Twelve Largest Investments - March 31, 2000
Palm Harbor Homes, Inc. $86,406,000
--------------------------------------------------------------------------------
Palm Harbor Homes, Dallas, Texas, is an integrated manufactured housing
company, building, retailing, financing and insuring homes produced in 15 plants
in Alabama, Arizona, Florida, Georgia, North Carolina, Ohio, Oregon and Texas
and sold in 30 states by over 200 independent dealers and 133 company-owned
retail superstores. Palm Harbor manufactures high-quality, energy-efficient
homes designed to meet the need for affordable housing, particularly among
retirees and newly-formed families.
During the year ended March 31, 2000, Palm Harbor earned $38,596,000 ($1.66
per share) on net sales of $777,471,000, compared with earnings of $40,177,000
($1.69 per share) on net sales of $761,374,000 in the previous year. The March
31, 2000 closing Nasdaq bid price of Palm Harbor's common stock was $15.00 per
share.
At March 31, 2000, the $10,931,955 investment in Palm Harbor by Capital
Southwest and its subsidiary was valued at $86,406,000 ($11.00 per share)
consisting of 7,855,121 restricted shares of common stock, representing a
fully-diluted equity interest of 34.2%.
================================================================================
The RectorSeal Corporation $42,000,000
--------------------------------------------------------------------------------
The RectorSeal Corporation, Houston, Texas, with two plants in Texas and a
plant in New York, manufactures chemical specialty products including pipe
thread sealants, firestop sealants, plastic solvent cements and other
formulations for plumbing and industrial applications. RectorSeal's major
subsidiary, Jet-Lube, Inc., with plants in Texas, England and Canada, produces
anti-seize compounds, specialty lubricants and other products used in industrial
and oil field applications. Another subsidiary, Cargo Chemical, produces a
limited line of automotive chemical products. RectorSeal also owns a 20% equity
interest in The Whitmore Manufacturing Company (described subsequently).
During the year ended March 31, 2000, RectorSeal earned $4,988,000 on
revenues of $53,858,000, compared with earnings of $3,801,000 on revenues of
$47,555,000 in the previous year. RectorSeal's earnings do not reflect its 20%
equity in The Whitmore Manufacturing Company.
At March 31, 2000, Capital Southwest owned 100% of RectorSeal's common stock
having a cost of $52,600 and a value of $42,000,000.
================================================================================
Skylawn Corporation $35,000,000
--------------------------------------------------------------------------------
Skylawn Corporation, Hayward, California owns and operates cemeteries,
mausoleums and mortuaries. Skylawn's operations, all of which are in California,
include a mausoleum and an adjacent mortuary in Oakland and cemeteries and
mausoleums in San Mateo, Hayward, Sacramento and Napa, the latter three of which
also have mortuaries at the cemetery sites. These entities have provided
cemetery and funeral services to their respective communities for many years. A
captive insurance company and funeral and cemetery trusts enable Skylawn's
clients to make pre-need arrangements.
For the fiscal year ended March 31, 2000, Skylawn, after adopting a change in
accounting principle, earned $2,940,000 on revenues of $24,574,000. Before this
change, earnings were $4,163,000. In the previous year, Skylawn earned
$2,069,000 on revenues of $21,922,000.
At March 31, 2000, Capital Southwest owned 100% of Skylawn Corporation's
common stock, which had a cost of $4,510,400 and was valued at $35,000,000.
================================================================================
Alamo Group Inc. $25,392,000
--------------------------------------------------------------------------------
Alamo Group Inc., Seguin, Texas, is a leading designer, manufacturer and
distributor of heavy-duty, tractor-mounted mowing and other vegetation
maintenance equipment and replacement parts. Recently, the company acquired a
manufacturer of power-sweeping equipment. Founded in 1969, Alamo Group operates
11 manufacturing facilities and serves governmental, industrial and agricultural
markets in the U.S. and Europe.
For the year ended December 31, 1999, Alamo reported consolidated earnings of
$6,102,000 ($0.63 per share) on net sales of $176,608,000, compared with
earnings of $4,115,000 ($0.42 per share) on net sales of $200,553,000 in the
previous year. The March 31, 2000 closing NYSE market price of Alamo's common
stock was $11.625 per share.
At March 31, 2000, the $2,065,047 investment in Alamo by Capital Southwest
and its subsidiary was valued at $25,392,000 ($9.00 per share) consisting of
2,821,300 restricted shares of common stock, representing a fully-diluted equity
interest of 27.2%.
<PAGE>
AT&T Corp. - Liberty Media Group $20,089,500
--------------------------------------------------------------------------------
AT&T Corp. - Liberty Media Group, New York, New York, acquired by AT&T as
part of Tele-Communications, Inc. in March 1999, produces, acquires and
distributes entertainment, sports and informational programming services and
electronic retailing services, which are delivered via cable television and
other technologies to viewers in the United States and overseas.
For the ten months ended December 31, 1999, AT&T Corp. - Liberty Media Group
reported a net loss of $2,022,000,000 ($1.61 per share) on net sales of
$729,000,000. The March 31, 2000 closing NYSE market price of AT&T Corp. -
Series A Liberty Media Group common (tracking) stock was $59.3125 per share.
At March 31, 2000, Capital Southwest owned 338,706 unrestricted shares of
Series A Liberty Media Group tracking stock, having a total cost of $25 and a
market value of $20,089,500 ($59.3125 per share).
================================================================================
Mail-Well, Inc. $13,628,000
--------------------------------------------------------------------------------
Mail-Well, Inc., Englewood, Colorado, is a leading consolidator in the
fragmented printing industry, specializing in customized envelopes, high-impact
printing, consumer products labels and business communications documents.
Mail-Well has more than 15,800 employees and operates 140 plants and numerous
sales offices throughout North America and the United Kingdom.
For the year ended December 31, 1999, Mail-Well reported earnings of
$64,482,000 ($1.20 per share) on net sales of $1,848,041,000, compared with
earnings of $21,709,000 ($0.45 per share) on net sales of $1,504,686,000 in the
previous year. The March 31, 2000 closing NYSE market price of Mail-Well's
common stock was $8.6875 per share.
At March 31, 2000, the $2,986,870 investment in Mail-Well by Capital
Southwest was valued at $13,628,000 ($6.50 per share) consisting of 2,096,588
restricted shares of common stock, representing a fully-diluted equity interest
of 3.4%.
================================================================================
Encore Wire Corporation $13,623,000
--------------------------------------------------------------------------------
Encore Wire Corporation, McKinney, Texas, manufactures a broad line of copper
electrical wire and cable including non-metallic sheathed cable, underground
feeder cable and THHN cable for residential, commercial and industrial
construction. Encore's products are sold through large-volume distributors and
building materials retailers.
For the year ended December 31, 1999, Encore reported net income of
$6,594,000 ($0.42 per share) on net sales of $229,670,000, compared with net
income of $17,567,000 ($1.07 per share) on net sales of $244,044,000 in the
previous year. The March 31, 2000 closing Nasdaq bid price of Encore's common
stock was $7.0625 per share.
At March 31, 2000, the $5,800,000 investment in 2,724,500 shares of Encore's
restricted common stock by Capital Southwest and its subsidiary was valued at
$13,623,000 ($5.00 per share), representing a fully-diluted equity interest of
16.6%.
================================================================================
Media Recovery, Inc. $8,000,000
--------------------------------------------------------------------------------
Media Recovery, Inc., Graham, Texas, distributes computer and office
automation supplies and accessories to corporate customers through its direct
sales force with 24 offices in 18 states. Its Shockwatch division manufactures
impact and tilt monitoring devices used to detect mishandled shipments. Media
Recovery's subsidiary, The Damage Prevention Company, Denver, Colorado,
manufactures dunnage products used to prevent damage in trucking, rail and
export container shipments.
During the year ended September 30, 1999, Media Recovery reported net income
of $2,418,000 on net sales of $88,707,000, compared with net income of
$1,028,000 on net sales of $62,351,000 for the eleven month period ended
September 30, 1998.
At March 31, 2000, the $5,415,000 investment in Media Recovery by Capital
Southwest and its subsidiary was valued at $8,000,000 consisting of 4,800,000
shares of Series A convertible preferred stock, representing a fully-diluted
equity interest of 68.2%.
<PAGE>
The Whitmore Manufacturing Company $8,000,000
--------------------------------------------------------------------------------
The Whitmore Manufacturing Company, with plants in Rockwall, Texas and
Cleveland, Ohio, manufactures specialty lubricants for heavy equipment used in
surface mining, railroads and other industries, and produces water-based
coatings for the automotive and primary metals industries. Whitmore's
subsidiary, Fluid Protection Corporation, manufactures fluid contamination
control devices.
During the year ended March 31, 2000, Whitmore reported a net loss of $10,600
on net sales of $13,176,000, compared with net income of $1,151,000 on net sales
of $13,949,000 in the previous year. The company is owned 80% by Capital
Southwest and 20% by Capital Southwest's subsidiary, The RectorSeal Corporation
(described on page 7).
At March 31, 2000, the direct investment in Whitmore by Capital Southwest was
valued at $8,000,000 and had a cost of $1,600,000.
