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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 June 30, 2021
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)
Delaware47-2266942
(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)
(214884-3777
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol (s) Name of each exchange on which registered
Common Stock, par value $0.01 per shareCSWI 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 July 30, 2021, there were 15,734,200 shares of the issuer’s common stock outstanding.



CSW INDUSTRIALS, INC.
FORM 10-Q

TABLE OF CONTENTS
Page
No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
  Item 6.
SIGNATURES




PART I — FINANCIAL INFORMATION
Item 1.    Financial Statements.
CSW INDUSTRIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
June 30,
(Amounts in thousands, except per share amounts)20212020
Revenues, net$161,266 $90,964 
Cost of revenues(92,668)(48,212)
Gross profit68,598 42,752 
Selling, general and administrative expenses(40,124)(26,499)
Operating income28,474 16,253 
Interest expense, net(1,538)(318)
Other expense, net(172)(307)
Income before income taxes26,764 15,628 
Provision for income taxes(6,401)(3,668)
Net income20,363 11,960 
Less: Income attributable to redeemable noncontrolling interest(315) 
Net income attributable to CSW Industrials, Inc.$20,048 $11,960 
Net income per share attributable to CSW Industrials, Inc.
Basic$1.28 $0.81 
Diluted$1.27 $0.81 
See accompanying notes to condensed consolidated financial statements.
1


CSW INDUSTRIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended
June 30,
(Amounts in thousands)20212020
Net income$20,363 $11,960 
Other comprehensive income (loss):
Foreign currency translation adjustments489 1,338 
Cash flow hedging activity, net of taxes of $29 and $15, respectively
(109)(55)
Pension and other postretirement effects, net of taxes of $(2) and $1, respectively
7 (4)
Other comprehensive income387 1,279 
Comprehensive income$20,750 $13,239 
Less: Comprehensive income attributable to redeemable noncontrolling interest(315) 
Comprehensive income attributable to CSW Industrials, Inc.$20,435 $13,239 
See accompanying notes to condensed consolidated financial statements.
2


CSW INDUSTRIALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share amounts)June 30, 2021March 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$15,677 $10,088 
Accounts receivable, net of allowance for expected credit losses of $978 and $915, respectively
111,940 96,695 
Inventories, net105,005 98,086 
Prepaid expenses and other current assets10,050 9,684 
Total current assets242,672 214,553 
Property, plant and equipment, net of accumulated depreciation of $73,177 and $72,944, respectively
80,664 82,554 
Goodwill218,927 218,795 
Intangible assets, net286,060 283,060 
Other assets75,919 75,995 
Total assets$904,242 $874,957 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$43,227 $32,444 
Accrued and other current liabilities47,939 49,743 
Current portion of long-term debt561 561 
Total current liabilities91,727 82,748 
Long-term debt230,635 241,776 
Retirement benefits payable1,674 1,695 
Other long-term liabilities135,380 136,725 
Total liabilities459,416 462,944 
Redeemable noncontrolling interest13,706  
Equity:
Common shares, $0.01 par value
161 161 
Shares authorized – 50,000
Shares issued – 16,250 and 16,162, respectively
Preferred shares, $0.01 par value
  
Shares authorized (10,000) and issued (0)
Additional paid-in capital107,531 104,689 
Treasury shares, at cost (516 and 511 shares, respectively)
(35,868)(34,075)
Retained earnings364,905 347,234 
Accumulated other comprehensive loss(5,609)(5,996)
Total equity431,120 412,013 
Total liabilities, redeemable noncontrolling interest and equity$904,242 $874,957 
See accompanying notes to condensed consolidated financial statements.
3


CSW INDUSTRIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Amounts in thousands)Common StockTreasury SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
Balance at March 31, 2021$161 $(34,075)$104,689 $347,234 $(5,996)$412,013 
Share-based compensation— — 1,888 — — 1,888 
Stock activity under stock plans— (3,168)(1)— — (3,169)
Reissuance of treasury shares— 1,375 936 — — 2,311 
Net income— — — 20,048 — 20,048 
Dividends— — 19 (2,377)— (2,358)
Other comprehensive income, net of tax— — — — 387 387 
Balance at June 30, 2021$161 $(35,868)$107,531 $364,905 $(5,609)$431,120 

(Amounts in thousands)Common StockTreasury SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
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 plans1 (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 

