Gladstone Capital Corporation Reports Financial Results for the Third Quarter Ended June 30, 2011



-- Net Investment Income for the three and nine months ended June 30, 2011 was $4.5 million and $13.6 million, or $0.22 and $0.65 per share, respectively



-- Net Decrease in Net Assets Resulting from Operations for the three and nine months ended June 30, 2011 was $14.3 million and $20.6 million, or $0.68 and $0.98 per share, respectively

MCLEAN, Va., Aug. 3, 2011 /PRNewswire/ -- Gladstone Capital Corporation (Nasdaq: GLAD) (the "Company") today announced earnings for the third quarter ended June 30, 2011. All per share references are per basic and diluted weighted average common shares outstanding, unless noted otherwise.

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

Net Investment Income for 3 Months: Net Investment Income for the quarter ended June 30, 2011 was $4.5 million, or $0.22 per share, as compared to $4.4 million, or $0.21 per share, for the prior year period, an increase in Net Investment Income of 2.4%. Net Investment Income increased primarily due to an increase in interest income, partially offset by an increase in incentive fees. The increase in interest income was largely due to an increase in the weighted average cost basis of the Company's interest-bearing investments which primarily resulted from the purchase of syndicated loans over the past two quarters.

Net Investment Income for 9 Months: Net Investment Income for the nine months ended June 30, 2011 was $13.6 million, or $0.65 per share, as compared to $13.3 million, or $0.63 per share, for the prior year period, an increase in Net Investment Income of 2.0%. Net Investment Income increased primarily due to decreased interest expenses resulting from lower average borrowings outstanding under the Company's credit facility and the reversal of related fees during the nine months ended June 30, 2011. The weighted average balance outstanding on the credit facility during the nine months ended June 30, 2011 was approximately $32.6 million, as compared to $56.9 million in the prior year period, a decrease of 42.7%. The decrease in interest expense was partially offset by a decrease in interest income and an increase in incentive fees. Interest income from investments in debt securities decreased for the nine months ended June 30, 2011, due to a decrease in the average cost basis of the Company's interest-bearing investment portfolio, which primarily resulted from the increased principal repayments subsequent to June 30, 2010, partially offset by purchases of syndicated loans over the six months ended June 30, 2011.

Net Decrease in Net Assets Resulting from Operations for 3 Months: Net Decrease in Net Assets Resulting from Operations for the quarter ended June 30, 2011 was $14.3 million, or $0.68 per share, as compared to $1.7 million, or $0.08 per share, for the prior year period. The increase in Net Decrease in Net Assets Resulting from Operations from the prior year was primarily driven by net unrealized depreciation of the Company's investment portfolio of $18.8 million for the quarter ended June 30, 2011, compared to net unrealized depreciation of $1.6 million for the prior year period.

Net (Decrease) Increase in Net Assets Resulting from Operations for 9 Months: Net (Decrease) in Net Assets Resulting from Operations for the nine months ended June 30, 2011 was ($20.6 million), or ($0.98) per share, as compared to a Net Increase in Net Assets Resulting from Operations of $12.6 million, or $0.60 per share, for the prior year period. The decrease in the Net (Decrease) Increase in Net Assets Resulting from Operations from the prior year period was primarily driven by net unrealized depreciation of the Company's investment portfolio of $34.8 million for the nine months ended June 30, 2011, compared to net unrealized appreciation of $3.5 million for the prior year period.

Investment Portfolio Fair Value: The Company's aggregate investment portfolio depreciated during the quarter ended June 30, 2011, primarily due to depreciation in the debt of Newhall Holdings, Inc. and certain other proprietary investments. As of June 30, 2011, the entire portfolio was fair valued at 79.8% of cost, which was a decrease of 6.4% from September 30, 2010.

Net Asset Value: Net asset value was $10.34 per share as of June 30, 2011, as compared to $11.85 per share as of September 30, 2010.

Asset Characteristics: Total assets were $314.1 million as of June 30, 2011, as compared to $270.5 million as of September 30, 2010. At June 30, 2011, the Company had investments in 57 portfolio companies with an aggregate cost basis of $375.2 million and an aggregate fair value of $299.3 million. As of June 30, 2011, the Company's investment portfolio at fair value was comprised of 97.7% in debt securities and 2.3% in equity securities.

Investment Yield: The annualized weighted average yield on the Company's interest-bearing portfolio, excluding cash and cash equivalents, was 10.8% for the quarter ended June 30, 2011, as compared to 10.6% for the prior year period. The increase in the weighted average yield for the quarter ended June 30, 2011 primarily resulted from the repayment of loans with lower stated interest rates and the restructuring of certain loans into higher interest rates loans, partially offset by the purchase of syndicated loans which generally bear lower interest rates than the Company's proprietary debt investments.

