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 December 31, 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.

17,233,385 shares of Common Stock, $0.25 value per share, as of February 1, 2019.



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)
 
 
 
 
 
December 31,
 
March 31,
 
2018
 
2018
 
(Unaudited)
 
 
Assets
 
 
 
Investments at fair value:
 
 
 
Non-control/Non-affiliate investments (Cost: $285,698 and $200,981, respectively)
$
287,246

 
$
199,949

Affiliate investments (Cost: $78,980 and $51,648, respectively)
77,866

 
53,198

Control investments (Cost: $89,971 and $82,768, respectively)
131,628

 
139,948

Total investments (Cost: $454,649 and $335,397, respectively)
496,740

 
393,095

Cash and cash equivalents
10,774

 
7,907

Receivables:
 
 
 
Dividends and interest
7,773

 
5,219

Escrow
370

 
119

Other
681

 
447

Income tax receivable
167

 
109

Deferred tax asset
2,294

 
2,050

Debt issuance costs (net of accumulated amortization of $1,634 and $1,041, respectively)
3,533

 
2,575

Other assets
1,449

 
5,969

Total assets
$
523,781

 
$
417,490

 
 
 
 
Liabilities
 
 
 
Notes (Par value: $77,136 and $57,500, respectively)
$
74,960

 
$
55,305

Credit facility
122,000

 
40,000

Other liabilities
6,280

 
6,245

Dividends payable

 
4,525

Accrued restoration plan liability
2,865

 
2,937

Deferred income taxes

 
190

Total liabilities
206,105

 
109,202

 
 
 
 
Commitments and contingencies (Note 11)
 
 
 
 
 
 
 
Net Assets
 
 
 
Common stock, $0.25 par value: authorized, 25,000,000 shares; issued, 19,572,934 shares at December 31, 2018 and 18,501,298 shares at March 31, 2018
4,893

 
4,625

Additional paid-in capital
276,899

 
260,713

Total distributable earnings
59,821

 
66,887

Treasury stock - at cost, 2,339,512 shares
(23,937
)
 
(23,937
)
Total net assets
317,676

 
308,288

Total liabilities and net assets
$
523,781

 
$
417,490

Net asset value per share (17,233,422 shares outstanding at December 31, 2018 and 16,161,786 shares outstanding at March 31, 2018)
$
18.43

 
$
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
 
Nine Months Ended
 
December 31,
 
December 31,
 
2018
 
2017
 
2018
 
2017
Investment income:
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Non-control/Non-affiliate investments
$
7,744

 
$
5,420

 
$
20,825

 
$
14,858

Affiliate investments
1,886

 
142

 
5,136

 
423

Control investments
440

 

 
983

 

Dividend income:
 
 
 
 
 
 
 
Non-control/Non-affiliate investments
95

 
31

 
120

 
91

Affiliate investments

 

 
82

 

Control investments
3,257

 
3,118

 
9,383

 
9,221

Interest income from cash and cash equivalents
12

 
4

 
21

 
16

Fees and other income
437

 
304

 
1,022

 
643

Total investment income
13,871

 
9,019

 
37,572

 
25,252

Operating expenses:
 
 
 
 
 
 
 
Compensation
2,007

 
1,885

 
5,880

 
5,129

Spin-off compensation plan

 
172

 

 
517

Share-based compensation
607

 
479

 
1,564

 
1,231

Interest
3,347

 
1,275

 
8,829

 
2,924

Professional fees
390

 
245

 
1,285

 
1,205

Net pension expense
40

 
42

 
119

 
123

General and administrative
704

 
620

 
2,322

 
2,171

Total operating expenses
7,095

 
4,718

 
19,999

 
13,300

Income before taxes
6,776

 
4,301

 
17,573

 
11,952

Income tax (benefit) expense
101

 
(362
)
 
736

 
(84
)
Net investment income
$
6,675

 
$
4,663

 
$
16,837

 
$
12,036

 
 
 
 
 
 
 
 
Realized gain
 
 
 
 
 
 
 
Non-control/Non-affiliate investments
$
1,849

 
$
527

 
$
2,066

 
$
1,361

Affiliate investments

 
90

 
77

 
90

Control investments
34

 

 
18,653

 

Total net realized gain on investments before income tax
1,883

 
617

 
20,796

 
1,451

 
 
 
 
 
 
 
 
Net unrealized (depreciation) appreciation on investments
 
 
 
 
 
 
 
Non-control/Non-affiliate investments
(4,860
)
 
