UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~December 31, 2021~~June 30, 2022


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

For the transition period from to .

Commission File No. 001-37454


CSW INDUSTRIALS, INC. (Exact name of registrant as specified in its charter)


Delaware						47-2266942
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

5420 Lyndon B. Johnson Freeway, Suite 500, Dallas, Texas						75240
(Address of principal executive offices)						(Zip Code)

(214) 884-3777

Registrant’s telephone number, including area code

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

Title of each class

Trading symbol (s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CSWI

Nasdaq Stock Market LLC

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

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

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

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

(Do not check if smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

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

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

As of ~~January 31,~~August 1, 2022, there were ~~15,824,478~~15,427,373 shares of the issuer’s common stock outstanding.

CSW INDUSTRIALS, INC.

FORM 10-Q

TABLE OF CONTENTS


		Page No.
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income for the three ~~and~~ ~~nine~~ months ended ~~December 31~~Jun ,e 30, 2022 and 2021 ~~and 2020~~ (unaudited)	12
	Condensed Consolidated Balance Sheets as of ~~Decemb~~June 30, 2022 ~~er 31, 2021~~ and March 31, ~~2021~~202 2 (unaudited)	3
	Condensed Consolidated Statements of Equity as of ~~December 31~~June 30, 2022 ~~, 2021~~ and ~~2020~~202 1 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~December 31~~,June 30, 2022 and 2021 ~~and 2020~~ (unaudited)	65
	Notes to the Condensed Consolidated Financial Statements (unaudited)	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2519
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3426
Item 4.	Controls and Procedures	3527

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	3627
Item 1A.	Risk Factors	3627
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3628
Item 6.	Exhibits	3729
SIGNATURES		3830

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended June 30,
(Amounts in thousands, except per share amounts)	(Amounts in thousands, except per share amounts)	2021		2020		2021		2020		(Amounts in thousands, except per share amounts)	2022		2021*
Revenues, net	Revenues, net	$	136,286	$	89,932	$	453,136	$	285,836	Revenues, net	$	199,934	$	161,266
Cost of revenues	Cost of revenues	(86,244)		(50,594)		(271,445)		(155,010)		Cost of revenues	(113,509)		(92,240)
Gross profit	Gross profit	50,042		39,338		181,691		130,826		Gross profit	86,425		69,026
Selling, general and administrative expenses	Selling, general and administrative expenses	(37,894)		(35,221)		(115,177)		(88,276)		Selling, general and administrative expenses	(45,552)		(40,124)

Operating income	Operating income	12,148		4,117		66,514		42,550		Operating income	40,873		28,902
Interest expense, net	Interest expense, net	(1,184)		(469)		(4,151)		(1,071)		Interest expense, net	(1,784)		(1,538)
Other expense, net		(127)		(592)		(432)		(1,259)
Other income (expense), net										Other income (expense), net	169		(172)
Income before income taxes	Income before income taxes	10,837		3,056		61,931		40,220		Income before income taxes	39,258		27,192
Provision for income taxes	Provision for income taxes	(2,068)		(710)		(14,592)		(9,560)		Provision for income taxes	(9,620)		(6,507)
Net income	Net income	8,769		2,346		47,339		30,660		Net income	29,638		20,685
Less: Income attributable to redeemable noncontrolling interest	Less: Income attributable to redeemable noncontrolling interest	(458)		—		(985)		—		Less: Income attributable to redeemable noncontrolling interest	(195)		(224)

Net income attributable to CSW Industrials, Inc.	Net income attributable to CSW Industrials, Inc.	$	8,311	$	2,346	$	46,354	$	30,660	Net income attributable to CSW Industrials, Inc.	$	29,443	$	20,461

Net income per share attributable to CSW Industrials, Inc.	Net income per share attributable to CSW Industrials, Inc.									Net income per share attributable to CSW Industrials, Inc.
Basic	Basic	$	0.53	$	0.16	$	2.94	$	2.07	Basic	$	1.88	$	1.30
Diluted	Diluted	$	0.52	$	0.16	$	2.93	$	2.06	Diluted	$	1.88	$	1.30

Weighted average number of shares outstanding:										Weighted average number of shares outstanding:
Basic										Basic	15,643		15,715
Diluted										Diluted	15,652		15,781

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

See accompanying notes to condensed consolidated financial statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2021		2020		2021		2020		(Amounts in thousands)	2022		2021*
Net income	Net income	$	8,769	$	2,346	$	47,339	$	30,660	Net income	$	29,638	$	20,685
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation adjustments	Foreign currency translation adjustments	(71)		2,271		(113)		4,661		Foreign currency translation adjustments	(2,278)		489
Cash flow hedging activity, net of taxes of $(25), $(40), $(19) and $(42), respectively		93		152		71		157
Pension and other postretirement effects, net of taxes of $14, $3, $5 and 3, respectively		(52)		(10)		(20)		(10)
Cash flow hedging activity, net of taxes of $(67) and $29, respectively										Cash flow hedging activity, net of taxes of $(67) and $29, respectively	253		(109)
Pension and other postretirement effects, net of taxes of $(1) and $(2), respectively										Pension and other postretirement effects, net of taxes of $(1) and $(2), respectively	3		7
Other comprehensive income (loss)	Other comprehensive income (loss)	(30)		2,413		(62)		4,808		Other comprehensive income (loss)	(2,022)		387
Comprehensive income	Comprehensive income	$	8,739	$	4,759	$	47,277	$	35,468	Comprehensive income	$	27,616	$	21,072
Less: Comprehensive income attributable to redeemable noncontrolling interest	Less: Comprehensive income attributable to redeemable noncontrolling interest	(458)		—		(985)		—		Less: Comprehensive income attributable to redeemable noncontrolling interest	(195)		(224)
Comprehensive income attributable to CSW Industrials, Inc.	Comprehensive income attributable to CSW Industrials, Inc.	$	8,281	$	4,759	$	46,292	$	35,468	Comprehensive income attributable to CSW Industrials, Inc.	$	27,421	$	20,848

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

See accompanying notes to condensed consolidated financial statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Amounts in thousands, except per share amounts)	(Amounts in thousands, except per share amounts)	December 31, 2021		March 31, 2021		(Amounts in thousands, except per share amounts)	June 30, 2022		March 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	16,184	$	10,088	Cash and cash equivalents	$	15,519	$	16,619
Accounts receivable, net of allowance for expected credit losses of $1,021 and $915, respectively		90,737		96,695
Accounts receivable, net of allowance for expected credit losses of $1,354 and $1,177, respectively						Accounts receivable, net of allowance for expected credit losses of $1,354 and $1,177, respectively	143,874		122,804
Inventories, net	Inventories, net	127,442		98,086		Inventories, net	161,463		150,114
Prepaid expenses and other current assets	Prepaid expenses and other current assets	16,355		9,684		Prepaid expenses and other current assets	10,074		10,610

Total current assets	Total current assets	250,718		214,553		Total current assets	330,930		300,147
Property, plant and equipment, net of accumulated depreciation of $78,510 and $72,944, respectively		82,557		82,554
Property, plant and equipment, net of accumulated depreciation of $83,485 and $80,393, respectively						Property, plant and equipment, net of accumulated depreciation of $83,485 and $80,393, respectively	85,627		87,032
Goodwill	Goodwill	237,985		218,795		Goodwill	224,055		224,658
Intangible assets, net	Intangible assets, net	295,149		283,060		Intangible assets, net	295,318		300,837
Other assets	Other assets	83,636		75,995		Other assets	81,993		82,686

Total assets	Total assets	$	950,045	$	874,957	Total assets	$	1,017,923	$	995,360

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	39,530	$	32,444	Accounts payable	$	51,826	$	47,836
Accrued and other current liabilities	Accrued and other current liabilities	58,335		49,743		Accrued and other current liabilities	69,427		69,005
Current portion of long-term debt	Current portion of long-term debt	561		561		Current portion of long-term debt	561		561

Total current liabilities	Total current liabilities	98,426		82,748		Total current liabilities	121,814		117,402
Long-term debt	Long-term debt	230,355		241,776		Long-term debt	273,074		252,214
Retirement benefits payable	Retirement benefits payable	1,706		1,695		Retirement benefits payable	1,060		1,027
Other long-term liabilities	Other long-term liabilities	145,444		136,725		Other long-term liabilities	139,735		140,306

Total liabilities	Total liabilities	475,931		462,944		Total liabilities	535,683		510,949
Commitments and contingencies (See Note 14)	Commitments and contingencies (See Note 14)	0		0		Commitments and contingencies (See Note 14)	0		0
Redeemable noncontrolling interest	Redeemable noncontrolling interest	15,376		—		Redeemable noncontrolling interest	15,520		15,325
Equity:	Equity:					Equity:
Common shares, $0.01 par value	Common shares, $0.01 par value	162		161		Common shares, $0.01 par value	162		162
Shares authorized – 50,000	Shares authorized – 50,000					Shares authorized – 50,000
Shares issued – 16,284 and 16,162, respectively
Shares issued – 16,328 and 16,283, respectively						Shares issued – 16,328 and 16,283, respectively
Preferred shares, $0.01 par value	Preferred shares, $0.01 par value	—		—		Preferred shares, $0.01 par value	—		—
Shares authorized (10,000) and issued (0)	Shares authorized (10,000) and issued (0)					Shares authorized (10,000) and issued (0)
Additional paid-in capital	Additional paid-in capital	110,790		104,689		Additional paid-in capital	116,305		112,924
Treasury shares, at cost (454 and 511 shares, respectively)		(32,604)		(34,075)
Treasury shares, at cost (853 and 576 shares, respectively)						Treasury shares, at cost (853 and 576 shares, respectively)	(76,925)		(46,448)
Retained earnings	Retained earnings	386,448		347,234		Retained earnings	434,274		407,522
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(6,058)		(5,996)		Accumulated other comprehensive loss	(7,096)		(5,074)
Total equity	Total equity	458,738		412,013		Total equity	466,720		469,086
Total liabilities, redeemable noncontrolling interest and equity	Total liabilities, redeemable noncontrolling interest and equity	$	950,045	$	874,957	Total liabilities, redeemable noncontrolling interest and equity	$	1,017,923	$	995,360

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		(Amounts in thousands)	Common Stock		Treasury Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at March 31, 2021		$	161	$	(34,075)	$	104,689	$	347,234	$	(5,996)	$	412,013
Balance at March 31, 2022														Balance at March 31, 2022	$	162	$	(46,448)	$	112,924	$	407,522	$	(5,074)	$	469,086
Share-based compensation	Share-based compensation	—		—		1,888		—		—		1,888		Share-based compensation	—		—		2,284		—		—		2,284
Stock activity under stock plans	Stock activity under stock plans	—		(3,168)		(1)		—		—		(3,169)		Stock activity under stock plans	—		(2,002)		—		—		—		(2,002)
Reissuance of treasury shares	Reissuance of treasury shares	—		1,375		936		—		—		2,311		Reissuance of treasury shares	—		2,016		1,075		—		—		3,091
Repurchase of common shares														Repurchase of common shares	—		(30,491)		—		—		—		(30,491)
Net income	Net income	—		—		—		20,048		—		20,048		Net income	—		—		—		29,443		—		29,443
Dividends	Dividends	—		—		19		(2,377)		—		(2,358)		Dividends	—		—		22		(2,691)		—		(2,669)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		—		387		387		Other comprehensive income, net of tax	—		—		—		—		(2,022)		(2,022)
Balance at June 30, 2021		$	161	$	(35,868)	$	107,531	$	364,905	$	(5,609)	$	431,120
Share-based compensation		—		—		2,049		—		—		2,049
Stock activity under stock plans		—		(13)		—		—		—		(13)
Balance at June 30, 2022														Balance at June 30, 2022	$	162	$	(76,925)	$	116,305	$	434,274	$	(7,096)	$	466,720

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


(Amounts in thousands)	Common Stock		Treasury Shares		Additional Paid-In Capital		Retained Earnings*		Accumulated Other Comprehensive Loss		Total*
Balance at March 31, 2021	$	161	$	(34,075)	$	104,690	$	350,670	$	(5,996)	$	415,450
Share-based compensation	—		—		1,888		—		—		1,888
Stock activity under stock plans	—		(3,168)		(1)		—		—		(3,169)

Reissuance of treasury shares	—		1,375		936		—		—		2,311
Net income	—		—		—		20,461		—		20,461
Dividends	—		—		19		(2,377)		—		(2,358)
Other comprehensive income, net of tax	—		—		—		—		387		387
Balance at June 30, 2021	$	161	$	(35,868)	$	107,532	$	368,754	$	(5,609)	$	434,970

(Amounts in thousands) Common Stock Treasury Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total
Balance at March 31, 2020 $ 159 $ (75,377) $ 48,327 $ 315,078 $ (11,446) $ 276,741
Share-based compensation — — 1,328 — — 1,328
Stock activity under stock plans 1 (1,670) (1) — — (1,670)
Repurchase of common shares — (7,291) — — — (7,291)
Reissuance of treasury shares — 3,131 516 — — 3,647
Net income — — — 11,960 — 11,960
Dividends — — 12 (1,996) — (1,984)
Other comprehensive income, net of tax — — — — 1,279 1,279
Balance at June 30, 2020 $ 160 $ (81,207) $ 50,182 $ 325,042 $ (10,167) $ 284,010
Share-based compensation — — 1,222 — — 1,222
Stock activity under stock plans — (6) — — — (6)
Reissuance of treasury shares — 1,812 (479) — — 1,333
Net income — — — 16,354 — 16,354
Dividends — — 11 (1,999) — (1,988)
Other comprehensive income, net of tax — — — — 1,116 1,116
Balance at September 30, 2020 $ 160 $ (79,401) $ 50,936 $ 339,397 $ (9,051) $ 302,041
Share-based compensation — — 1,395 — — 1,395
Stock activity under stock plans 1 (1,136) — — — (1,135)
Reissuance of treasury shares — 46,462 51,194 — — 97,656
Net income — — — 2,346 — 2,346
Dividends — — 13 (2,012) — (1,999)
Other comprehensive income, net of tax — — — — 2,413 2,413
Balance at December 31, 2020 $ 161 $ (34,075) $ 103,538 $ 339,731 $ (6,638) $ 402,717
*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.

