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 ~~September~~June 30, ~~2019~~2020


☐			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 ~~October 31, 2019,~~July 28, 2020, there were ~~15,048,551~~14,716,216 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 six~~ months ended June 30, 20 ~~September~~20 ~~30, 2019~~ and ~~2018~~201 9 (unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 20 S20 ~~eptember~~ ~~30, 2019~~ and March 31, ~~2019~~20 20 (unaudited)	3
	Condensed Consolidated Statements of Equity as of June 30, 20 ~~September~~20 ~~30, 2019~~ and ~~2018~~201 9 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended June 30, 20 ~~September~~20 ~~30, 2019~~ and ~~2018~~201 9 (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	2018
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2623
Item 4.	Controls and Procedures	2724

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	2825
Item 1A.	Risk Factors	2825
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2825
Item 6.	Exhibits	2926
SIGNATURES			3027

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended September 30,						Six Months Ended September 30,							Three Months Ended June 30,
(Amounts in thousands, except per share amounts)	(Amounts in thousands, except per share amounts)	2019		2018		2019		2018		(Amounts in thousands, except per share amounts)	2020		2019
Revenues, net	Revenues, net	$	101,324	$	91,612	$	203,657	$	181,190	Revenues, net	$	90,964	$	102,333
Cost of revenues	Cost of revenues	(53,920)		(49,403)		(109,018)		(96,892)		Cost of revenues	(48,212)		(55,098)
Gross profit	Gross profit	47,404		42,209		94,639		84,298		Gross profit	42,752		47,235
Selling, general and administrative expenses	Selling, general and administrative expenses	(27,282)		(25,005)		(54,195)		(49,349)		Selling, general and administrative expenses	(26,499)		(26,914)

Operating income	Operating income	20,122		17,204		40,444		34,949		Operating income	16,253		20,321
Interest expense, net	Interest expense, net	(299)		(420)		(800)		(805)		Interest expense, net	(318)		(501)
Other (expense) income, net		(7,367)		82		(7,454)		820
Other expense, net										Other expense, net	(307)		(87)
Income before income taxes	Income before income taxes	12,456		16,866		32,190		34,964		Income before income taxes	15,628		19,733
Provision for income taxes	Provision for income taxes	(3,638)		(4,442)		(8,027)		(8,534)		Provision for income taxes	(3,668)		(4,389)
Income from continuing operations	Income from continuing operations	8,818		12,424		24,163		26,430		Income from continuing operations	11,960		15,344
(Loss) income from discontinued operations, net of tax		(35)		2,732		(174)		400
Loss from discontinued operations, net of tax										Loss from discontinued operations, net of tax	—		(140)
Net income	Net income	$	8,783	$	15,156	$	23,989	$	26,830	Net income	$	11,960	$	15,204

Basic earnings (loss) per common share:	Basic earnings (loss) per common share:									Basic earnings (loss) per common share:
Continuing operations	Continuing operations	$	0.59	$	0.80	$	1.61	$	1.69	Continuing operations	$	0.81	$	1.02
Discontinued operations	Discontinued operations	(0.01)		0.18		(0.01)		0.02		Discontinued operations	—		(0.01)
Net income	Net income	$	0.58	$	0.98	$	1.60	$	1.71	Net income	$	0.81	$	1.01

Diluted earnings (loss) per common share:	Diluted earnings (loss) per common share:									Diluted earnings (loss) per common share:
Continuing operations	Continuing operations	$	0.58	$	0.79	$	1.59	$	1.67	Continuing operations	$	0.81	$	1.01
Discontinued operations	Discontinued operations	—		0.18		(0.01)		0.03		Discontinued operations	—		(0.01)
Net income	Net income	$	0.58	$	0.97	$	1.58	$	1.70	Net income	$	0.81	$	1.00

See accompanying notes to condensed consolidated financial statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended September 30,						Six Months Ended September 30,							Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2019		2018		2019		2018		(Amounts in thousands)	2020		2019
Net income	Net income	$	8,783	$	15,156	$	23,989	$	26,830	Net income	$	11,960	$	15,204
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation adjustments	Foreign currency translation adjustments	(669)		(43)		(411)		(1,442)		Foreign currency translation adjustments	1,338		258
Cash flow hedging activity, net of taxes of $58, $(56), $137 and $(71), respectively		(217)		209		(514)		252
Pension and other postretirement effects, net of taxes of $(674), $0, $(673) and $(6), respectively		2,534		1		2,530		22
Cash flow hedging activity, net of taxes of $15 and $79, respectively										Cash flow hedging activity, net of taxes of $15 and $79, respectively	(55)		(297)
Pension and other postretirement effects, net of taxes of $1 and $1, respectively										Pension and other postretirement effects, net of taxes of $1 and $1, respectively	(4)		(4)
Other comprehensive income (loss)	Other comprehensive income (loss)	1,648		167		1,605		(1,168)		Other comprehensive income (loss)	1,279		(43)
Comprehensive income	Comprehensive income	$	10,431	$	15,323	$	25,594	$	25,662	Comprehensive income	$	13,239	$	15,161

See accompanying notes to condensed consolidated financial statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Amounts in thousands, except per share amounts)	(Amounts in thousands, except per share amounts)	September 30, 2019		March 31, 2019		(Amounts in thousands, except per share amounts)	June 30, 2020		March 31, 2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	23,677	$	26,651	Cash and cash equivalents	$	19,687	$	18,338
Accounts receivable, net of allowance for doubtful accounts of $946 and $591, respectively		68,711		66,136
Accounts receivable, net of allowance for expected credit losses of $894 and $1,170, respectively						Accounts receivable, net of allowance for expected credit losses of $894 and $1,170, respectively	71,490		74,880
Inventories, net	Inventories, net	52,851		51,429		Inventories, net	59,441		53,753
Prepaid expenses and other current assets	Prepaid expenses and other current assets	4,038		7,030		Prepaid expenses and other current assets	2,816		3,074
Current assets, discontinued operations		—		21

Total current assets	Total current assets	149,277		151,267		Total current assets	153,434		150,045
Property, plant and equipment, net of accumulated depreciation of $68,440 and $65,548, respectively		54,864		53,639
Property, plant and equipment, net of accumulated depreciation of $73,325 and $71,355, respectively						Property, plant and equipment, net of accumulated depreciation of $73,325 and $71,355, respectively	57,124		57,178
Goodwill	Goodwill	92,252		86,295		Goodwill	92,080		91,686
Intangible assets, net	Intangible assets, net	50,472		50,466		Intangible assets, net	44,777		46,185
Other assets	Other assets	22,451		10,965		Other assets	23,942		24,151
Noncurrent assets, discontinued operations		2,061		—

Total assets	Total assets	$	371,377	$	352,632	Total assets	$	371,357	$	369,245

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	14,813	$	19,024	Accounts payable	$	23,288	$	21,978
Accrued and other current liabilities	Accrued and other current liabilities	34,966		29,426		Accrued and other current liabilities	30,104		36,607
Current portion of long-term debt	Current portion of long-term debt	561		561		Current portion of long-term debt	561		561
Current liabilities, discontinued operations		368		161

Total current liabilities	Total current liabilities	50,708		49,172		Total current liabilities	53,953		59,146
Long-term debt	Long-term debt	10,618		30,898		Long-term debt	10,197		10,337
Retirement benefits payable	Retirement benefits payable	2,038		1,978		Retirement benefits payable	1,868		1,879
Other long-term liabilities	Other long-term liabilities	18,897		6,114		Other long-term liabilities	21,329		21,142
Noncurrent liabilities, discontinued operations		2,677		784

Total liabilities	Total liabilities	84,938		88,946		Total liabilities	87,347		92,504
Equity:	Equity:					Equity:
Common shares, $0.01 par value	Common shares, $0.01 par value	159		158		Common shares, $0.01 par value	160		159
Shares authorized – 50,000	Shares authorized – 50,000					Shares authorized – 50,000
Shares issued – 16,000 and 16,001, respectively
Shares issued – 16,117 and 16,055, respectively						Shares issued – 16,117 and 16,055, respectively
Preferred shares, $0.01 par value	Preferred shares, $0.01 par value	—		—		Preferred shares, $0.01 par value	—		—
Shares authorized and issued – 10,000 and 0, respectively
Shares authorized (10,000) and issued (0)						Shares authorized (10,000) and issued (0)
Additional paid-in capital	Additional paid-in capital	49,067		46,633		Additional paid-in capital	50,182		48,327
Treasury shares, at cost (975 and 962 shares, respectively)		(50,757)		(49,964)
Treasury shares, at cost (1,398 and 1,311 shares, respectively)						Treasury shares, at cost (1,398 and 1,311 shares, respectively)	(81,207)		(75,377)
Retained earnings	Retained earnings	297,094		277,588		Retained earnings	325,042		315,078
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(9,124)		(10,729)		Accumulated other comprehensive loss	(10,167)		(11,446)
Total equity	Total equity	286,439		263,686		Total equity	284,010		276,741
Total liabilities and equity	Total liabilities and equity	$	371,377	$	352,632	Total liabilities and equity	$	371,357	$	369,245

See accompanying notes to condensed consolidated financial statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


(Amounts in thousands)	(Amounts in thousands)	Common Stock		Treasury Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity		(Amounts in thousands)	Common Stock		Treasury Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at March 31, 2019		$	158	$	(49,964)	$	46,633	$	277,588	$	(10,729)	$	263,686
Balance at March 31, 2020														Balance at March 31, 2020	$	159	$	(75,377)	$	48,327	$	315,078	$	(11,446)	$	276,741
Share-based compensation	Share-based compensation	—		—		1,213		—		—		1,213		Share-based compensation	—		—		1,328		—		—		1,328
Stock activity under stock plans	Stock activity under stock plans	1		(793)		—		—		—		(792)		Stock activity under stock plans	1		(1,670)		(1)		—		—		(1,670)

Adoption of ASC 842 Leases		—		—		—		(400)		—		(400)
Net income		—		—		—		15,204		—		15,204
Dividends declared		—		—		—		(2,041)				(2,041)
Other comprehensive loss, net of tax		—		—		—		—		(43)		(43)
Balance at June 30, 2019		$	159	$	(50,757)	$	47,846	$	290,351	$	(10,772)	$	276,827
Share-based compensation		—		—		1,196		—		—		1,196
Repurchase of common shares														Repurchase of common shares	—		(7,291)		—		—		—		(7,291)
Reissuance of treasury shares														Reissuance of treasury shares	—		3,131		516		—		—		3,647
Net income	Net income	—		—		—		8,783		—		8,783		Net income	—		—		—		11,960		—		11,960
Dividends declared	Dividends declared	—		—		25		(2,040)		—		(2,015)		Dividends declared	—		—		12		(1,996)				(1,984)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		—		1,648		1,648		Other comprehensive income, net of tax	—		—		—		—		1,279		1,279
Balance at September 30, 2019		$	159	$	(50,757)	$	49,067	$	297,094	$	(9,124)	$	286,439
Balance at June 30, 2020														Balance at June 30, 2020	$	160	$	(81,207)	$	50,182	$	325,042	$	(10,167)	$	284,010


(Amounts in thousands)	(Amounts in thousands)	Common Stock		Treasury Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity		(Amounts in thousands)	Common Stock		Treasury Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at March 31, 2018		$	158	$	(3,252)	$	42,684	$	233,650	$	(7,475)	$	265,765
Balance at March 31, 2019														Balance at March 31, 2019	$	158	$	(49,964)	$	46,633	$	277,588	$	(10,729)	$	263,686
Share-based compensation	Share-based compensation	—		—		929		—		—		929		Share-based compensation	—		—		1,213		—		—		1,213
Repurchase of common shares		—		(7,366)		—		—		—		(7,366)
Stock activity under stock plans	Stock activity under stock plans	—		(136)		—		—		—		(136)		Stock activity under stock plans	1		(793)		—		—		—		(792)
Adoption of ASU 2016-16		—		—		—		(1,232)		—		(1,232)
Adoption of ASC 606 Revenue		—		—		—		(692)		—		(692)
Adoption of ASC 842 Leases														Adoption of ASC 842 Leases	—		—		—		(400)		—		(400)
Net income	Net income	—		—		—		11,675		—		11,675		Net income	—		—		—		15,204		—		15,204
Dividends declared														Dividends declared	—		—		—		(2,041)				(2,041)
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—		—		—				(1,335)		(1,335)		Other comprehensive loss, net of tax	—		—		—				(43)		(43)
Balance at June 30, 2018		$	158	$	(10,754)	$	43,613	$	243,401	$	(8,810)	$	267,608
Share-based compensation		—		—		865		—		—		865
Repurchase of common shares		—		(23,466)								(23,466)
Stock activity under stock plans		—		(29)		—		—		—		(29)
Net income		—				—		15,156		—		15,156
Other comprehensive income, net of tax		—		—		—		—		167		167
Balance at September 30, 2018		$	158	$	(34,249)	$	44,478	$	258,557	$	(8,643)	$	260,301
Balance at June 30, 2019														Balance at June 30, 2019	$	159	$	(50,757)	$	47,846	$	290,351	$	(10,772)	$	276,827

