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, 2022

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 August 1, 2022, there were 15,427,373 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 months ended June 30, 2022 and 2021 (unaudited)	2
	Condensed Consolidated Balance Sheets as of June 30, 2022 and March 31, 2022 (unaudited)	3
	Condensed Consolidated Statements of Equity as of June 30, 2022 and 2021 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2022 and 2021 (unaudited)	5
	Notes to the Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6.	Exhibits	29
SIGNATURES		30

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)	2022		2021*
Revenues, net	$	199,934	$	161,266
Cost of revenues	(113,509)		(92,240)
Gross profit	86,425		69,026
Selling, general and administrative expenses	(45,552)		(40,124)
Operating income	40,873		28,902
Interest expense, net	(1,784)		(1,538)
Other income (expense), net	169		(172)
Income before income taxes	39,258		27,192
Provision for income taxes	(9,620)		(6,507)
Net income	29,638		20,685
Less: Income attributable to redeemable noncontrolling interest	(195)		(224)
Net income attributable to CSW Industrials, Inc.	$	29,443	$	20,461
Net income per share attributable to CSW Industrials, Inc.
Basic	$	1.88	$	1.30
Diluted	$	1.88	$	1.30
Weighted average number of shares outstanding:
Basic	15,643		15,715
Diluted	15,652		15,781

*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.

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)	2022		2021*
Net income	$	29,638	$	20,685
Other comprehensive income (loss):
Foreign currency translation adjustments	(2,278)		489
Cash flow hedging activity, net of taxes of $(67) and $29, respectively	253		(109)
Pension and other postretirement effects, net of taxes of $(1) and $(2), respectively	3		7
Other comprehensive income (loss)	(2,022)		387
Comprehensive income	$	27,616	$	21,072
Less: Comprehensive income attributable to redeemable noncontrolling interest	(195)		(224)
Comprehensive income attributable to CSW Industrials, Inc.	$	27,421	$	20,848

*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.

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, 2022		March 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	15,519	$	16,619
Accounts receivable, net of allowance for expected credit losses of $1,354 and $1,177, respectively	143,874		122,804
Inventories, net	161,463		150,114
Prepaid expenses and other current assets	10,074		10,610
Total current assets	330,930		300,147
Property, plant and equipment, net of accumulated depreciation of $83,485 and $80,393, respectively	85,627		87,032
Goodwill	224,055		224,658
Intangible assets, net	295,318		300,837
Other assets	81,993		82,686
Total assets	$	1,017,923	$	995,360
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	51,826	$	47,836
Accrued and other current liabilities	69,427		69,005
Current portion of long-term debt	561		561
Total current liabilities	121,814		117,402
Long-term debt	273,074		252,214
Retirement benefits payable	1,060		1,027
Other long-term liabilities	139,735		140,306
Total liabilities	535,683		510,949
Commitments and contingencies (See Note 14)
Redeemable noncontrolling interest	15,520		15,325
Equity:
Common shares, $0.01 par value	162		162
Shares authorized – 50,000
Shares issued – 16,328 and 16,283, respectively
Preferred shares, $0.01 par value	—		—
Shares authorized (10,000) and issued (0)
Additional paid-in capital	116,305		112,924
Treasury shares, at cost (853 and 576 shares, respectively)	(76,925)		(46,448)
Retained earnings	434,274		407,522
Accumulated other comprehensive loss	(7,096)		(5,074)
Total equity	466,720		469,086
Total liabilities, redeemable noncontrolling interest and equity	$	1,017,923	$	995,360

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, 2022	$	162	$	(46,448)	$	112,924	$	407,522	$	(5,074)	$	469,086
Share-based compensation	—		—		2,284		—		—		2,284
Stock activity under stock plans	—		(2,002)		—		—		—		(2,002)
Reissuance of treasury shares	—		2,016		1,075		—		—		3,091
Repurchase of common shares	—		(30,491)		—		—		—		(30,491)
Net income	—		—		—		29,443		—		29,443
Dividends	—		—		22		(2,691)		—		(2,669)
Other comprehensive income, net of tax	—		—		—		—		(2,022)		(2,022)
Balance at June 30, 2022	$	162	$	(76,925)	$	116,305	$	434,274	$	(7,096)	$	466,720

(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)	$	104,690	$	350,670	$	(5,996)	$	415,450
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	—		—		—		20,461		—		20,461
Dividends	—		—		19		(2,377)		—		(2,358)
Other comprehensive income, net of tax	—		—		—		—		387		387
Balance at June 30, 2021	$	161	$	(35,868)	$	107,532	$	368,754	$	(5,609)	$	434,970

*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.