See accompanying notes to condensed consolidated financial statements.

CSW INDUSTRIALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended December 31,					Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2021		2020		(Amounts in thousands)	2022		2021*
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	47,339	$	30,660	Net income	$	29,638	$	20,685
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	8,731		6,079		Depreciation	3,273		3,059
Amortization of intangible and other assets	Amortization of intangible and other assets	19,765		5,698		Amortization of intangible and other assets	5,340		9,235
Provision for inventory reserves	Provision for inventory reserves	3,519		1,169		Provision for inventory reserves	1,667		526
Provision for doubtful accounts	Provision for doubtful accounts	1,146		227		Provision for doubtful accounts	1,060		202
Share-based and other executive compensation	Share-based and other executive compensation	6,223		3,945		Share-based and other executive compensation	2,284		1,888

Net gain on disposals of property, plant and equipment	Net gain on disposals of property, plant and equipment	(9)		(42)		Net gain on disposals of property, plant and equipment	(5)		1

Net pension benefit	Net pension benefit	269		121		Net pension benefit	49		36

Net deferred taxes	Net deferred taxes	1,757		456		Net deferred taxes	310		81
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	5,621		14,115		Accounts receivable	(21,044)		(16,164)
Inventories	Inventories	(33,250)		(1,581)		Inventories	(15,020)		(11,742)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(4,827)		(4,494)		Prepaid expenses and other current assets	458		(344)
Other assets	Other assets	378		(340)		Other assets	81		270
Accounts payable and other current liabilities	Accounts payable and other current liabilities	12,032		(1,787)		Accounts payable and other current liabilities	8,426		10,865
Retirement benefits payable and other liabilities	Retirement benefits payable and other liabilities	778		(180)		Retirement benefits payable and other liabilities	296		332
Net cash provided by operating activities	Net cash provided by operating activities	69,472		54,046		Net cash provided by operating activities	16,813		18,930
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(8,356)		(6,886)		Capital expenditures	(2,015)		(1,079)

Proceeds from sale of assets	Proceeds from sale of assets	21		604		Proceeds from sale of assets	20		8
Cash paid for acquisitions	Cash paid for acquisitions	(36,427)		(278,680)		Cash paid for acquisitions	(2,000)		1,375

Net cash used in investing activities		(44,762)		(284,962)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	(3,995)		304
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings on line of credit	Borrowings on line of credit	52,513		255,000		Borrowings on line of credit	34,797		12,000
Repayments of line of credit and term loan	Repayments of line of credit and term loan	(63,934)		(10,421)		Repayments of line of credit and term loan	(13,937)		(23,140)
Payments of deferred loan costs	Payments of deferred loan costs	(2,327)		(149)		Payments of deferred loan costs	—		(2,328)
Purchase of treasury shares	Purchase of treasury shares	(5,356)		(10,488)		Purchase of treasury shares	(31,398)		(3,168)
Proceeds from stock option activity		1,326		1,331

Proceeds from acquisition of redeemable noncontrolling interest shareholder	Proceeds from acquisition of redeemable noncontrolling interest shareholder	6,293		—		Proceeds from acquisition of redeemable noncontrolling interest shareholder	—		5,293
Dividends	Dividends	(7,084)		(5,970)		Dividends	(2,670)		(2,358)
Net cash provided by (used in) financing activities		(18,569)		229,303
Net cash used in financing activities						Net cash used in financing activities	(13,208)		(13,701)
Effect of exchange rate changes on cash and equivalents	Effect of exchange rate changes on cash and equivalents	(45)		1,535		Effect of exchange rate changes on cash and equivalents	(710)		57
Net change in cash and cash equivalents	Net change in cash and cash equivalents	6,096		(78)		Net change in cash and cash equivalents	(1,100)		5,590
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	10,088		18,338		Cash and cash equivalents, beginning of period	16,619		10,088
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	16,184	$	18,260	Cash and cash equivalents, end of period	$	15,519	$	15,678

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

See accompanying notes to condensed consolidated financial statements.

CSW INDUSTRIALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.ORGANIZATION AND OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

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

Many of our ~~innovative and proven technologies, we seek~~products are used to ~~deliver solutions primarily to~~protect the capital assets of our ~~professional end-use~~ customers that ~~place~~are expensive to repair or replace and are critical to their operations. We have a ~~premium on superior performance~~source of recurring revenue from the maintenance, repair, overhaul and ~~reliability. Our diverse~~consumable nature of many of our products. We also provide some custom engineered products that strengthen and enhance our customer relationships. The reputation of our product portfolio ~~includes~~is built on more than 100 ~~highly respected industrial brands including~~well-respected brand names, such as RectorSeal No. 5®, ~~KOPR-KOTE®~~Kopr-Kote®, ~~Kats~~KATS Coatings®, Safe-T-Switch®, Air Sentry®, Deacon®, Leak Freeze®, Greco®, TRUaire® and Shoemaker ~~Manufacturing~~TMManufacturing®.

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

~~The COVID-19 pandemic and its resulting impacts had an overall negative impact on our financial results in the~~ three ~~and nine~~ months of our prior fiscal year ended ~~December 31, 2020. During the three and nine months of our current fiscal year ended December 31,~~June 30, 2021, ~~the direct impact of~~ the COVID-19 pandemic had an indirect impact on our ~~consolidated operating results was limited, in all material respects, to our~~ operations ~~in Vietnam. In early August 2021, the Vietnamese government mandated numerous restrictions in an effort to mitigate the spread of COVID-19,~~ including closures of non-essential businesses, limitations on movements of individuals, and the imposition of other highly-restrictive measures for businesses, like ours, that continued operations in compliance with the restrictions. Our Vietnam operations began resuming normal production activities in late November 2021, when the Vietnamese government-mandated restrictions began to ease. Regarding our operations generally, the indirect impacts of the COVID-19 pandemic have resulted in material and freight cost inflation, supply chain disruptions and freight delays, driven by numerous factors including ~~countermeasures taken by U.S. federal, state and/or local governments and the Federal Reserve,~~government actions, labor supply shortages and recovering demand. During the three months ended December 31, 2021, material cost increases moderated, but we continue to experience increased freight costs and freight delays. We expect material and freight cost volatility, supply chain challenges and freight delays to continue in the near-term, and we are addressing these impacts through focused inventory management and by continuing and increasing the pricing initiatives that began in the three months ended March 31, 2021.

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

The extent to which the COVID-19 pandemic impacts our ~~overall~~business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, ~~have some level~~potential subsequent waves of ~~volatility through~~COVID-19 infection or potential new variants, the effectiveness and adoption of COVID-19 vaccines and therapeutics, the ultimate duration and scope of the pandemic, ~~when compared~~its impact on our employees, customers and suppliers, the broader implications of the macro-economic recovery on our business, and the extent to ~~pre-pandemic periods. Despite strong demand in certain of our end markets~~which normal economic and ~~clear signs of recovery in others,~~operating conditions are impacted. Therefore, we cannot reasonably estimate the ~~magnitude or length~~future impact of the ~~pandemic’s direct~~COVID-19 pandemic at this time.

We are closely monitoring the Russian invasion of Ukraine and ~~indirect adverse impact, including~~ its ~~ultimate~~global impacts. We have no operations, employees or assets in Russia, Belarus or Ukraine, nor do we source goods or services of any material amount from those countries, whether directly or indirectly. Shortly after the Russian invasion of Ukraine began in February 2022, we indefinitely suspended all commercial activities in Russia. Additionally, during the quarter ended June 30, 2022, we had no sales into Belarus or Ukraine. While the conflict continues to evolve and the outcome remains highly uncertain, we do not currently believe the Russia-Ukraine conflict will have a material impact on our business and results of operations. However, if the Russia-Ukraine conflict continues or ~~financial condition, due~~worsens, leading to ~~continued~~greater global economic or political disruptions and uncertainty, ~~regarding (1) the duration~~our business and ~~severity~~results of the COVID-19 pandemic, including any surges due to the Omicron variant or other future mutations and (2) the continued potential for short and long-term impacts on our facilities and employees, customer demand and supply chain.operations could be materially impacted as a result.

Basis of Presentation

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the quarterly period ended ~~December 31, 2021~~June 30, 2022 (“Quarterly Report”), include all revenues, costs, assets and liabilities directly attributable to CSWI and have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The condensed consolidated financial statements are for us and our consolidated subsidiaries, each of which is a wholly-owned subsidiary, except our 50% investment in a variable interest entity ("VIE") for which we have determined that we are the primary beneficiary and therefore have consolidated into our financial statements. All significant intercompany transactions have been eliminated in consolidation.

The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of CSWI’s financial position as of ~~December 31, 2021,~~June 30, 2022, and the results of operations for the ~~three and nine-month~~three-month periods ended ~~December 31, 2021~~June 30, 2022 and ~~2020.~~2021. All adjustments are of a normal, recurring nature.

The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in CSWI’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2021~~2022 (the “Annual Report”).

~~Whitmore Joint Venture~~

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

~~Segment Realignment~~

Beginning with the quarter ended June 30, 2021, we revised our segment structure to align with how our chief operating decision maker (who was determined to be our Chief Executive Officer) views our business, assesses performance and allocates resources to our business components. This segment structure revision became effective on April 1, 2021, and followed the completion of various strategic transactions including the acquisition of T.A. Industries, Inc. and the formation of the Whitmore JV. Refer to accounting policies below for detailed descriptions of our 3 business segments.

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

Accounting Policies

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

~~Segments~~ - As discussed above, we conduct our operations through 3 business segments based on how we manage the business. Our Chief Executive Officer views our business, assesses performance and allocates resources using financial information generated and reported at the reportable segment level. We evaluate segment performance and allocate resources based on each reportable segment's operating income. Our reportable segments are as follows:

1.~~Contractor Solutions, which~~manufactures and supplies products predominantly for residential and commercial HVAC/R and plumbing applications, which are designed primarily for professional tradespeople. This segment is comprised primarily of our RectorSeal, TRUaire and Shoemaker operating companies.

2.~~Engineered Building Solutions, which~~provides primarily code-driven products focused on life safety that are engineered to provide aesthetically-pleasing solutions for the construction, refurbishment and modernization of commercial, institutional, and multi-family residential buildings. This segment is comprised primarily of our Balco, Greco and Smoke Guard operating companies.

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

~~Variable Interest Entities~~ - We evaluate whether an entity is a variable interest entity (“VIE”) and determine if the primary beneficiary status is appropriate on a quarterly basis. We consolidate a VIE for which we are the primary beneficiary. When assessing the determination of the primary beneficiary, we consider all relevant facts and circumstances, including: the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, the obligation to absorb the expected losses and/or the right to receive the expected returns of the VIE. Through this evaluation, we determined that the

Whitmore JV is a VIE and the Company is the primary beneficiary of this VIE, primarily due to the Whitmore having the power to direct the manufacturing activities, which are considered the most significant activities for the Whitmore JV.

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

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

Accounting Developments

Pronouncements Implemented

In ~~December 2019,~~October 2021, the FASB issued ASU No. ~~2019-12, "Income Taxes: Simplifying~~2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." This update improves comparability for both the ~~Accounting for Income Taxes."~~recognition and measurement of acquired customer revenue contracts at the date of and after a business combination. 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 isare effective for fiscal years beginning after December 15, ~~2020 and~~2022, including interim periods within those fiscal ~~years. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries~~years and should be applied prospectively to business combinations occurring on ~~a modified retrospective basis through a cumulative-effect adjustment to retained earnings as~~or after the effective date of the ~~beginning of~~amendments. The Company early adopted 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 appliedASU 2021-08 on a prospective ~~basis. Early adoption is permitted. Our adoption of ASU No. 2019-12 effective~~basis on April 1, ~~2021~~2022 and did not have a material impact on our condensed consolidated financial ~~conditions and results of operations.~~statements.

Pronouncements not yet implemented

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

2. ACQUISITIONS

Shoemaker Manufacturing, LLC

On December 15, 2021, we acquired 100% of outstanding equity of Shoemaker Manufacturing, LLC (“Shoemaker”), based in Cle Elum, Washington, for an aggregate purchase price of ~~$44.0~~$43.5 million, including preliminary working capital and closing cash adjustments and ~~expected~~ contingent consideration. Shoemaker offers high-quality customizable GRD for commercial and residential markets, and expands CSWI’s HVAC/R product offering and regional exposure in the northwest U.S. The aggregate purchase price was comprised of ~~initial~~ cash consideration of ~~$39.0~~$38.5 million (including $1.2 million cash acquired), 25,483 shares of the Company's common stock valued at $3.0 million at transaction close and additional contingent consideration of ~~up to~~ $2.0 million based on Shoemaker meeting a defined financial target during the quarter ended March 31, 2022. The cash consideration was funded with cash on hand and borrowings under our existing ~~revolving credit facility.~~Revolving Credit Facility. The 25,483 shares of common stock delivered to the sellers as consideration were issued from treasury shares. As of the acquisition date, the estimated fair value of the contingent consideration obligation was classified as a current liability of $2.0 million and was determined using a scenario-based analysis on forecasted future results. ~~During~~In May 2022, the ~~three months ended December 31, 2021, we incurred $0.5~~full contingent consideration amount of $2.0 million ~~in transaction expenses in connection with~~was remitted to the ~~Shoemaker acquisition, which were included in selling, general and administrative expenses in~~sellers due to the ~~Consolidated Statement of Operations.~~performance obligation being met.

