Reports $0.82 NOI and $1.20 Realized Earnings in Q3 2007 BETHESDA,
Md., Oct. 30 /PRNewswire-FirstCall/ -- American Capital Strategies
Ltd. (NASDAQ:ACAS) announced today its fourth quarter 2007
dividend, its results for the third quarter of 2007 and a forecast
of its 2008 dividend payments. FOURTH QUARTER 2007 DIVIDEND
DECLARATION American Capital's Board of Directors has declared a
fourth quarter 2007 regular dividend of $1.00 per share to record
holders as of December 7, 2007, payable on January 16, 2008. This
is a $0.04 per share increase over its guidance, $0.08 per share
increase over the third quarter 2007 and a 14% increase over the
fourth quarter 2006 dividend of $0.88 per share. American Capital
has paid or declared total 2007 dividends of $3.72 per share, which
are expected to be a distribution from ordinary taxable income.
This is a 12% growth over the total 2006 dividends of $3.33 per
share. American Capital anticipates that its 2007 ordinary taxable
income will exceed dividends paid in 2007 and will elect to pay a
4% excise tax and retain excess ordinary taxable income for future
dividends. LONG-TERM CAPITAL GAINS DIVIDEND POLICY American Capital
also announced a change to its dividend policy for net long-term
capital gains. Previously, the Company retained these gains
permanently by paying a 35% tax on behalf of its shareholders and
treating the gains as a deemed distribution to shareholders.
American Capital will now treat net long-term capital gains
similarly to ordinary taxable income, making them available for the
payment of dividends to shareholders. The change will not impact
the tax characteristics of American Capital's 2007 dividends
because net long-term capital gains earned during the tax year
ending in 2007 will not be distributed in 2007 and American Capital
will pay a 4% excise tax on those gains. However, such gains will
be available for the payment of dividends in 2008 and, thus,
beginning in 2008, a portion of American Capital's dividends will
be from net long-term capital gains. As a result of this policy
change, American Capital will likely be required to distribute more
cash dividends than under the previous policy. "We have had an 11%
compound annual growth rate of our annual dividend over the past
ten years, using our ordinary taxable income to fund this growth
but not our net long-term capital gains. We believe our new long
term capital gains dividend policy enhances shareholder value as
the dividend will now be driven by ordinary taxable income as well
as net long-term capital gains. Because the market is placing value
on the size, growth and predictability of dividends (as measured by
the amount of taxable earnings retained for future dividends), we
expect that our shareholders will benefit from this change," said
Malon Wilkus, Chairman, President and Chief Executive Officer of
American Capital. "Our change in dividend policy should allow us to
increase the growth rate of our dividends and, equally important,
increase the amount of taxable income we retain for future
dividends, assuming we continue our historic performance of
generating both growing ordinary taxable income and growing net
long-term capital gains. We are currently trading at a 10% yield of
our annualized fourth quarter 2007 declared dividend. If we were to
trade at this same 10% annualized dividend yield at the end of
2008, based on our fourth quarter 2008 dividend guidance, we would
produce a 23% total return for our shareholders, in line with our
21% annual return over the past ten years. If we were to trade to a
lower yield, our total return would be driven higher." 2008
DIVIDEND GUIDANCE American Capital provided its initial forecast of
its 2008 dividends. American Capital forecasts that both its 2008
ordinary taxable income and its 2008 net long term capital gains
will exceed its 2007 amounts. Based on these forecasts, American
Capital is forecasting total 2008 dividends of $4.19 per share to
be paid from ordinary taxable income and net long-term capital
gains earned in taxable years ending in 2007 and 2008. American
Capital anticipates that its 2008 ordinary taxable income and net
long-term capital gains will exceed its dividends and it will
retain the excess for future dividends. The 2008 dividends per
share are forecast to be in the following quarterly amounts. This
represents a 13% growth over the total 2007 dividends of $3.72 per
share. $1.01 for Q1 2008, 14% increase over Q1 2007; $1.03 for Q2
2008, 13% increase over Q2 2007; $1.05 for Q3 2008, 14% increase
over Q3 2007; and $1.10 for Q4 2008, 10% increase over Q4 2007.
