $351,033 6%
Net asset value per share $ 25.30 $ 24.37 $ 0.93 4%
Q1 Q1 2006 Versus Q1 2005
2005 $ %
(unaudited) (unaudited)
Assets
Investments at fair value (cost of
$5,501,929, $5,134,398 and
$3,564,547, respectively)
Non-Control/Non-Affiliate investments $1,202,665 $1,299,981 108%
Affiliate investments 436,219 (15,190) -3%
Control investments 1,834,203 713,730 39%
Government securities 99,938 (99,938) -100%
Interest rate derivatives 8,135 33,487 412%
Total investments at fair value 3,581,160 1,932,070 54%
Cash and cash equivalents 90,117 (22,287) -25%
Restricted cash 69,787 14,243 20%
Interest receivable 29,405 5,180 18%
Other 49,311 51,156 104%
Total assets $3,819,780 $1,980,362 52%
Liabilities and Shareholders' Equity
Debt $1,738,033 $ 781,049 45%
Interest rate derivatives 5,603 (933) -17%
Accrued dividends payable 65,817 30,784 47%
Other 23,172 35,667 154%
Total liabilities 1,832,625 846,567 46%
Commitments and contingencies
Shareholders' equity:
Undesignated preferred stock, $0.01
par value, 5,000 shares authorized,
0 issued and outstanding - - 0%
Common stock, $0.01 par value, 200,000
shares authorized, 123,575, 119,123
and 90,977 issued and 123,364,
118,913 and 90,977 outstanding,
respectively 910 324 36%
Capital in excess of par value 2,042,196 1,058,046 52%
Notes receivable from sale of common
stock (6,825) 170 2%
Undistributed (distributions in
excess of) net realized earnings (60,136) 79,634 132%
Net unrealized appreciation
(depreciation) of investments 11,010 (4,379) -40%
Total shareholders' equity 1,987,155 1,133,795 57%
Total liabilities and shareholders'
equity $3,819,780 $1,980,362 52%
Net asset value per share $ 21.84 $ 3.46 16%
AMERICAN CAPITAL STRATEGIES, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2006 and March 31, 2005
(in thousands, except per share data
(unaudited))
Q1 2006 Versus
Q1 Q1 Q1 2005
2006 2005 $ %
OPERATING INCOME:
Interest and dividend income
Non-Control/Non-Affiliate
investments $ 67,560 $ 36,353 $ 31,207 86%
Affiliate investments 11,579 12,516 (937) -7%
Control investments 51,986 37,549 14,437 38%
Total interest and dividend income 131,125 86,418 44,707 52%
Fee and Other Income
Non-Control/Non-Affiliate investments 17,894 2,604 15,290 587%
Affiliate investments 328 1,833 (1,505) -82%
Control investments 23,831 10,000 13,831 138%
Total fee and other income 42,053 14,437 27,616 191%
Total operating income 173,178 100,855 72,323 72%
OPERATING EXPENSES:
Interest 35,982 17,346 18,636 107%
Salaries, benefits and stock-based
compensation 23,215 12,312 10,903 89%
General and administrative 15,417 6,285 9,132 145%
Total operating expenses 74,614 35,943 38,671 108%
OPERATING INCOME BEFORE INCOME TAXES 98,564 64,912 33,652 52%
Provision for income taxes (5,668) (1,025) (4,643) -453%
NET OPERATING INCOME 92,896 63,887 29,009 45%
Net realized gain (loss) on investments
Non-Control/Non-Affiliate investments 4,684 1,888 2,796 148%
Affiliate investments 4,550 752 3,798 505%
Control investments 33,440 5,481 27,959 510%
Interest rate derivatives 1,524 (3,295) 4,819 146%
Total net realized gain on
investments 44,198 4,826 39,372 816%
Net unrealized appreciation
(depreciation) of investments
Portfolio company investments 2,974 24,717 (21,743) -88%
Interest rate derivative periodic
payment accrual (1,311) (280) (1,031) -368%
Interest rate derivatives 22,271 18,530 3,741 20%
Total net unrealized
appreciation of investments 23,934 42,967 (19,033) -44%
Total net gain on investments 68,132 47,793 20,339 43%
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 161,028 111,680 49,348 44%
Cumulative effect of accounting
change, net of tax (1) 1,026 - 1,026 100%
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $162,054 $111,680 $ 50,374 45%
NET OPERATING INCOME PER COMMON SHARE:
Basic $ 0.77 $ 0.71 $ 0.06 8%
Diluted $ 0.77 $ 0.70 $ 0.07 10%
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE:
Basic $ 1.34 $ 1.25 $ 0.09 7%
Diluted $ 1.33 $ 1.22 $ 0.11 9%
NET EARNINGS PER COMMON SHARE:
Basic $ 1.35 $ 1.25 $ 0.10 8%
Diluted $ 1.34 $ 1.22 $ 0.12 10%
WEIGHTED AVERAGE SHARES OF COMMON
STOCK OUTSTANDING:
Basic 119,866 89,534 30,332 34%
Diluted 121,086 91,401 29,685 32%
DIVIDENDS DECLARED PER COMMON SHARE $ 0.80 $ 0.73 $ 0.07 10%
(1) Effective January 1, 2006, American Capital adopted FASB Statement No.
