10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended June 30, 2011

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 814-00646

 

 

APOLLO INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Maryland    52-2439556
(State or other jurisdiction of incorporation or organization)    (I.R.S. Employer Identification No.)

9 West 57th Street

37th Floor

New York, N.Y.

   10019
(Address of principal executive office)    (Zip Code)

(212) 515-3450

(Registrant’s telephone number, including area code)

 

 

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 and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x

  Accelerated filer  ¨   Non-accelerated filer  ¨   Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act).     Yes  ¨    No  x

The number of shares of the registrant’s Common Stock, $.001 par value, outstanding as of August 3, 2011 was 196,392,758.

 

 

 


Table of Contents

APOLLO INVESTMENT CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2011

TABLE OF CONTENTS

 

        PAGE   
   PART I. FINANCIAL INFORMATION   

Item 1.

   FINANCIAL STATEMENTS      3   
   Statements of Assets and Liabilities as of June 30, 2011 and March 31, 2011      3   
   Statements of Operations for the three months ended June 30, 2011 and June 30, 2010      4   
  

Statements of Changes in Net Assets for the three months ended June 30, 2011 and the year ended March 31, 2011

     5   
   Statements of Cash Flows for the three months ended June 30, 2011 and June 30, 2010      6   
   Schedule of Investments as of June 30, 2011      7   
   Schedule of Investments as of March 31, 2011      17   
   Notes to Financial Statements      27   
   Report of Independent Registered Public Accounting Firm      43   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     44   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      55   

Item 4.

   Controls and Procedures      56   
   PART II. OTHER INFORMATION   

Item 1.

   Legal Proceedings      57   

Item 1A.

   Risk Factors      57   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      58   

Item 3.

   Defaults upon Senior Securities      58   

Item 5.

   Other Information      58   

Item 6.

   Exhibits      59   
   Signatures      60   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

In this Quarterly Report, “Apollo Investment”, “Company”, “AIC”, “Fund”, “we”, “us” and “our” refer to Apollo Investment Corporation unless the context otherwise states.

Item 1. Financial Statements

APOLLO INVESTMENT CORPORATION

STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share amounts)

 

     June 30, 2011
(unaudited)
    March 31, 2011  

Assets

    

Non-controlled/non-affiliated investments, at value (cost—$2,863,683 and $2,900,378, respectively)

   $ 2,868,973      $ 2,901,295   

Non-controlled/affiliated investments, at value (cost—$22,406 and $22,407, respectively)

     37,909        37,295   

Controlled investments, at value (cost—$488,472 and $376,051, respectively)

     216,378        111,568   

Cash

     8,024        5,471   

Foreign currency (cost—$1,170 and $881, respectively)

     1,181        883   

Receivable for investments sold

     55,505        13,461   

Interest receivable

     46,482        45,686   

Dividends receivable

     12        5,131   

Miscellaneous income receivable

     40        —    

Receivable from investment adviser

     —          576   

Prepaid expenses and other assets

     24,798        27,447   
  

 

 

   

 

 

 

Total assets

   $ 3,259,302      $ 3,148,813   
  

 

 

   

 

 

 

Liabilities

    

Debt (see note 7 & 12)

   $ 1,249,203      $ 1,053,443   

Payable for investments and cash equivalents purchased

     3,835        37,382   

Dividends payable

     54,856        54,740   

Management and performance-based incentive fees payable (see note 3)

     27,094        27,553   

Interest payable

     9,860        9,703   

Accrued administrative expenses

     890        1,738   

Other liabilities and accrued expenses

     2,332        3,223   
  

 

 

   

 

 

 

Total liabilities

   $ 1,348,070      $ 1,187,782   
  

 

 

   

 

 

 

Net Assets

    

Common stock, par value $.001 per share, 400,000 and 400,000 common shares authorized, respectively, and 195,914 and 195,502 issued and outstanding, respectively

   $ 196      $ 196   

Paid-in capital in excess of par (see note 2f)

     2,876,560        2,871,559   

Undistributed net investment income (see note 2f)

     49,363        56,557   

Accumulated net realized loss (see note 2f)

     (759,821     (713,873

Net unrealized depreciation

     (255,066     (253,408
  

 

 

   

 

 

 

Total net assets

   $ 1,911,232      $ 1,961,031   
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 3,259,302      $ 3,148,813   
  

 

 

   

 

 

 

Net Asset Value Per Share

   $ 9.76      $ 10.03   
  

 

 

   

 

 

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share amounts)

 

     Three months ended  
     June 30, 2011     June 30, 2010  

INVESTMENT INCOME:

    

From non-controlled/non-affiliated investments:

    

Interest

   $ 81,619      $ 72,505   

Dividends

     3,195        920   

Other income

     7,275        1,669   

From non-controlled/affiliated investments:

    

Interest

     405        3,154   

From controlled investments:

    

Interest

     14        —     

Dividends

     2,084        —     
  

 

 

   

 

 

 

Total Investment Income

     94,592        78,248   
  

 

 

   

 

 

 

EXPENSES:

    

Management fees (see note 3)

   $ 15,929      $ 14,554   

Performance-based incentive fees (see note 3)

     8,381        10,207   

Interest and other debt expenses

     15,951        9,894   

Administrative services expense

     887        1,396   

Other general and administrative expenses

     5,782        1,370   
  

 

 

   

 

 

 

Total expenses

     46,930        37,421   
  

 

 

   

 

 

 

Net investment income

   $ 47,662      $ 40,827   
  

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS AND FOREIGN CURRENCIES:

    

Net realized gain (loss):

    

Investments and cash equivalents

   $ (44,197   $ 780   

Foreign currencies

     (1,751     3,087   
  

 

 

   

 

 

 

Net realized gain (loss)

     (45,948     3,867   
  

 

 

   

 

 

 

Net change in unrealized gain (loss):

    

Investments and cash equivalents

     (2,544     (137,959

Foreign currencies

     886        8,955   
  

 

 

   

 

 

 

Net change in unrealized loss

     (1,658     (129,004
  

 

 

   

 

 

 

Net realized and unrealized loss from investments, cash equivalents and foreign currencies

     (47,606     (125,137
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ 56      $ (84,310
  

 

 

   

 

 

 

EARNINGS (LOSS) PER SHARE — BASIC AND DILUTED (see note 5)

   $ 0.00      $ (0.45
  

 

 

   

 

 

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except shares)

 

     Three months ended
June  30, 2011
(unaudited)
    Year ended
March 31, 2011
 

Increase in net assets from operations:

    

Net investment income

   $ 47,662      $ 191,172   

Net realized loss

     (45,948     (152,017

Net change in unrealized gain (loss)

     (1,658     141,257   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     56        180,412   
  

 

 

   

 

 

 

Dividends and distributions to stockholders:

     (54,856     (218,079
  

 

 

   

 

 

 

Capital share transactions:

    

Net proceeds from shares sold

     —          204,275   

Less offering costs

     (7     (233

Reinvestment of dividends

     5,008        21,850   
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     5,001        225,892   
  

 

 

   

 

 

 

Total increase (decrease) in net assets:

     (49,799     188,225   

Net assets at beginning of period

     1,961,031        1,772,806   
  

 

 

   

 

 

 

Net assets at end of period

   $ 1,911,232      $ 1,961,031   
  

 

 

   

 

 

 

Capital share activity:

    

Shares sold

     —          17,250,000   

Shares issued from reinvestment of dividends

     412,511        2,037,631   
  

 

 

   

 

 

 

Net increase in capital share activity

     412,511        19,287,631   
  

 

 

   

 

 

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

     Three months ended June 30,  
     2011     2010  

Cash Flows from Operating Activities:

    

Net Increase (Decrease) in Net Assets Resulting from Operations

   $ 56      $ (84,310

Adjustments to reconcile net increase:

    

PIK interest and dividends

     (5,117     (16,133

Net amortization on investments

     (4,205     (7,366

Increase (decrease) from foreign currency transactions

     (1,861     3,040   

Net change in unrealized loss on investments, cash equivalents and foreign currencies

     1,658        129,004   

Net realized (gain) loss on investments, cash equivalents and foreign currencies

     45,948        (3,867

Changes in operating assets and liabilities:

    

Purchase of investments

     (835,810     (221,032

Proceeds from disposition of investments and cash equivalents

     725,376        112,637   

Decrease in interest and dividends receivable

     4,323        4,787   

Decrease in prepaid expenses and other assets

     3,213        3,677   

Decrease in management and performance-based incentive fees payable

     (459     (1,602

Increase in interest payable

     157        304   

Decrease in accrued expenses and other liabilities

     (1,739     (787

Decrease in payable for investments and cash equivalents purchased

     (33,547     (335,458

Decrease (increase) in receivable for investments sold

     (42,044     47,708   
  

 

 

   

 

 

 

Net Cash Used by Operating Activities

   $ (144,051   $ (369,398
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Net proceeds from the issuance of common stock

   $ —        $ 204,275   

Offering costs from the issuance of common stock

     (7     (427

Dividends paid in cash

     (49,733     (44,505

Proceeds from debt

     1,150,480        465,211   

Payments on debt*

     (953,846     (523,723
  

 

 

   

 

 

 

Net Cash Provided by Financing Activities

   $ 146,894      $ 100,831   
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

   $ 2,843      $ (268,567

Effect of exchange rates on cash balances

     8        (70

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

   $ 6,354      $ 487,585   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 9,205      $ 218,948   
  

 

 

   

 

 

 

Non-cash financing activities consist of the reinvestment of dividends totaling $5,008 and $4,835, respectively.

 

* Includes deferred financing costs of $27 and $0, respectively.

