American Capital Reports 2011 Net Operating Income of $448 Million, or $1.26 per Diluted Share, and Net Earnings of $974 Million, or $2.74 per Diluted Share, Including $428 Million, or $1.20 per Diluted Share, Deferred Tax Benefit
BETHESDA, Md., Feb. 14, 2012 /PRNewswire/ -- American Capital, Ltd. ("American Capital" or the "Company") (Nasdaq: ACAS) announced net operating income ("NOI") for the quarter and year ended December 31, 2011 of $229 million, or $0.67 per diluted share, and $448 million, or $1.26 per diluted share, respectively. Net earnings for the quarter and year ended December 31, 2011 were $594 million, or $1.73 per diluted share, and $974 million, or $2.74 per diluted share, respectively. The results reflect a $428 million deferred tax benefit recognized in the fourth quarter. As of December 31, 2011, net asset value ("NAV") per share was $13.87, a 16%, or $1.95 per share, increase from the September 30, 2011 NAV per share of $11.92 and a 30%, or $3.16 per share, increase from the December 31, 2010 NAV per share of $10.71.
Q4 2011 FINANCIAL SUMMARY
- $0.67 NOI per diluted share, or $229 million
- $162 million increase over Q4 2010
- $0.24 per diluted share, or $84 million, before deferred tax benefit
- $0.40 net realized earnings per diluted share, or $137 million
- $132 million increase over Q4 2010
- $(0.24) per diluted share, or $(83) million, before deferred tax benefit
- $1.33 net unrealized appreciation per diluted share, or $457 million
- $81 million increase over Q4 2010
- $0.72 per diluted share, or $249 million, before deferred tax benefit
- $1.73 net earnings per diluted share, or $594 million
- $213 million increase over Q4 2010
- $0.48 per diluted share, or $166 million, before deferred tax benefit
- $1.24 per diluted share, or $428 million, deferred tax benefit
- $356 million of cash proceeds from realizations
- $268 million of debt repaid
- Repurchased 8.4 million shares, totaling $59 million, of American Capital common stock at an average price of $6.97 per share
- $0.17 accretive to NAV per share
- $13.87 NAV per share
- $1.95 per share, or 16%, increase over Q3 2011
2011 FINANCIAL SUMMARY
- $1.26 NOI per diluted share, or $448 million
- $244 million increase over 2010
- $0.85 per diluted share, or $303 million, before deferred tax benefit
- $0.39 net realized earnings per diluted share, or $138 million
- $510 million improvement over 2010
- $(0.23) per diluted share, or $(82) million, before deferred tax benefit
- $2.35 net unrealized appreciation per diluted share, or $836 million
- $534 million decrease from 2010
- $1.77 per diluted share, or $628 million, before deferred tax benefit
- $2.74 net earnings per diluted share, or $974 million
- 23% annual return on average equity
- $24 million decrease from 2010
- $1.54 per diluted share, or $546 million, before deferred tax benefit
- $1,066 million of cash proceeds from realizations
- $1,008 million of debt repaid
- Repurchased 17.6 million shares, totaling $134 million, of American Capital common stock at an average price of $7.61 per share
- $0.32 accretive to NAV per share
- $13.87 NAV per share
- $3.16 per share, or 30%, increase over Q4 2010
"Last year proved to be another volatile year and I am very pleased with our performance against that backdrop," said Malon Wilkus, Chairman and Chief Executive Officer. "Our NAV per share grew by $3.16 for the year to $13.87, delivering a 30% increase since the end of 2010. We have now experienced net earnings on our investments in nine of the ten quarters since the low point of our valuation in the second quarter of 2009, earning $2.2 billion during that period. We believe that the performance of our portfolio will continue to be positive as the U.S. economy continues to recover. Based on this confidence and the current price to book, we believe our shares are an excellent value and expect to continue our share repurchase program in 2012. We remain focused on growing shareholder value by improving our balance sheet, growing our portfolio companies, originating high quality investment opportunities and increasing our NAV per share."
For the quarter ended December 31, 2011, net unrealized appreciation, before deferred tax benefit, totaled $249 million. The primary components of the net unrealized appreciation were:
- $111 million unrealized appreciation in American Capital's investment in American Capital, LLC, its alternative asset management company, due to an increase in forecasted growth and a reduction in the overall discount rate;
- $68 million net unrealized appreciation from American Capital's private finance portfolio, generally as a result of improved portfolio company performance and improved multiples;
- $154 million of reversals of net unrealized depreciation upon realization of portfolio company investments; and
- $(85) million net unrealized depreciation in American Capital's investment in European Capital, primarily due to a decline in European Capital's NAV, a slight increase in the implied discount to its NAV and a decline in the value of the Euro.