THIRD QUARTER 2007 RESULTS American Capital also announced that for
the third quarter of 2007, net operating income ("NOI") (earnings
less appreciation, depreciation, gains and loss) increased 5% to
$0.82 per basic share from $0.78 per basic share for the third
quarter of 2006. Earnings less appreciation and depreciation
("Realized Earnings") increased 5% to $1.20 per basic share for the
third quarter, compared to $1.14 per basic share for the third
quarter of 2006. The last twelve months Realized Earnings return on
equity totals 16%. Earnings for the third quarter of 2007 decreased
84% to $21 million, compared to $132 million for the third quarter
of 2006. Earnings per basic share for the quarter decreased 88% to
$0.11 compared to $0.93 for the third quarter of 2006. The last
twelve months earnings return on equity totals 24%. For the
quarter, net depreciation totaled $203 million, offset by $71
million of net realized gains, totaling $(132) million, compared to
$22 million for the third quarter of 2006. The primary components
of the $203 million of net depreciation were $84 million of
reversal of prior appreciation associated with realized gains, $54
million of net depreciation of CMBS and CDO investments and $55
million of net depreciation associated with interest rate swaps
that are generally required by American Capital's loan agreements
and asset securitizations. American Capital's investment in
European Capital appreciated $2 million, composed of $49 million of
depreciation (based on the trading price of its stock plus a
control premium), offset by $51 million of foreign currency
translation appreciation. Investments in American Capital One-Stop
Buyouts(TM), sponsored finance and direct investments depreciated
$10 million, composed of $161 of appreciation and $171 million of
depreciation. "We are pleased with our third quarter performance,
particularly compared to many other financial institutions. Our
outstanding realized earnings has allowed us to both retain more
taxable income for future dividends and increase our dividend
growth rate," said Malon Wilkus, American Capital Chairman,
President and CEO. "In addition, we are now receiving higher rates
of return in many new investments, which should increase our net
operating income. In fact, the yield on our debt investments
increased by 40 basis points from the end of the second quarter to
the end of the third quarter. However, the same economic
environment that causes yields to increase caused us to depreciate
some of our assets like many other firms in our industry. Finally,
as we've said before, this is a great time to be levered less than
1:1 debt to equity." As previously announced, third quarter 2007
dividends were $0.92 per share, an 11% growth over the third
quarter 2006 dividends of $0.83 per share. For the quarter,
American Capital's dividend payout ratio was 77% of Realized
Earnings of $1.20 per basic share. For the latest twelve months
ended September 30, 2007, the dividend payout ratio was 78% of
Realized Earnings. For the last three years ended September 30,
2007, the dividend payout ratio was 79% of Realized Earnings.
American Capital's net asset value ("NAV") per share at September
30, 2007 was $34.92, an increase of $6.96 or 25% over the September
30, 2006 NAV per share of $27.96. The September 30, 2007 NAV was
$0.62 per share less than the end of the prior quarter. "Our
portfolio continues to perform well, though three of our portfolio
companies that are exposed to the housing and construction industry
depreciated in value and were placed on non-accrual during the
quarter," said American Capital Chief Financial Officer John
Erickson. "We believe, based on our quarterly valuations, that the
fundamental performance of our portfolio remains solid with
revenues and EBITDA up during the third quarter over last year. Our
portfolio of American Capital One-Stop Buyouts(TM), sponsored
finance and direct investments held steady in value, and we
realized $70 million in net gains from our portfolio in the third
quarter. In addition to that performance, the sale of 17% of each
of our 80 equity investments in portfolio companies to American
Capital Equity II in October 2007 further demonstrates the quality
and performance of our portfolio." In the third quarter of 2007,
American Capital invested $1.4 billion of capital and received $1.5
billion of proceeds from realizations of portfolio investments. In
addition, American Capital funds under management invested an
additional $0.7 billion, for a total of $2.1 billion of new
investments in the third quarter of 2007. The weighted average
effective interest rate on American Capital's total investments in
debt securities at September 30, 2007 was 12.2%, 40 basis points
higher than at June 30, 2007. Loans totaling $309 million, with a
fair value of $85 million, were on non-accrual. Delinquent and
non-accruing loans to 21 portfolio companies totaled $319 million,
or 5.5% of total loans at September 30, 2007, compared to $184
million, or 4.2% of total loans at September 30, 2006. The $85
million fair value of non-accruing loans represented 1.5% of total
