Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2018

OR

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

For the transition period from ……………..to ……………..

Commission File Number: 814-00061

CAPITAL SOUTHWEST CORPORATION
(Exact name of registrant as specified in its charter)

Texas
 
75-1072796
(State or other jurisdiction of incorporation
or organization)
 
(I.R.S. Employer
Identification No.)


5400 Lyndon B Johnson Freeway, Suite 1300, Dallas, Texas
 
75240
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code: (214) 238-5700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such filings). Yes        No       

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

16,293,194 shares of Common Stock, $0.25 value per share, as of August 3, 2018.



TABLE OF CONTENTS

 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I – FINANCIAL INFORMATION


Item 1.
Consolidated Financial Statements
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(In thousands, except shares and per share data)
 
 
 
 
 
June 30,
 
March 31,
 
2018
 
2018
 
(Unaudited)
 
 
Assets
 
 
 
Investments at fair value:
 
 
 
Non-control/Non-affiliate investments (Cost: $232,460 and $200,981, respectively)
$
235,961

 
$
199,949

Affiliate investments (Cost: $56,410 and $51,648, respectively)
57,289

 
53,198

Control investments (Cost: $76,864 and $82,768, respectively)
118,080

 
139,948

Total investments (Cost: $365,734 and $335,397, respectively)
411,330

 
393,095

Cash and cash equivalents
12,532

 
7,907

Receivables:
 
 
 
Dividends and interest
5,671

 
5,219

Escrow
203

 
119

Other
558

 
447

Income tax receivable
109

 
109

Deferred tax asset
2,116

 
2,050

Debt issuance costs (net of accumulated amortization of $862 and $366, respectively)
2,676

 
2,575

Other assets
15,731

 
5,969

Total assets
$
450,926

 
$
417,490

 
 
 
 
Liabilities
 
 
 
Notes (Par value: $58,886 and $57,500, respectively)
$
56,646

 
$
55,305

Credit facility
65,000

 
40,000

Other liabilities
4,483

 
6,245

Dividends payable
14,503

 
4,525

Accrued restoration plan liability
2,913

 
2,937

Deferred income taxes

 
190

Total liabilities
143,545

 
109,202

 
 
 
 
Commitments and contingencies (Note 11)
 
 
 
 
 
 
 
Net Assets
 
 
 
Common stock, $0.25 par value: authorized, 25,000,000 shares; issued, 18,632,706 shares at June 30, 2018 and 18,501,298 shares at March 31, 2018
4,658

 
4,625

Additional paid-in capital
262,623

 
260,713

Net investment income in excess of (less than) distributions
(2,157
)
 
6,147

Accumulated undistributed net realized gain
20,469

 
3,231

Unrealized appreciation of investments, net of income taxes
45,725

 
57,509

Treasury stock - at cost, 2,339,512 shares
(23,937
)
 
(23,937
)
Total net assets
307,381

 
308,288

Total liabilities and net assets
$
450,926

 
$
417,490

Net asset value per share (16,293,194 shares outstanding at June 30, 2018 and 16,161,786 shares outstanding at March 31, 2018)
$
18.87

 
$
19.08


The accompanying Notes are an integral part of these Consolidated Financial Statements.

3


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except shares and per share data)
 
 
 
 
 
 
Three Months Ended
 
 
June 30,
 
 
2018
 
2017
 
Investment income:
 
 
 
 
Interest income:
 
 
 
 
Non-control/Non-affiliate investments
$
6,032

 
$
4,332

 
Affiliate investments
1,452

 
140

 
Control investments
159

 
41

 
Dividend income:
 
 
 
 
Non-control/Non-affiliate investments
23

 

 
Affiliate investments
38

 

 
Control investments
3,014

 
3,004

 
Interest income from cash and cash equivalents
4

 
7

 
Fees and other income
385

 
200

 
Total investment income
11,107

 
7,724

 
Operating expenses:
 
 
 
 
Compensation
1,910

 
1,638

 
Spin-off compensation plan

 
172

 
Share-based compensation
475

 
368

 
Interest
2,373

 
738

 
Professional fees
488

 
479

 
Net pension expense
40

 
40

 
General and administrative
825

 
709

 
Total operating expenses
6,111

 
4,144

 
Income before taxes
4,996

 
3,580

 
Income tax (benefit) expense
379

 
144

 
Net investment income
$
4,617

 
$
3,436

 
 
 
 
 
 
Realized gain
 
 
 
