Ares Capital Announces June 30, 2005 Financial Results.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Ares Capital Corporation (Nasdaq:ARCC ARCC Anoka Ramsey Community College ARCC Association for the Rights of Catholics in the Church ARCC Architectural Research Centers Consortium ARCC African Regional Centre for Computing ARCC AIM Research Conference Center ) today announced financial results for its second quarter ended June June: see month. 30, 2005. Ares Capital commenced material operations on October October: see month. 8, 2004 after closing its initial public offering of 11,000,000 shares of common stock at $15.00 per share. On March 23, 2005 Ares Capital completed a follow-on offering Follow-On Offering An offering of additional shares after a company has had an initial public offering. Notes: This sometimes means the company is strapped for cash. So they need to issue more shares to pay bills or finance a new project. of 12,075,000 shares at $16.00 per share. Ares Capital received net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $341 million from these offerings. HIGHLIGHTS --Stockholders' Equity (at June 30, 2005): $346.9 million --Net Assets per Share (at June 30, 2005): $14.97 --Declared 2nd Quarter 2005 Dividend: $0.32 --Reported 2nd Quarter 2005 EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. Basic and Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. : $0.33 --Total Fair Value of Investments: $302.3 million Second Quarter 2005 Operating Results: --Net income: $7,602,256 or $0.33 per share --Net investment income: $5,768,134 or $0.25 per share --Net 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. : $1,834,122 or $0.08 per share Second Quarter 2005 Portfolio Activity --Purchase cost of additional investments made during period: $110.3 million --Sales/redemptions of investments during period: $39.1 million --Number of portfolio company investments as of June 30, 2005: 27 --Weighted average yield of the debt and income producing equity securities as of June 30, 2005: 11.13%(1) OPERATING RESULTS For the quarter ended June 30, 2005, Ares Capital reported net income of $7.6 million or $0.33 per share. Net investment income for the second quarter ended June 30, 2005 was $5.8 million or $0.25 per share. Net realized and unrealized gains were $1.8 million or $0.08 per share for the second quarter of 2005. In the second quarter of 2005 Ares Capital invested approximately $110.3 million in new commitments across nine portfolio companies (six new borrowers and three existing borrowers). Of the $110.3 million in new commitments during the quarter, approximately 52%, 23%, 9% and 16% were made in first lien lien, claim or charge held by one party, on property owned by a second party, as security for payment of some debt, obligation, or duty owed by that second party. senior secured debt, second lien A Second lien financing is a form of financing secured on a second ranking basis by (more or less) the same security, which secures the first ranking financing. The first lien lenders and the second lien lenders agree that, in the event of a security enforcement or bankruptcy, the senior secured debt, senior subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". and equity/other securities, respectively. 75% of such investments were floating rate. Specifically during the quarter, significant new commitments included: --$26.0 million in first lien senior secured debt, senior subordinated debt and equity to a scrapbooking branded products manufacturer; --$25.0 million in second lien senior secured debt to a waste management services company; --$16.3 million in second lien senior secured debt to a print publication and tradeshow services company; --$13.7 million in first lien senior secured debt and equity to an industrial drill bit manufacturer; and, --$10.8 million in senior notes and equity to an agricultural equipment manufacturer. During the second quarter of 2005, Ares Capital had net gains of $1.8 million from dispositions. The portfolio value of the company's investments at June 30, 2005 was $302.3 million. These portfolio investments (excluding cash and cash equivalents) were comprised of approximately 48% senior secured debt securities (26% first lien and 22% second lien assets), 32% 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 securities, 10% preferred/common equity securities and 10% other securities (senior notes/CDO investments) as of June 30, 2005. Since June 30, 2005, Ares Capital has invested an additional $32.5 million in mezzanine debt securities. Ares Capital has made second lien senior debt commitments in an aggregate amount of approximately $20 million that are pending closing and funding. In addition, Ares Capital has signed proposal letters with several companies for additional investments in excess of $150 million in the aggregate. The consummation CONSUMMATION. The completion of a thing; as the consummation of marriage; (q.v.) the consummation of a contract, and the like. 2. A contract is said to be consummated, when everything to be done in relation to it, has been accomplished. of any of these investments depends upon, among other things, satisfactory completion of due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. , the execution and delivery of satisfactory documentation and the receipt of any necessary consents. We cannot assure you that we will make any of these investments. Total assets were $360.8 million as of June 30, 2005. Stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. was $346.9 million at June 30, 2005, while net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. per share was $14.97. As of June 30, 2005, the weighted average yield of the debt and income producing equity securities was 11.13% (computed as (a) the annual stated interest rate (or, in the case of equity securities, dividend rate) plus the annual amortization of loan origination The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. fees, original issue discount on accruing loans, debt and income producing equity securities divided by (b) total loans, debt and income producing equity securities at fair value). As of June 30, 2005, 53% of the fund's assets were in floating rate debt securities. PORTFOLIO QUALITY Ares Capital employs an investment rating system (Grade 1 to 4) to categorize cat·e·go·rize tr.v. cat·e·go·rized, cat·e·go·riz·ing, cat·e·go·riz·es To put into a category or categories; classify. cat its investments. As of June 30, 2005, the weighted average grade of Ares Capital's portfolio investments was 3.1 (with no 1.0 ratings in the portfolio). Grade 4 is for those investments that involve the least amount of risk in our portfolio (i.e. the borrower BORROWER, contracts. He to whom a thing is lent at his request. 2. The contract of loan confers rights, and imposes duties on the borrower' 1. In general, he has the right to use the thing borrowed, during the time and for the purpose intended between the is performing above expectations and the trends and risk factors are generally favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. ). Grade 3 is for those investments that involve a level of risk that is similar to the risk at the time of origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real (i.e. the borrower is performing as expected and the risk factors are neutral to favorable). Grade 2 is for those investments where a borrower is performing below expectations and indicates that the risk has increased materially since origination. Grade 1 is for those investments that are not anticipated to be repaid in full. LIQUIDITY AND CAPITAL RESOURCES During the first quarter of 2005, Ares Capital raised a total of $183.9 million in net proceeds from its March secondary public offering. In April 2005, Ares Capital successfully increased its 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 allow for up to $225.0 million of total commitments. As of June 30, 2005 we had no borrowings outstanding under the revolving facility and Ares Capital continues to be in compliance with all of the limitations and requirements of the facility. The facility expires on November November: see month. 3, 2005, unless extended prior to such date for an additional 364-day period with the consent of the lender LENDER, contracts. He from whom a thing is borrowed. 2. The contract of loan confers rights, and imposes duties on the lender. 1. The lender has the right to revoke the loan at his mere pleasure; 9 Cowen, R. 687; 8 Johns. Rep. 432; 1 T. R. 480; 2 Campb. Rep. . If the facility is not extended, any principal amounts then outstanding will be amortized over a 24-month period through a termination date termination date, n See expiration date. of November 3, 2007. DIVIDEND For the period from April 1, 2005 through June 30, 2005, Ares Capital declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. a dividend on June 20, 2005 of $0.32 per share for a total of $7,413,951. The record date was June 30, 2005 and the dividend was distributed on July July: see month. 15, 2005. CONFERENCE CALL The company will host a conference call tomorrow, August 9, 2005, at 4:00 p.m. (ET) to discuss its second quarter 2005 financial results. All interested parties are welcome to participate. You can access the conference call by dialing (800) 621-5346 approximately 5-10 minutes prior to the call. International callers should dial (212) 748-2800. All callers should reference "Ares Capital Corporation." An archived replay of the call will be available through August 23, 2005 by calling (800) 633-8625. International callers please dial (402) 977-9141. For all replays, please reference pin # 21256412. ABOUT ARES CAPITAL CORPORATION Ares Capital Corporation is a closed-end closed-end adj. Issuing a fixed number of shares that can be traded publicly but are not redeemable by the issuer: a closed-end investment company. , non-diversified management investment company that is regulated reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. as a business development company under the Investment Company Act of 1940. Its investment objectives are to generate both current income and capital appreciation through debt and equity investments. Ares Capital Corporation invests primarily in first and second lien senior loans and mezzanine debt, which in some cases may include an equity component, and, to a lesser extent, in equity investments in private middle market companies. 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. Statements included herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These statements are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in our filings with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statements made herein. (1) Computed as (a) the annual stated interest rate (or, in the case of equity securities, dividend rate) plus the annual amortization of loan origination fees, original issue discount on accruing loans, debt and income producing equity securities divided by (b) total loans, debt and income producing equity securities at fair value.