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)	2022		2021*
Cash flows from operating activities:
Net income	$	29,638	$	20,685
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	3,273		3,059
Amortization of intangible and other assets	5,340		9,235
Provision for inventory reserves	1,667		526
Provision for doubtful accounts	1,060		202
Share-based and other executive compensation	2,284		1,888
Net gain on disposals of property, plant and equipment	(5)		1
Net pension benefit	49		36
Net deferred taxes	310		81
Changes in operating assets and liabilities:
Accounts receivable	(21,044)		(16,164)
Inventories	(15,020)		(11,742)
Prepaid expenses and other current assets	458		(344)
Other assets	81		270
Accounts payable and other current liabilities	8,426		10,865
Retirement benefits payable and other liabilities	296		332
Net cash provided by operating activities	16,813		18,930
Cash flows from investing activities:
Capital expenditures	(2,015)		(1,079)
Proceeds from sale of assets	20		8
Cash paid for acquisitions	(2,000)		1,375
Net cash provided by (used in) investing activities	(3,995)		304
Cash flows from financing activities:
Borrowings on line of credit	34,797		12,000
Repayments of line of credit and term loan	(13,937)		(23,140)
Payments of deferred loan costs	—		(2,328)
Purchase of treasury shares	(31,398)		(3,168)
Proceeds from acquisition of redeemable noncontrolling interest shareholder	—		5,293
Dividends	(2,670)		(2,358)
Net cash used in financing activities	(13,208)		(13,701)
Effect of exchange rate changes on cash and equivalents	(710)		57
Net change in cash and cash equivalents	(1,100)		5,590
Cash and cash equivalents, beginning of period	16,619		10,088
Cash and cash equivalents, end of period	$	15,519	$	15,678

*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.

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 diversified industrial growth company with a strategic focus on providing niche, value-added products in the end markets we serve. Our products include mechanical products for heating, ventilation, air conditioning and refrigeration ("HVAC/R"), plumbing products, grilles, registers and diffusers ("GRD"), building safety solutions and high-performance specialty lubricants and sealants. End markets that we serve include HVAC/R, architecturally-specified building products, plumbing, energy, rail, mining and general industrial. Our manufacturing operations are concentrated in the United States (“U.S.”), Canada and Vietnam, and we have distribution operations in the U.S., Australia, Canada and the United Kingdom (“U.K.”). Our products are sold directly to end users or through designated channels in over 100 countries around the world, primarily including Australia, Canada, the U.K. and the U.S.

Many of our products are used to protect the capital assets of our customers that are expensive to repair or replace and are critical to their operations. We have a source of recurring revenue from the maintenance, repair, overhaul and consumable nature of many of our products. We also provide some custom engineered products that strengthen and enhance our customer relationships. The reputation of our product portfolio is built on more than 100 well-respected brand names, such as RectorSeal No. 5®, Kopr-Kote®, KATS Coatings®, Safe-T-Switch®, Air Sentry®, Deacon®, Leak Freeze®, Greco®, TRUaire® and Shoemaker Manufacturing®.

During the three months of our prior fiscal year ended June 30, 2021, the COVID-19 pandemic had an indirect impact on our operations including material and freight cost inflation, supply chain disruptions and freight delays, driven by numerous factors including government actions, labor supply shortages and recovering demand. In addition, COVID-19 and its indirect effects also contributed to increased demand in certain parts of our business, including the HVAC/R end market. During the three months of our current fiscal year ended June 30, 2022, the direct impact of the COVID-19 pandemic on our consolidated operating results was immaterial as economic activities recovered and the effects of the pandemic lessened. During the three months ended June 30, 2022, material costs stabilized and freight costs and delays improved when compared to the three months ended March 31, 2022; we also continued our pricing initiatives, that began in the three months ended March 31, 2021, to address the indirect impact from COVID-19. We expect material and freight cost volatility, supply chain uncertainty and freight delays to continue in the near-term.

