UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act File Number 811-179
Name of registrant as specified in charter: Central Securities Corporation
Address of principal executive offices:
630 Fifth Avenue
Suite 820
New York, New York 10111
Name and address of agent for service:
Central Securities Corporation, Wilmot H. Kidd, President
630 Fifth Avenue
Suite 820
New York, New York 10111
Registrants telephone number, including area code: 212-698-2020
Date of fiscal year end: December 31, 2011
Date of reporting period: June 30, 2011
Item 1. Reports to Stockholders.
CENTRAL SECURITIES CORPORATION
SEMI-ANNUAL REPORT
JUNE 30, 2011
CENTRAL SECURITIES CORPORATION
(Organized on October 1, 1929 as an investment company, registered as such with the Securities
and Exchange Commission under the provisions of the Investment Company Act of 1940.)
TWENTY YEAR HISTORICAL DATA | |||||||||||||||||||||
Per Share of Common Stock
|
|||||||||||||||||||||
Year
|
Total net assets |
Net asset value |
Net investment income |
Dividends*
|
Distributions*
|
Net realized investment gain |
Unrealized appreciation of investments at end of period |
||||||||||||||
1990 | $ | 111,152,013 | $ | 10.00 | $ | 25,940,819 | |||||||||||||||
1991 | 131,639,511 | 11.87 | $ | .14 | $ | .14 | $ | .56 | ** | $ | 7,321,233 | 43,465,583 | |||||||||
1992 | 165,599,864 | 14.33 | .12 | .20 | .66 | 8,304,369 | 70,586,429 | ||||||||||||||
1993 | 218,868,360 | 17.90 | .14 | .18 | 1.42 | 16,407,909 | 111,304,454 | ||||||||||||||
1994 | 226,639,144 | 17.60 | .23 | .22 | 1.39 | 16,339,601 | 109,278,788 | ||||||||||||||
1995 | 292,547,559 | 21.74 | .31 | .33 | 1.60 | 20,112,563 | 162,016,798 | ||||||||||||||
1996 | 356,685,785 | 25.64 | .27 | .28 | 1.37 | 18,154,136 | 214,721,981 | ||||||||||||||
1997 | 434,423,053 | 29.97 | .24 | .34 | 2.08 | 30,133,125 | 273,760,444 | ||||||||||||||
1998 | 476,463,575 | 31.43 | .29 | .29 | 1.65 | 22,908,091 | 301,750,135 | ||||||||||||||
1999 | 590,655,679 | 35.05 | .26 | .26 | 2.34 | 43,205,449 | 394,282,360 | ||||||||||||||
2000 | 596,289,086 | 32.94 | .32 | .32 | 4.03 | 65,921,671 | 363,263,634 | ||||||||||||||
2001 | 539,839,060 | 28.54 | .18 | .22 | 1.58 | ** | 13,662,612 | 304,887,640 | |||||||||||||
2002 | 361,942,568 | 18.72 | .14 | .14 | 1.11 | 22,869,274 | 119,501,484 | ||||||||||||||
2003 | 478,959,218 | 24.32 | .09 | .11 | 1.29 | 24,761,313 | 229,388,141 | ||||||||||||||
2004 | 529,468,675 | 26.44 | .11 | .11 | 1.21 | 25,103,157 | 271,710,179 | ||||||||||||||
2005 | 573,979,905 | 27.65 | .28 | .28 | 1.72 | 31,669,417 | 302,381,671 | ||||||||||||||
2006 | 617,167,026 | 30.05 | .36 | .58 | 1.64 | 36,468,013 | 351,924,627 | ||||||||||||||
2007 | 644,822,724 | 30.15 | .38 | .52 | 1.88 | 42,124,417 | 356,551,394 | ||||||||||||||
2008 | 397,353,061 | 17.79 | .39 | .36 | 2.10 | 43,582,234 | 94,752,477 | ||||||||||||||
2009 | 504,029,743 | 22.32 | .29 | .33 | .32 | 7,663,021 | 197,256,447 | ||||||||||||||
2010 | 593,524,167 | 26.06 | .45 | .46 | .44 | 11,269,517 | 281,081,168 | ||||||||||||||
Six mos. to | |||||||||||||||||||||
June 30, 2011*** | 641,132,925 | 28.15 | .23 | .11 | .09 | 10,153,759 | 317,894,035 |
* |
Computed on the basis of the Corporations status as a regulated investment company for Federal income tax purposes. Dividends are from ordinary income which includes net short-term investment gains. Distributions are from net long-term investment gains. |
** |
Includes a non-taxable return of capital of $.11 in 1991 and $.55 in 2001. |
*** |
Unaudited. |
The Common Stock is listed on the NYSE Amex under the symbol CET. On June 30, 2011, the market quotations were: $23.78 low, $23.99 high and $23.88 last sale.
[ 2 ]
To the Stockholders of
CENTRAL SECURITIES CORPORATION:
Financial statements for the six months ended June 30, 2011 reviewed by our independent registered public accounting firm and other pertinent information are submitted herewith.