Highlights for the Quarter: For the quarter ended June 30, 2011, the following significant events occurred:


Subsequent Events: Subsequent to June 30, 2011, the flowing occurred:



Declaration Date

Record Date

Payment Date

Cash Distribution

July 12

July 22

July 29

$           0.07

July 12

August 19

August 31

0.07

July 12

September 22

September 30

0.07

Total for the Quarter:

$           0.21




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




June 30, 2011


June 30, 2010

For quarter ended:





Net investment income


$

4,534


$

4,429

Net decrease in results of operations


(14,310)


(1,748)

Weighted average cost basis of interest-bearing investments


311,953


279,786

Average yield on interest-bearing investments


10.8%


10.6%

Total dollars invested


$

66,222


$

2,249

Total dollars repaid


4,628


18,482

Average borrowings outstanding


63,435


30,835






For 9 months ended:





Net investment income


$

13,600


$

13,330

Net (decrease) increase in results of operations


(20,560)


12,557

Weighted average cost basis of interest-bearing investments


277,886


304,203

Average yield on interest-bearing investments


11.2%


10.9%

Total dollars invested


$

118,646


$

8,337

Total dollars repaid


39,855


56,900

Average borrowings outstanding


32,614


56,938






As of:


June 30, 2011


September 30, 2010

Fair value as a percent of cost


79.8%


86.2%

Net asset value per share


$

10.34


$

11.85

Number of portfolio companies


57


39

Total assets


$

314,130


$

270,518




Comments from our President Chip Stelljes: "During the quarter, we invested $56.9 million in fourteen new portfolio companies, which follows investments of $35.2 million in six new portfolio companies during the prior quarter. Additionally, we continue to devote management resources to our existing portfolio as we explore liquidity events and provide financial support to those companies where necessary. We are actively reviewing new investment opportunities and believe that we will be able to continue our increased new investment activity over the next twelve months."

Conference Call for Stockholders: The Company will hold a conference call on August 4, 2011 at 8:30 am EDT. 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 through September 3, 2011. To hear the replay, please dial (877) 344-7529 and use conference number 10001387. 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 through October 3, 2011.

Warning: The financial statements below are without footnotes so readers should obtain and carefully review the Company's Form 10-Q for the quarter ended June 30, 2011, including the footnotes to the financial statements contained therein. The Company has filed the Form 10-Q today with the 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 us, please contact us at 1521 Westbranch Drive, Suite 200, McLean, VA 22102.

About us: 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 subordinated term loans in small and medium-sized businesses. Information on the business activities of the Gladstone family of funds can be found at www.gladstonecompanies.com.

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

The statements in this press release regarding the timing and the Company's ability to explore portfolio liquidity events, increase new investment activity 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 its portfolio companies and on the senior loan market, and those factors listed under the caption "Risk Factors" of the post-effective amendment of the Company's registration statement on Form N-2 (File No. 333-162592), filed by the Company with the SEC on July 13, 2011 (the "Form N-2"). The risk factors set forth in the Form N-2 under the caption "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

CONDENSED CONSOLIDATED STATEMENTS OF ASSETS & LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)




June 30,


September 30,




2011


2010


ASSETS






Investments at fair value






Non-Control/Non-Affiliate investments (Cost of $290,669 and $244,140, respectively)


$

255,906


$

223,737


Control investments (Cost of $84,521 and $54,076, respectively)


43,373


33,372


Total investments at fair value (Cost of $375,190 and $298,216, respectively)


299,279


257,109


Cash


7,776


7,734


Interest receivable – investments in debt securities


2,619


2,648


Interest receivable – employees


97


104


Due from custodian


1,922


255


Deferred financing fees


993


1,266


Prepaid assets


660


799


Other assets


784


603


TOTAL ASSETS


$

314,130


$

270,518








LIABILITIES






Borrowings at fair value (Cost of $92,200 and $16,800, respectively)


$

92,700


$

17,940


Accounts payable and  accrued expenses


601


752


Interest payable


263


693


Fee due to Administrator


174


267


Fees due to Adviser


1,791


673


Other liabilities


1,065


947


TOTAL LIABILITIES


96,594


21,272








NET ASSETS


$

217,536


$

249,246








ANALYSIS OF NET ASSETS






Common stock, $0.001 par value, 50,000,000 shares authorized and 21,039,242 shares issued and outstanding at June 30, 2011 and September 30, 2010


$

21


$

21


Capital in excess of par value


326,935


326,935


Notes receivable – employees


(4,998)


(7,103)


Net unrealized depreciation on investments


(75,911)


(41,108)


Net unrealized appreciation on borrowings


(500)


(1,140)


Overdistributed net investment income


(758)


(1,103)


Accumulated net realized losses


(27,253)


