UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________________________

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File No. 001-37454

CSW INDUSTRIALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	47-2266942
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5420 Lyndon B. Johnson Freeway, Suite 500, Dallas, Texas	75240
(Address of principal executive offices)	(Zip Code)

(214) 884-3777

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol (s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CSWI	Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐   Accelerated filer ☒ Non-accelerated filer ☐ (Do not check if smaller reporting company)
Smaller reporting company ☐ Emerging growth company ☐     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

As of February 1, 2021, there were 15,652,287 shares of the issuer’s common stock outstanding.

CSW INDUSTRIALS, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page No.
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2020 and 2019 (unaudited)	1
	Condensed Consolidated Balance Sheets as of December 31, 2020 and March 31, 2020 (unaudited)	3
	Condensed Consolidated Statements of Equity as of December 31, 2020 and 2019 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2020 and 2019 (unaudited)	6
	Notes to the Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.	Exhibits	34
SIGNATURES		35

PART I — FINANCIAL INFORMATION

Item 1.    Financial Statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended December 31,				Nine Months Ended December 31,
(Amounts in thousands, except per share amounts)	2020		2019		2020		2019
Revenues, net	$	89,932	$	83,716	$	285,836	$	287,373
Cost of revenues	(50,594)		(46,025)		(155,009)		(155,043)
Gross profit	39,338		37,691		130,827		132,330
Selling, general and administrative expenses	(35,222)		(27,203)		(88,277)		(81,398)
Operating income	4,116		10,488		42,550		50,932
Interest expense, net	(469)		(286)		(1,071)		(1,086)
Other expense, net	(592)		(848)		(1,259)		(8,302)
Income before income taxes	3,055		9,354		40,220		41,544
Provision for income taxes	(709)		(2,072)		(9,560)		(10,099)
Income from continuing operations	2,346		7,282		30,660		31,445
Income (loss) from discontinued operations, net of tax	—		26		—		(148)
Net income	$	2,346	$	7,308	$	30,660	$	31,297
Basic earnings (loss) per common share:
Continuing operations	$	0.16	$	0.48	$	2.07	$	2.09
Discontinued operations	—		—		—		(0.01)
Net income	$	0.16	$	0.48	$	2.07	$	2.08
Diluted earnings (loss) per common share:
Continuing operations	$	0.16	$	0.48	$	2.06	$	2.07
Discontinued operations	—		—		—		(0.01)
Net income	$	0.16	$	0.48	$	2.06	$	2.06

See accompanying notes to condensed consolidated financial statements.

1

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended December 31,				Nine Months Ended December 31,
(Amounts in thousands)	2020		2019		2020		2019
Net income	$	2,346	$	7,308	$	30,660	$	31,297
Other comprehensive income (loss):
Foreign currency translation adjustments	2,271		1,699		4,664		1,288
Cash flow hedging activity, net of taxes of $(40), $(55), $(42) and $82 respectively	152		207		157		(307)
Pension and other postretirement effects, net of taxes of $3, $1, $3 and $(672), respectively	(10)		(3)		(10)		2,527
Other comprehensive income	2,413		1,903		4,811		3,508
Comprehensive income	$	4,759	$	9,211	$	35,471	$	34,805

See accompanying notes to condensed consolidated financial statements.

2

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in thousands, except per share amounts)	December 31, 2020		March 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	18,260	$	18,338
Accounts receivable, net of allowance for expected credit losses of $503 and $1,170, respectively	75,005		74,880
Inventories, net	101,560		53,753
Prepaid expenses and other current assets	20,998		3,074
Total current assets	215,823		150,045
Property, plant and equipment, net of accumulated depreciation of $77,666 and $71,355, respectively	86,254		57,178
Goodwill	222,262		91,686
Intangible assets, net	279,502		46,185
Other assets	76,736		24,151
Total assets	$	880,577	$	369,245
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	25,667	$	21,978
Accrued and other current liabilities	50,531		36,607
Current portion of long-term debt	561		561
Total current liabilities	76,759		59,146
Long-term debt	254,916		10,337
Retirement benefits payable	1,854		1,879
Other long-term liabilities	144,331		21,142
Total liabilities	477,860		92,504
Equity:
Common shares, $0.01 par value	161		159
Shares authorized – 50,000
Shares issued – 16,163 and 16,055, respectively
Preferred shares, $0.01 par value	—		—
Shares authorized (10,000) and issued (0)
Additional paid-in capital	103,538		48,327
Treasury shares, at cost (511 and 1,311 shares, respectively)	(34,075)		(75,377)
Retained earnings	339,731		315,078
Accumulated other comprehensive loss	(6,638)		(11,446)
Total equity	402,717		276,741
Total liabilities and equity	$	880,577	$	369,245

