Gladstone Investment Corporation 5.00% Notes Due 2026 (GAINN) Q3 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the Gladstone Investment Corporation’s third quarter ended December 31, 2012 conference call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. And I would now like to turn the conference over to David Gladstone. Please go ahead.

All right, thank you, Emily, for that nice introduction and hello and good morning to everyone out there. This is David Gladstone, the Chairman, and this is the quarterly earnings conference call for shareholders and analysts of Gladstone Investment, the common stock trading symbol GAIN. And of course the preferred stock trading symbol GAINP preferred. We thank all of you for calling in. We are always happy to talk to shareholders about the company. I often wish they were more opportunities but this is that once a quarter opportunity for us to talk to you and you can ask questions. Hope all of you will take this opportunity to visit our website. Its www.gladstoneinvestment.com, you can sign up for email notices so you receive information about us on a timely basis. And please remember that if you are ever in the Washington D.C. area you have an open invitation to come by and visit us here in McLean, Virginia. We are just outside of Washington D.C and please stop by and say hello to the folks here, you will see some of the finest people in the business. And now let’s read the statement about forward-looking statements. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, including statements with regard to the future performance of the company. These forward-looking statements inherently involve certain risks and uncertainties and other factors even though they’re based on our current plans and we believe those plans to be reasonable. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may and similar expressions. There are many factors that may cause our actual results to be materially different from any future results that are expressed or implied by the forward-looking statements, including those risk factors listed under the caption “risk factors” included in our 10Ks and 10Qs filings in our registration statement that are filed with the Securities & Exchange Commission, and all of those can be found on our website at www.gladstoneinvestment.com and obviously on the SEC website. 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 after the date of the conference call. So please also note that past performance or market information is not a guarantee of future results. First we always hear from our President, Dave Dullum. And so he is up, he is a Board member awhile and he’ll cover a lot of ground. So Dave Dullum, go at it.