================================================================================
AT&T Corp. $7,520,015
--------------------------------------------------------------------------------
AT&T Corp., New York, New York, is among the world's communications leaders
telecommunications services. In March 1999, AT&T Corp. acquired Tele-Comm
operates one of the nation's largest cable television systems.
During the year ended December 31, 1999, AT&T Corp. reported net income of
$3,428,000,000 ($1.74 per share) on net sales of $62,391,000,000. The March 31,
2000 closing NYSE market price of AT&T Corp. - Series A common stock was
$56.4375 per share.
At March 31, 2000, Capital Southwest owned 133,245 shares of unrestricted
AT&T Corp. - Series A common stock, having a total cost of $43 and a market
value of $7,520,015 ($56.4375 per share).
================================================================================
Airformed Composites, Inc. $6,568,000
--------------------------------------------------------------------------------
Airformed Composites, Inc., Charleston, South Carolina, manufactures and
markets airformed composites composed of wood pulp, latex binders and various
specialized fibers and super-absorbent compounds. Its airlaid materials are used
in the production of baby diapers and wet wipes, adult incontinence products,
feminine hygiene products, food packaging materials and industrial wipes.
During the year ended December 31, 1999, Airformed reported a net loss of
$4,461,000 on net sales of $3,465,000.
At March 31, 2000, the investment by Capital Southwest and its subsidiary in
a demand promissory note, subordinated debentures and 425,000 shares of Series A
convertible preferred stock was valued at its cost of $6,568,000 and represented
a fully-diluted equity interest of 65.9%.
================================================================================
All Components, Inc. $5,750,000
--------------------------------------------------------------------------------
All Components, Inc., Farmers Branch, Texas, distributes and produces memory
and other components for personal computer manufacturers, retailers and
value-added resellers. Through its Dallas-based sales and distribution center
and its plants in Austin, Texas and Boise, Idaho, the company serves over 2,000
customers throughout the United States.
During the year ended August 31, 1999, All Components reported net income of
$2,542,000 on net sales of $157,932,000, compared with net income of $2,109,000
on net sales of $114,522,000 in the previous year.
At March 31, 2000, the $600,000 investment in All Components by Capital
Southwest's subsidiary was valued at $5,750,000 consisting of 450,000 shares of
Series B preferred stock and 150,000 shares of convertible preferred stock,
representing a 29.1% fully-diluted equity interest.
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments - March 31, 2000
Company Equity (a) Investment (b) Cost Value (c)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
+AT&T CORP. <1% ++133,245 shares Series A common stock
New York, New York (acquired 3-9-99) $ 43 $ 7,520,015
World communications leader, providing
voice, data and video telecommunications
services and cable television systems.
--------------------------------------------------------------------------------------------------------------------------------
+AT&T CORP. - Liberty Media Group <1% ++338,706 shares Series A common stock
New York, New York (acquired 3-9-99) 25 20,089,500
Production and distribution of cable
television programming services and
wireless and wireline communications
services.
--------------------------------------------------------------------------------------------------------------------------------
AIRFORMED COMPOSITES, INC. 65.9% 12% demand promissory notes (acquired
Charleston, South Carolina 2-1-00 thru 3-31-00) 1,000,000 1,000,000
Airformed composite materials for use 12% subordinated debenture, due 2004
in absorbent specialty applications such (acquired 12-22-99) 2,000,000 2,000,000
as diapers and feminine hygiene products. 10% subordinated debentures, due 2007
(acquired 12-12-97 and 5-6-98) 3,143,000 3,143,000
425,000 shares Series A convertible
preferred stock, convertible into
425,000 shares of common stock
at $1.00 per share (acquired 12-12-97) 425,000 425,000
Warrants to purchase 770,506 shares of
common stock at $1.00 per share,
expiring 9-30-09 (acquired 12-22-99) - -
------------ -----------
6,568,000 6,568,000
--------------------------------------------------------------------------------------------------------------------------------
+ALAMO GROUP INC. 27.2% 2,821,300 shares common stock (acquired
Seguin, Texas 4-1-73, 7-18-78 and 9-9-99 thru 10-4-99) 2,065,047 25,392,000
Tractor-mounted mowing and vegetation
maintenance equipment for governmental,
industrial and agricultural markets;
power-sweeping equipment for
municipalities.
--------------------------------------------------------------------------------------------------------------------------------
ALL COMPONENTS, INC. 29.1% 150,000 shares Series A convertible
Farmers Branch, Texas preferred stock, convertible into
Distribution and production of memory 600,000 shares of common stock at $0.25
and other components for personal computer per share (acquired 9-16-94) 150,000 5,300,000
manufacturers, retailers and value-added 450,000 shares Series B preferred stock
resellers. (acquired 9-16-94) 450,000 450,000
------------ -----------
600,000 5,750,000
--------------------------------------------------------------------------------------------------------------------------------
+ALLTEL CORPORATION <1% ++8,880 shares common stock (acquired
Little Rock, Arkansas 7-1-98) 108,355 559,995
Wireline and wireless communications
and information services.
--------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
<PAGE>
Company Equity (a) Investment (b) Cost Value (c)
--------------------------------------------------------------------------------------------------------------------------------
+AMERICAN HOMESTAR CORPORATION 3.3% ++751,059 shares common stock
League City, Texas (acquired 8-31-93, 7-12-94
Integrated manufacturing, retailing and 3-28-96) $ 3,405,824 $ 1,220,471
and financing of manufactured
housing produced in 12 plants.
--------------------------------------------------------------------------------------------------------------------------------
AMFIBE, INC. 40.0% 2,000 shares Class B non-voting
Martinsville, Virginia common stock (acquired 6-15-94) 200,000 5,500,000
Nylon monofilament yarns for the
textile industry.
--------------------------------------------------------------------------------------------------------------------------------
BALCO, INC. 89.7% 14% subordinated debentures,
Wichita, Kansas payable 2000 to 2002 (acquired 8-13-91) 240,000 240,000
Specialty architectural products used 14% subordinated debenture, payable 2000
in the construction and remodeling of to 2002, last maturing $250,000
commercial and institutional buildings. convertible into 250,000 shares of
common stock at $1.00 per share
(acquired 6-1-91) 480,000 980,000
110,000 shares common stock and 60,920
shares Class B non-voting common stock
(acquired 10-25-83) 170,920 512,760
Warrants to purchase 85,000 shares of
common stock at $2.40 per share, expiring
2001 (acquired 8-13-91) - 51,000
------------ -----------
890,920 1,783,760
--------------------------------------------------------------------------------------------------------------------------------
BOXX TECHNOLOGIES, INC. 9.8% 1,000,000 shares Series B convertible
Austin, Texas preferred stock, convertible into
Workstations for computer graphics 1,000,000 shares of common stock at
imaging and design. $0.50 per share (acquired 8-20-99) 500,000 500,000
--------------------------------------------------------------------------------------------------------------------------------
CDC TECHNOLOGIES, INC. 23.6% 12% subordinated debentures, payable
Oxford, Connecticut 2000 (acquired 8-26-99 thru 3-31-00) 600,000 1
Hematology and blood chemistry analyzers 3,388 shares Series C convertible
and reagents for veterinary and preferred stock, convertible into 7,218
medical applications. shares of common stock at $346.24 per
share (acquired 10-15-97 and 9-10-98) 2,499,158 1
Warrants to purchase 339 shares of
Series C convertible preferred stock at
$737.65 per share, expiring 2007
(acquired 12-17-97) - -
Warrant to purchase 3,000 shares of common
stock at $166.66 per share, expiring 2009
(acquired 8-26-99 thru 9-29-99) - -
------------ -----------
3,099,158 2
---------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
<PAGE>
Company Equity (a) Investment (b) Cost Value (c)
--------------------------------------------------------------------------------------------------------------------------------
DENNIS TOOL COMPANY 66.2% 20,725 shares 5% convertible preferred
Houston, Texas stock, convertible into 20,725 shares
Polycrystalline diamond compacts (PDCs) of common stock at $48.25 per share
used in oil field drill bits and in (acquired 8-10-98) $ 999,981 $ 400,000
mining and industrial applications. 140,137 shares common stock (acquired
3-7-94 and 8-10-98) 2,329,963 1,500,000
------------ -----------
3,329,944 1,900,000
--------------------------------------------------------------------------------------------------------------------------------
DYNTEC, INC. 51.7% 14% senior secured promissory note,
Louisville, Kentucky $1,125,000 principal amount, payable
Multi-specialty dental services provided 11-10-02 (acquired 9-10-99) 750,000 1
through Dentistry Plus Centers located 1,710,766 shares Series A redeemable
in major shopping malls. preferred stock (acquired 6-24-98) 3,743,156 1
1,710,766 shares Series B convertible
preferred stock, convertible into
1,710,766 shares of common stock at
$0.004 per share (acquired 6-24-98) 6,844 -
Warrants to purchase 1,829,517 shares of
common stock at $0.004 per share expiring
7-7-02 and 8-30-02 (acquired 9-10-99) - -
------------ -----------
4,500,000 2
--------------------------------------------------------------------------------------------------------------------------------
+ENCORE WIRE CORPORATION 16.6% 2,724,500 shares common stock (acquired
McKinney, Texas 7-16-92, 3-15-94, 4-28-94 and 10-7-98) 5,800,000 13,623,000
Electrical wire and cable for
residential and commercial use.
