UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 814-00149
AMERICAN CAPITAL STRATEGIES, LTD.
| Delaware | 52-1451377 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
2 Bethesda Metro Center
14th Floor
Bethesda, Maryland 20814
(Address of principal executive offices)
(301) 951-6122
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter earlier period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x. No ¨.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares of the issuer’s Common Stock, $0.01 par value, outstanding as of April 30, 2004 was 69,251,081.
AMERICAN CAPITAL STRATEGIES, LTD.
TABLE OF CONTENTS
| PART I. |
FINANCIAL INFORMATION |
|||
| Item 1. |
3 | |||
| Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003 |
3 | |||
| Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003 (unaudited) |
4 | |||
| Consolidated Schedules of Investments as of March 31, 2004 (unaudited) and December 31, 2003 |
5 | |||
| 23 | ||||
| Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (unaudited) |
24 | |||
| Consolidated Financial Highlights for the three months ended March 31, 2004 and 2003 (unaudited) |
25 | |||
| 26 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operation |
35 | ||
| 35 | ||||
| 36 | ||||
| 41 | ||||
| 42 | ||||
| 49 | ||||
| Item 3. |
49 | |||
| Item 4. |
50 | |||
| PART II. |
51 | |||
| Item 1. |
51 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
51 | ||
| Item 3. |
51 | |||
| Item 4. |
51 | |||
| Item 5. |
51 | |||
| Item 6. |
51 | |||
| 53 | ||||
2
Item 1. Consolidated Financial Statements
AMERICAN CAPITAL STRATEGIES, LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| Assets |
||||||||
| Investments at fair value (cost of $2,161,131 and $2,042,914, respectively) |
||||||||
| Non-Control/Non-Affiliate investments |
$ | 684,622 | $ | 756,158 | ||||
| Control investments |
1,208,634 | 1,041,144 | ||||||
| Affiliate investments |
222,060 | 137,917 | ||||||
| Interest rate hedging agreements |
(35,713 | ) | (23,476 | ) | ||||
| Total investments at fair value |
2,079,603 | 1,911,743 | ||||||
| Cash and cash equivalents |
8,677 | 8,020 | ||||||
| Restricted cash |
35,351 | 75,935 | ||||||
| Interest receivable |
20,716 | 17,636 | ||||||
| Other |
27,414 | 28,390 | ||||||
| Total assets |
$ | 2,171,761 | $ | 2,041,724 | ||||
| Liabilities and Shareholders’ Equity |
||||||||
| Notes payable |
$ | 612,813 | $ | 724,211 | ||||
| Revolving credit facilities |
242,349 | 116,000 | ||||||
| Repurchase agreements |
42,495 | — | ||||||
| Accrued dividends payable |
— | 3,957 | ||||||
| Other |
13,309 | 21,641 | ||||||
| Total liabilities |
910,966 | 865,809 | ||||||
| Commitments and Contingencies |
||||||||
| Shareholders’ equity: |
||||||||
| Undesignated preferred stock, $0.01 par value, 5,000 shares authorized, 0 issued and outstanding |
— | — | ||||||
| Common stock, $0.01 par value, 70,000 shares authorized, 69,233 and 66,930 issued, and 69,233 and 65,949 outstanding, respectively |
692 | 659 | ||||||
| Capital in excess of par value |
1,460,853 | 1,360,181 | ||||||
| Unearned compensation |
(25,341 | ) | (21,286 | ) | ||||
| Notes receivable from sale of common stock |
(8,411 | ) | (8,783 | ) | ||||
| Distributions in excess of net realized earnings |
(85,470 | ) | (23,685 | ) | ||||
| Net unrealized depreciation of investments |
(81,528 | ) | (131,171 | ) | ||||
| Total shareholders’ equity |
1,260,795 | 1,175,915 | ||||||
| Total liabilities and shareholders’ equity |
$ | 2,171,761 | $ | 2,041,724 | ||||
See accompanying notes.
