Semi-AnnuAl
RepoRt
SeptembeR 30,
37675_CV.indd 2
11/6/12 1:16 PM
AbOut t he COmpAny
Capital Southwest is a publicly-owned business development company.
Our investment approach allows us to achieve capital appreciation
through long-term investments in exceptional businesses. Since our
formation in 1961, we have sought to invest in companies with strong
management teams and sound financial performance. As a public
company we are never between funds—we have no exit deadlines.
We have a history of holding our position for decades, enabling
companies to achieve their full potential. In addition to capital, we
provide our portfolio companies services to ensure success including
best practices resources and guidance, active board representation,
corporate finance strategy and experienced advice when needed.
37675_CV.indd 3
11/6/12 1:16 PM
TO OUR SHAREHOLDERS
FINANCIAL HIGHLIGHTS
Net asset value at September 30, 2012 was $602,242,516 equivalent to $158.65 per share.
Assuming reinvestment of all dividends and tax credits on retained long-term capital gains,
including the $17.59 per share capital gains dividend distributed to shareholders in June 2012,
this represents a net asset value increase of 14.2% during the first half of the current fiscal
year and an increase of 44.3% during the past twelve months.
Net assets
Shares outstanding
Net assets per share
September 30,
2012
$602,242,516
3,796,078
$158.65
March 31,
2012
$628,707,006
3,754,538
$167.45
September 30,
2011
$502,175,307
3,754,538
$133.75
The six months ended September 30, 2012 decrease in net assets of $26,464,490 is primarily
due to our capital gains distribution of $66,825,782. Unrealized appreciation of investments
increased by $54,724,826 after net realized gains of $66,881,033. Approximately 60.7% and
14.2% of value increases came from The RectorSeal Corporation and The Whitmore
Manufacturing Company, respectively, reflecting improvements in earnings from operations;
and 15.0% came from Alamo Group, Inc. due to an increase in the market value of their stock
price. Approximately 84.2% of the value decreases came from Encore Wire Corporation due
to the sale of 2,774,250 shares of common stock of Encore Wire, Inc. held by our subsidiary,
Capital Southwest Venture Corporation. In addition, the value of Media Recovery, Inc.
declined 6.7%, reflecting a decline in earnings from operations.
INVESTMENT AND PORTFOLIO ACTIVITY
During the six months ended September 30, 2012, we invested $5,950,000 in TitanLiner, Inc.,
which manufactures, installs and rents spill containment systems, primarily for oilfield
applications. During this same period, we provided $609,000 as add-on investments to the
following portfolio companies: $42,000 in BankCap Partners Fund I, L.P.; $259,045 in
Cinatra Clean Technologies, Inc.; and $308,000 in iMemories, Inc. In addition, we received
77,194 shares of common stock of North American Energy Partners, Inc. as a distribution
from Sterling Group Partners I, LP, which were valued at $236,986 upon distribution.
Future commitments, subject to certain conditions, are: $149,530 in BankCap Partners Fund I,
LP; $1,275,000 in Ballast Point Ventures II, LP; $555,739 in Cinatra Clean Technologies,
Inc.; $3,500,000 in CapStar Holdings Corporation; $770,000 in CapitalSouth Partners Fund
III; $720,000 in Discovery Alliance, LLC; $850,000 in KBI Biopharma, Inc.; $486,900 in
Sterling Group Partners I, LP; and $1,831,000 in TitanLiner, Inc.
DIVESTITURES AND DISTRIBUTIONS
Net realized gains for the six months ended September 30, 2012 totaled $66,881,033 before
tax provisions. We sold 2,774,250 shares of common stock of Encore Wire, Inc. and 50,000
shares of common stock of Hologic, Inc. These sales generated capital gains of $66,881,033,
from which $17.59 per share was distributed to our shareholders. These gains were offset by
a $7,000 capital loss adjustment related to a final true-up of the Lifemark Group, Inc.
divesture from June 2010.
In addition, we received the following return of capital distributions: $18,600 from Diamond
State Ventures, LP and $236,986 from Sterling Group Partners I, LP.
1
On October 15, 2012, our board of directors declared a dividend of $0.40 per share, payable
on November 30, 2012 to shareholders of record on November 15, 2012. Dividends paid by
our Company will be qualified dividends, taxable at the current maximum rate of 15%. Our
Automatic Dividend Reinvestment and Optional Cash Contribution Plan, which provides a
convenient way to increase your ownership of our Company, is available to shareholders of
record holding 25 or more shares. For more information, please refer to the stock information
section of our website at http://www.capitalsouthwest.com/investors/stock-
information/index.html.