Comparative net assets are as follows:
June 30, 2011 (Unaudited) |
December 31, 2010 |
|||||
Net assets | $ | 641,132,925 | $ | 593,524,167 | ||
Net assets per share of Common Stock | 28.15 | 26.06 | ||||
Shares of Common Stock outstanding | 22,779,391 | 22,779,391 | ||||
Comparative operating results are as follows: | ||||||
|
||||||
|
||||||
2011 (Unaudited) |
2010 (Unaudited) |
|||||
Net investment income | $ | 5,198,010 | $ | 5,527,889 | ||
Per share of Common Stock | .23 | * | .25 | * | ||
Net realized gain on sale of investments | 10,153,759 | 3,596,589 | ||||
Increase (decrease) in net unrealized appreciation of investments | 36,812,867 | (7,209,633 | ) | |||
Increase in net assets resulting from operations | 52,164,636 | 1,914,845 |
* |
Based on the average number of Common shares outstanding during the period. |
A distribution of $.20 per share of Common Stock was paid on June 28, 2011 to stockholders of record as of June 10, 2011. Stockholders will be sent a notice concerning the taxability of all 2011 distributions early in 2012.
During the first six months of 2011, the Corporation did not repurchase any shares of its Common Stock. The Corporation may from time to time purchase its Common Stock in such amounts and at such prices as the Board of Directors deem advisable in the best interests of stockholders. Purchases may be made on the NYSE Amex or in private transactions directly with stockholders.
Stockholders inquiries are welcome.
CENTRAL SECURITIES CORPORATION
WILMOT H. KIDD, President
630 Fifth Avenue
New York, NY 10111
July 27, 2011
[ 3 ]
TEN LARGEST INVESTMENTS
June 30, 2011
(Unaudited)
Cost
|
Value
|
Percent of Net Assets |
Year First Acquired |
|||||
|
||||||||
The Plymouth Rock Company, Inc. | $ | 2.2 | $ | 174.8 | 27.3 | % | 1982 | |
Coherent, Inc. | 22.0 | 44.3 | 6.9 | 2007 | ||||
Agilent Technologies, Inc. | 16.0 | 36.8 | 5.7 | 2005 | ||||
Intel Corporation | 16.3 | 33.2 | 5.2 | 1986 | ||||
Analog Devices, Inc. | 9.1 | 26.2 | 4.1 | 1987 | ||||
CEVA, Inc. | 9.3 | 26.1 | 4.1 | 2009 | ||||
Brady Corporation | 2.0 | 23.7 | 3.7 | 1984 | ||||
Convergys Corporation | 24.8 | 23.2 | 3.6 | 1998 | ||||
Murphy Oil Corporation | 1.0 | 18.4 | 2.9 | 1974 | ||||
The Bank of New York Mellon Corporation | 12.2 | 17.3 | 2.7 | 1993 |
DIVERSIFICATION OF INVESTMENTS
June 30, 2011
(Unaudited)
Percent of Net Assets
|
|||||||||||
Issues
|
Cost
|
Value
|
June 30, 2011 |
December 31, 2010 |
|||||||
Common Stocks: | |||||||||||
Insurance | 1 | $ | 2,192,986 | $ | 174,750,000 | 27.3 | % | 28.3 | % | ||
Technology Hardware and | |||||||||||
Equipment | 7 | 84,083,790 | 115,016,470 | 17.9 | 17.4 | ||||||
Semiconductor | 4 | 41,738,248 | 92,807,618 | 14.5 | 11.4 | ||||||
Diversified Industrial | 5 | 28,855,027 | 70,278,300 | 11.0 | 11.7 | ||||||
Energy | 6 | 56,017,267 | 69,527,015 | 10.8 | 12.8 | ||||||
Software and Services | 2 | 40,823,191 | 35,575,900 | 5.6 | 5.7 | ||||||
Banking and Finance | 3 | 17,297,355 | 24,098,020 | 3.8 | 5.0 | ||||||
Other | 10 | 51,045,052 | 57,405,371 | 8.9 | 7.8 | ||||||
Preferred Stocks: | |||||||||||
Energy | 1 | 2,027,220 | 2,515,478 | 0.4 | 0.4 | ||||||
Short-Term Investments | 1 | 222,736 | 222,736 | 0.0 | 0.0 |
[ 4 ]
PRINCIPAL PORTFOLIO CHANGES
April 1 to June 30, 2011
(Unaudited)
(Common Stock unless specified otherwise)
Number of Shares
|
||||
Purchased
|
Sold
|
Held June 30, 2011 |
||
Agilent Technologies, Inc. | 60,000 | 720,000 | ||
Analog Devices, Inc. | 14,900 | 670,000 | ||
Brady Corporation | 10,000 | 740,000 | ||
Carlisle Companies Inc. | 70,000 | 230,000 | ||
CEVA, Inc. | 38,500 | 858,300 | ||
GeoMet, Inc. Series A Convertible | ||||
Redeemable Preferred Stock | 6,775 | (a) | 223,598 | |
Home Federal Bancorp, Inc. | 171,600 | | ||
Intel Corporation | 50,000 | 1,500,000 | ||
McMoRan Exploration Co. | 10,000 | 650,000 | ||
Mindspeed Technologies, Inc. | 425,000 | 900,000 | ||
Motorola Solutions, Inc. | 20,000 | 220,000 | ||
NewStar Financial, Inc. | 25,106 | 253,794 | ||
The Plymouth Rock Company, Inc. | 100 | 69,900 | ||
QEP Resources, Inc. | 8,200 | 260,500 | ||
