UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
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)
Registrant's telephone number, including area code: (972) 233-8242
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One):
Large accelerated filer Accelerated filer X Non-accelerated filer
------ ------ ------
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the 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.
3,749,939 shares of Common Stock, $1 Par Value as of July 31, 2008
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements Page No.
--------
Consolidated Statements of Financial Condition
June 30, 2008 (Unaudited) and March 31, 2008.............3
Consolidated Statements of Operations (Unaudited)
For the three months ended June 30, 2008
and June 30, 2007........................................4
Consolidated Statements of Changes in Net Assets
For the three months ended June 30, 2008 (Unaudited)
and year ended March 31, 2008............................5
Consolidated Statements of Cash Flows (Unaudited)
For the three ended June 30, 2008 and June 30, 2007......6
Portfolio of Investments
June 30, 2008............................................7
Notes to Consolidated Financial Statements.......................13
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................17
ITEM 3. Quantitative and Qualitative Disclosure About
Market Risk..................................................19
ITEM 4. Controls and Procedures..........................................20
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings................................................20
ITEM 1A. Risk Factors....................................................21
ITEM 6. Exhibits and Reports on Form 8-K.................................21
Signatures ...................................................................22
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Consolidated Financial Statements
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
----------------------------------------------
Assets June 30, 2008 March 31, 2008
------------- --------------
(Unaudited)
Investments at market or fair value
Companies more than 25% owned
(Cost: June 30, 2008 - $28,758,246
March 31, 2008 - $28,758,246) $ 400,144,739 $ 410,026,178
Companies 5% to 25% owned
(Cost: June 30, 2008 - $20,412,243,
March 31, 2008 - $20,412,243) 68,538,006 54,895,381
Companies less than 5% owned
(Cost: June 30, 2008 - $31,966,518,
March 31, 2008 - $31,856,977) 78,740,184 82,648,943
------------- -------------
Total investments
(Cost: June 30, 2008- $81,137,007,
March 31, 2008 - $81,027,466) 547,422,929 547,570,502
Cash and cash equivalents 30,031,548 31,327,758
Receivables 180,460 156,322
Other assets 7,713,448 7,630,486
------------- -------------
Totals $ 585,348,385 $ 586,685,068
============= =============
Liabilities and Shareholders' Equity
Other liabilities $ 1,686,678 $ 1,187,796
Deferred income taxes 1,825,558 1,797,058
------------- -------------
Total liabilities 3,512,236 2,984,854
------------- -------------
Shareholders' equity
Common stock, $1 par value: authorized,
5,000,000 shares; issued, 4,326,516 shares
at June 30, 2008 and March 31, 2008 4,326,516 4,326,516
Additional capital 115,775,142 115,687,153
Undistributed net investment income 6,066,467 7,036,929
Undistributed net realized loss on investments (2,860,118) (2,860,118)
Unrealized appreciation of investments 466,285,923 466,543,036
Treasury stock - at cost 443,850 shares at June
30, 2008 and 437,365 shares at March 31, 2008 (7,757,781) (7,033,302)
------------- -------------
Net assets at market or fair value, equivalent
to $149.85 per share at June 30, 2008 on the
3,882,666 shares outstanding and $150.09
per share at March 31, 2008 on the 3,889,151
shares outstanding 581,836,149 583,700,214
------------- -------------
Totals $ 585,348,385 $ 586,685,068
============= =============
The accompanying Notes are an integral part of these
Consolidated Financial Statements
3
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
-------------------------------------
(Unaudited)
Three Months Ended
June 30
-------
2008 2007
------------ ------------
Investment income:
Interest $ 349,852 $ 564,687
Dividends 657,480 363,427
Management and directors' fees 231,000 225,200
------------ ------------
1,238,332 1,153,314
------------ ------------
Operating expenses:
Salaries 250,450 274,136
Net pension benefit (81,837) (36,237)
Other operating expenses 457,233 264,964
------------ ------------
625,846 502,863
------------ ------------
Income before income taxes 612,486 650,451
Income tax expense 27,287 9,760
------------ ------------
Net investment income $ 585,199 $ 640,691
============ ============
Proceeds from disposition of investments $ -- $ 325,775
------------ ------------
Net realized gain on investments -- 325,775
------------ ------------
Net increase (decrease) in unrealized appreciation
of investments (257,114) 17,148,445
------------ ------------
Net realized and unrealized gain (loss) on investments $ (257,114) $ 17,474,220
============ ============
Increase in net assets from operations $ 328,085 $ 18,114,911
============ ============
The accompanying Notes are an integral part of these
Consolidated Financial Statements
4
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Net Assets
------------------------------------------------
Three Months Ended Year Ended
June 30, 2008 March 31, 2008
------------- --------------
(Unaudited)
Operations
Net investment income $ 585,199 $ 3,715,200
Net realized gain on investments -- 240,024
Net decrease in unrealized appreciation
of investments (257,114) (142,969,698)
------------- -------------
Increase (decrease) in net assets from operations 328,085 (139,014,474)
