American Capital Reports Net Operating Income Before Income Taxes Of $90 Million, Or $0.27 Per Diluted Share, And Net Earnings Of $196 Million, Or $0.60 Per Diluted Share

BETHESDA, Md., Oct. 29, 2012 /PRNewswire/ -- American Capital, Ltd. ("American Capital" or the "Company") (Nasdaq: ACAS) announced net operating income ("NOI") before income taxes for the quarter ended September 30, 2012 of $90 million, or $0.27 per diluted share.  NOI after income taxes for the quarter was $71 million, or $0.22 per diluted share, and net earnings for the quarter were $196 million, or $0.60 per diluted share.  As of September 30, 2012, net asset value ("NAV") per share was $17.39, a 5%, or $0.77 per share, increase from the June 30, 2012 NAV per share of $16.62.

Q3 2012 FINANCIAL SUMMARY

  • $0.27 NOI before income taxes per diluted share, or $90 million
    • $25 million increase over Q3 2011
    • $0.22 NOI after income taxes per diluted share, or $71 million
  • $0.22 net realized earnings per diluted share, or $72 million
    • $26 million decrease over Q3 2011
  • $0.38 net unrealized appreciation per diluted share, or $124 million
    • $686 million improvement over Q3 2011
  • $0.60 net earnings per diluted share, or $196 million
    • $660 million improvement over Q3 2011
  • $136 million of cash proceeds from realizations
  • $150 million of securitized debt repaid
  • 11.4 million shares of American Capital common stock repurchased, totaling $125 million
    • $10.99 average price per share
    • $0.23 accretive to NAV per share
  • $17.39 NAV per share
    • $0.77 per share, or 5%, increase over Q2 2012

"NAV per share grew by $0.77 for the quarter to $17.39, delivering a 19% annualized return for the quarter," said Malon Wilkus, Chairman and Chief Executive Officer. "In the past three months, our operating companies, excluding American Capital, LLC, experienced slight aggregate revenue growth and modest adjusted EBITDA growth, year over year.  Over the same period, European Capital's portfolio companies experienced moderate aggregate revenue growth and modest adjusted EBITDA declines.  Additionally, the fair value of our investment in European Capital also appreciated, primarily because of an increase in the stock price to NAV ratio of comparable public funds and the appreciation of the Euro against the U.S. dollar.  We are also pleased to continue to grow our funds under management, with the closing of a second managed CLO during the quarter and the raising $1.2 billion of equity by American Capital Agency Corp.  As a result of the increase in the assets under management by American Capital, LLC, our investment in American Capital, LLC maintained its fair value despite a reduction in its forecasted growth." 

PORTFOLIO VALUATION

For the quarter ended September 30, 2012, net unrealized appreciation, before income taxes, totaled $144 million.  The primary components of the net unrealized appreciation were:

  • $41 million net unrealized appreciation from American Capital's private finance portfolio, generally as a result of improved portfolio company performance and improved multiples;
  • $20 million net unrealized appreciation from American Capital's structured products investments, generally as a result of improved projected cash flows; and
  • $77 million net unrealized appreciation in American Capital's investment in European Capital, primarily due to a strengthening of the Euro and a decrease in the implied discount to European Capital's NAV.
    • The Company's equity investment in European Capital was valued at $651 million as of September 30, 2012, or 75% of NAV, compared to $574 million as of June 30, 2012, or 70% of NAV.

PORTFOLIO REALIZATIONS AND PERFORMANCE
In the third quarter of 2012, $136 million of cash proceeds were received from realizations of portfolio investments.  American Capital made $6 million in new committed investments during the quarter.  The weighted average effective interest rate on American Capital's debt investments as of September 30, 2012 was 11.1%, 10 basis points higher than the June 30, 2012 rate of 11.0%.  As of September 30, 2012, loans with a fair value of $252 million were on non-accrual, representing 12.5% of total loans at fair value, compared to $243 million fair value of non-accrual loans, or 12.3% of total loans at fair value as of June 30, 2012.  The $9 million increase in the fair value of loans on non-accrual was generally driven by appreciation in the fair value of loans already on non-accrual status.

