BETHESDA, Md., Oct. 31 /PRNewswire-FirstCall/ -- American Capital Strategies Ltd. announced today its fourth quarter 2006 dividend and its results for the third quarter of 2006.
FOURTH QUARTER 2006 DIVIDEND DECLARATION
American Capital's Board of Directors has declared a fourth quarter 2006 regular dividend of $0.88 per share to record holders as of December 6, 2006, payable on January 18, 2007. This is an 11% increase over the fourth quarter 2005 regular dividend of $0.79 per share. Dividends declared in 2006 total $3.33 per share compared to $3.08 per share in 2005, an 8% increase. American Capital has paid a total of $1.3 billion in dividends and paid or declared dividends of $22.44 per share since its August 1997 IPO at $15.00 per share.
THIRD QUARTER 2006 RESULTS
In addition, American Capital announced today its results for the quarter ended September 30, 2006. Realized earnings (earnings less unrealized appreciation and depreciation) for the quarter increased 96% to $162 million, compared to $82 million for third quarter of 2005. On a basic per share basis, realized earnings increased 41% to $1.14 per share compared to $0.81 per share for the third quarter of 2005.
Net operating income (earnings less appreciation, depreciation, gains and loss ("NOI")) for the quarter increased 28% to $110 million compared to $86 million for third quarter of 2005. On a basic per share basis, NOI decreased 7% to $0.78 per share compared to $0.84 per share in the third quarter of 2005.
For the quarter, the net increase in net assets resulting from operations (earnings) was $132 million, or $0.93 per basic share, compared to $94 million, or $0.92 per basic share, in the third quarter of 2005.
Third quarter 2006 dividends were $0.83 per share, a 6% growth over third quarter 2005 dividends of $0.78 per share. American Capital's realized earnings of $1.14 per basic share were 137% greater than the third quarter 2006 dividend per share. American Capital's net asset value per share at September 30, 2006 was $27.96, a $3.59 or 15% growth over the December 31, 2005 net asset value per share of $24.37, and $4.62 or 20% growth over the September 30, 2005 net asset value per share of $23.34.
"The third quarter results were extremely strong with realized earnings of $1.14 per share," said Malon Wilkus, American Capital Chairman, President and CEO. "We have increased our regular quarterly dividend for the fourth quarter to $0.88 per share, exceeding our previous guidance by $0.04 per share. This increase reflects a number of positive factors, including outstanding portfolio performance, the impact of our growing asset management business including European Capital and American Capital Equity I, and our assessment of the future performance of our realized earnings and, ultimately, our taxable income. We plan to release dividend guidance for 2007 in February. We expect that the creation of the $1 billion American Capital Equity I will be accretive to our 2007 NOI by more than $0.25 per basic share."
In the third quarter of 2006, American Capital invested $1.2 billion of capital and received $811 million of proceeds from amortization and exits of portfolio investments. In the third quarter of 2006, American Capital recorded $46 million in portfolio net realized gains and $5 million in net realized gains attributable to interest rate derivatives. In the third quarter of 2006, net unrealized depreciation totaled $30 million, consisting of gross appreciation of $136 million from 37 portfolio companies, $123 million of gross depreciation from 28 portfolio companies, $15 million of net unrealized depreciation resulting from the recognition of net realized gains, $15 million of net unrealized appreciation associated with the translation of foreign currency denominated investments and $42 million of net depreciation on interest rate derivatives. Interest rate derivatives are required by American Capital's loan agreements and asset securitizations to lock in interest rate spreads and reduce interest rate risks. They appreciate or depreciate based on relative market interest rates and remaining term to maturity.
"We received more than $800 million in capital back during the third quarter," said Ira Wagner, Chief Operating Officer. "We received $594 million in principal payments and loan sales as well as $217 million in proceeds from the sale of portfolio company equity investments, which resulted in net realized gains of $46 million. To date, we have enjoyed $410 million of net appreciation, depreciation, gains and losses from our 2001 - 2006 static pools, including $241 million of net gains and $170 million of net unrealized appreciation. Thirty-one percent of all the capital we've invested since our 1997 IPO has been exited or repaid. These net gains and appreciation and the overall volume of exits and repayments confirm the quality of our investments. We have built the finest institution for investing in the capital of private companies and we continue to see excellent opportunities."
The weighted average effective interest rate on American Capital's total investments in debt securities as of September 30, 2006 was 12.6%. At September 30, 2006, the weighted average loan grade of American Capital's loan portfolio was 3.1 on a scale of 1 to 4, with 4 being the highest quality, compared to 3.1 as of September 30, 2005. As of September 30, 2006, loans totaling $164 million, with a fair value of $63 million, were on non-accrual. Delinquent and non-accruing loans to 11 portfolio companies totaled $184 million, or 4% of total loans, at September 30, 2006, compared to $181 million, or 5% of total loans, at September 30, 2005. The $63 million fair value of non-accrual loans represented 1% of total loans at fair value, at September 30, 2006, compared to $44 million fair value of non-accrual loans representing 1% of total loans at fair value, at September 30, 2005.