Distributions from:
Undistributed net investment income (1,555,660) (2,333,291)
Capital share transactions:
Exercise of employee stock options -- 231,390
Change in pension plan funded status -- (1,178,764)
Stock option expense 87,989 263,664
Treasury stock (724,479) --
------------- -------------
Decrease in net assets (1,864,065) (142,031,475)
Net assets, beginning of period 583,700,214 725,731,689
------------- -------------
Net assets, end of period $ 581,836,149 $ 583,700,214
============= =============
The accompanying Notes are an integral part of these
Consolidated Financial Statements
5
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
Three Months Ended
June 30
-------
2008 2007
------------ ------------
Cash flows from operating activities
Increase in net assets from operations $ 328,085 $ 18,114,911
Adjustments to reconcile increase in net
assets from operations to net cash
provided by (used in) operating activities:
Proceeds from disposition of investments -- 325,775
Purchases of securities (109,541) (8,051,747)
Maturities of securities -- 4,500
Depreciation and amortization 9,269 4,409
Net pension benefit (81,837) (36,237)
Realized gain on investments before income taxes -- (325,775)
Net (increase) decrease in unrealized appreciation
of investments 257,114 (17,148,445)
Stock option expense 87,989 43,586
(Increase) decrease in receivables (24,136) 184,920
(Increase) decrease in other assets 2,578 (6,729)
Increase (decrease) in other liabilities 520,375 (119,163)
Decrease in accrued pension liability (34,467) (36,568)
Increase in deferred income taxes 28,500 12,600
------------ ------------
Net cash provided by (used in) operating activities 983,929 (7,033,963)
------------ ------------
Cash flows from financing activities
Distributions from undistributed net investment income (1,555,660) (777,630)
Proceeds from exercise of employee stock options -- 231,390
Purchase of Treasury Stock (724,479) --
------------ ------------
Net cash used in financing activities (2,280,139) (546,240)
------------ ------------
Net decrease in cash and cash equivalents (1,296,210) (7,580,203)
Cash and cash equivalents at beginning of period 31,327,758 38,844,203
------------ ------------
Cash and cash equivalents at end of period $ 30,031,548 $ 31,264,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ -- $ --
The accompanying Notes are an integral part of these
Consolidated Financial Statements
6
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Investments
-------------------------------------
June 30, 2008
Company Investment (a) Cost Value (b)
------------------------------------------------------------------------------------------------------------------------------------
+AT&T INC. ++20,770 shares common stock (acquired 3-9-99) $ 12 $ 699,741
San Antonio, Texas
Global leader in local, long distance,
Internet and transaction-based voice
and data services.
+ALAMO GROUP INC. 2,830,300 shares common stock
Seguin, Texas (acquired 4-1-73 thru 5-25-07) 2,190,937 45,284,800
Tractor-mounted mowing and mobile
excavation equipment for governmental,
industrial and agricultural markets; street-
sweeping equipment for municipalities.
ALL COMPONENTS, INC. 8.25% subordinated note due 2012 (acquired 6-27-07) 6,000,000 6,000,000
Austin, Texas 150,000 shares Series A Convertible Preferred Stock,
Electronics contract manufacturing; convertible into 600,000 shares of common stock
distribution and production of memory at $0.25 per share (acquired 9-16-94) 150,000 6,600,000
and other components for computer Warrants to purchase 350,000 shares of common stock
manufacturers, retailers and value-added at $11.00 per share, expiring 2017 (acquired 6-27-07) -- --
resellers. ---------- ----------
6,150,000 12,600,000
ATLANTIC CAPITAL
BANCSHARES, INC. 300,000 shares common stock (acquired 4-10-07) 3,000,000 3,000,000
Atlanta, Georgia
Holding company of Atlantic Capital Bank
a full service commercial bank.
BALCO, INC. 445,000 shares common stock and 60,920 shares
Wichita, Kansas Class B non-voting common stock
Specialty architectural products used in (acquired 10-25-83 and 5-30-02) 624,920 4,500,000
the construction and remodeling of
commercial and institutional buildings.
BOXX TECHNOLOGIES, INC. 3,125,354 shares Series B Convertible Preferred Stock,
Austin, Texas convertible into 3,125,354 shares of common stock
Workstations for computer graphic at $0.50 per share (acquired 8-20-99 thru 8-8-01) 1,500,000 2
imaging and design.
CMI HOLDING COMPANY, INC. 10% convertible subordinated note, due 2009,
Richardson, Texas (acquired 7-2-07 thru 10-9-07) 2,363,347 1,000,000
Owns Chase Medical, which develops 2,327,658 shares Series A Convertible Preferred Stock,
and sells devices used in cardiac surgery convertible into 2,327,658 shares of common stock
to relieve congestive heart failure; develops at $1.72 per share (acquired 8-21-02 and 6-4-03) 4,000,000 2
and supports cardiac imaging systems. Warrants to purchase 109,012 shares of common stock
at $1.72 per share, expiring 2012 (acquired 4-7-04) -- --
Warrant to purchase 431,982 shares of Series A-1
Convertible Preferred Stock at $1.72 per share,
expiring 2017 (acquired 7-2-07) -- --
---------- ----------
6,363,347 1,000,002
7
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Investments
-------------------------------------
June 30, 2008
(continued)
Company Investment (a) Cost Value (b)
------------------------------------------------------------------------------------------------------------------------------------
+COMCAST CORPORATION ++64,656 shares common stock (acquired 11-18-02) $ 21 $ 1,224,585
Philadelphia, Pennsylvania
Leading provider of cable, entertainment
and communications products and services.