3
AMERICAN CAPITAL STRATEGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
| Three Months Ended March 31, 2004 |
Three Months Ended March 31, 2003 |
|||||||
| OPERATING INCOME: |
||||||||
| Interest and dividend income |
||||||||
| Non-Control/Non-Affiliate investments |
$ | 23,102 | $ | 19,901 | ||||
| Control investments |
26,201 | 17,004 | ||||||
| Affiliate investments |
6,253 | 1,476 | ||||||
| Interest rate hedging agreements |
(5,945 | ) | (3,676 | ) | ||||
| Total interest and dividend income |
49,611 | 34,705 | ||||||
| Fees |
||||||||
| Non-Control/Non-Affiliate investments |
1,556 | 6,859 | ||||||
| Control investments |
8,542 | 1,498 | ||||||
| Affiliate investments |
876 | 2 | ||||||
| Total fee income |
10,974 | 8,359 | ||||||
| Total operating income |
60,585 | 43,064 | ||||||
| OPERATING EXPENSES: |
||||||||
| Interest |
6,045 | 4,011 | ||||||
| Salaries and benefits |
5,743 | 4,674 | ||||||
| General and administrative |
5,880 | 3,616 | ||||||
| Stock-based compensation |
1,368 | — | ||||||
| Total operating expenses |
19,036 | 12,301 | ||||||
| NET OPERATING INCOME |
41,549 | 30,763 | ||||||
| Net realized (loss) gain on investments |
||||||||
| Non-Control/Non-Affiliate investments |
(11,152 | ) | 3,191 | |||||
| Control investments |
(45,434 | ) | 714 | |||||
| Affiliate investments |
(3 | ) | — | |||||
| Total net realized (loss) gain on investments |
(56,589 | ) | 3,905 | |||||
| Net unrealized appreciation (depreciation) appreciation of investments |
||||||||
| Non-Control/Non-Affiliate investments |
9,829 | (9,544 | ) | |||||
| Control investments |
50,320 | (26,964 | ) | |||||
| Affiliate investments |
1,731 | 1,339 | ||||||
| Interest rate hedging agreements |
(12,237 | ) | (474 | ) | ||||
| Total net unrealized appreciation (depreciation) of investments |
49,643 | (35,643 | ) | |||||
| NET INCREASE (DECREASE) IN SHAREHOLDERS’ EQUITY RESULTING FROM OPERATIONS |
$ | 34,603 | $ | (975 | ) | |||
| NET OPERATING INCOME PER COMMON SHARE: |
||||||||
| Basic |
$ | 0.62 | $ | 0.65 | ||||
| Diluted |
$ | 0.61 | $ | 0.65 | ||||
| NET EARNINGS (LOSS) PER COMMON SHARE: |
||||||||
| Basic |
$ | 0.52 | $ | (0.02 | ) | |||
| Diluted |
$ | 0.51 | $ | (0.02 | ) | |||
| WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: |
||||||||
| Basic |
67,126 | 47,393 | ||||||
| Diluted |
68,269 | 47,578 | ||||||
| DIVIDENDS DECLARED PER COMMON SHARE |
$ | 0.70 | $ | 0.67 | ||||
See accompanying notes.
4
AMERICAN CAPITAL STRATEGIES, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2004
(unaudited)
(in thousands)
| Company |
Industry |
Investment |
Cost |
Fair Value | ||||||
| NON-CONTROL/NON-AFFILIATE INVESTMENTS | ||||||||||
| A.H. Harris & Sons, Inc. |
Distributors — Construction Material | Subordinated Debt Common Stock Warrants, 10.0% of Co.(1) |
$ |
9,670 534 |
$ |
9,719 394 | ||||
| 10,204 | 10,113 | |||||||||
| ACE Cash Express, Inc.(2) |
Diversified Financial Services — Retail Financial Services Stores | Subordinated Debt |
30,240 | 30,240 | ||||||
| Aerus, LLC |
Household Durables — Vacuum Cleaners | Common Membership Warrants, 2.5% of Co.(1) |
246 | — | ||||||
| Alemite Holdings, Inc. |
Machinery — Lubricating Equipment | Subordinated Debt Common Stock Warrants, 9.0% of Co.(1) |
|
10,485 124 |
|
10,485 124 | ||||
| 10,609 | 10,609 | |||||||||
| Atlantech Holding Corp. |
Construction & Engineering — Polymer-based Products | Subordinated Debt with Non-Detachable Warrants, 6.2% of Co. Redeemable Preferred Stock with Non-Detachable Common Stock, 1.1% of Co.(1) |
|
20,486 1,285 |
|
19,575 824 | ||||
| 21,771 | 20,399 | |||||||||
| Baran Group, Ltd (2)(3) |
Communications Equipment — Wireless Communications Network Services | Common Stock, 0.5% of Co.(1) |
2,373 | 293 | ||||||
| BC Natural Foods LLC |
Food Products — Organic & Natural Poultry | Senior Debt Subordinated Debt Common Membership Warrants, 15.2% of Co.(1) |
|
5,231 26,913 3,331 |
|
5,231 26,913 6,513 | ||||
| 35,475 | 38,657 | |||||||||
| BLI Holdings Corp. |
Personal Products — Personal Care Items | Subordinated Debt |
17,046 | 17,046 | ||||||
| Bumble Bee Seafoods, L.P. |
Food Products — Canned Tuna and Other Seafood | Subordinated Debt Partnership Unit Warrants, 1.2% of Co.(1) |
|
14,873 421 |
|
14,873 1,754 | ||||
| 15,294 | 16,627 | |||||||||
| CamelBak Products, LLC |
Leisure Equipment & Products — Portable Hands-Free Hydration Systems | Subordinated Debt |
37,920 | 37,920 | ||||||
| Case Logic, Inc. |
Leisure Equipment & Products — Storage Products | Subordinated Debt with Non-Detachable Warrants, 8.4% of Co. Common Stock, 0.5% of Co.(1) Redeemable Preferred Stock |
|
23,838 — 443 |
|
22,848 — 432 | ||||
| 24,281 | 23,280 | |||||||||
| Chronic Care Solutions, Inc. |
Health Care Equipment & Supplies — Mail Order Medical Supplies | Subordinated Debt Common Stock, 0.2% of Co.(1) Preferred Stock, Convertible into 0.2% of Co.(1) Common Stock Warrants, 3.6% of Co.(1) |
|
43,185 1 144 1,676 |
|
43,185 1 144 1,676 | ||||
| 45,006 | 45,006 | |||||||||
5
AMERICAN CAPITAL STRATEGIES, LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
March 31, 2004
(unaudited)
(in thousands)
| Company |
Industry |
Investment |
Cost |
Fair Value | ||||
| CIVCO Holding, Inc. |
Health Care Equipment & Supplies — Medical Products Supporting Ultrasound Imaging Equipment | Subordinated Debt Redeemable Preferred Stock |