Thank you, David, and good morning, all. Usually I try to give a quick review of what we do, and so here goes. The business of Gladstone Investment is to provide capital for businesses that are being purchased with a management team and other equity investors. These are usually companies with annual sales in the range of $20 million to $100 million, and we describe that as the lower middle market. What we do is provide subordinated debt and equity and occasionally some senior debt in these transactions, which combination produces a mix of assets which is really the key to our business strategy. In that our debt investments provide the income to grow the dividends while we expect the equity to appreciate and therefore build shareholder value over time. I should say that it is somewhat different, if you will, from other publicly traded business development companies that you’ll notice, some of them are predominantly debt focused. So, it is important to keep in mind that the equity portion of our assets are important to us and to our overall strategy. So, on December 31, 2012 last quarter, based on its costs our investments consisted of a mix of approximately $228 million or 70% in the debt investments which are the ones producing income, and about $95 million or 30% in equity securities which are the ones that we expect to produce the capital gains. This ratio of roughly 70:30 is actually a little bit higher than our goal of 80% debt and 20% equity, but we keep striving to this goal. And there are a number of factors at any time that might affect this ratio, certainly including loan payoffs that may occur at any time and whether or not we’ve converted a loan-to-equity or actually vice versa as we do from time-to-time. So, in the most recent quarter our total interest bearing debt portfolio had a 12.7% cash yield and that actually is up from 12.5% in the prior quarter. Now, the interest bearing debt is our primary source of cash to pay our dividends. Additionally, as we’ve talked before we often have success fees, as we call them, which are a component of our debt instruments. Now, success fees are contractually due upon a sale of a portfolio company, although the portfolio company can indeed pay it early if they choose. Now, we recognize these success fees as income only when we receive the cash. So even though we did not receive any success fees in the most recent quarter, we have in the past and also, of course, expect to do so in the future. In fact as of December 31, 2012, approximately 76% of our interest bearing debt has associated success fees with an average contractual rate which is accruing at the rate of about 3.1% per annum. Therefore, currently we have success fees of approximately $12.3 million which is actually about $0.47 per share. We do not record these success fees on our balance sheet as we’ve mentioned, though we do report them in the written part of our report to shareholders. Also, just to remind everyone, there is no guarantee of course that we will be able to collect all the success fees or have any control over their timing. Now, while the equity securities that we own are not producing current cash income, we do expect that equity to appreciate and add to shareholder value. In fact, since mid 2010, we have realized capital gains of approximately $29.4 million through the ownership we own in these various portfolio companies. So, as our portfolio builds, our goal will continue to be to increase the interest income and the dividend payout and also of course seek asset appreciation through growth in the equity value of the stocks that we own. Now, how do we go about doing this? Well, that is what we call deal origination. Generally, we obtain our investment opportunities by partnering with management team, private equity firms and other sponsors of these buyouts. Our combination of debt and equity we do believe gives us a competitive advantage in certain circumstances. As a result of this, the sources that we normally concentrate on are 3 main areas, one, groups that we call fundless sponsors. Now, these are groups that do not have a dedicated pool of capital, but they do add value in a deal through sourcing it in fact, and in some cases where they might have specific industry knowledge related to that particular transaction. Therefore, it is a good opportunity for us because our ability to provide what we call a certainty to close with the financing of the debt and equity is a very meaningful part of such a transaction. Secondly, we source through investment bankers and third through smaller private equity funds, again where our equity has meaning and we are able to combine with our subordinated debt. In addition of course, we may from time-to-time find opportunities to provide capital which will be in support of a business owner who is not necessarily seeking