See accompanying notes to condensed consolidated financial statements.

3

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(Amounts in thousands)	Common Stock		Treasury Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at March 31, 2020	$	159	$	(75,377)	$	48,327	$	315,078	$	(11,446)	$	276,741
Share-based compensation	—		—		1,328		—		—		1,328
Stock activity under stock plans	1		(1,670)		(1)		—		—		(1,670)
Repurchase of common shares	—		(7,291)		—		—		—		(7,291)
Reissuance of treasury shares	—		3,131		516		—		—		3,647
Net income	—		—		—		11,960		—		11,960
Dividends	—		—		12		(1,996)		—		(1,984)
Other comprehensive income, net of tax	—		—		—		—		1,279		1,279
Balance at June 30, 2020	$	160	$	(81,207)	$	50,182	$	325,042	$	(10,167)	$	284,010
Share-based compensation	—		—		1,222		—		—		1,222
Stock activity under stock plans	—		(6)		—		—		—		(6)
Reissuance of treasury shares	—		1,812		(479)		—		—		1,333
Net income	—		—		—		16,354		—		16,354
Dividends	—		—		11		(1,999)		—		(1,988)
Other comprehensive income, net of tax	—		—		—		—		1,116		1,116
Balance at September 30, 2020	$	160	$	(79,401)	$	50,936	$	339,397	$	(9,051)	$	302,041
Share-based compensation	—		—		1,395		—		—		1,395
Stock activity under stock plans	1		(1,136)		—		—		—		(1,135)
Reissuance of treasury shares	—		46,462		51,194		—		—		97,656
Net income	—		—		—		2,346		—		2,346
Dividends	—		—		13		(2,012)		—		(1,999)
Other comprehensive income, net of tax	—		—		—		—		2,413		2,413
Balance at December 31, 2020	$	161	$	(34,075)	$	103,538	$	339,731	$	(6,638)	$	402,717

4

(Amounts in thousands)	Common Stock		Treasury Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at March 31, 2019	$	158	$	(49,964)	$	46,633	$	277,588	$	(10,729)	$	263,686
Share-based compensation	—		—		1,213		—		—		1,213
Stock activity under stock plans	1		(793)		—		—		—		(792)
Adoption of ASC 842 Leases	—		—		—		(400)		—		(400)
Net income	—		—		—		15,204		—		15,204
Dividends	—		—		—		(2,041)		—		(2,041)
Other comprehensive loss, net of tax	—		—		—				(43)		(43)
Balance at June 30, 2019	$	159	$	(50,757)	$	47,846	$	290,351	$	(10,772)	$	276,827
Share-based compensation	—		—		1,196		—		—		1,196
Net income	—		—		—		8,783		—		8,783
Dividends	—		—		25		(2,040)		—		(2,015)
Other comprehensive income, net of tax	—		—		—		—		1,648		1,648
Balance at September 30, 2019	$	159	$	(50,757)	$	49,067	$	297,094	$	(9,124)	$	286,439
Share-based compensation	—		—		1,367		—		—		1,367
Stock activity under stock plans	—		2,251		(3,434)		—		—		(1,183)
Repurchase of common shares	—		(811)		—		—		—		(811)
Net Income	—		—		—		7,308		—		7,308
Dividends	—		—		13		(2,044)		—		(2,031)
Other comprehensive income, net of tax	—		—		—		—		1,903		1,903
Balance at December 31, 2019	$	159	$	(49,317)	$	47,013	$	302,358	$	(7,221)	$	292,992

See accompanying notes to condensed consolidated financial statements.