--------------------------------------------------------------------------------------------------------------------------------
+FMC CORPORATION <1% ++6,430 shares common stock
Chicago, Illinois (acquired 6-6-86) 123,777 363,294
Machinery and chemicals in
diversified product areas.
--------------------------------------------------------------------------------------------------------------------------------
+GLOBAL CROSSING LTD. <1% ++64,242 shares common stock
Hamilton, Bermuda (acquired 9-28-99) 78,346 2,629,907
Diversified telecommunications company.
--------------------------------------------------------------------------------------------------------------------------------
+HOLOGIC, INC. <1% ++158,205 shares common stock
Bedford, Massachusetts (acquired 8-27-99) 220,000 1,245,864
Medical instruments including bone
densitometers and digital radiography
systems.
--------------------------------------------------------------------------------------------------------------------------------
iCHOOSE, INC. 4.1% 240,000 shares Series A convertible
Carrollton, Texas preferred stock, convertible into
Online marketing platform to enable 240,000 shares of common stock at
e-commerce merchants to deliver competing $0.4167 per share (acquired 4-9-99)
offers to consumers at point of purchase 729,928 shares Series B convertible 100,000 100,000
on competitors' websites. preferred stock, convertible into
729,928 shares of common stock at
$1.37 per share (acquired 10-29-99)
1,000,001 1,000,001
------------ -----------
1,100,001 1,100,001
--------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
<PAGE>
Company Equity (a) Investment (b) Cost Value (c)
--------------------------------------------------------------------------------------------------------------------------------
INTELLIGENT REASONING SYSTEMS, INC. 4.4% 705,128 shares Series B convertible
Austin, Texas preferred stock, convertible into
Automated optical inspection systems 705,128 shares of common stock at
used in the production of printed $0.60 per share (acquired 5-28-97) $ 423,077 $ -
wired assemblies and high density 1,513,081 shares Series C convertible
interconnects. preferred stock, convertible into
1,513,081 shares of common stock at
$0.74 per share (acquired 6-11-98) 1,119,679 2
Warrant to purchase 70,513 shares of
Series B convertible preferred stock
at $.60 per share, expiring 2004
(acquired 11-21-97) - -
------------ -----------
1,542,756 2
--------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL TALK.COM, INC. 18.3% 8,333,334 shares Series A convertible
Austin, Texas preferred stock,convertible into
Internet-based retail and wholesale 8,333,334 shares of common stock at
long distance communications to and $0.36 per share (acquired 9-23-99 and
from foreign countries. 3-3-00) 3,000,000 3,000,000
--------------------------------------------------------------------------------------------------------------------------------
+KIMBERLY-CLARK CORPORATION <1% ++77,180 shares common stock (acquired
Irving, Texas 12-18-97) 2,396,926 4,322,080
Manufacturer of tissue, personal
care and health care products.
--------------------------------------------------------------------------------------------------------------------------------
+MAIL-WELL, INC. 3.4% 2,096,588 shares common stock (acquired
Englewood, Colorado 2-18-94, 12-14-94, 7-27-95 and 11-10-98) 2,986,870 13,628,000
Customized envelopes, labels and
high-impact printing.
--------------------------------------------------------------------------------------------------------------------------------
MEDIA RECOVERY, INC. 68.2% 4,800,000 shares Series A convertible
Graham, Texas preferred stock, convertible into
Computer and office automation 4,800,000 shares of common stock at
supplies and accessories; impact $1.00 per share (acquired 11-4-97) 5,415,000 8,000,000
and tilt monitoring devices to detect
mishandled shipments; dunnage
for protecting shipments.
--------------------------------------------------------------------------------------------------------------------------------
+MYLAN LABORATORIES, INC. <1% ++128,286 shares common stock (acquired
Pittsburgh, Pennsylvania 11-20-91) 400,000 3,527,865
Proprietary and generic pharmaceutical
products.
--------------------------------------------------------------------------------------------------------------------------------
ORGANIZED LIVING, INC. 8.5%-10.8% 2,083,334 shares Series D convertible
Lenexa, Kansas preferred stock, convertible into
Specialty retailer of products 2,083,334 to 2,777,778 shares of common
designed to provide home and stock at $1.80 to $2.40 per share
office storage and organization (acquired 1-7-00) 5,000,000 5,000,000
solutions.
--------------------------------------------------------------------------------------------------------------------------------
+PALM HARBOR HOMES, INC. 34.2% 7,855,121 shares common stock (acquired
Dallas, Texas 1-3-85, 3-31-88 and 7-31-95) 10,931,955 86,406,000
Integrated manufacturing, retailing,
financing and insuring of manufactured
housing produced in 15 plants.
--------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
<PAGE>
Company Equity (a) Investment (b) Cost Value (c)
--------------------------------------------------------------------------------------------------------------------------------
PAYLINX CORPORATION 1.3% 127,803 shares Series B convertible
Reston, Virginia preferred stock, convertible into
Provides traditional and e-commerce 127,803 shares of common stock at $7.82
businesses with a single, per share (acquired 1-21-00) $ 1,000,000 $ 1,000,000
enterprise-wide resource for
processing electronic payments.
--------------------------------------------------------------------------------------------------------------------------------
+PETSMART, INC. <1% ++654,220 shares common stock
Phoenix, Arizona (acquired 6-1-95) 2,878,733 1,962,660
Retail chain of 484 stores selling
pet foods, supplies and services.
--------------------------------------------------------------------------------------------------------------------------------
THE RECTORSEAL CORPORATION 100.0% 27,907 shares common stock (acquired
Houston, Texas 1-5-73 and 3-31-73) 52,600 42,000,000
Chemical specialty products for
industrial, construction, oil
field and automotive applications;
owns 20% of Whitmore Manufacturing.
--------------------------------------------------------------------------------------------------------------------------------
REWIND HOLDINGS, INC. 38.3% 12% subordinated notes, payable 2000
Sugar Land, Texas to 2004 (acquired 10-21-96, 8-13-97
Owns Bill Young Productions, Texas and 8-11-98) 3,825,000 2,000,000
Video and Post, and Extreme 375 shares 8% Series A convertible
Communications, which produce radio preferred stock, convertible into
and television commercials and 1,500 shares of common stock at $250.00
corporate communications videos. per share (acquired 10-21-96) 375,000 -
Warrant to purchase 600 shares of common
stock at $250 per share, expiring 2005
(acquired 8-11-98) - -
------------ -----------
4,200,000 2,000,000
--------------------------------------------------------------------------------------------------------------------------------
SDI INVESTMENTS LIQUIDATING TRUST - 11.4% non-voting trust interest (acquired
Houston, Texas 5-17-99) 118,000 500,000
Trust formed to complete the liquidation
of SDI Holding Corp., former owner of
Sterling Diagnostic Imaging.
--------------------------------------------------------------------------------------------------------------------------------
SKYLAWN CORPORATION 100.0% 1,449,026 shares common stock (acquired
Hayward, California 7-16-69) 4,510,400 35,000,000
Cemeteries, mausoleums and mortuaries
located in northern California.
--------------------------------------------------------------------------------------------------------------------------------
+SPRINT CORPORATION - FON Group <1% ++72,000 shares common stock (acquired
Kansas City, Missouri 6-20-84) 449,654 4,536,000
Diversified telecommunications company.
--------------------------------------------------------------------------------------------------------------------------------
+SPRINT CORPORATION - PCS Group <1% ++36,000 shares common stock (acquired
Kansas City, Missouri 11-23-98) 53,991 2,358,000
Domestic wireless telephony services.
--------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
<PAGE>
Company Equity (a) Investment (b) Cost Value (c)
--------------------------------------------------------------------------------------------------------------------------------
TCI HOLDINGS, INC. - 21 shares 12% Series C cumulative
Denver, Colorado compounding preferred stock
Cable television systems and (acquired 1-30-90) $ - $ 677,250
microwave relay systems.
--------------------------------------------------------------------------------------------------------------------------------
TEXAS PETROCHEMICAL HOLDINGS, INC. 5.4% 30,000 shares common stock
Houston, Texas (acquired 6-27-96) 3,000,000 1
Butadiene for synthetic rubber,
MTBE for gasoline octane enhancement
and butylenes for varied applications.
--------------------------------------------------------------------------------------------------------------------------------
TEXAS SHREDDER, INC. 53.3% 14% subordinated debentures, payable
San Antonio, Texas 2000 (acquired 3-6-91 and 6-1-98) 617,970 617,970
Design and manufacture of heavy-duty 3,296 shares Series A preferred stock
shredder systems for recycling steel and (acquired 3-6-91 and 6-1-98) 329,600 329,600
other materials from junk automobiles. 750 shares Series B convertible
preferred stock, convertible into
750,000 shares of common stock at $0.10
per share(acquired 3-6-91) 75,000 2,625,000
------------ -----------
1,022,570 3,572,570
--------------------------------------------------------------------------------------------------------------------------------
VOCALDATA, INC. 4.1% 650,000 shares Series A convertible
Richardson, Texas stock, convertible into 650,000 shares
Hardware and software for customer of common stock at $1.75 per share
premises telephony equipment based (acquired 11-4-99 and 12-3-99) 1,137,500 1,137,500
on Voice Over Internet Protocol.