loans at fair value at September 30, 2007, compared to the $63
million fair value of non-accruing loans representing 1.5% of total
loans at fair value at September 30, 2006. "We have successfully
increased our yields on debt investments during the third quarter
of 2007 in response to the disruption of the credit markets. That,
together with the sale of a large portion of our lower yielding
real estate assets through a commercial real estate CDO caused our
average effective interest rate to increase by 40 basis points
above the level at the end of the second quarter of 2007," said Ira
Wagner, American Capital Chief Operating Officer. "Our One-Stop
Buyouts(TM) have become even more important to sellers of companies
in this uncertain financing environment. And, our one-stop
financing capability is in great demand from other private equity
sponsors, as sellers scrutinize a bidder's ability to close a
transaction. We have closed some transactions where we were not the
highest bidder but our ability to close with certainty placed us
ahead of the competition. Further, though investment opportunities
in the third quarter of 2007 declined from the second quarter of
2007, they grew 14% over the third quarter of 2006. Our closing
ratio of 1.2% of the 1,115 investment opportunities that we
reviewed in the third quarter of 2007 continues to demonstrate our
selectivity in finding outstanding portfolio companies." 2007
GUIDANCE UPDATE American Capital announces that it is updating its
2007 guidance. The following guidance assumes the economic and
capital market environment throughout the remainder of 2007 remains
substantially the same as current market conditions. American
Capital forecasts 14% to 20% growth in NAV from December 31, 2006,
totaling $4.08 to $6.00 growth, to a value in the range of $33.50
to $35.42 per share by December 31, 2007. American Capital
forecasts that it will have between $17 billion and $19 billion of
alternative assets under management by year end, of which $5
billion to $6 billion will be in funds managed by American Capital;
the balance will be on American Capital's balance sheet. In
addition, American Capital forecasts $0.79 to $0.84 in NOI per
basic share in the fourth quarter of 2007. "During the third
quarter of 2007, our conservative balance sheet and capital markets
creditability allowed us to raise $1.7 billion of financing, during
a time when access to capital was closed to many financial
institutions. We raised net proceeds of $402 million through a CDO
that purchased a portion of our CMBS portfolio. We issued our first
unsecured BBB rated public debt, totaling $550 million. We
finalized our $338 million tenth term debt securitization and
raised $380 million of equity," said Tom McHale, American Capital
Senior Vice President of Finance. "While we have experienced
depreciation on our CMBS portfolio, we only have 4% of our
portfolio in CMBS investments and more importantly, 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 16% IRR since our initial investments.
Through our CDOs, we have very little exposure to residential
mortgages. And, our equity investments in portfolio companies have
produced a superb 33% IRR since our IPO. We are very well
capitalized and have a portfolio that is performing in a market
where opportunities have just become far more profitable." Since
its August 1997 IPO through the third quarter of 2007, American
Capital has earned a 16% compounded annual return, including
interest, dividends, fees and net gains, on 215 realizations of
senior debt, subordinated debt and equity investments, totaling $8
billion of invested capital. These realizations represent 42% 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 1%. American Capital
earned a 30% compounded annual return on the exit of its equity
investments, including dividends, fees and net gains. SIXTH FUND
UNDER MANAGEMENT RAISED IN OCTOBER On October 1, 2007, American
Capital raised its sixth third-party fund under management,
American Capital Equity II LP ("ACE II"), a $585 million private
equity fund, increasing American Capital's third-party funds under
management to approximately $5.5 billion or 34% of its aggregate
assets under management. American Capital, LLC will manage the fund
for a 2% annual management fee on the cost basis of the assets of
the fund and a 10% to 30% participation in the net profits of the
fund, subject to certain hurdles. American Capital sold 17% of each
of its equity investments in 80 portfolio companies to ACE II for
an aggregate purchase price of $488 million, subject to adjustment
on December 31, 2007. The remaining $97 million commitment will be
used to fund follow-on investments in the 80 portfolio companies.
AIG Investments, the asset management arm of American International
Group, Inc. (AIG), led the investor group including Landmark
Partners, Paul Capital Partners, Lehman Brothers Secondary
Opportunities Fund and SVG Advisers Limited. American Capital is
not an investor in ACE II. It is anticipated that this new fund
under management will increase American Capital, LLC's revenues by
approximately $10 million in the first full year of the agreement.