"We continue to find new ways to raise capital," said Chief Financial Officer John Erickson. "We issued $212 million of equity in two direct placements to institutional investors in the third quarter. These transactions are not as expensive as broadly distributed public offerings, and do not require the marketing period of typical equity offerings. Now that we have reached $6 billion of market capitalization, we are more attractive to large-cap institutional investors. On October 1, 2006, we established American Capital Equity I, a $1 billion equity fund as part of our asset management strategy. A wholly-owned taxable affiliate of American Capital will be paid 2% of the assets of the fund annually as a management fee and receive up to 30% of its profits in return for managing American Capital Equity I. This transaction allowed us to access for the first time a set of global institutional investors with significant funds and expertise dedicated to private equity. Our sale of $670 million of equity investments to American Capital Equity I and its $330 million of untapped capital commitments for additional equity investments provide additional sources of capital to fund our business and increase our flexibility in determining how and when we raise capital."
In the third quarter of 2006, American Capital portfolio company European Capital, with $2.1 billion of capital resources, managed by a wholly-owned taxable subsidiary of American Capital, made investments in 10 portfolio companies, totaling $560 million. Since inception in September of last year, it has invested in 31 portfolio companies totaling $1.2 billion. European Capital is expected to declare its first dividend in the fourth quarter of 2006.
Since its August 1997 IPO through the third quarter of 2006, American Capital has earned an 18% compounded annual return, including interest, dividends, fees and net gains, on 149 exits and prepayments of senior debt, subordinated debt and equity investments, totaling $3.6 billion of invested capital. These exits and prepayments represent 31% of all amounts invested by American Capital since its August 1997 IPO. Proceeds from these exits and prepayments exceeded the associated prior quarter valuation of the investments by $78 million in aggregate, or 2%. Twenty 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 third quarter of 2006, $134 million of American Capital's Payment in Kind ("PIK") interest and dividends and accreted Original Interest Discount ("OID") have been repaid, representing 35% of all PIK and OID recorded.
"We substantially exited Aeriform, Iowa Mold Tooling and Optima during the third quarter," said Gordon O'Brien, Senior Vice President in charge of the 29 person Operations Team. "These companies had performed below our expectations at various times during our ownership and the Operations Team assisted them in improving their performance. Their cumulative net realized and net unrealized gains were $97 million above their lowest fair values, which demonstrates our ability to help a company manage through difficult times and as a result recover significant value that would otherwise be lost."
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 in the third quarter of 2003, the board retained Houlihan Lokey Howard & Zukin Financial Advisors Inc. ("Houlihan Lokey") to assist it by having Houlihan Lokey regularly review a designated percentage of our fair value determinations. Houlihan Lokey is a leading valuation firm in the U.S., engaged in approximately 1,000 valuation assignments per year for clients worldwide. Each quarter, Houlihan Lokey reviews American Capital's determination of the fair value of approximately 25% of its portfolio company investments that have been portfolio companies for at least one year and that have a fair value in excess of $10 million. In the third quarter of 2006, Houlihan Lokey reviewed valuations of 30 portfolio company investments having an aggregate $1.7 billion in fair value as of the period end. Over the last four quarters, Houlihan Lokey has reviewed 99 portfolio companies totaling $4.4 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 since its engagement, using the scope of review set forth by American Capital's Board of Directors, the Board has made a fair value determination that is within the aggregate range of fair value for such investments as determined by Houlihan Lokey.
In addition to its standard scope, American Capital engaged Houlihan Lokey to review the value of ASAlliances Biofuels, LLC. As of September 30, 2006, the fair value of this investment as determined by American Capital's Board is within the range of fair value for the investment as determined by Houlihan Lokey.
Financial highlights for the quarter are as follows:
AMERICAN CAPITAL STRATEGIES, LTD.