--------------------------------------------------------------------------------------------------------------------------------
THE WHITMORE MANUFACTURING COMPANY 80.0% 80 shares common stock (acquired 8-31-79) 1,600,000 8,000,000
Rockwall, Texas
Specialized mining and industrial
lubricants; automotive transit coatings.
--------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS - Diamond State Ventures L.P. - 1.9%
limited partnership interest
(acquired 10-12-99) 71,875 71,875
100.0% Humac Company - 1,041,000 shares
common stock (acquired 1-31-75 and
12-31-75) - 127,000
- STARTech Seed Fund I-12.1% limited
partnership interest (acquired 4-17-98) 500,000 500,000
<1% +TCI Satellite Entertainment, Inc.-++18,000
shares Series A common stock
(acquired 12-4-96) - 345,375
<1% +Triton Energy Corporation-++6,022 shares
common stock (acquired 12-15-86) 144,167 211,146
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $85,002,437 $323,629,135
=========== ============
--------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
</TABLE>
<PAGE>
Notes to Portfolio of Investments
(a) The percentages in the "Equity" column express the potential equity
interests held by Capital Southwest Corporation and Capital Southwest Venture
Corporation (together, the "Company") in each issuer. Each percentage represents
the amount of the issuer's common stock the Company owns or can acquire as a
percentage of the issuer's total outstanding common shares, plus shares reserved
for all outstanding warrants, convertible securities and employee stock options.
The symbol "<1%" indicates that the Company holds a potential equity interest of
less than one percent.
(b) 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 restrictions on resale and are not
freely marketable. At March 31, 2000, restricted securities represented
approximately 84% of the value of the consolidated investment portfolio.
(c) Under the valuation policy of the Company, unrestricted securities are
valued at the closing sale price for listed securities and at the closing bid
price for over-the-counter securities on the valuation date. Restricted
securities, including securities of publicly-owned companies which are subject
to restrictions on resale, are valued at fair value as determined by the Board
of Directors. Fair value is considered to be the amount which the Company may
reasonably expect to receive for portfolio securities if such securities were
sold on the valuation date. Valuations as of any particular date, however, are
not necessarily indicative of amounts which may ultimately be realized as a
result of future sales or other dispositions of securities.
Among the factors considered by the Board of Directors in determining the
fair value of restricted securities are 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, 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.
(d) Agreements between certain issuers and the Company provide that the issuers
will bear substantially all costs in connection with the disposition of common
stocks, including those costs involved in registration under the Securities Act
of 1933 but excluding underwriting discounts and commissions. These agreements,
which cover common stocks owned at March 31, 2000 and common stocks which may be
acquired thereafter through exercise of warrants and conversion of debentures
and preferred stocks, apply to restricted securities of all issuers in the
investment portfolio of the Company except securities of the following issuers,
which are not obligated to bear registration costs: Humac Company, Skylawn
Corporation and The Whitmore Manufacturing Company.
(e) The descriptions of the companies and ownership percentages shown in the
portfolio of investments were obtained from published reports and other sources
believed to be reliable, are supplemental and are not covered by the report of
independent auditors. Acquisition dates indicated are the dates specific
securities were acquired. Certain securities were received in exchange for or
upon conversion or exercise of other securities previously acquired.
<PAGE>
Portfolio Changes During the Year
New Investments and Additions to Previous Investments
Amount
-----------
Airformed Composites, Inc. ...............................$ 3,000,000
Alamo Group Inc. ......................................... 1,490,047
All Components, Inc....................................... 4,000,000
BOXX Technologies, Inc. .................................. 500,000
CDC Technologies, Inc. ................................... 600,000
Diamond State Ventures L.P. .............................. 71,875
Dyntec, Inc. ............................................. 750,000
iChoose, Inc. ............................................ 1,100,001
International Talk.com, Inc............................... 3,000,000
Organized Living, Inc. ................................... 5,000,000
PaylinX Corporation ...................................... 1,000,000
STARTech Seed Fund I ..................................... 275,000
VocalData, Inc. .......................................... 1,137,500
-----------
$ 21,924,423
============
Dispositions
Amount
Cost Received
----------- ------------
MESC Holdings, Inc. .................... $ - $ 302,501
PTS Holdings, Inc....................... - 347,780
SDI Holding Corp. ...................... 5,054,000 12,885,369
SDI Investments Liquidating Trust ...... 608,000 1,356,863
Miscellaneous........................... - 929
----------- ------------
$ 5,662,000 $ 14,893,442
=========== ============
Repayments Received..................... $ 4,840,000
============
<PAGE>
<TABLE>
<CAPTION>
Capital Southwest Corporation and Subsidiary
Consolidated Statements of Financial Condition
March 31
-----------------------------
Assets 2000 1999
------------- ------------
<S> <C> <C>
Investments at market or fair value (Notes
1, 2 and 10)
Companies more than 25% owned
(Cost: 2000 - $23,380,865,
1999 - $22,130,818) ................................ $ 200,608,759 $ 231,819,359
Companies 5% to 25% owned
(Cost: 2000 - $22,579,414,
1999 - $18,841,914) ................................ 22,760,506 31,596,160
Companies less than 5% owned
(Cost: 2000 - $39,042,158,
1999 - $32,607,282) ................................ 100,259,870 86,862,983
------------- -------------
Total investments
(Cost: 2000 - $85,002,437,
1999 - $73,580,014) ................................ 323,629,135 350,278,502
Cash and cash equivalents ............................... 63,986,715 6,050,443
Receivables ............................................. 238,594 315,707
Other assets (Note 8) ................................... 4,731,360 4,141,136
------------- -------------
Totals................................................ $392,585,804 $ 360,785,788
============= =============
March 31,
------------------------------
Liabilities and Shareholders' Equity 2000 1999
------------- -------------
Note payable to bank (Note 4) ........................... $ 60,000,000 $ --
Notes payable to subsidiary (Note 4) .................... 5,000,000 --
Accrued interest and other liabilities (Note 8).......... 2,220,753 2,306,366
Deferred income taxes (Note 3) .......................... 83,489,085 97,247,457
Subordinated debenture (Note 5) ......................... 5,000,000 5,000,000
------------- -------------
Total liabilities ................... 155,709,838 104,553,823
------------- -------------
Shareholders' equity (Notes 3 and 6)
Common stock, $1 par value: authorized,
5,000,000 shares; issued, 4,252,416
shares at March 31, 2000 and March 31, 1999 ........ 4,252,416 4,252,416
Additional capital ................................... 6,450,747 6,450,747
Undistributed net investment
income ............................................. 4,117,104 4,743,205
Undistributed net realized gain on
investments ........................................ 73,613,301 67,593,409
Unrealized appreciation of investments -
net of deferred income taxes ....................... 155,475,700 180,225,490
Treasury stock - at cost
(437,365 shares) ................................... (7,033,302) (7,033,302)
------------- -------------
Net assets at market or fair value, equivalent
to $62.09 per share at March 31, 2000,
and $67.16 per share at March 31, 1999
on the 3,815,051 shares outstanding ................ 236,875,966 256,231,965
------------- -------------
Totals ........................... $ 392,585,804 $ 360,785,788
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Capital Southwest Corporation and Subsidiary
Consolidated Statements of Operations
Years Ended March 31
----------------------------------------------
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Investment income (Note 9):
Interest...........................................................................$ 884,152 $ 1,307,668 $ 2,025,024
Dividends ......................................................................... 1,878,853 1,966,360 2,237,293
Management and directors' fees .................................................... 525,400 538,650 569,900
------------- ------------- -------------
3,288,405 3,812,678 4,832,217
------------- ------------- -------------
Operating expenses:
Interest .......................................................................... 456,262 416,174 426,962
Salaries .......................................................................... 804,933 1,109,699 1,206,478
Net pension expense (benefit) (Note 8) ............................................ (435,984) (311,625) (313,511)
Other operating expenses (Note 7) ................................................. 657,770 727,612 674,466
------------- ------------- -------------
1,482,981 1,941,860 1,994,395
------------- ------------- -------------
Income before income taxes ........................................................... 1,805,424 1,870,818 2,837,822
Income tax expense (Note 3) .......................................................... 142,494 109,100 111,678
------------- ------------- -------------
Net investment income ................................................................$ 1,662,930 $ 1,761,718 $ 2,726,144
============= ============= =============
Proceeds from disposition of investments .............................................$ 14,893,442 $ 1,530,691 $ 16,669,892
Cost of investments sold (Note 1) .................................................... 5,662,000 -- 6,764,823
------------- ------------- -------------
Realized gain on investments before income taxes (Note 9) ............................ 9,231,442 1,530,691 9,905,069
Income tax expense ................................................................... 3,211,550 535,742 3,420,177
------------- ------------- -------------
Net realized gain on investments ..................................................... 6,019,892 994,949 6,484,892
------------- ------------- -------------
Increase (decrease) in unrealized appreciation of investments before income taxes .... (38,071,790) (63,433,545) 106,748,923
Increase (decrease) in deferred income taxes on appreciation of investments (Note 3) . (13,322,000) (22,201,000) 37,361,000
------------- ------------- -------------
Net increase (decrease) in unrealized appreciation of investments .................... (24,749,790) (41,232,545) 69,387,923
------------- ------------- -------------
Net realized and unrealized gain (loss) on investments ...............................$ (18,729,898) $ (40,237,596) $ 75,872,815
============= ============= =============
