10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission file number 814-00861

Fidus Investment Corporation

(Exact Name of Registrant as Specified in its Charter)

 

Maryland   27-5017321

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

1603 Orrington Avenue, Suite 1005

Evanston, Illinois

  60201
(Address of Principal Executive Offices)   (Zip Code)

(847) 859-3940

(Registrant’s telephone number, including area code)

 

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 1, 2017, the Registrant had outstanding 22,457,576 shares of common stock, $0.001 par value.

 

 

 


Table of Contents

FIDUS INVESTMENT CORPORATION

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q

 

  PART I — FINANCIAL INFORMATION   
Item 1.   Financial Statements.      1  
 

Consolidated Statements of Assets and Liabilities — March  31, 2017 (unaudited) and December 31, 2016

     1  
 

Consolidated Statements of Operations — Three Months Ended March  31, 2017 (unaudited) and 2016 (unaudited)

     2  
 

Consolidated Statements of Changes in Net Assets — Three Months Ended March 31, 2017 (unaudited) and 2016 (unaudited)

     3  
 

Consolidated Statements of Cash Flows — Three Months Ended March  31, 2017 (unaudited) and 2016 (unaudited)

     4  
 

Consolidated Schedules of Investments — March  31, 2017 (unaudited) and December 31, 2016

     5  
  Notes to Consolidated Financial Statements (unaudited)      20  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.      39  
Item 3.   Quantitative and Qualitative Disclosures About Market Risk.      51  
Item 4.   Controls and Procedures.      51  
  PART II — OTHER INFORMATION   
Item 1.   Legal Proceedings.      52  
Item 1A.   Risk Factors.      52  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.      52  
Item 3.   Defaults Upon Senior Securities.      52  
Item 4.   Mine Safety Disclosures.      52  
Item 5.   Other Information.      52  
Item 6.   Exhibits.      53  
Signatures      54  
Exhibit Index      55  


Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Assets and Liabilities

(in thousands, except shares and per share data)

 

     March 31, 2017
(unaudited)
    December 31,
2016
 

ASSETS

    

Investments, at fair value

    

Affiliate investments (cost: $114,846 and $113,995, respectively)

   $ 134,054     $ 132,013  

Non-control/non-affiliate investments (cost: $401,222 and $386,519, respectively)

     402,548       392,441  
  

 

 

   

 

 

 

Total investments, at fair value (cost: $516,068 and $500,514, respectively)

     536,602       524,454  

Cash and cash equivalents

     19,092       57,083  

Interest receivable

     5,152       4,407  

Prepaid expenses and other assets

     816       798  
  

 

 

   

 

 

 

Total assets

   $ 561,662     $ 586,742  
  

 

 

   

 

 

 

LIABILITIES

    

SBA debentures, net of deferred financing costs (Note 6)

   $ 195,405     $ 219,901  

Borrowings under credit facility, net of deferred financing costs (Note 6)

     (375     (462

Accrued interest and fees payable

     753       3,122  

Management and incentive fees payable – due to affiliate

     9,114       8,830  

Administration fee payable and other – due to affiliate

     220       570  

Taxes payable

     1,590       555  

Accounts payable and other liabilities

     143       441  
  

 

 

   

 

 

 

Total liabilities

     206,850       232,957  
  

 

 

   

 

 

 

Commitments and contingencies (Note 7)

    

NET ASSETS

    

Common stock, $0.001 par value (100,000,000 shares authorized, 22,457,576 and 22,446,076, shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively)

     22       22  

Additional paid-in capital

     340,350       340,101  

Undistributed net investment income

     8,731       9,626  

Accumulated net realized (loss) on investments, net of taxes and distributions

     (14,829     (19,908

Accumulated net unrealized appreciation on investments

     20,538       23,944  
  

 

 

   

 

 

 

Total net assets

     354,812       353,785  
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 561,662     $ 586,742  
  

 

 

   

 

 

 

Net asset value per common share

   $ 15.80     $ 15.76  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

1


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Operations (unaudited)

(in thousands, except shares and per share data)

 

     Three Months Ended
March 31,
 
     2017     2016  

Investment Income:

    

Interest income

    

Affiliate investments

   $ 2,674     $ 2,844  

Non-control/non-affiliate investments

     12,074       10,603  
  

 

 

   

 

 

 

Total interest income

     14,748       13,447  

Dividend income

    

Affiliate investments

     278       162  

Non-control/non-affiliate investments

     380       81  
  

 

 

   

 

 

 

Total dividend income

     658       243  

Fee income

    

Affiliate investments

     6       7  

Non-control/non-affiliate investments

     776       968  
  

 

 

   

 

 

 

Total fee income

     782       975  

Interest on idle funds and other income

     40       26  
  

 

 

   

 

 

 

Total investment income

     16,228       14,691  
  

 

 

   

 

 

 

Expenses:

    

Interest and financing expenses

     2,584       2,600  

Base management fee

     2,313       1,983  

Incentive fee

     2,378       1,880  

Administrative service expenses

     351       321  

Professional fees

     469       482  

Other general and administrative expenses

     278       318  
  

 

 

   

 

 

 

Total expenses

     8,373       7,584  
  

 

 

   

 

 

 

Net investment income before income taxes

     7,855       7,107  

Income tax (benefit) provision

     (4     25  
  

 

 

   

 

 

 

Net investment income

     7,859       7,082  
  

 

 

   

 

 

 

Net realized and unrealized gains (losses) on investments:

    

Net realized gains on affiliates investments

     26       —    

Net realized gains (losses) on non-control/non-affiliate investments

     6,438       (310

Net change in unrealized (depreciation) appreciation on investments

     (3,406     768  

Income tax (provision) from realized gains on investments

     (1,385     —    
  

 

 

   

 

 

 

Net gain on investments

     1,673       458  
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 9,532     $ 7,540  
  

 

 

   

 

 

 

Per common share data:

    

Net investment income per share-basic and diluted

   $ 0.35     $ 0.43  
  

 

 

   

 

 

 

Net increase in net assets resulting from operations per share — basic and diluted

   $ 0.42     $ 0.46  
  

 

 

   

 

 

 

Dividends declared per share

   $ 0.39     $ 0.39  
  

 

 

   

 

 

 

Weighted average number of shares outstanding — basic and diluted

     22,446,970       16,301,499  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

2


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Changes in Net Assets (unaudited)

(in thousands, except shares)

 

     Common Stock      Additional      Undistributed     Accumulated
net realized
(loss) on
investments,
    Accumulated
net unrealized
(depreciation)
       
     Number of
shares
     Par
value
     paid in
capital
     net investment
income
    net of taxes and
distributions
    appreciation on
investments
    Total net
assets
 

Balances at December 31, 2015

     16,300,732      $ 16      $ 246,307      $ 13,887     $ (6,145   $ (6,703   $ 247,362  

Shares issued under dividend reinvestment plan

     11,631        —          180        —         —         —         180  

Net increase in net assets resulting from operations

     —          —          —          7,082       (539     997       7,540  

Dividends declared

     —          —          —          (6,357     —         —         (6,357
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2016

     16,312,363      $ 16      $ 246,487      $ 14,612     $ (6,684   $ (5,706   $ 248,725  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2016

     22,446,076      $ 22      $ 340,101      $ 9,626     $ (19,908   $ 23,944     $ 353,785  

Expenses related to public offerings of common stock

     —          —          51        —         —         —         51  

Shares issued under dividend reinvestment plan

     11,500        —          198        —         —         —         198  

Net increase in net assets resulting from operations

     —          —          —          7,859       5,079       (3,406     9,532  

Dividends declared

     —          —          —          (8,754     —         —         (8,754
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances at March 31, 2017

     22,457,576      $ 22      $ 340,350      $ 8,731     $ (14,829   $ 20,538     $ 354,812  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements (unaudited).

 

3


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

     Three Months Ended
March 31,
 
     2017     2016  

Cash Flows from Operating Activities:

    

Net increase in net assets resulting from operations

   $ 9,532     $ 7,540  

Adjustments to reconcile net increase in net assets resulting from operations to net cash (used for) operating activities:

    

Net change in unrealized depreciation (appreciation) on investments

     3,406       (768

Net realized (gain) loss on investments

     (6,464     310  

Interest and dividend income paid-in-kind

     (1,698     (1,087

Accretion of original issue discount

     (128     (60

Accretion of loan origination fees

     (346     (316

Purchase of investments

     (55,004     (42,348

Proceeds from sales and repayments of investments

     47,746       31,581  

Proceeds from loan origination fees

     340       275  

Amortization of deferred financing costs

     341       273  

Changes in operating assets and liabilities:

    

Interest receivable

     (745     (1,205

Prepaid expenses and other assets

     (19     123  

Accrued interest and fees payable

     (2,369     (2,118

Management and incentive fees payable – due to affiliate

     284       68  

Administration fee payable and other – due to affiliate

     (350     (265

Taxes payable

     1,035       (400

Accounts payable and other liabilities

     (297     (29
  

 

 

   

 

 

 

Net cash (used for) operating activities

     (4,736     (8,426
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Expenses related to stock offerings

     51       —    

Proceeds received from SBA debentures

     —         500  

Repayments of SBA debentures

     (24,750     —    

Proceeds received from borrowings under credit facility

     —         12,000  

Repayments of borrowings under credit facility

     —         (16,500

Payment of deferred financing costs

     —         (13

Dividends paid to stockholders, including expenses

     (8,556     (6,177
  

 

 

   

 

 

 

Net cash (used for) financing activities

     (33,255     (10,190
  

 

 

   

 

 

 

Net (decrease) in cash and cash equivalents

     (37,991     (18,616

Cash and cash equivalents:

    

Beginning of period

     57,083       31,657  
  

 

 

   

 

 

 

End of period

   $ 19,092     $ 13,041  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash payments for interest

   $ 4,612     $ 4,445  

Cash payments for taxes, net of tax refunds received

   $ 346     $ 425  

Non-cash financing activities:

    

Shares issued under dividend reinvestment plan

   $ 198     $ 180  

See Notes to Consolidated Financial Statements (unaudited).