TAXES
While we do not attempt to maintain a consistent level of realized gains from year to year, it is
likely that we will have a taxable long-term capital gain for the tax year ending December 31,
2012. In such an event, we will pay the tax on our capital gains and retain the remainder for
reinvestment. By the end of February 2013, each shareholder of record will be advised of his
or her share of any such net realized capital gains and the corresponding tax payment made by
Capital Southwest. You will receive IRS Form 2439 along with detailed instructions for
reporting your pro rata gain and the resulting tax credit for use in your 2012 tax return. Based
on the current applicable federal income tax rates of 35% for corporations and 15% for
individuals, most individual shareholders will receive a net credit for the 20% difference. Tax
exempt entities such as IRAs will be entitled to a refund of the entire tax paid by the Company
on their shares. For tax purposes, your cost basis in our stock will be increased by the amount
of the after-tax gain retained by the Company.
Additionally, the Company did not retain the proceeds and pay the related taxes on the $17.59
per share cash distribution to shareholders in June this year. Instead, the entire capital gain
proceeds were distributed to shareholders who will then pay the related taxes. For more
information, please refer to the tax section of our website at
http://www.capitalsouthwest.com/investor-relations/tax-information.htm.
PREPARING FOR THE FUTURE
Henry Gohlke, Matthew Golden and Scott Shedd recently joined the Company as Vice
Presidents. Henry earned a BSME from the University of Oklahoma and an MBA from Baker
College of Advanced Studies. He has more than 30 years of engineering, market research,
change management and financial analysis experience. Matt received a BBA from the
University of Texas at Austin and an MBA from the Wharton School at the University of
Pennsylvania. He has 14 years of investment banking, finance and principal investment
experience with Merrill Lynch in New York, Sapient in Austin and Hunt Investment Group in
Dallas. Scott holds an MBA from the Kellogg School of Management at Northwestern
University and a BA in Computer Science from Indiana University. Scott worked in
technology consulting and management roles at Trading Technologies, Widepoint
Corporation, IBM and Accenture prior to a five year investment banking stint at Jefferies &
Company in New York City and three years at Blackland Group, LLC, an aerospace and
defense focused private equity firm. Additionally, Scott served eight years in the United
States Army and the Indiana National Guard.
Gary L. Martin
Chairman and President
November 9, 2012
2
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(In thousands except per share data)
Assets
Investments at market or fair value
Companies more than 25% owned
(Cost: September 30, 2012 - $12,679,
March 31, 2012 - $14,870) ................................................
Companies 5% to 25% owned
(Cost: September 30, 2012 - $15,594,
March 31, 2012 - $14,003) ................................................
Companies less than 5% owned
(Cost: September 30, 2012 - $66,643,
March 31, 2012 - $60,120) ................................................
Total investments
(Cost: September 30, 2012 - $94,916,
March 31, 2012 - $88,993) ................................................
Cash and cash equivalents ..........................................................
Receivables
Dividends and interest ..........................................................
Affiliates ................................................................................
Other ....................................................................................
Pension assets ............................................................................
Other assets ................................................................................
Total assets ..........................................................................
Liabilities
Other liabilities .............................................................................
Accrued pension cost
Deferred income taxes .................................................................
Total liabilities .......................................................................
Net Assets
Common stock, $1 par value: authorized, 5,000,000 shares; issued,
4,380,956 shares at September 30, 2012 and 4,339,416 at
March 31, 2012 .....................................................................
Additional capital ..........................................................................
Accumulated net investment income/ (loss) ................................
Accumulated net realized gain .....................................................
Unrealized appreciation of investments ......................................
Treasury stock - at cost on 584,878 shares .................................
Total net assets ...........................................................................
Total liabilities and net assets ......................................................
Net asset value per share (on the 3,796,078
shares outstanding at September 30, 2012 and 3,754,538 at
March 31, 2012) ...................................................................
September 30
March 31
2012
(Unaudited)
2012
$325,603
$283,575
136,653
209,222
74,013
65,749
536,269
59,687
2,618
312
21
7,443
209
$606,559
$592
1,645
2,079
4,316
4,381
181,088
(1,196)
554
441,353
(23,937)
602,243
$606,559
558,546
64,895
1,741
220
–
7,349
238
$632,989
$688
1,568
2,027
4,283
4,339
177,841
412
498
469,553
(23,937)
628,706
$632,989
$158.65
$167.45
The accompanying Notes are an integral part of these Consolidated Financial Statements
3
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended
September 30
Six Months Ended
September 30
2012
2011
2012
2011
Investment income:
Interest ..................................................
Dividends ...............................................
Management and directors’ fees ...........
Operating expenses:
Salaries .................................................
Stock option expense ............................
Net pension expense/(benefit) ...............
Professional fees ...................................
Other operating expenses .....................
Income/(loss) before income taxes ........
Income tax expense ..............................