Increase (decrease) in net assets from operations ....................................$ (17,066,968) $ (38,475,878) $ 78,598,959
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Capital Southwest Corporation and Subsidiary
Consolidated Statements of Changes in Net Assets
Years Ended March 31
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Operations
Net investment income................................................. $ 1,662,930 $ 1,761,718 $ 2,726,144
Net realized gain on investments ..................................... 6,019,892 994,949 6,484,892
Net increase (decrease) in unrealized appreciation of investments .... (24,749,790) (41,232,545) 69,387,923
------------- ------------- -------------
Increase (decrease) in net assets from operations .................... (17,066,968) (38,475,878) 78,598,959
Distributions from:
Undistributed net investment income .................................. (2,289,031) (2,280,411) (2,268,451)
Capital share transactions
Exercise of employee stock options ................................... -- 965,438 720,188
------------- ------------- -------------
Increase (decrease) in net assets .................................... (19,355,999) (39,790,851) 77,050,696
Net assets, beginning of year ........................................... 256,231,965 296,022,816 218,972,120
------------- ------------- -------------
Net assets, end of year ................................................. $ 236,875,966 $ 256,231,965 $ 296,022,816
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Capital Southwest Corporation and Subsidiary
Consolidated Statements of Cash Flows
Years Ended March 31
-----------------------------------------------
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Increase (decrease) in net assets from operations................................ $ (17,066,968) $ (38,475,878) $ 78,598,959
Adjustments to reconcile increase (decrease) in net assets from operations to
net cash provided by operating activities:
Depreciation and amortization ................................................ 31,976 24,667 23,770
Net pension benefit .......................................................... (435,984) (311,625) (313,511)
Net realized and unrealized (gain) loss on investments ....................... 18,729,898 40,237,596 (75,872,815)
(Increase) decrease in receivables ........................................... 77,113 17,166 (53,058)
Increase in other assets ..................................................... (44,754) (47,315) (7,035)
Increase (decrease) in accrued interest and other liabilities ................ 41,504 (74,670) 46,649
Deferred income taxes ........................................................ 152,600 109,100 109,729
------------- ------------- -------------
Net cash provided by operating activities ....................................... 1,485,385 1,479,041 2,532,688
------------- ------------- -------------
Cash flows from investing activities
Proceeds from disposition of investments ........................................ 14,893,442 1,530,691 16,669,892
Purchases of securities ......................................................... (21,924,423) (13,170,132) (9,709,195)
Maturities of securities ........................................................ 4,840,000 744,539 1,697,866
Income taxes paid on realized gain on investments ............................... (4,069,101) (266,643) (6,604,549)
------------- ------------- -------------
Net cash provided (used) by investing activities ................................ (6,260,082) (11,161,545) 2,054,014
------------- ------------- -------------
Cash flows from financing activities
Increase (decrease) in notes payable ............................................ 65,000,000 (100,000,000) 100,000,000
Distributions from undistributed net investment income .......................... (2,289,031) (2,280,411) (2,268,451)
Proceeds from exercise of employee stock options ................................ -- 965,438 720,188
------------- ------------- -------------
Net cash provided (used) by financing activities ................................ 62,710,969 (101,314,973) 98,451,737
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ............................ 57,936,272 (110,997,477) 103,038,439
Cash and cash equivalents at beginning of year .................................. 6,050,443 117,047,920 14,009,481
------------- ------------- -------------
Cash and cash equivalents at end of year ........................................ $ 63,986,715 $ 6,050,443 $ 117,047,920
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for: Interest ......................................... $ 436,023 $ 424,926 $ 400,000
Income taxes...................................... $ 4,092,891 $ 288,838 $ 6,621,499
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Capital Southwest Corporation ("CSC") is a business development company
subject to regulation under the Investment Company Act of 1940. Capital
Southwest Venture Corporation ("CSVC"), a wholly-owned subsidiary of CSC, is a
Federal licensee under the Small Business Investment Act of 1958. The following
is a summary of significant accounting policies followed in the preparation of
the consolidated financial statements of CSC and CSVC (together, the "Company"):
Principles of Consolidation. The consolidated financial statements have
been prepared on the value method of accounting in accordance with generally
accepted accounting principles for investment companies. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents. All temporary cash investments having a maturity
of three months or less when purchased are considered to be cash equivalents.
Investments. Investments are stated at market or fair value determined by
the Board of Directors as described in the Notes to Portfolio of Investments and
Note 2 below. The average cost method is used in determining cost of investments
sold. Investments are recorded on a trade date basis. Dividends are recognized
on the ex-dividend date and interest income is accrued daily.
Segment Information. The Company operates and manages its business in a
singular segment. As an investment company, the Company invests in portfolio
companies in various industries and geographic areas as presented in the
portfolio of investments.
2. Valuation of Investments
The consolidated financial statements as of March 31, 2000 and 1999 include
securities valued at $272,736,962 (84% of the value of the consolidated
investment portfolio) and $309,498,090 (88% of the value of the consolidated
investment portfolio), respectively, whose values have been determined by the
Board of Directors in the absence of readily ascertainable market values.
Because of the inherent uncertainty of valuation, these values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
3. Income taxes
For the tax years ended December 31, 1999, 1998 and 1997, CSC and CSVC
qualified to be taxed as regulated investment companies ("RICs") under
applicable provisions of the Internal Revenue Code. As RICs, CSC and CSVC must
distribute at least 90% of their taxable net investment income (investment
company taxable income) and may either distribute or retain their taxable net
realized gain on investments (capital gains). Both CSC and CSVC intend to meet
the applicable qualifications to be taxed as RICs in future years; however,
either company's ability to meet certain portfolio diversification requirements
of RICs in future years may not be controllable by such company.
No provision was made for Federal income taxes on the investment company
taxable income of CSC and CSVC for the 2000, 1999 and 1998 fiscal years. Such
income was distributed to shareholders in the form of cash dividends for which
CSC and CSVC receive a tax deduction. With respect to net investment income, the
income tax expense for each of the three years ended March 31, 2000 includes a
deferred tax provision related to the net pension benefit.
CSC and CSVC may not qualify or elect to be taxed as RICs in future years.
Therefore, consolidated deferred Federal income taxes of $83,151,000 and
$96,473,000 have been provided on net unrealized appreciation of investments of
$238,626,698 and $276,698,488 at March 31, 2000 and 1999, respectively. Such
appreciation is not included in taxable income until realized. Deferred income
taxes on net unrealized appreciation of investments have been provided at the
then currently effective maximum Federal corporate tax rate on capital gains of
35% at March 31, 2000 and 1999.
<PAGE>
4. Notes Payable
The note payable to bank at March 31, 2000 was an unsecured note with
interest payable at 6.48%. The note was paid in full on April 3, 2000. The notes
payable to subsidiary were demand promissory notes to Skylawn Corporation with
interest payable at prime minus 2.25%.
5. Subordinated Debenture
The subordinated debenture of $5,000,000 outstanding at March 31, 2000 and
1999 is payable to others and guaranteed by the Small Business Administration
("SBA"), bears interest at 8.0% and matures in 2002.
6. Employee Stock Option Plan
Under the 1984 Incentive Stock Option Plan, options to purchase 42,000
shares of the Company's common stock at $35.625 per share (the adjusted market
price at the time of grant) were outstanding and exercisable at March 31, 2000
and expire in 2003. The 1984 Incentive Stock Option Plan expired in 1994 and no
options have been authorized or granted thereunder since that date.
On July 19, 1999 shareholders approved the 1999 Stock Option Plan under
which 140,000 shares of common stock were reserved for issuance to employees and
officers of the Company. Options to purchase 32,000 shares at a price of $77.00
per share (the market price at the time of grant) and 6,000 shares at $84.70
were granted during the year and remain outstanding at March 31, 2000, thus
leaving a total of 102,000 options available for future grant. Such options
expire ten years from the date of grant and are generally exercisable on or
after the first anniversary of the date of grant in eight annual installments.
At March 31, 2000 and 1999, the dilution of net assets per share arising
from options outstanding was not material.
7. Employee Stock Ownership Plan
The Company and one of its wholly-owned subsidiaries sponsor a qualified
employee stock ownership plan ("ESOP") in which certain employees participate.
Contributions to the plan, which are invested in Company stock, are made at the
discretion of the Company's Board of Directors. A participant's interest in
contributions to the ESOP fully vests after five years of active service. During
the three years ended March 31, the Company made contributions to the ESOP,
which were charged against net investment income, of $43,862 in 2000, $35,079 in
1999 and $67,763 in 1998.
8. Retirement Plans
The Company sponsors a qualified defined benefit pension plan which covers
its employees and employees of certain of its wholly-owned subsidiaries. The
following information about the plan represents amounts and information related
to the Company's participation in the plan and is presented as though the
Company sponsored a single-employer plan. Benefits are based on years of service
and an average of the highest five consecutive years of compensation during the
last ten years of employment. The funding policy of the plan is to contribute
annual amounts that are currently deductible for tax reporting purposes. No
contribution was made to the plan during the three years ended March 31, 2000.
