American Capital Declares $0.70 Q2 Dividend, Reports Q1 Results
BETHESDA, Md., May 4 /PRNewswire-FirstCall/ -- American Capital
Strategies Ltd. announced today its Board of Directors has declared
a second quarter 2004 regular dividend of $0.70 per share, payable
on July 1, 2004 to record holders as of May 18, 2004. This dividend
is a 3% increase over the second quarter 2003 regular dividend of
$0.68 per share. American Capital has paid a total of $476 million
in dividends, and paid or declared $14.52 in dividends per share
since its August 1997 IPO at $15.00 per share. In addition,
American Capital announced today its results for the quarter ended
March 31, 2004. Net operating income (NOI) for the quarter
increased 35% to $42 million compared to $31 million for first
quarter 2003. On a diluted per share basis, NOI decreased 6% to
$0.61 per share compared to $0.65 per share for first quarter 2003.
NOI before stock-based compensation expense for the quarter
increased 40% to $43 million compared to the first quarter 2003. On
a diluted per share basis, NOI before stock-based compensation
expense for the quarter decreased 3% to $0.63 per share. "We are
pleased to announce the second quarter dividend of $0.70 per
share," reported Chairman, CEO and President Malon Wilkus. "Our
first quarter results are consistent with our plan for 2004 and the
second quarter is also well on track. Therefore, we are reiterating
our forecast of $2.88 to $3.00 of dividends per share for the year
paid from ordinary income for tax purposes. Our plan also
anticipates an improving economy and a rising interest rate
environment. Because our portfolio is hedged, changes in interest
rates should have little impact on our marginal yield. And, with
$569 million of equity interest in portfolio companies, an
improving economy bodes well for future capital gains. Finally, it
is worth noting that the rationalization that we have been leading
and predicting for years is developing as major private equity
firms sponsor BDCs, replacing private equity and mezzanine
partnerships, just as REITs in the past replaced real estate
partnerships." For the quarter, the net increase in shareholders'
equity resulting from operations (NOI plus net unrealized
appreciation and depreciation and net realized gains and losses of
assets) was $35 million, or $0.51 per diluted share, compared to a
net decrease in shareholders' equity resulting from operations of
$1 million, or $0.02 per diluted share, in first quarter 2003. "The
improving economy is having a positive impact on our portfolio,
which has appreciated a net $10 million," commented Chief Financial
Officer John Erickson. "This marks the second quarter in a row that
the portfolio experienced net appreciation and the percentage of
loans on non-accrual or delinquent declined to the lowest level in
over two years. For the quarter, we recognized net realized losses
of $57 million, consisting primarily of $60 million of realized
losses at three portfolio companies, which were substantially
depreciated and on non-accrual in prior periods. The net impact to
earnings in the first quarter of all the exits was approximately $5
million. These exits are consistent with our plan and we expect
realized gains to exceed these losses for the year." In first
quarter 2004, American Capital invested $239 million, composed of
$55 million of senior debt, $110 million of subordinated debt, $49
million of preferred stock, $15 million of common stock warrants
and $10 million of common stock. Two investments, totaling $117
million, were in American Capital-sponsored buyouts of new
portfolio companies. Five investments, totaling $100 million, were
in buyouts led by private equity firms. One investment, totaling $6
million, was an investment in an existing portfolio company to
finance a strategic acquisition. Three investments, totaling $7
million, were in investments in existing portfolios for growth or
recapitalizations. Four investments, totaling $9 million, were
distress- related investments in existing portfolio companies.
Total invested assets at fair value increased 9% to $2.1 billion at
March 31, 2004 as compared to $1.9 billion at December 31, 2003.
