BETHESDA, Md., July 31 /PRNewswire-FirstCall/ -- American Capital
Strategies Ltd. (NASDAQ:ACAS) announced today its third quarter
2007 dividend and its results for the second quarter of 2007. THIRD
QUARTER 2007 DIVIDEND DECLARATION American Capital's Board of
Directors has declared a third quarter 2007 regular dividend of
$0.92 per share to record holders as of September 7, 2007, payable
on October 1, 2007. This is an 11% increase over the third quarter
2006 dividend of $0.83 per share. American Capital has paid a total
of $1.7 billion in dividends and paid or declared dividends of
$25.16 per share since its August 1997 IPO at $15.00 per share.
2007 DIVIDEND GUIDANCE American Capital is reiterating its forecast
of total 2007 dividends of $3.68 per share to be paid from ordinary
taxable income earned in 2007. This would represent an 11% growth
over the total 2006 dividends of $3.33 per share. American Capital
anticipates that its 2007 ordinary taxable income will exceed its
dividends paid and it will elect to pay a 4% excise tax and retain
its excess ordinary taxable income. The estimated remaining 2007
dividend per share is $0.96 per share for the fourth quarter of
2007. 2007 OTHER GUIDANCE The following guidance assumes the
economic and capital market environment throughout the rest of 2007
remains substantially the same as current market conditions.
American Capital is forecasting 14% to 27% growth from December 31,
2006, in net asset value per share ("NAV"), totaling $4.08 to $8.08
growth, to a value in the range of $33.50 to $37.50 per share by
December 31, 2007. American Capital is forecasting that it will
have between $17 billion and $22 billion of alternative assets
under management by year end, of which $6 billion to $8 billion
will be in funds managed by American Capital; the balance will be
on American Capital's balance sheet. In addition, American Capital
is forecasting $0.79 to $0.83 in net operating income (earnings
less appreciation, depreciation, gains and loss ("NOI")) per basic
share in the third quarter of 2007. SECOND QUARTER 2007 RESULTS
Earnings for the quarter increased 172% to $788 million, compared
to $290 million for the second quarter of 2006. Earnings per basic
share for the quarter increased 119% to $4.77 compared to $2.18 for
the second quarter of 2006. For the quarter, net portfolio
appreciation and realized gains totaled $584 million compared to
$165 million for the second quarter of 2006. As described below,
$493 million of the second quarter 2007 earnings of American
Capital are from the appreciation of its asset management portfolio
company, American Capital, LLC, driven substantially from the
deconsolidation of the European Capital management company, as
previously described in its March 31, 2007 Form 10-Q. Earnings less
appreciation and depreciation ("Realized Earnings") increased 48%
to $1.45 per basic share for the quarter compared to $0.98 per
basic share for the second quarter of 2006. NOI increased 13% to
$0.93 per basic share from $0.82 per basic share for the second
quarter of 2006. In the second quarter of 2007, American Capital
received $32 million of revenue related to its wholly-owned asset
management portfolio company, American Capital, LLC. This is a 256%
increase in third-party fund management revenues over the second
quarter of 2006. "This is a great time to be one of the best
capitalized financial institutions in the world," said Malon
Wilkus, American Capital Chairman, President and CEO, "With less
than one-to-one debt to equity, American Capital has huge
competitive advantages in this new credit environment. With our One
Stop Buyout(TM) and one stop financing, we fund transactions that
are impossible for some of our competitors to close. With
demonstrated access to capital in these market conditions, we are
taking advantage of lower multiples, wider spreads and better terms
to generate outstanding risk adjusted returns for our
shareholders." On July 6, 2007, American Capital was the first
alternative asset manager and the only private equity firm to be
included in the S&P 500 Index. American Capital was added to
the S&P 500 in the category of Financials, Asset Management and
Custody Banks. As of its inclusion, American Capital was the 355th
largest firm in the index based on market capitalization. "We have
outperformed the S&P 500 in each of the ten calendar years
since our IPO, including the last recession, with the exception of
our first full year as a public company," said Malon Wilkus. "We've
done this by growing our dividend at a 13% compound annual growth
rate and providing a 22% total return to our shareholders over the
past ten years. The current credit and economic environment is
ideal for us to continue this exceptional performance. In the past
few weeks, American Capital's stock price has declined along with
most financial stocks. However, American Capital has a much better
capitalized balance sheet than many financial institutions, CLOs
and hedge funds; some of which are levered above 4:1 debt to
equity. We are levered less than one-to- one debt to equity and are
in good shape to handle continued uncertainty in the capital
markets." Second quarter 2007 dividends were $0.91 per share, an
11% growth over the second quarter 2006 dividends of $0.82 per
share. For the quarter, American Capital's dividend payout ratio
was 63% of Realized Earnings of $1.45 per basic share. Over the
past year, the dividend payout ratio was 77% of Realized Earnings.