to sell the company outright, but does wish to sell a portion of that company while financing the continued growth, in which case, we will invest in the debt and equity in exchange for significant ownership in that business. We had mentioned last time as well that in July we had gone after an SEC approval and indeed in July we received SEC approval of an exemptive order that allows us to co-invest with our affiliate, Gladstone Capital Corporation. This provides origination opportunities to a broader range of companies and also flexibility to invest in larger companies while at the same time keeping our investment amount in a single portfolio company within our regulatory guidelines. To date, we have not made any core investments under this order. Regarding activity of the fund for the quarter ended December 31, 2012 we added one new buyout to the portfolio. This was in a company called Frontier Packaging where we invested $16.5 million in Frontier being a provider of a range of time sensitive packaging materials and related supplies primarily to the Alaskan Fishery Market Place. The company’s competitive position really is, and values through expertise in the provisioning of certain products, consolidation and logistics. In the quarter, we also invested $2.7 million in 4 of our existing portfolio companies and we also received about $9.3 million in prepayments. After the quarter end, we invested $1.1 million and received principal repayments of about $400,000 from existing portfolio companies. So, as a result of this activity, at the end of the quarter we had $324 million invested in portfolio companies at cost. We were able to maintain our dividend stockholders for the quarter ended December 31, of $0.05 per share per month and our board also declared a dividend of $0.05 per share per month through March of this year. We certainly look forward to and hope to continue to make favorable dividend payouts for the foreseeable future. Regarding our portfolio company, update on that in general. The companies are performing well, though not without challenges. And this is why our investment teams work diligently to limit losses, increase the equity value and preserve cash flow from our portfolio companies. As highlighted in the last earnings call, we continue to see very good results from 2 of our portfolio companies, Galaxy Tools and CCE, where we previously converted debt to equity and had placed CCE on a non-accrual status. These companies were able to increase in value over the last 2 quarters by approximately $10.4 million and $4 million respectively, and in fact CCE is now back on accrual status. So Galaxy and CCE are good examples of our philosophy and the dedication really to get our investments operationally sound, reserve shareholder capital versus perhaps walking away from a company when an investment gets a bit difficult. Now we still have work to do with the portfolio and where a few of our companies still on non-accrual though in general, we believe that the overall portfolio is very well balanced. Turning briefly to the marketplace as we see it, our flow of opportunities, it continues to be very good, both in quality and quantity. And certainly general economic conditions continue to create some uncertainty, but we are seeing some improved stability and middle market companies that are returning to profitability. This improvement is indeed causing an increase in the supply of quality businesses for sale, as owners are taking advantage of these positive results. Senior bank financing, as I’ve mentioned in the past, still continues to be available and is reasonably priced, which is a significant part of leveraged buyout transaction. So as a result, we do continue to find opportunities where the valuations which are relative to what we call trailing EBITDA are in the multiples of 5 to 6.5 times for good companies, and which is where our target valuation tends to be. Certainly, we see higher valuations in the marketplace, but we tend to avoid those as we’re generally not able to really see how we would make a return at much higher multiples. So the pipeline is really a function of how active we are and we do continue to be very active in our marketing and our deal generating activity. We do stress our competitive advantage of being able to provide the subordinated debt and the equity to complete the transaction. And we believe these marketing efforts and our presence in the marketplace will allow us to continue on a growth trend. So our goal for this fund is to maximize distribution to shareholders, while we continue to achieve solid growth in both equity values and assets in the portfolio to these proprietary investments in this lower middle market companies buyout arena. And, so with that David, this concludes my part of the presentation. I’ll turn it back over to you.