"We had a record first quarter, closing $239 million of
investments," said COO Ira Wagner. "Our first quarter is typically
the lightest quarter of the year for investing activity, so this
record volume positions us well to achieve our forecasts for the
remainder of the year. Our investment pipeline remains robust and
we expect another record breaking year for investment activity at
American Capital. We do not believe the new BDCs that have recently
gone public and those that may follow will have a meaningful impact
on our business. Private equity and mezzanine partnerships raised
over $26 billion last year, one of the lowest levels in years,
increasing the pool of available capital to over $90 billion. The
amount of capital that may be raised by these new BDCs represents a
small fraction of the capital with which we compete and will likely
be replacing capital that would otherwise be raised by
partnerships." The weighted average interest rate on new
investments in debt securities during the quarter was 14.2%. The
weighted average effective interest rate on American Capital's
total investments in debt securities as of March 31, 2004 was
13.5%. At March 31, 2004, the weighted average loan grade of
American Capital's loan portfolio remained at 3.0 on a scale of 1
to 4, with 4 being the highest quality. As of March 31, 2004, loans
in seven portfolio companies totaling $67 million, with a fair
value of $28 million, were on non-accrual. Delinquent and
non-accruing loans totaled $102 million, or 6% of total loans, at
March 31, 2004 compared to $164 million, or 10% of total loans, at
December 31, 2003. In first quarter 2004, American Capital
experienced net realized losses of $57 million, comprised of $3
million of gross realized gains and $60 million of gross realized
losses. Since the Company's August 1997 IPO, cumulative net
realized losses have totaled $42 million. In first quarter 2004,
net unrealized appreciation totaled $50 million, consisting of net
unrealized appreciation of $10 million from current portfolio
companies ($49 million of unrealized appreciation at 18 portfolio
companies and $39 million of unrealized depreciation at 13
portfolio companies), $52 million of net unrealized appreciation
resulting from the recognition of net realized losses, and $12
million of depreciation on interest rate hedging agreements.
(Interest rate swaps are required by American Capital's loan
agreements and asset securitizations to lock in interest rate
spreads on the securitized investments and reduce interest rate
risk. They appreciate or depreciate based on relative market
interest rates and their remaining term to maturity.) Since the
Company's August 1997 IPO, cumulative net unrealized depreciation
plus net realized losses totals $123 million, or $88 million
excluding interest rate hedging agreements at March 31, 2004. Since
its August 1997 IPO through first quarter 2004, American Capital
has earned a 14% compounded annual return on 60 exits and
prepayments of senior debt, subordinated debt and equity, totaling
$713 million of invested capital, including interest payments,
dividends, fees and net realized gains on these investments. These
exits and prepayments represent 25% 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 $27 million in aggregate, or 5%.
Thirty-one 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 2004, $26 million of American Capital's accrued
payment-in-kind (PIK) interest and dividends and accreted original
issue discount (OID) have been repaid, representing 21% of all PIK
and OID. From its 1997 IPO through the first quarter of 2004,
American Capital's annual rate of net realized loss on its
investments was 1% of investments based on American Capital's
realized gains and losses and assuming remaining portfolio assets
are exited at current cost at period end. For the same period,
American Capital's annual rate of net loss on its investments was
2% of investments based on American Capital's realized gains and
losses and assuming remaining portfolio assets are exited at fair
value at period end. ENGAGEMENT OF HOULIHAN LOKEY HOWARD AND ZUKIN
As part of its quarterly process of valuing the Company's
investment portfolio, the Company engaged Houlihan Lokey Howard
& Zukin Financial Advisors Inc. ("Houlihan Lokey") in the third
quarter of 2003 to independently review, on a quarterly basis, the
determination of fair value of a portion of American Capital's
portfolio company investments. Houlihan Lokey is the premier
valuation firm in the U.S., engaged in approximately 800 valuation
assignments per year for clients worldwide. As part of its
engagement, Houlihan Lokey reviews quarterly a random selection of
approximately 25% of American Capital's portfolio companies, with
the intention of reviewing all portfolio company investments over