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited)

June 30, 2011

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 150.1%

   Industry    Par
Amount*
     Cost      Fair
Value(1)
 

CORPORATE DEBT — 141.0%

           

BANK DEBT/SENIOR SECURED LOANS —52.6%

           

1st Lien Bank Debt/Senior Secured Loans — 4.1%

           

ATI Acquisition Company, L+600, 12/30/14

   Education    $ 13,273       $ 12,876       $ 13,671   

Brickman Group Holdings, Inc., L+550, 10/14/16

   Environmental &
Facilities Services
     9,938         9,847         10,089   

Educate, Inc., L+700, 6/14/14

   Education      2,897         2,897         2,873   

Insight Pharmaceuticals, LLC, L+500, 2/24/17

   Consumer Products      7,313         7,207         7,276   

Penton Media, Inc., L+400, 8/1/14

   Media      34,915         28,634         27,902   

RBS Holding Company, LLC, L+500, 3/23/17

   Business Services      15,960         15,806         15,721   
        

 

 

    

 

 

 

Total 1st Lien Bank Debt/Senior Secured Loans

         $ 77,267       $ 77,532   
        

 

 

    

 

 

 

2nd Lien Bank Debt/Senior Secured Loans — 48.5%

           

Advantage Sales & Marketing, Inc., L+775, 6/18/18

   Grocery    $ 60,000       $ 59,506       $ 61,162   

Allied Security Holdings, LLC, L+700, 2/2/18

   Business Services      50,000         49,549         51,000   

Applied Systems, Inc., L+775, 6/8/17

   Software      26,500         26,252         26,931   

Asurion Corporation, L+750, 5/24/19

   Insurance      100,000         99,504         100,833   

Brock Holdings III, Inc., L+825, 3/16/18

   Environmental &
Facilities Services
     45,000         44,124         46,350   

Clean Earth, Inc., 13.00%, 8/1/14

   Environmental &
Facilities Services
     25,000         25,000         24,875   

Datatel, Inc., L+725, 2/19/18

   Education      21,000         20,899         21,394   

Garden Fresh Restaurant Corp., L+975, 12/11/13

   Retail      46,600         46,836         47,951   

IPC Systems, Inc., L+525, 6/1/15

   Telecommunications      44,250         41,760         41,152   

Kronos, Inc., L+575 Cash or L+650 PIK, 6/11/15

   Electronics      50,000         50,000         49,458   

Ozburn-Hessey Holding Company LLC, L+850, 10/8/16

   Logistics      38,000         37,967         38,285   

Ranpak Corp., L+750, 10/20/17 †

   Packaging      85,000         85,000         85,000   

Ranpak Corp., E+775, 10/20/17 †

   Packaging    40,000         58,042         57,994   

Sedgwick Holdings, Inc., L+750, 5/26/17

   Business Services    $ 25,000         24,668         25,094   

Sensus USA Inc., L+725, 5/9/18

   Industrial      25,000         24,754         25,375   

Sheridan Holdings, Inc., L+575 Cash or L+650 PIK, 6/15/15

   Healthcare      47,847         47,128         47,321   

TransFirst Holdings, Inc., L+600 Cash or L+675 PIK, 6/15/15

   Financial Services      37,512         36,752         35,937   

Valerus Compression Services, LP, 11.50%, 3/26/18

   Industrial      40,000         40,000         40,000   

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2011

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON
AFFILIATED PORTFOLIO COMPANIES — 150.1%

   Industry    Par
Amount*
     Cost      Fair
Value(1)
 

2nd Lien Bank Debt/Senior Secured Loans — (continued)

           

Vertafore, Inc., L+825, 10/29/17

   Software    $ 75,000       $ 74,301       $ 76,312   

Wall Street Systems Holdings, Inc., L+750, 6/20/18

   Software      25,000         24,751         25,312   
        

 

 

    

 

 

 

Total 2nd Lien Bank Debt/Senior Secured Loans

         $ 916,793       $ 927,736   
        

 

 

    

 

 

 

TOTAL BANK DEBT/SENIOR SECURED LOANS

         $ 994,060       $ 1,005,268   
        

 

 

    

 

 

 

Subordinated Debt/Corporate Notes — 88.4%

           

AB Acquisitions UK Topco 2 Limited (Alliance Boots), GBP L+650 (GBP L+300 Cash / 3.50% PIK), 7/9/17

   Retail    £ 50,132       $ 93,905       $ 75,253   

Altegrity Inc., 0.00%, 8/2/16 ¨

   Diversified Service    $ 3,545         1,904         1,904   

Altegrity Inc., 11.75%, 5/1/16 ¨

   Diversified Service      14,639         10,565         15,481   

Altegrity Inc., 12.00%, 11/1/15 ¨

   Diversified Service      100,000         100,000         106,300   

Altegrity Inc., 10.50%, 11/1/15 ¨

   Diversified Service      13,475         12,181         14,014   

American Tire Distributors, Inc., 11.50%,
6/1/18 ¨

   Distribution      25,000         25,000         26,580   

American Tire Distributors, Inc., 9.75%, 6/1/17 †

   Distribution      10,000         9,890         10,650   

Angelica Corporation, 15.00% (12.00% Cash / 3.00% PIK), 2/4/14

   Healthcare      60,000         60,000         64,500   

ATI Acquisition Company, L+1100, 12/30/15

   Education      38,500         37,867         39,270   

Avaya Inc., 10.125% Cash or 10.875% PIK, 11/1/15

   Telecommunications      15,352         15,513         15,745   

BCA Osprey II Limited, 12.50% PIK, 8/17/17

   Transportation    £ 22,750         35,852         35,246   

BCA Osprey II Limited, 12.50% PIK, 8/17/17

   Transportation    13,773         19,083         19,269   

Burlington Coat Factory, 10.00%, 2/15/19

   Retail    $ 3,750         3,586         3,759   

Catalina Marketing Corporation, 11.625%,
10/1/17 ¨

   Grocery      42,175         42,765         45,760   

Ceridian Corp., 12.25% Cash or 13.00% PIK, 11/15/15 †

   Diversified Service      55,950         55,804         56,789   

Ceridian Corp., 11.25%, 11/15/15 †

   Diversified Service      34,300         33,914         34,300   

Clearwire Communications, 12.00%, 12/1/15

   Telecommunications      2,500         2,625         2,688   

Delta Educational Systems, Inc., 14.20% (13.00% Cash / 1.20% PIK), 5/12/13

   Education      19,811         19,552         20,301   

Exova Limited, 10.50%, 10/15/18 ¨

   Market Research    £ 18,000         28,823         29,476   

Exova Limited, 10.50%, 10/15/18

   Market Research      2,500         4,114         4,094   

First Data Corporation, 12.625%, 1/15/21 †

   Financial Services    $ 9,219         7,985         9,872   

First Data Corporation, 9.875%, 9/24/15 †

   Financial Services      2,061         1,852         2,119   

First Data Corporation, 8.25%, 1/15/21 †

   Financial Services      9,219         8,038         9,046   

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2011

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON
AFFILIATED PORTFOLIO COMPANIES — 150.1%

   Industry    Par
Amount*
     Cost      Fair
Value(1)
 

Subordinated Debt/Corporate Notes —(continued)

           

FleetPride Corporation, 11.50%, 10/1/14 ¨

   Transportation    $ 47,500       $ 47,500       $ 47,738   

Fox Acquisition Sub LLC, 13.375%, 7/15/16 ¨

   Broadcasting &
Entertainment
     26,125         26,430         28,999   

FPC Holdings, Inc. (FleetPride Corporation), 14.00%, 6/30/15 ¨

   Transportation      37,846         37,692         38,981   

Hub International Holdings, 10.25%, 6/15/15 ¨

   Insurance      36,232         35,046         36,957   

Intelsat Bermuda Ltd., 11.25%, 2/4/17

   Broadcasting &
Entertainment
     95,000         97,282         102,066   

Intelsat Bermuda Ltd., 11.50% Cash or 12.50% PIK, 2/4/17

   Broadcasting &
Entertainment
     5,000         5,212         5,375   

inVentiv Health, Inc., 10.00%, 8/15/18

   Market Research      160,000         160,000         157,300   

Laureate Education, Inc., 12.00%, 8/15/17 ¨

   Education      53,540         52,551         58,492   

N.E.W. Holdings I, LLC, L+750, 3/23/17

   Consumer Services      45,111         45,223         47,028   

Renal Advantage Holdings, Inc., 12.00%, 6/17/17

   Healthcare      32,103         31,724         32,745   

SeaCube Container Leasing Ltd., 11.00%, 4/28/16

   Shipping      50,000         50,000         50,000   

Sorenson Communications, Inc., 10.50%,
2/1/15 ¨

   Consumer Services      32,500         32,027         22,425   

SquareTwo Financial Corp. (Collect America, Ltd.), 11.625%, 4/1/17 ¨

   Consumer Finance      40,000         39,391         41,500   

Texas Competitive Electric Holdings Company LLC, 11.50%, 10/1/20

   Utilities      50,000         49,652         49,562   

The ServiceMaster Company, 10.75% Cash or 11.50% PIK, 7/15/15 ¨

   Diversified
Service
     52,173         53,431         55,010   

TL Acquisitions, Inc. (Thomson Learning), 13.25%, 7/15/15¨

   Education      97,500         97,731         88,481   

TL Acquisitions, Inc. (Thomson Learning), 10.50%, 1/15/15¨

   Education      23,000         22,018         20,892   

Univar Inc., 12.00%, 6/30/18

   Distribution      78,750         78,750         80,720   

US Foodservice, 8.50%, 6/30/19 ¨

   Beverage, Food &

Tobacco

     6,050         5,869         5,959   

U.S. Renal Care, Inc., 13.25% (11.25% Cash / 2.00% PIK), 5/24/17

   Healthcare      50,058         50,058         52,561   

Varietal Distribution, 10.75%, 6/30/17

   Distribution    1,127         1,396         1,634   

Varietal Distribution, 10.75%, 6/30/17

   Distribution    $ 22,204         21,729         22,204   
        

 

 

    

 

 

 

Total Subordinated Debt/Corporate Notes

         $ 1,671,530       $ 1,689,045   
        

 

 

    

 

 

 

TOTAL CORPORATE DEBT

         $ 2,665,590       $ 2,694,313   
        

 

 

    

 

 

 

See notes to financial statements.