All right, David Dullum that was a good report and we’re excited about the future of the company. Now let’s hear from our Chief Financial Officer and Treasurer, David Watson on the fund’s financial performance for this quarter.

All right, good morning, everyone. I’ll start with our recent capital activity. As I am sure some of you are aware, during the third quarter we completed a public offering of approximately 4.4 million shares of our common stock at a public offering price of $7.50 per share, which was below NAV per share. Gross proceeds totaled $33 million and net proceeds after deducting underwriting discounts and operating expenses borne by us were $31.1 million, which was used to repay borrowings under our credit facility. These proceeds in part will allow us to grow the portfolio by making new investments, generate additional income through these new investments, and provide us additional equity capital to help ensure continued compliance with regulatory tests and allow us to increase our debt capital while still complying with our applicable debt to equity ratios. Also during the quarter, we extended the maturity date on our credit facility one year with our bankers. As a result, the credit facility is now 3 years in duration again, with a scheduled maturity date in October 2015. If we do not extend it again, all principal and interest will be due in October 2016 or approximately 4 years out. There remains a one-year extension option to be agreed upon us and our bankers, which may be exercised on or before October of 2013. All other terms of our credit facilities have remained the same. So, between the proceeds from our common offering and the extension on our credit facility, we feel we are well capitalized for the remainder of the fiscal year and into the next, to continue making good investments for our shareholders. Turning to our balance sheet, at the end of the December quarter, we had $346 million in assets, consisting of $273 million in investments at fair value, $56 million in cash and cash equivalents, and $17 million in other assets. Included in the cash and cash equivalents like other quarters is $50 million of U.S. Treasury securities purchased for the use of borrowed funds at quarter end to satisfy our asset diversification requirements. We have $117 million in liabilities consisting of $40 million in term preferred stock, $25 million in borrowings outstanding on our 3-year credit facility, $5 million in secured borrowings, and $45 million borrowed via the short-term loan, and $2 million in other liabilities. In all, as of December 31, 2012, we had $229 million in net assets, or $8.65 per share, so we are less than 1:1 leverage on our senior secured borrowings. One of the advantages of the common offering was that it helps reduce our leverage. Leverage since the offering was below NAV, there was some dilution to our NAV per share which resulted in a reduction of approximately $0.31 per share. Currently, we have investments at fair value of $274 million, cash of $7.6 million, $11.5 million in borrowings on our credit facility, and $5 million in secured borrowings. We believe this is a safe balance sheet for a company like ours and we believe our overall risk profile is low. Moving over to the income statement, for the December quarter end total investment income was $7.2 million versus $7 million in the prior quarter, while total expenses including credits were $3.2 million versus $3.5 million in the prior quarter, leaving net investment income of $4 million versus $3.5 million from the prior quarter, an increase of 14.5%. This increase was primarily due to an increase in other income from cash dividends that we received on our preferred shares of Acme Cryogenics in the December 31, 2012 quarter, as well as reduced interest expense, professional and other expenses when compared to the prior quarter. Due to the proceeds from the common offering, we had lower amounts of borrowings outstanding which resulted in a $0.2 million reduction in our interest expense. The professional fees and other expenses decreased in aggregate by $0.3 million, primarily due to the rebirth of certain expenses in the current period related to reimbursable deal expenses. I think it’s important to take a moment to touch on the significant steady growth that we have had in our portfolio and income over the past 2 years. The year-over-year growth rate or CAGR over the past 2 years in the size of our weighted average interest bearing assets has been 26%. The CAGR over the past 2 years and the amount of cash interest income recorded has been 33.2%. In addition, our weighted average yield on interest bearing debt investments has increased to 12.7% in the current quarter, up from just 11.5% 2 years ago. We believe this positive growth in our debt investments alone has positioned the company well for the future. Let’s turn to realized and unrealized changes in our assets. Realized gains and losses come from actual sales or disposals of investments. Unrealized appreciation and depreciation comes from our requirements to mark our investments to fair value on our balance sheet, with the change in fair value from one page to the next being recognized in our income statement. Unrealized appreciation and depreciation is a non-cash event. Regarding our realized activity, during the 3 months ended December 31, 2012, we recorded a net realized gain of $0.1 million compared to the prior quarter where we recorded a net realized gain of $0.8 million, both periods related to post-closing adjustments on previous investment exits. As for our unrealized activity, the net unrealized appreciation of our entire portfolio was close to 0, even though we had certain investments, most specifically Galaxy Tool Holdings, which increased $4.6 million and [inaudible] Investments Inc., which increased by $2.8 million. The sizable appreciation was due to increased performance, but these were primarily offset by significant depreciation in Creditcorp [ph], which decreased by $9.8 million and was placed on non-accrual during the December quarter. At the September 2012 quarter end, we had net unrealized depreciation of $3.9 million over our entire portfolio, which was primarily due to decreased performance of certain of our portfolio companies and to a lesser extent a decrease in multiples. Our entire portfolio has had its fair value as a percent of cost remain consistent over the last 3 quarters. For the December quarter, our entire portfolio was fair valued at 84.5% of cost, which was slightly up from 84.1% of cost as of September 30, 2012, but slightly down from 84.7% of cost as of March 31, 2012. Now let’s turn to net increase and decrease in net assets from operations. This term is a combination of net investment income, unrealized net appreciation or depreciation and realized gains and losses. For the December 2012 quarter end, this number was an increase of $4.7 million, or $0.18 per share versus a decrease of $3 million or $0.13 per share in the September quarter. Quarter-over-quarter change is primarily due to net unrealized depreciation in the prior quarter. While we believe our overall investment portfolio is stable and continues to meet expectations, today’s markets continue to move fast and are generally volatile and investors should expect continued volatility in the aggregate value of our portfolio. All of our portfolio companies are current in payment except for 2: Ash [ph], which continues to remain on non-accrual and Shred [ph], which was placed on non-accrual during the December quarter. As mentioned in last quarter’s call, CCE, which was on non-accrual status, is paying current and was placed on accrual status in the December quarter. Regarding interest rate risks, approximately 80% of our loans have variable rates but they all have a minimum or floor in the rate charged, so the low interest rates that we had experienced over the last several years, these floors have minimized the negative impact on our ability to make distributions. The weighted average floor on our variable rate loans is 2.9% with an average margin of 9.7%, resulting in an all-in average rate of 12.5%. The remaining 20% of our loans are fixed with an average rate of 12.6%. With that, we look forward to maintaining momentum and hope we continue to increase our income generating assets to increase our recurring income and to increase our distribution to our stockholders. And now, I will turn the call back over to David.

