Capital Southwest Corporation
12900 Preston Road, Suite 700
Dallas, Texas 75230
(214) 233-8242 Telephone Fax (214) 233-7362
August 9, 1996
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, DC 20549
Gentlemen:
Pursuant to regulations of the Securities and Exchange Commission, submitted for
filing on behalf of Capital Southwest Corporation is the Company's Form 10-Q for
the quarter ended June 30, 1996.
This filing is being effected by direct transmission to the Commission's EDGAR
System.
Sincerely,
Susan Patterson
Controller
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, 1996 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)
(214) 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, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
Assets June 30, 1996 March 31, 1996
------------- --------------
(Unaudited)
Investments at market or fair value
Companies more than 25% owned
(Cost: June 30, 1996 - $21,480,361,
March 31, 1996 - $21,480,361) $195,575,920 $191,043,920
Companies 5% to 25% owned
(Cost: June 30, 1996 - $21,750,404,
March 31, 1996 - $18,750,404) 21,879,542 19,633,672
Companies less than 5% owned
(Cost: June 30, 1996 - $18,313,335,
March 31, 1996 - $18,313,335) 55,228,659 46,252,869
------------- -------------
Total investments
(Cost: June 30, 1996 - $61,544,100,
March 31, 1996 - $58,544,100) 272,684,121 256,930,461
Cash and cash equivalents 13,903,074 67,045,185
Receivables 365,187 285,002
Other assets 2,819,636 2,711,802
------------- -------------
Totals $289,772,018 $326,972,450
============ ============
Liabilities and Shareholders' Equity
Note payable to bank $ - $ 50,000,000
Accrued interest and other liabilities 1,634,459 1,669,839
Income taxes payable 6,050,730 6,050,730
Deferred income taxes 73,685,128 69,204,128
Subordinated debentures 11,000,000 11,000,000
-------------- --------------
Total liabilities 92,370,317 137,924,697
-------------- --------------
Shareholders' equity
Common stock, $1 par value: authorized,
5,000,000 shares; issued, 4,204,416 shares
at June 30, 1996 and March 31, 1996 4,204,416 4,204,416
Additional capital 4,813,121 4,813,121
Undistributed net investment income 4,553,662 4,490,374
Undistributed net realized gain on investments 53,307,782 53,307,782
Unrealized appreciation of investments -
net of deferred income taxes 137,556,022 129,265,362
Treasury stock - at cost (437,365 shares) (7,033,302) (7,033,302)
-------------- --------------
Net assets at market or fair value, equivalent
to $52.40 per share at June 30, 1996, and
$50.18 per share at March 31, 1996 on the
3,767,051 shares outstanding 197,401,701 189,047,753
------------- -------------
Totals $289,772,018 $326,972,450
============ ============
(See Notes to Consolidated Financial Statements)
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30
1996 1995
---- ----
Investment income:
Interest $ 369,947 $ 527,053
Dividends 802,484 645,654
Management and directors' fees 157,100 140,550
----------- -----------
1,329,531 1,313,257
Operating expenses:
Interest 235,613 236,709
Salaries 190,271 179,599
Net pension expense (benefit) (52,175) (60,358)
Other operating expenses 121,124 120,660
----------- -----------
494,833 476,610
----------- -----------
Income before income taxes 834,698 836,647
Income tax expense 18,000 21,000
----------- -----------
Net investment income $ 816,698 $ 815,647
=========== ==========
Increase in unrealized appreciation
of investments before income taxes 12,753,660 4,019,868
Increase in deferred income taxes on
appreciation of investments 4,463,000 1,407,000
------------ ----------
Net increase in unrealized
appreciation of investments 8,290,660 2,612,868
------------ ----------
Net realized and unrealized gain
on investments $ 8,290,660 $2,612,868
=========== ==========
Increase in net assets from operations $ 9,107,358 $3,428,515
=========== ==========
(See Notes to Consolidated Financial Statements)
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARY
Consolidated Statements of Changes in Net Assets
Three Months Ended Year Ended
June 30, 1996 March 31, 1996
------------- --------------
(Unaudited)
Operations
Net investment income $ 816,698 $ 2,854,917
Net realized gain on investments - 11,174,025
Net increase in unrealized appreciation
of investments before distributions 8,290,660 38,745,668
----------- ------------
Increase in net assets from operations
