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, 20222023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     .
Commission File No. 001-37454
CSW INDUSTRIALS, INC.
(Exact name of registrant as specified in its charter)
Delaware47-2266942
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
5420 Lyndon B. Johnson Freeway, Suite 500, Dallas, Texas75240
(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 classTrading symbol (s) Name of each exchange on which registered
Common Stock, par value $0.01 per shareCSWI Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer ☐
Non-accelerated filer ☐
(Do not check if smaller reporting company)

Smaller reporting company
Emerging growth company
 
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No
As of January 30, 2023,29, 2024, there were 15,474,92515,532,472 shares of the issuer’s common stock outstanding.



CSW INDUSTRIALS, INC.
FORM 10-Q

TABLE OF CONTENTS
Page
No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 5.
  Item 6.




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
December 31,
Three Months Ended
December 31,
Three Months Ended
December 31,
Nine Months Ended
December 31, 2023
(Amounts in thousands, except per share amounts)(Amounts in thousands, except per share amounts)20222021*20222021*(Amounts in thousands, except per share amounts)2023202220232022
Revenues, netRevenues, net$171,093 $136,286 $562,219 $453,136 
Cost of revenuesCost of revenues(105,295)(84,943)(329,349)(269,516)
Gross profitGross profit65,798 51,343 232,870 183,620 
Selling, general and administrative expensesSelling, general and administrative expenses(42,686)(37,894)(133,568)(115,177)
Operating incomeOperating income23,112 13,449 99,302 68,443 
Operating income
Operating income
Interest expense, netInterest expense, net(4,200)(1,184)(9,090)(4,151)
Other expense, netOther expense, net(737)(127)(529)(432)
Income before income taxesIncome before income taxes18,175 12,138 89,683 63,860 
Provision for income taxesProvision for income taxes(2,676)(2,388)(20,232)(15,066)
Net incomeNet income15,499 9,750 69,451 48,794 
Less: Loss (income) attributable to redeemable noncontrolling interest100 (444)(79)(855)
Less: (Income) Loss attributable to redeemable noncontrolling interest
Net income attributable to CSW Industrials, Inc.
Net income attributable to CSW Industrials, Inc.
Net income attributable to CSW Industrials, Inc.Net income attributable to CSW Industrials, Inc.$15,599 $9,306 $69,372 $47,939 
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.
Net income per share attributable to CSW Industrials, Inc.
Basic
Basic
BasicBasic$1.01 $0.59 $4.47 $3.04 
DilutedDiluted$1.01 $0.59 $4.46 $3.03 
Weighted average number of shares outstanding:Weighted average number of shares outstanding:
Weighted average number of shares outstanding:
Weighted average number of shares outstanding:
Basic
Basic
BasicBasic15,476 15,794 15,520 15,752 
DilutedDiluted15,512 15,844 15,554 15,809 
*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.
See accompanying notes to condensed consolidated financial statements.
1


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

Three Months Ended
December 31,
Nine Months Ended
December 31,
Three Months Ended
December 31,
Three Months Ended
December 31,
Nine Months Ended
December 31,
(Amounts in thousands)(Amounts in thousands)20222021*20222021*(Amounts in thousands)2023202220232022
Net incomeNet income$15,499 $9,750 $69,451 $48,794 
Other comprehensive income (loss):Other comprehensive income (loss):
Foreign currency translation adjustmentsForeign currency translation adjustments1,606 (71)(4,076)(113)
Cash flow hedging activity, net of taxes of $10, $(25), $(152) and $(19), respectively(39)93 570 71 
Pension and other postretirement effects, net of taxes of $(35), $14, $(39) and $5, respectively133 (52)146 (20)
Other comprehensive gain (loss)1,700 (30)(3,360)(62)
Foreign currency translation adjustments
Foreign currency translation adjustments
Cash flow hedging activity, net of taxes of $414, $10, $(107) and $(152), respectively
Pension and other postretirement effects, net of taxes of $0, $(35), $(1) and $(39), respectively
Other comprehensive income (loss)
Comprehensive incomeComprehensive income$17,199 $9,720 $66,091 $48,732 
Less: Comprehensive loss (income) attributable to redeemable noncontrolling interest100 (444)(79)(855)
Less: Comprehensive (income) loss attributable to redeemable noncontrolling interest
Comprehensive income attributable to CSW Industrials, Inc.Comprehensive income attributable to CSW Industrials, Inc.$17,299 $9,276 $66,012 $47,877 
*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.
See accompanying notes to condensed consolidated financial statements.
2


CSW INDUSTRIALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except for per share amounts)(Amounts in thousands, except for per share amounts)December 31, 2022March 31, 2022(Amounts in thousands, except for per share amounts)December 31, 2023March 31, 2023
ASSETSASSETS
Current assets:Current assets:
Current assets:
Current assets:
Cash and cash equivalentsCash and cash equivalents$14,721 $16,619 
Accounts receivable, net of allowance for expected credit losses of $1,273 and $1,177, respectively103,213 122,804 
Cash and cash equivalents
Cash and cash equivalents
Accounts receivable, net of allowance for expected credit losses of $845 and $1,365, respectively
Inventories, netInventories, net177,909 150,114 
Prepaid expenses and other current assetsPrepaid expenses and other current assets26,494 10,610 
Total current assetsTotal current assets322,337 300,147 
Property, plant and equipment, net of accumulated depreciation of $89,078 and $80,393, respectively85,814 87,032 
Total current assets
Total current assets
Property, plant and equipment, net of accumulated depreciation of $101,891 and $92,703, respectively
GoodwillGoodwill243,452 224,658 
Intangible assets, netIntangible assets, net322,268 300,837 
Other assetsOther assets73,801 82,686 
Total assetsTotal assets$1,047,672 $995,360 
Total assets
Total assets
LIABILITIES AND EQUITYLIABILITIES AND EQUITY
LIABILITIES AND EQUITY
LIABILITIES AND EQUITY
Current liabilities:
Current liabilities:
Current liabilities:Current liabilities:
Accounts payableAccounts payable$42,031 $47,836 
Accounts payable
Accounts payable
Accrued and other current liabilitiesAccrued and other current liabilities66,784 69,005 
Current portion of long-term debt561 561 
Total current liabilities
Total current liabilities
Total current liabilitiesTotal current liabilities109,376 117,402 
Long-term debtLong-term debt275,973 252,214 
Retirement benefits payableRetirement benefits payable1,307 1,027 
Other long-term liabilitiesOther long-term liabilities144,844 140,306 
Total liabilitiesTotal liabilities531,500 510,949 
Commitments and contingencies (See Note 14)
Total liabilities
Total liabilities
Commitments and contingencies (See Note 13)Commitments and contingencies (See Note 13)
Redeemable noncontrolling interestRedeemable noncontrolling interest17,404 15,325 
Equity:Equity:
Common shares, $0.01 par valueCommon shares, $0.01 par value163 162 
Common shares, $0.01 par value
Common shares, $0.01 par value
Shares authorized – 50,000Shares authorized – 50,000
Shares issued – 16,376 and 16,283, respectively
Shares issued – 16,464 and 16,378, respectively
Shares issued – 16,464 and 16,378, respectively
Shares issued – 16,464 and 16,378, respectively
Preferred shares, $0.01 par value
Preferred shares, $0.01 par value
Preferred shares, $0.01 par valuePreferred shares, $0.01 par value— — 
Shares authorized (10,000) and issued (0)Shares authorized (10,000) and issued (0)
Additional paid-in capitalAdditional paid-in capital120,860 112,924 
Treasury shares, at cost (902 and 576 shares, respectively)(82,729)(46,448)
Additional paid-in capital
Additional paid-in capital
Treasury shares, at cost (932 and 902 shares, respectively)
Retained earningsRetained earnings468,908 407,522 
Accumulated other comprehensive lossAccumulated other comprehensive loss(8,434)(5,074)
Total equityTotal equity498,768 469,086 
Total liabilities, redeemable noncontrolling interest and equityTotal liabilities, redeemable noncontrolling interest and equity$1,047,672 $995,360 

