UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 16, 2015
CSW INDUSTRIALS, INC.
(Exact Name Of Registrant As Specified In Charter)
| Delaware | 001-37454 | 47-2266942 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
5400 Lyndon B. Johnson Freeway, Suite 1300
Dallas, Texas 75240
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (972) 233-8242
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02 | Results of Operations and Financial Condition |
In a press release dated November 16, 2015, CSW Industrials, Inc. (the “Company”) announced financial results for the Company’s quarter ended September 30, 2015. The full text of the press release is furnished herewith as Exhibit 99.1 to this report.
This information, including the press release attached as an exhibit, is being furnished under Item 2.02 of Form 8-K, “Results of Operations and Financial Condition.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, whether made before or after the date of this report, regardless of any general incorporation language in the filing.
| Item 9.01 | Financial Statements and Exhibits |
(d) Exhibits.
| Exhibit |
Exhibit Description | |
| 99.1 | Press release dated November 16, 2015 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: November 16, 2015 | ||||||
| By: | /s/ Joseph B. Armes | |||||
| Name: Joseph B. Armes | ||||||
| Title: Chief Executive Officer | ||||||
EXHIBIT INDEX
| Exhibit |
Exhibit Description | |
| 99.1 | Press release dated November 16, 2015 | |
Exhibit 99.1
CSW Industrials Reports Fiscal Second Quarter 2016 Results
Quarter Highlights
| • | Revenue of $83.7 million, 23.0% increase over the prior year period |
| • | Diluted EPS of $0.83, $0.31 increase per diluted share over the prior year period including certain non-operating items; Adjusted EPS of $0.55 |
| • | Completion of spin-off from Capital Southwest Corporation |
| • | Successful acquisition of assets from Deacon Industries, Inc. |
Dallas, Texas – November 16, 2015 – CSW Industrials (NASDAQ:CSWI), a diversified industrial growth company with well-established, scalable platforms and domain expertise across three segments: Industrial Products; Coatings, Sealants & Adhesives; and Specialty Chemicals, today reported results for the fiscal second quarter ended September 30, 2015.
Sales during the quarter were $83.7 million, up 23.0%, compared to $68.1 million in the prior year period. Higher sales reflect strong customer demand in our Industrial Products Segment and incremental revenue ($15.5 million) from the recent acquisition of the assets of Strathmore Products, Inc. These benefits were partially offset by lower sales in Specialty Chemicals, resulting from lower volume in energy and mining related products.
Net income in the fiscal second quarter of 2016 was $13.0 million, or $0.83 per diluted share. This compares with prior period net income of $8.2 million, or $0.52 per diluted share. In the current period, results include certain non-operating items, including an $8.0 million pre-tax gain related to freezing the Company’s defined benefit plan ($5.3 million after-tax or $0.34 per diluted share), $0.9 million of start-up and organizational costs incurred ($0.6 million after-tax, or $0.04 per diluted share) and $0.4 million of costs related to the acquisition of Strathmore ($0.3 million after tax or $0.02 per diluted share).
Joseph B. Armes, CSW Industrials’ Chief Executive Officer, commented, “In our first earnings release as an independent company, we are pleased to report strong operating results highlighted by earnings growth, the integration of Strathmore and the acquisition of assets from Deacon Industries. We believe this momentum reflects the ability of our businesses to drive organic growth and margin from our well-established products, coupled with the early success of our acquisition strategy.”
Armes continued, “As we look forward to the balance of the year, we view the completion of the recent spin-off transaction as a catalyst to expand and enhance the business through the deployment of acquisition capital and the integration of our operations.”
Business Update
CSW Industrials achieved several meaningful milestones during the quarter, including:
| • | The successful spin-off and listing on the NASDAQ stock exchange on September 30, 2015. Mr. Armes added, “We are pleased to begin this new phase at CSW Industrials and are grateful for the confidence investors have placed in our team. As a standalone company, we are appropriately positioned to create shareholder value through growth of CSWI proprietary products and through strategic acquisitions.” |
| • | The acquisition of assets from Deacon Industries, Inc. effective October 1, 2015 Located in Washington, Pennsylvania, Deacon Industries is a leading manufacturer of high temperature sealants and injectable packings with applications in a variety of industrial end markets. Mr. Armes added, “This acquisition is a great complement to our current offerings and these newly acquired products will benefit significantly from our broad distribution network.” |
Results of Operations
In the fiscal second quarter of 2016, CSW Industrials reported revenue of $83.7 million, an increase of 23.0% compared with the prior year level of $68.1 million. Higher sales reflect strong customer demand in our Industrial Products Segment and incremental revenue from the recent acquisition of the assets of Strathmore Products, Inc. These benefits were partially offset by lower sales in Specialty Chemicals, resulting from lower volume in energy and mining related products.
