N-Q 1 e66594nq.htm FORM N-Q


United States
Securities and Exchange Commission
Washington, DC 20549



Investment Company Act file number 811-00179

     Central Securities Corporation
(Exact name of registrant as specified in charter)
630 Fifth Avenue, Eighth Floor
New York, N.Y. 10111
(Address of principal executive offices)

Registrant’s telephone number including area code: 212-698-2020

Date of fiscal year end: December 31
Date of reporting period: September 30, 2015

Item 1. Schedule of Investments.


Statement of Investments
September 30, 2015


Shares     Value   
    Banking and Finance 16.5 %     
 150,000  American Express Company $11,119,500  
 600,000  The Bank of New York Mellon Corporation  23,490,000  
 290,000  Capital One Financial Corporation  21,030,800  
 400,000  Citigroup Inc.  19,844,000  
 200,000  Encore Capital Group, Inc. (a)  7,400,000  
 220,000  JPMorgan Chase & Co.  13,413,400  
    Commercial Services 1.0%     
 588,712  Heritage-Crystal Clean, Inc. (a)  6,046,072  
    Consumer Goods 1.6%     
 700,000  TRI Pointe Group, Inc. (a)  9,163,000  
    Diversified Industrial 9.6%     
 790,000  Brady Corporation Class A  15,531,400  
 200,000  General Electric Company  5,044,000  
 100,000  Precision Castparts Corporation  22,971,000  
 80,000  Roper Technologies, Inc.  12,536,000  
    Energy 2.4%     
 230,000  Murphy Oil Corporation  5,566,000  
 125,000  Occidental Petroleum Corporation  8,268,750  
    Health Care 4.8%     
 50,000  Johnson & Johnson  4,667,500  
 200,000  Medtronic plc  13,388,000  
 200,000  Merck & Co. Inc.  9,878,000  
    Insurance 21.0%     
 21,000  Alleghany Corporation (a)  9,830,310  
 28,424  The Plymouth Rock Company, Inc. Class A (b)(c)  109,432,400  
 100,000  Progressive Corporation  3,064,000  
    Media 0.4%     
 6,000  Cable One, Inc. (a)  2,516,520  
    Metals and Mining 0.7%     
 180,000  Cameco Corporation  2,190,600  
 200,000  Freeport-McMoRan Inc.  1,938,000  




Shares     Value  
    Real Estate Investment Trusts 2.9%     
 769,896  Rayonier Inc. $16,991,605  
    Retailing 1.1%     
 13,000  Amazon.com, Inc. (a)  6,654,570  
    Semiconductor 9.6%     
 400,000  Analog Devices, Inc.  22,564,000  
 1,100,000  Intel Corporation  33,154,000  
    Software and Services 1.1%     
 10,000  Alphabet Inc. Class A (a)(e)  6,383,700  
    Technology Hardware and Equipment 11.4%     
 598,198  Coherent, Inc. (a)  32,721,431  
 310,000  Keysight Technologies, Inc. (a)  9,560,400  
 300,000  Motorola Solutions, Inc.  20,514,000  
 600,000  Sonus Networks, Inc. (a)  3,432,000  
    Total Common Stocks (cost $289,209,396)  490,304,958  




    Money Market Fund 10.7%    
 62,395,026  Fidelity Institutional Money Market Fund Treasury Only Portfolio Class I  62,395,026 
 Principal   U.S. Treasury Bills 5.2%    
$30,000,000  U.S. Treasury Bill 0.025%, due 10/1/15 (d)  30,000,000 
    Total Short-term Investments (cost $92,395,026)  92,395,026 
    Total Investments (cost $381,604,422) (f)(100.0%)  582,699,984 
    Cash, receivables and other assets less liabilities (0.0%)  (109,329)
    Net Assets (100%) $582,590,655 


(a) Non-dividend paying.
(b) Affiliate as defined in the Investment Company Act of 1940. See Note 4.
(c) Valued based on Level 3 Inputs. See Note 2.
(d) Valued based on Level 2 Inputs. See Note 2.
(e) Formerly known as Google Inc.
(f) Aggregate cost for Federal tax purposes is substantially the same.

See accompanying notes to statement of investments.




1. Security Valuation – Marketable common stocks are valued at the last or closing sale price or, if unavailable, at the closing bid price. Investments in money market funds are valued at net asset value per share. Other short-term investments are valued at amortized cost, which approximates fair value. Securities for which no ready market exists are valued at estimated fair value pursuant to procedures adopted by the Board of Directors. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the price used by other investors or the price that may be realized upon the actual sale of the security.