See accompanying notes to condensed consolidated financial statements.
3


CSW INDUSTRIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Amounts in thousands)(Amounts in thousands)Common StockTreasury SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal(Amounts in thousands)Common StockTreasury SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
Balance at March 31, 2022$162 $(46,448)$112,924 $407,522 $(5,074)$469,086 
Balance at March 31, 2023
Share-based compensationShare-based compensation— — 2,284 — — 2,284 
Stock activity under stock plansStock activity under stock plans— (2,002)— — — (2,002)
Reissuance of treasury sharesReissuance of treasury shares— 2,016 1,075 — — 3,091 
Repurchase of common shares— (30,491)— — — (30,491)
Net income
Net income
Net incomeNet income— — — 29,443 — 29,443 
DividendsDividends— — 22 (2,691)— (2,669)
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — — (2,022)(2,022)
Balance at June 30, 2022$162 $(76,925)$116,305 $434,274 $(7,096)$466,720 
Balance at June 30, 2023
Share-based compensationShare-based compensation— — 2,447 — — 2,447 
Stock activity under stock plans— (11)— — — (11)
Repurchase of common sharesRepurchase of common shares— (5,064)— — — (5,064)
Reissuance of treasury shares— 770 (497)— — 273 
Repurchase of common shares
Repurchase of common shares
Net income
Net income
Net incomeNet income— — — 24,331 — 24,331 
DividendsDividends— — 18 (2,643)— (2,625)
Other comprehensive loss, net of taxOther comprehensive loss, net of tax— — — — (3,038)(3,038)
Balance at September 30, 2022$162 $(81,230)$118,273 $455,962 $(10,134)$483,033 
Balance at September 30, 2023
Share-based compensationShare-based compensation— — 2,566 — — 2,566 
Stock activity under stock plansStock activity under stock plans(1,399)— — — (1,398)
Repurchase of common sharesRepurchase of common shares— (100)— — — (100)
Net incomeNet income— — — 15,599 — 15,599 
Net income
Net income
DividendsDividends— — 21 (2,653)— (2,632)
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — — 1,700 1,700 
Balance at December 31, 2022$163 $(82,729)$120,860 $468,908 $(8,434)$498,768 
Balance at December 31, 2023










4


(Amounts in thousands)(Amounts in thousands)Common StockTreasury SharesAdditional Paid-In CapitalRetained Earnings*Accumulated Other Comprehensive LossTotal*(Amounts in thousands)Common StockTreasury SharesAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
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 
Share-based compensation— — 2,049 — — 2,049 
Stock activity under stock plans— (13)— — — (13)
Reissuance of treasury shares— 1,568 (994)— — 574 
Net income— — — 18,171 — 18,171 
Dividends— — 18 (2,378)— (2,360)
Other comprehensive income, net of tax— — — — (419)(419)
Balance at September 30, 2021$161 $(34,313)$108,605 $384,547 $(6,028)$452,972 
Balance at March 31, 2022
Share-based compensationShare-based compensation— — 2,287 — — 2,287 
Stock activity under stock plansStock activity under stock plans(1,698)— — — (1,697)
Repurchase of common sharesRepurchase of common shares— (477)— — — (477)
Reissuance of treasury sharesReissuance of treasury shares— 3,884 (119)— — 3,765 
Net incomeNet income— — — 9,306 — 9,306 
DividendsDividends— — 18 (2,386)— (2,368)
Other comprehensive income, net of taxOther comprehensive income, net of tax— — — — (30)(30)
Balance at December 31, 2021$162 $(32,604)$110,791 $391,467 $(6,058)$463,758 
Balance at June 30, 2022
Share-based compensation
Stock activity under stock plans
Repurchase of common shares
Reissuance of treasury shares
Net income
Dividends
Other comprehensive income, net of tax
Balance at September 30, 2022
Share-based compensation
Stock activity under stock plans
Repurchase of common shares
Net income
Net income
Net income
Dividends
Other comprehensive income, net of tax
Balance at December 31, 2022
*Prior period has been adjusted to reflect the change in inventory accounting method, as described in the Company's fiscal 2022 Annual Report on Form 10-K.

See accompanying notes to condensed consolidated financial statements.
5


CSW INDUSTRIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended December 31,
(Amounts in thousands)20222021*
Cash flows from operating activities:
Net income$69,451 $48,794 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation9,463 8,731 
Amortization of intangible and other assets16,842 19,765 
Provision for inventory reserves1,878 1,608 
Provision for doubtful accounts1,613 1,146 
Share-based and other executive compensation7,296 6,223 
Net loss (gain) on disposals of property, plant and equipment48 (9)
Net pension benefit141 269 
Impairment of assets156 — 
Net deferred taxes(1,094)1,757 
Changes in operating assets and liabilities:
Accounts receivable21,963 5,621 
Inventories(28,270)(33,268)
Prepaid expenses and other current assets(8,343)(4,827)
Other assets185 378 
Accounts payable and other current liabilities(7,348)12,032 
Retirement benefits payable and other liabilities91 1,252 
Net cash provided by operating activities84,072 69,472 
Cash flows from investing activities:
Capital expenditures(8,268)(8,356)
Proceeds from sale of assets70 21 
Cash paid for acquisitions(55,524)(36,427)
Net cash used in investing activities(63,722)(44,762)
Cash flows from financing activities:
Borrowings on line of credit122,777 52,513 
Repayments of line of credit and term loan(99,018)(63,934)
Payments of deferred loan costs(662)(2,327)
Purchase of treasury shares(39,064)(5,356)
Proceeds from stock option activity272 1,326 
Proceeds from acquisition of redeemable noncontrolling interest shareholder2,000 6,293 
Dividends(7,924)(7,084)
Net cash used in financing activities(21,619)(18,569)
Effect of exchange rate changes on cash and equivalents(629)(45)
Net change in cash and cash equivalents(1,898)6,096 
Cash and cash equivalents, beginning of period16,619 10,088 
Cash and cash equivalents, end of period$14,721 $16,184 
*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,
(Amounts in thousands)20232022
Cash flows from operating activities:
Net income$70,544 $69,451 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation10,077 9,463 
Amortization of intangible and other assets17,584 16,842 
Provision for inventory reserves2,541 1,878 
Provision for doubtful accounts544 1,613 
Share-based and other executive compensation8,555 7,296 
Loss (gain) on disposals of property, plant and equipment(1,336)48 
Net pension benefit50 141 
Impairment of assets90 156 
Deferred taxes2,732 (1,094)
Changes in operating assets and liabilities:
Accounts receivable17,846 21,963 
Inventories7,796 (28,270)
Prepaid expenses and other current assets(6,720)(8,343)
Other assets1,066 185 
Accounts payable and other current liabilities9,601 (7,348)
Retirement benefits payable and other liabilities944 91 
Net cash provided by operating activities141,914 84,072 
Cash flows from investing activities:
Capital expenditures(11,668)(8,268)
Proceeds from sale of assets held for investment1,665 70 
Proceeds from sale of assets157 — 
Cash paid for acquisitions(5,284)(55,524)
Net cash used in investing activities(15,130)(63,722)
Cash flows from financing activities:
Borrowings on line of credit72,308 122,777 
Repayments of line of credit and term loan(172,308)(99,018)
Payments of deferred loan costs— (662)
Purchase of treasury shares(10,640)(39,064)
Proceeds from stock option activity— 272 
Proceeds from acquisition of redeemable noncontrolling interest shareholder— 2,000 
Dividends(8,855)(7,924)
Net cash used in financing activities(119,495)(21,619)
Effect of exchange rate changes on cash and equivalents(756)(629)
Net change in cash and cash equivalents6,533 (1,898)
Cash and cash equivalents, beginning of period18,455 16,619 
Cash and cash equivalents, end of period$24,988 $14,721 