Okay. Thank you, David Watson. I hope each of our listeners will read the press release and obtain a copy of our quarterly report called the 10-Q which has been filed with the SEC and can be accessed on our website at www.gladstoneinvestment.com and also on the SEC website. I think the big news here in this quarter is that we are actively investing and continue to go forward with new portfolio companies, and I think the rest of the fiscal year which ends on March 31 will be a good time to invest. I think we will end the year on very solid footing and hopefully for March 31, 2014 we will be even better than this year. We have been active in the capital markets and we were able to obtain some long term capital in March with a $40 million term preferred offering and with a $31 million common offering. In addition, we have favorable lines of credit through October 2015 with BB&T and KeyBank and room to borrow under that line. So, we are in good shape right now to go forward. We did something this time that I don’t like to do, it’s the first time, we’ve never done it before, and that is because we were running out of money we invested in, and the ratio of debt to equity was just too high. So, we sold some stock below net asset value and by taking some dilution of all shareholders and letting new shareholders in at a lower price, we have been able to put the company back on a good position to grow the assets and I think the dividend as well. The offering really didn’t hurt our ability to continue to pay the existing dividend and hopefully it put us in a position to increase that dividend sometime in the future. In October, we made limited revisions to our strategies and investment objectives, and that went into effect on January 1st. There is not much change really between what we had before and what we put out. The marketplace I think looked at that and said no change. There are a few minor changes in there. And we wanted the -- Our main business strategy is to be consistent between the 2 funds, allowing for additional situations in which Gladstone Capital and Gladstone Investments can pull in best. Also, all of our existing portfolio investments follows on the scope of the revised investment strategies and objectives that we put into place that became effective on the first of January. Folks, I think this is a fabulous fund with a great opportunity and I think there is some good upside coming in the future, we just still have concerns about what’s going on in the marketplace. Our economy doesn’t seem to be growing and I attribute that to because small businesses are not growing and the number of small business is starting -- In the United States its lowest in 20 years, and you can’t really have a recovery without small business growing and producing the jobs, they still produce about 75% or 80% of all the new jobs. We also worry about oil prices, one hit of a pipeline in the Middle East or blockade or somewhere, and oil prices would go sky high. We also have supply too dependent on countries that don’t wish us well, and high gas prices for cars and trucks just hurts every business in the US. So, we need to develop more oil and gas here obviously. We are frightened to death about inflation. The decision by Congress and the President of the United States to expand the money supply will ultimately cause serious inflation in the dollar. We will have a much lower buying power there. It’s just a bad idea that, to think that we can borrow and spend our way to prosperity, it’s been disproven hundreds of times in other countries and I don’t know why we think it we’re exempt. The spending by the federal government, as you read and hear about every day in the news, is still just out of control. It’s so out of control that we are now borrowing about 43% of every dollar we spend, and that looks like it’s probably going to be closer to 50% as we move forward. The amount of money being spent on the war in Afghanistan hurts our economy, but obviously that’s being wound down and we are really happy to see that go away. And the terrible news is that part of the government still talks about raising more taxes. We have seen the huge tax increase that was put in place just recently and they are talking about additional taxes and they always talk about the rich paying it, but at the end of the day it’s the middle class and even some of the lowest paid workers are paying more taxes than they were before this big tax increase went in place. Trade deficit with China continues to be on my mind, it’s just terrible. China continues to subsidize their industries to the disadvantage of our businesses, and this really means our companies can’t compete with them, so jobs go away from our country, they go out of this country into places like China. We need a government that will stand up to China and stop them from cheating. And the continued stagnation of the housing industry and related disaster in the home mortgage default area, it just continues to drag down our economy. There has been small changes in the housing business and they are positive, but those small changes are just a small fraction of what needs to happen in order for recovery to happen in housing. We see the economic problems in the Euro zone and that may hurt some companies. Thank goodness, most of the investments we have in smaller or mid-sized businesses don’t have a lot of sales in Europe, and as a result I don’t think we’d get as hurt by the downturn that’s going on and continues to go on there. Unemployment is far too high. The numbers used by the government reporting in the popular press really don’t include all those who are working part time but seeking full time, nor does it include those who have stopped looking for work, and more realistic numbers probably in the 15% to 18% range. In spite of all these negatives, I think the small business base that we lend to and invest in is not a disaster. Really, the best ones are still, have gone through the recession and survived. The lingering recession is still having an impact on the portfolio companies. It’s still not a disaster, it’s just keeping things at a slow move. Like most companies, some of our portfolio companies have not seen increases in revenues and backlogs; however, some others are seeing good increases and have a few others that have seen really great increases. So, it’s a very uneven economy by our standard, which is what we have in our portfolio. Our distribution declared by the board for January and February and March is $0.05 per month for those 3 months, January, February and March 2013. This is $0.60 a year. The board next meets in April to consider a vote on the dividend for April, May and June. And currently, at its current distribution rate with the stock at about $7.42, about 8.1% yield, so it’s a fabulous yield since its covered so nicely, and hopefully there’s some capital gains out there. And our monthly distribution is 7.125 for our term preferred stock; that’s a $1.78 annually. Currently, the price of the stock is about $25.29. So, please go to our website and sign up for our e-mail notification service. We don’t send out a lot of junk mail, just the news on your companies, so go to GlasdstoneInvestment.com, that’s the site, and you can follow us on Twitter using GladstoneComps.com and also on Facebook under the keyword The Gladstone Companies. In summary, we see the next 6 months as looking okay, probably going to do a lot better. The economy is not strong but we’re looking for a lot of good investments, and I think we’ll hit those. And oh, by the way, as you noticed we redesigned our press release to shorten it substantially. We were just duplicating a lot that was in the 10-K’s and 10-Q’s, and there is really no reason to do that. Anybody who’s going to invest is going to go over to the 10-Q or 10-K and read that pretty thoroughly before they invest. So with that, we’ll stop now and see if there are some questions from our analysts or some of our loyal shareholders.

