| Organization and Operations and Summary of Significant Accounting Policies | 1. ORGANIZATION AND OPERATIONS AND
SUMMARY OF ACCOUNTING POLICIES
CSW Industrials, Inc. (“CSWI,” the
“Company,” “we,” “our” or
“us”) is a diversified industrial growth company with
well-established, scalable platforms and deep domain expertise
across three segments: Industrial Products; Coatings, Sealants and
Adhesives; and Specialty Chemicals. Our broad portfolio of leading
products provides performance optimizing solutions to our
customers. Our products include mechanical products for heating,
ventilating and air conditioning (“HVAC”) and
refrigeration applications, coatings and sealants and high
performance specialty lubricants. Drawing on our innovative and
proven technologies, we seek to deliver solutions to our
professional customers that require superior performance and
reliability. Our diverse product portfolio includes more than 100
highly respected industrial brands including RectorSeal No. 5
™ thread sealants, KOPR KOTE™ anti-seize lubricants,
Safe-T-Switch ® ® ® ® ® ®
The Share Distribution
On September 30, 2015, Capital Southwest Corporation
(“Capital Southwest”) spun-off certain of its
industrial products, coatings, sealants and adhesives and specialty
chemicals businesses by means of a distribution of the outstanding
shares of common stock of CSWI on a pro rata basis to holders of
Capital Southwest common stock (the “Share
Distribution”). CSWI became an independent, publicly traded
company at the time of the Share Distribution.
Strathmore Restructuring
During the three months ended September 30, 2016, we initiated a
restructuring program related to our Strathmore business, which is
included in our Coatings, Sealants & Adhesives segment. The
program was initiated in response to excess capacity due to
contraction in the markets served by Strathmore, which caused us to
perform a facility rationalization analysis. Restructuring charges
are as follows (in thousands):
Severance/
Asset Write-
Other (b) Total
Three Months Ended September 30, 2016:
COS $ 338 $
— $
— $ 338
SG&A
— 2,800
— 2,800
Total $ 338 $ 2,800 $
— $ 3,138
Six Months Ended September 30, 2016:
COS $ 338 $
— $
— $ 338
SG&A 160 2,800
— 2,960
Total $ 498 $ 2,800 $
— $ 3,298
Total Expected Restructuring Charges (c):
COS $ 466 $
— $
— $ 466
SG&A 160 2,800 1,699 4,659
Total $ 626 $ 2,800 $ 1,699 $ 5,125
(a) The initiation of the restructuring
program triggered an analysis of our intangible assets recorded
upon our acquisition of Strathmore. As a result of this
analysis, we recorded an impairment of our Strathmore
trademark.
(b) Other consists of moving costs
related to relocation of manufacturing activities, consulting fees
for production and efficiency support and recruiting fees to
increase staff in locations where production is being relocated.
These charges will be expensed as incurred.
(c) Total expected restructuring charges
represent management’s best estimate to date. As the
execution of the program is still in process, the amount and nature
of actual restructuring charges incurred could vary from total
expected charges.
As of September 30, 2016, the restructuring reserve resulting from
this program consisted entirely of the severance recorded during
the three months ended September 30, 2016 and is included in
accrued and other current liabilities on our condensed consolidated
balance sheet.
Basis of Presentation
The condensed consolidated financial statements included in this
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2016 (“Quarterly Report”) includes all
revenues, costs, assets and liabilities directly attributable to
CSWI and have been prepared in accordance with United States
(“U.S.”) generally accepted accounting principles
(“GAAP”).
The condensed consolidated financial statements reflect all
adjustments that are, in the opinion of management, necessary to
present a fair statement of CSWI’s financial position as
of September 30, 2016, and the results of operations for the
three and six months ended September 30, 2016 and 2015,
respectively. All adjustments are of a normal, recurring nature.
All significant intercompany balances and transactions have been
eliminated in consolidation.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
the notes thereto included in CSWI’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2016 (the
“Annual Report”).
Accounting Policies
We have consistently applied the accounting policies described in
our Annual Report in preparing these condensed consolidated
financial statements. We have not made any changes in
significant accounting policies disclosed in the Annual
Report.