Second quarter gross profit of $40.8 million increased 23.1% over the prior year, reflecting the pension gain ($2.7 million) and the inclusion of Strathmore gross profit ($3.5 million) in the current period. Gross margin as a percentage of sales in the fiscal second quarter of 2016 was 48.8%, compared with 48.7% in the prior year period. Improvements due to the pension gain, increased absorption, changes in product mix and some materials costs savings were mostly offset by sales of lower margin Strathmore products. Adjusted for certain non-operating items, second-quarter gross profit was $38.1 million, or 45.6% of sales, compared to $33.2 million, or 48.7% of sales in the prior year.
Fiscal second quarter operating expenses were $20.1 million, or 24.0% of sales, compared to the prior year level of $21.4 million, or 31.5% of sales. Lower reported operating expenses as a percentage of sales was mostly attributable to the pension gain of $5.3 million, partially offset by start-up and organizational costs incurred of $0.9 million and Strathmore acquisition costs of $0.4 million. Adjusted for certain non-operating items, fiscal second quarter 2016 operating expenses were $24.1 million, or 28.8% of sales compared to $21.4 million, or 31.5% of sales in the prior year.
Following the successful spin-off from Capital Southwest Corporation, CSW Industrials presently expects to incur incremental recurring quarterly overhead expenses of $1.5 million, reflecting standalone public company costs.
Net income for the second quarter was $13.0 million, or $0.83 per diluted share, compared with net income of $8.2 million, or $0.52 per diluted share, in the prior year period. Adjusted for certain non-operating items, net income was $8.6 million, or $0.55 per diluted share, compared net income of $8.2 million in the prior year, or $0.52 per diluted share.
CSW Industrials’ income tax rate in the second quarter of fiscal 2016 was 34.6%, compared with 34.5% in the prior year period.
Conference Call Information
CSW Industrials will host a conference call today at 5:00 p.m. ET to discuss the results for the current period, as well as management’s outlook, followed by a question and answer session for the investment community. A live webcast of the call can be accessed at ir.cswindustrials.com. To access the call, participants may dial toll-free at 1-877-407-0784 or +1 201-689-8560 (international) and request to join the CSW Industrials earnings call.
To listen to a telephonic replay of the conference call, dial toll-free 1-877-870-5176 or +1 858-384-5517 (international) and enter confirmation code 13624721. The telephonic replay will be available beginning at 8:00 p.m. ET on Monday, November 16, 2015, and will last through 11:59 p.m. ET November 30, 2015. The call will also be available for replay via the webcast link on CSW Industrial’s Investor Relations website.
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations, assumptions and beliefs as of the date of this release. Forward-looking statements can often be identified by words such as “plans,” “expects,” “will,” similar expressions, and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding growth opportunities and future results of operations of CSW Industrials. They are not guarantees of future results and are subject to risks, uncertainties and assumptions, including factors set forth in CSW Industrials’ filings with the Securities and Exchange Commission, including CSW Industrials’ information statement filed as an exhibit to CSW Industrials’ Form 10, that could cause actual results to differ materially from those expressed in any forward-looking statement.
Non-GAAP Financial Measures
This press release includes an analysis of adjusted earnings per share, adjusted net income, adjusted gross profit, adjusted operating expenses and adjusted operating income, which are non-GAAP financial measures of performance. For a reconciliation of these measures to the most directly comparable GAAP measures and for a discussion of why we consider these Non-GAAP measures useful, see the “Reconciliation of Non-GAAP Measures” section of this release.
About CSW Industrials
CSW Industrials is a diversified industrial growth company with well-established, scalable platforms and domain expertise across three segments: Industrial Products;
Coatings, Sealants & Adhesives; and Specialty Chemicals. CSW Industrials’ broad portfolio of leading products provides performance optimizing solutions to its customers. CSW Industrials’ products include mechanical products for heating, ventilation and air conditioning (“HVAC”) and refrigeration applications, coatings and sealants and high performance specialty lubricants. Markets that CSW Industrials serves include plumbing, industrial, HVAC, energy, rail, architecturally-specified building products, mining and other general industrial markets.
Investor Relations Contacts:
Michael Callahan
ICR, Inc.
Michael.Callahan@icrinc.com | 203-682-8311
Media Contacts:
Phil Denning or Jason Chudoba
ICR, Inc.