 

4


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited)

March 31, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost     Fair Value      Percent
of Net
Assets
 

Aerospace & Defense Manufacturing

               

FDS Avionics Corp.

               

(dba Flight Display Systems)

               

Subordinated Note

     12.3%/0.0%       4/1/2020      $ 5,200      $ 5,186     $ 4,147     

Common Equity (200 units) (i)

             2,000       105     
          

 

 

   

 

 

    
             7,186       4,252        1

Fiber Materials, Inc. (k)

               

Subordinated Note

     12.0%/1.0%       5/30/2022        4,013        3,995       3,995     

Common Equity (10 units)

             1,000       1,000     
          

 

 

   

 

 

    
             4,995       4,995        1

Lightning Diversion Systems, LLC

               

Senior Secured Loan (j)

     10.5%/0.0%       9/16/2021        21,204        21,120       21,204     

Revolving Loan ($250 commitment) (h)

     10.5%/0.0%       9/16/2021        —          (1     —       

Common Equity (600,000 units)

             —         3,213     
          

 

 

   

 

 

    
             21,119       24,417        7

Malabar International (k)

               

Subordinated Note (j)

     11.3%/2.0%       11/13/2021        7,655        7,645       7,655     

Preferred Equity (1,494 shares) (f)

     6.0%/0.0%       5/12/2022           1,997       5,382     
          

 

 

   

 

 

    
             9,642       13,037        4

Simplex Manufacturing Co.

               

Subordinated Note

     14.0%/0.0%       11/1/2017        4,050        4,050       4,050     

Warrant (29 shares) (l)

             1,155       3,934     
          

 

 

   

 

 

    
             5,205       7,984        2

Steward Holding LLC (k)

               

(dba Steward Advanced Materials)

               

Subordinated Note

     12.0%/2.3%       5/12/2021        7,221        7,195       7,221     

Common Equity (1,000,000 units)

             1,000       517     
          

 

 

   

 

 

    
             8,195       7,738        2

Apparel Distribution

               

Jacob Ash Holdings, Inc.

               

Subordinated Note (j)

     13.0%/4.0%       6/30/2018        4,000        3,997       4,000     

Subordinated Note

     13.0%/0.0%       6/30/2018        778        774       778     

Preferred Equity (66,138 shares) (f)

     0.0%/15.0%       6/30/2018           1,110       1,113     

Warrant (63,492 shares) (l)

             67       —       
          

 

 

   

 

 

    
             5,948       5,891        2

Building Products Manufacturing

               

SES Investors, LLC (k)

               

(dba SES Foam)

               

Senior Secured Loan

     11.0%/0.0%       3/8/2022        10,474        10,427       10,448     

Revolving Loan ($1,500 commitment)(i)

     6.0%/0.0%       3/8/2022        1,500        1,493       1,500     

Common Equity (6,000 units) (g)(i)

             600       565     
          

 

 

   

 

 

    
             12,520       12,513        5

 

5


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

March 31, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
  Maturity    Principal
Amount
     Cost      Fair Value      Percent
of Net
Assets
 

The Wolf Organization, LLC

                

Common Equity (175 shares)

           $ 1,455      $ 3,577        1

US GreenFiber, LLC

                

Subordinated Note (j)

   12.5%/0.0%   1/2/2019    $ 14,000        13,972        13,699     

Common Equity (1,667 units) (g)(i)

             500        462     
          

 

 

    

 

 

    
             14,472        14,161        4

Business Services

                

Comprehensive Logistics Co., Inc.

                

Senior Subordinated Loan (j)

   11.5%/4.5%   11/22/2021      15,245        15,175        15,175        4

Inflexxion, Inc. (k)

                

Senior Secured Loan

   7.0%/6.0%   12/16/2019      4,259        4,246        3,571     

Revolving Loan ($500 commitment) (i)

   7.0%/6.0%   12/16/2019      162        159        136     

Preferred Equity (252,046 units)

             252        160     

Preferred Equity (308,987 units)

             309        196     

Preferred Equity (1,400 units)

             1,400        —       
          

 

 

    

 

 

    
             6,366        4,063        1

Plymouth Rock Energy, LLC

                

Senior Secured Loan

   11.8%/0.0%   5/14/2017      4,645        4,643        4,645        1

Vanguard Dealer Services, L.L.C.

                

Subordinated Note

   12.3%/0.0%   1/30/2021      11,450        11,408        11,450     

Common Equity (6,000 shares)

             600        934     
          

 

 

    

 

 

    
             12,008        12,384        3

Capital Equipment Manufacturing

                

Thermoforming Technology Group LLC

                

Subordinated Note

   12.5%/0.0%   9/14/2021      14,700        14,640        14,700     

Common Equity (3,500 units) (g)(i)

             350        314     
          

 

 

    

 

 

    
             14,990        15,014        4

Component Manufacturing

                

Hilco Plastics Holdings, LLC

                

(dba Hilco Technologies)

                

Subordinated Note

   11.5%/1.0%   7/15/2022      8,042        8,006        8,042     

Common Equity (72,507 units) (g)(i)

             500        478     
          

 

 

    

 

 

    
             8,506        8,520        2

Toledo Molding & Die, Inc.

                

Subordinated Note (i)

   10.5%/0.0%   12/18/2018      10,000        9,935        10,000        3

TransGo, LLC

                

Subordinated Note

   13.3%/0.0%   8/28/2022      9,500        9,453        9,453     

Common Equity (1,000 units)

             1,000        1,000     
          

 

 

    

 

 

    
             10,453        10,453        3

 

6


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

March 31, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
  Maturity    Principal
Amount
     Cost      Fair Value      Percent
of Net
Assets
 

Consumer Products

                

World Wide Packaging, LLC (k)

                

Common Equity (1,517,573 units) (g)(i)

           $ 499      $ 3,344        1

Electronic Components Supplier

                

Apex Microtechnology, Inc. (k)

                

Warrant (2,293 shares) (l)

             220        385     

Common Equity (11,690 shares)

             1,168        2,081     
          

 

 

    

 

 

    
             1,388        2,466        1

Healthcare Products

                

Allied 100 Group, Inc.

                

Subordinated Note (j)

   11.5%/0.0%   5/26/2020    $ 13,000        12,962        13,000     

Common Equity (1,250,000 units) (i)

             1,250        1,146     
          

 

 

    

 

 

    
             14,212        14,146        4

Anatrace Products, LLC

                

Subordinated Note

   13.0%/1.3%   6/23/2021      6,500        6,485        6,500     

Common Equity (360,000 shares) (i)

             —          813     
          

 

 

    

 

 

    
             6,485        7,313        2

OMC Investors, LLC

                

(dba Ohio Medical Corporation)

                

Subordinated Note

   12.0%/0.0%   7/15/2021      10,000        9,922        8,768     

Common Equity (5,000 shares)

             500        226     
          

 

 

    

 

 

    
             10,422        8,994        3

Pfanstiehl, Inc. (k)

                

Subordinated Note

   10.5%/0.0%   9/29/2021      6,208        6,190        6,208     

Common Equity (8,500 units) (i)

             850        12,797     
          

 

 

    

 

 

    
             7,040        19,005        5

Six Month Smiles Holdings, Inc.

                

Subordinated Note (i)

   6.0%/8.5%   7/31/2020      8,963        8,942        7,905        2

Healthcare Services

                

Medsurant Holdings, LLC (k)

                

Subordinated Note

   12.3%/0.0%   6/18/2021      6,267        6,224        6,267     

Preferred Equity (126,662 units) (g)

             1,346        1,764     

Warrant (505,176 units) (g)(l)

             4,516        6,151     
          

 

 

    

 

 

    
             12,086        14,182        4

Microbiology Research Associates, Inc. (k)

                

Subordinated Note

   11.0%/1.5%   3/13/2022      8,570        8,549        8,570     

Common Equity (1,625,731 units) (i)

             1,939        2,821     
          

 

 

    

 

 

    
             10,488        11,391        3

 

7


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

March 31, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
  Maturity    Principal
Amount
     Cost      Fair Value      Percent
of Net
Assets
 

Oaktree Medical Centre, P.C.