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 third quarter of 2007, Houlihan Lokey reviewed valuations of 23
portfolio company investments having an aggregate $2.6 billion in
fair value as of the period end. Over the last four quarters,
Houlihan Lokey has reviewed 77 portfolio companies totaling $6.1
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. Financial highlights for the quarter are as
follows: AMERICAN CAPITAL STRATEGIES, LTD. CONSOLIDATED BALANCE
SHEETS As of September 30, 2007, December 31, 2006 and September
30, 2006 (in millions) Q3 2007 Versus Q3 Q4 Q4 2006 2007 2006 $ %
(unaudited) Assets Investments at fair value (cost of $10,310,
$7,781 and $7,384 respectively) $10,974 $8,076 $2,898 36% Cash and
cash equivalents 92 77 15 19% Restricted cash 124 233 (109) -47%
Interest receivable 67 44 23 52% Other 212 179 33 18% Total assets
$11,469 $8,609 $2,860 33% Liabilities and Shareholders' Equity Debt
$4,547 $3,926 $621 16% Derivative agreements 26 13 13 100% Accrued
dividends payable 172 130 42 32% Other 166 198 (32) -16% Total
liabilities 4,911 4,267 644 15% 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, 192.4,
151.6 and 147.1 issued and 187.8, 147.6 and 143.8 outstanding,
respectively 2 1 1 100% Capital in excess of par value 5,711 3,980
1,731 43% Notes receivable from sale of common stock (7) (7) - 0%
Undistributed net realized earnings 219 88 131 149% Net unrealized
appreciation of investments 633 280 353 126% Total shareholders'
equity 6,558 4,342 2,216 51% Total liabilities and shareholders'
equity $11,469 $8,609 $2,860 33% Q3 Q3 2007 Versus Q2 2006 2006 $ %
(unaudited) Assets Investments at fair value (cost of $10,310,
$7,781 and $7,384 respectively) $7,535 $3,439 46% Cash and cash
equivalents 34 58 171% Restricted cash 124 - 0% Interest receivable
44 23 52% Other 118 94 80% Total assets $7,855 $3,614 46%
Liabilities and Shareholders' Equity Debt $3,604 $943 26%
Derivative agreements 14 12 86% Accrued dividends payable 118 54
46% Other 100 66 66% Total liabilities 3,836 1,075 28% 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, 192.4, 151.6 and 147.1 issued and 187.8, 147.6 and
143.8 outstanding, respectively 1 1 100% Capital in excess of par
value 3,813 1,898 50% Notes receivable from sale of common stock
(7) - 0% Undistributed net realized earnings 76 143 188% Net
unrealized appreciation of investments 136 497 365% Total
shareholders' equity 4,019 2,539 63% Total liabilities and
shareholders' equity $7,855 $3,614 46% AMERICAN CAPITAL STRATEGIES,
LTD. CONSOLIDATED STATEMENTS OF OPERATIONS Three and Nine Months
Ended September 30, 2007 and 2006 (in millions, except per share
data) (unaudited) Three Months Ended Three Months Ended September
30, September 30, 2007 vs. 2006 2007 2006 $ % OPERATING INCOME:
Investing operating income (1) $266 $185 $81 44% Asset management
and advisory operating income (2) 44 46 (2) -4% Total operating
income 310 231 79 34% OPERATING EXPENSES: Interest 79 55 24 44%
Salaries, benefits and stock-based compensation 59 41 18 44%
General and administrative 25 19 6 32% Total operating expenses 163
115 48 42% OPERATING INCOME BEFORE INCOME TAXES 147 116 31 27%
Benefit (provision) for income taxes 6 (6) 12 NM NET OPERATING
INCOME 153 110 43 39% Net realized gain on investments Portfolio
company investments 70 46 24 52% Taxes on realized gains (4) - (4)
100% Derivative agreements 5 6 (1) -17% Total net realized gain 71
52 19 37% REALIZED EARNINGS 224 162 62 38% Net unrealized
appreciation (depreciation) of investments Portfolio company
investments (197) (3) (194) -6467% Foreign currency translation 49
15 34 227% Derivative agreements (55) (42) (13) -31% Total net
unrealized appreciation (depreciation) (203) (30) (173) -577%
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 21 132 (111) -84% Cumulative effect of
accounting change, net of tax - - - 0% NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ("EARNINGS") $21 $132 $(111) -84% NET
OPERATING INCOME PER COMMON SHARE*: Basic $0.82 $0.78 $0.04 5%
Diluted $0.81 $0.77 $0.04 5% REALIZED EARNINGS PER COMMON SHARE*:
Basic $1.20 $1.14 $0.06 5% Diluted $1.18 $1.13 $0.05 4% EARNINGS
PER COMMON SHARE*: Basic $0.11 $0.93 $(0.82) -88% Diluted $0.11