$591
668
85
1,344
746
15
58
269
350
1,438
(94)
27
$484
621
152
1,257
511
259
(77)
234
278
1,205
52
29
$1,178
1,240
377
2,795
1,363
272
(17)
576
663
2,857
(62)
40
Net investment income/ (loss)............
$(121)
$23
$(102)
$937
1,193
324
2,454
983
503
(150)
539
495
2,370
84
47
$37
Proceeds from disposition of
investments......................................
Cost of investments sold .......................
Net realized gain/(loss) on
investments ...................................
Net increase (decrease) in
unrealized appreciation of
investments ....................................
Net realized and unrealized gain
$ -
7
$18,500
150
$67,505
624
$18,539
6,100
(7)
18,350
66,881
12,439
50,321
(44,076)
(28,200)
(48,634)
(loss) on investments ....................
50,314
(25,726)
38,681
(36,195)
Increase (decrease) in net assets
from operations ..............................
$50,193
$(25,703)
$38,579
$(36,158)
The accompanying Notes are an integral part of these Consolidated Financial Statements
4
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
(In thousands)
Operations:
Net investment income/(loss) ..................
Net realized gain on investments .............
Net decrease in unrealized appreciation
of investments ......................................
Increase (decrease) in net assets from
operations .......................................................
Distributions from:
Undistributed net investment income ......
Net realized gain distribution ..................
Capital share transactions:
Exercise of employee stock options ........
Stock option expense ..............................
Decrease in net assets ............................
Net assets, beginning of period .....................
Net assets, end of period .............................
Six Months
Ended
September 30, 2012
Six Months
Ended
September 30, 2011
$(102)
66,881
(28,200)
38,579
(1,505)
(66,826)
3,017
272
(26,463)
628,706
$602,243
$37
12,439
(48,634)
(36,158)
(1,501)
-
98
503
(37,058)
539,233
$502,175
The accompanying Notes are an integral part of these Consolidated Financial Statements
5
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
September 30
2012
2011
Six Months Ended
September 30
2012
2011
Cash flows from operating activities
Increase (decrease) in net assets from
operations ............................................
$50,193
$(25,703)
$38,579
$(36,158)
Adjustments to reconcile increase
(decrease) in net assets from
operations to net cash provided by
(used in) operating activities:
Net proceeds/(expenses) from
disposition of investments ................
Return of Capital on Investments
Proceeds from repayment of loan
securities or investments ..................
Purchases of securities .......................
Depreciation and amortization .............
Net pension benefit/(expense) .............
Realized (gain)/loss on investments
before income tax .............................
Net (increase) decrease in
unrealized appreciation of
investments ......................................
Stock option expense ..........................
Increase in dividend and interest
(7)
257
–
(545)
8
58
18,500
–
2,000
(1,678)
5
(77)
67,498
257
–
(6,796)
18
(17)
18,539
–
2,111
(11,500)
10
(150)
7
(18,350)
(66,881)
(12,439)
(50,321)
15
44,076
259
28,200
272
48,634
503
(436)
55
5
–
–
54
receivable .........................................
(442)
Decrease /(increase) in receivables
from affiliates and others ..................
Decrease/ (increase) in other assets ...
Increase (decrease) in other
liabilities ............................................
Decrease in commitment payable
Increase in deferred income taxes .......
588
(15)
80
(5,950)
26
Net cash provided by (used in)
(207)
(433)
4
125
–
29
(877)
(113)
10
(96)
–
52
operating activities ...............................
(6,048)
18,550
60,106
9,228
Cash flows from financing activities
Distributions from undistributed net
investment income ...............................
Proceeds from exercise of employee
stock options ........................................
Dividends paid from net realized gain
Net cash used in financing activities ........
Net increase (decrease) in cash and
–
–
–
–
–
98
–
98
(1,505)
(1,501)
3,017
(66,826)
(65,314)
98
–
(1,403)
cash equivalents ..................................
(6,048)
18,648
(5,208)
7,825
Cash and cash equivalents at
beginning of period ..............................
65,735
34,675
64,895
45,498
Cash and cash equivalents at end of
period ...................................................
$59,687
$53,323
$59,687
$53,323
The accompanying Notes are an integral part of these Consolidated Financial Statements
6
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2012
Company
Equity (a)
Investment (b)
*†ALAMO GROUP INC.
22.0%
Cost
Value (c)
$2,190,937
$95,624,424
‡2,832,300 shares common
stock (acquired 4-1-73 thru
5-09-11)
Seguin, Texas
Tractor-mounted mowing and
mobile excavation equipment
for governmental, industrial
and agricultural markets;
street-sweeping equipment for
municipalities.
ATLANTIC CAPITAL
BANCSHARES, INC
Atlanta, Georgia
Holding company of Atlantic
Capital Bank, a full service
commercial bank.
¥BALCO, INC.