The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, potential subsequent waves of COVID-19 infection or potential new variants, the effectiveness and adoption of COVID-19 vaccines and therapeutics, the ultimate duration and scope of the pandemic, its impact on our employees, customers and suppliers, the broader implications of the macro-economic recovery on our business, and the extent to which normal economic and operating conditions are impacted. Therefore, we cannot reasonably estimate the future impact of the COVID-19 pandemic at this time.

We are closely monitoring the Russian invasion of Ukraine and its global impacts. We have no operations, employees or assets in Russia, Belarus or Ukraine, nor do we source goods or services of any material amount from those countries, whether directly or indirectly. Shortly after the Russian invasion of Ukraine began in February 2022, we indefinitely suspended all commercial activities in Russia. Additionally, during the quarter ended June 30, 2022, we had no sales into Belarus or Ukraine. While the conflict continues to evolve and the outcome remains highly uncertain, we do not currently believe the Russia-Ukraine conflict will have a material impact on our business and results of operations. However, if the Russia-Ukraine conflict continues or worsens, leading to greater global economic or political disruptions and uncertainty, our business and results of operations could be materially impacted as a result.

6

Basis of Presentation

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022 (“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 ("VIE") 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, 2022, and the results of operations for the three-month periods ended June 30, 2022 and 2021. 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, 2022 (the “Annual Report”).

Accounting Policies

We have consistently applied the accounting policies described in our Annual Report in preparing these condensed consolidated financial statements.  

Accounting Developments

Pronouncements Implemented

In October 2021, the FASB issued ASU No. 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." This update improves comparability for both the recognition and measurement of acquired customer revenue contracts at the date of and after a business combination. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company early adopted the ASU 2021-08 on a prospective basis on April 1, 2022 and did not have a material impact on our condensed consolidated financial statements.

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.

7

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 $43.5 million, including preliminary working capital and closing cash adjustments and 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 cash consideration of $38.5 million (including $1.2 million cash acquired), 25,483 shares of the Company's common stock valued at $3.0 million at transaction close and additional contingent consideration of $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. In May 2022, the full contingent consideration amount of $2.0 million was remitted to the sellers due to the performance obligation being met.

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 $8.1 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 ($23.0 million), trademarks ($6.5 million), noncompete agreements ($0.7 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 ($3.2 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.

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):

8

	June 30, 2022
Cash	$	2,389
Accounts receivable, net	10,221
Inventories, net	1,630
Prepaid expenses and other current assets	429
Property, plant and equipment, net	7,819
Intangible assets, net	7,086
Other assets	106
Total assets	$	29,680
Accounts payable	$	5,566
Accrued and other current liabilities	1,196
Other long-term liabilities	36
Total liabilities	$	6,798

During the three months ended June 30, 2022, the Whitmore JV generated net income of $0.4 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 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 three-month period ended June 30, 2022 were as follows (in thousands):

Balance at March 31, 2022	$	15,325
Net income attributable to redeemable noncontrolling interest	195
Balance at June 30, 2022	$	15,520

4. INVENTORIES

Inventories consist of the following (in thousands):

	June 30, 2022		March 31, 2022
Raw materials and supplies	$	51,602	$	46,136
Work in process	6,044		7,471
Finished goods	109,614		100,792
Total inventories	167,260		154,399
Less: Obsolescence reserve	(5,797)		(4,285)
Inventories, net	$	161,463	$	150,114

9

5. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill as of June 30, 2022 and March 31, 2022 were as follows (in thousands):

	Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Total
Balance at March 31, 2022	$	190,152	$	25,007	$	9,499	$	224,658
Currency translation	(72)		(269)		(262)		(603)
Balance at June 30, 2022	$	190,080	$	24,738	$	9,237	$	224,055

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

		June 30, 2022				March 31, 2022
	Weighted Avg Life (Years)	Ending Gross Amount		Accumulated Amortization		Ending Gross Amount		Accumulated Amortization
Finite-lived intangible assets:
Patents	11	$	9,415	$	(8,141)	$	9,417	$	(8,065)
Customer lists and amortized trademarks	14	297,275		(66,035)		297,909		(61,368)
Non-compete agreements	5	870		(225)		939		(258)
Other	8	4,823		(3,743)		5,123		(3,957)
		$	312,383	$	(78,144)	$	313,388	$	(73,648)
Trade names and trademarks not being amortized:		$	61,079	$	—	$	61,097	$	—