See accompanying notes to condensed consolidated financial statements.
4


CSW INDUSTRIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended June 30,
(Amounts in thousands)20212020
Cash flows from operating activities:
Net income$20,363 $11,960 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation3,059 1,877 
Amortization of intangible and other assets9,235 1,711 
Provision for inventory reserves247 854 
Provision for doubtful accounts202 312 
Share-based and other executive compensation1,888 1,328 
Net gain on disposals of property, plant and equipment1  
Net pension benefit 36 40 
Net deferred taxes81 422 
Changes in operating assets and liabilities:
Accounts receivable(16,164)3,315 
Inventories(11,036)(6,458)
Prepaid expenses and other current assets(344)471 
Other assets270 (149)
Accounts payable and other current liabilities10,865 (1,515)
Retirement benefits payable and other liabilities226 (22)
Net cash provided by operating activities 18,929 14,146 
Cash flows from investing activities:
Capital expenditures(1,079)(1,837)
Proceeds from sale of assets8  
Proceeds from acquisitions true-up1,375  
Net cash provided by (used in) investing activities304 (1,837)
Cash flows from financing activities:
Borrowings on line of credit12,000 10,000 
Repayments of line of credit and term loan(23,140)(10,140)
Payments of deferred loan costs(2,328) 
Purchase of treasury shares(3,168)(9,346)
Proceeds from acquisition of redeemable noncontrolling interest shareholder5,293  
Dividends (2,358)(1,985)
Net cash used in financing activities(13,701)(11,471)
Effect of exchange rate changes on cash and equivalents57 511 
Net change in cash and cash equivalents5,589 1,349 
Cash and cash equivalents, beginning of period10,088 18,338 
Cash and cash equivalents, end of period$15,677 $19,687 
See accompanying notes to condensed consolidated financial statements.
5


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 growth-oriented, diversified industrial company with a strategic focus on providing niche, value-added products in the end markets we serve. 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, engineered 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, had an overall negative impact on our financial results in the three months ended June 30, 2020. During the three months ended June 30, 2021, the COVID-19 pandemic continues to have an impact on human health, the global economy and society at large. While the COVID-19 pandemic has contributed to increased demand in certain parts of our business, including the HVAC/R end market, we expect customer demand levels and our overall results of operations and financial condition to have some level of volatility through the duration of the pandemic when compared to pre-pandemic periods. In addition, the countermeasures taken by federal, state and/or local governments and the Federal Reserve in response to the COVID-19 pandemic, as well as the recovering demand as jurisdictions relax COVID-19 protocols, have had business impacts, including increased material cost inflation and logistics costs increases. Beginning in the three months ended March 31, 2021, we began implementing pricing initiatives to mitigate the impact of rising costs, which initiatives have continued and increased during the three months ended June 30, 2021.

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, including the effects of any vaccine or its ultimate impact on our business or financial condition, 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 June 30, 2021 (“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 are for us and our consolidated subsidiaries, each of which is a wholly-owned subsidiary, except our 50% investment in a variable interest entity for which we have determined that we are the primary beneficiary and therefore have consolidated into our financial statements. All significant intercompany transactions have been eliminated in consolidation.

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 June 30, 2021, and the results of operations for the three-month periods ended June 30, 2021 and 2020. All adjustments are of a normal, recurring nature.

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, 2021 (the “Annual Report”).


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Whitmore Joint Venture ("Whitmore JV")

On April 1, 2021, Whitmore Manufacturing, LLC (the “Whitmore”), a wholly-owned subsidiary of CSWI, completed the formation of the previously announced joint venture ("Whitmore JV") with Pennzoil-Quaker State Company dba SOPUS products (“Shell”), a wholly-owned subsidiary of Shell Oil Company that comprises Shell’s U.S. lubricants business. The formation was consummated through a transaction in which Whitmore sold to Shell a 50% interest in a wholly-owned subsidiary (containing certain existing operating assets) in exchange for consideration of $13.4 million from Shell in the form of cash and intangible assets. The Whitmore JV is deemed to be a variable interest entity ("VIE") and the Company is the primary beneficiary of this VIE, primarily due to Whitmore having the power to direct the manufacturing activities, which are considered the most significant activities for the Whitmore JV. The Whitmore JV has been consolidated into the operations of the Company and its activity has been included in our Specialized Reliability Solutions segment since the formation date. Refer to Note 3 for further information on the Whitmore JV.

Segment Realignment

Beginning with the quarter ended June 30, 2021, we revised our segment structure to align with how our chief operating decision maker (who was determined to be our Chief Executive Officer) views our business, assesses performance and allocates resources to our business components. Effective April 1, 2021, following the completion of various strategic transactions including the acquisition of T.A. Industries, Inc. and the formation of the Whitmore JV, our business is now organized into three reportable segments:
1.Contractor Solutions manufactures and supplies products predominantly for residential and commercial HVAC/R and plumbing applications, which are designed primarily for professional tradespeople. This segment is comprised primarily of RectorSeal and TRUaire operating companies.
2.Engineered Building Solutions provides primarily code-driven products focused on life safety that are engineered to provide aesthetically-pleasing solutions for the construction, refurbishment and modernization of commercial, institutional, and multi-family residential buildings. This segment is comprised primarily of Balco, Greco and Smoke Guard operating companies.
3.Specialized Reliability Solutions provides products for increasing the reliability, performance and lifespan of industrial assets and solving equipment maintenance challenges. This segment is comprised primarily of Whitmore and the Whitmore JV operating companies.