708

 
1,549

 
(3,458
)
Affiliate investments
(95
)
 
(173
)
 
(1,634
)
 
(827
)
Control investments
564

 
4,500

 
(15,523
)
 
14,995

Income tax (provision) benefit
153

 
(72
)
 
535

 
133

Total net unrealized (depreciation) appreciation on investments, net of tax
(4,238
)
 
4,963

 
(15,073
)
 
10,843

 
 
 
 
 
 
 
 
Net realized and unrealized (losses) gains on investments
$
(2,355
)
 
$
5,580

 
$
5,723

 
$
12,294

 
 
 
 
 
 
 
 
Net increase in net assets from operations
$
4,320

 
$
10,243

 
$
22,560

 
$
24,330

 
 
 
 
 
 
 
 
Pre-tax net investment income per share - basic and diluted
$
0.40

 
$
0.27

 
$
1.06

 
$
0.74

Net investment income per share – basic and diluted
$
0.39

 
$
0.29

 
$
1.02

 
$
0.75

Net increase in net assets from operations – basic and diluted
$
0.25

 
$
0.64

 
$
1.36

 
$
1.52

Weighted average shares outstanding – basic
17,120,357

 
16,104,806

 
16,541,102

 
16,041,696

Weighted average shares outstanding – diluted
17,122,925

 
16,176,436

 
16,543,524

 
16,109,122


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)
 
 
 
 
 
2018
 
2017
 
 
 
 
Net assets, March 31
$
308,288

 
$
285,072

Operations:
 
 
 
Net investment income
4,617

 
3,436

Net realized gain on investments
18,819

 
624

Net unrealized (depreciation) appreciation on investments, net of tax
(11,783
)
 
1,384

Net increase in net assets from operations
11,653

 
5,444

Dividends to shareholders ($0.89 and $0.21 per share, respectively)
(14,503
)
 
(3,355
)
Spin-Off Compensation Plan, net of tax benefit 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

Common stock withheld for payroll taxes upon vesting of restricted stock

 

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

Net assets, June 30
$
307,381

 
$
287,427

Operations:
 
 
 
Net investment income
5,546

 
3,937

Net realized gain on investments
94

 
210

Net unrealized appreciation on investments, net of tax
948

 
4,496

Net increase in net assets from operations
6,588

 
8,643

Dividends to shareholders ($0.44 and $0.24 per share, respectively)
(7,191
)
 
(3,838
)
Spin-Off Compensation Plan, net of tax benefit of $ - and $58, respectively

 
(113
)
Capital share transactions:
 
 
 
Change in pension plan funded status
12

 
11

Exercise of employee stock options
576

 

Share-based compensation expense
482

 
384

Common stock withheld for payroll taxes upon vesting of restricted stock

 

Increase in net assets
467

 
5,087

Net assets, September 30
$
307,848

 
$
292,514

Operations:
 
 
 
Net investment income
6,675

 
4,663

Net realized gain on investments
1,883

 
617

Net unrealized (depreciation) appreciation on investments, net of tax
(4,238
)
 
4,963

Net increase in net assets from operations
4,320

 
10,243

Dividends to shareholders ($0.46 and $0.26 per share, respectively)
(7,932
)
 
(4,202
)
Spin-Off Compensation Plan, net of tax expense of $ - and $258, respectively

 
(432
)
Capital share transactions:
 
 
 
Change in pension plan funded status
11

 
13

Issuance of common stock
13,124

 

Exercise of employee stock options
69

 

Share-based compensation expense
607

 
479

Common stock withheld for payroll taxes upon vesting of restricted stock
(186
)
 
(85
)
Repurchase of common stock
(185
)
 

Increase in net assets
9,828

 
6,016

Net assets, December 31
$
317,676

 
$
298,530


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)
 
 
 
 
 
Nine Months Ended
 
December 31,
 
2018
 
2017
Cash flows from operating activities
 
 
 
Net increase in net assets from operations
$
22,560

 
$
24,330

Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
 
 
 
Purchases and originations of investments
(197,088
)
 
(144,242
)
Proceeds from sales and repayments of debt investments in portfolio companies
64,986

 
75,520

Proceeds from sales and return of capital of equity investments in portfolio companies
33,928

 
104

Payment of accreted original issue discounts
465

 
1,346

Depreciation and amortization
1,052

 
604

Net pension benefit
(38
)
 
(35
)
Realized gain on investments before income tax
(20,796
)
 