[Operator Instructions] And our first question will come from Daniel Furtado of Jeffries.

The first is just a competitive environment, I think I’ve got a good read here, but I mean, would you classify this as relatively stable or stable since the last earnings period?

I think it’s pretty much stable. David Dullum might be able to answer that. You are in the field everyday and I have been out for about a month.

I think it is. I think we’re at, usual supply of good opportunities that we’re looking at, and if you broker through them, yes, I wouldn’t say there’s any significant increase in the supply of good options or decrease. It’s pretty stable.

Excellent. The other question I had is just thinking about the co-investment opportunity with the other Gladstone family of companies, how are you guiding people to think about that? If we think about 100 deals that come through the pipeline, what percentage of those deals would theoretically be attractive for a co-investment from GAIN? I know it’s relatively early still since the SEC has allowed you to do this, but how should we think about that moving forward?

I think there a number of ways to think about it. First of all, there are some deals that we do now that fit within investment very nicely and would partially in capital as well. We pretty much know that they are going to need more money in the future, so those become candidates for us to do in both companies so that we much more money to use in that. We had to sell a couple of our companies and investments in the past because we’d really run out of the ability to lend them more money and invest more money, and we ended up going out and selling them. We’ve got great capital gains out of them. So that’s sort of the first category of good solid investments, and you really think about what we’re trying to do. We’re trying to make sure that we do the second part of that which is, there are some larger transactions out there that we can’t handle today. So, now with both companies investing, we should be able to do larger transactions. So, rather than stopping at a certain size, we’ll now be able to stop at the size of the 2 companies combined rather than just one of the 2 companies. But I think you get this in to A, a new category of roll ups and increased investments in different companies that we’re in, and the second part of it gets us into larger businesses on Day 1 that both companies can handle in. And that’s the way we’re looking at it. Again, you have to remember that Gladstone Capital is more of a lender, Gladstone Investments more of a buyout company. And so we have to make sure that it fits both of those categories reasonably well. Nothing ever fits any of the categories perfectly, but its fits both of them reasonably well before we would put it into either one of the companies and certainly both.

