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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, 1999.
/ / 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.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-145-1377
- --------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Bethesda Metro Center, Suite 860
Bethesda, Maryland 20814
---------------------------------------
(Address of principal executive office)
(301) 951-6122
-------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months 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, $.01 par value, outstanding as of May 12, 1999 was
11,122,528.
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AMERICAN CAPITAL STRATEGIES, LTD.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 1999 and December 31, 1998.....................................1
Schedules of Investments as of March 31, 1999 and December 31, 1998...........................2
Statements of Operations for the three months ended
March 31, 1999 and 1998..............................................................4
Statementof Shareholders' Equity for the three months ended
March 31, 1999 and the three months ended March 31, 1998.............................5
Statements of Cash Flows for the three months ended
March 31, 1999 and 1998.............................................................6
Financial Highlights for the three months ended
March 31, 1999 and 1998..............................................................7
Notes to Financial Statements.................................................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Overview.....................................................................................11
Results of Operations........................................................................12
Financial Condition, Liquidity and Capital Resources.........................................14
Portfolio Credit Quality.....................................................................14
Impact of the Year 2000......................................................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................17
Item 2. Changes in Securities........................................................................17
Item 3. Defaults upon Senior Securities..............................................................17
Item 4. Submission of Matters to a Vote of Security Holders..........................................17
Item 5. Other Information............................................................................17
Item 6. Exhibits and Reports on Form 8-K.............................................................17
Signature................................................................................................18
i
PART I. FINANCIAL INFORMATION
AMERICAN CAPITAL STRATEGIES, LTD.
BALANCE SHEETS
(Unaudited)
(In thousands except per share data)
March 31, December 31,
1999 1998
--------- ------------
Assets
Investments at fair value (cost of $247,238 and $252,718, respectively) $ 251,489 $ 254,983
Cash and cash equivalents 1,231 6,149
Investment in unconsolidated operating subsidiary 5,991 6,386
Due from unconsolidated operating subsidiary 1,818 778
Interest receivable 2,030 1,561
Other 992 162
--------- ---------
Total assets $ 263,551 $ 270,019
========= =========
Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities $ 914 $ 126
Accrued dividends payable -- 1,222
Notes payable 77,091 85,948
Revolving credit facility 30,000 30,000
--------- ---------
Total liabilities 108,005 117,296
Shareholders' equity:
Undesignated preferred stock, $0.01 par value, 5,000 shares authorized,
0 issued and outstanding -- --
Common stock, $.01 par value, 20,000 shares authorized, and 11,122 and
11,081 issued and outstanding, respectively 111 111
Capital in excess of par value 145,879 145,245
Note receivable from sale of common stock (580) (300)
Undistributed (distributions in excess of) net realized earnings 372 (116)
Unrealized appreciation of investments 9,764 7,783
--------- ---------
Total shareholders' equity 155,546 152,723
--------- ---------
Total liabilities and shareholders' equity $ 263,551 $ 270,019
========= =========
See accompanying notes.
1
AMERICAN CAPITAL STRATEGIES, LTD.
SCHEDULE OF INVESTMENTS
MARCH 31, 1999
(Unaudited)
(In thousands except per share data)
Industry Cost Fair Value
-------- ---- ----------
Senior Debt--10.92%
- -------------------
BIW Connector Systems, LLC Manufacturing 3,404 3,404
Chance Coach, Inc. (2) Bus Manufacturer 1,232 1,232
JAG Industries, Inc. (2) Manufacturing 1,200 1,200
Wilderness Systems, Inc. Canoes & Kayaks 11,475 11,475
Cycle Gear, Inc. Motor Cycle Accessories 750 750
Euro-Caribe, Inc. (2) Meat Processing 7,062 7,062
Patriot Medical Technologies, Inc. Repair Services 3,000 3,000
--------- --------
Subtotal 28,123 28,123
Subordinated Debt--46.89%
- -------------------------
BIW Connector Systems, LLC. Manufacturing 6,740 6,740
Westwind Group Holdings, Inc. Restaurant 2,945 2,945
JAG Industries, Inc. (2) Manufacturing 2,346 2,346
Specialty Transportation Services, Inc. Waste Hauler 7,386 7,386
Chance Coach, Inc. (2) Bus Manufacturer 7,171 7,171
The L.A. Studios, Inc. Audio Production 2,411 2,411
Decorative Surfaces International, Inc. (2) Decorative Paper & 5,516 5,516
Vinyl Mfg.
