Exhibit 99.1 GLADSTONE CAPITAL REPORTS FIRST QUARTER OF FISCAL YEAR 2005 RESULTS: NET INCREASE IN STOCKHOLDERS' EQUITY RESULTING FROM OPERATIONS WAS $4,944,948, OR $0.43 PER DILUTED WEIGHTED AVERAGE COMMON SHARE. NET INVESTMENT INCOME WAS $4,677,404, OR $0.40 PER DILUTED WEIGHTED AVERAGE COMMON SHARE. MCLEAN, Va., Feb. 9 /PRNewswire-FirstCall/ -- Gladstone Capital Corp. (Nasdaq: GLAD) (the "Company") today announced earnings for the first quarter ended December 31, 2004 of the fiscal year ending September 30, 2005. Net Increase in Stockholders' Equity Resulting from Operations was $4,944,948, or $0.43 per diluted weighted average common share for the first quarter ended December 31, 2004. This represents a $3,563,874 or $0.30 per common share increase from $1,381,074, or $0.13 per diluted weighted average common share for the quarter ended December 31, 2003. Unless otherwise noted, per share amounts presented in this earnings release are on a diluted basis and are based on weighted average common equivalent shares outstanding. Total assets were $194,085,591 at December 31, 2004, a decrease of $21,248,136 from $215,333,727 at September 30, 2004. The decrease was mainly attributable to the Company not borrowing money to buy short term securities at December 31, 2004 as it has in the past. Net Investment Income for the quarter ended December 31, 2004 was $4,677,404, or $0.40 per share, compared to the quarter ended December 31, 2003 of $2,938,636, or $0.28 per share. This shows a 59% increase, or a 43% per share increase, over the same period of the prior year. During the quarter, the Company extended loans to Global Materials Technology, Inc. for $5.5 million and to Santana Products, Inc. for $7.95 million, and purchased loans in Valor Telecommunications of $10.0 million, Tech Lighting, Inc. of $9.0 million, Polar Corporation of $3.0 million, and Regency Gas Services of $2.0 million. The Company also sold its $975,000 loan in Burt's Bees Inc. for a gain of $9,750 and received loan repayments ahead of contractual maturity from A and G, Inc. of $12.25 million and America's Water Heater Rentals ("AWHR") of $12.0 million, for an aggregate return of capital of approximately $25.3 million. AWHR also remitted approximately $1.4 million of prepayment and success fees with its final payment. Effective October 1, 2004, the start of the 2005 fiscal year, the Company externalized its management to its investment adviser, Gladstone Management Corporation ("Gladstone Management"), an unconsolidated affiliate. As compensation for the services of Gladstone Management, the Company pays Gladstone Management an annual fee of 2.0% (0.50% quarterly) of total assets as reduced by cash and cash equivalents pledged to creditors. The annual 2.0% fee represents an annual advisory fee of 1.25% (0.3125% quarterly) of total assets as reduced by cash and cash equivalents pledged to creditors, and an annual administrative fee of 0.75% (0.1875% quarterly) of total assets, as reduced by cash and cash equivalents pledged to creditors. The Company receives a credit for loan servicing fees paid to Gladstone Management and for fees collected by Gladstone Management directly from the Company's portfolio companies. During the three months ended December 31, 2004, the Company recorded management fee expense of $327,302, after the credit for loan servicing fees of $530,952 but prior to the credit for other fees of $286,500 as received by Gladstone Management from the Company's portfolio companies. After the credit for these other fees, the Company recorded a net management fee expense of $40,802. At December 31, 2004, the Company had investments in debt securities in 21 private companies having a cost balance of $170.3 million and a fair value of $167.8 million. Subsequent to December 31, 2004, one loan repaid in full and one was sold at a gain of $20,000, for an aggregate return of capital of approximately $4.3 million. In January 2005, the Company also purchased additional loans in Regency Gas Services of $1.0 million, and Polar Corporation of $2.5 million, as well as the purchase of a new loan in John Henry Inc. of $5.5 million. "Overall, the