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 September 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 every Interactive Data File required to be submitted 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 such files). 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.

17,043,194 shares of Common Stock, $0.25 value per share, as of November 5, 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)
 
 
 
 
 
September 30,
 
March 31,
 
2018
 
2018
 
(Unaudited)
 
 
Assets
 
 
 
Investments at fair value:
 
 
 
Non-control/Non-affiliate investments (Cost: $287,656 and $200,981, respectively)
$
294,065

 
$
199,949

Affiliate investments (Cost: $66,038 and $51,648, respectively)
65,018

 
53,198

Control investments (Cost: $91,425 and $82,768, respectively)
132,518

 
139,948

Total investments (Cost: $445,119 and $335,397, respectively)
491,601

 
393,095

Cash and cash equivalents
10,193

 
7,907

Receivables:
 
 
 
Dividends and interest
8,307

 
5,219

Escrow

 
119

Other
509

 
447

Income tax receivable
109

 
109

Deferred tax asset
2,060

 
2,050

Debt issuance costs (net of accumulated amortization of $1,440 and $1,041, respectively)
2,476

 
2,575

Other assets
1,252

 
5,969

Total assets
$
516,507

 
$
417,490

 
 
 
 
Liabilities
 
 
 
Notes (Par value: $75,676 and $57,500, respectively)
$
73,407

 
$
55,305

Credit facility
127,000

 
40,000

Other liabilities
5,363

 
6,245

Dividends payable

 
4,525

Accrued restoration plan liability
2,889

 
2,937

Deferred income taxes

 
190

Total liabilities
208,659

 
109,202

 
 
 
 
Commitments and contingencies (Note 11)
 
 
 
 
 
 
 
Net Assets
 
 
 
Common stock, $0.25 par value: authorized, 25,000,000 shares; issued, 18,682,706 shares at September 30, 2018 and 18,501,298 shares at March 31, 2018
4,671

 
4,625

Additional paid-in capital
263,680

 
260,713

Net investment income in excess of (less than) distributions
(5,383
)
 
6,147

Accumulated undistributed net realized gain
22,143

 
3,231

Unrealized appreciation of investments, net of income taxes
46,674

 
57,509

Treasury stock - at cost, 2,339,512 shares
(23,937
)
 
(23,937
)
Total net assets
307,848

 
308,288

Total liabilities and net assets
$
516,507

 
$
417,490

Net asset value per share (16,343,194 shares outstanding at September 30, 2018 and 16,161,786 shares outstanding at March 31, 2018)
$
18.84

 
$
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
 
Six Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
Investment income:
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Non-control/Non-affiliate investments
$
7,049

 
$
5,136

 
$
13,081

 
$
9,438

Affiliate investments
1,799

 
141

 
3,251

 
281

Control investments
384

 

 
543

 

Dividend income:
 
 
 
 
 
 
 
Non-control/Non-affiliate investments
2

 
30

 
25

 
60

Affiliate investments
44

 

 
82

 

Control investments
3,112

 
3,058

 
6,126

 
6,103

Interest income from cash and cash equivalents
5

 
5

 
9

 
12

Fees and other income
200

 
139

 
585

 
339

Total investment income
12,595

 
8,509

 
23,702

 
16,233

Operating expenses:
 
 
 
 
 
 
 
Compensation
1,963

 
1,606

 
3,873

 
3,244

Spin-off compensation plan

 
173

 

 
345

Share-based compensation
482

 
384

 
957

 
752

Interest
3,109

 
911

 
5,482

 
1,649

Professional fees
407

 
481

 
895

 
960

Net pension expense
39

 
41

 
79

 
81

General and administrative
793

 
842

 
1,618

 
1,551

Total operating expenses
6,793

 
4,438

 
12,904

 
8,582

Income before taxes
5,802

 
4,071

 
10,798

 
7,651

Income tax (benefit) expense
256

 
134

 
635

 
278

Net investment income
$
5,546

 
$
3,937

 
$
10,163

 
$
7,373

 
 
 
 
 
 
 
 
Realized gain
 
 
 
 
 
 
 