See accompanying notes to condensed consolidated financial statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Six Months Ended September 30,							Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2019		2018		(Amounts in thousands)	2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	23,989	$	26,830	Net income	$	11,960	$	15,204
Less: (Loss)/Income from discontinued operations		(174)		400
Less: Loss from discontinued operations						Less: Loss from discontinued operations	—		(140)
Income from continuing operations	Income from continuing operations	24,163		26,430		Income from continuing operations	11,960		15,344
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	4,162		3,750		Depreciation	1,877		2,319
Amortization of intangible and other assets	Amortization of intangible and other assets	3,503		3,236		Amortization of intangible and other assets	1,711		1,760
Provision for inventory reserves	Provision for inventory reserves	229		700		Provision for inventory reserves	854		194
Provision for doubtful accounts	Provision for doubtful accounts	547		—		Provision for doubtful accounts	312		274
Share-based and other executive compensation	Share-based and other executive compensation	2,434		1,794		Share-based and other executive compensation	1,328		1,213

Net gain on disposals of property, plant and equipment		(744)		(2,539)
Pension plan termination expense		6,559		—

Net pension benefit	Net pension benefit	(198)		(211)		Net pension benefit	40		(97)

Net deferred taxes	Net deferred taxes	(875)		8,647		Net deferred taxes	422		(95)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net		(1,101)		1,473
Accounts receivable						Accounts receivable	3,315		(4,799)
Inventories	Inventories	(899)		(5,749)		Inventories	(6,458)		(2,159)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	3,021		(4,163)		Prepaid expenses and other current assets	471		4,627
Other assets	Other assets	20		190		Other assets	(149)		37
Accounts payable and other current liabilities	Accounts payable and other current liabilities	(3,110)		(1,153)		Accounts payable and other current liabilities	(1,515)		(8,936)
Retirement benefits payable and other liabilities	Retirement benefits payable and other liabilities	(215)		109		Retirement benefits payable and other liabilities	(22)		(17)
Net cash provided by operating activities, continuing operations	Net cash provided by operating activities, continuing operations	37,496		32,514		Net cash provided by operating activities, continuing operations	14,146		9,665
Net cash used in operating activities, discontinued operations	Net cash used in operating activities, discontinued operations	(389)		(7,574)		Net cash used in operating activities, discontinued operations	—		(255)
Net cash provided by operating activities	Net cash provided by operating activities	37,107		24,940		Net cash provided by operating activities	14,146		9,410
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(4,571)		(2,742)		Capital expenditures	(1,837)		(2,226)
Proceeds from sale of assets		1,089		3,547

Cash paid for acquisitions	Cash paid for acquisitions	(11,837)		—		Cash paid for acquisitions	—		(11,500)
Net cash (used in) provided by investing activities, continuing operations		(15,319)		805
Net cash used in investing activities, continuing operations						Net cash used in investing activities, continuing operations	(1,837)		(13,726)
Net cash provided by investing activities, discontinued operations	Net cash provided by investing activities, discontinued operations	—		7,151		Net cash provided by investing activities, discontinued operations	—		—
Net cash (used in) provided by investing activities		(15,319)		7,956
Net cash used in investing activities						Net cash used in investing activities	(1,837)		(13,726)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings on lines of credit		7,500		8,000
Repayments of lines of credit		(27,781)		(10,281)
Borrowings on line of credit						Borrowings on line of credit	10,000		7,500
Repayments of line of credit and term loan						Repayments of line of credit and term loan	(10,140)		(17,140)
Purchase of treasury shares	Purchase of treasury shares	(793)		(30,997)		Purchase of treasury shares	(9,346)		(793)

Dividends paid to shareholder		(4,081)		—
Dividends						Dividends	(1,985)		(2,028)
Net cash used in financing activities	Net cash used in financing activities	(25,155)		(33,278)		Net cash used in financing activities	(11,471)		(12,461)
Effect of exchange rate changes on cash and equivalents	Effect of exchange rate changes on cash and equivalents	393		(111)		Effect of exchange rate changes on cash and equivalents	511		354
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(2,974)		(493)		Net change in cash and cash equivalents	1,349		(16,423)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	26,651		11,706		Cash and cash equivalents, beginning of period	18,338		26,651
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	23,677	$	11,213	Cash and cash equivalents, end of period	$	19,687	$	10,228

See accompanying notes to condensed consolidated financial statements.

CSW INDUSTRIALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.ORGANIZATION AND OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

CSW Industrials, Inc. (“CSWI,” “we,” “our” or “us”) is a diversified industrial growth company with well-established, scalable platforms and domain expertise across 2 business segments: Industrial Products and Specialty Chemicals. Our broad portfolio of leading products provides performance optimizing and life safety solutions to our customers. Our products include mechanical products for heating, ~~ventilating,~~ventilation, air conditioning and refrigeration (“HVAC/R”), ~~sealants, architecturally-specified~~ building products and high-performance specialty ~~lubricants.~~lubricants and sealants. Drawing on our innovative and proven technologies, we seek to deliver solutions primarily to our professional end-use customers that ~~require~~place a premium on superior performance and reliability. Our diverse product portfolio includes more than 100 highly respected industrial brands including RectorSeal No. 5® ~~thread sealants, KOPR-KOTE~~® ~~anti-seize lubricants, KATS Coatings~~®5®, ~~Safe-T-Switch~~® ~~condensate overflow shutoff devices,~~KOPR-KOTE®, Kats Coatings®, Safe-T-Switch®, Air ~~Sentry~~® ~~breathers, Deacon~~® ~~high temperature sealants, AC~~Sentry®, Deacon®, Leak ~~Freeze~~® ~~to stop refrigerant leaks~~Freeze® and ~~Greco Aluminum Railings~~Greco®.

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

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus ("COVID-19") a pandemic. COVID-19 continues to spread throughout the world and has led certain countries or jurisdictions within them to restrict travel, social gatherings and certain types of business activity deemed to be "non-essential," which has created a recessionary environment in the U.S. and around the globe and has led to a decline in demand in many end markets, including several that we serve. Also, in March 2020, as a result of the weakened demand for crude oil resulting from the COVID-19 pandemic, and magnified by political tensions between several large crude oil-producing countries, there was a substantial decline in crude oil prices magnified by significant volatility that has continued to date. Both factors had a negative impact on our revenues in the fiscal quarter ended June 30, 2020, as compared with the same quarter in fiscal year 2020, and are expected to negatively impact our results in the balance of fiscal year 2021.

We expect our results of operations and financial condition to continue to be adversely impacted as compared with the prior year through the duration of the pandemic due to its effects on the economy and demand for our products and services. However, we cannot reasonably estimate the magnitude or length of the adverse impact due to continued uncertainty regarding (1) the duration and severity of the COVID-19 pandemic and (2) the extent of the potential short and long-term impact on our facilities and employees, customer demand and availability of materials through supply channels.

Basis of Presentation

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the quarterly period ended ~~September~~June 30, ~~2019~~2020 (“Quarterly Report”), include all revenues, costs, assets and liabilities directly attributable to CSWI and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).

The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of CSWI’s financial position as of ~~September~~June 30, ~~2019~~2020, and the results of operations for the three ~~and six~~ month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019. All adjustments are of a normal, ~~and~~ recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation.

The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in CSWI’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2019~~2020 (the “Annual Report”).

Accounting Policies

We have consistently applied the accounting policies described in our Annual Report in preparing these condensed consolidated financial statements. We have not made any changes in significant accounting policies disclosed in the Annual Report, with the exception of the ~~lease~~expected credit loss accounting policy described below as a result of adopting the new ~~lease standards.~~expected credit loss standard.

~~Leases~~ – We determine if a contract is or contains a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset. Right-of-Use (“ROU”) assets and lease liabilities are initially recognized at the commencement date based on the present value of remaining lease payments over the lease term calculated using our incremental borrowing rate, unless the implicit rate is readily determinable. ROU assets represent the right to use an underlying asset for the lease term, including any upfront lease payments made and excluding lease incentives. Lease liabilities represent the obligation to make future lease payments throughout the lease term. The lease term includes renewal periods when we are reasonably certain to exercise the option to renew. The ROU asset is amortized over the expected lease term. Lease and non-lease components, when present on our leases, are accounted for separately. Leases with an initial term of 12 months or less are excluded from recognition in the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term. We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date. These variable lease payments are recognized in our condensed consolidated income statements as the obligation is incurred. As of ~~September 30, 2019, we did not have material leases that imposed significant restrictions or covenants, material related party leases or sale-leaseback arrangements.~~

Current Expected Credit Losses ("CECL") - We record an allowance for credit losses on trade receivables that, when deducted from the gross trade receivables balance, presents the net amount expected to be collected. We estimate the allowance based on an aging schedule and according to historical losses as determined from our billings and collections history. This may be adjusted after consideration of customer-specific factors such as financial difficulties, liquidity issues or insolvency, as well as both current and forecasted macroeconomic conditions as of the reporting date. We adjust the allowance and recognize credit losses in the income statement each period. Trade receivables are written off against the allowance in the period when the receivable is deemed to be uncollectible. Subsequent recoveries of amounts previously written off are reflected as a reduction to periodic credit losses in the income statement. Our allowance for expected credit losses for short-term receivables as of June 30, 2020 was $0.9 million, compared to $1.2 million as of March 31, 2020. The three months activity included $0.3 million for current period adjustments.

Accounting Developments

Pronouncements Implemented

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which has been subsequently amended with additional ASUs including ASU No. 2018-10 and ASU No. 2018-11 issued in July 2018, and ASU No. 2018-20 issued in December 2018, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Modified retrospective application is permitted with certain practical expedients. Early adoption is permitted. We adopted this standard effective April 1, 2019, using the modified retrospective approach for leases existing at or entered into before the effective date. As such, the cumulative effect of the implementation has been recorded to the opening balance of retained earnings in the period of adoption and prior periods have not been adjusted. Upon adoption, we elected the package of three practical expedients permitted under the transition guidance, which include the carry forward of our leases without reassessing whether any contracts are leases or contain leases, lease classification and initial direct lease costs. We also elected the transition practical expedient to apply hindsight when determining the lease term and when assessing impairment of ROU assets at the adoption date, which allows us to update our assessments according to new information and changes in facts and circumstances that have occurred since lease inception. Adoption of this ASU resulted in recognition of ROU assets and lease liabilities of $16.9 million and $18.6 million, respectively, including leases classified as discontinued operations, as well as a reduction to opening retained earnings of $0.4 million, at the date of adoption. Refer to Note 8 for details of the impact of the adoption of this ASU.

In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements of Accounting for Hedging Activities." The purpose of this ASU is to better align a company's risk management activities and financial reporting for hedging relationships. Additionally, the ASU simplifies the hedge accounting requirements and improves the disclosures of hedging arrangements. This ASU was amended by ASU 2018-16 to include the secured overnight financing rate as an acceptable reference rate. This ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Adoption of this ASU effective April 1, 2019, did not have a material impact on our consolidated financial condition or results of operations.

~~Pronouncements not yet implemented~~

In June 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments –- Credit Losses (Topic 326), Measurement of Credit Losses on Financial ~~Instruments,~~Instruments." ~~as amended, which~~The ASU requires, among other things, the use of a new current expected credit loss ~~("CECL")~~ model in order to determine ~~our allowances~~an allowance for ~~doubtful accounts~~credit losses with respect to ~~accounts receivable.~~financial assets and instruments held. The CECL model requires that we estimate ~~our~~the lifetime of an expected credit loss ~~with respect~~for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. On April 1, 2020 we adopted the ASU on a prospective basis to determine our receivables and contract assets and record allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected. We will also be required to disclose information about how we developed the allowances, including changes in the factors that influenced our estimate of expectedallowance for credit losses in accordance with the requirements of Topic 326, and we modified our accounting policy and processes to facilitate this approach. Our primary exposure to financial assets that are within the ~~reasons for those changes. This~~scope of CECL are trade receivables. Our adoption of ASU isNo. 2016-13 effective ~~for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. We are currently evaluating the~~April 1, 2020 did not have a material impact ~~of this ASU~~ on our condensed consolidated financial condition and results of operations.

