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, 2003

                                       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 January 31, 2004




                                TABLE OF CONTENTS


                                                                        Page No.
                                                                        --------
PART I.  FINANCIAL INFORMATION

   ITEM 1.  Consolidated Financial Statements

         Consolidated Statements of Financial Condition
              December 31, 2003 (Unaudited) and March 31, 2003.............3

         Consolidated Statements of Operations (Unaudited)
              For the three and nine months ended December 31, 2003
              and December 31, 2002........................................4

         Consolidated Statements of Changes in Net Assets
              Nine months ended December 31, 2003 (Unaudited) and year
              ended March 31, 2003.........................................5

         Consolidated Statements of Cash Flows (Unaudited)
              For the three and nine months ended December 31, 2003
              and December 31, 2002........................................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, 2003 March 31, 2003 ----------------- ----------------- (Unaudited) Investments at market or fair value Companies more than 25% owned (Cost: December 31, 2003 - $23,114,865 March 31, 2003 - $23,114,865) $210,143,981 $202,893,981 Companies 5% to 25% owned (Cost: December 31, 2003 - $36,431,224 March 31, 2003 - $30,120,124) 42,944,006 18,566,004 Companies less than 5% owned (Cost: December 31, 2003 - $38,374,041 March 31, 2003 - $38,226,853) 93,306,585 65,600,452 ----------------- ----------------- Total investments (Cost: December 31, 2003- $97,920,130 March 31, 2003 - $91,461,842) 346,394,572 287,060,437 Cash and cash equivalents 2,077,980 4,650,388 Receivables 88,312 297,664 Other assets 6,713,432 6,481,383 ----------------- ----------------- Totals $355,274,296 $298,489,872 ================= ================= Liabilities and Shareholders' Equity Note payable to bank $ 15,500,000 $ 15,500,000 Notes payable to portfolio company 7,500,000 7,500,000 Accrued interest and other liabilities 1,906,780 1,868,991 Deferred income taxes 86,158,795 67,153,906 ----------------- ----------------- Total liabilities 111,065,575 92,022,897 ----------------- ----------------- Shareholders' equity Common stock, $1 par value: authorized, 5,000,000 shares; issued, 4,294,416 shares at December 31, 2003 and 4,266,416 shares at March 31, 2003 4,294,416 4,266,416 Additional capital 7,904,997 6,935,497 Undistributed net investment income 3,269,278 3,299,659 Undistributed net realized gain on investments 73,030,888 71,190,108 Unrealized appreciation of investments - net of deferred income taxes 162,742,444 127,808,597 Treasury stock - at cost (437,365 shares) (7,033,302) (7,033,302) ----------------- ----------------- Net assets at market or fair value, equivalent to $63.31 per share on the 3,857,051 shares outstanding at December 31, 2003, and $53.92 per share on the 3,829,051 shares outstanding at March 31, 2003 244,208,721 206,466,975 ----------------- ----------------- Totals $355,274,296 $298,489,872 ================= =================
(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 ---------------------------- ---------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Investment income: Interest $ 45,822 $ 47,170 $ 126,491 $ 158,890 Dividends 1,755,515 1,258,565 3,151,480 2,664,049 Management and directors' fees 154,750 122,350 476,114 374,050 ------------ ------------ ------------ ------------ 1,956,087 1,428,085 3,754,085 3,196,989 ------------ ------------ ------------ ------------ Operating expenses: Salaries 240,854 233,971 665,704 644,196 Net pension benefit (68,226) (96,981) (204,686) (290,942) Other operating expenses 169,527 170,479 536,381 441,739 ------------ ------------ ------------ ------------ 342,155 307,469 997,399 794,993 ------------ ------------ ------------ ------------ Income before interest expense and income taxes 1,613,932 1,120,616 2,756,686 2,401,996 Interest expense 131,182 103,002 406,736 357,455 ------------ ------------ ------------ ------------ Income before income taxes 1,482,750 1,017,614 2,349,950 2,044,541 Income tax expense 23,900 33,713 71,700 101,613 ------------ ------------ ------------ ------------ Net investment income $ 1,458,850 $ 983,901 $ 2,278,250 $ 1,942,928 ============ ============ ============ ============ Proceeds from disposition of investments $ 51,245 $ 349,880 $ 3,705,584 $ 1,865,778 Cost of investments sold 193,182 329,600 873,615 2,341,651 ------------ ------------ ------------ ------------ Realized gain (loss) on investments before income taxes (141,937) 20,280 2,831,969 (475,873) Income tax expense (benefit) (49,678) 7,099 991,189 (207,661) ------------ ------------ ------------ ------------ Net realized gain (loss) on investments (92,259) 13,181 1,840,780 (268,212) ------------ ------------ ------------ ------------ Increase (decrease) in unrealized appreciation of investments before income taxes 19,944,577 5,350,451 52,875,847 (66,634,005) Increase (decrease) in deferred income taxes on appreciation of investments 6,980,000 1,872,000 17,942,000 (23,310,000) ------------ ------------ ------------ ------------ Net increase (decrease) in unrealized appreciation of investments 12,964,577 3,478,451 34,933,847 (43,324,005) ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments $12,872,318 $3,491,632 $36,774,627 $(43,592,217) ============ ============ ============ ============ Increase (decrease) in net assets from operations $14,331,168 $4,475,533 $39,052,877 $(41,649,289) ============ ============ ============ ============