 
Non-control/Non-affiliate investments
$
200

 
$
624

 
Affiliate investments

 

 
Control investments
18,619

 

 
Total net realized gain on investments before income tax
18,819

 
624

 
 
 
 
 
 
Change in unrealized appreciation of investments
 
 
 
 
Non-control/Non-affiliate investments
4,532

 
(2,419
)
 
Affiliate investments
(671
)
 
(332
)
 
Control investments
(15,963
)
 
4,050

 
Income tax (provision) benefit
319

 
85

 
Total net change in unrealized appreciation of investments, net of tax
(11,783
)
 
1,384

 
 
 
 
 
 
Net realized and unrealized gains on investments
$
7,036

 
$
2,008

 
 
 
 
 
 
Net increase in net assets from operations
$
11,653

 
$
5,444

 
 
 
 
 
 
Pre-tax net investment income per share - basic and diluted
$
0.31

 
$
0.22

 
Net investment income per share – basic and diluted
$
0.29

 
$
0.21

 
Net increase in net assets from operations – basic and diluted
$
0.72

 
$
0.34

 
Weighted average shares outstanding – basic
16,180,291

 
16,009,703

 
Weighted average shares outstanding – diluted
16,201,443

 
16,072,463

 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

4


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
(In thousands)
 
 
 
 
 
Three Months Ended
 
June 30,
 
2018
 
2017
Operations:
 
 
 
Net investment income
$
4,617

 
$
3,436

Net realized gain on investments
18,819

 
624

Net change in unrealized appreciation of investments, net of tax
(11,783
)
 
1,384

Net increase in net assets from operations
11,653

 
5,444

Dividends to shareholders
(14,503
)
 
(3,355
)
Spin-Off Compensation Plan, net of tax of $ - and $59, respectively

 
(114
)
Capital share transactions:
 
 
 
Change in pension plan funded status
11

 
12

Exercise of employee stock options
1,457

 

Share-based compensation expense
475

 
368

(Decrease) increase in net assets
(907
)
 
2,355

Net assets, beginning of period
308,288

 
285,072

Net assets, end of period
$
307,381

 
$
287,427


The accompanying Notes are an integral part of these Consolidated Financial Statements.

5

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
 
 
 
Three Months Ended
 
June 30,
 
2018
 
2017
Cash flows from operating activities
 
 
 
Net increase in net assets from operations
$
11,653

 
$
5,444

Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
 
 
 
Purchases and originations of investments
(77,864
)
 
(41,662
)
Proceeds from sales and repayments of debt investments in portfolio companies
41,757

 
23,515

Proceeds from sales and return of capital of equity investments in portfolio companies
24,885

 
15

Payment of accreted original issue discounts
212

 
609

Depreciation and amortization
344

 
181

Net pension benefit
(12
)
 
(12
)
Realized gain on investments before income tax
(18,819
)
 
(624
)
Net change in unrealized appreciation of investments
12,102

 
(1,299
)
Accretion of discounts on investments
(312
)
 
(183
)
Payment-in-kind interest and dividends
(79
)
 
(73
)
Stock option and restricted awards expense
475

 
368

Deferred income taxes
50

 
(155
)
Changes in other assets and liabilities:
 
 
 
Increase in dividend and interest receivable
(452
)
 
(281
)
Decrease in escrow receivables
(203
)
 

Decrease in other receivables
(112
)
 
220

Decrease (increase) in other assets
(9,785
)
 
3,957

Increase in other liabilities
(2,067
)
 
(2,119
)
Decrease in payable for unsettled transaction

 
9,263

Net cash used in operating activities
(18,227
)
 
(2,836
)
Cash flows from financing activities
 
 
 
Borrowings under credit facility
55,000

 

Repayments of credit facility
(30,000
)
 

Debt issuance costs paid
(459
)
 

Proceeds from notes
1,379

 

Dividends to shareholders
(4,525
)
 
(7,191
)
Proceeds from exercise of employee stock options
1,422

 

Spin-off Compensation Plan distribution
35

 

Net cash provided by (used in) financing activities
22,852

 
(7,191
)
Net increase (decrease) in cash and cash equivalents
4,625

 
(10,027
)
Cash and cash equivalents at beginning of period
7,907

 
22,386

Cash and cash equivalents at end of period
$
12,532

 
$
12,359

Supplemental cash flow disclosures:
 
 
 
Cash paid for income taxes
$
11

 
$
214

Cash paid for interest
1,990

 
611

Supplemental disclosure of noncash financing activities:
 
 
 
Dividend declared, not yet paid
14,503

 
3,355

Spin-off Compensation Plan distribution accrued, not yet paid

 
172


The accompanying Notes are an integral part of these Consolidated Financial Statements.


