FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 2004
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: 814-61
CAPITAL SOUTHWEST CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1072796
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
12900 Preston Road, Suite 700, Dallas, Texas
75230
(Address of principal executive offices)
(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 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 is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
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.
3,857,051 shares of Common Stock, $1 Par Value as of October 31, 2004
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
September 30, 2004 (Unaudited) and March 31, 2004...........3
Consolidated Statements of Operations (Unaudited)
For the six months ended September 30, 2004 and
September 30, 2003..........................................4
Consolidated Statements of Changes in Net Assets
For the six months ended September 30, 2004 (Unaudited) and
year ended March 31, 2004...................................5
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended September 30, 2004 and
September 30, 2003..........................................6
Notes to Consolidated Financial Statements........................7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................8
ITEM 3. Quantitative and Qualitative Disclosure About
Market Risk...........................................11
ITEM 4. Controls and Procedures....................................11
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders........12
ITEM 6. Exhibits and Reports on Form 8-K...........................12
Signatures..................................................................13
2
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
----------------------------------------------
Assets September 30, 2004 March 31, 2004
------------------ --------------
(Unaudited)
Investments at market or fair value
Companies more than 25% owned
(Cost: September 30, 2004 - $23,114,865,
March 31, 2004 - $23,114,865) $242,775,981 $237,095,981
Companies 5% to 25% owned
(Cost: September 30, 2004 - $25,442,115,
March 31, 2004 - $30,431,224) 49,601,504 70,189,005
Companies less than 5% owned
(Cost: September 30, 2004 - $42,413,660,
March 31, 2004 - $43,736,560) 100,786,650 99,663,833
------------ ------------
Total investments
(Cost: September 30, 2004 - $90,970,640,
March 31, 2004 - $97,282,649) 393,164,135 406,948,819
Cash and cash equivalents 2,518,988 10,150,796
Receivables 88,921 76,477
Other assets 6,961,621 6,802,767
------------ ------------
Totals $402,733,665 $423,978,859
============ ============
Liabilities and Shareholders' Equity
Note payable to bank $ 8,000,000 $ 15,500,000
Note payable to portfolio company 5,000,000 5,000,000
Accrued interest and other liabilities 1,659,596 1,815,996
Income taxes payable 548,317 2,726,850
Deferred income taxes 105,706,745 108,312,663
------------ ------------
Total liabilities 120,914,658 133,355,509
------------ ------------
Shareholders' equity
Common stock, $1 par value: authorized,
5,000,000 shares; issued, 4,294,416 shares
at September 30, 2004 and March 31, 2004 4,294,416 4,294,416
Additional capital 7,904,997 7,904,997
Undistributed net investment income 3,739,168 3,578,088
Undistributed net realized gain on investments 75,356,232 79,381,980
Unrealized appreciation of investments -
net of deferred income taxes 197,557,496 202,497,171
Treasury stock - at cost (437,365 shares) (7,033,302) (7,033,302)
------------ ------------
Net assets at market or fair value, equivalent
to $73.07 per share at September 30, 2004,
and $75.35 per share at March 31, 2004
on the 3,857,051 shares outstanding 281,819,007 290,623,350
------------ ------------
Totals $402,733,665 $423,978,859
============ ============
(See Notes to Consolidated Financial Statements)
3
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
-------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
September 30 September 30
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Investment income:
Interest $ 94,660 $ 31,201 $ 187,942 $ 80,669
Dividends 727,207 698,649 1,429,414 1,395,965
Management and directors' fees 154,750 151,249 324,000 321,364
----------- ----------- ----------- -----------
976,617 881,099 1,941,356 1,797,998
----------- ----------- ----------- -----------
Operating expenses:
Salaries 254,218 215,375 484,593 424,850
Net pension benefit (59,212) (39,479) (127,438) (136,460)
Other operating expenses 231,745 173,282 405,442 366,854
----------- ----------- ----------- -----------
426,751 349,178 762,597 655,244
----------- ----------- ----------- -----------
Income before interest expense and
income taxes 549,866 531,921 1,178,759 1,142,754
Interest expense 86,483 135,533 201,869 275,554
----------- ----------- ----------- -----------