123 (revised 2004), "Share-Based Payment," a revision to FASB
Statement No. 123 ("SFAS 123R"). American Capital had adopted SFAS
123R using the "modified prospective" method. Effective January 1,
2003, American Capital adopted the fair-value-based method of
accounting for stock-based compensation plans for all stock options
granted in 2003 and forward as permitted under FASB Statement No. 148.
All of American Capital's stock options granted prior to January 1,
2003, which were accounted for under APB No. 25 and not expensed in
the consolidated statements of operations, were fully vested as of
January 1, 2006 and therefore, no additional stock compensation costs
for those stock option grants will be recorded as a result of the
adoption of SFAS 123R. Under FASB Statement No. 123, American Capital
elected to adjust compensation costs for forfeitures when the unvested
awards were actually forfeited. Under SFAS 123R, American Capital is
required to estimate forfeitures of unvested awards when recognizing
compensation cost. Upon the adoption of SFAS 123R, American Capital
recorded a cumulative effect of an accounting change for an adjustment
to compensation costs recognized in prior periods to record
forfeitures based on the amounts that would have been estimated during
those periods.
AMERICAN CAPITAL STRATEGIES, LTD.
OTHER FINANCIAL INFORMATION
Quarter Ended March 31, 2006, December 31, 2005 and March 31, 2005
(dollars in thousands)
(unaudited)
Q1 2006 Versus Q4
Q1 Q4 2005
2006 2005 $ %
New Investments:
Senior Debt $189,870 $382,850 $(192,980) -50%
Subordinated Debt 159,117 193,390 (34,273) -18%
Preferred Equity 164,836 169,886 (5,050) -3%
Common Equity 52,955 64,477 (11,522) -18%
Common Equity warrants 22,817 86,715 (63,898) -74%
CMBS Investments 73,321 80,512 (7,191) -9%
CDO Investments 34,170 - 34,170 100%
Total $697,086 $977,830 $(280,744) -29%
American Capital Sponsored
Buyouts $404,800 $564,771 $(159,971) -28%
Financing for Private Equity
Buyouts 15,000 121,750 (106,750) -88%
Direct Investments 12,000 - 12,000 100%
CMBS Investments 73,321 80,512 (7,191) -9%
CDO Investments 34,170 - 34,170 100%
Add-on Financing for
Acquisitions 140,095 20,319 119,776 589%
Add-on Financing for
Recapitalizations 8,000 183,688 (175,688) -96%
Add-on Financing for Growth 1,500 - 1,500 100%
Add-on Financing for Working
Capital in Distressed
Situations 8,200 2,790 5,410 194%
Add-on Financing for Working
Capital - 4,000 (4,000) -100%
Total $697,086 $977,830 $(280,744) -29%
Exits and Repayments:
Scheduled Principal
Amortization $ 13,705 $ 16,990 $ (3,285) -19%
Senior Loan Sales 42,607 174,037 (131,430) -76%
Principal Prepayments 205,779 258,536 (52,757) -20%
Payment of Accrued Payment-in-
kind Interest and Dividends
and Original Issue Discount 7,596 13,971 (6,375) -46%
Sale of Equity Investments 98,842 81,239 17,603 22%
Total $368,529 $544,773 $(176,244) -32%
Appreciation, Depreciation,
Gains and Losses:
Gross Realized Gains $ 58,905 $ 69,973 $ (11,068) -16%
Gross Realized Losses (16,231) (64,288) 48,057 75%
Portfolio Net Realized
Gains 42,674 5,685 36,989 651%
Net Realized Gains (Losses)
From Interest Rate Derivatives 1,524 (825) 2,349 285%
Net Realized Gains 44,198 4,860 39,338 809%