6

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
Non-control/Non-affiliate Investments5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAC HOLDINGS, INC.
 
First Lien
 
Healthcare services
 
L+6.75% (Floor 1.00%), Current Coupon 9.11%
 
6/30/2023
 
$
9,262,500

 
$
9,060,954

 
$
9,401,438

AG KINGS HOLDINGS INC.8
 
First Lien
 
Food, agriculture & beverage
 
L+9.42% (Floor 1.00%), Current Coupon 11.78%
 
8/8/2021
 
9,366,667

 
9,236,751

 
9,038,833

ALLIANCE SPORTS GROUP, L.P.
 
Senior subordinated debt
 
Consumer products & retail
 
11.00%
 
2/1/2023
 
10,100,000

 
9,923,399

 
9,908,100

 
 
2.65% membership interest
 
 
 
 
 

 
2,500,000

 
1,996,000

 
 
 
 
 
 
 
 
 
 
 
 
12,423,399

 
11,904,100

AMERICAN TELECONFERENCING SERVICES, LTD.
 
First Lien
 
Telecommunications
 
L+6.50% (Floor 1.00%), Current Coupon 8.86%
 
12/8/2021
 
6,289,340

 
6,159,290

 
6,112,452

 
 
Second Lien
 
 
 
L+9.50% (Floor 1.00%), Current Coupon 11.84%
 
6/6/2022
 
2,005,714

 
1,944,094

 
1,900,414

 
 
 
 
 
 
 
 
 
 
 
 
8,103,384

 
8,012,866

AMWARE FULFILLMENT LLC15
 
First Lien
 
Distribution
 
L+12.00% (Floor 1.00%), Current Coupon 14.34%
 
5/21/2019
 
13,296,944

 
13,145,356

 
12,765,067

BINSWANGER HOLDING CORP.
 
First Lien
 
Distribution
 
L+8.00% (Floor 1.00%), Current Coupon 10.32%
 
3/9/2022
 
12,398,351

 
12,204,051

 
12,280,567

 
 
900,000 shares of common stock
 
 
 
 
 

 
900,000

 
874,000

 
 
 
 
 
 
 
 
 
 
 
 
13,104,051

 
13,154,567

CALIFORNIA PIZZA KITCHEN, INC.
 
First Lien
 
Restaurants
 
L+6.00% (Floor 1.00%), Current Coupon 8.10%
 
8/23/2022
 
4,912,500

 
4,875,968

 
4,821,619

CAPITAL PAWN HOLDINGS, LLC
 
First Lien
 
Consumer products & retail
 
L+9.50%, Current Coupon 11.81%
 
7/8/2020
 
11,922,365

 
11,711,936

 
11,755,452


7

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
CLICKBOOTH.COM, LLC
 
First Lien
 
Media, marketing & entertainment
 
L+8.50% (Floor 1.00%), Current Coupon 10.82%
 
12/5/2022
 
17,281,250

 
16,965,249

 
17,203,484

 
 
Revolving Loan10
 
 
 
L+8.50% (Floor 1.00%)
 
12/5/2022
 

 
(17,722
)
 

 
 
 
 
 
 
 
 
 
 
 
 
16,947,527

 
17,203,484

DEEPWATER CORROSION SERVICES, INC.
 
127,004 shares of Series A convertible preferred stock
 
Energy services (upstream)
 
 
 

 
8,000,000

 
9,316,000

DELPHI INTERMEDIATE HEALTHCO, LLC
 
First Lien
 
Healthcare services
 
L+7.50% (Floor 1.00%), Current Coupon 9.86%
 
10/3/2022
 
7,359,375

 
7,293,501

 
7,263,703

 
 
First Lien
 
 
 
L+7.50 (Floor 1.00%), Current Coupon 9.83%
 
10/3/2022
 
4,968,750

 
4,920,581

 
4,904,156

 
 
 
 
 
 
 
 
 
 
 
 
12,214,082

 
12,167,859

DIGITAL RIVER, INC.
 
First Lien
 
Software & IT services
 
L+6.00% (Floor 1.00%), Current Coupon 8.34%
 
2/12/2021
 
6,285,444

 
6,274,316

 
6,277,587

DUNN PAPER, INC.
 
