UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 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
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 if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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]
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]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 30, 2007 was $314,927,409, based on the last sale
price of such stock as quoted by Nasdaq on such date.
The number of shares of common stock outstanding as of May 1, 2008 was
3,889,151.
Documents Incorporated by Reference Part of Form 10-K
----------------------------------- -----------------
Proxy Statement for Annual Meeting of Shareholders Part III
to be held July 21, 2008
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business.....................................................1
Item 1A. Risk Factors.................................................1
Item 1B. Unresolved Staff Comments....................................4
Item 2. Properties...................................................4
Item 3. Legal Proceedings............................................4
Item 4. Submission of Matters to a Vote of Security Holders..........5
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.........5
Item 6. Selected Financial Data......................................5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...5
Item 8. Financial Statements and Supplementary Data..................6
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure..................................7
Item 9A. Controls and Procedures......................................7
Item 9B. Other Information............................................8
PART III
Item 10. Directors, Executive Officers and Corporate Governance.......8
Item 11. Executive Compensation.......................................9
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................9
Item 13. Certain Relationships and Related Transactions, and
Director Independence.....................................9
Item 14. Principal Accountant Fees and Services.......................9
PART IV
Item 15. Exhibits and Financial Statement Schedules...................9
Signatures ...................................................................11
PART I
Item 1. Business
We were organized as a Texas corporation on April 19, 1961. Until
September 1969, we operated as a licensee under the Small Business Investment
Act of 1958. At that time, we transferred to our wholly-owned subsidiary,
Capital Southwest Venture Corporation ("CSVC"), certain assets and our 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, we
were registered as a closed-end, non-diversified investment company under the
1940 Act. On that date, we elected to become a business development company
subject to the provisions of the 1940 Act, as amended by the Small Business
Incentive Act of 1980. Because we wholly own CSVC, the portfolios of both
entities are referred to collectively as "our," "we" and "us."
We are a venture capital investment company whose objective is to
achieve capital appreciation through long-term investments in businesses
believed to have favorable growth potential. Our investment interests are
focused on expansion financings, management buyouts, recapitalizations, industry
consolidations and early-stage financings in a broad range of industry segments.
Our portfolio is a composite of companies in which we have major interests as
well as a number of developing companies and marketable securities of
established publicly-owned companies. We make available significant managerial
assistance to the companies in which we invest and believe that providing
material assistance to such investee companies is critical to their business
development activities.
The 12 largest investments we own had a combined cost of $43,523,388
and a value of $499,866,033, representing 91.3% of the value of our consolidated
investment portfolio at March 31, 2008. For a narrative description of the 12
largest investments, see "Twelve Largest Investments - March 31, 2008" in
Exhibit 13.1 of this Form 10-K which is herein incorporated by reference.
Certain of the information presented on the 12 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' audited financial statements.
We compete for attractive investment opportunities with private equity
funds, venture capital partnerships and corporations, venture capital affiliates
of industrial and financial companies, SBICs and wealthy individuals.
The number of persons employed by us at March 31, 2008 was seven.
Our internet website address is www.capitalsouthwest.com. You can
review the filings we have made with the U.S. Securities and Exchange
Commission, free of charge by linking directly from our website to NASDAQ, a
database that links to EDGAR, the Electronic Data Gathering, Analysis, and
Retrieval System of the SEC. You should be able to access our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934. The charters adopted by the
committees of our board of directors are also available on our website.
Item 1A. Risk Factors
You should carefully consider the risks described below and all other
information contained in this annual report on Form 10-K, including our
consolidated financial statements and the related notes thereto. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us, or not presently deemed material by
us, may also impair our operations and performance. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected. If that happens, the trading price of
our common stock could decline, and you may lose all or part of your investment.
1
There is uncertainty regarding the value of our investments in restricted
securities.
Our net asset value is based on the values assigned to the various
investments in our portfolio, determined in good faith by our board of
directors. Because of the inherent uncertainty of the valuation of portfolio
securities which do not have readily ascertainable market values, our fair value
determinations may differ materially from the values a third party would be
willing to pay for such securities or the values which would be applicable to
unrestricted securities having a public market.
