Gladstone Capital Corporation
Jan 31, 2012

Gladstone Capital Corporation Reports Financial Results for the Quarter Ended December 31, 2011

MCLEAN, Va., Jan. 31, 2012 /PRNewswire/ -- Gladstone Capital Corporation (NASDAQ: GLAD) (the "Company") today announced earnings for the quarter ended December 31, 2011.  All per share references are per basic and diluted weighted average common share outstanding, unless noted otherwise.

(Logo: http://photos.prnewswire.com/prnh/20101005/GLADSTONECAPITAL )

Net Investment Income for three months:  Net Investment Income for the quarter ended December 31, 2011 was $4.4 million, or $0.21 per share, as compared to $4.6 million, or $0.22 per share, for the prior year period, a decrease in Net Investment Income of 4.7%.  The decrease in net investment income was largely due to an increase in interest and dividend expense for the three months ended December 31, 2011 of a combined $1.7 million, partially offset by an increase in interest income of $1.5 million compared to the first quarter of fiscal 2011.  Interest expense increased during the quarter ended December 31, 2011 compared to the prior year quarter due to increased borrowings, which we used to make new investments during fiscal year 2011. The Company paid dividends on its newly issued 7.125% Series 2016 Term Preferred Stock ("Term Preferred Stock") for the first time in December 2011, which totaled $0.4 million of dividends expense.  Interest income on investments increased by 19.7%, primarily due to an increase in the weighted average principal balance of the Company's interest-bearing investments by $69.3 million (or 25.8%) to $337.9 million as of December 31, 2011, which primarily resulted from the purchase of syndicated loans during the second half of fiscal year 2011. Partially offsetting this increase was a decrease in the annualized weighted average yield on the Company's interest bearing investments by 0.5% during the quarter ended December 31, 2011 compared to the prior year quarter.

Net (Decrease) Increase in Net Assets Resulting from Operations for three months:  Net (Decrease) Increase in Net Assets Resulting from Operations for the quarter ended December 31, 2011 was a decrease of $(1.3) million, or $(0.06) per share, as compared to an increase of $2.1 million or $0.10 per share, for the prior year period.  In addition to the changes in net investment income described above, the decrease in Net (Decrease) Increase in Net Assets Resulting from Operations from the prior year was primarily driven by $9.3 million in net unrealized depreciation on the existing investment portfolio, due primarily to decreased performance of certain of the Company's portfolio companies during the quarter ended December 31, 2011.  Partially offsetting this decrease, was the reversal of unrealized depreciation of $11.6 million associated with the exits of two investments during the quarter ended December 31, 2011.   In addition, the Company recognized $8.4 million in realized losses related to these exits.  

Investment Portfolio Fair Value:  As of December 31, 2011, the Company's entire portfolio was fair valued at 79.0% of cost, as compared to 79.1% as of September 30, 2011.

Net Asset Value:  Net asset value was $9.90 per share as of December 31, 2011, as compared to $10.16 per share as of September 30, 2011.

Asset Characteristics:  Total assets were $308.1 million at December 31, 2011, as compared to $317.6 million at September 30, 2011.  At December 31, 2011, the Company had investments in 57 portfolio companies, with an aggregate cost basis of $370.5 million and an aggregate fair value of $292.8 million.  At September 30, 2011, the Company had investments in 59 portfolio companies, with an aggregate cost basis of $382.8 million and an aggregate fair value of $302.9 million.  As of December 31, 2011, the Company's investment portfolio at fair value was comprised of 95.9% in debt securities and 4.1% in equity securities.  Syndicated investments comprised 30.5% of the Company's investment portfolio at fair value as of December 31, 2011, compared to 29.9% as of September 30, 2011.

Investment Yield:  The annualized weighted average yield on the Company's interest-bearing investments was 10.9% for the quarter ended December 31, 2011, as compared to 11.4% for the prior year period.  The decrease in the weighted average yield for the quarter ended December 31, 2011, primarily resulted from the purchase of syndicated loans during fiscal year 2011, which generally bear lower interest rates than the Company's proprietary debt investments, as well as the restructure of the Company's debt investments in Sunshine Media Holdings ("Sunshine") into lower interest rates.  87.2% of the Company's debt investment portfolio as of December 31, 2011 consisted of variable rate loans with floors, as compared to 84.7% as of December 31, 2010.

Highlights for the Quarter:  For the quarter ended December 31, 2011, the following significant events occurred:







Comments from the Company's President, Chip Stelljes:  "During the first quarter of fiscal 2012, we continued to focus on managing our existing portfolio, with limited new investments.  During the quarter, we were able to restructure one non-accrual investment into an accrual investment and we also exited a non-accrual investment.  We are pleased that we were able to raise long term capital through our Term Preferred Stock offering and to extend our line of credit by three years.  We expect that this capital will enable us to grow the portfolio and increase our net investment income over the long term."