$0.92 $(0.81) -88% WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING: Basic 186.8 141.6 45.2 32% Diluted 189.3 143.3 46.0
32% DIVIDENDS DECLARED PER COMMON SHARE $0.92 $0.83 $0.09 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. CONSOLIDATED STATEMENTS OF OPERATIONS Three and
Nine Months Ended September 30, 2007 and 2006 (in millions, except
per share data) (unaudited) Nine Months Ended Nine Months Ended
September 30, September 30, 2007 vs. 2006 2007 2006 $ % OPERATING
INCOME: Investing operating income (1) $697 $481 $216 45% Asset
management and advisory operating income (2) 189 135 54 40% Total
operating income 886 616 270 44% OPERATING EXPENSES: Interest 214
132 82 62% Salaries, benefits and stock-based compensation 177 103
74 72% General and administrative 72 51 21 41% Total operating
expenses 463 286 177 62% OPERATING INCOME BEFORE INCOME TAXES 423
330 93 28% Benefit (provision) for income taxes (3) (18) 15 83% NET
OPERATING INCOME 420 312 108 35% Net realized gain on investments
Portfolio company investments 157 107 50 47% Taxes on realized
gains (4) - (4) 100% Derivative agreements 17 11 6 55% Total net
realized gain 170 118 52 44% REALIZED EARNINGS 590 430 160 37% Net
unrealized appreciation (depreciation) of investments Portfolio
company investments 317 148 169 114% Foreign currency translation
61 14 47 336% Derivative agreements (25) (9) (16) -178% Total net
unrealized appreciation (depreciation) 353 153 200 131% INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 943 583 360 62% Cumulative effect of accounting
change, net of tax - 1 (1) -100% NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ("EARNINGS") $943 $584 $359 61% NET
OPERATING INCOME PER COMMON SHARE*: Basic $2.50 $2.37 $0.13 5%
Diluted $2.45 $2.35 $0.10 4% REALIZED EARNINGS PER COMMON SHARE*:
Basic $3.51 $3.26 $0.25 8% Diluted $3.44 $3.23 $0.21 7% EARNINGS
PER COMMON SHARE*: Basic $5.60 $4.44 $1.16 26% Diluted $5.50 $4.39
$1.11 25% WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic 168.3 131.7 36.6 28% Diluted 171.4 132.9 38.5 29% DIVIDENDS
DECLARED PER COMMON SHARE $2.72 $2.45 $0.27 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
September 30, 2007, December 31, 2006 and September 30, 2006 (in
millions, except per share data) (unaudited) Q3 2007 Versus Q3 Q4
Q4 2006 2007 2006 $ % Assets Under Management: American Capital
Assets at Fair Value (2) $11,469 $8,609 $2,860 33% Externally
Managed Assets at Fair Value (3) 5,080 2,708 2,372 88% Total
$16,549 $11,317 $5,232 46% Capital Resources Under Management:
American Capital Assets at Fair Value plus Available Capital
Resources (2) $13,439 $9,197 $4,242 46% Externally Managed Assets
at Fair Value plus Available Capital Resources (3) 5,414 3,111
2,303 74% Total $18,853 $12,308 $6,545 53% New Investments: Senior
Debt $468 $1,050 $(582) -55% Subordinated Debt 143 196 (53) -27%
Preferred Equity 291 146 145 99% Common Equity 100 43 57 133%
Common Equity warrants 1 7 (6) -86% CMBS Investments 384 155 229
148% CDO/CLO Investments 14 63 (49) -78% Total $1,401 $1,660 $(259)
-16% American Capital Sponsored Buyouts $586 $360 $226 63%
Financing for Private Equity Buyouts 231 716 (485) -68% Investments
in Managed Funds (5) 221 - 221 100% Direct Investments 74 153 (79)
-52% CMBS Investments (5) 169 155 14 9% CDO/CLO Investments 14 63
(49) -78% Add-on Financing for Acquisitions 11 95 (84) -88% Add-on
Financing for Recapitalizations 34 105 (71) -68% Add-on Financing
for Growth 1 - 1 100% Add-on Financing for Working Capital in
Distressed Situations 8 5 3 60% Add-on Financing for Working
Capital 52 8 44 550% Total $1,401 $1,660 $(259) -16% Realizations
(1): Scheduled Principal Amortization $18 $15 $3 20% Senior Loan
Syndications 648 266 382 144% Principal Prepayments 309 437 (128)
-29% Payment of Accrued Payment-in- kind Interest and Dividends and
Original Issue Discount 11 17 (6) -35% Sale of CMBS Securities 402
- 402 100% Sale of Equity Investments 110 746 (636) -85% Total
$1,498 $1,481 $17 1% Appreciation, Depreciation, Gains and Losses:
Gross Realized Gains $98 $116 $(18) -16% Gross Realized Losses (28)
(48) 20 42% Portfolio Net Realized Gains 70 68 2 3% Taxes on