We are subject to additional risks in light of the restatement of our prior
period consolidated financial statements.
We have restated our consolidated financial statements for the year
ended March 31, 2007 and all years represented in our Form 10-K for the year
ended March 31, 2007 due to material weakness we identified in our internal
controls over accounting for taxes. The restatement of our consolidated
financial statements could expose us to legal actions. The defense of any such
actions could cause the diversion of management's attention and resources, and
we could be required to pay damages to settle such actions if any such actions
are not resolved in our favor. Even if resolved in our favor, such actions could
cause us to incur significant legal and other expenses. Moreover, we may be the
subject of negative publicity focusing on the restatement and negative reactions
from shareholders and others with whom we do business.
The lack of liquidity of our restricted securities may adversely affect our
business.
Our portfolio contains many securities which are subject to
restrictions on sale because they were acquired from issuers in "private
placement" transactions or because we are deemed to be an affiliate of the
issuer. Unless an exemption from the registration requirements of the Securities
Act of 1933 is available, we will not be able to sell these securities publicly
without the expense and time required to register the securities under
applicable federal and state securities laws. In addition, contractual or
practical limitations may restrict our ability to liquidate our securities in
portfolio companies, because we may own a relatively large percentage of the
issuer's outstanding securities. Sales may also be limited by unfavorable market
conditions. The illiquidity of our investments may preclude or delay the
disposition of such securities, which may make it difficult for us to obtain
cash equal to the value at which we record our investments.
There is limited publicly available information regarding the companies in which
we invest.
Many of the securities in our portfolio are issued by privately held
companies. There is generally little or no publicly available information about
such companies, and we must rely on the diligence of our management to obtain
the information necessary for our decision to invest. There can be no assurance
that such diligence efforts will uncover all material information necessary to
make fully informed investment decisions.
Certain of our portfolio companies are highly leveraged.
Many of our portfolio companies have incurred substantial indebtedness
in relation to their overall capital base. Such indebtedness often has a term
that will require the balance of the loan to be refinanced when it matures. If
portfolio companies cannot generate adequate cash flow to meet the principal and
interest payments on their indebtedness, the value of our investments could be
reduced or eliminated through foreclosure on the portfolio company's assets or
by the portfolio company's reorganization or bankruptcy.
Fluctuations may occur in our quarterly results.
Our quarterly operating results may fluctuate materially due to a
number of factors including, among others, variations in and the timing of the
recognition of realized and unrealized gains or losses, the degree to which we
encounter competition in our portfolio companies' markets, the ability to find
and close suitable investments, and general economic conditions. As a result of
these factors, results for any period should not be relied upon as being
indicative of performance in future periods.
2
We may not continue to qualify for pass-through tax treatment.
We may not qualify for conduit tax treatment as a Regulated Investment
Company ("RIC") if we are unable to comply with the requirements of Subchapter M
of the Internal Revenue Code. If we fail to satisfy such requirements and cease
to qualify for conduit tax treatment, we will be subject to federal taxes on our
net investment income. To the extent we had unrealized gains, we would have to
establish reserves for taxes, which would reduce our net asset value
accordingly. In addition, if we, as a RIC, were to decide to make a deemed
distribution of net realized capital gains and retain the net realized capital
gain, we would have to establish appropriate reserves for taxes, at the end of
the tax year, that we would have to pay on behalf of our shareholders. The loss
of this pass-through tax treatment could have a material adverse effect on the
total return, if any, obtainable from an investment in our common stock.
Historically, we have distributed net investment income semi-annually.
Our current intention is to continue these distributions of ordinary income to
our shareholders. Also, historically, we have retained net realized capital
gains, paid the resulting tax at the corporate level and retained the after-tax
gains to supplement our equity capital and support continuing additions to our
portfolio. Our shareholders then report such capital gains on their tax returns,
receive credit for the tax we paid and are deemed to have reinvested the amount
of the retained after-tax gain. We cannot assure you that we will achieve
investment results or maintain a RIC tax status that will allow any specified
level of cash distributions or our shareholders' current tax treatment of
realized and retained capital gains.