Income before income taxes 463,383 396,388 976,890 867,200
Income tax expense 20,400 13,800 44,400 47,800
----------- ----------- ----------- -----------
Net investment income $ 442,983 $ 382,588 $ 932,490 $ 819,400
=========== =========== =========== ===========
Proceeds from disposition of investments $ 155,877 $ 3,654,339 $ 764,394 $ 3,654,339
Cost of investments sold 4,083,668 676,753 7,085,993 680,433
----------- ----------- ----------- -----------
Realized gain (loss) on investments
before income taxes (3,927,791) 2,977,586 (6,321,599) 2,973,906
Income tax expense (benefit) (1,458,018) 1,042,155 (2,295,851) 1,040,867
----------- ----------- ----------- -----------
Net realized gain (loss) on investments (2,469,773) 1,935,431 (4,025,748) 1,933,039
----------- ----------- ----------- -----------
Increase (decrease) in unrealized appreciation
of investments before income taxes (3,791,414) 19,460,310 (7,472,675) 32,931,270
Increase (decrease) in deferred income taxes
on appreciation of investments (1,244,000) 6,247,000 (2,533,000) 10,962,000
----------- ----------- ----------- -----------
Net increase (decrease) in unrealized
appreciation of investments (2,547,414) 13,213,310 (4,939,675) 21,969,270
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments $(5,017,187) $15,148,741 $(8,965,423) $23,902,309
=========== =========== =========== ===========
Increase (decrease) in net assets
from operations $(4,574,204) $15,531,329 $(8,032,933) $24,721,709
=========== =========== =========== ===========
(See Notes to Consolidated Financial Statements)
4
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Net Assets
------------------------------------------------
Six Months Ended Year Ended
September 30, 2004 March 31, 2004
------------------ --------------
(Unaudited)
Operations
Net investment income $ 932,490 $ 2,587,060
Net realized gain (loss) on investments (4,025,748) 8,191,872
Net increase (decrease) in unrealized
appreciation of investments (4,939,675) 74,688,574
------------ ------------
Increase (decrease) in net assets from operations (8,032,933) 85,467,506
Distributions from:
Undistributed net investment income (771,410) (2,308,631)
Capital share transactions
Exercise of employee stock options -- 997,500
------------ ------------
Increase (decrease) in net assets (8,804,343) 84,156,375
Net assets, beginning of period 290,623,350 206,466,975
------------ ------------
Net assets, end of period $281,819,007 $290,623,350
============ ============
(See Notes to Consolidated Financial Statements)
5
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
September 30 September 30
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ------------ ----------- ------------
Cash flows from operating activities
Increase (decrease) in net assets from
operations $(4,574,204) $ 15,531,329 $(8,032,933) $ 24,721,709
Adjustments to reconcile increase (decrease)
in net assets from operations to net cash
provided by (used in) operating activities:
Proceeds from disposition of investments 101,297 3,654,339 709,814 3,654,339
Purchases of securities (545,078) (5,923,960) (947,403) (6,927,640)
Maturities of securities 228,000 900,000 228,000 900,000
Depreciation and amortization 4,262 4,772 7,891 9,537
Net pension benefit (59,212) (39,479) (127,438) (136,460)
Net realized and unrealized (gain) loss
on investments 5,017,187 (15,148,741) 8,965,423 (23,902,309)
(Increase) decrease in receivables 282 (227,126) (12,444) (23,388)
(Increase) decrease in other assets 29,783 10,814 (4,546) (7,232)
Increase (decrease) in accrued interest
and other liabilities (39,276) 47,038 (107,522) 45,668
Decrease in accrued pension cost (41,820) (41,820) (83,640) (83,640)
Deferred income taxes 20,400 13,800 44,400 47,800
----------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities 141,621 (1,219,034) 639,602 (1,701,616)
----------- ------------ ----------- ------------
Cash flows from financing activities
Decrease in notes payable to bank -- -- (7,500,000) --
Distributions from undistributed net
investment income -- -- (771,410) (765,810)
Proceeds from exercise of employee stock
options -- 997,500 -- 997,500
----------- ------------ ----------- ------------
Net cash provided by (used in) financing
activities -- 997,500 (8,271,410) 231,690
----------- ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents 141,621 (221,534) (7,631,808) (1,469,926)
Cash and cash equivalents at beginning
of period 2,377,367 3,401,996 10,150,796 4,650,388
----------- ------------ ----------- ------------
Cash and cash equivalents at end of period $ 2,518,988 $ 3,180,462 $ 2,518,988 $ 3,180,462
=========== ============ =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $86,386 $135,435 $202,200 $275,457
Income taxes $ -- $ -- $ -- $ --
Note:
- -----
On September 29, 2004, CSC received 2,936 shares of Tekelec valued at $54,580
($18.59 per share) related to the sale of VocalData, Inc.