American Capital's net asset value ("NAV") per share at June 30,
2007 was $35.54, a $7.91 or 29% growth over the June 30, 2006 NAV
per share of $27.63. In the second quarter, NAV was $5.18 per share
greater than the prior quarter. "The advantage of our business
model becomes more evident in a widening spread environment like
today," said Chief Financial Officer John Erickson. "As spreads
widen, our interest income and our spread income generally grows,
which allows us to increase our NOI and our dividends. During
widening spread environments, we may experience slower growth in
our equity portfolio as more expensive credit reduces valuation
multiples, but our growing spread income should allow us to
continue to generate excellent returns on equity, just when other
companies find it difficult to produce similar results. We believe
this is why during the last recession and recovery, we materially
out performed the S&P 500, when the index declined three years
in a row." In the second quarter of 2007, American Capital invested
$3.5 billion of capital and received $1.0 billion of proceeds from
realizations of portfolio investments. In addition, American
Capital funds under management invested an additional $1.1 billion,
for a total of $4.6 billion of new investments in the second
quarter of 2007. In the second quarter of 2007, American Capital
had $635 million of net appreciation, depreciation, gains and
losses comprised of net appreciation of $549 million and net gains
of $86 million. As described below, $493 million of the $549
million of net appreciation of American Capital is related to
appreciation in its asset management portfolio company, American
Capital, LLC, driven substantially from the deconsolidation of the
European Capital management company, as previously described in its
March 31, 2007 Form 10-Q. The weighted average effective interest
rate on American Capital's total investments in debt securities at
June 30, 2007 was 11.8%. At the same time, loans totaling $232
million, with a fair value of $56 million, were on non- accrual.
Delinquent and non-accruing loans to 19 portfolio companies totaled
$259 million, or 4% of total loans at June 30, 2007, compared to
$238 million, or 6% of total loans at June 30, 2006. The $56
million fair value of non- accruing loans represented 1% of total
loans at fair value at June 30, 2007, compared to the $55 million
fair value of non-accruing loans representing 1% of total loans at
fair value at June 30, 2006. "Our portfolio continues to perform
very well," said Ira Wagner, Chief Operating Officer, "with our
delinquencies and non-accruals remaining at 4% over the last four
quarters. We believe the current environment, whereby many
investors have lost access to capital despite very low commercial
loan default rates, will result in a significant increase in our
investment opportunities over and above our already
industry-leading deal flow. We continue to focus on having the
largest middle market deal flow in our industry so that we can
continue to be extraordinarily selective as to which companies we
invest in. We also continue to have the significant advantage of
not being reliant on commercial or investment banks for financing
for our One Stop Buyouts(TM) and one-stop-financings because we are
able to fund the entire transaction. In addition, when we conclude
that it is time to sell a portfolio company, we may choose to
provide the buyer with the appropriate debt financing to supplement
their equity to fund the transaction; a capability most of our
competitors lack. Therefore, we continue to believe that our
capital flexibility and our very large deal flow will provide us
with excellent investment and exit opportunities going forward." In
the second quarter of 2007, American Capital completed a $1 billion
equity offering at $45.05 per share, which was 1.5x book value.
Also during the second quarter of 2007, American Capital raised
$492 million through its ninth on balance sheet term securitization
and increased its capacity under its unsecured revolving credit
facility by $665 million and increased the term to five years. In
July 2007, it raised an additional $550 million in an unsecured,
BBB rated, inaugural public debt offering. "Our low levered balance
sheet and capital markets creditability have allowed us to execute
a CRE CDO transaction for our CMBS portfolio, issue our first
unsecured public debt, issue our ninth term debt securitization and
raise $1 billion of equity, during a time when access to capital
was closed to many institutions," said Tom McHale, Senior Vice
President of Finance. "We have no investments in sub prime
residential mortgages. Only 3% of our portfolio today is in CMBS
investments and there have been no losses on commercial real estate
loans underlying those investments. Three percent of our portfolio
assets are in CDOs, which have produced a 17% IRR. We have few
covenant-light loans. And, our equity investments, excluding our
investment in American Capital, LLC, have produced a 31% IRR over
the past year. We are very well capitalized and have a portfolio
that is performing in a market where opportunities have just become
far more profitable." During the second quarter of 2007, European
Capital completed an initial public offering ("IPO") of 14.6
million shares, including the full exercise of the over-allotment
option granted to the underwriters, at a price of euro 9.84 per
share, for gross proceeds of approximately euro 144 million ($196
million). The shares are traded on the London Stock Exchange under
the ticker symbol "ECAS." Prior to the IPO, American Capital
exercised its warrant to purchase 18.75 million shares of European
Capital for an exercise price of euro 9.50 per share, or euro 178
million ($242 million). Subsequent to the IPO, American Capital
owns 65% of European Capital with a cost basis of $905 million and
fair value of $1.0 billion. European Capital is managed by European
Capital Financial Services (Guernsey) Limited ("ECFS"). ECFS was a
direct wholly-owned operating subsidiary, which was consolidated by
American Capital in accordance with generally accepted accounting
principles ("GAAP") prior to the IPO of European Capital. In
accordance with American Capital's accounting policy for
consolidation, American Capital consolidates a controlled operating
subsidiary that provides all or substantially all of its services
to American Capital or portfolio companies in which American
Capital has substantially all the ownership. As a result of the
European Capital IPO and the dilution of American Capital's
ownership interest in European Capital, ECFS is no longer
considered to be providing substantially all of its services to
American Capital or its portfolio companies. Therefore, as required
by American Capital's consolidation policy, which was developed
based on discussions with regulatory authorities, and as disclosed
in its March 31, 2007 Form 10-Q, ECFS was deconsolidated
prospectively during the second quarter of 2007 and is carried at
fair value on American Capital's balance sheet at June 30, 2007, as
required by GAAP. In addition, during the second quarter of 2007,
American Capital formed a parent holding company, American Capital,
LLC, to own all American Capital owned third party fund managers.
