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 December 31, 2005
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 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.
3,857,051 shares of Common Stock, $1 Par Value as of January 31, 2006
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
December 31, 2005 (Unaudited) and March 31, 2005............3
Consolidated Statements of Operations (Unaudited)
For the three and nine months ended December 31, 2005 and
December 31, 2004...........................................4
Consolidated Statements of Changes in Net Assets
For the nine months ended December 31, 2005 (Unaudited)
and year ended March 31, 2005...............................5
Consolidated Statements of Cash Flows (Unaudited)
For the three and nine months ended December 31, 2005 and
December 31, 2004...........................................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 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 December 31, 2005 March 31, 2005
----------------- --------------
(Unaudited)
Investments at market or fair value
Companies more than 25% owned
(Cost: December 31, 2005 - $23,114,866
March 31, 2005 - $23,114,866) $268,626,983 $259,628,981
Companies 5% to 25% owned
(Cost: December 31, 2005 - $27,550,000
March 31, 2005 - $19,050,000) 76,797,852 44,890,852
Companies less than 5% owned
(Cost: December 31, 2005 - $37,516,426
March 31, 2005 - $42,381,532) 126,207,469 117,502,389
------------ ------------
Total investments
(Cost: December 31, 2005 - $88,181,292
March 31, 2005 - $84,546,398) 471,632,304 422,022,222
Cash and cash equivalents 13,518,641 5,104,935
Receivables 111,953 136,401
Other assets 7,232,049 7,120,043
------------ ------------
Totals $492,494,947 $434,383,601
============ ============
Liabilities and Shareholders' Equity
Note payable to bank $ 8,000,000 $ 8,000,000
Note payable to portfolio company -- 5,000,000
Accrued interest and other liabilities 1,635,739 1,842,587
Income taxes payable 4,827,661 --
Deferred income taxes 134,482,085 117,007,107
------------ ------------
Total liabilities 148,945,485 131,849,694
------------ ------------
Shareholders' equity
Common stock, $1 par value: authorized,
5,000,000 shares; issued, 4,294,416 shares
at December 31, 2005 and March 31, 2005 4,294,416 4,294,416
Additional capital 7,904,997 7,904,997
Undistributed net investment income 3,489,281 3,669,805
Undistributed net realized gain on investments 84,629,057 73,316,166
Unrealized appreciation of investments -
net of deferred income taxes 250,265,013 220,381,825
Treasury stock - at cost (437,365 shares) (7,033,302) (7,033,302)
------------ ------------
Net assets at market or fair value, equivalent
to $89.07 per share at December 31, 2005,
and $78.44 per share at March 31, 2005
on the 3,857,051 shares outstanding 343,549,462 302,533,907
------------ ------------
Totals $492,494,947 $434,383,601
============ ============
(See Notes to Consolidated Financial Statements)
3
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
-------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
December 31 December 31
-------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ----------- ------------
Investment income:
Interest $ 99,140 $ 148,276 $ 342,806 $ 336,218
Dividends 1,174,743 1,597,466 2,740,363 3,026,880
Management and directors' fees 178,950 155,250 658,420 479,250
----------- ----------- ----------- ------------
1,452,833 1,900,992 3,741,589 3,842,348
----------- ----------- ----------- ------------
Operating expenses:
Salaries 287,584 298,917 767,084 783,510
Net pension benefit (29,187) (63,717) (87,560) (191,155)
Other operating expenses 185,619 176,949 569,611 582,391
----------- ----------- ----------- ------------
444,016 412,149 1,249,135 1,174,746
----------- ----------- ----------- ------------
Income before interest expense and
income taxes 1,008,817 1,488,843 2,492,454 2,667,602
Interest expense 105,565 100,857 320,647 302,726
----------- ----------- ----------- ------------
Income before income taxes 903,252 1,387,986 2,171,807 2,364,876
Income tax expense 10,200 22,200 38,100 66,600
----------- ----------- ----------- ------------
Net investment income $ 893,052 $ 1,365,786 $ 2,133,707 $ 2,298,276
=========== =========== =========== ============
Proceeds from disposition of investments $ 7,791,129 $ 664,307 $27,677,133 $ 1,428,701
Cost of investments sold 1,474,330 6,580,338 10,184,203 13,666,331
----------- ----------- ----------- ------------
Realized gain (loss) on investments
