American Capital Announces Q3 2009 Results
Q3 2009 HIGHLIGHTS -- $32 million of NOI -- $86 million net unrealized appreciation of portfolio investments -- The first appreciation in the past nine quarters -- $(47) million net realized loss on portfolio investments -- $463 million of realizations -- Significant increase over the past three quarters -- $7.80 net asset value ("NAV") per share -- $10.30 anticipated realizable value per share upon settlement or maturity of investments ("Realizable Value") (See Use of Non-GAAP Financial Information below) -- Paid a dividend of $24 million in cash and 67 million shares of common stock NET OPERATING INCOME
NOI decreased 84% to $0.12 per diluted share for the quarter ended September 30, 2009, compared to $0.74 per diluted share for the prior year quarter. The NOI for the quarter ended September 30, 2009 included an accrual for "make-whole" interest payments of approximately $22 million as a result of acceleration notices on $393 million of the Company's privately placed notes. Shortly after the receipt of these notices, the Company entered into forbearance agreements with the noteholders in which the "make-whole" interest payments were added to the outstanding principal balance.
REALIZED (LOSS) EARNINGS
Realized (Loss) Earnings decreased to $(0.13) per diluted share for the quarter ended September 30, 2009, compared to $0.72 per diluted share for the prior year quarter.
NET INCOME
Net income increased to $0.30 per diluted share for the quarter ended September 30, 2009, compared to a net loss of $(2.63) per diluted share for the prior year quarter.
"American Capital has made significant progress in the past several months," said Malon Wilkus, Chairman and Chief Executive Officer. "As separately announced today, we have reached an agreement in principle that we believe will provide a basis for restructuring our $2.4 billion of unsecured debt. In the third quarter we generated $463 million of realizations within 1% of the June 30 fair values, in a very tough M&A market. And, for the first time in nine quarters, our portfolio experienced modest appreciation and our income stabilized. These are all the elements necessary to begin rebuilding shareholder value."
PORTFOLIO VALUATION
For the quarter ended September 30, 2009, net unrealized appreciation of portfolio investments totaled $86 million. The primary components of the net unrealized appreciation were:
-- $41 million of reversals of prior depreciation associated with net realized losses on portfolio investments; -- The associated realizations were within 1% of the prior quarter's valuation. -- $(6) million of depreciation of American Capital's investment in European Capital Limited, reflecting a significant discount to its NAV due primarily to covenant defaults under European Capital Limited's credit facilities, which could prevent realization of the NAV; -- American Capital's equity investment in European Capital Limited is valued at $0.1 billion versus its NAV of approximately $0.8 billion. -- $14 million of net appreciation of American Capital's private finance portfolio; -- $14 million of appreciation of American Capital's investment in American Capital Agency Corp.; and -- $23 million of net appreciation from structured products.
As of September 30, 2009, NAV per share was $7.80, a decrease from $8.76 per share as of June 30, 2009 and $15.41 per share as of December 31, 2008. The decrease in NAV per share from June 30, 2009 was primarily the result of the distribution of the 67 million shares of common stock on August 7, 2009 for the stock portion of the Q2 2009 dividend. Realizable Value per share was $10.30 as of September 30, 2009, a decrease from $12.83 per share as of June 30, 2009 and $20.63 per share as of December 31, 2008.
"We have long believed that the performance of our portfolio is a proxy for the broader economy," said John Erickson, Chief Financial Officer. "That appeared to be the case in the third quarter with both the quarterly change in GDP turning positive and there being a small net appreciation in our portfolio. Prior to this quarter, we experienced eight quarters of net depreciation in our portfolio, which mirrored the significant downturn in the economy. While it may be too early to declare the recession is over, we believe that if the economy continues its recovery, our portfolio should as well. Additionally, we have seen the mergers and acquisitions market become more active from its depressed levels, which should help the economy recapitalize and recover."
PORTFOLIO LIQUIDITY AND PERFORMANCE
In the third quarter of 2009, $463 million of proceeds were received from realizations of portfolio investments and exits, which were within 1% of the prior quarter's valuations of the investments. There was $7 million in new committed investments in the quarter. The weighted average effective interest rate on the Company's debt investments as of September 30, 2009 was 9.9%, 80 basis points lower than as of December 31, 2008. Unrestricted cash and cash equivalents totaled $445 million as of September 30, 2009 and approximately $500 million as of October 30, 2009.