Phil.Denning@icrinc.com | 646-277-1258, Jason.Chudoba@icrinc.com | 646-277-1249
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended September 30, |
||||||||
| (Amounts in thousands, except per share amounts) | 2015 | 2014 | ||||||
| Revenues, net |
$ | 83,744 | $ | 68,094 | ||||
| Cost of revenues |
(42,901 | ) | (34,919 | ) | ||||
|
|
|
|
|
|||||
| Gross profit |
40,843 | 33,175 | ||||||
| General and administrative expenses |
(9,860 | ) | (8,673 | ) | ||||
| Selling and distribution expenses |
(9,556 | ) | (10,640 | ) | ||||
| Research and development expenses |
(649 | ) | (1,451 | ) | ||||
| Impairment loss |
— | (662 | ) | |||||
|
|
|
|
|
|||||
| Operating income |
20,778 | 11,749 | ||||||
| Interest expense, net |
(832 | ) | (178 | ) | ||||
| Other (expense) income, net |
(113 | ) | 1,008 | |||||
|
|
|
|
|
|||||
| Income before income taxes |
19,833 | 12,579 | ||||||
| Provision for income taxes |
(6,871 | ) | (4,341 | ) | ||||
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|
|
|
|||||
| Net income |
$ | 12,962 | $ | 8,238 | ||||
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| Net earnings per common share: |
||||||||
| Basic |
$ | 0.83 | $ | 0.53 | ||||
| Earnings per share, diluted |
0.83 | 0.52 | ||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (Amounts in thousands, except per share amounts) | September 30, 2015 |
March 31, 2015 |
||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 53,945 | $ | 20,448 | ||||
| Restricted cash |
— | 2,385 | ||||||
| Bank time deposits |
7,006 | 9,248 | ||||||
| Accounts receivable, net of allowance of $1,290 and $1,692, respectively |
56,447 | 48,941 | ||||||
| Inventories, net |
55,055 | 47,175 | ||||||
| Prepaid expenses and other current assets |
11,973 | 6,812 | ||||||
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|
|
|
|||||
| Total current assets |
184,426 | 135,009 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $55,774 and $52,954, respectively |
60,265 | 56,837 | ||||||
| Goodwill |
55,730 | 40,645 | ||||||
| Intangible assets, net |
80,491 | 40,997 | ||||||
| Other assets |
12,683 | 13,033 | ||||||
|
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|
|
|||||
| Total assets |
$ | 393,595 | $ | 286,521 | ||||
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|
|
|||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 11,689 | $ | 8,960 | ||||
| Accrued and other current liabilities |
18,339 | 16,001 | ||||||
| Current portion of long-term debt |
17,436 | 13,561 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
47,464 | 38,522 | ||||||
| Long-term debt |
76,738 | 13,143 | ||||||
| Retirement benefits payable |
1,644 | 22,545 | ||||||
| Other long-term liabilities |
14,886 | 7,710 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
140,732 | 81,920 | ||||||
| Equity: |
||||||||
| Common shares, $0.01 par value |
156 | 12 | ||||||
| Shares authorized – 50,000 |
||||||||
| Shares issued – 15,583 |
||||||||
| Preferred shares, $0.01 par value |
— | 1,000 | ||||||
| Shares authorized – 10,000 |
||||||||
| Shares issued – 0 |
||||||||
| Additional paid-in capital |
29,058 | 7,810 | ||||||
| Treasury shares, at cost |
— | (2,712 | ) | |||||
| Retained earnings |
230,096 | 208,784 | ||||||
| Accumulated other comprehensive loss |
(6,447 | ) | (10,293 | ) | ||||
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|
|
|
|
|||||
| Total equity |
252,863 | 204,601 | ||||||
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|
|
|
|||||
| Total liabilities and equity |
$ | 393,595 | $ | 286,521 | ||||
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|
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended September 30, | ||||||||
| (Amounts in thousands) | 2015 | 2014 | ||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 21,612 | $ | 17,986 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
3,256 | 2,980 | ||||||
| Amortization of intangible assets |
3,293 | 2,267 | ||||||
| Net gain on sales of property, plant and equipment |
(203 | ) | (1,711 | ) | ||||
| Impairment of assets |
— | 662 | ||||||
| Pension plan curtailment benefit |
(8,020 | ) | — | |||||
| Net deferred taxes |
8,027 | (687 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
(1,178 | ) | (1,205 | ) | ||||
| Inventories, net |
477 | (1,073 | ) | |||||
| Prepaid expenses and other current assets |
(6,334 | ) | (181 | ) | ||||
| Other assets |
258 | 120 | ||||||
| Accounts payable and accrued and other current liabilities |
393 | (1,071 | ) | |||||
| Retirement obligations and other liabilities |