before income taxes 6,316,799 (5,916,031) 17,492,930 (12,237,630)
Income tax expense (benefit) 2,185,228 (2,494,319) 6,180,039 (4,790,170)
----------- ----------- ----------- ------------
Net realized gain (loss) on investments 4,131,571 (3,421,712) 11,312,891 (7,447,460)
----------- ----------- ----------- ------------
Increase in unrealized appreciation
of investments before income taxes 15,009,434 23,672,237 45,975,188 16,199,562
Increase in deferred income taxes
on appreciation of investments 5,254,000 8,647,000 16,092,000 6,114,000
----------- ----------- ----------- ------------
Net increase in unrealized
appreciation of investments 9,755,434 15,025,237 29,883,188 10,085,562
----------- ----------- ----------- ------------
Net realized and unrealized gain
on investments $13,887,005 $11,603,525 $41,196,079 $ 2,638,102
=========== =========== =========== ============
Increase in net assets from operations $14,780,057 $12,969,311 $43,329,786 $ 4,936,378
=========== =========== =========== ============
(See Notes to Consolidated Financial Statements)
4
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Net Assets
------------------------------------------------
Nine Months Ended Year Ended
December 31, 2005 March 31, 2005
----------------- --------------
(Unaudited)
Operations
Net investment income $ 2,133,707 $ 2,405,948
Net realized gain (loss) on investments 11,312,891 (6,065,814)
Net increase in unrealized appreciation
of investments 29,883,188 17,884,654
------------ ------------
Increase in net assets from operations 43,329,786 14,224,788
Distributions from:
Undistributed net investment income (2,314,231) (2,314,231)
------------ ------------
Increase in net assets 41,015,555 11,910,557
Net assets, beginning of period 302,533,907 290,623,350
------------ ------------
Net assets, end of period $343,549,462 $302,533,907
============ ============
(See Notes to Consolidated Financial Statements)
5
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
December 31 December 31
---------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ -----------
Cash flows from operating activities
Increase in net assets from operations $ 14,780,057 $ 12,969,311 $ 43,329,786 $ 4,936,378
Adjustments to reconcile increase in net
assets from operations to net cash
provided by (used in) operating activities:
Proceeds from disposition of investments 7,791,129 664,307 27,677,133 1,374,121
Purchases of securities (1,209,231) (814,537) (14,194,097) (1,761,940)
Maturities of securities -- 166,269 375,000 394,269
Depreciation and amortization 3,968 4,183 11,817 12,074
Net pension benefit (29,187) (63,717) (87,560) (191,155)
Net realized and unrealized gain
on investments (13,887,005) (11,603,525) (41,196,079) (2,638,102)
(Increase) decrease in receivables 144,240 (56,542) 24,448 (68,986)
(Increase) decrease in other assets 5,353 1,496 21,050 (3,050)
Increase (decrease) in accrued interest
and other liabilities 11,529 15,622 (148,156) (91,900)
Decrease in accrued pension cost (38,669) (41,821) (116,005) (125,461)
Deferred income taxes 10,200 22,200 30,600 66,600
------------ ------------ ------------ -----------
Net cash provided by operating activities 7,582,384 1,263,246 15,727,937 1,902,848
------------ ------------ ------------ -----------
Cash flows from financing activities
Decrease in note payable to bank -- -- -- (7,500,000)
Decrease in note payable to portfolio
company -- -- (5,000,000) --
Distributions from undistributed net
investment income (1,542,821) (1,542,821) (2,314,231) (2,314,231)
------------ ------------ ------------ -----------
Net cash used in financing activities (1,542,821) (1,542,821) (7,314,231) (9,814,231)
------------ ------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents 6,039,563 (279,575) 8,413,706 (7,911,383)
Cash and cash equivalents at beginning
of period 7,479,078 2,518,988 5,104,935 10,150,796
------------ ------------ ------------ -----------
Cash and cash equivalents at end of period $ 13,518,641 $ 2,239,413 $ 13,518,641 $ 2,239,413
============ ============ ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $104,287 $100,764 $319,147 $302,964
Income taxes $ -- $ -- $ 7,500 $ --
(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.
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, 2005. 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 who resigned on December 31, 2004 with no options vested.
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 for options granted prior to
the implementation of FASB Statement No. 123.