5

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended December 31,
(Amounts in thousands)	2020		2019
Cash flows from operating activities:
Net income	$	30,660	$	31,297
Less: Loss from discontinued operations	—		(148)
Income from continuing operations	30,660		31,445
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	6,079		6,008
Amortization of intangible and other assets	5,698		5,238
Provision for inventory reserves	1,169		183
Provision for doubtful accounts	227		837
Share-based and other executive compensation	3,945		3,776
Net gain on disposals of property, plant and equipment	(42)		(844)
Pension plan curtailment benefit	—		6,559
Net pension benefit	121		(156)
Net deferred taxes	456		(369)
Changes in operating assets and liabilities:
Accounts receivable	14,115		10,143
Inventories	(1,581)		(5,099)
Prepaid expenses and other current assets	(4,494)		3,236
Other assets	(340)		20
Accounts payable and other current liabilities	(1,787)		(265)
Retirement benefits payable and other liabilities	(180)		(359)
Net cash provided by operating activities, continuing operations	54,046		60,353
Net cash used in operating activities, discontinued operations	—		(442)
Net cash provided by operating activities	54,046		59,911
Cash flows from investing activities:
Capital expenditures	(6,886)		(7,595)
Proceeds from sale of assets	604		1,239
Cash paid for acquisitions	(278,680)		(11,837)
Net cash used in investing activities, continuing operations	(284,962)		(18,193)
Net cash provided by investing activities, discontinued operations	—		—
Net cash used in investing activities	(284,962)		(18,193)
Cash flows from financing activities:
Borrowings on line of credit	255,000		7,500
Repayments of line of credit and term loan	(10,421)		(27,921)
Payments of deferred loan costs	(149)		—
Purchase of treasury shares	(10,488)		(2,784)
Proceeds from stock option activity	1,331		—
Dividends	(5,970)		(6,088)
Net cash provided by (used in) financing activities	229,303		(29,293)
Effect of exchange rate changes on cash and equivalents	1,535		808
Net change in cash and cash equivalents	(78)		13,233
Cash and cash equivalents, beginning of period	18,338		26,651
Cash and cash equivalents, end of period	$	18,260	$	39,884

See accompanying notes to condensed consolidated financial statements.

6

CSW INDUSTRIALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.ORGANIZATION AND OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

CSW Industrials, Inc. (“CSWI,” “we,” “our” or “us”) is a diversified industrial growth company with well-established, scalable platforms and domain expertise across two business segments: Industrial Products and Specialty Chemicals. Our broad portfolio of leading products provides performance optimizing and life safety solutions to our customers. Our products include mechanical products for heating, ventilation, air conditioning and refrigeration (“HVAC/R”), grilles, registers and diffusers, building products and high-performance specialty lubricants and sealants. Drawing on our innovative and proven technologies, we seek to deliver solutions primarily to our professional end-use customers that place a premium on superior performance and reliability. Our diverse product portfolio includes more than 100 highly respected industrial brands including No. 5®, KOPR-KOTE®, Kats Coatings®, Safe-T-Switch®, Air Sentry®, Deacon®, Leak Freeze®, Greco® and TRUaire®.

Our products are well-known in the specific industries we serve and have a reputation for high quality and reliability. Markets that we serve include HVAC/R, architecturally-specified building products, plumbing, energy, rail, mining and general industrial markets.

The COVID-19 pandemic and its resulting impacts, including the substantial decline in crude oil prices that began in March 2020, have had an overall negative impact on our financial results in the three and nine months ended December 31, 2020, as compared with the same periods in the prior year. While the COVID-19 pandemic has contributed to increased demand in certain parts of our business, including the HVAC/R end market, we expect our overall results of operations and financial condition to continue to be adversely impacted through the duration of the pandemic when compared to pre-pandemic, prior year periods. Despite strong demand in certain of our end markets and signs of recovery in others, we cannot reasonably estimate the magnitude or length of the pandemic’s adverse impact due to continued uncertainty regarding (1) the duration and severity of the COVID-19 pandemic and (2) the continued potential for short and long-term impacts on our facilities and employees, customer demand and supply chain.