CONSOLIDATED BALANCE SHEETS
As of September 30, 2006, December 31, 2005 and September 30, 2005
(in thousands, except per share data)
Q3 2006 Versus Q4
Q3 Q4 2005
2006 2005 $ %
(unaudited)
Assets
Investments at fair value (cost
of $7,383,863, $5,134,398 and
$4,583,194, respectively)
Non-Control/Non-Affiliate
investments $ 4,489,646 $ 2,135,795 $ 2,353,851 110%
Affiliate investments 431,336 449,026 (17,690) -4%
Control investments 2,593,096 2,516,282 76,814 3%
Derivative agreements 20,758 18,132 2,626 14%
Total investments
at fair value 7,534,836 5,119,235 2,415,601 47%
Cash and cash equivalents 34,129 97,134 (63,005) -65%
Restricted cash 124,315 121,772 2,543 2%
Interest receivable 43,983 32,668 11,315 35%
Other 118,169 78,300 39,869 51%
Total assets $ 7,855,432 $ 5,449,109 $ 2,406,323 44%
Liabilities and Shareholders'
Equity
Debt $ 3,603,664 $ 2,466,860 $ 1,136,804 46%
Derivative agreements 14,022 2,140 11,882 555%
Accrued dividends payable 118,476 3,574 114,902 3215%
Other 99,594 78,898 20,696 26%
Total liabilities 3,835,756 2,551,472 1,284,284 50%
Commitments and contingencies
Shareholders' equity:
Undesignated preferred stock,
$0.01 par value, 5,000
shares authorized, 0 issued
and outstanding - - - 0%
Common stock, $0.01 par
value, 200,000 shares
authorized, 147,079, 119,123
and 108,771 issued and
143,777, 118,913 and 108,386
outstanding, respectively 1,437 1,189 248 21%
Capital in excess of par
value 3,812,639 2,942,814 869,825 30%
Notes receivable from sale
of common stock (6,655) (6,655) - 0%
Undistributed
(distributions in excess
of) net realized earnings 76,168 (22,408) 98,576 NM
Net unrealized appreciation
(depreciation) of
investments 136,087 (17,303) 153,390 NM
Total shareholders'
equity 4,019,676 2,897,637 1,122,039 39%
Total liabilities and
shareholders' equity $ 7,855,432 $ 5,449,109 $ 2,406,323 44%
Q3 Q3 2006 Versus Q3 2005
2005 $ %
(unaudited)
Assets
Investments at fair value (cost of
$7,383,863 $5,134,398 and
$4,583,194, respectively)
Non-Control/Non-Affiliate
investments $ 1,728,526 $ 2,761,120 160%
Affiliate investments 469,101 (37,765) -8%
Control investments 2,379,437 213,659 9%
Derivative Agreements 7,940 12,818 161%
Total investments at fair
value 4,585,004 2,949,832 64%
Cash and cash equivalents 116,125 (81,996) -71%
Restricted cash 110,503 13,812 12%
Interest receivable 32,508 11,475 35%
Other 127,559 (9,390) -7%
Total assets $ 4,971,699 $ 2,883,733 58%
Liabilities and Shareholders' Equity
Debt $ 2,266,906 $ 1,336,758 59%
Derivative agreements 3,515 10,507 299%
Accrued dividends payable 81,325 37,151 46%
Other 89,831 9,763 11%
Total liabilities 2,441,577 1,394,179 57%
Commitments and contingencies
Shareholders' equity:
Undesignated preferred stock, $0.01
par value, 5,000 shares authorized,
0 issued and outstanding - - 0%
Common stock, $0.01 par value,
200,000 shares authorized, 147,079,
119,123 and 108,771 issued and
143,777, 118,913 and 108,386
outstanding, respectively 1,084 353 33%
Capital in excess of par value 2,562,723 1,249,916 49%
Notes receivable from sale of
common stock (6,667) 12 NM
Undistributed (distributions in
excess of) net realized
earnings (25,313) 101,481 NM
Net unrealized appreciation
(depreciation) of investments (1,705) 137,792 NM
Total shareholders' equity 2,530,122 1,489,554 59%
Total liabilities and
shareholders' equity $ 4,971,699 $ 2,883,733 58%
NM = Not meaningful.
