Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------------------------------------------------
For the Fiscal Year Ended March 31, 2001 Commission File Number: 814-61
CAPITAL SOUTHWEST CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1072796
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
12900 Preston Road, Suite 700, Dallas, Texas 75230
(Address of principal executive offices including zip code)
(972) 233-8242
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 1, 2001 was $115,062,421, based on the last sale price of
such stock as quoted by Nasdaq on such date (officers, directors and 5%
shareholders are considered affiliates for purposes of this calculation).
The number of shares of common stock outstanding as of May 15, 2001 was
3,815,051.
Documents Incorporated by Reference Part of Form 10-K
----------------------------------- -----------------
(1) Annual Report to Shareholders for Parts I and II; and
the Year Ended March 31, 2001 Part IV, Item 14(a)(1) and (2)
(2) Proxy Statement for Annual Meeting of Part III
Shareholders to be held July 16, 2001
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business....................................................1
Item 2. Properties..................................................1
Item 3. Legal Proceedings...........................................1
Item 4. Submission of Matters to a Vote of Security Holders.........1
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................2
Item 6. Selected Financial Data.....................................2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................2
Item 7A. Quantitative and Qualitative Disclosure About
Market Risk...............................................2
Item 8. Financial Statements and Supplementary Data.................2
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.......................3
PART III
Item 10. Directors and Executive Officers of the Registrant..........3
Item 11. Executive Compensation......................................4
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................4
Item 13. Certain Relationships and Related Transactions..............4
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ......................................4
Signatures ...................................................................5
Exhibit Index ................................................................6
PART I
Item 1. Business
Capital Southwest Corporation (the "Company") was organized as a Texas
corporation on April 19, 1961. Until September 1969, the Company operated as a
licensee under the Small Business Investment Act of 1958. At that time, the
Company transferred to its wholly-owned subsidiary, Capital Southwest Venture
Corporation ("CSVC"), certain of its assets and its license as a small business
investment company ("SBIC"). CSVC is a closed-end, non-diversified investment
company of the management type registered under the Investment Company Act of
1940 (the "1940 Act"). Prior to March 30, 1988, the Company was registered as a
closed-end, non-diversified investment company under the 1940 Act. On that date,
the Company elected to become a business development company subject to the
provisions of Sections 55 through 65 of the 1940 Act, as amended by the Small
Business Incentive Act of 1980.
The Company is a venture capital investment company whose objective is
to achieve capital appreciation through long-term investments in businesses
believed to have favorable growth potential. The Company's investments are
focused on early-stage financings, expansion financings, management buyouts and
recapitalizations in a broad range of industry segments. The portfolio is a
composite of companies in which the Company has major interests as well as a
number of developing companies and marketable securities of established
publicly-owned companies. The Company makes available significant managerial
assistance to the companies in which it invests and believes that providing
material assistance to such investee companies is critical to its business
development activities.
The twelve largest investments of the Company had a combined cost of
$50,379,546 and a value of $274,620,768, representing 86.9% of the value of the
Company's consolidated investment portfolio at March 31, 2001. For a narrative
description of the twelve largest investments, see "Twelve Largest Investments -
March 31, 2001" on pages 7 through 9 of the Company's Annual Report to
Shareholders for the Year Ended March 31, 2001 (the "2001 Annual Report") which
is herein incorporated by reference. Certain of the information presented on the
twelve largest investments has been obtained from the respective companies and,
in certain cases, from public filings of such companies. The financial
information presented on each of the respective companies is from such
companies' financial statements, which in some instances is unaudited.
The Company competes for attractive investment opportunities with
venture capital partnerships and corporations, venture capital affiliates of
industrial and financial companies, SBICs and wealthy individuals.
The number of persons employed by the Company at March 31, 2001 was
seven.
Item 2. Properties
The Company maintains its offices at 12900 Preston Road, Suite 700,
Dallas, Texas, 75230, where it rents approximately 3,700 square feet of office
space pursuant to a lease agreement expiring in February 2003. The Company
believes that its offices are adequate to meet its current and expected future
needs.
Item 3. Legal Proceedings
The Company has no material pending legal proceedings to which it is a
party or to which any of its property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended March 31, 2001.
1
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information set forth under the captions "Shareholder Information -
Shareholders, Market Prices and Dividends" on page 32 of the 2001 Annual Report
is herein incorporated by reference.