"We were particularly pleased with the progress we made this quarter in obtaining liquidity in the portfolio at levels that corroborate our prior quarter's balance sheet valuations," said Mr. Gordon O'Brien, President, Specialty Finance and Operations. "At $463 million, this volume is close to the levels of realizations we were experiencing before the fall 2008 market disruptions. This is one of the highest levels of liquidity in the middle market buyout industry. We are also particularly pleased that the two control companies that we exited in the third quarter were at exit multiples that exceeded the entry multiples of total enterprise value to adjusted EBITDA at the time of our initial investment."
As of September 30, 2009, loans with a fair value of $285 million were on non-accrual representing 6.9% of total loans at fair value as of September 30, 2009, compared to $310 million fair value of non-accrual loans representing 7.2% of total loans at fair value as of June 30, 2009.
AMERICAN CAPITAL, LTD. CONSOLIDATED BALANCE SHEETS As of September 30, 2009, December 31, 2008 and September 30, 2008 (in millions) Q3 Q4 Q3 2009 Versus Q4 2008 2009 2008 $ % ---- ---- --- --- (unaudited) Assets Investments at fair value (cost of $9,860, $10,691 and $10,794, respectively) $5,902 $7,427 $(1,525) -21% Cash and cash equivalents 445 209 236 113% Restricted cash and cash equivalents 132 71 61 86% Interest receivable 43 44 (1) -2% Other assets 146 159 (13) -8% --- --- --- --- Total assets $6,668 $7,910 $(1,242) -16% ====== ====== ======= === Liabilities and Shareholders' Equity Debt $4,279 $4,428 $(149) -3% Derivative and option agreements (cost of $0, $(20) and $1, respectively) 118 222 (104) -47% Other liabilities 81 105 (24) -23% -- --- --- --- Total liabilities 4,478 4,755 (277) -6% ----- ----- ---- -- Commitments and contingencies Shareholders' equity: Undesignated preferred stock, $0.01 par value, 5.0 shares authorized, 0 issued and outstanding - - - - Common stock, $0.01 par value, 1,000.0 shares authorized, 292.9, 214.3 and 214.1 issued and 280.6, 204.7 and 207.2 outstanding, respectively 3 2 1 50% Capital in excess of par value 6,827 6,545 282 4% (Distributions in excess of) undistributed net realized earnings (550) 76 (626) NM Net unrealized depreciation of investments (4,090) (3,468) (622) -18% ------ ------ ---- --- Total shareholders' equity 2,190 3,155 (965) -31% ----- ----- ---- --- Total liabilities and shareholders' equity $6,668 $7,910 $(1,242) -16% ====== ====== ======= === Net asset value per common share $7.80 $15.41 $(7.61) -49% ===== ====== ====== === Q3 Q3 2009 Versus Q3 2008 2008 $ % ---- --- --- (unaudited) Assets Investments at fair value (cost of $9,860, $10,691 and $10,794, respectively) $9,097 $(3,195) -35% Cash and cash equivalents 320 125 39% Restricted cash and cash equivalents 109 23 21% Interest receivable 49 (6) -12% Other assets 271 (125) -46% --- ---- --- Total assets $9,846 $(3,178) -32% ====== ======= === Liabilities and Shareholders' Equity Debt $4,542 $(263) -6% Derivative and option agreements (cost of $0, $(20) and $1, respectively) 86 32 37% Other liabilities 157 (76) -48% --- --- --- Total liabilities 4,785 (307) -6% ----- ---- --- Commitments and contingencies Shareholders' equity: Undesignated preferred stock, $0.01 par value, 5.0 shares authorized, 0 issued and outstanding - - - Common stock, $0.01 par value, 1,000.0 shares authorized, 292.9, 214.3 and 214.1 issued and 280.6, 204.7 and 207.2 outstanding, respectively 2 1 50% Capital in excess of par value 6,571 256 4% (Distributions in excess of) undistributed net realized earnings 275 (825) NM Net unrealized depreciation of investments (1,787) (2,303) -129% ------ ------ ---- Total shareholders' equity 5,061 (2,871) -57% ----- ------ ---- Total liabilities and shareholders' equity $9,846 $(3,178) -32% ====== ======= === Net asset value per common share $24.43 $(16.63) -68% ====== ======= === AMERICAN CAPITAL, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS Three and Nine Months Ended September 30, 2009 and 2008 (in millions, except per share data) (unaudited) Three Months Ended Three Months Ended September 30, September 30, 2009 ------------ Versus 2008 ----------- 2009 2008 $ % ---- ---- --- --- OPERATING INCOME: Investing operating income(1) $177 $253 $(76) -30% Asset management and advisory operating income(2) 16 25 (9) -36% -- -- -- --- Total operating income 193 278 (85) -31% --- --- --- --- OPERATING EXPENSES: Interest 85 50 35 70% Salaries, benefits and stock-based compensation 47 52 (5) -10% General and administrative 28 21 7 33% -- -- -- -- Total operating expenses 160 123 37 30% --- --- -- -- OPERATING INCOME BEFORE INCOME TAXES 33 155 (122) -79% -- --- ---- --- (Provision) benefit for income taxes (1) (2) 1 50% -- -- -- -- NET OPERATING INCOME 32 153 (121) -79% -- --- ---- --- Net gain on extinguishment of debt - - - - Net realized (loss) gain on investments Portfolio company investments (47) 73 (120) NM Taxes on net realized gain - (49) 49 100% Foreign currency transactions - (13) 13 100% Derivative and option agreements (19) (14) (5) -36% --- --- -- --- Total net realized (loss) gain on investments (66) (3) (63) -2100% --- -- --- ----- REALIZED (LOSS) EARNINGS (34) 150 (184) NM --- --- ---- -- Net unrealized appreciation (depreciation) of investments Portfolio company investments 86 (599) 685 NM Foreign currency translation 57 (90) 147 NM Derivative and option agreements and other (32) (9) (23) -256% --- -- --- ---- Total net unrealized appreciation (depreciation) of investments 111 (698) 809 NM --- ---- --- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ("EARNINGS") $77 $(548) $625 NM === ===== ==== == NET OPERATING INCOME PER COMMON SHARE*: Basic $0.12 $0.74 $(0.62) -84% Diluted $0.12 $0.74 $(0.62) -84% REALIZED (LOSS) EARNINGS PER COMMON SHARE*: Basic $(0.13) $0.72 $(0.85) NM Diluted $(0.13) $0.72 $(0.85) NM EARNINGS (NET LOSS) PER COMMON SHARE*: Basic $0.30 $(2.63) $2.93 NM Diluted $0.30 $(2.63) $2.93 NM WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 256.5 208.1 48.4 23% Diluted 257.3 208.1 49.2 24% DIVIDENDS DECLARED PER COMMON SHARE $- $1.05 $(1.05) -100% Nine Months Ended Nine Months Ended September 30, September 30, 2009 ------------ Versus 2008 ----------- 2009 2008 $ % ---- ---- --- --- OPERATING INCOME: Investing operating income(1) $484 $739 $(255) -35% Asset management and advisory operating income(2) 44 94 (50) -53% -- -- --- --- Total operating income 528 833 (305) -37% --- --- ---- --- OPERATING EXPENSES: Interest 197 161 36 22% Salaries, benefits and stock-based compensation 147 165 (18) -11% General and administrative 78 64 14 22% -- -- -- -- Total operating expenses 422 390 32 8% --- --- -- -- OPERATING INCOME BEFORE INCOME TAXES 106 443 (337) -76% --- --- ---- --- (Provision) benefit for income taxes 10 6 4 67% -- -- -- -- NET OPERATING INCOME 116 449 (333) -74% --- --- ---- --- Net gain on extinguishment of debt 12 - 12 100% -- -- -- --- Net realized (loss) gain on investments Portfolio company investments (434) 164 (598) NM Taxes on net realized gain - (53) 53 100% Foreign currency transactions (2) (7) 5 71% Derivative and option agreements (87) (25) (62) -248% --- --- --- ---- Total net realized (loss) gain on investments (523) 79 (602) NM ---- -- ---- -- REALIZED (LOSS) EARNINGS (395) 528 (923) NM ---- --- ---- -- Net unrealized appreciation (depreciation) of investments Portfolio company investments (750) (1,932) 1,182 61% Foreign currency translation 54 (17) 71 NM Derivative and option agreements and other 74 (10) 84 NM -- --- -- -- Total net unrealized Appreciation (depreciation) of investments (622) (1,959) 1,337 68% ---- ------ ----- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ("EARNINGS") $(1,017) $(1,431) $414 29% ======= ======= ==== == NET OPERATING INCOME PER COMMON SHARE*: Basic $0.51 $2.22 $(1.71) -77% Diluted $0.51 $2.22 $(1.71) -77% REALIZED (LOSS) EARNINGS PER COMMON SHARE*: Basic $(1.74) $2.61 $(4.35) NM Diluted $(1.74) $2.61 $(4.35) NM EARNINGS (NET LOSS) PER COMMON SHARE*: Basic $(4.48) $(7.06) $2.58 37% Diluted $(4.48) $(7.06) $2.58 37% WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 226.9 202.6 24.3 12% Diluted 226.9 202.6 24.3 12% DIVIDENDS DECLARED PER COMMON SHARE $1.07 $3.09 $(2.02) -65% 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, LTD. OTHER FINANCIAL INFORMATION Three Months Ended September 30, 2009, June 30, 2009 and September 30, 2008 (in millions, except per share data) (unaudited) Q3 2009 Versus Q2 2009 ---------------------- Q3 2009 Q2 2009 $ % ------- ------- --- --- Assets Under Management: American Capital Assets at Fair Value(1) $6,668 $6,628 $40 1% Externally Managed Assets at Fair Value(2) 4,843 4,070 773 19% ----- ----- --- -- Total $11,511 $10,698 $813 8% ======= ======= ==== == Capital Resources Under Management: American Capital Assets at Fair Value plus Available Capital Resources(1) $6,668 $6,628 $40 1% Externally Managed Assets at Fair Value plus Available Capital Resources(2) 5,064 4,294 770 18% ----- ----- --- -- Total $11,732 $10,922 $810 7% ======= ======= ==== == New Investments: Senior Debt $- $2 $(2) -100% Subordinated Debt 5 8 (3) -38% Preferred Equity 1 3 (2) -67% Common Equity 1 26 (25) -96% Structured Products - - - - -- -- -- -- Total $7 $39 $(32) -82% == === ==== === Financing for Private Equity Buyouts $- $- $- - Direct Investments - - - - Structured Products - - - - Add-on Financing for Working Capital in Distressed Situations 3 36 (33) -92% Add-on Financing for Growth and Working Capital - 2 (2) -100% Add-on Financing for Acquisitions 1 - 1 100% Add-on Financing for Recapitalizations 3 1 2 200% -- -- -- --- Total $7 $39 $(32) -82% == === ==== === Realizations: Principal Prepayments $151 $35 $116 331% Loan Syndications and Sales 78 21 57 271% Scheduled Principal Amortization 9 15 (6) -40% Payment of Accrued Payment-in-kind Interest and Dividends and Original Issue Discount 27 1 26 2600% Sale of Equity Investments 198 53 145 274% --- -- --- --- Total $463 $125 $338 270% ==== ==== ==== === Appreciation, Depreciation, Gain and Loss: Gross Realized Gain $76 $35 $41 117% Gross Realized Loss (123) (343) 220 64% ---- ---- --- -- Portfolio Net Realized (Loss) Gain (47) (308) 261 85% Taxes on Realized Net Gain - - - - Foreign Currency - - - - Derivative Agreements (19) (18) (1) -6% --- --- -- -- Net Realized Loss (66) (326) 260 80% --- ---- --- -- Gross Unrealized Appreciation of Private Finance Portfolio Investments 154 187 (33) -18% Gross Unrealized Depreciation of Private Finance Portfolio Investments (140) (476) 336 71% ---- ---- --- -- Net Unrealized Appreciation (Depreciation) of Private Finance Portfolio Investments 14 (289) 303 NM Net Unrealized (Depreciation) of European Capital Limited (6) (409) 403 99% Net Unrealized Appreciation of American Capital Agency Corp. 14 31 (17) -55% Net Unrealized Appreciation (Depreciation) of American Capital, LLC - 4 (4) -100% Net Unrealized Appreciation (Depreciation) of Structured Products 23 37 (14) -38% Reversal of Prior Period Net Unrealized Depreciation (Appreciation) Upon Realization 41 315 (274) -87% -- --- ---- --- Net Unrealized Appreciation (Depreciation) of Portfolio Investments 86 (311) 397 NM Foreign Currency Translation 57 66 (9) -14% Derivative Agreements and Other (32) 4 (36) NM --- -- --- -- Net Unrealized Appreciation (Depreciation) of Investments 111 (241) 352 NM --- ---- --- -- Net Gains, Losses, Appreciation and Depreciation $45 $(567) $612 NM === ===== ==== == Other Financial Data: NAV per Share $7.80 $8.76 $(0.96) -11% NAV per Share Based on Realizable Value(3) $10.30 $12.83 $(2.53) -20% Financial Liabilities at Cost $4,279 $4,321 $(42) -1% Financial Liabilities at Fair Value $3,648 $3,189 $459 14% Market Capitalization $906 $692 $214 31% Total Enterprise Value $4,741 $4,830 $(89) -2% Credit Quality: Weighted Average Effective Interest Rate on Debt Investments at Period End 9.9% 9.7% 0.2% 2% Loans on Non-Accrual at Face $912 $1,025 $(113) -11% Loans on Non-Accrual at Fair Value $285 $310 $(25) -8% Past Due Loans at Face $212 $45 $167 371% Past Due and Non-Accrual Loans at Face as a Percentage of Total Loans 21.5% 19.4% Non-Accrual