Okay, somebody just nudged me and said that I said I was out for 30 days. I was not out sick or any of those kind of problems. I was doing a road show for Gladstone Land, which we closed last night. Next question?

The next question comes from Nigish Lan [ph] of Weidenberg [ph].

Just a couple of quick questions, I wanted to get a sense of how the uncertainty regarding tax rates at the end of last year either helped or hindered deal flow in the fourth calendar quarter. And also what the state is of your spillover on distributed taxable income.

This is Dave Dullum. I’ll take a stab at the first part and then let David Watson address the second. As you probably know, there are certainly people talking hard about “Gee, we have to get a deal done by the end of the year.” You know, we looked at a few of those deals and some of those that we’re still anxious to get it done did not get done for variety of reasons and those still are deals this year. So, you know, all else being equal I’d say, to be honest, I don’t think we felt like there was a significant impact on the potential of tax increase. And once people started realizing where things were headed, I think everyone just sort of settled in and just, you know, the deal makes sense or doesn’t make sense. So, that would be how I’m seeing it anyway.

David Watson, on the spillover dividend?

Yes, so the last couple of years we’ve had a spillover dividend and the balance going into fiscal year March 31, 2013 was approximately $700,000.

And has that changed dramatically during the current fiscal year?

During the current fiscal year our, from a net investment income standpoint, we have covered our distributions. Obviously, net investment income isn’t always identical to our taxed ordinary income, so those adjustments tend to occur at the end of the year. But my expectation is that we will have covered all of our distributions from both the tax, and from the net investment income standpoint, going into the fiscal year, but again we can’t project that at this point in time.

Fair enough and just last, I want to confirm what I think I heard, but I wasn’t quite clear, did you say that post third quarter originations were $1.1 million and repayments were $400,000?

That’s correct, yes. Approximately correct.

Okay, so that is year-to-date in the -- while actually the quarter-to-date in the fourth fiscal quarter?

That is correct.

The next question comes from Ross Demmerle of Hilliard Lyons.

As we look at the total interest income that was recorded for the current quarter, I’m trying to get a sense of if that’s a clean number, and what I mean by that is if you’ve got one company going on non-accrual and one coming off and I am wondering if there was a large amount may have been caught up and then or amount that was reversed out because that one company went on non-accrual.

Hey Ross, this is David Watson. The number is a clean number. It doesn’t reflect any interest income recorded from our 2 non-accruals, Tread [ph] and Ash [ph]. It does reflect interest income from the investment, CCE, that went on accrual. Obviously, it will adjust going into the following quarter based off of the timing of payoffs of certain investments throughout the third quarter or the timing of when new investments were made during the third quarter, but it is a clean number.

[Operator Instructions] And the next question will come from J.T. Rogers, Virginia Capital Markets.

I have my first question on Tread, just sort of what is going on there and what your next steps are to moving that to back to accrual status or maybe exiting the investment.

It is up in the air right now. We are in study and it is a little early to try to project which way those are going. We’ve got a lot of things to consider before we make a judgment on that. So let me just leave that one open, I am sorry to leave you hanging.

Sure, I understand it, it is relatively recent. Is there anything in particular that changed over the last quarter obviously, that it was marked down to 0 from fairly close to par in the prior quarter? Maybe not what you always plan is, but what happened with that investment?

Yes, the underlying discovery of what is going on there is still going on. We think there were some things that shouldn’t have gone on obviously, and we are investigating those in detail, but really not something we can put out into the public right now. We just want to make sure we get it all right first.

Okay. Very understandable. On the positive side for the dividend from Acme Cryogenics, were there any other dividends during the quarter that were maybe driven by tax considerations, and do you see the current levels of other income, barring success fees, as stable going forward or maybe dropping off in the future?

