Allied Capital Reports First Quarter Earnings of $0.55 Per Share.Business Editors WASHINGTON--(BUSINESS WIRE)--April 23, 2002 Allied Capital Corporation (NYSE NYSE See: New York Stock Exchange :ALD ALD abbr. adrenoleukodystrophy ALD, n.pr See adrenoleukodystrophy. ALD aldolase. ) today announced first quarter results. Highlights for Q1 2002 -- $12.9 million to acquire the senior debt of MVL Group, a full service research and data collection business; -- $8.2 million to acquire senior secured notes of Kar Products, Inc., a leading national distributor of maintenance, repair and operating supplies to fleet, industrial, automotive and other markets; -- $4.1 million to purchase subordinated debt with warrants of United Pet Group, a leading manufacturer and marketer of pet supply products; and -- $4.1 million to purchase subordinated debt with warrants of Polaris Pool Systems, the world's leading manufacturer and marketer of automatic pool cleaners. Operating Results For the three months ended March 31, 2002, Allied Capital reported net investment income of $53.9 million, or $0.53 per share, a 15% increase on a per share basis as compared to net investment income of $39.7 million, or $0.46 per share, for the three months ended March 31, 2001. For the first quarter of 2002, Allied Capital reported net income of $56.0 million, or $0.55 per share, compared to $52.0 million, or $0.60 per share, for the first quarter of 2001. Net income varies substantially from quarter to quarter primarily due to the recognition of realized and unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. or losses, which varies from quarter to quarter. As a result, quarterly comparisons of net income may not be meaningful. Net realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. totaled $9.6 million, or $0.09 per share, for the first quarter of 2002 as compared to $1.2 million, or $0.01 per share, for the first quarter of 2001. Allied Capital realized gains of $12.9 million and realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. of $3.3 million, during the quarter. Allied Capital recorded net unrealized losses Unrealized Loss A loss that results from holding onto an asset rather than cashing it in and officially taking the loss. Notes: Let's say you own a stock that is down 50%, but you haven't sold it to realize the loss yet. This is said to be an unrealized loss. of $7.5 million or $0.07 per share during the first quarter of 2002. During the three months ended March 31, 2002, the company invested a total of $80.0 million. After total repayments of $31.0 million, sales of $125.1 million, and valuation changes during the quarter, the company's investment portfolio totaled $2.25 billion at March 31, 2002. Shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. increased to $1.38 billion at March 31, 2002, as compared to $1.35 billion at December December: see month. 31, 2001. Net asset value per share at March 31, 2002 was $13.72, as compared to $13.57 at December 31, 2001. First Quarter 2002 Portfolio Activity During the first quarter of 2002, private finance investing activity totaled $37.6 million and commercial real estate investing Real estate investing involves the purchase of real estate for profit. Profits are accumulated slowly by renting out properties in a cashflow method, or are generally improved and resold for a capital gain. activity totaled $42.4 million. At March 31, 2002, the overall weighted average yield on the company's portfolio was 14.3%. Private Finance The company saw few opportunities for mezzanine mez·za·nine n. 1. A partial story between two main stories of a building. 2. The lowest balcony in a theater or the first few rows of that balcony. or equity investment in the first quarter of 2002, as investment and merger and acquisition activity in the middle market continued to be very sluggish throughout the country. The company did find interesting opportunities to invest within its own portfolio by providing senior and subordinated capital to existing portfolio companies. The availability of senior debt capital from traditional sources, such as banks, continues to be scarce, and the company had several opportunities to purchase senior or subordinated notes at a discount from lending institutions Noun 1. lending institution - a financial institution that makes loans financial institution, financial organisation, financial organization - an institution (public or private) that collects funds (from the public or other institutions) and invests them in looking to liquidate To pay and settle the amount of a debt; to convert assets to cash; to aggregate the assets of an insolvent enterprise and calculate its liabilities in order to settle with the debtors and the creditors and apportion the remaining assets, if any, among the stockholders or owners of the or reduce middle market portfolios. Significant new private finance investments during the quarter included: -- $12.9 million to acquire the senior debt of MVL Group, a full service research and data collection business; -- $8.2 million to acquire senior secured notes of Kar Products, Inc., a leading national distributor of maintenance, repair and operating supplies to fleet, industrial, automotive and other markets; -- $4.1 million to purchase subordinated debt with warrants of United Pet Group, a leading manufacturer and marketer of pet supply products; and -- $4.1 million to purchase subordinated debt with warrants of Polaris Pool Systems, the world's leading manufacturer and marketer of automatic pool cleaners. The private finance portfolio totaled $1.60 billion at March 31, 2002. The debt portion of this portfolio, which totaled $1.11 billion at March 31, 2002, had a weighted average yield of 14.3%. As previously announced on April 10, 2002, Allied Capital has entered into a definitive agreement with Corinthian Co·rin·thi·an adj. 1. Of or relating to ancient Corinth or its people or culture. 