     As of September 30, 2015, the tax cost of investments was $381,604,422. Net unrealized appreciation was $201,095,562 consisting of gross unrealized appreciation and gross unrealized depreciation of $227,999,917 and $26,904,355, respectively.

2. Fair Value Measurements – The Corporation’s investments are categorized below in three broad hierarchical levels based on market price observability as follows:

Level 1 – Quoted prices in active markets for identical investments;
Level 2 – Other significant observable inputs obtained from independent sources, for example, quoted prices in inactive markets for identical investments, or other valuation methodologies;
Level 3 – Significant unobservable inputs including the Corporation’s own assumptions based upon the best information available. The Corporation’s Level 3 investments consist of The Plymouth Rock Company, Inc. (“Plymouth Rock”).

The designated Level for a security is not necessarily an indication of the risk associated with investing in that security.

The Corporation’s investments as of September 30, 2015 are classified as follows:


   Level 1  Level 2  Level 3  Total
Common stocks  $380,872,558    -   $109,432,400   $490,304,958 
Short-term investments   62,395,026   $30,000,000    -    92,395,026 
Total investments  $443,267,584   $30,000,000   $109,432,400   $582,699,984 


The following is a reconciliation of the change in the value of Level 3 investments:


Balance at December 31, 2014  $132,532,400 
Net realized gains and change in net unrealized     
appreciation of investments included in net     
increase in net assets resulting from operations   900,000 
Sales   (24,000,000)
Balance at September 30, 2015  $109,432,400 


Unrealized appreciation of Level 3 investments held as of September 30, 2015 was unchanged during the nine months ended September 30, 2015.

In valuing the Plymouth Rock Level 3 investment as of September 30, 2015, management used a number of significant unobservable inputs to develop a range of possible values for the investment. It used a comparable company approach that utilized the following valuation multiples from selected publicly traded companies: price-to-book value (range: 0.5 – 2.5); price-to-earnings (range: 10.7 – 23.0); and price-to-revenue (range: 0.6 – 1.2). Management also used a discounted cash flow model based on a forecasted return on equity ranging from 8%-9% and a weighted average cost of capital of 10%. An independent valuation of Plymouth Rock’s shares was also considered. The value obtained from weighting the three methods described above (with greater weight given to the comparable company approach) was then discounted by 25% and 35% for the lack of marketability, which represents the range of rates management believes market participants would apply. The resulting range of values, together with the underlying support, other information about Plymouth Rock’s financial condition and results of operations, corporate governance, the insurance industry outlook, and transactions in Plymouth Rock’s shares were considered by management, which recommended a value for the investment. All of this information was


subsequently considered by the Corporation’s directors, who selected the value.

Significant increases (decreases) in the value of the price-to-book value multiple, price-to-earnings multiple, price-to-revenue multiple and return on equity in isolation would result in a higher (lower) range of fair value measurements. Significant increases (decreases) in the value of the discount for lack of marketability or weighted average cost of capital in isolation would result in a lower (higher) range of fair value measurements.

3. Restricted Securities - The Corporation may from time to time invest in securities the resale of which is restricted. On September 30, 2015, the Corporation’s only restricted security consisted of 28,424 shares of Plymouth Rock Class A stock that were acquired on December 15, 1982 at a cost of $710,600. This security had a value of $109,432,400 at September 30, 2015, which was equal to 18.8% of the Corporation’s net assets. The Corporation does not have the right to demand registration of the Plymouth Rock shares.

4. Affiliated Companies – Plymouth Rock is an affiliated company as defined in the Investment Company Act of 1940 due to the Corporation’s ownership of 5% or more of Plymouth Rock’s outstanding voting shares. During the nine months ended September 30, 2015, the Corporation received dividends of $1,333,938 from Plymouth Rock and sold 6,000 shares of Plymouth Rock for proceeds of $24,000,000. The President of the Corporation is a director of Plymouth Rock.


Item 2. Controls and Procedures.

(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers have concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.

(b) Internal Control Over Financial Reporting. During the last fiscal quarter, there was no significant change in the Registrant’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.


Item 3. Exhibits.

(a) Certifications.


Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




By: /s/   Wilmot H. Kidd



Date: October 27, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


By: /s/   Wilmot H. Kidd



Date: October 27, 2015

By: /s/ Lawrence P. Vogel

              Vice President and Treasurer


Date: October 27, 2015