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, 1997 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.
3,767,051 shares of Common Stock, $1 Par Value as of July 31, 1997
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
----------------------------------------------
Assets June 30, 1997 March 31, 1997
------------- --------------
(Unaudited)
Investments at market or fair value
Companies more than 25% owned
(Cost: June 30, 1997 - $20,552,361,
March 31, 1997 - $20,552,361) $222,027,920 $203,399,920
Companies 5% to 25% owned
(Cost: June 30, 1997 - $19,979,904)
March 31, 1997 - $19,979,904 50,100,002 35,747,002
Companies less than 5% owned
(Cost: June 30, 1997 - $17,318,611,
March 31, 1997 - $19,375,650) 44,508,521 54,144,104
------------- -------------
Total investments
(Cost: June 30, 1997 - $57,850,876,
March 31, 1997 - $59,907,915) 316,636,443 293,291,026
Cash and cash equivalents 15,885,184 14,009,481
Receivables 240,937 279,815
Receivable for securities sold 12,808,110 -
Other assets 3,325,507 3,180,171
-------------- --------------
Totals $348,896,181 $310,760,493
============ ============
Liabilities and Shareholders' Equity
Accrued interest and other liabilities $ 1,570,342 $ 1,735,372
Income taxes payable 7,627,295 3,184,373
Deferred income taxes 90,790,228 81,868,628
Subordinated debentures 5,000,000 5,000,000
--------------- ---------------
Total liabilities 104,987,865 91,788,373
------------- --------------
Shareholders' equity
Common stock, $1 par value: authorized,
5,000,000 shares; issued, 4,204,416 shares
at June 30, 1997 and March 31, 1997 4,204,416 4,204,416
Additional capital 4,813,121 4,813,121
Undistributed net investment income 4,977,804 4,804,205
Undistributed net realized gain on investments 68,364,709 60,113,568
Unrealized appreciation of investments -
net of deferred income taxes 168,581,568 152,070,112
Treasury stock - at cost (437,365 shares) (7,033,302) (7,033,302)
-------------- --------------
Net assets at market or fair value, equivalent
to $64.75 per share at June 30, 1997, and
$58.13 per share at March 31, 1997 on the
3,767,051 shares outstanding 243,908,316 218,972,120
------------- -------------
Totals $348,896,181 $310,760,493
============ ============
(See Notes to Consolidated Financial Statements)
2
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
-------------------------------------
(Unaudited)
Three Months Ended
June 30
1997 1996
---- ----
Investment income:
Interest $ 400,032 $ 369,947
Dividends 773,857 802,484
Management and directors' fees 131,100 157,100
------------- ------------
1,304,989 1,329,531
------------- ------------
Operating expenses:
Interest 102,008 235,613
Salaries 209,624 190,271
Net pension expense (benefit) (87,476) (52,175)
Other operating expenses 123,224 121,124
------------- -------------
347,380 494,833
------------- -------------
Income before income taxes 957,609 834,698
Income tax expense 30,600 18,000
------------- --------------
Net investment income $ 927,009 $ 816,698
============= ============
Proceeds from disposition of investments $15,174,179 $ -
Cost of investments sold 2,480,116 -
------------- -------------
Realized gain on investments before income taxes 12,694,063 -
Income tax expense 4,442,922 -
------------- -------------
Net realized gain on investments 8,251,141 -
------------- -------------
Increase in unrealized appreciation
of investments before income taxes 25,402,456 12,753,660
Increase in deferred income
taxes on appreciation of investments 8,891,000 4,463,000
------------- -------------
Net increase in unrealized appreciation of
investments 16,511,456 8,290,660
------------- -------------
Net realized and unrealized gain
on investments $24,762,597 $ 8,290,660
============== ==============
Increase in net assets from operations $25,689,606 $ 9,107,358
============== ==============
(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, 1997 March 31, 1997
------------- --------------
(Unaudited)
Operations
Net investment income $ 927,009 $ 2,574,062
Net realized gain on investments 8,251,141 6,805,786
Net increase in unrealized appreciation
of investments 16,511,456 22,804,750
----------- ------------
Increase in net assets from operations 25,689,606 32,184,598
Distributions from:
Undistributed net investment income (753,410) (2,260,231)
----------- ------------
Increase in net assets 24,936,196 29,924,367
Net assets, beginning of period 218,972,120 189,047,753
------------ ------------
Net assets, end of period $243,908,316 $218,972,120
============ ============
(See Notes to Consolidated Financial Statements)
4
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
------------------------------------
(Unaudited)
Three Months Ended
June 30
-------
1997 1996
---- ----
Cash flows from operating activities
Increase in net assets from operations $ 25,689,606 $ 9,107,358
Adjustments to reconcile increase in net assets