Gross Unrealized Appreciation
at 29, 20, and 24 Portfolio
Companies 159,526 54,628 104,898 192%
Gross Unrealized Depreciation
at 22, 11 and 23 Portfolio
Companies (119,054) (78,807) (40,247) -51%
Current Portfolio Net
Unrealized Appreciation
(Depreciation) 40,472 (24,179) 64,651 267%
Net Depreciation From the
Recognition of Net Realized
Gains (37,498) (2,987) (34,511) -1155%
Interest Rate Derivatives 20,960 11,568 9,392 81%
Net Unrealized Appreciation
(Depreciation) of
Investments 23,934 (15,598) 39,532 253%
Net Appreciation,
Depreciation, Gains and
Losses $ 68,132 $(10,738) $ 78,870 734%
Other Financial Data:
Weighted Average Effective
Interest Rate on Debt
Investments 12.7% 12.8%
Weighted Average Loan Grade 3.1 3.1
Loans on Non-Accrual at Face $177,341 $132,330 $ 45,011 34%
Loans on Non-Accrual at Fair
Value $ 54,789 $ 48,304 $ 6,485 13%
Past Due Loans at Face $ 67,594 $ 53,675 $ 13,919 26%
Past Due and Non-Accrual Loans
as a Percentage of Total Loans 7% 5%
Number of Portfolio Companies
on Non-Accrual and Past Due 15 14
LTM Net Operating Income Return
on Average Equity at Cost 13.4% 13.6%
LTM Net Earnings Return on
Average Equity 16.3% 15.9%
Current Quarter Net Operating
Income Return on Average Equity
at Cost Annualized 12.3% 13.3%
Current Quarter Net Earnings
Return on Average Equity
Annualized 21.5% 11.8%
Q1 Q1 2006 Versus Q1 2005
2005 $ %
New Investments:
Senior Debt $ 188,570 $ 1,300 1%
Subordinated Debt 146,270 12,847 9%
Preferred Equity 22,374 142,462 637%
Common Equity 28,759 24,196 84%
Common Equity warrants 440 22,377 5086%
CMBS Investments - 73,321 100%
CDO Investments 19,434 14,736 76%
Total $ 405,847 $ 291,239 72%
American Capital Sponsored Buyouts $ 137,915 $ 266,885 194%
Financing for Private Equity
Buyouts 129,700 (114,700) -88%
Direct Investments 60,311 (48,311) -80%
CMBS Investments - 73,321 100%
CDO Investments 19,434 14,736 76%
Add-on Financing for Acquisitions 29,117 110,978 381%
Add-on Financing for
Recapitalizations 2,350 5,650 240%
Add-on Financing for Growth 5,000 (3,500) -70%
Add-on Financing for Working
Capital in Distressed Situations 2,790 5,410 194%
Add-on Financing for Working
Capital 19,230 (19,230) -100%
Total $ 405,847 $ 291,239 72%
Exits and Repayments:
Scheduled Principal Amortization $ 11,389 $ 2,316 20%
Senior Loan Sales 47,305 (4,698) -10%
Principal Prepayments 112,777 93,002 82%
Payment of Accrued Payment-in-
kind Interest and Dividends and
Original Issue Discount 4,435 3,161 71%
Sale of Equity Investments 11,331 87,511 772%
Total $ 187,237 $ 181,292 97%
Appreciation, Depreciation, Gains
and Losses:
Gross Realized Gains $ 8,897 $ 50,008 562%
Gross Realized Losses (776) (15,455) -1992%
Portfolio Net Realized Gains 8,121 34,553 425%
Net Realized Gains (Losses) From
Interest Rate Derivatives (3,295) 4,819 146%
Net Realized Gains 4,826 39,372 816%
Gross Unrealized Appreciation at
29, 20, and 24 Portfolio Companies 75,343 84,183 112%
Gross Unrealized Depreciation at
22, 11 and 23 Portfolio Companies (41,891) (77,163) -184%
Current Portfolio Net
Unrealized Appreciation
(Depreciation) 33,452 7,020 21%
Net Depreciation From the
Recognition of Net Realized Gains (8,735) (28,763) -329%