In August 2018, the FASB issued ASU No. 2018-13, ~~"Disclosure Framework –~~ "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value ~~Measurement,~~Measurement." ~~which modifies~~The amendments of the ASU modify the disclosure requirements ~~on fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3~~for fair value measurements by removing, modifying or adding certain disclosure requirements for assets and ~~the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented~~liabilities measured at fair value in the ~~initial fiscal year~~statement of ~~adoption. All other amendments should be applied retrospectively~~financial position or disclosed in the notes to ~~all periods presented upon their effective date. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of~~ the ~~additional disclosures until their effective date. This~~financial statements. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019. We do not expect~~2019, with early adoption permitted for the removed disclosures and delayed adoption until fiscal year 2020 permitted for the new disclosures. The removed and modified disclosures were adopted on a retrospective basis and the new disclosures were adopted on a prospective basis. Our adoption of ASU No. 2018-13 effective April 1, 2020 did not impact our disclosures.

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

Pronouncements not yet implemented

In August 2018, the FASB issued ASU No. 2018-14, "Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans," which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. ~~This ASU is~~The amendments are effective ~~on a~~for fiscal years ending after December 15, 2020 and the amendments should be applied retrospectively to all periods presented. We

~~retrospective basis, for fiscal years ending after December 15, 2020. Early adoption is permitted. We do not expect~~are currently evaluating the impact of ASU No. 2018-14 and we anticipate that our adoption of this ASU will not have a material impact on our disclosures due to the termination of our U.S. pension plan in the prior year.

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

In ~~August 2018,~~March 2020, the FASB issued ASU ~~No. 2018-15, "Customer's Accounting~~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 Implementation Costs Incurred in Cloud Computing Arrangement That is a Service Contract." The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).modification date. This ASU is effective ~~for fiscal years beginning after~~immediately; however, it is only available through December ~~15, 2019 and interim periods within those fiscal years, and should be applied either retrospectively or prospectively to all implementation costs incurred after~~31, 2022.We are currently evaluating the ~~date of adoption. Early adoption is permitted. We do not expect adoption~~potential impact of this ASU ~~to have a material impact~~ on our consolidated financial ~~condition~~position and results of operations.

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

2. ACQUISITIONS

Petersen Metals

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

~~MSD Research, Inc.~~

On January 31, 2019, we acquired the assets of MSD Research, Inc. (“MSD”), based in Boca Raton, Florida, for $10.1 million, funded through our revolving credit facility. MSD is a leading provider of condensate management products for commercial and residential HVAC/R systems, including float switches, drain line cleanouts and flush tools. The excess of the purchase price over the fair value of the identifiable assets acquired was $5.2 million allocated to goodwill, which will be deductible for income tax purposes. Goodwill represents the value expected to be obtained from a more extensive condensation management product portfolio for the HVAC/R market and leveraging our larger distributor network. The preliminary allocation of the fair value of the net assets acquired included customer lists, trademarks and technology of $3.3 million, $0.8 million and $0.4 million, respectively, as well as inventory and accounts receivable of $0.3 million and $0.1 million, respectively. Customer lists and technology are being amortized over 10 years and 5 years, respectively, while trademarks and goodwill are not being amortized. MSD activity has been included in our Industrial Products segment since the acquisition date. No pro forma information has been provided due to immateriality.

3. DISCONTINUED OPERATIONS

During the quarter ended December 31, 2017, we commenced a sale process to divest our Coatings business to allow us to focus resources on our core growth platforms. Our Coatings business manufactured specialized industrial coating products including urethanes, epoxies, acrylics and alkyds. As of December 31, 2017, the Coatings business met the held-for-sale

criteria under ASC 360, "Property, Plant and Equipment," and accordingly, we classified and accounted for the assets and liabilities of the Coatings business as held-for-sale in the accompanying condensed consolidated balance sheets, and as discontinued operations, net of tax, in the accompanying condensed consolidated statements of income and cash flows. We completed an initial assessment of the assets and liabilities of the Coatings business and recorded a $46.0 million impairment based on our best estimates as of the date of issuance of financial results for the quarter ended December 31, 2017. No adjustments to previously recorded estimates have been made.

On July 31, 2018, we consummated a sale of assets related to our Coatings business to an unrelated third party, the terms of which were not disclosed due to immateriality. During the three months ended September 30, 2018, we received an aggregate

of $6.9 million for the sale of assets related to our Coatings business in multiple transactions. This resulted in gains on disposal of $6.9 million due to write-downs of long-lived assets in prior periods.

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

Summarized selected financial information for the Coatings business for the three ~~and six~~ months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019 is presented in the following ~~table:~~table (in thousands):

Three Months Ended September 30, Six Months Ended
September 30,
(amounts in thousands) 2019 2018 2019 2018
Revenues, net $ — $ 1,938 $ — $ 5,303
(Loss) income from discontinued operations before income taxes (69) 3,612 (224) 532
Income tax benefit 34 (880) 50 (132)
(Loss) income from discontinued operations, net $ (35) $ 2,732 $ (174) $ 400


	Three Months Ended June 30,
	2020		2019
Revenues, net	$	—	$	—
Loss from discontinued operations before income taxes	—		(154)
Income tax benefit	—		14
Loss from discontinued operations, net	$	—	$	(140)

(amounts in thousands) September 30, 2019 March 31, 2019
Assets
Prepaid expenses and other current assets (a) $ — $ 21
Other assets (b) 2,061 —
Total assets $ 2,061 $ 21
Liabilities
Accounts payable, accrued expenses and other liabilities (b) $ 3,045 $ 945

(a) The assets and liabilities of the Coatings business reside in a disregarded entity for tax purposes. Accordingly, the tax attributes associated with the operations of our Coatings business will ultimately flow through to the corporate parent, which files a consolidated federal return. Therefore, any corresponding tax assets or liabilities have been reflected as a component of our continuing operations.

(b) Adoption of the new lease standard resulted in recognition of ROU assets and lease liabilities of $1.9 million and $3.0 million, respectively, for the Coatings business. Refer to Note 8 for details and additional discussions on our adoption of the new lease standard.

4. INVENTORIES

Inventories consist of the following (in thousands):


		September 30, 2019		March 31, 2019			June 30, 2020		March 31, 2020
Raw materials and supplies	Raw materials and supplies	$	22,432	$	20,267	Raw materials and supplies	$	24,145	$	20,935
Work in process	Work in process	6,718		6,483		Work in process	7,248		6,076
Finished goods	Finished goods	31,035		31,876		Finished goods	35,858		33,771
Total inventories	Total inventories	60,185		58,626		Total inventories	67,251		60,782
Less: LIFO reserve	Less: LIFO reserve	(5,026)		(5,027)		Less: LIFO reserve	(4,816)		(4,816)
Less: Obsolescence reserve	Less: Obsolescence reserve	(2,308)		(2,170)		Less: Obsolescence reserve	(2,994)		(2,213)
Inventories, net	Inventories, net	$	52,851	$	51,429	Inventories, net	$	59,441	$	53,753

5. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill ~~as of September~~for the three months ended June 30, ~~2019~~2020 and March 31, ~~2019~~2020 were as follows (in thousands):

Industrial Products Specialty
Chemicals Total
Balance at March 31, 2019 $ 54,732 $ 31,563 $ 86,295
Petersen acquisition 6,128 — 6,128
Currency translation (171) — (171)
Balance at September 30, 2019 $ 60,689 $ 31,563 $ 92,252


	Industrial Products		Specialty Chemicals		Total
Balance at March 31, 2020	$	60,123	$	31,563	$	91,686

Currency translation	394		—		394
Balance at June 30, 2020	$	60,517	$	31,563	$	92,080

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

September 30, 2019 March 31, 2019
Wtd Avg Life (Years) Ending Gross Amount Accumulated Amortization Ending Gross Amount Accumulated Amortization
Finite-lived intangible assets:
Patents 11 $ 9,634 $ (6,532) $ 9,835 $ (6,316)
Customer lists and amortized trademarks 12 62,965 (30,874) 60,065 (28,622)
Non-compete agreements 5 1,766 (1,336) 1,764 (1,066)
Other 8 5,134 (2,298) 4,808 (2,010)
$ 79,499 $ (41,040) $ 76,472 $ (38,014)
Trade names and trademarks not being amortized: $ 12,013 $ — $ 12,008 $ —


		June 30, 2020						March 31, 2020
	Wtd Avg Life (Years)	Ending Gross Amount		Accumulated Amortization		Ending Gross Amount		Accumulated Amortization
Finite-lived intangible assets:
Patents	11	$	9,634	$	(7,136)	$	9,635	$	(6,935)
Customer lists and amortized trademarks	12	63,123		(34,360)		62,806		(33,098)
Non-compete agreements	5	1,676		(1,635)		1,653		(1,494)
Other	8	5,223		(2,795)		5,219		(2,628)
		$	79,656	$	(45,926)	$	79,313	$	(44,155)
Trade names and trademarks not being amortized:		$	11,047	$	—	$	11,027	$	—

Amortization ~~expense~~expenses for the three ~~and six~~ months ended ~~September~~June 30, 2020 and June 30, 2019 were $1.7 million and ~~$3.4 million, respectively. Amortization expense for the three and six months ended September 30, 2018, were $1.6 million and $3.1~~$1.7 million, respectively. The following table shows the estimated future amortization for intangible assets, as of ~~September~~June 30, ~~2019,~~2020, for the remainder of the current fiscal year and the next ~~five~~four fiscal years ending March 31 (in thousands):


2020		$	2,913
2021	2021	5,504		2021	$	4,806
2022	2022	5,100		2022	5,525
2023	2023	4,244		2023	4,585
2024	2024	3,938		2024	3,831
2025				2025	3,108

6. SHARE-BASED COMPENSATION

Refer to Note 6 to our consolidated financial statements included in ~~the~~our Annual Report for a description of the 2015 Equity and Incentive Compensation Plan (the "2015 Plan"). As of ~~September~~June 30, ~~2019, 825,604~~2020, 711,942 shares were available for issuance under the 2015 Plan.

We recorded share-based compensation expense as follows for the three ~~and six~~ months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


		Three months ended September 30, 2019										Six months ended September 30, 2019							Three Months Ended June 30,
		Stock Options		Restricted Stock		Total		Stock Options		Restricted Stock		Total			2020		2019
Share-based compensation expense	Share-based compensation expense	$	—	$	1,196	$	1,196	$	—	$	2,409	$	2,409	Share-based compensation expense	$	1,328	$	1,213
Related income tax benefit	Related income tax benefit	—		(251)		(251)		—		(506)		(506)		Related income tax benefit	(319)		(291)
Net share-based compensation expense	Net share-based compensation expense	$	—	$	945	$	945	$	—	$	1,903	$	1,903	Net share-based compensation expense	$	1,009	$	922

		Three Months Ended September 30, 2018										Six Months Ended September 30, 2018
		Stock Options		Restricted Stock		Total		Stock Options		Restricted Stock		Total
Share-based compensation expense		$	3	$	862	$	865	$	19	$	1,775	$	1,794
Related income tax benefit		—		(198)		(198)		(2)		(398)		(400)
Net share-based compensation expense		$	3	$	664	$	667	$	17	$	1,377	$	1,394

Stock option activity was as follows:

Six months ended September 30, 2019
Number of Shares Weighted Average Exercise Price Remaining Contractual Life (Years) Aggregate Intrinsic Value (in Millions)
Outstanding at April 1, 2019: 231,717 $ 25.12
Exercised — —
Canceled — —
Outstanding at September 30, 2019 231,717 $ 25.12 4.71 10.2
Exercisable at September 30, 2019 231,717 $ 25.12 4.71 10.2


	Three Months Ended June 30, 2020
	Number of Shares	Weighted Average Price		Remaining Contractual Life (Years)	Aggregate Intrinsic Value (in Millions)
Outstanding at April 1, 2020	115,858	$	25.30


Outstanding at June 30, 2020	115,858	$	25.30	3.9	$	5.1
Exercisable at June 30, 2020	115,858	$	25.30	3.9	$	5.1

All compensation costs related to stock options were recognized prior to April 1, 2019. NaN options were granted or vested during the three ~~and six~~ months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

Restricted share activity was as follows:


			Six months ended September 30, 2019								Three Months Ended June 30, 2020
		Number of Shares	Weighted Average Grant Date Fair Value					Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at April 1, 2019:		213,622	$	45.42
Outstanding at April 1, 2020:					Outstanding at April 1, 2020:			202,466	$	60.78
Granted	Granted	33,178	78.70		Granted			67,580	73.81
Vested	Vested	(35,117)	24.29		Vested			(70,861)	49.70
Canceled	Canceled	(1,766)	23.77		Canceled			(8,976)	70.51
Outstanding at September 30, 2019			209,917			$	54.40
Outstanding at June 30, 2020					Outstanding at June 30, 2020			190,209	$	64.85

During the restriction period, the holders of restricted shares are entitled to vote and receive dividends. Unvested restricted shares outstanding as of ~~September~~June 30, ~~2019~~2020 and March 31, ~~2019~~2020 included ~~93,126~~90,012 and ~~96,282~~93,249 shares (at target), respectively, with performance-based vesting provisions, ~~having~~and vesting ranges from 0%-200% based on pre-defined performance targets with market conditions. Performance-based awards accrue dividend equivalents, which are settled upon (and to the extent of) vesting of the underlying award, but do not have the right to vote until vested. Performance-based awards are earned upon the

achievement of objective performance targets and are payable in common shares. Compensation expense is calculated based on the fair market value as determined by a Monte Carlo simulation and is recognized over a 36-month cliff vesting period. We granted 26,966 and 31,594 awards with performance-based vesting provisions during the three months ended June 30, 2020 and 2019, respectively, with a vesting range of 0-200%.