before distributions 9,107,358 52,774,610
Distributions from:
Undistributed net investment income (753,410) (2,253,831)
Undistributed net realized gain on investments - (153,376)
Unrealized appreciation of investments - (9,264,304)
Capital share transactions
Exercise of employee stock options - 574,750
------------- ------------
Increase in net assets 8,353,948 41,677,849
Net assets, beginning of period 189,047,753 147,369,904
------------ ------------
Net assets, end of period $197,401,701 $189,047,753
============ ============
(See Notes to Consolidated Financial Statements)
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
June 30
-------
1996 1995
---- ----
Cash flows from operating activities
Increase in net assets from operations $9,107,358 $3,428,515
Adjustments to reconcile increase in net
assets from operations before distributions
to net cash provided by operating activities:
Depreciation and amortization 10,471 7,608
Net pension benefit (52,175) (60,358)
Net realized and unrealized gain
on investments (8,290,660) (2,612,868)
Increase in receivables (80,185) (12,249)
Increase in other assets (33,315) (32,245)
Decrease in accrued interest and
other liabilities (68,195) (48,777)
Deferred income taxes 18,000 21,000
------------- ------------
Net cash provided by operating activities 611,299 690,626
------------- ------------
Cash flows from investing activities
Purchases of securities (3,000,000) -
Maturities of securities - 110,669
------------ ------------
Net cash provided (used) by investing activities (3,000,000) 110,669
------------ ------------
Cash flows from financing activities
Decrease in note payable to bank (50,000,000) -
Distributions from undistributed net
investment income (753,410) (747,010)
------------ ------------
Net cash used by financing activities (50,753,410) (747,010)
------------ ------------
Net increase (decrease) in cash and cash
equivalents (53,142,111) 54,285
Cash and cash equivalents at beginning
of period 67,045,185 8,372,976
------------ -----------
Cash and cash equivalents at end of period $13,903,074 $8,427,261
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 200,548 $ 199,452
Income taxes $ - $ -
(See Notes to Consolidated Financial Statements)
CAPITAL SOUTHWEST VENTURE CORPORATION
(wholly-owned subsidiary of Capital Southwest Corporation)
Statement of Financial Condition
June 30, 1996
(Unaudited)
Assets
Investments at market or fair value
Companies more than 25% owned (Cost - $4,295,737) $44,416,862
Companies 5% to 25% owned (Cost - $3,814,816) 5,359,771
Companies less than 5% owned (Cost - $9,260,982) 27,708,376
------------
Total investments (Cost - $17,371,535) 77,485,009
Cash and cash equivalents 10,172,434
Interest and dividends receivable 118,713
Other assets 60,488
------------
Total $87,836,644
============
Liabilities and Shareholder's Equity
Accrued interest and other liabilities $ 243,123
Deferred income taxes 20,674,000
Subordinated debentures 11,000,000
------------
Total liabilities 31,917,123
------------
Shareholder's equity
Common stock, $1 par value: authorized 5,000,000 shares;
issued and outstanding, 1,000,000 shares 1,000,000
Additional capital 15,606,949
Undistributed net investment income 1,039,565
Accumulated net realized loss on investments (816,467)
Unrealized appreciation of investments - net of deferred
income taxes 39,089,474
------------
Shareholder's equity 55,919,521
------------
Total $87,836,644
============
(See Notes to Consolidated Financial Statements)
CAPITAL SOUTHWEST VENTURE CORPORATION
(wholly-owned subsidiary of Capital Southwest Corporation)
Statement of Operations
Three Months Ended June 30, 1996
(Unaudited)
Investment income:
Interest $266,681
Dividends 313,791
----------
580,472
----------
Operating expenses:
Interest 235,613
Management fee 32,103
Miscellaneous 4,853
----------
272,569
----------
Net investment income $307,903
==========
Net decrease in unrealized appreciation of investments
(net of decrease in deferred income taxes of $442,000) $(819,862)
----------
Net realized and unrealized loss on investments $(819,862)
==========
Decrease in shareholder's equity from operations $(511,959)
==========
Statements of Changes in Shareholder's Equity
---------------------------------------------
Three Months Ended Year Ended
June 30, 1996 March 31, 1996
------------- --------------
(Unaudited)
Net investment income $307,903 $ 1,508,704