Interest Rate Derivatives 18,250 2,710 15%
Net Unrealized Appreciation
(Depreciation) of
Investments 42,967 (19,033) -44%
Net Appreciation,
Depreciation, Gains and
Losses $ 47,793 $ 20,339 43%
Other Financial Data:
Weighted Average Effective
Interest Rate on Debt Investments 13.0%
Weighted Average Loan Grade 3.1
Loans on Non-Accrual at Face $ 108,555 $ 68,786 63%
Loans on Non-Accrual at Fair Value $ 53,476 $ 1,313 2%
Past Due Loans at Face $ 11,251 $ 56,343 501%
Past Due and Non-Accrual Loans as
a Percentage of Total Loans 5%
Number of Portfolio Companies on
Non-Accrual and Past Due 10
LTM Net Operating Income Return
on Average Equity at Cost 13.9%
LTM Net Earnings Return on
Average Equity 21.6%
Current Quarter Net Operating
Income Return on Average Equity
at Cost Annualized 13.2%
Current Quarter Net Earnings
Return on Average Equity Annualized 23.1%
Portfolio Statistics (1) Static Pool
($ in millions, unaudited):
Pre-1999 1999 2000 2001 2002 2003
Original Investments and
Commitments $ 375 $ 380 $ 389 $ 368 $ 939 $1,316
Total Exits and Prepayments
of Original Investments $ 141 $ 191 $ 226 $ 258 $ 404 $ 701
Total Interest, Dividends
and Fees Collected $ 132 $ 129 $ 89 $ 142 $ 226 $ 263
Total Net Realized (Loss)
Gain on Investments $ (19) $ (22) $ (75) $ 49 $ 16 $ 120
Internal Rate of Return(2) 9.1% 4.9% 4.6% 22.9% 10.7% 25.7%
Current Cost of Investments $ 192 $ 175 $ 180 $ 92 $ 488 $ 625
Current Fair Value of
Investments $ 160 $ 93 $ 186 $ 78 $ 406 $ 689
Net Unrealized
Appreciation/(Depreciation) $ (32) $ (82) $ 6 $ (14) $ (82) $ 64
Non-Accruing Loans at Face $ 12 $ 30 $ - $ 29 $ 75 $ 10
Equity Interest at
Fair Value $ 19 $ 7 $ 44 $ 40 $ 77 $ 296
Debt to EBITDA(3)(4)(5) 7.4 8.3 4.8 4.3 7.0 4.8
Interest Coverage(3)(5) 1.5 1.7 2.7 1.7 2.1 2.3
Debt Service Coverage(3)(5) 1.4 1.4 1.9 1.3 1.7 1.8
Loan Grade(3)(5) 2.8 1.9 3.3 3.2 2.4 3.2
Average Age of Companies 39 yrs 54 yrs 28 yrs 38 yrs 34 yrs 15 yrs
Ownership Percentage 88% 70% 24% 66% 56% 70%
Average Sales(5)(6) $ 101 $ 68 $ 116 $ 176 $ 89 $ 107
Average EBITDA(5)(7) $ 6 $ 6 $ 32 $ 19 $ 10 $ 22
Total Sales(5)(6) $ 463 $ 397 $ 354 $1,763 $1,120 $1,474
Total EBITDA(5)(7) $ 37 $ 29 $ 79 $ 163 $ 104 $ 301
% of Senior Loans(5)(8) 49% 50% 58% 23% 58% 46%
% of Loans with Lien(5)(8) 65% 50% 85% 100% 99% 97%
Portfolio Statistics (1) Static Pool 2001-2006
($ in millions, unaudited): 2004 2005 2006 Aggregate Aggregate
Original Investments and
Commitments $1,632 $3,159 $ 542 $ 9,100 $ 7,956
Total Exits and Prepayments
of Original Investments $ 472 $ 468 $ - $ 2,861 $ 2,303
Total Interest, Dividends
and Fees Collected $ 246 $ 195 $ 22 $ 1,444 $ 1,094
Total Net Realized (Loss)
Gain on Investments $ 9 $ 5 $ - $ 83 $ 199
Internal Rate of Return(2) 19.1% 20.7% 997.7% 15.3% 20.0%
Current Cost of Investments $1,121 $2,187 $ 442 $ 5,502 $ 4,955
Current Fair Value of
Investments $1,166 $2,219 $ 475 $ 5,472 $ 5,033
Net Unrealized
Appreciation/(Depreciation) $ 45 $ 32 $ 33 $ (30) $ 78
Non-Accruing Loans at Face $ 16 $ 5 $ - $ 177 $ 135
Equity Interest at Fair Value $ 393 $ 943 $ 232 $ 2,051 $ 1,981
Debt to EBITDA(3)(4)(5) 4.6 4.6 4.6 5.0 4.8
Interest Coverage(3)(5) 2.2 2.3 1.8 2.2 2.2
Debt Service Coverage(3)(5) 1.5 1.8 1.2 1.6 1.6