At ~~September~~June 30, ~~2019,~~2020, we had unrecognized compensation cost related to unvested restricted shares of ~~$6.0~~$7.7 million, which will be amortized into net income over the remaining weighted average vesting period of approximately ~~1.9~~2.0 years. The total fair value of restricted shares granted during the three months ended ~~both September~~June 30, 2020 and 2019 ~~and 2018~~ was ~~less than $0.1 million. The total fair value of restricted shares granted during the six months ended September 30, 2019 and 2018 was $2.6~~$2.5 million and ~~$1.7~~$2.5 million, respectively. The total fair value of restricted shares vested during the three months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ was ~~0 and less than $0.1 million, respectively. The total fair value of restricted shares vested during the six months ended September 30, 2019 and 2018 was $2.1~~$4.2 million and ~~$0.4~~$2.1 million, respectively.

7. LONG-TERM DEBT

Debt consists of the following (in thousands):


		September 30, 2019		March 31, 2019			June 30, 2020		March 31, 2020
Revolving Credit Facility, interest rate of 0.00% and 3.74%, respectively		$	—	$	20,000
Whitmore Term Loan, interest rate of 4.02% and 4.50%, respectively		11,179		11,459
Revolving Credit Facility, interest rate of 1.41% and 2.24%, respectively						Revolving Credit Facility, interest rate of 1.41% and 2.24%, respectively	$	—	$	—
Whitmore Term Loan, interest rate of 2.16% and 2.99%, respectively						Whitmore Term Loan, interest rate of 2.16% and 2.99%, respectively	10,758		10,898
Total debt	Total debt	11,179		31,459		Total debt	10,758		10,898
Less: Current portion	Less: Current portion	(561)		(561)		Less: Current portion	(561)		(561)
Long-term debt	Long-term debt	$	10,618	$	30,898	Long-term debt	$	10,197	$	10,337

Revolving Credit Facility

As discussed in Note 8 to our consolidated financial statements included in our Annual Report, we have a ~~five-year,~~five-year, $250.0 million revolving credit facility agreement, with an additional $50.0 million accordion feature, which matures on September 15, 2022 (the “Revolving Credit Facility”). Borrowings under this facility bear interest at a rate of prime plus 0.25% or London Interbank Offered Rate ("LIBOR") plus 1.25%, which may be adjusted based on our leverage ratio. We pay a commitment fee of 0.15% for the unutilized portion of the Revolving Credit Facility. Interest and commitment fees are payable at least quarterly and the outstanding principal balance is due at the maturity date. The Revolving Credit Facility is secured by substantially all of our domestic assets. During the ~~six~~three months ended ~~September~~June 30, ~~2019,~~2020, we borrowed ~~$7.5~~$10.0 million and repaid ~~$27.5~~$10.0 million under this ~~facility, and as~~facility. As of ~~September~~June 30, ~~2019~~2020 and March 31, ~~2019,~~2020, we had ~~a remaining~~0 outstanding balance, ~~of $0 and $20.0 million, respectively,~~ which resulted in borrowing capacity of $300.0 million, ~~and $280.0 million, respectively,~~ inclusive of the accordion feature. Covenant compliance is tested quarterly, and we were in compliance with all covenants as of ~~September~~June 30, ~~2019.~~2020.

Whitmore Term Loan

As of ~~September~~June 30, ~~2019,~~2020, Whitmore Manufacturing (one of our wholly-owned operating subsidiaries) had a secured term loan ("Whitmore Term Loan") outstanding related to a warehouse and corporate office building and the remodel of an existing

manufacturing and research and development facility. The Whitmore Term Loan was entered into in July 2014 and matures on July 31, 2029 and requires payments of $140,000 ~~due~~ each quarter. Borrowings under this term loan bear interest at a variable annual rate equal to one month LIBOR plus 2.0%. As of ~~September~~June 30, ~~2019~~2020 and March 31, ~~2019,~~2020, Whitmore Manufacturing had ~~$11.2~~$10.8 million and ~~$11.5~~$10.9 million, respectively, in principal amount outstanding ~~borrowings~~ under the 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 109 years, some of which include escalation clauses and/or options to extend or terminate the leases. ~~Leases related to discontinued operations have been omitted from the following disclosures (see Note 3 for information on leases included in discontinued operations).~~

We do not currently have any financing lease arrangements.


		Three Months Ended September 30, 2019		Six Months Ended September 30, 2019			Three Months Ended June 30,
Components of Operating Lease Expenses (in thousands)
(in thousands)						(in thousands)	2020		2019
Components of Operating Lease Expenses						Components of Operating Lease Expenses
Operating lease expense (a)	Operating lease expense (a)	$	889	$	1,793	Operating lease expense (a)	$	845	$	904
Variable lease expense (b)		144		194
Short-term lease expense						Short-term lease expense	55		—
Total operating lease expense	Total operating lease expense	$	1,033	$	1,987	Total operating lease expense	$	900	$	904
(a) Included in cost of revenues and selling, general and administrative expense	(a) Included in cost of revenues and selling, general and administrative expense					(a) Included in cost of revenues and selling, general and administrative expense
(b) Includes short-term leases, which are immaterial

				September 30, 2019
Operating Lease Assets and Liabilities (in thousands)
(in thousands)						(in thousands)	June 30, 2020		March 31, 2020
Operating Lease Assets and Liabilities						Operating Lease Assets and Liabilities
ROU assets, net ~~(c)~~(b)	ROU assets, net ~~(c)~~(b)			$	14,331	ROU assets, net ~~(c)~~(b)	$	15,690	$	16,383

Short-term lease liabilities ~~(d)~~(c)	Short-term lease liabilities ~~(d)~~(c)			$	2,794	Short-term lease liabilities ~~(d)~~(c)	$	3,104	$	3,056
Long-term lease liabilities recorded ~~(d)~~(c)	Long-term lease liabilities recorded ~~(d)~~(c)			12,188		Long-term lease liabilities recorded ~~(d)~~(c)	14,444		15,179
Total operating lease liabilities	Total operating lease liabilities			$	14,982	Total operating lease liabilities	$	17,548	$	18,235
(c) Included in other assets, net
(d) Included in accrued and other current liabilities and other long-term liabilities
(b) Included in other assets, net						(b) Included in other assets, net
(c) Included in accrued and other current liabilities and other long-term liabilities						(c) Included in accrued and other current liabilities and other long-term liabilities


	~~Six Months Ended September 30, 2019~~
~~Supplemental Cash Flow (in thousands)~~
~~Cash paid for amounts included in the measurement of operating lease liabilities (a)~~	$	~~1,736~~
~~ROU assets obtained in exchange for new operating lease obligations~~	~~643~~
~~(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)~~	~~5.29~~
~~Weighted average discount rate (percent)~~	~~3.7~~		%


	Three Months Ended June 30,
(in thousands)	2020			2019
Supplemental Cash Flow
Cash paid for amounts included in the measurement of operating lease liabilities (a)	$	933		$	873
ROU assets obtained in exchange for new operating lease obligations	59			605
(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)	6.01			6.40
Weighted average discount rate (percent)	4.3		%	4.3		%

1312


Maturities of operating lease liabilities were as follows (in thousands):
Year Ending March 31, 2020 (excluding the six months ended September 30, 2019)		$	1,748
2021		3,370
Maturities of operating lease liabilities were as follows:				Maturities of operating lease liabilities were as follows:	(in thousands)
Year Ending March 31, 2021 (excluding the three months ended June 30, 2020)				Year Ending March 31, 2021 (excluding the three months ended June 30, 2020)	$	2,832
2022	2022	2,840		2022	3,779
2023	2023	2,173		2023	3,074
2024	2024	2,024		2024	2,828
2025				2025	2,548
Thereafter	Thereafter	5,793		Thereafter	4,963
Total lease liabilities	Total lease liabilities	17,948		Total lease liabilities	20,024
Less: Imputed interest	Less: Imputed interest	(2,966)		Less: Imputed interest	(2,476)
Present value of lease liabilities	Present value of lease liabilities	$	14,982	Present value of lease liabilities	$	17,548

As discussed in Note 1, we elected the transition practical expedient to apply hindsight when determining the lease term at the new lease standard adoption date. The increase in lease liabilities at September 30, 2019, as compared with future obligations as of March 31, 2019, represents the renewal period options that we were reasonably certain to exercise as of the adoption date.

The future minimum obligations under operating leases in effect as of March 31, 2019 having a noncancellable term in excess of one year as determined prior to the adoption of the new lease standard are as follows for the fiscal years ending March 31, (in thousands):

2020 $ 3,048
2021 2,733
2022 1,645
2023 1,038
2024 921
Thereafter 1,010
Total future minimum lease payments $ 10,395

9. DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING

We have an interest rate swap agreement to hedge exposure to floating interest rates on a certain portion of our debt. As of ~~September~~June 30, ~~2019~~2020 and March 31, ~~2019,~~2020, we had ~~$11.2~~$10.8 million and ~~$11.5~~$10.9 million, respectively, of notional amount outstanding designated as an interest rate swap with third parties. The interest rate swap is highly effective. At ~~September~~June 30, ~~2019,~~2020, the maximum remaining length of the interest rate swap contract was approximately 109.1 years. The fair value of the interest rate swap designated as a hedging instrument is summarized below (in thousands):


		September 30, 2019		March 31, 2019			June 30, 2020		March 31, 2020

Current derivative liabilities	Current derivative liabilities	$	135	$	56	Current derivative liabilities	$	290	$	271
Non-current derivative liabilities	Non-current derivative liabilities	1,014		443		Non-current derivative liabilities	1,542		1,492

The impact of changes in fair value of the interest rate swap is included in Note 12.