(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, 2003 March 31, 2003 ----------------- ----------------- (Unaudited) Operations Net investment income $ 2,278,250 $ 2,299,252 Net realized gain on investments 1,840,780 1,345,728 Net increase (decrease) in unrealized appreciation of investments 34,933,847 (45,371,616) ----------------- ----------------- Increase (decrease) in net assets from operations 39,052,877 (41,726,636) Distributions from: Undistributed net investment income (2,308,631) (2,297,431) Capital share transactions Exercise of employee stock options 997,500 -- ----------------- ----------------- Increase (decrease) in net assets 37,741,746 (44,024,067) Net assets, beginning of period 206,466,975 250,491,042 ----------------- ----------------- Net assets, end of period $244,208,721 $206,466,975 ================= =================
(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 ---------------------------- ---------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Cash flows from operating activities Increase (decrease) in net assets from operations $ 14,331,168 $ 4,475,533 $ 39,052,877 $(41,649,289) Adjustments to reconcile increase (decrease) in net assets from operations to net cash provided by (used in) operating activities: Proceeds from disposition of investments 51,245 349,880 3,705,584 1,865,778 Purchases of securities (2,204,263) (317,659) (9,131,903) (3,515,722) Maturities of securities 900,000 -- 1,800,000 80,000 Depreciation and amortization 4,776 5,358 14,313 14,635 Net pension benefit (68,226) (96,981) (204,686) (290,942) Net realized and unrealized (gain) loss on investments (12,872,318) (3,491,632) (36,774,627) 43,592,217 (Increase) decrease in receivables 232,740 (10,087) 209,352 1,449,539 (Increase) decrease in other assets 19,993 (1,926) 12,761 (4,952) Increase (decrease) in accrued interest and other liabilities 63,145 47,928 108,813 (81,285) Decrease in accrued pension cost (41,821) (41,820) (125,461) (125,460) Deferred income taxes 23,900 34,000 71,700 101,900 ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities 440,339 952,594 (1,261,277) 1,436,419 ------------ ------------ ------------ ------------ Cash flows from financing activities Increase in notes payable to bank -- 1,000,000 -- 6,000,000 Decrease in subordinated debenture -- -- -- (5,000,000) Distributions from undistributed net investment income (1,542,821) (1,531,621) (2,308,631) (2,297,431) Proceeds from exercise of employee stock options -- -- 997,500 -- ------------ ------------ ------------ ------------ Net cash used in financing activities (1,542,821) (531,621) (1,311,131) (1,297,431) ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (1,102,482) 420,973 (2,572,408) 138,988 Cash and cash equivalents at beginning of period 3,180,462 1,695,195 4,650,388 1,977,180 ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ 2,077,980 $ 2,116,168 $ 2,077,980 $ 2,116,168 ============ ============ ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $131,182 $103,800 $406,639 $488,371 Income taxes $ -- $ -- $ -- $ --
(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 the accounts of Capital Southwest Corporation, its wholly-owned small business investment company subsidiary and its wholly-owned management company (the "Company"), have been prepared on the fair value basis 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 2002 balances to conform with the 2003 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 the Company's annual report on Form 10-K for the year ended March 31, 2003. 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 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. Stock-Based Compensation Effective April 1, 2003, the Company adopted the fair value method of recording compensation expense related to all stock options granted after March 31, 2003, in accordance with Statement of Financial Accounting Standards Nos. 123 and 148. No stock options have been granted since March 31, 2003; therefore, under the prospective method of adoption selected by the Company, no stock-based compensation has been recognized in the consolidated financial statements. The following table illustrates the effect on net asset value and net asset value per share as if the fair value method had been applied to all outstanding options granted since January 1, 1995 in each period. Nine Months Ended December 31 2003 2002 ------------- ------------- Net asset value, as reported $244,208,721 $206,544,322 Deduct: Total fair value computed stock-based compensation 134,580 134,580 ------------- ------------- Pro forma net asset value $244,074,141 $206,409,742 ============= ============= Net asset value per share: Basic - as reported $63.31 $53.94 ====== ====== Basic - pro forma $63.28 $53.91 ====== ====== Diluted - pro forma $63.28 $53.77 ====== ====== 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. 7
