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FOR IMMEDIATE RELEASE:
February 5, 2002
Contact:
John Erickson, Chief Financial Officer (301) 951-6122
AMERICAN CAPITAL NET OPERATING INCOME INCREASES 13% TO $0.59 PER SHARE FOR Q4
2001 AND 14% TO $2.24 PER SHARE FOR FULL YEAR
AMERICAN CAPITAL ANNOUNCES 2002 FORECASTS
Bethesda, MD - February 1, 2002 - American Capital Strategies Ltd. (Nasdaq:ACAS) announced today its results for the quarter and year ended December 31, 2001.
Net operating income (NOI) for the year increased 60% to $71.6 million compared to $44.7 million for 2000. NOI for the fourth quarter of 2001 increased 54% to $21.4 million compared to $14 million for the fourth quarter of 2000. On a diluted per share basis, NOI for the year increased 14% to $2.24 per share compared to $1.96 per share for 2000. This was within the February 2001 guidance of $2.21 to $2.32 per share. NOI for the fourth quarter of 2001 increased 13% to $0.59 per share compared to $0.52 per share in the fourth quarter of 2000.
"In 2001, we demonstrated our ability to increase our dividends in a difficult economic environment, not just in times of prosperity," said Chairman, President and CEO Malon Wilkus. "We paid a record breaking dividend of $2.30. Investors in American Capital earned a 22% IRR for the year, assuming reinvestment of dividends. We exited four investments, earning a weighted average 21% compounded annual return. And we raised approximately $264 million in additional capital. While others have pulled back, we have the resources and expertise to invest in outstanding middle market companies and to preserve and enhance the value of our existing portfolio. American Capital's business model is showing its flexibility and strength."
The net increase in shareholders' equity resulting from operations (NOI plus net realized gains and losses and net unrealized appreciation and depreciation of our assets) for the year was $19.9 million compared to a net decrease of $4.4 million for the year ended December 31, 2000. On a diluted per share basis, the net increase in shareholders' equity resulting from operations for the year ended December 31, 2001 was $0.62 per share compared to a decrease of $0.19 for the year ended December 31, 2000.
The net increase in shareholders' equity resulting from operations for the fourth quarter was $19.6 million compared to a net decrease of $7.6 million in the fourth quarter of 2000. On a diluted per share basis, the net increase in shareholders' equity resulting from operations for the fourth quarter of 2001 was $0.54 per share compared to a decrease of $0.28 in the fourth quarter of 2000.
"In 2001 we continued to expand the ways in which we access public capital, enhancing our resources when many of our competitors are having difficulty raising funds," said CFO John Erickson. "At the same time, the valuation decline of our own portfolio appears to be leveling off. We have benefited from our strong investment culture, systems and oversight of our portfolio companies. We have strengthened our abilities by building a strong due diligence and portfolio monitoring team, including 10 CPAs, to support our Principals and Associates. American Capital is well positioned to both harvest the benefits of an economic recovery and to take advantage of opportunities that result from continued recessionary pressures."
In the fourth quarter of 2001, American Capital completed nine financing transactions totaling a record $155.8 million, an increase of 49% over the fourth quarter of 2000's total of $104.7 million. Fourth quarter 2001 transactions were composed of $57.4 million of senior debt, $78.9 million of subordinated debt, $4.2 million of preferred stock, $1.5 million of common stock and $13.8 million of warrants.
"American Capital's ability to fund throughout the entire capital structure of a transaction is vital to our ability to serve the middle market and its financing needs," said COO Ira Wagner. "We invested $106 million in four buyouts led by American Capital; funded $56 million in transactions led by other equity sponsors; invested $161 million in direct investments in middle market companies, as well as investing $66 million to fund portfolio company growth, acquisitions and other requirements. Within those investments we stepped in to the senior debt in 6 transactions by providing $79 million of senior asset based and cash flow financing. In addition, we added four new Principals coming from private equity firms and a former CEO of one of our portfolio companies during the second half of 2001. We are well positioned to achieve our forecasts for 2002."