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

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

10. EARNINGS PER SHARE

The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted earnings per share for the three ~~and six~~ months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (amounts in thousands, except per share data):


		Three Months Ended September 30,						Six Months Ended September 30,							Three Months Ended June 30,
		2019		2018		2019		2018			2020		2019
Income from continuing operations	Income from continuing operations	$	8,818	$	12,424	$	24,163	$	26,430	Income from continuing operations	$	11,960	$	15,344
(Loss) income from discontinued operations		(35)		2,732		(174)		400
Loss from discontinued operations										Loss from discontinued operations	—		(140)
Net income	Net income	$	8,783	$	15,156	$	23,989	$	26,830	Net income	$	11,960	$	15,204

Weighted average shares:	Weighted average shares:									Weighted average shares:
Common stock	Common stock	14,909		15,366		14,909		15,512		Common stock	14,603		14,909
Participating securities	Participating securities	115		158		115		161		Participating securities	104		115
Denominator for basic earnings per common share	Denominator for basic earnings per common share	15,024		15,524		15,024		15,673		Denominator for basic earnings per common share	14,707		15,024
Potentially dilutive securities	Potentially dilutive securities	191		125		181		117		Potentially dilutive securities	101		169
Denominator for diluted earnings per common share	Denominator for diluted earnings per common share	15,215		15,649		15,205		15,790		Denominator for diluted earnings per common share	14,808		15,193

Basic earnings (loss) per common share:	Basic earnings (loss) per common share:									Basic earnings (loss) per common share:
Continuing operations	Continuing operations	$	0.59	$	0.80	$	1.61	$	1.69	Continuing operations	$	0.81	$	1.02
Discontinued operations	Discontinued operations	(0.01)		0.18		(0.01)		0.02		Discontinued operations	—		(0.01)
Net income	Net income	$	0.58	$	0.98	$	1.60	$	1.71	Net income	$	0.81	$	1.01

Diluted earnings (loss) per common share:	Diluted earnings (loss) per common share:									Diluted earnings (loss) per common share:
Continuing operations	Continuing operations	$	0.58	$	0.79	$	1.59	$	1.67	Continuing operations	$	0.81	$	1.01
Discontinued operations	Discontinued operations	—		0.18		(0.01)		0.03		Discontinued operations	—		(0.01)
Net income	Net income	$	0.58	$	0.97	$	1.58	$	1.70	Net income	$	0.81	$	1.00

11. SHAREHOLDERS' EQUITY

Share Repurchase Program

On November ~~11, 2016,~~7, 2018, we announced that our Board of Directors authorized a program to repurchase up to ~~$35.0 million of our common stock over a~~ ~~two~~-year time period. We purchased 425,873 and 572,160 shares during the three and six months ended September 30, 2018, respectively, for an aggregate amount of $23.5 million and $30.8 million, respectively. As of October 31, 2018, a total of 656,203 shares had been repurchased for an aggregate amount of $35.0 million, and the program was completed.

~~On November 7, 2018, we announced that our Board of Directors authorized a new program to repurchase up to~~ $75.0 million of our common stock over a ~~two-year time~~two-year period. These shares may be repurchased from time to time in the open market or in privately negotiated transactions. Repurchases will be made from time to time 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. The program may be limited or terminated at any time at our discretion without notice. ~~NaN~~We repurchased 115,151 and 0 shares ~~were purchased~~ under ~~this~~the program during the three ~~and six~~ months ended ~~September~~June 30, ~~2019.~~2020 and 2019, respectively, for an aggregate amount of $7.3 million and $0, respectively. As of ~~September~~June 30, ~~2019,~~2020, a total of ~~231,150~~740,137 shares had been repurchased for an aggregate amount of ~~$11.8~~$46.0 million.

Dividends

OnIn April 4, 2019, we ~~announced we had~~ commenced ~~a dividend program and that our Board of Directors approved~~ a quarterly dividend program at a quarterly rate of $0.135 per share. Total dividends of $2.0 million and ~~$4.1~~$2.0 million were ~~declared and~~ paid during the three ~~and six~~ months ended ~~September~~June 30, 2020 and 2019, respectively.

On ~~October 10, 2019,~~July 9, 2020, we announced a quarterly dividend of $0.135 per share payable on ~~November~~August 14, ~~2019~~2020 to shareholders of record as of ~~October~~July 31, ~~2019.~~2020. Any future dividends at the existing $0.135 per share quarterly rate or otherwise will be reviewed individually and declared by our Board of Directors in its discretion.

1514

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 ~~September~~June 30, ~~2019~~2020 and March 31, ~~2019~~2020 due to their short-term nature.

13. RETIREMENT PLANS

Refer to Note 1314 to our consolidated financial statements included in ~~the~~our Annual Report for a description of our retirement and post-retirement benefits. As disclosed in our Annual Report, during the fiscal quarter ended September 30, 2019, we terminated our qualified U.S. pension plan (the "Qualified Plan") and recognized an overall termination charge of $6.5 million recorded in other (expense) income, net for the fiscal year ended March 31, 2020.

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 September 30,						Six Months Ended September 30,							Three Months Ended June 30,
		2019		2018		2019		2018			2020		2019
Service cost, benefits earned during the period	Service cost, benefits earned during the period	$	18	$	19	$	35	$	38	Service cost, benefits earned during the period	$	10	$	18
Interest cost on projected benefit obligation	Interest cost on projected benefit obligation	523		528		1,046		1,057		Interest cost on projected benefit obligation	36		523
Expected return on assets	Expected return on assets	(653)		(663)		(1,307)		(1,327)		Expected return on assets	(24)		(653)
Amortization of net actuarial loss	Amortization of net actuarial loss	12		10		25		19		Amortization of net actuarial loss	18		12
Pension plan termination		7,019		—		7,019		—
Net pension benefit	Net pension benefit	$	6,919	$	(106)	$	6,818	$	(213)	Net pension benefit	$	40	$	(100)

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

Employee Stock Ownership Plan ("ESOP") - During the ~~six months~~quarters ended ~~September~~June 30, 2020 and 2019, we ~~offered lump sum payments~~contributed $3.7 million of treasury shares and $3.2 million of cash, respectively, to ~~eligible active and terminated vested participants~~our ESOP, based on performance in ~~our qualified U.S. pension plan (the “Qualified Plan”), representing approximately 42% of our liability. Approximately 74% of those participants accepted~~ the lump sum offer for an aggregate payment of $17.0 million in August 2019. We entered into an annuity purchase contract for the remaining liability in September 2019, and terminated the Qualified Plan effective September 30, 2019. The termination required an additional contribution of $0.5 million, which was paid in September 2019, and resulted in an overall termination charge of $7.0 million ($5.4 million, net of tax) recorded in other (expense) income, net, due primarily to the recognition of expenses that were previously included in accumulated other comprehensive loss and the recognition of additional costs associated with the annuity purchase contract.prior year.

14. CONTINGENCIES

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

15. INCOME TAXES

For the three months ended ~~September~~June 30, ~~2019,~~2020, we earned ~~$12.5~~$15.6 million from continuing operations before taxes and provided for income taxes of ~~$3.6~~$3.7 million, resulting in an effective tax rate of 29.2%. For the six months ended September 30, 2019, we earned $32.2 million from continuing operations before taxes and provided for income taxes of $8.0 million, resulting in an effective tax rate of 24.9%23.5%. The provision for income taxes differed from the statutory rate for the three ~~and six~~ months ended ~~September~~June 30, ~~2019,~~2020 primarily due to ~~the provision for global intangible low-taxed~~state income ~~("GILTI"), adjustments related to foreign items,~~taxes, tax credits, excess tax deductions related to stock compensation and ~~adjustments~~a change in indefinite reinvestment assertion related to ~~state tax returns.~~

the investment in a foreign subsidiary. For the three months ended ~~September~~June 30, ~~2018,~~2019, we earned ~~$16.9~~$19.7 million from continuing operations before taxes and provided for income taxes of $4.4 million, resulting in an effective tax rate of 26.3%. For the six months ended September 30, 2018, we earned $35.0 million from continuing operations before taxes and provided for income taxes of $8.5 million, resulting in an effective tax rate of 24.4%22.2%. The provision for income taxes differed from the statutory rate for the three ~~and six~~ months ended ~~September~~June 30, ~~2018~~2019 primarily due to ~~an increase in~~state income taxes, tax credits and excess tax deductions related to ~~foreign operations, as well as increased operations in domestic jurisdictions with higher state rates.~~stock compensation.

We are currently under examination by the state of Illinois for the fiscal years ended March 31, 2018 and 2017. We have not been notified of any potential adjustments.

16. OTHER COMPREHENSIVE INCOME (LOSS)

The following table provides an analysis of the changes in accumulated other comprehensive loss (in thousands):

Three Months Ended September 30,
2019 2018
Currency translation adjustments:
Balance at beginning of period $ (6,611) $ (6,236)
Adjustments for foreign currency translation (669) (43)
Balance at end of period $ (7,280) $ (6,279)
Interest rate swaps:
Balance at beginning of period $ (691) $ (65)
Unrealized (losses) gains, net of taxes of $62 and $(51), respectively (a) (232) 190
Reclassification of losses included in interest expense, net,
net of taxes of $(4) and $(5), respectively
15 19
Other comprehensive (loss) income (217) 209
Balance at end of period $ (908) $ 144
Defined benefit plans:
Balance at beginning of period $ (3,470) $ (2,509)
Amortization of net losses, net of taxes of $(5) and $0,
respectively (b)
18 1
Pension plan termination, net of taxes of $(669) and $0, respectively 2,516 —
Other comprehensive income 2,534 1
Balance at end of period $ (936) $ (2,508)


		Six Months Ended September 30,							Three Months Ended June 30,
		2019		2018			2020		2019
Currency translation adjustments:	Currency translation adjustments:					Currency translation adjustments:
Balance at beginning of period	Balance at beginning of period	$	(6,869)	$	(4,837)	Balance at beginning of period	$	(9,185)	$	(6,869)
Adjustments for foreign currency translation	Adjustments for foreign currency translation	(411)		(1,442)		Adjustments for foreign currency translation	1,338		258
Balance at end of period	Balance at end of period	$	(7,280)	$	(6,279)	Balance at end of period	$	(7,847)	$	(6,611)

Interest rate swaps:	Interest rate swaps:					Interest rate swaps:
Balance at beginning of period	Balance at beginning of period	$	(394)	$	(108)	Balance at beginning of period	$	(1,390)	$	(394)
Unrealized (losses) gains, net of taxes of $143 and $(61), respectively (a)		(538)		231
Reclassification of losses included in interest expense, net, net of taxes of $(6) and $(10), respectively		24		37
Other adjustments (c)		—		(16)
Other comprehensive (loss) income		(514)		252
Unrealized losses, net of taxes of $14 and $81, respectively (a)						Unrealized losses, net of taxes of $14 and $81, respectively (a)	(51)		(306)
Reclassification of losses (income) included in interest expense, net, net of taxes of $1 and $(2), respectively						Reclassification of losses (income) included in interest expense, net, net of taxes of $1 and $(2), respectively	(4)		9

Other comprehensive loss						Other comprehensive loss	(55)		(297)
Balance at end of period	Balance at end of period	$	(908)	$	144	Balance at end of period	$	(1,445)	$	(691)

Defined benefit plans:	Defined benefit plans:					Defined benefit plans:
Balance at beginning of period	Balance at beginning of period	$	(3,466)	$	(2,530)	Balance at beginning of period	$	(871)	$	(3,466)
Amortization of net losses, net of taxes of $(4) and $(6), respectively (b)		14		22
Pension plan termination, net of taxes of $(669) and $0, respectively		2,516		—
Other comprehensive income		2,530		22
Amortization of net losses, net of taxes of $1 and $1, respectively (b)						Amortization of net losses, net of taxes of $1 and $1, respectively (b)	(4)		(4)
Balance at end of period	Balance at end of period	$	(936)	$	(2,508)	Balance at end of period	$	(875)	$	(3,470)

(a) Unrealized gains (losses) are reclassified to earnings as underlying cash interest payments are made. We expect to recognize a loss of ~~$0.1~~$0.3 million, net of deferred taxes, over the next twelve months related to designated cash flow hedges based on their fair values at ~~September~~June 30, ~~2019.~~2020.

(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.

~~(c) The other adjustments relate to changes in the effective tax rate.~~

17. REVENUE RECOGNITION

Refer to Note 1819 to our consolidated financial statements included in ~~the~~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 September 30, 2019										Six months ended September 30, 2019									Three Months Ended June 30, 2020
		Industrial Products		Specialty Chemicals		Total		Industrial Products		Specialty Chemicals		Total			Industrial Products		Specialty Chemicals		Total
Build-to-order	Build-to-order	$	22,041	$	—	$	22,041	$	41,242	$	—	$	41,242	Build-to-order	$	20,543	$	—	$	20,543
Book-and-ship	Book-and-ship	40,728		38,555		79,283		84,879		77,536		162,415		Book-and-ship	40,696		29,725		70,421
Net revenues	Net revenues	$	62,769	$	38,555	$	101,324	$	126,121	$	77,536	$	203,657	Net revenues	$	61,239	$	29,725	$	90,964


		Three Months Ended September 30, 2018										Six Months Ended September 30, 2018									Three Months Ended June 30, 2019
		Industrial Products		Specialty Chemicals		Total		Industrial Products		Specialty Chemicals		Total			Industrial Products		Specialty Chemicals		Total
Build-to-order	Build-to-order	$	17,810	$	—	$	17,810	$	33,321	$	—	$	33,321	Build-to-order	$	19,201	$	—	$	19,201
Book-and-ship	Book-and-ship	36,917		36,884		73,801		75,266		72,602		147,868		Book-and-ship	44,151		38,981		83,132
Net revenues	Net revenues	$	54,727	$	36,884	$	91,611	$	108,587	$	72,602	$	181,189	Net revenues	$	63,352	$	38,981	$	102,333

1816

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, ~~2019:~~2020:	$	~~2,337~~2,892
Revenue recognized during the period	~~(190)~~(927)

New contracts and revenue added to existing contracts during the period	~~750~~1,149
Balance at ~~September~~June 30, ~~2019~~2020	$	~~2,897~~3,114

18. SEGMENTS

As discussed in Note 1920 to our consolidated financial statements in ~~the~~our Annual Report, we conduct our operations through 2 business segments based on type of product and how we manage the business: Industrial Products and Specialty Chemicals.