AMERICAN CAPITAL STRATEGIES, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2006 and 2005
(in thousands, except per share data)
(unaudited)
Three Months Ended
Three Months Ended September 30,
September 30, 2006 Versus 2005
2006 2005 $ %
OPERATING INCOME:
Interest and dividend income $ 179,645 $ 114,405 $ 65,240 57%
Fee and other income 51,182 34,347 16,835 49%
Total operating income 230,827 148,752 82,075 55%
OPERATING EXPENSES:
Interest 55,625 27,889 27,736 99%
Salaries, benefits and stock-based
compensation 40,928 20,837 20,091 96%
General and administrative 18,676 12,216 6,460 53%
Total operating expenses 115,229 60,942 54,287 89%
OPERATING INCOME BEFORE INCOME TAXES 115,598 87,810 27,788 32%
Provision for income taxes (5,600) (1,884) (3,716) 197%
NET OPERATING INCOME 109,998 85,926 24,072 28%
Net realized gain (loss) on
investments
Portfolio company investments 46,227 (769) 46,996 NM
Derivative agreements 5,487 (2,706) 8,193 NM
Total net realized gain (loss) 51,714 (3,475) 55,189 NM
REALIZED EARNINGS 161,712 82,451 79,261 96%
Net unrealized appreciation
(depreciation) of investments
Portfolio company investments (2,576) (6,735) 4,159 62%
Unrealized gain on exchange rate 14,725 - 14,725 100%
Derivative agreements (42,299) 18,341 (60,036) NM
Total net unrealized
appreciation (depreciation) (30,150) 11,606 (41,756) NM
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 131,562 94,057 37,505 40%
Cumulative effect of accounting
change, net of tax (1) - - - 0%
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ("EARNINGS") $ 131,562 $ 94,057 $ 37,505 40%
NET OPERATING INCOME PER COMMON SHARE:
Basic $ 0.78 $ 0.84 $ (0.06) -7%
Diluted $ 0.77 $ 0.82 $ (0.05) -6%
REALIZED EARNINGS PER COMMON SHARE:
Basic $ 1.14 $ 0.81 $ 0.33 41%
Diluted $ 1.13 $ 0.79 $ 0.34 43%
EARNINGS PER COMMON SHARE:
Basic $ 0.93 $ 0.92 $ 0.01 1%
Diluted $ 0.92 $ 0.90 $ 0.02 2%
WEIGHTED AVERAGE SHARES OF COMMON
STOCK OUTSTANDING:
Basic 141,589 102,366 39,223 38%
Diluted 143,274 104,499 38,775 37%
DIVIDENDS DECLARED PER COMMON SHARE $ 0.83 $ 0.78 $ 0.05 6%
Nine Months Ended
Nine Months Ended September 30, 2006
September 30, Versus 2005
2006 2005 $ %
OPERATING INCOME:
Interest and dividend income $ 467,309 $ 298,733 $ 168,576 56%
Fee and other income 148,731 82,606 66,125 80%
Total operating income 616,040 381,339 234,701 62%
OPERATING EXPENSES:
Interest 132,385 67,225 65,160 97%
Salaries, benefits and stock-based
compensation 102,943 55,850 47,093 84%
General and administrative 50,603 27,309 23,294 85%
Total operating expenses 285,931 150,384 135,547 90%
OPERATING INCOME BEFORE INCOME
TAXES 330,109 230,955 99,154 43%
Provision for income taxes (17,976) (7,668) (10,308) 134%
NET OPERATING INCOME 312,133 223,287 88,846 40%
Net realized gain (loss) on
investments
Portfolio company investments 106,294 39,709 66,585 168%
Derivative agreements 11,117 (8,162) 19,279 NM
Total net realized gain
(loss) 117,411 31,547 85,864 272%
REALIZED EARNINGS 429,544 254,834 174,710 69%
Net unrealized appreciation
(depreciation) of investments
Portfolio company investments 148,471 10,110 138,361 NM
Unrealized gain on exchange rate 14,175 - 14,175 100%
Derivative agreements (9,256) 20,142 (28,871) NM
Total net unrealized
appreciation (depreciation) 153,390 30,252 123,138 407%
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE
EARNINGS 582,934 285,086 297,848 104%
Cumulative effect of accounting
change, net of tax (1) 1,026 - 1,026 0%
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS
EARNINGS $ 583,960 $ 285,086 $ 298,874 105%
NET OPERATING INCOME PER COMMON
SHARE:
Basic $ 2.37 $ 2.34 $ 0.03 1%
Diluted $ 2.35 $ 2.29 $ 0.06 3%
REALIZED EARNINGS PER COMMON SHARE:
Basic $ 3.26 $ 2.67 $ 0.59 22%
Diluted $ 3.23 $ 2.61 $ 0.62 24%
EARNINGS PER COMMON SHARE:
Basic $ 4.44 $ 2.99 $ 1.45 48%
Diluted $ 4.39 $ 2.92 $ 1.47 50%
WEIGHTED AVERAGE SHARES OF COMMON
STOCK OUTSTANDING:
Basic 131,660 95,319 36,341 38%
Diluted 132,929 97,587 35,342 36%
DIVIDENDS DECLARED PER COMMON
SHARE $ 2.45 $ 2.26 $ 0.19 8%
NM = Not meaningful.
(1) Effective January 1, 2006, American Capital adopted FASB Statement No.