The weighted average interest rate on the total capital invested during the quarter was 15.2%. The weighted average interest rate on American Capital's total capital invested as of December 31, 2001 was 13.9%. Credit quality is good, with the weighted average non-accruing loans outstanding during the year totaling $21.1 million. As of December 31, 2001, five loans totaling $49.9 million were on non-accrual, including one loan totaling $30 million that was current as of that date but subsequently became delinquent and was determined to be put on non-accrual status. At December 31, 2001, the weighted average grade of American Capital's loan portfolio remained constant at 2.9 on a scale of 1 to 4, with 4 being the highest quality.
American Capital realized capital gains of $4.0 million from exiting investments in 4 portfolio companies in 2001 reaping compounded annual returns of 18%, 19%, 22% and 24%, for a weighted average return of 22%. Unrealized appreciation totaled $8.5 million at 7 portfolio companies. Unrealized appreciation was offset by $61.3 million of unrealized depreciation at 28 portfolio companies and $4.3 of unrealized depreciation on interest rate swaps for a total net depreciation of our investments of $57.1 million.
For the fourth quarter of 2001, American Capital realized capital gains of $3.7 million from equity investments at 2 portfolio companies and unrealized appreciation of $5.8 million at 7 portfolio companies. Gains and unrealized appreciation was offset by $12.4 million of unrealized depreciation at 12 portfolio companies in the fourth quarter.
Since its August 1997 IPO, American Capital has invested over $1 billion in over 60 portfolio companies. In 2001, our current portfolio companies earned over $5.5 billion in revenues and over $560 million in EBITDA. As of December 31, 2001, American Capital shareholders have enjoyed a total return of 166% since the IPO -- an annualized return of 25%. This assumes reinvestment of $7.76 in dividends paid per share during this period. On January 31, 2001 American Capital declared a $.59 per share dividend.
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2002 Guidance
Discussed below are American Capital's forecasts of results for 2002. The Company does not undertake to provide any additional disclosure regarding its expected forecasts results unless required by law.
American Capital believes the economy is poised for a recovery in 2002 and believes that the recession has leveled off. At the same time, American Capital believes that the middle market economy is still typified by illiquidity and low valuations and the risk of a double dip recession remains. The Company does not believe that it is making investments where its loans would be put seriously at risk by a double dip recession or a delayed recovery. It is the Company's view that the investing environment provides opportunities similar to the 1991-1992 recessionary period. Among other things, multiples are low and capital is scarce, and the market places a premium on liquidity and certainty that American Capital can provide. The retrenchment of senior lenders creates opportunities for American Capital to close transactions by funding throughout the capital structure of a company. The substantial growth in investing experienced by American Capital in 2001 results from these developments. As reflected in our 2002 forecasts below, it is our view that these conditions will persist throughout this year.
In light of the continued troubles in the economy, American Capital is projecting an increase of its non-accruing assets, noted below. Included in the assumptions used in preparing the forecasts below, are employee performance related compensation costs in excess of $9 million, evaluated and allocated by the Compensation and Compliance Committee of the Board of Directors among all employees. American Capital's ability to perform is greatly enhanced due to this variable cost.
Net Operating Income
As of the date of this release, American Capital believes it can achieve Net Operating Income (NOI) of $2.54 to $2.62 per share on a diluted basis for 2002 and a return on equity at cost between 13.8% and 14.8%. This projection is based on a number of factors, including those described below:
New Investments
American Capital estimates it will originate between $475 and $550 million of new investments in 2002. The timing of the new investments is expected to be weighted toward the second half of the year and the yield on these new investments should be comparable with the yield achieved on investments in 2001. The amount of new investments will depend on the market for quality investments, American Capital's capital resources and its success at placing new investments.
Loan Performance
American Capital anticipates that it will receive from $70 to $90 million of principal repayments during 2002. In addition, the Company estimates that from $60 to $75 million of loans will on average be on non-accrual status with respect to interest payments.
New Employees
In order to manage the growth in the investment portfolio, additional employees will be hired in 2002. American Capital anticipates increasing staff from 66 employees to between 85 and 108 employees in 2002, consisting of investment professionals, portfolio management professionals, marketing, technology support and administrative staff.
