N-Q 1 cet-nq_093019.htm QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY

 

 

 

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