Vical Inc. | 10,000 | 260,000 | ||
Vodafone Group Plc. | 220,000 | 500,000 | ||
Walgreen Co. | 10,000 | 220,000 |
(a) |
Received as a dividend. |
[ 5 ]
STATEMENT OF INVESTMENTS
June 30, 2011
(Unaudited)
COMMON STOCKS 99.8%
Shares
|
Value
|
|||
Banking and Finance 3.8% | ||||
675,000 | The Bank of New York Mellon Corporation | $ | 17,293,500 | |
100,000 | JPMorgan Chase & Co. | 4,094,000 | ||
253,794 | NewStar Financial, Inc. (a) | 2,710,520 | ||
|
||||
24,098,020 | ||||
|
||||
Commercial Services 1.2% | ||||
413,712 | Heritage-Crystal Clean, Inc. (a) | 7,934,996 | ||
|
||||
Diversified Industrial 11.0% | ||||
740,000 | Brady Corporation Class A | 23,724,400 | ||
230,000 | Carlisle Companies Inc. | 11,322,900 | ||
200,000 | General Electric Company | 3,772,000 | ||
100,000 | Precision Castparts Corporation | 16,465,000 | ||
180,000 | Roper Industries, Inc. | 14,994,000 | ||
|
||||
70,278,300 | ||||
|
||||
Energy 10.8% | ||||
350,000 | Canadian Oil Sands Ltd. | 10,111,500 | ||
200,000 | Devon Energy Corporation | 15,762,000 | ||
2,000,000 | GeoMet, Inc. (a)(b) | 2,360,000 | ||
650,000 | McMoRan Exploration Co. (a) | 12,012,000 | ||
280,000 | Murphy Oil Corporation | 18,384,800 | ||
260,500 | QEP Resources, Inc. | 10,896,715 | ||
|
||||
69,527,015 | ||||
|
||||
Health Care 2.8% | ||||
120,000 | Abbott Laboratories | 6,314,400 | ||
100,000 | Johnson & Johnson | 6,652,000 | ||
100,000 | Medtronic, Inc. | 3,853,000 | ||
260,000 | Vical Inc. (a) | 1,071,200 | ||
|
||||
17,890,600 | ||||
|
||||
Insurance 27.3% | ||||
69,900 | The Plymouth Rock Company, Inc. | |||
Class A (b)(c) | 174,750,000 | |||
|
||||
174,750,000 | ||||
|
||||
Retailing 1.5% | ||||
20,000 | Aerogroup International, Inc. (a)(c) | 415,200 | ||
220,000 | Walgreen Co. | 9,341,200 | ||
|
||||
9,756,400 | ||||
|
[ 6 ]
Shares
|
Value
|
||||
Semiconductor 14.5% | |||||
670,000 | Analog Devices, Inc. | $ | 26,223,800 | ||
858,300 | CEVA, Inc. (a) | 26,143,818 | |||
1,500,000 | Intel Corporation | 33,240,000 | |||
900,000 | Mindspeed Technologies, Inc. (a) | 7,200,000 | |||
|
|||||
92,807,618 | |||||
|
|||||
Software and Services 5.6% | |||||
1,700,000 | Convergys Corporation (a) | 23,188,000 | |||
1,190,000 | Xerox Corporation | 12,387,900 | |||
|
|||||
35,575,900 | |||||
|
|||||
Technology Hardware and Equipment 17.9% | |||||
720,000 | Agilent Technologies, Inc. (a)(f) | 36,799,200 | |||
801,000 | Coherent, Inc. (a)(f) | 44,271,270 | |||
630,000 | Flextronics International Ltd. (a) | 4,044,600 | |||
62,500 | Motorola Mobility Holdings, Inc. (a) | 1,377,500 | |||
220,000 | Motorola Solutions, Inc. (a) | 10,128,800 | |||
1,190,000 | RadiSys Corporation (a) | 8,675,100 | |||
3,000,000 | Sonus Networks, Inc. (a) | 9,720,000 | |||
|
|||||
115,016,470 | |||||
|
|||||
Telecommunication Services 3.4% | |||||
200,000 | AT&T Inc. | 6,282,000 | |||
145,425 | Primus Telecommunications Group, Inc. (a) | 2,181,375 | |||
500,000 | Vodafone Group Plc. ADR | 13,360,000 | |||
|
|||||
21,823,375 | |||||
|
|||||
Total Common Stocks | |||||
(cost $322,052,917) | 639,458,694 | ||||
PREFERRED STOCKS 0.4% | |||||
Energy 0.4% | |||||
223,598 | GeoMet, Inc. Series A Convertible Redeemable | ||||
Preferred Stock (b)(d)(cost $2,027,220) | 2,515,478 | ||||
SHORT-TERM INVESTMENTS 0.0% | |||||
Money Market Fund 0.0% | |||||
222,736 | Fidelity Institutional Money Market | ||||
Government Portfolio (cost $222,736) | 222,736 | ||||
|
|||||
Total Investments (cost $324,302,873)(e) | |||||
(100.2%) | 642,196,908 | ||||
Cash, receivables and other assets | |||||
less liabilities (.2%) | (1,063,983 | ) | |||
|
|||||
Net Assets (100%) | $ | 641,132,925 | |||
|
(a) |
Non-dividend paying. |
(b) |
Affiliate as defined in the Investment Company Act of 1940. |
(c) |
Valued based on Level 3 inputs see Note 2. |
(d) |
Valued based on Level 2 inputs see Note 2. |
(e) |
Aggregate cost for Federal tax purposes is substantially the same. |
(f) |
A portion of this security is pledged to cover outstanding borrowings at June 30, 2011. |
See accompanying notes to financial statements.