Second Lien
 
Paper & forest products
 
L+8.75% (Floor 1.00%), Current Coupon 10.84%
 
8/26/2023
 
3,000,000

 
2,951,375

 
2,974,500

ENVIRONMENTAL PEST SERVICE MANAGEMENT COMPANY, LLC
 
First Lien
 
Consumer services
 
L+7.25%, Current Coupon 9.59%
 
6/22/2023
 
16,250,000

 
15,966,754

 
15,966,754

 
 
Delayed Draw Term Loan10
 
 
 
L+7.25%
 
 

 
(69,655
)
 

 
 
 
 
 
 
 
 
 
 
 
 
15,897,099

 
15,966,754

FAST SANDWICH, LLC
 
First Lien
 
Restaurants
 
L+9.00% (Floor 1.00%), Current Coupon 11.33%
 
5/23/2023
 
3,300,000

 
3,246,010

 
3,246,010

 
 
Revolving Loan10
 
 
 
L+9.00% (Floor 1.00%)
 
 

 
(67,636
)
 

 
 
 
 
 
 
 
 
 
 
 
 
3,178,374

 
3,246,010


8

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
GAUGE AMERICAN NUTS OPERATIONS LLC13
 
First Lien
 
Food, agriculture and beverage
 
L+8.00% (Floor 1.00%), Current Coupon 10.33%
 
4/10/2023
 
17,500,000

 
17,162,415

 
17,162,415

 
 
First Lien - Term Loan B
 
 
 
L+8.00% (Floor 1.00%), Current Coupon 10.33%
 
10/10/2018
 
656,250

 
648,900

 
648,900

 
 
Delayed Draw Term Loan10
 
 
 
L+8.00% (Floor 1.00%)
 
4/10/2023
 

 
(9,402
)
 
0

 
 
Revolving Loan
 
 
 
L+8.00% (Floor 1.00%), Current Coupon 10.33%
 
4/10/2023
 
3,500,000

 
3,483,286

 
3,483,286

 
 
3,000,000 units of Class A common stock9
 
 
 
 
 

 
3,000,000

 
3,000,000

 
 
 
 
 
 
 
 
 
 
 
 
24,285,199

 
24,294,601

LGM PHARMA, LLC13
 
First Lien
 
Healthcare products
 
L+8.50% (Floor 1.00%), Current Coupon 10.50%
 
11/15/2022
 
9,950,000

 
9,770,998

 
9,890,300

 
 
Delayed Draw Term Loan10
 
 
 
L+8.50% (Floor 1.00%), Current Coupon 10.51%
 
11/15/2022
 
1,796,750

 
1,766,653

 
1,785,970

 
 
110,000 units of Class A common stock9
 
 
 
 
 

 
1,100,000

 
1,100,000

 
 
 
 
 
 
 
 
 
 
 
 
12,637,651

 
12,776,270

LIGHTING RETROFIT INTERNATIONAL, LLC
 
First Lien
 
Environmental services
 
L+9.25% (Floor 1.00%), Current Coupon 11.56%
 
6/30/2022
 
14,437,500

 
14,307,179

 
14,278,688

 
 
396,825 shares of Series B preferred stock
 
 
 
 
 

 
500,000

 
511,000

 
 
 
 
 
 
 
 
 
 
 
 
14,807,179

 
14,789,688

RESEARCH NOW GROUP, INC.
 
Second Lien
 
Business services
 
L+9.50% (Floor 1.00%), Current Coupon 11.82%
 
12/20/2025
 
10,500,000

 
9,792,890

 
10,080,000

RESTAURANT TECHNOLOGIES, INC.
 
Second Lien
 
Business services
 
L+8.75% (Floor 1.00%), Current Coupon 11.07%
 
11/23/2023
 
3,500,000

 
3,456,390

 
3,482,500


9

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
JVMC HOLDINGS CORP. 14
 
First Lien
 
Financial services
 
L+8.02% (Floor 1.00%), Current Coupon 10.11%
 
5/5/2022
 
7,125,000

 
7,066,937

 
7,125,000

TAX ADVISORS GROUP, LLC13
 
Senior subordinated debt
 
Financial services
 
10.00% / 2.00% PIK
 
12/23/2022
 
4,600,000

 
4,521,270

 
4,600,000

 
 
143.3 Class A units9
 
 
 
 
 

 
541,176

 
645,000

 
 
 
 
 
 
 
 
 
 
 
 
5,062,446

 
5,245,000

VISTAR MEDIA INC.
 