DENNIS TOOL COMPANY 20,725 shares 5% convertible preferred stock,
Houston, Texas convertible into 20,725 shares of common stock
Polycrystalline diamond compacts (PDCs) at $48.25 per share (acquired 8-10-98) 999,981 999,981
used in oil field drill bits and in mining 140,137 shares common stock (acquired 3-7-94
and industrial applications. and 8-10-98) 2,329,963 3,200,000
---------- ----------
3,329,944 4,199,981
+DISCOVERY HOLDING COMPANY ++70,501 shares Series A common stock (acquired 7-21-05) 20,262 1,545,382
Englewood, Colorado
Provider of creative content, media
management and network services
worldwide.
+EMBARQ CORPORATION ++4,500 shares common stock (acquired 5-17-06) 46,532 212,715
Overland Park, Kansas
Local exchange carrier that provides
voice and data services, including
high-speed Internet.
+ENCORE WIRE CORPORATION 4,086,750 shares common stock (acquired 7-16-92
McKinney, Texas thru 10-7-98) 5,800,000 65,388,000
Electric wire and cable for residential
and commercial use.
EXTREME INTERNATIONAL, INC. 39,359.18 shares Series C Convertible Preferred Stock,
Sugar Land, Texas convertible into 157,436.72 shares of common stock
Owns Bill Young Productions, Texas at $25.00 per share (acquired 9-30-03) 2,625,000 7,026,000
Video and Post, and Extreme Communi- 3,750 shares 8% Series A Convertible Preferred Stock,
cations, which produce radio and television convertible into 15,000 shares of common stock at
commercials and corporate communica- $25.00 per share (acquired 9-30-03) 375,000 669,000
tions videos. Warrants to purchase 13,035 shares of common stock at
$25.00 per share, expiring 2008 (acquired 8-11-98
thru 9-30-03) -- 290,000
---------- ----------
3,000,000 7,985,000
+FMC CORPORATION ++12,860 shares common stock (acquired 6-6-86
Philadelphia, Pennsylvania and 9-13-07) 66,727 995,878
Chemicals for agricultural, industrial
and consumer markets.
+FMC TECHNOLOGIES, INC. ++22,114 shares common stock (acquired 1-2-02
Houston, Texas and 8-31-07) 57,051 1,701,230
Equipment and systems for the energy,
food processing and air transportation
industries.
8
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Investments
-------------------------------------
June 30, 2008
(continued)
Company Investment (a) Cost Value (b)
------------------------------------------------------------------------------------------------------------------------------------
+HEELYS, INC. 9,317,310 shares common stock (acquired 5-26-00) $ 102,490 $ 34,939,913
Carrollton, Texas
Heelys stealth skate shoes, equipment
and apparel sold through sporting goods
chains, department stores and footwear
retailers.
+HOLOGIC, INC. ++632,820 shares common stock (acquired 8-27-99) 220,000 13,795,476
Bedford, Massachusetts
Medical instruments including bone
densitometers, mammography devices
and digital radiography systems.
+KIMBERLY-CLARK CORPORATION ++77,180 shares common stock (acquired 12-18-97) 2,358,518 4,613,820
Dallas, Texas
Manufacturer of tissue, personal care
and health care products.
+LIBERTY GLOBAL, INC. ++42,463 shares Series A common stock (acquired 6-15-05) 106,553 1,334,187
Englewood, Colorado ++42,463 shares Series C common stock (acquired 9-6-05) 100,870 1,289,177
Owns interests in broadband, distribution ---------- ----------
and content companies. 207,423 2,623,364
+LIBERTY MEDIA CORPORATION ++35,250 shares of Liberty Capital Series A common
Englewood, Colorado stock (acquired 5-9-06) 7,833 506,895
Holding company owning interests in ++176,252 shares of Liberty Interactive Series A
electronic retailing, media, communica- common stock (acquired 5-9-06) 66,423 2,599,717
tions and entertainment businesses. ++141,000 shares of Liberty Entertainment Series A
common stock (acquired 3-3-08) 43,996 3,410,790
---------- ----------
118,253 6,517,402
LIFEMARK GROUP 1,449,026 shares common stock (acquired 7-16-69) 4,510,400 71,000,000
Hayward, California
Cemeteries, mausoleums and mortuaries
located in northern California.
MEDIA RECOVERY, INC. 800,000 shares Series A Convertible Preferred Stock,
Dallas, Texas convertible into 800,000 shares of common stock at
Computer datacenter and office automation $1.00 per share (acquired 11-4-97) 800,000 6,250,000
supplies and accessories; impact, tilt 4,000,002 shares common stock (acquired 11-4-97) 4,615,000 31,250,000
monitoring and temperature sensing ---------- ----------
devices to detect mishandling shipments; 5,415,000 37,500,000
dunnage for protecting shipments.
PALLETONE, INC. 12.3% senior subordinated notes due 2012
Bartow, Florida (acquired 9-25-06) 1,553,150 2,000,000
Manufacturer of wooden pallets and 150,000 shares common stock (acquired 10-18-01) 150,000 150,000
pressure-treated lumber. Warrant to purchase 15,294 shares of common stock at
$1.00 per share, expiring 2011 (acquired 2-17-06) 45,746 --
---------- ----------
1,748,896 2,150,000
9
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Investments
-------------------------------------
June 30, 2008
(continued)
Company Investment (a) Cost Value (b)
------------------------------------------------------------------------------------------------------------------------------------
+PALM HARBOR HOMES, INC. 7,855,121 shares common stock (acquired 1-3-85
Dallas, Texas thru 7-31-95) $ 10,931,955 $ 35,348,045
Integrated manufacturing, retailing,
financing and insuring of manufactured
housing and modular homes.