Subsequent Events:  After December 31, 2011, the following events occurred:





Record Date


Payment Date


Distribution

per Common

Share


Distribution per

Term Preferred

Share

January 23, 2012


January 31, 2012


$

0.07


$

0.1484375

February 21, 2012


February 29, 2012


0.07


0.1484375

March 22, 2012


March 30, 2012


0.07


0.1484375



Total for the Quarter


$

0.21


$

0.4453125




Summary Information:  The following chart is a summary of some of the information reported above (dollars in thousands, except per share data) (unaudited):




December 31, 2011


December 31, 2010

For the Three Months Ended:







Net investment income


$

4,418



$

4,637


Net (decrease) increase in net assets resulting from operations


(1,289)



2,132


Average yield on interest-bearing investments


10.9

%


11.4

%

Total dollars invested


$

11,251



$

11,794


Total dollars repaid


10,780



13,208











December 31, 2011


September 30, 2011

As of:







Fair value as a percent of cost


79.0

%


79.1

%

Net asset value per share


$

9.90



$

10.16


Number of portfolio companies


57



59


Total assets at fair value


$

308,116



$

317,624





Conference Call for Stockholders: The Company will hold a conference call on Wednesday, February 1, 2012, at 8:30 a.m. EST.  Please call (800) 860-2442 to enter the conference.  An operator will monitor the call and set a queue for questions. A replay of the conference call will be available from the date of the call through March 2, 2012.  To hear the replay, please dial (877) 344-7529 and use conference passcode number 10008736.  The replay will be available beginning approximately one hour after the call concludes.

The live audio broadcast of the Company's quarterly conference call will also be available online at www.GladstoneCapital.com. The event will be archived and available for replay on the Company's website from the date of the call through April 2, 2012.

Warning: The financial statements below are without footnotes, so readers should obtain and carefully review the Company's Form 10-Q for the fiscal quarter ended December 31, 2011, including the footnotes to the financial statements contained therein. The Company has filed the Form 10-Q today with the Securities and Exchange Commission ("SEC"), which can be retrieved from the SEC's website at www.sec.gov or from the Company's website at www.GladstoneCapital.com. To obtain a paper copy from the Company, please contact the Company at 1521 Westbranch Drive, Suite 200, McLean, VA 22102.

Gladstone Capital Corporation is a publicly traded business development company that invests in debt securities consisting primarily of senior term loans, second term lien loans, and senior subordinate term loans in small and medium sized U.S. businesses. The Company has paid 100 consecutive monthly cash distributions on its common stock.  Before the Company started paying monthly distributions, the Company paid eight consecutive quarterly cash distributions. Information on the business activities of all the Gladstone funds can be found at www.gladstonecompanies.com.

For Investor Relations inquiries related to any of the monthly dividend paying Gladstone funds, please visit www.gladstone.com.

The statements in this press release regarding the ability of the Company to manage its existing portfolio, grow its portfolio and increase its net investment income over the long term and other such statements are "forward-looking statements." These forward-looking statements inherently involve certain risks and uncertainties, although they are based on the Company's current plans that are believed to be reasonable as of the date of this press release. Factors that may cause the Company's actual results to differ from these forward-looking statements include, among others, the duration and potential future effects of the current economic downturn on the Company's portfolio companies and on the senior loan market, along with those factors listed under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2011, as filed with the SEC on November 14, 2011. Such "Risk Factors" are specifically incorporated by reference into this press release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)




December 31,


September 30,




2011


2011


ASSETS






Investments at fair value






Non-Control/Non-Affiliate investments (Cost of $273,177 and $288,266, respectively)


$

248,832


$

257,302


Control investments (Cost of $97,293 and $94,549, respectively)


44,014


45,645


Total investments at fair value (Cost of $370,470 and $382,815, respectively)


292,846


302,947


Cash


5,772


6,732


Restricted cash


1,225



Interest receivable – investments in debt securities


2,921


3,066


Interest receivable – employees


13



Due from custodian


1,669


2,547


Deferred financing fees


2,261


650


Prepaid assets


825


996


Other assets


584


686


TOTAL ASSETS


$

308,116


$

317,624








LIABILITIES






Borrowings at fair value (Cost of $56,900 and $99,400, respectively)


$

57,213


$

100,012


Mandatorily redeemable preferred stock, $0.001 per share par value, $25 per share liquidation preference; 4,000,000 and no shares authorized; 1,539,882 and no shares issued and outstanding at December 31, 2011 and September 30, 2011, respectively


38,497



Accounts payable and  accrued expenses


524


513


Interest payable


205


289


Fees due to Adviser


1,414


1,760


Fee due to Administrator


195


194


Other liabilities


2,052


1,135


TOTAL LIABILITIES


$

100,100


$

103,903








NET ASSETS


$

208,016


$

213,721








ANALYSIS OF NET ASSETS






Common stock, $0.001 par value per share, 46,000,000 and 50,000,000 shares authorized; 21,019,242 and 21,039,242 shares issued and outstanding at December 31, 2011 and September 30, 2011, respectively


$

21


$

21


Capital in excess of par value


326,756


326,913


Notes receivable – employees


(3,699)


(3,858)


Cumulative net unrealized depreciation on investments


(77,624)


(79,867)