The following tables set forth the plan's benefit obligations and fair
value of plan assets at March 31, 2000, 1999 and 1998:
<TABLE>
Years Ended March 31
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning
of year............................... $ 3,315,119 $ 3,059,555 $ 2,376,257
Service cost ............................... 43,818 68,710 52,388
Interest cost .............................. 193,397 199,301 204,328
Amendments ................................. -- (149,171) --
Actuarial gain (loss) ...................... (201,158) 205,810 495,668
Benefits paid .............................. (90,810) (69,086) (69,086)
------------ ------------ ------------
Benefit obligation at end of year .......... $ 3,260,366 $ 3,315,119 $ 3,059,555
============ ============ ============
Change in plan assets
Fair value of plan assets at beginning
of year............................... $10,074,598 $ 11,314,714 $ 7,820,401
Actual return on plan assets ............... (146,241) (1,171,030) 3,563,399
Benefits paid .............................. (90,810) (69,086) (69,086)
------------ ------------ ------------
Fair value of plan assets at end of
year................................... $ 9,837,547 $ 10,074,598 $ 11,314,714
============ ============ ============
<PAGE>
The following table sets forth the qualified plan's funded status and
amounts recognized in the Company's consolidated statements of financial
condition:
March 31
----------------------------
2000 1999
------------ ------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $2,928,376 in 2000
and $2,915,453 in 1999 ......................................... $ (2,965,576) $ (2,990,205)
============ ============
Projected benefit obligation for service rendered to
date ........................................................... $ (3,260,366) $ (3,315,119)
Plan assets at fair value* .......................................... 9,837,547 10,074,598
------------ ------------
Excess of plan assets over the projected benefit
obligation ..................................................... 6,577,181 6,759,479
Unrecognized net (gain) loss from past experience
different from that assumed and effects of
changes in assumptions ......................................... (1,518,207) (2,192,798)
Prior service costs not yet recognized .............................. (162,965) (174,288)
Unrecognized net assets being amortized over
19 years ....................................................... (369,139) (442,970)
------------ ------------
Prepaid pension cost included in other assets $ 4,526,870 $ 3,949,423
============ ============
</TABLE>
-------------
*Primarily equities and bonds including approximately 30,000 shares of common
stock of the Company.
Components of net pension benefit related to the qualified plan include the
following:
Years Ended March 31
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Service cost - benefits earned during
the year ....................... $ 43,818 $ 68,710 $ 52,388
Interest cost on projected benefit
obligation ..................... 193,397 199,301 204,328
Actual return on assets ............. 146,241 1,171,030 (3,563,399)
Net amortization and deferral ....... (960,903) (1,901,221) 2,813,811
----------- ----------- -----------
Net pension expense (benefit) from
qualified plan ................. $ (577,447) $ 462,180) $ (492,872)
=========== =========== ===========
The Company also sponsors an unfunded Retirement Restoration Plan, which is
a nonqualified plan that provides for the payment, upon retirement, of the
difference between the maximum annual payment permissible under the qualified
retirement plan pursuant to Federal limitations and the amount which would
otherwise have been payable under the qualified plan.
The following table sets forth the Retirement Restoration Plan's benefit
obligation at March 31, 2000, 1999 and 1998:
Years Ended March 31
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Change in benefit obligation
Benefit obligation at beginning
of year ................... $ 2,166,180 $ 2,051,899 $ 1,474,701
Service cost .................... 4,089 13,087 5,958
Interest cost ................... 117,541 117,635 142,735
Amendments ...................... -- 83,360 --
Actuarial gain (loss) ........... (261,315) (99,801) 428,505
----------- ----------- -----------
Benefit obligation at end of year $ 2,026,495 $ 2,166,180 $ 2,051,899
=========== =========== ===========
The following table sets forth the status of the Retirement Restoration
Plan and the amounts recognized in the consolidated statements of financial
condition:
March 31
--------------------------
2000 1999
----------- -----------
Projected benefit obligation ..................... $(2,026,495) $(2,166,180)
Unrecognized net (gain) loss from past ex-
perience different from that assumed
and effects of changes in assumptions ....... 45,101 306,416
Unrecognized prior service costs ................. 83,360 83,360
Unrecognized net obligation ...................... 19,823 39,656
----------- -----------
Accrued pension cost included in other liabilities $(1,878,211) $(1,736,748)
=========== ===========
The Retirement Restoration Plan expenses recognized during the years ended
March 31, 2000, 1999 and 1998 of $141,463, $150,555 and $179,361, respectively,
are offset against the net pension benefit from the qualified plan.
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 6.5% and 5.0%, respectively, at both March 31,
2000 and March 31, 1999 and 7.0% and 5.0%, respectively, at March 31, 1998. The
expected long-term rate of return used to project estimated earnings on plan
assets for the qualified plan was 7.5% for the year ended March 31, 2000 and
8.5% for the years ended March 31, 1999 and 1998. The calculations also assume
retirement at age 65, the normal retirement age.
<PAGE>
<TABLE>
<CAPTION>
9. Sources of Income
Income was derived from the following sources:
Investment Income Realized Gain
Years Ended --------------------------------------- (Loss) on
March 31 Investments
-------- Other Before Income
2000 Interest Dividends Income Taxes
---- ------------------------------------------ ------------
<S> <C> <C> <C> <C>
Companies more than
25% owned ......... $ 106,400 $ 1,440,755 $ 487,400 $ --
Companies 5% to 25%
owned ............. -- -- (1,500) 8,133,870
Companies less than
5% owned .......... 173,105 438,098 39,500 1,097,572
Other sources,
including temporary
investments ....... 604,647 -- -- --
----------------------------------------------------------
$ 884,152 $ 1,878,853 $ 525,400 $ 9,231,442
==========================================================
1999
----
Companies more than
25% owned ......... $ 140,000 $ 1,644,270 $ 490,900 $ --
Companies 5% to 25%
owned ............. 3,495 -- 34,750 --
Companies less than
5% owned .......... 688,210 322,090 13,000 1,530,691
Other sources,
including temporary
investments ....... 475,963 -- -- --
----------------------------------------------------------
$ 1,307,668 $ 1,966,360 $ 538,650 $ 1,530,691
==========================================================
1998
----
Companies more than
25% owned ......... $ 168,000 $ 1,985,200 $ 518,900 $ --
Companies 5% to 25%
owned ............. 8,706 -- 35,500 (3,990,894)
Companies less than
5% owned .......... 609,187 252,093 15,500 13,895,963
Other sources,
including temporary
investments ....... 1,239,131 -- -- --
----------------------------------------------------------
$ 2,025,024 $ 2,237,293 $ 569,900 $ 9,905,069
==========================================================
</TABLE>
10. Summarized Financial Information of Unconsolidated Subsidiaries
The Company has three significant wholly-owned subsidiaries - The
RectorSeal Corporation, The Whitmore Manufacturing Company and Skylawn
Corporation - which are neither investment companies nor business development
companies. Accordingly, the accounts of such subsidiaries are not included with
those of the Company. Summarized combined financial information of the three
subsidiaries is as follows:
(all figures in thousands) March 31
------------------------------
2000 1999
-------- --------
Condensed Balance Sheet Data
Assets
Cash and temporary
investments......................... $ 12,547 $ 12,130
Receivables .......................... 30,022 26,350
Inventories .......................... 36,523 34,373
Property, plant and equipment ........ 34,604 33,152
Other assets ......................... 19,671 18,549
-------- --------
Totals ............................. $133,367 $124,554
======== ========
Liabilities and Shareholder's Equity
Long-term debt........................ $ 9,669 $ 11,685
Other liabilities .................... 17,205 14,086
Shareholder's equity ................. 106,493 98,783
-------- --------
Totals ............................. $133,367 $124,554
======== ========
Condensed Statements of Income
2000 1999 1998
-------- -------- --------
Revenues ............................. $ 91,608 $ 83,426 $ 77,275
Costs and operating expenses ......... $ 79,237 $ 72,566 $ 66,223
Net income...............................$ 7,917 $ 7,021 $ 8,066
11. Commitments
The Company has agreed, subject to certain conditions, to invest up to
$3,053,125 in five portfolio companies.
The Company leases office space under an operating lease which requires
base annual rentals of approximately $58,000 through February, 2003. For the
three years ended March 31, total rental expense charged to investment income
was $57,479 in 2000, $58,798 in 1999 and $44,285 in 1998.
