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, 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)

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 January 31, 2022, there were 15,824,478 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, 2021 and 2020 (unaudited)	1
	Condensed Consolidated Balance Sheets as of December 31, 2021 and March 31, 2021 (unaudited)	3
	Condensed Consolidated Statements of Equity as of December 31, 2021 and 2020 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2021 and 2020 (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	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37
SIGNATURES		38

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)	2021		2020		2021		2020
Revenues, net	$	136,286	$	89,932	$	453,136	$	285,836
Cost of revenues	(86,244)		(50,594)		(271,445)		(155,010)
Gross profit	50,042		39,338		181,691		130,826
Selling, general and administrative expenses	(37,894)		(35,221)		(115,177)		(88,276)
Operating income	12,148		4,117		66,514		42,550
Interest expense, net	(1,184)		(469)		(4,151)		(1,071)
Other expense, net	(127)		(592)		(432)		(1,259)
Income before income taxes	10,837		3,056		61,931		40,220
Provision for income taxes	(2,068)		(710)		(14,592)		(9,560)
Net income	8,769		2,346		47,339		30,660
Less: Income attributable to redeemable noncontrolling interest	(458)		—		(985)		—
Net income attributable to CSW Industrials, Inc.	$	8,311	$	2,346	$	46,354	$	30,660
Net income per share attributable to CSW Industrials, Inc.
Basic	$	0.53	$	0.16	$	2.94	$	2.07
Diluted	$	0.52	$	0.16	$	2.93	$	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)	2021		2020		2021		2020
Net income	$	8,769	$	2,346	$	47,339	$	30,660
Other comprehensive income (loss):
Foreign currency translation adjustments	(71)		2,271		(113)		4,661
Cash flow hedging activity, net of taxes of $(25), $(40), $(19) and $(42), respectively	93		152		71		157
Pension and other postretirement effects, net of taxes of $14, $3, $5 and 3, respectively	(52)		(10)		(20)		(10)
Other comprehensive income (loss)	(30)		2,413		(62)		4,808
Comprehensive income	$	8,739	$	4,759	$	47,277	$	35,468
Less: Comprehensive income attributable to redeemable noncontrolling interest	(458)		—		(985)		—
Comprehensive income attributable to CSW Industrials, Inc.	$	8,281	$	4,759	$	46,292	$	35,468

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, 2021		March 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	16,184	$	10,088
Accounts receivable, net of allowance for expected credit losses of $1,021 and $915, respectively	90,737		96,695
Inventories, net	127,442		98,086
Prepaid expenses and other current assets	16,355		9,684
Total current assets	250,718		214,553
Property, plant and equipment, net of accumulated depreciation of $78,510 and $72,944, respectively	82,557		82,554
Goodwill	237,985		218,795
Intangible assets, net	295,149		283,060
Other assets	83,636		75,995
Total assets	$	950,045	$	874,957
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	39,530	$	32,444
Accrued and other current liabilities	58,335		49,743
Current portion of long-term debt	561		561
Total current liabilities	98,426		82,748
Long-term debt	230,355		241,776
Retirement benefits payable	1,706		1,695
Other long-term liabilities	145,444		136,725
Total liabilities	475,931		462,944
Commitments and contingencies (See Note 14)
Redeemable noncontrolling interest	15,376		—
Equity:
Common shares, $0.01 par value	162		161
Shares authorized – 50,000
Shares issued – 16,284 and 16,162, respectively
Preferred shares, $0.01 par value	—		—
Shares authorized (10,000) and issued (0)
Additional paid-in capital	110,790		104,689
Treasury shares, at cost (454 and 511 shares, respectively)	(32,604)		(34,075)
Retained earnings	386,448		347,234
Accumulated other comprehensive loss	(6,058)		(5,996)
Total equity	458,738		412,013
Total liabilities, redeemable noncontrolling interest and equity	$	950,045	$	874,957