Basis of Presentation

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2020 (“Quarterly Report”), include 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 December 31, 2020, and the results of operations for the three and nine month periods ended December 31, 2020 and 2019. All adjustments are of a normal, recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation.

The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. 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, 2020 (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, with the exception of the expected credit loss accounting policy described below as a result of adopting the new expected credit loss standard.

7

Current Expected Credit Losses ("CECL") - We record an allowance for credit losses on trade receivables that, when deducted from the gross trade receivables balance, presents the net amount expected to be collected. We estimate the allowance based on an aging schedule and according to historical losses as determined from our billings and collections history. This may be adjusted after consideration of customer-specific factors such as financial difficulties, liquidity issues or insolvency, as well as both current and forecasted macroeconomic conditions as of the reporting date. We adjust the allowance and recognize credit losses in the income statement each period. Trade receivables are written off against the allowance in the period when the receivable is deemed to be uncollectible. Subsequent recoveries of amounts previously written off are reflected as a reduction to periodic credit losses in the income statement. Our allowance for expected credit losses for short-term receivables as of December 31, 2020 was $0.5 million, compared to $1.2 million as of March 31, 2020. The nine months activity included $0.2 million for current period adjustments.

Accounting Developments

Pronouncements Implemented

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments." The ASU requires, among other things, the use of a new current expected credit loss model in order to determine an allowance for credit losses with respect to financial assets and instruments held. The CECL model requires that we estimate the lifetime of an expected credit loss for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. On April 1, 2020, we adopted the ASU on a prospective basis to determine our allowance for credit losses in accordance with the requirements of Topic 326, and we modified our accounting policy and processes to facilitate this approach. Our primary exposure to financial assets that are within the scope of CECL are trade receivables. Our adoption of ASU No. 2016-13 effective April 1, 2020 did not have a material impact on our condensed consolidated financial condition and results of operations.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." The amendments of the ASU modify the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosure requirements for assets and liabilities measured at fair value in the statement of financial position or disclosed in the notes to the financial statements. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures were adopted on a retrospective basis and the new disclosures were adopted on a prospective basis. Our adoption of ASU No. 2018-13 effective April 1, 2020 did not impact our disclosures.

In August 2018, the FASB issued ASU No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The ASU addresses how entities should account for costs associated with implementing a cloud computing arrangement that is considered a service contract. Per the amendments of the ASU, implementation costs incurred in a cloud computing arrangement that is a service contract should be accounted for in the same manner as implementation costs incurred to develop or obtain software for internal use as prescribed by guidance in ASC 350-40. The ASU requires that implementation costs incurred in a cloud computing arrangement be capitalized rather than expensed. Further, the ASU specifies the method for the amortization of costs incurred during implementation, and the manner in which the unamortized portion of these capitalized implementation costs should be evaluated for impairment. The ASU also provides guidance on how to present such implementation costs in the financial statements and also creates additional disclosure requirements. The amendments are effective for fiscal years beginning after December 15, 2019. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Our adoption of ASU No. 2018-15 effective April 1, 2020 did not have an impact on our condensed consolidated financial condition and results of operations.

8

Pronouncements not yet implemented

In August 2018, the FASB issued ASU No. 2018-14, "Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans," which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. The amendments are effective for fiscal years ending after December 15, 2020 and the amendments should be applied retrospectively to all periods presented. We are currently evaluating the impact of ASU No. 2018-14 and we anticipate that our adoption of this ASU will not have a material impact on our disclosures due to the termination of our U.S. pension plan in the prior year.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes: Simplifying the Accounting for Income Taxes." The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions and adding some requirements regarding franchise (or similar) tax, step-ups in a business combination, treatment of entities not subject to tax and when to apply enacted changes in tax laws. This ASU is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. Early adoption is permitted. Our initial assessment of this ASU indicates it will not have a material impact on our consolidated financial condition and results of operations, but our assessment has not been completed.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. This ASU includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This ASU is effective immediately; however, it is only available through December 31, 2022. We are currently evaluating the potential impact of this ASU on our consolidated financial position and results of operations.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and. Economic Security ("CARES") Act, which, along with earlier issued Internal Revenue Service ("IRS") guidance, contains numerous provisions that may benefit us, including the deferral of certain taxes. The relevant tax implication impacting us is the correction of a technical issue introduced in the Tax Cuts and Jobs Act to provide for fifteen-year useful life and allow bonus depreciation for qualified improvement property. These changes were included in the fixed asset calculations for the tax year ending March 31, 2020, and we amended the tax return for the year ending March 31, 2019 to include this effect. We continue to assess the effect of the CARES Act and ongoing government guidance related to COVID-19 as it is issued.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 which provides for further funding of the US federal government and provides for additional COVID related relief and stimulus, including certain CARES Act extensions and expansions. Although the Company continues to assess the impact of this new law, we do not expect it to have a significant impact.