- The Company's equity investment in European Capital was valued at $547 million, compared to the $814 million fair value of European Capital's NAV at the end of the fourth quarter, which was 67% of NAV as of December 31, 2011, compared to 69% of NAV at the end of the prior quarter
"During 2011, we enjoyed $1.1 billion of liquidity in our portfolio at valuations that were on average 3.6% greater than the previous quarter's valuation, which allowed us to further strengthen our balance sheet," said John Erickson, Chief Financial Officer. "We paid down $1 billion of debt and made over $300 million of new investments while our asset coverage ratio improved to 465%. Additionally, we used our net cash flow from operations to repurchase $134 million of our outstanding shares, resulting in $0.32 per share of accretion to our NAV per share at year-end. During the fourth quarter, we were able to release a $428 million, or $1.24 per diluted share, valuation allowance on our ordinary deferred tax assets, which we expect to utilize to offset future ordinary taxable income. This will allow us to retain capital, which would not be possible if we were a regulated investment company for tax purposes. We remain focused on maximizing shareholder value."
PORTFOLIO LIQUIDITY AND PERFORMANCE
In the fourth quarter of 2011, $356 million of cash proceeds were received from realizations of portfolio investments. The Company made $31 million in new committed investments during the quarter. The weighted average effective interest rate on the Company's private finance debt investments as of December 31, 2011 was 10.7%, 40 basis points higher than the September 30, 2011 rate of 10.3% and 50 basis points higher than the December 31, 2010 rate of 10.2%.
As of December 31, 2011, loans with a fair value of $219 million were on non-accrual, representing 8.7% of total loans at fair value, compared to $173 million fair value of non-accrual loans, representing 6.6% of total loans at fair value as of September 30, 2011.
"We are extremely pleased with the results of our sale of CIBT Solutions ("CIBT") during the quarter," said Brian Graff, Senior Vice President and Senior Managing Director. "CIBT is the leading global provider of expedited travel document processing services such as for visas and passports. In the second quarter of 2006, we provided $58 million of debt financing to support the private equity buyout of CIBT and increased our investment to $98 million by the second quarter of 2007 to support several add-on acquisitions. In 2008, we acquired CIBT from the private equity sponsor by buying the company through an American Capital One Stop Buyout®. Four years later, we sold CIBT, receiving $215 million in cash proceeds and recognizing a $43 million gain with an additional $15 million of escrow proceeds expected to be received in the future. Our investments produced a 15% annualized return on our senior debt, mezzanine debt and equity. We achieved this while assisting the company in making 13 add-on acquisitions in the U.S. and Europe and managing through the recession when the fair value of our investments dropped by as much as 43%. Our patient approach to our private finance investments allows us to exit investments when the time is right."
During the second quarter of 2011, the Company became taxable under Subchapter C of the Internal Revenue Code for its tax year ended September 30, 2011, which is applicable to most corporations. As a result, during the quarter ended June 30, 2011, the Company recorded a $1.2 billion deferred tax asset and a corresponding $1.2 billion valuation allowance. A valuation allowance is required if it is more likely than not that the deferred tax asset will not be realized. In accordance with GAAP, the Company's history prior to the fourth quarter of cumulative pre-tax net losses over the prior three calendar years (2008 - 2010) prevented the Company from relying on its forecast of future taxable income to realize the deferred tax asset and therefore required a 100% valuation allowance on its deferred tax asset.
The Company's pre-tax net earnings of $546 million for the year ended December 31, 2011 provided the Company with cumulative pre-tax net earnings over the prior three calendar years (2009 - 2011). As a result, in accordance with GAAP, the Company was able to rely on its forecast of future ordinary taxable income and release the valuation allowance on its ordinary deferred tax assets in the amount of $428 million, or $1.24 per diluted share for the quarter, which is reflected as a deferred tax benefit in the Company's consolidated statement of operations for the quarter and year ended December 31, 2011. As of December 31, 2011, the Company continues to have a full valuation allowance on its capital deferred tax assets of $841 million.
STOCK REPURCHASE AND DIVIDEND PROGRAM
During the third quarter of 2011, American Capital's Board of Directors adopted a program that may provide for additional repurchases of shares or dividend payments through December 31, 2012. Under the program, American Capital will consider quarterly setting an amount to be utilized for stock repurchases or dividends. Generally, the amount may be utilized for repurchases if the price of American Capital's common stock represents a discount to the NAV of its shares, and the amount may be utilized for the payment of cash dividends if the price of American Capital's common stock represents a premium to the NAV of its shares.
In determining the quarterly amount for repurchases or dividends, the Company's Board will be guided by the Company's cumulative net cash provided by operating activities in the prior quarter since the second quarter of 2011, cumulative repurchases or dividends, cash on hand, debt service considerations, investment plans, forecasts of financial liquidity and economic conditions, operational issues and the then current trading price of American Capital stock.