Item 6. Selected Financial Data
"Selected Consolidated Financial Data" on page 31 of the 2001 Annual
Report is herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pages 28 through 30 of the Company's 2001 Annual Report are herein
incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosure 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 $12,432,971 at March 31, 2001, equivalent to 3.94%
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.
On the other hand, significant changes in the market yields of publicly-traded
debt securities may have a material effect on the values of debt securities in
our portfolio. 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 would 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 and
warrants to purchase 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 issuer, 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
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 the Company's investment in such security.
Item 8. Financial Statements and Supplementary Data
Pages 10 through 27 of the Company's 2001 Annual Report are herein
incorporated by reference. See also Item 14 of this Form 10-K - "Exhibits,
Financial Statement Schedules, and Reports on Form 8-K".
2
Selected Quarterly Financial Data (Unaudited)
---------------------------------
The following presents a summary of the unaudited quarterly
consolidated financial information for the years ended March 31, 2001 and 2000.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
2001
- ----
Net investment income $ 25 $ 987 $ 434 $ 277 $ 1,723
Net realized gain (loss) on investments 1,442 -- (768) (3,905) (3,231)
Net increase (decrease) in unrealized
appreciation of investments (1,463) (2,678) (9,821) 7,492 (6,470)
Net increase (decrease) in net assets from
operations 4 (1,691) (10,155) 3,864 (7,978)
Net increase (decrease) in net assets from
operations per share -- (0.44) (2.66) 1.01 (2.09)
2000
- ----
Net investment income $ 547 $ 723 $ 121 $ 272 $ 1,663
Net realized gain on investments 5,090 910 16 4 6,020
Net increase (decrease) in unrealized
appreciation of investments 239 (25,423) 3,976 (3,542) (24,750)
Net increase (decrease) in net assets
from operations 5,876 (23,790) 4,113 (3,266) (17,067)
Net increase (decrease)in net assets from
operations per share 1.54 (6.23) 1.08 (0.86) (4.47)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the caption "Election of Directors" in
the Company's definitive Proxy Statement for Annual Meeting of Shareholders to
be held July 16, 2001, filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, on or about June 8, 2001 (the "2001 Proxy Statement") is
herein incorporated by reference.
Executive Officers of the Registrant
The officers of the Company, together with the offices in the Company
presently held by them, their business experience during the last five years and
their ages are as follows:
Patrick F. Hamner, age 45, has served as Vice President of the Company
since 1986 and was an investment associate with the Company from 1982
to 1986.
Gary L. Martin, age 54, has been a director of the Company since July 1988
and has served as Vice President of the Company since 1984. He
previously served as Vice President of the Company from 1978 to 1980.
Since 1980, Mr. Martin has served as President of The Whitmore
Manufacturing Company, a wholly-owned subsidiary of the Company.
Tim Smith, age 40, has served as Vice President and Secretary of the
Company since 1993, Treasurer of the Company since January 1990 and
was an investment associate with the Company from July 1989 to
January 1990.
William R. Thomas, age 72, has served as Chairman of the Board of Directors
of the Company since 1982 and President of the Company since 1980. In
addition, he has been a director of the Company since 1972 and was
previously Senior Vice President of the Company from 1969 to 1980.
3
No family relationship exists between any of the above-listed officers,
and there are no arrangements or understandings between any of them and any
other person pursuant to which they were selected as an officer. All officers
are elected to hold office for one year, subject to earlier termination by the
Company's board of directors.
Item 11. Executive Compensation
The information set forth under the caption "Compensation of Directors
and Executive Officers" in the 2001 Proxy Statement is herein incorporated by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the captions "Stock Ownership of
Certain Beneficial Owners" and "Election of Directors" in the 2001 Proxy
Statement is herein incorporated by reference.
Item 13. Certain Relationships and Related Transactions
There were no relationships or transactions within the meaning of this
item during the fiscal year ended March 31, 2001 or proposed for the fiscal year
ending March 31, 2002.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following financial statements included in pages 10 through 27 of
the Company's 2001 Annual Report are herein incorporated by reference:
(A) Portfolio of Investments - March 31, 2001
Consolidated Statements of Financial Condition - March 31, 2001
and 2000
Consolidated Statements of Operations - Years Ended March 31, 2001,
2000 and 1999
Consolidated Statements of Changes in Net Assets - Years Ended
March 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - Years Ended March 31, 2001,
2000 and 1999
(B) Notes to Consolidated Financial Statements
(C) Notes to Portfolio of Investments
(D) Selected Per Share Data and Ratios
(E) Independent Auditors' Report
(a)(2) All schedules are omitted because they are not applicable or not
required, or the information is otherwise supplied.