(See Notes to Consolidated Financial Statements)
6
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
------------------------------------------
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements, which include our
accounts and the accounts of our wholly-owned small business investment company
subsidiary and our wholly-owned management company, have been prepared on the
value method of accounting in accordance with accounting principles generally
accepted in the United States for investment companies. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the 2003 balances to conform with
the 2004 financial statement presentation.
The financial statements included herein have been prepared in
accordance with accounting principles generally accepted in the United States
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 our annual
report on Form 10-K for the year ended March 31, 2004. Certain information and
footnotes normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted, although we believe 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. Indemnification
We enter into agreements that contain customary indemnification
provisions. The maximum exposure under these indemnification agreements is
unknown, but we have had no previous claims or losses and expect the risk of
losses to be remote.
3. Stock-Based Compensation
Effective April 1, 2003, we adopted the fair value method of recording
compensation expense related to all stock options granted after March 31, 2003,
in accordance with FASB Statement Nos. 123 and 148. Accordingly, the fair value
of stock options as determined on the date of grant using the Black-Scholes
pricing model will be expensed over the vesting period of the related stock
options. On July 19, 2004, 7,500 stock options were granted to a new investment
associate.
The following table illustrates the effect on net asset value and net
asset value per share if we had applied the fair value recognition provisions of
FASB Statement No. 123 to stock-based compensation.
September 30, September 30,
2004 2003
------------ ------------
Net asset value, as reported $281,819,007 $231,420,374
Deduct: Total fair value computed
stock-based compensation 80,382 89,720
------------ ------------
Pro forma net asset value $281,738,625 $231,330,654
============ ============
Net asset value per share:
Basic - as reported $73.07 $60.00
====== ======
Basic - pro forma $73.05 $59.98
====== ======
Diluted - as reported $73.04 $60.26
====== ======
Diluted - pro forma $73.02 $59.98
====== ======
7
Notes to Consolidated Financial Statements
(continued)
The diluted net asset value per share calculation assumes all vested
outstanding options for which the market price exceeds the exercise price have
been exercised.
4. Summary of Per Share Information
Three Months Ended Six Months Ended
September 30 September 30
---------------- ----------------
2004 2003 2004 2003
------ ------ ------ ------
Investment income $ .25 $ .22 $ .50 $ .46
Operating expenses (.11) (.09) (.20) (.17)
Interest expense (.02) (.03) (.05) (.07)
Income taxes -- -- (.01) (.01)
------ ------ ------ ------
Net investment income .12 .10 .24 .21
Distributions from undistributed
net investment income -- -- (.20) (.20)
Net realized gain (loss) on investments (.64) .50 (1.04) .50
Net increase (decrease) in unrealized appreciation
of investments after deferred taxes (.66) 3.42 (1.28) 5.71
Exercise of employee stock options (1) -- (.14) -- (.14)
------ ------ ------ ------
Increase (decrease) in net asset value (1.18) 3.88 (2.28) 6.08
Net asset value:
Beginning of period 74.25 56.12 75.35 53.92
------ ------ ------ ------
End of period $73.07 $60.00 $73.07 $60.00
====== ====== ====== ======
Increase (decrease) in deferred taxes on
unrealized appreciation $ (.32) $ 1.48 $ (.66) $ 2.72
Deferred taxes on unrealized appreciation:
Beginning of period 27.45 18.94 27.79 17.70
------ ------ ------ ------
End of period $27.13 $20.42 $27.13 $20.42
====== ====== ====== ======
Shares outstanding at end of period
(000s omitted) 3,857 3,857 3,857 3,857
(1) Net decrease is due to the exercise of employee stock options at
prices less than beginning of period net asset value.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Net asset value at September 30, 2004 was $281,819,007 equivalent to
$73.07 per share after deducting an allowance of $27.13 per share for deferred
taxes on unrealized appreciation of investments. Assuming reinvestment of
dividends, the September 30, 2004 net asset value reflects an increase of 22.9%
during the twelve months ended September 30, 2004 and a 2.8% decrease during the
first half of the current fiscal year.