Loans at Fair Value as a Percentage of Total Loans 6.9% 7.2% Number of Portfolio Companies on Non-Accrual and Past Due 41 40 Debt to Equity Conversions at Cost $6 $355 $(349) -98% Return on Equity: LTM Net Operating Income Return on Average Equity at Cost 2.5% 4.3% LTM Realized (Loss) Earnings Return on Average Equity at Cost -6.1% -3.3% LTM Loss on Average Equity -90.3% -90.6% Current Quarter Net Operating Income Return on Average Equity at Cost Annualized 2.1% 1.3% Current Quarter Realized (Loss) Earnings Return on Average Equity at Cost Annualized -2.2% -19.3% Current Quarter Earnings Return (Loss) on Average Equity Annualized 15.0% -96.2% Q3 2009 Versus Q3 2008 ---------------------- Q3 2008 $ % ------- --- --- Assets Under Management: American Capital Assets at Fair Value(1) $9,846 $(3,178) -32% Externally Managed Assets at Fair Value(2) 6,126 (1,283) -21% ----- ------ --- Total $15,972 $(4,461) -28% ======= ======= === Capital Resources Under Management: American Capital Assets at Fair Value plus Available Capital Resources(1) $10,366 $(3,698) -36% Externally Managed Assets at Fair Value plus Available Capital Resources(2) 6,606 (1,542) -23% ----- ------ --- Total $16,972 $(5,240) -31% ======= ======= === New Investments: Senior Debt $99 $(99) -100% Subordinated Debt 317 (312) -98% Preferred Equity 3 (2) -67% Common Equity 22 (21) -95% Structured Products 2 (2) -100% -- -- ---- Total $443 $(436) -98% ==== ===== === Financing for Private Equity Buyouts $348 $(348) -100% Direct Investments 20 (20) -100% Structured Products 3 (3) -100% Add-on Financing for Working Capital in Distressed Situations 40 (37) -93% Add-on Financing for Growth and Working Capital 2 (2) -100% Add-on Financing for Acquisitions 30 (29) -97% Add-on Financing for Recapitalizations - 3 100% -- -- --- Total $443 $(436) -98% ==== ===== === Realizations: Principal Prepayments $153 $(2) -1% Loan Syndications and Sales 48 30 63% Scheduled Principal Amortization 24 (15) -63% Payment of Accrued Payment-in-kind Interest and Dividends and Original Issue Discount 24 3 13% Sale of Equity Investments 271 (73) -27% --- --- --- Total $520 $(57) -11% ==== ==== === Appreciation, Depreciation, Gain and Loss: Gross Realized Gain $133 $(57) -43% Gross Realized Loss (60) (63) -105% --- --- ---- Portfolio Net Realized (Loss) Gain 73 (120) -164% Taxes on Realized Net Gain (49) 49 100% Foreign Currency (13) 13 100% Derivative Agreements (14) (5) -36% --- -- --- Net Realized Loss (3) (63) -2100% --- --- ----- Gross Unrealized Appreciation of Private Finance Portfolio Investments 184 (30) -16% Gross Unrealized Depreciation of Private Finance Portfolio Investments (367) 227 62% ---- --- -- Net Unrealized Appreciation (Depreciation) of Private Finance Portfolio Investments (183) 197 NM Net Unrealized (Depreciation) of European Capital Limited (264) 258 98% Net Unrealized Appreciation of American Capital Agency Corp. 2 12 600% Net Unrealized Appreciation (Depreciation) of American Capital, LLC (2) 2 100% Net Unrealized Appreciation (Depreciation) of Structured Products (85) 108 NM Reversal of Prior Period Net Unrealized Depreciation (Appreciation) Upon Realization (67) 108 NM --- --- -- Net Unrealized Appreciation (Depreciation) of Portfolio Investments (599) 685 NM Foreign Currency Translation (90) 147 NM Derivative Agreements and Other (9) (23) -256% -- --- ---- Net Unrealized Appreciation (Depreciation) of Investments (698) 809 NM ---- --- -- Net Gains, Losses, Appreciation and Depreciation $(701) $746 NM ===== ==== == Other Financial Data: NAV per Share $24.43 $(16.63) -68% NAV per Share Based on Realizable Value(3) $27.95 $(17.65) -63% Financial Liabilities at Cost $4,542 $(263) -6% Financial Liabilities at Fair Value $4,095 $(447) -11% Market Capitalization $5,285 $(4,379) -83% Total Enterprise Value $9,507 $(4,766) -50% Credit Quality: Weighted Average Effective Interest Rate on Debt Investments at Period End 11.2% -1.3% -12% Loans on Non-Accrual at Face $602 $310 51% Loans on Non-Accrual at Fair Value $135 $150 111% Past Due Loans at Face $80 $132 165% Past Due and Non-Accrual Loans at Face as a Percentage of Total Loans 10.7% Non-Accrual Loans at Fair Value as a Percentage of Total Loans 2.4% Number of Portfolio Companies on Non-Accrual and Past Due 27 Debt to Equity Conversions at Cost $- $6 100% Return on Equity: LTM Net Operating Income Return on Average Equity at Cost 9.6% LTM Realized (Loss) Earnings Return on Average Equity at Cost 11.6% LTM Loss on Average Equity -28.5% Current Quarter Net Operating Income Return on Average Equity at Cost Annualized 9.1% Current Quarter Realized (Loss) Earnings Return on Average Equity at Cost Annualized 8.9% Current Quarter Earnings Return (Loss) on Average Equity Annualized -41.1% NM = Not meaningful (1) Includes American Capital's investment in its externally managed funds. (2) Includes European Capital Limited(for Q3 2008), American Capital Equity I, American Capital Equity II, ACAS CLO-1 and ACAS CRE CDO 2007-1. (3) Realizable Value is a non-GAAP financial measure which does not represent current fair value or net present value. Realizable Value is the future value that we anticipate realizing on the settlement or maturity of our investments. Refer to the table on the following page for additional information and discussion regarding the use of non- GAAP financial information. AMERICAN CAPITAL, LTD. OTHER FINANCIAL INFORMATION As of September 30, 2009 (in millions) (unaudited) The following table summarizes the current GAAP cost basis and fair value of our investments as of September 30, 2009 compared to the realizable value, which is the amount that we currently anticipate realizing on settlement or maturity of these investments: Difference Between Realizable Value GAAP GAAP and GAAP Cost Fair Realizable Fair Asset Class Basis Value Value Value ----------- ----- ----- ---------- --------- Private finance $7,486 $5,427 $5,762 $335 European Capital Limited 1,277 155 155 - American Capital Agency Corp. 50 71 71 - Structured products 952 196 592 396 American Capital, LLC 95 45 45 - Derivatives, net and other - (120) (150) (30) -- ---- ---- --- Total $9,860 $5,774 $6,475 $701 ====== ====== ====== ==== USE OF NON-GAAP FINANCIAL INFORMATION
In addition to the results presented in accordance with generally accepted accounting principles ("GAAP"), this press release includes Realizable Value, a non-GAAP financial measure which management uses in its internal analysis of results, and believes may be informative to investors gauging the quality of the Company's assets and financial performance from a long-term perspective, identifying trends in its results and providing meaningful period-to-period comparisons. Realizable Value is defined as the future value that American Capital currently anticipates realizing on the settlement or maturity of its investments as of the reporting date. It does not represent current fair value or net present value and is based on assumptions of future cash flows as of the reporting date. Accordingly, changes to expectations of future cash flows as a result of events subsequent to the reporting date are not adjusted in the realizable value as of the reporting date. American Capital believes that this non-GAAP financial measure provides information useful to investors because the Company generally intends to hold its assets to settlement or maturity, and there may be material differences between the GAAP fair values of its investments and the amounts the Company expects to realize on settlement or maturity as of the reporting date. American Capital believes that providing investors with Realizable Value in addition to the related GAAP fair value gives investors greater transparency to the information used by management in its financial operational decision-making. Although American Capital believes that this non-GAAP financial measure enhances investors' understanding of its business and performance, Realizable Value should not be considered as an alternative to GAAP basis financial measures. A reconciliation of non-GAAP Realizable Value to GAAP fair value is set forth above.