the course of a year. Houlihan Lokey attends American Capital's
quarterly valuation meetings and provides periodic reports and
recommendations to the American Capital Audit Committee with
respect to American Capital's valuation models, policies and
procedures. For the first quarter of 2004, Houlihan Lokey reviewed
the Company's valuations of approximately 25% of American Capital's
portfolio company investments, representing 25 companies, having
$636 million in fair value as reflected in American Capital's
financial statements as of March 31, 2004. Using methods and
techniques that are customary for the industry and that Houlihan
Lokey considers appropriate under the circumstances, Houlihan Lokey
determined that the aggregate fair value assigned to the portfolio
company investments by American Capital was within their reasonable
range of aggregate value for such companies. Houlihan Lokey came to
the same determination on different sets of 42 portfolio companies
during the third and fourth quarters of 2003, totaling $891 million
in fair value as of the respective quarter ends. Houlihan Lokey has
now valued approximately 75% of the current portfolio. Financial
highlights for the quarter are as follows: AMERICAN CAPITAL
STRATEGIES, LTD. CONSOLIDATED BALANCE SHEETS (In thousands) March
31, December 31, 2004 2003 (unaudited) Assets Investments at fair
value (cost of $2,161,131 and $2,042,914, respectively)
Non-Control/Non-Affiliate investments $ 684,622 $ 756,158 Control
investments 1,208,634 1,041,144 Affiliate investments 222,060
137,917 Interest rate hedging agreements (35,713) (23,476) Total
investments at fair value 2,079,603 1,911,743 Cash and cash
equivalents 8,677 8,020 Restricted cash 35,351 75,935 Interest
receivable 20,716 17,636 Other 27,414 28,390 Total assets $
2,171,761 $ 2,041,724 Liabilities and Shareholders' Equity Notes
payable $ 612,813 $ 724,211 Revolving credit facilities 242,349
116,000 Repurchase agreements 42,495 - Accrued dividends payable -
3,957 Other 13,309 21,641 Total liabilities 910,966 865,809
Commitments and Contingencies Shareholders' equity: Undesignated
preferred stock, $.0.01 par value, 5,000 shares authorized, 0
issued and outstanding - - Common stock, $0.01 par value, 70,000
shares authorized, 69,233 and 66,930 issued, and 69,233 and 65,949
outstanding, respectively 692 659 Capital in excess of par value
1,460,853 1,360,181 Unearned compensation (25,341) (21,286) Notes
receivable from sale of common stock (8,411) (8,783) Distributions
in excess of net realized earnings (85,470) (23,685) Net unrealized
depreciation of investments (81,528) (131,171) Total shareholders'
equity 1,260,795 1,175,915 Total liabilities and shareholders'
equity $ 2,171,761 $ 2,041,724 AMERICAN CAPITAL STRATEGIES, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per
share data) Three Months Ended March 31, 2004 2003 (Unaudited)
OPERATING INCOME: Interest and dividend income
Non-Control/Non-Affiliate investments $ 23,102 $ 19,901 Control
investments 26,201 17,004 Affiliate investments 6,253 1,476
Interest rate swap agreements (5,945) (3,676) Total interest and
dividend income 49,611 34,705 Fees Non-Control/Non-Affiliate
investments 1,556 6,859 Control investments 8,542 1,498 Affiliate
investments 876 2 Total fee income 10,974 8,359 Total operating
income 60,585 43,064 OPERATING EXPENSES: Interest 6,045 4,011
Salaries and benefits 5,743 4,674 General and administrative 5,880
3,616 Stock-based compensation 1,368 - Total operating expenses
19,036 12,301 NET OPERATING INCOME 41,549 30,763 Net realized gain
(loss) on investments Non-Control/Non-Affiliate investments
(11,152) 3,191 Control investments (45,434) 714 Affiliate
investments (3) - Total net realized gain (loss) on investments
(56,589) 3,905 Net unrealized appreciation (depreciation) of
investments Non-Control/Non-Affiliate investments 9,829 (9,544)
Control investments 50,320 (26,964) Affiliate investments 1,731
1,339 Interest rate swap agreements (12,237) (474) Total net
unrealized appreciation (depreciation) of investments 49,643
(35,643) NET INCREASE (DECREASE) IN SHAREHOLDERS' EQUITY RESULTING
FROM OPERATIONS $ 34,603 $ (975) NET OPERATING INCOME PER COMMON
SHARE: Basic $ 0.62 $ 0.65 Diluted $ 0.61 $ 0.65 NET EARNINGS
(LOSS) PER COMMON SHARE: Basic $ 0.52 $ (0.02) Diluted $ 0.51 $
(0.02) WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic
67,126 47,393 Diluted 68,269 47,578 DIVIDENDS DECLARED PER COMMON
SHARE $ 0.70 $ 0.67 American Capital provides disclosure of its NOI
before stock-based compensation because it feels it is useful and
relevant to investors as it is an important measure of how we
internally evaluate our operating results. Disclosure of NOI before
stock-based compensation is not a substitute for NOI or any other
measure as prescribed by generally accepted accounting principles.