The Shoemaker acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805"). The excess of the purchase price over the preliminary fair value of the identifiable assets acquired was ~~$19.7~~$8.1 million allocated to goodwill, which represents the value expected to be obtained from owning a more extensive GRD product portfolio for the HVAC/R market and increased regional exposure to the northwest U.S. The preliminary allocation of the fair value of the net assets acquired included customer lists ($~~13.0~~23.0 million), trademarks ($~~5.3~~6.5 million), noncompete agreements ($~~0.8~~0.7 million), backlog ($0.3 million), inventory ($3.6 million), accounts receivable ($1.7 million), cash ($1.2 million), equipment ($1.4 million) and prepaid expenses ($0.2 million), net of current liabilities ($~~3.1~~3.2 million). Customer lists, noncompete agreements and backlog are being amortized over 15 years, 5 years and 1 month, respectively, while trademarks and goodwill are not being amortized. The Company's evaluation of the facts and circumstances available of December 15, 2021, to assign fair values to assets acquired and liabilities assumed is ongoing. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date. Goodwill and all intangible assets, including customer lists, trademarks, noncompete agreements and backlog are deductible and amortized over 15 years for income tax purposes. Shoemaker activity has been included in our Contractor Solutions segment since the acquisition date. No pro forma information has been provided due to immateriality.

~~T.A. Industries~~

On December 15, 2020, we acquired 100% of the outstanding equity of T.A. Industries, Inc. (“TRUaire”), a leading manufacturer of GRD for the residential and commercial HVAC/R end market, based in Santa Fe Springs, California. The acquisition also included TRUaire’s wholly-owned manufacturing facility based in Vietnam. The acquisition extended the Company’s product offerings to the HVAC/R end market share and provided strategic distribution facilities.

The contractual consideration paid for TRUaire included cash of $288.0 million, after working capital, closing cash and subsequent tax adjustments, and 849,852 shares of the Company’s common stock (valued at approximately $76.0 million at transaction signing on November 4, 2020) valued at $97.7 million at transaction close based on the closing market price of the Company's common shares on the acquisition date. The cash consideration was funded through a combination of cash on hand and borrowings under our revolving credit facility. The 849,852 shares of common stock delivered to the sellers as consideration were reissued from treasury shares.


~~Acquisition Consideration~~ ~~(Amounts in thousands, except for shares)~~
~~Cash (a)~~	$	~~287,986~~
~~Common stock (849,852 shares)~~	~~97,656~~
~~Total consideration transferred~~	$	~~385,642~~

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

The TRUaire acquisition was accounted for as a business combination under Topic 805. The Company allocated the TRUaire purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, December 15, 2020. The excess of the purchase price over those fair values was recorded

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

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

Deferred tax liabilities were established to record the deferred tax impact of purchase price accounting adjustments, primarily related to intangible assets. Tax contingency reserves relate to uncertain tax positions TRUaire took in the periods prior to the acquisition date.

In accordance with the tax indemnification included in the purchase agreement of TRUaire, the seller provided contractual indemnification to the Company for up to $12.5 million related to uncertain tax positions taken in prior years. The outcome of this arrangement will either be settled or expire by 2023. During the three months ended March 31, 2021, TRUaire received an audit closing letter from Internal Revenue Service related to calendar 2017, a pre-acquisition tax year. As a result of this, $5.0 million of the relevant tax indemnification assets was released in accordance with the purchase agreement. As of December 31, 2021, $7.5 million of the tax indemnification assets remained outstanding.

Goodwill of $125.3 million represents the excess of the purchase price over the fair value of the underlying tangible and intangible assets acquired and liabilities assumed. The acquisition goodwill represents the value expected to be obtained from expanding the Company’s product offerings more broadly across the HVAC/R end market. The goodwill recorded as part of this acquisition is included in the Contractor Solutions segment. The goodwill associated with the acquisition will not be amortized for financial reporting purposes and will not be deductible for income tax purposes.

TRUaire generated net revenue of $133.0 million and net income before income taxes of $11.3 million for the period from the acquisition date to December 31, 2021. The net income before taxes includes the indemnification expense of $5.0 million discussed above. For the three months ended December 31, 2021, TRUaire generated revenue of $30.4 million and net income before income taxes of $2.0 million. TRUaire activity is included in our Contractor Solutions segment. During the year ended March 31, 2021, the Company incurred and paid $7.8 million of transaction expenses in connection with the TRUaire acquisition, which were included in selling, general and administrative expenses in the Consolidated Statement of Operations. No transaction expenses were incurred during the three and nine months ended December 31, 2021.

~~Pursuant to Topic 805, unaudited supplemental proforma results of operations for the three and ninemonths ended December 31, 2020, as if the acquisition of TRUaire had occurred on April 1, 2019, are presented below (in thousands, except per share amounts):~~

Three Months Ended December 31, 2020 Nine Months Ended December 31, 2020
Revenue, net $ 113,857 $ 362,419
Net income 5,313 38,209
Net earnings per common share:
Diluted $ 0.33 $ 2.42
Basic $ 0.34 $ 2.44

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

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

•Additional amortization expense of $2.8 million and $9.6 million for the three and nine months ended December 31, 2020, respectively, that would have been recognized as a result of the allocation of purchase consideration to customer lists subject to amortization;

•~~Estimated additional interest expense of $1.0 million and $3.3 million for the three and nine months ended December 31, 2020, respectively, as a result of incurring additional borrowing and~~

•Income tax effect of the proforma adjustments calculated using a blended statutory income tax rate of 24.5% of $1.0 million and $3.2 million for the three and nine months ended December 31, 2020, respectively.

3. CONSOLIDATION OF VARIABLE INTEREST ENTITY AND REDEEMABLE NONCONTROLLING INTEREST

Whitmore Joint Venture

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


	~~December 31, 2021~~June 30, 2022
Cash	$	~~6,822~~2,389
Accounts receivable, net	~~7,392~~10,221
Inventories, net	~~1,745~~1,630
Prepaid expenses and other current assets	84429
Property, plant and equipment, net	~~4,686~~7,819
Intangible assets, net	~~7,491~~7,086
Other assets	~~134~~106
Total assets	$	~~28,354~~29,680

Accounts payable	$	~~5,645~~5,566
Accrued and other current liabilities	~~328~~1,196
Other long-term liabilities	6636
Total liabilities	$	~~6,039~~6,798

During the three ~~and nine~~ months ended ~~December 31, 2021,~~June 30, 2022, the Whitmore JV generated net income of ~~$0.9 million and $2.0 million, respectively.~~$0.4 million.

The Whitmore JV's LLC Agreement contains a put option that gives either member the right to sell its 50% equity interest in the Whitmore JV to the other member at a dollar amount equivalent to 90% of the initiating member's equity interest determined based on the fair market value of the Whitmore JV's net assets. This put option can be exercised, at either member's discretion, by providing written notice to the other member after three years from the Whitmore JV's formation, subject to certain timing restrictions. This redeemable noncontrolling interest is recorded at the higher of the redemption value or carrying value each reporting period. Changes in redeemable noncontrolling interest for the ~~nine-month~~three-month period ended ~~December 31, 2021~~June 30, 2022 were as follows (in thousands):


Balance at March 31, ~~2021~~2022	$	—15,325
~~Fair value of redeemable noncontrolling interest at formation-date~~	~~13,391~~
Net income attributable to redeemable noncontrolling interest	~~985~~
~~Contributions from noncontrolling interest~~	~~1,000~~195

~~Adjustments to redemption value~~	—

Balance at ~~December 31, 2021~~June 30, 2022	$	~~15,376~~15,520

4. INVENTORIES

Inventories consist of the following (in thousands):


		December 31, 2021		March 31, 2021			June 30, 2022		March 31, 2022
Raw materials and supplies	Raw materials and supplies	$	45,083	$	27,416	Raw materials and supplies	$	51,602	$	46,136
Work in process	Work in process	6,652		6,365		Work in process	6,044		7,471
Finished goods	Finished goods	86,148		72,452		Finished goods	109,614		100,792
Total inventories	Total inventories	137,883		106,233		Total inventories	167,260		154,399
Less: LIFO reserve		(6,476)		(4,565)

Less: Obsolescence reserve	Less: Obsolescence reserve	(3,965)		(3,582)		Less: Obsolescence reserve	(5,797)		(4,285)
Inventories, net	Inventories, net	$	127,442	$	98,086	Inventories, net	$	161,463	$	150,114

5. GOODWILL AND INTANGIBLE ASSETS

During the three months ended June 30, 2021, we revised our segment structure creating 3 reportable segments: Contractor Solutions, Engineered Building Solutions and Specialized Reliability Solutions. Refer to Note 1 and Note 18 for additional information on the Company's segment realignment. As part of our segment realignment, we changed our reporting units and reallocated existing goodwill to each of the new reportable segments and associated reporting units, based on management's estimate of the relative fair value of each reporting unit. The result of this reallocation of goodwill has been recast, by reportable segment, as of March 31, 2021.

The changes in the carrying amount of goodwill as of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021~~2022 were as follows (in thousands):

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


	Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Total
Balance at March 31, 2022	$	190,152	$	25,007	$	9,499	$	224,658



Currency translation	(72)		(269)		(262)		(603)
Balance at June 30, 2022	$	190,080	$	24,738	$	9,237	$	224,055

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

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

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


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

Amortization expenses for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2022 and 2021 were $5.2 million and ~~$19.4~~$9.1 million (including the amortization of inventory purchase accounting adjustment of $3.9 million), respectively. ~~Amortization expenses for the three and nine months ended December 31, 2020 were $2.1 million and $5.4 million, respectively.~~ The following table shows the estimated future amortization for intangible assets, as of ~~December 31, 2021,~~June 30, 2022, for the remainder of the current fiscal year and the next four fiscal years ending March 31 (in thousands):


2022		$	4,938
2023	2023	20,106		2023	$	13,376
2024	2024	19,394		2024	18,403
2025	2025	18,436		2025	17,668
2026	2026	17,526		2026	17,062
2027				2027	16,294
Thereafter	Thereafter	154,859		Thereafter	151,436
Total	Total	$	235,259	Total	$	234,239

6. SHARE-BASED COMPENSATION

Refer to Note 56 to our consolidated financial statements included in our Annual Report for a description of the 2015 Equity and Incentive Compensation Plan (the "2015 Plan"). As of ~~December 31, 2021, 512,054~~June 30, 2022, 470,524 shares were available for issuance under the 2015 Plan.

We recorded share-based compensation expense as follows for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~ (in thousands):


		Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended June 30,
		2021		2020		2021		2020				2022		2021
Share-based compensation expense	Share-based compensation expense	$	2,287	$	1,394	$	6,223	$	3,944		Share-based compensation expense	$	2,284	$	1,888
Related income tax benefit	Related income tax benefit	(549)		(335)		(1,494)		(947)			Related income tax benefit	(571)		(453)
Net share-based compensation expense	Net share-based compensation expense	$	1,738	$	1,059	$	4,729	$	2,997		Net share-based compensation expense	$	1,713	$	1,435

Stock option activity was as follows:
Nine Months Ended December 31, 2021
Number of Shares Weighted Average Price Remaining Contractual Life (Years) Aggregate Intrinsic Value (in Millions)
Outstanding at April 1, 2021 63,413 $ 25.23
Exercised (52,613) 25.23
Outstanding at December 31, 2021 10,800 25.23 2.7 $ 1.0
Exercisable at December 31, 2021 10,800 $ 25.23 2.7 $ 1.0


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

Outstanding at June 30, 2022	10,800	25.23		2.2	$	1.0
Exercisable at June 30, 2022	10,800	$	25.23	2.2	$	1.0

All compensation costs related to stock options were recognized prior to April 1, 2019. No options were granted or vested during the three ~~and nine~~ months ended ~~December 31, 2021~~June 30, 2022 and ~~2020.~~

2021.

Restricted share activity was as follows:


		Nine Months Ended December 31, 2021				Three Months Ended June 30, 2022
		Number of Shares	Weighted Average Grant Date Fair Value			Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at April 1, 2021:		172,916	$	70.50
Outstanding at April 1, 2022:					Outstanding at April 1, 2022:	228,331	$	126.02
Granted	Granted	163,923	161.49		Granted	44,424	158.76
Vested	Vested	(106,075)	63.01		Vested	(46,194)	78.20
Canceled	Canceled	(850)	68.52		Canceled	(2,166)	99.51
Outstanding at December 31, 2021	Outstanding at December 31, 2021	229,914	$	125.96	Outstanding at December 31, 2021	224,395	$	134.31

During the three months ended June 30, 2021, Joe Armes, the Company's Chairman, Chief Executive Officer and President, was awarded a series of long-term incentive awards with the purpose of retaining ~~him through retirement~~his service over a long-term period and promoting successful succession planning and transition practices. Mr. Armes' awards include 31,496 shares of restricted stock (which cliff vest on March 31, 2026), 27,559 performance shares (which vest in equal amounts on each of March 31, 2025, 2026 and 2027, subject to performance criteria being achieved) and 19,685 performance restricted stock ~~units. All awards granted to Mr. Armes are included in~~units (40% of which vest upon recruiting of a successor CEO and 60% of which vest upon the ~~above restricted share activity.~~first employment anniversary of the successor CEO).

During the restriction period, the holders of restricted shares are entitled to vote and receive dividends. Unvested restricted shares outstanding as of ~~December 31,~~June 30, 2022 and 2021 included 100,082 and ~~2020 included 102,306 and 88,425~~102,001 shares (at target), respectively, with performance-based vesting provisions, and a vesting range of 0%-200% based on pre-defined performance targets with market conditions. Performance-based awards accrue dividend equivalents, which are settled upon (and to the extent of) vesting of the underlying award and do not have the right to vote until vested. Performance-based awards are earned upon the achievement of objective performance targets and are payable in common shares. Compensation expense is calculated based on the fair market value as determined by a Monte Carlo simulation and is recognized over a 36-month cliff vesting period. ~~No awards with performance-based vesting provisions were granted during the three months ended December 31, 2021 and 2020.~~ We granted ~~47,845~~21,087 and ~~26,966~~47,845 awards with performance-based vesting provisions during the ~~nine~~three months ended ~~December 31,~~June 30, 2022 and 2021, ~~and 2020,~~ respectively, with a vesting range of 0%-200%.