Portfolio Statistics (1) ($in millions, unaudited) Pre-2000 2000 2001 2002 2003 2004 -------- ---- ---- ---- ---- ---- IRR - Realizable Value - All Investments(2) 7.5% 8.0% 18.2% 7.6% 21.2% 13.7% IRR - GAAP Fair Value - All Investments(3) 7.5% 8.0% 18.2% 7.4% 21.2% 13.3% IRR - GAAP Fair Value - Equity Investments Only(3)(4)(5) 2.8% 12.1% 46.9% 11.3% 29.6% 27.2% IRR - Exited Investments(6) 8.8% 8.0% 20.3% 9.0% 23.5% 21.0% Original Investments and Commitments $780 $285 $376 $961 $1,432 $2,266 Total Exits and Prepayments of Original Investments $713 $285 $351 $757 $1,083 $1,679 Total Interest, Dividends and Fees Collected $303 $105 $148 $319 $385 $581 Total Net Realized (Loss) Gain on Investments $(89) $(39) $(4) $(91) $142 $148 Current Cost of Investments $76 $- $23 $196 $321 $589 Current Fair Value of Investments $7 $- $4 $123 $403 $361 Current Fair Value of Investments as a % of Total Investments at Fair Value 0.1% - 0.1% 2.1% 6.8% 6.1% Net Unrealized Appreciation/ (Depreciation) $(69) $- $(19) $(73) $82 $(228) Non-Accruing Loans at Face $17 $- $15 $33 $- $151 Non-Accruing Loans at Fair Value $6 $- $4 $17 $- $13 Equity Interest at Fair Value(4) $- $- $- $- $180 $63 Debt to EBITDA(7)(8)(9) 12.1 - NM 9.3 4.3 6.8 Interest Coverage(7)(9) 1.1 - NM 1.3 2.4 1.9 Debt Service Coverage(7)(9) 1.0 - NM 1.1 2.3 1.5 Average Age of Companies(9) 44 yrs - 40 yrs 46 yrs 40 yrs 43 yrs Diluted Ownership Percentage(4) 60% - 64% 35% 52% 46% Average Sales(9)(10) $38 $- $7 $47 $190 $106 Average EBITDA(9)(11) $2 $- $- $8 $38 $23 Average EBITDA Margin 5.3% - - 17.0% 20.0% 21.7% Total Sales(9)(10) $120 $- $247 $185 $1,305 $1,308 Total EBITDA(9)(11) $11 $- $3 $16 $170 $234 % of Senior Loans(9)(12) 64% - 9% 63% 61% 44% % of Loans with Lien(9)(12) 100% - 100% 100% 100% 92% Portfolio Statistics (1) ($in millions, unaudited) 2005 2006 2007 2008 2009 IRR - Realizable Value ---- ---- ---- ---- ---- - All Investments(2) -0.5% 8.5 % -2.1% 6.0% - IRR - GAAP Fair Value - All Investments(3) -1.4% 6.8% -13.2% -10.2% - IRR - GAAP Fair Value - Equity Investments Only(3)(4)(5) -15.9% 14.3% -18.9% -18.9% - IRR - Exited Investments(6) 24.2% 13.5% -10.3% -74.9% - Original Investments and Commitments $4,559 $5,163 $7,324 $1,014 $- Total Exits and Prepayments of Original Investments $2,049 $3,065 $2,368 $55 $- Total Interest, Dividends and Fees Collected $916 $876 $800 $152 $- Total Net Realized (Loss) Gain on Investments $314 $24 $(259) $(35) $- Current Cost of Investments $2,257 $1,736 $3,863 $799 $- Current Fair Value of Investments $921 $1,278 $2,228 $568 $- Current Fair Value of Investments as a % of Total Investments at Fair Value 15.6% 21.7% 37.8% 9.7% - Net Unrealized Appreciation/ (Depreciation) $(1,336) $(458) $(1,635) $(231) $- Non-Accruing Loans at Face $48 $302 $323 $23 $- Non-Accruing Loans at Fair Value $21 $103 $121 $- $- Equity Interest at Fair Value(4) $331 $409 $486 $112 $- Debt to EBITDA(7)(8)(9) 5.1 5.4 7.1 7.0 - Interest Coverage(7)(9) 2.3 2.5 1.8 1.3 - Debt Service Coverage(7)(9) 1.5 2.1 1.5 1.2 - Average Age of Companies(9) 31 yrs 29 yrs 30 yrs 25 yrs - Diluted Ownership Percentage(4) 41% 35% 46% 31% - Average Sales(9)(10) $118 $142 $197 $104 $- Average EBITDA(9)(11) $22 $37 $35 $28 $- Average EBITDA Margin 18.6% 26.1% 17.8% 26.9% - Total Sales(9)(10) $2,455 $5,611 $8,582 $1,112 $- Total EBITDA(9)(11) $339 $893 $1,601 $242 $- % of Senior Loans(9)(12) 48% 41% 60% 28% - % of Loans with Lien(9)(12) 91% 96% 94% 60% - Portfolio Statistics (1) ($in millions, unaudited) Pre-2000 - 2009 2004 - 2009 Aggregate Aggregate --------------- ----------- IRR - Realizable Value - All Investments(2) 5.8 % 3.2% IRR - GAAP Fair Value - All Investments(3) 3.1% -0.9% IRR - GAAP Fair Value - Equity Investments Only(3)(4)(5) 0.7% -4.4% IRR - Exited Investments(6) 14.6% 16.7% Original Investments and Commitments $24,160 $20,326 Total Exits and Prepayments of Original Investments $12,405 $9,216 Total Interest, Dividends and Fees Collected $4,585 $3,325 Total Net Realized (Loss) Gain on Investments $111 $192 Current Cost of Investments $9,860 $9,244 Current Fair Value of Investments $5,893 $5,356 Current Fair Value of Investments as a % of Total Investments at Fair Value 100.0% 90.9% Net Unrealized Appreciation/ (Depreciation) $(3,967) $(3,888) Non-Accruing Loans at Face $912 $847 Non-Accruing Loans at Fair Value $285 $258 Equity Interest at Fair Value(4) $1,581 $1,401 Debt to EBITDA(7)(8)(9) 6.3 6.3 Interest Coverage(7)(9) 2.0 2.0 Debt Service Coverage(7)(9) 1.7 1.6 Average Age of Companies(9) 31 yrs 30 yrs Diluted Ownership Percentage(4) 42% 41% Average Sales(9)(10) $156 $156 Average EBITDA(9)(11) $32 $32 Average EBITDA Margin 20.5% 20.5% Total Sales(9)(10) $20,925 $19,068 Total EBITDA(9)(11) $3,509 $3,309 % of Senior Loans(9)(12) 50% 47% % of Loans with Lien(9)(12) 91% 90% 1. Static pool classification is based on the year the initial investment was made. Subsequent add-on investments are included in the static pool year of the original investment. Investments in interest rate derivative agreements are excluded. 