Three Months Ended September 30, 2019
(in thousands) Industrial Products Specialty Chemicals Subtotal - Reportable Segments Eliminations and Other Total
Revenues, net $ 62,769 $ 38,555 $ 101,324 $ — $ 101,324
Operating income 16,413 7,142 23,555 (3,433) 20,122
Three Months Ended September 30, 2018
(in thousands) Industrial Products Specialty Chemicals Subtotal - Reportable Segments Eliminations and Other Total
Revenues, net $ 54,727 $ 36,884 $ 91,611 $ 1 $ 91,612
Operating income 14,212 6,158 20,370 (3,166) 17,204
Three Months Ended June 30, 2020:


(in thousands)	Industrial Products		Specialty Chemicals		Subtotal - Reportable Segments		Eliminations and Other		Total
Revenues, net	$	61,239	$	29,725	$	90,964	$	—	$	90,964
Operating income	16,307		3,946		20,253		(4,000)		16,253

Six Months Ended September 30, 2019
(in thousands) Industrial Products Specialty Chemicals Subtotal - Reportable Segments Eliminations and Other Total
Revenues, net $ 126,121 $ 77,536 $ 203,657 $ — $ 203,657
Operating income 33,456 13,765 47,221 (6,777) 40,444
Six Months Ended September 30, 2018
(in thousands) Industrial Products Specialty Chemicals Subtotal - Reportable Segments Eliminations and Other Total
Revenues, net $ 108,587 $ 72,602 $ 181,189 $ 1 $ 181,190
Operating income 28,105 12,631 40,736 (5,787) 34,949
Three Months Ended June 30, 2019:


(in thousands)	Industrial Products		Specialty Chemicals		Subtotal - Reportable Segments		Eliminations and Other		Total
Revenues, net	$	63,352	$	38,981	$	102,333	$	—	$	102,333
Operating income	17,042		6,623		23,665		(3,344)		20,321

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our continuing operations financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included in this Quarterly Report, as well as our consolidated financial statements and related notes for the fiscal year ended March 31, ~~2019,~~2020 included in our Annual Report. This discussion and analysis contains forward-looking statements based on current expectations relating to future events and our future performance that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” below. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those risk factors set forth in our Annual Report and in this Quarterly Report.

Overview

We are a diversified industrial growth company with well-established, scalable platforms and domain expertise across two business segments: Industrial Products and Specialty Chemicals. Our broad portfolio of leading products provides performance optimizing and life safety solutions to our customers. Our products and systems help contractors do their jobs better, faster and easier; make buildings safer and more aesthetically pleasing; protect valuable assets from corrosion; and improve the reliability of mission critical equipment. Our products include mechanical products for heating, ventilation, air conditioning and refrigeration ("HVAC/~~R, sealants, architecturally-specified~~R"), building products and high-performance specialty ~~lubricants. The~~lubricants and sealants. End markets that we serve include HVAC/R, architecturally-specified building products, ~~general industrial,~~ plumbing, energy, rail, mining and ~~mining.~~general industrial. Our manufacturing operations are concentrated in the United States ("U.S.") and Canada, ~~and~~but we also have distribution operations in Australia, Canada and the United Kingdom ("U.K."). Our products are sold directly to end users or through designated channels ~~both domestically~~in over 100 countries around the world, including: Australia, Brazil, Canada, China, Colombia, the Netherlands, Russia, South Africa, Sweden, the U.K. and ~~internationally.~~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~~our end users' maintenance, repair and overhaul activities and the consumable nature of many of our products. We also provide some custom and semi-custom 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~~highly respected industrial brands including RectorSeal No. ~~5, Kopr Kote, KATS Coatings, Jet-Lube Extreme, Smoke Guard, Safe-T-Switch, Metacaulk, Balco, Whitmore,~~5®, KOPR-KOTE®, Kats Coatings®, Safe-T-Switch®, Air ~~Sentry, Oil Safe, Deacon, AC~~Sentry®, Deacon®, Leak ~~Freeze~~Freeze® and ~~Greco Aluminum Railings.~~Greco®.

~~As previously disclosed, during the third quarter~~We believe that our broad portfolio of ~~the fiscal year ended March 31, 2018,~~products and markets served, as well as our brand recognition, will continue to provide opportunities; however, we committed to a plan to divest our Strathmore Products business (the "Coatings business"). This determination resulted in the reclassification of the assets comprising that business to assets held-for-saleface ongoing challenges affecting many companies, such as environmental and a corresponding adjustment to our consolidated statements of operations to reflect discontinued operations for all periods presented. During the quarter ended September 30, 2018, we received an aggregate of $6.9 million for the sale of assets that related to our Coatings business in multiple transactions. To assist readers in comparing current period results to the prior period results, this sale of assets resulted in gains on disposal of $6.9 million due to write-downs of long-lived assets in prior periods, which gain was recognized in the quarter ended September 30, 2018. See Note 2 to the condensed consolidated financial statements included in this Quarterly Report for additional information.other regulatory compliance, combined with overall global economic uncertainty.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. COVID-19 continues to spread throughout the world and has created a recessionary environment in the U.S. and around the globe. During the three months ended June 30, 2020, we experienced a decline in demand in all of the end markets we serve, though to varying degrees. Combined with significant volatility in oil prices that occurred in the first fiscal quarter to date, both factors had a negative impact on our financial results.

All of our operations and products support critical infrastructure and are considered "essential" in all of the relevant jurisdictions in which we operate, and our businesses have continued to operate throughout the COVID-19 pandemic with appropriate safeguards for our employees. In response to the pandemic, we took numerous measures across our operating sites to ensure we continue to place the highest priority on the health, safety and well-being of our employees, while continuing to support our customers. While we continue to incur a modest amount of additional expense in supporting these measures, during the fiscal quarter ended June 30, 2020 and through the date of this filing, we have not experienced any material disruptions in our operations.

We continue to expect our results of operations and financial condition to be adversely impacted through the duration of the pandemic due to its effects on the economy and demand for our products and services, though we expect the magnitude of the adverse impact to be mixed across our served end markets. However, we cannot reasonably estimate the magnitude or length of the adverse impact due to continued uncertainty regarding (1) the duration and severity of the COVID-19 pandemic and (2) the extent of the potential short and long-term impact on our facilities and employees, customer demand and availability of materials through supply channels.

RESULTS OF OPERATIONS

The following discussion provides an analysis of our condensed consolidated results of continuing operations and results for each of our segments.

The operations of Petersen have been included in our consolidation results of operations and in the operating results of our Industrial Products segment since April 2, 2019, the effective date of the acquisition. The operations of MSD have been included in our consolidation results of operations and in the operating results of our Industrial Products segment since January 31, 2019, the effective date of the acquisition. All acquisitions are described in Note 2 to our condensed consolidated financial statements included in this Quarterly Report.

Revenues, net


		Three Months Ended September 30,							Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2019		2018		(Amounts in thousands)	2020		2019
Revenues, net	Revenues, net	$	101,324	$	91,612	Revenues, net	$	90,964	$	102,333

Six Months Ended September 30,
(Amounts in thousands) 2019 2018
Revenues, net $ 203,657 $ 181,190

Net revenues for the three months ended ~~September~~June 30, ~~2019 increased $9.7~~2020 decreased $11.4 million, or ~~10.6%~~11.1%, as compared with the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~decrease was primarily due to ~~recent acquisitions ($3.9 million) and increased~~decreased sales volumes into ~~the~~general industrial ($3.2 million), energy ($2.2 million), rail ($1.7 million), HVAC/R ($~~3.3~~1.6 million), ~~architecturally-specified building products~~plumbing ($1.4 million) and ~~plumbing~~mining ($~~1.3 million) end markets.~~

Net revenues for the six months ended September 30, 2019 increased $22.5 million, or 12.4%, as compared with the six months ended September 30, 2018. The increase was primarily due to recent acquisitions ($8.0 million), increased sales volumes into the HVAC/R ($7.7 million), architecturally-specified building products ($2.7 million) and plumbing ($1.30.7 million) end markets.

Gross Profit and Gross Profit Margin


		Three Months Ended September 30,										Three Months Ended June 30,
(Amounts in thousands, except percentages)	(Amounts in thousands, except percentages)	2019			2018			(Amounts in thousands, except percentages)	2020			2019
Gross profit	Gross profit	$	47,404		$	42,209		Gross profit	$	42,752		$	47,235
Gross profit margin	Gross profit margin	46.8		%	46.1		%	Gross profit margin	47.0		%	46.2		%

		Six Months Ended September 30,
(Amounts in thousands, except percentages)		2019			2018
Gross profit		$	94,639		$	84,298
Gross profit margin		46.5		%	46.5		%

Gross profit for the three months ended ~~September~~June 30, ~~2019 increased $5.2~~2020 decreased $4.5 million, or ~~12.3%~~9.5%, as compared with the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~decrease was primarily a result of the impact of leverage from increased sales and a $0.8 million gain on sales of property, plant and equipment in the current period. Gross profit margin of 46.8% for the three months ended September 30, 2019 increased as compared with 46.1% for the three months ended September 30, 2018. The increase in gross profit margin is primarily due to the $0.8 million gain on sales of property, plant and equipment.

Gross profit for the six months ended September 30, 2019 increased $10.3 million, or 12.3%, as compared with the six months ended September 30, 2018. The increase in gross profit was due to increased sales, favorable product mix and a $0.8 million gain on sales of property, plant and equipment, partiallydecreased revenues, slightly offset by discrete costs relating to a ~~$2.6 million gain on sales of property, plant and equipment~~project in architecturally-specified building products in the prior year that did not recur. Gross profit margin of ~~46.5%~~47.0% for the ~~six~~three months ended ~~September~~June 30, ~~2019 was comparable~~2020 increased as compared with 46.2% for the three months ended June 30, 2019. The increase in gross profit margin is primarily attributable to the ~~six months ended September 30, 2018.~~reduced project costs noted above.

Operating Expenses


		Three Months Ended September 30,										Three Months Ended June 30,
(Amounts in thousands, except percentages)	(Amounts in thousands, except percentages)	2019			2018			(Amounts in thousands, except percentages)	2020			2019
Operating expenses	Operating expenses	$	27,282		$	25,005		Operating expenses	$	26,499		$	26,914
Operating expenses as a percentage of revenues, net	Operating expenses as a percentage of revenues, net	26.9		%	27.3		%	Operating expenses as a percentage of revenues, net	29.1		%	26.3		%

		Six Months Ended September 30,
(Amounts in thousands, except percentages)		2019			2018
Operating expenses		$	54,195		$	49,349
Operating expenses as a percentage of revenues, net		26.6		%	27.2		%

Operating expenses for the three months ended ~~September~~June 30, ~~2019 increased $2.3~~2020 decreased $0.4 million, or ~~9.1%~~1.5%, as compared with the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~decrease in operating expenses was primarily due to ~~increased personnel-related~~

reduced travel-related expenses ~~as well as $0.8 million in~~($1.0 million), partially offset by severance costs ~~related to acquisitions.~~resulting from the departure of a former executive officer ($0.5 million). The ~~decrease~~increase in operating expenses as a percentage of revenues was primarily attributable to ~~leverage on increased sales.~~

Operating expenses for the six months ended September 30, 2019 increased $4.8 million, or 9.8%, as compared with the six months ended September 30, 2018. The increase in operating expenses was primarily due to increased personnel-related expenses, as well as $1.5 million in costs related to acquisitions. The decrease in operating expenses and operating expenses as a percentage of sales was attributable to leverage on increased sales.decreased revenues.