Accordingly, American Capital transferred the ownership of ECFS and
its two other wholly-owned fund managers to American Capital, LLC
subsequent to the IPO of European Capital. American Capital, LLC is
treated as a portfolio company investment and carried at fair value
on American Capital's balance sheet at June 30, 2007. During the
second quarter of 2007, American Capital recognized appreciation of
$493 million, or $2.99 per basic share, for its investment in
American Capital, LLC, the value of which primarily consists of the
appreciation associated with ECFS, which was for the first time
accounted for as a portfolio company at fair value. The
appreciation of ECFS occurred over the period since its inception
in the fourth quarter of 2005. American Capital, LLC has a total
fair value of $529 million at June 30, 2007. As noted below, as of
June 30, 2007, 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 Howard & Zukin
Financial Advisors Inc. Since its inception in September of 2005
through June 30, 2007, European Capital has invested in 58
portfolio companies totaling $3.1 billion. European Capital
declared a dividend for the second quarter of 2007 of euro 0.10 per
ordinary share, of which American Capital received dividend income
totaling $9 million from its equity investment in European Capital.
Since its August 1997 IPO through the second quarter of 2007,
American Capital has earned a 16% compounded annual return,
including interest, dividends, fees and net gains, on 201
realizations of senior debt, subordinated debt and equity
investments, totaling $6.6 billion of invested capital. These
realizations represent 36% of all amounts invested by American
Capital since its August 1997 IPO. Proceeds from these realizations
exceeded the total associated prior quarter valuation of the
investments by 2%. American Capital earned a 30% compound annual
return on the exit of its equity investments, including dividends,
fees and net gains. 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 retains
Houlihan Lokey Howard & Zukin Financial Advisors Inc.
("Houlihan Lokey") to assist it by having Houlihan Lokey regularly
review a designated percentage of 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 its portfolio company
investments that have been portfolio companies for at least one
year and that have a fair value in excess of $25 million. In the
second quarter of 2007, Houlihan Lokey reviewed valuations of 20
portfolio company investments having an aggregate $1.2 billion in
fair value as of the period end. Over the last four quarters,
Houlihan Lokey has reviewed 84 portfolio companies totaling $5.3
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 each 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 American Capital's
wholly-owned portfolio company, American Capital, LLC, a third
party fund manager. As of June 30, 2007, 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
June 30, 2007, December 31, 2006 and June 30, 2006 (in millions) Q2
2007 Versus Q2 Q4 Q4 2006 2007 2006 $ % (unaudited) Assets
Investments at fair value (cost of $10,674, $7,781 and $6,873
respectively) $11,516 $8,076 $3,440 43% Cash and cash equivalents
172 77 95 123% Restricted cash 202 233 (31) (13%) Interest
receivable 57 44 13 30% Other 204 179 25 14% Total assets $12,151
$8,609 $3,542 41% Liabilities and Shareholders' Equity Debt $5,371
$3,926 $1,445 37% Derivative agreements 3 13 (10) (77%) Accrued
dividends payable 151 130 21 16% Other 151 198 (47) (24%) Total
liabilities 5,676 4,267 1,409 33% Commitments and contingencies
Shareholders' equity: Undesignated preferred stock, $0.01 par
value, 5.0 shares authorized, 0 issued and outstanding - - - 0%
Common stock, $0.01 par value, 1,000.0 shares authorized, 185.6,
151.6 and 141.9 issued and 182.2, 147.6 and 138.8 outstanding,
respectively 2 1 1 100% Capital in excess of par value 5,477 3,980
1,497 38% Notes receivable from sale of common stock (7) (7) - 0%
Undistributed net realized earnings 167 88 79 90% Net unrealized
appreciation of investments 836 280 556 199% Total shareholders'
equity 6,475 4,342 2,133 49% Total liabilities and shareholders'
equity $12,151 $8,609 $3,542 41% Q2 Q2 2007 Versus Q2 2006 2006 $ %
(unaudited) Assets Investments at fair value (cost of $10,674,
$7,781 and $6,873 respectively) $7,040 $4,476 64% Cash and cash
equivalents 172 - 0% Restricted cash 66 136 206% Interest
receivable 40 17 43% Other 91 113 124% Total assets $7,409 $4,742
64% Liabilities and Shareholders' Equity Debt $3,370 $2,001 59%
Derivative agreements 1 2 200% Accrued dividends payable 110 41 37%
Other 93 58 62% Total liabilities 3,574 2,102 59% Commitments and
contingencies Shareholders' equity: Undesignated preferred stock,