Realized Gains (4) (17) 13 76% Net Realized Gains From Interest
Rate Derivatives 5 4 1 25% Net Realized Gains 71 55 16 29% Gross
Unrealized Appreciation at 39, 52 and 37 Portfolio Companies 172
306 (134) -44% Gross Unrealized Depreciation at 47, 32 and 28
Portfolio Companies (285) (114) (171) 150% Current Portfolio Net
Unrealized Appreciation (Depreciation) (113) 192 (305) NM Net
Depreciation From the Recognition of Net Realized Gains (84) (64)
(20) -31% Net Unrealized Appreciation for Foreign Currency
Translation 49 18 31 172% Interest Rate Derivatives, net (55) (2)
(53) 2650% Net Unrealized Appreciation (203) 144 (347) NM Net
Gains, Losses, Appreciation and Depreciation $(132) $199 $(331) NM
Other Financial Data: Net Asset Value per Share $34.92 $29.42 $5.50
19% Market Capitalization $8,026 $6,829 $1,197 18% Total Enterprise
Value $12,481 $10,678 $1,803 17% Credit Quality: Weighted Average
Effective Interest Rate on Debt Investments at Period End 12.2%
12.3% Loans on Non-Accrual at Face $309 $183 $126 69% Loans on
Non-Accrual at Fair Value $85 $54 $31 57% Past Due Loans at Face
$10 $12 $(2) -17% Past Due and Non-Accrual Loans at Face as a
Percentage of Total Loans at Face 5.5% 4.0% Non-Accrual Loans at
Fair Value as a Percentage of Total Loans at Fair Value 1.5% 1.4%
Number of Portfolio Companies on Non-Accrual and Past Due 21 14
Debt to Equity Conversions at Face Value $- $- $- 0% Return on
Equity: LTM Net Operating Income Return on Average Equity at Cost
11.1% 12.0% LTM Realized Earnings Return on Average Equity at Cost
15.8% 16.9% LTM Earnings Return on Average Equity 24.0% 24.6%
Current Quarter Net Operating Income Return on Average Equity at
Cost Annualized 10.6% 11.4% Current Quarter Realized Earnings
Return on Average Equity at Cost Annualized 18.7% 17.0% Current
Quarter Earnings Return on Average Equity Annualized 1.6% 29.9%
Dividends: Dividend Coverage (Realized Earnings per Basic
Share/Dividend per Share)(4) 1.30x 1.32x Dividend Payout Ratio
(Dividend per Share/Realized Earnings per Basic Share)(4) 0.77x
0.76x LTM Dividend Coverage (Realized Earnings per Basic
Share/Dividend per Share)(4) 1.29x 1.33x LTM Dividend Payout Ratio
(Dividend per Share/Realized Earnings per Basic Share)(4) 0.78x
0.75x Q3 2007 Versus Q3 Q3 2006 2006 $ % Assets Under Management:
American Capital Assets at Fair Value (2) $7,855 $3,614 46%
Externally Managed Assets at Fair Value (3) 1,326 3,754 283% Total
$9,181 $7,368 80% Capital Resources Under Management: American
Capital Assets at Fair Value plus Available Capital Resources (2)
$8,706 $4,733 54% Externally Managed Assets at Fair Value plus
Available Capital Resources (3) 1,515 3,899 257% Total $10,221
$8,632 84% New Investments: Senior Debt $473 $(5) -1% Subordinated
Debt 408 (265) -65% Preferred Equity 199 92 46% Common Equity 21 79
376% Common Equity warrants 41 (40) -98% CMBS Investments 42 342
814% CDO/CLO Investments 23 (9) -39% Total $1,207 $194 16% American
Capital Sponsored Buyouts $533 $53 10% Financing for Private Equity
Buyouts 202 29 14% Investments in Managed Funds (5) - 221 100%
Direct Investments 92 (18) -20% CMBS Investments (5) 42 127 302%
CDO/CLO Investments 24 (10) -42% Add-on Financing for Acquisitions
108 (97) -90% Add-on Financing for Recapitalizations 187 (153) -82%
Add-on Financing for Growth - 1 100% Add-on Financing for Working
Capital in Distressed Situations 14 (6) -43% Add-on Financing for
Working Capital 5 47 940% Total $1,207 $194 16% Realizations (1):
Scheduled Principal Amortization $21 $(3) -14% Senior Loan
Syndications 81 567 700% Principal Prepayments 448 (139) -31%
Payment of Accrued Payment-in- kind Interest and Dividends and
Original Issue Discount 44 (33) -75% Sale of CMBS Securities - 402
100% Sale of Equity Investments 217 (107) -49% Total $811 $687 85%
Appreciation, Depreciation, Gains and Losses: Gross Realized Gains
$149 $(51) -34% Gross Realized Losses (102) 74 73% Portfolio Net
Realized Gains 47 23 49% Taxes on Realized Gains - (4) 0% Net
Realized Gains From Interest Rate Derivatives 5 - 0% Net Realized
Gains 52 19 37% Gross Unrealized Appreciation at 39, 52 and 37
Portfolio Companies 135 37 27% Gross Unrealized Depreciation at 47,