+PETSMART, INC. ++300,000 shares common stock (acquired 6-1-95) 1,318,771 5,976,000
Phoenix, Arizona
Retail chain of more than 928 stores
selling pet foods, supplies and services.
THE RECTORSEAL CORPORATION 27,907 shares common stock (acquired 1-5-73
Houston, Texas and 3-31-73) 52,600 129,200,000
Specialty chemicals for plumbing, HVAC,
electrical, construction, industrial,
oil field and automotive applications;
smoke containment systems for building
fires; also owns 20% of The Whitmore
Manuacturing Company.
+SPRINT NEXTEL CORPORATION ++90,000 shares common stock (acquired 6-20-84) 457,113 855,000
Reston, Virginia
Diversified telecommunications company.
TCI HOLDINGS, INC. 21 shares 12% Series C Cumulative Compounding Preferred
Denver, Colarodo stock (acquired 1-30-90) -- 677,250
Cable television systems and microwave
relay systems.
+TEXAS CAPITAL BANCSHARES, INC. ++489,656 shares common stock (acquired 5-1-00) 3,550,006 7,834,496
Dallas, Texas
Regional bank holding company with
banking operations in six Texas cities.
VIA HOLDINGS, INC. 9,118 shares Series B Preferred Stock
Sparks, Nevada (acquired 9-19-05) 4,559,000 2
Designer, manufacturer and distributor 1,118 shares Series C Preferred Stock
of high-quality office seating. (acquired 11-01-07) 281,523 281,523
---------- ----------
4,840,523 281,525
WELLOGIX, INC. 4,788,371 shares Series A-1 Convertible Participating
Houston, Texas Preferred Stock, convertible into 4,788,371 shares
Developer and supporter of software of common stock at $1.0441 per share
used by the oil and gas industry to (acquired 8-19-05 thru 6-15-08) 5,000,000 2
control drilling and maintenance
expenses.
THE WHITMORE MANUFACTURING
COMPANY 80 shares common stock (acquired 8-31-79) 1,600,000 38,000,000
Rockwall, Texas
Specialized mining, railroad and industrial
lubricants; coatings for automobiles and
primary metals; fluid contamination control
devices.
10
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Investments
-------------------------------------
June 30, 2008
(continued)
Company Investment (a) Cost Value (b)
------------------------------------------------------------------------------------------------------------------------------------
+WINDSTREAM CORPORATION ++9,181 shares common stock (acquired 7-17-06) $ 19,656 $ 113,294
Little Rock, Arkansas
Provider of voice, broadband and
entertainment services.
MISCELLANEOUS - BankCap Partners Fund I, L.P. - 6.0% limited partnership interest
(acquired 7-14-06 thru 6-23-08) 2,566,681 2,566,681
- CapitalSouth Partners Fund III, L.P. - 2.8% limited partnership
interest (acquired 1-22-08) 701,256 701,256
- Diamond State Ventures, L.P. - 1.9% limited partnership interest
(acquired 10-12-99 thru 8-26-05) 111,000 111,000
- First Capital Group of Texas III, L.P. - 3.3% limited partnership
interest (acquired 12-26-00 thru 8-12-05) 964,604 964,604
- Humac Company - 1,041,000 shares common stock (acquired 1-31-75
and 12-31-75) -- 172,000
- PharmaFab, Inc. - contingent payment agreement (acquired 2-15-07) 2 2
- STARTech Seed Fund I - 12.1% limited partnership interest
(acquired 4-17-98 thru 1-5-00) 178,066 1
- STARTech Seed Fund II - 3.2% limited partnership interest
(acquired 4-28-00 thru 2-23-05) 950,000 1
- Sterling Group Partners I, L.P. - 1.7% limited partnership
interest (acquired 4-20-01 thru 1-24-05) 1,064,042 1,144,481
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 81,137,007 $547,422,929
=========== ============
------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (a)
Notes to Portfolio of Investments
---------------------------------
(a) Definitions
Unrestricted securities (indicated by ++) are freely marketable
securities having readily available market quotations. All other securities are
restricted securities, which are subject to one or more restriction on resale
and are not freely marketable. At June 30, 2008, restricted securities
represented approximately 91.1% of the value of the consolidated investment
portfolio.
(b) Investment Valuation Policy
Our investments are carried at fair value in accordance with the 1940
Act and SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). In accordance
with the 1940 Act, unrestricted minority-owned publicly traded securities, for
which the market quotations are readily available, are valued at the closing
sale price for the NYSE listed securities and the lower of the closing bid price
or the last sale price for NASDAQ securities on the valuation date; and
restricted publicly traded securities and other privately held securities are
valued as determined in good faith by our Board of Directors.
We adopted SFAS No. 157 on April 1, 2008 (see footnote 1 in "Notes to
Consolidated Financial Statements," page 13). SFAS No. 157 provides a framework
for measuring the fair value of assets and liabilities. SFAS No. 157 also
provides guidance regarding a fair value hierarchy, which prioritizes
information used to measure fair value and the effect of fair value measurements
on earnings and provides for enhanced disclosures determined by the level within
the hierarchy of information used for valuation. SFAS No. 157 applies whenever
other standards require (or permit) assets or liabilities to be measured at fair
value but does not expand the use of fair value in any new circumstances.