Loan Grade(3)(5) 3.3 3.1 3.0 3.1 3.1
Average Age of Companies 41 yrs 29 yrs 17 yrs 30 yrs 29 yrs
Ownership Percentage 50% 54% 56% 56% 56%
Average Sales(5)(6) $ 80 $ 108 $ 32 $ 95 $ 94
Average EBITDA(5)(7) $ 16 $ 24 $ 9 $ 19 $ 19
Total Sales(5)(6) $3,020 $4,461 $ 255 $13,307 $12,093
Total EBITDA(5)(7) $ 556 $ 728 $ 42 $ 2,039 $ 1,894
% of Senior Loans(5)(8) 43% 42% 46% 46% 45%
% of Loans with Lien(5)(8) 80% 84% 100% 85% 87%
(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. Investments in
government securities and interest rate derivative agreements are
excluded.
(2) Assumes investments are exited at current fair value.
(3) These amounts do not include investments in which the Company owns
only equity.
(4) For portfolio companies with a nominal EBITDA amount, the portfolio
company's maximum debt leverage is limited to 15 times EBITDA.
(5) Excludes investments in commercial mortgage backed securities,
collateralized debt obligations and European Capital Limited.
(6) Sales of the most recent twelve months, or when appropriate, the
forecasted twelve months.
(7) EBITDA of the most recent twelve months, or when appropriate, the
forecasted twelve months.
(8) As a percentage of our total debt investments.
ADDITIONAL DIVIDEND INFORMATION
American Capital must make certain distributions of its taxable income in order to maintain its tax status as a regulated investment company. Investors can refer to American Capital's most recent report on Form 10-K for more information about its tax status. American Capital intends to retain net long-term capital gains and treat them as deemed distributions for tax purposes. Therefore, the taxable income that is distributed as dividends would be expected to be treated as ordinary income for tax purposes. Taxable income differs from GAAP income because of both temporary and permanent differences in income and expense recognition. For example, changes in appreciation and depreciation of portfolio investments have no impact on American Capital's taxable income. American Capital reports the anticipated tax characteristics of each dividend when announced, while the actual tax characteristics of each year's dividends are reported annually to stockholders on Form 1099DIV. The 2005 dividends of $3.08 per share were a distribution of ordinary income for tax purposes. The 2006 declared dividend to-date, totaling $1.62 per share, is anticipated to be a distribution of ordinary income for tax purposes.
DIVIDEND REINVESTMENT PLAN (DRIP)
In appreciation of the loyal support of our shareholders, American Capital's Dividend Reinvestment Plan grants a 5% discount to the market price for reinvested dividends. Brokerages that have confirmed participation in the DRIP include:
Ameritrade
A.G. Edwards
Citigroup-Smith Barney
Fidelity
J.J.B. Hilliard, W.L. Lyons, Inc.
Merrill Lynch
Morgan Keegan
Raymond James
RBC Dain Rauscher
UBS Financial
Wachovia Securities
Wedbush Morgan
A summary of American Capital's dividend history and forecast follows. For further dividend history, please visit our website at www.ACAS.com. For more information regarding the DRIP, please visit our website or call our Investor Relations Department at (301) 951-6122.