(1,451
)
Net unrealized depreciation (appreciation) on investments
15,608

 
(10,710
)
Accretion of discounts on investments
(1,054
)
 
(592
)
Payment-in-kind interest and dividends
(383
)
 
(215
)
Stock option and restricted awards expense
1,564

 
1,231

Deferred income taxes
(434
)
 
(508
)
Changes in other assets and liabilities:
 
 
 
Increase in dividend and interest receivable
(2,426
)
 
(973
)
Decrease in escrow receivables
310

 
426

Increase in tax receivable
(58
)
 

(Increase) decrease in other receivables
(233
)
 
159

Decrease in other assets
4,442

 
2,280

Increase in taxes payable
683

 

(Decrease) increase in other liabilities
(648
)
 
1,253

Net cash used in operating activities
(77,560
)
 
(51,473
)
Cash flows from financing activities
 
 
 
Proceeds from common stock offering
13,230

 

Equity offering costs paid
(92
)
 

Borrowings under credit facility
127,000

 
66,000

Repayments of credit facility
(45,000
)
 
(56,000
)
Debt issuance costs paid
(1,816
)
 
(1,691
)
Proceeds from notes
19,524

 
55,775

Dividends to shareholders
(34,151
)
 
(14,384
)
Proceeds from exercise of employee stock options
2,103

 

Repurchase of common stock
(185
)
 

Common stock withheld for payroll taxes upon vesting of restricted stock
(186
)
 
(86
)
Net cash provided by financing activities
80,427

 
49,614

Net increase in cash and cash equivalents
2,867

 
(1,859
)
Cash and cash equivalents at beginning of period
7,907

 
22,386

Cash and cash equivalents at end of period
$
10,774

 
$
20,527

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

 
$
290

Cash paid for interest
7,647

 
2,232

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

 
$
4,201

Spin-off Compensation Plan distribution accrued, not yet paid

 
517


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)
December 31, 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 9.28%
 
6/30/2023
 
$
9,143,750

 
$
8,961,902

 
$
9,120,891

ACE GATHERING, INC.
 
Second Lien17
 
Energy services (midstream)
 
L+8.50% (Floor 2.00%)/Q, Current Coupon 11.30%
 
12/13/2023
 
10,000,000

 
9,801,711

 
9,801,711

ADAMS PUBLISHING GROUP, LLC
 
First Lien
 
Media, marketing & entertainment
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 9.93%
 
7/2/2023
 
14,250,000

 
13,983,051

 
13,979,250

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

 
(31,146
)
 

 
 
 
 
 
 
 
 
 
 
 
 
13,951,905

 
13,979,250

AG KINGS HOLDINGS INC.8,18
 
First Lien
 
Food, agriculture & beverage
 
L+10.02% (Floor 1.00%)/M, Current Coupon 12.69%
 
8/8/2021
 
9,307,692

 
9,197,504

 
8,618,923

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

 
9,938,559

 
9,898,000

 
 
3.88% membership interest
 
 
 
 
 

 
2,500,000

 
2,500,000

 
 
 
 
 
 
 
 
 
 
 
 
12,438,559

 
12,398,000

AMERICAN NUTS OPERATIONS LLC13
 
First Lien
 
Food, agriculture and beverage
 
L+8.50% (Floor 1.00%)/Q, Current Coupon 10.90%
 
4/10/2023
 
17,412,500

 
17,103,748

 
16,872,713

 
 
First Lien - Term Loan C10
 
 
 
L+8.50% (Floor 1.00%)/Q, Current Coupon 11.31%
 
4/10/2023
 
1,750,000

 
1,721,676

 
1,695,750

 
 
3,000,000 units of Class A common stock9
 
 
 
 
 

 
3,000,000

 
1,683,000

 
 
 
 
 
 
 
 
 
 
 
 
21,825,424

 
20,251,463


7

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
AMERICAN TELECONFERENCING SERVICES, LTD.
 