11
Notes to Portfolio of Investments
(continued)
SFAS No. 157 defines fair value in terms of the price that would be
received upon the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (the "exit
price") and excludes transaction costs. Under SFAS No. 157, the fair value
measurement also assumes that the transaction to sell an asset occurs in the
principal market for the asset or, in the absence of a principal market, the
most advantageous market for the asset. The principal market is the market in
which the reporting entity would sell or transfer the asset with the greatest
volume and level of activity for the asset. In determining the principal market
for an asset or liability under SFAS No. 157, it is assumed that the reporting
entity has access to the market as of the measurement date.
(c) Valuation Methodologies
Debt Securities are generally valued on the basis of the price the
security would command in order to provide a yield-to-maturity equivalent to the
present yield of comparable debt instruments of similar quality.
Partnership Interests and Common Equity including unrestricted
marketable securities, which are valued at the closing sale price for the NYSE
listed securities and the lower of the closing bid price or the last sale price
for NASDAQ securities on the valuation date; and restricted marketable
securities for which there is a public market, are valued at the closing sale
price for the NYSE listed securities and the lower of the closing bid price or
the last sale price for NASDAQ securities on the valuation date adjusted in good
faith by our Board of Directors if they deem a discount or premium would be
likely or obtainable upon a sale or transfer of our interest, for those without
a principal market, the Board of Directors consider the financial condition and
operating results of the issuer; the long-term potential of the business of the
issuer; the market for and recent sales prices of the issuer's securities; the
values of similar securities issued by companies in similar businesses; the
proportion of the issuer's securities owned by the Company; protective put
analysis based on the Black-Scholes option pricing model, the nature and
duration of resale restrictions and the nature of any rights enabling the
Company to require the issuer to register restricted securities under applicable
securities laws. In determining the fair value of restricted securities, the
Board of Directors considers the inherent value of such securities without
regard to the restrictive feature and adjusts for any diminution in value
resulting from restrictions on resale.
Preferred Equity are valued the basis of the price (bond value) the
security would carry in the absence of the conversion feature plus the value
allocable to the conversion feature (conversion value).
Equity Warrants are valued on the basis of accepted formulas derived
from empirical studies which define the market value of a warrant in relation to
the market price of its common stock. These formulas measure the "option value"
of a warrant as well as its "exercise value" (the amount, if any, by which the
value of the stock exceeds the exercise price of the warrant). In apply such
formulas, the market price of the stock is usually discounted to reflect the
fact that the stock is restricted and the calculated value is of the warrant
itself may be discounted (if deemed appropriate) to reflect its restrictive
nature. Generally, the option value is excluded if the formula indicates (i) the
warrant expires within six months, (ii) the market price of the stock
(discounted) is less than one-half of the exercise price of the warrant. Or
(iii) the market price of the stock (discounted) is more than two times the
amount of the exercise price of the warrant.
12
CAPITAL SOUTHWEST CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
------------------------------------------
(Unaudited)
1. Basis of Presentation
Principles of Consolidation. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for investment companies. Under rules and
regulations applicable to investment companies, we are precluded from
consolidating any entity other than another investment company. An exception to
this general principle occurs if the investment company has an investment in an
operating company that provides services to the investment company. Our
consolidated financial statements include our management company.
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 Form
10-K for the year ended March 31, 2008. 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.
Fair Value Measurements. The Company adopted SFAS No. 157, Fair Value
Measurements ("SFAS 157"), on April 1, 2008. SFAS 157 (1) creates a single
definition of fair value, (2) establishes a framework for measuring fair value,
and (3) expands disclosure requirements about items measured at fair value. The
Statement applies to both items recognized and reported at fair value in the
financial statements and items disclosed at fair value in the notes to the
financial statements. The Statement does not change existing accounting rules
governing what can or what must be recognized and reported at fair value in the
Company's financial statements, or disclosed at fair value in the Company's
notes to the financial statements. Additionally, SFAS 157 does not eliminate
practicability exceptions that exist in accounting pronouncements amended by
this Statement when measuring fair value. As a result, the Company will not be
required to recognize any new assets or liabilities at fair value.
Prior to SFAS 157, certain measurements of fair value were based on the
price that would be paid to acquire an asset, or received to assume a liability
(an entry price). SFAS 157 clarifies the definition of fair value as the price
that would be received to sell an asset, or paid to transfer a liability, in an
orderly transaction between market participants at the measurement date (that
is, an exit price). The exit price is based on the amount that the holder of the
asset or liability would receive or need to pay in an actual transaction (or in
a hypothetical transaction if an actual transaction does not exist) at the
measurement date. In some circumstances, the entry and exit price may be the
same; however, they are conceptually different.
Fair value is generally determined based on quoted market prices in the
active markets for identical assets or liabilities. If quoted market prices are
not available, the Company uses valuation techniques that place greater reliance
on observable inputs and less reliance on unobservable inputs. In measuring fair
value, the Company may make adjustments for risks and uncertainties, if a market
participant would include such an adjustment in its pricing.
13
Notes to Consolidated Financial Statements
(continued)
2. Investments
We fair value our investments in accordance with GAAP as determined in
good faith by our Board of Directors. When available we base the fair value of
our investments on directly observable market prices or on market data derived
for comparable assets. For all other investments, inputs used to measure fair
value reflect management's best estimate of assumptions that would be used by
market participants in pricing the investments in a hypothetical transaction.
