Allied Capital Reports Second Quarter Earnings of $0.71 Per Share; Quarterly Dividend Increases to $0.56 Per Share.Business Editors WASHINGTON--(BUSINESS WIRE)--July 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 second quarter 2002 results. Highlights for Q2 2002 - $8.3 million debt and equity investment in Gordian Group, a leading national provider of investment banking and financial advisory services, - $7.0 million convertible preferred stock investment in Redox Brands, a marketer of consumer branded products in the cleaning/detergent segment, - $2.1 million preferred stock investment in HMT, a leading international provider of products and services for the maintenance, repair and inspection of aboveground storage tanks, - $2.1 million subordinated debt investment in Woodstream, a leading manufacturer and marketer of poison free pest control and pet and wildlife caring control products, and - $2.0 million senior and subordinated debt investment to complete a recapitalization of MVL Group, a market research services firm. Operating Results For the three months ended June June: see month. 30, 2002, Allied Capital reported net income of $73.5 million, or $0.71 per share, as compared to net income of $46.1 million, or $0.51 per share, for the three months ended June 30, 2001. For the six months ended June 30, 2002, net income totaled $129.4 million, or $1.26 per share, as compared to $98.1 million, or $1.10 per share for the six months ended June 30, 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 vary from quarter to quarter. As a result, quarterly comparisons of net income may not be meaningful. For the three months ended June 30, 2002, Allied Capital reported net investment income of $42.6 million, or $0.41 per share, as compared to net investment income of $42.1 million, or $0.46 per share, for the three months ended June 30, 2001. For the six months ended June 30, 2002, the company reported net investment income of $96.4 million, or $0.94 per share, as compared to $81.8 million or $0.92 per share for the six months ended June 30, 2001. The company reported total net realized and unrealized gains of $30.9 million, or $0.30 per share, during the quarter, as compared to $4.0 million, or $0.04 per share, for the second quarter of 2001. Net realized and unrealized gains for the six months ended June 30, 2002 were $33.0 million, which consisted of 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. of $8.9 million and net unrealized gains of $24.1 million. As previously announced in July July: see month. , Allied Capital completed the sale of 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 $84.4 million in cash. The total realized gain on this transaction is $60.6 million, all of which will be recognized as 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. in the third quarter of 2002. Also in July, Allied Capital announced that it had recognized both realized and unrealized gains on its investment in Kirkland's This article or section needs sources or references that appear in reliable, third-party publications. Alone, primary sources and sources affiliated with the subject of this article are not sufficient for an accurate encyclopedia article. , Inc, which completed its initial public offering of its common stock. Allied Capital sold 40% of its shares in the IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. and realized a gain of $2.2 million. The company's remaining shares have an approximate value of $3.6 million. Net realized gains are included in taxable income and support dividend payments to shareholders. "Allied Capital is having the best capital gains year in our 42-year history. This has been accomplished in spite of in opposition to all efforts of; in defiance or contempt of; notwithstanding. See also: Spite the worst capital market environment in decades," said 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. of Allied Capital. "Our investment strategy is clearly working for us. We generally invest in less cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. , mid-sized market leaders and maintain a large, diversified diversified (di·verˑ·s portfolio that presents opportunities to harvest gains, even in a challenging economic environment. We have also seen a big contribution from our increased emphasis on controlled companies where we own a larger equity stake, and from our involvement in CMBS CMBS See: Commercial Mortgage Backed Securities ." "Our realized capital gain harvest put us in a position of strength as we move into the latter part of the year. At this point, our realized gains combined with interest and fee income for the year are expected to cover our projected dividend for 2002," said Bill Walton. "Our business model is designed to provide three streams of income from which we pay our dividend: interest income, fee income and realized gains. This year, our solid realized gains are currently offsetting the lower interest and fee income which has resulted from the current weak economic environment." During the three months ended June 30, 2002, the company invested a total of $115.4 million. After total repayments of $36.0 million, asset sales of $1.2 million, and valuation changes during the quarter, the company's investment portfolio increased to $2.38 billion at June 30, 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 $1.43 billion at June 30, 2002. Net asset value per share was $14.02 at the end of the quarter. Second Quarter 2002 Portfolio Activity During the second quarter of 2002, private finance investing activity totaled $32.2 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 $83.2 million. At June 30, 2002, the overall weighted average yield on the company's portfolio was 13.8%. Private Finance While the economy in general and merger and acquisition activity remained sluggish during the quarter, the company completed a number of transactions within its own portfolio. During the second quarter of 2002, the private finance group invested $32.2 million in a variety of industries. The yield on the private finance debt portfolio was 13.9% at the end of the quarter. New private finance investments during Q2 2002 included: - $8.3 million debt and equity investment in Gordian Group, a leading national provider of investment banking and financial advisory services, - $7.0 million convertible preferred stock investment in Redox Brands, a marketer of consumer branded products in the cleaning/detergent segment, - $2.1 million preferred stock investment in HMT, a leading international provider of products and services for the maintenance, repair and inspection of aboveground storage tanks, - $2.1 million subordinated debt investment in Woodstream, a leading manufacturer and marketer of poison free pest control and pet and wildlife caring control products, and - $2.0 million senior and subordinated debt investment to complete a recapitalization of MVL Group, a market research services firm. CMBS Investing During the second quarter of 2002, the company's commercial real estate finance group invested $83.2 million in three 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) transactions. At June 30, 2002, the company's CMBS portfolio totaled $613.4 million, and had a weighted average yield to maturity of 14.8%. 