Ares Capital Corporation Declares Dividend of $0.40 Per Share and Announces June 30, 2006 Financial Results; Third Quarter Dividend Declared.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 -- Please replace the release with the following corrected version due to revisions. The corrected release reads: ARES CAPITAL CORPORATION DECLARES DIVIDEND OF $0.40 PER SHARE AND ANNOUNCES JUNE June: see month. 30, 2006 FINANCIAL RESULTS; THIRD QUARTER DIVIDEND 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. Ares Capital Corporation (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : 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 ) announced that its Board of Directors has declared a third quarter dividend of $0.40 per share, payable on September September: see month. 29, 2006 to stockholders of record as of September 15, 2006. JUNE 30, 2006 FINANCIAL RESULTS Ares Capital today announced financial results for its second quarter ended June 30, 2006. HIGHLIGHTS --Stockholders' Equity (at June 30, 2006): $577.0 million --Net Assets per Share (at June 30, 2006): $15.10 --Total Fair Value of Investments: $878.2 million --Declared 2nd Quarter 2006 Dividend per share: $0.38 --Reported 2nd Quarter 2006 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. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). 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. : $0.44 --Reported 2nd Quarter 2006 Basic and Diluted Core EPS: $0.43(1) Second Quarter 2006 Operating Results: --Net income: $16.7 million or $0.44 per share --Net investment income: $9.3 million or $0.24 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. : $7.4 million or $0.19 per share Second Quarter 2006 Portfolio Activity --Purchase cost of additional investments made during period: $255.1 million --Sales/redemptions of investments during period: $109.2 million --Number of portfolio company investments as of June 30, 2006: 50 --Weighted average yield of income producing equity securities and debt as of June 30, 2006: 12.42%(2) --Average total assets for the quarter was $861.1 million OPERATING RESULTS For the quarter ended June 30, 2006, Ares Capital reported net income of $16.7 million or $0.44 per share. Net investment income for the second quarter was $9.3 million or $0.24 per share and net realized and unrealized gains were $7.4 million or $0.19 per share. In the second quarter of 2006 Ares Capital made approximately $267.5 million in new commitments across 16 portfolio companies (7 new borrowers and 9 existing borrowers). Eleven separate private equity sponsors were represented in these new transactions. Three of these sponsors are new to the ARCC portfolio. In total, 42 separate private equity sponsors are represented in the Ares Capital portfolio. Also during the quarter, we made four investments in non-sponsored transactions. Of the $267.5 million in new commitments during the quarter, approximately 38%, 20%, 27% and 15% 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. Of these investments, 58% were floating rate. During the quarter, significant new commitments included: --$80.0 million in senior subordinated debt and a revolver revolver: see small arms. revolver Pistol with a revolving cylinder that provides multishot action. Some early versions, known as pepperboxes, had several barrels, but as early as the 17th century pistols were being made with a revolving chamber to commitment to a renal renal /re·nal/ (re´n'l) pertaining to the kidney. re·nal adj. Of or in the region of the kidneys. Renal Relating to the kidney. dialysis dialysis (dīăl`ĭsĭs), in chemistry, transfer of solute (dissolved solids) across a semipermeable membrane. Strictly speaking, dialysis refers only to the transfer of the solute; transfer of the solvent is called osmosis. provider; --$33.5 million in senior term debt, revolver commitment and equity of a restaurant owner restaurant owner n → dueño/a or propietario/a de un restaurante and operator; --$30.0 million in senior term debt and equity of an internet publication provider and media company; --$20.0 million in senior term debt of a specialty chemicals A Specialty chemical is a chemical produced for a specialized use. They are produced in lower volume than bulk chemicals, of which petrochemicals, made from oil feedstocks, are the most common. However, both are produced in a chemical plant. manufacturer selling into broadly diversified diversified (di·verˑ·s end markets; --$19.5 million in equity to a reflective Refers to light hitting an opaque surface such as a printed page or mirror and bouncing back. See reflective media and reflective LCD. products manufacturer; and --$16.5 million in senior term debt of a paint manufacturer and distributor. During the second quarter of 2006, Ares Capital had net realized and unrealized gains of $7.4 million. The portfolio value of Ares Capital's investments at June 30, 2006 was $878.2 million. As of June 30, 2006, these portfolio investments (excluding cash and cash equivalents) were comprised of approximately 67% in senior secured debt securities (35% in first lien and 32% in second lien assets), 25% in 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, 6% in preferred/common equity securities and 2% in other securities (senior notes/CDO investments). In addition to $108.9 million of investments that Ares Capital has made since June 30, 2006, Ares Capital has outstanding commitments to fund an aggregate of approximately $330 million of investments. Ares Capital expects to syndicate Syndicate organized crime unit throughout major cities of the United States. [Am. Hist.: NCE, 2018] See : Gangsterism a portion of these commitments to third parties. In addition, Ares Capital has a pipeline of approximately $250 million. 