See accompanying notes to condensed consolidated financial statements.
6


CSW INDUSTRIALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.ORGANIZATION AND OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

CSW Industrials, Inc. (“CSWI,” “we,” “our” or “us”) is a diversified industrial growth company with a strategic focus on providing niche, value-added products in the end markets we serve. We operate in three business segments: Contractor Solutions, Specialized Reliability Solutions and Engineered Building Solutions. Our products include mechanical products for heating, ventilation, air conditioning and refrigeration ("(“HVAC/R"R”), plumbing products, grilles, registers and diffusers ("GRD"(“GRD”), building safety solutions and high-performance specialty lubricants and sealants. End markets that we serve include HVAC/R, architecturally-specified building products, plumbing, general industrial, energy, rail miningtransportation and general industrial.mining. Our manufacturing operations are concentrated in the United States (“U.S.”), CanadaVietnam and Vietnam,Canada, 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,the U.S., Canada, the U.K. and the U.S.Australia.

Many ofDrawing on our productsinnovative and proven technologies, we seek to deliver solutions primarily to contractors that place a premium on superior performance and reliability. We believe our brands are used to protectwell-known in the capital assets of our customers that are expensive to repair or replacespecific end markets we serve and are critical to their operations. We have a source of recurring revenue from the maintenance, repair, overhaul and consumable nature of many of our products. We also provide some custom engineered products that strengthen and enhance our customer relationships.reputation for high quality. 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®AC Guard®, Air Sentry®, Big Red®Balco®, Cover GuardTM, AC GuardDeacon®, FalconTM, Deacon®Greco®, Jet-Lube®, Kopr-Kote®, Leak Freeze®, Falcon Stainless, Inc.®Metacaulk®, Greco®No. 5®, OilSafe®, RectorSeal®, Safe-T-Switch®, Shoemaker Manufacturing®, Smoke Guard®, TRUaire® and Shoemaker Manufacturing®Whitmore®. These products are distributed through an extensive wholesale distribution network serving the HVAC/R, architecturally-specified buildings products, plumbing, general industrial, energy, rail transportation and mining end markets. Our desire to develop solutions for our contractors, combined with the differentiated nature of our niche product offerings, drives loyalty to our brands. We rely on both organic growth and inorganic growth through acquisitions to provide an increasingly broad portfolio of performance optimizing solutions that meet our customers’ ever-changing needs. We have a successful record of making attractive and synergistic acquisitions that support expansion of our broad portfolio of solutions, and we remain focused on identifying additional acquisition opportunities in our core end markets.

We continue to assess and proactively manage the impacts of COVID-19 on all aspects of our business and geographies, including with respect to our employees, customers, communities and supply chain. During the three and nine months of our prior fiscal year ended December 31, 2021,2023, the COVID-19 pandemic had no direct andor indirect impacts on our operations including reduced production activities at our Vietnam operations, material and freight cost inflation, supply chain disruptions and freight delays, driven by numerous factors including government actions, labor supply shortages and recovering demand. In addition, COVID-19 and its indirect effects also contributed to increased demand in certain parts of our business, including the HVAC/R end market. During the three and nine months of our current fiscal year ended December 31, 2022, the direct and indirect impacts of the COVID-19 pandemicimpact on our consolidated operating results were immaterial as economic activities recovered andresults. While the effects ofFederal COVID-19 Public Health Emergency Declaration expired on May 11, 2023, the pandemic lessened.

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

We are closely monitoringcontinue to monitor the Russian invasion of Ukraine and its global impacts.impact. 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. ShortlySince shortly after the Russian invasion of Ukraine began in February 2022, we indefinitely suspended allhave had no commercial activities including sales in Russia. Additionally, during the quarter ended December 31, 2022, we had no sales intoRussia, Belarus or Ukraine. While the conflict continues to evolve and the outcome remains highly uncertain, we do not currently believe the Russia-Ukraine conflict will have a material impact on our business and results of operations. However, if the Russia-Ukraine conflict continues or worsens, leading to greater global economic or political disruptions and uncertainty, our business and results of operations could be materially impacted as a result.

We are monitoring the Israel and the Gaza Strip conflict and its global impact. While the conflict continues to evolve and the outcome remains uncertain, we do not currently believe the Gaza Strip conflict will have a material impact on our business and results of operations.

7


Basis of Presentation

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 20222023 (“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, 2022,2023, and the results of operations for the three and nine months periodsnine-month period ended December 31, 20222023 and 2021.2022. All adjustments are of a normal, recurring nature.

The year-end condensed consolidated 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, 20222023 (the “Annual Report”).

Accounting Policies

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

Accounting Developments

Pronouncements Implementednot yet implemented

In October 2021,November 2023, the Financial Accounting Standards Board ("FASB")FASB issued an Accounting Standards Update ("ASU") No. 2021-08, "Accounting for Contract AssetsASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which provides updates to qualitative and Contract Liabilities from Contracts with Customers." This update improves comparability for both the recognitionquantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and measurement of acquired customer revenue contracts at the date of and after a business combination. The amendments areincreased interim disclosure requirements, among others. ASU 2023-07 is effective for fiscal years beginning after December 15, 2022, including2023, and interim periods within those fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied prospectively to business combinations occurring on or afterretrospectively. This ASU will be effective for our Form 10-K for fiscal 2025 and our Form 10-Q for the effective datefirst quarter of fiscal 2026. We are currently evaluating the amendments. The Company early adopted theimpact this ASU 2021-08 on a prospective basis on April 1, 2022 and did notmay have a material impact on our condensed consolidated financial statements.statement disclosures.

In August 16, 2022, The Inflation Reduction ActDecember 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of 2022 ("IRA") was signed into lawincome tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. ASU 2023-09 is effective in taxablefor fiscal years beginning after December 31, 2022. The bill was meant to address the high inflation rate in the U.S. through various climate, energy, healthcare, and other incentives. These incentives are meant to be paid for by the tax provisions included in the IRA, such as a new fifteen percent corporate minimum tax, a one percent new excise tax on stock buybacks, additional IRS funding to improve taxpayer compliance, and others. At this time, none of the IRA tax provisions are expected to have a material impact to the Company's fiscal 2023 tax provision. The Company will continue to monitor for updates to the Company's business along15, 2024, with guidance issued with respect to the IRA to determine whether any adjustments are needed to the Company's tax provision in future periods.