9

2. ACQUISITIONS

T.A. Industries

On December 15, 2020, we acquired 100% of the outstanding equity of T.A. Industries, Inc. (“TRUaire”), a leading manufacturer of grilles, registers, and diffusers for the residential and commercial HVAC/R end market, based in Santa Fe Springs, California. The acquisition also included TRUaire’s wholly-owned manufacturing facility based in Vietnam. The acquisition is expected to extend the Company’s product offerings to the HVAC market as well as add new customers and provide strategic distribution facilities.

The contractual consideration paid for TRUaire included cash of $284 million ($288.1 million after working capital and closing cash adjustments) and 849,852 shares of the Company’s common stock (valued at approximately $76.0 million at transaction signing on November 4, 2020) valued at $97.7 million at transaction close based on the closing market price of the Company's common shares on the acquisition date. The cash consideration was funded through a combination of cash on hand and borrowings under our revolving credit facility. The 849,852 shares of common stock delivered to the sellers as consideration were reissued from treasury shares.

Acquisition Consideration (Amounts in thousands, except for shares)
Cash (a)	$	288,079
Common stock (849,852 shares)	97,656
Total consideration transferred	$	385,735

(a) Includes $8.3 million in tax liabilities to be paid by the Company on behalf of the sellers, within 90 days following the acquisition date, pursuant to the purchase agreement.

The TRUaire acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805"). Pursuant to Topic 805, the Company allocated the TRUaire purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, December 15, 2020. The excess of the purchase price over those fair values was recorded to goodwill. The Company's evaluation of the facts and circumstances available of December 15, 2020, to assign fair values to assets acquired and liabilities assumed, including income tax related amounts, is ongoing. As we complete further analysis of tangible assets, intangible assets and liabilities assumed, additional information impacting the assets acquired and the related allocation thereof, may become available. A change in information related to the net assets acquired may change the amount of the purchase price assigned to goodwill, and, as a result, the preliminary fair values set forth below are subject to adjustments when additional information is obtained and valuations are completed. Provisional adjustments, if any, will be recognized during the reporting period in which the adjustments are determined. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date. The following table summarizes the Company's best initial estimate of the aggregate fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands).

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Assets Acquired
Current Assets
Cash	$	1,471
Accounts Receivable, net	13,467
Inventory	46,313
Short-Term Indemnity Assets (a)	5,000
Other Assets	1,285
Total Current Assets	67,536
Long-Term Assets
Property, Plant and Equipment	28,832
Trade Name (indefinite life)	43,500
Customer Lists (useful life of 15 years)	194,000
Right-Of-Use Assets	49,040
Long-Term Indemnity Assets (a)	7,500
Other Long-term Assets	2,850
Total Long-Term Assets (b)	325,722
Total Assets Acquired	393,258
Liabilities Acquired
Current Liabilities
Accounts Payable	4,074
Accrued and Other Current Liabilities	3,149
Income Tax Payable	529
Lease Liabilities - Short-Term	4,811
Total Current Liabilities	12,563
Long-Term Liabilities
Deferred Tax Liabilities	56,249
Tax Contingency Reserve	22,511
Lease Liabilities - Long-Term	45,369
Total Long-Term Liabilities (c)	124,129
Total Liabilities Assumed	136,692
Total Identifiable Net Assets	256,566
Goodwill	$	129,169

(a)    Short-term and long-term indemnity assets represents the $12.5 million of the purchase price held in the escrow account to offset potential income tax contingencies.