32 and 28 Portfolio Companies (123) (162) -132% Current Portfolio
Net Unrealized Appreciation (Depreciation) 12 (125) NM Net
Depreciation From the Recognition of Net Realized Gains (15) (69)
-460% Net Unrealized Appreciation for Foreign Currency Translation
15 34 227% Interest Rate Derivatives, net (42) (13) -31% Net
Unrealized Appreciation (30) (173) -577% Net Gains, Losses,
Appreciation and Depreciation $22 $(154) NM Other Financial Data:
Net Asset Value per Share $27.96 $6.96 25% Market Capitalization
$5,675 $2,351 41% Total Enterprise Value $9,244 $3,237 35% Credit
Quality: Weighted Average Effective Interest Rate on Debt
Investments at Period End 12.6% Loans on Non-Accrual at Face $164
$145 88% Loans on Non-Accrual at Fair Value $63 $22 35% Past Due
Loans at Face $20 $(10) -50% Past Due and Non-Accrual Loans at Face
as a Percentage of Total Loans at Face 4.2% Non-Accrual Loans at
Fair Value as a Percentage of Total Loans at Fair Value 1.5% Number
of Portfolio Companies on Non-Accrual and Past Due 11 Debt to
Equity Conversions at Face Value $68 Return on Equity: LTM Net
Operating Income Return on Average Equity at Cost 12.5% LTM
Realized Earnings Return on Average Equity at Cost 16.3% LTM
Earnings Return on Average Equity 20.2% Current Quarter Net
Operating Income Return on Average Equity at Cost Annualized 11.7%
Current Quarter Realized Earnings Return on Average Equity at Cost
Annualized 17.1% Current Quarter Earnings Return on Average Equity
Annualized 13.4% Dividends: Dividend Coverage (Realized Earnings
per Basic Share/Dividend per Share)(4) 1.37x Dividend Payout Ratio
(Dividend per Share/Realized Earnings per Basic Share)(4) 0.73x LTM
Dividend Coverage (Realized Earnings per Basic Share/Dividend per
Share)(4) 1.26x LTM Dividend Payout Ratio (Dividend per
Share/Realized Earnings per Basic Share)(4) 0.79x NM = Not
meaningful (1) Excludes Repayments of European Capital Limited
Bridge Loans. (2) Includes American Capital's investment in its
externally managed funds. (3) Includes European Capital, American
Capital Equity I , American Capital CLO 2007-1, American Capital
CLO 2007-2 and American Capital CRE CDO (4) American Capital
elected to retain net long-term capital gains for the tax year
ended September 30, 2006 and pay a federal tax on behalf of its
shareholders. The taxes paid by American Capital are included in
its Realized Earnings per Basic Share in the fourth quarter of
2006. For income tax purposes, the net long-term capital gains is
treated as a deemed distribution to American Capital's
shareholders, but is not included in the Dividends per Share. (5)
Investment in ACAS CRE CDO 2007-1 is included in investment in
Managed Funds. Static Pool Portfolio Statistics (1) ($ in millions,
unaudited) Pre- 1999 1999 2000 2001 2002 2003 Internal Rate of
Return-All Investments(2) 7.5% 9.0% 7.5% 19.1% 10.0% 22.0% Internal
Rate of Return-Equity Investments Only(2)(10) 23.6% -23.9% 10.0%
46.8% 15.4% 32.5% Internal Rate of Return-Equity Investments
Only(2)(10)(11) 23.6% -23.9% 10.0% 46.8% 15.4% 32.5% Original
Investments and Commitments $393 $380 $284 $372 $957 $1,432 Total
Exits and Prepayments of Original Investments $284 $269 $284 $286
$602 $1,023 Total Interest, Dividends and Fees Collected $153 $145
$105 $148 $281 $336 Total Net Realized (Loss) Gain on Investments
$(32) $(44) $(40) $25 $(13) $134 Current Cost of Investments $112
$38 $- $56 $324 $364 Current Fair Value of Investments $65 $21 $-
$20 $252 $418 Net Unrealized Appreciation/(Depreciation) $(47)
$(17) $- $(36) $(72) $54 Non-Accruing Loans at Face $47 $12 $- $15
$52 $29 Non-Accruing Loans at Fair Value $4 $4 $- $4 $3 $16 Equity
Interest at Fair Value(9) $50 $8 $- $- $52 $176 Debt to
EBITDA(3)(4)(5) NM 2.4 - 5.7 4.2 5.7 Interest Coverage(3)(5) NM 2.0
- 2.1 2.1 1.6 Debt Service Coverage(3)(5) NM 1.9 - 1.8 1.3 1.4
Average Age of Companies(5) 67 yrs 55 yrs - 23 yrs 38 yrs 37 yrs
Ownership Percentage(9) 64% 65% -% 58% 49% 59% Average Sales(5)(6)
$193 $23 $- $81 $68 $157 Average EBITDA(5)(7) $12 $3 $- $3 $13 $29
Average EBITDA Margin(5) 6.2% 13.0% -% 3.7% 19.1% 18.5% Total
Sales(5)(6) $480 $84 $- $626 $390 $1,561 Total EBITDA(5)(7) $19 $8
$- $20 $58 $229 % of Senior Loans(5)(8) 96% 0% 0% 29% 63% 61% % of