Certain Considerations
To achieve the growth noted above in new investments, American Capital will be required to raise additional debt or equity financing. The terms of the future debt and equity issuances cannot be determined and there can be no assurances that the debt or equity markets will be available to the Company on terms it deems favorable. If capital is not available on favorable terms, American Capital would either have to raise debt or equity capital on unfavorable terms, reduce the volume of new investments, or exit existing investments. Any of these events could cause American Capital not to achieve these forecasts.
Forward-Looking Statements
The financial outlook presented in this release contains statements concerning American Capital's beliefs. Additional risks and other risk factors are described in our filings with the Securities and Exchange Commission. We are not obligated to update our forward-looking statements and we may not. Forward-looking statements that we do not update generally will become less meaningful over time.
Impact of Adoption of Revised AICPA Audit and Accounting Guide For Investment Companies:
As we have noted in our two most recent Forms 10-Q, the AICPA Audit and Accounting Guide for Investment Companies ("the Guide") was revised and its changes are effective for American Capital's 2001 annual financial statements. Changes to the Guide impact American Capital in two areas: (1) consolidation of operating subsidiaries and (2) the accounting for loan discounts and premiums.
American Capital has one wholly owned operating subsidiary, American Capital Financial Services, Inc. ("ACFS"), which it has accounted for under the equity method in previous financial statements. The equity method was correct under the Guide that previously was in effect as well as SEC regulations. The revised Guide now specifies that an investment company will consolidate an operating subsidiary of which it holds a controlling interest. This creates a conflict between the revised Guide and current Securities and Exchange Commission ("SEC") regulations. Under SEC Regulation S-X, rule 6.0(c)(1), investment companies are prohibited from consolidating the financial statements of a non-investment company. As a result of this disparity, American Capital has requested the SEC to confirm that consolidation of wholly owned operating subsidiaries is allowed. Subject to confirmation by the SEC, in implementing the requirements of the Guide, American Capital will consolidate the results of ACFS with American Capital in its Form 10-K for the year ended December 31, 2001. For comparative purposes, the balance sheet and income statement of American Capital have been presented below on a consolidated and unconsolidated basis as of December 31, 2001 and 2000 and for the three and twelve months ended December 31, 2001 and 2000. This change only impacts the financial statement presentation of American Capital and does not affect its net asset value or earnings.
The second change to American Capital's reporting under the revised Guide is that loan origination fees will now be amortized using the effective interest method rather than being recognized when received. Pursuant to the prior Guide, American Capital's previous policy was to recognize loan origination fees when they were collected. Under the new guidance loan origination fees received at issuance of the loan are recorded as loan discounts and accreted into interest income over the life of the loan using the effective interest method. The Guide specifies that the effect of initially applying required changes will not result in adjustments to the net assets reported in the financial statements. Rather the cumulative effect of the change should be reflected as an adjustment to the disclosed amount of amortized cost of debt securities held as of the beginning of the year in which this Guide is first applied, based on retroactive recomputation of premium or discount from the initial acquisition date of each security.
Accordingly, to comply with the Guide, American Capital has calculated the cumulative effect of this change for all loans originated during the period from IPO through December 31, 2000, and recorded a $6.2 million increase in the value of debt investments and a corresponding debt discount. In addition, American Capital recorded an increase of $6.2 million in net unrealized appreciation and a $6.2 million decrease in undistributed net realized earnings. The net impact of these changes result in American Capital's net asset value remaining unchanged as specified in the guidance. These entries are reflected on the December 31, 2001 balance sheet. In addition, for the three months and year ended December 31, 2001, American Capital has recorded loan origination fees as discounts and accreted the discounts into interest income using the effective interest method. The impact of this change on 2001 net operating income is the difference between the decrease in fee income caused by recording loan origination fees as discounts and the increase in interest income from the accretion of loan discounts recorded as part of the cumulative effect of the accounting change. Upon early repayment of loans, collections of unamortized loan discounts are recorded as realized gains.