New Piper Aircraft, Inc. Aircraft Manufacturing 17,897 17,897
Electrolux, LLC Vacuum Cleaner 7,563 7,563
Cycle Gear, Inc. Motor Cycle Accessories 639 639
Wilderness System, Inc. Canoes & Kayaks 5,226 5,226
Euro-Caribe, Inc. (2) Meat Processing 8,921 8,921
ConStar International, Inc. Electrical 12,877 12,877
Centennial Broadcasting, Inc. Radio Stations 15,495 15,495
Lion Brewery, Inc. (2) Malt Beverages 5,958 5,958
Auxi-Health, Inc. Home Health Care 9,532 9,532
Patriot Medical Technologies, Inc. Repair Services 2,090 2,090
--------- --------
Subtotal 120,713 120,713
Convertible Preferred Stock--1.12%
- ----------------------------------
Chance Coach, Inc. (2) 12% dividend convertible into 20%
of Co. Bus Manufacturer 2,000 2,214
Decorative Surfaces International, Inc. (2) prime rate Decorative Paper &
plus 4% dividend convertible into 2.9% of Co. Vinyl Mfg. 665 665
--------- --------
Subtotal 2,665 2,879
Common Stock Warrants(1)--10.70%
- --------------------------------
BIW Connector Systems, LLC 8% of LLC Manufacturing 652 513
Westwind Group Holdings, Inc. 5% of Co. Restaurant 350 271
JAG Industries, Inc. (2) 75% of Co. Manufacturing 505 454
Specialty Transportation Services, Inc. up to 40% of Co. Waste Hauler 694 1,007
Chance Coach, Inc. (2) 43.7% of Co. Bus Manufacturer 4,041 4,839
The L.A. Studios, Inc. 17% of Co. Audio Production 902 839
Decorative Surfaces International, Inc. (2) 42.3% of Co. Decorative Paper &
Vinyl Mfg. 4,571 6,805
New Piper Aircraft, Inc. 4% of Co. Aircraft Manufacturing 2,231 2,528
Electrolux, LLC 2.5% of Co. Vacuum Cleaner 246 642
Cycle Gear, Inc. 16.5% of Co. Motor Cycle Accessories 374 374
Wilderness System, Inc. 18% of Co. Canoes & Kayaks 1,319 1,319
Euro-Caribe, Inc. (2) 37% of Co. Meat Processing 1,110 1,110
ConStar International, Inc. 17.5% of Co. Electrical 3,171 3,171
Lion Brewery, Inc. (2) 54% of Co. Malt Beverages 675 675
Auxi Health, Inc. 20% of Co. Home Health Care 2,599 2,599
Patriot Medical Technologies, Inc. 17% of Co. Repair Services 410 410
--------- --------
Subtotal 23,850 27,556
Common Stock (1)--1.25%
- ------------------------
Specialty Transportation Services, Inc. 9.1% of Co. Waste Hauler 500 458
Chance Coach, Inc. (2) 18.3% of Co. Bus Manufacturer 1,896 2,269
ConStar International, Inc. 2.8% Electrical 500 500
--------- --------
Subtotal 2,896 3,227
Subtotal--non-publicly traded securities--63.15% 178,247 182,498
Government Securities--26.79%
- -----------------------------
FMC Discount Note due 4/1/99 68,991 68,991
--------- --------
Total Investments 247,238 251,489
Investment in Unconsolidated Operating Subsidiary--2.33%
- --------------------------------------------------------
ACS Capital Investments Corporation(1)(2)--100% of Co. Investment Banking 403 5,991
--------- --------
Totals $ 247,641 $ 257,480
========= ========
(1) Non-income producing
(2) Affiliate
See accompanying notes.
2
AMERICAN CAPITAL STRATEGIES, LTD.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
(Unaudited)
(In thousands except per share data)
Industry Cost Fair Value
-------- ---- ----------
Senior Debt--9.47%
- ------------------
Four S Baking Company (2).. Baking $ 1,266 $ 1,266
BIW Connector Systems, LLC. Manufacturing 3,404 3,404
Chance Coach, Inc. (2) Bus Manufacturer 1,286 1,286
JAG Industries, Inc. (2) Manufacturing 1,200 1,200
Wilderness Systems, Inc. Canoes & Kayaks 9,675 9,675
Cycle Gear, Inc. Motor Cycle Accessories 750 750
Euro-Caribe, Inc. (2) Meat Processing 7,181 7,181
--------- --------
Subtotal 24,762 24,762
Subordinated Debt--41.37%
- -------------------------
Four S Baking Company (2).. Baking 1,588 1,588
BIW Connector Systems, LLC. Manufacturing 6,710 6,710
Westwind Group Holdings, Inc. Restaurant 2,932 2,932
JAG Industries, Inc. (2) Manufacturing 2,335 2,335
Specialty Transportation Services, Inc. (2) Waste Hauler 7,368 7,368
Chance Coach, Inc. (2) Bus Manufacturer 7,060 7,060
The L.A. Studios, Inc. Audio Production 2,393 2,393
Decorative Surfaces International, Inc. (2) Decorative Paper & 10,490 10,490
Vinyl Mfg.
New Piper Aircraft, Inc. Aircraft Manufacturing 17,858 17,858
Electrolux, LLC Vacuum Cleaner 7,264 7,264
Cycle Gear, Inc. Motor Cycle Accessories 633 633
Wilderness System, Inc. Canoes & Kayaks 4,701 4,701
Euro-Caribe, Inc. (2) Meat Processing 8,905 8,905
ConStar International, Inc. Electrical 12,839 12,839
Centennial Broadcasting, Inc. Radio Stations 15,040 15,040
--------- --------
Subtotal 108,116 108,116
Convertible Preferred Stock--2.10%
- ----------------------------------
Four S Baking Company (2) 15% dividend convertible into
10.89% of Co. Baking 2,756 2,756
Chance Coach, Inc. (2) 12% dividend convertible into 20%
of Co. Bus Manufacturer 2,000 2,079
Decorative Surfaces International, Inc. (2) prime rate Decorative Paper &
plus 4% dividend convertible into 2.9% of Co. Vinyl Mfg. 646 646
--------- --------
Subtotal 5,402 5,481
Common Stock Warrants(1)--8.52%
- -------------------------------
Four S Baking Company (2) 3.26% of Co. Baking 462 600
BIW Connector Systems, LLC 8% of LLC Manufacturing 652 540
Westwind Group Holdings, Inc. 5% of Co. Restaurant 350 421
JAG Industries, Inc. (2) 75% of Co. Manufacturing 505 465
Specialty Transportation Services, Inc. (2) 9.1% of Co. Waste Hauler 694 784
Chance Coach, Inc. (2) 43.7% of Co. Bus Manufacturer 4,041 4,543
The L.A. Studios, Inc. 17% of Co. Audio Production 902 857
Decorative Surfaces International, Inc. (2) 42.3% of Co. Decorative Paper &
Vinyl Mfg. 4,571 5,596
New Piper Aircraft, Inc. 4% of Co. Aircraft Manufacturing 2,231 2,231
Electrolux, LLC 2.5% of Co. Vacuum Cleaner 246 246
Cycle Gear, Inc. 16.5% of Co. Motor Cycle Accessories 374 374
Wilderness System, Inc. 18% of Co. Canoes & Kayaks 1,319 1,319
Euro-Caribe, Inc. (2) 37% of Co. Meat Processing 1,110 1,110
ConStar International, Inc. 17.5% of Co. Electrical 3,171 3,171
--------- --------
Subtotal 20,628 22,257
Common Stock (1)--1.69%
- ------------------------
Four-S Baking Company (2) 5.5% of Co. Baking 966 1,004
Specialty Transportation Services, Inc. (2) 9.1% of Co. Waste Hauler 500 784
Chance Coach, Inc. (2) 18.3% of Co. Bus Manufacturer 1,896 2,131
ConStar International, Inc. 2.8% Electrical 500 500
--------- --------
Subtotal 3,862 4,419
--------- --------
Subtotal--non-publicly traded securities--63.15% 162,770 165,035
Government Securities--34.41%
- -----------------------------
FHLB Discount Note due 1/4/99 89,948 89,948
--------- --------
Total Investments 252,718 254,983
Investment in Unconsolidated Operating Subsidiary--2.44%
- --------------------------------------------------------
ACS Capital Investments Corporation(1)(2)--100% of Co. Investment Banking 403 6,386
--------- --------
Totals $ 253,121 $261,369
========= ========
(1) Non-income producing
(2) Affiliate
See accompanying notes.