Wichita, Kansas
Specialty architectural
products used in the
construction and remodeling
of commercial and institutional
buildings.
1.9%
300,000 shares common
stock (acquired 4-10-07)
3,000,000
2,487,000
95.7%
445,000 shares common
stock and 60,920 shares
Class B non-voting common
stock (acquired 10-25-83
and 5-30-02)
624,920
4,200,000
*BOXX TECHNOLOGIES, INC.
14.9%
Austin, Texas
Workstations for computer
graphic imaging and design.
73.4%
CINATRA CLEAN
TECHNOLOGIES, INC.
Houston, Texas
Cleans above ground oil
storage tanks with a patented,
automated system.
1,500,000
900,000
779,278
280,000
2,285,700
821,000
1,523,800
547,000
6,200,700
2,227,000
3,033,410
–
1
–
3,125,354 shares Series B
Convertible Preferred Stock,
convertible into 3,125,354
shares of common stock at
$0.50 per share (acquired
8-20-99 thru 8-8-01)
12% subordinated secured
promissory note, due 5-9-
2016 (acquired 5-19-10 thru
10-20-10)
12% subordinated secured
promissory note, due 5-9-
2017 (acquired 5-9-11 thru
10-26-11)
12% subordinated secured
promissory note, due 3-31-
2017 (acquired 9-9-11 and
10-26-11)
10% subordinated secured
promissory note, due 5-9-
2017 (acquired 7-14-08 thru
4-28-10)
3,033,410 shares Series A
Convertible Preferred Stock,
convertible into 3,033,410
shares common stock at
$1.00 per share (acquired
7-14-08 thru 11-18-10)
Warrants to purchase
1,269,833 shares of
common stock at $1.00 per
share, expiring 8-31-2021
(acquired 5-9-11 thru 8-31-
11)
*†ENCORE WIRE
CORPORATION
McKinney, Texas
Electric wire and cable for
residential, commercial and
industrial construction use.
6.2%
‡1,312,500 shares common
stock (acquired 9-10-92 thru
10-15-98)
13,822,888
3,875,001
5,200,000
38,403,750
†Publicly-owned company ¥ Control investment * Affiliated investment ‡Unrestricted securities as defined in Note (a)
The accompanying Notes are an integral part of these Consolidated Financial Statements
7
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2012
Company
Equity (a)
Investment (b)
13,035 shares Series A
Common Stock (acquired 9-
26-08 and 12-18-08)
39,359.18 shares Series C
Convertible Preferred Stock,
convertible into 157,437.72
shares of common stock at
$25.00 per share (acquired
9-30-03)
3,750 shares 8% Series A
Convertible Preferred Stock,
convertible into 15,000
shares of common stock at
$25.00 per share (acquired
9-30-03)
‡9,317,310 shares
common stock (acquired 5-
26-00)
Cost
Value (c)
325,875
740,000
2,625,000
8,930,000
375,000
851,000
3,325,875
10,521,000
102,490
16,771,158
EXTREME INTERNATIONAL,
INC.
53.6%
Sugar Land, Texas
Owns Bill Young
Productions, Texas Video
and Post, and Extreme and
television commercials and
corporate communications
videos.
¥†HEELYS, INC.
31.1%
Carrollton, Texas
Heelys stealth skate shoes,
equipment and apparel sold
through sporting goods
chains, department stores and
footwear retailers.
†HOLOGIC, INC.
Bedford, Massachusetts
Medical instruments including
bone densitometers,
mammography devices and
digital radiography systems.
< 1%
‡582,820 shares common
stock (acquired 8-27-99)
202,529
11,784,620
iMEMORIES, INC.
23%
Scottsdale, Arizona
Enables online video and
photo sharing and DVD
creation for home movies
recorded in analog and new
digital format.
17,391,304 shares Series B
Convertible Preferred Stock,
convertible into 19,891,304
shares of common stock at
$0.23 per share (acquired
7-10-09)
4,684,967 shares Series C
Convertible Preferred Stock,
convertible into 4,684,967
shares of common stock at
$0.23 per share (acquired
7-20-11)
Warrants to purchase
2,500,000 shares of
common stock at $0.12 per
share, expiring 1-21-
21(acquired 9-13-10 thru 1-
21-11)
10% convertible notes,
$308,000 principal due 7-
31-2014 (acquired 9-7-12)
INSTAWARES HOLDING
COMPANY, LLC
Atlanta, Georgia
Provides services to the
restaurant industry via its five
subsidiary companies.
KBI BIOPHARMA, INC.
Durham, North Carolina
Provides fully-integrated,
outsourced drug development
and bio-manufacturing
services.