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 June 30, 2002 totaled $645.0 million. Liquidity and Capital Resources During the second quarter of the year, the company raised $30 million of new equity. At June 30, 2002, the company had a weighted average cost of debt of 7.2%. The company has significant current availability on its 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. line of credit. Of the $527.5 million that is available under the credit facility, $387.8 was available at the end of the quarter. Cash proceeds received from the WyoTech sale on July1st were used to further reduce amounts outstanding on the revolving line of credit Revolving line of credit A bank line of credit on which the customer pays a commitment fee and can take and repay funds at will. Normally a revolving LOC involves a firm commitment from the bank for a period of several years. . A significant strength of Allied Capital in this economic climate remains the durability du·ra·ble adj. 1. Capable of withstanding wear and tear or decay: a durable fabric. 2. of the company's capital structure. At June 30, 2002, 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 256% and the ratio of total debt to equity was 0.7 to 1. The company is required to maintain regulatory asset coverage of at least 200%. Portfolio Quality and Valuation 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 June 30, 2002, the portfolio of Grade 1 investments totaled $793.6 million, or 33% of the total portfolio at value; Grade 2 investments totaled $1.4 billion, or 59% of the total portfolio; Grade 3 investments totaled $46.7 million, or 2% of the total portfolio; Grade 4 investments totaled $43.6 million, or 2% of the total portfolio; and Grade 5 investments totaled $97.2 million, or 4% of the total portfolio. For the total investment portfolio, loans greater than 90 days past due were $89.4 million at value at June 30, 2002, or 3.8% of the total portfolio. Included in this category are loans valued at $22.0 million that are secured by commercial real estate. At June 30, 2002, greater than 30-day delinquencies in the underlying collateral pool related to the CMBS portfolio were 0.66%. Quarterly Dividend Increases to $0.56 Per Share As was previously released, the company increased its regular quarterly dividend to $0.56 per share for the third quarter of 2002. This represents the company's 156th consecutive quarterly dividend. The dividend is payable as follows: Record date September September: see month. 13, 2002 Payable date September 27, 2002 The company's dividend is paid from taxable income. The Board determines the dividend based on annual estimates of taxable income, which differs from book income because of 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 July 23, 2002 Allied Capital will host a web cast/ conference call at 10:15 (EST) this morning to discuss second 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. An archived replay of the event will be available until Tuesday Tuesday: see week. , August 6, 2002 on our web site, or by dialing (800) 642-1687 (international callers, please dial (706) 645-9291). Please reference passcode "4749285". 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) 818-5298. 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 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. 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 Washington, town, England Washington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. , DC. For more information, please visit the web site at www.alliedcapital.com, call Allied Capital Investor Relations toll-free at (888) 818-5298 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.
At June 30, At December 31,
(in thousands, except per 2002 2001
share amounts) ----------- ---------------
(unaudited)
ASSETS
Portfolio at Value:
Private finance $1,635,259 $1,595,072
Commercial real estate finance 745,710 734,518
---------- ----------
Total Portfolio at Value 2,380,969 2,329,590
Cash and cash equivalents 4,319 889
Other assets 183,329 130,234
---------- ----------
Total Assets $2,568,617 $2,460,713
========== ==========
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities:
Debt 1,008,950 1,020,806
Other liabilities 118,214 80,784
---------- ----------
Total Liabilities 1,127,164 1,101,590
---------- ----------
Preferred stock 7,000 7,000
Common shareholders' equity 1,434,453 1,352,123
---------- ----------
Total Liabilities and
Shareholders' Equity $2,568,617 $2,460,713
========== ==========
Net asset value per share $ 14.02 $ 13.57
Actual shares outstanding at
end of period 102,296 99,607
(in thousands, except per 3 Months Ended 6 Months Ended
share amounts) June 30 June 30
2002 2001 2002 2001
(unaudited) (unaudited)
Interest and Portfolio
Related Income:
Interest and dividends $ 62,692 $ 58,824 $ 127,665 $ 113,699
Premiums from loan
dispositions 46 910 1,659 1,731
Fees and other income 10,455 9,005 26,260 18,380
--------- --------- --------- ---------
Total Interest and
Related Portfolio
Income 73,193 68,739 155,584 133,810
--------- --------- --------- ---------
Expenses:
Interest 17,515 15,951 34,984 31,881
Employee 8,274 7,610 16,309 14,056
Administrative 4,843 3,060 7,861 6,027
--------- --------- --------- ---------
Total Operating Expenses 30,632 26,621 59,154 51,964
--------- --------- --------- ---------
Net Investment Income
Before Net Realized
and Unrealized Gains 42,561 42,118 96,430 81,846
--------- --------- --------- ---------
Net Realized and Unrealized
Gains:
Net realized gains (losses) (755) 3,837 8,850 4,991
Net unrealized gains 31,648 151 24,135 11,297
--------- --------- --------- ---------
Total Net Realized and
Unrealized Gains 30,893 3,988 32,985 16,288
--------- --------- --------- ---------
Net Income $ 73,454 $ 46,106 $ 129,415 $ 98,134
========= ========= ========= =========
Earnings per share
- diluted $ 0.71 $ 0.51 $ 1.26 $ 1.10
Net investment income per
share - diluted $ 0.41 $ 0.46 $ 0.94 $ 0.92
Weighted average shares
outstanding - diluted 103,440 90,848 102,900 88,966
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