(27,256)


TOTAL NET ASSETS


$

217,536


$

249,246


NET ASSETS PER SHARE


$

10.34


$

11.85





GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)



Three Months Ended June 30,


Nine Months Ended June 30,



2011


2010


2011


2010


INVESTMENT INCOME









Interest income









   Non-Control/Non-Affiliate investments

$

7,028


$

6,992


$

19,722


$

23,037


   Control investments

1,406


375


3,604


1,853


   Notes receivable from employees

102


108


347


330


       Total interest income

8,536


7,475


23,673


25,220


Other income









   Non-Control/Non-Affiliate investments

444


494


1,089


2,367


   Control investments



625



       Total other income

444


494


1,714


2,367


Total Investment income

8,980


7,969


25,387


27,587











EXPENSES









Loan servicing fee

814


819


2,413


2,600


Base management fee

637


658


1,751


2,118


Incentive fee

1,133


153


3,395


1,601


Administration fee

174


186


535


540


Interest expense

958


891


1,316


3,562


Amortization of deferred financing fees

368


240


1,032


1,182


Professional fees

360


501


894


1,632


Other expenses

196


178


799


1,142


                Expenses before credits from Adviser

4,640


3,626


12,135


14,377


Credits to fees from Adviser

(194)


(86)


(348)


(120)


Total expenses net of credits to fees

4,446


3,540


11,787


14,257











NET INVESTMENT INCOME

4,534


4,429


13,600


13,330











REALIZED AND UNREALIZED (LOSS) GAIN ON:









Net realized (loss) gain on investments

(2)


(2,865)


3


(2,893)


Net unrealized (depreciation) appreciation on investments

(18,789)


(1,556)


(34,803)


3,525


Net unrealized (appreciation) depreciation on borrowings

(53)


(1,756)


640


(1,405)


                Net loss on investments and borrowings

(18,844)


(6,177)


(34,160)


(773)











NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$

(14,310)


$

(1,748)


$

(20,560)


$

12,557











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









Basic and Diluted

$

(0.68)


$

(0.08)


$

(0.98)


$

0.60











WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:









Basic and Diluted

21,039,242


21,039,242


21,039,242


21,067,465





GLADSTONE CAPITAL CORPORATION

FINANCIAL HIGHLIGHTS

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

(UNAUDITED)



Three Months Ended June 30,


Nine Months Ended June 30,



2011


2010


2011


2010


Per Share Data(A)









Net asset value at beginning of period

$

11.18


$

12.10


$

11.85


$

11.81


Income from investment operations:









Net investment income(B)

0.22


0.21


0.65


0.63


Net realized gain on investments(B)


(0.14)



(0.14)


Net unrealized (depreciation) appreciation on investments(B)

(0.90)


(0.07)


(1.66)


0.17


Net unrealized (appreciation) depreciation on borrowings(B)


(0.08)


0.03


(0.07)


Total from investment operations

(0.68)


(0.08)


(0.98)


0.59











Distributions to stockholders(C)

(0.21)


(0.21)


(0.63)


(0.63)


Conversion of former employee stock option loans from recourse to non-recourse




(0.02)


Reclassification of principal on employee note




0.02


Repayment of principal on employee note

0.05



0.10



Anti-dilutive effect from retirement of employee loan shares




0.04


Net asset value at end of period

$

10.34


$

11.81


$

10.34


$

11.81











Per share market value at beginning of period

$

11.31


$

11.80


$

11.27


$

8.93


Per share market value at end of period

9.24


10.81


9.24


10.81


Total return(D)(E)

(16.66)%


(6.74)%


(13.24)%


29.42%


Shares outstanding at end of period

21,039,242


21,039,242


21,039,242


21,039,242


Statement of Assets and Liabilities Data:









Net assets at end of period

$

217,536


$

248,429


$

217,536


$

248,429


Average net assets(F)

228,291


251,463


242,754


250,483


Senior Securities Data:









Total borrowings at fair value

92,700


30,656


92,700


30,656


Asset coverage ratio(G)(H)

336%


893%


336%


893%


Asset coverage per unit(H)

$

3,358


$

8,931


$

3,358


$

8,931


Ratios/Supplemental Data:









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

8.13%


5.77%


6.66%


7.65%


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

7.79


5.63


6.47


7.59


Ratio of net investment income to average net assets-annualized

7.94


7.04


7.47


7.10



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

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

(C) Distributions are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP.

(D) 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.

(E) Amounts were not annualized.

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

(G) 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.

(H) 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.

(I) Ratio of expenses to average net assets is computed using expenses before credits from the Adviser to the base management and incentive fees, but includes income tax expense.

(J) 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, but includes income tax expense.






CONTACT: Gladstone Capital Corporation, +1-703-287-5893