At ~~December 31, 2021,~~June 30, 2022, we had unrecognized compensation cost related to unvested restricted shares of ~~$22.4~~$21.0 million, which will be amortized into net income over the remaining weighted average vesting period of approximately ~~3.6~~3.2 years. The total fair value of restricted shares granted during the three months ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~ was ~~$4.6~~$3.4 million and ~~$4.0 million, respectively. The total fair value of restricted shares granted during the nine months ended December 31, 2021 and 2020 was $27.7 million and $6.5~~$17.2 million, respectively. The total fair value of restricted shares vested during the three months ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~ was ~~$5.9~~$5.2 million and ~~$4.1 million, respectively. The total fair value of restricted shares vested during the nine months ended December 31, 2021 and 2020 was $14.1 million and $8.4~~$8.0 million, respectively.

7. LONG-TERM DEBT

Debt consists of the following (in thousands):


		December 31, 2021		March 31, 2021			June 30, 2022		March 31, 2022
Revolving Credit Facility, interest rate of 1.87% and 2.11%, respectively		$	221,000	$	232,000
Whitmore Term Loan, interest rate of 2.10% and 2.11%, respectively		9,916		10,337
Revolving Credit Facility, interest rate of 2.47% and 1.95% (a), respectively						Revolving Credit Facility, interest rate of 2.47% and 1.95% (a), respectively	$	264,000	$	243,000
Whitmore Term Loan, interest rate of 3.79% and 2.45% (a)(b), respectively						Whitmore Term Loan, interest rate of 3.79% and 2.45% (a)(b), respectively	9,635		9,775
Total debt	Total debt	230,916		242,337		Total debt	273,635		252,775
Less: Current portion	Less: Current portion	(561)		(561)		Less: Current portion	(561)		(561)
Long-term debt	Long-term debt	$	230,355	$	241,776	Long-term debt	$	273,074	$	252,214

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

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

Revolving Credit Facility

As discussed in Note 79 to our consolidated financial statements included in our Annual Report, in the three months of our prior fiscal year ended June 30, 2021, we ~~had~~maintained a five-year, $300.0 million revolving credit facility agreement (the "First Credit Agreement"), which was scheduled to mature on September 15, ~~2022 (the “Revolving Credit Facility”).~~2022. Borrowings in the U.S. under this facility bore interest at a rate of prime plus ~~1.00%~~between 0.25% to 1.5% or London Interbank Offered Rate ("LIBOR") plus ~~2.00%, which is adjusted~~between 1.25% to 2.5% based on our quarterly leverage ratio. We also paid a commitment fee ~~of 0.30%~~between 0.15% to 0.4% for the unutilized portion of this ~~revolving credit~~ facility.

On May 18, 2021, we entered into a Second Amended and Restated Credit Agreement (the “Second Credit Agreement”), which replaced the First Credit Agreement and provides for a $400 million revolving credit facility that contains a $25 million sublimit for the issuance of letters of credit and a $10 million sublimit for swingline ~~loans.~~loans, with an additional $150 million accordion feature (the term "Revolving Credit Facility" as used throughout this document refers to both the First Credit Agreement and Second Credit Agreement, as applicable). The Second Credit Agreement is scheduled to mature on May 18, 2026. The Company incurred a total of $2.3 million in underwriting discounts and fees, which are being amortized over the life of the Second Credit Agreement. Borrowings under the Second Credit Agreement bear interest at either base rate plus between 0.25% to 1.5% or LIBOR plus ~~in either case, an applicable margin~~between 1.25% to 2.5%, based on the Company’s leverage ratio calculated on a quarterly basis. The base rate is described in the Second Credit Agreement as the highest of (i) the Federal funds effective rate plus 0.50%, (ii) the prime rate quoted by The Wall Street Journal, and (iii) the one-month LIBOR rate plus 1.00%. We pay a commitment fee ~~of 0.20%~~between 0.15% to 0.4% based on the Company's leverage ratio for the unutilized portion of this ~~revolving credit~~ facility. Interest and commitment fees are payable at least quarterly and the outstanding principal balance is due at the maturity date. The Second Credit Agreement is secured by a first priority lien on all tangible and intangible assets and stock issued by the Borrower and its domestic subsidiaries, subject to specified exceptions, and 65% of the voting equity interests in its first-tier foreign subsidiaries.

During the ~~nine~~three months ended ~~December 31, 2021,~~June 30, 2022, we borrowed ~~$52.5~~$34.8 million and repaid ~~$63.5~~$13.8 million under ~~this facility.~~the Revolving Credit Facility. As of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, we had ~~$221.0~~$264.0 million and ~~$232.0~~$243.0 million, respectively, in our outstanding balance, which resulted in borrowing capacity under the ~~credit facility in place at the time~~Revolving Credit Facility of ~~$179.0~~$136.0 million and ~~$68.0~~$157.0 million, respectively. The financial covenants contained in the Second Credit Agreement require the maintenance of a maximum leverage ratio of 3.00 to 1.00, subject to a temporary increase to 3.75 to 1.00 for 18 months following the consummation of permitted acquisitions with consideration in excess of certain threshold amounts set forth in the Second Credit Agreement. The Second Credit Agreement ~~and~~also requires the maintenance of a minimum fixed charge coverage ratio of 1.25 to 1.00, the calculations and terms of which are defined in the Second Credit Agreement. Covenant compliance is tested quarterly, and we were in compliance with all covenants as of ~~December 31, 2021.~~June 30, 2022.

Whitmore Term Loan

In July 2014, Whitmore secured a term loan (the "Whitmore Term Loan") related to a warehouse and corporate office building and the remodel of an existing manufacturing and research and development facility. The Whitmore Term Loan matures on July 31, 2029 and requires payments of $140,000 each quarter. Borrowings under this term loan bear interest at a variable annual rate equal to one month LIBOR plus 2.0%. As of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, Whitmore Manufacturing had ~~$9.9~~$9.6 million and ~~$10.3~~$9.8 million, respectively, in principal amount outstanding under the Whitmore Term Loan. Interest payments under the Whitmore Term Loan are hedged under an interest rate swap agreement as described in Note 9.

8. LEASES

We have operating leases for manufacturing facilities, offices, warehouses, vehicles and certain equipment. Our leases have remaining lease terms of 1 year to 26 years, some of which include escalation clauses and/or options to extend or terminate the leases. We do not currently have any financing lease arrangements.


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended June 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Components of Operating Lease Expenses	Components of Operating Lease Expenses									Components of Operating Lease Expenses
Operating lease expense (a)	Operating lease expense (a)	$	2,472	$	1,128	$	7,302	$	2,819	Operating lease expense (a)	$	2,638	$	2,429
Short-term lease expense	Short-term lease expense	73		130		231		295		Short-term lease expense	238		95
Total operating lease expense	Total operating lease expense	$	2,545	$	1,258	$	7,533	$	3,114	Total operating lease expense	$	2,876	$	2,524
(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


(in thousands)	(in thousands)	December 31, 2021		March 31, 2021		(in thousands)	June 30, 2022		March 31, 2022
Operating Lease Assets and Liabilities	Operating Lease Assets and Liabilities					Operating Lease Assets and Liabilities
Right-of-use assets, net (b)	Right-of-use assets, net (b)	$	67,760	$	61,707	Right-of-use assets, net (b)	$	65,628	$	67,076

Short-term lease liabilities (c)	Short-term lease liabilities (c)	$	8,925	$	8,063	Short-term lease liabilities (c)	$	9,489	$	9,269
Long-term lease liabilities (c)	Long-term lease liabilities (c)	64,339		56,709		Long-term lease liabilities (c)	61,655		63,275
Total operating lease liabilities	Total operating lease liabilities	$	73,264	$	64,772	Total operating lease liabilities	$	71,144	$	72,544
(b) Included in other assets	(b) Included in other assets					(b) Included in other assets
(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					(c) Included in accrued and other current liabilities and other long-term liabilities


		Nine Months Ended December 31,							Three Months Ended June 30,
(in thousands)	(in thousands)	2021			2020			(in thousands)	2022			2021
Supplemental Cash Flow	Supplemental Cash Flow							Supplemental Cash Flow
Cash paid for amounts included in the measurement of operating lease liabilities (a)	Cash paid for amounts included in the measurement of operating lease liabilities (a)	$	7,205		$	3,106		Cash paid for amounts included in the measurement of operating lease liabilities (a)	$	2,708		$	2,359
Right-of-use assets obtained in exchange for new operating lease obligations	Right-of-use assets obtained in exchange for new operating lease obligations	7,280			68			Right-of-use assets obtained in exchange for new operating lease obligations	1,868			29
(a) Included in our condensed consolidated statement of cash flows, operating activities in accounts payable and other current liabilities	(a) Included in our condensed consolidated statement of cash flows, operating activities in accounts payable and other current liabilities							(a) Included in our condensed consolidated statement of cash flows, operating activities in accounts payable and other current liabilities

Other Information for Operating Leases	Other Information for Operating Leases							Other Information for Operating Leases
Weighted average remaining lease term		8.3 years			8.1 years
Weighted average remaining lease term (in years)								Weighted average remaining lease term (in years)	7.67			7.97
Weighted average discount rate	Weighted average discount rate	2.3		%	2.5		%	Weighted average discount rate	2.2		%	2.6		%

Maturities of operating lease liabilities were as follows (in thousands):
Year Ending March 31, 2022 (excluding the nine months ended December 31, 2021) $ 2,756
2023 10,259
2024 10,152
2025 9,999
2026 9,988
Thereafter 37,117
Total lease liabilities 80,271
Less: Imputed interest (7,007)
Present value of lease liabilities $ 73,264


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

9. DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING

We have an interest rate swap agreement to hedge exposure to floating interest rates on the Whitmore Term Loan, as discussed in Note 7. As of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, we had ~~$9.9~~$9.6 million and ~~$10.3~~$9.8 million, respectively, of notional amount outstanding designated as an interest rate swap with third parties. The interest rate swap is highly effective. At ~~December 31, 2021,~~June 30, 2022, the maximum remaining length of the interest rate swap contract was approximately ~~7.6~~7.1 years. The fair value of the interest rate swap designated as a hedging instrument is summarized below (in thousands):


		December 31, 2021		March 31, 2021			June 30, 2022		March 31, 2022

Current derivative liabilities	Current derivative liabilities	$	193	$	280	Current derivative liabilities	$	(16)	$	109
Non-current derivative liabilities	Non-current derivative liabilities	734		736		Non-current derivative liabilities	38		233

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

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

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

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 nine~~ months ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~ (amounts in thousands, except per share data):


		Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended June 30,
		2021		2020		2021		2020				2022		2021*
Net income	Net income	$	8,769	$	2,346	$	47,339	$	30,660		Net income	$	29,638	$	20,685
Less: Net income attributable to redeemable noncontrolling interest	Less: Net income attributable to redeemable noncontrolling interest	(458)		—		(985)		—			Less: Net income attributable to redeemable noncontrolling interest	(195)		(224)
Net income attributable to CSW Industrials, Inc. shareholders	Net income attributable to CSW Industrials, Inc. shareholders	$	8,311	$	2,346	$	46,354	$	30,660		Net income attributable to CSW Industrials, Inc. shareholders	$	29,443	$	20,461

Weighted average shares:	Weighted average shares:										Weighted average shares:
Common stock	Common stock	15,690		14,868		15,641		14,707			Common stock	15,541		15,605
Participating securities	Participating securities	104		93		111		98			Participating securities	102		110
Denominator for basic earnings per common share	Denominator for basic earnings per common share	15,794		14,961		15,752		14,805			Denominator for basic earnings per common share	15,643		15,715
Potentially dilutive securities	Potentially dilutive securities	50		118		57		106			Potentially dilutive securities	9		66
Denominator for diluted earnings per common share	Denominator for diluted earnings per common share	15,844		15,079		15,809		14,911			Denominator for diluted earnings per common share	15,652		15,781

Net income per share attributable to CSW Industrials, Inc. shareholders:	Net income per share attributable to CSW Industrials, Inc. shareholders:										Net income per share attributable to CSW Industrials, Inc. shareholders:
Basic	Basic	$	0.53	$	0.16	$	2.94	$	2.07		Basic	$	1.88	$	1.30
Diluted	Diluted	$	0.52	$	0.16	$	2.93	$	2.06		Diluted	$	1.88	$	1.30

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

11. SHAREHOLDERS' EQUITY

Share Repurchase Program

On November 7, 2018, we announced that our Board of Directors authorized a program to repurchase up to $75.0 million of our common stock over a two-year period. On October 30, 2020, we announced that our Board of Directors authorized a new program to repurchase up to $100.0 million of our common stock, which replaced the previously announced $75.0 million program. Under the current ~~repurchasae~~repurchase program, shares may be repurchased from time to time in the open market or in privately negotiated transactions. Repurchases will be made at our discretion, based on ongoing assessments of the capital needs of the business, the market price of our common stock and general market conditions. Our Board of Directors has established an expiration date of December 31, 2022, for completion of the current repurchase program; however, the program may be limited or terminated at any time at our discretion without notice. Under the current repurchase program, ~~4,175~~287,990 shares were repurchased during the three months ended ~~December 31, 2021,~~June 30, 2022 for $30.5 million, and no shares were repurchased during the three months ended ~~December 31, 2020.~~June 30, 2021. As of June 30, 2022, a total of 414,105 shares had been repurchased for an aggregate amount of $44.9 million under the current $100.0 million program. A total of 740,137 shares were repurchased for an aggregate amount of $46.0 million under the prior $75.0 million program ~~that~~before it was replaced bywith the current ~~$100.0 million~~repurchase program. ~~As of December 31, 2021, a total of 4,175 shares had been repurchased for an aggregate amount of $0.5 million under the current $100.0 million program.~~

Dividends

InOn April 4, 2019, we commenced a quarterly dividend ~~program.~~program at an inaugural rate of $0.135 per share. On April 15, 2021, we announced a quarterly dividend increase to $0.15 per share. On April 14, 2022, we announced another quarterly dividend increase to $0.17 per share. Total dividends of ~~$2.4~~$2.7 million and ~~$2.0~~$2.4 million were paid during the three months ended ~~December 31,~~June 30, 2022 and 2021, ~~and 2020, respectively. Total dividends of $7.1 million and $6.0 million were paid during the nine months ended December 31, 2021 and 2020,~~ respectively.