(b)    Included in other assets.

(c)    Included in other liabilities.

Goodwill of $129.2 million represents the excess of the purchase price over the fair value of the underlying tangible and intangible assets acquired and liabilities assumed. The acquisition goodwill represents the value expected to be obtained from expanding the Company’s product offerings more broadly across the HVAC end market. The goodwill recorded as part of this acquisition is included in the Industrial Products segment. The goodwill associated with the acquisition will not be amortized for financial reporting purposes and will not be deductible for income tax purposes.

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During the three and nine months ended December 31, 2020, the Company incurred $6.9 million and $7.1 million of transaction expenses in connection with the TRUaire acquisition, which are included in selling, general and administrative expenses in the Condensed Consolidated Statement of Income. As of December 31, 2020, $0.2 million related to these expenses were included in accrued and other current liabilities in the Condensed Consolidated Balance Sheet. TRUaire activity has been included in our Industrial Products segment since the acquisition date.

Pursuant to Topic 805, unaudited supplemental proforma results of operations for the three and nine months ended December 31, 2020 and 2019, as if the acquisition of TRUaire had occurred on April 1, 2019, the first day of the Company's 2019 fiscal year, are presented below (in thousands, except per share amounts):

	Three Months Ended December 31,				Nine Months Ended December 31,
	2020		2019		2020		2019
Revenue, net	$	114,169	$	109,409	$	362,451	$	358,693
Net Income	5,341		5,656		38,345		19,588
Net earnings per common share:
Diluted	$	0.34	$	0.35	$	2.43	$	1.22
Basic	0.34		0.35		2.45		1.23

These proforma results do not present financial results that would have been realized had the acquisition occurred on April 1, 2019, nor are they intended to be a projection of future results. The unaudited proforma results include certain proforma adjustments to net income that were directly attributable to the acquisition, as if the acquisition had occurred on April 1, 2019, including the following:

•Transactions expenses of $0 and $7.1 million for the three and nine months ended December 31, 2019, respectively, that would have been recognized by the Company related to the TRUaire acquisition;

•Additional depreciation expense of $0.1 million for both the three months ended December 31, 2020 and 2019, and $0.4 million for both the nine months ended December 31, 2020 and 2019, that would have been recognized as a result of the fair value step-up of the property, plant and equipment;

•Additional amortization expense of $0 and $3.5 million for the three months ended December 31, 2020 and 2019, respectively, and $0 and $9.2 million for the nine months ended December 31, 2020 and 2019, respectively, that would have been recognized as a result of the fair value step-up of the inventory;

•Additional amortization expense of $3.2 million for both the three months ended December 31, 2020 and 2019, and $9.7 million for both the nine months ended December 31, 2020 and 2019, that would have been recognized as a result of the allocation of purchase consideration to customer lists subject to amortization;

•Estimated additional interest expense of $1.0 million for both the three months ended December 31, 2020 and 2019, and $3.1 million for both the nine months ended December 31, 2020 and 2019, as a result of incurring additional borrowing;

•Income tax effect of the proforma adjustments calculated using a blended statutory income tax rate of 24.0% of $1.1 million and $1.9 million for the three months ended December 31, 2020 and 2019, respectively, and $3.2 million and $6.4 million for the nine months ended December 31, 2020 and 2019, respectively.

Petersen Metals

On April 2, 2019, we acquired the assets of Petersen Metals, Inc. (“Petersen”), based near Tampa, Florida, for $11.8 million, of which $11.5 million was paid at closing and funded through our revolving credit facility, and the remaining $0.3 million represented a working capital adjustment paid in July 2019. Petersen is a leading designer, manufacturer and installer of architecturally-specified, engineered metal products and railings, including aluminum and stainless steel railings products for interior and exterior applications. The excess of the purchase price over the fair value of the identifiable assets acquired was $6.1 million allocated to goodwill, which will be deductible for income tax purposes. Goodwill represents the value expected to be obtained from enabling geographic, end market and product diversification and expansion as Petersen is a strategic complement to our existing line of architecturally-specified building products. The allocation of the fair value of the net assets acquired included customer lists of $3.2 million and backlog of $0.4 million, as well as accounts receivable, inventory and equipment of $2.2 million, $0.8 million and $0.7 million, respectively, net of current liabilities of $1.5 million. Customer lists are being amortized over 15 years, backlog is amortized over 1.5 years and goodwill is not being amortized. Petersen activity has been included in our Industrial Products segment since the acquisition date. No pro forma information has been provided due to immateriality.