3
AMERICAN CAPITAL STRATEGIES, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
Operating income:
Interest and dividend income $ 5,854 $ 2,680
Loan fees 666 612
------- -------
Total operating income 6,520 3,292
Operating expenses:
Salaries and benefits 310 170
General, administrative and other 294 274
Interest 794 --
------- -------
Total operating expenses 1,398 444
Operating income before equity in (loss) earnings of unconsolidated
operating subsidiary 5,122 2,848
Equity in (loss) earnings of unconsolidated operating subsidiary (395) 101
------- -------
Net operating income 4,727 2,949
Net realized gain on investments 316 --
Increase in unrealized appreciation of investments 1,981 28
------- -------
Net increase in shareholders' equity resulting from operations $ 7,024 $ 2,977
======= =======
Net operating income per share Basic $ 0.43 $ 0.27
Diluted $ 0.42 $ 0.26
Net increase in shareholders' equity Basic $ 0.63 $ 0.27
resulting from operations per share Diluted $ 0.62 $ 0.26
Weighted average shares of Basic 11,070 11,069
common stock outstanding Diluted 11,279 11,480
See accompanying notes.
4
AMERICAN CAPITAL STRATEGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands except per share data)
Note
Capital in Receivable Undistributed Unrealized Total
Common Stock Excess of From Sale of Net Realized Appreciation Shareholders'
Shares Amount Par Value Common Stock Earnings of Investments Equity
------ ------ --------- ------------ -------- -------------- -------------
Balance at December 31, 1997 11,069 $ 111 $ 144,940 $ -- $ (55) $ 5,656 $ 150,652
Net increase in shareholders'
equity resulting from
operations -- -- -- -- 2,949 28 2,977
Distributions -- -- -- -- (2,676) -- (2,767)
------ ----- --------- ------ --------- ------- ---------
Balance at March 31, 1998 11,069 $ 111 $ 144,940 $ -- $ 127 $ 5,684 $ 150,862
====== ===== ========= ====== ========= ======= =========
Balance at December 31, 1998 11,081 $ 111 $ 145,245 $ (300) $ (116) $ 7,783 $ 152,723
Issuance of common stock under
the 1997 Stock Option Plan 20 -- 280 -- -- -- 280
Issue of common stock under the
Dividend Reinvestment Plan 11 -- 188 -- -- -- 188
Issuance of restricted stock 10 -- 166 -- -- -- 166
Issuance of note receivable
from sale of common stock -- -- -- (280) -- -- (280)
Net increase in shareholders'
equity resulting from -- -- -- -- 5,043 1,981 7,024
operations
Distributions -- -- -- -- (4,555) -- (4,555)
------ ----- --------- ------ --------- ------- ---------
Balance at March 31, 1999 11,122 $ 111 $ 145,879 $ (580) $ 372 $ 9,764 $ 155,546
====== ===== ========= ====== ========= ======= =========
See accompanying notes.
5
AMERICAN CAPITAL STRATEGIES, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands except per share data)
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
------------ ------------
Operating activities
Net increase in shareholders' equity resulting from operations $ 7,024 $ 2,977
Adjustments to reconcile net increase in shareholders' equity resulting
from operations to net cash provided by operating activities:
Unrealized appreciation of investments (1,981) (28)
Net realized gain on investments (316) --
Net amortization of securities -- (845)
Accretion of loan discounts (408) (89)
Amortization of deferred finance costs 25 --
Amortization of goodwill 63 --
Increase in interest receivable (469) (402)
Increase in accrued payment-in-kind dividend and interest (380) --
(Increase) decrease in due from unconsolidated subsidiary (1,040) 149
Increase in other assets (153) (80)
Increase in accounts payable and accrued liabilities 788 116
Loss (earnings) of unconsolidated operating subsidiary 395 (101)
-------- --------
Net cash provided by operating activities 3,548 1,697
Investing activities
Proceeds from sale or maturity of investments 15,774 32,080
Principal repayments 6,860 303
Purchase of investments (28,012) (29,715)
Purchase of securities (6,900) --
-------- --------
Net cash (used in) provided by investing activities (12,278) 2,668
Financing activities
Drawings on revolving credit facilities, net 10,000 --
Increase in deferred financing costs (599) --
Issuance of common stock 188 --
Distributions paid (5,777) (2,767)
-------- --------
Net cash provided by (used in) financing activities 3,812 (2,767)
-------- --------
Net (decrease) increase in cash and cash equivalents (4,918) 1,598
Cash and cash equivalents at beginning of period 6,149 8,862
-------- --------
Cash and cash equivalents at end of period $ 1,231 $ 10,460
======== ========
Non-cash financing activities:
Note receivable issued in exchange for common stock $ 280 $ --
Net repayment of margin borrowings through sale of securities 18,857 --
See accompanying notes.