As a result, reclassification of certain prior year financial information has been made to conform with the current period's presentation. None of the changes impact the Company's previously reported consolidated net revenue, operating income, net income or net income per share. Refer to Note 18 for further information on the Company's segment realignment.

Accounting Policies

We have consistently applied the accounting policies described in our Annual Report in preparing these condensed consolidated financial statements.  Updates and supplements to those accounting policies associated with the segment realignment and formation of the Whitmore JV are discussed below:

Segments - As discussed above, we conduct our operations through three business segments based on how we manage the business. Our Chief Executive Officer views our business, assesses performance and allocates resources using financial information generated and reported at the reportable segment level. We evaluate segment performance and allocate resources based on each reportable segment's operating income. Our reportable segments are as follows:

1.Contractor Solutions manufactures and supplies products predominantly for residential and commercial HVAC/R and plumbing applications, which are designed primarily for professional tradespeople. This segment is comprised primarily of RectorSeal and TRUaire operating companies.
2.Engineered Building Solutions provides primarily code-driven products focused on life safety that are engineered to provide aesthetically-pleasing solutions for the construction, refurbishment and modernization of commercial, institutional, and multi-family residential buildings. This segment is comprised primarily of Balco, Greco and Smoke Guard operating companies.
3.Specialized Reliability Solutions provides products for increasing the reliability, performance and lifespan of industrial assets and solving equipment maintenance challenges. This segment is comprised primarily of Whitmore and the Whitmore JV operating companies.

Variable Interest Entities - We evaluate whether an entity is a variable interest entity (“VIE”) and determine if the primary beneficiary status is appropriate on a quarterly basis. We consolidate a VIE for which we are the primary beneficiary. When assessing the determination of the primary beneficiary, we consider all relevant facts and circumstances, including: the power to
7


direct the activities of the VIE that most significantly impact the VIE’s economic performance, the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. Through this evaluation, we determined that the Whitmore JV is a VIE and the Company is the primary beneficiary of this VIE, primarily due to the Company having the power to direct the manufacturing activities, which are considered the most significant activities for the Whitmore JV.

Redeemable Noncontrolling Interests - Noncontrolling interests with redemption features that are not solely within our control are considered redeemable noncontrolling interests. Our redeemable noncontrolling interest relates to Shell's 50% equity interest in the Whitmore JV and is classified in temporary equity that is reported between liabilities and shareholders' equity on our Consolidated Balance Sheets initially at its formation-date fair value. We adjust the redeemable noncontrolling interest each reporting period for the net income (or loss) attributable to the noncontrolling interest. We also make a measurement period adjustment, if any, to adjust the redeemable noncontrolling interest to the higher of the redemption value or carrying value each reporting period. These adjustments are recognized through retained earnings and are not reflected in net income or net income attributable to CSWI. The redemption value of the redeemable noncontrolling interest is estimated using a discounted cash flow analysis, which requires management judgment with respect to future revenue, operating margins, growth rates and discount rates. Net income (loss) attributable to the redeemable noncontrolling interests are presented as a separate line on the consolidated statements of operations which is necessary to identify those income (loss) specifically attributable to CSWI. The financial results and position of the redeemable noncontrolling interest acquired through the formation of the Whitmore JV are included in their entirety in our consolidated statements of operations and consolidated balance sheets beginning with the first fiscal quarter of fiscal 2022.

When calculating earnings per share attributable to CSWI, we adjust net income attributable to CSWI for the measurement period adjustment to the extent the redemption value exceeds the carrying value of the redeemable noncontrolling interest on a cumulative basis. Refer to Note 3 for further information regarding the redeemable noncontrolling interest.

Accounting Developments

Pronouncements Implemented

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 adoption of ASU No. 2019-12 effective April 1, 2021 did not have a material impact on our condensed consolidated financial conditions and results of operations.

Pronouncements not yet implemented

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. In the U.S., the Alternative Reference Rates Committee has identified the Secured
Overnight Financing Rate ("SOFR") as its preferred alternative to 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.




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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 has extended the Company’s product offerings to the HVAC market as well as added new customers and provide strategic distribution facilities.