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3. DISCONTINUED OPERATIONS

During the quarter ended December 31, 2017, we commenced a sale process to divest our Coatings business to allow us to focus resources on our core growth platforms. Our Coatings business manufactured specialized industrial coating products including urethanes, epoxies, acrylics and alkyds. As of December 31, 2017, the Coatings business met the held-for-sale criteria under ASC 360, "Property, Plant and Equipment," and accordingly, we classified and accounted for the assets and liabilities of the Coatings business as held-for-sale in the accompanying condensed consolidated balance sheets, and as discontinued operations, net of tax, in the accompanying condensed consolidated statements of income and cash flows. We completed an initial assessment of the assets and liabilities of the Coatings business and recorded a $46.0 million impairment based on our best estimates as of the date of issuance of financial results for the quarter ended December 31, 2017. No adjustments to previously recorded estimates have been made.

On July 31, 2018, we consummated a sale of assets related to our Coatings business to an unrelated third party, the terms of which were not disclosed due to immateriality. During the three months ended September 30, 2018, we received an aggregate of $6.9 million for the sale of assets related to our Coatings business in multiple transactions. This resulted in gains on disposal of $6.9 million due to write-downs of long-lived assets in prior periods.

On March 17, 2020, we completed the sale of the last remaining real property owned by the former Coatings business to an unrelated third party, the terms of which were not disclosed due to immateriality. The sale resulted in proceeds and a gain on disposal of $1.5 million due to write-downs of long-lived assets in prior periods. The last remaining asset of the former Coatings business is a long-term lease that expires in March 2027. We were unable to terminate the lease, but we have sub-let the property for the remainder of the lease term. As such, this lease was moved back into continuing operations, effective March 31, 2020, and the related right-of-use ("ROU") assets and lease liabilities were reported as continuing operations as of March 31, 2020.

Summarized selected financial information for the Coatings business for the three and nine months ended December 31, 2020 and 2019 is presented in the following table (in thousands):

	Three Months Ended December 31,				Nine Months Ended December 31,
	2020		2019		2020		2019
Revenues, net	$	—	$	—	$	—	$	—
Income (loss) from discontinued operations before income taxes	—		19		—		(204)
Income tax benefit	—		7		—		56
Loss from discontinued operations, net	$	—	$	26	$	—	$	(148)

4. INVENTORIES

Inventories consist of the following (in thousands):

	December 31, 2020		March 31, 2020
Raw materials and supplies	$	28,460	$	20,935
Work in process	6,216		6,076
Finished goods	74,742		33,771
Total inventories	109,418		60,782
Less: LIFO reserve	(4,816)		(4,816)
Less: Obsolescence reserve	(3,042)		(2,213)
Inventories, net	$	101,560	$	53,753

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5. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill as of December 31, 2020 and March 31, 2020 were as follows (in thousands):

	Industrial Products		Specialty Chemicals		Total
Balance at March 31, 2020	$	60,123	$	31,563	$	91,686
T.A Industries acquisition	129,169		—		129,169
Currency translation	1,407		—		1,407
Balance at December 31, 2020	$	190,699	$	31,563	$	222,262

The following table provides information about our intangible assets (in thousands, except years): 

		December 31, 2020				March 31, 2020
	Wtd Avg Life (Years)	Ending Gross Amount		Accumulated Amortization		Ending Gross Amount		Accumulated Amortization
Finite-lived intangible assets:
Patents	11	$	9,637	$	(7,520)	$	9,635	$	(6,935)
Customer lists and amortized trademarks	15	258,403		(37,622)		62,806		(33,098)
Non-compete agreements	5	1,722		(1,849)		1,653		(1,494)
Other	8	5,280		(3,135)		5,219		(2,628)
		$	275,042	$	(50,126)	$	79,313	$	(44,155)
Trade names and trademarks not being amortized:		$	54,586	$	—	$	11,027	$	—