<PAGE>
<TABLE>
<CAPTION>
Selected Per Share Data and Ratios
Years Ended March
-----------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income .................................................. $ .86 $ 1.00 $ 1.28 $ 1.26 $ 1.64
Operating expenses ................................................. (.27) (.40) (.42) (.37) (.41)
Interest expense ................................................... (.12) (.11) (.11) (.17) (.45)
Income taxes ....................................................... (.03) (.03) (.03) (.03) (.02)
-----------------------------------------------------
Net investment income .............................................. .44 .46 .72 .69 .76
Distributions from undistributed net investment income ............. (.60) (.60) (.60) (.60) (.60)
Net realized gain on investments ................................... 1.58 .26 1.71 1.81 2.97
Distributions from undistributed net realized gain on investments .. -- -- -- -- (.04)
Net increase (decrease) in unrealized appreciation of investments
before distributions............................................... (6.49) (10.81) 18.32 6.05 10.28
Distributions from unrealized appreciation of investments .......... -- -- -- -- (2.46)
Exercise of employee stock options* ................................ -- (.30) (.13) -- (.19)
-----------------------------------------------------
Increase (decrease) in net asset value ............................. (5.07) (10.99) 20.02 7.95 10.72
Net asset value:
Beginning of year ................................................ 67.16 78.15 58.13 50.18 39.46
-----------------------------------------------------
End of year ...................................................... $ 62.09 $ 67.16 $ 78.15 $ 58.13 $ 50.18
=====================================================
Ratio of operating expenses to average net assets .................. .4% .6% .6% .7% .9%
Ratio of net investment income to average net assets ............... .7% .6% 1.1% 1.2% 1.7%
Portfolio turnover rate ............................................ 4.3% .2% 2.5% 1.6% 4.5%
Shares outstanding at end of period (000s omitted) ................. 3,815 3,815 3,788 3,767 3,767
</TABLE>
---------------
*Net decrease is due to exercise of employee stock options at less than
beginning of period net asset value.
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Capital Southwest Corporation:
We have audited the accompanying consolidated statements of financial
condition of Capital Southwest Corporation and subsidiary as of March 31, 2000
and 1999, including the portfolio of investments as of March 31, 2000, and the
related consolidated statements of operations, changes in net assets, and cash
flows for each of the years in the three-year period ended March 31, 2000 and
the selected per share data and ratios for each of the years in the five-year
period ended March 31, 2000. These financial statements and per share data and
ratios are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and per share data and
ratios based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and per share data and ratios are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included verification of
securities owned as of March 31, 2000 and 1999, by examination of such
securities held by the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements and selected per share
data and ratios referred to above present fairly, in all material respects, the
financial position of Capital Southwest Corporation and subsidiary as of March
31, 2000 and 1999, and the results of their operations, the changes in their net
assets and their cash flows for each of the years in the three-year period ended
March 31, 2000, and the selected per share data and ratios for each of the years
in the five-year period ended March 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Dallas, Texas
April 21, 2000
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The composite measure of the Company's financial performance in the
Consolidated Statements of Operations is captioned "Increase (decrease) in net
assets from operations" and consists of three elements. The first is "Net
investment income", which is the difference between the Company's income from
interest, dividends and fees and its combined operating and interest expenses,
net of applicable income taxes. The second element is "Net realized gain on
investments", which is the difference between the proceeds received from
disposition of portfolio securities and their stated cost, net of applicable
income tax expense. The third element is the "Net increase (decrease) in
unrealized appreciation of investments", which is the net change in the market
or fair value of the Company's investment portfolio, compared with stated cost,
net of an increase or decrease in deferred income taxes which would become
payable if the unrealized appreciation were realized through the sale or other
disposition of the investment portfolio. It should be noted that the "Net
realized gain 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 being "unrealized" to being "realized." Conversely, when a loss
is realized on a depreciated portfolio security, an increase in net unrealized
appreciation occurs.
Net Investment Income
The Company's principal objective is to achieve capital appreciation.
Therefore, a significant portion of the investment portfolio is structured to
maximize the potential return from equity participation and provides minimal
current yield in the form of interest or dividends. The Company also earns
interest income from the short-term investment of cash funds, and the annual
amount of such income varies based upon the average level of funds invested
during the year and fluctuations in short-term interest rates. During the three
years ended March 31, the Company had interest income from temporary cash
investments of $599,000 in 2000, $476,000 in 1999 and $1,239,000 in 1998. The
Company also receives management fees from its wholly-owned subsidiaries which
aggregated $458,400 in the years ended March 31, 2000 and March 31, 1999, and
$494,400 in the year ended March 31, 1998. During the three years ended March
31, 2000, the Company recorded dividend income from the following sources:
Years Ended March 31
----------------------------------
2000 1999 1998
---------- ---------- ----------
AT&T Corp........................... $ 146,570 $ - $ -
Alamo Group Inc. ................... 790,756 1,170,400 1,064,000
Dennis Tool Company................. 49,999 - -
Kimberly - Clark Corporation........ 81,039 77,952 19,295
The RectorSeal Corporation.......... 240,000 240,000 501,200
Skylawn Corporation................. 300,000 150,000 300,000
TCI Holdings, Inc./Westmarc
Communications................... 81,270 81,270 81,270
Texas Shredder, Inc. ............... 40,460 40,460 37,500
The Whitmore Manufacturing Company.. 60,000 60,000 120,000
Other............................... 88,759 146,278 114,028
---------- ---------- ----------
$1,878,853 $1,966,360 $2,237,293
========== ========== ==========
Total operating expenses, excluding interest expense, decreased by $498,967
or 32.7% and decreased by $41,747 or 2.7% during the years ended March 31, 2000
and 1999, respectively. Due to the nature of its business, the majority of the
Company's operating expenses are related to employee and director compensation,
office expenses, legal and accounting fees and the net pension benefit. Interest
expense, the majority of which is related to the SBA-guaranteed subordinated
debenture, increased by $40,088 and decreased by $10,788 during the years ended
March 31, 2000 and 1999, respectively.
Net Realized Gain on Investments
Net realized gain on investments was $6,019,892 (after income tax expense of
$3,211,550) during the year ended March 31, 2000, compared with a gain of
$994,949 (after income tax expense of $535,742) during 1999 and a gain of
$6,484,892 (after income tax expense of $3,420,177) during 1998. Management does
not attempt to maintain a comparable level of realized gains from year to year,
but instead attempts to maximize total investment portfolio appreciation. This
strategy often dictates the long-term holding of portfolio securities in pursuit
of increased values and increased unrealized appreciation, but may at opportune
times dictate realizing gains through the disposition of certain portfolio
investments.
<PAGE>
Net Increase (Decrease) in Unrealized Appreciation of Investments
For the three years ended March 31, the Company recorded an increase
(decrease) in unrealized appreciation of investments before income taxes of
$(38,071,790), $(63,433,545) and $106,748,923 in 2000, 1999 and 1998,
respectively. As explained in the first paragraph of this discussion and
analysis, the realization of gains or losses results in a corresponding decrease
or increase in unrealized appreciation of investments. Set forth in the
following table are the significant increases and decreases in unrealized
appreciation (before the related change in deferred income taxes and excluding
the effect of gains or losses realized during the year) by portfolio company for
securities held at the end of each year.
Years Ended March 31
---------------------------------------
2000 1999 1998
----------- ----------- -----------
AT&T Corp......................$ 430,271 $ 3,532,591 $ 1,419,678
AT&T Corp.-Liberty Media Group. 11,183,260 3,131,973 4,432,679
Alamo Group Inc. .............. 7,276,953 (20,615,000) 5,463,000
American Homestar Corporation.. (4,224,707) (11,547,532) 8,480,708
Amfibe, Inc.................... 3,900,000 (2,400,000) 2,400,000
Balco, Inc..................... (2,529,600) 3,422,440 -
CDC Technologies, Inc.......... (3,099,156) - -
Dennis Tool Company............ (600,000) (3,299,944) 495,000
Dyntec, Inc.................... (4,499,998) - -
Encore Wire Corporation....... (2,724,000) (19,013,000) 17,279,000
Mail-Well, Inc. ............... (5,241,000) (6,214,860) 14,020,000
Media Recovery, Inc............ 2,585,000 615,000 241,486
Palm Harbor Homes, Inc......... (39,276,000) (12,568,000) 53,792,000
PETsMART, Inc. ................ (3,271,100) (1,758,216) (6,092,424)
The RectorSeal Corporation..... 3,500,000 - 3,500,000
Rewind Holdings, Inc........... (2,200,000) - -
SDI Holding Corp............... - 6,000,000 -
Skylawn Corporation............ - (7,000,000) -
The Whitmore Manufacturing
Company................. (800,000) 2,800,000 -
A description of the investments listed above and other material components
of the investment portfolio is included elsewhere in this report under the
caption "Portfolio of Investments - March 31, 2000."
Deferred Taxes on Unrealized Appreciation of Investments
The Company provides for deferred Federal income taxes on net unrealized
appreciation of investments. Such taxes would become payable at such time as
unrealized appreciation is realized through the sale or other disposition of
those components of the investment portfolio which would result in taxable
transactions. At March 31, 2000 consolidated deferred Federal income taxes of
$83,151,000 were provided on net unrealized appreciation of investments of
$238,626,698 compared with deferred taxes of $96,473,000 on net unrealized
appreciation of $276,698,488 at March 31, 1999. Deferred income taxes at March
31, 2000 and 1999 were provided at the then currently effective maximum Federal
corporate tax rate on capital gains of 35%.
Portfolio Investments
During the year ended March 31, 2000, the Company invested $21,924,423 in
various portfolio securities listed elsewhere in this report under the caption
"Portfolio Changes During the Year," which also lists dispositions of portfolio
securities. During the 1999 and 1998 fiscal years, the Company invested a total
of $13,170,132 and $9,709,195, respectively.