14 | 1,768 | ||||||
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|
|||||
| Net cash provided by operating activities |
21,595 | 19,855 | ||||||
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| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(3,192 | ) | (6,350 | ) | ||||
| Proceeds from sale of assets held for investment |
— | 3,547 | ||||||
| Proceeds from sale of assets |
71 | 6,361 | ||||||
| Net change in bank time deposits and restricted cash |
4,440 | 719 | ||||||
| Cash paid for acquisitions |
(68,849 | ) | (4,524 | ) | ||||
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| Net cash used in investing activities |
(67,530 | ) | (247 | ) | ||||
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| Cash flows from financing activities: |
||||||||
| Borrowings on lines of credit |
70,000 | 4,822 | ||||||
| Repayments on lines of credit |
(2,531 | ) | (13,333 | ) | ||||
| Cash contribution from Capital Southwest |
13,000 | — | ||||||
| Dividends paid |
(300 | ) | (450 | ) | ||||
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|||||
| Net cash provided by (used in) financing activities |
80,169 | (8,961 | ) | |||||
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| Effect of exchange rate changes on cash and cash equivalents |
(737 | ) | (433 | ) | ||||
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| Net increase in cash and cash equivalents |
33,497 | 10,214 | ||||||
| Cash and cash equivalents, beginning of period |
20,448 | 15,411 | ||||||
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| Cash and cash equivalents, end of period |
$ | 53,945 | $ | 25,625 | ||||
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| Supplemental non-cash disclosure: |
||||||||
| Pension plan assets contributed by Capital Southwest |
$ | 10,357 | $ | — | ||||
SEGMENT RESULTS
(Unaudited)
Three months ended September 30, 2015
| (in thousands) | Industrial Products |
Coatings, Sealants and Adhesives |
Specialty Chemicals |
|||||||||
| Revenues, net |
$ | 36,186 | $ | 27,971 | $ | 19,771 | ||||||
| Operating income |
11,668 | 4,938 | 4,961 | |||||||||
Three months ended September 30, 2014
| (in thousands) | Industrial Products |
Coatings, Sealants and Adhesives |
Specialty Chemicals |
|||||||||
| Revenues, net |
$ | 29,902 | $ | 13,539 | $ | 24,322 | ||||||
| Operating income |
4,651 | 2,944 | 4,173 | |||||||||
Reconciliation of Non-GAAP Measures
This press release includes an analysis of adjusted earnings per share, adjusted net income, adjusted gross profit, adjusted operating expenses and adjusted operating income, which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to, and not a substitute for, financial measures computed in accordance with GAAP. The following is a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measure for the three-month period ended September 30, 2015:
| (amounts in millions, except per share amounts) | Gross Profit |
Operating Expenses |
Operating Income |
Net Income |
EPS | |||||||||||||||
| As reported |
$ | 40.8 | $ | (20.1 | ) | $ | 20.8 | $ | 13.0 | $ | 0.83 | |||||||||
| Adjustments: |
||||||||||||||||||||
| Pension plan curtailment gain |
(2.7 | ) | (5.3 | ) | (8.0 | ) | (5.3 | ) | (0.34 | ) | ||||||||||
| Start-up and organizational costs |
— | 0.9 | 0.9 | 0.6 | 0.04 | |||||||||||||||
| Strathmore acquisition costs |
— | 0.4 | 0.4 | 0.3 | 0.02 | |||||||||||||||
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| As adjusted |
$ | 38.1 | $ | (24.1 | ) | $ | 14.1 | $ | 8.6 | $ | 0.55 | |||||||||
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| (in thousands) | Industrial Products |
Coatings, Sealants and Adhesives |
Specialty Chemicals |
|||||||||
| Operating income, as reported |
11,668 | 4,938 | 4,961 | |||||||||
| Less: |
||||||||||||
| Pension plan curtailment gain |
(3,179 | ) | (1,418 | ) | (3,423 | ) | ||||||
| Strathmore acquisition costs |
— | 429 | — | |||||||||
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|||||||
| Operating income, as adjusted |
8,489 | 3,949 | 1,538 | |||||||||
We use adjusted earnings per share, adjusted net income, adjusted gross profit, adjusted operating expenses and adjusted operating income, together with financial measures prepared in accordance with GAAP, such as revenue, income from operations, operating expense, operating income and net income, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. We also believe these measures are useful for investors to assess the operating performance of our business without the effect of non-operating items.