Accounting Developments
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, “Revenue from Contracts
with Customers (Topic 606),” which has been subsequently
amended with additional ASUs including ASU No. 2016-12, issued in
May 2016. ASU No. 2014-09, as amended, supersedes the revenue
recognition requirements in “Revenue Recognition (Topic
605).” The standard is principle-based and provides a
five-step model to determine when and how revenue is recognized.
The core principle is that a company should recognize revenue when
it transfers promised goods or services to customers in an amount
that reflects the consideration to which the company expects to be
entitled in exchange for those goods or services. There are also
expanded disclosure requirements in this ASU. In July 2015, the
FASB voted to delay the effective date of ASU 2014-09 by one year.
As a result, public entities will apply the new standard for annual
reporting periods beginning after December 15, 2017, including
interim periods within those reporting periods. Early adoption as
of the original public entity effective date is permitted. We are
currently evaluating the impact of ASU No. 2014-09 on our
consolidated financial condition and results of operations.
In April 2015, the FASB issued ASU No. 2015-03,
“Interest – Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs.” This
ASU requires debt issuance costs be presented in the balance sheet
as a direct deduction from the carrying value of the associated
debt liability. Amortization of those costs should be reported as
interest expense. This ASU is effective for financial statements
issued for annual and interim periods beginning after
December 15, 2015, and early adoption is permitted for
financial statements that have not been previously issued. The new
guidance should be applied on a retrospective basis for each period
presented in the balance sheet. We adopted the amendments of this
ASU for the quarter ended June 30, 2016, and it did not have a
material impact on our consolidated financial condition and results
of operations.
In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842),” to increase transparency and
comparability among organizations by recognizing lease assets and
lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. A lessee should recognize
in the statement of financial position a liability to make lease
payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease
term. The recognition, measurement, and presentation of expenses
and cash flows arising from a lease by a lessee have not
significantly changed from previous U.S. GAAP. This ASU is
effective for annual periods, including interim periods within
those annual periods, beginning after December 15, 2018.
Modified retrospective application is permitted with certain
practical expedients. Early adoption is permitted. We are currently
evaluating the impact of ASU No. 2016-02 on our consolidated
financial condition and results of operations.
In March 2016, the FASB issued ASU No. 2016-09,
“Compensation – Stock Compensation (Topic 718),”
which simplifies the accounting for share-based compensation. The
areas for simplification in this ASU involve several aspects of the
accounting for share-based payment transactions, including the
income tax consequences, classification of awards as either equity
or liabilities, and classification on the statement of cash flows.
This ASU is effective for annual periods, including interim periods
within those annual periods, beginning after December 15,
2016. Early adoption is permitted. We are currently evaluating the
impact of ASU No. 2016-09 on our consolidated financial
condition and results of operations.
In August 2016, the FASB issued ASU No. 2016-15,
“Statement of Cash Flows (Topic 230) – Classification
of Certain Cash Receipts and Cash Payments,” which clarifies
how entities should classify certain cash receipts and cash
payments on the statement of cash flows and how the predominance
principle should be applied when cash receipts and cash payments
have aspects of more than one class of cash flows. The new guidance
should be applied on a retrospective basis for each period
presented. ASU 2016-15 is effective for annual periods,
including interim periods within those annual periods, beginning
after December 15, 2017. Early adoption is permitted. We are
currently evaluating the impact of ASU No. 2016-15 on our
consolidated financial condition and results of operations.
In October 2016, the FASB issued ASU No. 2016-16,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets
Other Than Inventory,” to improve the accounting for the
income tax consequences of intra-entity transfers of assets other
than inventory. This ASU aligns the recognition of income tax
consequences for intra-entity transfers of assets other than
inventory with International Financial Reporting Standards.
Specifically, International Accounting Standards No. 12,
“Income Taxes,” requires recognition of current and
deferred income taxes resulting from an intra-entity transfer of
any asset (including inventory) when the transfer occurs. This ASU
is effective for annual periods, including interim periods within
those annual periods, beginning after December 15, 2017. Early
adoption is permitted. We are currently evaluating the impact of
ASU No. 2016-16 on our consolidated financial condition and
results of operations. |