                

(dba Pain Management Associates)

                

Senior Secured Loan (i)

   11.5%/0.0%   1/1/2018    $ 571      $ 623      $ 637     

Senior Secured Loan (i)

   7.0%/12.0%   1/1/2018      6,259        6,651        4,643     

Revolving Loan ($2,500 commitment) (i)

   11.5%/0.0%   1/1/2018      2,500        2,533        2,783     
          

 

 

    

 

 

    
             9,807        8,063        2

United Biologics, LLC

                

Subordinated Note

   12.0%/2.0%   4/30/2018      8,741        8,710        8,741     

Preferred Equity (98,377 units) (g)(i)

             1,069        833     

Warrant (57,469 units) (l)

             566        216     
          

 

 

    

 

 

    
             10,345        9,790        3

Industrial Cleaning & Coatings

                

K2 Industrial Services, Inc.

                

Tranche A Loan

   11.8%/2.5%   4/25/2022      10,110        10,070        10,070     

Tranche B Loan

   11.8%/7.3%   4/25/2022      2,064        2,056        2,056     

Common Equity (1,673 shares)

             1,268        679     
          

 

 

    

 

 

    
             13,394        12,805        4

Information Technology Services

                

FTH Acquisition Corp. VII

                

Subordinated Note

   13.0%/0.0%   1/31/2019      8,033        8,034        7,862     

Preferred Equity (887,122 shares)

             887        444     
          

 

 

    

 

 

    
             8,921        8,306        2

inthinc Technology Solutions, Inc.

                

Subordinate Note ($5,000 commitment)

   14.0%/0.0%   4/24/2020      4,000        3,985        3,911     

Subordinated Note

   0.0%/14.0%   4/24/2020      2,237        2,084        2,104     

Royalty Rights

     4/24/2020         185        185     
          

 

 

    

 

 

    
             6,254        6,200        2

New Era Technology, Inc.

                

Subordinated Note (i)

   11.0%/1.5%   9/3/2022      11,514        11,457        11,457     

Common Equity (197,369 shares) (i)

             750        750     
          

 

 

    

 

 

    
             12,207        12,207        3

Revenue Management Solutions, LLC

                

Subordinated Note (j)

   11.5%/1.0%   7/4/2022      8,771        8,687        8,687     

Subordinated Note (i)

   7.0%/6.5%   7/4/2022      1,269        1,257        1,257     

Common Equity (2,250,000 units)

             2,250        2,250     
          

 

 

    

 

 

    
             12,194        12,194        3

Software Technology, LLC

                

Subordinated Note (j)

   11.0%/0.0%   6/23/2023      8,750        8,708        8,708     

Common Equity (11 units)

             1,125        1,125     
          

 

 

    

 

 

    
             9,833        9,833        3

Laundry Services

                

Caldwell & Gregory, LLC

                

Subordinated Note

   0.0%/12.0%   5/31/2022      2,778        2,778        2,778     

Common Equity (500,000 units) (g)

             500        625     

Warrant (242,121 units) (g)(l)

             243        303     
          

 

 

    

 

 

    
             3,521        3,706        1

 

8


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

March 31, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
  Maturity      Principal
Amount
     Cost      Fair Value      Percent
of Net
Assets
 

Oil & Gas Distribution

                

LNG Indy, LLC

                

(dba Kinetrex Energy)

                

Subordinated Note (j)

   11.5%/0.0%     9/28/2021      $ 5,000      $ 4,976      $ 4,976     

Common Equity (1,000 units)

             1,000        1,000     
          

 

 

    

 

 

    
             5,976        5,976        2

Oil & Gas Services

                

IOS Acquisitions, Inc. (m)

                

Common Equity (2,152 units) (i)

             103        17        0

Pinnergy, Ltd. (k)

                

Subordinated Note (j)

   0.0%/10.0%     1/24/2020        8,625        8,606        8,625     

Common Equity - Class A-2 (42,500 units) (j)

             3,000        3,000     

Common Equity - Class B (1,000 units) (j)

             3,000        3,000     
          

 

 

    

 

 

    
             14,606        14,625        4

Packaging

                

Rohrer Corporation

                

Subordinated Note (j)

   11.0%/1.5%     1/18/2022        16,676        16,605        16,676     

Common Equity (389 shares)

             750        780     
          

 

 

    

 

 

    
             17,355        17,456        5

Printing Services

                

Brook & Whittle Limited

                

Subordinated Note

   12.0%/4.8%     12/31/2017        8,128        8,128        8,324     

Subordinated Note

   12.0%/2.0%     12/31/2017        2,354        2,354        2,354     

Warrant (1,051 shares) (l)

             285        420     

Common Equity - Series A (148 shares)

             110        58     

Common Equity - Series D (527 shares)

             52        135     
          

 

 

    

 

 

    
             10,929        11,291        3

Promotional Products

                

Hub Acquisition Sub, LLC

                

(dba Hub Pen)

                

Subordinated Note (j)

   12.3%/0.0%     9/23/2021        11,350        11,304        11,350     

Common Equity (7,500 units)

             750        996     
          

 

 

    

 

 

    
             12,054        12,346        3

Restaurants

                

ACFP Management, Inc. (m)

                

Common Equity (1,000,000 units) (i)

             —          —          0

Cardboard Box LLC

                

(dba Anthony’s Coal Fired Pizza)

                

Common Equity (521,021 units) (i)

             520        271        0

 

9


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

March 31, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
  Maturity    Principal
Amount
     Cost      Fair Value      Percent
of Net
Assets
 

Restaurant Finance Co, LLC

                

Senior Secured Loan (j)(o)

   12.0%/4.0%   7/31/2020    $ 9,154      $ 9,126      $ 7,096        2

Retail

                

EBL, LLC (EbLens)

                

Common Equity (750,000 units) (g)(i)

             750        2,062        1

Palmetto Moon, LLC

                

Senior Secured Term Loan

   11.5%/0.0%   10/31/2021      6,304        6,267        6,267     

Common Equity (499 units) (i)

             499        499     
          

 

 

    

 

 

    
             6,766        6,766        2

Safety Products Manufacturing

                

Safety Products Group, LLC (k)(m)

                

Preferred Equity (749 units) (g)(i)

             —          9     

Common Equity (676 units) ($2,852 commitment) (g)(i)

             —          —       
          

 

 

    

 

 

    
             —          9        0

Specialty Chemicals

                

FAR Research Inc. (k)

                

Senior Secured Loan (j)

   11.8%/1.0%   3/31/2019      7,289        7,273        7,289     

Revolving Loan ($500 commitment) (i)

   11.8%/1.0%   3/31/2019      138        136        138     

Common Equity (1,396 units)

             1,396        1,231     
          

 

 

    

 

 

    
             8,805        8,658        3

Specialty Distribution

                

Carlson Systems Holdings, Inc. (m)

                

Common Equity (15,000 units) (i)

             —          73     
          

 

 

    

 

 

    
             —          73        0

Pugh Lubricants, LLC

                

Subordinated Note (j)

   12.3%/0.0%   5/10/2022      12,256        12,199        12,199     

Common Equity (5,000 units) (g)(i)

             500        500     
          

 

 

    

 

 

    
             12,699        12,699        4

Virginia Tile Company, LLC

                

Subordinated Note (j)

   12.3%/0.0%   4/7/2022      12,000        11,964        12,000     

Common Equity (17 units)

             342        1,214     
          

 

 

    

 

 

    
             12,306        13,214        4

Transportation Services

                

Cavallo Bus Lines Holdings, LLC

                

Subordinated Note

   12.0%/3.0%   4/26/2021      8,250        8,219        8,250        2

US Pack Logistics LLC

                

Subordinated Note (j)

   12.0%/1.8%   9/27/2020      7,185        7,153        7,185     

Common Equity (5,357 units) (g)(i)

             583        827     
          

 

 

    

 

 

    
             7,736        8,012        2

 

10


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

March 31, 2017

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

Worldwide Express Operations, LLC

                

Subordinated Note (i)(n)

     9.8%/0.0%       2/3/2025      $ 10,000      $ 9,853      $ 9,853     

Common Equity (4,000 units) (g)(i)

             4,000        4,000     
          

 

 

    

 

 

    
             13,853        13,853        4

Utility Equipment Manufacturing

                

Mirage Trailers LLC (k)

                

Senior Secured Loan (j)(e)

     12.5%/0.0%       11/25/2020        8,123        8,057        8,123     

Common Equity (2,500,000 shares)(f)

             2,482        2,773     
          

 

 

    

 

 

    
             10,539        10,896        3

Trantech Radiator Products, Inc. (k)

                

Subordinated Note (i)

     12.0%/2.3%       5/31/2018        6,994        6,989        6,994     

Common Equity (6,875 shares) (i)