123 (revised 2004), "Share-Based Payment," a revision to FASB Statement
No. 123 ("SFAS 123R"). American Capital had adopted SFAS 123R using the
"modified prospective" method. Effective January 1, 2003, American
Capital adopted the fair-value-based method of accounting for stock-based
compensation plans for all stock options granted in 2003 and forward as
permitted under FASB Statement No. 148. All of American Capital's stock
options granted prior to January 1, 2003, which were accounted for under
APB No. 25 and not expensed in the consolidated statements of operations,
were fully vested as of January 1, 2006 and therefore, no additional stock
compensation costs for those stock option grants will be recorded as a
result of the adoption of SFAS 123R. Under FASB Statement No. 123,
American Capital elected to adjust compensation costs for forfeitures when
the unvested awards were actually forfeited. Under SFAS 123R American
Capital is required to estimate forfeitures of unvested awards when
recognizing compensation cost. Upon the adoption of SFAS 123R, American
Capital recorded a cumulative effect of an accounting change for an
adjustment to compensation costs recognized in prior periods to record
forfeitures based on the amounts that would have been estimated during
those periods.
AMERICAN CAPITAL STRATEGIES, LTD.
OTHER FINANCIAL INFORMATION
Quarter Ended September 30, 2006, December 31, 2005 and September 30, 2005
(dollars in thousands)
(unaudited)
Q3 2006 Versus
Q3 Q4 Q4 2005
2006 2005 $ %
New Investments:
Senior Debt $ 473,000 $ 382,800 $ 90,200 24%
Subordinated Debt 407,700 193,400 214,300 111%
Preferred Equity 199,500 169,900 29,600 17%
Common Equity 20,600 64,500 (43,900) -68%
Common Equity warrants 40,700 86,700 (46,000) -53%
CMBS Investments 41,700 80,500 (38,800) -48%
CDO/CLO Investments 23,600 - 23,600 100%
Total $1,206,800 $ 977,800 $ 229,000 23%
American Capital Sponsored
Buyouts $ 533,100 $ 564,800 $ (31,700) -6%
Financing for Private Equity
Buyouts 202,400 121,700 80,700 66%
Direct Investments 92,100 - 92,100 NM
Investments in Managed Funds - - - NM
CMBS Investments 41,700 80,500 (38,800) -48%
CDO/CLO Investments 23,600 - 23,600 100%
Add-on Financing for
Acquisitions 108,000 20,300 87,700 432%
Add-on Financing for
Recapitalizations 187,000 183,700 3,300 2%
Add-on Financing for Working
Capital in Distressed
Situations 13,900 2,800 11,100 396%
Add-on Financing for Working
Capital 5,000 4,000 1,000 25%
Total $1,206,800 $ 977,800 $ 229,000 23%
Exits and Repayments(1):
Scheduled Principal
Amortization $ 21,290 $ 16,990 $ 4,300 25%
Senior Loan Sales 80,528 174,037 (93,509) -54%
Principal Prepayments 447,897 258,536 189,361 73%
Payment of Accrued
Payment-in-kind Interest and
Dividends and
Original Issue Discount 44,026 13,971 30,055 215%
Sale of Equity Investments 217,129 81,239 135,890 167%
Total $ 810,870 $ 544,773 $ 266,097 49%
Appreciation, Depreciation, Gains
and Losses:
Gross Realized Gains $ 148,593 $ 69,973 $ 78,620 112%
Gross Realized Losses (102,366) (64,288) (38,078) 59%
Portfolio Net Realized
Gains (Losses) 46,227 5,685 40,542 713%
Net Realized Gains (Losses)
From Interest Rate
Derivatives 5,487 (825) 6,312 NM
Net Realized Gains
(Losses) 51,714 4,860 46,854 964%
Gross Unrealized Appreciation
at 37, 24 and 20 Portfolio
Companies 135,566 54,628 80,938 148%
Gross Unrealized Depreciation
at 28, 23 and 13 Portfolio
Companies (123,296) (78,807) (44,489) 56%
Current Portfolio Net
Unrealized Appreciation
(Depreciation) 12,270 (24,179) 36,449 NM
Net Depreciation From the
Recognition of Net Realized
Gains (14,846) (2,987) (11,859) 397%
Net Unrealized Appreciation
for Foreign Currency
Translation 14,725 1,167 13,558 1162%
Interest Rate Derivatives,
net (42,299) 10,401 (52,700) NM
Net Unrealized
Appreciation
(Depreciation) (30,150) (15,598) (14,552) -93%
Net Gains, Losses,
Appreciation and
Depreciation $21,564 $(10,738) $32,302 NM
Other Financial Data:
Net Asset Value per Share $ 27.96 $ 24.37 $ 3.59 15%
Market Capitalization $5,674,878 $4,305,840 $1,369,038 32%
Total Enterprise Value $9,244,413 $6,675,566 $2,568,847 38%
Credit Quality:
Weighted Average Effective
Interest Rate on Debt
Investments 12.6% 12.8%
Weighted Average Loan Grade 3.1 3.1
