MCLEAN, Va., May 3, 2011 /PRNewswire/ -- Gladstone Capital Corporation (Nasdaq: GLAD) (the "Company") today announced earnings for the second quarter ended March 31, 2011.  All per share references are per basic and diluted weighted average common shares outstanding, unless noted otherwise.

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

Net Investment Income for 3 Months:  Net Investment Income for the quarter ended March 31, 2011 was $4.4 million, or $0.21 per share, as compared to $4.5 million, or $0.21 per share, for the prior year period, a decrease in Net Investment Income of 1.0%.  Net Investment Income decreased primarily due to lower interest income, partially offset by decreased interest expense and other costs.  The lower interest income was due to a decrease in the weighted average cost basis of our interest-bearing investments, which primarily resulted from increased principal repayments and limited new investment activity subsequent to March 31, 2010.  The decreased interest expense was primarily due to lower average borrowings outstanding in the three months ended March 31, 2011, which were 76.3% less than the prior year period.

Net Investment Income for 6 Months:  Net Investment Income for the six months ended March 31, 2011 was $9.1 million, or $0.43 per share, as compared to $8.9 million, or $0.42 per share, for the prior year period, an increase in Net Investment Income of 1.8%.  Net Investment Income increased primarily due to lower interest expenses resulting from lower average borrowings outstanding and the reversal of related fees during the six months ended March 31, 2011, partially offset by decreased investment income.  The average borrowings outstanding during the six months ended March 31, 2011 was $17.2 million, as compared to $70.0 million in the prior year period, a decrease of 75.4%. Interest income from investments in debt securities decreased for the six months ended March 31, 2011, due to a decrease in the average cost basis of our interest-bearing investment portfolio, which primarily resulted from increased principal repayments and limited new investment activity subsequent to March 31, 2010.  

Net (Decrease) Increase in Net Assets Resulting from Operations for 3 Months:  Net (Decrease) Increase in Net Assets Resulting from Operations for the quarter ended March 31, 2011 was ($8.4 million), or ($0.40) per share, as compared to an increase of $8.0 million, or $0.38 per share, for the prior year period.  The decrease in Net (Decrease) Increase in Net Assets Resulting from Operations from the prior year was primarily driven by net unrealized depreciation of the Company's investment portfolio of $13.1 million for the quarter ended March 31, 2011, compared to net unrealized appreciation of $2.5 million for the prior year period.  

Net (Decrease) Increase in Net Assets Resulting from Operations for 6 Months:  Net (Decrease) Increase in Net Assets Resulting from Operations for the six months ended March 31, 2011 was ($6.3 million), or ($0.30) per share, as compared to $14.3 million, or $0.68 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 $16.0 million for the six months ended March 31, 2011, compared to net unrealized appreciation of $5.1 million for the prior year period.  

Investment Portfolio Fair Value:  The Company's aggregate investment portfolio depreciated during the quarter ended March 31, 2011, primarily due to depreciation in the debt of Sunshine Media Holdings and certain other proprietary investments.  As of March 31, 2011, the entire portfolio was fair valued at 82% of cost, which was a decrease of 4.0% from September 30, 2010.

Net Asset Value:  Net asset value was $11.18 per share as of March 31, 2011, as compared to $11.85 per share as of September 30, 2010.

Asset Characteristics:  Total assets were $272.5 million as of March 31, 2011, as compared to $270.5 million as of September 30, 2010. At March 31, 2011, the Company had investments in 45 portfolio companies with an aggregate cost basis of $314.2 million and an aggregate fair value of $257.1 million.  As of March 31, 2011, the Company's investment portfolio at fair value was comprised of 97.3% in debt securities and 2.7% in equity securities.  

Investment Yield:  The annualized weighted average yield on the Company's interest-bearing portfolio, excluding cash and cash equivalents, was 11.32% for the quarter ended March 31, 2011, as compared to 10.98% for the prior year period. The increase in the weighted average yield for the quarter ended March 31, 2011 resulted primarily from the repayment of loans with lower stated interest rates subsequent to March 31, 2010.  

Highlights for Quarter:  For the quarter ended March 31, 2011, the Company reported the following significant activity:

    --  New Investment Activity: Funded $35.2 million to six new portfolio
        companies and $3.6 million of investments to existing portfolio
        companies, through revolver draws or addition of new term notes, for an
        aggregate of $38.8 million.

    --  Principal Repayments: Received repayments of $22.0 million, which
        included two full payoffs and scheduled principal repayments.

    --  Distributions: Paid monthly cash distributions of $0.07 per share for
        each of January, February and March 2011.