Operating Income


		Three Months Ended September 30,										Three Months Ended June 30,
(Amounts in thousands, except percentages)	(Amounts in thousands, except percentages)	2019			2018			(Amounts in thousands, except percentages)	2020			2019
Operating income	Operating income	$	20,122		$	17,204		Operating income	$	16,253		$	20,321
Operating margin	Operating margin	19.9		%	18.8		%	Operating margin	17.9		%	19.9		%

		Six Months Ended September 30,
(Amounts in thousands, except percentages)		2019			2018
Operating income		$	40,444		$	34,949
Operating margin		19.9		%	19.3		%

Operating income for the three months ended ~~September~~June 30, ~~2019 increased $2.9~~2020 decreased $4.1 million, or ~~17.0%~~20.0%, as compared with the three months ended ~~September~~June 30, ~~2018,~~2019, primarily as a result of the ~~increase~~decrease in gross profit, partially offset by an ~~increase~~decrease in operating expenses, as discussed above.

Operating income for the six months ended September 30, 2019 increased $5.5 million, or 15.7%, as compared with the six months ended September 30, 2018, primarily as a result of the increase in gross profit, partially offset by an increase in operating expenses, as discussed above.

Other Income and Expense

Net interest expense of $0.3 million for the three months ended ~~September~~June 30, ~~2019~~2020 decreased ~~$0.1~~$0.2 million as compared with the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease was attributable to decreased average outstanding long-term ~~debt. Net~~debt and a decreased interest ~~expense of $0.8 million for the six months ended September 30, 2019 was comparable to the six months ended September 30, 2018.~~rate.

Other ~~income (expense),~~expense, net ~~was a~~increased $0.2 million to net ~~loss~~expense of ~~$7.4~~$0.3 million for the three months ended ~~September~~June 30, ~~2019~~2020 as compared with net ~~income~~expense of $0.1 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease was primarily~~increase is due to the pension plan termination expenses of $7.0 million. Other income (expense), net was a net loss of $7.5 million for the six months ended September 30, 2019 as compared with net income of $0.8 million for the six months ended September 30, 2018. The decrease was due to the pension plan termination expenses of $7.0 million, an increase inincreased losses arising from transactions in currencies other than our sites' functional currencies and ~~gains on sales~~a reduction in pension benefits due to the termination our of ~~non-operating assets~~U.S. qualified pension plan in the prior ~~year that did not recur.~~year.

Provision for Income Taxes and Effective Tax Rate

For the three months ended ~~September~~June 30, ~~2019,~~2020, we earned ~~$12.5~~$15.6 million from continuing operations before taxes and provided for income taxes of ~~$3.6~~$3.7 million, resulting in an effective tax rate of 29.2%. For the six months ended September 30, 2019, we earned $32.2 million from continuing operations before taxes and provided for income taxes of $8.0 million, resulting in an effective tax rate of 24.9%23.5%. The provision for income taxes differed from the statutory rate for the three ~~and six~~ months ended ~~September~~June 30, ~~2019~~2020 primarily due to ~~the provision for GILTI, adjustments related to foreign items,~~state income taxes, tax credits, excess tax deductions related to stock compensation and ~~adjustments~~a change in indefinite reinvestment assertion related to ~~state tax returns.~~

ended ~~September~~June 30, ~~2018~~2019 primarily due to ~~an increase in~~state income taxes, tax credits and excess tax deductions related to ~~foreign operations, as well as increased operations in domestic jurisdictions with higher state tax rates.~~stock compensation.

We are currently under ~~audit for our U.S. federal income tax return~~examination by the state of Illinois for the fiscal years ended March 31, ~~2017~~2018 and ~~2016.~~2017. We have not been notified of any potential adjustments.

Business Segments

We conduct our operations through two business segments based on type of product and how we manage the business. We evaluate segment performance and allocate resources based on each segment's operating income. The key operating results for our two segments are discussed below.

Industrial Products Segment Results

Industrial Products includes specialty mechanical products, fire and smoke protection products, architecturally-specified building products and storage, filtration and application equipment for use with our specialty chemicals and other products for general industrial application.


		Three Months Ended September 30,										Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2019			2018			(Amounts in thousands)	2020			2019
Revenues, net	Revenues, net	$	62,769		$	54,727		Revenues, net	$	61,239		$	63,352
Operating income	Operating income	16,413			14,212			Operating income	16,307			17,042
Operating margin	Operating margin	26.1		%	26.0		%	Operating margin	26.6		%	26.9		%

		Six Months Ended September 30,
(Amounts in thousands)		2019			2018
Revenues, net		$	126,121		$	108,587
Operating income		33,456			28,105
Operating margin		26.5		%	25.9		%

Net revenues for the three months ended ~~September~~June 30, ~~2019 increased $8.0~~2020 decreased $2.1 million, or ~~14.7%~~3.3%, as compared with the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~decrease was primarily due to ~~the recent acquisitions ($3.9 million) and increased~~decreased sales volumes into the HVAC/R ($~~3.1~~1.3 million), ~~plumbing~~general industrial ($~~1.1~~0.9 million) and ~~architecturally-specified building products~~rail ($~~1.0~~0.8 million) end markets, partially offset by ~~declines~~an increase in the ~~general industrial end market ($0.6 million).~~

Net revenues for the six months ended September 30, 2019 increased $17.5 million, or 16.1%, as compared with the six months ended September 30, 2018. The increase was primarily due to recent acquisitions ($8.0 million) and increased sales volumes into the HVAC/R ($7.7 million), architecturally-specified building products ~~($1.4 million) and plumbing ($1.1 million)~~ end ~~markets.~~market ($1.3 million).

Operating income for the three months ended ~~September~~June 30, ~~2019 increased $2.2~~2020 decreased $0.7 million, or ~~15.5%~~4.3%, as compared with the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~decrease was primarily due to ~~leverage from increased sales, sales mix~~decreased revenues and ~~contributions~~an increase in system-related expenses, partially offset by ~~recent acquisitions.~~a decrease in travel-related expenses.

Operating income for the six months ended September 30, 2019 increased $5.4 million, or 19.0%, as compared with the six months ended September 30, 2018. The increase was due primarily to the impact of leverage from increased sales, sales mix and contributions by recent acquisitions, partially offset by the $0.5 million gain on the sale of property, plant and equipment in the prior year that did not recur.

Specialty Chemicals Segment Results

Specialty Chemicals is comprised of pipe thread sealants, firestopping sealants and caulks, adhesives/solvent cements, lubricants and greases, drilling compounds, anti-seize compounds, chemical formulations, and degreasers and cleaners.


		Three Months Ended September 30,										Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2019			2018			(Amounts in thousands)	2020			2019
Revenues, net	Revenues, net	$	38,555		$	36,884		Revenues, net	$	29,725		$	38,981
Operating income	Operating income	7,142			6,158			Operating income	3,946			6,623
Operating margin	Operating margin	18.5		%	16.7		%	Operating margin	13.3		%	17.0		%

		Six Months Ended September 30,
(Amounts in thousands)		2019			2018
Revenues, net		$	77,536		$	72,602
Operating income		13,765			12,631
Operating margin		17.8		%	17.4		%

Net revenues for the three months ended ~~September~~June 30, ~~2019 increased $1.7~~2020 decreased $9.3 million, or ~~4.5%~~23.7%, as compared with the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase is due to the energy and architecturally-specified building products end markets, partially offset by a decline in the general industrial end market.~~

~~Net revenues for the six months ended September 30, 2019 increased $4.9 million, or 6.8%, as compared with the six months ended September 30, 2018. The increase~~decrease was primarily due to ~~increased~~decreased sales volumes into ~~the~~general industrial ($2.3 million), energy ~~rail,~~($2.2 million), architecturally-specified building products ($1.7 million), plumbing ($1.2 million), rail ($0.9 million) and mining ($0.7 million) end markets.

Operating income for the three months ended ~~September~~June 30, ~~2019 increased $1.0~~2020 decreased $2.7 million, or ~~16.0%~~40.4%, as compared with the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase was primarily due to favorable sales mix and a $0.8 million gain on the sale of property, plant and equipment in the current period.~~

~~Operating income for the six months ended September 30, 2019 increased $1.1 million, or 9.0%, as compared with the six months ended September 30, 2018. The increase~~decrease was due to ~~favorable sales mix, operational improvements, leverage from increased sales and a $0.8 million gain on sales of property, plant and equipment in the current year,~~decreased revenues, partially offset by ~~a $2.2 million gain on the sale of property, plant~~decreases in personnel-related expenses, travel-related expenses and ~~equipment in the prior year that did not recur.~~sales commissions.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Analysis


		Six Months Ended September 30,							Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2019		2018		(Amounts in thousands)	2020		2019
Net cash provided by operating activities, continuing operations	Net cash provided by operating activities, continuing operations	$	37,496	$	32,514	Net cash provided by operating activities, continuing operations	$	14,146	$	9,665
Net cash (used in) provided by investing activities, continuing operations		(15,319)		805
Net cash used in investing activities, continuing operations						Net cash used in investing activities, continuing operations	(1,837)		(13,726)
Net cash used in financing activities	Net cash used in financing activities	(25,155)		(33,278)		Net cash used in financing activities	(11,471)		(12,461)

Existing cash, cash generated by continuing operations and borrowings available under our Revolving Credit Facility are our primary sources of short-term liquidity. We monitor the depository institutions that hold our cash and cash equivalents on a regular basis, and we believe that we have placed our deposits with creditworthy financial institutions. Our sources of operating cash generally include the sale of our products and services and the conversion of our working capital, particularly accounts receivable and inventories. Our cash balance (including cash and cash equivalents) at ~~September~~June 30, ~~2019~~2020 was ~~$23.7~~$19.7 million, as compared with ~~$26.7~~$18.3 million at March 31, ~~2019.~~2020.

For the ~~six~~three months ended ~~September~~June 30, ~~2019,~~2020, our cash provided by operating activities from continuing operations was ~~$37.5~~$14.1 million, as compared with ~~$32.5~~$9.7 million for ~~six~~three months ended ~~September~~June 30, ~~2018.~~2019.

•Working capital used cash for the ~~six~~three months ended ~~September~~June 30, 2020 due to higher inventories ($6.5 million), lower accounts payable and other current liabilities ($1.5 million), partially offset by lower accounts receivable ($3.3 million) and lower prepaid expenses and other current assets ($0.5 million).

•Working capital used cash for the three months ended June 30, 2019 due to lower accounts payable and other current liabilities ($~~3.1~~8.9 million), higher accounts receivable ($4.8 million) and higher ~~accounts receivable~~inventories ($~~1.1~~2.2 million), ~~mostly~~partially offset by lower prepaid expenses and other current assets ($~~3.0 million).~~

•Working capital used cash for the six months ended September 30, 2018 due to higher inventories ($5.7 million), higher prepaid expenses and other current assets ($4.2 million) and lower accounts payable and other current liabilities ($1.2 million), partially offset by lower accounts receivable ($1.54.6 million).

Cash flows used in investing activities offrom continuing operations during the ~~six~~three months ended ~~September~~June 30, ~~2019~~2020 were $15.3 million as compared with $0.8 million of cash provided by investing activities of continuing operations during the six months ended September 30, 2018. During the six months ended September 30, 2019, we paid $11.8 million for the acquisition of Petersen and had no acquisitions during the six months ended September 30, 2018. Capital expenditures during the six months ended September 30, 2019 were $4.6 million, an increase of $1.8 million, as compared with $13.7 million for the ~~six~~three months ended ~~September~~June 30, ~~2018.~~ 2019.

•Capital expenditures during the three months ended June 30, 2020 and 2019 were $1.8 million and $2.2 million, respectively.Our capital expenditures have been focused on new product introductions, capacity expansion, enterprise resource planning systems, continuous improvement ~~automation, maintenance~~ and ~~new products. Proceeds from~~automation.

•During the ~~sale of assets during the six~~three months ended ~~September~~June 30, 2019, ~~were $1.1~~we acquired Petersen for $11.5 million ~~as compared with $3.5 million of proceeds during the six months ended September 30, 2018.~~ , as discussed in Note 2 to our condensed consolidated financial statements included in this Quarterly Report.