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 London Interbank Offered Rate ("LIBOR").early adoption permitted. This ASU includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform mayshould be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date.applied prospectively; however, retrospective application is also permitted. This ASU iswill be effective for all entities through December 31, 2022. In December 2022,our Form 10-K for fiscal 2026. We are currently evaluating the FASB issuedimpact this ASU 2022-06 to defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. As discussed in Note 9, the Company terminated our interest rate swap agreement in January 2023 and therefore, will not apply the practical expedients and exceptions as required by the ASU. As discussed in Note 7, the Company’s Second Amendment includes a transition clause in the event LIBOR is discontinued, as such, we do not expect the transition of LIBOR tomay have a material impact on our consolidated financial statements. The adoption of this ASU did not have an impact on our consolidated financial condition and results of operations.
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statement disclosures.



2. ACQUISITIONS

Shoemaker Manufacturing, LLC

On December 15, 2021, we acquired 100% of outstanding equity of Shoemaker Manufacturing, LLC (“Shoemaker”), based in Cle Elum, Washington, for an aggregate purchase price of $43.6 million, including working capital and closing cash adjustments and contingent consideration. Shoemaker offers high-quality customizable GRD for commercial and residential markets, and expands CSWI’s HVAC/R product offering and regional exposure in the northwest U.S. The aggregate purchase price was comprised of cash consideration of $38.6 million (including $1.2 million cash acquired), 25,483 shares of the Company's common stock valued at $3.0 million at transaction close and additional contingent consideration of $2.0 million based on Shoemaker meeting a defined financial target during the quarter ended March 31, 2022. The cash consideration was funded with cash on hand and borrowings under our existing Revolving Credit Facility (as defined in note 7). The 25,483 shares of common stock delivered to the sellers as consideration were issued from treasury shares. As of the acquisition date, the estimated fair value of the contingent consideration obligation was classified as a current liability of $2.0 million and was determined using a scenario-based analysis on forecasted future results. In May 2022, the full contingent consideration amount of $2.0 million was remitted to the sellers due to the performance obligation being met.

The Shoemaker acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805"). The excess of the purchase price over the preliminary fair value of the identifiable assets acquired was $8.1 million allocated to goodwill, which represents the value expected to be obtained from owning a more extensive GRD product portfolio for the HVAC/R market and increased regional exposure to the northwest U.S. The preliminary allocation of the fair value of the net assets acquired included customer lists ($23.0 million), trademarks ($6.5 million), noncompete agreements ($0.7 million), backlog ($0.3 million), inventory ($3.6 million), accounts receivable ($1.7 million), cash ($1.2 million), equipment ($1.4 million) and prepaid expenses ($0.2 million), net of current liabilities ($3.1 million). Customer lists, noncompete agreements and backlog are being amortized over 15 years, 5 years and 1 month, respectively, while trademarks and goodwill are not being amortized.  The Company completed the analysis of the assets acquired and liabilities assumed and the related allocation during the three months ended December 31, 2022. 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.

Cover Guard, Inc. and AC Guard, Inc.

On July 8, 2022, we acquired the assets of Cover Guard, Inc. (“CG”) and AC Guard, Inc. ("ACG"), based in Orlando, Florida, for an aggregate purchase price of $18.4 million, comprised of cash consideration of $18.0 million and additional contingent considerations initially measured at $0.4 million based on CG and ACG meeting defined financial targets over a period of 5 years. In conjunction with the acquisition, we agreed to pay an additional $3.7 million, comprised of cash consideration of $1.5 million and 5-year annuity payments (value of $2.2 million) to a third party to secure the related intellectual property. The total cash consideration at closing of $19.5 million was funded with cash on hand and borrowings under our existing Revolving Credit Facility (as defined in footnoteNote 7). CG and ACG product lines further expand Contractor Solutions’ offering of leading HVAC/R accessories. Through these differentiated products, our Contractor Solutions segment expects to achieve incremental ductless and ducted HVAC/R market penetration. As of the acquisition date, the estimated fair
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value of the contingent consideration was classified as a long termlong-term liability of $0.4 million and was determined using an option pricing model simulation that determines an average projected payment value across numerous iterations.

The CG and ACG acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805.805 ("Topic 805"). The excess of the purchase price over the preliminary fair value of the identifiable assets acquired was $1.7$1.8 million allocated to goodwill, which represents the value expected to be obtained from owning products that are complementary to our existing HVAC/R and plumbing offerings and provide a meaningful value proposition to our end use customers. The preliminary allocation of the fair value of the assets acquired included customer lists ($9.8 million), patent ($1.8 million), trademarks ($0.7 million), inventory ($3.1 million), accounts receivable ($1.00.9 million) and equipment ($0.3 million). Customer lists and patentpatents are being amortized over 15 years and 10 years, respectively, while trademarks and goodwill are not being amortized.  The Company's evaluationCompany completed the analysis of the facts and circumstances available as of July 8, 2022, to assign fair values to assets acquired, is ongoing. We expect to finalizeliabilities assumed and the purchase pricerelated allocation as soon as practicable, but no later than one year fromduring the acquisition date.three months ended September 30, 2023. Goodwill and
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all intangible assets, including customer lists, trademarks and patent are deductible and amortized over 15 years for income tax purposes. CG and ACG activity has been included in our Contractor Solutions segment since the acquisition date. No pro forma information has been provided due to immateriality.

The additional $3.7 million we agreed to pay a third party was accounted for as an acquisition of intellectual property and will beis being amortized over 15 years.

Falcon Stainless, Inc.

On October 4, 2022, we acquired 100% of the outstanding equity of Falcon Stainless, IncInc. ("Falcon"), based in Temecula, California, for an aggregate purchase price of $37.1 million (including $1.0 million cash acquired), comprising cash consideration of $34.6 million and an additional payment of $2.5 million due one-year from the acquisition date assuming certain business conditions are met. The cash consideration was funded with cash on hand and borrowings under our existing Revolving Credit Facility (as defined in footnoteNote 7). Falcon products are well-known among the professional trades for supplying enhanced water flow delivery and increased customer satisfaction and supplement our Contractor Solutions segment's existing product portfolio.

The Falcon acquisition was accounted for as a business combination under Topic 805. The excess of the purchase price over the preliminary fair value of the identifiable assets acquired was $18.2$17.5 million allocated to goodwill, which represents the value expected to be obtained from owning products that are complementary to our existing plumbing offerings and provide a meaningful value proposition to our end use customers. The preliminary allocation of the fair value of the assets acquired comprises customer lists ($17.7 million), trademarks ($4.7 million), accounts receivable ($1.4 million), cash ($1.0 million), inventory ($0.7 million), other current asset ($0.1 million) and other assets ($2.93.0 million), net of current liabilities (0.5(0.7 million) and other liabilities ($9.18.4 million). Customer lists are being amortized over 15 years, while trademarks and goodwill are not being amortized.  The Company's evaluationCompany completed the analysis of the facts and circumstances available as of October 4, 2022, to assign fair values to assets acquired, is ongoing. We expect to finalizeliabilities assumed and the purchase pricerelated allocation as soon as practicable, but no later than one year fromduring the acquisition date.three months ended December 31, 2023. Goodwill and all intangible assets are not deductible for income tax purposes. Falcon activity has been included in our Contractor Solutions segment since the acquisition date. No pro forma information has been provided due to immateriality.