For the three months ended December 31, 2001, the implementation of the Guide's changes in accounting standards resulted in a net decrease of net operating income of $0.5 million, or $0.01 per share, an increase in realized gains of $0.5 million, or $0.01 per share, and no net change to the increase in shareholders' equity resulting from operations. For the year ended December 31, 2001, the impact of the implementation was a decrease in net operating income of $0.9 million, or $0.03 per share, an increase in realized gains of $0.5 million, or $0.02 per share, and a $0.4 million decrease, or $0.01 per share, in shareholders' equity resulting from operations. Without the changes, net operating income would have been $2.27 per share and the increase in shareholders' equity resulting from operations would have been $0.64. There is no change to the fee recognition policy of American Capital's operating subsidiary ACFS.
Financial highlights for the quarter and year to date period are as follows.
AMERICAN CAPITAL STRATEGIES, LTD.
Consolidated Balance Sheets
(In thousands except per share data)
|
December 31, 2001 |
December 31, 2000 |
|
| Assets |
|
| Cash and cash equivalents |
$18,890 |
$11,569 |
| Investments at fair value (cost of $890,224 and $557,944, respectively) |
860,339 |
585,746 |
| Interest receivable |
12,957 |
4,934 |
| Other |
13,332 |
11,750 |
|
| Total assets |
$905,518 |
$613,999 |
|
| Liabilities and Shareholders' Equity |
|
| Revolving credit facility |
$147,646 |
$68,002 |
| Notes payable |
103,495 |
87,200 |
| Accrued dividends payable |
3,420 |
6,163 |
| Other |
9,358 |
7,467 |
|
| Total liabilities |
263,919 |
168,832 |
|
| Shareholders' Equity |
|
Undesignated preferred stock, $0.01 par value,
5,000 shares authorized, 0 issued and outstanding |
-- |
-- |
Common stock, $.01 par value, 70,000 shares authorized,
and 38,017 and 28,003 issued and outstanding, respectively |
380 |
280 |
| Capital in excess of par value |
699,291 |
448,587 |
| Notes receivable from sale of common stock |
(27,143) |
(27,389) |
| Distributions in excess of net realized earnings |
(4,069) |
(341) |
| Net unrealized (depreciation) appreciation of investments |
(26,860) |
24,030 |
|
| Total shareholders' equity |
641,599 |
445,167 |
|
| Total liabilities and shareholders' equity |
$905,518 |
$613,999 |
|
|
AMERICAN CAPITAL STRATEGIES, LTD.
Consolidated Statements of Operations
(In thousands except per share data)
|
Three Months Ended
December 31, |
Year Ended
December 31, |
|
2001 |
2000 |
2001 |
2000 |
|
| Operating income: |
|
| Interest and dividend income |
$24,134 |
$18,621 |
$88,286 |
$58,733 |
| Fees |
6,095 |
4,392 |
15,951 |
11,319 |
|
| Total operating income |
30,229 |
23,013 |
104,237 |
70,052 |
|
| Operating expenses: |
|
| Salaries and benefits |
4,535 |
3,614 |
14,571 |
11,259 |
| General and administrative |
2,426 |
2,165 |
7,698 |
6,432 |
| Interest |
1,840 |
3,340 |
10,343 |
9,691 |
|
| Total operating expenses |
8,801 |
9,119 |
32,612 |
27,382 |
|
| Operating income before income taxes |
21,428 |
13,894 |
71,625 |
42,670 |
| Income tax benefit |
-- |
108 |
-- |
2,000 |
|
| Net operating income |
21,428 |
14,002 |
71,625 |
44,670 |
| Net realized gain on investments |
5,058 |
-- |
5,369 |
4,539 |
| Decrease in net unrealized appreciation of investments |
(6,870) |
(21,612) |
(57,055) |
(53,582) |
|
| Net increase (decrease) in shareholders' equity resulting from operations |
$19,616 |
$(7,610) |
$19,939 |
$(4,373) |
|
| Net operating income per common share: |
| Basic |
$0.60 |
$0.53 |
$2.27 |
$2.00 |
| Diluted |
$0.59 |
$0.52 |
$2.24 |
$1.96 |
|
| Earnings (loss) per common share: |
| Basic |
$0.55 |
$(0.29) |
$0.63 |
$(0.20) |
| Diluted |
$0.54 |
$(0.28) |
$0.62 |
$(0.19) |
|
| Weighted average shares of common stock outstanding |
| Basic |
35,684 |
26,666 |
31,487 |
22,323 |
| Diluted |
36,254 |
26,849 |
32,001 |
22,748 |
|
| Dividends declared per common share |
$0.66 |
$0.74 |
$2.30 |
$2.17 |
|
|
AMERICAN CAPITAL STRATEGIES LTD.