             688        138     
          

 

 

    

 

 

    
             7,677        7,132        2

Vending Equipment Manufacturing

                

Accent Food Services, LLC

                

Subordinated Note (j)

     10.0%/1.3%       5/30/2022        20,206        20,098        20,098     

Common Equity (7,500 units) (g)(i)

             750        750     
          

 

 

    

 

 

    
             20,848        20,848        6

Ice House America, LLC

                

Subordinated Note (i)

     12.0%/3.0%       1/1/2020        4,269        4,134        4,269     

Warrant (1,957,895 units) (g)(i)(l)

             216        114     
          

 

 

    

 

 

    
            

 

4,350

 

 

 

    

 

4,383

 

 

 

    

 

1

 

 

          

 

 

    

 

 

    

Total Investments

           $ 516,068      $ 536,602        151
          

 

 

    

 

 

    

 

(a) See Note 3 to the consolidated financial statements for portfolio composition by geographic location.
(b) Equity ownership may be held in shares or units of companies related to the portfolio companies.
(c) All debt investments are income producing, unless otherwise indicated. Equity investments are non-income producing unless otherwise noted.
(d) Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of March 31, 2017. Generally, payment-in-kind interest can be paid-in-kind or all in cash.
(e) The investment bears interest at a variable rate that is determined by reference to one-month LIBOR, which is reset monthly. The interest rate is set as one-month LIBOR + 11.5% and is subject to a 12.5% interest rate floor. The Company has provided the interest rate in effect as of March 31, 2017.
(f) Income producing. Maturity date, if any, represents mandatory redemption date.
(g) Investment is held by a wholly-owned subsidiary of the Company, other than the Funds.
(h) The entire commitment was unfunded at March 31, 2017. As such, no interest is being earned on this investment.
(i) Investment pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).

 

11


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (unaudited) (continued)

March 31, 2017

(In thousands, except shares)

 

(j) The portion of the investment not held by the Funds is pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(k) As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was an Affiliated Person are detailed in Note 3 to the consolidated financial statements.
(l) Warrants entitle the Company to purchase a predetermined number of shares of common stock, and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.
(m) Investment in portfolio company that has sold its operations and is in the process of winding down.
(n) The investment bears interest at a variable rate that is determined by reference to three-month LIBOR, which is reset quarterly. The interest rate is set as three-month LIBOR + 8.8% and is subject to a 1.0% LIBOR interest rate floor. The Company has provided the interest rate in effect as of March 31, 2017.
(o) Investment was on non-accrual status as of March 31, 2017, meaning the Company has ceased recognizing interest income on the investment.

See Notes to Consolidated Financial Statements (unaudited).

 

12


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments

December 31, 2016

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost     Fair
Value
     Percent
of Net
Assets
 

Aerospace & Defense Manufacturing

               

FDS Avionics Corp.

               

(dba Flight Display Systems)

               

Subordinated Note

     12.3%/0.0%       4/1/2020      $ 5,200      $ 5,184     $ 4,237     

Common Equity (200 units) (i)

             2,000       312     
          

 

 

   

 

 

    
             7,184       4,549        1

Fiber Materials, Inc. (k)

               

Subordinated Note

     12.0%/1.0%       5/30/2022        4,003        3,984       3,984     

Common Equity (10 units)

             1,000       1,000     
          

 

 

   

 

 

    
             4,984       4,984        1

Lightning Diversion Systems, LLC

               

Senior Secured Loan (j)

     10.5%/0.0%       9/16/2021        21,204        21,114       21,204     

Revolving Loan ($250 commitment) (h)

     10.5%/0.0%       9/16/2021        —          (1     —       

Common Equity (600,000 units)

             —         2,637     
          

 

 

   

 

 

    
             21,113       23,841        7

Malabar International (k)

               

Subordinated Note (j)

     11.3%/2.0%       11/13/2021        7,617        7,607       7,617     

Preferred Equity (1,494 shares) (f)

     6.0%/0.0%       5/12/2022           1,997       5,367     
          

 

 

   

 

 

    
             9,604       12,984        4

Simplex Manufacturing Co.

               

Subordinated Note (n)

     14.0%/0.0%       12/9/2016        4,050        4,050       4,050     

Warrant (28 shares) (l)

             1,041       3,787     
          

 

 

   

 

 

    
             5,091       7,837        2

Steward Holding LLC (k)

               

(dba Steward Advanced Materials)

               

Subordinated Note

     12.0%/2.3%       5/12/2021        7,181        7,154       7,181     

Common Equity (1,000,000 units)

             1,000       678     
          

 

 

   

 

 

    
             8,154       7,859        2

Apparel Distribution

               

Jacob Ash Holdings, Inc.

               

Subordinated Note (j)

     13.0%/4.0%       6/30/2018        4,000        3,997       4,000     

Subordinated Note

     13.0%/0.0%       6/30/2018        778        773       778     

Preferred Equity (66,138 shares) (f)

     0.0%/15.0%       6/30/2018           1,071       1,075     

Warrant (63,492 shares) (l)

             67       —       
          

 

 

   

 

 

    
             5,908       5,853        2

Building Products Manufacturing

               

SES Investors, LLC (k)

               

(dba SES Foam)

               

Senior Secured Loan

     11.0%/0.0%       3/8/2022        10,474        10,424       10,424     

Revolving Loan ($1,500 commitment)(i)

     6.0%/0.0%       3/8/2022        1,000        993       993     

Common Equity (6,000 units) (g)(i)

             600       600     
          

 

 

   

 

 

    
             12,017       12,017        4

 

13


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2016

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
  Maturity    Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

The Wolf Organization, LLC

                

Common Equity (175 shares)

           $ 1,455      $ 3,102        1

US GreenFiber, LLC

                

Subordinated Note (j)

   12.5%/0.0%   1/2/2019    $  14,000        13,968        14,000     

Common Equity (1,667 units) (g)(i)

             500        574     
          

 

 

    

 

 

    
             14,468        14,574        4

Business Services

                

Comprehensive Logistics Co., Inc.

                

Senior Subordinated Loan (j)

   11.5%/4.5%   11/22/2021      15,075        15,001        15,001        4

Inflexxion, Inc. (k)

                

Senior Secured Loan

   7.0%/6.0%   12/16/2019      4,196        4,182        3,579     

Revolving Loan ($500 commitment) (i)

   7.0%/6.0%   12/16/2019      159        156        136     

Preferred Equity (252,046 units)

             252        114     

Preferred Equity (308,987 units)

             309        139     

Preferred Equity (1,400 units)

             1,400        —       
          

 

 

    

 

 

    
             6,299        3,968        1

Plymouth Rock Energy, LLC

                

Senior Secured Loan

   11.8%/0.0%   5/14/2017      6,000        5,995        6,000        2

Vanguard Dealer Services, L.L.C.

                

Subordinated Note

   12.3%/0.0%   1/30/2021      11,450        11,405        11,450     

Common Equity (6,000 shares)

             600        907     
          

 

 

    

 

 

    
             12,005        12,357        3

Capital Equipment Manufacturing

                

Thermoforming Technology Group LLC

                

Subordinated Note

   12.5%/0.0%   9/14/2021      14,700        14,637        14,700     

Common Equity (3,500 units) (g)(i)

             350        353     
          

 

 

    

 

 

    
             14,987        15,053        4

Component Manufacturing

                

Hilco Plastics Holdings, LLC

                

(dba Hilco Technologies)

                

Subordinated Note

   11.5%/1.0%   7/15/2022      8,022        7,984        7,984     

Common Equity (72,507 units) (g)(i)

             500        500     
          

 

 

    

 

 

    
             8,484        8,484        2

Toledo Molding & Die, Inc.

                

Subordinated Note (i)

   10.5%/0.0%   12/18/2018      10,000        9,926        10,000        3

Consumer Products

                

Grindmaster Corporation

                

Subordinated Note

   11.5%/0.0%   10/31/2019      10,500        10,474        10,500        3

 

14


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2016

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

World Wide Packaging, LLC (k)

                

Common Equity (1,517,573 units) (g)(i)

           $ 499      $ 2,898        1

Electronic Components Supplier

                

Apex Microtechnology, Inc. (k)

                

Warrant (2,293 shares) (l)

             220        345     

Common Equity (11,690 shares)

             1,168        1,876     
          

 

 

    

 

 

    
             1,388        2,221        1

Healthcare Products

                

Allied 100 Group, Inc.