ARES CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of June 30, 2005 and December 31, 2004
----------------------------------------------------------------------
As of
---------------------------
June 30, December 31,
2005 2004
(Unaudited)
------------- -------------
ASSETS
Investments at fair value (amortized
cost of $302,413,472
and $182,329,200,
respectively)
Non-control/Non-affiliate investments $262,449,541 $165,126,181
Affiliate investments 39,848,665 17,433,966
------------- -------------
Total investments at fair value 302,298,206 182,560,147
Cash and cash equivalents 53,891,961 26,806,160
Receivable for open trades 497,770 8,794,478
Interest receivable 3,379,843 1,140,495
Other assets 765,935 1,154,334
------------- -------------
Total assets $360,833,715 $220,455,614
============= =============
LIABILITIES
Credit facility payable $- $55,500,000
Reimbursed underwriting costs payable to
the Inv't Adviser 2,475,000 -
Dividend payable 7,413,950 3,320,030
Accounts payable and accrued expenses 1,006,711 1,556,446
Management and incentive fees payable 2,858,596 274,657
Interest and facility fees payable 62,979 96,176
Interest payable to the Investment
Adviser 83,539 -
------------- -------------
Total liabilities $13,900,775 $60,747,309
------------- -------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $.001 per share,
100,000,000
common shares authorized,
23,168,595 and 11,066,767
common shares issued and
outstanding, respectively 23,169 11,067
Capital in excess of par value 341,443,552 159,602,706
Net unrealized appreciation on
investments (115,266) 230,947
Accumulated net realized gain on sale of
investments 5,581,485 -
Distributions less than (in excess of)
net investment income - (136,415)
------------- -------------
Total stockholders' equity 346,932,940 159,708,305
------------- -------------
Total liabilities and stockholders'
equity $360,833,715 $220,455,614
============= =============
NET ASSETS PER SHARE $14.97 $14.43
============= =============
ARES CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------------------------------
For the For the
three months six months
ended ended
June 30, June 30,
2005 2005
(Unaudited) (Unaudited)
----------- ------------
INVESTMENT INCOME:
From non-control/non-affiliate investments:
Interest from investments $6,027,175 $10,947,830
Interest from cash & cash equivalents 565,412 595,768
Dividend income 744,818 744,818
Capital structuring service fees 631,333 935,083
Other income 62,765 122,161
----------- ------------
Total investment income from non-
control/non-affiliate investments 8,031,503 13,345,660
From affiliate investments:
Interest from investments 700,871 1,011,464
Capital structuring service fees 862,500 862,500
Other income 6,741 132,583
----------- ------------
Total investment income from affiliate
investments 1,570,112 2,006,547
----------- ------------
Total investment income 9,601,615 15,352,207
----------- ------------
EXPENSES:
Management and incentive fees 2,826,054 3,911,049
Administrative 256,115 489,387
Professional fees 320,800 485,794
Directors fees 85,643 157,808
Insurance 144,400 287,213
Interest and credit facility fees 62,979 438,269
Interest payable to the Investment Adviser 31,814 83,539
Amortization of debt issuance costs 65,736 131,426
Other 39,940 69,759
----------- ------------
Total expenses 3,833,481 6,054,244
----------- ------------
NET INVESTMENT INCOME 5,768,134 9,297,963
----------- ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gains (losses):
Net realized gains from non-control/non-
affiliate investment transactions 6,747,262 7,156,442
Net realized loss from affiliate
investment transactions (1,880) (2,030)
----------- ------------
Net realized gains from investment
transactions 6,745,382 7,154,412
Net unrealized gains (losses):
Investment transactions from non-
control/non-affiliate investments (4,910,024) (343,793)
Investment transactions from affiliate
investments (1,236) (2,420)
----------- ------------
Net unrealized losses from investment
transactions (4,911,260) (346,213)
----------- ------------
Net realized and unrealized gain on
investments 1,834,122 6,808,199
----------- ------------
NET INCREASE IN STOCKHOLDERS' EQUITY
RESULTING FROM OPERATIONS $7,602,256 $16,106,162
=========== ============
BASIC AND DILUTED EARNINGS PER COMMON SHARE $0.33 $0.91
=========== ============
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 23,164,444 17,683,309
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