4.5%
3,846,154 Class D shares
(acquired 5-20-11)
17.1%
7,142,857 shares Series B-
2 Convertible Preferred
Stock, convertible into
7,142,857 shares of
common stock at $0.49 per
share (acquired 9-08-09)
4,000,000
4,000,000
1,078,479
1,078,479
–
–
308,000
308,000
5,386,479
5,000,000
5,386,479
5,735,000
5,000,000
5,400,000
†Publicly-owned company ¥ Control investment * Affiliated investment ‡Unrestricted securities as defined in Note (a)
The accompanying Notes are an integral part of these Consolidated Financial Statements
8
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2012
Company
Equity (a)
Investment (b)
Cost
Value (c)
¥MEDIA RECOVERY, INC.
97.9%
Dallas, Texas
Computer datacenter and
office automation supplies
and accessories; impact, tilt
monitoring and temperature
sensing devices to detect
mishandling shipments;
dunnage for protecting
shipments.
*PALLETONE, INC.
Bartow, Florida
Manufacturer of wooden
pallets and pressure-treated
lumber.
7.7%
Warrants to purchase
67,789 shares of preferred
stock at $ 0.70 per share,
acquired 1-26-2012
800,000 shares Series A
Convertible Preferred Stock,
convertible into 800,000
shares of common stock at
$1.00 per share (acquired
11-4-97)
4,000,002 shares common
stock (acquired 11-4-97)
12.3% senior subordinated
notes, $2,000,000 principal
due 12-18-2015 (acquired
9-25-06)
150,000 shares common
stock (acquired 10-18-01)
100.0%
27,907 shares common
stock (acquired 1-5-73 and
3-31-73)
-
-
5,000,000
800,000
5,400,000
2,000,000
4,615,000
10,100,000
5,415,000
12,100,000
1,553,150
1,700,000
150,000
2
1,703,150
1,700,002
52,600
208,600,000
¥THE RECTORSEAL
CORPORATION
Houston, Texas
Specialty chemicals for
plumbing, HVAC, electrical,
construction, industrial, oil
field and automotive
applications; smoke
containment systems for
building fires; also owns 20%
of The Whitmore
Manufacturing Company.
TCI HOLDINGS, INC.
Denver, Colorado
Cable television systems and
microwave relay systems.
TITANLINER, INC.
Midland, Texas
Manufactures, installs and rents
spill containment system for
oilfield applications.
–
29.9%
21 shares 12% Series C
Cumulative Compounding
Preferred Stock (acquired 1-
30-90)
217,038 shares Series A
Convertible Preferred Stock
convertible into 217,038
shares of Series A preferred
stock at $12.65 per share
(acquired 6-29-2012)
7% senior subordinated
secured promissory note,
due 6-30-2017 (acquired 6-
29-2012)
Warrants to purchase
122,239 shares of Series A
preferred stock at $ 0.01 per
share, expiring 1-26-2012
–
796,000
3,203,000
3,203,000
2,747,000
2,747,000
-
-
5,950,000
5,950,000
†Publicly-owned company ¥ Control investment * Affiliated investment ‡Unrestricted securities as defined in Note (a)
The accompanying Notes are an integral part of these Consolidated Financial Statements
9
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2012
Company
Equity (a)
Investment (b)
TRAX HOLDINGS, INC.
Scottsdale, Arizona
Provides a comprehensive set
of solutions to improve the
transportation validation,
accounting, payment and
information management
process.
VIA HOLDINGS, INC.
Sparks, Nevada
Designer, manufacturer and
distributor of high-quality
office seating.
*WELLOGIX, INC.
Houston, Texas
Developer and supporter of
software used by the oil and
gas industry.
¥THE WHITMORE
MANUFACTURING
COMPANY
Rockwall, Texas
Specialized surface mining,
railroad and industrial
lubricants; coatings for
automobiles and primary
metals; fluid contamination
control devices.
MISCELLANEOUS
Cost
Value (c)
3,200,000
3,200,000
5,000,000
9,000,000
8,200,000
12,200,000
4,926,290
2
5,000,000
25,000
25.4%
18% convertible promissory
note, $3,200,000 principal
due 9-17-2012 (acquired 4-
6-11 thru 11-10-11)
1,061,279 shares Series A
Convertible Preferred Stock,
convertible into 1,061,279
common stock at $4.64 per
share (acquired 12-8-08
and 2-17-09)
3.2%
12,686 shares common
stock (acquired 3-4-11 and
3-25-11)
19.1%
4,788,371 shares Series A-
1 Convertible Participating
Preferred Stock, convertible
into 4,788,371 shares of
common stock at $1.0441
per share (acquired 8-19-05
thru 6-15-08)
80.0%
80 shares common stock
(acquired 8-31-79)
1,600,000
77,100,000
–
–
–
100.0%
Ballast Point Ventures II,
L.P.