On ~~January 13,~~July 15, 2022, we announced a quarterly dividend of ~~$0.15~~$0.17 per share payable on ~~February 11,~~August 12, 2022 to shareholders of record as of ~~January 31,~~July 29, 2022. Any future dividends at the existing ~~$0.15~~$0.17 per share quarterly rate or otherwise will be reviewed individually and declared by our Board of Directors in its discretion.

12. FAIR VALUE MEASUREMENTS

The fair value of the interest rate swap contract (as discussed in Note 9) is determined using Level 2 inputs. The carrying value of our debt (discussed in Note 7) approximates fair value as it bears interest at floating rates. The carrying amounts of other financial instruments (i.e., cash and cash equivalents, accounts receivable, net, accounts payable) approximate their fair values at ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021~~2022 due to their short-term nature.

The redeemable noncontrolling interest is recorded at the higher of the redemption value or carrying value each reporting period. The redemption value of the redeemable noncontrolling interest is estimated using a discounted cash flow analysis, which requires management judgment with respect to future revenue, operating margins, growth rates and discount rates and is classified as Level III under the fair value hierarchy. The redemption value of the redeemable noncontrolling interest is discussed in Note 3.

13. RETIREMENT PLANS

Refer to Note 1315 to our consolidated financial statements included in our Annual Report for a description of our retirement and postretirement benefits.

The following tables set forth the combined net pension benefit recognized in our condensed consolidated financial statements for all plans (in thousands):


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended June 30,
		2021		2020		2021		2020			2022		2021
Service cost, benefits earned during the period		$	12	$	10	$	36	$	30
Service and other costs										Service and other costs	$	15	$	12
Interest cost on projected benefit obligation	Interest cost on projected benefit obligation	34		36		101		107		Interest cost on projected benefit obligation	36		34
Expected return on assets	Expected return on assets	(28)		(24)		(84)		(71)		Expected return on assets	(11)		(28)
Amortization of net actuarial loss	Amortization of net actuarial loss	18		18		53		55		Amortization of net actuarial loss	11		18

Net pension benefit	Net pension benefit	$	36	$	40	$	106	$	121	Net pension benefit	$	51	$	36

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

14. CONTINGENCIES

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

15. INCOME TAXES

For the three months ended ~~December 31, 2021,~~June 30, 2022, we earned $10.8 million from operations before taxes and provided for income taxes of $2.1 million, resulting in an effective tax rate of 19.1%. For the nine months ended December 31, 2021, we earned $61.9 million from operations before taxes and provided for income taxes of $14.6 million, resulting in an effective tax rate of 23.6%. The provision for income taxes differed from the statutory rate for the three and nine months ended December 31, 2021 primarily due to excess tax deductions related to stock compensation, deductions related to foreign-derived intangible income ("FDII"), federal return to provision adjustments and foreign tax credits, partially offset by state and foreign income taxes, executive compensation limitations, provision for global intangible low-taxed income ("GILTI") and an increase in the reserves for uncertain tax provisions.

For the three months ended December 31, 2020, we earned $3.1 million from operations before taxes and provided for income taxes of $0.7 million, resulting in an effective tax rate of 23.2%. For the nine months ended December 31, 2020, we earned $40.2$39.3 million from operations before taxes and provided for income taxes of $9.6 million, resulting in an effective tax rate of ~~23.8%~~24.5%. The provision for income taxes differed from the statutory rate for the three ~~and nine~~ months ended ~~December 31, 2020,~~June 30, 2022 primarily due to state income taxes, executive compensation limitations and provision for global intangible low-taxed income ("GILTI"), partially offset by excess tax deductions related to foreign-derived intangible income ("FDII"), deductions related to stock compensation and foreign tax credits.

For the three months ended June 30, 2021, we earned $27.2 million from operations before taxes and provided for income taxes of $6.5 million, resulting in an effective tax rate of 23.9%. The provision for income taxes differed from the statutory rate for the three months ended June 30, 2021 primarily due to state and foreign income taxes, executive compensation limitation and provision for GILTI, partially offset by excess tax deductions related to stock compensation and deductions related to FDII ~~federal return to provision adjustments,~~and foreign tax credits and adjustments related to state tax returns and state R&D credits, partially offset by state and foreign income taxes and provision for GILTI and a change in indefinite reinvestment assertion related to the investment in a foreign subsidiary.

~~A CSWI subsidiary is currently under examination by a state tax jurisdiction for years ending December 31, 2018, 2019 and 2020.We have not been notified of any material adjustments.~~credits.

16. OTHER COMPREHENSIVE INCOME (LOSS)

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

Three Months Ended December 31,
2021 2020
Currency translation adjustments:
Balance at beginning of period $ (4,436) $ (6,795)
Adjustments for foreign currency translation (71) 2,271
Balance at end of period $ (4,507) $ (4,524)
Interest rate swaps:
Balance at beginning of period $ (825) $ (1,385)
Unrealized gain, net of taxes of $(10) and $(25), respectively (a) 37 94
Reclassification of losses included in interest expense, net, net of taxes of $(15) and $(15), respectively 56 58
Other comprehensive income 93 152
Balance at end of period $ (732) $ (1,233)
Defined benefit plans:
Balance at beginning of period $ (767) $ (871)
Amortization of net losses, net of taxes of $14 and $3, respectively (b) (52) (10)
Balance at end of period $ (819) $ (881)


		Nine Months Ended December 31,					Three Months Ended June 30,
		2021		2020			2022		2021
Currency translation adjustments:	Currency translation adjustments:					Currency translation adjustments:
Balance at beginning of period	Balance at beginning of period	$	(4,394)	$	(9,185)	Balance at beginning of period	$	(4,438)	$	(4,394)
Adjustments for foreign currency translation	Adjustments for foreign currency translation	(113)		4,661		Adjustments for foreign currency translation	(2,278)		489
Balance at end of period	Balance at end of period	$	(4,507)	$	(4,524)	Balance at end of period	$	(6,716)	$	(3,905)

Interest rate swaps:	Interest rate swaps:					Interest rate swaps:
Balance at beginning of period	Balance at beginning of period	$	(803)	$	(1,390)	Balance at beginning of period	$	(270)	$	(803)
Unrealized losses, net of taxes of $27 and $3, respectively		(100)		(12)
Reclassification of losses included in interest expense, net, net of taxes of $(45) and $(45), respectively		171		169
Unrealized gain (loss), net of taxes of $(56) and $44, respectively (a)						Unrealized gain (loss), net of taxes of $(56) and $44, respectively (a)	212		(166)
Reclassification of losses included in interest expense, net, net of taxes of $(11) and $(15), respectively						Reclassification of losses included in interest expense, net, net of taxes of $(11) and $(15), respectively	41		57

Other comprehensive income	Other comprehensive income	71		157		Other comprehensive income	253		(109)
Balance at end of period	Balance at end of period	$	(732)	$	(1,233)	Balance at end of period	$	(17)	$	(912)

Defined benefit plans:	Defined benefit plans:					Defined benefit plans:
Balance at beginning of period	Balance at beginning of period	$	(799)	$	(871)	Balance at beginning of period	$	(366)	$	(799)
Amortization of net losses, net of taxes of $5 and $3, respectively (b)		(20)		(10)
Amortization of net losses, net of taxes of $(1) and $(2), respectively (b)						Amortization of net losses, net of taxes of $(1) and $(2), respectively (b)	3		7

Balance at end of period	Balance at end of period	$	(819)	$	(881)	Balance at end of period	$	(363)	$	(792)

(a) Unrealized ~~gains (losses) are~~gain (loss) is reclassified to earnings as underlying cash interest payments are made. We expect to recognize a loss of ~~$0.2~~less than $0.1 million, net of deferred taxes, over the next twelve months related to designated cash flow hedges based on their fair values at ~~December 31, 2021.~~June 30, 2022.

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

17. REVENUE RECOGNITION

Refer to Note 1820 to our consolidated financial statements included in our Annual Report for a description of our disaggregation of revenues. Disaggregation of revenues reconciled to our reportable segments is as follows (in thousands):


		Three Months Ended December 31, 2021								Nine Months Ended December 31, 2021								Three Months Ended June 30, 2022
		Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Total		Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Total				Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Total
Build-to-order	Build-to-order	$	—	$	21,890	$	—	$	21,890	$	—	$	67,301	$	—	$	67,301		Build-to-order	$	—	$	25,022	$	—	$	25,022
Book-and-ship	Book-and-ship	81,005		2,015		31,376		114,396		294,538		6,088		85,209		385,835			Book-and-ship	135,719		3,492		35,701		174,912
Net revenues	Net revenues	$	81,005	$	23,905	$	31,376	$	136,286	$	294,538	$	73,389	$	85,209	$	453,136		Net revenues	$	135,719	$	28,514	$	35,701	$	199,934

Three Months Ended December 31, 2020 Nine Months Ended December 31, 2020
Contractor Solutions Engineered Building Solutions Specialized Reliability Solutions Total Contractor Solutions Engineered Building Solutions Specialized Reliability Solutions Total
Build-to-order $ — $ 23,663 $ — $ 23,663 $ — $ 65,689 $ — $ 65,689
Book-and-ship 44,377 2,037 19,855 66,269 157,447 5,861 56,839 220,147
Net revenues $ 44,377 $ 25,700 $ 19,855 $ 89,932 $ 157,447 $ 71,550 $ 56,839 $ 285,836


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

2217

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, ~~2021:~~2022:	$	~~1,018~~1,026
Revenue recognized during the period	~~(943)~~(712)

New contracts and revenue added to existing contracts during the period	~~1,008~~492
Balance at ~~December 31, 2021~~June 30, 2022	$	~~1,083~~806

18. SEGMENTS

During the quarter ended June 30, 2021, we revised our segment structure to align with how our chief operating decision maker (who was determined to be our Chief Executive Officer) views our business, assesses performance and allocates resources to our business components. Effective April 1, 2021, following the completion of various strategic transactions including the acquisition of TRUaire and the formation of the Whitmore JV, our business is ~~now~~ organized into 3three reportable segments: ~~(1)~~

•Contractor ~~Solutions; (2)~~ Solutions

•Engineered Building Solutions and ~~(3)~~

•Specialized Reliability ~~Solutions.~~Solutions

The following is a summary of the financial information of our reporting segments reconciled to the amounts reported in the consolidated financial statements (in thousands).

Three Months Ended ~~December 31, 2021:~~June 30, 2022:


(in thousands)	(in thousands)	Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Subtotal - Reportable Segments		Eliminations and Other		Total		(in thousands)	Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Subtotal - Reportable Segments		Eliminations and Other		Total
Revenues, net to external customers	Revenues, net to external customers	$	81,005	$	23,905	$	31,376	$	136,286	$	—	$	136,286	Revenues, net to external customers	$	135,719	$	28,514	$	35,701	$	199,934	$	—	$	199,934
Intersegment revenue	Intersegment revenue	1,454		—		8		1,462		(1,462)		—		Intersegment revenue	1,909		—		35		1,944		(1,944)		—
Operating income	Operating income	10,756		3,200		2,651		$	16,607	(4,459)		$	12,148	Operating income	36,289		4,415		5,097		$	45,801	(4,928)		$	40,873

Three Months Ended ~~December 31, 2020:~~June 30, 2021*:


(in thousands)	(in thousands)	Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Subtotal - Reportable Segments		Eliminations and Other		Total		(in thousands)	Contractor Solutions		Engineered Building Solutions		Specialized Reliability Solutions		Subtotal - Reportable Segments		Eliminations and Other		Total
Revenues, net to external customers	Revenues, net to external customers	$	44,377	$	25,700	$	19,855	$	89,932	$	—	$	89,932	Revenues, net to external customers	$	110,216	$	25,650	$	25,400	$	161,266	$	—	$	161,266
Intersegment revenue	Intersegment revenue	62		—		19		81		(81)		—		Intersegment revenue	26		—		47		73		(73)		—
Operating income	Operating income	2,900		4,194		619		7,713		(3,596)		4,117		Operating income	29,512		3,854		697		34,063		(5,161)		28,902

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

~~Nine Months Ended December 31, 2021:~~
(in thousands) Contractor Solutions Engineered Building Solutions Specialized Reliability Solutions Subtotal - Reportable Segments Eliminations and Other Total
Revenues, net to external customers $ 294,538 $ 73,389 $ 85,209 $ 453,136 $ — $ 453,136
Intersegment revenue 1,510 — 80 1,590 (1,590) —
Operating income 67,021 9,388 3,928 $ 80,337 (13,823) $ 66,514

~~Nine Months Ended December 31, 2020:~~

(in thousands) Contractor Solutions Engineered Building Solutions Specialized Reliability Solutions Subtotal - Reportable Segments Eliminations and Other Total
Revenues, net to external customers $ 157,447 $ 71,550 $ 56,839 $ 285,836 $ — $ 285,836
Intersegment revenue 248 — 48 296 (296) —
Operating income 40,459 11,763 1,286 53,508 (10,958) 42,550

~~TOTAL ASSETS~~

(in thousands) Contractor Solutions Engineered Building Solutions Specialized Reliability Solutions Subtotal - Reportable Segments Eliminations and Other Total
December 31, 2021 $ 744,400 $ 71,106 $ 117,566 $ 933,072 $ 16,973 $ 950,045
March 31, 2021 686,408 67,281 108,028 861,717 13,240 874,957

2418

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

The following discussion and analysis of our 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, ~~2021~~2022 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~~CSWI is a ~~growth-oriented,~~ diversified industrial growth company with a strategic focus on providing niche, value-added products in the end markets we serve. Our ~~broad portfolio of leading products provides performance optimizing and life safety solutions to our customers. Our~~ products include mechanical products for heating, ventilation, air conditioning and refrigeration ("HVAC/R"), plumbing products, grilles, registers and diffusers ("GRD"), ~~engineered~~ building ~~products~~safety solutions and high-performance specialty lubricants and sealants. End markets that we serve include HVAC/R, architecturally-specified building products, plumbing, energy, rail, mining and general industrial. The reputation of our product portfolio is built on more than 100 highly respected industrial brands including No. 5®, KOPR-KOTE®, Kats Coatings®, Safe-T-Switch®, Air Sentry®, Deacon®, Leak Freeze®, Greco®, TRUaire® and Shoemaker ManufacturingTM.. Our manufacturing operations are concentrated in the United States ("(“U.S."”), Canada and Vietnam, and we ~~also~~ have distribution operations in the U.S., Australia, Canada and the United Kingdom ("(“U.K."”). Our products are sold directly to end users or through designated channels in over 100 countries around the world, ~~including:~~primarily including Australia, ~~Belgium, Brazil,~~ Canada, ~~China, Colombia, Germany, Japan, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Sweden,~~ the U.K.~~, United Arab Emirates~~ and the U.S.