3. CONSOLIDATION OF VARIABLE INTEREST ENTITY AND REDEEMABLE NONCONTROLLING INTEREST

Whitmore Joint Venture

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

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

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December 31, 20222023
Cash$4,1285,483 
Accounts receivable, net6,7836,133 
Inventories, net2,9903,273 
Prepaid expenses and other current assets202290 
Property, plant and equipment, net10,63814,116 
Intangible assets, net6,6815,871 
Other assets76222 
Total assets$31,49835,388 
Accounts payable$2,9803,524 
Accrued and other current liabilities1,7981,718 
Other long-term liabilities5166 
Total liabilities$4,7835,408 

During the three and nine months ended December 31, 2022,2023, the Whitmore JV generated net (loss) income of $(0.2) million and $0.2 million, respectively.$1.3 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 threeduring the month of July 2024 and every two years from the Whitmore JV's formation, subject to certain timing restrictions.afterwards. This redeemable noncontrolling interest is recorded at the higher of the redemption value or carrying value each reporting period. Changes in redeemable noncontrolling interest for the nine-month period ended December 31, 20222023 were as follows (in thousands):

Balance at March 31, 20222023$15,32518,464 
Net income attributable to redeemable noncontrolling interest79655 
Contributions from noncontrolling interest2,000 
Balance at December 31, 20222023$17,40419,119 


4. INVENTORIES

Inventories consist of the following (in thousands):
December 31, 2022March 31, 2022
December 31, 2023December 31, 2023March 31, 2023
Raw materials and suppliesRaw materials and supplies$51,303 $46,136 
Work in processWork in process4,935 7,471 
Finished goodsFinished goods126,921 100,792 
Total inventoriesTotal inventories183,159 154,399 
Less: Obsolescence reserveLess: Obsolescence reserve(5,250)(4,285)
Inventories, netInventories, net$177,909 $150,114 


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5. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill as of December 31, 20222023 and March 31, 20222023 were as follows (in thousands):

Contractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsTotal
Balance at March 31, 2022$190,152 $25,007 $9,499 $224,658 
Contractor SolutionsContractor SolutionsSpecialized Reliability SolutionsEngineered Building SolutionsTotal
Balance at March 31, 2023
Falcon acquisitionFalcon acquisition18,196 — — 18,196 
CG and ACG acquisitionsCG and ACG acquisitions1,686 — — 1,686 
Other acquisitions
Currency translation
Balance at December 31, 2023
Shoemaker acquisition— — 
Currency translation(82)(728)(284)(1,094)
Balance at December 31, 2022$209,958 $24,279 $9,215 $243,452 

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

December 31, 2022March 31, 2022
Weighted Avg Life (Years)Ending Gross AmountAccumulated AmortizationEnding Gross AmountAccumulated Amortization
December 31, 2023December 31, 2023March 31, 2023
Weighted Avg Life (Years)Weighted Avg Life (Years)Ending Gross AmountAccumulated AmortizationEnding Gross AmountAccumulated Amortization
Finite-lived intangible assets:Finite-lived intangible assets:
Patents
Patents
PatentsPatents11$11,223 $(8,384)$9,417 $(8,065)
Customer lists and amortized trademarksCustomer lists and amortized trademarks14324,395 (76,463)297,909 (61,368)
Non-compete agreementsNon-compete agreements5800 (230)939 (258)
OtherOther88,543 (4,064)5,123 (3,957)
$344,961 $(89,141)$313,388 $(73,648)
$
Trade names and trademarks not being amortized:Trade names and trademarks not being amortized:$66,448 $— $61,097 $— 
 
Amortization expenses for the three and nine months ended December 31, 2023 were $5.7 million and $17.0 million, respectively. Amortization expenses for the three and nine months ended December 31, 2022 were $5.8 million and $16.4 million, respectively. Amortization expenses for the three and nine months ended December 31, 2021 were $5.2 million and $19.4 million (including the amortization of inventory purchase accounting adjustment of $3.9 million), respectively. The following table shows the estimated future amortization for intangible assets, as of December 31, 2022,2023, for the remainder of the current fiscal year and the next four fiscal years ending March 31 (in thousands):

2023$5,800 
2024202420,662 
2025202519,927 
2026202619,321 
2027202718,553 
2028
ThereafterThereafter171,557 
TotalTotal$255,820 



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6. SHARE-BASED COMPENSATION

Refer to Note 65 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, 2022, 421,1742023, 337,565 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, 20222023 and 20212022 (in thousands): 
Three Months Ended
December 31,
Nine Months Ended
December 31,
2022202120222021
Share-based compensation expense$2,566 $2,287 $7,296 $6,223 
Related income tax benefit(640)(549)(1,823)(1,494)
Net share-based compensation expense$1,926 $1,738 $5,473 $4,729 

Stock option activity was as follows:
Nine Months Ended December 31, 2022
Number of SharesWeighted Average PriceRemaining Contractual Life (Years)Aggregate Intrinsic Value (in Millions)
Outstanding at April 1, 202210,800 $25.23 
Exercised(10,800)25.23 
Outstanding at December 31, 2022— $— 0$— 
Exercisable at December 31, 2022— $— 0$— 

All compensation costs related to stock options were recognized prior to April 1, 2019.
Three Months Ended
December 31,
Nine Months Ended
December 31,
2023202220232022
Share-based compensation expense$3,000 $2,566 $8,554 $7,296 
Related income tax benefit(750)(640)(2,139)(1,823)
Net share-based compensation expense$2,250 $1,926 $6,415 $5,473 

Restricted share activity was as follows:
Nine Months Ended December 31, 2022
Number of SharesWeighted Average Grant Date Fair Value
Outstanding at April 1, 2022:228,331 $126.02 
     Granted96,189 131.21 
     Vested(86,547)85.68 
     Canceled(4,582)109.91 
Outstanding at December 31, 2022233,391 $138.11 

During the three months ended June 30, 2021, Joe Armes, the Company's Chairman, Chief Executive Officer and President, was awarded a series of long-term incentive awards with the purpose of retaining his service over a long-term period and promoting successful succession planning and transition practices. Mr. Armes' awards include 31,496 shares of restricted stock (which cliff vest on March 31, 2026), 27,559 performance shares (which vest in equal amounts on each of March 31, 2025, 2026 and 2027, subject to performance criteria being achieved) and 19,685 performance restricted stock units (40% of which vest upon recruiting of a successor CEO and 60% of which vest upon the first employment anniversary of the successor CEO).
Nine Months Ended December 31, 2023
Number of SharesWeighted Average Grant Date Fair Value
Outstanding at April 1, 2023:232,051 $138.14 
     Granted88,977 185.44 
     Vested(95,206)89.17 
     Canceled(5,003)142.09 
Outstanding at December 31, 2023220,819 $166.29 

During the restriction period, the holders of restricted shares are entitled to vote and receive dividends. Unvested restricted shares outstanding as of December 31, 2023 and 2022 included 96,814 and 2021 included 99,474 and 102,306 shares (at target), respectively, with performance-based vesting provisions, and a vesting range of 0%-200% based on pre-defined performance targets with market conditions.  Performance-based awards accrue dividend equivalents, which are settled upon (and to the extent of) vesting of the underlying award and do not have the right to vote until vested. Performance-based awards are earned upon the achievement of objective performance targets and are payable in common shares.  Compensation expense is calculated based on the fair market value as determined by a Monte Carlo simulation and is recognized over a 36-month cliff vesting period. We granted no awards with performance-based vesting provisions during the three months ended December 31, 20222023 and 2021.2022. We granted
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21,087 29,120 and 47,84521,087 awards with performance-based vesting provisions during the nine months ended December 31, 2023 and 2022, and 2021, respectively, with a vesting range of 0%-200%.respectively.