First Lien
 
Media, marketing & entertainment
 
L+10.00% (Floor 1.00%), Current Coupon 12.32%
 
2/16/2022
 
7,975,000

 
7,341,113

 
8,134,500

 
 
Warrants (Expiration - February 17, 2027)
 
 
 
 
 

 
886,000

 
2,027,000

 
 
 
 
 
 
 
 
 
 
 
 
8,227,113

 
10,161,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Non-control/Non-affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
232,460,377

 
$
235,960,695

Affiliate Investments6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CHANDLER SIGNS, LLC13
 
Senior subordinated debt
 
Business services
 
12.00% / 1.00% PIK
 
7/4/2021
 
4,522,672

 
$
4,465,563

 
$
4,314,629

 
 
1,500,000 units of Class A-1 common stock9
 
 
 
 
 

 
1,500,000

 
1,293,000

 
 
 
 
 
 
 
 
 
 
 
 
5,965,563

 
5,607,629

ELITE SEM, INC.8
 
First Lien
 
Media, marketing & entertainment
 
L+8.42% (Floor 1.00%), Current Coupon 10.76%
 
2/1/2022
 
20,000,000

 
19,524,654

 
20,000,000

 
 
1,173 Preferred units; 1,173 Class A Common units
 
 
 
12% PIK
 
 

 
1,385,253

 
1,941,000

 
 
 
 
 
 
 
 
 
 
 
 
20,909,907

 
21,941,000


10

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
ITA HOLDINGS GROUP, LLC13
 
First Lien
 
Transportation & logistics
 
L+8.50% (Floor 1.00%, Current Coupon 10.81%)
 
2/14/2023
 
9,440,625

 
9,262,607

 
9,265,973

 
 
First Lien - Term Loan B
 
 
 
L+8.50% (Floor 1.00%, Current Coupon 10.82%)
 
2/14/2023
 
2,000,000

 
1,960,507

 
1,963,000

 
 
Revolving Loan10.
 
 
 
L+8.50% (Floor 1.00%, Current Coupon 8.50%)
 
2/14/2023
 
313,500

 
276,501

 
307,700

 
 
Delayed Draw Term Loan
 
 
 
L+8.50% (Floor 1.00%, Current Coupon 10.81%)
 
2/14/2023
 
1,500,000

 
1,471,135

 
1,472,250

 
 
9.25% Class A Membership Interest9
 
 
 
 
 

 
1,500,000

 
1,500,000

 
 
 
 
 
 
 
 
 
 
 
 
14,470,750

 
14,508,923

ZENFOLIO INC.
 
First Lien
 
Business services
 
L+9.00% (Floor 1.00%), Current Coupon 11.31%
 
7/17/2022
 
13,398,750

 
13,180,154

 
13,331,756

 
 
Revolving Loan10
 
 
 
L+9.00% (Floor 1.00%)
 
7/17/2022
 

 
(16,177
)
 

 
 
190 shares of common stock
 
 
 
 
 

 
1,900,000

 
1,900,000

 
 
 
 
 
 
 
 
 
 
 
 
15,063,977

 
15,231,756

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
56,410,197

 
$
57,289,308

Control Investments7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
I-45 SLF LLC9, 10, 11
 
80% LLC equity interest
 
Multi-sector holdings
 
 
 

 
$
64,800,000

 
$
66,575,453

MEDIA RECOVERY, INC.11
 
800,000 shares of Series A convertible preferred stock
 
Industrial products
 
 
 

 
800,000

 
6,622,641

 
 
4,000,002 shares of common stock
 
 
 
 
 

 
4,615,000

 
38,204,359

 
 
 
 
 
 
 
 
 
 
 
 
5,415,000

 
44,827,000


11

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CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
PRISM SPECTRUM HOLDINGS, LLC13
 
First Lien
 
Environmental services
 
L+9.50% (Floor 2.25%), Current Coupon 11.82%
 
2/6/2023
 
4,325,177

 
4,243,753

 
4,249,486

 
 
Revolving Loan22
 
 
 
L+9.50% (Floor 2.25%), Current Coupon 11.82%
 
2/6/2023
 
750,000

 
713,156

 
736,875

 
 
57.25 Class A units9
 
 
 
 
 

 
1,691,674

 
1,691,674

 
 
 
 
 
 
 
 
 
 
 
 