Notes to Consolidated Financial Statements (continued) Under the 1984 Incentive Stock Option Plan, options to purchase 28,000 shares of common stock at $35.625 per share (the market price at the time of grant) were exercised in July 2003. 3. Summary of Per Share Information Three Months Ended Nine Months Ended December 31 December 31 ---------------------- ---------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Investment income $ .51 $ .37 $ .97 $ .83 Operating expenses (.09) (.08) (.26) (.21) Interest expense (.03) (.03) (.10) (.09) Income taxes (.01) (.01) (.02) (.03) --------- --------- --------- --------- Net investment income .38 .25 .59 .50 Distributions from undistributed net investment income (.40) (.40) (.60) (.60) Net realized gain (loss) on investments (.02) .01 .48 (.07) Net increase (decrease) in unrealized appreciation of investments after deferred taxes 3.35 .91 9.06 (11.31) Exercise of employee stock options (1) -- -- (.14) -- --------- --------- --------- --------- Increase (decrease) in net asset value 3.31 .77 9.39 (11.48) Net asset value: Beginning of period 60.00 53.17 53.92 65.42 --------- --------- --------- --------- End of period $63.31 $53.94 $63.31 $53.94 ========= ========= ========= ========= Increase (decrease) in deferred taxes on unrealized appreciation $ 1.81 $ .49 $ 4.53 $(6.08) Deferred taxes on unrealized appreciation: Beginning of period 20.42 17.48 17.70 24.05 --------- --------- --------- --------- End of period $22.23 $17.97 $22.23 $17.97 ========= ========= ========= ========= Shares outstanding at end of period (000s omitted) 3,857 3,829 3,857 3,829
(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 December 31, 2003 was $244,208,721, equivalent to $63.31 per share after deducting an allowance of $22.23 per share for deferred taxes on net unrealized appreciation of investments. Assuming reinvestment of all dividends, the December 31, 2003 net asset value reflects an increase of 6.2% during the preceding three months and increases of 18.6% during both the nine months of the current fiscal year and the past twelve months. December 31, December 31, 2003 2002 ------------ ------------ Net assets $244,208,721 $206,544,322 Shares outstanding 3,857,051 3,829,051 Net assets per share $63.31 $53.94 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations The composite measure of the Company's 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 the Company's income from interest, dividends and fees and its 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 the Company's 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. Conversely, when a loss is realized on a depreciated portfolio security, an increase in net unrealized appreciation occurs. Net Investment Income Interest income in the nine months ended December 31, 2003 decreased from the corresponding period ended December 31, 2002 primarily because of a decrease in loans to portfolio companies. During the nine months ended December 31, 2003 and 2002, the Company recorded dividend income from the following sources: Nine Months Ended December 31 ----------------------- 2003 2002 ---------- ---------- AT&T Corp. $ 17,655 $ 14,990 Alamo Group Inc. 507,834 507,834 Balco, Inc. 252,960 -- Dennis Tool Company 37,499 37,499 Kimberly-Clark Corporation 78,723 69,462 The RectorSeal Corporation 1,167,729 720,000 Skylawn Corporation 800,000 996,659 TCI Holdings, Inc 60,953 60,953 Texas Shredder, Inc. 5,625 32,167 The Whitmore Manufacturing Company 180,000 180,000 Other 42,502 44,485 ---------- ---------- $3,151,480 $2,664,049 ========== ========== Interest expense in the nine months ended December 31, 2003 increased from the corresponding period ended December 31, 2002 primarily due to an increase in borrowings offset by a decrease in interest rates and the repayment of the subordinated debenture on June 3, 2002. 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: 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Three Months Ended Nine Months Ended December 31 December 31 --------------------------- ---------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Alamo Group Inc. $ 1,410,000 $ -- $ 4,232,000 $ (5,642,000) All Components, Inc. -- -- 2,900,000 -- Balco, Inc. -- -- -- 2,000,000 Concert Industries Ltd. -- (397,000) (442,998) (5,364,000) Encore Wire Corporation 10,898,000 (2,724,000) 19,071,000 (10,898,000) Extreme International Inc. -- -- 4,613,661 -- Liberty Media Corporation 1,353,619 1,273,383 1,522,822 (2,425,287) Mail-Well, Inc. 2,327,213 3,061,018 5,409,197 (1,572,530) Media Recovery, Inc. -- -- 3,000,000 -- Palm Harbor Homes, Inc. -- 3,927,000 -- (39,275,000) PETsMART, Inc. 312,000 (304,328) 3,360,000 1,621,564 Skylawn Corporation -- -- 2,000,000 -- Texas Capital Bancshares, Inc. 1,380,000 -- 3,965,994 --
