Gladstone Investment Corp (GAIN) 2012 Q3 法說會逐字稿

Good morning, and welcome to the Gladstone Investment Corporation's third quarter ended December 31, 2012, conference call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. (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 of GAIN; and of course, the preferred stock trading symbol, GAIN with a P, for preferred. We thank all of you for calling in; always happy to talk to shareholders about the Company. I often wish there were more opportunities, but this is the once-a-quarter opportunity for us to talk to you, and you to ask questions.

I hope all of you will take this opportunity to visit our website. It's www.gladstoneinvestment.com. You can sign up for email notices so you can receive information about us on a timely basis. And please remember that if you are ever in the Washington, DC area, you have an open invitation to come by and visit us here in McLean, Virginia. We are just outside of Washington DC. And please stop by; say hello to the folks here. You'll 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 are based on our current plans (technical difficulty) reasonable. Many of these forward-looking statements can be identified by the use of words such as anticipate, 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 and implied by the forward-looking statements; including those risk factors listed under the caption, quote, risk factors, end quote, in our 10-Ks and our 10-Qs filings and in a registration statement that are filed with the Securities and 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's up. He was a Board member a while, and he will 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. This 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 will notice some of them are predominately debt-focused. So it's important to keep in mind that the equity portion of our assets are important to us and to our overall strategy.

So at 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 have 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, which 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 have 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've owned 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 teams, private equity firms, and other sponsors of these buyouts. Our combination of debt and equity we believe gives us a competitive advantage in certain circumstances. As a result of this, the sources that we normally concentrate on are three main areas -- one, there are 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's a good opportunity for us because our ability to provide what we call a certainty to close with the financing of that 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 would be in support of a business owner who's not necessarily seeking to sell the company outright, but does wish to sell a portion of that company while financing the continued growth. In this case, we would invest in the debt and equity in exchange for significant ownership in that business.

We 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 co-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 marketplace. The company's competitive position really [envalues] through expertise in the provisioning of certain products, consolidation, and logistics.

In the quarter, we also invested $2.7 million in four of our existing portfolio of 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 an existing portfolio of 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 to 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 for our portfolio of companies.

As highlighted in the last earnings call, we continue to see very good results from two of our portfolio companies, Galaxy Tools and CCE, where we previously converted debt to equity and have placed CCE on a nonaccrual status. These companies were able to increase in value over the last two 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 investment operationally sound; preserve shareholder capital, versus perhaps walking away from a company when the investment gets a bit difficult. Now we still have work to do with the portfolio, in where a few of our companies still are nonaccrual; 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 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 a leveraged buyout transaction.

So, as a result, we do continue to find opportunities where the valuations, which are relative to what we call a trailing EBITDA, are in the multiples of 5.0 to 6.5 times for good companies. And this is where our target valuation tends to be. Certainly we see higher valuations in the marketplace, but we tend to avoid those, as we are generally not able to really see how we'd 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 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, through these proprietary investments, in this lower middle market company buyout arena.

And so with that, David, this concludes my part of the presentation -- turn it back over to you.

All right, David Dullum, that was a good report. We are 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.

Good morning, everyone. I'll start with our recent capital activity. As I'm 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 offering 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 compliant 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 three years in duration again, with a schedule maturity date in October of 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, 2013. All other terms of our credit facility 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 US Treasury securities, purchased through the use of borrowed funds at quarter-end to satisfy our asset diversification requirements.

We had $117 million in liabilities, consisting of $40 million in term-preferred stock; $25 million in borrowings outstanding on our three-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 were less than one-to-one leverage on our senior secured borrowings.

One of the advantages of the common offering was that it helped reduce our leverage. However, 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; $9.5 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 is primarily due to an increase in other income from cash dividends that we had 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 reversal of certain expenses in the current period, related to reimbursable deal expenses.

I think it is important to take a moment to touch on the significant, steady growth that we have had in our portfolio and income over the past two years. The year-over-year growth rate, or CAGR, over the past two years is the size of our weighted average interest-bearing assets has been 26%. The CAGR over the past two 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% two years ago. We believe this positive growth in our debt methods alone has positioned this 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 requirement to mark our investments to fair value on our balance sheet, with the change in fair value from one period to the next being recognized in our income statement. Unrealized appreciation and depreciation is a non-cash event.

Regarding our realized activity during the three 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 realize 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 although we had certain investments, most specifically, Galaxy Tool holdings, which increased $4.6 million; and Mathey Investments, Inc., which increased by $2.8 million, the sizable appreciation due to increased performance. But these were primarily offset by significant depreciation in Tread Corp., which decreased by $9.8 million and was placed on nonaccruals during the December quarter.