6,648,583

 
6,678,035

Total Control Investments
 
 
 
 
 
 
 
 
 
 
 
$
76,863,583

 
$
118,080,488

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS12
 
 
 
 
 
 
 
 
 
 
 
$
365,734,157

 
$
411,330,491


1 
All debt investments are income-producing, unless otherwise noted. Equity investments are non-income producing, unless otherwise noted.
2 
All of the Company’s investments, unless otherwise noted, are encumbered as security for the Company’s senior secured credit facility.
3 
The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at June 30, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest.
4 
The Company's investment portfolio is comprised entirely of debt and equity securities of privately held companies for which quoted prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board of Directors, using significant unobservable Level 3 inputs. Refer to Note 4 for further discussion.
5 
Non-Control/Non-Affiliate investments are generally defined by the Investment Company Act of 1940 (the “1940 Act”) as investments that are neither control investments nor affiliate investments. At June 30, 2018, approximately 57.4% of the Company’s investment assets were non-control/non-affiliate investments. The fair value of these investments as a percent of net assets is 76.8%.
6 
Affiliate investments are generally defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as control investments. At June 30, 2018, approximately 13.9% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 18.6%.
7 
Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or maintains greater than 50% of the board representation. At June 30, 2018, approximately 28.7% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 38.4%.

12

Table of Contents

8 
The investment is structured as a first lien last out term loan.
9 
Indicates assets that are considered "non-qualifying assets” under section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets. As of June 30, 2018, approximately 17.0% of the Company's investment assets are non-qualifying assets.
10 
The investment has an unfunded commitment as of June 30, 2018. Refer to Note 11 - Commitments and Contingencies for further discussion.
11 
Income producing through dividends or distributions.
12 
As of June 30, 2018, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $47.3 million; cumulative gross unrealized depreciation for federal income tax purposes is $1.9 million. Cumulative net unrealized appreciation is $45.4 million, based on a tax cost of $366.0 million.
13 
Gauge American Nuts Operations LLC Class A common stock, ITA Holdings Group, LLC membership interest, LGM Pharma, LLC Class A common stock, Prism Spectrum Holdings LLC Class A units, Tax Advisors Group, LLC Class A units and Chandler Signs, LP Class A-1 common stock are held through a wholly-owned taxable subsidiary.
14 
The investment is structured as a first lien first out term loan.
15 
As of June 30, 2018, the investment is paying default interest at a rate of 2.5% per annum.

The accompanying Notes are an integral part of these Consolidated Financial Statements.

13

Table of Contents


CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
Non-control/Non-affiliate Investments5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAC HOLDINGS, INC.
 
First Lien
 
Healthcare services
 
L+6.75% (Floor 1.00%), Current Coupon 8.52%
 
6/30/2023
 
$
9,321,875

 
$
9,110,902

 
$
9,485,008

AG KINGS HOLDINGS INC.8
 
First Lien
 
Food, agriculture & beverage
 
L+9.40% (Floor 1.00%), Current Coupon 11.21%
 
8/8/2021
 
9,650,000

 
9,507,562

 
9,437,700

ALLIANCE SPORTS GROUP, L.P.
 
Senior subordinated debt
 
Consumer products & retail
 
11.00%
 
2/1/2023
 
10,100,000

 
9,916,216

 
9,807,100

 
 
2.65% membership interest
 
 
 
 
 

 
2,500,000

 
1,996,000

 
 
 
 
 
 
 
 
 
 
 
 
12,416,216

 
11,803,100

AMERICAN TELECONFERENCING SERVICES, LTD.
 
First Lien
 
Telecommunications
 
L+6.50% (Floor 1.00%), Current Coupon 8.29%
 
12/8/2021
 
6,378,173

 
6,238,734

 
6,376,578

 
 
Second Lien
 
 
 
L+9.50% (Floor 1.00%), Current Coupon 11.20%
 
6/6/2022
 
2,005,714

 
1,941,047

 
1,918,806

 
 
 
 
 
 
 
 
 
 
 
 
8,179,781

 
8,295,384

AMWARE FULFILLMENT LLC17
 
First Lien
 
Distribution
 
L+12.00% (Floor 1.00%), Current Coupon 14.02%
 
5/21/2019
 
13,478,333

 
13,284,488

 
12,939,200

BINSWANGER HOLDING CORP.
 