$0.01 par value, 5.0 shares authorized, 0 issued and outstanding -
- 0% Common stock, $0.01 par value, 1,000.0 shares authorized,
185.6, 151.6 and 141.9 issued and 182.2, 147.6 and 138.8
outstanding, respectively 1 1 100% Capital in excess of par value
3,642 1,835 50% Notes receivable from sale of common stock (7) - 0%
Undistributed net realized earnings 33 134 406% Net unrealized
appreciation of investments 166 670 404% Total shareholders' equity
3,835 2,640 69% Total liabilities and shareholders' equity $7,409
$4,742 64% AMERICAN CAPITAL STRATEGIES, LTD. CONSOLIDATED
STATEMENTS OF OPERATIONS Three and Six Months Ended June 30, 2007
and 2006 (in millions, except per share data) (unaudited) Three
Months Three Months Ended Ended June 30, 2007 June 30, Versus 2006
2007 2006 $ % OPERATING INCOME: Investing operating income (1) $226
$160 $66 41% Asset management and advisory operating income (2) 100
52 48 92% Total operating income 326 212 114 54% OPERATING
EXPENSES: Interest 73 41 32 78% Salaries, benefits and stock-based
compensation 67 39 28 72% General and administrative 22 16 6 38%
Total operating expenses 162 96 66 69% OPERATING INCOME BEFORE
INCOME TAXES 164 116 48 41% Provision for income taxes (11) (7) (4)
(57%) NET OPERATING INCOME 153 109 44 40% Net realized gain on
investments Portfolio company investments 77 17 60 353% Derivative
agreements 9 4 5 125% Total net realized gain 86 21 65 310%
REALIZED EARNINGS 239 130 109 84% Net unrealized appreciation
(depreciation) of investments Portfolio company investments 507 148
359 243% Unrealized gain (loss) on exchange rate 4 - 4 100%
Derivative agreements 38 12 26 217% Total net unrealized
appreciation 549 160 389 243% INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 788 290
498 172% Cumulative effect of accounting change, net of tax - - -
0% NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
("EARNINGS") $788 $290 $498 172% NET OPERATING INCOME PER COMMON
SHARE*: Basic $0.93 $0.82 $0.11 13% Diluted $0.91 $0.81 $0.10 12%
REALIZED EARNINGS PER COMMON SHARE*: Basic $1.45 $0.98 $0.47 48%
Diluted $1.42 $0.97 $0.45 46% EARNINGS PER COMMON SHARE*: Basic
$4.77 $2.18 $2.59 119% Diluted $4.68 $2.16 $2.52 117% WEIGHTED
AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 165.1 133.3 31.8
24% Diluted 168.5 134.2 34.3 26% DIVIDENDS DECLARED PER COMMON
SHARE $0.91 $0.82 $0.09 11% Six Months Ended Six Months Ended June
30, 2007 June 30, Versus 2006 2007 2006 $ % OPERATING INCOME:
Investing operating income (1) $431 $296 $135 46% Asset management
and advisory operating income (2) 145 89 56 63% Total operating
income 576 385 191 50% OPERATING EXPENSES: Interest 135 77 58 75%
Salaries, benefits and stock-based compensation 118 62 56 90%
General and administrative 47 32 15 47% Total operating expenses
300 171 129 75% OPERATING INCOME BEFORE INCOME TAXES 276 214 62 29%
Provision for income taxes (9) (12) 3 25% NET OPERATING INCOME 267
202 65 32% Net realized gain on investments Portfolio company
investments 87 60 27 45% Derivative agreements 12 6 6 100% Total
net realized gain 99 66 33 50% REALIZED EARNINGS 366 268 98 37% Net
unrealized appreciation (depreciation) of investments Portfolio
company investments 514 151 363 240% Unrealized gain (loss) on
exchange rate 11 (1) 12 NM Derivative agreements 31 33 (2) (6%)
Total net unrealized appreciation 556 183 373 204% INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 922 451 471 104% Cumulative effect of accounting
change, net of tax - 1 (1) (100%) NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ("EARNINGS") $922 $452 $470 104% NET
OPERATING INCOME PER COMMON SHARE*: Basic $1.68 $1.60 $0.08 5%
Diluted $1.64 $1.58 $0.06 4% REALIZED EARNINGS PER COMMON SHARE*:
Basic $2.30 $2.12 $0.18 8% Diluted $2.25 $2.10 $0.15 7% EARNINGS
PER COMMON SHARE*: Basic $5.80 $3.57 $2.23 62% Diluted $5.68 $3.54
$2.14 60% WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic 158.9 126.6 32.3 26% Diluted 162.4 127.7 34.7 27% DIVIDENDS
DECLARED PER COMMON SHARE $1.80 $1.62 $0.18 11% NM = Not
meaningful. * May not recalculate due to rounding. (1) The
investing operating income consists of interest, dividends,
prepayment fees and other investment fee income. (2) The asset
management and advisory operating income consists primarily of
asset management fees and reimbursements, dividends from portfolio
company fund managers, transaction structuring fees, equity and
loan financing fees, portfolio company management and
administrative fees and other fee income. AMERICAN CAPITAL
STRATEGIES, LTD. OTHER FINANCIAL INFORMATION Three Months Ended
June 30, 2007, December 31, 2006 and June 30, 2006 (in millions,
except per share data) (unaudited) Q2 2007 Versus Q2 Q4 Q4 2006