 

9


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2011

(in thousands, except shares)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 150.1%

   Industry    Par
Amount*
     Cost      Fair
Value(1)
 

COLLATERALIZED LOAN OBLIGATIONS — 1.5%

           

Babson CLO Ltd., Series 2008-2A Class E, L+975, 7/15/18 ¨

   Asset Management    $ 11,000       $ 10,174       $ 11,000   

Babson CLO Ltd., Series 2008-1A Class E, L+550, 7/20/18 ¨

   Asset Management      10,150         7,748         10,150   

Westbrook CLO Ltd., Series 2006-1A, L+370, 12/20/20 ¨

   Asset Management      11,000         6,936         7,844   
        

 

 

    

 

 

 

TOTAL COLLATERALIZED LOAN OBLIGATIONS

         $ 24,858       $ 28,994   
        

 

 

    

 

 

 
          Shares                

PREFERRED EQUITY — 1.8%

           

AHC Mezzanine LLC (Advanstar) **

   Media      —         $ 1,063       $ 166   

CA Holding, Inc. (Collect America, Ltd.)
Series A **

   Consumer Finance      7,961         788         1,592   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50% PIK, 5/12/14

   Education      12,360         23,150         23,715   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 12.50% PIK (Convertible)

   Education      332,500         6,256         6,256   

Varietal Distribution Holdings, LLC, 8.00% PIK

   Distribution      3,097         4,252         2,300   
        

 

 

    

 

 

 

TOTAL PREFERRED EQUITY

         $ 35,509       $ 34,029   
        

 

 

    

 

 

 

EQUITY — 5.8%

           

Common Equity/Interests — 5.4%

           

AB Capital Holdings LLC (Allied Security)

   Business Services      2,000,000       $ 2,000       $ 2,820   

Accelerate Parent Corp. (American Tire) **

   Distribution      3,125,000         3,125         3,910   

A-D Conduit Holdings, LLC (Duraline)

   Telecommunications      2,778         2,778         2,847   

Altegrity Holding Corp.

   Diversified Service      353,399         13,797         15,045   

CA Holding, Inc. (Collect America, Ltd.)
Series A **

   Consumer Finance      25,000         2,500         401   

CA Holding, Inc. (Collect America, Ltd.)
Series AA **

   Consumer Finance      4,294         429         859   

Clothesline Holdings, Inc. (Angelica) **

   Healthcare      6,000         6,000         3,524   

Explorer Coinvest LLC (Booz Allen) **

   Consulting Services      430         4,300         7,642   

FSC Holdings Inc. (Hanley Wood LLC) **

   Media      10,000         10,000         —     

Garden Fresh Restaurant Holding, LLC **

   Retail      50,000         5,000         9,347   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.)**

   Education      17,500         175         760   

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems) (2,3) **

   Industrial      —           —           266   

 

See notes to financial statements.

 

10


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2011

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/NON
AFFILIATED PORTFOLIO COMPANIES — 150.1%

   Industry    Shares      Cost      Fair
Value(1)
 

Common Equity/Interests — (continued)

           

New Omaha Holdings Co-Invest LP
(First Data) **

   Financial Services      13,000,000       $ 65,000       $ 21,315   

Penton Business Media Holdings, LLC **

   Media      124         4,950         8,505   

Pro Mach Co-Investment, LLC **

   Machinery      150,000         1,500         6,603   

RC Coinvestment, LLC (Ranpak Corp.) **

   Packaging      50,000         5,000         6,411   

Sorenson Communications Holdings, LLC Class A **

   Consumer Services      454,828         45         2,120   

Univar Inc.

   Distribution      900,000         9,000         10,760   

Varietal Distribution Holdings, LLC
Class A **

   Distribution      28,028         28         —     
        

 

 

    

 

 

 

Total Common Equity/Interests

         $ 135,627       $ 103,135   
        

 

 

    

 

 

 
          Warrants                

Warrants – 0.4%

           

CA Holding, Inc. (Collect America, Ltd.), Common **

   Consumer Finance      7,961       $ 8         —     

Fidji Luxco (BC) S.C.A., Common
(FCI) (2) **

   Electronics      48,769         491       $ 5,252   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Common **

   Education      9,820         98         427   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class A-1 Preferred **

   Education      45,947         459         863   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class B-1 Preferred **

   Education      104,314         1,043         1,960   
        

 

 

    

 

 

 

Total Warrants

         $ 2,099       $ 8,502   
        

 

 

    

 

 

 

TOTAL EQUITY

         $ 137,726       $ 111,637   
        

 

 

    

 

 

 

Total Investments in Non-Controlled/ Non-Affiliated Portfolio Companies

         $ 2,863,683       $ 2,868,973   
        

 

 

    

 

 

 

 

See notes to financial statements.

 

11


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2011

(in thousands, except shares and warrants)

 

00Industry 00 00Industry 00 00Industry 00 00Industry 00

INVESTMENTS IN NON-CONTROLLED/AFFILIATED PORTFOLIO
COMPANIES — 2.0% (4)

   Industry    Par
Amount*
     Cost      Fair
Value (1)
 

CORPORATE DEBT — 0.6%

           

Subordinated Debt/Corporate Notes — 0.6%

           

DSI Renal Inc., 16.00% (10.00% Cash / 6.00% PIK), 4/7/14

   Healthcare    $ 10,686       $ 10,686       $ 10,899   
        

 

 

    

 

 

 

TOTAL CORPORATE DEBT

         $ 10,686       $ 10,899   
        

 

 

    

 

 

 
           Shares                

EQUITY — 1.4%

           

Common Equity/Interests – 1.0%

           

CDSI I Holding Company, Inc. (DSI Renal Inc.) **

   Healthcare      9,303       $ 9,300       $ 19,158   
        

 

 

    

 

 

 

Total Common Equity/Interests

         $ 9,300       $ 19,158   
        

 

 

    

 

 

 
           Warrants                

Warrants — 0.4%

           

CDSI I Holding Company, Inc. Series A (DSI Renal Inc.) **

   Healthcare      2,031       $ 773       $ 2,220   

CDSI I Holding Company, Inc. Series B (DSI Renal Inc.) **

   Healthcare      2,031         645         1,880   

CDSI I Holding Company, Inc. (DSI Renal Inc.) ** §

   Healthcare      6,093,750         1,002         3,752   
        

 

 

    

 

 

 

Total Warrants

         $ 2,420       $ 7,852   
        

 

 

    

 

 

 

TOTAL EQUITY

         $ 11,720       $ 27,010   
        

 

 

    

 

 

 

Total Investments in Non-Controlled/Affiliated Portfolio Companies

         $ 22,406       $ 37,909   
        

 

 

    

 

 

 

 

See notes to financial statements.

 

12


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2011

(in thousands, except shares)

 

INVESTMENTS IN CONTROLLED PORTFOLIO
COMPANIES — 11.3% (5)

   Industry    Shares      Cost      Fair Value (1)  

CORPORATE DEBT — 1.8%

           

Subordinated Debt/Corporate Notes — 1.8%

           

Playpower Holdings Inc., 14.00% PIK, 12/15/15

   Leisure Equipment    $ 20,000       $ 20,000       $ 19,600   

Playpower, Inc., 12.50% PIK, 12/31/15

   Leisure Equipment      15,890         14,699         15,572   
        

 

 

    

 

 

 

Total Subordinated Debt/Corporate Notes

         $ 34,699       $ 35,172   
        

 

 

    

 

 

 

TOTAL CORPORATE DEBT

         $ 34,699       $ 35,172   
        

 

 

    

 

 

 
           
           

Preferred Equity — 0.0%

           

Grand Prix Holdings, LLC Series A, 12.00% PIK (Innkeepers USA)(6)***

   Hotels, Motels,
Inns & Gaming
     2,989,431       $ 102,012         —     
        

 

 

    

 

 

 

EQUITY — 9.5%

           

Common Equity/Interests — 9.5%

           

AIC Credit Opportunity Fund LLC (7)

   Asset Management      —         $ 71,740       $ 91,280   

Generation Brands Holdings, Inc. (Quality Home Brands) **

   Consumer
Products
     750         —           25   

Generation Brands Holdings, Inc. Series H (Quality Home Brands) **

   Consumer
Products
     7,500         2,297         245   

Generation Brands Holdings, Inc. Series 2L (Quality Home Brands) **

   Consumer
Products
     36,700         11,242         1,201   

Grand Prix Holdings, LLC
(Innkeepers USA) (6) **

   Hotels, Motels,
Inns & Gaming
     17,335,834         172,664         —     

LVI Parent Corp. (LVI Services, Inc.)

   Environmental &
Facilities Services
     14,981         16,096         15,733   

Playpower Holdings Inc.

   Leisure Equipment      1,000         77,722         72,722   
        

 

 

    

 

 

 

Total Common Equity/Interests

         $ 351,761       $ 181,206   
        

 

 

    

 

 

 

TOTAL EQUITY

         $ 351,761       $ 181,206   
        

 

 

    

 

 

 

Total Investments in Controlled Portfolio Companies

         $ 488,472       $ 216,378   
        

 

 

    

 

 

 

Total Investments — 163.4% (8)

         $ 3,374,561       $ 3,123,260   

Liabilities in Excess of Other Assets — (63.4%)

              (1,212,028
           

 

 

 

Net Assets — 100.0%

            $ 1,911,232   
           

 

 

 

 

(1) Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Note 2).
(2) Denominated in Euro (€).
(3) The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
(4) Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning, controlling, or holding the power to vote, 5% or more of the outstanding voting securities of the investment. Transactions during the three months ended June 30, 2011 in these Affiliated investments are as follows:

 

See notes to financial statements.

 

13


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2011

(in thousands)

 

 

Name of Issuer

  Fair Value at
March 31, 2011
    Gross
Additions
    Gross
Reductions
    Interest/Dividend
Income
    Fair Value at
June 30, 2011
 

DSI Renal, Inc., 16.00% (10.00% Cash / 6.00% PIK)

  $ 10,899      $ —        $ —        $ 405      $ 10,899   

CDSI I Holding Company, Inc. (DSI Renal) Common Equity

    18,723        —          —          —          19,158   

CDSI I Holding Company, Inc. (DSI Renal) Series A Warrant

    2,169        —          —          —          2,220   

CDSI I Holding Company, Inc. (DSI Renal) Series B Warrant

    1,837        —          —          —          1,880   

CDSI I Holding Company, Inc. (DSI Renal) Contingent Payment Agreement

    3,667        —          —          —          3,752   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 37,295      $ —        $ —        $ 405      $ 37,909   

(5)    Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the three months ended June 30, 2011 in these Controlled investments are as follows:

 

          

Name of Issuer

  Fair Value at
March 31, 2011
    Gross
Additions
    Gross
Reductions
    Interest/Dividend/
Other Income
    Fair Value at
June 30, 2011
 

Playpower Holdings, Inc., 14.00% PIK

  $ —        $ 20,000      $ —        $ 8      $ 19,600  

Playpower, Inc., 12.50% PIK

    —          15,890        —          6        15,572  

Grand Prix Holdings, LLC (Innkeepers USA) Series A Preferred(8)

    —          —          —          —          —     

AIC Credit Opportunity Fund LLC Common Equity(9)

    95,212        —          —          2,084        91,280   

Generation Brands Holdings, Inc. (Quality Home Brands)Common Equity

    8        —          —          —          25   

Generation Brands Holdings, Inc. (Quality Home Brands) Series H Common Equity

    77        —          —          —          245   

Generation Brands Holdings, Inc. (Quality Home Brands) Series 2L Common Equity

    379        —          —          —          1,201   

Grand Prix Holdings, LLC (Innkeepers USA) Common Equity(8)

    —          —          —          —          —     

LVI Parent Corp. Common Equity

    15,892        —          —          —          15,733   

Playpower Holdings Inc. Common Equity

    —          77,722        —          —          72,722   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 111,568      $ 113,612      $ —        $ 2,098      $ 216,378   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See notes to financial statements.