The following is a reconciliation of NOI before stock-based
compensation expense to NOI: AMERICAN CAPITAL STRATEGIES, LTD.
RECONCILIATION OF NET OPERATING INCOME BEFORE STOCK-BASED
COMPENSATION EXPENSE TO NET OPERATING INCOME (In thousands, except
per share data) Three Months Ended March 31, 2004 2003 (Unaudited)
Net operating income $ 41,549 30,763 Stock-based compensation 1,368
- Net operating income before stock-based compensation $ 42,917
30,763 Net operating income per common share: Basic $ 0.62 $ 0.65
Diluted $ 0.61 $ 0.65 Net operating income before stock-based
compensation per common share: Basic $ 0.64 $ 0.65 Diluted $ 0.63 $
0.65 Weighted average shares of common stock outstanding: Basic
67,126 47,393 Diluted 68,269 47,578 Portfolio Statistics(1) On a
Weighted Average Basis Static Pool ($ in millions, Pre- unaudited):
1999 1999 2000 2001 Original Investments and Commitments $320 $342
$260 $363 Total Exits and Prepayments of Original Investments $101
$111 $155 $165 Total Interest, Dividends and Fees Collected $99
$107 $65 $102 Total Net Realized (Loss) Gain on Investments $(6) $7
$(75) $38 Internal Rate of Return 7.8% 9.1% (4.5%) 27.0% Current
Cost of Investments $218 $226 $112 $191 Current Fair Value of
Investments $170 $162 $84 $201 Non-Accruing Loans at Face $14 $21
$21 $ - Equity Interest at Fair Value $12 $43 $27 $49 Debt to
EBITDA(2)(3) 10.0 7.5 5.7 6.7 Interest Coverage(2) 1.5 1.9 1.8 1.7
Debt Service Coverage(2) 1.4 1.4 0.9 1.1 Loan Grade(2) 2.9 2.1 2.1
2.6 Average Age of Companies 41 yrs 52 yrs 37 yrs 45 yrs Average
Sales(4) $80 $110 $78 $172 Average EBITDA(5) $4 $15 $13 $18
Ownership Percentage 78% 60% 33% 46% % with Senior Lien(6) 31% 15%
3% 43% % with Senior or Junior Lien(6) 54% 64% 94% 88% Total
Sales(4) $490 $1,148 $284 $1,920 Total EBITDA(5) $13 $112 $50 $232
Portfolio Statistics(1) On a Weighted Average Basis Static Pool ($
in millions, unaudited): 2002 2003 2004 Aggregate Original
Investments and Commitments $546 $861 $217 $2,909 Total Exits and
Prepayments of Original Investments $88 $93 $ - $713 Total
Interest, Dividends and Fees Collected $102 $80 $10 $565 Total Net
Realized (Loss) Gain on Investments $(13) $7 $ - $(42) Internal
Rate of Return 23.3% 27.7% 150.6% 13.9% Current Cost of Investments
$478 $724 $212 $2,161 Current Fair Value of Investments $545 $741
$212 $2,115 Non-Accruing Loans at Face $11 - - $67 Equity Interest
at Fair Value $190 $181 $67 $569 Debt to EBITDA(2)(3) 4.4 3.9 4.7
5.2 Interest Coverage(2) 2.9 2.8 2.8 2.5 Debt Service Coverage(2)
1.9 1.8 1.5 1.6 Loan Grade(2) 3.3 3.1 3.0 3.0 Average Age of
Companies 32 yrs 27 yrs 60 yrs 37 yrs Average Sales(4) $61 $96 $76
$91 Average EBITDA(5) $10 $17 $10 $13 Ownership Percentage 48% 38%
58% 48% % with Senior Lien(6) 18% 21% 26% 22% % with Senior or
Junior Lien(6) 80% 86% 100% 82% Total Sales(4) $1,095 $2,898 $536
$8,371 Total EBITDA(5) $164 $459 $75 $1,105 (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. (2) These amounts do not include
investments in which the Company owns only equity. (3) For
portfolio companies with a nominal EBITDA amount, the portfolio
company's maximum debt leverage is limited to 15 times EBITDA. (4)
Sales of the most recent twelve months, or when appropriate, the
forecasted twelve months. (5) EBITDA of the most recent twelve
months, or when appropriate, the forecasted twelve months. (6) As a
percentage of the Company's 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 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 unrealized
appreciation and depreciation 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 first and second quarter 2004
dividends totaling $1.40 per share are anticipated to be a
distribution of ordinary income for tax purposes. A summary of
American Capital's dividend history follows. For further dividend
history, please visit our website. American Capital offers a
Dividend Reinvestment Plan (DRIP). For more information regarding
this Plan, please visit our website or call its Shareholder