As reflected in the above table, at December 31, 2003, the value of our investment in Palm Harbor Homes, Inc. remained unchanged from the March 31, 2003 value, reflecting a continuation of the depressed manufactured housing market. During the nine months ended December 31, 2002, the value of our investment in Palm Harbor Homes, Inc. was reduced significantly due to the increasingly unfavorable outlook for the manufactured housing industry. At December 31, 2003, the value of our investment in Encore Wire Corporation was increased by $19,071,000 due to the significant increase in Encore's sales and earnings which stemmed partly from higher copper prices. In the prior period, we experienced a significant decline in the value of our investment in Encore Wire Corporation, which was reduced during the nine months by $10,898,000, as overcapacity in the electric wire and cable industry led to intense price competition and lower profit margins. Portfolio Investments During the quarter ended December 31, 2003, the Company made additional investments of $2,204,263 in existing portfolio companies. The Company has commitments, subject to certain conditions, to invest up to $3,600,025 in five portfolio companies as requested by management. Financial Liquidity and Capital Resources At December 31, 2003, the Company had cash and cash equivalents of approximately $2.1 million. Pursuant to Small Business Administration ("SBA") regulations, cash and cash equivalents of $494,000 held by Capital Southwest Venture Corporation ("CSVC") may not be transferred or advanced to Capital Southwest Corporation 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 $63.8 million. The Company also has an unsecured $25.0 million revolving line of credit from a commercial bank, of which $9.5 million was available at December 31, 2003. 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, the Company has elected to retain all gains realized during the past 35 years. Retention of future gains is viewed as an important source of funds to sustain the Company's investment activity. Approximately $37.0 million of the Company's investment portfolio is represented by unrestricted publicly-traded securities, which have an ascertainable market value and represent a primary source of liquidity. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Funds to be used by the Company 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 of the Company, to the extent of their available cash reserves and borrowing capacities. At December 31, 2003, the Company owed $7,500,000 to Skylawn Corporation. Management believes that the Company's cash and cash equivalents and cash available from other sources described above are adequate to meet its expected requirements. Consistent with the long-term strategy of the Company, 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 The Company is subject to financial market risks, including changes in marketable equity security prices. The Company does not use derivative financial instruments to mitigate any of these risks. The return on the Company's investments is not materially affected by foreign currency fluctuations. The Company's investment in portfolio securities consists of fixed rate debt securities which totaled $4,016,874 at December 31, 2003, equivalent to 1.2% of the value of the Company's 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 the Company's portfolio and no effect on interest income. The Company's 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 the Company's investment portfolio consists of debt and equity securities of private companies. The Company anticipates 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 the Company's 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 the Company's 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 the Company's investment in such security. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our President and Chairman of the Board and Secretary-Treasurer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c) as of a date within 90 days before the filing date of this quarterly report. Based on that evaluation, the President and Chairman of the Board and Secretary-Treasurer have concluded that the Company's current disclosure controls and procedures are effective and timely, providing all material information relating to the Company required to be disclosed in reports filed or submited under the Exchange Act. 11 Item 4. Controls and Procedures (continued) Changes in Internal Controls There have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 31.1- Sarbanes-Oxley Section 302(a) Certification of the President and Chairman of the Board of the Corporation. Exhibit 31.2- Sarbanes-Oxley Section 302(a) Certification of the Secretary-Treasurer of the Corporation. Exhibit 32.1- Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the President and Chairman of the Board of the Corporation. Exhibit 32.2- Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Secretary-Treasurer of the Corporation. (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 13, 2004 By: /s/ William R. Thomas ----------------------- ----------------------------------------- William R. Thomas, President and Chairman of the Board (chief executive officer) Date: February 13, 2004 By: /s/ Susan K. Hodgson ----------------------- ----------------------------------------- Susan K. Hodgson, Secretary-Treasurer (chief financial/accounting officer) 13
                                                                    Exhibit 31.1
                   SARBANES-OXLEY SECTION 302(a) CERTIFICATION