6
AMERICAN CAPITAL STRATEGIES, LTD.
FINANCIAL HIGHLIGHTS
(Unaudited)
(In thousands except per share data)
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- ------------------
Per Share Data(1)
Net asset value at beginning of the period $ 13.80 $ 13.61
Net operating income 0.43 0.27
Increase in unrealized appreciation on investments 0.20 --
--------- ---------
Net increase in shareholders' equity from operations $ 0.63 $ 0.27
Distribution of net investment income 0.41 0.25
--------- ---------
Net asset value at end of period $ 14.02 $ 13.63
Per share market value at beginning of period $ 17.250 $ 18.125
Per share market value at end of period $ 17.125 $ 22.125
Total return (2) 1.65% 23.45%
Shares outstanding at end of period 11,122 11,069
Ratio/Supplemental Data
Net assets at end of period $ 155,546 $ 150,862
Ratio of operating expenses to average net assets 0.91% 0.29%
Ratio of net operating income to average net assets 3.07% 1.96%
(1) Basic per share data.
(2) Amounts were not annualized for the results of the three month periods ended
March 31, 1999 and 1998.
See accompanying notes.
7
AMERICAN CAPITAL STRATEGIES, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Note 1. Unaudited Interim Financial Statements
Interim financial statements of American Capital Strategies, Ltd. (the
"Company") are prepared in accordance with generally accepted accounting
principles ("GAAP") for the interim financial information and pursuant to the
requirements for reporting on Form 10-Q and Article 10 of Regulation S-X.
Accordingly, certain disclosures accompanying annual financial statements
prepared in accordance with GAAP are omitted. In the opinion of management, all
adjustments, consisting solely of normal recurring accruals, necessary for the
fair presentation of financial statements for the interim periods have been
included. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year. The interim
financial statements and notes thereto should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K/A for
the year ended December 31, 1998, as filed with the Securities and Exchange
Commission.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. Actual results
could differ from those estimates.
Note 2. Organization
American Capital Strategies, Ltd., a Delaware corporation (the
"Company"), was incorporated in 1986 to provide financial advisory services to
and invest in middle market companies. On August 29, 1997, the Company completed
an initial public offering ("IPO") of 10,382,437 shares of common stock ("Common
Stock"), and became a non-diversified closed end investment company that has
elected to be treated as a business development company ("BDC") under the
Investment Company Act of 1940, as amended ("1940 Act"). On October 1, 1997, the
Company began operations so as to qualify to be taxed as a regulated investment
company ("RIC") as defined in Subtitle A, Chapter 1, under Subchapter M of the
Internal Revenue Code of 1986 as amended (the "Code"). As contemplated by these
transactions, the Company materially changed its business plan and format from
structuring and arranging financing for buyout transactions on a fee for
services basis to primarily being a lender to and investor in middle market
companies. The Company's investment objectives are to achieve current income
from the collection of interest and dividends, as well as long-term growth in
its shareholders' equity through appreciation in value of the Company's equity
interests. The Company provides financial advisory services to businesses
through ACS Capital Investments Corporation ("CIC"), a wholly-owned subsidiary.
The Company is headquartered in Bethesda, Maryland, and has offices in New York,
Boston, Pittsburgh, San Francisco, Chicago, and Dallas.
Note 3. Investment in Unconsolidated Operating Subsidiary
As discussed in Note 2, CIC is an operating subsidiary of the Company
and is accounted for under the equity method effective October 1, 1997. The
investment in CIC is carried at fair value as determined by the Board of
Directors.
Condensed financial information for CIC is as follows:
March 31, 1999 December 31, 1998
-------------- -----------------
Assets
Investments in portfolio companies, at fair value $ 9,657 $10,837
Other assets, net 2,532 1,359
------- -------
Total assets $12,189 $12,196
======= =======
Liabilities and Shareholder's Equity
Deferred income taxes $ 2,678 $ 2,921
Due to parent 1,818 778
Other liabilities 1,702 2,111
Shareholder's equity 5,991 6,386
------- -------
Total liabilities and shareholder's equity $12,189 $12,196
======= =======
8
AMERICAN CAPITAL STRATEGIES, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
Operating income $ 1,435 $ 1,779
Operating expense 2,044 1,546
------- -------
Net operating loss (609) 233
Realized gains on investments 925 --
Change in unrealized appreciation of investments (954) (96)
Other income (expense) 243 (36)
------- -------
Net (loss) income $ (395) $ 101
======= =======
Note 4. Notes Payable
During March 1999, the Company borrowed $62,091 secured by government
agency securities with a fair value of $68,991. The interest rate on the Note
was 6.0% and the note was fully repaid on April 1, 1999.
During November 1998, the Company entered into a credit agreement with
two banks under which the Company has the ability to borrow up to $30 million.
Interest on borrowings is accrued and paid monthly at the prime rate (7.75% at
March 31, 1999). At March 31, 1999, the outstanding balance was $30 million,
which is due in October, 2000. The credit facility is secured by certain
investments of the Company.
During February 1999, the Company borrowed $15 million from a
corporation. Interest is accrued and paid monthly at 7.75%. The note was fully
repaid on April 30, 1999.
Due to the short term of the borrowings, the fair value of the notes
payable approximates cost.