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

We ~~conduct our operations through~~operate in three business ~~segments.~~segments: Contractor Solutions, Engineered Building Solutions and Specialized Reliability Solutions. Our Contractor Solutions segment manufactures efficiency and ~~supplies~~performance enhancing products predominantly for residential and commercial HVAC/R and plumbing applications, which are designed primarily for professional ~~tradespeople.~~end-use customers. Our Engineered Building Solutions segment provides primarily code-driven, life-safety products ~~focused on life safety~~ that are engineered to provide aesthetically-pleasing solutions for the construction, refurbishment and modernization of commercial, institutional and multi-family residential buildings. Our Specialized Reliability Solutions segment provides products for increasing ~~the~~ reliability, efficiency, performance and lifespan of industrial assets and solving equipment maintenance challenges.

We believe that our broad portfolio of products and markets served, as well as our brand recognition, will continue to provide opportunities; however, we face ongoing challenges affecting many companies, such as environmental and other regulatory compliance, combined with overall global economic uncertainty.

~~The COVID-19 pandemic and its resulting impacts had an overall negative impact on our financial results in~~During the three ~~and nine~~ months of our prior fiscal year ended ~~December 31, 2020. During the three and nine months of our current fiscal year ended December 31,~~June 30, 2021, ~~the direct impact of~~ the COVID-19 pandemic had an indirect impact on our ~~consolidated operating results was limited, in all material respects, to our~~ operations ~~in Vietnam. In early August 2021, the Vietnamese government mandated numerous restrictions in an effort to mitigate the spread of COVID-19,~~ including closures of non-essential businesses, limitations on movements of individuals, and the imposition of other highly-restrictive measures for businesses, like ours, that continued operations in compliance with the restrictions. Our Vietnam operations began resuming normal production activities in late November 2021, when the Vietnamese government-mandated restrictions began to ease. Regarding our operations generally, the indirect impacts of the COVID-19 pandemic have resulted in material and freight cost inflation, supply chain disruptions and freight delays, driven by numerous factors including ~~countermeasures taken by U.S. federal, state and/or local governments and the Federal Reserve,~~government actions, labor supply shortages and recovering demand. During the three months ended December 31, 2021, material cost increases moderated, but we continue to experience increased freight costs and freight delays. We expect material and freight cost volatility, supply chain challenges and freight delays to continue in the near-term, and we are addressing these impacts through focused inventory management and by continuing and increasing the pricing initiatives that began in the three months ended March 31, 2021.

2519

~~business or financial condition, due to continued uncertainty regarding (1)~~We are closely monitoring the ~~duration and severity~~Russian invasion of the COVID-19 pandemic, including any surges due to the Omicron variant or other future mutations and (2) the continued potential for short and long-term impacts on our facilities and employees, customer demand and supply chain.

~~Whitmore Joint Venture~~

On April 1, 2021, Whitmore Manufacturing, LLC (“Whitmore”), a wholly-owned subsidiary of CSWI, completed the formation of the previously announced joint venture (the "Whitmore JV") with Pennzoil-Quaker State Company dba SOPUS Products (“Shell”), a wholly-owned subsidiary of Shell Oil Company that comprises Shell’s U.S. lubricants business. The formation was consummated through a transaction in which Whitmore sold to Shell a 50% interest in a wholly-owned subsidiary (containing certain existing operating assets) in exchange for consideration of $13.4 million from Shell in the form of cash and intangible assets. The Whitmore JV is deemed to be a variable interest entity ("VIE") and the Company is the primary beneficiary of this VIE, primarily due to Whitmore having the power to direct the manufacturing activities, which are considered the most significant activities for the Whitmore JV. Refer to Note 3 for further information on the Whitmore JV. The Whitmore JV has been consolidated into the operations of the CompanyUkraine and its ~~activity has been included~~global impacts. We have no operations, employees or assets in ~~our Specialized Reliability Solutions segment since~~Russia, Belarus or Ukraine, nor do we source goods or services of any material amount from those countries, whether directly or indirectly. Shortly after the ~~formation date.~~

~~Segment Realignment~~

~~Beginning with~~Russian invasion of Ukraine began in February 2022, we indefinitely suspended all commercial activities in Russia. Additionally, during the quarter ended June 30, ~~2021,~~2022, we ~~revised our segment structure~~had no sales into Belarus or Ukraine. While the conflict continues to ~~align with how our chief operating decision maker (who was determined to be our Chief Executive Officer) views~~evolve and the outcome remains highly uncertain, we do not currently believe the Russia-Ukraine conflict will have a material impact on our business ~~assesses performance~~ and ~~allocates resources~~results of operations. However, if the Russia-Ukraine conflict continues or worsens, leading to greater global economic or political disruptions and uncertainty, our business ~~components. This segment structure revision became effective on April 1, 2021,~~ and ~~followed the completion~~results of various strategic transactions including the acquisition of T.A. Industries, Inc. ("TRUaire") and the formation of the Whitmore JV. Refer to Accounting Policies in Note 1 to our condensed consolidated financial statements included in this Quarterly Report for detailed descriptions of our three business segments.operations could be materially impacted as a result.

As a result of the business segment revision, reclassification of certain prior year financial information has been made to conform with the current period's presentation. None of the changes impact the Company's previously reported consolidated net revenue, operating income, net income or net income per share. Refer to Note 18 to our condensed consolidated financial statements included in this Quarterly Report for additional information on the Company's segment realignment.

Our Outlook

~~Shoemaker Manufacturing, LLC~~We expect to maintain a strong balance sheet in fiscal year 2023, which provides us with access to capital through our cash on hand, internally-generated cash flow and availability under our Revolving Credit Facility. Our capital allocation strategy continues to guide our investing decisions, with a priority to direct capital to the highest risk adjusted return opportunities, within the categories of organic growth, strategic acquisitions and the return of cash to shareholders through our share repurchase and dividend programs. With the strength of our financial position, we will continue to invest in financially and strategically attractive expanded product offerings, key elements of our long-term strategy of targeting long-term profitable growth. We will continue to invest our capital in maintaining our facilities and in continuous improvement initiatives. We recognize the importance of, and remain committed to, continuing to drive organic growth, as well as investing additional capital in opportunities with attractive risk-adjusted returns, driving increased penetration in the end markets we serve.

~~On December 15, 2021, we acquired 100%~~We remain disciplined in our approach to acquisitions, particularly as it relates to our assessment of ~~outstanding equity~~valuation, prospective synergies, diligence, cultural fit and ease of ~~Shoemaker Manufacturing, LLC (“Shoemaker”), based~~integration, especially in ~~Cle Elum, Washington, for an aggregate purchase price~~light of $44.0 million, including preliminary working capital and closing cash adjustments and expected contingent consideration. Shoemaker offers high-quality customizable GRD for commercial and residential markets, and expands CSWI’s HVAC/R product offering and regional exposure in the ~~northwest U.S.~~economic conditions due to the pandemic.

RESULTS OF OPERATIONS

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

All acquisitions are described in Note 2 to our condensed consolidated financial statements included in this Quarterly Report. Shoemaker activity has been included in our results within our Contractor Solutions segment since the December 15, 2021 acquisition date. ~~TRUaire activity has been included in our results within our Contractor Solutions segment since the December 15, 2020 acquisition date.~~ Whitmore JV activity has been included in our Specialized Reliability Solutions segment since the April 1, 2021 formation date. Consolidation of VIE (related to the Whitmore JV) is described in Note 3 to our condensed consolidated financial statements included in this Quarterly Report.

Effective April 1, 2022, the commercial and operational activities of TRUaire were fully integrated with RectorSeal, the primary operating company of the Contractor Solutions segment.

Revenues, net


		Three Months Ended December 31,					Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2021		2020		(Amounts in thousands)	2022		2021
Revenues, net	Revenues, net	$	136,286	$	89,932	Revenues, net	$	199,934	$	161,266

		Nine Months Ended December 31,
(Amounts in thousands)		2021		2020
Revenues, net		$	453,136	$	285,836

Net revenues for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~$46.4~~$38.7 million, or ~~51.5%~~24.0%, as compared with the three months ended ~~December 31, 2020.~~June 30, 2021. The increase was ~~primarily~~partially due to the ~~TRUaire and~~ Shoemaker ~~acquisitions~~acquisition ($~~26.8~~8.6 million or ~~29.8%~~5.3%). Excluding the impact of ~~acquisitions,~~the acquisition, organic sales increased ~~$19.6~~$30.1 million, or ~~21.7%~~18.7%, from the prior year due to ~~increased sales volumes and~~ implemented pricing ~~initiatives. Sales volumes increased~~initiatives and an increase in ~~HVAC/R, energy, plumbing, mining, rail and general industrial end markets and decreased in the architecturally-specified building products end market.~~unit volumes. Pricing initiatives, which began in the three months ended March 31, 2021 to mitigate rising costs, continued ~~and increased~~in all segments during the three months ended ~~December 31, 2021.~~

June 30, 2022. Net revenues for the nine months ended December 31, 2021 increased $167.3 million, or 58.5%, as compared with the nine months ended December 31, 2020. The increase was primarily due to the TRUaire and Shoemaker acquisitions ($95.6 million or 33.4%). Excluding the impact of acquisitions, organic sales increased $71.7 million, or 25.1%, from the prior year due to increased sales volumes and implemented pricing initiatives. Sales volumesrevenue increased in the HVAC/R, ~~energy, plumbing, mining, rail and~~ architecturally-specified building products, general industrial, rail, energy and mining end markets and decreased in the ~~general industrial~~plumbing end market. ~~Pricing initiatives, which began in the three months ended March 31, 2021 to mitigate rising costs, continued and increased during the nine months ended December 31, 2021.~~

Gross Profit and Gross Profit Margin


		Three Months Ended December 31,							Three Months Ended June 30,
(Amounts in thousands, except percentages)	(Amounts in thousands, except percentages)	2021			2020			(Amounts in thousands, except percentages)	2022			2021*
Gross profit	Gross profit	$	50,042		$	39,338		Gross profit	$	86,425		$	69,026
Gross profit margin	Gross profit margin	36.7		%	43.7		%	Gross profit margin	43.2		%	42.8		%

		Nine Months Ended December 31,
(Amounts in thousands, except percentages)		2021			2020
Gross profit		$	181,691		$	130,826
Gross profit margin		40.1		%	45.8		%

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

Gross profit for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~$10.7~~$17.4 million, or ~~27.2%~~25.2%, as compared with the three months ended ~~December 31, 2020.~~June 30, 2021. The increase was primarily a result of the continued pricing initiatives, the impact of the ~~TRUaire~~Shoemaker acquisition and ~~Shoemaker acquisitions,~~ increased ~~organic sales and pricing initiatives.~~unit volumes. Gross profit margin of ~~36.7%~~43.2% for the three months ended ~~December 31, 2021 decreased~~June 30, 2022 increased as compared to ~~43.7%~~42.8% for the three months ended ~~December 31, 2020.~~June 30, 2021. The ~~decrease~~increase was due to the ~~inclusion of~~purchase accounting effect ($3.9 million) related to the TRUaire acquisition incurred in prior year period that did not recur, partially offset by the timing impacts from the material and freight cost increases ~~outpacing~~and the implemented pricing initiatives and $0.5 million under-absorption costs resulting from reduced production levels and incremental compensation expenses incurred at the TRUaire Vietnam facility during the quarter to maintain TRUaire Vietnam's operations in accordance with COVID-19 restrictions ("TRUaire Vietnam COVID COGS Impact"). Additionally, a shift in sales to lower margin projects for the Engineered Building Solutions~~segment also contributed to the gross profit margin decrease.~~initiatives.