2. Architecture Of or relating to the Corinthian order. 3. Elegantly or elaborately ornate. 4. Colleges, Inc. to sell Wyoming Wyoming, city, United States Wyoming, city (1990 pop. 63,891), Kent co., W Mich., in the greater Grand Rapids metropolitan area, on the Grand River; settled 1832, inc. 1959. Technical Institute for approximately $85 million in cash, subject to customary closing conditions including certain regulatory and accrediting body approvals and subject to certain working capital and net equity adjustments. The transaction is expected to close on July 1, 2002. Allied Capital acquired WyoTech in December of 1998 and owns 91% of the company. The investment had a cost basis of $16.4 million and was valued at $70.4 million at March 31, 2002. In addition, during the first quarter of 2002 the company sold its investment in Aurora Aurora, cities, United States Aurora (ərôr`ə, ô–). 1 City (1990 pop. 222,103), Adams and Arapahoe counties, N central Colo., a growing suburb on the east side of Denver; inc. 1903. Communications, which resulted in a realized gain of $4.9 million. CMBS CMBS See: Commercial Mortgage Backed Securities Investing During the first quarter of 2002, the company's commercial real estate finance group invested $19.3 million in commercial mortgage-backed securities Commercial mortgage-backed securities (CMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which are backed by mortgages on commercial rather than residential real estate. (CMBS). In addition, the company purchased $23.1 million in non-investment grade securities related to a collateralized debt offering secured by CMBS and investment grade REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). bonds. During the quarter, the company sold a total of $123.3 million of BB+, BB and BB- bonds that were purchased during 2001, 2000 and 1999, which resulted in a realized gain of $7.1 million. At March 31, 2002, the company's CMBS portfolio totaled $503.7 million, or 21% of total assets and had a weighted average yield to maturity of 15.9%. Because the company has acquired its CMBS investments at an approximate discount of 50% from the face amount of the bonds, the unamortized discount on the CMBS portfolio at March 31, 2002 totaled $582.9 million. Bill Walton William Theodore Walton III, better known as Bill Walton (born November 5, 1952), is a former American basketball player and current television sportscaster. He is the father of current Los Angeles Lakers player Luke Walton. , Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , remarked, "The first quarter of 2002 was the slowest quarter in more than a decade for U.S. mergers, acquisitions and related financing activity. Nevertheless, our portfolio and capital structure are such that we have become less dependent on substantial investment growth in order to deliver strong recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. dividends to our shareholders. And as the Wyoming Technical Institute sale illustrates, the seasoning and diversity of our portfolio enables us to continue to deliver capital gains even in a weak M & A environment." Liquidity and Capital Resources The company continues to focus on the quality, durability du·ra·ble adj. 1. Capable of withstanding wear and tear or decay: a durable fabric. 2. and liquidity of its balance sheet. During the first quarter of 2002, Allied Capital raised $20 million of new equity. In addition, the company increased its committed unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility to $527.5 million, of which $470.5 million was available at the end of the quarter. At March 31, 2002, the company had a weighted average cost of debt of 7.4%. At the end of the quarter, the company had a regulatory asset coverage ratio Asset Coverage Ratio A test that determines a company's ability to cover debt obligations with its assets after all liabilities have been satisfied. It is calculated as the following: of 264% and the ratio of debt to equity was 0.68 to 1. The company is required to maintain regulatory asset coverage of at least 200%. Portfolio Quality Allied Capital employs a grading system to monitor the quality of its portfolio. Grade 1 is for those investments from which a capital gain is expected. Grade 2 is for investments performing in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with plan. Grade 3 is for investments that require closer monitoring; however, no loss of interest or principal is expected. Grade 4 is for investments for which some loss of contractually due interest is expected, but no loss of principal is expected. Grade 5 is for investments for which full loss of interest and some loss of principal is expected, and the loan is marked down to net realizable value Net realizable value (NRV) is a commonly used method of evaluating an asset's worth in the field of inventory accounting. NRV is part of GAAP rules that apply to valuing inventory, so as to not overstate or understate the value of inventory goods. . At March 31, 2002, the portfolio of Grade 1 investments totaled $578.3 million, or 25.7% of the total portfolio at value; Grade 2 investments totaled $1.51 billion, or 66.8% of the total portfolio; Grade 3 investments totaled $47.4 million, or 2.1% of the total portfolio; Grade 4 investments totaled $82.0 million, or 3.6% of the total portfolio; and Grade 5 investments totaled $40.9 million, or 1.8% of the total portfolio. For the total investment portfolio, loans greater than 90 days past due were $39.5 million at value at March 31, 2002, or 1.75% of the total portfolio. Included in this category are loans valued at $11.9 million that are secured by commercial real estate. At March 31, 2002, greater than 30-day delinquencies in the underlying collateral pool related to the CMBS portfolio were 0.56%. Quarterly Dividend Increased to $0.55 Per Share As previously released on April 18, 2002, the company increased its regular quarterly dividend to $0.55 per share for the second quarter of 2002. The regular quarterly dividend had previously been $0.53 per share. The dividend is payable as follows:
Record date June 14, 2002
Payable date June 28, 2002
The company's dividend is paid from taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . The Board determines the dividend based on annual estimates of taxable income, which differs from book income due to both timing and absolute differences in income and expense recognition. Changes in unrealized appreciation and depreciation have no impact on the company's taxable income. Webcast/ Conference Call at 10:15 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy on April 23, 2002 Allied Capital will host a web cast/ conference call at 10:15 (EST) this morning to discuss first quarter 2002 financial results. All interested parties are welcome to attend the live webcast, which will be hosted through our web site at www.alliedcapital.com. Please visit the web site to test your connection before the call. You can also access the conference call by dialing 888/689-4612 approximately 15 minutes prior to the call; please reference the passcode "Allied Capital." International callers should dial (706) 645-0106. For complete information about the webcast/ conference call and the replay, please visit our web site or call Allied Capital Investor Relations Investor relations The process by which the corporation communicates with its investors. at 888/253-0512. An archived replay of the event will be available on our web site. About Allied Capital Allied Capital is the nation's largest business development company, and provides long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. investment capital to support the expansion of growing companies nationwide. The company provides mezzanine debt and equity financing Equity Financing The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. , and also participates in the real estate capital markets as an investor in commercial mortgage-backed securities. The company is headquartered in Washington, DC. For more information, please visit the web site at www.alliedcapital.com, call Allied Capital Investor Relations toll-free at (888) 253-0512 or e-mail us at ir@alliedcapital.com. Forward-looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. The information contained in this press release contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements, and these factors are enumerated This term is often used in law as equivalent to mentioned specifically, designated, or expressly named or granted; as in speaking of enumerated governmental powers, items of property, or articles in a tariff schedule. in the company's periodic filings with the Securities and Exchange Commission.
(in thousands, except per share amounts) At March 31, At Dec. 31,
2002 2001
ASSETS (unaudited)
-------------------------
Portfolio at Value:
Private finance $1,604,891 $1,595,072
Commercial real estate finance 649,169 734,518
-----------------------
Total Portfolio at Value 2,254,060 2,329,590
Cash and cash equivalents 2,297 889
Other assets 142,500 130,234
-----------------------
Total Assets $2,398,857 $2,460,713
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LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities:
Debt $ 933,056 $1,020,806
Other liabilities 77,460 80,784
-----------------------
1,010,516 1,101,590
Preferred stock 7,000 7,000
Common shareholders' equity 1,381,341 1,352,123
-----------------------
Total Liabilities and
Shareholders' Equity $2,398,857 $2,460,713
=======================
Net asset value per common share $ 13.72 $ 13.57
Common shares outstanding at end of period 100,662 99,607
(in thousands, except per share amounts) For the Three Months
Ended
March 31,
2002 2001
Interest and related portfolio income: ----------------------
(unaudited)
Interest and dividends $ 64,973 $ 54,875
Premiums from loan dispositions 1,613 821
Fees and other income 15,805 9,375
----------------------
Total interest and related
portfolio income 82,391 65,071
----------------------
Expenses:
Interest 17,469 15,930
Employee 8,035 6,446
Administrative 3,018 2,967
----------------------
Total Operating Expenses 28,522 25,343
Net Investment Income Before Net
Realized and Unrealized Gains
(Losses) 53,869 39,728
----------------------
Net Realized and Unrealized Gains (Losses):
Net realized gains 9,605 1,154
Net unrealized gains (losses) (7,513) 11,146
----------------------
Total Net Realized and Unrealized
Gains 2,092 12,300
----------------------
Net Increase in Net Assets Resulting From
Operations $ 55,961 $ 52,028
======================
Diluted net investment income per share $ 0.53 $ 0.46
Diluted earnings per common share $ 0.55 $ 0.60
Weighted average common shares
outstanding - diluted 102,349 87,059
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