Loans on Non-Accrual at Face $ 163,880 $ 132,330 $ 31,550 24%
Loans on Non-Accrual at Fair
Value $ 62,552 $ 48,304 $ 14,248 29%
Past Due Loans at Face $ 20,037 $ 53,675 $ (33,638) -63%
Past Due and Non-Accrual
Loans as a Percentage of
Total Loans 4% 5%
Number of Portfolio Companies
on Non-Accrual and Past Due 11 14
Debt to Equity Conversions at
Face Value $ 68,009 $ 24,769 $ 43,240 175%
Return on Equity:
LTM Net Operating Income
Return on Average Equity at
Cost 12.5% 13.6%
LTM Realized Earnings Return
on Average Equity at Cost 16.3% 15.2%
LTM Earnings Return on
Average Equity 20.2% 15.9%
Current Quarter Net Operating
Income Return on Average
Equity at Cost Annualized 11.7% 13.3%
Current Quarter Realized
Earnings Return on Average
Equity at Cost 17.1% 14.0%
Current Quarter Earnings
Return on Average Equity
Annualized 13.4% 11.8%
Dividend Coverage (Realized
Earnings per Basic
Share/Dividend per Share) 1.37 1.05
Q3 Q3 2006 Versus Q3 2005
2005 $ %
New Investments:
Senior Debt $ 349,300 $ 123,700 35%
Subordinated Debt 309,900 97,800 32%
Preferred Equity 160,900 38,600 24%
Common Equity 628,500 (607,900) -97%
Common Equity warrants - 40,700 100%
CMBS Investments - 41,700 100%
CDO/CLO Investments - 23,600 100%
Total $1,448,600 $(241,800) -17%
American Capital Sponsored Buyouts $ 410,500 $ 122,600 30%
Financing for Private Equity Buyouts 243,300 (40,900) -17%
Direct Investments 132,500 (40,400) -30%
Investments in Managed Funds 638,100 (638,100) -100%
CMBS Investments - 41,700 100%
CDO/CLO Investments - 23,600 100%
Add-on Financing for Acquisitions 5,200 102,800 1977%
Add-on Financing for Recapitalizations 9,200 177,800 1933%
Add-on Financing for Working Capital
in Distressed Situations - 13,900 100%
Add-on Financing for Working Capital 9,800 (4,800) -49%
Total $1,448,600 $ (241,800) -17%
Exits and Repayments(1):
Scheduled Principal Amortization $ 14,220 $ 7,070 50%
Senior Loan Sales 75,848 4,680 6%
Principal Prepayments 169,309 278,588 165%
Payment of Accrued Payment-in-kind
Interest and Dividends and Original
Issue Discount 11,400 32,626 286%
Sale of Equity Investments 21,699 195,430 901%
Total $ 292,476 $ 518,394 177%
Appreciation, Depreciation, Gains
and Losses:
Gross Realized Gains $ 14,367 $ 134,226 934%
Gross Realized Losses (15,136) (87,230) 576%
Portfolio Net Realized Gains
(Losses) (769) 46,996 NM
Net Realized Gains (Losses) From
Interest Rate Derivatives (2,706) 8,193 NM
Net Realized Gains (Losses) (3,475) 55,189 NM
Gross Unrealized Appreciation at 37,
24 and 20 Portfolio Companies 46,377 89,189 192%
Gross Unrealized Depreciation at 28,
23 and 13 Portfolio Companies (52,449) (70,847) 135%
Current Portfolio Net Unrealized
Appreciation (Depreciation) (6,072) 18,342 NM
Net Depreciation From the Recognition
of Net Realized Gains (663) (14,183) -2139%
Net Unrealized Appreciation for Foreign
Currency Translation 604 14,121 2338%
Interest Rate Derivatives, net 17,737 (60,036) NM
Net Unrealized Appreciation
(Depreciation) 11,606 (41,756) NM
Net Gains, Losses, Appreciation
and Depreciation $ 8,131 $ 13,433 165%
Other Financial Data:
Net Asset Value per Share $ 23.34 $ 4.62 20%
Market Capitalization $3,973,431 $1,701,447 43%
Total Enterprise Value $6,124,212 $3,120,201 51%
Credit Quality:
Weighted Average Effective Interest
Rate on Debt Investments 12.8%
Weighted Average Loan Grade 3.1
Loans on Non-Accrual at Face $ 136,252 $ 27,628 20%
Loans on Non-Accrual at Fair Value $ 44,465 $ 18,087 41%
Past Due Loans at Face $ 44,730 $ (24,693) -55%
Past Due and Non-Accrual Loans as a
Percentage of Total Loans 5%
Number of Portfolio Companies on
Non-Accrual and Past Due 15
Debt to Equity Conversions at Face
Value $ - $ 68,009 NM
Return on Equity:
LTM Net Operating Income Return on
Average Equity at Cost 13.9%
LTM Realized Earnings Return on Average
Equity at Cost 16.9%
LTM Earnings Return on Average Equity 18.6%
Current Quarter Net Operating Income
Return on Average Equity at Cost
Annualized 14.5%
Current Quarter Realized Earnings Return
on Average Equity at Cost 13.9%
Current Quarter Earnings Return on
Average Equity Annualized 15.9%
Dividend Coverage (Realized Earnings
per Basic Share/Dividend per Share) 1.04
(1) Excludes Repayments of European Capital Limited Bridge Loans.