The levels of fair value inputs used to measure our investments are
characterized in accordance with the fair value hierarchy established by SFAS
No. 157, Fair Value Measurements ("SFAS 157"). Where inputs for an asset or
liability fall in more than one level in the fair value hierarchy, the
investment is classified in its entirety based on the lowest level input that is
significant to that investment's fair value measurement. We use judgment and
consider factors specific to the investment in determining the significance of
an input to a fair value measurement. The three levels of the fair value
hierarchy and investments that fall into each of the levels are described below:
o Level 1: Level 1 inputs are unadjusted quoted prices in active markets
that are accessible at the measurement date for identical,
unrestricted assets or liabilities. We use Level 1 inputs for publicly
traded unrestricted securities for which we do not have a controlling
interest. Such investments are valued at the closing price for listed
securities and at the lower of the closing bid price or the closing
sale price for over-the-counter (NASDAQ) securities on the valuation
date.
o Level 2: Level 2 inputs are inputs other than the quoted prices
included within Level 1 that are observable for the asset or
liability, either directly or indirectly. We did not value any of our
investments using level 2 inputs as of June 30, 2008.
o Level 3: Level 3 inputs are unobservable and cannot be corroborated by
observable market data. We use Level 3 inputs for measuring the fair
value of substantially all of our investments. See "Notes to Portfolio
of Investments" (c) on page 12 for the investment policy used to
determine the fair value of these investments.
The following fair value hierarchy table sets forth our investment
portfolio by level as of June 30, 2008 (in millions):
Level 1 Level 2 Level 3 Total
------- ------- ------- -----
Debt $- $- $9.0 $9.0
Partnership Interests - - 9.2 9.2
Preferred Equity - - 21.8 21.8
Common Equity 48.7 - 458.4 507.1
Equity Warrants - - .3 .3
----------- ----------- ------------ -------------
Total Investments $48.7 $- $498.7 $547.4
=========== =========== ============ =============
The following table sets forth a summary of changes in the fair value
of investment assets and liabilities measured using Level 3 inputs during the
three month period ended June 30, 2008 (in millions):
14
Notes to Consolidated Financial Statements
(continued)
Purchases,
Sales,
Beginning Unrealized Issuance & Ending
Balance gain (loss) Settlement Balances
------- ----------- ---------- --------
Debt $9.0 $- $- $9.0
Partnership Interests 9.1 - 0.1 9.2
Preferred Equity 21.8 - - 21.8
Common Equity 507.3 (0.2) - 507.1
Equity Warrants 0.4 (0.1) - 0.3
-------------- ------------- -------------- -------------
Total Investments $547.6 ($0.3) $0.1 $547.4
============== ============= ============== =============
3. Stock-Based Compensation
Effective April 1, 2006, we adopted SFAS 123R using the modified
prospective transition method. We recognize compensation cost over the
straight-line method for all share-based payments granted on or after that date
and for all awards granted to employees prior to April 1, 2006 that remain
unvested on that date. The fair value of stock options are determined on the
date of grant using the Black-Scholes pricing model and are expensed over the
vesting period of the related stock options. Accordingly, for the quarter ended
June 30, 2008, we recognized compensation expense of $87,989.
As of June 30, 2008, the total remaining unrecognized compensation cost
related to non-vested stock options was $1,707,846, which will be amortized over
the weighted-average service period of approximately 5.7 years.
4. Employee Stock Option Plan
On July 19, 1999, shareholders approved the 1999 Stock Option ("Plan"),
which provides for the granting of stock options to employees and officers of
the Company and authorizes the issuance of common stock upon exercise of such
options for up to 140,000 shares. All options are granted at or above market
price, generally expire ten years from the date of grant and are generally
exercisable on or after the first anniversary of the date of grant in five to
ten annual installments.
At June 30, 2008, there were 37,500 shares available for grant under
the Plan. The per share weighted-average fair value of the stock options granted
on May 15, 2006 was $31.28 per option using the Black-Scholes pricing model with
the following assumptions: expected dividend yield of .64%, risk-free interest
rate of 5.08%, expected volatility of 21.1%, and expected life of 7 years. The
per share weighted-average fair value of the stock options granted on July 17,
2006 was $33.05 per option using the Black-Scholes pricing model with the
following assumptions: expected dividend yield of .61%, risk-free interest rate
of 5.04%, expected volatility of 21.2%, and expected life of 7 years. The per
share weighted-average fair value of the stock options granted on July 16, 2007
was $41.78 per option using the Black-Scholes pricing model with the following
assuptions: expected dividend yield of .39%, risk-free interest rate of 4.95%,
expected volatility of 19.9%, and expected life of 5 years.
The following summarizes activity in the stock option plan since June
30, 2008:
Number Weighted-Average
of shares Exercise Price
--------- --------------
Balance at March 31, 2008 70,400 $109.99
Granted - -
Exercised - -
Canceled - -
------- -------
Balance at June 30, 2008 70,400 $109.99
====== =======
15
Notes to Consolidated Financial Statements
(continued)
At June 30, 2008, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $65.00 to $152.98 and 5.66
years, respectively. No options were exercised during the three months ended
June 30, 2008.
At June 30, 2008, the number of options exercisable was 13,445 and the
weighted-average exercise price of those options was $83.17.