Gross profit for the nine months ended December 31, 2021 increased $50.9 million, or 38.9%, as compared with the nine months ended December 31, 2020. The increase was primarily a result of the impact of the TRUaire and Shoemaker acquisitions, increased organic sales and pricing initiatives. Gross profit margin of 40.1% for the nine months ended December 31, 2021 decreased as compared to 45.8% for the nine months ended December 31, 2020. The decrease is primarily due to the inclusion of the TRUaire acquisition, material and freight cost increases outpacing implemented pricing initiatives,

$3.9 million purchase accounting effect related to the TRUaire acquisition and the TRUaire Vietnam COVID COGS Impact of $1.7 million. Additionally, a shift in sales to lower margin projects for the Engineered Building Solutions~~segment also contributed to the gross profit margin decrease.~~

Operating Expenses


		Three Months Ended December 31,							Three Months Ended June 30,
(Amounts in thousands, except percentages)	(Amounts in thousands, except percentages)	2021			2020			(Amounts in thousands, except percentages)	2022			2021
Operating expenses	Operating expenses	$	37,894		$	35,221		Operating expenses	$	45,552		$	40,124
Operating expenses as a percentage of revenues, net	Operating expenses as a percentage of revenues, net	27.8		%	39.2		%	Operating expenses as a percentage of revenues, net	22.8		%	24.9		%

		Nine Months Ended December 31,
(Amounts in thousands, except percentages)		2021			2020
Operating expenses		$	115,177		$	88,276
Operating expenses as a percentage of revenues, net		25.4		%	30.9		%

Operating expenses for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~$2.7~~$5.4 million, or ~~7.6%~~13.5%, as compared with the three months ended ~~December 31, 2020.~~June 30, 2021. The increase was primarily due to the added expenses related to the inclusion of ~~TRUaire,~~ Shoemaker ~~and the Whitmore JV~~ in the current period, increased ~~equity compensation expenses, increased spending on~~ sales commissions and travel driven by increased ~~revenues,~~revenue, increased ~~depreciation expenses related to enterprise resource planning systems, increased headcount, increased travel~~salaries and ~~$0.5 million transaction expenses related to the Shoemaker acquisition. The increases were partially offset by transaction expenses ($8.0 million) related to the TRUaire acquisition~~compensation, including equity compensation and ~~JV formation incurred in prior year period that did not recur.~~higher allowance for doubtful accounts. The decrease in operating expenses as a percentage of revenues was primarily attributable to sales increasing by a greater percentage than the increase in operating expenses.

Operating expenses for the nine months ended December 31, 2021 increased $26.9 million, or 30.5%, as compared with the nine months ended December 31, 2020. The increase was primarily due to the added expenses related to the inclusion of TRUaire, Shoemaker and the Whitmore JV in the current period, increased equity compensation expenses and increased spending on sales commissions driven by increased revenues, increased depreciation expenses related to enterprise resource planning systems, increased headcount, increased travel and $0.5 million of transaction expenses related to the Shoemaker acquisition. The increases were partially offset by transactions expenses ($8.2 million) related to the TRUaire acquisition and JV formation incurred in prior year period that did not recur. The decrease in operating expenses as a percentage of revenues was primarily attributable to sales increasing by a greater percentage than the increase in operating expenses.

Operating Income


		Three Months Ended December 31,							Three Months Ended June 30,
(Amounts in thousands, except percentages)	(Amounts in thousands, except percentages)	2021			2020			(Amounts in thousands, except percentages)	2022			2021*
Operating income	Operating income	$	12,148		$	4,117		Operating income	$	40,873		$	28,902
Operating margin	Operating margin	8.9		%	4.6		%	Operating margin	20.4		%	17.9		%

		Nine Months Ended December 31,
(Amounts in thousands, except percentages)		2021			2020
Operating income		$	66,514		$	42,550
Operating margin		14.7		%	14.9		%

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

Operating income for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~$8.0~~$12.0 million, or ~~195.1%~~41.4%, as compared with the three months ended ~~December 31, 2020,~~June 30, 2021, primarily as a result of the increase in gross profit, partially offset by the increase in operating expenses, as discussed above.

Operating income for the nine months ended December 31, 2021 increased $24.0 million, or 56.3%, as compared with the nine months ended December 31, 2020, primarily as a result of the increase in gross profit, partially offset by the increase in operating expenses, as discussed above.

Other Income and Expense

Net interest expense of ~~$1.2~~$1.8 million for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~$0.7~~$0.2 million as compared to the three months ended ~~December 31, 2020. Net interest expense of $4.2 million for the nine months ended December 31, 2021 increased $3.1 million as compared to the nine months ended December 31, 2020.~~June 30, 2021. The ~~increases were~~increase was due to increased ~~outstanding long-term debt, primarily resulting from borrowings to fund~~borrowing under our ~~acquisitions of TRUaire~~Revolving Credit Facility in connection with the Shoemaker acquisition and ~~Shoemaker.~~our share repurchase program as well as higher interest rates.

Other ~~expense,~~income (expense), net ~~decreased $0.5~~increased $0.3 million to net ~~expense~~income of ~~$0.1~~$0.2 million for the three months ended ~~December 31, 2021~~June 30, 2022 as compared with net expense of ~~$0.6~~$0.2 million for the three months ended ~~December 31, 2020.~~June 30, 2021. The ~~decrease~~increase was due to decreased losses arising from transactions in currencies other than functional currencies. Other expense, net decreased $0.8 million to net expense of $0.4 million for the nine months ended December 31, 2021 as compared with net expense of $1.3 million for the nine months ended December 31, 2020. The decrease was due to decreased lossesgains arising from transactions in currencies other than functional currencies.

Provision for Income Taxes and Effective Tax Rate

for the three months ended June 30, 2022 primarily due to state income taxes, executive compensation limitations and provision for global intangible low-taxed income ("GILTI"), partially offset by excess tax deductions related to foreign-derived intangible income ("FDII"), deductions related to stock compensation and foreign tax credits.

For the three months ended June 30, 2021, we earned $27.2 million from operations before taxes and provided for income taxes of $6.5 million, resulting in an effective tax rate of 23.9%. The provision for income taxes differed from the statutory rate for the three ~~and nine~~ months ended ~~December 31, 2020,~~June 30, 2021 primarily due to state and foreign income taxes, executive compensation limitation, and an increase in the reserves or uncertain tax positions and provision for GILTI, partially offset by excess tax deductions related to stock compensation and deductions related to FDII ~~federal return to provision adjustments,~~and foreign tax credits and adjustments related to state tax returns and state R&D credits, partially offset by state and foreign income taxes and provision for GILTI and a change in indefinite reinvestment assertion related to the investment in a foreign subsidiary.

~~A CSWI subsidiary is currently under examination by a state tax jurisdiction for years ending December 31, 2018, 2019 and 2020.We have not been notified of any material adjustments.~~

credits.

Business Segments

We conduct our operations through three business segments based on 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 three segments are discussed below.

Contractor Solutions Segment Results

The Contractor Solutions segment manufactures efficiency and ~~supplies~~performance enhancing products predominantly for residential and commercial HVAC/R and plumbing applications, which are designed primarily for professional ~~tradespeople.~~end-use customers.


	Three Months Ended June 30,
(Amounts in thousands)	2022			2021*
Revenues, net	$	137,628		$	110,242
Operating income	36,289			29,512
Operating margin	26.4		%	26.8		%

Three Months Ended December 31,
(Amounts in thousands) 2021 2020
Revenues, net $ 82,459 $ 44,439
Operating income 10,756 2,900
Operating margin 13.0 % 6.5 %
Nine Months Ended December 31,
(Amounts in thousands) 2021 2020
Revenues, net $ 296,048 $ 157,695
Operating income 67,021 40,459
Operating margin 22.6 % 25.7 %
*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.

Net revenues for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~$38.0~~$27.4 million, or ~~85.6%~~24.8%, as compared with the three months ended ~~December 31, 2020.~~June 30, 2021. The increase was ~~primarily~~partially due to the ~~TRUaire and~~ Shoemaker ~~acquisitions~~acquisition ($~~26.8~~8.6 million or ~~60.3%~~7.8%). Excluding the impact of ~~acquisitions,~~the acquisition, organic sales increased by ~~$11.2~~$18.8 million, or ~~25.3%~~17.0%, due to ~~increased volumes and~~ implemented pricing ~~initiatives. Sales volumes~~initiatives, partially offset by a slight decrease in unit volumes. Net revenue increased in HVAC/R ~~plumbing~~ and architecturally-specified building products end markets and decreased in general industrial and plumbing end ~~market. Pricing initiatives to mitigate rising costs, which began in the three months ended March 31, 2021, continued and increased during the three months ended December 31, 2021.~~

Net revenues for the nine months ended December 31, 2021 increased $138.4 million, or 87.7%, as compared with the nine months ended December 31, 2020. The increase was primarily due to the TRUaire and Shoemaker acquisitions ($95.6 million or 60.6%). Excluding the impact of acquisitions, organic sales increased by $42.8 million, or 27.1%, due to increased sales volumes and implemented pricing initiatives. Sales volumes increased in HVAC/R, plumbing and architecturally-specified building products end markets and decreased in general industrial end market. Pricing initiatives to mitigate rising costs, which began in the three months ended March 31, 2021, continued and increased during the nine months ended December 31, 2021.markets.

Operating income for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~$7.9~~$6.8 million, or ~~270.9%~~23.0%, as compared with the three months ended ~~December 31, 2020.~~June 30, 2021. The increase was ~~primarily~~partially due to the implemented pricing initiatives, the inclusion of ~~TRUaire and~~ Shoemaker and the ~~transactions expenses~~purchase accounting effect ($~~6.9~~3.9 million) related to the TRUaire acquisition incurred in prior year period that did not recur, partially offset by ~~the transaction~~increased expenses ~~($0.5 million) in the current period~~ related to ~~the Shoemaker acquisition. The organic sales growth contributed to the increased operating income, which was partially offset by increased~~ material and freight costs, ~~the $0.5 million TRUaire Vietnam COVID COGS Impact discussed above and increased spending on~~ sales commissions, salaries and ~~depreciation and optimization expenses related to enterprise resource planning systems.~~

~~Operating income~~compensation, allowance for the nine months ended December 31, 2021 increased $26.6 million, or 65.7%, as compared with the nine months ended December 31, 2020. The increase was primarily due to the inclusion of TRUaire and Shoemaker and the transactions expenses ($7.1 million) related to the TRUaire acquisition incurred in prior year period that did not recur, partially offset by the transaction expenses ($0.5 million) in the current period related to the Shoemaker acquisition. The organic sales growth contributed to the increased operating income, which was partially offset by increased material and freight costs, a $3.9 million purchase accounting effect related to the TRUaire acquisition, the $1.7 million TRUaire Vietnam COVID COGS Impact discussed above and increased spending on sales commissions, depreciation and optimization expenses related to enterprise resource planning systems, headcountdoubtful accounts and travel.

Engineered Building Solutions Segment Results

The Engineered Building Solutions segment provides primarily code-driven, life-safety products ~~focused on life safety~~ that are engineered to provide ~~elegant~~aesthetically-pleasing solutions for the construction, refurbishment and modernization of commercial, institutional and multi-family residential buildings.


		Three Months Ended December 31,							Three Months Ended June 30,
(Amounts in thousands)	(Amounts in thousands)	2021			2020			(Amounts in thousands)	2022			2021
Revenues, net	Revenues, net	$	23,905		$	25,700		Revenues, net	$	28,514		$	25,650
Operating income	Operating income	3,200			4,194			Operating income	4,415			3,854
Operating margin	Operating margin	13.4		%	16.3		%	Operating margin	15.5		%	15.0		%

		Nine Months Ended December 31,
(Amounts in thousands)		2021			2020
Revenues, net		$	73,389		$	71,550
Operating income		9,388			11,763
Operating margin		12.8		%	16.4		%

Net revenues for the three months ended ~~December 31, 2021 decreased $1.8~~June 30, 2022 increased $2.9 million or ~~7.0%~~11.2% as compared to the three months ended ~~December 31, 2020~~June 30, 2021 due to ~~demand softness in the multi-family residential buildings subcategory outpacing~~ growth in ~~other subcategories~~all categories served in the architecturally-specified building products end ~~market.~~market, as a result of successful commercial initiatives and new product introductions.

Net revenues for the nine months ended December 31, 2021 increased $1.8 million, or 2.6%, as compared with the nine months ended December 31, 2020. The increase was primarily due to enhanced marketing efforts to promote existing and newly developed products in the architecturally-specified building products end market, market share gains due to competitive lead times in the market place and improved specification levels.

Operating income for the three months ended ~~December 31, 2021 decreased $1.0~~June 30, 2022 increased $0.6 million, or ~~23.7%~~14.6%, as compared with the three months ended ~~December 31, 2020.~~June 30, 2021. The ~~decrease~~increase was due to ~~a shift in sales to~~the increased net revenue and management of operating expenses, partially offset by completion of lower margin legacy projects.

Operating income for the nine months ended December 31, 2021 decreased $2.4 million, or 20.2%, as compared with the nine months ended December 31, 2020. The decrease was due to a shift in sales to lower margin projects and added salespeople to target long-term revenue growth.

Specialized Reliability Solutions Segment Results

Specialized Reliability Solutions segment provides ~~long-established~~ products for increasing ~~the~~ reliability, efficiency, performance and lifespan of industrial assets and solving equipment maintenance challenges.


	Three Months Ended June 30,
(Amounts in thousands)	2022			2021*
Revenues, net	$	35,737		$	25,447
Operating income	5,097			697
Operating margin	14.3		%	2.7		%

Three Months Ended December 31,
(Amounts in thousands) 2021 2020
Revenues, net $ 31,384 $ 19,874
Operating income 2,651 619
Operating margin 8.4 % 3.1 %
Nine Months Ended December 31,
(Amounts in thousands) 2021 2020
Revenues, net $ 85,288 $ 56,887
Operating income 3,928 1,286
Operating margin 4.6 % 2.3 %
*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.