Static Pool
Portfolio Statistics (1) Pre-
($ in millions, unaudited) 1999 1999 2000 2001 2002 2003
Internal Rate of Return(2) 10.5% 8.4% 7.9% 21.6% 9.8% 23.9%
Original Investments and
Commitments $ 380 $ 380 $ 395 $ 370 $ 943 $1,361
Total Exits and Prepayments of
Original Investments $ 181 $ 203 $ 261 $ 266 $ 546 $ 813
Total Interest, Dividends and
Fees Collected $ 146 $ 134 $ 113 $ 144 $ 252 $ 295
Total Net Realized (Loss) Gain
on Investments $ (29) $ (27) $ (38) $ 41 $ 7 $ 154
Current Cost of Investments $ 143 $ 111 $ 142 $ 87 $ 370 $ 565
Current Fair Value of
Investments $ 143 $ 74 $ 139 $ 67 $ 279 $ 596
Net Unrealized
Appreciation/(Depreciation) $ - $ (37) $ (3) $ (20) $ (91) $ 31
Non-Accruing Loans at Face $ - $ 34 $ - $ 31 $ 42 $ 13
Equity Interest at Fair
Value(9) $ 65 $ 10 $ 3 $ 33 $ 47 $ 248
Debt to EBITDA(3)(4)(5) 4.7 5.5 6.0 4.1 7.0 5.4
Interest Coverage(3)(5) 2.0 2.0 2.1 2.5 1.4 1.7
Debt Service Coverage(3)(5) 2.0 1.4 1.9 1.5 1.1 1.4
Loan Grade(3)(10) 3.0 2.1 3.0 3.3 2.4 2.9
Average Age of Companies(5) 43 yrs 59 yrs 21 yrs 34 yrs 37 yrs 33 yrs
Ownership Percentage(9) 88% 70% 2% 62% 65% 74%
Average Sales(5)(6) $ 131 $ 86 $ 140 $ 170 $ 73 $ 126
Average EBITDA(5)(7) $ 8 $ 6 $ 55 $ 16 $ 11 $ 22
Average EBITDA Margin 6.1% 7.0% 39.3% 9.4% 15.1% 17.5%
Total Sales(5)(6) $ 472 $ 418 $ 277 $1,748 $ 531 $1,919
Total EBITDA(5)(7) $ 36 $ 33 $ 83 $ 153 $ 57 $ 284
% of Senior Loans(5)(8) 58% 32% 61% 25% 67% 53%
% of Loans with Lien(5)(8) 63% 50% 78% 100% 98% 96%
Static Pool
Pre-1999 2001 -
Portfolio Statistics (1) - 2006 2006
($ in millions, unaudited) 2004 2005 2006 Aggregate Aggregate
Internal Rate of Return(2) 19.3% 19.0% 43.6% 16.2% 19.6%
Original Investments and
Commitments $ 2,243 $ 3,205 $ 2,601 $ 11,878 $ 10,723
Total Exits and Prepayments
of Original Investments $ 760 $ 550 $ 58 $ 3,638 $ 2,993
Total Interest, Dividends
and Fees Collected $ 326 $ 293 $ 140 $ 1,843 $ 1,450
Total Net Realized (Loss)
Gain on Investments $ 32 $ 5 $ 2 $ 147 $ 241
Current Cost of Investments $ 1,335 $ 2,333 $ 2,298 $ 7,384 $ 6,988
Current Fair Value of
Investments $ 1,401 $ 2,436 $ 2,379 $ 7,514 $ 7,158
Net Unrealized
Appreciation/(Depreciation) $ 66 $ 103 $ 81 $ 130 $ 170
Non-Accruing Loans at Face $ 5 $ 39 $ - $ 164 $ 130
Equity Interest at Fair
Value(9) $ 357 $ 1,229 $ 859 $ 2,851 $ 2,773
Debt to EBITDA(3)(4)(5) 4.6 4.5 5.2 5.0 5.0
Interest Coverage(3)(5) 2.2 2.3 1.7 2.0 2.0
Debt Service Coverage(3)(5) 1.8 1.7 1.9 1.7 1.7
Loan Grade(3)(10) 3.3 3.1 3.0 3.1 3.1
Average Age of Companies(5) 35 yrs 33 yrs 28 yrs 32 yrs 32 yrs
Ownership Percentage(9) 40% 62% 69% 60% 61%
Average Sales(5)(6) $ 90 $ 108 $ 114 $ 108 $ 107
Average EBITDA(5)(7) $ 22 $ 25 $ 20 $ 22 $ 22
Average EBITDA Margin 24.4% 23.1% 17.5% 20.4% 20.6%
Total Sales(5)(6) $ 3,181 $ 3,872 $ 2,339 $ 14,757 $ 13,590
Total EBITDA(5)(7) $ 656 $ 650 $ 471 $ 2,423 $ 2,271
% of Senior Loans(5)(8) 62% 40% 49% 51% 51%
% of Loans with Lien(5)(8) 86% 84% 79% 84% 85%
(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 investments in collateralized debt obligations and European
Capital Limited.