 

14


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2011

(in thousands)

 

The Company has a 99%, 100%, 27%, 34% and 100% equity ownership interest in Grand Prix Holdings LLC, AIC Credit Opportunity Fund LLC, Generation Brands Holdings, Inc., LVI Parent Corp. and Playpower Holdings Inc., respectively.

 

(6) See Note 14.
(7) See Note 6.
(8) Aggregate gross unrealized appreciation for federal income tax purposes is $164,347; aggregate gross unrealized depreciation for federal income tax purposes is $478,744. Net unrealized depreciation is $314,397 based on a tax cost of $3,437,657.
¨ These securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
* Denominated in USD unless otherwise noted.
** Non-income producing security
*** Non-accrual status (see Note 2d)
Denote debt securities where the Company owns multiple tranches of the same broad asset type but whose security characteristics differ. Such differences may include level of subordination, call protection and pricing, differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
§ Position reflects a contingent payment agreement.

 

See notes to financial statements.

 

15


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

 

Industry Classification

   Percentage of Total
Investments (at
fair value) as of
June 30, 2011
 

Education

           9.6%       

Diversified Service

           9.6%       

Healthcare

           7.6%       

Market Research

           6.1%       

Distribution

           5.1%       

Packaging

           4.8%       

Transportation

           4.5%       

Insurance

           4.4%       

Broadcasting & Entertainment

           4.4%       

Retail

           4.4%       

Software

           4.1%       

Asset Management

           3.9%       

Leisure Equipment

           3.4%       

Grocery

           3.4%       

Environmental & Facilities Services

           3.1%       

Business Services

           3.0%       

Financial Services

           2.5%       

Consumer Services

           2.3%       

Industrial

           2.1%       

Telecommunications

           2.0%       

Electronics

           1.8%       

Shipping

           1.6%       

Utilities

           1.6%       

Consumer Finance

           1.4%       

Logistics

           1.2%       

Media

           1.2%       

Consumer Products

           0.3%       

Consulting Services

           0.2%       

Machinery

           0.2%       

Beverages, Food & Tobacco

           0.2%       

Hotels, Motels, Inns & Gaming

           0.0%       
  

 

 

 

Total Investments

         100.0%      
  

 

 

 

See notes to financial statements.

 

16


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS

March 31, 2011

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON
AFFILIATED PORTFOLIO COMPANIES — 147.9%

   Industry    Par
Amount*
     Cost      Fair
Value(1)
 

CORPORATE DEBT — 139.4%

           

BANK DEBT/SENIOR SECURED LOANS — 51.7%

           

1st Lien Bank Debt/Senior Secured Loans — 6.9%

           

Altegrity, Inc., L+600, 2/21/15

   Diversified Service    $ 12,406       $ 12,187       $ 12,499   

Armored Autogroup Inc., L+425, 11/5/16

   Consumer Products      3,491         3,491         3,491   

ATI Acquisition Company, L+600, 12/30/14

   Education      13,306         12,884         13,839   

Brickman Group Holdings, Inc., L+550, 10/14/16

   Environmental &
Facilities Services
     14,963         14,822         15,294   

Brock Holdings III, Inc., L+450, 3/16/17

   Environmental &
Facilities Services
     5,000         4,963         5,031   

Educate, Inc., L+700, 6/14/14

   Education      7,908         7,908         7,868   

Insight Pharmaceuticals, LLC, L+500, 2/24/17

   Consumer Products      7,500         7,388         7,462   

Leslie’s Poolmart, Inc., L+300, 11/21/16

   Retail      5,985         5,985         6,034   

Multiplan, Inc., L+325, 8/26/17

   Business Services      4,808         4,808         4,826   

Penton Media, Inc., L+400, 8/1/14

   Media      34,917         28,590         28,486   

Playpower, Inc., L+950, 6/30/12

   Leisure Equipment      15,890         14,433         14,380   

RBS Holding Company, LLC, L+500, 3/23/17

   Business Services      16,000         15,840         15,860   
        

 

 

    

 

 

 

Total 1st Lien Bank Debt/Senior Secured Loans

         $ 133,299       $ 135,070   
        

 

 

    

 

 

 

2nd Lien Bank Debt/Senior Secured Loans — 44.8%

           

AB Acquisitions UK Topco 2 Limited (Alliance Boots), GBP L+425, 7/9/16 †

   Retail    £ 11,400       $ 20,193       $ 17,725   

AB Acquisitions UK Topco 2 Limited (Alliance Boots), E+425, 7/9/16 †

   Retail    3,961         5,563         5,537   

Advantage Sales & Marketing, Inc., L+775, 6/18/18

   Grocery    $ 60,000         59,494         61,200   

Allied Security Holdings, LLC, L+700, 2/2/18

   Business Services      51,000         50,527         52,020   

Applied Systems, Inc., L+775, 6/8/17

   Software      26,500         26,244         26,853   

Asurion Corporation, L+650, 7/3/15

   Insurance      115,026         114,181         114,307   

Brock Holdings III, Inc., L+825, 3/16/18

   Environmental &
Facilities Services
     45,000         44,102         46,350   

Clean Earth, Inc., 13.00%, 8/1/14

   Environmental &
Facilities Services
     25,000         25,000         24,875   

Datatel, Inc., L+725, 2/19/18

   Education      21,000         20,896         21,341   

Garden Fresh Restaurant Corp., L+975, 12/11/13

   Retail      46,600         46,600         48,091   

IPC Systems, Inc., L+525, 6/1/15

   Telecommunications      44,250         41,635         42,038   

Kronos, Inc., L+575 Cash or L+650 PIK, 6/11/15

   Electronics      60,000         60,000         59,600   

See notes to financial statements.

 

17


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2011

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 147.9%

  Industry   Par
Amount*
     Cost     Fair
Value(1)
 

2nd Lien Bank Debt/Senior Secured Loans — (continued)

        

Ozburn-Hessey Holding Company LLC, L+850, 10/8/16

  Logistics   $ 38,000       $ 37,966      $ 38,570   

Ranpak Corp., 12/27/14 (2) †

  Packaging     43,550         38,532        43,550   

Ranpak Corp., 12/27/14 (3) †

  Packaging   21,970         27,767        31,178   

Sedgwick Holdings, Inc., L+750, 5/26/17

  Business Services   $ 25,000         24,657        25,250   

Sheridan Holdings, Inc., L+575 Cash of L+650 PIK, 6/15/15

  Healthcare     67,847         67,090        67,847   

TransFirst Holdings, Inc., L+600 Cash or L+675 PIK, 6/15/15

  Financial Services     37,512         36,714        35,749   

Valerus Compression Services, LP, 11.50%, 3/26/18

  Industrial     40,000         40,000        40,000   

Vertafore, Inc., L+825, 10/29/17

  Software     75,000         74,282        76,594   
      

 

 

   

 

 

 

Total 2nd Lien Bank Debt/Senior Secured Loans

       $ 861,443      $ 878,675   
      

 

 

   

 

 

 

TOTAL BANK DEBT/SENIOR SECURED LOANS

       $ 994,742      $ 1,013,745   
      

 

 

   

 

 

 

Subordinated Debt/Corporate Notes — 87.7%

        

AB Acquisitions UK Topco 2 Limited (Alliance Boots), GBP L+650 (GBP L+300 Cash / 3.50% PIK), 7/9/17

  Retail   £ 49,664       $ 93,048      $ 77,618   

Altegrity Inc., 0.00%, 8/2/16 ¨

  Diversified Service   $ 3,545         1,846        1,846   

Altegrity Inc., 11.75%, 5/1/16 ¨

  Diversified Service     14,639         10,390        15,737   

Altegrity Inc., 12.00%, 11/1/15 ¨

  Diversified Service     100,000         100,000        107,900   

Altegrity Inc., 10.50%, 11/1/15 ¨

  Diversified Service     13,475         12,114        14,385   

American Tire Distributors, Inc., 11.50%,
6/1/18 ¨

  Distribution     25,000         25,000        27,375   

American Tire Distributors, Inc., 9.75%, 6/1/17 †

  Distribution     10,000         9,887        11,000   

Angelica Corporation, 15.00% (12.00% Cash / 3.00% PIK), 2/4/14

  Healthcare     60,000         60,000        62,940   

ATI Acquisition Company, L+1100, 12/30/15

  Education     38,500         37,843        39,559   

Avaya Inc., 10.125% Cash or 10.875% PIK, 11/1/15

  Telecommunications     7,140         7,176        7,289   

Catalina Marketing Corporation, 11.625%,
10/1/17 ¨

  Grocery     42,175         42,404        47,974   

Catalina Marketing Corporation, 10.50%,
10/1/15 ¨

  Grocery     5,000         5,108        5,425   

Ceridian Corp., 12.25% Cash or 13.00% PIK,
11/15/15 †

  Diversified Service     55,950         55,792        58,608   

Ceridian Corp., 11.25%, 11/15/15 †

  Diversified Service     34,300         33,874        35,801   

Checkout Holding Corp. (Catalina Marketing), 0.00%, 11/15/15

  Grocery     40,000         24,655        26,200   

Delta Educational Systems, Inc., 14.20% (13.00% Cash / 1.20% PIK), 5/12/13

  Education     19,753         19,464        20,286   

Dura-Line Merger Sub, Inc., 14.25%(11.25% Cash / 3.00% PIK), 9/22/14

  Telecommunications     42,654         42,179        42,654   

Exova Limited, 10.50%, 10/15/18

  Market Research   £ 18,000         28,823        30,296   

First Data Corporation, 12.625%, 1/15/21 †

  Financial Services   $ 9,219         7,971        10,053   

First Data Corporation, 9.875%, 9/24/15 †

  Financial Services     2,061         1,843        2,112   

 

See notes to financial statements.