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
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
Share-based compensation	—		—		2,049		—		—		2,049
Stock activity under stock plans	—		(13)		—		—		—		(13)
Reissuance of treasury shares	—		1,568		(994)		—		—		574
Net income	—		—		—		17,996		—		17,996
Dividends	—		—		18		(2,378)		—		(2,360)
Other comprehensive loss, net of tax	—		—		—		—		(419)		(419)
Balance at September 30, 2021	$	161	$	(34,313)	$	108,604	$	380,523	$	(6,028)	$	448,947
Share-based compensation	—		—		2,287		—		—		2,287
Stock activity under stock plans	1		(1,698)		—		—		—		(1,697)
Repurchase of common shares	—		(477)		—		—		—		(477)
Reissuance of treasury shares	—		3,884		(119)		—		—		3,765
Net income	—		—		—		8,311		—		8,311
Dividends	—		—		18		(2,386)		—		(2,368)
Other comprehensive income, net of tax	—		—		—		—		(30)		(30)
Balance at December 31, 2021	$	162	$	(32,604)	$	110,790	$	386,448	$	(6,058)	$	458,738

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(Amounts in thousands)	Common Stock		Treasury Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
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

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)	2021		2020
Cash flows from operating activities:
Net income	$	47,339	$	30,660
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	8,731		6,079
Amortization of intangible and other assets	19,765		5,698
Provision for inventory reserves	3,519		1,169
Provision for doubtful accounts	1,146		227
Share-based and other executive compensation	6,223		3,945
Net gain on disposals of property, plant and equipment	(9)		(42)
Net pension benefit	269		121
Net deferred taxes	1,757		456
Changes in operating assets and liabilities:
Accounts receivable	5,621		14,115
Inventories	(33,250)		(1,581)
Prepaid expenses and other current assets	(4,827)		(4,494)
Other assets	378		(340)
Accounts payable and other current liabilities	12,032		(1,787)
Retirement benefits payable and other liabilities	778		(180)
Net cash provided by operating activities	69,472		54,046
Cash flows from investing activities:
Capital expenditures	(8,356)		(6,886)
Proceeds from sale of assets	21		604
Cash paid for acquisitions	(36,427)		(278,680)
Net cash used in investing activities	(44,762)		(284,962)
Cash flows from financing activities:
Borrowings on line of credit	52,513		255,000
Repayments of line of credit and term loan	(63,934)		(10,421)
Payments of deferred loan costs	(2,327)		(149)
Purchase of treasury shares	(5,356)		(10,488)
Proceeds from stock option activity	1,326		1,331
Proceeds from acquisition of redeemable noncontrolling interest shareholder	6,293		—
Dividends	(7,084)		(5,970)
Net cash provided by (used in) financing activities	(18,569)		229,303
Effect of exchange rate changes on cash and equivalents	(45)		1,535
Net change in cash and cash equivalents	6,096		(78)
Cash and cash equivalents, beginning of period	10,088		18,338
Cash and cash equivalents, end of period	$	16,184	$	18,260

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 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 ("GRD"), 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®, TRUaire® and Shoemaker ManufacturingTM.

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 had an overall negative impact on our financial results in the three and nine months of our prior fiscal year ended December 31, 2020. During the three and nine months of our current fiscal year ended December 31, 2021, the direct impact of the COVID-19 pandemic on our consolidated operating results was limited, in all material respects, to our operations in Vietnam. In early August 2021, the Vietnamese government mandated numerous restrictions in an effort to mitigate the spread of COVID-19, including closures of non-essential businesses, limitations on movements of individuals, and the imposition of other highly-restrictive measures for businesses, like ours, that continued operations in compliance with the restrictions. Our Vietnam operations began resuming normal production activities in late November 2021, when the Vietnamese government-mandated restrictions began to ease. Regarding our operations generally, the indirect impacts of the COVID-19 pandemic have resulted in material and freight cost inflation, supply chain disruptions and freight delays, driven by numerous factors including countermeasures taken by U.S. federal, state and/or local governments and the Federal Reserve, labor supply shortages, and recovering demand. During the three months ended December 31, 2021, material cost increases moderated, but we continue to experience increased freight costs and freight delays. We expect material and freight cost volatility, supply chain challenges and freight delays to continue in the near-term, and we are addressing these impacts through focused inventory management and by continuing and increasing the pricing initiatives that began in the three months ended March 31, 2021.