Non-control/Non-affiliate investments
$
17

 
$
210

 
$
217

 
$
834

Affiliate investments
77

 

 
77

 

Control investments

 

 
18,619

 

Total net realized gain on investments before income tax
94

 
210

 
18,913

 
834

 
 
 
 
 
 
 
 
Change in unrealized appreciation of investments
 
 
 
 
 
 
 
Non-control/Non-affiliate investments
1,877

 
(1,747
)
 
6,409

 
(4,166
)
Affiliate investments
(868
)
 
(322
)
 
(1,539
)
 
(654
)
Control investments
(124
)
 
6,445

 
(16,087
)
 
10,495

Income tax (provision) benefit
63

 
120

 
382

 
205

Total net change in unrealized appreciation of investments, net of tax
948

 
4,496

 
(10,835
)
 
5,880

 
 
 
 
 
 
 
 
Net realized and unrealized gains on investments
$
1,042

 
$
4,706

 
$
8,078

 
$
6,714

 
 
 
 
 
 
 
 
Net increase in net assets from operations
$
6,588

 
$
8,643

 
$
18,241

 
$
14,087

 
 
 
 
 
 
 
 
Pre-tax net investment income per share - basic and diluted
$
0.36

 
$
0.25

 
$
0.67

 
$
0.48

Net investment income per share – basic and diluted
$
0.34

 
$
0.25

 
$
0.63

 
$
0.46

Net increase in net assets from operations – basic and diluted
$
0.40

 
$
0.54

 
$
1.12

 
$
0.88

Weighted average shares outstanding – basic
16,318,737

 
16,010,231

 
16,249,892

 
16,009,968

Weighted average shares outstanding – diluted
16,323,477

 
16,077,837

 
16,254,365

 
16,075,193


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)
 
 
 
 
 
Six Months Ended
 
September 30,
 
2018
 
2017
Operations:
 
 
 
Net investment income
$
10,163

 
$
7,373

Net realized gain on investments
18,913

 
834

Net change in unrealized appreciation of investments, net of tax
(10,835
)
 
5,879

Net increase in net assets from operations
18,241

 
14,086

Dividends to shareholders
(21,694
)
 
(7,193
)
Spin-Off Compensation Plan, net of tax of $ - and $117, respectively

 
(227
)
Capital share transactions:
 
 
 
Change in pension plan funded status
23

 
24

Exercise of employee stock options
2,033

 

Share-based compensation expense
957

 
752

(Decrease) increase in net assets
(440
)
 
7,442

Net assets, beginning of period
308,288

 
285,072

Net assets, end of period
$
307,848

 
$
292,514


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)
 
 
 
 
 
Six Months Ended
 
September 30,
 
2018
 
2017
Cash flows from operating activities
 
 
 
Net increase in net assets from operations
$
18,241

 
$
14,086

Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
 
 
 
Purchases and originations of investments
(167,697
)
 
(69,170
)
Proceeds from sales and repayments of debt investments in portfolio companies
52,638

 
40,390

Proceeds from sales and return of capital of equity investments in portfolio companies
24,884

 
15

Payment of accreted original issue discounts
306

 
819

Depreciation and amortization
708

 
368

Net pension benefit
(26
)
 
(24
)
Realized gain on investments before income tax
(18,913
)
 
(834
)
Net change in unrealized appreciation of investments
11,217

 
(5,675
)
Accretion of discounts on investments
(687
)
 
(383
)
Payment-in-kind interest and dividends
(136
)
 
(142
)
Stock option and restricted awards expense
957

 
752

Deferred income taxes
(201
)
 
(182
)
Changes in other assets and liabilities:
 
 
 
Increase in dividend and interest receivable
(3,088
)
 
(572
)
(Increase) decrease in other receivables
(62
)
 
166

Decrease in other assets
4,669

 
3,029

Increase in taxes payable
443

 

(Decrease) increase in other liabilities
(1,324
)
 
8,002

Net cash used in operating activities
(78,071
)
 
(9,355
)
Cash flows from financing activities
 
 
 
Borrowings under credit facility
117,000

 
31,000

Repayments of credit facility
(30,000
)
 

Debt issuance costs paid
(539
)
 