At December 31, 2022,2023, we had unrecognized compensation cost related to unvested restricted shares of $21.9$22.3 million, which will be amortized into net income over the remaining weighted average vesting period of approximately 2.82.3 years. The total fair value of restricted shares granted during the three months ended December 31, 2023 and 2022 and 2021 was $5.4$5.5 million and $4.6$5.4 million, respectively. The total fair value of restricted shares granted during the nine months ended December 31, 2023 and 2022 and 2021 was $9.4$12.2 million and $27.7$9.4 million, respectively. The total fair value of restricted shares vested during the three months ended December 31, 2023 and 2022 and 2021 was $4.7$6.3 million and $5.9$4.7 million, respectively. The total fair value of restricted shares vested during the nine months ended December 31, 2023 and 2022 and 2021 was $10.1$14.7 million and $14.1$10.1 million, respectively.


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7. LONG-TERM DEBT

Debt consists of the following (in thousands):
December 31, 2022March 31, 2022
Revolving Credit Facility, interest rate of 5.92% and 1.95% (a)
$267,180 $243,000 
Whitmore Term Loan, interest rate of 6.39% and 2.45% (a)(b)
9,354 9,775 
Total debt276,534 252,775 
Less: Current portion(561)(561)
Long-term debt$275,973 $252,214 
December 31, 2023March 31, 2023
Revolving Credit Facility, interest rate of 6.70% and 6.21% (a)
$153,000 $253,000 
Less: Current portion— — 
Long-term debt$153,000 $253,000 
(a) Represents the interest rate effective on December 31, 2022,2023, and March 31, 2022, respectively.
(b) Represents2023, respectively, excluding the unhedgedimpact from the interest rate according to the Whitmore Term Loan agreement.swap.


Revolving Credit Facility

As discussed in Note 98 to our consolidated financial statements included in our Annual Report, prior to May 2021, we maintained a five-year, $300.0 million revolving credit facility agreement (the "First Credit Agreement"), which was scheduled to mature on September 15, 2022. Borrowings in the U.S. under this facility bore interest at a rate of prime plus between 0.25% to 1.5% or LIBOR plus between 1.25% to 2.5% based on our quarterly leverage ratio. We also paid a commitment fee between 0.15% to 0.4% for the unutilized portion of this facility.

On May 18, 2021, we entered into a Second Amended and Restated Credit Agreement (the “Second Credit Agreement”), which replaced the First Credit Agreement and providesinitially provided for a $400$400.0 million revolving credit facility that containswith a $25$25.0 million sublimit for the issuance of letters of credit and a $10$10.0 million sublimit for swingline loans, with an additional $150 million accordion feature. The Second Credit Agreement is scheduled to mature on May 18, 2026. The Company incurred a total of $2.3 million in underwriting fees in connection with the Second Credit Agreement, which are being amortized over the life of the Second Credit Agreement. Borrowings under the Second Credit Agreement bear interest at either base rate plus between 0.25% to 1.5% or LIBOR plus between 1.25% to 2.5%, based on the Company’s leverage ratio calculated on a quarterly basis. The base rate is described in the Second Credit Agreement as the highest of (i) the Federal funds effective rate plus 0.50%, (ii) the prime rate quoted by The Wall Street Journal, and (iii) the one-month LIBOR rate plus 1.00%. We pay a commitment fee between 0.15% to 0.4% based on the Company's leverage ratio for the unutilized portion of this facility. Interest and commitment fees are payable at least quarterly and the outstanding principal balance is due at the maturity date. The Second Credit Agreement is secured by a first priority lien on all tangible and intangible assets and stock issued by the Company and its domestic subsidiaries, subject to specified exceptions, and 65% of the voting equity interests in its first-tier foreign subsidiaries.

On December 15, 2022, the Company entered into an Incremental Assumption Agreement No. 1 and Amendment No. 2 to the Second Credit Agreement (the “Second Amendment”) to utilize a portion of the accordion feature, thus increasing the commitment from $400.0 million to $500.0 million, and concurrently reduced the available incremental accordion by a corresponding amount (the term "Revolving Credit Facility" as used throughout this document refers to the First Credit Agreement, the Second Credit Agreement and the Second Amendment, as applicable). The Second Amendment also replaced the LIBOR Rate with individualized metrics based on the specific denomination of borrowings, including a metric based on Term SOFR (as defined in the Second Credit Agreement) for borrowings denominated in U.S. DolDollars. lars. The Company incurred a total of $0.7$0.1 million in underwriting fees in connection with the Second Amendment, which are being amortized over the remaining term of the Second Credit Agreement.


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During the nine months ended December 31, 2022,2023, we borrowed $122.8$72.3 million and repaid $98.6$172.3 million under the Revolving Credit Facility. As of December 31, 20222023 and March 31, 2022,2023, we had $267.2$153.0 million and $243.0$253.0 million, respectively, in ourof outstanding balance,borrowings under the Revolving Credit Facility, which resulted in borrowing capacity under the Revolving Credit Facility of $232.8$347.0 million and $157.0$247.0 million, respectively. The financial covenants contained in the Second Credit Agreement require the maintenance of a maximum leverage ratio of 3.00 to 1.00, subject to a temporary increase to 3.75 to 1.00 for 18 months following the consummation of permitted acquisitions with consideration in excess of certain threshold amounts set forth in the Second Credit Agreement. The Second Credit Agreement also requires the maintenance of a minimum fixed charge coverage ratio of 1.25 to 1.00, the calculations and terms of which are defined in the Second Credit Agreement. Covenant compliance is tested quarterly, and we were in compliance with all covenants as of December 31, 2022.2023.

Interest payments on the first $100.0 million borrowing under the Revolving Credit Facility are hedged under an interest rate swap agreement as described in Note 9.


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Whitmore Term Loan

In July 2014,Prior to January 20, 2023, Whitmore maintained a 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 requiresrequired payments of $140,000$0.1 million each quarter.  Borrowings under this term loan bearbore interest at a rate of one month LIBOR plus 2.0%.  On January 20, 2023, the Whitmore Term Loan was paid off using borrowings under our Revolving Credit Facility discussed above. As such, as of December 31, 20222023 and March 31, 2022, Whitmore Manufacturing had $9.4 million and $9.8 million, respectively, in2023, there were no outstanding principal amount outstandingamounts under the Whitmore Term Loan.