[ 7 ]
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2011
(Unaudited)
ASSETS: | |||||
Investments: | |||||
General portfolio securities at market value | |||||
(cost $306,200,999) | $ | 462,348,694 | |||
Securities of affiliated companies (cost $17,879,138) | |||||
(Notes 5 and 6) | 179,625,478 | ||||
Short-term investments (cost $222,736) | 222,736 | $ | 642,196,908 | ||
|
|||||
Cash, receivables and other assets: | |||||
Cash | 76,714 | ||||
Receivable for securities sold | 184,597 | ||||
Dividends receivable | 573,558 | ||||
Office equipment and leasehold improvements, net | 145,200 | ||||
Other assets | 128,776 | 1,108,845 | |||
|
|
||||
Total Assets | 643,305,753 | ||||
LIABILITIES: | |||||
Bank borrowings | 2,000,000 | ||||
Accrued expenses and reserves | 172,828 | ||||
|
|||||
Total Liabilities | 2,172,828 | ||||
|
|||||
NET ASSETS | $ | 641,132,925 | |||
|
|||||
NET ASSETS are represented by: | |||||
Common Stock $1 par value: authorized | |||||
30,000,000 shares; issued 22,779,391 (Note 3) | $ | 22,779,391 | |||
Surplus: | |||||
Paid-in | $ | 287,582,722 | |||
Undistributed net gain on sales of investments | 10,004,814 | ||||
Undistributed net investment income | 2,871,963 | 300,459,499 | |||
|
|||||
Net unrealized appreciation of investments | 317,894,035 | ||||
|
|||||
NET ASSETS | $ | 641,132,925 | |||
|
|||||
NET ASSET VALUE PER COMMON SHARE | |||||
(22,779,391 shares outstanding) | $ | 28.15 | |||
|
See accompanying notes to financial statements.
[ 8 ]
STATEMENT OF OPERATIONS
For the six months ended June 30, 2011
(Unaudited)
INVESTMENT INCOME | |||||
Income: | |||||
Dividends from affiliated companies (Note 5) | $ | 3,899,000 | |||
Dividends from unaffiliated companies (net of | |||||
foreign withholding taxes of $31,015) | 3,004,487 | $ | 6,903,487 | ||
|
|||||
Expenses: | |||||
Administration and operations | 553,202 | ||||
Investment research | 514,876 | ||||
Occupancy and office operating expenses | 248,559 | ||||
Directors fees | 75,500 | ||||
Legal, auditing and tax preparation fees | 65,169 | ||||
Franchise and miscellaneous taxes | 47,759 | ||||
Software and information services | 44,373 | ||||
Stockholder communications and meetings | 44,005 | ||||
Transfer agent, registrar and custodian fees and expenses | 36,003 | ||||
Interest on bank borrowings | 22,324 | ||||
Travel and related expenses | 16,005 | ||||
Miscellaneous | 37,702 | 1,705,477 | |||
|
|
||||
Net investment income | 5,198,010 | ||||
|
|||||
NET REALIZED AND UNREALIZED GAIN (LOSS) | |||||
ON INVESTMENTS | |||||
Net realized gain from: | |||||
Unaffiliated companies | 9,817,010 | ||||
Affiliated companies | 291,000 | ||||
Written options | 45,749 | 10,153,759 | |||
|
|||||
Net increase in unrealized appreciation of investments | 36,812,867 | ||||
|
|||||
Net gain on investments | 46,966,626 | ||||
|
|||||
NET INCREASE IN NET ASSETS RESULTING FROM | |||||
OPERATIONS | $ | 52,164,636 | |||
|
See accompanying notes to financial statements.
[ 9 ]
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 2011
and the year ended December 31, 2010
Six months ended June 30, 2011 (Unaudited) |
Year ended December 31, 2010 |
|||||
FROM OPERATIONS: | ||||||
Net investment income | $ | 5,198,010 | $ | 10,211,569 | ||
Net realized gain from investment transactions | 10,153,759 | 11,269,517 | ||||
Net increase in unrealized appreciation of investments | 36,812,867 | 83,824,721 | ||||
|
|
|||||
Increase in net assets resulting from operations | 52,164,636 | 105,305,807 | ||||
|
|
|||||
DISTRIBUTIONS TO STOCKHOLDERS FROM: | ||||||
Net investment income | (2,505,733 | ) | (10,098,352 | ) | ||
Net realized gain from investment transactions | (2,050,145 | ) | (10,125,556 | ) | ||
|
|
|||||
Decrease in net assets from distributions | (4,555,878 | ) | (20,223,908 | ) | ||
|
|
|||||
FROM CAPITAL SHARE TRANSACTIONS: (Note 3) | ||||||
Distribution to stockholders reinvested in Common Stock | | 6,668,364 | ||||
Cost of Treasury shares purchased | | (2,255,839 | ) | |||
|
|
|||||
Increase in net assets from capital share transactions | | 4,412,525 | ||||
|
|
|||||
Total increase in net assets | 47,608,758 | 89,494,424 | ||||
NET ASSETS: | ||||||
Beginning of period | 593,524,167 | 504,029,743 | ||||
|
|
|||||
End of period (including undistributed net investment income | ||||||
of $2,871,963 and $179,686, respectively) | $ | 641,132,925 | $ | 593,524,167 | ||
|
|
See accompanying notes to financial statements.