management team is pleased with the performance of the Company for the first quarter of the fiscal year ending September 30, 2005. The team continues to stay focused on meeting our commitment to shareholders by growing the dividend," commented a spokesperson for the Company. The financial statements below are without footnotes. We have filed a Form 10-Q for the quarter ended December 31, 2004 with the Securities and Exchange Commission (the "SEC") and that form can be retrieved from the SEC website at http://www.SEC.gov or from the Company's web site at http://www.GladstoneCapital.com. A paper copy can be obtained by writing to us at 1616 Anderson Road, McLean, VA 22102. The Company will hold a conference call Thursday, February 10, 2005, at 9:30am EST. Please call 866-244-4526 and use the ID code 641046 to enter the conference. An operator will monitor the call and set a queue for the questions. The replay number will be available for approximately 30 days. To hear the replay, please dial 888-266-2081 and use the ID code 641046 to listen to the call. In addition, at the annual meeting of stockholders held earlier today, February 9, 2005, all items listed in the proxy were approved by shareholders. For further information contact Harry Brill, CFO at 703-286-7000. This press release may include statements that may constitute "forward- looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements with regard to the future performance of the Company. Words such as "should," "believes," "feel," "expects," "projects," "goals," and "future" or similar expressions are intended to identify 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, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements include, among others, those factors listed under the caption "Risk factors" of the Company's Form 10-K for the Fiscal Year Ended September 30, 2004, as filed with the Securities and Exchange Commission on December 14, 2004. 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 BALANCE SHEETS (Unaudited)
December 31, September 30, 2004 2004 -------------- -------------- ASSETS Investments at fair value (Cost 12/31/04 $170,302,735; Cost 9/30/04: $149,189,306) $ 167,842,273 $ 146,446,240 Cash and cash equivalents 23,383,544 15,969,890 Cash and cash equivalents pledged to creditors - 49,984,950 Interest receivable -- investments in debt securities 979,666 837,336 Interest receivable -- employees 38,012 112,960 Due from custodian 1,171,809 1,203,079 Due from affiliate 79,238 109,639 Deferred financing fees 258,824 350,737 Prepaid assets 189,718 191,676 Other assets 142,507 127,220 TOTAL ASSETS $ 194,085,591 $ 215,333,727 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accounts payable $ 220,844 $ 105,921 Fees due to affiliate 149,911 113,511 Borrowings under lines of credit 40,400,000 40,743,547 Accrued expenses and deferred liabilities 164,729 798,096 Repurchase agreement - 21,345,997 Total Liabilities $ 40,935,484 $ 63,107,072 STOCKHOLDERS' EQUITY Common stock, $0.001 par value, 50,000,000 shares authorized and 11,278,510 shares issued and outstanding $ 11,279 $ 11,279 Capital in excess of par value 164,183,548 165,501,924 Notes receivable -- employees (9,282,678) (9,432,678) Net unrealized depreciation on investments (2,460,461) (2,743,066) Unrealized depreciation on derivative (239,070) (214,259) Distributions less than net investment income 937,489 (896,545) Total Stockholders' Equity $ 153,150,107 $ 152,226,655 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 194,085,591 $ 215,333,727
GLADSTONE CAPITAL CORPORATION SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 2004 (Unaudited)
