United States
Securities and Exchange Commission
Washington, DC 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF
REGISTERED MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-00179
Central Securities Corporation
(Exact name of registrant as specified in charter)
630 Fifth Avenue, Eighth Floor
New York, N.Y. 10111
(Address of principal executive offices)
Registrant’s telephone number including area code: 212-698-2020
Date of fiscal year end: December 31
Date of reporting period: September 30, 2019
Item 1. Schedule of Investments.
STATEMENT OF INVESTMENTS
September 30, 2019
(unaudited)
Shares | Value | |||||||
COMMON STOCKS 93.5% | ||||||||
Banks 4.8% | ||||||||
275,000 | Citigroup Inc | $ | 18,997,000 | |||||
230,000 | JPMorgan Chase & Co | 27,068,700 | ||||||
46,065,700 | ||||||||
Communications Services 4.1% | ||||||||
16,000 | Alphabet Inc. Class A (a) | 19,538,240 | ||||||
200,000 | Cogent Communications Holdings, Inc | 11,020,000 | ||||||
210,000 | Liberty Global plc Class C (a) | 4,995,900 | ||||||
200,000 | Liberty Latin America Ltd. Class C (a) | 3,419,000 | ||||||
38,973,140 | ||||||||
Consumer Services 0.3% | ||||||||
30,000 | Wynn Resorts, Ltd | 3,261,600 | ||||||
Diversified Financial 9.5% | ||||||||
180,000 | American Express Company | 21,290,400 | ||||||
400,000 | The Bank of New York Mellon Corporation | 18,084,000 | ||||||
40 | Berkshire Hathaway Inc. Class A (a) | 12,473,280 | ||||||
330,000 | Capital One Financial Corporation | 30,023,400 | ||||||
210,000 | The Charles Schwab Corporation | 8,784,300 | ||||||
90,655,380 | ||||||||
Diversified Industrial 5.5% | ||||||||
250,000 | Brady Corporation Class A | 13,262,500 | ||||||
685,000 | Heritage-Crystal Clean, Inc. (a) | 18,152,500 | ||||||
58,000 | Roper Technologies, Inc | 20,682,800 | ||||||
52,097,800 | ||||||||
Energy 4.4% | ||||||||
700,000 | Hess Corporation | 42,336,000 | ||||||
Health Care 6.4% | ||||||||
90,000 | Johnson & Johnson | 11,644,200 | ||||||
195,000 | Medtronic plc | 21,180,900 | ||||||
200,000 | Merck & Co., Inc | 16,836,000 | ||||||
300,000 | Roche Holdings Ltd. ADR | 10,935,000 | ||||||
60,596,100 | ||||||||
Property and Casualty Insurance 26.7% | ||||||||
200,000 | Kemper Corporation | 15,590,000 | ||||||
100,000 | Kinsale Capital Group, Inc | 10,331,000 | ||||||
28,424 | The Plymouth Rock Company, Inc. Class A (b)(c) | 216,022,400 | ||||||
160,000 | Progressive Corporation | 12,360,000 | ||||||
254,303,400 |
Shares | Value | |||||||
Real Estate and Homebuilding 3.5% | ||||||||
800,000 | Rayonier Inc | $ | 22,560,000 | |||||
700,000 | TRI Pointe Group, Inc. (a) | 10,528,000 | ||||||
33,088,000 | ||||||||
Retailing 3.4% | ||||||||
13,000 | Amazon.com, Inc. (a) | 22,566,830 | ||||||
110,000 | Tiffany & Co | 10,189,300 | ||||||
32,756,130 | ||||||||
Semiconductor 9.8% | ||||||||
450,000 | Analog Devices, Inc | 50,278,500 | ||||||
840,000 | Intel Corporation | 43,285,200 | ||||||
93,563,700 | ||||||||
Software and Services 1.3% | ||||||||
90,000 | Microsoft Corporation | 12,512,700 | ||||||
Technology Hardware and Equipment 13.2% | ||||||||
350,000 | Coherent, Inc. (a) | 53,802,000 | ||||||
225,000 | Keysight Techmologies, Inc. (a) | 21,881,250 | ||||||
250,000 | Motorola Solutions, Inc | 42,602,500 | ||||||
1,247,488 | Ribbon Communications Inc. (a) | 7,285,330 | ||||||
125,571,080 | ||||||||
Utilities 0.6% | ||||||||
643,898 | Star Group, L.P | 6,097,714 | ||||||
Total Common Stocks (cost $337,068,619) | 891,878,444 | |||||||
SHORT-TERM INVESTMENTS 6.5% | ||||||||
Money Market Fund 4.2% | ||||||||
40,384,469 | Fidelity Institutional Money Market Fund | |||||||
Treasury Only Portfolio-Class I | 40,384,469 | |||||||
Principal | ||||||||
U.S. Treasury Bill 2.3% | ||||||||
$22,000,000 | U.S. Treasury Bill 2.05%, due 10/15/19 (d) | 21,982,778 | ||||||
Total Short-Term Investments (cost $62,367,247) | 62,367,247 | |||||||
Total Investments (cost $399,435,866) (100%) | 954,245,691 | |||||||
Cash, receivables and other assets less liabilities (0.0%) | (275,952 | ) | ||||||
Net Assets (100%) | $ | 953,969,739 |
(a) Non-dividend paying.
(b) Affiliate as defined in the Investment Company Act of 1940 and restricted. See Note 5 and Note 6.
(c) Valued based on Level 3 inputs. See Note 2.
(d) Valued based on Level 2 inputs. See Note 2.
See accompanying notes to statement of inverstments.