[ 10 ]
STATEMENT OF CASH FLOWS
For the six months ended June 30, 2011
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net increase in net assets from operations | $ | 52,164,636 | ||||
Adjustments to net increase in net assets | ||||||
from operations: | ||||||
Purchase of securities | $ | (32,807,612 | ) | |||
Proceeds from securities sold | 33,951,133 | |||||
Net sales of short-term investments | 454,274 | |||||
Net realized gain from investment transactions | (10,153,759 | ) | ||||
Increase in unrealized appreciation of investments | (36,812,867 | ) | ||||
Depreciation and amortization | 22,986 | |||||
Changes in operating assets and liabilities: | ||||||
Decrease in receivable for securities sold | 1,132,763 | |||||
Increase in dividends and interest receivable | (362,113 | ) | ||||
Increase in office equipment and leasehold | ||||||
improvements | (11,924 | ) | ||||
Increase in other assets | (25,626 | ) | ||||
Decrease in accrued expenses and reserves | (411,970 | ) | ||||
|
||||||
Total adjustments | (45,024,715 | ) | ||||
|
||||||
Net cash provided by operating activities | 7,139,921 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Dividends and distributions paid | (4,555,878 | ) | ||||
Net decrease in bank borrowings | (3,000,000 | ) | ||||
|
||||||
Cash flows used in financing activities | (7,555,878 | ) | ||||
|
||||||
Net decrease in cash | (415,957 | ) | ||||
Cash at beginning of period | 492,671 | |||||
|
||||||
Cash at end of period | $ | 76,714 | ||||
|
||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Interest paid on bank borrowings | $ | 27,352 |
See accompanying notes to financial statements.
[ 11 ]
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Significant Accounting Policies Central Securities Corporation (the Corporation) is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The following is a summary of the significant accounting policies consistently followed by the Corporation in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles.
Security Valuation Marketable common and preferred stocks are valued at the last or closing sale price or, if unavailable, at the closing bid price. Written options are valued at the last quoted asked price. Investments in money market funds are valued at net asset value per share. Securities for which no ready market exists are valued at estimated fair value by the Board of Directors.
Federal Income Taxes It is the Corporations policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income and net capital gains to its stockholders. In addition, management has analyzed positions taken on the Corporations tax returns and has determined that no provision for income taxes is required in the accompanying financial statements.
Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results may differ from those estimates.
Other Security transactions are accounted for as of the trade date, and cost of securities sold is determined by specific identification. Dividend income and distributions to stockholders are recorded on the ex-dividend date.
2. Fair Value Measurements The Corporations investments are categorized below in three broad hierarchical levels based on market price observability as follows:
Level 1 Quoted prices in active markets for identical investments;
Level 2 Other significant observable inputs obtained from independent sources, for example, quoted prices for similar investments or the use of models or other valuation methodologies;
Level 3 Significant unobservable inputs including the Corporations own assumptions based upon the best information available. Investments categorized as Level 3 include securities in which there is little, if any, market activity. The Corporations Level 3 investments consist of The Plymouth Rock Company, Inc. and Aerogroup International, Inc.
The designated Level for a security is not necessarily an indication of the risk associated with investing in that security.
[ 12 ]
NOTES TO FINANCIAL STATEMENTS continued (unaudited)
The Corporations investments as of June 30, 2011 are classified as follows:
Level 1
|
Level 2
|
Level 3
|
Total Value
|
|||||||||
Common Stocks | $ | 464,293,494 | | $ | 175,165,200 | $ | 639,458,694 | |||||
Preferred Stocks | | $ | 2,515,478 | | 2,515,478 | |||||||
Short-term Investments | 222,736 | | | 222,736 | ||||||||
|
|
|
|
|||||||||
Total | $ | 464,516,230 | $ | 2,515,478 | $ | 175,165,200 | $ | 642,196,908 | ||||
|
|
|
|
There were no significant transfers of investments between Levels 1, 2 or 3 during the six months ended June 30, 2011. The following is a reconciliation of the change in the value of Level 3 investments:
Balance as of December 31, 2010 | $ | 168,455,000 | |
Net realized gains and change in unrealized | |||
appreciation of investments included in net | |||
increase in net assets resulting from operations | 7,008,200 | ||
Sales | (298,000 | ) | |
|
|||
Balance as of June 30, 2011 | $ | 175,165,200 | |
|
The change in unrealized appreciation of Level 3 investments held at June 30, 2011 included in the above table was $6,950,200. In valuing Level 3 investments, the Corporation considers the results of various valuation methods, which may include comparable company valuation analyses, discounted cash flow models and recent private transactions. Consideration is also given to corporate governance, marketability, independent appraisals obtained from portfolio companies, company and industry results and outlooks, and general market conditions. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the price used by other investors or the price that may be realized upon the actual sale of the security.