As of March 31, 1999, the Company closed a maximum $100,000 debt
funding facility. In connection with the closing, the Company established ACS
Funding Trust I (the "Trust"), an affiliated business trust and contributed or
sold to the Trust approximately $157,000 in loans. Subject to certain
conditions, the Company will remain servicer of the loans. Simultaneously with
the initial contribution, the Trust entered into a loan agreement with First
Union Capital Markets Corp., as deal agent, and certain other parties providing
for loans in an amount up to 50% of the eligible loan balance subject to certain
concentration limits. The term of the facility is two years and interest on
borrowings will be charged at LIBOR plus 2.50%. The full amount of principal is
payable over two years beginning at the end of the term and interest is payable
monthly. The transfer of assets to the Trust and the related borrowings by the
Trust will be treated as a financing arrangement by the Company under Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities".
Note 5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 1999 and the three
months ended March 31, 1998.
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
Numerator for basic and diluted net increase in shareholders'
equity resulting from operations $ 7,024 $ 2,977
Denominator for basic-weighted average shares 11,070 11,069
Employee stock options 196 307
Warrants 13 104
------- -------
Dilutive potential shares 209 411
Denominator for diluted 11,279 11,480
------- -------
Basic earnings per share $ 0.63 $ 0.27
Diluted earnings per share $ 0.62 $ 0.26
9
AMERICAN CAPITAL STRATEGIES, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Note 6. Realized Gain on Investments
During March, 1999, the Company sold its investment in Four S Baking
Company. The Company's investment included senior debt, subordinated debt,
preferred stock, common stock and common stock warrants. The Company received
$7,163 in total proceeds from the sale and recognized a net realized gain
of $316. The realized gain was comprised of a $331 realization of unamortized
loan discounts on the subordinated debt and a net loss of $15 on the common
stock and warrants. In addition, the Company earned prepayment fees of $87 from
the early repayment of the senior and subordinated debt. In conjunction with the
sale, the Company also recorded $177 of unrealized depreciation to reverse
previously recorded unrealized appreciation.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (In thousands except per share data)
All statements contained herein that are not historical facts
including, but not limited to, statements regarding anticipated activity are
forward looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to differ materially are the following: changes in the economic
conditions in which the Company operates negatively impacting the financial
resources of the Company; certain of the Company's competitors with
substantially greater financial resources than the Company reducing the number
of suitable investment opportunities offered to the Company or reducing the
yield necessary to consummate the investment; increased costs related to
compliance with laws, including environmental laws; general business and
economic conditions and other risk factors described in the Company's reports
filed from time to time with the Securities and Exchange Commission. The Company
cautions readers not to place undue reliance on any such forward looking
statements, which statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
financial statements and the notes thereto, included elsewhere in this report
and in the Company's annual report on Form 10-K/A for the year ended December
31, 1998.
Overview
The Company's primary business is investing in and lending to
privately-owned businesses through investments in senior debt, subordinated debt
with detachable common stock warrants, preferred stock and common stock. The
total portfolio value of investments in non-publicly traded securities was
$182,498 and $165,035 at March 31, 1999, and December 31, 1998, respectively.
During the three months ended March 31, 1999 (the "First Quarter 1999"), the
Company originated investments totaling $26,212 and advanced $1,800 previously
committed under working capital facilities. The Company also received repayments
of loans of $6.9 million and, in conjunction with the sale of one portfolio
company, the Company sold warrants of $0.6 million, common stock of $1.0
million, preferred stock of $2.9 million, and received repayment of senior and
subordinated debt of $2.8 million. As a result, the total portfolio increased by
11% from December 31, 1998 to March 31, 1999. The weighted average effective
interest rate on the investment portfolio was 13.1% and 13.0%, respectively, at
March 31, 1999 and December 31, 1998. A summary of the composition of the
Company's portfolio of non-publicly traded securities at March 31, 1999, and
December 31, 1998 is shown in the following table:
March 31, 1999 December 31, 1998
-------------- -----------------
Senior debt 15.4% 15.0%
Subordinated debt 66.2% 65.5%
Convertible preferred stock 1.6% 3.3%
Common stock warrants 15.0% 13.5%
Common stock 1.8% 2.7%
The Company expects its portfolio composition for the remainder of 1999
to be similar to its portfolio composition at March 31, 1999 and at December 31,
1998. The Company will continue to heavily weight its portfolio composition
toward investments in subordinated debt with detachable warrants.
11
The following table shows the portfolio composition by industry
grouping:
March 31, 1999 December 31, 1998
-------------- -----------------
Manufacturing 63.2% 66.1%
Health Care 9.6% --
Media 8.5% 9.1%
Construction 9.1% 10.0%
Wholesale & Retail 2.7% 7.4%
Transportation 4.9% 5.4%
Service 2.0% 2.0%
Management expects that thelargest percentage of its investments will
continue to be in manufacturing companies, however, the Company intends to
continue to diversify its portfolio and will explore new investment
opportunities in a variety of industries.
Results of Operations
The Company's financial performance, as reflected in its Statements of
Operations, is composed of three primary elements. The first element is "Net
operating income (loss)," which is primarily the interest and dividends earned
from investing in debt and equity securities and the equity in earnings of its
unconsolidated operating subsidiary less the operating expenses of the Company.
The second element is "Change in unrealized appreciation of investments," which
is the net change in the estimated fair value of the Company's portfolio assets
at the end of the period compared with their estimated fair values at the
beginning of the period or their stated costs, as appropriate. The third element
is "Realized gain on investments," which reflects the difference between the
proceeds from a sale or maturity of a portfolio investment and the cost at which
the investment was carried on the Company's balance sheet. In addition, the
Company operates so as to qualify to be taxed as a RIC. As long as the Company
qualifies as a RIC, it will be able to take a deduction against its otherwise
taxable income for certain dividends it pays, allowing it to substantially
reduce or eliminate its corporate-level tax liability. As a result, the
provisions for income taxes are expected to be minimal.