Yes, the only dividend during the third quarter was from Acme that you just referenced and our other income is difficult to project. If you kind of look back in history, we had $10.3 million in other income in 2011, we had $1.7 million in 2012 and I think year-to-date we have about $1.6 million in 2013. So, we do generate other income on a very regular basis, but it is also very lumpy and difficult to project.

That is understandable and then I have, just looking at B-Dry and Noble Logistics you guys said it would depreciate during the quarter, anything there -- was that performance related or multiple related?

It is really a combination of both, but somewhat performance related. B-Dry, as you know, is a business that somewhat a function of the weather. It’s been a little, unfortunately, drier than we would like it to be, but it is basically nothing dramatic with either one of those and we’re looking -- we continue to work hard on those businesses. So nothing really to report that would surprise anybody.

All right, great, well I guess this is the last question this time. This Frontier Packaging, just generally was more interested in sort of what you guys saw on that -- in that company and so what the investment thesis is there.

Sure, it is a really interesting business. It is based in Seattle and they mainly, as I mentioned earlier, provide what I consider provisioning and logistics expertise to fisheries mainly in Alaska and they are moving into other parts of the world. They’ve been around for quite a while, 20 odd years, been doing it very successfully, a very strong management team. We actually bought the business with the management team and they’ve become significant shareholders themselves, and so what we looked at there is that when you have a fishery that is in a very odd spot, saying Alaska, very hard to get to, what these guys are able to do is, working with the packaging companies, help, develop, create, to some extent the packaging -- not that unique necessarily, but there is some specialty to it, getting it all together, getting it properly delivered at the right time because there is time sensitivity when you have a fishery that, you know, the fishing, they have their product and you need to get it to market. So, it is really - think of it as a logistics and provisioning type business where the expertise of knowing how to do that very effectively and actually with a pretty nice margin and very good management team, which is always the key, right?

And the next question comes from David West of Davenport & Company.

One follow up on Tread, have you made any management changes at Tread?

Yes, we have.

Okay, alright. And just turning to half year note, a little more color if you could. CCE is one you had on non-accrual for a good while and great to see it go back on accrual status. Could you maybe just provide a little color as to what has been going on there?

Yes, I’d say -- This is Dave Dullum -- the period of time when we saw the downturn, of course, was in that ’09 timeframe where there was significant pressure on golf courses in general in the industry, and as a result of that they, like everybody else, had to deal with that. We did the right things with the company. We did not change management, did not have to. We have a very strong team, we have a very strong board of directors with some real knowledge and experience in the industry, and we have just did all the right things, buckled down. We did do the non-accrual because it’s the right thing to do for the company, and now we are again back to the right trend and business is doing well. They are continuing to grow market share again, and of course, we are seeing the golf industry starting to pick back up. So, it’s really a combination of all of those things and working with the management team just to do the right things. So, we are happy about that one.

Did the accrual, putting it back on accrual status, was that for all 3 months of the quarter, or did it happen mid-quarter?

No, all 3 months.

All 3 months, okay, great. Then lastly, David, if you could maybe talk a little bit about Chip’s recent announcement and maybe talk a little bit about his new role for the Gladstone family of companies?

Sure. Chip was not as involved obviously in this company as he was in Gladstone Capital. He was on the investment committee and did a lot of other things, but Chip is looking at doing another transaction in the Gladstone family and we will see if that gets off the ground. But, in order to do that he needed to move out of that space he was in and into a new space, and he’s very happy to do that, it’s what he wanted to do. So, no real conflicts or problems, it’s just that fellows reach a certain age and they want to do something different than they have done before and that was Chip’s preference and we have come up with a -- I think a great concept for him, which we are not ready to announce yet, but you will hear about it, we will obviously make an announcement when the time is right.

There are no further questions at this time. So that concludes our question-and-answer session. I would like to turn the conference back over to Mr. Gladstone for any closing remarks.

All right. Thank you all again for coming to the meeting and talking to us and giving us good feedback in terms of some of the questions you have asked and we will conclude this meeting now. Thanks again.

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.