                

Subordinated Note (j)

     11.5%/0.0%       5/26/2020      $  13,000        12,960        13,000     

Common Equity (1,250,000 units) (i)

             1,250        1,201     
          

 

 

    

 

 

    
             14,210        14,201        4

Anatrace Products, LLC

                

Subordinated Note

     13.0%/1.3%       6/23/2021        6,500        6,483        6,500     

Common Equity (360,000 shares) (i)

             —          259     
          

 

 

    

 

 

    
             6,483        6,759        2

OMC Investors, LLC

                

(dba Ohio Medical Corporation)

                

Subordinated Note

     12.0%/0.0%       7/15/2021        10,000        9,917        9,383     

Common Equity (5,000 shares)

             500        358     
          

 

 

    

 

 

    
             10,417        9,741        3

Pfanstiehl, Inc. (k)

                

Subordinated Note

     10.5%/0.0%       9/29/2021        6,208        6,189        6,208     

Common Equity (8,500 units) (i)

             850        13,750     
          

 

 

    

 

 

    
             7,039        19,958        6

Six Month Smiles Holdings, Inc.

                

Subordinated Note (i)

     6.0%/8.5%       7/31/2020        8,777        8,754        8,106        2

Healthcare Services

                

Medsurant Holdings, LLC (k)

                

Subordinated Note

     12.3%/0.0%       6/18/2021        6,267        6,221        6,267     

Preferred Equity (126,662 units) (g)

             1,346        1,505     

Warrant (505,176 units) (g)(l)

             4,516        5,199     
          

 

 

    

 

 

    
             12,083        12,971        4

Microbiology Research Associates, Inc. (k)

                

Subordinated Note

     11.0%/1.5%       3/13/2022        8,538        8,516        8,538     

Common Equity (1,625,731 units) (i)

             1,939        2,593     
          

 

 

    

 

 

    
             10,455        11,131        3

 

15


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2016

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

Oaktree Medical Centre, P.C.

                

(dba Pain Management Associates)

                

Senior Secured Loan (i)

     11.5%/0.0%       1/1/2018      $ 571      $ 614      $ 633     

Senior Secured Loan (i)

     7.0%/12.0%       1/1/2018        6,078        6,405        4,663     

Revolving Loan ($2,500 commitment) (i)

     11.5%/0.0%       1/1/2018        2,500        2,526        2,768     
          

 

 

    

 

 

    
             9,545        8,064        2

United Biologics, LLC

                

Subordinated Note

     12.0%/2.0%       4/30/2018        8,698        8,659        8,698     

Preferred Equity (98,377 units) (g)(i)

             1,069        729     

Warrant (57,469 units) (l)

             566        191     
          

 

 

    

 

 

    
             10,294        9,618        3

Industrial Cleaning & Coatings

                

K2 Industrial Services, Inc.

                

Tranche A Loan

     11.8%/2.5%       4/25/2022        10,047        10,005        10,005     

Tranche B Loan

     11.8%/7.3%       4/25/2022        2,027        2,019        2,019     

Common Equity (1,673 shares)

             1,268        553     
          

 

 

    

 

 

    
             13,292        12,577        4

Information Technology Services

                

FTH Acquisition Corp. VII

                

Subordinated Note

     13.0%/0.0%       3/9/2017        8,178        8,178        7,937     

Preferred Equity (887,122 shares)

             887        444     
          

 

 

    

 

 

    
             9,065        8,381        2

inthinc Technology Solutions, Inc.

                

Subordinate Note ($5,000 commitment)

     12.5%/0.0%       4/24/2020        4,000        3,984        4,000     

Subordinated Note

     0.0%/12.5%       4/24/2020        1,178        1,039        1,141     

Royalty Rights

       4/24/2020           185        —       
          

 

 

    

 

 

    
             5,208        5,141        1

Software Technology, LLC

                

Subordinated Note (j)

     11.0%/0.0%       6/23/2023        8,750        8,706        8,706     

Common Equity (11 units)

             1,125        1,125     
          

 

 

    

 

 

    
             9,831        9,831        3

Laundry Services

                

Caldwell & Gregory, LLC

                

Subordinated Note

     11.5%/1.0%       11/30/2018        1,555        1,545        1,555     

Subordinated Note

     0.0%/12.0%       5/31/2019        4,583        4,460        4,583     

Common Equity (500,000 units) (g)

             500        650     

Warrant (242,121 units) (g)(l)

             242        315     
          

 

 

    

 

 

    
             6,747        7,103        2

Oil & Gas Distribution

                

LNG Indy, LLC

                

(dba Kinetrex Energy)

                

Subordinated Note (j)

     11.5%/0.0%       9/28/2021        5,000        4,975        4,975     

Common Equity (1,000 units)

             1,000        1,000     
          

 

 

    

 

 

    
             5,975        5,975        2

 

16


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2016

(In thousands, except shares)

 

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Rate (d)

Cash/PIK

   Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

Oil & Gas Services

                 

IOS Acquisitions, Inc. (m)

                 

Common Equity (2,152 units) (i)

            $ 103      $ 17        0

Pinnergy, Ltd. (k)

                 

Subordinated Note (j)

   0.0%/10.0%      1/24/2020      $ 8,414        8,394        8,414     

Common Equity - Class A-2 (42,500 units) (j)

              3,000        3,000     

Common Equity - Class B (1,000 units) (j)

              3,000        3,000     
           

 

 

    

 

 

    
              14,394        14,414        4

Packaging

                 

Rohrer Corporation

                 

Subordinated Note (j)

   11.0%/1.5%      1/18/2022        16,614        16,539        16,539     

Common Equity (389 shares)

              750        750     
           

 

 

    

 

 

    
              17,289        17,289        5

Printing Services

                 

Brook & Whittle Limited

                 

Subordinated Note

   12.0%/4.8%      6/30/2017        8,031        8,031        8,198     

Subordinated Note

   12.0%/2.0%      6/30/2017        2,342        2,342        2,342     

Warrant (1,051 shares) (l)

              285        263     

Common Equity - Series A (148 shares)

              110        37     

Common Equity - Series D (527 shares)

              52        125     
           

 

 

    

 

 

    
              10,820        10,965        3

Promotional Products

                 

Hub Acquisition Sub, LLC

                 

(dba Hub Pen)

                 

Subordinated Note (j)

   12.3%/0.0%      9/23/2021        11,350        11,301        11,350     

Common Equity (7,500 units)

              750        1,010     
           

 

 

    

 

 

    
              12,051        12,360        3

Restaurants

                 

ACFP Management, Inc. (m)

                 

Common Equity (1,000,000 units) (i)

              —          —          0

Cardboard Box LLC

                 

(dba Anthony’s Coal Fired Pizza)

                 

Common Equity (521,021 units) (i)

              520        240        0

Restaurant Finance Co, LLC

                 

Senior Secured Loan (j)

   12.0%/4.0%      7/31/2020        9,154        9,126        7,377        2

Retail

                 

EBL, LLC (EbLens)

                 

Common Equity (750,000 units) (g)(i)

              750        2,044        1

 

17


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2016

(In thousands, except shares)

 

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

  

Rate (d)
Cash/PIK

   Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

Palmetto Moon, LLC

                 

Senior Secured Term Loan

   11.5%/0.0%      10/31/2021      $ 6,402      $ 6,364      $ 6,364     

Common Equity (499 units)

              499        499     
           

 

 

    

 

 

    
              6,863        6,863        2

Safety Products Manufacturing

                 

Safety Products Group, LLC (k)(m)

                 

Preferred Equity (749 units) (g)(i)

              —          22     

Common Equity (676 units) ($2,852 commitment) (g)(i)

              —          —       
           

 

 

    

 

 

    
              —          22        0

Specialty Chemicals

                 

FAR Research Inc. (k)

                 

Senior Secured Loan (j)

   11.8%/1.0%      3/31/2019        7,271        7,256        7,271     

Revolving Loan ($1,750 commitment) (i)

   11.8%/1.0%      3/31/2019        138        134        138     

Common Equity (1,396 units)

              1,395        1,012     
           

 

 

    

 

 

    
              8,785        8,421        2

Specialty Distribution

                 

Carlson Systems Holdings, Inc. (m)

                 

Common Equity (15,000 units) (i)

              —          73     
           

 

 

    

 

 

    
              —          73        0

Pugh Lubricants, LLC

                 

Subordinated Note (j)

   12.3%/0.0%      5/10/2022        12,256        12,197        12,197     

Common Equity (5,000 units) (g)(i)

              500        500     
           

 

 

    

 

 

    
              12,697        12,697        4

Virginia Tile Company, LLC

                 

Subordinated Note (j)

   12.3%/0.0%      4/7/2022        12,000        11,962        12,000     

Common Equity (17 units)

              342        1,220     
           

 

 

    

 

 

    
              12,304        13,220        4

Transportation Services

                 

Cavallo Bus Lines Holdings, LLC

                 

Subordinated Note

   12.0%/3.0%      4/26/2021        8,250        8,218        8,250        2

US Pack Logistics LLC

                 

Subordinated Note (j)

   12.0%/1.8%      9/27/2020        14,027        13,923        14,027     

Common Equity (5,357 units) (g)(i)

              583        675     
           

 

 

    

 

 

    
              14,506        14,702        4

Worldwide Express Operations, LLC

                 

Subordinated Note

   11.5%/1.0%      8/1/2020        17,468        17,368        17,559     

Common Equity (2,500,000 units) (g)(i)

              2,500        6,613     
           

 