Company(1) Industry Investment(2) Cost Fair Value - ------------ --------------- -------------- ------------- ------------- Advanced Home health Senior $ 7,500,000 $ 7,500,000 Homecare nursing Subordinated Management services Term Debt(7) Inc. (13.3%, Due 12/2010) Allied Polyethylene Senior Term 4,000,000 4,005,000 Extruders, film Debt(3) Inc. manufacturer (12.3%, Due 7/2009) ARI Manufacturing Senior Term 1,190,141 1,184,190 Holdings, -auto parts Debt(6) Inc. (10.0%, Due 6/2008) Senior 3,694,750 3,653,184 Subordinated Term Debt (5)(6) (11.3%, PIK 4%, Due 12/2008) Bear Creek Premium Senior 6,000,000 6,090,000 Corporation horticultural Subordinated and food Term Debt products (7)(9.9%, Due 6/2010) Benetech, Dust Senior Term 3,087,500 3,091,359 Inc. management Debt(6) systems for (8.5%, Due the coal 5/2009) and electric Senior Term 3,250,000 3,262,188 utility Debt (3)(6) industries (11.5%, Due 5/2009) Coyne Industrial Senior Term 15,742,507 15,506,369 Inter- Services Debt(3)(5) national (6) Enterprises (13.0%, PIK 2%, Due 7/2007) Finn Manufac- Senior 10,500,000 7,612,500 Corporation turing - subordinated landscape Term Debt(6) equipment (13.0%, Due 2/2006) Common Stock 37,000 569,535 Warrants Gammill, Designer and Senior Term 4,580,769 4,580,769 Inc. assembler of Debt(6) quilting (9.5%, Due machines and 12/2008) accessories Senior Term 4,750,000 4,750,000 Debt(3)(6) (12.0%, Due 12/2008)
Global Manufac- Senior Term 5,500,000 5,500,000 Materials turing - Debt(3) Technol- steel wool (13.0%, Due ogies, products and 11/2009) Inc. metal fibers Inca Metal Material Senior Term 2,316,525 2,108,038 Products handling and Debt(3)(6) Corpora- storage (5.2%, Due tion products 9/2006) Kingway Acquisition, Inc. Clymer Acquisition, Inc. Maidenform, Intimate Senior 10,003,437 10,200,000 Inc. apparel Subordinated Term Debt(7) (10.2%, Due 5/2011) Marcal Manufac- Senior 6,800,000 6,494,000 Paper turing Subordinated Mills, -paper Term Debt(6) Inc. products (13.0%, Due 12/2006) First Mortgage 9,277,839 9,277,839 Loan(5) (16%, PIK 1%, Due 12/2006) Marietta Manufac- Senior 2,000,000 2,020,000 Corpor- turing Subordinated ation -personal Term Debt(7) care (11.5%, Due products 6/2010) MedAssets, Pharmaceu- Senior Term 1,636,973 1,645,488 Inc. ticals and Debt(7) healthcare (6.7%, Due GPO 3/2007) Senior 6,503,047 6,597,500 Subordinated Term Debt(7) (12.6%, Due 3/2008) Mistras Nondestruc- Senior Term 9,666,666 9,569,999 Holdings tive testing Debt(3)(6) Corp. instruments, (10.5%, Due systems 8/2008) and services Senior Term 4,833,334 4,772,917 Debt(3)(6) (12.5%, Due 8/2008) Senior Term Debt(3)(6) 1,000,000 992,500 (13.5%, Due 8/2008)
Polar Manufac- Senior 3,000,000 3,060,000 Corpor- turing Subordinated ation -trailer Term Debt(7) parts (8.9%, Due 6/2010) Regency Midstream Senior 2,000,000 2,040,000 Gas Gas Subordinated Services gathering Term Debt(7) LLC and (8.3%, Due processing 12/2010) Santana Manufac- Senior Term 6,000,000 6,000,000 turing Debt(3) -polyethylene (10.5%, Due bathroom 11/2009) Plastics Senior Term 1,950,000 1,950,000 partitions Debt(4) (13.0%, Due 11/2009) Tech Manufac- Senior 9,014,295 9,045,000 Lighting turing Subordinated LLC -low voltage Term Debt(7) lighting (9.3%, Due systems 10/2010) Valor Rural Senior 9,985,952 10,300,000 Telcom- telecom- Subordinated munications munications Term Debt(7) Inc. (10.1%, Due 11/2011) Woven Custom Senior Term 2,482,000 2,478,898 Electronics electrical Debt(3)(6) Corpor- cable (7.3%, Due ation assemblies 3/2009) Senior Term Debt(4)(6) 12,000,000 11,985,000 (11.5%, Due 3/2009) Total: $ 170,302,735 $ 167,842,273
(1) We do not "Control," and are not an "Affiliate" of, any of our portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). In general, under the 1940 Act, we would "Control" a portfolio company if we owned 25% or more of its voting securities and would be an "Affiliate" of a portfolio company if we owned 5% or more of its voting securities. (2) Percentage represents interest rates in effect at December 31, 2004 and due date represents the contractual maturity date. (3) Last Out Tranche of senior debt, meaning if the company is liquidated then the holder of the Last Out Tranche is paid after the senior debt. (4) Last Out Tranche of senior debt, meaning if the company is liquidated then the holder of the Last Out Tranche is paid after the senior debt, however the debt is junior to another Last Out Tranche. (5) Has some paid in kind (PIK) interest. Refer to Note 7 "Payment in Kind Interest" of the Company's Form 10-Q for the quarter ended December 31, 2004 and Note 2 "Summary of Significant Accounting Policies" of the Company's Form 10-K for the fiscal year ended September 30, 2004. (6) Fair value was based on valuation prepared and provided by Standard & Poor's Loan Evaluation Services. (7) Marketable securities are valued based on the bid price, as of December 28, 2004, from the respective originating syndication agent's trading desk. GLADSTONE CAPITAL CORPORATION SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004