STOCK REPURCHASE AND DIVIDEND PROGRAM
During the third quarter of 2011, American Capital's Board of Directors adopted a program that may provide for repurchases of shares or dividend payments through December 31, 2013.  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 and since the beginning of 2012, 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.

The repurchase and dividend program may be suspended, terminated or modified at any time for any reason.  The program does not obligate American Capital to acquire any specific number of shares, and all repurchases will be made in accordance with SEC Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of stock repurchases.  During the third quarter of 2012, American Capital made open market purchases of 11.4 million shares, or $125 million, of American Capital common stock at an average price of $10.99 per share.  Since the inception of the program, American Capital has made open market purchases of 43.6 million shares, or $392 million, of American Capital common stock at an average price of $9.00 per share.

CAPITAL MANAGEMENT
"During the quarter, we continued to strengthen our balance sheet and lower our cost of capital as we refinanced our secured debt with a $600 million four-year secured term facility and obtained a new $250 million four-year secured revolving credit facility," said John Erickson, Chief Financial Officer.  "Relative to the facility it replaced and assuming drawing 75% of the secured revolving credit facility, we lowered our cost of debt capital by approximately 3.5%. We also repaid an additional $150 million on our debt that is securitized in the business loan trusts (BLT's).  Given our strong liquidity and balance sheet, we are able to enhance shareholder value with our share repurchase program.  With 11.4 million of share repurchases during the quarter, we have now repurchased 12% of our shares issued at June 30, 2011 through September 30, 2012, which has accreted $0.90 to NAV per share."

 

AMERICAN CAPITAL, LTD.

CONSOLIDATED BALANCE SHEETS

As of September 30, 2012, December 31, 2011 and September 30, 2011

(in millions, except per share amounts)
















Q3


Q4


Q3 2012 Versus
Q4 2011


Q3


Q3 2012 Versus
Q3 2011


2012


2011


$


%


2011


$


%


(unaudited)








(unaudited)





Assets














Investments at fair value (cost of $5,943, $6,739
   and $7,148, respectively)

$          5,309


$          5,130


$               179


3 %


$          5,295


$               14


 

-

Cash and cash equivalents

304


204


100


49 %


187


117


63 %

Restricted cash and cash equivalents

21


80


(59)


(74%)


85


(64)


(75%)

Interest receivable

19


24


(5)


(21%)


25


(6)


(24%)

Deferred tax asset, net

511


428


83


19 %


-


511


100 %

Derivative agreements at fair value

10


10


-


-


13


(3)


(23%)

Other

92


85


7


8 %


87


5


6 %

Total assets

$          6,266


$          5,961


$               305


5 %


$          5,692


$             574


10 %















Liabilities and Shareholders' Equity














Debt

$             803


$          1,251


$             (448)


(36%)


$          1,519


$           (716)


(47%)

Derivative agreements at fair value

40


99


(59)


(60%)


108


(68)


(63%)

Other

47


48


(1)


(2%)


49


(2)


(4%)

Total liabilities

890


1,398


(508)


(36%)


1,676


(786)


(47%)















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, 315.4, 336.4 and 344.8
       issued and 309.2, 329.1 and 337.0
       outstanding, respectively

3


3


-


-


3


-


-

Capital in excess of par value

6,853


7,053


(200)


(3%)


7,100


(247)


(3%)

Distributions in excess of net realized earnings

(974)


(999)


25


3 %


(1,137)


163


14 %

Net unrealized depreciation of investments

(506)


(1,494)


988


66 %


(1,950)


1,444


74 %

Total shareholders' equity

5,376


4,563


813


18 %


4,016


1,360


34 %

Total liabilities and shareholders' equity

$          6,266


$          5,961


$               305


5 %


$          5,692


$             574


10 %















NAV per common share outstanding

$          17.39


$          13.87


$              3.52


25 %


$          11.92


$            5.47


46 %

 

AMERICAN CAPITAL, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three and Nine Months Ended September 30, 2012 and 2011