The contractual consideration paid for TRUaire included cash of $284 million ($286.9 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)$286,925 
Common stock (849,852 shares)
97,656
Total consideration transferred$384,581 
(a) Amount includes working capital and closing cash adjustments, and includes the $1.4 million received by the Company on April 1, 2021 as a result of the final working capital true-up adjustment 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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Initial Estimated Fair ValueMeasurement PeriodUpdated Estimated Fair Value
Cash$1,471 $— $1,471 
Accounts Receivable, net13,467 — 13,467 
Inventory46,313 (1,300)45,013 
Short-Term Tax Indemnity Assets5,000 — 5,000 
Other Current Assets1,285 1,046 2,331 
Property, Plant and Equipment28,832 (3,065)25,767 
Trade Name (indefinite life)43,500 — 43,500 
Customer Lists (useful life of 15 years)
194,000 8,500 202,500 
Right-Of-Use Assets49,040 — 49,040 
Long-Term Tax Indemnity Assets7,500 — 7,500 
Other Long-Term Assets2,850 402 3,252 
Accounts Payable(4,074)— (4,074)
Accrued and Other Current Liabilities(3,678)(1,406)(5,084)
Lease Liabilities - Short-Term(4,811)— (4,811)
Deferred Tax Liabilities(56,249)(6,912)(63,161)
Tax Contingency Reserve(22,511)5,190 (17,321)
Lease Liabilities - Long-Term(45,369)— (45,369)
Estimated fair value of net assets acquired256,566 2,455 259,021 
Goodwill129,169 (3,609)125,560 
Total Purchase Price$385,735 $(1,154)$384,581 

Deferred tax liabilities were established to record the deferred tax impact of purchase price accounting adjustments, primarily related to intangibles assets. Tax contingency reserves relate to uncertain tax positions TRUaire took in the periods prior to the acquisition date.
In accordance with the tax indemnification included in the purchase agreement of TRUaire, the seller has provided contractual indemnification to the Company for up to $12.5 million related to uncertain tax positions taken in prior years. The outcome of this arrangement will either be settled or expire by 2023. During the three months ended March 31, 2021, TRUaire received an audit closing letter from Internal Revenue Service related to calendar 2017, a pre-acquisition tax year. As a result of this, $5.0 million of the relevant tax indemnification assets was released in accordance with the purchase agreement. As of June 30, 2021, approximately $7.5 million of the tax indemnification assets remain outstanding.

Goodwill of $125.6 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/R end market. The goodwill recorded as part of this acquisition is included in the Contractor Solutions segment. The goodwill associated with the acquisition will not be amortized for financial reporting purposes and will not be deductible for income tax purposes.

TRUaire generated net revenue of $67.4 million and a net income before income taxes of $4.4 million for the period from the acquisition date to June 30, 2021. For the three months ended June 30, 2021, TRUaire generated revenue of $33.5 million and a net income before income taxes of $4.8 million. TRUaire activity is currently included in our Contractor Solutions segment. During the year ended March 31, 2021, the Company incurred and paid $7.8 million of transaction expenses in connection with the TRUaire acquisition, which were included in selling, general and administrative expenses in the Consolidated Statement of Operations. No transaction expenses were incurred during the three months ended June 30, 2021.


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Pursuant to Topic 805, unaudited supplemental proforma results of operations for the three months ended June 30, 2020, as if the acquisition of TRUaire had occurred on April 1, 2019, are presented below (in thousands, except per share amounts):
Three Months Ended June 30, 2020
Revenue, net$119,674 
Net income15,513 
Net earnings per common share:
Diluted$0.99 
Basic1.00 

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:

Additional depreciation expense of $0.1 million for the three months ended June 30, 2020 that would have been recognized as a result of the fair value step-up of the property, plant and equipment;
Additional amortization expense of $3.4 million for the three months ended June 30, 2020 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 $1.2 million for the three months ended June 30, 2020 as a result of incurring additional borrowing and
Income tax effect of the proforma adjustments calculated using a blended statutory income tax rate of 24.5% of $1.1 million for the three months ended June 30, 2020.


3. CONSOLIDATION OF VARIABLE INTEREST ENTITIES AND REDEEMABLE NONCONTROLLING INTEREST

Whitmore Joint Venture ("Whitmore JV")

On April 1, 2021, Whitmore Manufacturing, LLC (“Whitmore”), a wholly-owned subsidiary of CSWI, completed the formation of the previously announced joint venture ("Whitmore JV") with Pennzoil-Quaker State Company dba SOPUS products (“Shell”), a wholly-owned subsidiary of Shell Oil Company that comprises Shell’s U.S. lubricants business. The formation was consummated through a transaction in which Whitmore sold to Shell a 50% interest in a wholly-owned subsidiary (containing certain existing operating assets) in exchange for consideration of $13.4 million from Shell in the form of cash ($5.3 million) and intangible assets ($8.1 million). The Whitmore JV has been consolidated into the operations of the Company and its activity has been included in our Specialized Reliability Solutions segment since the formation date.