First Lien
 
Distribution
 
L+8.00% (Floor 1.00%), Current Coupon 10.02%
 
3/9/2022
 
13,036,418

 
12,817,614

 
12,899,536

 
 
900,000 shares of common stock
 
 
 
 
 

 
900,000

 
874,000

 
 
 
 
 
 
 
 
 
 
 
 
13,717,614

 
13,773,536

CALIFORNIA PIZZA KITCHEN, INC.
 
First Lien
 
Restaurants
 
L+6.00% (Floor 1.00%), Current Coupon 7.88%
 
8/23/2022
 
4,925,000

 
4,886,550

 
4,836,350

CAPITAL PAWN HOLDINGS, LLC
 
First Lien
 
Consumer products & retail
 
L+9.50%,
Current Coupon 11.19%
 
7/8/2020
 
12,922,365

 
12,669,652

 
12,767,297


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Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
CLICKBOOTH.COM, LLC
 
First Lien
 
Media, marketing & entertainment
 
L+8.50% (Floor 1.00%), Current Coupon 10.19%
 
12/5/2022
 
17,390,625

 
17,059,608

 
17,442,797

 
 
Revolving Loan15
 
 
 
L+8.50% (Floor 1.00%)
 
12/5/2022
 

 
(18,719
)
 
 
 
 
 
 
 
 
 
 
 
 
 
17,040,889

 
17,442,797

DEEPWATER CORROSION SERVICES, INC.
 
127,004 shares of Series A convertible preferred stock
 
Energy services (upstream)
 
 
 

 
8,000,000

 
4,629,000

DELPHI INTERMEDIATE HEALTHCO, LLC
 
First Lien
 
Healthcare services
 
L+7.50% (Floor 1.00%), Current Coupon 9.27%
 
10/3/2022
 
7,406,250

 
7,336,879

 
7,265,531

DIGITAL RIVER, INC.
 
First Lien
 
Software & IT services
 
L+6.50% (Floor 1.00%), Current Coupon 8.61%
 
2/12/2021
 
6,285,443

 
6,273,415

 
6,285,443

DUNN PAPER, INC.
 
Second Lien
 
Paper & forest products
 
L+8.75% (Floor 1.00%), Current Coupon 10.63%
 
8/26/2023
 
3,000,000

 
2,949,611

 
3,000,000

LGM PHARMA, LLC13
 
First Lien
 
Healthcare products
 
L+8.50% (Floor 1.00%), Current Coupon 10.17%
 
11/15/2022
 
9,975,000

 
9,787,481

 
9,955,050

 
 
Delayed Draw Term Loan18
 
 
 
L+8.50% (Floor 1.00%), Current Coupon 10.29%
 
11/15/2022
 
1,300,000

 
1,274,815

 
1,297,400

 
 
110,000 units of Class A common stock9
 
 
 
 
 

 
1,100,000

 
1,100,000

 
 
 
 
 
 
 
 
 
 
 
 
12,162,296

 
12,352,450

LIGHTING RETROFIT INTERNATIONAL, LLC
 
First Lien
 
Environmental services
 
L+9.25% (Floor 1.00%), Current Coupon 10.94%
 
6/30/2022
 
14,625,000

 
14,487,144

 
14,361,750

 
 
396,825 shares of Series B preferred stock
 
 
 
 
 

 
500,000

 
376,000

 
 
 
 
 
 
 
 
 
 
 
 
14,987,144

 
14,737,750

PRE-PAID LEGAL SERVICES, INC.
 
Second Lien
 
Consumer services
 
L+9.00% (Floor 1.25%), Current Coupon 10.88%
 
7/1/2020
 
5,000,000

 
4,967,603

 
5,000,000

RESEARCH NOW GROUP, INC.
 
Second Lien
 
Business services
 
L+9.50% (Floor 1.00%), Current Coupon 11.28%
 
12/20/2025
 
10,500,000

 
9,778,956

 
9,817,500


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Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
RESTAURANT TECHNOLOGIES, INC.
 
Second Lien
 
Business services
 
L+8.75% (Floor 1.00%), Current Coupon 10.69%
 
11/23/2023
 
3,500,000

 
3,454,894

 
3,493,000

JVMC HOLDINGS CORP. 14
 
First Lien
 
Financial services
 
L+8.02% (Floor 1.00%), Current Coupon 9.90%
 
5/5/2022
 
7,218,750

 
7,156,878

 
7,215,141

TAX ADVISORS GROUP, LLC13
 
Senior subordinated debt
 
Financial services
 
10.00% / 2.00% PIK
 
12/23/2022
 
4,600,000

 
4,517,884

 
4,600,000

 
 
143.3 Class A units9
 
 
 
 
 

 
541,176

 
886,000

 
 
 
 
 
 
 
 
 
 
 
 
5,059,060

 
5,486,000

VISTAR MEDIA INC.
 