Company(1) Industry Investment(2) Cost Fair Value - ------------ --------------- -------------- ------------- ------------- A and G, Activewear Senior Term $ 12,250,000 $ 12,250,000 Inc. products Debt(3)(6) (d/b/a (11.0%, Due Alstyle) 6/2008) Allied Polyethylene Senior Term 4,000,000 4,000,000 Extruders, film Debt(3) Inc. manufacturer (12.3%, Due 7/2009) America's Household Senior Term Water appliances Debt(4)(6) Heater rental (8) (12.5%, Rentals Due 2/2009) 12,000,000 12,840,000 ARI Manufactur- Senior Term 1,190,141 1,188,653 Holdings, ing-auto Debt(6) Inc. parts (9.75%, Due 6/2008) Senior 3,657,164 3,634,306 Subordinated Term Debt (5)(6) (11%, PIK 4%, Due 12/2008) Bear Creek Premium Senior 6,000,000 6,090,000 Corp- horticul- Subordinated oration tural and Term Debt(7) food (9.1%, Due products 6/2010)
Benetech, Dust manage- Senior Term 3,168,750 3,160,828 systems ment for Debt(6) Inc. the coal (8.5%, Due and 5/2009) electric Senior Term 3,250,000 3,241,875 utility Debt(3)(6) industries (11.5%, Due 5/2009) Burt's Personal & Senior Term 975,000 987,188 Bees, Inc. household Debt(7) products (5.4%, Due 11/2009) Coyne Industrial Senior Term 15,700,625 15,308,110 Inter- services Debt(3)(5) national (6) (13.0%, Enter- PIK 2%, Due prises 7/2007) Finn Manufac- Senior 10,500,000 7,612,500 Corp- turing - Subordinated oration landscape Term Debt(6) equipment (13.0%, Due 2/2006) Common Stock 37,000 474,984 Warrants Gammill, Designer and Senior Term 4,708,013 4,731,553 Inc. assembler Debt(6) of quilting (9.5%, Due machines and 12/2008) accessories Senior Term 4,750,000 4,767,813 Debt(3)(6) (12.0%, Due 12/2008) Inca Metal Material Senior Term 2,387,548 2,136,855 Products handling Debt(3)(6) Corpor- and storage (4.6%, Due ation products 9/2006) Kingway Acquisition, Inc. Clymer Acquisition, Inc. Maidenform, Intimate Senior 10,003,571 10,175,000 Inc. apparel Subordinated Term Debt(7) (9.4%, Due 5/2011)
Marcal Manufac- Senior 6,800,000 6,188,000 Paper turing - Subordinated Mills, paper Term Debt(6) Inc. products (13.0%, Due 12/2006) First 9,254,715 9,254,715 Mortgage Loan(5) (16%, Due 12/2006) MedAssets, Pharmaceu- Senior Term Inc. ticals and Debt(7) 1,815,497 1,806,887 healthcare (5.9%, Due GPO 3/2007) Senior Subordinated Term Debt(7) 6,503,282 6,500,000 (11.2%, Due 3/2008) Mistras Nondestruc- Senior Term 9,833,333 9,759,583 Holdings tive testing Debt(3)(6) Corp. instruments, (10.5%, Due systems 8/2008) and services Senior Term Debt(3)(6) 4,916,667 4,867,500 (12.5%, Due 8/2008) Senior Term Debt(3)(6) 1,000,000 1,000,000 (13.5%, Due 8/2008) Woven Custom Senior Term Electronics electrical Debt(3)(6) 2,488,000 2,484,890 Corporation cable (6.5%, Due assemblies 3/2009) Senior Term Debt(4)(6) 12,000,000 11,985,000 (11.5%, Due 3/2009) Total: $ 149,189,306 $ 146,446,240
(1) We do not "Control," and are not an "Affiliate" of, any of our portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the "1940 Act"). In general, under the 1940 Act, we would "Control" a portfolio company if we owned 25% or more of its voting securities and would be an "Affiliate" of a portfolio company if we owned 5% or more of its voting securities. (2) Percentage represents interest rates in effect at September 30, 2004 and due date represents the contractual maturity date. (3) Last Out Tranche of senior debt, meaning if the company is liquidated then the holder of the Last Out Tranche is paid after the senior debt. (4) Last Out Tranche of senior debt, meaning if the company is liquidated then the holder of the Last Out Tranche is paid after the senior debt, however the debt is junior to another Last Out Tranche. (5) Has some paid in kind (PIK) interest. Refer to Note 7 "Payment in Kind Interest" of the Company's Form 10-Q for the quarter ended December 31, 2004 and Note 2 "Summary