2. Assumes investments are exited at realizable value based on anticipated proceeds to be received upon settlement or maturity. For structured product investments, it assumes the anticipated proceeds are received on the scheduled future date. 3. Assumes investments are exited at current GAAP fair value. 4. Excludes investments in structured products. 5. Excludes equity investments that are the result of conversions of debt and warrants received with the issuance of debt. 6. Includes exited securities of existing portfolio companies. 7. These amounts do not include investments in which we own only equity. 8. For portfolio companies with a nominal EBITDA amount, the portfolio company's maximum debt leverage is limited to 15 times EBITDA. 9. Excludes investments in structured products, managed funds and American Capital, LLC. 10. Sales of the most recent twelve months, or when appropriate, the forecasted twelve months. 11. EBITDA of the most recent twelve months, or when appropriate, the forecasted twelve months. 12. As a percentage of our total debt investments. SHAREHOLDER CALL
American Capital invites shareholders, prospective shareholders and analysts to attend the shareholder call on November 4, 2009 at 11:00 am ET. The shareholder call can be accessed through a free live webcast at http://www.americancapital.com/ or by dialing (800) 230-1059 (U.S. domestic) or +1 (612) 332-0107 (international). Please advise the operator you are dialing in for the American Capital shareholder call. If you do not plan on asking a question on the call and have access to the internet, please take advantage of the webcast.
A slide presentation will accompany the shareholder call and will be available at http://www.americancapital.com/ in advance of the shareholder call. Select the Q3 2009 Earnings Presentation link to download and print the presentation in advance of the shareholder call.
An archived audio replay of the shareholder call combined with the slide presentation will be made available on our website after the call. In addition, there will be a phone recording available from 3:00 pm ET November 4, 2009 until 11:59 pm ET November 18, 2009. If you are interested in hearing the recording of the presentation, please dial (800) 475-6701 (U.S. domestic) or +1 (320) 365-3844 (international). The access code for both domestic and international callers is 118517.
ABOUT AMERICAN CAPITAL
American Capital is a publicly traded private equity firm and global asset manager. American Capital, both directly and through its asset management business, originates, underwrites and manages investments in middle market private equity, leveraged finance, real estate and structured products. Founded in 1986, American Capital has $12 billion in capital resources under management and nine offices in the U.S., Europe and Asia. For further information, please refer to http://www.americancapital.com/.
ADDITIONAL INFORMATION
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 reports 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 ("SEC") 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.
This press release contains forward-looking statements. Forward-looking statements are based on estimates, projections, beliefs and assumptions of management of the Company at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties in predicting future results and conditions. Actual results could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation, 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. Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and the Company's subsequent periodic filings. Copies are available on the SEC's website at http://www.sec.gov/. Forward-looking statements are made as of the date of this press release, and are subject to change without notice. We disclaim any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.
CONTACT: Investors - (301) 951-5917 Media - (301) 968-9400
American Capital Ltd.
CONTACT: Investors, +1-301-951-5917, or Media, +1-301-968-9400, both ofAmerican Capital
Web Site: http://www.americancapital.com/
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