 

    

 

 

    
              19,868        24,172        7

Utility Equipment Manufacturing

                 

Mirage Trailers LLC (k)

                 

Senior Secured Loan (j)(e)

   12.5%/0.0%      11/25/2020        8,208        8,138        8,208     

Common Equity (2,500,000 shares)

              2,480        2,721     
           

 

 

    

 

 

    
              10,618        10,929        3

 

18


Table of Contents

FIDUS INVESTMENT CORPORATION

Consolidated Schedule of Investments (continued)

December 31, 2016

(In thousands, except shares)

 

Industry

Portfolio Company (a)(b)

Investment Type (c)

   Rate (d)
Cash/PIK
    Maturity      Principal
Amount
     Cost      Fair
Value
     Percent
of Net
Assets
 

Trantech Radiator Products, Inc. (k)

                

Subordinated Note (i)

     12.0%/2.3%       5/31/2018      $ 6,994      $ 6,988      $ 6,994     

Common Equity (6,875 shares) (i)

             688        242     
          

 

 

    

 

 

    
             7,676        7,236        2

Vending Equipment Manufacturing

                

Accent Food Services, LLC

                

Subordinated Note

     10.0%/1.3%       5/30/2022        14,516        14,436        14,436     

Common Equity (7,500 units) (g)(i)

             750        750     
          

 

 

    

 

 

    
             15,186        15,186        4

Ice House America, LLC

                

Subordinated Note (i)

     12.0%/3.0%       1/1/2020        4,237        4,090        4,237     

Warrant (1,957,895 units) (g)(i)(l)

             216        101     
          

 

 

    

 

 

    
            

 

4,306

 

 

 

    

 

4,338

 

 

 

    

 

1

 

 

          

 

 

    

 

 

    

Total Investments

           $ 500,514      $ 524,454        148
          

 

 

    

 

 

    

 

(a) See Note 3 to the consolidated financial statements for portfolio composition by geographic location.
(b) Equity ownership may be held in shares or units of companies related to the portfolio companies.
(c) All debt investments are income producing, unless otherwise indicated. Equity investments are non-income producing unless otherwise noted.
(d) Rate includes the cash interest or dividend rate and paid-in-kind interest or dividend rate, if any, as of December 31, 2016. Generally, payment-in-kind interest can be paid-in-kind or all in cash.
(e) The investment bears interest at a variable rate that is determined by reference to one-month LIBOR, which is reset monthly. The interest rate is set as one-month LIBOR + 11.5% and is subject to a 12.5% interest rate floor. The Company has provided the interest rate in effect as of December 31, 2016.
(f) Income producing. Maturity date, if any, represents mandatory redemption date.
(g) Investment is held by a wholly-owned subsidiary of the Company, other than the Funds.
(h) The entire commitment was unfunded at December 31, 2016. As such, no interest is being earned on this investment.
(i) Investment pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(j) The portion of the investment not held by the Funds is pledged as collateral for the Credit Facility and, as a result, is not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the Credit Facility (see Note 6 to the consolidated financial statements).
(k) As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of this portfolio company because it owns 5% or more of the portfolio company’s outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company. Transactions in which the issuer was an Affiliated Person are detailed in Note 3 to the consolidated financial statements.
(l) Warrants entitle the Company to purchase a predetermined number of shares of common stock, and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.
(m) Investment in portfolio company that has sold its operations and is in the process of winding down.
(n) The debt investment continues to pay interest, including the default rate, while the portfolio company pursues refinancing options.

See Notes to Consolidated Financial Statements (unaudited).

 

19


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

Note 1. Organization and Nature of Business

Fidus Investment Corporation, a Maryland corporation (“FIC,” and together with its subsidiaries, the “Company”), was formed on February 14, 2011 for the purposes of (i) acquiring 100% of the limited partnership interests of Fidus Mezzanine Capital, L.P. and its consolidated subsidiaries (collectively, “Fund I”) and 100% of the membership interests of Fund I’s general partner, Fidus Mezzanine Capital GP, LLC (“FMCGP”), (ii) raising capital in an initial public offering that was completed in June 2011 (the “IPO”) and (iii) thereafter operating as an externally managed, closed-end, non-diversified management investment company, within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”), that has elected to be regulated as a business development company (“BDC”) under the 1940 Act.

On June 20, 2011, FIC acquired 100% of the limited partnership interests in Fund I and 100% of the equity interests in FMCGP, in exchange for 4,056,521 shares of common stock in FIC (the “Formation Transactions”). Fund I became FIC’s wholly-owned subsidiary, retained its license to operate as a Small Business Investment Company (“SBIC”), and continues to hold investments and make new investments. The IPO consisted of the sale of 5,370,500 shares of the Company’s common stock, including shares purchased by the underwriters pursuant to their exercise of the over-allotment option, at a price of $15.00 per share resulting in net proceeds of $73,626, after deducting underwriting fees and commissions and offering costs totaling $6,932.

The Company provides customized debt and equity financing solutions to lower middle-market companies. Fund I commenced operations on May 1, 2007, and on October 22, 2007, was granted a license to operate as a SBIC under the authority of the U.S. Small Business Administration (“SBA”). On March 29, 2013, the Company commenced operations of a second wholly-owned subsidiary, Fidus Mezzanine Capital II, L.P. (“Fund II”), and, on May 28, 2013, was granted a second license to operate Fund II as an SBIC. Collectively, Fund I and Fund II are referred to as the “Funds.” The SBIC licenses allow the Funds to obtain leverage by issuing SBA-guaranteed debentures (“SBA debentures”), subject to the issuance of leverage commitments by the SBA and other customary procedures. As SBICs, the Funds are subject to a variety of regulations and oversight by the SBA under the Small Business Investment Act of 1958, as amended (the “SBIC Act”), concerning, among other things, the size and nature of the companies in which they may invest and the structure of those investments.

Fund I has also elected to be regulated as a BDC under the 1940 Act. Fund II is not registered under the 1940 Act and relies on the exclusion from the definition of investment company contained in Section 3(c)(7) of the 1940 Act. In addition, for federal income tax purposes, the Company elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2011.

The Company pays a quarterly base management fee and an incentive fee to Fidus Investment Advisors, LLC (the “Investment Advisor”) under an investment advisory agreement (the “Investment Advisory Agreement”). The initial investment professionals of the Investment Advisor were previously employed by Fidus Capital, LLC, who was the investment advisor to Fund I prior to consummation of the Formation Transactions.

Note 2. Significant Accounting Policies

Basis of presentation: The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) pursuant to the requirements for reporting on Form 10-Q, Accounting Standards Codification (“ASC”) 946, Financial Services – Investment Companies (“ASC 946), and Articles 6 or 10 of Regulation S-X. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation. The current period’s results of operation are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2016.

Use of estimates: The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Consolidation: Pursuant to Article 6 of Regulation S-X and ASC 946, the Company will generally not consolidate its investments in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. As a result, the consolidated financial statements of the Company include only the accounts of the Company and its wholly-owned subsidiaries, including the Funds. All significant intercompany balances and transactions have been eliminated.

 

20


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Investment risks: The Company’s investments are subject to a variety of risks. These risks may include, but are not limited to the following:

 

    Market risk - Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument due to market changes.

 

    Credit risk - Credit risk represents the risk that the Company would incur if the counterparties failed to perform pursuant to the terms of their agreements with the Company.

 

    Liquidity risk - Liquidity risk represents the possibility that the Company may not maintain sufficient cash balances or may not have access to sufficient cash to meet loan and other commitments as they become due.

 

    Interest rate risk - Interest rate risk represents the likelihood that a change in interest rates could have an adverse impact on the fair value of an interest-bearing financial instrument.

 

    Prepayment risk - Certain of the Company’s debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the debt investments and making the instrument less likely to be an income producing instrument.

 

    Off-Balance sheet risk - Some of the Company’s financial instruments contain off-balance sheet risk. Generally, these financial instruments represent future commitments to purchase other financial instruments at specific terms at specific future dates. See Note 7 for further details.

Fair value of financial instruments: The Company measures and discloses fair value with respect to substantially all of its financial instruments in accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. See Note 4 to the consolidated financial statements for further discussion regarding the fair value measurements and hierarchy.

Investment classification: The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in those companies where the Company owns more than 25% of the voting securities of such company or has rights to maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliate Investments” are defined as investments in those companies where the Company owns between 5% and 25% of the voting securities of such company. “Non-Control/Non-Affiliate Investments” are those that neither qualify as Control Investments nor Affiliate Investments.

Segments: In accordance with ASC Topic 280 — Segment Reporting, the Company has determined that it has a single reporting segment and operating unit structure.

Cash and cash equivalents: Cash and cash equivalents are highly liquid investments with an original maturity of three months or less at the date of acquisition. The Company places its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. The Company does not believe its cash balances are exposed to any significant credit risk.