In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-04 (the ASU), which clarifies the application of existing fair value measurement and disclosure requirements and changes certain accounting principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments in the ASU are effective at the beginning of the Corporations 2012 fiscal year. Management is assessing the effect of the ASU on the Corporations financial statements but currently believes the impact principally will result in increased disclosures about the Corporations Level 3 securities.
3. Common Stock The Corporation did not purchase any shares of its Common Stock in the first six months of 2011. It may from time to time purchase its Common Stock in such amounts and at such prices as the Board of Directors deem advisable in the best interests of the stockholders. Purchases will only be made at less than net asset value per share, thereby increasing the net asset value of shares held by the remaining stockholders. Shares so acquired may be held as treasury stock available for stock distributions, or may be retired.
4. Investment Transactions The aggregate cost of securities purchased and the aggregate proceeds of securities sold during the six months ended June 30, 2011, excluding option transactions and other short-term investments, were $32,805,662 and $33,893,035, respectively.
[ 13 ]
NOTES TO FINANCIAL STATEMENTS continued (unaudited)
As of June 30, 2011, based on cost for Federal income tax purposes, the aggregate gross unrealized appreciation and depreciation for all securities were $351,943,013 and $34,048,978, respectively.
5. Affiliates The Plymouth Rock Company, Inc. and GeoMet, Inc., are affiliates as defined in the Investment Company Act of 1940 due to the Corporation owning 5% or more of these companies outstanding voting securities. During the six months ended June 30, 2011, the Corporation received dividends of $3,899,000 from Plymouth Rock and sold 100 shares of Plymouth Rock at a gain of $291,000. The Corporation also received as dividends 13,345 additional shares of GeoMet Preferred Series A stock. Net unrealized appreciation related to affiliates increased by $7,156,359 for the six months ended June 30, 2011 to $161,746,340. The President of the Corporation is a director of Plymouth Rock.
6. Restricted Securities The Corporation from time to time invests in securities the resale of which is restricted. The Corporation does not have the right to demand registration of the restricted securities. On June 30, 2011, such investments had an aggregate value of $175,165,200, which was equal to 27.3% of the Corporations net assets. Investments in restricted securities at June 30, 2011, including acquisition dates and cost, were:
Company
|
Shares
|
Security
|
Date Acquired
|
Cost
|
|
Aerogroup International, Inc. | 20,000 | Common Stock | 6/14/05 | $ | 11,719 |
The Plymouth Rock Company, Inc. | 60,000 | Class A Stock | 12/15/82 | 1,500,000 | |
The Plymouth Rock Company, Inc. | 9,900 | Class A Stock | 6/9/84 | 692,986 |
7. Options Written From time to time, the Corporation writes option contracts to generate additional return. When the Corporation writes an option, a liability is recorded in an amount equal to the premium received and is subsequently marked to market in the Statement of Assets and Liabilities, with any related change recorded as an unrealized gain or loss in the Statement of Operations. Upon the exercise of written call option contracts, premiums received are added to the proceeds from the sale of the underlying securities in determining whether there is a realized gain or loss. Upon the exercise of written put options, premiums received are subtracted from the cost of the purchase of the underlying securities. On the expiration date, premiums received from unexercised options are treated as realized gains.
When writing a covered call option, the Corporation forgoes, during the options life, the opportunity to profit from increases in the market value of the security underlying the call option above the sum of the option premium received and the exercise price of the call, but has retained the risk of loss should the price of the underlying security decline below the exercise price minus the option premium received.
When writing a put option, the Corporation has the obligation during the options life to purchase the securities underlying the option at an agreed-upon exercise price. The Corporations obligation is secured by segregating with its custodian liquid investments with a value at least equal to the amount the Corporation would be required to pay if the option were exercised. The Corporation will lose money if the securities purchased decrease in value below the exercise price by more than the premium received by the Corporation for writing the option.
[ 14 ]
NOTES TO FINANCIAL STATEMENTS continued (unaudited)
The Corporations activity in written options during the six months ended June 30, 2011 is summarized as follows:
Number of Shares |
Premiums Received |
||||
Options outstanding at December 31, 2010 | | | |||
Options written | 55,000 | $ | 58,099 | ||
Options terminated in closing transactions | (25,000 | ) | (15,500 | ) | |
Options exercised | (10,000 | ) | (10,400 | ) | |
Options expired | (20,000 | ) | (32,199 | ) | |
|
|
||||
Options outstanding at June 30, 2011 | | | |||
|
|
8. Bank Line of Credit The Corporation has entered into a $25 million uncommitted, secured revolving line of credit with UMB Bank, n.a. (UMB), the Corporations custodian. All borrowings are payable on demand of UMB. Interest on any borrowings is payable monthly at a rate based on the federal funds rate, subject to a minimum annual rate of 2.50% (2.75% prior to March 18, 2011). At June 30, 2011, outstanding borrowings under the line were $2,000,000 at an annual interest rate of 2.50%. These borrowings were secured by portfolio holdings that had an aggregate value of $10,638,000 as of June 30, 2011. During the six months ended June 30, 2011, average borrowings outstanding (based on the days when there were borrowings outstanding) were approximately $2,949,000, and total interest expense was $22,324. The average interest rate paid on these borrowings was 2.67% per annum.
