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Capital Southwest Corp. Reports Operating Results (10-Q)

November 05, 2009 | About:

Capital Southwest Corp. (NASDAQ:CSWC) filed Quarterly Report for the period ended 2009-09-30.

Capital Southwest Corporation is a venture capital investment company whose objective is to achieve capital appreciation through long-term investments in businesses believed to have favorable growth potential. The Company's investments are focused on early-stage financings expansion financings management buyouts and recapitalizations in a broad range of industry segments. The portfolio is a composite of companies in which the Company has major interests as well as a number of developing companies and marketable securities of established publicly-owned companies. Capital Southwest Corp. has a market cap of $272.7 million; its shares were traded at around $72.87 with and P/S ratio of 19.5. The dividend yield of Capital Southwest Corp. stocks is 1.1%. Capital Southwest Corp. had an annual average earning growth of 7.1% over the past 10 years.

Highlight of Business Operations:

At September 30, 2009, we had cash and cash equivalents of approximately $6.7 million. Pursuant to Small Business Administration (SBA) regulations, cash and cash equivalents of $4.9 million held by Capital Southwest Venture Corporation (CSVC) may not be transferred or advanced to us without the consent of the SBA. Under current SBA regulations and subject to the SBA’s approval of its credit application, CSVC would be entitled to borrow up to $20.6 million. With the exception of a capital gain distribution made in the form of a distribution of the stock of a portfolio company in the fiscal year ended March 31, 1996, we have elected to retain all gains realized during the past 40 years. Retention of future gains is viewed as an important source of funds to sustain our investment activity. Approximately $18.6 million of our investment portfolio is represented by unrestricted publicly-traded securities, and represent a source of liquidity.

During the quarter ended September 30, 2009, we made investments of $9,000,000 in two new portfolio companies and investments of $405,000 in existing portfolio companies. On October 19, 2009 the Board of Directors granted 38,750 stock options, under the 2009 Stock Incentive Plan, to the officers of the Company, at an exercise price of $76.74. All options granted under the 2009 Stock Incentive Plan were granted at or above market price, generally expire up to ten years from the date of grant and are generally exercisable on or after the first anniversary of the date of grant in five installments.

Heelys, Inc., its former Chief Executive Officer, its former Chief Financial Officer, and its directors who signed the Company's registration statement filed with the Securities and Exchange Commission in connection with its December 7, 2006 initial public offering (the "IPO")—along with us, Capital Southwest Corporation and CSVC, and the underwriters for the Heelys, Inc. IPO—are defendants in a lawsuit originally filed on May 16, 2008 by individual shareholder Carl Dick in the County Court of Law No. 1, Dallas County, Texas. This lawsuit asserts claims that are substantially similar to those asserted in the consolidated class action described above. The petition alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 33(A), (C), and (F) of the Texas Securities Act. Defendants withdrew their previously-filed special exceptions to Plaintiff’s petition seeking to have all claims dismissed. Plaintiff and Defendants have agreed to settle this case for $5.3 million. Heelys, Inc. expects that its insurance policies will fund approximately $2.4 million of this amount, and they will fund the remainder. The settlement is subject to final documentation.

Read the The complete ReportCSWC is in the portfolios of Third Avenue Management, Martin Whitman of Third Avenue Value Fund, Ian Cumming of Leucadia National, Kenneth Fisher of Fisher Asset Management, LLC.

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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