Amortization expenses for the three months ended June 30, 2022 and 2021 were $5.2 million and $9.1 million (including the amortization of inventory purchase accounting adjustment of $3.9 million), respectively. The following table shows the estimated future amortization for intangible assets, as of June 30, 2022, for the remainder of the current fiscal year and the next four fiscal years ending March 31 (in thousands):

2023	$	13,376
2024	18,403
2025	17,668
2026	17,062
2027	16,294
Thereafter	151,436
Total	$	234,239

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6. SHARE-BASED COMPENSATION

Refer to Note 6 to our consolidated financial statements included in our Annual Report for a description of the 2015 Equity and Incentive Compensation Plan (the "2015 Plan"). As of June 30, 2022, 470,524 shares were available for issuance under the 2015 Plan.

We recorded share-based compensation expense as follows for the three months ended June 30, 2022 and 2021 (in thousands): 

	Three Months Ended June 30,
	2022		2021
Share-based compensation expense	$	2,284	$	1,888
Related income tax benefit	(571)		(453)
Net share-based compensation expense	$	1,713	$	1,435

Stock option activity was as follows:

	Three Months Ended June 30, 2022
	Number of Shares	Weighted Average Price		Remaining Contractual Life (Years)	Aggregate Intrinsic Value (in Millions)
Outstanding at April 1, 2022	10,800	$	25.23
Exercised	—	—
Outstanding at June 30, 2022	10,800	25.23		2.2	$	1.0
Exercisable at June 30, 2022	10,800	$	25.23	2.2	$	1.0

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, 2022 and 2021.

Restricted share activity was as follows:

	Three Months Ended June 30, 2022
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at April 1, 2022:	228,331	$	126.02
Granted	44,424	158.76
Vested	(46,194)	78.20
Canceled	(2,166)	99.51
Outstanding at December 31, 2021	224,395	$	134.31

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 his service over a long-term period and promoting successful succession planning and transition practices. Mr. Armes' awards include 31,496 shares of restricted stock (which cliff vest on March 31, 2026), 27,559 performance shares (which vest in equal amounts on each of March 31, 2025, 2026 and 2027, subject to performance criteria being achieved) and 19,685 performance restricted stock units (40% of which vest upon recruiting of a successor CEO and 60% of which vest upon the first employment anniversary of the successor CEO).

During the restriction period, the holders of restricted shares are entitled to vote and receive dividends. Unvested restricted shares outstanding as of June 30, 2022 and 2021 included 100,082 and 102,001 shares (at target), respectively, with performance-based vesting provisions, and a vesting range of 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 and 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 21,087 and 47,845 awards with performance-based vesting provisions during the three months ended June 30, 2022 and 2021, respectively, with a vesting range of 0%-200%.

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At June 30, 2022, we had unrecognized compensation cost related to unvested restricted shares of $21.0 million, which will be amortized into net income over the remaining weighted average vesting period of approximately 3.2 years. The total fair value of restricted shares granted during the three months ended June 30, 2022 and 2021 was $3.4 million and $17.2 million, respectively. The total fair value of restricted shares vested during the three months ended June 30, 2022 and 2021 was $5.2 million and $8.0 million, respectively.

7. LONG-TERM DEBT

Debt consists of the following (in thousands):

	June 30, 2022		March 31, 2022
Revolving Credit Facility, interest rate of 2.47% and 1.95% (a), respectively	$	264,000	$	243,000
Whitmore Term Loan, interest rate of 3.79% and 2.45% (a)(b), respectively	9,635		9,775
Total debt	273,635		252,775
Less: Current portion	(561)		(561)
Long-term debt	$	273,074	$	252,214

(a) Represents the interest rate effective on June 30, 2022, and March 31, 2022, respectively.

(b) Represents the unhedged interest rate according to the Whitmore Term Loan agreement.

Revolving Credit Facility

As discussed in Note 9 to our consolidated financial statements included in our Annual Report, in the three months of our prior fiscal year ended June 30, 2021, we maintained a five-year, $300.0 million revolving credit facility agreement (the "First Credit Agreement"), which was scheduled to mature on September 15, 2022. Borrowings in the U.S. under this facility bore interest at a rate of prime plus between 0.25% to 1.5% or London Interbank Offered Rate ("LIBOR") plus between 1.25% to 2.5% based on our quarterly leverage ratio. We also paid a commitment fee between 0.15% to 0.4% for the unutilized portion of this facility.