5. Summary of Per Share Information
Three Months Ended
June 30
-------
2008 2007
--------- ---------
Investment income $ .32 $ .30
Operating expenses (.16) (.13)
Interest expense -- --
Income taxes (.01) --
--------- ---------
Net investment income .15 .17
Distributions from undistributed
net investment income (.40) (.20)
Net realized gain on investments -- .08
Net increase (decrease) in unrealized
appreciation of investments (.07) 4.41
Treasury stock repurchase * .06 --
Exercise of employee stock options ** -- (.09)
Stock option expense .02 .01
--------- ---------
Increase (decrease) in net asset value (.24) 4.38
Net asset value:
Beginning of period 150.09 186.75
--------- ---------
End of period $ 149.85 $ 191.13
========= =========
Shares outstanding at end of period
(000s omitted) 3,882 3,886
* Net increase is due to purchases of Common Stock at prices less than beginning
period net asset value.
** Net decrease is due to the exercise of employee stock options at prices less
than beginning of period net asset value.
6. Share Repurchase Plan
On June 12, 2008, the Company announced that its Board of Directors
authorized a share repurchase plan, which allows for the repurchase of up to 10
percent (or 388,915 shares) of its Common Stock at prices not above the lower of
the net asset value per share of its Common Stock, or prices prevailing in the
over-the-counter market at the time of such purchases. The Company anticipates
that share purchases will be made from time to time, depending upon market
conditions. Shares may be purchased on the open market, including block
repurchases, or through privately negotiated transactions. The Company does not
intend to purchase any shares from its directors, officers or other affiliates.
The repurchase program does not obligate the Company to acquire any specific
number of shares and may be discontinued at any time. The Company intends to
fund the purchases with available cash and or the sale of marketable securities
readily available for sale. The repurchase program is expected to be in effect
through December 10, 2008, or until the approved number of shares has been
repurchased. During the quarter ended June 30, 2008, the Company purchased a
total of 6,485 shares of its Common Stock on the open market for $724,479 at an
average price of $111.72 per share.
16
Notes to Consolidated Financial Statements
(continued)
7. Subsequent Events
In July 2008, Gary L. Martin was named Chairman of the Board, Tracy L.
Morris was named Treasurer and Chief Financial Officer, and William R. Thomas
III was named Assistant Vice President.
In July 2008, the Company purchased 132,727 shares of its Common Stock
on the open market for $15,141,572 at an average price of $114.08, which
resulted in cummulative year-to-date purchases of 139,212 shares or 35.8% of the
388,915 shares approved by its Board of Directors on June 12, 2008.
8. Recent Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting
Standard No. 157, "Fair Value Measurements" (SFAS 157). The standard defines
fair value, outlines a framework for measuring fair value, and details the
required disclosures about fair value measurements. The standard is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The Company has adopted
this statement on a prospective basis beginning in the quarter ended June 30,
2008. Adoption of this statement did not have a material effect on the Company's
consolidated financial statements for the period ended June 30, 2008. However
the impact on its consolidated financial statements for the periods subsequent
to the period of adoption cannot be determined at this time as it will be
influenced by the estimates of fair value for those periods, the number and
amount of investments the Company originates, acquires or exits, and the effect
of any additional guidance or any changes in the interpretation of this
statement.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" (SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value and establishes presentation and disclosure requirements designed
to facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS 159 is effective
for us beginning April 1, 2008. We did not elect the fair value option
provisions upon adoption of SFAS 159 on April 1, 2008.
In February 2008, the FASB issued FASB Staff Position ("FSP") SFAS
157-2, "Effective Date of FASB Statement No. 157" (FSP 157-2), which defers the
effective date of SFAS 157 to fiscal years beginning after November 15, 2008,
and interim periods within those fiscal years, for all nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually).
We are currently evaluating the impact of our adoption of FSP 157-2 effective
April 1, 2009 on our consolidated financial statements.
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
Net asset value at June 30, 2008 was $581,836,149, equivalent to
$149.85 per share. Assuming reinvestment of all dividends and tax credits on
retained long-term capital gains, the June 30, 2008 net asset value reflects a
decrease of 21.2% during the past twelve months.
June 30, June 30,
2008 2007
---- ----
Net assets $581,836,149 $743,343,946
Shares outstanding 3,882,666 3,889,151
Net assets per share $149.85 $191.13
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Results of Operations
The composite measure of our financial performance in the Consolidated
Statements of Operations is captioned "Increase (decrease) in net assets from
operations" and consists of three elements. The first is "Net investment
income", which is the difference between our income from interest, dividends and
fees and our combined operating and interest expenses, net of applicable income
taxes. The second element is "Net realized gain (loss) on investments", which is
the difference between the proceeds received from disposition of portfolio
securities and their stated cost. The third element is the "Net increase
(decrease) in unrealized appreciation of investments", which is the net change
in the market or fair value of our investment portfolio, compared with stated
cost. It should be noted that the "Net realized gain (loss)on investments" and
"Net increase (decrease) in unrealized appreciation of investments" are directly
related in that when an appreciated portfolio security is sold to realize a
gain, a corresponding decrease in net unrealized appreciation occurs by
transferring the gain associated with the transaction from "unrealized" to
"realized". Conversely, when a loss is realized on a depreciated portfolio
security, an increase in net unrealized appreciation occurs.