2007 2006 $ % Assets Under Management: American Capital Assets at
Fair Value (2) $12,151 $8,609 $3,542 41% Externally Managed Assets
at Fair Value (3) 3,891 2,708 1,183 44% Total $16,042 $11,317
$4,725 42% Capital Resources Under Management: American Capital
Assets at Fair Value plus Available Capital Resources (2) $12,653
$9,197 $3,456 38% Externally Managed Assets at Fair Value plus
Available Capital Resources (3) 4,137 3,111 1,026 33% Total $16,790
$12,308 $4,482 36% New Investments: Senior Debt $1,989 $1,050 $939
89% Subordinated Debt 451 196 255 130% Preferred Equity 493 146 347
238% Common Equity 381 43 338 786% Common Equity warrants - 7 (7)
(100%) CMBS Investments 126 155 (29) (19%) CDO/CLO Investments 55
63 (8) (13%) Total $3,495 $1,660 $1,835 111% American Capital
Sponsored Buyouts $1,458 $360 $1,098 305% Financing for Private
Equity Buyouts 804 716 88 12% Direct Investments 378 153 225 147%
CMBS Investments 126 155 (29) (19%) CDO/CLO Investments 55 63 (8)
(13%) Add-on Financing for Acquisitions 205 95 110 116% Add-on
Financing for Recapitalizations 202 105 97 92% Add-on Financing for
Working Capital in Distressed Situations 15 5 10 200% Add-on
Financing for Managed Funds 242 - 242 100% Add-on Financing for
Working Capital 10 8 2 25% Total $3,495 $1,660 $1,835 111%
Realizations (1): Scheduled Principal Amortization $18 $15 $3 20%
Senior Loan Syndications 226 266 (40) (15%) Principal Prepayments
524 437 87 20% Payment of Accrued Payment-in- kind Interest and
Dividends and Original Issue Discount 31 17 14 82% Sale of Equity
Investments 185 746 (561) (75%) Total $984 $1,481 $(497) (34%)
Appreciation, Depreciation, Gains and Losses: Gross Realized Gains
$108 $116 $(8) (7%) Gross Realized Losses (31) (48) 17 35%
Portfolio Net Realized Gains 77 68 9 13% Taxes on Realized Gains -
(17) 17 100% Net Realized Gains From Interest Rate Derivatives 9 4
5 125% Net Realized Gains 86 55 31 56% Gross Unrealized
Appreciation at 50, 52 and 34 Portfolio Companies 698 306 392 128%
Gross Unrealized Depreciation at 41, 32 and 25 Portfolio Companies
(170) (114) (56) 49% Current Portfolio Net Unrealized Appreciation
528 192 336 175% Net Depreciation From the Recognition of Net
Realized Gains (21) (64) 43 67% Net Unrealized Appreciation for
Foreign Currency Translation 4 18 (14) (78%) Interest Rate
Derivatives, net 38 (2) 40 NM Net Unrealized Appreciation 549 144
405 281% Net Gains, Losses, Appreciation and Depreciation $635 $199
$436 219% Other Financial Data: Net Asset Value per Share $35.54
$29.42 $6.12 21% Market Capitalization $7,747 $6,829 $918 13% Total
Enterprise Value $12,946 $10,678 $2,268 21% Credit Quality:
Weighted Average Effective Interest Rate on Debt Investments 11.8%
12.3% Loans on Non-Accrual at Face $232 $183 $49 27% Loans on
Non-Accrual at Fair Value $56 $54 $2 4% Past Due Loans at Face $27
$12 $15 125% Past Due and Non-Accrual Loans at Face as a Percentage
of Total Loans 4% 4% Past Due and Non-Accrual Loans at Fair Value
as a Percentage of Total Loans 1% 1% Number of Portfolio Companies
on Non-Accrual and Past Due 19 14 Debt to Equity Conversions at
Face Value $- $- $- 0% Return on Equity: LTM Net Operating Income
Return on Average Equity at Cost 11.3% 12.0% LTM Realized Earnings
Return on Average Equity at Cost 16.0% 16.9% LTM Earnings Return on
Average Equity 29.1% 24.6% Current Quarter Net Operating Income
Return on Average Equity at Cost Annualized 12.1% 11.4% Current
Period Realized Earnings Return on Average Equity at Cost 18.8%
17.0% Current Quarter Earnings Return on Average Equity Annualized
56.0% 29.9% Dividends: Dividend Coverage (Realized Earnings per
Basic Share/Dividend per Share)(4) 1.59x 1.32x Dividend Payout
Ratio (Dividend per Share/Realized Earnings per Basic Share)(4)
0.63x 0.76x LTM Dividend Coverage (Realized Earnings per Basic
Share/Dividend per Share)(4) 1.30x 1.33x LTM Dividend Payout Ratio
(Dividend per Share/Realized Earnings per Basic Share)(4) 0.77x
0.75x Q2 Q2 2007 Versus Q2 2006 2006 $ % Assets Under Management:
American Capital Assets at Fair Value (2) $7,409 4,742 64%
Externally Managed Assets at Fair Value (3) 874 3,017 345% Total
$8,283 $7,759 94% Capital Resources Under Management: American
Capital Assets at Fair Value plus Available Capital Resources (2)
$7,995 4,658 58% Externally Managed Assets at Fair Value plus
Available Capital Resources (3) 1,347 2,790 207% Total $9,342
$7,448 80% New Investments: Senior Debt $791 $1,198 151%
Subordinated Debt 260 191 73% Preferred Equity 280 213 76% Common
Equity 50 331 662% Common Equity warrants 21 (21) (100%) CMBS
Investments 144 (18) (13%) CDO/CLO Investments 25 30 120% Total
$1,571 $1,924 122% American Capital Sponsored Buyouts $902 $556 62%