As described in Note 9, interestInterest payments under the Whitmore Term Loan were hedged under an interest rate swap agreement until January 9, 2023, when the interest rate swap agreement was terminated. On January 20, 2023, the Whitmore Term Loan was paid off using borrowings under our existing Revolving Credit Facility discussed above.


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 2524 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 December 31,Three Months Ended December 31,Nine Months Ended December 31,
(in thousands)(in thousands)2022202120222021(in thousands)2023202220232022
Components of Operating Lease ExpensesComponents of Operating Lease Expenses
Operating lease expense (a)
Operating lease expense (a)
Operating lease expense (a)Operating lease expense (a)$2,727 $2,472 $8,002 $7,302 
Short-term lease expenseShort-term lease expense227 73 635 231 
Total operating lease expense Total operating lease expense $2,954 $2,545 $8,637 $7,533 
(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)December 31, 2022March 31, 2022
Operating Lease Assets and Liabilities
Right-of-use assets, net (b)$61,801 $67,076 
Short-term lease liabilities (c)$9,764 $9,269 
Long-term lease liabilities (c)57,671 63,275 
Total operating lease liabilities$67,435 $72,544 
(b) Included in other assets
(c) Included in accrued and other current liabilities and other long-term liabilities
(in thousands)December 31, 2023March 31, 2023
Operating Lease Assets and Liabilities
Right-of-use assets, net (a)$39,301 $59,815 
Short-term lease liabilities (b)$9,379 $9,784 
Long-term lease liabilities (b)34,943 55,590 
Total operating lease liabilities$44,322 $65,374 
(a) Included in other assets
(b) Included in accrued and other current liabilities and other long-term liabilities
Nine Months Ended December 31,
(in thousands)20232022
Supplemental Cash Flow
Cash paid for amounts included in the measurement of operating lease liabilities (a)$8,460 $8,184 
Right-of-use assets obtained in exchange for new operating lease obligations1,100 2,348 
Decrease in right-of-use assets and operating lease liabilities due to lease remeasurement15,371 — 
(a) Included in our condensed consolidated statement of cash flows, operating activities in accounts payable and other current liabilities
Other Information for Operating Leases
Weighted average remaining lease term (in years)6.447.25
Weighted average discount rate2.7 %2.3 %

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Nine Months Ended December 31,
(in thousands)20222021
Supplemental Cash Flow
Cash paid for amounts included in the measurement of operating lease liabilities (a)$8,184 $7,205 
Right-of-use assets obtained in exchange for new operating lease obligations2,348 7,280 
(a) Included in our condensed consolidated statement of cash flows, operating activities in accounts payable and other current liabilities
Other Information for Operating Leases
Weighted average remaining lease term (in years)7.258.30
Weighted average discount rate2.3 %2.3 %

Maturities of operating lease liabilities were as follows (in thousands): Maturities of operating lease liabilities were as follows (in thousands):
Year Ending March 31, 2023 (excluding the nine months ended December 31, 2022)$2,853 
202411,071 
Year Ending March 31, 2024 (excluding the nine months ended December 31, 2023)
Year Ending March 31, 2024 (excluding the nine months ended December 31, 2023)
Year Ending March 31, 2024 (excluding the nine months ended December 31, 2023)
2025202510,859 
2026202610,510 
2027202710,280 
2028
ThereafterThereafter27,774 
Total lease liabilities Total lease liabilities 73,347 
Less: Imputed interestLess: Imputed interest(5,912)
Present value of lease liabilitiesPresent value of lease liabilities$67,435 

9. DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING

AsWe enter into interest rate swap agreements to hedge exposure to floating interest rates on certain portions of December 31, 2022,our debt. All interest rate swaps are highly effective.

Prior to January 9, 2023, we had an interest rate swap agreement to hedge our exposure to variablevariability in cash flows from interest ratespayments on our Whitmore Term Loan. On January 9, 2023, this interest rate swap was terminated when the loan was paid off and resulted in a cash receipt of $0.2 million.

On February 7, 2023, we entered into an interest rate swap to hedge our exposure to variability in cash flows from interest payments on the Whitmore Term Loan, as discussed in Note 7.first $100.0 million borrowing under our Revolving Credit Facility. This interest rate swap fixes the one-month SOFR rate at 3.85% for the first $100.0 million borrowing under our Revolving Credit Facility and will expire May 18, 2026. As of December 31, 20222023 and March 31, 2022,2023, we had $9.4$100.0 million and $9.8$100.0 million, respectively, of notional amount in outstanding designated as an interest rate swapswaps with third parties.  The interest rate swap was highly effective.  As of December 31, 2022, the derivative assets were reported in current derivative assets as the interest rate swap was terminated on January 9, 2023, which resulted a cash receipt of $0.2 million.

The fair value of the interest rate swap designated as a hedging instrument is summarized below (in thousands):
December 31, 2022March 31, 2022
Current derivative asset$379 $— 
Current derivative liabilities— 109 
Non-current derivative liabilities— 233 
December 31, 2023March 31, 2023
Current derivative asset$942 $877 
Non-current derivative liabilities574 1,021 

The impact of changes in fair value of the interest rate swap is included in Note 16.15.

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.


1615


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, 20222023 and 20212022 (amounts in thousands, except per share data):

Three Months Ended
December 31,
Nine Months Ended
December 31,
20222021*20222021*
Three Months Ended
December 31,
Three Months Ended
December 31,
Nine Months Ended
December 31,
20232023202220232022
Net incomeNet income$15,499 $9,750 $69,451 $48,794 
Less: Net loss (income) attributable to redeemable noncontrolling interest100 (444)(79)(855)
Less: (Income) Loss attributable to redeemable noncontrolling interest
Net income attributable to CSW Industrials, Inc. shareholdersNet income attributable to CSW Industrials, Inc. shareholders$15,599 $9,306 $69,372 $47,939 
Weighted average shares:Weighted average shares:
Weighted average shares:
Weighted average shares:
Common stock
Common stock
Common stockCommon stock15,364 15,690 15,413 15,641 
Participating securitiesParticipating securities112 104 107 111 
Denominator for basic earnings per common shareDenominator for basic earnings per common share15,476 15,794 15,520 15,752 
Potentially dilutive securitiesPotentially dilutive securities36 49 34 57 
Denominator for diluted earnings per common shareDenominator for diluted earnings per common share15,512 15,844 15,554 15,809 
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:
Net income per share attributable to CSW Industrials, Inc. shareholders:
Basic
Basic
BasicBasic$1.01 $0.59 $4.47 $3.04 
DilutedDiluted$1.01 $0.59 $4.46 $3.03 
 *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 prior announced $75.0 million program. On December 16, 2022, we announced that our Board of Directors authorized a new $100.0 million share repurchase program, which replaced the previously announced $100.0 million program. Under the current repurchase program, shares may be repurchased from time to time in the open market or in privately negotiated transactions. Repurchases will be made at our discretion, based on ongoing assessments of the capital needs of the business, the market price of our common stock and general market conditions. Our Board of Directors has established an expiration date of December 31, 2024, for completion of the current repurchase program; however, the program may be limited or terminated at any time at our discretion without notice. Through December 31, 2022, no shares have been repurchased under

Under the current $100.0 million repurchase program.Under the prior $100.0 million repurchase program, 866 sharesa total of 25,914 were repurchased duringfor the three months ended December 31, 20222023 for $0.1$4.7 million. Under the current $100.0 million and 4,175 sharesrepurchase program, a total of 32,345 were repurchased duringfor the threenine months ended December 31, 20212023 for $0.5$5.8 million.Under the prior $100.0 million repurchase program, 336,347 shares were repurchased during the nine months ended December 31, 2022 for $35.7 million, and 4,175 shares were repurchased during the nine months ended December 31, 2021 for $0.5 million. As of December 31, 2022, a total of 462,462 shares had been repurchased for an aggregate amount of $50.1 million under the prior $100.0 million program with no shares repurchased under the current $100.0 million program.