Investment in shares of our common stock should not be considered a complete
investment program.
Our stock is intended for investors seeking long-term capital
appreciation. Our investments in portfolio securities generally require many
years to reach maturity, and such investments generally are illiquid. An
investment in our shares should not be considered a complete investment program.
Each prospective purchaser should take into account his or her investment
objectives as well as his or her other investments when considering the purchase
of our shares.
Our common stock often trades at a discount from net asset value.
Our common stock is listed on The Nasdaq Global Market ("NASDAQ").
Shareholders desiring liquidity may sell their shares on NASDAQ at current
market value, which has often been below net asset value. Shares of closed-end
investment companies frequently trade at discounts from net asset value, which
is a risk separate and distinct from the risk that a fund's performance will
cause its net asset value to decrease.
Our financial condition and results of operations will depend on our ability to
effectively manage any future growth.
Sustaining growth depends on our ability to identify, evaluate,
finance, and invest in companies that meet our investment criteria.
Accomplishing such results on a cost-effective basis is a function of our
marketing capabilities and skillful management of the investment process.
Failure to achieve future growth could have a material adverse effect on our
business, financial condition, and results of operations.
We are dependent upon management for our future success.
Selection, structuring and closing our investments depends upon the
diligence and skill of our management, which is responsible for identifying,
evaluating, negotiating, monitoring and disposing of our investments. Our
management's capabilities may significantly impact our results of operations. If
we lose any member of our management team and he/she cannot be promptly replaced
with an equally capable team member, our results of operations could be
significantly impacted.
We operate in a highly competitive market for investment opportunities.
We compete for attractive investment opportunities with private equity
funds, venture capital partnerships and corporations, venture capital affiliates
of industrial and financial companies, SBICs and wealthy individuals. Some of
these competitors are substantially larger and have greater financial resources,
3
and some are subject to different and frequently less stringent regulation. As a
result of this competition, we may not be able to take advantage of attractive
investment opportunities from time to time and there can be no assurance that we
will be able to identify and make investments that satisfy our objectives.
Changes in laws or regulations governing our operations or our failure to comply
with those laws or regulations may adversely affect our business.
We and our portfolio companies are subject to regulation by laws at the
local, state and federal level. These laws and regulations, as well as their
interpretation, may be changed from time to time. Accordingly, any changes in
these laws and regulations or failure to comply with them could have a material
adverse effect on our business. Certain of these laws and regulations pertain
specifically to business development companies such as ours.
Failure to deploy new capital may reduce our return on equity.
If we fail to invest our capital effectively, our return on equity may
be decreased, which could reduce the price of the shares of our common stock.
The market price of our common stock may fluctuate significantly.
The market price and marketability of shares of our common stock may
from time to time be significantly affected by numerous factors, including our
investment results, market conditions, and other influences and events over
which we have no control and that may not be directly related to us.
Item 1B. Unresolved Staff Comments
We have no unresolved staff comments to report pursuant to Item 1B.
Item 2. Properties
We maintain our offices at 12900 Preston Road, Suite 700, Dallas,
Texas, 75230, where we rent approximately 4,232 square feet of office space
pursuant to a lease agreement expiring in February 2013. We believe that our
offices are adequate to meet our current and expected future needs.
Item 3. 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 CSVC, 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 their Chief
Executive Officer, Chief Financial Officer, the directors who signed their
registration statement with the Securities and Exchange Commission in connection
with their December 7, 2006 initial public offering ("IPO"), and their
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.
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.
4
Additionally, we, Capital Southwest Corporation, have been named in a
lawsuit filed on April 10, 2008 in the 193rd Judicial District Court, Dallas
County, Texas. ZS Crossover II, L.P., ZS Special I, L.P. and Warlen L.P. (the
"petitioners") filed the action to compel us to produce for inspection and
copying certain records of the Company, primarily its shareholder list. The
petitioners are not seeking an award in damages from the Company, but are
seeking an unspecified amount of legal fees and expenses.
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, 2008.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Information set forth under the captions "Shareholder Information -
Shareholders, Market Prices and Dividends" in Exhibit 13.1 of this Form 10-K is
herein incorporated by reference.