Net Investment Income
Interest income of $349,852 for the three months ended June 30, 2008
decreased from $564,687 in the year-ago period due to an decrease in interest
rates. During the three months ended June 30, 2008 and 2007, we recorded
dividend income from the following sources:
Three Months Ended
June
----
2008 2007
---- ----
Alamo Group Inc. $169,818 $169,278
Dennis Tool Company 12,500 25,000
Encore Wire Corporation 81,735 81,735
Kimberly-Clark Corporation 44,764 40,905
The RectorSeal Corporation 240,000 --
TCI Holdings, Inc. 20,318 20,318
The Whitmore Manufacturing Company 60,000 --
Other 28,345 26,191
-------- --------
$657,480 $363,427
======== ========
Net Increase (Decrease) in Unrealized Appreciation of Investments
Set forth in the following table are the significant increases and
decreases in unrealized appreciation by portfolio company:
Three Months Ended
June
----
2008 2007
---- ----
Encore Wire Corporation $14,303,625 $ 6,130,000
Heelys, Inc. -- (9,318,000)
Palm Harbor Homes, Inc. 3,927,561 --
The RectorSeal Corporation (15,000,000) 10,850,000
During the three months ended June 30, 2008, the value of our
investment in The RectorSeal Corporation was decreased by $15,000,000 due to
decreased sales resulting from slow downs in the residential and commercial
construction segments of its business.
Offsetting the loss at RectorSeal during the three months ended June
30, 2008, was a $14,303,625 increase in the value of Encore Wire Corporation and
a $3,927,561 increase in the value of Palm Harbor Homes, Inc. due to increases
in their respective stock prices.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Portfolio Investments
During the quarter ended June 30, 2008, we made additional investments
of $109,541 in an existing portfolio company.
We have agreed, subject to certain conditions, to invest up to
$19,318,963 in five portfolio companies.
Financial Liquidity and Capital Resources
At June 30, 2008, we had cash and cash equivalents of approximately
$30.0 million. Pursuant to Small Business Administration (SBA) regulations, cash
and cash equivalents of $4.6 million 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 $17.0 million. 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 39 years. Retention of
future gains is viewed as an important source of funds to sustain our investment
activity. Approximately $48.7 million of our investment portfolio is represented
by unrestricted publicly-traded securities, and represent a source of liquidity.
Funds to be used by us for operating or investment purposes may be
transferred in the form of dividends, management fees or loans from 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 Disclosure About Market Risk
We are subject to financial market risks, including changes in
marketable equity security prices. We do not use derivative financial
instruments to mitigate any of these risks.
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 its exposure. All of these
factors may have an adverse effect on the value of our investments on our net
asset value.
Our investment in portfolio securities includes fixed-rate debt
securities which totaled $9,000,000 at June 30, 2008, equivalent to 1.6% 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.
19
Item 3. Quantitative and Qualitative Disclosure About Market Risk
(continued)
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
fair 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 Chief Financial Officer,
of 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
Chief Financial Officer 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 Chief Financial Officer, as appropriate, to allow timely decisions
regarding such required disclosure.
During the fiscal quarter ended June 30, 2008, 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 1. Legal Proceedings
We are currently the subject of certain legal actions. In our judgment,
none of the lawsuits currently pending against us, either individually or in the
aggregate, is likely to have a material adverse effect on our business, results
of operations, or financial position.
We, Capital Southwest Corporation and Capital Southwest Venture
Corporation, have been named in a lawsuit filed on August 27, 2007 in the United
States District Court of the Northern District of Texas, Dallas Division,
against Heelys, Inc and its Chief Executive Officer, Chief Financial Officer and
the directors who signed its registration statement with the Securities and
Exchange Commission in connection with its December 7, 2006 initial public
offering ("IPO"), and its underwriters for the IPO. The complaint alleges
violations of Sections 11 and 15 of the Securities Act of 1933 and the
plaintiffs are seeking compensatory damages in an unspecified amount, as well as
reasonable costs and expenses incurred in the action, including counsel fees and
expert fees.
20
Item 1. Legal Proceedings
(continued)
Similar suits were also filed in 2007 and 2008 in the United States
District Court of the Northern District of Texas making substantially similar
allegations under Sections 11, 12 and 15 of the Securities Act of 1933, and
seeking substantially similar damages. These lawsuits have been transferred to a
single judge, and we expect that all the cases will be consolidated into a
single action, with a consolidated complaint filed shortly thereafter.
We believe that the plaintiffs' claims are without merit, we deny the
allegations in the complaints, and we intend to vigorously defend the lawsuits.
Item 1A. Risk Factors
There have been no material changes to our risk factors as disclosed in
Item 1A, "Risk Factors", in our Annual Report on Form 10-K for the fiscal year
ended March 31, 2008.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1- Certification of President 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 Chief Financial Officer
required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange
Act, filed herewith.
Exhibit 32.1- Certification of President 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 Chief Financial Officer
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
Current report on Form 8-K filed with the SEC on June 12, 2008
relating to the share repurchase plan that was recently
approved by the Company's Board of Directors. Under this Plan,
the Company may repurchase up to 10 percent (or 388,915
shares) of its Common Stock at prices not above the lower of
the net asset value per share of its Common Stock, or prices
prevailing in the over-the-counter market at the time of such
purchases.
21
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: August 7, 2008 By: /s/ Gary L. Martin
--------------------- ----------------------------------------
Gary L. Martin, President and
Chairman of the Board
Date: August 7, 2008 By: /s/ Tracy L. Morris
--------------------- ----------------------------------------
Tracy L. Morris, Chief Financial Officer
22