As discussed above, as a RIC, the Company is required to account for
investments in operating subsidiaries under the equity method, regardless of
ownership interest. Accordingly, the Company's investment in CIC is presented on
the equity method and, consistent with the equity method of accounting, the
portfolio companies owned by CIC are not reported separately by the Company.
12
The operating results for the three months ended March 31, 1999 and
March 31, 1998 are as follows:
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
Operating income $ 6,520 $ 3,292
Operating expenses 1,398 444
Equity in (loss) earnings of unconsolidated operating subsidiary (395) 101
------- -------
Net operating income 4,727 2,949
Net realized gain on investments 316 --
Increase in unrealized appreciation of investments 1,981 28
------- -------
Net increase in shareholders' equity resulting from operations $ 7,024 $ 2,977
======= =======
Total operating income for the First Quarter 1999 increased $3,228, or
98%, compared to the three months ended March 31, 1998 (the "First Quarter
1998"). The increase in operating income is a result of the Company closing 15
investments in private companies totaling $141 million between March 31, 1998
and March 31, 1999. For the First Quarter 1999, operating income consisted of
$666 in loan fees, $5,813 in interest and dividends on non-publicly traded
securities and $41 in interest on government agency securities, bank deposits
and repurchase agreements; for the First Quarter 1998, operating income
consisted of $612 in loan fees, $1,207 in interest and dividends on non-publicly
traded securities and $1,473 in interest on government agency securities, bank
deposits and repurchase agreements. The First Quarter 1999 loan fees include
$288 in prepayment fees collected as a result of the repayment of $5,000 in
subordinated debt and the sale of senior and subordinated debt of $2,667. As
the Company increases its investment portfolio of non-publicly traded
securities, the interest and dividends the Company realizes on these securities
will also increase.
Operating expenses for the First Quarter 1999 increased $954, or 215%,
over the same period in 1998. The increase is primarily due to interest expense
of $794 in the First Quarter 1999, which resulted from the Company's $41,070
weighted average borrowings under credit facilities and notes payable. The
weighted average interest rates on borrowings at March 31, 1999 was 7.7%.
Operating expenses also increased due to the increase in salaries and benefits
from $170 for the three months ended March 31, 1998 to $310 for the same period
in 1999. The Company had 32 and 21 employees at March 31, 1999 and 1998,
respectively. The increase in salary and benefit expense is directly
attributable to the increase in the number of employees. The Company intends to
continue to hire new professionals in 1999 to support anticipated portfolio
growth.
Equity in (loss) earnings of unconsolidated operating subsidiary, which
represents CIC's results, decreased from a gain of $101 for First Quarter 1998
to a loss of $(395) for First Quarter 1999. For the three months ended March 31,
1999, CIC's results included $1,435 of operating income, $2,044 of operating
expenses, $925 of realized gains on investments, $954 of unrealized depreciation
of investments, and $243 in other income. The realized gain was a result of the
sale of CIC's common stock investment in Four S Baking Company and the
unrealized depreciation was due to the reversal of previously recorded
unrealized appreciation of CIC's Four S Baking Company investment. For the three
months ended March 31, 1998, CIC's results included $1,779 of operating income,
$1,546 of operating expenses, $96 of unrealized depreciation of investments, and
$36 of other expenses. The decrease in CIC's earnings was primarily attributable
to the $556 increase in salary and benefits expense caused by the increase in
the number of employees noted above.
During the First Quarter 1999, the Company recorded a net realized gain
of $316 on the sale of its investment of Four S Baking Company. Total proceeds
from the sale of securities, which included senior debt, subordinated debt,
preferred stock, common stock warrants, and common stock, were $7,163. The net
realized gain is primarily due to realization of the unamortized loan discount.
The increase in unrealized appreciation of investments is based on
portfolio asset valuations determined by the Company's Board of Directors. The
unrealized appreciation of investments for the First Quarter 1999 increased
$1,953 over the First Quarter 1998. The increase for the First Quarter 1999 was
comprised of valuation increases of $2,468 at four portfolio companies and
valuation decreases of $487 at six portfolio companies.
13
Financial Condition, Liquidity, and Capital Resources
At March 31, 1999, the Company had $1,231 in cash and cash equivalents
and $68,991 in investments in Federal agency securities. In addition, the
Company had outstanding debt secured by assets of the Company of $30,000 in
borrowings under credit facilities and $77,091 in short term notes payable.
During 1998, the Company's primary source of funding was the proceeds received
in connection with its IPO. The Company completed investing the proceeds of its
IPO during 1998 and began funding its investments with proceeds from a line of
credit and short term borrowings.
As of March 31, 1999, the Company closed a maximum $100,000 debt
funding facility. In connection with the closing, the Company established ACS
Funding Trust I (the "Trust"), an affiliated business trust and contributed or
sold to the Trust approximately $157,000 in loans. Subject to certain
conditions, the Company will remain servicer of the loans. Simultaneously with
the initial contribution, the Trust entered into a loan agreement with First
Union Capital Markets Corp., as deal agent, and certain other parties providing
for loans in an amount up to 50% of the eligible loan balance subject to certain
concentration limits. The term of the facility is two years and interest on
borrowings will be charged at LIBOR plus 2.50%. The full amount of principal is
payable over two years beginning at the end of the term and interest is payable
monthly. The Company will use borrowings under this facility to repay existing
debt and to continue making investments in the debt and equity securities of
middle market companies. In order to manage interest rate risk associated with
the floating rate borrowings, the Company or ACAS Funding will enter into
hedging agreements. The Company intends to use derivative instruments for
non-trading and non-speculative purposes only.