Performance Graph
The following graph compares our cumulative total shareholder return
during the last five years (based on the market price of our common stock
and assuming reinvestment of all dividends and tax credits on retained
long-term capital gains) with the Total Return Index for NASDAQ (U.S.
companies) and with the Total Return Index for Nasdaq Financial Stocks,
both of which indices have been prepared by the Center for Research in
Security Prices at the University of Chicago.
Comparison of Five Year Cumulative Total Returns
[GRAPH OMITTED]
Nasdaq Total Nasdaq Financial Capital Southwest
Return (U.S.) Stocks Corporation
2003 100.000 100.000 100.000
2004 147.600 143.777 167.559
2005 148.586 149.552 172.435
2006 175.219 175.695 210.125
2007 181.752 183.907 344.239
2008 169.511 155.262 275.615
Item 6. Selected Financial Data
See Exhibit 13.1 "Selected Consolidated Financial Data" of this Form
10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
See Exhibit 13.1 "Selected Consolidated Financial Data" of this Form
10-K.
Item 7A. Quantitative and Qualitative Disclosures 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.
5
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 basic 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 and on our
net asset value.
Our investment in portfolio securities includes fixed-rate debt
securities which totaled $9,000,000 at March 31, 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.
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
value of our investment in such security.
Item 8. Financial Statements and Supplementary Data
See Item 15 of this Form 10-K - "Exhibits and Financial Statement
Schedules."
Selected Quarterly Financial Data (Unaudited)
---------------------------------
The following presents a summary of the unaudited quarterly
consolidated financial information for the years ended March 31, 2008 and 2007.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(In thousands, except per share amounts)
2008
----
Net investment income $ 641 $ 1,211 $ 1,806 $ 57 $ 3,715
Net realized gain (loss) on investment 326 403 (489) -- 240
Net increase (decrease) in unrealized
appreciation of investments 17,148 (138,129) (64,798) 42,809 (142,970)
Net increase (decrease) in net assets
from operations 18,115 (136,515) (63,481) 42,866 (139,015)
Net increase (decrease) in net assets
from operations per share 4.66 (35.10) (16.32) 11.02 (35.74)
6
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(In thousands, except per share amounts)
2007
----
Net investment income $ 492 $ 1,170 $ 1,617 $ 954 $ 4,233
Net realized gain (loss) on investment 397 9,219 19,531 (14,181) 14,966
Net increase (decrease) in unrealized
appreciation of investments (5,218) (2,931) 132,210 23,621 147,682
Net increase (decrease) in net assets
from operations (4,329) 7,458 153,358 10,394 166,881
Net increase (decrease) in net assets
from operations per share (1.12) 1.92 39.46 2.66 42.94
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
(i) Disclosure Controls and Procedures.
As of March 31, 2008, an evaluation was performed under the supervision
and with the participation of our management, including the President and
Controller, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934 (the "1934 Act")). Disclosure controls and
procedures means controls and other procedures of an issuer that are designed to
ensure that information required to be disclosed by the issuer in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to the issuer's
management, as appropriate, to allow timely decisions regarding required
disclosures. As of March 31, 2008, based on this evaluation of our disclosure
controls and procedures, our President and Controller concluded that our
disclosure controls and procedures were effective as of March 31, 2008.
During the fiscal quarter ended March 31, 2008, the Company implemented
the following control in order to remediate the material weakness we identified
in our internal controls over accounting for taxes, which resulted in the
restatement of our consolidated financial statements for the year ended March
31, 2007 and years represented in our Form 10-K for the year ended March 31,
2007.
o On a quarterly basis the Company will consult with a RIC compliance
expert, on our current RIC status and the potential impact of proposed
transactions and scenarios on the Company's future RIC compliance
status. The Company has engaged KPMG, LLP in this capacity.
There were no other changes to our internal controls over financial
reporting that have materially affected, or are reasonably likely to materially
affect our internal controls over financial reporting.
(ii) Internal Control Over Financial Reporting.
(a) Management's annual report on internal control over financial reporting.