from operations to net cash provided by
operating activities:
Depreciation and amortization 5,943 10,471
Net pension benefit (87,476) (52,175)
Net realized and unrealized gain
on investments (24,762,597) (8,290,660)
Decrease (increase) in receivables 38,878 (80,185)
Increase in other assets (30,830) (33,315)
Decrease in accrued interest
and other liabilities (198,004) (68,195)
Deferred income taxes 30,600 18,000
------------ -----------
Net cash provided by operating activities 686,120 611,299
------------ -----------
Cash flows from investing activities
Proceeds from disposition of investments 2,366,070 -
Purchases of securities (423,077) (3,000,000)
Maturities of securities - -
------------ ------------
Net cash provided (used) by investing activities 1,942,993 (3,000,000)
------------ ------------
Cash flows from financing activities
Decrease in note payable to bank - (50,000,000)
Distributions from undistributed net investment income (753,410) (753,410)
------------- ------------
Net cash used by financing activities (753,410) (50,753,410)
------------- ------------
Net increase (decrease) in cash and cash
equivalents 1,875,703 (53,142,111)
Cash and cash equivalents at beginning
of period 14,009,481 67,045,185
------------ ------------
Cash and cash equivalents at end of period $15,885,184 $13,903,074
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $199,452 $200,548
Income taxes $ - $ -
(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, 1997. 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
-------
1997 1996
---- ----
Investment income $ .35 $ .35
Operating expenses (.06) (.07)
Interest expense (.03) (.06)
Income taxes (.01) -
------ ------
Net investment income .25 .22
Net realized gain on investments 2.19 -
Net increase in unrealized appreciation
of investments 4.38 2.20
Distributions from undistributed
net investment income (.20) (.20)
------ ------
Net increase in net asset value 6.62 2.22
Net asset value:
Beginning of period 58.13 50.18
------ ------
End of period $64.75 $52.40
====== ======
Shares outstanding at end of period
(000s omitted) 3,767 3,767
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Interest income in the three months ended June 30, 1997 increased from
the year-ago period primarily because of interest payments by a new portfolio
company offset somewhat by a decrease in average idle funds invested for the
quarter and the repayment of a debenture in December 1996 by a portfolio
company. During the three months ended June 30, 1997 and 1996, the Company
recorded dividend income from the following sources:
Three Months Ended
June 30
-------
1997 1996
---- ----
Alamo Group Inc. $266,000 $266,000
The RectorSeal Corporation 240,000 300,000
Skylawn Corporation 150,000 150,000
The Whitmore Manufacturing Company 60,000 -
Cherokee Communications, Inc. - 36,000
Westmarc Communications, Inc. 20,318 20,318
Other 37,539 30,166
-------- --------
$773,857 $802,484
======== ========
Interest expense in the three months ended June 30, 1997 decreased from
the year-ago period due to the repayment of a subordinated debenture on
September 1, 1996.
During the three months ended June 30, 1997, the Company reported a
realized gain before income taxes of $12,694,063. It should be noted that a
realized gain before income taxes and a decrease in unrealized appreciation
before income taxes are directly related in that when an appreciated portfolio
security is sold to realize a gain, 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 change in deferred
taxes and excluding the effect of gains or losses realized during the periods)
by portfolio company:
Three Months Ended
June 30
-------
1997 1996
---- ----
Alamo Group Inc. $4,287,000 $(4,285,000)
American Homestar Corporation 2,065,412 2,052,890
Amfibe, Inc. - 600,000
Encore Wire Corporation 6,059,000 155,000
LiL' Things, Inc. - (918,130)
Mail-Well, Inc. 8,294,000 9,000
Palm Harbor Homes, Inc. 14,328,000 9,350,000
PETsMART, Inc. (5,601,759) 3,598,210
Tecnol Medical Products, Inc. 1,148,525 252,676
Tele-Communications, Inc. - TCI Group 528,750 (90,000)
During the quarter ended June 30, 1997, the Company made a new
investment of $423,077.
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
/s/ William R. Thomas
Date: August 12, 1997 By: ----------------------------
---------------- William R. Thomas, President
/s/ Tim Smith
Date: August 12, 1997 By: ----------------------------
----------------- Tim Smith, Vice President and
Secretary-Treasurer
9
6
1
US DOLLARS
3-MOS
MAR-31-1997
APR-01-1997
JUN-30-1997
1
57,850,876
316,636,443
13,049,047
3,325,507
15,885,184
348,896,181
0
5,000,000
99,987,865
104,987,865
0
1,984,235
3,767,051
3,767,051
4,977,804
0
68,364,709
0
168,581,568
243,908,316
773,857
400,032
131,100
347,380
927,009
8,251,141
16,511,456
25,689,606
0
753,410
0
0
0
0
0
24,936,196
4,804,205
60,113,568
0
0
0
102,008
347,380
0
58.13
.25
6.57
(.20)
0
0
64.75
0
0
0