First Lien
 
Telecommunications
 
L+6.50% (Floor 1.00%)/Q, Current Coupon 9.09%
 
12/8/2021
 
6,111,675

 
6,001,141

 
5,103,249

 
 
Second Lien
 
 
 
L+9.50% (Floor 1.00%)/Q, Current Coupon 11.92%
 
6/6/2022
 
2,005,714

 
1,950,526

 
1,649,700

 
 
 
 
 
 
 
 
 
 
 
 
7,951,667

 
6,752,949

AMWARE FULFILLMENT LLC
 
First Lien
 
Distribution
 
L+9.50% (Floor 1.00%)/M, Current Coupon 12.31%
 
12/31/2020
 
12,934,167

 
12,837,161

 
12,572,010

ASC ORTHO MANAGEMENT COMPANY, LLC13
 
First Lien
 
Healthcare services
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 9.90%
 
8/31/2023
 
9,319,688

 
9,143,892

 
9,189,212

 
 
Second Lien
 
 
 
13.25% PIK
 
12/1/2023
 
3,142,008

 
3,067,835

 
3,067,835

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

 
(27,979
)
 

 
 
2,042 Common Units9
 
 
 
 
 

 
750,000

 
750,000

 
 
 
 
 
 
 
 
 
 
 
 
12,933,748

 
13,007,047

BINSWANGER HOLDING CORP.
 
First Lien
 
Distribution
 
L+8.00% (Floor 1.00%)/M, Current Coupon 10.81%
 
3/9/2022
 
12,232,704

 
12,062,760

 
12,098,144

 
 
900,000 shares of common stock
 
 
 
 
 

 
900,000

 
1,013,000

 
 
 
 
 
 
 
 
 
 
 
 
12,962,760

 
13,111,144

BLASCHAK COAL CORP.
 
Second Lien17
 
Commodities & mining
 
L+10.00%/Q, 1.00% PIK, Current Coupon 13.40%
 
7/30/2023
 
8,514,875

 
8,355,229

 
8,489,330

CALIFORNIA PIZZA KITCHEN, INC.
 
First Lien
 
Restaurants
 
L+6.00% (Floor 1.00%)/M, Current Coupon 8.53%
 
8/23/2022
 
4,887,500

 
4,854,935

 
4,753,094

CAPITAL PAWN HOLDINGS, LLC
 
First Lien
 
Consumer products & retail
 
L+9.50%/Q, Current Coupon 11.90%
 
7/8/2020
 
11,447,755

 
11,291,676

 
11,264,591


8

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
CLICKBOOTH.COM, LLC
 
First Lien
 
Media, marketing & entertainment
 
L+8.50% (Floor 1.00%)/Q, Current Coupon 10.90%
 
12/5/2022
 
17,062,500

 
16,777,633

 
17,181,938

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

 
(15,706
)
 

 
 
 
 
 
 
 
 
 
 
 
 
16,761,927

 
17,181,938

DANFORTH ADVISORS, LLC13
 
First Lien
 
Business services
 
L+7.25% (Floor 2.00%)/Q, Current Coupon 9.63%
 
9/28/2023
 
7,250,000

 
7,110,870

 
7,134,000

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

 
(18,959
)
 

 
 
875 Class A equity units9
 
 
 
 
 

 
875,000

 
875,000

 
 
 
 
 
 
 
 
 
 
 
 
7,966,911

 
8,009,000

DELPHI INTERMEDIATE HEALTHCO, LLC
 
First Lien
 
Healthcare services
 
L+7.50% (Floor 1.00%)/Q, Current Coupon 10.04%
 
10/3/2022
 
7,265,625

 
7,206,971

 
7,120,313

 
 
First Lien
 
 
 
L+7.50 (Floor 1.00%)/Q, Current Coupon 10.19%
 
10/3/2022
 
4,906,250

 
4,863,293

 
4,808,125

 
 
 
 
 
 
 
 
 
 
 
 
12,070,264

 
11,928,438

DIGITAL RIVER, INC.
 
First Lien
 
Software & IT services
 
L+6.00% (Floor 1.00%)/Q, Current Coupon 8.78%
 
2/12/2021
 
6,285,444

 
6,276,051

 
6,222,589

DUNN PAPER, INC.
 
Second Lien
 
Paper & forest products
 
L+8.75% (Floor 1.00%)/M, Current Coupon 11.27%
 
8/26/2023
 
3,000,000

 
2,955,080

 
2,874,000

ELITE SEM, INC.8
 
First Lien
 
Media, marketing & entertainment
 
L+8.53% (Floor 1.00%)/M, Current Coupon 11.27%
 
2/1/2022
 
14,000,000

 
13,702,052

 
14,070,000

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

 
2,008,121

 
3,462,000

 
 
 
 
 
 
 
 
 
 
 
 
15,710,173

 
17,532,000


9

Table of Contents

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 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 9.65%
 
6/22/2023
 
16,209,375

 
15,949,541

 
16,176,956

 
 
Delayed Draw Term Loan10
 
 
 