The Company's management report on internal control over financial
reporting is set forth in our 2008 Annual Report and is incorporated herein by
reference.
7
(b) Attestation report of the registered public accounting firm
Our independent registered public accountants, Grant Thornton LLP,
audited the consolidated financial statements and have issued an attestation
report on the effectiveness of our internal control over financial reporting as
of March 31, 2008, which is set forth in our 2008 Annual Report and is
incorporated herein by reference.
Item 9B. Other Information
There have been no significant changes in our internal controls over
financial reporting or in other factors that could significantly affect the
internal controls over financial reporting during the year ended March 31, 2008.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The section of our 2008 Proxy Statement captioned "Nominees for
Director" under "Proposal 1. Election of Directors" identifies members of our
board of directors and nominees, and is incorporated in this Item 10 by
reference.
The names and ages of our executive officers as of June 2, 2008,
together with certain biographical information, are as follows:
William M. Ashbaugh, age 53, has served as Senior Vice President since 2005
and Vice President since 2001. He previously served as Managing
Director in the corporate finance departments of Hoak Breedlove
Wesneski & Co. from 1998 to 2001, Principal Financial Securities from
1997 to 1998 and Southwest Securities from 1995 to 1997.
Gary L. Martin, age 61, was named President and Chief Executive Officer in
July 2007, has been a director since July 1988 and has served as Vice
President since 1984. He previously served as Vice President from
1978 to 1980. Since 1980, Mr. Martin has served as President of The
Whitmore Manufacturing Company, a wholly-owned portfolio company.
Jeffrey G. Peterson, age 34, was named Secretary and Compliance Officer in
August 2007, has served as Vice President since 2005 and was an
Investment Associate since 2001. He previously held positions with
the investment banking division of Scott & Stringfellow, Inc. and
the corporate lending division of Bank One.
The sections of our 2008 Proxy Statement captioned "Meetings and
Committees of the Board of Directors under "Proposal 1. Election of Directors"
and "Report of the Audit Committee" identifies members of our audit committee of
our board of directors and our audit committee financial expert, and are
incorporated in this Item 10 by reference.
The section of our 2008 Proxy Statement captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" is incorporated in this Item 10 by
reference.
Code of Ethics
We have adopted a code of ethics that applies to all our directors,
officers and employees. We have made the Code of Conduct and Ethics available on
our website at www.capitalsouthwest.com. Shareholders may request a free copy of
the Code of Conduct and Ethics from: Jeffrey G. Peterson, Corporate Secretary.
8
Item 11. Executive Compensation
The information in the section of our 2008 Proxy Statement captioned
"Compensation Discussion and Analysis" is incorporated in this Item 11 by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information in the sections of our 2008 Proxy Statement captioned
"Stock Ownership of Certain Beneficial Owners" are incorporated in this Item 12
by reference.
The table below sets forth certain information as of March 31, 2008
regarding the shares of our common stock available for grant or granted under
stock option plans that (i) were approved by our shareholders, and (ii) were not
approved by our shareholders.
Equity Compensation Plan Information
Number of Securities
To Be Issued Upon Weighted-Average Exercise Number of Securities
Exercise of Price Of Outstanding Remaining Available For
Outstanding Options, Options, Future Issuance Under Equity
Plan Category Warrants And Rights Warrants And Rights Compensation Plans
------------- ------------------- ------------------- ------------------
Equity 70,400 $109.998 37,500
compensation plans
approved by security
holders(1)
Equity -- -- --
compensation plans
not approved by
security holders ______ ______ ______
Total 70,400 $109.998 37,500
------
(1) Includes the 1999 Stock Option Plan. For a description of this plan,
please refer to Footnote 5 contained in our consolidated financial
statements.
Item 13. Certain Relationships and Related Transactions, and Director
Independence
The information in the sections of our 2008 Proxy Statement captioned
"Meetings and Committees of the Board of Directors" - "Committee Member
Independence" and "Certain Relationships and Related Party Transactions" are
incorporated in this Item 13 by reference.