Financing for Private Equity Buyouts 109 695 638% Direct
Investments 6 372 6200% CMBS Investments 144 (18) (13%) CDO/CLO
Investments 25 30 120% Add-on Financing for Acquisitions 241 (36)
(15%) Add-on Financing for Recapitalizations 142 60 42% Add-on
Financing for Working Capital in Distressed Situations 2 13 650%
Add-on Financing for Managed Funds - 242 100% Add-on Financing for
Working Capital - 10 100% Total $1,571 $1,924 122% Realizations
(1): Scheduled Principal Amortization $14 $3 21% Senior Loan
Syndications 67 159 237% Principal Prepayments 131 392 299% Payment
of Accrued Payment-in- kind Interest and Dividends and Original
Issue Discount 6 27 450% Sale of Equity Investments 40 145 363%
Total $258 $726 281% Appreciation, Depreciation, Gains and Losses:
Gross Realized Gains $32 $76 238% Gross Realized Losses (15) (16)
(107%) Portfolio Net Realized Gains 17 60 353% Taxes on Realized
Gains - - 0% Net Realized Gains From Interest Rate Derivatives 4 5
125% Net Realized Gains 21 65 310% Gross Unrealized Appreciation at
50, 52 and 34 Portfolio Companies 243 455 187% Gross Unrealized
Depreciation at 41, 32 and 25 Portfolio Companies (83) (87) (105%)
Current Portfolio Net Unrealized Appreciation 160 368 230% Net
Depreciation From the Recognition of Net Realized Gains (12) (9)
(75%) Net Unrealized Appreciation for Foreign Currency Translation
- 4 100% Interest Rate Derivatives, net 12 26 217% Net Unrealized
Appreciation 160 389 243% Net Gains, Losses, Appreciation and
Depreciation $181 $454 251% Other Financial Data: Net Asset Value
per Share $27.63 $7.91 29% Market Capitalization $4,647 $3,100 67%
Total Enterprise Value $7,845 $5,101 65% Credit Quality: Weighted
Average Effective Interest Rate on Debt Investments 12.5% Loans on
Non-Accrual at Face $190 $42 22% Loans on Non-Accrual at Fair Value
$55 $1 2% Past Due Loans at Face $48 $(21) (44%) Past Due and
Non-Accrual Loans at Face as a Percentage of Total Loans 6% Past
Due and Non-Accrual Loans at Fair Value as a Percentage of Total
Loans 3% Number of Portfolio Companies on Non-Accrual and Past Due
16 Debt to Equity Conversions at Face Value $28 Return on Equity:
LTM Net Operating Income Return on Average Equity at Cost 13.1% LTM
Realized Earnings Return on Average Equity at Cost 15.5% LTM
Earnings Return on Average Equity 21.5% Current Quarter Net
Operating Income Return on Average Equity at Cost Annualized 12.9%
Current Period Realized Earnings Return on Average Equity at Cost
15.4% Current Quarter Earnings Return on Average Equity Annualized
33.4% Dividends: Dividend Coverage (Realized Earnings per Basic
Share/Dividend per Share)(4) 1.20x Dividend Payout Ratio (Dividend
per Share/Realized Earnings per Basic Share)(4) 0.84x LTM Dividend
Coverage (Realized Earnings per Basic Share/Dividend per Share)(4)
1.18x LTM Dividend Payout Ratio (Dividend per Share/Realized
Earnings per Basic Share)(4) 0.85x NM = Not meaningful (1) Excludes
Repayments of European Capital Limited Bridge Loans. (2) Includes
American Capital's investment in its externally managed funds. (3)
Includes European Capital, American Capital Equity I, American
Capital CLO 2007-1 and American Capital CLO 2007-2. (4) American
Capital has elected to retain net long-term capital gains and pay a
federal tax on behalf of its shareholders. The taxes paid by
American Capital are included in its Realized Earnings per Basic
Share. For income tax purposes, the net long-term capital gains is
treated as a deemed distribution to American Capital's
shareholders, but is not included in the Dividends per Share.
Static Pool Portfolio Statistics (1) ($ in millions, unaudited)
Pre-1999 1999 2000 2001 Internal Rate of Return-All Investments(2)
9.5% 8.9% 8.3% 19.6% Internal Rate of Return-Equity Investments
Only(2)(10) 28.9% (28.2%) 10.7% 48.3% Internal Rate of
Return-Equity Investments Only (2) (10) (11) 28.9% (28.2%) 10.7%
48.3% Original Investments and Commitments $393 $380 $395 $372
Total Exits and Prepayments of Original Investments $284 $269 $281
$286 Total Interest, Dividends and Fees Collected $153 $145 $123
$148 Total Net Realized (Loss) Gain on Investments $(32) $(46)
$(41) $25 Current Cost of Investments $109 $42 $115 $57 Current
Fair Value of Investments $95 $26 $115 $27 Net Unrealized
Appreciation/(Depreciation) $(14) $(16) $- $(30) Non-Accruing Loans
at Face $35 $17 $- $10 Non-Accruing Loans at Fair Value $9 $8 $- $1
Equity Interest at Fair Value(9) $66 $10 $- $5 Debt to
EBITDA(3)(4)(5) 2.8 1.9 6.8 3.1 Interest Coverage(3)(5) 6.1 1.3 1.4
2.3 Debt Service Coverage(3)(5) 2.9 1.1 1.3 1.8 Average Age of
Companies(5) 59 yrs 54 yrs 22 yrs 23 yrs Ownership Percentage(9)
62% 53% 0% 64% Average Sales(5)(6) $188 $39 $196 $65 Average