While the COVID-19 pandemic and its indirect effects have 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. Despite strong demand in certain of our end markets and clear signs of recovery in others, we cannot reasonably estimate the magnitude or length of the pandemic’s direct and indirect adverse impact, including its ultimate impact on our business or financial condition, due to continued uncertainty regarding (1) the duration and severity of the COVID-19 pandemic, including any surges due to the Omicron variant or other future mutations 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, 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 December 31, 2021, and the results of operations for the three and nine-month periods ended December 31, 2021 and 2020. All adjustments are of a normal, recurring nature.

7

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”).

Whitmore Joint Venture

On April 1, 2021, Whitmore Manufacturing, LLC (“Whitmore”), a wholly-owned subsidiary of CSWI, completed the formation of the previously announced joint venture (the "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. This segment structure revision became effective on April 1, 2021, and followed the completion of various strategic transactions including the acquisition of T.A. Industries, Inc. and the formation of the Whitmore JV. Refer to accounting policies below for detailed descriptions of our three business segments.

As a result of the business segment revision, 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 additional information on the Company's segment realignments.

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, which 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 our RectorSeal, TRUaire and Shoemaker operating companies.

2.Engineered Building Solutions, which 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 our Balco, Greco and Smoke Guard operating companies.

3.Specialized Reliability Solutions, which provides products for increasing the reliability, performance and lifespan of industrial assets and solving equipment maintenance challenges. This segment is comprised primarily of our Whitmore operating company and the Whitmore JV.

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 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

8

Whitmore JV is a VIE and the Company is the primary beneficiary of this VIE, primarily due to the Whitmore 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 excess portion of the measurement period adjustment to the extent the redemption value exceeds both the carrying value and the fair 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. 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

Shoemaker Manufacturing, LLC

On December 15, 2021, we acquired 100% of outstanding equity of Shoemaker Manufacturing, LLC (“Shoemaker”), based in Cle Elum, Washington, for an aggregate purchase price of $44.0 million, including preliminary working capital and closing cash adjustments and expected contingent consideration. Shoemaker offers high-quality customizable GRD for commercial and residential markets, and expands CSWI’s HVAC/R product offering and regional exposure in the northwest U.S. The aggregate purchase price was comprised of initial cash consideration of $39.0 million, 25,483 shares of the Company's common stock valued at $3.0 million at transaction close and additional contingent consideration of up to $2.0 million based on Shoemaker meeting a defined financial target during the quarter ended March 31, 2022. The cash consideration was funded with cash on hand and borrowings under our existing revolving credit facility. The 25,483 shares of common stock delivered to the sellers as consideration were issued from treasury shares. As of the acquisition date, the estimated fair value of the contingent consideration obligation was classified as a current liability of $2.0 million and was determined using a scenario-based analysis on forecasted future results. During the three months ended December 31, 2021, we incurred $0.5 million in transaction expenses in connection with the Shoemaker acquisition, which were included in selling, general and administrative expenses in the Consolidated Statement of Operations.