(155
)
Proceeds from notes
18,081

 

Dividends to shareholders
(26,219
)
 
(10,547
)
Proceeds from exercise of employee stock options
2,034

 

Net cash provided by financing activities
80,357

 
20,298

Net increase in cash and cash equivalents
2,286

 
10,943

Cash and cash equivalents at beginning of period
7,907

 
22,386

Cash and cash equivalents at end of period
$
10,193

 
$
33,329

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

 
$
255

Cash paid for interest
4,553

 
1,236

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

 
$
3,838

Spin-off Compensation Plan distribution accrued, not yet paid

 
344


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)
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
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%)/Q, Current Coupon 9.09%
 
6/30/2023
 
$
9,203,125

 
$
9,011,322

 
$
9,341,172

ADAMS PUBLISHING GROUP, LLC
 
First Lien
 
Media, marketing & entertainment
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 9.84%
 
7/2/2023
 
14,625,000

 
14,341,499

 
14,341,499

 
 
Delayed Draw Term Loan10
 
 
 
L+7.50% (Floor 1.00%)
 
7/2/2023
 

 
(32,890
)
 

 
 
 
 
 
 
 
 
 
 
 
 
14,308,609

 
14,341,499

AG KINGS HOLDINGS INC.8
 
First Lien
 
Food, agriculture & beverage
 
L+10.02% (Floor 1.00%)/M, Current Coupon 12.34%
 
8/8/2021
 
9,307,692

 
9,187,528

 
8,981,923

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

 
9,930,869

 
9,898,000

 
 
3.88% membership interest
 
 
 
 
 

 
2,500,000

 
2,500,000

 
 
 
 
 
 
 
 
 
 
 
 
12,430,869

 
12,398,000

AMERICAN TELECONFERENCING SERVICES, LTD.
 
First Lien
 
Telecommunications
 
L+6.50% (Floor 1.00%)/Q, Current Coupon 8.84%
 
12/8/2021
 
6,200,508

 
6,080,114

 
6,002,866

 
 
Second Lien
 
 
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 11.83%
 
6/6/2022
 
2,005,714

 
1,947,264

 
1,895,400

 
 
 
 
 
 
 
 
 
 
 
 
8,027,378

 
7,898,266

AMWARE FULFILLMENT LLC
 
First Lien
 
Distribution
 
L+9.50% (Floor 1.00%)/M, Current Coupon 11.90%
 
5/21/2019
 
13,115,555

 
13,007,029

 
12,735,204


7

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
ASC ORTHO MANAGEMENT COMPANY, LLC13
 
First Lien
 
Healthcare services
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 9.81%
 
8/31/2023
 
9,319,688

 
9,135,947

 
9,135,947

 
 
Second Lien
 
 
 
13.25% PIK
 
12/1/2023
 
3,106,563

 
3,029,772

 
3,029,772

 
 
Revolving Loan10
 
 
 
L+7.50% (Floor 1.00%)
 
8/31/2023
 

 
(29,491
)
 

 
 
2,042 Common Units9
 
 
 
 
 

 
750,000

 
750,000

 
 
 
 
 
 
 
 
 
 
 
 
12,886,228

 
12,915,719

BINSWANGER HOLDING CORP.
 
First Lien
 
Distribution
 
L+8.00% (Floor 1.00%)/M, Current Coupon 10.32%
 
3/9/2022
 
12,315,528

 
12,133,312

 
12,315,528

 
 
900,000 shares of common stock
 
 
 
 
 

 
900,000

 
1,013,000

 
 
 
 
 
 
 
 
 
 
 
 
13,033,312

 
13,328,528

BLASCHAK COAL CORP.
 
Second Lien
 
Commodities & mining
 
L+10.00%/Q, 1.00% PIK, Current Coupon 13.34%
 
7/30/2023
 
8,500,000

 
8,334,248

 
8,334,248

CALIFORNIA PIZZA KITCHEN, INC.
 