Net realized loss on investments - (552,240)
Net increase (decrease) in unrealized appreciation
of investments before distribution (819,862) 12,662,525
------------ ------------
Increase (decrease) in shareholder's equity from
operations before distribution (511,959) 13,618,989
Capital contribution by Capital Southwest Corporation - 2,500,000
Distributions to Capital Southwest Corporation from:
Undistributed net investment income - (1,089,251)
Accumulated net realized loss on investments - (137,765)
Unrealized appreciation of investments - (9,279,873)
------------ -------------
Increase (decrease) in shareholder's equity (511,959) 5,612,100
Shareholder's equity, beginning of period 56,431,480 50,819,380
------------ -------------
Shareholder's equity, end of period $55,919,521 $56,431,480
============ =============
(See Notes to Consolidated Financial Statements)
CAPITAL SOUTHWEST VENTURE CORPORATION
(wholly-owned subsidiary of Capital Southwest Corporation)
Statement of Cash Flows
Three Months Ended June 30, 1996
(Unaudited)
Cash flows from operating activities
Decrease in shareholder's equity from operations $(511,959)
Adjustments to reconcile decrease in shareholder's equity from
operations to net cash provided by operating activities:
Net realized and unrealized loss on investments 819,862
Increase in interest and dividends receivable (15,431)
Decrease in other assets 1,262
Decrease in accrued interest and other liabilities (97,095)
-----------
Net cash provided by operating activities 196,639
-----------
Cash flows from investing activities -
-----------
Cash flows from financing activities -
-----------
Net increase in cash and cash equivalents 196,639
Cash and cash equivalents at beginning of period 9,975,795
-----------
Cash and cash equivalents at end of period $10,172,434
===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 200,548
Income taxes $ -
(See Notes to Consolidated Financial Statements)
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, 1996. 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
1996 1995
---- ----
Investment income $ .35 $ .35
Operating expenses (.07) (.07)
Interest expense (.06) (.06)
Income taxes - (.01)
------- -------
Net investment income .22 .21
Distributions from undistributed net investment income (.20) (.20)
Net increase in unrealized appreciation of investments 2.20 .70
------- -------
Increase in net asset value 2.22 .71
Net asset value:
Beginning of period 50.18 39.46
------- -------
End of period $52.40 $40.17
======= =======
Shares outstanding at end of period (000s omitted) 3,767 3,735
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Interest income in the three months ended June 30, 1996 decreased from the
year-ago period primarily because of the repayment of debentures by portfolio
companies offset somewhat by an increase in invested idle funds. During the
three months ended June 30, 1996 and 1995, the Company recorded dividend income
from the following sources:
Three Months Ended
June 30
-------
1996 1995
---- ----
The RectorSeal Corporation $300,000 $300,000
Alamo Group Inc. 266,000 266,000
Skylawn Corporation 150,000 -
Cherokee Communications, Inc. 36,000 36,000
Westmarc Communications, Inc. 20,318 20,318
Other 30,166 23,336
--------- ----------
$802,484 $645,654
========= ==========
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
-------
1996 1995
---- ----
Alamo Group Inc. $(4,825,000) $2,311,000
American Homestar Corporation 2,052,890 288,088
Amfibe, Inc. 600,000 -
Data Race, Inc. - 812,000
Dennis Tool Company - (800,000)
Encore Wire Corporation 155,000 (3,111,600)
LiL' Things, Inc. (918,130) -
PTS Holdings, Inc. 3,000,000 -
Palm Harbor Homes, Inc. 9,350,000 -
PETsMART, Inc. 3,598,210 2,454,044
Tecnol Medical Products, Inc. 252,676 551,292
During the quarter ended June 30, 1996, the Company made a new investment
of $3,000,000.
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.
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
August 9, 1996 /s/William R. Thomas
Date:_____________________ By:_________________________________________________
William R. Thomas, President
August 9, 1996 /s/Tim Smith
Date:_____________________ By:_________________________________________________
Tim Smith, Vice President and Secretary-Treasurer
EXHIBIT INDEX
-------------
Exhibit Number Description
-------------- -----------
Exhibit 27 Financial Data Schedule