At the September 2012 quarter-end, we had net unrealized appreciation of $3.9 million over our entire portfolio, which was primarily due to the increased 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 three quarters. For the December quarter, our entire portfolio was fair valued at 84.5% of cost, which is slightly up from 84.1% of cost as of September 30, 2012; but slightly down from 84.7% of cost as of December 31, 2012 -- I'm sorry, March 31, 2012.

Now let's turn to net increase-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. The 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 two -- ASH, which continues to remain on nonaccrual; and Tread, which was placed on nonaccrual during the December quarter. As mentioned in last quarter's call, CCE, which was on nonaccrual status, is paying current and was placed on accrual status in the December quarter.

Regarding interest rate risk, approximately 80% of our loans have variable rates. But they all have a minimum, or floor, in their rate charged. So at the low interest rates that we have 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 to 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 you -- each of all our listeners will read the press release, and also obtain a copy of our quarterly report on Form 10-Q which has been filed with the SEC and can be accessed at our website and 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 we continue to go forward with new portfolio companies. And I think the rest of the fiscal year, which ends on March 31, would 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've been active in the capital markets and 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 (technical difficulty) October 2015 with BB&T and KeyBanc and room to borrow under that line.

So we are in good shape, right now, to go forward. And we did something this time that I don't like to do. It's the first time I'd ever done it before. And that is because we were running out of money we invested in (technical difficulty) and the ratio of debt to equity was just too high. So we sold some stock below in net asset value. And by taking some dilution of all shareholders, and letting new shareholders in at a lower price, we've 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 the dividend at some time in the future.

In October, we made limited revisions to our strategies and investment objectives. And that went into effect on January 1. There's 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 were a few minor changes in there. And we wanted the (technical difficulty) strategies to be consistent between the two funds, allowing for additional situations in which Gladstone Capital and Gladstone Investments can co-invest.

Also, all of our existing portfolio of investments fall within the scope of the revised investment strategies and objectives that we put into place that became effective on 1 January.

Folks, I think this is a fabulous fund with a great opportunity. And I think there's some good upside coming in the future. We just still have concerns about what is going on in the marketplace. Our economy doesn't seem to be growing. And I attribute that's because small businesses are not growing. The number of small businesses starting in the United States -- it's at lowest in 20 years. 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 a blockade somewhere, and oil prices would go sky-high. We also have supply too dependent on countries that don't wish us well. And higher gas prices for cars and trucks just hurts every business in the US. So we need to develop more oil and gas here, obviously. And 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 much lower buying power there.

It's just a bad idea to think that we can borrow and spend our way to prosperity. It has been disproven hundreds of times in other countries, and I don't know why we think we can. 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 is 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've 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 is 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.

The 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 the related disaster in the home mortgage default area, it just continues to drag down our economy. There's 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 a recovery to happen in housing.

We see the economic problems in the Eurozone, and that may hurt some companies. Thank goodness most of the investments we have in smaller and mid-sized businesses don't have a lot of sales in Europe. And as a result, I don't think will be as hurt by the downturn that is going on and continues to go on there.

Unemployment is far too high. The numbers used by the government in 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. A more realistic number is 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 of 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 standards, 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 three months -- January, February, and March 2013. This is $0.60 a year. The Board next meets in April to consider to vote on the dividend for April, May, and June. (Technical difficulty)currently at its prior distribution rate with the stock at about $7.42, about 8.1% yield. So it's a fabulous yield, since it is 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 is $1.78 annually. Currently, the price of the stock is about $25.29.

So please go to our website and sign up for our email notification service. We don't send out a lot of junk mail, just the news on your Company. So go to gladstoneinvestment.com, that is 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 six months looking okay; probably going to do a lot better. The economy is not strong, but we are looking for a lot of good investments. I think we will get those.

And 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-Ks and 10-Qs, and there's really no reason to do that. Anybody who is 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 will stop now, and see if there's some questions from our analysts or some of our loyal shareholders.

(Operator Instructions). Daniel Furtado, Jefferies.

David, thank you for the opportunity to ask a couple of questions. The first is just the competitive environment. I think it I've got a good read here, but would you classify this as relatively stable, or stable since the last earnings period?

I think it's pretty much stable. Dave Dullum, why don't you answer that? You're in the field every day. I've been out for about a month.

No, I think it is. I think the usual supply of good opportunities that we're looking at and we keep working through them. I wouldn't say there's any significant increase -- to buy good opportunities order a decrease -- pretty stable.

Excellent, thank you, David. 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 are 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 have much more money to use in that. We had to sell a couple of our companies in investment in the past because we had 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 got great capital gains out of them. So that is sort of the first category of good, solid investments.