The Whitmore JV is deemed to be a VIE as the equity investors at risk, as a group, lack the characteristics of a controlling financial interest. The major factor that led to the conclusion that Company is the primary beneficiary of this VIE is that Whitmore has the power to direct the most significant activities due to its ability to direct the manufacturing decisions of the Whitmore JV. Whitmore JV's total net assets are presented below (in thousands):

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June 30, 2021
Cash$4,791 
Accounts receivable, net7,179 
Inventories, net1,257 
Prepaid expenses and other current assets236 
Property, plant and equipment, net2,226 
Intangible assets, net7,895 
Other assets45 
Total assets$23,629 
Accounts payable$4,537 
Accrued and other current liabilities120 
Total liabilities$4,657 

During the three months ended June 30, 2021, the Whitmore JV generated a net income of $0.6 million.

The Whitmore JV's LLC Agreement contains a put option that gives either member the right to sell its 50% equity interest in the Whitmore JV to the other member at a dollar amount equivalent to 90% of the initiating member's equity interest determined based on the fair market value of the Whitmore JV's net assets. This put option can be exercised, at either member's discretion, by providing written notice to the other member after three years from the Whitmore JV's formation, subject to certain time restrictions. This redeemable noncontrolling interest is recorded at the higher of the redemption value or carrying value each reporting period. Changes in redeemable noncontrolling interest for the three-month period ended June 30, 2021 were as follows (in thousands):

Balance at March 31, 2021$ 
Fair value of redeemable noncontrolling interest at formation-date13,391 
Net income attributable to redeemable noncontrolling interest315 
Adjustments to redemption value 
Balance at June 30, 2021$13,706 


4. INVENTORIES

Inventories consist of the following (in thousands):
June 30, 2021March 31, 2021
Raw materials and supplies$33,611 $27,416 
Work in process6,325 6,365 
Finished goods72,953 72,452 
Total inventories112,889 106,233 
Less: LIFO reserve(4,287)(4,565)
Less: Obsolescence reserve(3,597)(3,582)
Inventories, net$105,005 $98,086 


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5. GOODWILL AND INTANGIBLE ASSETS

During the three months ended June 30, 2021, we revised our segment structure creating three reportable segments: Contractor Solutions, Engineered Building Solutions and Specialized Reliability Solutions. Refer to Note 18 for further information on the Company's segment realignment. As part of our segment realignment, we changed our reporting units and reallocated existing goodwill to each of the new reportable segments and associated reporting units, based on management's estimate of the relative fair value of each reporting unit. The result of this reallocation of goodwill has been recast, by reportable segment, as of March 31, 2021.

The changes in the carrying amount of goodwill as of June 30, 2021 and March 31, 2021 were as follows (in thousands):
Contractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsTotal
Balance at March 31, 2021$169,345 $22,238 $27,212 $218,795 
Goodwill re-allocation14,813 2,727 (17,540) 
TRUaire acquisition6   6 
Currency translation(12)125 13 126 
Balance at June 30, 2021$184,152 $25,090 $9,685 $218,927 


In conjunction with the goodwill reallocation described above, during the three months ended June 30, 2021, we performed an impairment test of goodwill held by all reporting units as of March 31, 2021. Based on the results of the goodwill assessment, we determined that the fair values of each reporting unit exceeded its carrying value. As such, we concluded that there was no indication of goodwill impairment for all reporting units.

The following table provides information about our intangible assets (in thousands, except years): 
June 30, 2021March 31, 2021
Wtd Avg Life (Years)Ending Gross AmountAccumulated AmortizationEnding Gross AmountAccumulated Amortization
Finite-lived intangible assets:
Patents11$9,418 $(7,682)$9,461 $(7,540)
Customer lists and amortized trademarks14275,213 (47,089)267,096 (42,345)
Non-compete agreements5992 (845)982 (790)
Other84,767 (3,316)4,743 (3,141)
$290,390 $(58,932)$282,282 $(53,816)
Trade names and trademarks not being amortized:$54,602 $— $54,594 $— 
 
Amortization expenses for the three months ended June 30, 2021, and June 30, 2020 were $9.1 million and $1.7 million, respectively. The following table shows the estimated future amortization for intangible assets, as of June 30, 2021, for the remainder of the current fiscal year and the next four fiscal years ending March 31 (in thousands):

2022$14,880 
202319,079 
202418,367 
202517,409 
202616,499 
Thereafter145,224 
Total$231,458 



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6. SHARE-BASED COMPENSATION

Refer to Note 5 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 June 30, 2021, 547,386 shares were available for issuance under the 2015 Plan.