 

18


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2011

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 147.9%

  Industry   Par
Amount*
     Cost     Fair
Value(1)
 

Subordinated Debt/Corporate Notes — (continued)

        

First Data Corporation, 8.25%, 1/15/21 †

  Financial
Services
  $ 9,219       $ 8,020      $ 9,192   

FleetPride Corporation, 11.50%, 10/1/14 ¨

  Transportation     47,500         47,500        47,737   

Fox Acquisition Sub LLC, 13.375%, 7/15/16 ¨

  Broadcasting &
Entertainment
    26,125         25,927        28,999   

FPC Holdings, Inc. (FleetPride Corporation), 14.00%, 6/30/15 ¨

  Transportation     37,846         38,670        39,170   

General Nutrition Centers, Inc., 10.75%, 3/15/15 †

  Retail     24,500         24,674        24,500   

General Nutrition Centers, Inc., L+450 Cash or L+525 PIK, 3/15/14 †

  Retail     12,275         12,270        12,275   

Hub International Holdings, 10.25%, 6/15/15 ¨

  Insurance     36,232         34,990        37,772   

Intelsat Bermuda Ltd., 11.25%, 2/4/17

  Broadcasting &
Entertainment
    90,000         92,060        98,415   

Laureate Education, Inc., 12.00%, 8/15/17 ¨

  Education     53,540         52,244        58,760   

MW Industries, Inc., 14.50%(13.00% Cash / 1.50% PIK), 5/1/14

  Manufacturing     62,341         61,686        62,341   

N.E.W. Holdings I, LLC, L+750, 3/23/17

  Consumer
Services
    45,111         45,227        46,464   

Playpower Holdings Inc., 15.50% PIK,
12/31/12 ¨ ***

  Leisure
Equipment
    112,831         112,831        54,176   

Ranpak Holdings, Inc., 15.00% PIK, 12/27/15

  Packaging     78,501         78,501        80,071   

Renal Advantage Holdings, Inc., 12.00%, 6/17/17

  Healthcare     32,103         31,713        32,424   

Sorenson Communications, Inc., 10.50%, 2/1/15 ¨

  Consumer
Services
    32,500         32,000        24,375   

SquareTwo Financial Corp. (Collect America, Ltd.), 11.625%, 4/1/17 ¨

  Consumer
Finance
    40,000         39,373        40,900   

The ServiceMaster Company, 10.75% Cash or 11.50% PIK, 7/15/15 ¨

  Diversified
Service
    52,173         52,751        55,640   

TL Acquisitions, Inc. (Thomson Learning), 13.25%, 7/15/15¨

  Education     82,500         82,845        86,178   

TL Acquisitions, Inc. (Thomson Learning), 10.50%, 1/15/15¨

  Education     22,000         20,943        22,477   

Univar Inc., 12.00%, 6/30/18

  Distribution     78,750         78,750        81,506   

US Foodservice, 10.25%, 6/30/15 ¨

  Beverage,
Food &
Tobacco
    81,543         72,918        86,027   

U.S. Renal Care, Inc., 13.25%(11.25% Cash / 2.00% PIK), 5/24/17

  Healthcare     20,336         20,336        21,353   

Varietal Distribution, 10.75%, 6/30/17

  Distribution   1,127         1,392        1,609   

Varietal Distribution, 10.75%, 6/30/17

  Distribution   $ 22,204         21,715        22,338   
      

 

 

   

 

 

 

Total Subordinated Debt/Corporate Notes

       $ 1,708,753      $ 1,719,757   
      

 

 

   

 

 

 

TOTAL CORPORATE DEBT

       $ 2,703,495      $ 2,733,502   
      

 

 

   

 

 

 

 

See notes to financial statements.

 

19


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2011

(in thousands, except shares)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 147.9%

   Industry    Par
Amount*
     Cost      Fair
Value(1)
 
COLLATERALIZED LOAN OBLIGATIONS — 1.4%            

Babson CLO Ltd., Series 2008-2A Class E, L+975, 7/15/18 ¨

   Asset Management    $ 11,000       $ 10,158       $ 11,592   

Babson CLO Ltd., Series 2008-1A Class E, L+550, 7/20/18 ¨

   Asset Management      10,150         7,698         8,788   

Westbrook CLO Ltd., Series 2006-1A, L+370, 12/20/20 ¨

   Asset Management      11,000         6,883         8,390   
        

 

 

    

 

 

 

TOTAL COLLATERALIZED LOAN OBLIGATIONS

         $ 24,739       $ 28,770   
        

 

 

    

 

 

 
          Shares                

PREFERRED EQUITY — 1.7%

           

AHC Mezzanine LLC (Advanstar) **

   Media      —         $ 1,063       $ 220   

CA Holding, Inc. (Collect America, Ltd.)
Series A **

   Consumer Finance      7,961         788         1,592   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50% PIK, 5/12/14

   Education      12,360         22,330         22,943   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 12.50% PIK (Convertible)

   Education      332,500         6,067         6,067   

Varietal Distribution Holdings, LLC, 8.00% PIK

   Distribution      3,097         4,169         2,310   
        

 

 

    

 

 

 

TOTAL PREFERRED EQUITY

         $ 34,417       $ 33,132   
        

 

 

    

 

 

 

EQUITY — 5.4%

           

Common Equity/Interests — 5.0%

           

AB Capital Holdings LLC (Allied Security)

   Business Services      2,000,000       $ 2,000       $ 2,650   

Accelerate Parent Corp. (American Tire)

   Distribution      3,125,000         3,125         4,110   

A-D Conduit Holdings, LLC (Duraline) **

   Telecommunications      2,778         2,778         5,007   

Altegrity Holding Corp.

   Diversified Service      353,399         13,797         14,749   

CA Holding, Inc. (Collect America, Ltd.)
Series A **

   Consumer Finance      25,000         2,500         149   

CA Holding, Inc. (Collect America, Ltd.)
Series AA **

   Consumer Finance      4,294         429         859   

Clothesline Holdings, Inc. (Angelica) **

   Healthcare      6,000         6,000         5,131   

Explorer Coinvest LLC (Booz Allen) **

   Consulting Services      430         4,300         7,202   

FSC Holdings Inc. (Hanley Wood LLC) **

   Media      10,000         10,000         —     

Garden Fresh Restaurant Holding, LLC **

   Retail      50,000         5,000         8,734   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.)**

   Education      17,500         175         573   

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems) (4,5) **

   Industrial      —           —           247   

 

See notes to financial statements.

 

20


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2011

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 147.9%

   Industry   Shares     Cost     Fair
Value(1)
 
Common Equity/Interests — (continued)         

New Omaha Holdings Co-Invest LP
(First Data) **

   Financial Services     13,000,000      $ 65,000      $ 20,024   

Penton Business Media Holdings, LLC **

   Media     124        4,950        6,049   

Pro Mach Co-Investment, LLC **

   Machinery     150,000        1,500        4,558   

RC Coinvestment, LLC (Ranpak Corp.) **

   Packaging     50,000        5,000        6,008   

Sorenson Communications Holdings, LLC
Class A **

   Consumer
Services
    454,828        46        2,030   

Univar Inc.

   Distribution     900,000        9,000        9,400   

Varietal Distribution Holdings, LLC Class A **

   Distribution     28,028        28        —     
      

 

 

   

 

 

 

Total Common Equity/Interests

       $ 135,628      $ 97,480   
      

 

 

   

 

 

 
         Warrants              

Warrants — 0.4%

        

CA Holding, Inc. (Collect America, Ltd.),
Common **

   Consumer Finance     7,961      $ 8      $ —     

Fidji Luxco (BC) S.C.A., Common (FCI) (4) **

   Electronics     48,769        491        5,351   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Common **

   Education     9,820        98        322   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class A-1 Preferred **

   Education     45,947        459        837   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class B-1 Preferred **

   Education     104,314        1,043        1,901   
      

 

 

   

 

 

 

Total Warrants

       $ 2,099      $ 8,411   
      

 

 

   

 

 

 

TOTAL EQUITY

       $ 137,727      $ 105,891   
      

 

 

   

 

 

 

Total Investments in Non-Controlled/ Non-Affiliated Portfolio Companies

       $ 2,900,378      $ 2,901,295   
      

 

 

   

 

 

 

 

See notes to financial statements.

 

21


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2011

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/AFFILIATED PORTFOLIO
COMPANIES — 1.9%(6)

   Industry    Par
Amount*
     Cost      Fair
Value(1)
 

CORPORATE DEBT — 0.6%

           

Subordinated Debt/Corporate Notes — 0.6%

           

DSI Renal Inc., 17.00% (10.00% Cash / 7.00% PIK), 4/7/14

   Healthcare    $ 10,686       $ 10,686       $ 10,899   
        

 

 

    

 

 

 

TOTAL CORPORATE DEBT

         $ 10,686       $ 10,899   
        

 

 

    

 

 

 
          Shares                

EQUITY — 1.3%

           

Common Equity/Interests — 0.9%

           

CDSI I Holding Company, Inc. (DSI Renal Inc.) **

   Healthcare      9,303       $ 9,300       $ 18,723   
        

 

 

    

 

 

 

Total Common Equity/Interests

         $ 9,300       $ 18,723   
        

 

 

    

 

 

 
          Warrants                

Warrants — 0.4%

           

CDSI I Holding Company, Inc. Series A (DSI Renal Inc.) **

   Healthcare      2,031       $ 773       $ 2,169   

CDSI I Holding Company, Inc. Series B (DSI Renal Inc.) **

   Healthcare      2,031         645         1,837   

CDSI I Holding Company, Inc. (DSI Renal Inc.) ** §

   Healthcare      6,093,750         1,003         3,667   
        

 

 

    

 

 

 

Total Warrants

         $ 2,421       $ 7,673   
        

 

 

    

 

 

 

TOTAL EQUITY

         $ 11,721       $ 26,396   
        

 

 

    

 

 

 

Total Investments in Non-Controlled/Affiliated Portfolio Companies

         $ 22,407       $ 37,295   
        

 

 

    

 

 

 

 

See notes to financial statements.