Cash flows used in financing activities during the ~~six~~three months ended ~~September~~June 30, 2020 and 2019 were ~~$25.2~~$11.5 million ~~as compared with $33.3~~and $12.5 million, ~~for the six months ended September 30, 2018.~~ respectively.Cash outflows ~~during the six months ended September 30, 2019 included $20.3 million~~resulted from:

•Net repayments on our line of ~~net debt repayments~~credit and term loan (as discussed in Note 7 to our condensed consolidated financial statements included in this Quarterly Report) of $0.1 million and ~~$4.1~~$9.6 million ~~of dividends payments. Cash outflows~~ during the ~~six~~three months ended ~~September~~June 30, ~~2018 included $2.3 million of net debt repayments~~2020 and ~~$30.8 million for the repurchase~~2019, respectively.

•Repurchases of shares under our share repurchase programs (as discussed in Note 11 to our condensed consolidated financial statements included in this Quarterly Report). of $7.3 million and $0 during the three months ended June 30, 2020 and 2019, respectively.

•Dividend payments of $2.0 million and $2.0 million during the three months ended June 30, 2020 and 2019, respectively.

We believe that available cash and cash equivalents, cash flows generated through continuing operations and cash available under our Revolving Credit Facility will be sufficient to meet our liquidity needs, including capital expenditures, for at least the next 12 months.

Acquisitions and Dispositions

We regularly evaluate acquisition opportunities of various sizes. The cost and terms of any financing to be raised in conjunction with any acquisition, including our ability to raise capital, is a critical consideration in any such evaluation. Note 2 to our condensed consolidated financial statements included in this Quarterly Report contains a discussion of the recent acquisitions.

Financing

Credit Facilities

See Note 7 to our condensed consolidated financial statements included in this Quarterly Report for a discussion of our indebtedness. We were in compliance with all covenants as of ~~September~~June 30, ~~2019.~~2020.

We have entered into an interest rate swap agreement to hedge our exposure to variable interest payments related to our indebtedness. This agreement is more fully described in Note 9 to our condensed consolidated financial statements included in this Quarterly Report, and in “Item 3. Quantitative and Qualitative Disclosures about Market Risk” below.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2019,~~2020, we did not have any off-balance sheet arrangements that we believe have or are reasonably likely to have a material adverse effect on our financial condition or results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements and related footnotes contained within this Quarterly Report. Our critical accounting policies used in the preparation of our condensed consolidated financial statements were discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report. No significant changes to these policies, as described in our Annual Report, have occurred in the ~~six~~three months ended ~~September~~June 30, ~~2019.~~2020.

The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions to determine certain of the assets, liabilities, revenues and expenses. These estimates and

assumptions are based upon what we believe is the best information available at the time of the estimates or assumptions. The estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from those estimates.

Based on an assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements provide a meaningful and fair perspective of our consolidated financial condition and results of operations. This is not to suggest that other general risk factors, such as

changes in worldwide demand, changes in material costs, performance of acquired businesses and others, could not adversely impact our consolidated financial condition, results of operations and cash flows in future periods. See “Cautionary Note Regarding Forward-Looking Statements” below.

ACCOUNTING DEVELOPMENTS

We have presented the information about pronouncements not yet implemented in Note 1 to our condensed consolidated financial statements included in this Quarterly Report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements appearing in this Quarterly Report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include expected restructuring charges and the results of the restructuring, financial projections, statements of plans and objectives for future operations, statements of future economic performance, and statements of assumptions relating thereto. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “expects,” “plans,” “anticipates,” “estimates,” “believes,” “potential,” “projects,” “forecasts,” “intends,” or the negative thereof or other comparable terminology. Forward-looking statements may include, but are not limited to, statements that relate to, or statements that are subject to risks, contingencies or uncertainties that relate to:

•our business strategy;

•adverse changes in global economic conditions, including changes resulting from the effects of the COVID-19 pandemic;

•future levels of revenues, operating margins, income from operations, net income or earnings per share;

•anticipated levels of demand for our products and services;

•future levels of research and development, capital, environmental or maintenance expenditures;

•our beliefs regarding the timing and effects on our business of health and safety, tax, environmental or other legislation, rules and regulations;

•the success or timing of completion of ongoing or anticipated capital, restructuring or maintenance projects;

•expectations regarding the acquisition or divestiture of assets and businesses;

•our ability to obtain appropriate insurance and indemnities;

•the potential effects of judicial or other proceedings, including tax audits, on our business, financial condition, results of operations and cash flows;

•the anticipated effects of actions of third parties such as competitors, or federal, foreign, state or local regulatory authorities, or plaintiffs in litigation; and

•the effective date and expected impact of accounting pronouncements.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements for a number of important factors, including those listed under “Risk Factors” in our Annual Report and in this Quarterly Report. You should not put undue reliance on any forwarding-looking statements in this Quarterly Report. We assume no obligation to update or revise these forward-looking statements, except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which may adversely affect our consolidated financial position and results of operations. We seek to minimize the risk associated with changes in interest rates through regular operating and financing activities, and when deemed appropriate, through the use of an interest rate swap. It is our policy to enter into interest rate swaps only to the extent considered necessary to meet our risk management objectives. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes.

Variable Rate Indebtedness

We are subject to interest rate risk on our variable rate indebtedness. Fluctuations in interest rates have a direct effect on interest expense associated with our outstanding indebtedness. As of ~~September~~June 30, ~~2019,~~2020, we had no$0 in outstanding variable rate

indebtedness, after consideration of our interest rate swap. We manage, or hedge, interest rate risks related to our ~~current~~ borrowings by means of an interest rate swap agreement. At ~~September~~June 30, ~~2019,~~2020, we had an interest rate swap agreement that covered 100.0% of our ~~$11.2~~$10.8 million total outstanding indebtedness. Each quarter point change in interest rates would result in a negligible change in our interest expense on an annual basis.

We may also be exposed to credit risk in derivative contracts we may use. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We have sought to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.

Foreign Currency Exchange Rate Risk

We conduct a small portion of our operations outside of the U.S. in currencies other than the U.S. dollar. Our non-U.S. operations are conducted primarily in their local currencies, which are also their functional currencies, and include the British pound, Canadian dollar and Australian dollar. Foreign currency exposures arise from translation of foreign-denominated assets and liabilities into U.S. dollars and from transactions denominated in a currency other than a non-U.S. operation’s functional currency. We recognized foreign currency transaction net ~~(losses) gains~~losses of ~~$(0.1)~~$0.2 million and ~~less than~~ $0.1 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018, respectively, and $(0.2) million and $0.4 million for the six months ended September 30,~~ 2019, ~~and 2018,~~ respectively, which are included in other ~~(expense) income,~~expense, net on our condensed consolidated statements of income. We realized a net ~~(loss)~~ gain associated with foreign currency translation of ~~$(0.7)~~$1.3 million and ~~less than $0.1~~$0.3 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018, respectively, and $(0.4) million and $(1.4) million for the six months ended September 30,~~ 2019, ~~and 2018,~~ respectively, which are included in accumulated other comprehensive income (loss).

Based on a sensitivity analysis at ~~September~~June 30, ~~2019,~~2020, a 10% change in the foreign currency exchange rates for the three ~~and six~~ months ended ~~September~~June 30, ~~2019~~2020 would have impacted our net earnings by a negligible amount. This calculation assumes that all currencies change in the same direction and proportion relative to the U.S. dollar and that there are no indirect effects, such as changes in non-U.S. dollar sales volumes or prices.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and Executive Vice President and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, (the "Exchange Act")) as of the end of the period covered by this Quarterly Report. Based on such evaluation, the Company's Chief Executive Officer and Executive Vice President and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended ~~September~~June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

The disclosure contained in Note 14 to our condensed consolidated financial statements included in “Item 1. Financial Statements” of this Quarterly Report is incorporated by reference into this “Item 1. Legal Proceedings.” In addition to the foregoing, we and our subsidiaries are from time to time named defendants in certain lawsuits incidental to our business, including product liability claims that are insured, subject to applicable deductibles, and are involved from time to time as parties to governmental proceedings, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving us and our subsidiaries cannot be predicted with certainty, and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not currently expect the amount of any liability that could arise with respect to these matters, either individually or in the aggregate, to have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors.

There are numerous factors that affect our business and results of operations, many of which are beyond our control. In addition to other information set forth in this Quarterly Report, careful consideration should be given to “Item 1A. Risk Factors” in Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report, which contain descriptions of significant factors that may cause the actual results of operations in future periods to differ materially from those currently expected or desired.

There have been no material changes in the risk factors discussed in our Annual Report and subsequent SEC filings. The risks described in this Quarterly Report, our Annual Report and in our other SEC filings or press releases from time to time are not the only risks we face. Additional risks and uncertainties are currently deemed immaterial based on management’s assessment of currently available information, which remains subject to change; however, new risks that are currently unknown to us may arise in the future that could materially adversely affect our business, financial condition, results of operations or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Note 11 to our condensed consolidated financial statements included in “Item 1. Financial Statements” of this Quarterly Report includes a discussion of our share repurchase programs. The following table represents the number of shares repurchased during the quarter ended June 30, 2020.


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Program (a)
						(in millions)
April 1 - 30	109,600	(b)	$	62.16	83,463	$	31.1
May 1 - 31	33,373	(c)	64.39		31,688	29.0
June 1 - 30	—		—		—	29.0
Total	142,973				115,151

(a) On November 7, 2018, we announced that our Board of Directors authorized a ~~new~~ program allowing us to repurchase shares of our common stock up to an aggregate market value of $75.0 million during a two-year period. The program may be limited or terminated at any time. ~~No shares were repurchased during the three and six months ended September 30, 2019 under this program.~~ As of ~~September~~June 30, ~~2019, 231,150~~2020, 740,137 shares of our common stock had been repurchased under the ~~new~~ program ~~since its inception~~ for an aggregate of ~~$11.8~~$46.0 million.

(b) Includes 26,137 shares tendered by employees to satisfy minimum tax withholding amounts for restricted share vesting at an average price per share of $59.37.

(c) Includes 1,685 shares tendered by employees to satisfy minimum tax withholding amounts for restricted share vesting at an average price per share of $70.26.

~~Period~~

~~Total Number of~~

~~Shares Purchased~~

~~Average Price~~

~~Paid per Share~~

~~Total Number of~~

~~Shares Purchased as~~

~~Part of Publicly~~

~~Announced Program~~

~~Maximum Number~~

~~of Shares~~

~~(or Approximate~~

~~Dollar Value)~~

~~That May Yet Be~~

~~Purchased~~

~~Under the Program~~

~~(in millions)~~

~~July 1 - 31~~

—

~~63.2~~

~~August 1 - 31~~

—

~~63.2~~

~~September 1 - 30~~

—

~~63.2~~

~~Total~~

—

Item 6. Exhibits


Exhibit No.						Description
3.1						Third Amended and Restated Certificate of Incorporation of CSW Industrials, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on August 15, 2018)
3.2						CSW Industrials, Inc. Amended and Restated Bylaws, adopted and effective August 14, 2018 (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, filed on August 15, 2018)
31.1*						Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation LinkBase Document
101.DEF						XBRL Taxonomy Extension Definition LinkBase Document
101.LAB						XBRL Taxonomy Extension Label LinkBase Document
101.PRE						XBRL Taxonomy Extension Presentation LinkBase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit ~~101.NS)~~101)

_________________________

* Filed herewith

** Furnished herewith

2926

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



						CSW INDUSTRIALS, INC.

~~November 5, 2019~~August 3, 2020						/s/ Joseph B. Armes
						Joseph B. Armes
						Chief Executive Officer (Principal Executive Officer)

~~November 5, 2019~~August 3, 2020						/s/ ~~Greggory W. Branning~~James E. Perry
						~~Greggory W. Branning~~James E. Perry
						Chief Financial Officer (Principal Financial Officer)

3027


	Six months ended September 30, 2019
	Number of Shares	Weighted Average Exercise Price		Remaining Contractual Life (Years)		Aggregate Intrinsic Value (in Millions)
Outstanding at April 1, 2019:	231,717	$	25.12
Exercised	—	—
Canceled	—	—
Outstanding at September 30, 2019		231,717		$	25.12	4.71	10.2
Exercisable at September 30, 2019		231,717		$	25.12	4.71	10.2


2020	$	3,048
2021	2,733
2022	1,645
2023	1,038
2024	921
Thereafter	1,010
Total future minimum lease payments	$	10,395