L+7.25%/Q, Current Coupon 9.94%
 
6/22/2023
 
5,150,579

 
5,049,191

 
5,140,278

 
 
 
 
 
 
 
 
 
 
 
 
20,998,732

 
21,317,234

FAST SANDWICH, LLC
 
First Lien
 
Restaurants
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.40%
 
5/23/2023
 
3,258,750

 
3,209,380

 
3,203,351

 
 
Revolving Loan10
 
 
 
L+9.00% (Floor 1.00%)
 
 

 
(60,671
)
 

 
 
 
 
 
 
 
 
 
 
 
 
3,148,709

 
3,203,351

LGM PHARMA, LLC13
 
First Lien
 
Healthcare products
 
L+8.50% (Floor 1.00%)/M, Current Coupon 10.85%
 
11/15/2022
 
9,900,000

 
9,738,800

 
9,900,000

 
 
Delayed Draw Term Loan10
 
 
 
L+8.50% (Floor 1.00%)/M, Current Coupon 10.85%
 
11/15/2022
 
1,789,000

 
1,772,948

 
1,789,000

 
 
110,000 units of Class A common stock9
 
 
 
 
 

 
1,100,000

 
821,000

 
 
 
 
 
 
 
 
 
 
 
 
12,611,748

 
12,510,000

LIGHTING RETROFIT INTERNATIONAL, LLC
 
First Lien
 
Environmental services
 
L+9.25% (Floor 1.00%)/Q, Current Coupon 12.05%
 
6/30/2022
 
13,875,000

 
13,760,096

 
13,583,625

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

 
525,603

 
511,000

 
 
 
 
 
 
 
 
 
 
 
 
14,285,699

 
14,094,625

RESEARCH NOW GROUP, INC.
 
Second Lien
 
Business services
 
L+9.50% (Floor 1.00%)/M, Current Coupon 12.02%
 
12/20/2025
 
10,500,000

 
9,822,454

 
10,237,500

JVMC HOLDINGS CORP. 14
 
First Lien
 
Financial services
 
L+8.02% (Floor 1.00%)/M, Current Coupon 10.54%
 
5/5/2022
 
6,937,500

 
6,887,417

 
6,937,500

TAX ADVISORS GROUP, LLC13
 
143.3 Class A units9
 
Financial services
 
 
 

 
541,176

 
645,000


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CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
VISTAR MEDIA INC.
 
First Lien
 
Media, marketing & entertainment
 
L+10.00% (Floor 1.00%)/M, Current Coupon 12.74%
 
2/16/2022
 
7,975,000

 
7,411,290

 
8,054,750

 
 
Warrants (Expiration - February 17, 2027)
 
 
 
 
 

 
886,000

 
2,378,000

 
 
 
 
 
 
 
 
 
 
 
 
8,297,290

 
10,432,750

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Non-control/Non-affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
285,697,812

 
$
287,246,328

Affiliate Investments6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CHANDLER SIGNS, LLC13
 
Senior subordinated debt
 
Business services
 
12.00% / 1.00% PIK
 
7/4/2021
 
4,545,837

 
$
4,496,603

 
$
4,361,732

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

 
1,500,000

 
1,274,000

 
 
 
 
 
 
 
 
 
 
 
 
5,996,603

 
5,635,732

DYNAMIC COMMUNITIES, LLC13
 
First Lien
 
Business services
 
L+8.00% (Floor 1.00%)/M, Current Coupon 10.80%
 
7/17/2023
 
11,130,000

 
10,923,695

 
10,996,440

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

 
(4,540
)
 

 
 
2,000,000 Preferred Units9
 
 
 
 
 

 
2,000,000

 
2,849,000

 
 
 
 
 
 
 
 
 
 
 
 
12,919,155

 
13,845,440


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CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
ITA HOLDINGS GROUP, LLC13
 
First Lien
 
Transportation & logistics
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.40%
 
2/14/2023
 
9,321,875

 
9,160,434

 
9,060,863

 
 
First Lien - Term Loan B
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.40%
 
2/14/2023
 
1,975,000

 
1,939,146

 
1,919,700

 
 
Revolving Loan10.
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.26%
 
2/14/2023
 
2,550,000

 
2,507,117

 
2,478,600

 
 
Delayed Draw Term Loan
 
 
 
L+9.00% (Floor 1.00%)/Q, Current Coupon 11.40%
 
2/14/2023
 
1,481,250

 
1,453,900

 
1,439,775

 
 
9.25% Class A Membership Interest9
 
 
 
 
 