9. Operating Expenses The aggregate remuneration paid during the six months ended June 30, 2011 to officers and directors amounted to $713,000, of which $75,500 was paid as fees to directors who were not officers. Employees also participate in a profit sharing retirement plan. Contributions to the plan are made at the discretion of the Board of Directors, and each participants benefits vest after three years of employment. No contributions were made to the plan for the six months ended June 30, 2011.
10. Operating Lease Commitment The Corporation has entered into an operating lease for office space which expires in 2014 and provides for future minimum rental payments in the aggregate amount of approximately $1.0 million as of June 30, 2011. The lease agreement contains escalation clauses relating to operating costs and real property taxes. Future minimum rental commitments under the lease are $170,903 remaining for 2011, $341,806 annually in 2012-2013 and $170,903 in 2014.
[ 15 ]
FINANCIAL HIGHLIGHTS
The following table shows per share operating performance data, total returns, ratios and supplemental data for the six months ended June 30, 2011 and each year in the five-year period ended December 31, 2010. This information has been derived from information contained in the financial statements and market price data for the Corporations shares.
The Corporations total returns reflect changes in market price or net asset value, as applicable, and assume reinvestment of all distributions. Distributions that are payable only in cash are assumed to be reinvested at the market price or net asset value, as applicable, on the payable date of the distribution. Distributions that may be taken in shares are assumed to be reinvested at the price designated by the Corporation.
Six Months Ended June 30, 2011 (Unaudited) |
2010
|
2009
|
2008
|
2007
|
2006
|
||||||||||||
Per Share Operating Performance | |||||||||||||||||
Net asset value, beginning of period | $ | 26.06 | $ | 22.32 | $ | 17.79 | $ | 30.15 | $ | 30.05 | $ | 27.65 | |||||
|
|
|
|
|
|
||||||||||||
Net investment income* | .23 | .45 | .29 | .39 | .38 | .36 | |||||||||||
Net realized and unrealized gain (loss) | |||||||||||||||||
on securities* | 2.06 | 4.19 | 4.89 | (10.29 | ) | 2.12 | 4.26 | ||||||||||
|
|
|
|
|
|
||||||||||||
Total from investment | |||||||||||||||||
operations | 2.29 | 4.64 | 5.18 | (9.90 | ) | 2.50 | 4.62 | ||||||||||
|
|
|
|
|
|
||||||||||||
Less: | |||||||||||||||||
Dividends from net investment income | .11 | .45 | .33 | .36 | .37 | .36 | |||||||||||
Distributions from capital gains | .09 | .45 | .32 | 2.10 | 2.03 | 1.86 | |||||||||||
|
|
|
|
|
|
||||||||||||
Total distributions | .20 | .90 | .65 | 2.46 | 2.40 | 2.22 | |||||||||||
|
|
|
|
|
|
||||||||||||
Net asset value, end of period | $ | 28.15 | $ | 26.06 | $ | 22.32 | $ | 17.79 | $ | 30.15 | $ | 30.05 | |||||
|
|
|
|
|
|
||||||||||||
Per share market value, end of period. | $ | 23.88 | $ | 21.97 | $ | 17.98 | $ | 14.40 | $ | 26.84 | $ | 26.65 | |||||
Total investment return, market(%) . | 9.57 | 27.14 | 26.97 | (39.63 | ) | 9.86 | 21.31 | ||||||||||
Total investment return, NAV(%) | 8.79 | 21.73 | 30.15 | (32.66 | ) | 9.35 | 18.55 | ||||||||||
Ratios/Supplemental Data: | |||||||||||||||||
Net assets, end of period(000) | $ | 641,133 | $ | 593,524 | $ | 504,030 | $ | 397,353 | $ | 644,823 | $ | 617,167 | |||||
Ratio of expenses to average net | |||||||||||||||||
assets(%) | .54 | | .78 | .91 | .66 | .59 | .53 | ||||||||||
Ratio of net investment income to | |||||||||||||||||
average net assets(%) | 1.64 | | 1.92 | 1.49 | 1.43 | 1.21 | 1.23 | ||||||||||
Portfolio turnover rate(%) | 5.18 | 6.67 | 7.94 | 11.04 | 19.58 | 17.55 |
* |
Based on the average number of shares outstanding during the period. |
|
Annualized, not necessarily indicative of full year ratio. |
See accompanying notes to financial statements.
[ 16 ]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CENTRAL SECURITIES CORPORATION
We have reviewed the accompanying statement of assets and liabilities, including the statement of investments, of Central Securities Corporation as of June 30, 2011, and the related statements of operations, changes in net assets, cash flows and financial highlights for the six-month period ended June 30, 2011. These interim financial statements and financial highlights are the responsibility of Central Securities Corporations management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the interim financial statements and financial highlights referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of changes in net assets for the year ended December 31, 2010 and financial highlights for each of the years in the five-year period ended December 31, 2010, and in our report dated February 4, 2011 we expressed an unqualified opinion on such statement of changes in net assets and financial highlights.
KPMG LLP
New York, NY
July 28, 2011
[ 17 ]
OTHER STOCKHOLDER INFORMATION
Direct Registration
The Corporation utilizes direct registration, a system that allows for book-entry ownership and the electronic transfer of the Corporations shares. Stockholders may find direct registration a convenient way of managing their investment. Stockholders wishing certificates may request them.