First Lien
 
Media, marketing & entertainment
 
L+10.00% (Floor 1.00%), Current Coupon 12.02%
 
2/16/2022
 
8,112,500

 
7,434,072

 
8,193,625

 
 
Warrants (Expiration - February 17, 2027)
 
 
 
 
 

 
886,000

 
1,682,000

 
 
 
 
 
 
 
 
 
 
 
 
8,320,072

 
9,875,625

WASTEWATER SPECIALTIES, LLC
 
First Lien16
 
Industrial services
 
L+12.25% (Floor 1.00%), Current Coupon 13.90%
 
4/18/2022
 
9,863,582

 
9,720,600

 
10,011,536

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Non-control/Non-affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
200,981,062

 
$
199,949,348

Affiliate Investments6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CHANDLER SIGNS, LLC13
 
Senior subordinated debt
 
Business services
 
12.00% / 1.00% PIK
 
7/4/2021
 
4,511,259

 
$
4,450,704

 
$
4,375,922

 
 
1,500,000 units of Class A-1 common stock9
 
 
 
 
 

 
1,500,000

 
1,934,000

 
 
 
 
 
 
 
 
 
 
 
 
5,950,704

 
6,309,922

ELITE SEM, INC.8
 
First Lien
 
Media, marketing & entertainment
 
L+9.90% (Floor 1.00%), Current Coupon 12.10%
 
2/1/2022
 
17,500,000

 
17,103,533

 
17,500,000

 
 
1,089 Preferred units
 
 
 
12% PIK
 
 

 
1,235,651

 
1,879,000

 
 
 
 
 
 
 
 
 
 
 
 
18,339,184

 
19,379,000


16

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
ITA HOLDINGS GROUP, LLC13
 
First Lien
 
Transportation & logistics
 
L+8.50% (Floor 1.00%, Current Coupon 10.32%)
 
2/14/2023
 
9,500,000

 
9,313,995

 
9,313,995

 
 
Revolving Loan19
 
 
 
L+8.50% (Floor 1.00%)
 
2/14/2023
 

 
(9,748
)
 

 
 
Delayed Draw Term Loan
 
 
 
L+8.50% (Floor 1.00%, Current Coupon 10.32%)
 
2/14/2023
 
1,500,000

 
1,470,378

 
1,470,378

 
 
9.25% Class A Membership Interest9
 
 
 
 
 

 
1,500,000

 
1,500,000

 
 
 
 
 
 
 
 
 
 
 
 
12,274,625

 
12,284,373

ZENFOLIO INC.
 
First Lien
 
Business services
 
L+9.00% (Floor 1.00%), Current Coupon 10.69%
 
7/17/2022
 
13,432,500

 
13,200,549

 
13,325,040

 
 
Revolving Loan15
 
 
 
L+9.00% (Floor 1.00%)
 
7/17/2022
 

 
(17,174
)
 
 
 
190 shares of common stock
 
 
 
 
 

 
1,900,000

 
1,900,000

 
 
 
 
 
 
 
 
 
 
 
 
15,083,375

 
15,225,040

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
51,647,888

 
$
53,198,335

Control Investments7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
I-45 SLF LLC9, 10, 11
 
80% LLC equity interest
 
Multi-sector holdings
 
 
 

 
$
64,800,000

 
$
67,113,368

MEDIA RECOVERY, INC.11
 
800,000 shares of Series A convertible preferred stock
 
Industrial products
 
 
 

 
800,000

 
6,370,748

 
 
4,000,002 shares of common stock
 
 
 
 
 

 
4,615,000

 
36,751,252

 
 
 
 
 
 
 
 
 
 
 
 
5,415,000

 
43,122,000


17

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
PRISM SPECTRUM HOLDINGS, LLC13
 
First Lien
 
Environmental services
 
L+9.50% (Floor 2.25%), Current Coupon 11.75%
 
2/6/2023
 
4,325,177

 
4,240,522

 
4,240,522

 
 
Revolving Loan20
 
 
 
L+9.50% (Floor 2.25%), Current Coupon 11.75%
 
2/6/2023
 
500,000

 
490,290

 
490,290