As a RIC, the Company is required to distribute annually 90% or more of
its net operating income and net realized short-term capital gains to
shareholders. The Company anticipates having to issue debt or equity securities
in addition to the above borrowings to expand its investments in middle market
companies. The terms of the future debt and equity issuances can not be
determined and there can be no assurances that the debt or equity markets will
be available to the Company on terms it deems favorable.
Portfolio Credit Quality
The Company has implemented a system under which it grades all loans on
a scale of 1 to 4. This system is intended to reflect the performance of the
borrower's business, the collateral coverage of the loans and other factors
considered relevant. Under this system, management believes that loans with a
grade of 4 involve the least amount of risk in the Company's portfolio. The
borrower is performing above expectations and the trends and risk factors are
generally favorable. Management believes that loans graded 3 involve an
acceptable level of risk that is similar to the risk at the time of origination.
The borrower is performing as expected and the risk factors are neutral to
favorable. All new loans are initially graded 3.
Loans graded 2 involve a borrower performing below expectations and the
loan risk has increased since origination. The borrower may be out of compliance
with debt covenants, however, loan payments are not more than 120 days past due.
For loans graded 2, the Company's management will increase procedures to monitor
the borrower and will write down the fair value of the loan if it is deemed to
be impaired. A loan grade of 1 indicates that the borrower is performing
materially below expectations and the loan risk has substantially increased
since origination. Some or all of the debt covenants are out of compliance and
payments are delinquent. Loans graded 1 are not anticipated to be repaid in full
and the Company will reduce the fair market value of the loan to the amount it
anticipates will be recovered.
To monitor and manage the investment portfolio risk, management tracks
the weighted average portfolio grade. The weighted average portfolio grade was
3.0 and 3.2 at March 31, 1999, and December 31, 1998, respectively. In addition,
all of the Company's outstanding loans are performing and paying as agreed as of
March 31, 1999. At March 31, 1999, the Company's portfolio was graded as
follows:
Percentage of Total
Grade Investments at Value Portfolio
----- -------------------- ---------
4 $ 30,709 16.8%
3 142,938 78.3%
2 8,851 4.9%
1 -- --
-------- -----
$182,498 100.0%
======== =====
14
Impact of the Year 2000
The "Year 2000 Issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruption of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company created a Year 2000 Compliance Committee to address the
Year 2000 compliance of the Company's information technology and non-information
technology systems, the systems of third parties, and the systems of the
portfolio companies. The Company has also engaged outside technology consultants
to assist with its Year 2000 project.
All of the software used by the Company in its information technology
systems is provided by outside vendors. The Company has taken an inventory of
all of its information technology systems and is in the process of obtaining
Year 2000 compliance designation from the vendors and internally conducting
compliance testing. Based on its assessment of its information technology
systems, management has identified the general ledger software package as the
significant system that is Year 2000 non-compliant. As such, the Company will
replace its accounting software with a new, Year 2000 compliant software
package. The new accounting software and all necessary modifications to other
information technology systems will be completed by August, 1999.
The Company is also evaluating the Year 2000 compliance of its
non-information technology systems, consisting of office equipment other than
computers and communications equipment. The Company has contacted the office
equipment vendors to obtain Year 2000 compliance designation. The Company
believes it will complete the remediation, testing and implementation of these
non-information technology systems by July, 1999.
The Company has contacted third parties that do not share information
systems with the Company ("external agents"). These third parties include the
Company's banks, landlords, utility companies, telecommunication providers and
other vendors. To date, the Company is not aware of any external agent Year 2000
issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that external agents will be Year 2000 ready. The inability of external agents
to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
The Company is also evaluating the Year 2000 readiness of its portfolio
companies. Beginning in the summer of 1998, the Company has required that each
portfolio company expressly warrant in its loan agreement that it is or will be
Year 2000 compliant prior to December 31, 1999. The Company has also submitted
questionnaires to all of its portfolio companies to determine their exposure to
the Year 2000 problem and the adequacy of their plans to address the issues.
Over 90% of the portfolio companies have responded to the questionnaire. Based
on the correspondence received from the portfolio companies, management believes
that over 80% of its portfolio companies have either no material exposure to the
Year 2000 issue or are adequately carrying out their plans to address their
exposure. The Company has either not received complete questionnaires from the
remaining 20% of the portfolio companies or has requested that the portfolio
companies improve the scope and detail of their responses. The Company intends
to follow up with the portfolio companies to ensure that they have executed
their compliance plan by June 30, 1999.
Throughout 1999, the Company will continue to address any issues of
Year 2000 non-compliance and further develop its contingency plan to ensure
business operations in the event of systems failure in the Year 2000. The
Company is utilizing both internal and external resources to reprogram or
replace, test, and implement the software and other systems for Year 2000
modifications. The Company estimates that the cost of its Year 2000 project will
be less than $125. This amount includes the cost of additional software,
reviewing the portfolio companies' readiness, and outside systems professionals
working on the Company's Year 2000 compliance.
15
The Company's plans to complete the Year 2000 modifications are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, estimates on the status of completion and the total expected costs.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific issues that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties. Significant
systems failures at the Company, a third party, or the portfolio companies could
have a materially adverse effect on the Company's business. While the Company
believes that its portfolio companies are adequately addressing the Year 2000
issue, no assurance can be given that some of its portfolio companies will not
suffer material adverse effects from Year 2000 issues. Management believes that
the most likely worst case Year 2000 scenario is a material decrease in interest
income and an impairment in the valuation of the Companies investment portfolio.
The magnitude of these material adverse effects on the portfolio companies and
the operating results and financial of the Company cannot be determined at this
time.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company, nor any of the Company's subsidiaries, is
currently subject to any material litigation nor, to the Company's knowledge, is
any material litigation threatened against the Company or any subsidiary, other
than routine litigation and administrative proceedings arising in the ordinary
course of business. Such proceedings are not expected to have a material adverse
effect on the business, financial conditions, or results of operation of the
Company or any subsidiary.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation, incorporated herein by reference
to Exhibit 2.a of the Amendment No. 1 to the Form N-2 filed by
American Capital Strategies, Ltd., dated as of August 12, 1997
(Commission File No. 333-29943).