Unconsolidated Balance Sheets
(In thousands except per share data)
|
December 31, 2001 |
December 31, 2000 |
|
| Assets |
|
| Cash and cash equivalents |
$18,246 |
$11,192 |
| Investments at fair value (cost of $765,161 and $563,331, respectively) |
856,927 |
582,108 |
| Investment in unconsolidated operating subsidiary |
-- |
$,120 |
| Due from unconsolidated operating subsidiary |
10,203 |
7,433 |
| Interest receivable |
12,957 |
4,935 |
| Other |
7,397 |
7,856 |
|
| Total assets |
$905,730 |
$614,644 |
|
| Liabilities and Shareholders' Equity |
|
| Revolving credit facility |
$147,646 |
$68,002 |
| Notes payable |
103,495 |
87,200 |
| Investment in unconsolidated operating subsidiary |
1,186 |
-- |
| Accrued dividends payable |
3,420 |
6,163 |
| Other |
8,384 |
8,112 |
|
| Total liabilities |
264,131 |
169,477 |
|
| Shareholders' equity |
|
Undesignated preferred stock, $0.01 par value, 5,000 shares
authorized, 0 issued and outstanding |
-- |
-- |
Common stock, $.01 par value, 70,000 shares authorized, and 38,017
and 28,003 issued and outstanding, respectively |
380 |
280 |
| Capital in excess of par value |
699,291 |
448,587 |
| Notes receivable from sale of common stock |
(27,143) |
(27,389) |
| Distributions in excess of net realized earnings |
(4,069) |
(341) |
| Net unrealized (depreciation) appreciation of investments |
(26,860) |
24,030 |
|
| Total shareholders' equity |
641,599 |
445,167 |
|
| Total liabilities and shareholders' equity |
$905,730 |
$614,644 |
|
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AMERICAN CAPITAL STRATEGIES LTD.
Unconsolidated Statements of Operations
(In thousands except per share data)
|
Three Months
Ended
December 31,
2001 |
Three Months
Ended
December 31,
2000 |
Year Ended
December 31,
2001 |
Year Ended
December 31,
2000 |
|
| Operating income: |
|
| Interest and dividend income |
$24,134 |
$18,621 |
$88,286 |
$58,733 |
| Loan fees |
633 |
740 |
1,395 |
3,995 |
|
| Total operating income |
24,767 |
19,361 |
89,681 |
62,728 |
|
| Operating expenses: |
|
| Salaries and benefits |
769 |
564 |
2,357 |
2,179 |
| General and administrative |
862 |
769 |
3,050 |
2,414 |
| Interest |
1,840 |
3,340 |
10,343 |
9,691 |
|
| Total operating expenses |
3,471 |
4,673 |
15,750 |
14,284 |
|
Operating income before equity in loss of unconsolidated
operating subsidiary |
21,296 |
14,688 |
73,931 |
48,444 |
Equity in earnings (loss) of unconsolidated
operating subsidiary |
132 |
(686) |
(2,306) |
(3,773) |
|
| Net operating income |
21,428 |
14,002 |
71,625 |
44,671 |
| Net realized gain on investments |
5,058 |
-- |
5,369 |
5,369 |
| Net unrealized depreciation of investments |
(6,870) |
(21,612) |
(57,055) |
(53,582) |
|
Net increase (decrease) in shareholders'
equity resulting from operations |
$19,616 |
$(7,610) |
$19,939 |
$(4,373) |
|
| Net operating income per common share: |
| Basic |
$0.60 |
$0.53 |
$2.27 |
$2.00 |
| Diluted |
$0.59 |
$0.52 |
$2.24 |
$1.96 |
|
| Earnings (loss) per common share: |
| Basic |
$0.55 |
$(0.29) |
$0.63 |
$(0.20) |
| Diluted |
$0.54 |
$(0.28) |
$0.62 |
$(0.19) |
|
| Weighted average shares of common stock outstanding |
| Basic |
$35,684 |
$26,666 |
$31,487 |
$22,323 |
| Diluted |
$36,254 |
$26,849 |
$32,001 |
$22,748 |
|
| Dividends declared per common share |
$0.66 |
$0.74 |
$2.30 |
$2.17 |
|
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Portfolio Statistics
On a Weighted Average Basis*