And if you really think about what we're trying to do -- we are 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 will now be able to stop at the size of the two companies combined, rather than just one of the two companies.

So I think it gets us into, A, a new category of roll-ups and increased investments in different companies that we are in. And the second part of it gets us into larger businesses on day one that both companies can handle. And that's the way we're looking at it. Again, you have to remember that Gladstone Capital is more of a lender; Gladstone Investment is 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 it fits both of them reasonably well, before we would put it into either one of the companies and certainly both.

Excellent. Thank you for the insight.

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.

[Magueesh Lan], Ladenburg.

Thank you for your time today. 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 the deal flow in the fourth calendar quarter. And also what the state is of your spillover -- undistributed 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, geez, we have to get a deal done by the end of the year. We looked at a few of those deals. And some of those that were so anxious to get it done, did not get done for a variety of reasons, and those still are deals this year.

So 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 that once people started realizing where things were headed, I think everyone settled in and -- a good deal makes sense or it 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 have 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 tax ordinary income. So those adjustments tend to occur at the end of the year. But my expectation is that we will have covered all our distributions from both a tax and from a net investment income standpoint going into this fiscal year. But, again, we can't project that at this point in time.

Fair enough. And, just lastly, 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?

Yes, approximately, correct.

Okay, so that is year-to-date -- well, actually, it is a quarter-to-date in the fourth fiscal quarter.

That is correct.

Okay, thank you for your time.

Ross Demmerle, Hilliard Lyons.

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

Ross, this is David Watson. The number is a clean number. It doesn't reflect any interest income recorded from our two non-accruals, Tread and ASH. 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 when new investments were made during the third quarter. But it is a clean number.

Okay, thanks.

Next question.

(Operator Instructions). J.T. Rogers, Janney Capital Markets.

I had a first question on Tread, just what's going on there, and what your-all's next steps are to moving that back to accrual status, or maybe exiting the investment.

It's up in the air right now. We are in study, and it's 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'm sorry to leave you hanging.

Sure. I understand. It's 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 your-all's 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. Looking on the positive side, the dividend from Acme Cryogenics, were there any other dividends during the quarter that were maybe driven by tax considerations in DC -- that the current level of other income, barring success fees, is as stable going forward or may be dropping off in the future?

Yes, so the only dividend during the third quarter was from Acme, that you just referenced. And our other income is difficult to project. If you look back in history, we had $10.3 million in other income in 2011. We had $1.7 million in 2012. And I guess 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 just looking at B-Dry and Noble Logistics -- two guys that 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 is somewhat a function of the weather. It's been a little, unfortunately, drier than we'd like it to be. But it's basically nothing dramatic with either one of those. And we're working -- continue to work hard on those businesses. So nothing really to report that would surprise anybody.

All right. Great. I guess this last question is [intunt], is Frontier Packaging just generally was more interested in what you guys saw in that company, and 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'd consider provisioning and logistics expertise to fisheries, mainly in Alaska. And they are moving into other parts of the world. They 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 have become significant shareholders themselves.

And so what we look at there is that, when you have a fishery that's in a very hot spot, say in 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; get it all together; get it properly delivered at the right time, which is -- because there is time sensitivity when you have a fishery that -- they are fishing. They have to have their products. They need to get it to market. So it's really -- think of it as a logistics and a provisioning type business with the expertise of knowing how to do that very effectively, and actually with a pretty nice margin; and a very good management team, which is always the key, right?

Great. That's great. Thanks a lot for taking my questions.

David West, Davenport & Company.

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

Yes, we have.

Okay, all right. And turning to a happier note, a little more color, if you could. CCE is one you had on nonaccrual 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's been going on there?

Yes, I'd say -- again, it is Dave Dullum. The period of time when we saw the downturn, of course, was in that 2009 time frame where there was significant pressure on gold 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 for 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 just did all the right things -- buckled down -- we did do the nonaccruals because it was the right thing to do for the Company. And now we are again back to the right trend, and the business is doing well. They are continuing to grow market share again. And of course, we are seeing the golf industry starting to pick 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're happy about that one.

Did the accrual, the putting it back on accrual status, did that -- was that for all three months of the quarter? Or did that happened mid-quarter?

No, all three months.

All three months.

All three months. Okay, great. And 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 and 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 was very happy to do that. It was 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've done before. And that was Chip's preference. And we've come up with, I think, a great concept for him, which we're not ready to announce yet. But you will hear about it. We'll obviously make an announcement when the time is right.

Thanks so much.

Okay. Other questions?

There are no further questions at this time. So to conclude our question-and-answer session, I'd 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've 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.