First Lien
 
Restaurants
 
L+6.00% (Floor 1.00%)/M, Current Coupon 8.39%
 
8/23/2022
 
4,900,000

 
4,865,437

 
4,777,500

CAPITAL PAWN HOLDINGS, LLC
 
First Lien
 
Consumer products & retail
 
L+9.50%/Q, Current Coupon 10.84%
 
7/8/2020
 
11,922,365

 
11,735,439

 
11,731,607

CLICKBOOTH.COM, LLC
 
First Lien
 
Media, marketing & entertainment
 
L+8.50% (Floor 1.00%)/Q, Current Coupon 10.84%
 
12/5/2022
 
17,171,875

 
16,871,309

 
17,180,461

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

 
(16,714
)
 

 
 
 
 
 
 
 
 
 
 
 
 
16,854,595

 
17,180,461


8

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
DANFORTH ADVISORS, LLC13
 
First Lien
 
Business services
 
L+7.25% (Floor 2.00%)/Q, Current Coupon 9.63%
 
9/28/2023
 
7,250,000

 
7,105,185

 
7,105,185

 
 
Revolving Loan10
 
 
 
L+7.25% (Floor 2.00%)
 
9/28/2023
 

 
(19,967
)
 

 
 
875 Class A equity units9
 
 
 
 
 

 
875,000

 
875,000

 
 
 
 
 
 
 
 
 
 
 
 
7,960,218

 
7,980,185

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

 
8,000,000

 
9,804,000

DELPHI INTERMEDIATE HEALTHCO, LLC
 
First Lien
 
Healthcare services
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 9.84%
 
10/3/2022
 
7,312,500

 
7,250,211

 
7,166,250

 
 
First Lien
 
 
 
L+7.50 (Floor 1.00%)/Q, Current Coupon 9.81%
 
10/3/2022
 
4,937,500

 
4,891,917

 
4,838,750

 
 
 
 
 
 
 
 
 
 
 
 
12,142,128

 
12,005,000

DIGITAL RIVER, INC.
 
First Lien
 
Software & IT services
 
L+6.25% (Floor 1.00%)/Q, Current Coupon 8.59%
 
2/12/2021
 
6,285,444

 
6,275,486

 
6,285,443

DUNN PAPER, INC.
 
Second Lien
 
Paper & forest products
 
L+8.75% (Floor 1.00%)/M, Current Coupon 10.99%
 
8/26/2023
 
3,000,000

 
2,953,204

 
3,033,750

ELITE SEM, INC.8
 
First Lien
 
Media, marketing & entertainment
 
L+8.50% (Floor 1.00%)/M, Current Coupon 10.82%
 
2/1/2022
 
14,000,000

 
13,687,120

 
14,063,000

 
 
1,443 Preferred units; 1,443 Class A Common units
 
 
 
12% PIK
 
 

 
1,951,397

 
2,713,000

 
 
 
 
 
 
 
 
 
 
 
 
15,638,517

 
16,776,000


9

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
ENVIRONMENTAL PEST SERVICE MANAGEMENT COMPANY, LLC
 
First Lien
 
Consumer services
 
L+7.25%/Q, Current Coupon 9.59%
 
6/22/2023
 
16,250,000

 
15,978,320

 
16,071,250

 
 
Delayed Draw Term Loan10
 
 
 
L+7.25%/Q, Current Coupon 9.58%
 
6/22/2023
 
303,000

 
234,594

 
299,667

 
 
 
 
 
 
 
 
 
 
 
 
16,212,914

 
16,370,917

FAST SANDWICH, LLC
 
First Lien
 
Restaurants
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.34%
 
5/23/2023
 
3,279,375

 
3,227,673

 
3,230,184

 
 
Revolving Loan10
 
 
 
L+9.00% (Floor 1.00%)
 
 

 
(64,154
)
 

 
 
 
 
 
 
 
 
 
 
 
 
3,163,519

 
3,230,184

GAUGE AMERICAN NUTS OPERATIONS LLC13
 
First Lien
 
Food, agriculture and beverage
 
L+8.50% (Floor 1.00%)/Q, Current Coupon 10.84%
 
4/10/2023
 
17,456,250

 
17,132,911

 
17,132,911

 
 
First Lien - Term Loan B
 
 
 