We recorded share-based compensation expense as follows for the three months ended June 30, 2021 and 2020 (in thousands):
 
Three Months Ended
June 30,
20212020
Share-based compensation expense$1,888 $1,328 
Related income tax benefit(453)(319)
Net share-based compensation expense$1,435 $1,009 

Stock option activity was as follows:
Three Months Ended June 30, 2021
Number of SharesWeighted Average PriceRemaining Contractual Life (Years)Aggregate Intrinsic Value (in Millions)
Outstanding at April 1, 202163,413 $25.23 
Exercised  
Outstanding at June 30, 202163,413 25.23 3.2$5.9 
Exercisable at June 30, 202163,413 $25.23 3.2$5.9 

All compensation costs related to stock options were recognized prior to April 1, 2019. No options were granted or vested during the three months ended June 30, 2021 and 2020.

Restricted share activity was as follows:
Three Months Ended June 30, 2021
Number of SharesWeighted Average Grant Date Fair Value
Outstanding at April 1, 2021:172,916 $70.50 
     Granted127,727 172.98 
     Vested(59,166)58.97 
     Canceled  
Outstanding at June 30, 2021241,477 $114.04 

During the three months ended June 30, 2021, Joe Armes, the Company's Chairman, Chief Executive Officer and President, was awarded a series of long-term incentive awards with the purpose of retaining him through retirement and promoting successful succession planning and transition practices. Mr. Armes' awards include 31,496 shares of restricted stock, 27,559 performance shares and 19,685 performance restricted stock units. All awards granted to Ms. Armes are included in the above restricted share activity.

During the restriction period, the holders of restricted shares are entitled to vote and receive dividends. Unvested restricted shares outstanding as of June 30, 2021 and 2020 included 102,001 and 90,012 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. We granted 47,845 and 34,245 awards with performance-based vesting provisions during the three months ended June 30, 2021 and 2020, respectively, with a vesting range of 0%-200%.

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At June 30, 2021, we had unrecognized compensation cost related to unvested restricted shares of $22.1 million, which will be amortized into net income over the remaining weighted average vesting period of approximately 4 years. The total fair value of restricted shares granted during the three months ended June 30, 2021 and 2020 was $17.2 million and $2.5 million, respectively. The total fair value of restricted shares vested during the three months ended June 30, 2021 and 2020 was $8.0 million and $4.2 million, respectively.


7. LONG-TERM DEBT

Debt consists of the following (in thousands):
June 30, 2021March 31, 2021
Revolving Credit Facility, interest rate of 1.85% and 2.11%, respectively
$221,000 $232,000 
Whitmore Term Loan, interest rate of 2.10% and 2.11%, respectively
10,196 10,337 
Total debt231,196 242,337 
Less: Current portion(561)(561)
Long-term debt$230,635 $241,776 

Revolving Credit Facility

As discussed in Note 7 to our consolidated financial statements included in our Annual Report, we had a five-year, $300.0 million revolving credit facility agreement, which was scheduled to mature on September 15, 2022 (the “Revolving Credit Facility”). Borrowings under this facility bore interest at a rate of prime plus 1.00% or London Interbank Offered Rate ("LIBOR") plus 2.00%, which is adjusted based on our quarterly leverage ratio. We also paid a commitment fee of 0.3% for the unutilized portion of this revolving credit facility.

On May 18, 2021, we entered into a Second Amended and Restated Credit Agreement (the “Second Credit Agreement”), which provides for a $400 million revolving credit facility that contains a $25 million sublimit for the issuance of letters of credit and a $10 million sublimit for swingline loans. The Second Credit Agreement is scheduled to mature on May 18, 2026. The Company incurred a total of $2.3 million in underwriting discounts and fees, which are being amortized over the life of the Second Credit Agreement. Borrowings under the Second Credit Agreement bear interest at either base rate or LIBOR, plus, in either case, an applicable margin based on the Company’s leverage ratio calculated on a quarterly basis. The base rate is described in the Second Credit Agreement as the highest of (i) the Federal funds effective rate plus 0.50%, (ii) the prime rate quoted by The Wall Street Journal, and (iii) the one-month LIBOR rate plus 1.00%. We pay a commitment fee of 0.25% for the unutilized portion of this revolving credit facility. Interest and commitment fees are payable at least quarterly and the outstanding principal balance is due at the maturity date. The Second Credit Agreement is secured by a first priority lien on all tangible and intangible assets and stock issued by the Borrower and its domestic subsidiaries, subject to specified exceptions, and 65% of the voting equity interests in its first-tier foreign subsidiaries.

During the three months ended June 30, 2021, we borrowed $12.0 million and repaid $23.0 million under this facility. As of June 30, 2021 and March 31, 2021, we had $221.0 million and $232.0 million, respectively, in our outstanding balance, which resulted in borrowing capacity of $179.0 million and $68.0 million, respectively. The financial covenants contained in the Second Credit Agreement require the maintenance of a maximum leverage ratio of 3.00 to 1.00, subject to a temporary increase to 3.75 to 1.00 for 18 months following the consummation of permitted acquisitions with consideration in excess of certain threshold amounts set forth in the Second Credit Agreement, and the maintenance of a minimum fixed charge coverage ratio of 1.25 to 1.00, the calculations and terms of which are defined in the Second Credit Agreement. Covenant compliance is tested quarterly, and we were in compliance with all covenants as of June 30, 2021.