Subsequent Events:  Subsequent to March 31, 2011, the Company:

    --  Additional Investments: Funded $17.3 million of new investments and $0.5
        million of additional investments to existing portfolio companies.

    --  Principal Repayments: Received scheduled repayments of $1.5 million.

    --  Distributions Declared:

Declaration Date Ex-Dividend Date Record Date Payment Date Cash Distribution

April 12         April 19         April 22    April 29     $ 0.07

April 12         May 18           May 20      May 31       0.07

April 12         June 16          June 20     June 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):

                                       March 31, 2011   March 31, 2010

For quarter ended:

Net investment income                  $ 4,428          $ 4,474

Net (decrease) increase in results of
operations                             (8,381)          7,980

Weighted average cost basis of
interest-bearing investments           256,900          309,600

Average yield on interest-bearing
investments                            11.32%           10.98%

Total dollars invested                 $ 40,614         $ 4,903

Total dollars repaid                   22,760           23,402

Average borrowings outstanding         14,500           61,000



For 6 months ended:

Net investment income                  $ 9,066        $ 8,902

Net (decrease) increase in results of
operations                             (6,250)          14,306

Weighted average cost basis of
interest-bearing investments           262,700          311,200

Average yield on interest-bearing
investments                            11.37%           11.29%

Total dollars invested                 $ 52,408       $ 6,967

Total dollars repaid                   36,004           41,588

Average borrowings outstanding         17,200           70,000



As of:                                 March 31, 2011   September 30, 2010

Fair value as a percent of cost        82%              86%

Net asset value per share              $ 11.18          $ 11.85

Number of portfolio companies          45               39

Total assets                           $ 272,536        $ 270,518

Comments from President Chip Stelljes:  "During the quarter, we invested $35.2 million in six new portfolio companies and an additional $17.3 million after quarter end in three additional portfolio companies. We are pleased with our increased new investment activity, and with a current outstanding balance of $47.2 million on our $127.0 million line of credit, 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 May 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 June 6, 2011.  To hear the replay, please dial (877) 344-7529 and use conference number 449393.  The replay will be available approximately one hour after the call concludes.

The live audio broadcast of the Company's quarterly conference call will be available online at www.GladstoneCapital.com. The event will be archived and available for replay on the Company's website through July 5, 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 March 31, 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.

Who we are: Gladstone Capital Corporation is a specialty finance 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 increase new investment activity 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 April 7, 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)



                                                      March 31,   September 30,

                                                      2011        2010

ASSETS

Cash                                                  $ 8,871     $ 7,734

Investments at fair value

Non-Control/Non-Affiliate investments (Cost of
$229,517 and $244,140, respectively)                  208,461     223,737

Control investments (Cost of $84,718 and $54,076,
respectively)                                         48,652      33,372

Total investments at fair value (Cost of $314,235
and $298,216, respectively)                           257,113     257,109

Interest receivable – investments in debt
securities                                            2,379       2,648

Interest receivable – employees                     122         104

Due from custodian                                    1,279       255

Deferred financing fees                               1,361       1,266

Prepaid assets                                        744         799

Other assets                                          667         603

TOTAL ASSETS                                          $ 272,536   $ 270,518



LIABILITIES

Borrowings at fair value (Cost of $33,200 and
$16,800, respectively)                                $ 33,646    $ 17,940

Accounts payable and accrued expenses                 456         752

Interest payable                                      120         693

Fee due to Administrator                              175         267

Fees due to Adviser                                   1,791       673

Other liabilities                                     1,133       947

TOTAL LIABILITIES                                     37,321      21,272



NET ASSETS                                            $ 235,215   $ 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 March 31, 2011 and September 30, 2010  $ 21        $ 21

Capital in excess of par value                        326,935     326,935

Notes receivable – employees                        (6,049)     (7,103)

Net unrealized depreciation on investments            (57,121)    (41,108)

Net unrealized appreciation on borrowings             (446)       (1,140)

Overdistributed net investment income                 —         (1,103)

Accumulated net realized losses                       (28,125)    (27,256)

TOTAL NET ASSETS                                      $ 235,215   $ 249,246

NET ASSETS PER SHARE                                  $ 11.18     $ 11.85

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)



                          Three Months Ended March
                          31,                       Six Months Ended March 31,

                          2011        2010          2011        2010

INVESTMENT INCOME

Interest income

Non-Control/Non-Affiliate
investments               $ 6,055     $ 7,675       $ 12,651    $ 16,045

Control investments       1,113       709           2,240       1,477

Notes receivable from
employees                 122         108           244         221