The Shoemaker acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805"). The excess of the purchase price over the preliminary fair value of the identifiable assets acquired was $19.7 million allocated to goodwill, which represents the value expected to be obtained from owning a more extensive GRD product portfolio for the HVAC/R market and increased regional exposure to the northwest U.S. The preliminary allocation of the fair value of the net assets acquired included customer lists ($13.0 million), trademarks ($5.3 million), noncompete agreements ($0.8 million), backlog ($0.3 million), inventory ($3.6 million), accounts receivable ($1.7 million), cash ($1.2 million), equipment ($1.4 million) and prepaid expenses ($0.2 million), net of current liabilities ($3.1 million). Customer lists, noncompete agreements and backlog are being amortized over 15 years, 5 years and 1 month, respectively, while trademarks and goodwill are not being amortized.  The Company's evaluation of the facts and circumstances available of December 15, 2021, to assign fair values to assets acquired and liabilities assumed is ongoing. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date. Goodwill and all intangible assets, including customer lists, trademarks, noncompete agreements and backlog are deductible and amortized over 15 years for income tax purposes. Shoemaker activity has been included in our Contractor Solutions segment since the acquisition date. No pro forma information has been provided due to immateriality.

T.A. Industries

On December 15, 2020, we acquired 100% of the outstanding equity of T.A. Industries, Inc. (“TRUaire”), a leading manufacturer of GRD 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 extended the Company’s product offerings to the HVAC/R end market share and provided strategic distribution facilities.

The contractual consideration paid for TRUaire included cash of $288.0 million, after working capital, closing cash and subsequent tax 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)	$	287,986
Common stock (849,852 shares)	97,656
Total consideration transferred	$	385,642

(a) Amount includes working capital and closing cash adjustments, and includes a $1.0 million to be paid to the sellers as a result of an expected tax refund pursuant to the purchase agreement.

The TRUaire acquisition was accounted for as a business combination under 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

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to goodwill. The Company completed the analysis of tangible assets, intangible assets, liabilities assumed and the related allocation during the three months ended December 31, 2021. The following table summarizes the Company's estimate of the aggregate fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands).

	Initial Estimated Fair Value		Measurement Period Adjustments		Final Estimated Fair Value
Cash	$	1,471	$	—	$	1,471
Accounts Receivable, net	13,467		(17)		13,450
Inventory	46,313		(1,300)		45,013
Short-Term Tax Indemnity Assets	5,000		—		5,000
Other Current Assets	1,285		2,103		3,388
Property, Plant and Equipment	28,832		(4,201)		24,631
Trade Name (indefinite life)	43,500		—		43,500
Customer Lists (useful life of 15 years)	194,000		8,500		202,500
Right-Of-Use Assets	49,040		—		49,040
Long-Term Tax Indemnity Assets	7,500		—		7,500
Other Long-Term Assets	2,850		(698)		2,152
Accounts Payable	(4,074)		—		(4,074)
Accrued and Other Current Liabilities	(3,678)		(172)		(3,850)
Lease Liabilities - Short-Term	(4,811)		—		(4,811)
Deferred Tax Liabilities	(56,249)		(5,589)		(61,838)
Tax Contingency Reserve	(22,511)		5,190		(17,321)
Lease Liabilities - Long-Term	(45,369)		—		(45,369)
Estimated fair value of net assets acquired	256,566		3,816		260,382
Goodwill	129,169		(3,909)		125,260
Total Purchase Price	$	385,735	$	(93)	$	385,642

Deferred tax liabilities were established to record the deferred tax impact of purchase price accounting adjustments, primarily related to intangible 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 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 December 31, 2021, $7.5 million of the tax indemnification assets remained outstanding.

Goodwill of $125.3 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 $133.0 million and net income before income taxes of $11.3 million for the period from the acquisition date to December 31, 2021. The net income before taxes includes the indemnification expense of $5.0 million discussed above. For the three months ended December 31, 2021, TRUaire generated revenue of $30.4 million and net income before income taxes of $2.0 million. TRUaire activity is 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 and nine months ended December 31, 2021.

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Pursuant to Topic 805, unaudited supplemental proforma results of operations for the three and nine months ended December 31, 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 December 31, 2020		Nine Months Ended December 31, 2020
Revenue, net	$	113,857	$	362,419
Net income	5,313		38,209
Net earnings per common share:
Diluted	$	0.33	$	2.42
Basic	$	0.34	$	2.44

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

•Additional amortization expense of $2.8 million and $9.6 million for the three and nine months ended December 31, 2020, respectively, 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 and $3.3 million for the three and nine months ended December 31, 2020, respectively, 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 $1.0 million and $3.2 million for the three and nine months ended December 31, 2020, respectively.