Whitmore Term Loan

As of June 30, 2021, Whitmore had a secured term loan (the "Whitmore Term Loan") outstanding related to a warehouse and corporate office building and the remodel of an existing manufacturing and research and development facility.  The Whitmore Term Loan was entered into in July 2014 and matures on July 31, 2029 and requires payments of $140,000 each quarter.  Borrowings under this term loan bear interest at a variable annual rate equal to one month LIBOR plus 2.0%.  As of June 30, 2021 and March 31, 2021, Whitmore Manufacturing had $10.2 million and $10.3 million, respectively, in principal amount outstanding under the Whitmore Term Loan. Interest payments under the Whitmore Term Loan are hedged under an interest rate swap agreement as described in Note 9.
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8. LEASES

We have operating leases for manufacturing facilities, offices, warehouses, vehicles and certain equipment. Our leases have remaining lease terms of 1 year to 27 years, some of which include escalation clauses and/or options to extend or terminate the leases. We do not currently have any financing lease arrangements.
Three Months Ended June 30,
(in thousands)20212020
Components of Operating Lease Expenses
Operating lease expense (a)$2,429 $845 
Short-term lease expense95 55 
Total operating lease expense  $2,524 $900 
(a)  Included in cost of revenues and selling, general and administrative expense

(in thousands)June 30, 2021March 31, 2021
Operating Lease Assets and Liabilities
Right-of-use assets, net (b)$59,650 $61,707 
Short-term lease liabilities (c)$8,011 $8,063 
Long-term lease liabilities (c)54,861 56,709 
Total operating lease liabilities$62,872 $64,772 
(b) Included in other assets
(c) Included in accrued and other current liabilities and other long-term liabilities
Three Months Ended June 30,
(in thousands)20212020
Supplemental Cash Flow
Cash paid for amounts included in the measurement of operating lease liabilities (a)$2,359 $933 
Right-of-use assets obtained in exchange for new operating lease obligations29 59 
(a) Included in our condensed consolidated statement of cash flows, operating activities in accounts payable and other current liabilities
Other Information for Operating Leases
Weighted average remaining lease term (in years)7.976.01
Weighted average discount rate (percent)2.6 %4.3 %

Maturities of operating lease liabilities were as follows (in thousands): 
Year Ending March 31, 2022 (excluding the three months ended June 30, 2021)$7,198 
20239,019 
20248,920 
20258,785 
20268,786 
Thereafter26,520 
Total lease liabilities 69,228 
Less: Imputed interest(6,356)
Present value of lease liabilities$62,872 

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9. DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING

We have an interest rate swap agreement to hedge exposure to floating interest rates on the Whitmore Term Loan, as discussed in Note 7.  As of June 30, 2021 and March 31, 2021, we had $10.2 million and $10.3 million, respectively, of notional amount outstanding designated as an interest rate swap with third parties.  The interest rate swap is highly effective.  At June 30, 2021, the maximum remaining length of the interest rate swap contract was approximately 8.1 years. The fair value of the interest rate swap designated as a hedging instrument is summarized below (in thousands):
June 30, 2021March 31, 2021
Current derivative liabilities$277 $280 
Non-current derivative liabilities878 736 

The impact of changes in fair value of the interest rate swap is included in Note 16.

Current and non-current derivative assets are reported in our condensed consolidated balance sheets in prepaid expenses and other current assets and other assets, respectively. Current and non-current derivative liabilities are reported in our condensed consolidated balance sheets in accrued and other current liabilities and other long-term liabilities, respectively.

We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments.  We perform credit evaluation of our counterparties and expect all counterparties to meet their obligations.  We have not experienced credit losses from our counterparties.


10. EARNINGS PER SHARE

The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted earnings per share for the three months ended June 30, 2021 and 2020 (amounts in thousands, except per share data):
Three Months Ended
June 30,
20212020
Net income$20,363 $11,960 
Less: Net income attributable to redeemable noncontrolling interest(315) 
Net income attributable to CSW Industrials, Inc. shareholders$20,048 $11,960 
Weighted average shares:
Common stock15,605 14,603 
Participating securities110 104 
Denominator for basic earnings per common share15,715 14,707 
Potentially dilutive securities66 101 
Denominator for diluted earnings per common share15,781 14,808 
Net income per share attributable to CSW Industrials, Inc. shareholders:
Basic$1.28 $0.81 
Diluted$1.27 $0.81 
 