Loans with Lien(5)(8) 100% 61% 0% 100% 100% 100% Pre- 1999-2007
2002-2007 2004 2005 2006 2007 Aggregate Aggregate Internal Rate of
Return- All Investments(2) 17.5% 30.3% 19.0% 12.6% 17.5% 20.5%
Internal Rate of Return- Equity Investments Only(2)(10) 29.2% 53.3%
31.0% 34.5% 33.2% 37.4% Internal Rate of Return- Equity Investments
Only(2)(10)(11) 29.2% 29.7% 31.0% 34.5% 26.3% 28.8% Original
Investments and Commitments $2,257 $3,845 $4,780 $4,829 $19,529
$18,100 Total Exits and Prepayments of Original Investments $1,340
$1,454 $1,894 $704 $8,140 $7,017 Total Interest, Dividends and Fees
Collected $455 $585 $450 $165 $2,823 $2,272 Total Net Realized
(Loss) Gain on Investments $121 $148 $81 $(8) $372 $463 Current
Cost of Investments $895 $2,313 $2,639 $3,567 $10,308 $10,102
Current Fair Value of Investments $877 $3,055 $2,729 $3,529 $10,966
$10,860 Net Unrealized Appreciation/(Depreciat ion) $(18) $742 $90
$(38) $658 $758 Non-Accruing Loans at Face $46 $89 $19 $- $309 $235
Non-Accruing Loans at Fair Value $23 $20 $11 $- $85 $73 Equity
Interest at Fair Value(9) $183 $2,173 $899 $1,221 $4,762 $4,704
Debt to EBITDA(3)(4)(5) 5.3 4.8 5.5 6.4 5.6 5.6 Interest
Coverage(3)(5) 1.7 2.3 2.0 2.0 2.0 2.0 Debt Service Coverage(3)(5)
1.4 1.7 2.0 1.8 1.7 1.7 Average Age of Companies(5) 38 yrs 21 yrs
29 yrs 25 yrs 28 yrs 28 yrs Ownership Percentage(9) 31% 60% 38% 44%
47% 47% Average Sales(5)(6) $105 $103 $122 $229 $151 $151 Average
EBITDA(5)(7) $22 $34 $26 $39 $31 $32 Average EBITDA Margin(5) 21.0%
33.0% 21.3% 17.0% 20.5% 21.2% Total Sales(5)(6) $2,210 $3,194
$5,169 $9,160 $22,874 $21,684 Total EBITDA(5)(7) $381 $568 $997
$1,761 $4,041 $3,994 % of Senior Loans(5)(8) 53% 46% 45% 72% 56%
56% % of Loans with Lien(5)(8) 87% 78% 83% 95% 88% 88% NM = Not
meaningful (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. (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. 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 shareholders on Form 1099DIV. The 2007 declared dividend
to-date, totaling $3.72 per share, is anticipated to be a
distribution of ordinary taxable income. The net long-term capital
gains in the 2007 tax year totaling $142 million will be
distributed to shareholders as a part of the dividends paid in
2008. 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 $26.16 DECLARED SINCE AUGUST 1997 IPO AT
$15.00 PER SHARE % Change of Total % Change of Dividend Regular
Regular Dividend Additional Over Prior Year/Quarter Dividend Over
Prior Year Dividend Total Year Total 1997 to Q4 2007 Declared
$26.16 2008 $4.19 13% Not Planned $4.19 13% Q4 Forecast $1.10 10%
Q3 Forecast $1.05 14% Q2 Forecast $1.03 13% Q1 Forecast $1.01 14%
2007 $3.72 12% Not Planned $3.72 12% Q4 Declared $1.00 14% Q3 $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 $26.16
SHAREHOLDER CALL American Capital invites shareholders, prospective
shareholders and analysts to attend the American Capital
Shareholder Call on Wednesday, October 31, 2007 at 11:00 am ET. The
dial in number will be (888) 428-4480. International callers should
dial +1 (651) 291-5254. 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: REVIEW THE SLIDE PRESENTATION 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 October 31. 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, October 31 until 11:59 pm Wednesday, November
14. 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 889559. 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 $19 billion in capital resources under
management, 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 September 30, 2007, American Capital
shareholders have enjoyed a total return of 596% since the
Company's IPO -- an annualized return of 21%, assuming reinvestment
of dividends. American Capital has paid a total of $1.9 billion in
dividends and paid or declared $26.16 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. DATASOURCE: American Capital Strategies Ltd.
CONTACT: John Erickson, Chief Financial Officer, +1-301-951-6122,
or Tom McHale, Senior Vice President, Finance, +1-301-951-6122,
both for American Capital Strategies Ltd. Web site:
http://www.americancapital.com/
Copyright
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