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 the investments in this backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. and pipeline depends upon, among other things, one or more of the following: satisfactory completion of our 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. investigation of the prospective portfolio company, our acceptance of the terms and structure of such investment, the execution and delivery of satisfactory documentation and the receipt of any necessary consents. Ares Capital cannot assure you that we will make any of these investments. Total assets were $942.4 million as of June 30, 2006. 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 $577.0 million at June 30, 2006, 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 $15.10. As of June 30, 2006, the weighted average yield of income producing equity securities and debt was 12.42%.(3) As of June 30, 2006, 60% of the fund's assets were in floating rate debt securities. "The second quarter was a very exciting period for ARCC, as we realized the benefits of our larger capital base and scale. We posted our highest quarter of gross originations of $267 million and record fee income. This momentum drove record Core earnings per share of $0.43," said President Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. Arougheti.(4) "In addition, we continued our track record of capital gains generation. We have posted capital gains in every quarter since inception, which provides continued dividend stability and visibility. Year to date, we have generated realized capital gains of $23.9 million. Since our 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. in October October: see month. 2004, we have realized $35.0 million in capital gains on 15 investments totaling $247.8 million, generating an internal rate of return of 30.8%. Our franchise continues to develop and strengthen and we have positioned ARCC as a premier "one stop" financing provider to middle market companies." 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. Grade 4 is for those investments that involve the least amount of risk in our portfolio (i.e. the borrower 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. As of June 30, 2006, the weighted average grade of Ares Capital's portfolio investments was 3.0 (with no 1.0 ratings in the portfolio). All of our portfolio companies are current on their debt service obligations and we have no investments on non-accrual. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2006 Ares Capital had $101.2 million outstanding under the separate $350 million credit facility of our subsidiary, Ares Capital CP Funding LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control , a single member, special purpose, limited liability company, which expires on November November: see month. 1, 2006, unless extended prior to such date with the consent of the lenders. As of June 30, 2006, Ares Capital had $244.0 million outstanding under our $250 million 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, which expires on December December: see month. 28, 2010. On July July: see month. 7, 2006, Ares Capital completed a $400.0 million debt securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. and issued approximately $314.0 million principal amount of asset-backed notes (including $50.0 million of revolving notes to third parties that have not been drawn down to date), secured by a pool of middle market loans that were purchased or originated by Ares Capital. Ares Capital retained approximately $86.0 million of certain BBB BBB A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. and non-rated securities in this debt securitization. The blended pricing of these notes, excluding fees, is approximately 3 month LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). plus 34 basis points. The securitization is an on-balance-sheet financing for Ares Capital. On July 18, 2006, Ares Capital closed a public add-on A purchase of additional goods before payment is made for goods already purchased. An add-on may be covered by a clause in an installment payment contract that allows the seller to hold a security interest in the earlier goods until full payment is made on the later goods. offering of 10,781,250 shares of common stock (including the underwriters' overallotment Overallotment Selling more securities than are available in an IPO. Notes: Investors (on a so-called waiting list) hope that some orders will not be confirmed so they can then get in. See also: Investment Bank, IPO, Underwriting of 1,406,250 shares) at $15.67 per share. Total proceeds received from the add-on offering, net of the underwriters' discount and estimated offering costs, were approximately $162.2 million. A portion of the proceeds from the add-on offering and the securitization were used to repay outstanding indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. . The remaining proceeds are being used to fund investments in portfolio companies 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 our investment objectives and strategies and for general corporate purposes. DIVIDEND For the three months ended June 30, 2006, Ares Capital declared a dividend on May 8, 2006 of $0.38 per share for a total of approximately $14.5 million. The record date was June 15, 2006 and the dividend was distributed on June 30, 2006. CONFERENCE CALL Ares Capital will host a conference call, Wednesday Wednesday: see week. , August 9, 2006, at 11:00 a.m. (ET) to discuss its second quarter 2006 financial results. All interested parties are welcome to participate. You can access the conference call by dialing (888) 205-9844 approximately 5-10 minutes prior to the call. International callers should dial (706) 679-6790. All callers should reference "Ares Capital Corporation." An archived replay of the call will be available through August 23, 2006 by calling (800) 633-8625. International callers please dial (402) 977-9141. For all replays, please reference pin #21300565.