December 31 December 31
2005 2004
------------ ------------
Net asset value, as reported $343,549,462 $293,245,497
Deduct: Total fair value computed
stock-based compensation 113,202 120,573
------------ ------------
Pro forma net asset value $343,436,260 $293,124,924
============ ============
Net asset value per share:
Basic - as reported $89.07 $76.03
====== ======
Basic - pro forma $89.04 $76.00
====== ======
Diluted - as reported $88.90 $76.00
====== ======
Diluted - pro forma $88.87 $75.96
====== ======
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.
In December 2004, the FASB issued a revised SFAS No. 123(R),
"Share-Based Payment." It requires us to measure all employee stock-based
compensation awards using a fair value method and record such expense in our
consolidated financial statements. In addition it requires additional accounting
and disclosure related to the cash flow effects resulting from share-based
payment arrangements. It is effective at the beginning of the fiscal year that
begins after June 15, 2005. We expect that the adoption effective April 1, 2006,
will not have a material effect on our financial condition, results of
operations and cash flows and that the effect on our net asset value will be
comparable to the pro forma disclosures presented above.
4. Summary of Per Share Information
Three Months Ended Nine Months Ended
December 31 December 31
------------------ -----------------
2005 2004 2005 2004
------ ------ ------ ------
Investment income $ .38 $ .49 $ .97 $ .99
Operating expenses (.12) (.10) (.33) (.30)
Interest expense (.03) (.03) (.08) (.08)
Income taxes -- (.01) (.01) (.02)
------ ------ ------ ------
Net investment income .23 .35 .55 .59
Distributions from undistributed
net investment income (.40) (.40) (.60) (.60)
Net realized gain (loss) on investments 1.07 (.89) 2.93 (1.93)
Net increase in unrealized appreciation
of investments after deferred taxes 2.53 3.90 7.75 2.62
------ ------ ------ ------
Increase in net asset value 3.43 2.96 10.63 .68
Net asset value:
Beginning of period 85.64 73.07 78.44 75.35
------ ------ ------ ------
End of period $89.07 $76.03 $89.07 $76.03
====== ====== ====== ======
Increase in deferred taxes on
unrealized appreciation $ 1.36 $ 2.24 $ 4.17 $ 1.58
Deferred taxes on unrealized appreciation:
Beginning of period 33.17 27.13 30.36 27.79
------ ------ ------ ------
End of period $34.53 $29.37 $34.53 $29.37
====== ====== ====== ======
Shares outstanding at end of period
(000s omitted) 3,857 3,857 3,857 3,857
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Net asset value at December 31, 2005 was $343,549,462, equivalent to
$89.07 per share after deducting an allowance of $34.53 per share for deferred
taxes on net unrealized appreciation of investments. Assuming reinvestment of
all dividends and tax credits on retained long-term capital gains, the December
31, 2005 net asset value reflects increases of 5.9% during the preceding three
months and 19.6% during the past twelve months.
December 31, December 31,
2005 2004
------------ ------------
Net assets $343,549,462 $293,245,497
Shares outstanding 3,857,051 3,857,051
Net assets per share $89.07 $76.03
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 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 or
benefit. The third element is the "Net increase 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 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 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
During the nine months ended December 31, 2005 and 2004, we recorded
dividend income from the following sources:
Nine Months Ended
December 31
-----------------------
2005 2004
---------- ----------
Alamo Group Inc. $ 507,834 $ 507,834
Balco, Inc. 252,960 252,960
Dennis Tool Company 49,999 25,000
Kimberly-Clark Corporation 104,193 92,616
Lifemark Group (formerly Skylawn Corp.) 450,000 450,000
PalletOne, Inc. 134,764 35,937
The RectorSeal Corporation 866,893 720,000
TCI Holdings, Inc 60,953 60,953
The Whitmore Manufacturing Company 180,000 786,273
Other 132,767 95,307
---------- ----------
$2,740,363 $3,026,880
========== ==========
Net Realized Gain (Loss) on Investments
During the nine months ended December 31, 2005, we reported a realized
gain before income taxes of $17,492,930 which included a gain of $10,957,101 on
our sale of 1,396,588 shares of Cenveo, Inc., a gain of $8,708,891 on our sale
of Texas Shredder, Inc. and a loss of $6,000,000 on our investment in Organized
Living, Inc.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Net Increase 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
income taxes and excluding the effect of gains or losses realized during the
periods) by portfolio company:
Three Months Ended Nine Months Ended
December 31 December 31
-------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ----------- ------------
Alamo Group Inc. $(2,821,000) $14,106,000 $(8,463,000) $ 19,749,000
All Components, Inc. (5,000,000) -- (7,000,000) --
Cenveo, Inc. 1,953,000 (838,635) 7,523,861 (2,872,325)
Encore Wire Corporation 20,433,000 -- 28,607,000 (19,071,000)
Heeling, Inc. 4,250,000 -- 12,000,000 --
Hologic, Inc. 2,846,108 1,294,117 6,942,036 1,123,256
Media Recovery, Inc. -- 3,000,000 7,744,000 3,000,000
Palm Harbor Homes, Inc. -- (7,855,000) 15,710,000 (15,710,000)
During the nine months ended December 31, 2005, unrealized appreciation
of investments before deferred taxes increased by $45,975,188 after realizing
net gains of $17,492,930 before income taxes.