of Significant Accounting Policies" of the Company's Form 10-K for the fiscal year ended September 30, 2004. (6) Fair value was based on valuation prepared and provided by Standard & Poor's Loan Evaluation Services. (7) Marketable securities are valued based on the bid price, as of September 30, 2004, from the respective originating syndication agent's trading desk. (8) Includes a success fee with a fair value of $660,000 and no cost basis. GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended December 31, -------------------------------- 2004 2003 -------------- -------------- INVESTMENT INCOME Interest income -- investments $ 5,707,343 $ 3,539,696 Interest income -- cash and cash equivalents 16,340 48,621 Interest income -- notes receivable from officers 114,718 108,632 Fee income - 255,000 Other income 240,000 16,000 Total investment income 6,078,401 3,967,949 EXPENSES Loan servicing 530,952 - Management fee 327,302 - Professional fees 238,722 152,771 Amortization of deferred financing fees 91,912 83,551 Interest 171,730 78,200 Stockholder related costs 71,769 52,660 Directors fees 27,000 24,333 Insurance 46,272 74,011 Salaries and benefits - 390,707 Rent - 37,760 General and administrative 43,160 135,320 Total expenses 1,548,819 1,029,313 Credit to management fee for fees colleted by Gladstone Management (286,500) - Total expenses net of credit to management fee 1,262,319 1,029,313 NET INVESTMENT INCOME BEFORE INCOME TAXES 4,816,082 2,938,636 Income tax expense 138,678 - NET INVESTMENT INCOME 4,677,404 2,938,636 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain on sale of investment 9,750 - Unrealized depreciation on derivative (24,811) - Net unrealized appreciation (depreciation) on investments 282,605 (1,557,562) Net gain (loss) on investments 267,544 (1,557,562) NET INCREASE IN STOCKHOLDERS' EQUITY RESULTING FROM OPERATIONS $ 4,944,948 $ 1,381,074 NET INCREASE IN STOCKHOLDERS' EQUITY RESULTING FROM OPERATIONS PER COMMON SHARE: Basic $ 0.44 $ 0.14 Diluted $ 0.43 $ 0.13 WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 11,278,510 10,081,844 Diluted 11,615,796 10,333,529
GLADSTONE CAPITAL CORPORATION FINANCIAL HIGHLIGHTS (UNAUDITED)
Three Months Ended December 31, -------------------------------- 2004 2003 -------------- -------------- Per Share Data(1) Net asset value at beginning of period $ 13.50 $ 12.97 Income from investment operations: Net investment income(2) 0.41 0.29 Realized gain on sale of investment(2) - - Net unrealized gain/(loss) on investments(2) 0.03 (0.15) Net unrealized (loss) on derivatives(2) - - Total from investment operations 0.44 0.14 Less distributions: Distributions from net investment income (0.36) (0.33) Total distributions (0.36) (0.33) Offering costs (0.01) - Repayment of principal on notes receivable 0.01 0.01 Net asset value at end of period $ 13.58 $ 12.79 Per share market value at beginning of period $ 22.71 $ 19.45 Per share market value at end of period 23.70 22.35 Total Return(3)(4) 5.94% 16.71% Shares outstanding at end of period 11,278,510 10,081,844 Ratios/Supplemental Data Net assets at end of period $ 153,150,107 $ 128,959,699 Average net assets $ 151,429,917 $ 129,002,039 Ratio of expenses to average net assets -- annualized(5) 4.46% 3.19% Ratio of net expenses to average net assets -- annualized(6) 3.70% 3.19% Ratio of net investment income to average net assets -- annualized 12.36% 9.11%
(1) Basic per share data. (2) Based on weighted average basic per share data. (3) Total return equals the increase of the ending market value over the beginning market value plus monthly dividends divided by the monthly beginning market value, assuming monthly dividend reinvestment. (4) Amounts were not annualized. (5) Ratio of expenses to average net assets is computed using expenses before credit from Gladstone Management and income tax expense. (6) Ratio of net expenses to average net assets is computed using total expenses net of credits to management fee and income tax expense. SOURCE Gladstone Capital Corp. -0- 02/09/2005 /CONTACT: Harry Brill, CFO of Gladstone Capital Corp., +1-703-286-7000/ /Web site: http://www.gladstonecapital.com /