 
1,500,000

 
1,279,000

 
 
 
 
 
 
 
 
 
 
 
 
16,560,597

 
16,177,938

ROSELAND MANAGEMENT, LLC
 
First Lien
 
Healthcare services
 
L+7.00% (Floor 2.00%)/Q, Current Coupon 9.59%
 
11/9/2023
 
10,500,000

 
10,320,533

 
10,320,533

 
 
Revolving Loan10
 
 
 
L+7.00% (Floor 2.00%)
 
11/9/2023
 

 
(33,984
)
 

 
 
10,000 Class A Units
 
 
 
 
 

 
1,000,000

 
1,000,000

 
 
 
 
 
 
 
 
 
 
 
 
11,286,549

 
11,320,533

SIMR, LLC
 
First Lien
 
Healthcare services
 
L+9.00% (Floor 2.00%)/M, Current Coupon 11.74%
 
9/7/2023
 
11,688,000

 
11,467,592

 
11,547,744

 
 
5,724,000 Class B Common Units
 
 
 
 
 

 
5,724,000

 
5,724,000

 
 
 
 
 
 
 
 
 
 
 
 
17,191,592

 
17,271,744


12

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CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company1
 
Type of Investment2, 15
 
Industry
 
Current Interest Rate3
 
Maturity
 
Principal
 
Cost
 
Fair Value4
ZENFOLIO INC.16
 
First Lien
 
Business services
 
L+11.00% (Floor 1.00%)/Q, Current Coupon 13.40%
 
7/17/2022
 
13,331,250

 
13,139,556

 
12,638,025

 
 
Revolving Loan10
 
 
 
L+11.00% (Floor 1.00%)
 
7/17/2022
 

 
(14,162
)
 

 
 
190 shares of common stock
 
 
 
 
 

 
1,900,000

 
976,000

 
 
 
 
 
 
 
 
 
 
 
 
15,025,394

 
13,614,025

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
$
78,979,890

 
$
77,865,412

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

 
$
64,800,000

 
$
63,116,838

MEDIA RECOVERY, INC. DBA SPOTSEE HOLDINGS11
 
800,000 shares of Series A convertible preferred stock
 
Industrial products
 
 
 

 
800,000

 
7,263,232

 
 
4,000,002 shares of common stock
 
 
 
 
 

 
4,615,000

 
41,899,768

 
 
 
 
 
 
 
 
 
 
 
 
5,415,000

 
49,163,000

PRISM SPECTRUM HOLDINGS, LLC13
 
First Lien
 
Environmental services
 
L+9.50% (Floor 2.25%)/M, Current Coupon 12.24%
 
2/6/2023
 
13,461,480

 
13,217,483

 
13,313,404

 
 
96,498.32 Class A units9
 
 
 
 
 

 
6,538,522

 
6,035,000

 
 
 
 
 
 
 
 
 
 
 
 
19,756,005

 
19,348,404

Total Control Investments
 
 
 
 
 
 
 
 
 
 
 
$
89,971,005

 
$
131,628,242

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL INVESTMENTS12
 
 
 
 
 
 
 
 
 
 
 
$
454,648,707

 
$
496,739,982


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 (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 December 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest.

13

Table of Contents

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 December 31, 2018, approximately 57.8% 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 90.4%.
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 December 31, 2018, approximately 15.7% of the Company’s investment assets were affiliate investments. The fair value of these investments as a percent of net assets is 24.5%.
7 
Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned. At December 31, 2018, approximately 26.5% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 41.4%.
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 December 31, 2018, approximately 16.0% of the Company's investment assets are non-qualifying assets.
10 
The investment has an unfunded commitment as of December 31, 2018. Refer to Note 11 - Commitments and Contingencies for further discussion.
11 
Income producing through dividends or distributions.
12 
As of December 31, 2018, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $50.9 million; cumulative gross unrealized depreciation for federal income tax purposes is $9.0 million. Cumulative net unrealized appreciation is $41.9 million, based on a tax cost of $454.9 million.
13 
ASC Ortho Management Company, LLC common units, Danforth Advisors, LLC common units, 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.
16 
As of December 31, 2018, the investment is paying default interest at a rate of 2.0% per annum.
17 
The investment is structured as a split lien term loan, which provides the Company with a first lien priority on certain assets of the obligor and a second lien priority on different assets of the obligor.
18 
Investment was on non-accrual status as of December 31, 2018, meaning the Company has ceased to recognize interest income on the investment.

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

14

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


15

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