September 30, September 30,
2004 2003
------------ ------------
Net assets $281,819,007 $231,420,374
Shares outstanding 3,857,051 3,857,051
Net assets per share $73.07 $60.00
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Results of Operations
The composite measure of our financial performance in the Consolidated
Statements of Operations is captioned "Increase (decrease) in net assets from
operations" and consists of three elements. The first is "Net investment
income", which is the difference between our income from interest, dividends and
fees and our combined operating and interest expenses, net of applicable income
taxes. The second element is "Net realized gain (loss) on investments", which is
the difference between the proceeds received from disposition of portfolio
securities and their stated cost, net of applicable income tax expense. The
third element is the "Net increase (decrease) in unrealized appreciation of
investments", which is the net change in the market or fair value of our
investment portfolio, compared with stated cost, net of an increase or decrease
in deferred income taxes which would become payable if the unrealized
appreciation were realized through the sale or other disposition of the
investment portfolio. It should be noted that the "Net realized gain (loss) on
investments" and "Net increase (decrease) in unrealized appreciation of
investments" are directly related in that when an appreciated portfolio security
is sold to realize a gain, a corresponding decrease in net 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 net unrealized appreciation
occurs.
Net Investment Income
Interest income of $187,942 in the six months ended September 30, 2004
increased from $80,669 in the year-ago period primarily because of an increase
in loans to portfolio companies. During the six months ended September 30, 2004
and 2003, we recorded dividend income from the following sources:
Six Months Ended
September 30
-----------------------
2004 2003
---------- ----------
Alamo Group Inc. $ 338,556 $ 338,556
Dennis Tool Company 25,000 25,000
Kimberly-Clark Corporation 61,744 52,482
The RectorSeal Corporation 480,000 480,000
Skylawn Corporation 300,000 300,000
Sprint Corporation 22,500 18,000
TCI Holdings, Inc 40,635 40,635
The Whitmore Manufacturing Company 120,000 120,000
Other 40,979 21,292
---------- ----------
$1,429,414 $1,395,965
========== ==========
Operating expenses totaled $762,597 in the six months ended September
30, 2004 versus $655,244 in the six months ended September 30, 2003. The
increase was due mainly to the addition of an investment associate in July 2004,
employee raises and an increase in audit and legal fees for ordinary business
operations.
Interest expense of $201,869 in the six months ended September 30, 2004
decreased from $275,554 in the corresponding period ended September 30, 2003
primarily due to a decrease in notes payable.
Net Realized Gain or Loss on Investments
During the six months ended September 30, 2004, we reported a realized
loss before income taxes of $6,321,599 which included a loss of $3,000,000 on
our investment in Texas Petrochemical Holdings, Inc., a $2,576,146 loss on the
partial sale of our investment in Concert Industries Ltd. and a loss of
$1,346,891 on our sale of VocalData, Inc. to Tekelec.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Net Increase (Decrease) in Unrealized Appreciation of Investments
Set forth in the following table are the significant increases and
decreases in unrealized appreciation (before the related change in deferred
taxes and excluding the effect of gains or losses realized during the periods)
by portfolio company:
Three Months Ended Six Months Ended
September 30 September 30
------------------------- --------------------------
2004 2003 2004 2003
----------- ---------- ------------ ----------
Alamo Group Inc $ 5,643,000 $2,822,000 $ 5,643,000 $2,822,000
All Components, Inc. -- -- -- 2,900,000
CMI Holding Company, Inc. -- -- (3,000,000) --
Cenveo, Inc. 1,195,055 2,054,656 (2,033,690) 3,081,984
Encore Wire Corporation (8,173,000) 5,449,000 (19,071,000) 8,173,000
Extreme International, Inc. -- 2,397,661 375,000 4,613,661
Media Recovery, Inc. -- 3,000,000 -- 3,000,000
Palm Harbor Homes, Inc. (7,855,000) -- (7,855,000) --
The RectorSeal Corporation -- -- 4,000,000 --
Texas Capital Bancshares, Inc. 1,041,380 2,585,994 1,344,829 2,585,994
The Whitmore Manufacturing Company -- -- 2,400,000 --
As reflected in the above table, at September 30, 2004, the value of
our investment in Encore Wire Corporation was decreased from our March 31, 2004
value by $19,071,000 due to the cyclical variations in Encore's profitability
and the effect of copper price fluctuations on Encore's earnings. In the same
period a year ago, we increased our value of Encore by $8,173,000 reflecting
increases in the company's sales and earnings which stemmed partly from higher
copper prices.