(1) Basic and diluted Core EPS is a non-GAAP financial measure. Core
EPS is the net per share increase in stockholders' equity
resulting from operations less capital gains and losses, any
incentive management fees attributable to such capital gains and
losses and any income taxes related to such capital gains. The
most directly comparable GAAP financial measure is the net per
share increase in stockholders' equity resulting from operations,
which is reflected above as "Reported 2nd Quarter 2006 Basic and
Diluted GAAP EPS". Ares Capital believes that Core EPS provides
useful information to investors regarding financial performance
because it is one method Ares Capital uses to measure its
financial condition and results of operations. The presentation of
this additional information is not meant to be considered in
isolation or as a substitute for financial results prepared in
accordance with GAAP. Reconciliation of basic and diluted Core EPS
to the most directly comparable GAAP financial measure is set
forth in Schedule 1 hereto.
(2) Computed as (a) annual stated interest rate or yield earned plus
the net annual amortization of original issue discount and market
discount earned on accruing debt, divided by (b) total income
producing equity securities and debt at fair value.
(3) Computed as (a) annual stated interest rate or yield earned plus
the net annual amortization of original issue discount and market
discount earned on accruing debt, divided by (b) total income
producing equity securities and debt at fair value.
(4) See footnote (1) and Schedule 1 hereto.
ABOUT ARES CAPITAL CORPORATION Ares Capital Corporation is a specialty finance company that 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 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 objective is 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 includes 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. Ares Capital undertakes no duty to update any forward-looking statements made herein. AVAILABLE INFORMATION Ares Capital Corporation's filings with the Securities and Exchange Commission, press releases, earnings releases and other financial information are available on the Company's website at www.arescapitalcorp.com.
ARES CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
As of
---------------------------
June 30, December 31,
2006 2005
------------- -------------
ASSETS (unaudited)
Investments at fair value (amortized
cost of $888,483,712 and $581,351,865,
respectively)
Non-control/Non-affiliate investments $714,898,704 $515,184,991
Affiliate investments 163,261,927 70,783,384
------------- -------------
Total investments at fair value 878,160,631 585,968,375
Cash and cash equivalents 44,844,697 16,613,334
Receivable for open trades 6,962,236 1,581,752
Interest receivable 7,854,038 5,828,098
Other assets 4,608,731 3,653,585
------------- -------------
Total assets $942,430,333 $613,645,144
============= =============
LIABILITIES
Credit facilities payable $345,200,000 $ 18,000,000
Reimbursed underwriting costs payable
to the Investment Adviser - 2,475,000
Dividend payable - 12,889,225
Payable for open trades - 5,500,000
Accounts payable and accrued expenses 7,092,656 1,222,678
Management and incentive fees payable 10,047,596 3,478,034
Interest and facility fees payable 3,105,947 313,930
Interest payable to the Investment
Adviser - 154,078
------------- -------------
Total liabilities 365,446,199 44,032,945
------------- -------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $.001 per share,
100,000,000 common shares authorized,
38,207,254 and 37,909,484 common shares
issued and outstanding, respectively 38,208 37,910
Capital in excess of par value 564,192,430 559,192,554
Accumulated net realized gain on sale
of investments 23,076,577 5,765,225
Net unrealized (depreciation)
appreciation on investments (10,323,081) 4,616,510
------------- -------------
Total stockholders' equity 576,984,134 569,612,199
------------- -------------
Total liabilities and stockholders'
equity $942,430,333 $613,645,144
============= =============
NET ASSETS PER SHARE $ 15.10 $ 15.03
============= =============
ARES CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
For the three months For the six months
ended ended
------------------------ -------------------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
------------ ----------- ------------ ------------
INVESTMENT INCOME: (unaudited) (unaudited) (unaudited) (unaudited)
From non-
control/non-
affiliate
investments:
Interest from
investments $20,737,226 $6,027,175 $35,788,359 $10,947,830
Interest from
cash & cash
