Form 8-K

 

 

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
Number

  

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
Number

  

Exhibit Description

99.1    Press release dated November 16, 2015
EX-99.1

Exhibit 99.1

LOGO

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
  

 

 

   

 

 

 

Net income

   $ 12,962      $ 8,238   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Total assets

   $ 393,595      $ 286,521   
  

 

 

   

 

 

 
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
  

 

 

   

 

 

 

Total equity

     252,863        204,601   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 393,595      $ 286,521   
  

 

 

   

 

 

 


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   
  

 

 

   

 

 

 

Net cash provided by operating activities

     21,595        19,855   
  

 

 

   

 

 

 

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
  

 

 

   

 

 

 

Net cash used in investing activities

     (67,530     (247
  

 

 

   

 

 

 

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
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     80,169        (8,961
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (737     (433
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     33,497        10,214   

Cash and cash equivalents, beginning of period

     20,448        15,411   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 53,945      $ 25,625   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As adjusted

   $ 38.1      $ (24.1   $ 14.1      $ 8.6      $ 0.55   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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         —     
  

 

 

    

 

 

    

 

 

 

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.