L+8.50% (Floor 1.00%)/Q, Current Coupon 10.84%
 
10/10/2018
 
656,250

 
655,593

 
655,593

 
 
Delayed Draw Term Loan10
 
 
 
L+8.50% (Floor 1.00%)
 
4/10/2023
 

 
(8,906
)
 

 
 
3,000,000 units of Class A common stock9
 
 
 
 
 

 
3,000,000

 
2,701,000

 
 
 
 
 
 
 
 
 
 
 
 
20,779,598

 
20,489,504

LGM PHARMA, LLC13
 
First Lien
 
Healthcare products
 
L+8.50% (Floor 1.00%)/M, Current Coupon 10.60%
 
11/15/2022
 
9,925,000

 
9,754,800

 
9,925,000

 
 
Delayed Draw Term Loan10
 
 
 
L+8.50% (Floor 1.00%)/M, Current Coupon 10.60%
 
11/15/2022
 
1,793,500

 
1,770,433

 
1,793,500

 
 
110,000 units of Class A common stock9
 
 
 
 
 

 
1,100,000

 
1,100,000

 
 
 
 
 
 
 
 
 
 
 
 
12,625,233

 
12,818,500


10

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
LIGHTING RETROFIT INTERNATIONAL, LLC
 
First Lien
 
Environmental services
 
L+9.25% (Floor 1.00%)/Q, Current Coupon 11.65%
 
6/30/2022
 
14,250,000

 
14,127,358

 
13,950,750

 
 
396,825 shares of Series B preferred stock; 25,603 shares of Series C preferred stock
 
 
 
 
 

 
525,603

 
511,000

 
 
 
 
 
 
 
 
 
 
 
 
14,652,961

 
14,461,750

RESEARCH NOW GROUP, INC.
 
Second Lien
 
Business services
 
L+9.50% (Floor 1.00%)/M, Current Coupon 11.74%
 
12/20/2025
 
10,500,000

 
9,807,434

 
10,198,125

RESTAURANT TECHNOLOGIES, INC.
 
Second Lien
 
Business services
 
L+8.75% (Floor 1.00%)/Q, Current Coupon 10.83%
 
11/23/2023
 
3,500,000

 
3,457,943

 
3,535,000

JVMC HOLDINGS CORP. 14
 
First Lien
 
Financial services
 
L+8.02% (Floor 1.00%)/M, Current Coupon 10.26%
 
5/5/2022
 
7,031,250

 
6,977,130

 
7,101,563

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

 
4,524,784

 
4,600,000

 
 
143.3 Class A units9
 
 
 
 
 

 
541,176

 
645,000

 
 
 
 
 
 
 
 
 
 
 
 
5,065,960

 
5,245,000

VISTAR MEDIA INC.
 
First Lien
 
Media, marketing & entertainment
 
L+10.00% (Floor 1.00%)/M, Current Coupon 12.40%
 
2/16/2022
 
7,975,000

 
7,375,591

 
8,054,750

 
 
Warrants (Expiration - February 17, 2027)
 
 
 
 
 

 
886,000

 
2,711,000

 
 
 
 
 
 
 
 
 
 
 
 
8,261,591

 
10,765,750

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Non-control/Non-affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
287,655,830

 
$
294,064,798

Affiliate Investments6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CHANDLER SIGNS, LLC13
 
Senior subordinated debt
 
Business services
 
12.00% / 1.00% PIK
 
7/4/2021
 
4,534,240

 
$
4,480,993

 
$
4,384,610

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

 
1,500,000

 
1,495,000

 
 
 
 
 
 
 
 
 
 
 
 
5,980,993

 
5,879,610


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CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
DYNAMIC COMMUNITIES, LLC13
 
First Lien
 
Business services
 
L+8.00% (Floor 1.00%)/M, Current Coupon 10.39%
 
7/17/2023
 
11,200,000

 
10,983,905

 
10,983,905

 
 
Revolving Loan10
 
 
 
L+8.00% (Floor 1.00%)
 
7/17/2023
 

 
(4,792
)
 

 
 
2,000,000 Preferred Units9
 
 
 
 
 

 
2,000,000

 
2,000,000

 
 
 
 