Net revenues for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~$11.5~~$10.3 million, or ~~57.9%~~40.4%, as compared with the three months ended ~~December 31, 2020.~~June 30, 2021. The increase was primarily due to ~~demand recovery in the energy, mining, general industrial and rail end markets,~~implemented pricing initiatives to mitigate rising costs ~~that began~~and increased unit volumes. Net revenue increased in ~~the three months ended June 30, 2021 and continued in the three months ended December 31, 2021, as well as the inclusion of the newly formed Whitmore JV.~~

Net revenues for the nine months ended December 31, 2021 increased $28.4 million, or 49.9%, as compared with the nine months ended December 31, 2020. The increase was primarily due to demand recovery in the energy, mining, rail and general

~~industrial~~all end markets ~~pricing initiatives to mitigate rising costs that began in the three months ended June 30, 2021~~including general industrial, rail, energy and ~~continued in the three months ended December 31, 2021, as well as the inclusion of the newly formed Whitmore JV.~~mining.

Operating income for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~$2.0~~$4.4 million or ~~328.1%~~630.9% as compared to the three months ended December 31, 2020. The increase was primarily due to increased organic sales and the Whitmore JV, partially offset by increased material expenses outpacing implemented price increases, increased spending on sales commissions driven by increased sales and increased travel expense.

~~Operating income for the nine months ended December 31, 2021 increased $2.6 million or 205.5% as compared to the nine months ended December 31, 2020.~~June 30, 2021. The increase was primarily due to the increased ~~organic sales and the Whitmore JV,~~net revenue, partially offset by increased expenses related to material ~~expenses outpacing implemented price increases, increased spending on sales commissions driven by increased sales~~costs, additional manufacturing headcount, equipment and ~~increased travel expense.~~facility maintenance, professional fees and travel.

LIQUIDITY AND CAPITAL RESOURCES

~~Cash Flow Analysis~~

Nine Months Ended December 31,
(Amounts in thousands) 2021 2020
Net cash provided by operating activities $ 69,472 $ 54,046
Net cash used in investing activities (44,762) (284,962)
Net cash provided by (used in) financing activities (18,569) 229,303
General

Existing cash on hand, cash generated by operations and borrowings available under our ~~revolving credit facility~~Revolving Credit Facility are our primary sources of short-term liquidity. Our ability to consistently generate strong cash flow from our operations is one of our most significant financial strengths; it enables us to invest in our people and our brands, make capital investments and strategic acquisitions, provide a cash dividend program, and from time-to-time, repurchase shares of our common stock. Our largest use of cash in our operations is for purchasing and carrying inventories and carrying seasonal accounts receivable. Additionally, we use our Revolving Credit Facility to support our working capital requirements, capital expenditures and strategic acquisitions. We ~~monitor the depository institutions that hold our cash~~seek to maintain adequate liquidity to meet working capital requirements, fund capital expenditures, and ~~cash equivalents~~repay scheduled principal and interest payments on ~~a regular basis, and~~debt. Absent deterioration of market conditions, we believe that ~~we have placed our deposits with creditworthy financial institutions. Our sources of~~cash flows from operating ~~cash generally include the sale of our products~~ and ~~services and the conversion of~~financing activities, primarily Revolving Credit Facility, will provide adequate resources to satisfy our working capital, ~~particularly accounts receivable~~scheduled principal and ~~inventories.~~ interest payments on debt, anticipated dividend payments, periodic share repurchases, and anticipated capital expenditure requirements for both our short-term and long-term capital needs.

Cash Flow Analysis


	Three Months Ended June 30,
(Amounts in thousands)	2022		2021*
Net cash provided by operating activities	$	16,813	$	18,930
Net cash provided by (used in) investing activities	(3,995)		304
Net cash used in financing activities	(13,208)		(13,701)

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

Our cash balance (including cash and cash equivalents) at ~~December 31, 2021~~June 30, 2022 was ~~$16.2~~$15.5 million, as compared with ~~$10.1~~$16.6 million at March 31, ~~2021.~~2022.

For the ~~nine~~three months ended ~~December 31, 2021,~~June 30, 2022, our cash provided by operating activities from operations was ~~$69.5~~$16.8 million, as compared with ~~$54.0~~$18.9 million for ~~nine~~three months ended ~~December 31, 2020.~~June 30, 2021.

•Working capital used cash for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 due to higher accounts receivable ($21.0 million), higher inventories ($~~33.3 million) and prepaid expenses and higher prepaid expenses and other current assets ($4.8~~15.0 million), partially offset by higher accounts payable and other current liabilities ($~~12.0 million), lower accounts receivable ($5.6 million) and lower other assets ($0.4~~8.4 million).

•Working capital ~~provided~~used cash for the ~~nine~~three months ended ~~December 31, 2020~~June 30, 2021 due to ~~lower~~higher accounts receivable ($~~14.1~~16.2 million) and higher inventories ($11.7 million), partially offset by higher ~~prepaid expenses and other current assets ($4.5 million), lower~~ accounts payable and other current liabilities ($~~1.8 million), higher inventories ($1.6 million) and higher other current assets ($0.3~~10.9 million).

Cash flows used in investing activities from operations during the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 were ~~$44.8~~$4.0 million, as compared with ~~$285.0~~$0.3 million ~~used~~provided in investing activities for the ~~nine~~three months ended ~~December 31, 2020.~~June 30, 2021.

•Capital expenditures during the ~~nine~~three months ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~ were ~~$8.4~~$2.0 million and ~~$6.9~~$1.1 million, respectively. Our capital expenditures have been focused on enterprise resource planning systems, new product introductions, capacity expansion, continuous improvement and automation of manufacturing facilities.

•During the ~~nine~~three months ended ~~December 31, 2021, proceeds~~June 30, 2022, the full contingent payment of ~~$1.4~~$2.0 million ~~were received as a result of final working capital true-up adjustment related~~was remitted to the ~~TRUaire acquisition.~~

•Shoemaker sellers due to the performance obligation being met as part of the Shoemaker acquisition, ~~During the nine months ended December 31, 2021, we acquired Shoemaker for an aggregate purchase price of $44.0 million, including $39.0 millionin cash consideration,~~as discussed in Note 2 to our condensed consolidated financial statements included in this Quarterly Report.

•During the three months ended June 30, 2021, we received proceeds of $1.4 million as a result of a final working capital true-up adjustment related to the TRUaire acquisition.

Cash flows ~~provided by (used in)~~used in financing activities during the ~~nine~~three months ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~ were ~~$(18.6)~~$13.2 million and ~~$229.3~~$13.7 million, respectively. Cash outflows resulted from:

•Net ~~repayments~~borrowing (repayments) on our ~~line of credit~~Revolving Credit Facility and term loan (as discussed in Note 7 to our condensed consolidated financial statements included in this Quarterly Report) of ~~$11.4~~$20.9 million and ~~$244.6 million~~($11.1 million) during the ~~nine~~three months ended ~~December 31,~~June 30, 2022 and 2021, ~~and 2020,~~ respectively.

•Payments of $2.3 million of underwriting discounts and fees in connection with our ~~line of credit amendment~~Second Credit Agreement during the ~~nine~~three months ended ~~December 31,~~June 30, 2021, as discussed in Note 7 to our condensed consolidated financial statements included in this Quarterly Report.

•Repurchases of shares under our share repurchase program (as discussed in Note 11 to our condensed consolidated financial statements included in this Quarterly Report) of ~~$0.5~~$29.4 million and ~~$7.3 million~~$0 during the ~~nine~~three months ended ~~December 31,~~June 30, 2022 and 2021, ~~and 2020,~~ respectively.

•Proceeds from ~~the acquisition of~~ the redeemable noncontrolling interest shareholder for its investment in the consolidated Whitmore JV of ~~$6.3~~$5.3 million during the ~~nine~~three months ended ~~December 31,~~June 30, 2021, as discussed in Note 3 to our condensed consolidated financial statements included in this Quarterly Report.

•Dividend payments of ~~$7.1~~$2.7 million and ~~$6.0~~$2.4 million during the ~~nine~~three months ended ~~December 31,~~June 30, 2022 and 2021, ~~and 2020,~~ respectively.

We believe that available cash and cash equivalents, cash flows generated through 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 ~~December 31, 2021.~~June 30, 2022.

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 December 31, 2021, 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 ~~nine~~three months ended ~~December 31, 2021.~~June 30, 2022.

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;

•changes in local political, economic, social and labor conditions;

•potential disruptions from wars and military conflicts, including Russia's invasion of Ukraine;

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

•the ability to respond to anticipated inflationary pressure, including reductions on consumer discretionary income and our ability to pass along rising costs through increased selling prices;

•anticipated levels of demand for our products and services;

•the actual impact to supply, production levels and costs from global supply chain logistics and transportation challenges;

•short and long-term effects of the COVID-19 pandemic;

•our outstanding indebtedness, including the effect of rising interest rates;

•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;

•the ~~effective date and~~ expected impact of accounting pronouncements; and

•other factors listed under "Risk Factors" in our Annual Report and other filings with the SEC.

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 ~~December 31, 2021,~~June 30, 2022, we had ~~$221.0~~$264.0 million in outstanding variable rate indebtedness, after consideration of our interest rate swap. We manage, or hedge, interest rate risks related to our borrowings by means of an interest rate swap agreement. At ~~December 31, 2021,~~June 30, 2022, we had an interest rate swap agreement that covered ~~4.3%~~3.5% of our ~~$230.9~~$273.6 million total outstanding indebtedness. Each quarter point change in interest rates would result in a ~~$0.6~~$0.7 million 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 Australian dollar, British pound, Canadian dollar and Vietnamese dong. 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~~gain (loss) of $0.2 million and ~~$1.0~~$(0.1) million for the ~~nine~~three months ended ~~December 31,~~June 30, 2022 and 2021, ~~and 2020,~~ respectively, which are included in other expense, net on our condensed consolidated statements of income. We realized a net gain (loss) associated with foreign currency translation of ~~$(0.1)~~$(2.3) million and ~~$4.7~~$0.5 million for the ~~nine~~three months ended ~~December 31,~~June 30, 2022 and 2021, ~~and 2020,~~ respectively, which are included in accumulated other comprehensive income (loss).

Based on a sensitivity analysis at ~~December 31, 2021,~~June 30, 2022, a 10% change in the foreign currency exchange rates for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 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 ~~December 31, 2021~~June 30, 2022 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 ~~December 31, 2021.~~June 30, 2022.

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)
October 1 - 31 12,989 (b) $ 130.75 — $ 100.0
November 1 - 30 — — 100.0
December 1 - 31 4,175 (a) 114.21 4,175 95.5
Total 17,164 4,175


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Approximate Dollar Value That May Yet Be Purchased Under the Program (a)
						(in millions)
April 1 - 30	49,284	(a)(b)	$	111.37	31,763	$	82.1
May 1 - 31	94,603	(a)	105.75		94,603	72.1
June 1 - 30	161,624	(a)	105.18		161,624	55.1
Total	305,511				287,990

(a) On October 30, 2020, we announced that our Board of Directors authorized a new program to repurchase up to $100.0 million of our common stock, which replaced a previously announced $75.0 million program. Under the current program, shares may be repurchased from time to time in the open market or in privately negotiated transactions. Our Board of Directors has established an expiration date of December 31, 2022, for completion of the ~~new~~current repurchase program; however, the program may be limited or terminated at any time at our discretion without notice. As of ~~December 31, 2021,~~ ~~4,175~~June 30, 2022, 414,105 shares of our common stock had been repurchased under the current program for an aggregate amount of ~~$0.5 million~~.$44.9 million.

(b) ~~Represents~~Includes 17,521 shares tendered by employees to satisfy minimum tax withholding amounts for ~~restricted share~~performance shares vesting.

3628

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)

_________________________

* Filed herewith

** Furnished herewith

3729

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.

~~February 3,~~August 5, 2022						/s/ Joseph B. Armes
						Joseph B. Armes
						Chief Executive Officer (Principal Executive Officer)

~~February 3,~~August 5, 2022						/s/ James E. Perry
						James E. Perry
						Chief Financial Officer (Principal Financial Officer)

3830


	Initial Estimated Fair Value		Measurement Period Adjustments		Final Estimated Fair Value
Cash	$	1,471	$	—	$	1,471
Accounts Receivable, net	13,467		(17)		13,450
Inventory	46,313		(1,300)		45,013
Short-Term Tax Indemnity Assets	5,000		—		5,000
Other Current Assets	1,285		2,103		3,388
Property, Plant and Equipment	28,832		(4,201)		24,631
Trade Name (indefinite life)	43,500		—		43,500
Customer Lists (useful life of 15 years)	194,000		8,500		202,500
Right-Of-Use Assets	49,040		—		49,040
Long-Term Tax Indemnity Assets	7,500		—		7,500
Other Long-Term Assets	2,850		(698)		2,152
Accounts Payable	(4,074)		—		(4,074)
Accrued and Other Current Liabilities	(3,678)		(172)		(3,850)
Lease Liabilities - Short-Term	(4,811)		—		(4,811)

Deferred Tax Liabilities	(56,249)		(5,589)		(61,838)
Tax Contingency Reserve	(22,511)		5,190		(17,321)
Lease Liabilities - Long-Term	(45,369)		—		(45,369)
Estimated fair value of net assets acquired	256,566		3,816		260,382
Goodwill	129,169		(3,909)		125,260
Total Purchase Price	$	385,735	$	(93)	$	385,642


	Three Months Ended December 31, 2020		Nine Months Ended December 31, 2020
Revenue, net	$	113,857	$	362,419
Net income	5,313		38,209

Net earnings per common share:
Diluted	$	0.33	$	2.42
Basic	$	0.34	$	2.44


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


Maturities of operating lease liabilities were as follows (in thousands):
Year Ending March 31, 2022 (excluding the nine months ended December 31, 2021)	$	2,756
2023	10,259
2024	10,152
2025	9,999
2026	9,988
Thereafter	37,117
Total lease liabilities	80,271
Less: Imputed interest	(7,007)
Present value of lease liabilities	$	73,264