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3. CONSOLIDATION OF VARIABLE INTEREST ENTITY AND REDEEMABLE NONCONTROLLING INTEREST

Whitmore Joint Venture

On April 1, 2021, Whitmore Manufacturing, LLC (“Whitmore”), a wholly-owned subsidiary of CSWI, completed the formation of the previously announced joint venture (the "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 the 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):

	December 31, 2021
Cash	$	6,822
Accounts receivable, net	7,392
Inventories, net	1,745
Prepaid expenses and other current assets	84
Property, plant and equipment, net	4,686
Intangible assets, net	7,491
Other assets	134
Total assets	$	28,354
Accounts payable	$	5,645
Accrued and other current liabilities	328
Other long-term liabilities	66
Total liabilities	$	6,039

During the three and nine months ended December 31, 2021, the Whitmore JV generated net income of $0.9 million and $2.0 million, respectively.

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 timing 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 nine-month period ended December 31, 2021 were as follows (in thousands):

Balance at March 31, 2021	$	—
Fair value of redeemable noncontrolling interest at formation-date	13,391
Net income attributable to redeemable noncontrolling interest	985
Contributions from noncontrolling interest	1,000
Adjustments to redemption value	—
Balance at December 31, 2021	$	15,376

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4. INVENTORIES

Inventories consist of the following (in thousands):

	December 31, 2021		March 31, 2021
Raw materials and supplies	$	45,083	$	27,416
Work in process	6,652		6,365
Finished goods	86,148		72,452
Total inventories	137,883		106,233
Less: LIFO reserve	(6,476)		(4,565)
Less: Obsolescence reserve	(3,965)		(3,582)
Inventories, net	$	127,442	$	98,086

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 1 and Note 18 for additional 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 December 31, 2021 and March 31, 2021 were as follows (in thousands):

	Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Total
Balance at March 31, 2021	$	169,345	$	22,238	$	27,212	$	218,795
Goodwill re-allocation	14,813		2,727		(17,540)		—
TRUaire acquisition	(300)		—		—		(300)
Shoemaker acquisition	19,665		—		—		19,665
Currency translation	(48)		(58)		(69)		(175)
Balance at December 31, 2021	$	203,475	$	24,907	$	9,603	$	237,985

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): 

		December 31, 2021				March 31, 2021
	Wtd Avg Life (Years)	Ending Gross Amount		Accumulated Amortization		Ending Gross Amount		Accumulated Amortization
Finite-lived intangible assets:
Patents	11	$	9,417	$	(7,978)	$	9,461	$	(7,540)
Customer lists and amortized trademarks	14	287,933		(56,346)		267,096		(42,345)
Non-compete agreements	5	1,778		(930)		982		(790)
Other	8	5,110		(3,725)		4,743		(3,141)
		$	304,238	$	(68,979)	$	282,282	$	(53,816)
Trade names and trademarks not being amortized:		$	59,890	$	—	$	54,594	$	—

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Amortization expenses for the three and nine months ended December 31, 2021 were $5.2 million and $19.4 million (including the amortization of inventory purchase accounting adjustment of $3.9 million), respectively. Amortization expenses for the three and nine months ended December 31, 2020 were $2.1 million and $5.4 million, respectively. The following table shows the estimated future amortization for intangible assets, as of December 31, 2021, for the remainder of the current fiscal year and the next four fiscal years ending March 31 (in thousands):

2022	$	4,938
2023	20,106
2024	19,394
2025	18,436
2026	17,526
Thereafter	154,859
Total	$	235,259

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 December 31, 2021, 512,054 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, 2021 and 2020 (in thousands):

 

	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020
Share-based compensation expense	$	2,287	$	1,394	$	6,223	$	3,944
Related income tax benefit	(549)		(335)		(