 

22


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2011

(in thousands, except shares)

 

INVESTMENTS IN CONTROLLED PORTFOLIO
COMPANIES — 5.7%(7)

   Industry    Shares      Cost      Fair
Value(1)
 

Preferred Equity — 0.0%

           

Grand Prix Holdings, LLC Series A, 12.00% PIK (Innkeepers USA)(8)***

   Hotels, Motels, Inns
& Gaming
     2,989,431       $ 102,012       $ —     
        

 

 

    

 

 

 

EQUITY

           

Common Equity/Interests — 5.7%

           

AIC Credit Opportunity Fund LLC (9)

   Asset Management      —         $ 71,740       $ 95,212   

Generation Brands Holdings, Inc. (Quality Home Brands) **

   Consumer Products      750         —           8   

Generation Brands Holdings, Inc. Series H (Quality Home Brands) **

   Consumer Products      7,500         2,297         77   

Generation Brands Holdings, Inc. Series 2L (Quality Home Brands) **

   Consumer Products      36,700         11,242         379   

Grand Prix Holdings, LLC
(Innkeepers USA) (8) **

   Hotels, Motels, Inns
& Gaming
     17,335,834         172,664         —     

LVI Parent Corp. (LVI Services, Inc.)

   Environmental &
Facilities Services
     14,981         16,096         15,892   
        

 

 

    

 

 

 

Total Common Equity/Interests

         $ 274,039       $ 111,568   
        

 

 

    

 

 

 

TOTAL EQUITY

         $ 274,039       $ 111,568   
        

 

 

    

 

 

 

Total Investments in Controlled Portfolio Companies

         $ 376,051       $ 111,568   
        

 

 

    

 

 

 

Total Investments — 155.5%(10)

         $ 3,298,836       $ 3,050,158   

Liabilities in Excess of Other Assets — (55.5%)

              (1,089,127
           

 

 

 

Net Assets — 100.0%

            $ 1,961,031   
           

 

 

 

 

(1) Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Note 2).
(2) Position is held across five US Dollar-denominated tranches with stated coupons between L+650 and L+850.
(3) Position is held across three Euro-denominated tranches with stated coupons between E+700 and E+800.
(4) Denominated in Euro (€).
(5) The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
(6) Denotes investments in which we are an “Affiliated Person”, as defined in the Investment Company Act of 1940 (“1940 Act’), due to owning, controlling, or holding the power to vote, 5% or more of the outstanding voting securities of the investment. Transactions during the fiscal year ended March 31, 2011 in these Affiliated investments are as follows:

 

See notes to financial statements.

 

23


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2011

(in thousands)

 

Name of Issuer

   Fair Value at
March 31, 2010
     Gross
Additions
     Gross
Reductions
     Interest/Dividend
Income
     Fair Value at
March 31, 2011
 

Gray Wireline Service, Inc. 1st Out

   $ 1,000       $ —         $ 1,000       $ 57       $ —     

Gray Wireline Service, Inc. 2nd Out

     59,251         485         78,820         8,494         —     

DSI Renal, Inc., 17.00%

     10,057         825         —           1,745         10,899   

CDSI I Holding Company, Inc. (DSI Renal) Common Equity

     10,206         —           —           —           18,723   

Gray Energy Services, LLC Class H Common Equity

     —           —           806         —           —     

CDSI I Holding Company, Inc. (DSI Renal) Series A Warrant

     854         —           —           —           2,169   

CDSI I Holding Company, Inc. (DSI Renal) Series B Warrant

     693         —           —           —           1,837   

CDSI I Holding Company, Inc. (DSI Renal) Contingent Payment Agreement

     1,075         —           —           —           3,667   

Gray Holdco, Inc. Warrant

     —           —           2,654         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 83,136       $ 1,310       $ 83,280       $ 10,296       $ 37,295   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

(7)    Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the fiscal year ended March 31, 2011 in these Controlled investments are as follows:

          

              

Name of Issuer

   Fair Value at
March 31, 2010
     Gross
Additions
     Gross
Reductions
     Interest/
Dividend/
Other Income
     Fair Value at
March 31, 2011
 

Grand Prix Holdings, LLC (Innkeepers USA) Series A Preferred(8)

   $ 5,268       $ —         $ —         $ —         $ —     

AIC Credit Opportunity Fund LLC Common Equity(9)

     73,514         1,700         —           12,334         95,212   

Generation Brands Holdings, Inc. (Quality Home Brands)Common Equity

     230         —           —           —           8   

Generation Brands Holdings, Inc. (Quality Home Brands) Series H Common Equity

     2,297         —           —           —           77   

Generation Brands Holdings, Inc. (Quality Home Brands) Series 2L Common Equity

     11,242         —           —           —           379   

Grand Prix Holdings, LLC (Innkeepers USA) Common Equity(8)

     —           —           —           —           —     

LVI Parent Corp. Common Equity

     —           16,096         —           110         15,892   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 92,551       $ 17,796       $ —         $ 12,444       $ 111,568   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

See notes to financial statements.

 

24


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2011

(in thousands)

 

The Company has a 99%, 100%, 27% and 34% equity ownership interest in Grand Prix Holdings LLC, AIC Credit Opportunity Fund LLC, Generation Brands Holdings, Inc. and LVI Parent Corp., respectively.

 

(8) See note 14.
(9) See note 6.
(10) Aggregate gross unrealized appreciation for federal income tax purposes is $202,082; aggregate gross unrealized depreciation for federal income tax purposes is $454,897. Net unrealized depreciation is $252,815 based on a tax cost of $3,302,973.
¨ These securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
* Denominated in USD unless otherwise noted.
** Non-income producing security
*** Non-accrual status (see note 2d)
Denote securities where the Company owns multiple tranches of the same broad asset type but whose security characteristics differ. Such differences may include level of subordination, call protection and pricing, differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
§ Position reflects a contingent payment agreement.

 

See notes to financial statements.

 

25


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

 

Industry Classification

   Percentage of Total
Investments (at
fair value) as of
March 31, 2011

Diversified Service

         10.4%    

Education

           9.9%    

Healthcare

           7.5%    

Retail

           6.6%    

Packaging

           5.3%    

Distribution

           5.2%    

Insurance

           5.0%    

Grocery

           4.6%    

Broadcasting & Entertainment

           4.2%    

Asset Management

           4.1%    

Environmental & Facilities Services

           3.5%    

Software

           3.4%    

Business Services

           3.3%    

Telecommunications

           3.2%    

Transportation

           2.8%    

Beverage, Food & Tobacco

           2.8%    

Financial Services

           2.5%    

Consumer Services

           2.4%    

Leisure Equipment

           2.3%    

Electronics

           2.1%    

Manufacturing

           2.0%    

Consumer Finance

           1.4%    

Industrial

           1.3%    

Logistics

           1.3%    

Media

           1.1%    

Market Research

           1.0%    

Consumer Products

           0.4%    

Consulting Services

           0.2%    

Machinery

           0.2%    

Hotels, Motels, Inns & Gaming

           0.0%    
  

 

Total Investments

     100.0%  
  

 

See notes to financial statements.

 

26


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited)

(in thousands except share and per share amounts)

 

Note 1. Organization

Apollo Investment Corporation, a Maryland corporation organized on February 2, 2004, is a closed-end, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). In addition, for tax purposes we have elected to be treated as a regulated investment company (“RIC”), under the Internal Revenue Code of 1986, as amended (“the Code”). Our primary investment objective is to generate current income and capital appreciation. We invest primarily in the form of subordinated debt, as well as by making investments in certain senior secured loans and/or equity in private middle-market companies. From time to time, we may also invest in the securities of public companies.

Apollo Investment commenced operations on April 8, 2004 receiving net proceeds of $870,000 from its initial public offering selling 62 million shares of common stock at a price of $15.00 per share.

Note 2. Significant Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 6 or 10 of Regulation S-X, as appropriate. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period, have been included.

The significant accounting policies consistently followed by Apollo Investment are:

(a) Security transactions are accounted for on the trade date;

(b) Under procedures established by our board of directors, we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we typically utilize independent third party valuation firms to assist us in determining fair value. Accordingly, such investments go through our multi-step valuation process as described below. In each case, our independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such Level 3 categorized assets. Investments maturing in 60 days or less are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our board of directors. Such determination of fair values may involve subjective judgments and estimates.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our board of directors has approved a multi-step valuation process each quarter, as described below:

(1) our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our investment adviser responsible for the portfolio investment;

(2) preliminary valuation conclusions are then documented and discussed with senior management of our investment adviser;

(3) independent valuation firms engaged by our board of directors conduct independent appraisals and review our investment adviser’s preliminary valuations and make their own independent assessment;

(4) the audit committee of the board of directors reviews the preliminary valuation of our investment adviser and that of the independent valuation firm and responds to the valuation recommendation of the independent valuation firm to reflect any comments; and

(5) the board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of our investment adviser, the respective independent valuation firm and the audit committee.

Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When readily available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the quarter ended June 30, 2011, there has been no change to the Company’s valuation techniques and related inputs considered in the valuation process.

Accounting Standards Codification (“ASC”) 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

Accounting Standards Update No. 2010-06, Improving Disclosure about Fair Value Measurements was released in January 2010 and is effective for periods beginning after December 15, 2009, except for separate disclosures for purchases, sales, issuances, and settlements, as applicable, in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. This update improves financial statement disclosure around transfers in and out of level 1 and 2 fair value measurements, around valuation techniques and inputs and around other related disclosures. Transfers between levels, if any, are recognized at the end of the reporting period. See certain additional disclosures in note 6, as well as in “Valuation of Portfolio Investments” within our Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”) which results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and IFRS. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The Company is currently assessing the potential impact that the adoption of ASU 2011-04 may have on the Company’s financial position and results of operations.

(c) Gains or losses on investments are calculated by using the specific identification method.

(d) The Company records interest and dividend income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Some of our loans and other investments, including certain preferred equity investments, may have contractual payment-in-kind (“PIK”) interest or dividends. PIK interest and dividends computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company again believes that PIK is expected to be realized. For the three months ended June 30, 2011, accrued PIK totaled $3.5 million, on total investment income of $94.6 million. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the interest method or straight-line, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Structuring fees are recorded as other income when earned. Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on non-accrual designated investments may be recognized as income or applied to principal depending upon management’s judgment.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

(e) The Company intends to comply with the applicable provisions of the Code pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all Federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on estimated excess taxable income as required.