equivalents 199,948 565,412 431,177 595,768
Dividend income 1,170,000 744,818 1,170,000 744,818
Capital
structuring
service fees 4,670,493 631,333 6,416,698 935,083
Other income 244,466 62,765 287,009 122,161
------------ ----------- ------------ ------------
Total
investment
income from
non-control/
non-affiliate
investments 27,022,133 8,031,503 44,093,243 13,345,660
From affiliate
investments:
Interest from
investments 2,760,198 700,871 5,237,130 1,011,464
Capital
structuring
service fees 600,000 862,500 1,183,810 862,500
Other income 107,420 6,741 166,873 132,583
------------ ----------- ------------ ------------
Total
investment
income from
affiliate
investments 3,467,618 1,570,112 6,587,813 2,006,547
------------ ----------- ------------ ------------
Total investment
income 30,489,751 9,601,615 50,681,056 15,352,207
------------ ----------- ------------ ------------
EXPENSES:
Base management
fees 3,107,197 1,027,135 5,650,856 1,841,847
Incentive
management fees 6,940,399 1,798,919 9,863,283 2,069,202
Administrative 188,488 256,115 366,025 489,387
Professional fees 676,637 320,800 1,148,088 485,794
Directors fees 73,919 85,643 137,169 157,808
Insurance 198,431 144,400 386,532 287,213
Interest and
credit facility
fees 4,361,907 62,979 5,684,217 438,269
Interest payable
to the Investment
Adviser - 31,814 25,879 83,539
Amortization of
debt issuance
costs 411,836 65,736 819,147 131,426
Depreciation 49,302 - 49,302 -
Other 217,105 39,940 385,612 69,759
------------ ----------- ------------ ------------
Total expenses 16,225,221 3,833,481 24,516,110 6,054,244
------------ ----------- ------------ ------------
NET INVESTMENT
INCOME BEFORE
INCOME TAXES 14,264,530 5,768,134 26,164,946 9,297,963
Income tax expense,
including excise
tax 4,971,635 - 5,180,515 -
------------ ----------- ------------ ------------
NET INVESTMENT
INCOME 9,292,895 5,768,134 20,984,431 9,297,963
------------ ----------- ------------ ------------
REALIZED AND
UNREALIZED GAIN ON
INVESTMENTS:
Net realized gains
(losses):
Net realized
gains from
non-control/
non-affiliate
investment
transactions 23,879,988 6,747,262 24,443,591 7,156,442
Net realized
gains (losses)
from affiliate
investment
transactions - (1,880) 47,283 (2,030)
------------ ----------- ------------ ------------
Net realized
gains from
investment
transactions 23,879,988 6,745,382 24,490,874 7,154,412
Net unrealized
gains (losses):
Investment
transactions
from non-
control/non-
affiliate
investments (16,480,203) (4,910,024) (12,494,673) (343,793)
Investment
transactions
from affiliate
investments - (1,236) (2,444,918) (2,420)
------------ ----------- ------------ ------------
Net unrealized
losses from
investment
transactions (16,480,203) (4,911,260) (14,939,591) (346,213)
------------ ----------- ------------ ------------
Net realized
and
unrealized
gain on
investments 7,399,785 1,834,122 9,551,283 6,808,199
------------ ----------- ------------ ------------
NET INCREASE IN
STOCKHOLDERS'
EQUITY RESULTING
FROM OPERATIONS $16,692,680 $7,602,256 $30,535,714 $16,106,162
============ =========== ============ ============
BASIC AND DILUTED
EARNINGS PER COMMON
SHARE $ 0.44 $ 0.33 $ 0.80 $ 0.91
============ =========== ============ ============
WEIGHTED AVERAGE
SHARES OF COMMON
STOCK OUTSTANDING 38,089,889 23,164,444 38,039,574 17,683,309
SCHEDULE 1
Reconciliation of basic and diluted Core EPS to basic and diluted
GAAP EPS
Reconciliation of basic and diluted Core EPS to basic and diluted GAAP EPS, the most directly comparable GAAP financial measure, for the quarter ended June 30, 2006 is provided below.
Quarter Ended
June 30, 2006
--------------
Basic and diluted Core EPS(1) $0.43
EPS attributable to capital gains and losses, any
incentive management fees related to such capital
gains and losses and any income taxes related to such
capital gains 0.01
--------------
Basic and diluted GAAP EPS $0.44
==============
(1) Basic and diluted Core EPS is a non-GAAP financial measure. Core
EPS is the net per share increase in stockholders' equity
resulting from operations less capital gains and losses, any
incentive management fees attributable to such capital gains and
losses and any income taxes related to such capital gains. Ares
Capital believes that Core EPS provides useful information to
investors regarding financial performance because it is one method
Ares Capital uses to measure its financial condition and results
of operations. The presentation of this additional information is
not meant to be considered in isolation or as a substitute for
financial results prepared in accordance with GAAP.
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