Total interest income     7,290       8,492         15,135      17,743

Other income              1,108       1,322         1,270       1,875

Total investment income   8,398       9,814         16,405      19,618



EXPENSES

Loan servicing fee        757         852           1,599       1,781

Base management fee       608         739           1,113       1,459

Incentive fee             1,102       1,072         2,261       1,447

Administration fee        175         176           361         354

Interest expense          478         1,136         358         2,671

Amortization of deferred
financing fees            368         449           664         943

Professional fees         201         219           534         1,131

Other expenses            383         703           603         965

Expenses before credits
from Adviser              4,072       5,346         7,493       10,751

Credits to fees from
Adviser                   (102)       (6)           (154)       (35)

Total expenses net of
credits to fees           3,970       5,340         7,339       10,716



NET INVESTMENT INCOME     4,428       4,474         9,066       8,902



REALIZED AND UNREALIZED
(LOSS) GAIN ON:

Net realized gain (loss)
on investments            5           892           5           (28)

Net unrealized
(depreciation)
appreciation on
investments               (13,069)    2,483         (16,014)    5,082

Net unrealized
depreciation on
borrowings                255         131           693         350

Net (loss) gain on
investments and
borrowings                (12,809)    3,506         (15,316)    5,404



NET (DECREASE) INCREASE
IN NET ASSETS RESULTING
FROM OPERATIONS           $ (8,381)   $ 7,980       $ (6,250)   $ 14,306



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

Basic and Diluted         $ (0.40)    $ 0.38        $ (0.30)    $0.68



WEIGHTED AVERAGE SHARES
OF COMMON STOCK
OUTSTANDING:

Basic and Diluted         21,039,242  21,075,445    21,039,242  21,081,576

GLADSTONE CAPITAL CORPORATION

FINANCIAL HIGHLIGHTS

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

(UNAUDITED)



                        Three Months Ended March 31,  Six Months Ended March 31

                        2011        2010              2011        2010

Per Share Data(1)

Net asset value at
beginning of period     $ 11.74     $ 11.92           $ 11.85     $ 11.81

Income from investment
operations:

Net investment income
(2)                     0.21        0.21              0.43        0.42

Net realized gain on
investments(2)          —         0.04              —         —

Net unrealized
(depreciation)
appreciation on
investments(2)          (0.62)      0.12              (0.76)      0.24

Net unrealized
appreciation on
borrowings(2)           0.01        0.01              0.03        0.02

Total from investment
operations              (0.40)      0.38              (0.30)      0.68



Distributions to
stockholders(3)         (0.21)      (0.21)            (0.42)      (0.42)

Conversion of former
employee stock option
loans from recourse to
non-recourse            —         (0.02)            —         (0.02)

Reclassification of
principal on employee
note                    —         —               —         0.02

Repayment of principal
on employee note        0.05        —               0.05        —

Anti-dilutive effect
from retirement of
employee loan shares    —         0.03              —         0.03

Net asset value at end
of period               $ 11.18     $ 12.10           $ 11.18     $ 12.10



Per share market value
at beginning of period  $ 11.52     $ 7.96            $ 11.27     $ 8.93

Per share market value
at end of period        11.31       11.80             11.31       11.80

Total return(4)(5)      1.86%       56.94%            4.12%       38.77%

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                  $ 235,215   $ 254,549         $ 235,215   $254,549

Average net assets(6)   252,457     251,111           249,985     249,993

Senior Securities Data:

Total borrowings        33,646      53,000            33,646      53,000

Asset coverage ratio(7)
(8)                     797%        575%              797%        575%

Asset coverage per unit
(8)                     $ 7,966     $ 5,754           $ 7,966     $ 5,754

Ratios/Supplemental
Data:

Ratio of expenses to
average net
assets-annualized(9)    6.43%       8.52%             6.00%       8.60%

Ratio of net expenses
to average net
assets-annualized(10)   6.27        8.51              5.87        8.57

Ratio of net investment
income to average net
assets-annualized       7.04        7.13              7.25        7.12

(1) Based on actual shares outstanding at the end of the corresponding period.
(2) Based on weighted average basic per share data.
(3) 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 United States of America.
(4) 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.
(5) Amounts were not annualized.
(6) Average net assets are computed using the average of the balance of net assets at the end of each month of the reporting period.
(7) 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.
(8) 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.
(9) Ratio of expenses to average net assets is computed using expenses before credits from our Adviser to the base management and incentive fees but includes income tax expense.
(10) Ratio of net expenses to average net assets is computed using total expenses net of credits from our Adviser to the base management and incentive fees but includes income tax expense.

SOURCE Gladstone Capital Corporation