As revealed in the above table, major increases in the values of two
investments contributed significantly to the increase in our net asset value
during the nine months ended December 31, 2005. By far the largest change during
the nine months was a $28,607,000 increase in the value of our investment in
Encore Wire Corporation, whose earnings soared during the fourth quarter of 2005
as copper prices reached new highs and profit margins escalated. Palm Harbor
Homes, Inc. achieved a $15,710,000 increase in value during the nine months as
its growth mirrored the improved markets for manufactured and modular housing.
Partially offsetting these increases was an $8,463,000 decline in the value of
our investment in Alamo Group Inc. as its 2005 earnings were penalized by the
planned closing of its Holton, Kansas plant and by a sizable inventory
reduction.
Portfolio Investments
During the quarter ended December 31, 2005, we made additional
investments of $1,209,231 in existing portfolio companies.
We have agreed, subject to certain conditions, to invest up to
$1,736,900 in three portfolio companies.
Financial Liquidity and Capital Resources
At December 31, 2005, we had cash and cash equivalents of approximately
$13.5 million. Pursuant to Small Business Administration ("SBA") regulations,
cash and cash equivalents of $446,523 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 $71.9 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 December 31, 2005. 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 37 years. Retention of
future gains is viewed as an important source of funds to sustain our investment
activity. Approximately $58.0 million of our investment portfolio is represented
by unrestricted publicly-traded securities and represent a source of liquidity.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Funds to be used by us for operating or investment purposes may be
transferred in the form of dividends, management fees or loans from Lifemark
Group, The RectorSeal Corporation and The Whitmore Manufacturing Company,
wholly-owned portfolio companies, to the extent of their available cash reserves
and borrowing capacities.
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 Disclosures 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.
Our investment performance is a function of our portfolio companies'
profitability, which may be affected by economic cycles, competitive forces,
foreign currency fluctuations and production costs including labor rates, raw
material prices and certain commodity prices. Most of the companies in our
investment portfolio do not hedge their exposure to raw material and commodity
price fluctuations. However, the portfolio company with the greatest exposure to
foreign currency fluctuations generally hedges their exposure. All of these
factors may have an adverse effect on the value of our investments and on our
net asset value.
Our investment in portfolio securities includes fixed rate debt
securities which totaled $9,626,447 at December 31, 2005, equivalent to 2.0% of
the value of our total investments. Generally these debt securities are below
investment grade and have relatively high fixed rates of interest; therefore,
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 stocks 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
value of our investment in such security.
Item 4. Controls and Procedures
As of the end of the period covered by this report, 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
11
Item 4. Controls and Procedures
(continued)
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act
of 1934). Based on that evaluation, the President and Chairman of the Board and
Secretary-Treasurer concluded that our disclosure controls and procedures are
effective to ensure that the information required to be disclosed is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and is accumulated and
communicated to management, including the President and Chairman of the Board
and Secretary-Treasurer, as appropriate, to allow timely decisions regarding
such required disclosure.
During the fiscal quarter ended December 31, 2005, there were no
changes to the internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect our internal controls
over financial reporting.
PART II. OTHER INFORMATION
- --------------------------
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
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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: February 3, 2006 By: /s/ William R. Thomas
---------------------- -----------------------------------------
William R. Thomas, President and Chairman
of the Board (chief executive officer)
Date: February 3, 2006 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 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) 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
d) 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 the
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: February 3, 2006 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 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) 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
d) 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 the
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: February 3, 2006 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
February 3, 2006 ("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: February 3, 2006 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
February 3, 2006 ("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: February 3, 2006 By: /s/ Susan K. Hodgson
---------------- -------------------------------------
Susan K. Hodgson, Secretary-Treasurer