(f) Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America.

(g) Dividends and distributions to common stockholders are recorded as of the record date. The amount to be paid out as a dividend is determined by the board of directors each quarter. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

(h) In accordance with Regulation S-X and ASC 810—Consolidation, the Company generally will not consolidate its interest in any company other than in investment company subsidiaries and controlled operating companies substantially all of whose business consists of providing services to the Company. Consequently, the Company generally will not consolidate special purpose entities through which the special purpose entity acquires and holds investments subject to financing with third parties. At June 30, 2011, the Company did not have any subsidiaries or controlled operating companies that were consolidated. See note 6.

(i) The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. The Company’s investments in foreign securities may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.

(j) The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled.

(k) The Company records origination and other expenses related to its debt obligations as prepaid assets. These expenses are deferred and amortized using the straight-line method over the stated life of the obligation which closely approximates the effective yield method.

(l) The Company records expenses related to shelf filings and applicable offering costs as prepaid assets. These expenses are charged as a reduction of capital upon utilization, in accordance with the ASC 946-20-25.

(m) The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less from the date of purchase would qualify, with limited exceptions. The Company deems that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

Note 3. Agreements

Apollo Investment has an Investment Advisory and Management Agreement (the “Investment Advisory Agreement”) with Apollo Investment Management, L.P. (the “Investment Adviser” or “AIM”), under which the Investment Adviser, subject to the overall supervision of Apollo Investment’s board of directors, will manage the day-to-day operations of, and provide investment advisory services to, Apollo Investment. For providing these services, the Investment Adviser receives a fee from Apollo Investment, consisting of two components—a base management fee and a performance-based incentive fee. The base management fee is determined by taking the average value of Apollo Investment’s gross assets at the end of the two most recently completed calendar quarters calculated at an annual rate of 2.00%. The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on Apollo Investment’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus Apollo Investment’s operating expenses for the quarter (including the base management fee, any expenses payable under an administration agreement (the “Administration Agreement”) between Apollo Investment and Apollo Investment Administration, LLC (the “Administrator”), and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any realized capital gains computed net of all realized capital losses and unrealized capital depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of Apollo Investment’s net assets at the end of the immediately preceding calendar quarter, is compared to the rate of 1.75% per quarter (7% annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 2% base management fee.

Apollo Investment pays the Investment Adviser an incentive fee with respect to Apollo Investment’s pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which Apollo Investment’s pre-incentive fee net investment income does not exceed 1.75%, which we commonly refer to as the performance threshold; (2) 100% of Apollo Investment’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds 1.75% but does not exceed 2.1875% in any calendar quarter; and (3) 20% of the amount of Apollo Investment’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately pro rated for any period of less than three months. The effect of the fee calculation described above is that if pre-incentive fee net investment income is equal to or exceeds 2.1875%, the Investment Adviser will receive a fee of 20% of Apollo Investment’s pre-incentive fee net investment income for the quarter. The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of Apollo Investment’s cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For accounting purposes only, we are required under GAAP to accrue a hypothetical capital gains incentive fee based upon net realized capital gains and unrealized capital appreciation and depreciation on investments held at the end of each period. The accrual of this hypothetical capital gains incentive fee assumes all unrealized capital appreciation and depreciation is realized in order to reflect a hypothetical capital gains incentive fee that would be payable to the Investment Adviser at each measurement date. There was no such required accrual under GAAP for the fiscal quarters ended June 30, 2011 and 2010. It should be noted that a fee so calculated and accrued is not payable under the Investment Advisers Act of 1940 (“Advisers Act”) or Investment Advisory Agreement, and would not be paid based upon such

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

computation of capital gains incentive fees in subsequent periods. Amounts actually paid to the Investment Adviser are consistent with the Advisers Act and formula reflected in the Investment Advisory Agreement which specifically excludes consideration of unrealized capital appreciation.

For the three months ended June 30, 2011 and 2010, the Company recognized $15,929 and $14,554, respectively, in base management fees and $8,381 and $10,207, respectively, in performance-based incentive fees. The fees for the three months ended June 30, 2011 reflect a reduction due to a prior payment of an unearned portion of the fees to the Investment Adviser of $2,783.

Apollo Investment has also entered into an Administration Agreement with the Administrator under which the Administrator provides administrative services for Apollo Investment. For providing these services, facilities and personnel, Apollo Investment reimburses the Administrator for Apollo Investment’s allocable portion of overhead and other expenses incurred by the Administrator and requested to be reimbursed in performing its obligations under the Administration Agreement, including rent and Apollo Investment’s allocable portion of its chief financial officer and chief compliance officer and their respective staffs that are requested to be reimbursed. The Administrator will also provide, on Apollo Investment’s behalf, managerial assistance to those portfolio companies to which Apollo Investment is required to provide such assistance. For the fiscal quarters ended June 30, 2011 and 2010, the Company recognized expenses under the Administration Agreement of $887 and $1,396, respectively.

Note 4. Net Asset Value Per Share

At June 30, 2011, the Company’s total net assets and net asset value per share were $1,911,232 and $9.76, respectively. This compares to total net assets and net asset value per share at March 31, 2011 of $1,961,031 and $10.03, respectively.

Note 5. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share, pursuant to ASC 260-10, for the three months ended June 30, 2011 and June 30, 2010, respectively:

 

     Three months ended June 30,  
     2011     2010  

Earnings per share — basic

    

Numerator for increase (decrease) in net assets per share:

   $ 56      $ (84,310

Denominator for basic weighted average shares:

     195,900,461        187,774,509   

Basic earnings (loss) per share:

     0.00        (0.45

Earnings per share — diluted

    

Numerator for increase (decrease) in net assets per share:

   $ 56      $ (84,310

Adjustment for interest on convertible notes and for incentive fees, net

     2,575        —     
  

 

 

   

 

 

 

Numerator for increase (decrease) in net assets per share, as adjusted

   $ 2,631      $ (84,310

Denominator for weighted average shares, as adjusted for dilutive effect of convertible notes:

     210,448,561        187,774,509   

Diluted earnings (loss) per share:

     0.00     (0.45

 

* In applying the if-converted method, conversion shall not be assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. For the three months ended June 30, 2011, anti-dilution would total $0.01.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

Note 6. Investments

AIC Credit Opportunity Fund LLC—We own all of the common member interests in AIC Credit Opportunity Fund LLC (“AIC Holdco”). AIC Holdco was formed for the purpose of holding various financed investments. AIC Holdco wholly owns the special purpose entity AIC (FDC) Holdings LLC (“Apollo FDC”). Through AIC Holdco, effective in June 2008 we invested $39,500 in Apollo FDC. Apollo FDC purchased a Junior Profit-Participating Note due 2013 in principal amount of $39,500 (the “Junior Note”) from Apollo I Trust (the “Trust”). The Trust also issued a Senior Floating Rate Note due 2013 (the “Senior Note”) to an unaffiliated third party (“FDC Counterparty”) in principal amount of $39,500 paying interest at Libor plus 1.50%, increasing over time to Libor plus 2.0%. The Trust used the aggregate $79,000 proceeds to acquire $100,000 face value of a senior subordinated loan of First Data Corporation (the “FDC Reference Obligation”) due 2016 and paying interest at 11.25% per year. Under its Junior Note, Apollo FDC is generally entitled to the net interest and other proceeds due under the FDC Reference Obligation after payment of interest due under the Senior Notes, as described above. In addition, Apollo FDC is entitled to 100% of any realized appreciation in the FDC Reference Obligation and, since the Senior Note is a non-recourse obligation, Apollo FDC is exposed up to the amount of its investment in the Junior Note plus any additional margin we decide to post, if any, during the term of the financing.

AIC (TXU) Holdings LLC (“Apollo TXU”) is a special purpose entity wholly owned by AIC Holdco. Through AIC Holdco, effective in June 2008, we invested $11,375 in Apollo TXU, which acquired exposure to $50,000 notional amount of a Libor plus 3.5% senior secured delayed draw term loan of Texas Competitive Electric Holdings (“TXU”) due 2014 through a non-recourse total return swap with an unaffiliated third party expiring on October 10, 2013. Pursuant to such delayed drawn term loan, Apollo TXU pays interest at Libor plus 1.5% and generally receives all proceeds due under the delayed draw term loan of TXU (the “TXU Reference Obligation”). Like Apollo FDC, Apollo TXU is entitled to 100% of any realized appreciation in the TXU Reference Obligation and, since the total return swap is a non-recourse obligation, Apollo TXU is exposed up to the amount of its investment in the total return swap, plus any additional margin we decide to post, if any, during the term of the financing.

AIC (Boots) Holdings, LLC (“Apollo Boots”) is a special purpose entity wholly owned by AIC Holdco. Through AIC Holdco, effective in September 2008, we invested $10,022 equivalent, in Apollo Boots. Apollo Boots acquired €23,383 and £12,465 principal amount of senior term loans of AB Acquisitions Topco 2 Limited, a holding company for the Alliance Boots group of companies (the “Boots Reference Obligations”), out of the proceeds of our investment and a multicurrency $40,876 equivalent non-recourse loan to Apollo Boots (the “Acquisition Loan”) by an unaffiliated third party that matures in September 2013 and pays interest at LIBOR plus 1.25% or, in certain cases, the higher of the Federal Funds Rate plus 0.50% or the lender’s prime-rate. The Boots Reference Obligations pay interest at the rate of LIBOR plus 3% per year and mature in June 2015.

We do not consolidate AIC Holdco or its wholly owned subsidiaries and accordingly only the value of our investment in AIC Holdco is included on our statements of assets and liabilities. The Senior Note, total return swap and Acquisition Loan are non-recourse to AIC Holdco, its subsidiaries and us and have standard events of default including failure to pay contractual amounts when due and failure by each of the underlying Apollo special purpose entities to provide additional credit support, sell assets or prepay a portion of its obligations if the value of the FDC Reference Obligation, the TXU Reference Obligation or the Boots Reference Obligation, as applicable, declines below specified levels. We may unwind any of these transactions at any time without penalty. From time to time we may provide additional capital to AIC Holdco for purposes of funding margin calls under one or more of the transactions described above among other reasons. During the fiscal year ended March 31, 2009, we provided $18,480 in additional capital to AIC Holdco. During the fiscal year ended

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

March 31, 2010, $9,336 of net capital was returned to us from AIC Holdco. During the fiscal year ended March 31, 2011, $1,700 of net capital was provided to AIC Holdco. During the three months ended June 30, 2011, no additional capital was provided to or returned from AIC Holdco.