Deferred financing costs: Deferred financing costs consist of fees and expenses paid in connection with the Credit Facility (as defined in Note 6) and SBA debentures. Deferred financing costs are capitalized and amortized over the term of the debt agreement using the effective interest method. Unamortized deferred financing costs are presented as an offset to the corresponding debt liabilities on the consolidated statements of assets and liabilities.

Deferred equity offering costs: Deferred equity offering costs include registration expenses related to shelf filings, including expenses related to the launch of the ATM Program. These expenses primarily consist of Securities and Exchange Commission (“SEC”) registration fees, legal fees and accounting fees incurred. These expenses are included in prepaid assets and are charged to additional paid in capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed.

Realized gains or losses and unrealized appreciation or depreciation on investments: Realized gains or losses on investments are recorded upon the sale or disposition of a portfolio investment and are calculated as the difference between the net proceeds from the sale or disposition and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation on the consolidated statements of operations includes changes in the fair value of investments from the prior period, as determined in good faith by the Company’s board of directors (the “Board”) through the application of the Company’s valuation policy, as well as reclassifications of any prior period unrealized appreciation or depreciation on exited investments to realized gains or losses on investments.

 

21


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Interest and dividend income: Interest and dividend income is recorded on the accrual basis to the extent that we expect to collect such amounts. Interest is accrued daily based on the outstanding principal amount and the contractual terms of the debt. Dividend income is recorded as dividends are declared or at the point an obligation exists for the portfolio company to make a distribution, and is generally recognized when received. Distributions from portfolio companies are evaluated to determine if the distribution is a distribution of earnings or a return of capital. Distributions of earnings are included in dividend income while a return of capital is recorded as a reduction in the cost basis of the investment. Estimates are adjusted as necessary when the relevant tax forms are received from the portfolio company.

Certain of the Company’s investments contain a payment-in-kind (“PIK”) income provision. The PIK income, computed at the contractual rate specified in the applicable investment agreement, is added to the principal balance of the investment, rather than being paid in cash, and recorded as interest or dividend income, as applicable, on the consolidated statements of operations. Generally, PIK can be paid-in-kind or all in cash. The Company stops accruing PIK income when there is reasonable doubt that PIK income will be collected. PIK income is included in the Company’s taxable income and, therefore, affects the amount the Company is required to pay to shareholders in the form of dividends in order to maintain the Company’s tax treatment as a RIC and to avoid corporate federal income tax, even though the Company has not yet collected the cash.

When there is reasonable doubt that principal, interest or dividends will be collected, loans or preferred equity investments are placed on non-accrual status and the Company will generally cease recognizing interest or dividend income. Interest and dividend payments received on non-accrual investments may be recognized as interest or dividend income or may be applied to the investment principal balance based on management’s judgment. Non-accrual investments are restored to accrual status when past due principal, interest or dividends are paid and, in management’s judgment, payments are likely to remain current.

Fee income: Transaction fees earned in connection with the Company’s investments are recognized as fee income. Such fees typically include fees for services, including structuring and advisory services, provided to portfolio companies. The Company recognizes income from fees for providing such structuring and advisory services when the services are rendered or the transactions are completed. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as fee income when earned.

The Company also typically receives loan origination or closing fees in connection with investments. Such loan origination and closing fees are capitalized as unearned income and offset against investment cost basis on the consolidated statements of assets and liabilities and accreted into income over the life of the investment.

Warrants: In connection with the Company’s debt investments, the Company will sometimes receive warrants or other equity-related securities from the borrower (“Warrants”). The Company determines the cost basis of Warrants based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and Warrants received. Any resulting difference between the face amount of the debt and its recorded fair value resulting from the assignment of value to the Warrants is treated as original issue discount (“OID”), and accreted into interest income using the effective interest method over the term of the debt investment.

Partial loan sales: The Company follows the guidance in ASC 860, Transfers and Servicing, when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest should remain on the Company’s consolidated statement of assets and liabilities and the proceeds recorded as a secured borrowing until the definition is met. Management has determined that all participations and other partial loan sale transactions entered into by the Company have met the definition of a participating interest. Accordingly, the Company uses sale treatment in accounting for such transactions.

Income taxes: The Company has elected to be treated as a RIC under Subchapter M of the Code, which will generally relieve the Company from U.S. federal income taxes with respect to all income distributed to stockholders. To maintain the tax treatment of a RIC, the Company is required to timely distribute to its stockholders at least 90.0% of “investment company taxable income,” as defined by Subchapter M of the Code, each year. Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year; however, the Company will pay a 4.0% excise tax if it does not distribute at least 98.0% of the current year’s ordinary taxable income. Any such carryover taxable income must be distributed through a dividend declared prior to the later of the date on which the final tax return related to the year in which the Company generated such taxable income is filed or the 15th day of the 9th month following the close of such taxable year. In addition, the Company will be subject to federal excise tax if it does not distribute at least 98.2% of its net capital gains realized, computed for any one year period ending October 31.

In the future, the Funds may be limited by provisions of the SBIC Act and SBA regulations governing SBICs from making certain distributions to FIC that may be necessary to enable FIC to make the minimum distributions required to maintain the tax treatment of a RIC.

 

22


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

The Company has certain wholly-owned taxable subsidiaries (the “Taxable Subsidiaries”), each of which generally holds one or more of the Company’s portfolio investments listed on the consolidated schedules of investments. The Taxable Subsidiaries are consolidated for financial reporting purposes, such that the Company’s consolidated financial statements reflect the Company’s investment in the portfolio companies owned by the Taxable Subsidiaries. The purpose of the Taxable Subsidiaries is to permit the Company to hold equity investments in portfolio companies that are taxed as partnerships for U.S. federal income tax purposes (such as entities organized as limited liability companies (“LLCs”) or other forms of pass through entities) while complying with the “source-of-income” requirements contained in the RIC tax provisions. The Taxable Subsidiaries are not consolidated with the Company for U.S. federal corporate income tax purposes, and each Taxable Subsidiary will be subject to U.S. federal corporate income tax on its taxable income. Any such income or expense is reflected in the consolidated statements of operations.

U.S. federal income tax regulations differ from GAAP, and as a result, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized under GAAP. Differences may be permanent or temporary. Permanent differences may arise as a result of, among other items, a difference in the book and tax basis of certain assets and nondeductible federal income taxes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

ASC Topic 740 — Accounting for Uncertainty in Income Taxes (“ASC Topic 740”) provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be respected by the applicable tax authorities. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax provision, if any. There were no material uncertain income tax positions at March 31, 2017 and December 31, 2016. The Company’s tax returns are generally subject to examination by U.S. federal and most state tax authorities for a period of three years from the date the respective returns are filed, and, accordingly, the Company’s 2013 through 2016 tax years remain subject to examination.

Distributions to stockholders: Distributions to stockholders are recorded on the record date with respect to such distributions. The amount, if any, to be distributed to stockholders, is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, may be distributed at least annually, although the Company may decide to retain such capital gains for investment.

The determination of the tax attributes for the Company’s distributions is made annually, and is based upon the Company’s taxable income and distributions paid to its stockholders for the full year. Ordinary dividend distributions from a RIC do not qualify for the preferential tax rate on qualified dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax characterization of the Company’s distributions generally includes both ordinary income and capital gains but may also include qualified dividends or return of capital.

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the Company’s stockholders who have not “opted out” of the DRIP at least three days prior to the dividend payment date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the Company’s common stock on a date determined by the Board. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator before any associated brokerage or other costs. See Note 9 to the consolidated financial statements regarding dividend declarations and distributions.

Earnings and net asset value per share: The earnings per share calculations for the three months ended March 31, 2017 and 2016, are computed utilizing the weighted average shares outstanding for the period. Net asset value per share is calculated using the number of shares outstanding as of the end of the period.

Stock repurchase plan: The Company has an open market stock repurchase program (the “Program”) under which the Company may acquire up to $5.0 million of its outstanding common stock. Under the Program, the Company may, but is not obligated to, repurchase outstanding common stock in the open market from time to time provided that the Company complies with the prohibitions under its insider trading policies and the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market value and timing constraints. The timing, manner, price and amount of any share repurchases will be determined by the Company’s management, in its discretion, based upon the evaluation of economic and market conditions, stock price, capital availability, applicable legal and regulatory requirements and other corporate considerations. On November 1, 2016, the Board extended the Program through December 31, 2017, or until the approved dollar amount has been used to repurchase shares. The

 

23


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Program does not require the Company to repurchase any specific number of shares and the Company cannot assure that any shares will be repurchased under the Program. The Program may be suspended, extended, modified or discontinued at any time. The Company did not make any repurchases of common stock during the three months ended March 31, 2017 or 2016.

Recent accounting pronouncements: In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, which defers the effective date of ASU 2014-09, such that the guidance is effective for annual and interim reporting periods beginning after December 15, 2017 and early application is permitted only for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated financial position or disclosures, but the Company does not expect the impact to be material.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated financial position or disclosures.