 
 
 
 
 
 
 
 
12,979,113

 
12,983,905

ITA HOLDINGS GROUP, LLC13
 
First Lien
 
Transportation & logistics
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.34%
 
2/14/2023
 
9,381,250

 
9,211,448

 
9,005,950

 
 
First Lien - Term Loan B
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.34%
 
2/14/2023
 
1,987,500

 
1,949,810

 
1,908,050

 
 
Revolving Loan10.
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.33%
 
2/14/2023
 
763,500

 
728,516

 
732,960

 
 
Delayed Draw Term Loan
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.34%
 
2/14/2023
 
1,490,625

 
1,462,520

 
1,431,000

 
 
9.25% Class A Membership Interest9
 
 
 
 
 

 
1,500,000

 
1,058,000

 
 
 
 
 
 
 
 
 
 
 
 
14,852,294

 
14,135,960

SIMR, LLC
 
First Lien
 
Healthcare services
 
L+9.00% (Floor 2.00%)/M, Current Coupon 11.33%
 
9/7/2023
 
11,688,000

 
11,456,963

 
11,456,963

 
 
5,724,000 Class B Common Units
 
 
 
 
 

 
5,724,000

 
5,724,000

 
 
 
 
 
 
 
 
 
 
 
 
17,180,963

 
17,180,963


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CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
ZENFOLIO INC.
 
First Lien
 
Business services
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.34%
 
7/17/2022
 
13,365,000

 
13,159,872

 
13,244,715

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

 
(15,170
)
 

 
 
190 shares of common stock
 
 
 
 
 

 
1,900,000

 
1,593,000

 
 
 
 
 
 
 
 
 
 
 
 
15,044,702

 
14,837,715

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
66,038,065

 
$
65,018,153

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

 
$
64,800,000

 
$
66,326,146

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

PRISM SPECTRUM HOLDINGS, LLC13
 
First Lien
 
Environmental services
 
L+9.50% (Floor 2.25%)/M, Current Coupon 11.82%
 
2/6/2023
 
13,461,480

 
13,206,168

 
13,340,327

 
 
Revolving Loan10
 
 
 
L+9.50% (Floor 2.25%)/M, Current Coupon 11.82%
 
2/6/2023
 
1,500,000

 
1,465,641

 
1,486,500

 
 
96,498.32 Class A units9
 
 
 
 
 

 
6,538,522

 
6,538,522

 
 
 
 
 
 
 
 
 
 
 
 
21,210,331

 
21,365,349

Total Control Investments
 
 
 
 
 
 
 
 
 
 
 
$
91,425,331

 
$
132,518,495

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS12
 
 
 
 
 
 
 
 
 
 
 
$
445,119,226

 
$
491,601,446


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.

13

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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 (D), monthly (M), quarterly (Q), or semiannually (S). For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at September 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 September 30, 2018, approximately 59.8% 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 95.5%.
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 September 30, 2018, approximately 13.2% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 21.1%.
7 
Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned. At September 30, 2018, approximately 27.0% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 43.0%.
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 September 30, 2018, approximately 17.0% of the Company's investment assets are non-qualifying assets.
10 
The investment has an unfunded commitment as of September 30, 2018. Refer to Note 11 - Commitments and Contingencies for further discussion.
11 
Income producing through dividends or distributions.
12 
As of September 30, 2018, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $49.0 million; cumulative gross unrealized depreciation for federal income tax purposes is $2.7 million. Cumulative net unrealized appreciation is $46.2 million, based on a tax cost of $445.4 million.
13 
ASC Ortho Management Company, LLC common units, Danforth Advisors, LLC common units, Gauge American Nuts Operations LLC Class A common stock, LGM Pharma, LLC Class A common stock, Tax Advisors Group, LLC Class A units, Chandler Signs, LP Class A-1 common stock, Dynamic Communities, LLC Preferred units, ITA Holdings Group, LLC membership interest, and Prism Spectrum Holdings LLC Class A units are held through a wholly-owned taxable subsidiary.
14 
The investment is structured as a first lien first out term loan.
15 
The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). These investments are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act.

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

14

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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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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


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
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