During the six months ended September 30, 2004, the value of our
investment in Palm Harbor Homes, Inc. was reduced by $7,855,000 due to the
unfavorable pattern of the company's earnings and the continuing negative
outlook for the manufactured housing industry.
During the six months ended September 30, 2004, our unrealized
appreciation of investments before income taxes decreased by $7,472,675, which
included value decreases of $33,655,603 and value increases of $19,104,017, plus
the $7,078,911 effect of net realized losses during the period.
Portfolio Investments
During the quarter ended September 30, 2004, we made additional
investments of $545,078 in existing portfolio companies.
We have agreed, subject to certain conditions, to invest up to
$1,940,025 in six portfolio companies.
Financial Liquidity and Capital Resources
At September 30, 2004, we had cash and cash equivalents of
approximately $2.5 million. Pursuant to Small Business Administration ("SBA")
regulations, cash and cash equivalents of $285,129 held by Capital Southwest
Venture Corporation ("CSVC") may not be transferred or advanced to us without
the consent of the SBA. Under current SBA regulations and subject to SBA's
approval of its credit application, CSVC would be entitled to borrow up to $64.5
million. We also have an unsecured $25.0 million revolving line of credit from a
commercial bank, of which $17.0 million was available at September 30, 2004.
With the exception of a capital gain distribution made in the form of a
distribution of the stock of a portfolio company in the fiscal year ended March
31, 1996, we have elected to retain all gains realized during the past 36 years.
Retention of future gains is viewed as an important source of funds to sustain
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
our investment activity. Approximately $49.1 million of our investment portfolio
is represented by unrestricted publicly-traded securities, which have an
ascertainable market value and represent a source of liquidity.
Funds to be used by us for operating or investment purposes may be
transferred in the form of dividends, management fees or loans from Skylawn
Corporation, The RectorSeal Corporation and The Whitmore Manufacturing Company,
wholly-owned portfolio companies, to the extent of their available cash reserves
and borrowing capacities. At September 30, 2004, we owed $5,000,000 to Skylawn
Corporation.
Management believes that our cash and cash equivalents and cash
available from other sources described above are adequate to meet our expected
requirements. Consistent with our long-term strategy, the disposition of
investments from time to time may also be an important source of funds for
future investment activities.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We are subject to financial market risks, including changes in
marketable equity security prices. We do not use derivative financial
instruments to mitigate any of these risks. The return on our investments is not
materially affected by foreign currency fluctuations.
Our investment in portfolio securities consists of fixed rate debt
securities which totaled $5,101,493 at September 30, 2004, equivalent to 1.3% of
the value of our total investments. Since these debt securities usually have
relatively high fixed rates of interest, minor changes in market yields of
publicly-traded debt securities have little or no effect on the values of debt
securities in our portfolio and no effect on interest income. Our investments in
debt securities are generally held to maturity and their fair values are
determined on the basis of the terms of the debt security and the financial
condition of the issuer.
A portion of our investment portfolio consists of debt and equity
securities of private companies. We anticipate little or no effect on the values
of these investments from modest changes in public market equity valuations.
Should significant changes in market valuations of comparable publicly-owned
companies occur, there may be a corresponding effect on valuations of private
companies, which would affect the value and the amount and timing of proceeds
eventually realized from these investments. A portion of our investment
portfolio also consists of restricted common stock of publicly-owned companies.
The fair values of these restricted securities are influenced by the nature of
applicable resale restrictions, the underlying earnings and financial condition
of the issuers of such restricted securities and the market valuations of
comparable publicly-owned companies. A portion of our investment portfolio also
consists of unrestricted, freely marketable common stocks of publicly-owned
companies. These freely marketable investments, which are valued at the public
market price, are directly exposed to equity price risks, in that a change in an
issuer's public market equity price would result in an identical change in the
fair value of our investment in such security.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2004, an evaluation was performed under the
supervision and with the participation of our management, including the
President and Chairman of the Board and Secretary-Treasurer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, our management, including the President
and Chairman of the Board and Secretary-Treasurer concluded that our disclosure
controls and procedures were effective as of September 30, 2004. There have been
no significant changes during the quarter covered by this report in our internal
control over financial reporting or in other factors that could significantly
affect internal control over financial reporting.