2.2% limited partnership
interest (acquired 8-4-08
thru 6-18-10)
BankCap Partners Fund I,
L.P.
5.5% limited partnership
interest (acquired 7-14-06
thru 11-30-11)
CapitalSouth Partners Fund
III, L.P.
1.9% limited partnership
interest (acquired 1-22-08
and 11-16-11)
¥CapStar Holdings
Corporation
500 shares common
stock (acquired 6-10-10)
1,725,000
1,571,000
5,850,470
5,009,000
1,331,256
1,618,000
3,703,619
5,693,000
†Publicly-owned company ¥ Control investment * Affiliated investment ‡Unrestricted securities as defined in Note (a)
The accompanying Notes are an integral part of these Consolidated Financial Statements
10
CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
September 30, 2012
Company
Equity (a)
Investment (b)
Cost
Value (c)
Miscellaneous (continued)
–
Diamond State Ventures,
57,400
179,000
L.P.
1.4% limited partnership
interest (acquired 10-12-
99 thru 8-26-05)
¥Discovery Alliance, LLC
90.0% limited liability
company (acquired 9-12-
08 thru 10-20-11)
First Capital Group of Texas
III, L.P.
3.0% limited partnership
interest (acquired 12-26-
00 thru 8-12-05)
¥Humac Company
1,041,000 shares
common stock (acquired
1-31-75 and 12-31-75)
–
–
100%
1,180,000
971,000
778,895
771,000
–
168,000
–
†North American Energy
236,986
222,319
Partners, Inc.
77,194 shares common
stock (acquired 8-20-12)
–
STARTech Seed Fund I
178,066
34,000
12.1% limited partnership
interest (acquired 4-17-98
thru 1-5-00)
–
STARTech Seed Fund II
843,891
400,000
3.2% limited partnership
interest (acquired 4-28-00
thru 2-23-05)
–
Sterling Group Partners I,
L.P.
1.7% limited partnership
interest (acquired 4-20-01
thru 1-24-05)
827,056
73,000
TOTAL INVESTMENTS
$94,915,797
$536,268,755
†Publicly-owned company ¥ Control investment * Affiliated investment ‡Unrestricted securities as defined in Note (a)
The accompanying Notes are an integral part of these Consolidated Financial Statements
11
(a)
Equity
Notes to Consolidated Schedule of Investments
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 stock, plus stock reserved for all warrants, convertible securities and
employee stock options.
(b)
Investments
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
September 30, 2012 and March 31, 2012, restricted securities represented approximately
69.6% and 56.9% of the value of the consolidated investment portfolio, respectively.
Our investments are carried at fair value in accordance with the Investment
Company Act of 1940 (the “1940 Act”) and FASB Accounting Standards Codification™
(ASC) Topic 820, Fair Value Measurements and Disclosures. In accordance with the
1940 Act, unrestricted minority-owned publicly traded securities, for which the market
quotations are readily available, are valued at the closing sale price for the NYSE listed
securities and the lower of the closing bid price or the last sale price for NASDAQ
securities on the valuation date; other privately held securities are valued as determined
in good faith by our Board of Directors.
ASC Topic 820 defines fair value in terms of the price that would be received
upon the sale of an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (the “exit price”) and excludes transaction
costs. Under ASC Topic 820, the fair value measurement also assumes that the
transaction to sell an asset occurs in the principal market for the asset or, in the absence
of a principal market, the most advantageous market for the asset. The principal market
is the market in which the reporting entity would sell or transfer the asset with the greatest
volume and level of activity for the asset. In determining the principal market for an asset
or liability under ASC Topic 820, it is assumed that the reporting entity has access to the
market as of the measurement date.
(c)
Value
Debt Securities are generally valued on the basis of the price the security would
command in order to provide a yield-to-maturity equivalent to the present yield of
comparable debt instruments of similar quality. Issuers whose debt securities are judged
to be of poor quality and doubtful collectability may instead be valued by assigning
percentage discounts commensurate with the quality of such debt securities. Debt
securities may also be valued based on the resulting value from the sale of the business
at the estimated fair market value.
Partnership Interests, Preferred Equity and Common Equity, including
unrestricted marketable securities, are valued at the closing sale price for the NYSE listed
securities and the lower of the closing bid price or the last sale price for NASDAQ
securities on the valuation date. For those without a principal market, our Board of
Directors considers 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; and the proportion of the issuer’s securities owned by the Company.
12
Investments in certain entities that calculate net asset value per share (or its equivalent)
and for which fair market value is not readily determinable are valued using the net asset
value per share (or its equivalent, such as member units or ownership interest in partners’
capital to which a proportionate share of net assets is attributed) of the investment.
Equity Warrants are valued on the basis of the Black-Scholes model which
defines the market value of a warrant in relation to the market price of its common stock,
share price volatility, and time to maturity.