Item 14. Principal Accountant Fees and Services
The information in the sections of our 2008 Proxy Statement captioned
"Proposal 2: Ratification of Appointment of Independent Registered Accounting
Firm" and "Audit and Other Fees" are incorporated in this Item 14 by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) The following information included in Exhibit 13.1 is herein
incorporated by reference:
9
(A) Portfolio of Investments - March 31, 2008
Consolidated Statements of Financial Condition - March 31, 2008 and
2007
Consolidated Statements of Operations - Years Ended March 31, 2008,
2007 and 2006
Consolidated Statements of Changes in Net Assets - Years Ended March
31, 2008, 2007 and 2006
Consolidated Statements of Cash Flows - Years Ended March 31, 2008,
2007 and 2006
(B) Notes to Consolidated Financial Statements
(C) Notes to Portfolio of Investments
(D) Selected Per Share Data and Ratios
(E) Management's Report on Internal Control over Financial Reporting
(F) Reports of Independent Registered Public Accounting Firm
(G) Portfolio Changes During the Year
(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.
10
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/ Gary L. Martin
---------------------
Gary L. Martin, President
Date: May 23, 2008
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of Capital Southwest
Corporation and its Subsidiaries undersigned directors hereby constitutes and
appoints Gary L. Martin, its or his true and lawful attorney-in-fact and agent,
for it or him and in its or his name, place and stead, in any and all
capacities, with full power to act alone, to sign any and all amendments to this
Report, and to file each such amendment to the Report, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent full power and authority to do and perform any and all acts and things
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as it or he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent may lawfully do or cause
to be done by virture hereof.
Pursuant to the requirement of the Securities and 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 dates indicated:
Signature Title Date
--------- ----- ----
/s/ Gary L. Martin President May 23, 2008
-------------------------- (chief executive officer)
Gary L. Martin
/s/ William R. Thomas Chairman of the Board May 23, 2008
-------------------------
William R. Thomas
/s/ Donald W. Burton Director May 23, 2008
-------------------------
Donald W. Burton
/s/ Graeme W. Henderson Director May 23, 2008
--------------------------
Graeme W. Henderson
/s/ Samuel B. Ligon Director May 23, 2008
--------------------------
Samuel B. Ligon
/s/ Gary L. Martin Director May 23, 2008
--------------------------
Gary L. Martin
/s/ John H. Wilson Director May 23, 2008
--------------------------
John H. Wilson
/s/ Tracy L. Morris Controller May 23, 2008
-------------------------- (chief financial/accounting officer)
Tracy L. Morris
11
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. Double asterick denotes exhibits furnished with this report.
Exhibit No. Desription
----------- ----------
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.
4.1 Specimen of Common Stock certificate (filed as
Exhibit 4.1 to Form 10-K for the fiscal year ended
March 31, 2002).
10.1 The RectorSeal Corporation and Jet-Lube, Inc.
Employee Stock Ownership Plan as revised and
restated effective April 1, 2007.
10.2 Retirement Plan for Employees of Capital Southwest
Corporation and Its Affiliates as amended and
restated effective April 1, 2006.
10.3 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).
10.4 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 (filed
as Exhibit 10.6 to Form 10-K for the fiscal year
ended March 31, 1998).
10.5 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).
10.6 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).
10.7 Capital Southwest Corporation 1999 Stock Option
Plan (filed as Exhibit 10.10 to Form 10-K for the
fiscal year ended March 31, 2000).
10.8 Severance Pay Agreement with William M. Ashbaugh
(filed as Exhibit 10.1 to Form 8-K dated July 18,
2005).
10.10 Severance Pay Agreement with Jeffrey G. Peterson
(filed as Exhibit 10.4 to Form 8-K dated July 18,
2005).
10.11* Amendment One to Retirement Plan for Employees of
Capital Southwest Corporation and its Affiliates
as amended and restated effective April 1, 2006.
13.1* Selected Consolidated Financial Data.
21.1* List of subsidiaries of the Company.
23.1* Consent of Independent Registered Public
Accounting Firm - Grant Thornton LLP.
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.
31.2* Certification of Controller required by Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act,
filed herewith.
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.
32.2** Certification of Controller 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.