In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements, which includes minor corrections and clarifications that affect a wide variety of topics in the Accounting Standards Codification, including an amendment to Topic 820, Fair Value Measurement, which clarifies the difference between a valuation approach and a valuation technique when applying the guidance of that Topic. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The transition guidance for the Topic 820 amendment must be applied prospectively because it could potentially involve the use of hindsight that includes fair value measurements. The guidance is effective for fiscal years, and interim periods within those fiscal years, for all entities beginning after December 15, 2016. The Company adopted this ASU effective January 1, 2017, and the amendments do not have a material effect on the Company’s consolidated financial position or disclosures.

Note 3. Portfolio Company Investments

The Company’s portfolio investments principally consist of secured and unsecured debt, equity warrants and direct equity investments in privately held companies. The debt investments may or may not be secured by either a first or second lien on the assets of the portfolio company. The debt investments generally bear interest at fixed rates, and generally mature between five and seven years from the original investment. In connection with a debt investment, the Company also may receive nominally priced equity warrants and/or make a direct equity investment in the portfolio company. The Company’s warrants or equity investments may be investments in a holding company related to the portfolio company. In addition, the Company periodically makes equity investments in its portfolio companies through Taxable Subsidiaries. In both situations, the investment is generally reported under the name of the operating company on the consolidated schedules of investments.

As of March 31, 2017, the Company had active investments in 55 portfolio companies and residual investments in four portfolio companies that have sold their underlying operations. The aggregate fair value of the total portfolio was $536,602 and the weighted average effective yield on the Company’s debt investments was 12.9% as of such date. As of March 31, 2017, the Company held equity investments in 88.1% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was 7.2%. As of December 31, 2016, the Company had active investments in 53 portfolio companies and residual investments in four portfolio companies that have sold their underlying operations. The aggregate fair value of the total portfolio was $524,454 and the weighted average effective yield on the Company’s debt investments was 13.1% as of such date. As of December 31, 2016, the Company held equity investments in 86.0% of its portfolio companies and the average fully diluted equity ownership in those portfolio companies was 7.3%. The weighted average yield of the Company’s debt investments is not the same as a return on investment for its stockholders but, rather, relates to a portion of the Company’s investment portfolio and is calculated before the payment of all of the Company’s and its subsidiaries’ fees and expenses. The weighted average yields were computed using the effective interest rates for debt investments at cost as of March 31, 2017 and December 31, 2016, including accretion of original issue discount and loan origination fees, but excluding investments on non-accrual status, if any.

Purchases of debt and equity investments for the three months ended March 31, 2017 and 2016, totaled $55,004 and $42,348, respectively. Proceeds from sales and repayments, including principal, return of capital distributions and realized gains, of portfolio investments for the three months ended March 31, 2017 and 2016 totaled $47,746 and $31,581, respectively.

 

24


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Investments by type with corresponding percentage of total portfolio investments consisted of the following:

 

     Fair Value     Cost  
     March 31, 2017     December 31, 2016     March 31, 2017     December 31, 2016  

Subordinated notes

   $ 372,367        69.5   $ 363,646        69.4   $ 375,113        72.8   $ 364,543        72.9

Senior secured loans

     78,480        14.6       79,758        15.2       82,753        16.0       83,426        16.7  

Equity

     74,047        13.8       70,849        13.5       50,749        9.8       45,207        9.0  

Warrants

     11,523        2.1       10,201        1.9       7,268        1.4       7,153        1.4  

Royalty rights

     185        —         —          —         185        —         185        —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 536,602        100.0   $ 524,454        100.0   $ 516,068        100.0   $ 500,514        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

All investments made by the Company as of March 31, 2017 and December 31, 2016 were made in portfolio companies headquartered in the U.S. The following table shows portfolio composition by geographic region at fair value and cost and as a percentage of total investments. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.

 

     Fair Value     Cost  
     March 31, 2017     December 31, 2016     March 31, 2017     December 31, 2016  

Midwest

   $ 165,774        30.8   $ 166,412        31.6   $ 153,848        29.8   $ 153,456        30.7

Southeast

     118,326        22.1       122,633        23.4       127,207        24.6       130,107        26.0  

Northeast

     104,113        19.4       98,470        18.8       99,020        19.2       94,481        18.9  

West

     76,716        14.3       73,703        14.1       64,845        12.6       63,717        12.7  

Southwest

     71,673        13.4       63,236        12.1       71,148        13.8       58,753        11.7  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 536,602        100.0   $ 524,454        100.0   $ 516,068        100.0   $ 500,514        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

As of March 31, 2017 and December 31, 2016, the Company had no portfolio company investments that represented more than 10% of the total investment portfolio on a fair value or cost basis. As of March 31, 2017, the Company had debt investments in one portfolio company on non-accrual status, which had an aggregate cost and fair value of $9,126 and $7,096, respectively. As of December 31, 2016, there were no investments on non-accrual status.

Schedule 12-14. Consolidated Schedule of Investments In and Advances To Affiliates

The table below represents the fair value of control and affiliate investments as of December 31, 2016 and any gross additions and reductions made to such investments, as well as the ending fair value as of March 31, 2017.

 

Portfolio Company (1)

   Credited to
Income(2)
     December 31,
2016

Fair Value
     Gross
Additions(3)
     Gross
Reductions(4)
     March 31,
2017

Fair Value
 

Affiliate Investments

              

Apex Microtechnology, Inc.

              

Warrant

   $ —        $ 345      $ 40      $ —        $ 385  

Common Equity

     42        1,876        205        —          2,081  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     42        2,221        245        —          2,466  

FAR Research Inc.

              

Senior Secured Loan

     230        7,271        19        1        7,289  

Revolving Loan

     7        138        —          —          138  

Common Equity

     —          1,012        219        —          1,231  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     237        8,421        238        1        8,658  

Fiber Materials, Inc.

              

Senior Subordinated Note

     131        3,984        11        —          3,995  

Common Equity

     —          1,000        —          —          1,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     131        4,984        11        —          4,995  

 

25


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

Portfolio Company (1)

   Credited to
Income(2)
     December 31,
2016

Fair Value
     Gross
Additions(3)
     Gross
Reductions(4)
     March 31,
2017

Fair Value
 

Inflexxion, Inc.

              

Senior Secured Loan

   $ 138      $ 3,579      $ 64      $ 72      $ 3,571  

Revolving Loan

     6        136        3        3        136  

Preferred Equity

     —          114        46        —          160  

Preferred Equity

     —          139        57        —          196  

Preferred Equity

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     144        3,968        170        75        4,063  

Malabar International

              

Subordinated Note

     253        7,617        38        —          7,655  

Preferred Equity

     30        5,367        15        —          5,382  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     283        12,984        53        —          13,037  

Medsurant Holdings, LLC

              

Subordinated Note

     194        6,267        2        2        6,267  

Preferred Equity

     —          1,505        259        —          1,764  

Warrant

     —          5,199        952        —          6,151  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     194        12,971        1,213        2        14,182  

Microbiology Research Associates, Inc.

              

Subordinated Note

     265        8,538        33        1        8,570  

Common Equity

     —          2,593        228        —          2,821  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     265        11,131        261        1        11,391  

Mirage Trailers LLC

              

Senior Secured Loan

     261        8,208        5        90        8,123  

Common Equity

     1        2,721        52        —          2,773  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     262        10,929        57        90        10,896  

Pinnergy, Ltd.

              

Subordinated Note

     218        8,414        212        1        8,625  

Common Equity — Class A-2

     —          3,000        —          —          3,000  

Common Equity — Class B

     —          3,000        —          —          3,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     218        14,414        212        1        14,625  

Pfanstiehl, Inc.

              

Subordinated Note

     162        6,208        1        1        6,208  

Common Equity

     180        13,750        —          953        12,797  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     342        19,958        1        954        19,005  

 

26


Table of Contents

FIDUS INVESTMENT CORPORATION

Notes to Consolidated Financial Statements (unaudited)

(In thousands, except shares and per share data)

 

 

Portfolio Company (1)

   Credited to
Income(2)
     December 31,
2016
Fair Value
     Gross
Additions(3)
     Gross
Reductions(4)
     March 31,
2017

Fair Value
 

Safety Products Group, LLC

              

Preferred Equity

   $ —        $ 22      $ —        $ 13      $ 9  

Common Equity

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     —          22        —          13        9  

SES Investors, LLC

(dba SES Foam)

              

Senior Secured Loan

     290        10,424        24        —          10,448  

Revolving Loan

     21        993        507        —          1,500  

Common Equity

     —          600        —          35        565  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     311        12,017        531        35        12,513  

Steward Holding LLC

(dba Steward Advanced Materials)

              

Subordinated Note

     254        7,181        41        1        7,221  

Common Equity

     —          678        —          161        517  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     254        7,859        41        162        7,738  

Trantech Radiator Products, Inc.

              

Subordinated Note

     250        6,994        1        1        6,994  

Common Equity

     —          242        —          104        138  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     250        7,236        1        105        7,132  

World Wide Packaging, LLC

              

Common Equity

     25        2,898        446        —          3,344  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     25