Cumulative net unrealized appreciation on borrowings


(313)


(612)


Under distributed net investment income


108


108


Accumulated net realized losses


(37,233)


(28,984)


TOTAL NET ASSETS


$

208,016


$

213,721


NET ASSET VALUE PER COMMON SHARE AT END OF PERIOD


$

9.90


$

10.16






GLADSTONE CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)



Three Months Ended

December 31,



2011


2010


INVESTMENT INCOME





Interest income





   Non-Control/Non-Affiliate investments

$

7,889


$

6,926


   Control investments

1,358


797


   Cash

6



   Notes receivable from employees

67


122


 Total interest income

9,320


7,845


Other income





   Non-Control/Non-Affiliate investments


161


 Total other income


161


Total Investment income

9,320


8,006







EXPENSES





Loan servicing fee

959


842


Base management fee

597


505


Incentive fee

1,035


1,159


Administration fee

195


186


Interest expense on borrowings

1,139


(120)


Dividend expense on mandatorily redeemable preferred stock

434



Amortization of deferred financing fees

457


297


Professional fees

292


332


Other expenses

244


220


                Expenses before credits from Adviser

5,352


3,421


Credits to fees from Adviser

(450)


(52)


Total expenses net of credits to fees

4,902


3,369







NET INVESTMENT INCOME

4,418


4,637







REALIZED AND UNREALIZED (LOSS) GAIN ON:





Net realized loss on investments

(8,249)



Net unrealized appreciation (depreciation) on investments

2,243


(2,944)


Net unrealized depreciation on borrowings

299


439


                Net loss on investments and borrowings

(5,707)


(2,505)







NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$

(1,289)


$

2,132







NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:





Basic and Diluted

$

(0.06)


$

0.10







WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:





Basic and Diluted

21,038,590


21,039,242





GLADSTONE CAPITAL CORPORATION

FINANCIAL HIGHLIGHTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND PER UNIT DATA)

(UNAUDITED)



Three Months Ended

December 31,



2011


2010


   Per Common Share Data(A)





Net asset value at beginning of period

$

10.16


$

11.85


Income from investment operations (B)





Net investment income

0.21


0.22


Net realized loss on investments

(0.39)



Net unrealized appreciation (depreciation) on investments

0.11


(0.14)


Net unrealized depreciation on borrowings

0.01


0.02


Total from investment operations

(0.06)


0.10







Distributions to common stockholders from (B)©





Net investment income

(0.21)


(0.21)


Total distributions to common stockholders

(0.21)


(0.21)







Capital Common Share transactions





Repayment of principal on notes receivables

0.01



Stock redemption for repayment on notes receivables

(0.01)



Total from capital common share transactions










Other, net (D)


0.01




Net asset value at end of period

$

9.90


$

11.74







Per common share market value at beginning of period

$

6.86


$

11.27


Per common share market value at end of period

7.63


11.52


Total return(E)(F)

14.25

%

4.11

%

Common shares outstanding at end of period

21,019,242


21,039,242







Statement of Assets and Liabilities Data:





Net assets at end of period

$

208,016


$

246,960


Average net assets(G)

210,972


247,513


Senior Securities Data:





Borrowings at fair value

57,213


25,301


Mandatorily redeemable preferred stock

38,497



Asset coverage ratio(H)(I)  

318

%

1,061

%

Asset coverage per unit(I)

$

3,179


$

10,612


Ratios/Supplemental Data:





Ratio of expenses to average net assets-annualized(J)

10.15

%

5.53

%

Ratio of net expenses to average net assets-annualized(K)

9.30


5.44


Ratio of net investment income to average net assets-annualized

8.38


7.49




(A)  Based on actual shares outstanding at the end of the corresponding period.

(B)  Based on weighted average basic per share data.

©  Distributions are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under accounting principles generally accepted in the U.S.

(D)  Represents the impact of the different share amounts (weighted average shares outstanding during the period and shares outstanding at the end of the period) in the per share data calculations and rounding impacts.

(E)  Total return equals the change in the ending market value of the Company's common stock from the beginning of the period, taking into account distributions reinvested in accordance with the terms of the Company's dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital.

(F)  Amounts were not annualized.

(G)  Average net assets are computed using the average of the balance of net assets at the end of each month of the reporting period.

(H)  As a Business Development Company, the Company is generally required to maintain a ratio of at least 200% of total assets, less all liabilities and indebtedness not represented by senior securities, to total borrowings and guaranty commitments.  The Company's mandatorily redeemable preferred stock is characterized as borrowings for the asset coverage ratio.

(I)  Asset coverage ratio is the ratio of the carrying value of the Company's total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness (including interest payable and guarantees). Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.

(J)  Ratio of expenses to average net assets is computed using expenses before credits, if any, from the Adviser to the base management and incentive fees and including income tax expense.

(K)  Ratio of net expenses to average net assets is computed using total expenses net of credits from the Adviser to the base management and incentive fees and including income tax expense.



SOURCE Gladstone Capital Corporation

For further information: Gladstone Capital Corporation, +1-703-287-5893