3.2 By-laws, incorporated herein by reference to Exhibit 2.b of the
Amendment No. 1 to the Form N-2 filed by American Capital
Strategies, Ltd., dated as of August 12, 1997 (Commission File
No. 333-29943).
4 Instruments defining rights of security holders, including
indentures, incorporated herein by reference to Exhibits 2.d.1
and 2.d.2 of the Amendment No. 1 to the Form N-2 filed by
American Capital Strategies, Ltd., dated as of August 12, 1997
(Commission File No. 333-29943).
10.1 Purchase and Sale Agreement between ACS Funding Trust I and
American Capital Strategies, Ltd., dated as of March 31, 1999.
10.2 Loan Funding and Servicing Agreement among ACS Funding Trust I,
American Capital Strategies, Ltd., Variable Funding Capital
Corporation, First Union Capital Markets Corp., First Union
National Bank, Norwest Bank Minnesota, N.A. and certain
investors named therein, together with all exhibits thereto,
dated as of March 31, 1999.
10.3 Promissory Note in the aggregate principal amount of
$100,000,000 made by ACS Funding Trust I in favor of First Union
National Bank, dated as of March 31, 1999.
10.4 Promissory Note in the aggregate principal amount of
$100,000,000 made by ACS Funding Trust I in favor of First Union
Capital Markets Corp., dated as of March 31, 1999.
10.5 Promissory Note in the aggregate principal amount of $10,000,000
made by ACS Funding Trust I in favor of First Union National
Bank, dated as of March 31, 1999.
10.6 Pledge and Security Agreement among American Capital Strategies,
Ltd., ACS Funding Trust I and Norwest Bank Minnesota, N.A.,
dated as of March 31, 1999.
10.7 Escrow Agreement between American Capital Strategies, Ltd. and
Norwest Bank Minnesota, N.A., dated as of March 31, 1999.
10.8 Lock-Box Agreement between ACS Funding Trust I and LaSalle
National Bank, dated as of March 31, 1999.
17
10.9 Certificate of Trust of ACS Funding Trust I, dated as of March
26, 1999.
10.10 Trust Agreement among American Capital Strategies, Ltd., as
grantor and owner, Malon Wilkus, as beneficiary trustee, and
Evelyne Steward and William Holloran, as independent trustees,
dated as of March 26, 1999.
27 Financial Data Schedule
(b) The registrant has not filed any reports on a Current Report on
Form 8-K during the quarter for which this report 10-Q is filed.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN CAPITAL STRATEGIES, LTD.
By: /s/ John R. Erickson
-------------------------------
John R. Erickson
Vice President and
Chief Financial Officer
Date: May 17, 1999
19
EXHIBIT INDEX
Exhibit No. Description
Exhibit 3.1 Articles of Incorporation, incorporated herein by reference
to Exhibit 2.a of the Amendment No. 1 to the Form N-2 filed by
American Capital Strategies, Ltd., dated as of August 12, 1997
(Commission File No. 333-29943).
Exhibit 3.2 By-laws, incorporated herein by reference to Exhibit 2.b of the
Amendment No. 1 to the Form N-2 filed by American Capital
Strategies, Ltd., dated as of August 12, 1997 (Commission File
No. 333-29943).
Exhibit 4 Instruments defining rights of security holders, including
indentures, incorporated herein by reference to Exhibits 2.d.1
and 2.d.2 of the Amendment No. 1 to the Form N-2 filed by
American Capital Strategies, Ltd., dated as of August 12, 1997
(Commission File No. 333-29943).
Exhibit 10.1 Purchase and Sale Agreement between ACS Funding Trust I and
American Capital Strategies, Ltd., dated as of March 31, 1999.
Exhibit 10.2 Loan Funding and Servicing Agreement among ACS Funding Trust I,
American Capital Strategies, Ltd., Variable Funding Capital
Corporation, First Union Capital Markets Corp., First Union
National Bank, Norwest Bank Minnesota, N.A. and certain
investors named therein, together with all exhibits thereto,
dated as of March 31, 1999.
Exhibit 10.3 Promissory Note in the aggregate principal amount of
$100,000,000 made by ACS Funding Trust I in favor of First Union
National Bank, dated as of March 31, 1999.
Exhibit 10.4 Promissory Note in the aggregate principal amount of
$100,000,000 made by ACS Funding Trust I in favor of First Union
Capital Markets Corp., dated as of March 31, 1999.
Exhibit 10.5 Promissory Note in the aggregate principal amount of $10,000,000
made by ACS Funding Trust I in favor of First Union National
Bank, dated as of March 31, 1999.
Exhibit 10.6 Pledge and Security Agreement among American Capital Strategies,
Ltd., ACS Funding Trust I and Norwest Bank Minnesota, N.A.,
dated as of March 31, 1999.
Exhibit 10.7 Escrow Agreement between American Capital Strategies, Ltd. and
Norwest Bank Minnesota, N.A., dated as of March 31, 1999.
Exhibit 10.8 Lock-Box Agreement between ACS Funding Trust I and LaSalle
National Bank, dated as of March 31, 1999.
Exhibit 10.9 Certificate of Trust of ACS Funding Trust I, dated as of March
26, 1999.
Exhibit 10.10 Trust Agreement among American Capital Strategies, Ltd., as
grantor and owner, Malon Wilkus, as beneficiary trustee, and
Evelyne Steward and William Holloran, as independent trustees,
dated as of March 26, 1999.
Exhibit 27 Financial Data Schedule.