Investments and cash equivalents consisted of the following as of June 30, 2011 and March 31, 2011.

 

     June 30, 2011      March 31, 2011  
     Cost      Fair Value      Cost      Fair Value  

Bank Debt/Senior Secured Loans

   $ 994,060       $ 1,005,268       $ 994,742       $ 1,013,745   

Subordinated Debt/Corporate Notes

     1,716,915         1,735,116         1,719,439         1,730,656   

Collateralized Loan Obligations

     24,858         28,994         24,739         28,770   

Preferred Equity

     137,521         34,029         136,429         33,132   

Common Equity/Interests

     496,688         303,499         418,967         227,771   

Warrants

     4,519         16,354         4,520         16,084   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 3,374,561       $ 3,123,260       $ 3,298,836       $ 3,050,158   

Cash Equivalents

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments and Cash Equivalents

   $ 3,374,561       $ 3,123,260       $ 3,298,836       $ 3,050,158   

At June 30, 2011, our investments and cash equivalents were categorized as follows in the fair value hierarchy for ASC 820 purposes:

 

            Fair Value Measurement at Reporting Date Using:  

Description

   June 30,
2011
     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Bank Debt/Senior Secured Loans

   $ 1,005,268       $ —         $ —         $ 1,005,268   

Subordinated Debt/Corporate Notes

     1,735,116         —           —           1,735,116   

Collateralized Loan Obligations

     28,994         —           —           28,994   

Preferred Equity

     34,029         —           —           34,029   

Common Equity/Interests

     303,499         —           —           303,499   

Warrants

     16,354         —           —           16,354   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 3,123,260       $ —         $ —         $ 3,123,260   

Cash Equivalents

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments and Cash Equivalents

   $ 3,123,260       $ —         $ —         $ 3,123,260   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

At March 31, 2011, our investments and cash equivalents were categorized as follows in the fair value hierarchy for ASC 820 purposes:

 

            Fair Value Measurement at Reporting Date Using:  

Description

   March 31,
2011
     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Bank Debt/Senior Secured Loans

   $ 1,013,745       $ —         $ —         $ 1,013,745   

Subordinated Debt/Corporate Notes

     1,730,656         —           —           1,730,656   

Collateralized Loan Obligations

     28,770         —           —           28,770   

Preferred Equity

     33,132         —           —           33,132   

Common Equity/Interests

     227,771         —           —           227,771   

Warrants

     16,084         —           —           16,084   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 3,050,158       $ —         $ —         $ 3,050,158   

Cash Equivalents

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments and Cash Equivalents

   $ 3,050,158       $ —         $ —         $ 3,050,158   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

The following chart shows the components of change in our investments categorized as Level 3, for the three months ended June 30, 2011.

 

    Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*  
    Bank Debt /
Senior Secured
Loans
    Subordinated
Debt/Corporate
Notes
    Collateralized
Loan
Obligations
    Preferred
Equity
    Common
Equity/
Interests
    Warrants     Total  

Beginning Balance, March 31, 2011

  $ 1,013,745      $ 1,730,656      $ 28,770      $ 33,132      $ 227,771      $ 16,084      $ 3,050,158   

Total realized gains or losses included in earnings

    6,556        (50,884     —          —          217        —          (44,111

Total unrealized gains or losses included in earnings

    (7,779     7,051        104        (195     (1,994     270        (2,543

Purchases, including capitalized PIK(1)

    316,089        450,109        120        1,092        77,722        —          845,132   

Sales

    (323,343     (401,816     —          —          (217     —          (725,376

Transfer out of Level 3(2)

    —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, June 30, 2011

  $ 1,005,268      $ 1,735,116      $ 28,994      $ 34,029      $ 303,499      $ 16,354      $ 3,123,260   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations.

  $ (1,014   $ (34,065   $ 104      $ (195   $ (1,994   $ 270      $ (36,894
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes accretion of discount and amortization of premiums of approximately $1,161, $2,876, $120, $48, $0, $0, and $4,205, respectively.
(2) There were also no transfers into or out of Level 1 or Level 2 fair value measurements during the period shown.
* Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

Accumulated PIK interest activity for the three months ended June 30, 2011:

 

 
     Three Months Ended  
     June 30, 2011  

PIK balance at beginning of period

   $ 165,651,145   

Gross PIK interest capitalized

     5,117,571   

Adjustments due to loan exits

     (60,109,351

PIK interest received in cash

     (49,337,353
  

 

 

 

PIK balance at end of period

   $ 61,322,012   
  

 

 

 

The following chart shows the components of change in our investments categorized as Level 3, for the three months ended June 30, 2010.

 

    Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*  
    Bank Debt /
Senior Secured
Loans
    Subordinated
Debt/Corporate
Notes
    Collateralized
Loan
Obligations
    Preferred
Equity
    Common
Equity/
Interests
    Warrants     Total  

Beginning Balance, March 31, 2010

  $ 843,098      $ 1,659,504      $ 25,866      $ 33,868      $ 281,009      $ 10,235      $ 2,853,580   

Total realized gains or losses included in earnings

    760        10        56        —          —          —          826   

Total unrealized gains or losses included in earnings

    (11,205     (96,463     (964     (4,415     (25,643     714        (137,976

Purchases, including capitalized PIK(1)

    145,450        93,202        105        967        4,825        —          244,549   

Sales

    (60,598     (51,869     (216     —          —          —          (112,683

Transfer in and/or out of Level 3(2)

    —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, June 30, 2010

  $ 917,505      $ 1,604,384      $ 24,847      $ 30,420      $ 260,191      $ 10,949      $ 2,848,296   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations.

  $ (10,943   $ (95,323   $ (949   $ (4,415   $ (25,643   $ 714      $ (136,559
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

(1) Includes accretion of discount and amortization of premiums of approximately $980, $6,233, $105, $47, $0, $0, and $7,365, respectively.
(2) There were also no transfers into or out of Level 1 or Level 2 fair value measurements during the period shown.
* Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

Note 7. Foreign Currency Transactions and Translations

At June 30, 2011, the Company had outstanding non-US borrowings on its multicurrency revolving credit facility (the “Facility”) denominated in Euros and British Pounds. Unrealized appreciation or depreciation on these outstanding borrowings is indicated in the table below:

 

Foreign Currency

   Local
Currency
     Original
Borrowing
Cost
     Current
Value
     Reset Date      Unrealized
Appreciation
(Depreciation)
 

British Pound

   £ 18,239       $ 29,709       $ 29,282         07/13/2011       $ 427   

Euro

   9,098         13,195         13,191         07/13/2011         4   

British Pound

   £ 22,000         35,870         35,320         07/20/2011         550   

Euro

   13,000         18,743         18,848         07/20/2011         (105

British Pound

   £ 30,218         48,037         48,514         07/27/2011         (477

Euro

   47,218         64,338         68,458         07/29/2011         (4,120

British Pound

   £ 36,258         58,093         58,211         07/29/2011         (118
     

 

 

    

 

 

       

 

 

 
      $ 267,985       $ 271,824          $ (3,839
     

 

 

    

 

 

       

 

 

 

At March 31, 2011, the Company had outstanding non-US borrowings on its multicurrency revolving credit facility denominated in Euros and British Pounds. Unrealized appreciation or depreciation on these outstanding borrowings is indicated in the table below:

 

Foreign Currency

   Local
Currency
     Original
Borrowing
Cost
     Current
Value
     Reset Date      Unrealized
Appreciation
(Depreciation)
 

British Pound

   £ 2,202       $ 3,631       $ 3,530         04/13/2011       $ 101   

British Pound

   £ 6,047         9,476         9,694         04/13/2011         (218

British Pound

   £ 10,989         17,607         17,615         04/13/2011         (8

Euro

   9,098         11,936         12,913         04/13/2011         (977

British Pound

   £ 7,266         11,978         11,647         04/26/2011         331   

British Pound

   £ 19,953         31,265         31,983         04/26/2011         (718

British Pound

   £ 36,258         58,093         58,120         04/28/2011         (27

Euro

   30,018         39,380         42,604         04/28/2011         (3,224
     

 

 

    

 

 

       

 

 

 
      $ 183,366       $ 188,106          $ (4,740
     

 

 

    

 

 

       

 

 

 

Note 8. Expense Offset Arrangement

The Company benefits from an expense offset arrangement with JPMorgan Chase Bank, N.A. (“custodian bank”) whereby the Company earns credits on any uninvested US dollar cash balances held by the custodian bank.

These credits are applied by the custodian bank as a reduction of the monthly custody fees charged to the Company. The total amount of credits earned during the three months ended June 30, 2011 and June 30, 2010, were $0 and $0, respectively.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

Note 9. Cash Equivalents

There were $0 and $0 of cash equivalents held at June 30, 2011 and March 31, 2011, respectively.

Note 10. Repurchase Agreements

The Company may enter into repurchase agreements as part of its investment program. The Company’s custodian takes possession of collateral pledged by the counterparty. The collateral is marked-to-market daily to ensure that the value, plus accrued interest, is at least equal to the repurchase price. In the event of default of the obligor to repurchase, the Company has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. There were no repurchase agreements outstanding at June 30, 2011 or March 31, 2011.

Note 11. Financial Highlights

The following is a schedule of financial highlights for the three months ended June 30, 2011 and the year ended March 31, 2011:

 

     Three months ended
June 30, 2011 (unaudited)
    Year ended
March 31, 2011
 

Per Share Data:

    

Net asset value, beginning of period

   $ 10.03      $ 10.06   
  

 

 

   

 

 

 

Net investment income

     0.24        0.99   

Net realized and unrealized gain (loss)

     (0.23     (0.05
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     0.01        0.94   

Dividends to stockholders (1)

     (0.28     (1.13

Effect of anti-dilution (dilution)

     —       0.16   

Offering costs*

     —          —     
  

 

 

   

 

 

 

Net asset value at end of period

   $