(in millions, except per share data)

(unaudited)






















Three Months Ended






Nine Months Ended


Three Months Ended


September 30,


Nine Months Ended


September 30,


September 30,


2012 Versus 2011


September 30,


2012 Versus 2011


2012


2011


$


%


2012


2011


$


%

















OPERATING INCOME
















Interest and dividend income

$             142


$             117


$               25


21 %


$             429


$             394


$               35


9 %

Fee income

12


13


(1)


(8%)


37


37


-


-

Total operating revene

154


130


24


18 %


466


431


35


8 %

















OPERATING EXPENSES
















Interest

15


20


(5)


(25%)


47


69


(22)


(32%)

Salaries, benefits and stock-based compensation

34


33


1


3 %


108


107


1


1 %

General and administrative

15


12


3


25 %


43


36


7


19 %

Total operating expenses

64


65


(1)


(2%)


198


212


(14)


(7%)

















NET OPERATING INCOME BEFORE INCOME
   TAXES

90


65


25


38 %


268


219


49


22 %

















Tax (provision) benefit

(19)


-


(19)


(100 %)


46


-


46


100 %

NET OPERATING INCOME

71


65


6


9 %


314


219


95


43 %

















Loss on extinguishment of debt, net of tax

(3)


-


(3)


(100 %)


(3)


-


(3)


100 %

Net realized gain (loss)
















Portfolio company investments

5


44


(39)


(89 %)


(280)


(181)


(99)


(55%)

Foreign currency transactions

-


(1)


1


100 %


1


-


1


100 %

Derivative agreements

(5)


(10)


5


50 %


(84)


(37)


(47)


(127%)

Tax benefit

4


-


4


100 %


78


-


78


100 %

Total net realized gain (loss)

4


33


(29)


(88%)


(285)


(218)


(67)


(31%)

















NET REALIZED EARNINGS

72


98


(26)


(27%)


26


1


25


2,500 %

















Net unrealized appreciation (depreciation)
















Portfolio company investments

109


(477)


586


 NM 


983


337


646


192 %

Foreign currency translation

29


(80)


109


 NM 


(9)


34


(43)


 NM 

Derivative agreements

6


(5)


11


 NM 


59


8


51


638 %

Tax provision

(20)


-


(20)


(100%)


(46)


-


(46)


(100%)

Total net unrealized appreciation 
   (depreciation)

124


(562)


686


 NM 


987


379


608


160 %

















NET INCREASE (DECREASE) IN NET ASSETS
   RESULTING FROM OPERATIONS 
   ("NET EARNINGS (LOSS)")

$             196


$           (464)


$             660


 NM 


$          1,013


$             380


$             633


167 %

















NET OPERATING INCOME PER COMMON 
   SHARE
















  Basic

$            0.22


$            0.19


$            0.03


16 %


$            0.97


$            0.63


$            0.34


54 %

  Diluted

$            0.22


$            0.19


$            0.03


16 %


$            0.94


$            0.61


$            0.33


54 %

















NET REALIZED EARNINGS PER COMMON
   SHARE
















  Basic

$            0.23


$            0.28


$          (0.05)


(18 %)


$            0.08


$                -


$            0.08


100 %

  Diluted

$            0.22


$            0.28


$          (0.06)


(21 %)


$            0.08


$                -


$            0.08


100 %

















NET EARNINGS (LOSS) PER COMMON
   SHARE
















  Basic

$            0.62


$          (1.34)


$            1.96


 NM 


$            3.13


$            1.10


$            2.03


185 %

  Diluted

$            0.60


$          (1.34)


$            1.94


 NM 


$            3.04


$            1.06


$            1.98


187 %

















WEIGHTED AVERAGE SHARES OF COMMON
   STOCK OUTSTANDING
















  Basic

316.4


345.3


(28.9)


(8%)


323.9


346.2


(22.3)


(6%)

  Diluted

327.3


345.3


(18.0)


(5%)


333.6


359.1


(25.5)


(7%)

















NM = Not meaningful.