AMERICAN CAPITAL'S DIVIDEND HISTORY
$20.73 Declared Since August 1997 IPO at $15.00 Per Share
% Change % Change
of Regular of Total
Regular Dividend Over Additional Dividend Over
Year/Quarter Dividend Prior Year Dividend Total Prior Year
Total
1997 to Q2
2006 Declared $20.73
2006 $3.29 8% Not Planned $3.29 7%
Q4 Forecast $0.84 6%
Q3 Forecast $0.83 6%
Q2 Declared $0.82 9%
Q1 $0.80 10%
2005 $3.05 7% $0.03 $3.08 6%
Q4 $0.79 8%
Q3 $0.78 8%
Q2 $0.75 7%
Q1 $0.73 4%
2004 $2.85 4% $0.06 $2.91 4%
Q4 $0.73 6%
Q3 $0.72 4%
Q2 $0.70 3%
Q1 $0.70 4%
2003 $2.73 7% $0.06 $2.79 9%
Q4 $0.69 3%
Q3 $0.69 5%
Q2 $0.68 8%
Q1 $0.67 14%
2002 $2.55 15% $0.02 $2.57 12%
Q4 $0.67 18%
Q3 $0.66 18%
Q2 $0.63 15%
Q1 $0.59 11%
2001 $2.21 13% $0.09 $2.30 6%
Q4 $0.57 10%
Q3 $0.56 14%
Q2 $0.55 12%
Q1 $0.53 18%
2000 $1.95 14% $0.22 $2.17 25%
Q4 $0.52 18%
Q3 $0.49 14%
Q2 $0.49 14%
Q1 $0.45 10%
1999 $1.71 39% $0.03 $1.74 30%
Q4 $0.44 19%
Q3 $0.43 34%
Q2 $0.43 48%
Q1 $0.41 64%
1998 $1.23 N/A $0.11 $1.34
Q4 $0.37 76%
Q3 $0.32 N/A
Q2 $0.29 N/A
Q1 $0.25 N/A
1997 Q4 $0.21 $0.21
Total Declared $20.73
SHAREHOLDER AND ANALYSTS CALL:
American Capital invites shareholders, prospective shareholders and analysts to attend the American Capital Shareholder Call on Wednesday, May 3, 2006 at 11:00 am ET. The dial in number will be (800) 230-1092. International callers should dial +1(612) 288-0329. Please advise the operator you are dialing in for the American Capital Shareholder Call.
BEFORE THE CALL:
SLIDE PRESENTATION AVAILABLE IN ADVANCE OF THE SHAREHOLDER CALL:
The quarterly shareholder presentation includes a slide show to accompany the call that participants may download from the American Capital website at www.ACAS.com and print prior to the call. You may wish to take the time to review the slides in advance of the Shareholder Call. It is generally posted several hours in advance of the call.
DURING THE CALL:
STREAMING SLIDE PRESENTATION DURING THE SHAREHOLDER CALL:
During the Shareholder Call, we invite you to turn to our shareholder website, www.ACAS.com, and click on the May 3 Shareholder Call Slide Show button. Participants will be able to view the complete streaming slide presentation on our website while listening to the shareholder call by phone as it occurs.
AFTER THE CALL:
AUDIO AND SLIDE PRESENTATION AVAILABLE AFTER THE CALL:
The audio of the shareholder call combined with the slide presentation will be made available after the call on May 3 on our website. An archive of our audio and slide presentations of our quarterly shareholder calls can be found in the Investor Relations section of our website at www.ACAS.com.
AUDIO ONLY PRESENTATION AVAILABLE AFTER THE SHAREHOLDER CALL:
There will be a phone recording available from 9:30 pm Wednesday, May 3 until 11:59 pm Wednesday, May 17. If you are interested in hearing the recording of the presentation, please dial (800) 475-6701. International callers may dial +1(320) 365-3844. The access code for both domestic and international callers is 825771.
For further information or questions, please do not hesitate to call our Shareholder Relations Department at (301) 951-6122.
ABOUT AMERICAN CAPITAL
Since its August 1997 IPO through the first quarter of 2006, American Capital has invested $9.1 billion in 211 portfolio companies. As of April 30, 2006, American Capital shareholders have enjoyed a total return of 405% since the Company's IPO -- an annualized return of 21%, assuming reinvestment of dividends. American Capital has paid a total of $1.1 billion in dividends and paid or declared $20.73 dividends per share since its August 1997 IPO at $15 per share.
Companies interested in learning more about American Capital's flexible financing should contact Mark Opel, Senior Vice President, Business Development, at (800) 248-9340, or visit our website at www.AmericanCapital.com.