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11. SHAREHOLDERS' EQUITY

Share Repurchase Program

On November 7, 2018, we announced that our Board of Directors authorized a program to repurchase up to $75.0 million of our common stock over a two-year period. On October 30, 2020, we announced that our Board of Directors authorized a new program to repurchase up to $100.0 million of our common stock, which replaced the previously announced $75.0 million program. Under the newly-authorized program, shares may be repurchased from time to time in the open market or in privately negotiated transactions. Repurchases will be made at our discretion, based on ongoing assessments of the capital needs of the business, the market price of our common stock and general market conditions. Our Board of Directors has established an expiration of December 31, 2022, for completion of the new repurchase program; however, the program may be limited or terminated at any time at our discretion without notice. No shares were repurchased during the three months ended June 30, 2021, and 115,151 shares were repurchased for an aggregate amount of $7.3 million, under the prior $75.0 million share repurchase program during the three months ended June 30, 2020. As of June 30, 2021, no shares had been repurchased under the previously announced $100.0 million program.

Dividends

In April 2019, we commenced a quarterly dividend program. Total dividends of $2.4 million and $2.0 million were paid during the three months ended June 30, 2021 and 2020, respectively.

On July 15, 2021, we announced a quarterly dividend of $0.150 per share payable on August 13, 2021 to shareholders of record as of July 29, 2021. Any future dividends at the existing $0.150 per share quarterly rate or otherwise will be reviewed individually and declared by our Board of Directors in its discretion.


12. FAIR VALUE MEASUREMENTS

The fair value of the interest rate swap contract (as discussed in Note 9) is determined using Level 2 inputs.  The carrying value of our debt (discussed in Note 7) approximates fair value as it bears interest at floating rates.  The carrying amounts of other financial instruments (i.e., cash and cash equivalents, accounts receivable, net, accounts payable) approximate their fair values at June 30, 2021 and March 31, 2021 due to their short-term nature.


13. RETIREMENT PLANS
Refer to Note 13 to our consolidated financial statements included in our Annual Report for a description of our retirement and post-retirement benefits.

The following tables set forth the combined net pension benefit recognized in our condensed consolidated financial statements for all plans (in thousands):
Three Months Ended
June 30,
20212020
Service cost, benefits earned during the period$12 $10 
Interest cost on projected benefit obligation34 36 
Expected return on assets(28)(24)
Amortization of net actuarial loss18 18 
Net pension benefit$36 $40 

The components of net periodic cost for retirement and postretirement benefits, other than service costs, are included in other expense, net in our condensed consolidated statements of income.

Employee Stock Ownership Plan ("ESOP") - During the quarters ended June 30, 2021 and 2020, we contributed shares of common stock out of treasury shares with a value of $2.3 million and $3.6 million, respectively, to our ESOP, based on performance in the prior year.

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14. CONTINGENCIES

From time to time, we are involved in various claims and legal actions that arise in the ordinary course of business.  There are no matters pending that we currently believe have a reasonable possibility of having a material impact to our business, consolidated financial position, results of operations or cash flows.


15. INCOME TAXES

For the three months ended June 30, 2021, we earned $26.8 million from operations before taxes and provided for income taxes of $6.4 million, resulting in an effective tax rate of 23.9%. The provision for income taxes differed from the statutory rate for the three months ended June 30, 2021 primarily due to state and foreign income taxes, executive compensation limitations, an increase in the reserves for uncertain tax positions and provision for global intangible low-taxed income ("GILTI"), partially offset by excess tax deductions related to stock compensation and deductions related to foreign-derived intangible income ("FDII") and foreign tax credits.

For the three months ended June 30, 2020, we earned $15.6 million from operations before taxes and provided for income taxes of $3.7 million, resulting in an effective tax rate of 23.5%. The provision for income taxes differed from the statutory rate for the three months ended June 30, 2020, primarily due to state income taxes, tax credits, excess tax deductions related to stock compensation and a change in indefinite reinvestment assertion related to the investment in a foreign subsidiary.

We are currently under examination by the Internal Revenue Service for Whitmore's federal short period tax return for tax year ending September 30, 2015. We have not been notified of any material adjustments.


16. OTHER COMPREHENSIVE INCOME (LOSS)

The following table provides an analysis of the changes in accumulated other comprehensive loss (in thousands):
Three Months Ended June 30,
20212020
Currency translation adjustments:
Balance at beginning of period$(4,394)$(9,185)
Adjustments for foreign currency translation489 1,338 
Balance at end of period$(3,905)$(7,847)
Interest rate swaps:
Balance at beginning of period$(803)$(1,390)
Unrealized gain, net of taxes of $44 and $28, respectively (a)
(166)(106)
Reclassification of losses included in interest expense, net, net of taxes of $(15) and $(14), respectively
57 51 
Other comprehensive income(109)(55)
Balance at end of period$(912)$(1,445)
Defined benefit plans:
Balance at beginning of period$(799)$