CENTRAL SECURITIES CORPORATION
NOTES TO STATEMENT OF INVESTMENTS
1. Security Valuation – Marketable common stocks are valued at the last or closing sale price or, if unavailable, at the closing bid price. Investments in money market funds are valued at net asset value per share. Other short-term investments are valued at amortized cost, which approximates fair value. Securities for which no ready market exists are valued at estimated fair value pursuant to procedures adopted by the Board of Directors. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the price used by other investors or the price that may be realized upon the actual sale of the security.
As of September 30, 2019, the tax cost of investments was $399,435,866. Net unrealized appreciation was $554,809,825 consisting of gross unrealized appreciation and gross unrealized depreciation of $565,411,635 and $10,601,810, respectively.
2. Fair Value Measurements – The Corporation’s investments are categorized below in three broad hierarchical levels based on market price observability as follows:
● | Level 1 – Quoted prices in active markets for identical investments; |
● | Level 2 – Other significant observable inputs obtained from independent sources, for example, quoted prices in active markets for similar investments; |
● | Level 3 – Significant unobservable inputs including the Corporation’s own assumptions based upon the best information available. The Corporation’s only Level 3 investment is The Plymouth Rock Company, Inc. Class A Common Stock (“Plymouth Rock”). |
The designated Level for a security is not necessarily an indication of the risk associated with investing in that security.
The Corporation’s investments as of September 30, 2019 are classified as follows:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Common stocks | $ | 675,856,044 | — | $ | 216,022,400 | $ | 891,878,444 | |||||||||
Short-term investments | 40,384,469 | 21,982,778 | — | 62,367,247 | ||||||||||||
Total investments | $ | 716,240,513 | $ | 21,982,778 | $ | 216,022,400 | $ | 954,245,691 |
The following is a reconciliation of the change in the value of Level 3 investments:
Balance at December 31, 2018 | $ | 170,544,000 | |
Change in net unrealized appreciation of investments in affiliated companies included in net increase in net assets resulting from operations | 45,478,400 | ||
Balance at September 30, 2019 | $ | 216,022,400 |
Unrealized appreciation of Level 3 investments held as of September 30, 2019 increased by $45,478,400 during the nine months ended September 30, 2019, which is included in the above table.
In valuing the Plymouth Rock Level 3 investment as of September 30, 2019, management considered Plymouth Rock’s financial condition and results of operations, its corporate governance, the insurance industry outlook, and any transactions in Plymouth Rock’s shares. Management used significant unobservable inputs to develop a range of values for the investment. It used a comparable company approach that utilized the following valuation multiples from selected publicly traded companies: price-to-book value (range: 1.0–2.0; average: 1.5); price-to-historical earnings (range: 15.5–35.8; average: 26.0); and price-to-forward earnings estimates (range: 13.5–31.4; average: 19.4). Management also used a discounted cash flow model based on a forecasted return on equity of approximately 10% and a cost of capital of approximately 9%. Plymouth Rock’s book value and an independent valuation of Plymouth Rock’s shares obtained by Plymouth Rock were also considered. Averages of these values were then discounted for lack of marketability of the Plymouth Rock shares by 30% and 40%, a range management believes market participants would apply. Management presented and discussed the above information with the Corporation’s directors, who selected the value for the investment.
Significant increases (decreases) in the price-to-book value multiple, price-to-historical earnings multiple, price-to-forward earnings estimate multiple, return on equity rate and book value in isolation would result in a higher (lower) range of fair values. Significant increases (decreases) in the discount for lack of marketability or cost of capital in isolation would result in a lower (higher) range of fair values.
In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2018-13, “Fair Value Measurement (Topic 820) — Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which introduces new fair value disclosure requirements as well as eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with earlier adoption permitted. Management does not believe there will be a material impact on the applicable financial statement disclosures.
3. Restricted Securities - The Corporation may from time to time invest in securities the resale of which is restricted. On September 30, 2019, the Corporation’s only restricted security consisted of 28,424 shares of Plymouth Rock that were acquired on December 15, 1982 at a cost of $710,600. This security had a value of $216,022,400 at September 30, 2019, which was equal to 22.6% of the Corporation’s net assets. The Corporation does not have the right to demand registration of this security.
4. Affiliated Companies – Plymouth Rock is an affiliated company as defined in the Investment Company Act of 1940 due to the Corporation’s ownership of 5% or more of the company’s outstanding voting securities. During the nine months ended September 30, 2019, unrealized appreciation from the Corporation’s investment in Plymouth Rock increased by $45,478,400 and the Corporation received dividends of $7,411,558 from Plymouth Rock. The Chief Executive Officer of the Corporation is a director of Plymouth Rock. The President of the Corporation is a director of certain subsidiaries of Plymouth Rock.
Item 2. Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers have concluded that the Registrant’s
Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date
within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. During the last fiscal quarter, there was no significant change in the Registrant’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 3. Exhibits.
(a) Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CENTRAL SECURITIES CORPORATION | |||
By: | /s/ | Wilmot H. Kidd | |
Chief Executive Officer | |||
Date: November 14, 2019 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ | Wilmot H. Kidd | |
Chief Executive Officer | |||
Date: November 14, 2019 | |||
By: | /s/ | Lawrence P. Vogel | |
Vice President and Treasurer | |||
Date: November 14, 2019 |
Central Securities Corporation N-Q
Exhibit 99.Cert
I Wilmot H. Kidd, certify that:
1. I have reviewed this report on Form N-Q of Central Securities Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 14, 2019 | /s/ Wilmot H. Kidd |
Date | Signature |
Chief Executive Officer | |
Title |
I Lawrence P. Vogel, certify that:
1. I have reviewed this report on Form N-Q of Central Securities Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 14, 2019 | /s/ Lawrence P. Vogel |
Date | Signature |
Vice President and Treasurer | |
Title |