Relations Department at (301) 951-6122. AMERICAN CAPITAL'S DIVIDEND
HISTORY $14.52 Declared Since August 1997 IPO % Change Over Prior
Year Dividend Quarter and Additional Year/Quarter Amount Prior Year
Total Dividend Total 2004 Q2 $0.70 3 % $1.40 Q1 $0.70 4 % 2003
$2.73 7 % $0.06 $2.79 Q4 $0.69 3 % Q3 $0.69 5 % Q2 $0.68 8 % Q1
$0.67 14 % 2002 $2.55 15 % $0.02 $2.57 Q4 $0.67 18 % Q3 $0.66 18 %
Q2 $0.63 15 % Q1 $0.59 11 % 2001 $2.21 13 % $0.09 $2.30 Q4 $0.57 10
% Q3 $0.56 14 % Q2 $0.55 12 % Q1 $0.53 18 % 2000 $1.95 14 % $0.22
$2.17 Q4 $0.52 18 % Q3 $0.49 14 % Q2 $0.49 14 % Q1 $0.45 10 % 1999
$1.71 39 % $0.03 $1.74 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 $14.52 American
Capital invites shareholders, prospective shareholders and analysts
to attend the American Capital Shareholder Call on Wednesday, May 5
at 11:00 am ET. The dial in number will be (888) 276-9995.
International callers should dial 612-332-0345. Please advise the
operator you are dialing in for the American Capital Shareholder
Call. During the Shareholder Call, we invite you to turn to our
shareholder website, http://www.acas.com/, and click on the May 5
Shareholder Call Slide Show button. The quarterly shareholder
presentation includes a summary slide show to accompany the call
that participants may download and print and a longer version with
supplementary information. Participants will also be able to access
the complete streaming presentation on our website. The shareholder
presentation will be made available shortly after the earnings
release on May 4. You may wish to take the time to review the
slides in advance of the Shareholder Call. For the convenience of
our shareholders, there will be a recording available from 9:30 pm
May 5 until 11:59 pm May 15. If you are interested in hearing the
recording of the presentation, please dial 800-475-6701.
International callers may dial 320-365-3844. The access code for
both domestic and international callers is 728507. We will also
have the Shareholder Slide Shows with audio accompaniment available
on our website, http://www.acas.com/, starting May 6. For further
information or questions, please do not hesitate to call our
Shareholder Relations department at (301) 951-6122. Since its
August 1997 IPO, American Capital has invested over $2.9 billion in
112 portfolio companies. As of April 30, 2004, American Capital
shareholders have enjoyed a total return of 213% since the
Company's IPO -- an annualized return of 19%, assuming reinvestment
of dividends. American Capital has paid a total of $476 million in
dividends and paid or declared $14.52 dividends per share since its
August 1997 IPO at $15 per share. American Capital is a publicly
traded buyout and mezzanine fund with capital resources of
approximately $2.7 billion. American Capital is an investor in and
sponsor of management and employee buyouts, invests in private
equity buyouts, and provides capital directly to private and small
public companies. American Capital provides senior debt, mezzanine
debt and equity to fund growth, acquisitions and recapitalizations.
Companies interested in learning more about American Capital's
flexible financing should contact Mark Opel, Principal, at (800)
248-9340, or visit our website at http://www.americancapital.com/.
This press release contains forward-looking statements. The
statements regarding expected results of American Capital
Strategies are subject to various factors and uncertainties,
including the uncertainties associated with the timing of
transaction closings, changes in interest rates, availability of
transactions, changes in regional or national economic conditions,
or changes in the conditions of the industries in which American
Capital has made investments. DATASOURCE: American Capital
Strategies Ltd. CONTACT: John Erickson, Chief Financial Officer of
American Capital Strategies Ltd., +1-301-951-6122 Web site:
http://www.americancapital.com/
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