(a)(3) See the Exhibit Index on page 6.
(b) The Company filed no reports on Form 8-K during the three months ended
March 31, 2001.
4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ William R. Thomas
-----------------------------
(William R. Thomas, President
and Chairman of the Board)
Date: June 15, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ William R. Thomas
- --------------------------- President and Chairman June 15, 2001
(William R. Thomas) of the Board and Director
/s/ Gary L. Martin
- --------------------------- Director June 15, 2001
(Gary L. Martin)
/s/ Graeme W. Henderson
- --------------------------- Director June 15, 2001
(Graeme W. Henderson)
/s/ James M. Nolan
- --------------------------- Director June 15, 2001
(James M. Nolan)
/s/ John H. Wilson
- --------------------------- Director June 15, 2001
(John H. Wilson)
/s/ Tim Smith
- --------------------------- Vice President and June 15, 2001
(Tim Smith) Secretary-Treasurer
(Financial and Accounting Officer)
5
EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated
herein by reference to a prior filing, in accordance with Rule 12b-32 under the
Securities Exchange Act of 1934. (Asterisk denotes exhibits filed with this
report.)
Exhibit No. Description
----------- -----------
3.1(a) Articles of Incorporation and Articles of Amendment
to Articles of Incorporation, dated June 25, 1969
(filed as Exhibit 1(a) and 1(b) to Amendment No. 3 to
Form N-2 for the fiscal year ended March 31, 1979).
3.1(b) Articles of Amendment to Articles of Incorporation,
dated July 20, 1987 (filed as an exhibit to Form
N-SAR for the six month period ended September 30,
1987).
3.2 By-Laws of the Company, as amended (filed as Exhibit
2 to Amendment No. 11 to Form N-2 for the fiscal year
ended March 31, 1987).
4.1 Specimen of Common Stock certificate (filed as
Exhibit 4 to Amendment No. 3 to Form N-2 for the
fiscal year ended March 31, 1979).
4.2 Subordinated debenture of CSVC guaranteed by the
Small Business Administration (filed as Exhibit 4.3
to Form 10-K for the fiscal year ended March 31,
1993).
10.1 The RectorSeal Corporation and Jet-Lube, Inc.
Employee Stock Ownership Plan as revised and restated
effective April 1, 1989 (filed as Exhibit 10.1 to
Form 10-K for the fiscal year ended March 31, 1996).
10.2 Amendment No. I to The RectorSeal Corporation and
Jet-Lube, Inc. Employee Stock Ownership Plan as
revised and restated effective April 1, 1989.
10.3 Retirement Plan for Employees of Capital Southwest
Corporation and Its Affiliates as amended and
restated effective April 1, 1989 (filed as Exhibit
10.3 to Form 10-K for the fiscal year ended March 31,
1995).
10.4 Amendments One and Two to Retirement Plan for
Employees of Capital Southwest Corporation and Its
Affiliates as amended and restated effective April 1,
1989.
10.5 Capital Southwest Corporation and Its Affiliates
Restoration of Retirement Income Plan for certain
highly-compensated superseded plan participants
effective April 1, 1993 (filed as Exhibit 10.4 to
Form 10-K for the fiscal year ended March 31, 1995).
10.6 Amendment One to Capital Southwest Corporation and
Its Affiliates Restoration of Retirement Income Plan
for certain highly-compensated superceded plan
participants effective April 1, 1993.
6
10.7 Capital Southwest Corporation Retirement Income
Restoration Plan as amended and restated effective
April 1, 1989 (filed as Exhibit 10.5 to Form 10-K for
the fiscal year ended March 31, 1995).
10.8 Form of Indemnification Agreement which has been
established with all directors and executive officers
of the Company (filed as Exhibit 10.9 to Form 8-K
dated February 10, 1994).
10.9 Capital Southwest Corporation 1984 Incentive Stock
Option Plan as amended and restated as of April 20,
1987 (filed as Exhibit 10.10 to Form 10-K for the
fiscal year ended March 31, 1990).
10.10 Capital Southwest Corporation 1999 Stock Option Plan.
Exhibit No. Description
----------- -----------
13. * Annual Report to Shareholders for the fiscal year
ended March 31, 2001.
21. List of subsidiaries of the Company.
23. * Independent Auditors' Consent.
7