On May 18, 2021, we entered into a Second Amended and Restated Credit Agreement (the “Second Credit Agreement”), which replaced the First Credit Agreement and 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, with an additional $150 million accordion feature (the term "Revolving Credit Facility" as used throughout this document refers to both the First Credit Agreement and Second Credit Agreement, as applicable). 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 plus between 0.25% to 1.5% or LIBOR plus between 1.25% to 2.5%, 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 between 0.15% to 0.4% based on the Company's leverage ratio for the unutilized portion of this 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, 2022, we borrowed $34.8 million and repaid $13.8 million under the Revolving Credit Facility. As of June 30, 2022 and March 31, 2022, we had $264.0 million and $243.0 million, respectively, in our outstanding balance, which resulted in borrowing capacity under the Revolving Credit Facility of $136.0 million and $157.0 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. The Second Credit Agreement also requires 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, 2022.

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Whitmore Term Loan

In July 2014, Whitmore secured a term loan (the "Whitmore Term Loan") related to a warehouse and corporate office building and the remodel of an existing manufacturing and research and development facility.  The Whitmore Term Loan 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, 2022 and March 31, 2022, Whitmore Manufacturing had $9.6 million and $9.8 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.

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 26 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)	2022		2021
Components of Operating Lease Expenses
Operating lease expense (a)	$	2,638	$	2,429
Short-term lease expense	238		95
Total operating lease expense	$	2,876	$	2,524
(a)  Included in cost of revenues and selling, general and administrative expense

(in thousands)	June 30, 2022		March 31, 2022
Operating Lease Assets and Liabilities
Right-of-use assets, net (b)	$	65,628	$	67,076
Short-term lease liabilities (c)	$	9,489	$	9,269
Long-term lease liabilities (c)	61,655		63,275
Total operating lease liabilities	$	71,144	$	72,544
(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)	2022			2021
Supplemental Cash Flow
Cash paid for amounts included in the measurement of operating lease liabilities (a)	$	2,708		$	2,359
Right-of-use assets obtained in exchange for new operating lease obligations	1,868			29
(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)	7.67			7.97
Weighted average discount rate	2.2		%	2.6		%

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Maturities of operating lease liabilities were as follows (in thousands):
Year Ending March 31, 2023 (excluding the three months ended June 30, 2022)	$	8,236
2024	10,866
2025	10,709
2026	10,365
2027	10,159
Thereafter	27,218
Total lease liabilities	77,553
Less: Imputed interest	(6,409)
Present value of lease liabilities	$	71,144

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, 2022 and March 31, 2022, we had $9.6 million and $9.8 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, 2022, the maximum remaining length of the interest rate swap contract was approximately 7.1 years. The fair value of the interest rate swap designated as a hedging instrument is summarized below (in thousands):

	June 30, 2022		March 31, 2022
Current derivative liabilities	$	(16)	$	109
Non-current derivative liabilities	38		233

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.

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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, 2022 and 2021 (amounts in thousands, except per share data):

	Three Months Ended June 30,
	2022		2021*
Net income	$	29,638	$	20,685
Less: Net income attributable to redeemable noncontrolling interest	(195)		(224)
Net income attributable to CSW Industrials, Inc. shareholders	$	29,443	$	20,461
Weighted average shares:
Common stock	15,541		15,605
Participating securities	102		110
Denominator for basic earnings per common share	15,643		15,715
Potentially dilutive securities	9		66
Denominator for diluted earnings per common share	15,652		15,781
Net income per share attributable to CSW Industrials, Inc. shareholders:
Basic	$	1.88	$	1.30
Diluted	$	1.88	$	1.30

 *Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.

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 current repurchase 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 date of December 31, 2022, for completion of the current repurchase program; however, the program may be limited or terminated at any time at our discretion without notice. Under the current repurchase program, 287,990 shares were repurchased during the three months ended June 30, 2022 for $30.5 million, and no shares were repurchased during the three months ended June 30, 2021. As of June 30, 2022, a total of 414,105 shares had been repurchased for an aggregate amount of $44.9 million under the current $100.0 million program. A total of 740,137 shares were repurchased for an aggregate amount of $46.0 million under the prior $75.0 million program before it was replaced with the current repurchase program.