Amortization expenses for the three and nine months ended December 31, 2020 were $2.1 million and $5.4 million, respectively. Amortization expenses for the three and nine months ended December 31, 2019 were $1.7 million and $5.1 million, respectively. The following table shows the estimated future amortization for intangible assets, as of December 31, 2020, for the remainder of the current fiscal year and the next four fiscal years ending March 31 (in thousands):

2021	$	4,795
2022	18,458
2023	17,518
2024	16,764
2025	16,041

6. SHARE-BASED COMPENSATION

Refer to Note 6 to our consolidated financial statements included in our Annual Report for a description of the 2015 Equity and Incentive Compensation Plan (the "2015 Plan"). As of December 31, 2020, 667,381 shares were available for issuance under the 2015 Plan.

We recorded share-based compensation expense as follows for the three and nine months ended December 31, 2020 and 2019 (in thousands): 

	Three Months Ended December 31,				Nine Months Ended December 31,
	2020		2019		2020		2019
Share-based compensation expense	$	1,394	$	1,366	$	3,944	$	3,776
Related income tax benefit	(335)		(328)		(947)		(906)
Net share-based compensation expense	$	1,059	$	1,038	$	2,997	$	2,870

Stock option activity was as follows:

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	Nine Months Ended December 31, 2020
	Number of Shares	Weighted Average Price		Remaining Contractual Life (Years)	Aggregate Intrinsic Value (in Millions)
Outstanding at April 1, 2020	115,858	$	25.30
Exercised	(52,445)	25.40
Outstanding at December 31, 2020	63,413	25.23		3.7	$	5.5
Exercisable at December 31, 2020	63,413	$	25.23	3.7	$	5.5

All compensation costs related to stock options were recognized prior to April 1, 2019. No options were granted or vested during the three and nine months ended December 31, 2020 and 2019.

Restricted share activity was as follows: 

	Nine Months Ended December 31, 2020
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at April 1, 2020:	202,466	$	60.78
Granted	119,193	75.79
Vested	(124,218)	52.75
Canceled	(15,484)	68.69
Outstanding at December 31, 2020	181,957	$	70.64

During the restriction period, the holders of restricted shares are entitled to vote and receive dividends. Unvested restricted shares outstanding as of December 31, 2020 and March 31, 2020 included 88,425 and 93,249 shares (at target), respectively, with performance-based vesting provisions, and vesting ranges from 0%-200% based on pre-defined performance targets with market conditions.  Performance-based awards accrue dividend equivalents, which are settled upon (and to the extent of) vesting of the underlying award, but do not have the right to vote until vested. Performance-based awards are earned upon the achievement of objective performance targets and are payable in common shares.  Compensation expense is calculated based on the fair market value as determined by a Monte Carlo simulation and is recognized over a 36-month cliff vesting period. No awards with performance-based vesting provisions were granted during the three months ended December 31, 2020 and 2019. We granted 26,966 and 31,594 awards with performance-based vesting provisions during the nine months ended December 31, 2020 and 2019, respectively, with a vesting range of 0%-200%.

At December 31, 2020, we had unrecognized compensation cost related to unvested restricted shares of $8.6 million, which will be amortized into net income over the remaining weighted average vesting period of approximately 2.0 years. The total fair value of restricted shares granted during the three months ended December 31, 2020 and 2019 was $4.0 million and $3.8 million, respectively. The total fair value of restricted shares granted during the nine months ended December 31, 2020 and 2019 was $6.5 million and $6.4 million, respectively. The total fair value of restricted shares vested during the three months ended December 31, 2020 and 2019 was $4.1 million and $4.1 million, respectively. The total fair value of restricted shares vested during the nine months ended December 31, 2020 and 2019 was $8.4 million and $6.2 million, respectively.

7. LONG-TERM DEBT