I, William R. Thomas, President and Chairman of the Company,  certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Capital Southwest
         Corporation;

2.       Based on my  knowledge,  this  quarterly  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 quarterly report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included in this quarterly  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 quarterly 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-14 and 15d-14) for the registrant and
         we have:

         a)       designed  such  disclosure  controls and  procedures 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 quarterly report is being prepared;

         b)       evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing  date of this  quarterly  report  (the  "Evaluation
                  Date"); and

         c)       presented in this quarterly  report our conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  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  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and

6.       The registrant's  other certifying officer and I have indicated in this
         quarterly  report  whether  or not there  were  significant  changes in
         internal controls or in other factors that could  significantly  affect
         internal controls subsequent to the date of our most recent evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.





Date:  February 13, 2004                     By:  /s/ William R. Thomas
       ----------------------                   --------------------------------
                                                William R. Thomas, President and
                                                Chairman of the Board



                                                                    Exhibit 31.2



                   SARBANES-OXLEY SECTION 302(a) CERTIFICATION



I, Susan K. Hodgson, Secretary-Treasurer of the Company, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Capital Southwest
         Corporation;

2.       Based on my  knowledge,  this  quarterly  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 quarterly report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included in this quarterly  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 quarterly 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-14 and 15d-14) for the registrant and
         we have:

         a)       designed  such  disclosure  controls and  procedures 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 quarterly report is being prepared;

         b)       evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing  date of this  quarterly  report  (the  "Evaluation
                  Date"); and

         c)       presented in this quarterly  report our conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  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  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and

6.       The registrant's  other certifying officer and I have indicated in this
         quarterly  report  whether  or not there  were  significant  changes in
         internal controls or in other factors that could  significantly  affect
         internal controls subsequent to the date of our most recent evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.



Date:  February 13, 2004                By:  /s/ Susan K. Hodgson
       -----------------------             -------------------------------------
                                           Susan K. Hodgson, Secretary-Treasurer




                                                                    Exhibit 32.1
                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


         In  connection   with  the  Quarterly   Report  of  Capital   Southwest
Corporation (the "Company") on Form 10-Q for the quarter ended December 31, 2003
as filed with the  Securities  and Exchange  Commission  on the date hereof (the
"Report"),  I,  William R.  Thomas,  President  and Chairman of the Board of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:

         1.       The 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 Report fairly  presents,  in
all material  respects,  the  consolidated  financial  condition  and results of
operations of the Company.




Date:  February 13, 2004                         By: /s/ William R. Thomas
       -----------------------                      ----------------------------
                                                    William R. Thomas, President
                                                    and Chairman of the Board




                                                                    Exhibit 32.2
                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


         In  connection   with  the  Quarterly   Report  of  Capital   Southwest
Corporation (the "Company") on Form 10-Q for the quarter ended December 31, 2003
as filed with the  Securities  and Exchange  Commission  on the date hereof (the
"Report"),  I, Susan K. Hodgson,  Secretary-Treasurer  of the Company,  certify,
pursuant  to 18  U.S.C.  ss.  1350,  as  adopted  pursuant  to  ss.  906  of the
Sarbanes-Oxley Act of 2002, that:

         1.       The 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 Report fairly  presents,  in
all material  respects,  the  consolidated  financial  condition  and results of
operations of the Company.



Date:  February 13, 2004                By: /s/ Susan K. Hodgson
       -------------------                 -------------------------------------
                                           Susan K. Hodgson, Secretary-Treasurer