Dividends

On April 4, 2019, we commenced a quarterly dividend program at an inaugural rate of $0.135 per share. On April 15, 2021, we announced a quarterly dividend increase to $0.15 per share. On April 14, 2022, we announced another quarterly dividend increase to $0.17 per share. Total dividends of $2.7 million and $2.4 million were paid during the three months ended June 30, 2022 and 2021, respectively.

On July 15, 2022, we announced a quarterly dividend of $0.17 per share payable on August 12, 2022 to shareholders of record as of July 29, 2022. Any future dividends at the existing $0.17 per share quarterly rate or otherwise will be reviewed individually and declared by our Board of Directors in its discretion.

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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, 2022 and March 31, 2022 due to their short-term nature.

The redeemable noncontrolling interest is recorded at the higher of the redemption value or carrying value each reporting period. 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 and is classified as Level III under the fair value hierarchy. The redemption value of the redeemable noncontrolling interest is discussed in Note 3.

13. RETIREMENT PLANS

Refer to Note 15 to our consolidated financial statements included in our Annual Report for a description of our retirement and postretirement 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,
	2022		2021
Service and other costs	$	15	$	12
Interest cost on projected benefit obligation	36		34
Expected return on assets	(11)		(28)
Amortization of net actuarial loss	11		18
Net pension benefit	$	51	$	36

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

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, whether individually or in the aggregate, 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, 2022, we earned $39.3 million from operations before taxes and provided for income taxes of $9.6 million, resulting in an effective tax rate of 24.5%. The provision for income taxes differed from the statutory rate for the three months ended June 30, 2022 primarily due to state income taxes, executive compensation limitations and provision for global intangible low-taxed income ("GILTI"), partially offset by excess tax deductions related to foreign-derived intangible income ("FDII"), deductions related to stock compensation and foreign tax credits.

For the three months ended June 30, 2021, we earned $27.2 million from operations before taxes and provided for income taxes of $6.5 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 limitation and provision for GILTI, partially offset by excess tax deductions related to stock compensation and deductions related to FDII and foreign tax credits.

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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,
	2022		2021
Currency translation adjustments:
Balance at beginning of period	$	(4,438)	$	(4,394)
Adjustments for foreign currency translation	(2,278)		489
Balance at end of period	$	(6,716)	$	(3,905)
Interest rate swaps:
Balance at beginning of period	$	(270)	$	(803)
Unrealized gain (loss), net of taxes of $(56) and $44, respectively (a)	212		(166)
Reclassification of losses included in interest expense, net, net of taxes of $(11) and $(15), respectively	41		57
Other comprehensive income	253		(109)
Balance at end of period	$	(17)	$	(912)
Defined benefit plans:
Balance at beginning of period	$	(366)	$	(799)
Amortization of net losses, net of taxes of $(1) and $(2), respectively (b)	3		7
Balance at end of period	$	(363)	$	(792)

(a) Unrealized gain (loss) is reclassified to earnings as underlying cash interest payments are made. We expect to recognize a loss of less than $0.1 million, net of deferred taxes, over the next twelve months related to designated cash flow hedges based on their fair values at June 30, 2022.

(b) Amortization of actuarial losses out of accumulated comprehensive loss are included in the computation of net periodic pension expense. See Note 13 for additional information.

17. REVENUE RECOGNITION

Refer to Note 20 to our consolidated financial statements included in our Annual Report for a description of our disaggregation of revenues. Disaggregation of revenues reconciled to our reportable segments is as follows (in thousands):

	Three Months Ended June 30, 2022
	Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Total
Build-to-order	$	—	$	25,022	$	—	$	25,022
Book-and-ship	135,719		3,492		35,701		174,912
Net revenues	$	135,719	$	28,514	$	35,701	$	199,934

	Three Months Ended June 30, 2021
	Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Total
Build-to-order	$	—	$	23,649	$	—	$	23,649
Book-and-ship	110,216		2,001		25,400		137,617
Net revenues	$	110,216	$	25,650	$	25,400	$	161,266

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Contract liabilities, which are included in accrued and other current liabilities in our condensed consolidated balance sheets were as follows (in thousands):

Balance at April 1, 2022:	$	1,026
Revenue recognized during the period	(712)
New contracts and revenue added to existing contracts during the period	492
Balance at June 30, 2022	$	806

18. SEGMENTS

During 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 TRUaire and the formation of the Whitmore JV, our business is organized into three reportable segments:

•