(d)
Agreements between Certain Issuers and the Company
Agreements between certain issuers and the Company provide that the issuer will
bear substantially all costs in connection with the Company disposing of such common
stock, including those costs involved in registration under the Securities Act of 1933, but
excluding underwriting discounts and commissions. These agreements cover common
stock owned at September 30, 2012 and common stock which may be acquired thereafter
through the exercise of warrants and conversion of debentures and preferred stock. They
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 and The Whitmore Manufacturing Company.
(e)
Descriptions and Ownership Percentages
The descriptions of the companies and ownership percentages shown in the
Consolidated Schedule of Investments were obtained from published reports and other
sources believed to be reliable. Acquisition dates indicated are the dates specific
securities were acquired, which may differ from the original investment dates. Certain
securities were received in exchange for or upon conversion or exercise of other
securities previously acquired.
13
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1
Dividend Reinvestment Plan Q&A
What are the benefits of joining the Plan?
As a participant in the Automatic Dividend Reinvestment and Optional Cash Contribution Plan
(the “Plan”), your dividends are reinvested automatically. Also, you may make cash contributions
of $100 to $10,000 in any month to purchase additional shares of Capital Southwest Corporation
stock for your Plan account. Stock purchases are made on a pooled basis so transaction costs
should be less than those associated with individual purchases of small numbers of shares.
Who is eligible to join?
Registered shareholders with 25 or more shares are eligible to join. If your shares are held in the
name of a broker or other nominee, you must instruct your broker or nominee to register the shares
directly in your name in order to participate in the Plan.
Is there any cost to participate in the Plan?
You pay only your share of transaction costs, which are included in the price of purchased shares.
Capital Southwest pays the costs of Plan administration.
How does the automatic dividend reinvestment feature work?
The Plan, available to all shareholders of record with 25 or more shares, provides a convenient
way to acquire additional shares. After you join, cash dividends paid on shares you own, including
shares in your Plan account, or on a lesser number of shares you specify, will automatically be
reinvested by American Stock Transfer & Trust Company (“AST”) as your agent.
May I deposit Shares for safekeeping?
Although not required, you may deposit share certificates registered in your name for addition to
your Plan account. The agent will automatically reinvest dividends on all shares in your Plan
account.
How does the optional cash contribution feature work?
To make voluntary cash purchases, you first must join the Plan and participate in the automatic
dividend reinvestment feature. Contributions for voluntary cash purchases of $100 to $10,000 in
any month can then be made by sending a check to AST, together with the remittance form that
accompanies each Plan account statement. Contributions can also be made by completing an
automatic cash withdrawal authorization form, enabling you to make regular monthly purchases
with funds transferred from your bank account.
What statements will I receive?
Each time shares are purchased you will receive a statement showing the total shares in your Plan
account, the amount of the latest reinvested dividend or optional cash contribution, the number of
shares purchased and the price per share.
How is information reported for income tax purposes?
Reinvested dividends are subject to income tax to the same extent as if received in cash. You will
receive a Form 1099 with information regarding the federal income tax status of all dividends paid
during the year.
How would I terminate my participation in the Plan?
You may terminate your participation at any time by giving notice to AST. Upon termination, you
will receive a certificate for the number of shares then held in your Plan account, plus a check for
any fractional share interest.
How do I join the Plan?
Call Capital Southwest at (972) 233-8242 for a Plan brochure and authorization form. Then, sign
and return the authorization form to American Stock Transfer & Trust Company, Dividend
Reinvestment Dept., P. O. Box 922 Wall Street Station, New York, NY 10269-0560. Your name
or names should be signed as they appear on your stock certificates. You may register all of your
shares in the Plan or such lesser number of shares (a minimum of 25) that you indicate.
15
Officers
Gary L. Martin, Chairman of the Board and President, joined Capital Southwest in 1972 and served as
chief financial officer, subsequently serving as vice president and secretary-treasurer. From 1979 to
2007, he served as president and chief executive officer of The Whitmore Manufacturing Company, a
portfolio company of Capital Southwest. His previous experience includes a financial management
position in the commercial development industry. He earned a BBA degree from the University of
Oklahoma and is a retired CPA.
Tracy L. Morris, Chief Operating Officer, Chief Financial Officer, Chief Compliance Officer,
Corporate Secretary and Treasurer, joined Capital Southwest in 2007. Previously, she served as
controller at Best Merchant Partners, LP, and Silverleaf Resorts, Inc. She also served in a staff position
with Spector, Way & Company, a public accounting firm. She earned a BS in business administration
from Millersville University of Pennsylvania and is a Certified Public Accountant.