Financial Liquidity and Capital Resources
At March 31, 2000, the Company had net cash equivalent assets (cash and
cash equivalents less the note payable to bank) of $4.0 million. Pursuant to
Small Business Administration ("SBA") regulations, cash and cash equivalents of
$0.3 million held by CSVC may not be transferred or advanced to CSC 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 $50.8 million
in addition to the $5 million presently outstanding. With the exception of a
capital gain distribution made in the form of a distribution of the stock of a
portfolio company in the fiscal year ended March 31, 1996, the Company has
elected to retain all gains realized during the past 32 years. Retention of
future gains is viewed as an important source of funds to sustain the Company's
investment activity. Approximately $50.9 million of the Company's investment
portfolio is represented by unrestricted publicly-traded securities, which have
an ascertainable market value and represent a primary source of liquidity.
<PAGE>
Funds to be used by the Company for operating or investment purposes may be
transferred in the form of dividends, management fees or loans from Skylawn
Corporation, The RectorSeal Corporation and The Whitmore Manufacturing Company,
wholly-owned subsidiaries of the Company, to the extent of their available cash
reserves and borrowing capacities.
Management believes that the Company's net cash equivalent assets are
adequate to meet its expected requirements. Consistent with the long- term
strategy of the Company, the disposition of investments from time to time may
also be an important source of funds for future investment activities.
Impact of Inflation
The Company does not believe that its business is materially affected by
inflation, other than the impact which inflation may have on the securities
markets, the valuations of business enterprises and the relationship of such
valuations to underlying earnings, all of which will influence the value of the
Company's investments.
Risks
Pursuant to Section 64(b)(1) of the Investment Company Act of 1940, a
business development company is required to describe the risk factors involved
in an investment in the securities of such company due to the nature of the
company's investment portfolio. Accordingly the Company states that:
The Company's objective is to achieve capital appreciation through
investments in businesses believed to have favorable growth potential. Such
businesses are often undercapitalized small companies which lack management
depth and have not yet attained profitability. The Company's venture investments
often include securities which do not yield interest or dividends and are
subject to legal or contractual restrictions on resale, which restrictions
adversely affect the liquidity and marketability of such securities.
Because of the speculative nature of the Company's investments and the lack
of any market for the securities initially purchased by the Company, there is a
significantly greater risk of loss than is the case with traditional investment
securities. The high-risk, long-term nature of the Company's venture investment
activities may prevent shareholders of the Company from achieving price
appreciation and dividend distributions.
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Data
(all figures in thousands except per share data)
1990 1991 1992 1993 1994 1995 1996
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Position (as of March 31)
Investments at cost ........................ $ 32,212 $ 31,593 $ 34,929 $ 33,953 $ 41,993 $ 49,730 $ 58,544
Unrealized appreciation .................... 99,903 107,120 100,277 113,153 132,212 153,031 198,386
-------- -------- -------- -------- -------- -------- --------
Investments at market or
fair value .............................. 132,115 138,713 135,206 147,106 174,205 202,761 256,930
Total assets ............................... 185,231 149,975 208,871 176,422 270,874 213,811 326,972
Subordinated debentures .................... 15,000 15,000 11,000 15,000 15,000 11,000 11,000
Deferred taxes on
unrealized appreciation ................. 33,608 36,063 33,761 38,112 45,932 53,247 69,121
Net assets ................................. 94,610 97,139 107,522 121,455 133,053 147,370 189,048
Shares outstanding ......................... 3,617 3,617 3,644 3,681 3,715 3,735 3,767
------------------------------------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ...................... $ 1,737 $ 2,090 $ 2,363 $ 2,189 $ 2,870 $ 2,447 $ 2,855
Net realized gain (loss) on
investments ............................. 12,722 (2,515) 14,313 5,099 (475) 142 11,174
Net increase (decrease) in
unrealized appreciation
before distributions .................... 1,780 4,762 (4,541) 8,524 11,160 13,584 38,746
-------- -------- -------- -------- -------- -------- --------
Increase (decrease) in net
assets from operations
before distributions .................... 16,239 4,337 12,135 15,812 13,555 16,173 52,775
Cash dividends paid ........................ (5,197) (1,809) (2,181) (2,202) (2,228) (2,241) (2,270)
Securities dividends ....................... -- -- -- -- -- -- (9,402)
Employee stock options
exercised ............................... 444 -- 429 322 272 385 575
-------- -------- -------- -------- -------- -------- --------
Increase (decrease) in net assets .......... 11,486 2,528 10,383 13,932 11,599 14,317 41,678
------------------------------------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
unrealized appreciation ................. $ 9.29 $ 9.97 $ 9.27 $ 10.35 $ 12.36 $ 14.26 $ 18.35
Net assets ................................. 26.16 26.86 29.51 32.99 35.81 39.46 50.18
Closing market price ....................... 21.375 20.75 24.25 36.50 38.125 38.00 60.00
Cash dividends paid ........................ 1.44 .50 .60 .60 .60 .60 .60
Securities dividends ....................... -- -- -- -- -- -- 2.50
1997 1998 1999 2000
----------------------------------------------
Financial Position (as of March 31)
Investments at cost ........................ $ 59,908 $ 61,154 $ 73,580 $ 85,002
Unrealized appreciation .................... 233,383 340,132 276,698 238,627
-------- -------- --------- ---------
Investments at market or
fair value .............................. 293,291 401,286 350,278 323,629
Total assets ............................... 310,760 522,324 360,786 392,586
Subordinated debentures .................... 5,000 5,000 5,000 5,000
Deferred taxes on
unrealized appreciation ................. 81,313 118,674 96,473 83,151
Net assets ................................. 218,972 296,023 256,232 236,876
Shares outstanding ......................... 3,767 3,788 3,815 3,815
-------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income ...................... $ 2,574 $ 2,726 $ 1,762 $ 1,663
Net realized gain (loss) on
investments ............................. 6,806 6,485 995 6,020
Net increase (decrease) in
unrealized appreciation
before distributions .................... 22,804 69,388 (41,233) (24,750)
-------- -------- --------- ---------
Increase (decrease) in net
assets from operations
before distributions .................... 32,184 78,599 (38,476) (17,067)
Cash dividends paid ........................ (2,260) (2,268) (2,280) (2,289)
Securities dividends ....................... -- -- -- --
Employee stock options
exercised ............................... -- 720 965 --
-------- -------- --------- ---------
Increase (decrease) in net assets .......... 29,924 77,051 (39,791) (19,356)
-------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
unrealized appreciation ................. $ 21.59 $31.33 $ 25.29 $ 21.80
Net assets ................................. 58.13 78.15 67.16 62.09
Closing market price ....................... 67.875 94.00 73.00 54.75
Cash dividends paid ........................ .60 .60 .60 .60
Securities dividends ....................... -- -- -- --
</TABLE>
<PAGE>
Shareholder Information
Stock Transfer Agent
American Stock Transfer & Trust Company, 40 Wall Street, New York, NY 10005
(telephone 800-937-5449) serves as transfer agent for the Company's common
stock. Certificates to be transferred should be mailed directly to the transfer
agent, preferably by registered mail.
Shareholders
The Company had approximately 900 record holders of its common stock at March
31, 2000. This total does not include an estimated 2,000 shareholders with
shares held under beneficial ownership in nominee name or within clearinghouse
positions of brokerage firms or banks.
Market Prices
The Company's common stock is traded on The Nasdaq Stock Market (National
Market) under the symbol CSWC. The following high and low selling prices for the
shares during each quarter of the last two fiscal years were taken from
quotations provided to the Company by Nasdaq:
Quarter Ended High Low
-------------------------------------------------------------------------
June 30, 1998.................................... $106 $92
September 30, 1998............................... 103 81 3/8
December 31, 1998............................... 88 3/4 55
March 31, 1999................................... 89 67 1/2
Quarter Ended High Low
-------------------------------------------------------------------------
June 30, 1999.................................... $82 $ 71 1/8
September 30, 1999............................... 81 71
December 31, 1999................................ 70 7/8 56
March 31, 2000................................... 60 44
Dividends
The payment dates and amounts of cash dividends per share since April 1, 1998
are as follows:
Payment Date Cash Dividend
-----------------------------------------------------------------------
May 29, 1998.............................................. $0.20
November 30, 1998......................................... 0.40
May 28, 1999.............................................. 0.20
November 30, 1999......................................... 0.40
May 31, 2000.............................................. 0.20
The amounts and timing of cash dividend payments have generally been dictated
by requirements of the Internal Revenue Code regarding the distribution of
taxable net investment income (ordinary income) of regulated investment
companies. Instead of distributing realized long-term capital gains to
shareholders, the Company has ordinarily elected to retain such gains to fund
future investments.
Automatic Dividend Reinvestment and Optional Cash Contribution Plan
As a service to its shareholders, the Company offers an Automatic Dividend
Reinvestment and Optional Cash Contribution Plan for shareholders of record who
own a minimum of 25 shares. The Company pays all costs of administration of the
Plan except brokerage transaction fees. Upon request, shareholders may obtain
information on the Plan from the Company, 12900 Preston Road, Suite 700, Dallas,
Texas 75230. Telephone (972) 233-8242. Questions and answers about the Plan are
on the next page.
Annual Meeting
The Annual Meeting of Shareholders of Capital Southwest Corporation will be
held on Monday, July 17, 2000, at 10:00 a.m. in the North Dallas Bank Tower
Meeting Room (first floor), 12900 Preston Road, Dallas, Texas.