EBITDA(5)(7) $10 $3 $59 $5 Average EBITDA Margin(5) 5.3% 7.7% 30.1%
7.7% Total Sales(5)(6) $484 $242 $196 $638 Total EBITDA(5)(7) $26
$20 $59 $26 % of Senior Loans(5)(8) 48% 0% 71% 24% % of Loans with
Lien(5)(8) 51% 38% 71% 100% Static Pool Portfolio Statistics (1) ($
in millions, unaudited) 2002 2003 2004 Internal Rate of Return-All
Investments(2) 10.6% 21.7% 18.5% Internal Rate of Return-Equity
Investments Only(2)(10) 16.0% 30.3% 30.6% Internal Rate of
Return-Equity Investments Only (2) (10) (11) 16.0% 30.3% 30.6%
Original Investments and Commitments $954 $1,444 $2,257 Total Exits
and Prepayments of Original Investments $589 $1,023 $1,333 Total
Interest, Dividends and Fees Collected $273 $329 $431 Total Net
Realized (Loss) Gain on Investments $(10) $133 $119 Current Cost of
Investments $340 $358 $909 Current Fair Value of Investments $285
$396 $920 Net Unrealized Appreciation/(Depreciation) $(55) $38 $11
Non-Accruing Loans at Face $45 $19 $10 Non-Accruing Loans at Fair
Value $10 $7 $3 Equity Interest at Fair Value(9) $56 $164 $189 Debt
to EBITDA(3)(4)(5) 5.9 5.8 5.1 Interest Coverage(3)(5) 1.5 1.4 1.8
Debt Service Coverage(3)(5) 1.1 1.1 1.5 Average Age of Companies(5)
36 yrs 37 yrs 38 yrs Ownership Percentage(9) 53% 58% 31% Average
Sales(5)(6) $68 $148 $102 Average EBITDA(5)(7) $11 $24 $22 Average
EBITDA Margin(5) 16.2% 16.2% 21.6% Total Sales(5)(6) $431 $1,535
$2,306 Total EBITDA(5)(7) $59 $225 $425 % of Senior Loans(5)(8) 69%
58% 51% % of Loans with Lien(5)(8) 98% 100% 87% Static Pool
Portfolio Statistics (1) ($ in millions, unaudited) 2005 2006 2007
Internal Rate of Return-All Investments(2) 33.8% 19.9% 34.8%
Internal Rate of Return-Equity Investments Only(2)(10) 61.8% 37.2%
120.2% Internal Rate of Return-Equity Investments Only (2) (10)
(11) 34.7% 37.2% 120.2% Original Investments and Commitments $3,665
$4,739 $3,529 Total Exits and Prepayments of Original Investments
$1,173 $1,301 $42 Total Interest, Dividends and Fees Collected $483
$380 $103 Total Net Realized (Loss) Gain on Investments $102 $47 $3
Current Cost of Investments $2,417 $3,198 $3,127 Current Fair Value
of Investments $3,206 $3,287 $3,118 Net Unrealized
Appreciation/(Depreciation) $789 $89 $(9) Non-Accruing Loans at
Face $77 $19 $- Non-Accruing Loans at Fair Value $16 $2 $- Equity
Interest at Fair Value(9) $2,185 $942 $931 Debt to EBITDA(3)(4)(5)
4.8 5.3 6.3 Interest Coverage(3)(5) 2.4 1.8 2.1 Debt Service
Coverage(3)(5) 1.7 1.8 1.9 Average Age of Companies(5) 25 yrs 30
yrs 22 yrs Ownership Percentage(9) 59% 38% 42% Average Sales(5)(6)
$110 $153 $265 Average EBITDA(5)(7) $29 $24 $43 Average EBITDA
Margin(5) 26.4% 15.7% 16.2% Total Sales(5)(6) $3,559 $6,100 $7,577
Total EBITDA(5)(7) $595 $1,046 $1,436 % of Senior Loans(5)(8) 36%
47% 83% % of Loans with Lien(5)(8) 84% 84% 98% Static Pool
Portfolio Statistics (1) Pre-1999 - 2007 2002 - 2007 ($ in
millions, unaudited) Aggregate Aggregate Internal Rate of
Return-All Investments(2) 18.5% 22.1% Internal Rate of
Return-Equity Investments Only(2)(10) 36.0% 41.0% Internal Rate of
Return-Equity Investments Only (2) (10) (11) 28.6% 31.5% Original
Investments and Commitments $18,128 $16,588 Total Exits and
Prepayments of Original Investments $6,581 $5,461 Total Interest,
Dividends and Fees Collected $2,568 $1,999 Total Net Realized
(Loss) Gain on Investments $300 $394 Current Cost of Investments
$10,672 $10,349 Current Fair Value of Investments $11,475 $11,212
Net Unrealized Appreciation/(Depreciation) $803 $863 Non-Accruing
Loans at Face $232 $170 Non-Accruing Loans at Fair Value $56 $38
Equity Interest at Fair Value(9) $4,548 $4,467 Debt to
EBITDA(3)(4)(5) 5.5 5.5 Interest Coverage(3)(5) 2.0 2.0 Debt
Service Coverage(3)(5) 1.7 1.7 Average Age of Companies(5) 28 yrs
28 yrs Ownership Percentage(9) 46% 46% Average Sales(5)(6) $169
$169 Average EBITDA(5)(7) $30 $30 Average EBITDA Margin(5) 17.8%
17.8% Total Sales(5)(6) $23,068 $21,508 Total EBITDA(5)(7) $3,917
$3,786 % of Senior Loans(5)(8) 59% 59% % of Loans with Lien(5)(8)
89% 90% (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. (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. (9) Excludes investments in commercial mortgage backed
securities and collateralized debt obligations. (10) Excludes
equity investments that are the result of conversions of debt and
warrants received with the issuance of debt. (11) Excludes
investment in American Capital, LLC. 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. The
taxable income that is distributed as dividends is 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 2007 declared dividend to-date, totaling $2.72 per share, is
anticipated to be a distribution of ordinary taxable income.