A pamphlet which describes the features and benefits of direct registration, including the ability of shareholders to deposit certificates with our transfer agent, can be obtained by calling Computershare Trust Company at 1-800-756-8200, calling the Corporation at 1-866-593-2507 or visiting our website: www.centralsecurities.com under Contact Us.
Proxy Voting Policies and Procedures
The policies and procedures used by the Corporation to determine how to vote proxies relating to portfolio securities and the Corporations proxy voting record for the twelve-month period ended June 30, 2011 are available: (1) without charge, upon request, by calling us at our toll-free telephone number (1-866-593-2507), (2) on the Corporations website at www.centralsecurities.com and (3) on the Securities and Exchange Commissions website at www.sec.gov.
[ 18 ]
Quarterly Portfolio Information
The Corporation files its complete schedule of portfolio holdings with the SEC for the first and the third quarter of each fiscal year on Form N-Q. The Corporations Form N-Q filings are available on the SECs website at www.sec.gov. Those forms may be reviewed and copied at the SECs Public Reference Room in Washington D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Annual Meeting of Stockholders
The annual meeting of stockholders of the Corporation was held on March 9, 2011. At the meeting, all of the directors of the Corporation were reelected by the following vote of the holders of the Common Stock:
In Favor
|
Withheld
|
|
Simms C. Browning | 20,440,959 | 856,070 |
Donald G. Calder | 20,443,845 | 853,184 |
David C. Colander | 20,446,405 | 850,624 |
Jay R. Inglis | 20,420,810 | 876,219 |
Wilmot H. Kidd | 20,416,095 | 880,934 |
C. Carter Walker, Jr. | 20,431,239 | 865,790 |
In addition, the selection of KPMG LLP as independent auditors of the Corporation for the year 2011 was ratified by the following vote of the holders of the Common Stock:
In Favor
|
Against
|
Abstain
|
20,445,422 | 749,809 | 101,798 |
[ 19 ]
BOARD OF DIRECTORS
Wilmot H. Kidd, Chairman
C. Carter Walker, Jr., Lead Independent Director
Simms C. Browning
Donald G. Calder
David C. Colander
Jay R. Inglis
OFFICERS
Wilmot H. Kidd, President
Marlene A. Krumholz, Vice President and Secretary
Lawrence P. Vogel, Vice President and Treasurer
OFFICE
630 Fifth Avenue
New York, NY 10111
212-698-2020
866-593-2507 (toll-free)
www.centralsecurities.com
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company, N.A.
P.O. Box 43069, Providence, RI 02940-3069
800-756-8200
www.computershare.com
CUSTODIAN
UMB Bank, n.a.
Kansas City, MO
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
New York, NY
[ 20 ]
Item 2. Code of Ethics. The information required by this Item is only required in an
annual report on this Form N-CSR.
Item 3. Audit Committee Financial Experts. The information required by this Item is
only required in an annual report on this Form N-CSR.
Item 4. Principal Accountant Fees and Services. The information required by this
Item is only required in an annual report on this Form N-CSR.
Item 5. Audit Committee of Listed Registrants. The information required by this
Item is only required in an annual report on this Form N-CSR.
Item 6. Investments.
(a) Schedule is included as a part of the report to shareholders filed under Item 1 of this Form.
(b) Not applicable.
Item 7. Disclose Proxy Voting Policies and Procedures for Closed-End Management Companies.
The information required by this Item is only required in an annual report on this Form N-CSR.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. The information
required by this Item is only required in an annual report on this Form N-CSR.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and
Affiliated Purchasers.
Period | (a) Total Number of Shares (or Units) Purchased |
(b) Average Price Paid per Share (or Unit) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
Month #1 (January 1 through January 31) |
0 | NA | NA | NA |
Month #2 (February 1 through February 28) |
0 | NA | NA | NA |
Month #3 (March 1 through March 31) |
0 | NA | NA | NA |
Month #4 (April 1 through April 30) |
0 | NA | NA | NA |
Month #5 (May 1 through May 31) |
0 | NA | NA | NA |
Month #6 (June 1 through June 30) |
0 | NA | NA | NA |
Total | 0 | NA | NA | NA |
Item 10. Submission of Matters to a Vote of Security Holders. There have been no changes to the procedures by which shareholders may recommend nominees to the registrants board of directors since such procedures were last described in the Corporations proxy statement dated February 3, 2011.
Item 11. Controls and Procedures.
(a) The Principal Executive Officer and Principal Financial Officer of Central Securities Corporation (the Corporation) have concluded that the Corporations Disclosure Controls and Procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) There have been no changes in the Corporations internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Corporations internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. The information required by this Item is only required in an annual report on this Form N-CSR.
(a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940. Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not Applicable.
(b) Certifications of the principal executive officer and principal financial officer, as required by Rule 30a-2(b) under the Investment Company Act of 1940. Attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Central Securities Corporation
By: /s/ Wilmot H. Kidd
Wilmot H. Kidd
President
August 9, 2011
Date
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capabilities and on the dates indicated.
By: /s/ Wilmot H. Kidd
Wilmot H. Kidd
President
August 9, 2011
Date
By: /s/ Lawrence P. Vogel
Lawrence P. Vogel
Treasurer
August 9, 2011
Date