Additional Dividend Information
American Capital must make certain distributions of its taxable income in order to maintain its tax status as a regulated investment company. Investors can refer to American Capital's most recent report on Form 10-K for more information about its tax status. American Capital intends to retain net long-term capital gains and treat them as deemed distributions for tax purposes. For its tax year ended September 30, 2006, American Capital retained $43 million of net long-term capital gains that will be treated as a deemed distribution to its shareholders. American Capital paid a federal tax of $15 million associated with these gains.
The taxable income that is distributed as dividends would be expected to be treated as ordinary income for tax purposes. Taxable income differs from GAAP income because of both temporary and permanent differences in income and expense recognition. For example, changes in appreciation and depreciation of portfolio investments have no impact on American Capital's taxable income. American Capital reports the anticipated tax characteristics of each dividend when announced, while the actual tax characteristics of each year's dividends are reported annually to stockholders on Form 1099DIV. The 2006 declared dividend to-date, totaling $3.33 per share, is anticipated to be a distribution of ordinary income for tax purposes.
American Capital anticipates that its 2006 ordinary taxable income will exceed its dividend and it will elect to pay a 4% excise tax and retain its excess ordinary taxable income.
DIVIDEND REINVESTMENT PLAN (DRIP)
In appreciation of the loyal support of our shareholders, American Capital's Dividend Reinvestment Plan grants a 5% discount to the market price for reinvested dividends. Brokerages that have confirmed participation in the DRIP include:
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
$22.44 DECLARED SINCE AUGUST 1997 IPO AT $15.00 PER SHARE
% Change
% Change of of Total
Regular Dividend
Regular Dividend Over Additional Over Prior
Year/Quarter Dividend Prior Year Dividend Total Year
Total
1997 to
Q4 2006
Declared $22.44
2006 $3.33 9% Not Planned $3.33 8%
Q4 Declared $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 $22.44
Declared
SHAREHOLDER CALL
American Capital invites shareholders, prospective shareholders and analysts to attend the American Capital Shareholder Call on Wednesday, November 1, 2006 at 11:00 am ET. The dial in number will be (888) 428-4474. International callers should dial +1 (612) 234-9960. Please advise the operator you are dialing in for the American Capital Shareholder Call.
BEFORE THE CALL:
SLIDE PRESENTATION AVAILABLE IN ADVANCE OF THE SHAREHOLDER CALL
The quarterly shareholder presentation includes a summary slide show to accompany the call that participants may download from the American Capital website at http://www.acas.com/ and print prior to the call. You may wish to take the time to review the slides in advance of the Shareholder Call.
DURING THE CALL:
VIEW STREAMING SLIDE PRESENTATION DURING THE SHAREHOLDER CALL
During the Shareholder Call you may access 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 after the call on November 1 on our website. An archive of our audio and slide presentations of our quarterly shareholder calls can be found in the Investor Relations section of our website at http://www.acas.com/.
AUDIO ONLY PRESENTATION AVAILABLE AFTER THE SHAREHOLDER CALL:
There will be a phone recording available from 11:30 pm Wednesday, November 1 until 11:59 pm Tuesday, 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 843571.
For further information or questions, please do not hesitate to call our Investor Relations Department at (301) 951-6122.
ABOUT AMERICAN CAPITAL
Since its August 1997 IPO through the third quarter of 2006, American Capital has invested $11.9 billion in 242 portfolio companies. As of September 30, 2006, American Capital shareholders have enjoyed a total return of 500% since the Company's IPO -- an annualized return of 22%, assuming reinvestment of dividends. American Capital has paid a total of $1.3 billion in dividends and paid or declared $22.44 dividends per share since its August 1997 IPO at $15 per share.
Companies interested in learning more about American Capital's flexible financing should contact Mark Opel, Senior Vice President, Business Development, at (800) 248-9340, or visit our website at 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, national or international economic conditions, or changes in the conditions of the industries in which American Capital has made investments.
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.