DIVIDEND REINVESTMENT PLAN (DRIP) In appreciation of the loyal
support of our shareholders, American Capital's Dividend
Reinvestment Plan grants a 2% discount to the market price for
reinvested dividends. Brokerages that have confirmed participation
in the DRIP include: A.G. Edwards Citigroup-Smith Barney Fidelity
Merrill Lynch Morgan Keegan 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 http://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 $25.16 DECLARED SINCE AUGUST 1997 IPO AT
$15.00 PER SHARE % Change % Change of of Total Regular Dividend
Regular Dividend Over Additional Over Prior Year/Quarter Dividend
Prior Year Dividend Total Year Total 1997 to Q3 2007 Declared
$25.16 2007 $3.68 11% Not Planned $3.68 11% Q4 Forecast $0.96 9% Q3
Declared $0.92 11% Q2 $0.91 11% Q1 $0.89 11% 2006 $3.33 9% $0.00
$3.33 8% Q4 $0.88 11% Q3 $0.83 6% Q2 $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 $25.16 SHAREHOLDER CALL American Capital
invites shareholders, prospective shareholders and analysts to
attend the American Capital Shareholder Call on Wednesday, August
1, 2007 at 11:00 am ET. The dial in number will be (888) 428-4480.
International callers should dial +1 (612) 288-0337. Please advise
the operator you are dialing in for the American Capital
Shareholder Call. Shareholder presentations, webcasts and audio
recordings can be found in the Investor Relations section of our
website at http://www.acas.com/. BEFORE THE CALL: SLIDE
PRESENTATION AVAILABLE IN ADVANCE OF THE SHAREHOLDER CALL The
quarterly shareholder presentation includes a slide presentation to
accompany the call that participants may download and print prior
to the call. You may wish to take the time to review the slides in
advance of the Shareholder Call. DURING THE CALL: VIEW STREAMING
SLIDE PRESENTATION DURING THE SHAREHOLDER CALL During the
Shareholder Call you may watch and listen to the webcast or listen
to the Shareholder Call by phone and step through the slides at
your own pace. AFTER THE CALL: LISTEN AND VIEW AUDIO SLIDE
PRESENTATION AFTER THE CALL The audio of the Shareholder Call
combined with the slide presentation will be made available on our
website after the call on August 1. 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
http://www.acas.com/. AUDIO ONLY PRESENTATION AVAILABLE AFTER THE
SHAREHOLDER CALL: There will be a phone recording available from
9:30 pm Wednesday, August 1 until 11:59 pm Wednesday, August 15. 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 880757. For further information or questions, please do
not hesitate to call our Investor Relations Department at (301)
951-6122. ABOUT AMERICAN CAPITAL American Capital is the only
alternative asset management company in the S&P 500. With $16
billion in assets under management(1), American Capital is the
largest U.S. publicly traded private equity fund and one of the
largest publicly traded alternative asset managers. American
Capital, both directly and through its global asset management
business, is an investor in management and employee buyouts,
private equity buyouts, and early stage and mature private and
public companies. American Capital provides senior debt, mezzanine
debt and equity to fund growth, acquisitions, recapitalizations and
securitizations. American Capital and its affiliates invest from $5
million to $800 million per company in North America and euro 5
million to euro 500 million per company in Europe. As of June 30,
2007, American Capital shareholders have enjoyed a total return of
578% since the Company's IPO -- an annualized return of 22%,
assuming reinvestment of dividends. American Capital has paid a
total of $1.7 billion in dividends and paid or declared $25.16
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
http://www.americancapital.com/ or http://www.europeancapital.com/.
Persons considering an investment in American Capital should
consider the investment objectives, risks and charges and expenses
of the Company carefully before investing. Such information and
other information about the Company is available in the Company's
annual report on Form 10-K, quarterly report on Form 10-Q and in
the prospectuses the Company issues from time to time in connection
with its offering of securities. Such materials are filed with the
Securities and Exchange Commission and copies are available on the
SEC's website, http://www.sec.gov/. Prospective investors should
read such materials carefully before investing. Performance data
quoted above represents past performance of American Capital. Past
performance does not guarantee future results and the investment
return and principal value of an investment in American Capital
will likely fluctuate. Consequently, an investor's shares, when
sold, may be worth more or less than their original cost.
Additionally, American Capital's current performance may be lower
or higher than the performance data quoted above. (1) Includes
American Capital's investment in externally managed funds.
DATASOURCE: American Capital Strategies Ltd. CONTACT: John
Erickson, Chief Financial Officer, or Tom McHale, Senior Vice
President, Finance, of American Capital Strategies Ltd.,
+1-301-951-6122 Web site: http://www.americancapital.com/
http://www.europeancapital.com/
Copyright
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