SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------
For the Quarter Ended June 30, 1998 Commission File Number: 814-61
CAPITAL SOUTHWEST CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1072796
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
12900 Preston Road, Suite 700, Dallas, Texas 75230
(Address of principal executive offices including zip code)
(972) 233-8242
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
3,787,951 shares of Common Stock, $1 Par Value as of July 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
Assets June 30, 1998 March 31, 1998
------------- --------------
(Unaudited)
Investments at market or fair value
Companies more than 25% owned
(Cost: June 30, 1998 - $19,130,874,
March 31, 1998 - $19,370,874) $ 268,043,599 $ 266,370,919
Companies 5% to 25% owned
(Cost: June 30, 1998 - $15,892,335,
March 31, 1998 - $14,984,195) 41,848,335 43,044,195
Companies less than 5% owned
(Cost: June 30, 1998 - $32,102,422,
March 31, 1998 - $26,799,352) 101,982,083 91,871,340
------------- -------------
Total investments
(Cost: June 30, 1998 - $67,125,631,
March 31, 1998 - $61,154,421) 411,874,017 401,286,454
Cash and cash equivalents 11,247,569 117,047,920
Receivables 647,191 332,873
Other assets 3,835,087 3,656,308
------------- -------------
Totals $ 427,603,864 $ 522,323,555
============= =============
Liabilities and Shareholders' Equity
Note payable to bank $ -- $ 100,000,000
Accrued interest and other liabilities 1,752,978 1,961,382
Income taxes payable 266,643 --
Deferred income taxes 120,983,757 119,339,357
Subordinated debenture 5,000,000 5,000,000
------------- -------------
Total liabilities 128,003,378 226,300,739
------------- -------------
Shareholders' equity
Common stock, $1 par value: authorized,
5,000,000 shares; issued, 4,225,316 shares
at June 30, 1998 and March 31, 1998 4,225,316 4,225,316
Additional capital 5,512,409 5,512,409
Undistributed net investment income 5,345,021 5,261,898
Undistributed net realized gain on investments 67,093,654 66,598,460
Unrealized appreciation of investments -
net of deferred income taxes 224,457,388 221,458,035
Treasury stock - at cost (437,365 shares) (7,033,302) (7,033,302)
------------- -------------
Net assets at market or fair value, equivalent
to $79.09 per share at June 30, 1998, and
$78.15 per share at March 31, 1998 on the
3,787,951 shares outstanding 299,600,486 296,022,816
------------- -------------
Totals $ 427,603,864 $ 522,323,555
============= =============
(See Notes to Consolidated Financial Statements)
2
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30
1998 1997
------------ ------------
Investment income:
Interest $ 402,847 $ 400,032
Dividends 820,747 773,857
Management and directors' fees 137,350 131,100
------------ ------------
1,360,944 1,304,989
------------ ------------
Operating expenses:
Interest 102,008 102,008
Salaries 223,819 209,624
Net pension expense (benefit) (78,378) (87,476)
Other operating expenses 245,382 123,224
------------ ------------
492,831 347,380
------------ ------------
Income before income taxes 868,113 957,609
Income tax expense 27,400 30,600
------------ ------------
Net investment income $ 840,713 $ 927,009
============ ============
Proceeds from disposition of investments $ 761,837 $ 15,174,179
Cost of investments sold -- 2,480,116
------------ ------------
Realized gain on investments before income taxes 761,837 12,694,063
Income tax expense 266,643 4,442,922
------------ ------------
Net realized gain on investments 495,194 8,251,141
------------ ------------
Increase in unrealized appreciation
of investments before income taxes 4,616,353 25,402,456
Increase in deferred income
taxes on appreciation of investments 1,617,000 8,891,000
------------ ------------
Net increase in unrealized appreciation of
investments 2,999,353 16,511,456
------------ ------------
Net realized and unrealized gain
on investments $ 3,494,547 $ 24,762,597
============ ============
Increase in net assets from operations $ 4,335,260 $ 25,689,606
============ ============
(See Notes to Consolidated Financial Statements)
3
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARY
Consolidated Statements of Changes in Net Assets
Three Months Ended Year Ended
June 30, 1998 March 31, 1998
------------------ --------------
(Unaudited)
Operations
Net investment income $ 840,713 $ 2,726,144
Net realized gain on investments 495,194 6,484,892
Net increase in unrealized appreciation
of investments 2,999,353 69,387,923
------------- -------------
Increase in net assets from operations 4,335,260 78,598,959
Distributions from:
Undistributed net investment income (757,590) (2,268,451)
Capital share transactions
Exercise of employee stock options -- 720,188
------------- -------------
Increase in net assets 3,577,670 77,050,696
Net assets, beginning of period 296,022,816 218,972,120
------------- -------------
Net assets, end of period $ 299,600,486 $ 296,022,816
============= =============
(See Notes to Consolidated Financial Statements)
4
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
June 30
-------
1998 1997
---- ----
Cash flows from operating activities
Increase in net assets from operations $ 4,335,260 $ 25,689,606
Adjustments to reconcile increase in net assets
from operations to net cash provided by
operating activities:
Depreciation and amortization 5,825 5,943
Net pension benefit (78,378) (87,476)
Net realized and unrealized gain
on investments (3,494,547) (24,762,597)
Decrease (increase) in receivables (314,318) 38,878
Increase in other assets (61,387) (30,830)
Decrease in accrued interest
and other liabilities (253,243) (198,004)
Deferred income taxes 27,400 30,600
------------- -------------
Net cash provided by operating activities 166,612 686,120
------------- -------------
Cash flows from investing activities
Proceeds from disposition of investments 761,837 2,366,070
Purchases of securities (6,422,749) (423,077)
Maturities of securities 451,539 --
------------- -------------
Net cash provided (used) by investing activities (5,209,373) 1,942,993
------------- -------------
Cash flows from financing activities
Decrease in note payable to bank (100,000,000) --
Distributions from undistributed net investment income (757,590) (753,410)
------------- -------------
Net cash used by financing activities (100,757,590) (753,410)
------------- -------------
Net increase (decrease) in cash and cash
equivalents (105,800,351) 1,875,703
Cash and cash equivalents at beginning
of period 117,047,920 14,009,481
------------- -------------
Cash and cash equivalents at end of period $ 11,247,569 $ 15,885,184
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 199,452 $ 199,452
Income taxes $ 8,500 $ --
(See Notes to Consolidated Financial Statements)
5
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements, which include the
accounts of Capital Southwest Corporation and its wholly-owned small business
investment company subsidiary (the "Company"), have been prepared on the value
basis in accordance with generally accepted accounting principles for investment
companies. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The financial statements included herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 6 of Regulation S-X.
The financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended March 31, 1998. Certain information and
footnotes normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although the Company believes that the disclosures are adequate for a fair
presentation. The information reflects all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the results of operations for the interim periods.
2. Summary of Per Share Information
Three Months Ended
June 30
-------
1998 1997
---- ----
Investment income $ .36 $ .35
Operating expenses (.10) (.06)
Interest expense (.03) (.03)
Income taxes (.01) (.01)
------ -------
Net investment income .22 .25
Net realized gain on investments .13 2.19
Net increase in unrealized appreciation
of investments .79 4.38
Distributions from undistributed
net investment income (.20) (.20)
----- -----
Net increase in net asset value .94 6.62
Net asset value:
Beginning of period 78.15 58.13
------ -------
End of period $79.09 $64.75
====== ======
Shares outstanding at end of period
(000s omitted) 3,788 3,767
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
During the three months ended June 30, 1998 and 1997, the Company
recorded dividend income from the following sources:
Three Months Ended
June 30
-------
1998 1997
---- ----
Alamo Group Inc. $292,600 $266,000
Kimberly-Clark Corporation 19,295 -
The RectorSeal Corporation 240,000 240,000
Skylawn Corporation 150,000 150,000
The Whitmore Manufacturing Company 60,000 60,000
Westmarc Communications, Inc. 20,318 20,318
Other 38,534 37,539
-------- --------
$820,747 $773,857
======== ========
Salaries in the three months ended June 30, 1998 increased from the
year-ago period primarily due to the addition of an investment associate.
Other operating expenses in the three months ended June 30, 1998
increased from the year-ago period primarily due to payment of a finders fee
related to an investment.
During the three months ended June 30, 1998, the Company reported a
realized gain before income taxes of $761,837. It should be noted that a
realized gain before income taxes occurs when an appreciated portfolio security
is sold to realize a gain and a corresponding decrease in unrealized
appreciation occurs by transferring the gain associated with the transaction
from being "unrealized" to being "realized." Conversely, when a loss is realized
on a depreciated portfolio security, an increase in unrealized appreciation
occurs.
Set forth in the following table are the significant increases and
decreases in unrealized appreciation (before the related changes in deferred
taxes and excluding the effect of gains or losses realized during the periods)
by certain portfolio companies:
Three Months Ended
June 30
-------
1998 1997
---- ----
Alamo Group Inc. $ - $4,287,000
American Homestar Corporation 985,765 2,065,412
Balco, Inc. 1,904,680 -
Encore Wire Corporation (2,104,000) 6,059,000
Mail-Well, Inc. 2,082,000 8,294,000
Mylan Laboratories, Inc. 930,074 (16,035)
Palm Harbor Homes, Inc. - 14,328,000
PETsMART, Inc. (470,221) (5,601,759)
Tele-Communications - TCI Group 837,399 528,750
Tecnol Medical Products, Inc. - 1,148,525
During the quarter ended June 30, 1998, the Company made new
investments of $3,875,000 and additional investments of $2,547,749 in existing
portfolio companies.
7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL SOUTHWEST CORPORATION
Date: August 5, 1998 By: /s/ William R. Thomas
----------------------------
William R. Thomas, President
Date: August 5, 1998 By: /s/ Tim Smith
-----------------------------
Tim Smith, Vice President and
Secretary-Treasurer
9
6
0000017313
Capital Southwest Corporation
1
US DOLLARS
3-MOS
MAR-31-1998
APR-01-1998
JUN-30-1998
1
67,125,631
411,874,017
647,191
3,835,087
11,247,569
427,603,864
0
5,000,000
123,003,378
128,003,378
0
2,704,423
3,787,951
3,787,951
5,345,021
0
67,093,654
0
224,457,388
299,600,486
820,747
402,847
137,350
492,831
840,713
495,194
2,999,353
4,335,260
0
757,590
0
0
0
0
0
3,577,670
5,261,898
66,598,460
0
0
0
102,008
492,831
0
78.15
.22
.92
(.20)
0
0
79.09
0
0
0