11
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Stockholders was held on July 19, 2004, with the following
results of elections and approval:
Votes Cast
------------------------------------
Against/ Abstentions/
For Withheld Non-Votes
a. The following Directors were elected to serve until --------- -------- ------------
the next Annual Meeting of Stockholders:
Graeme W. Henderson 3,544,766 70,305 241,980
Samuel B. Ligon 3,590,666 24,405 241,980
Gary L. Martin 3,545,200 69,871 241,980
William R. Thomas 3,544,766 70,305 241,980
John H. Wilson 3,545,216 69,855 241,980
Votes Cast
------------------------------------
Against/ Abstentions/
For Withheld Non-Votes
b. Ernst & Young LLP was approved as our --------- -------- -----------
auditors for the 2005 fiscal year. 3,567,608 42,731 246,712
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1- Certification of President and Chairman of the
Board required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
filed herewith.
Exhibit 31.2- Certification of Secretary-Treasurer required by
Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, filed
herewith.
Exhibit 32.1- Certification of President and Chairman of the
Board required by Rule 13a-14(b) or Rule 15d-14(b) of the
Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United States Code, furnished herewith.
Exhibit 32.2- Certification of Secretary-Treasurer required by
Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section
1350 of Chapter 63 of Title 18 of the United States Code,
furnished herewith.
(b) Reports on Form 8-K
On September 1, 2004, we filed a Form 8-K reporting that Ernst &
Young LLP informed us on August 26, 2004 that they were resigning
as our independent registered public accounting firm effective
September 1, 2004.
On September 9, 2004, we filed a Form 8-K/A which included a copy
of a letter provided by Ernst & Young LLP dated September 7, 2004
addressed to the Securities and Exchange Commission stating
whether they agreed with our 8-K filed on September 1, 2004.
On September 15, 2004, we filed a Form 8-K reporting the
engagement of Grant Thornton LLP as our new independent
accountants.
12
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: November 5, 2004 By: /s/ William R. Thomas
------------------------ -----------------------------------------
William R. Thomas, President and Chairman
of the Board (chief executive officer)
Date: November 5, 2004 By: /s/ Susan K. Hodgson
------------------------ -----------------------------------------
Susan K. Hodgson, Secretary-Treasurer
(chief financial/accounting officer)
13
Exhibit 31.1
CERTIFICATIONS
I, William R. Thomas, President and Chairman of the Board of Capital Southwest
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital Southwest
Corporation (the "registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the consolidated financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 5, 2004 By: /s/ William R. Thomas
---------------- ----------------------------
William R. Thomas, President
and Chairman of the Board
Exhibit 31.2
CERTIFICATIONS
I, Susan K. Hodgson, Secretary-Treasurer of Capital Southwest Corporation,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital Southwest
Corporation (the "registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the consolidated financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 5, 2004 By: /s/ Susan K. Hodgson
---------------- -------------------------------------
Susan K. Hodgson, Secretary-Treasurer
Exhibit 32.1
Certification of President and Chairman of the Board
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
I, William R. Thomas, President and Chairman of the Board of Capital
Southwest Corporation, certify that, to my knowledge:
1. the Form 10-Q, filed with the Securities and Exchange Commission on
November 5, 2004 ("accompanied report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the accompanied report fairly presents,
in all material respects, the consolidated financial condition and results of
operations of Capital Southwest Corporation.
Date: November 5, 2004 By: /s/ William R. Thomas
---------------- ----------------------------
William R. Thomas, President
and Chairman of the Board
Exhibit 32.2
Certification of Secretary-Treasurer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
I, Susan K. Hodgson, Secretary-Treasurer of Capital Southwest
Corporation, certify that, to my knowledge:
1. the Form 10-Q, filed with the Securities and Exchange Commission on
November 5, 2004 ("accompanied report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the accompanied report fairly presents,
in all material respects, the consolidated financial condition and results of
operations of Capital Southwest Corporation.
Date: November 5, 2004 By: /s/ Susan K. Hodgson
---------------- -------------------------------------
Susan K. Hodgson, Secretary-Treasurer