($ in millions): |
Aggregate |
2001
Static Pool |
2000
Static Pool |
1999
Static Pool |
Pre-1999
Static Pool |
|
| Original Investments at Cost |
$1,012 |
$389 |
$275 |
$177 |
$171 |
| Total Exits and Prepayments |
$110 |
-- |
$37 |
$17 |
$56 |
| Realized Gain on Investments |
$12 |
-- |
$12 |
$4 |
$6 |
| Current Cost of Original Investments |
$873 |
$378 |
$234 |
$150 |
$111 |
| Fair Value of Investments |
$851 |
$379 |
$220 |
$152 |
$101 |
| Non-Accruing Loans |
$50 |
-- |
$35 |
$4 |
$10 |
|
| Interest Coverage |
2.1 |
2.2 |
1.9 |
2.2 |
1.9 |
| Debt Service Coverage |
1.5 |
1.7 |
1.3 |
1.4 |
1.7 |
| Debt to EBITDA |
5.4 |
4.5 |
6.5 |
5.3 |
7.0 |
| Investment Grade |
2.9 |
3.0 |
2.7 |
3.1 |
2.4 |
|
| Average Age of Companies** |
44 years |
43 years |
46 years |
49 years |
38 years |
| Total Sales** |
$5,933 |
$2,681 |
$746 |
$1,508 |
$998 |
| Average Sales** |
$129 |
$168 |
$102 |
$92 |
$104 |
| Total EBITDA** |
$561 |
$248 |
$86 |
$152 |
$75 |
| Average EBITDA** |
$14 |
$19 |
$14 |
$10 |
$9 |
| Ownership Percentage** |
36% |
35% |
39% |
41% |
30% |
| % with Senior Lien*** |
21% |
29% |
21% |
8% |
21% |
| % with Senioror Junior Lien*** |
83% |
71% |
90% |
92% |
87% |
|
|
*These amounts do not include investments in which American Capital owns only equity.
**Includes American Capital's equity investment in Electrolux and o2wireless Solutions.
***As a percentage of American Capital's total debt investments.
American Capital invites prospective shareholders, shareholders and analysts to attend the American Capital Shareholder Call on Wednesday, February 6 at 11:00 am ET. The dial in number is 800-230-1074. International callers should dial 612-288-0329. 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 and click on the February 6 Shareholder Call Slide Show button. The quarterly shareholder presentation includes a summary slide show to accompany the call that participants may download and print, a longer version with supplementary information, and a downloadable spreadsheet with summary financial data. 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 February 5. We hope that you will 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 6:00 pm February 6 to 11:00 pm February 16. If you are interested in hearing the recording of the presentation, please dial 800-475-6701 and enter code 621544. International callers may dial 320-365-3844 and enter the same code, 621544. We will also have the Shareholder Slide Shows available on our website.
For further information or questions, please do not hesitate to call our Shareholder Relations department at (301) 951-6122.
American Capital is a publicly traded buyout and mezzanine fund with capital resources exceeding $1 billion. American Capital is an equity partner in management and employee buyouts; invests in debt and equity of companies led by private equity firms, and provides capital directly to private and small public companies. American Capital funds growth, acquisitions and recapitalizations. The Company has paid and declared $8.35 per share in dividends since going public in 1997.
Companies interested in learning more about American Capital's flexible financing and ability to provide senior debt, subordinated debt and equity should contact Mark Opel, Principal, at (800) 248-9340, or visit our website.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.
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