Glenn M. Neblett, Chief Investment Officer, joined Capital Southwest in 2010 and leads the firm's
investment activities. Previously, he served as director in the corporate finance and financial sponsors
groups at Houlihan Lokey, where he advised clients in mergers and acquisitions, private placements and
restructurings. He earned undergraduate and graduate degrees from Baylor University and is a
Chartered Financial Analyst and a Certified Public Accountant.
William M. Ashbaugh, Senior Vice President, joined Capital Southwest in 2001 and leads the firm's
investment activities in the energy services and products sector. Previously, he served as managing
director in the corporate finance departments of Hoak Breedlove Wesneski & Co., Principal Financial
Securities, Inc., and Southwest Securities, and as first vice president, Corporate Finance, with Rauscher
Pierce Refsnes (now RBC Dain Rauscher). Mr. Ashbaugh’s experience includes direction of public
offerings, private placements and merger and acquisition transactions. He earned an MBA summa cum
laude from The University of Texas at Austin and a BS summa cum laude from Texas A&M University.
Henry J. Gohlke, Vice President, joined Capital Southwest in 2012 and leads the firm's
investment activities in the specialty chemicals and products sector. He has more than 30 years of
engineering, market research, change management and financial analysis experience. He is a
subject matter expert in fire protection of standard and seismic expansion joints and through-
penetrations. He previously served as Principal at Sebesta Blomberg and Vice President of
Corporate Development at The RectorSeal Corporation. Mr. Gohlke earned his MBA in Finance
from Baker College of Advanced Studies and a BSME from the University of Oklahoma. He is
completing a PhD from Walden University.
Matthew B. Golden, Vice President, joined Capital Southwest in 2012 and leads the firm's
investment activities in the industrial technologies sector. Previously, he was Vice President at
Hunt Investment Group, a Dallas-based private equity firm affiliated with Ray L. Hunt. He has
also served in finance and operations capacities at Human Code, Inc. and as an investment banker
for Merrill Lynch in New York. Mr. Golden received his MBA from the Wharton School at the
University of Pennsylvania and a BBA in Accounting from the University of Texas at Austin.
Ray D. Schwertner, Vice President, joined Capital Southwest in 2009. Previously, he served as
president and chief executive officer of The Whitmore Manufacturing Company, a portfolio
company of Capital Southwest, from 2007 to 2009 and as secretary-treasurer from 1990 to 2007.
His earlier experience includes a financial management position in the manufacturing industry
and public accounting. He earned a BBA from Angelo State University and is a Certified Public
Accountant.
C. Scott Shedd, Vice President, joined Capital Southwest in 2012. Previously, he worked in
technology consulting group at Trading Technologies, Widepoint Corporation, IBM and
Accenture. He also served in investment banking group at Jefferies & Company in New York
City and three years at Blackland Group, LLC, an aerospace and defense focused private equity
firm. Mr. Shedd holds an MBA from the Kellogg School of Management at Northwestern
University and a BA in Computer Science from Indiana University.
16
Dallas, Texas
Dallas, Texas
t r a n s f e r a g e n t
American Stock Transfer
& Trust Company, LLC
New York, New York
T (800) 937-5449
www.amstock.com
Bellaire, Texas
e x c h a n g e
Listed on NASDAQ for 40 years
t i c k e r s y m Bo l
CSWC
Sanibel, Florida
Dallas, Texas
i n d e p e n d e n t p u B l i c a c c o u n ta n t s
Grant Thornton LLP
Dallas, Texas
l e g a l c o u n s e l
Locke Lord LLP
Dallas, Texas
a n n u a l m e e t i n g
July 15, 2013, 10:00 a.m.
North Dallas Bank Building
12900 Preston Road, Suite 210
Dallas, Texas 75230
c o n ta c t i n f o r m at i o n
Capital Southwest Corporation
12900 Preston Road, Suite 700
Dallas, Texas 75230
T (972) 233-8242
F (972) 233-7362
www.capitalsouthwest.com
corporate information
B o a r d o f d i r e c t o r s
Gary L. Martin
Chairman of the Board
and President of the Corporation
Samuel B. Ligon
Investments
T. Duane Morgan
Vice President, Gardner Denver, Inc.
President, Engineered Products Group
Richard F. Strup
Investments
John H. Wilson
President, U.S. Equity Corporation
o f f i c e r s
Gary L. Martin
Tracy L. Morris
Glenn M. Neblett
Chairman of the Board
and President of the Corporation
Chief Operating Officer,
Chief Financial Officer,
Chief Compliance Officer,
Secretary and Treasurer
Chief Investment Officer,
Senior Vice President
William M. Ashbaugh
Senior Vice President
Henry J. Gohlke
Matthew B. Golden
Ray D. Schwertner
C. Scott Shedd
Vice President
Vice President
Vice President
Vice President
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12900 Preston Road, Suite 700
Dallas, Texas 75230
972-233-8242
www.capitalsouthwest.com
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