17


Dividends

On April 4, 2019, weWe commenced a quarterly dividend program at an inaugural rate of $0.135 per share.in April 2019. On April 15, 2021,14, 2022, we announced a quarterly dividend increase to $0.15$0.17 per share. On April 14, 2022,2023, we announced another quarterly dividend increase to $0.17$0.19 per share. Total dividends of $2.6$2.9 million and $2.4$2.6 million were paid during the three months ended December 31, 20222023 and 2021,2022, respectively. Total dividends of $7.9$8.9 million and $7.1$7.9 million were paid during the nine months ended December 31, 20222023 and 2021,2022, respectively.

16


On January 13, 2023,12, 2024, we announced a quarterly dividend of $0.17$0.19 per share payable on February 10, 20239, 2024 to shareholders of record as of January 27, 2023.26, 2024. Any future dividends at the existing $0.17$0.19 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 variable rates.  The carrying amounts of other financial instruments (i.e., cash and cash equivalents, accounts receivable, net, accounts payable) approximate their fair values atas of December 31, 20222023 and March 31, 20222023 due to their short-term nature.

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


13. RETIREMENT PLANS
Refer to Note 15 to our consolidated financial statements included in our Annual Report for a description of our retirement and postretirement benefits.

The following tables set forth the combined net pension benefit recognized in our condensed consolidated financial statements for all plans (in thousands):
Three Months Ended
December 31,
Nine Months Ended
December 31,
2022202120222021
Service and other costs$15 $12 $45 $36 
Interest cost on projected benefit obligation36 34 107 101 
Expected return on assets(11)(28)(34)(84)
Amortization of net actuarial loss11 18 32 53 
Pension plan termination453 $— $453 $— 
Net pension benefit$504 $36 $603 $106 

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.

During the nine months ended December 31, 2022, we offered lump sum payments to eligible active and terminated vested participants in our Canadian defined benefit pension plan (the “Canadian Plan”) that covers all of our employees based at our facility in Alberta, Canada. Approximately 50% of those participants accepted the lump sum offer for an aggregate payment of $0.7 million in November 2022. We entered into an annuity purchase contract for the remaining liability and terminated the Canadian Plan effective January 31, 2022. The termination required an additional contribution of $0.1 million, which was paid in November 2022, and resulted in an overall termination charge of $0.5 million ($0.4 million, net of tax) recorded in other (expense) income, net, due primarily to the recognition of expenses that were previously included in accumulated other comprehensive loss and the recognition of additional costs associated with the annuity purchase contract.


18



14.13. 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.
14. INCOME TAXES

For the three months ended December 31, 2022,2023, we earned $18.2$16.4 million from operations before taxes and provided for income taxes of $2.7$7.1 million, resulting in an effective tax rate of 14.7%43.2%. For the nine months ended December 31, 2022,2023, we earned $89.7$98.5 million from operations before taxes and provided for income taxes of $20.2$28.0 million resulting in an effective tax rate of 22.6%28.4%. The provision for income taxes differed from the statutory rate for the three and nine months ended December 31, 20222023 primarily due to a net decrease in the reserves fortax impact on the release of the indemnification assets related to the T.A. Industries, Inc. ("TRUaire") and Falcon acquisitions, the release of related uncertain tax positions ("UTP"), excess tax deductions related to stock compensation, excess tax deductions related to Foreign-derived intangible income ("FDII") and the impact of US federal provision to return adjustment, partially offset byadjustments, state income tax net(net of federal benefit andbenefit), executive compensation limitations.limitations, and the inclusions related to foreign operations.

In connection with the TRUaire acquisition that closed in December 2020, the Company recognized a UTP of $17.3 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification included in the purchaseTRUaire acquisition agreement, the seller provided a contractual indemnification to the Company for up to $12.5 million related to UTPs taken in pre-acquisition years and we recognized a tax indemnification asset of $12.5 million. This tax indemnification asset will either be settled or expire by December 2023. During the three months ended March 31, 2021, as a result of the audit closure of a pre-acquisition tax period for TRUaire, $5.0 million of the tax indemnification asset was released along with the relevant UTP of $5.3 million. During the three months ended December 31, 2022, TRUaire's Vietnam entity concluded its audit for the tax periods from January 1, 2019 to March 31, 2022 and received an audit closing letter from the tax authority. As a result, $1.5 million of the UTP accrual (including penalties and interests accrued post-acquisition) was released and recorded as an income tax benefit for the three months ended December 31, 2022. During the three months ended December 31, 2023, the remaining $7.5 million tax indemnification asset expired and was recognized as non-cash other expense on the statement of income, which is not deductible for income tax purposes. As of December 31, 2023, the UTP accrual related to TRUaire's pre-acquisition tax periods was $14.3 million and is expected to be released in the future as the statutes on the open tax years expire.

17


In connection with the Falcon acquisition that closed in October 2022, $7.5the Company recognized a UTP of $3.0 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification included in the Falcon acquisition agreement, the sellers provided a contractual indemnification to the Company for up to $4.5 million related to UTPs taken in pre-acquisition years, and we recognized an initial tax indemnification asset of $3.0 million through purchase accounting, which will increase as additional interest and penalties on UTPs are accrued. This tax indemnification asset will either be settled or expire upon the closure of the tax statutes for the pre-acquisition periods. During the three months ended December 31, 2023, as a result of the statute expiration of the 2019 federal tax return, $1.0 million UTP was released and the related $1.0 million tax indemnification asset remains outstandingexpired concurrently and was recognized as non-cash other expense on the statement of income, which is reported in our condensed consolidated balance sheets in prepaid expensesnot deductible for income tax purposes. As of December 31, 2023, the UTP reserve and other current assets.offsetting indemnification asset related to Falcon's pre-acquisition period were $2.4 million. The Falcon UTP reserves and offsetting indemnification asset will either be settled or expire upon the closure of the tax statutes for the pre-acquisition period.

For the three months ended December 31, 2021,2022, we earned $12.1$18.2 million from operations before taxes and provided for income taxes of $2.4$2.7 million, resulting in an effective tax rate of 19.7%14.7%. For the nine months ended December 31, 2021,2022, we earned $63.9$89.7 million from operations before taxes and provided for income taxes of $15.1$20.2 million, resulting in an effective tax rate of 23.6%22.6%. The provision for income taxes differed from the statutory rate for the three and nine months ended December 31, 20212022 primarily due to a net decrease in the reserves for UTPs, excess tax deductions related to stock compensation, excess tax deductions related to Foreign-derived intangible income ("FDII") and the impact of US federal provision to return to provision adjustments and deductions related to FDII,adjustment, partially offset by state and foreign income taxes,tax, net of federal benefit and executive compensation limitations, an increase in the reserve for UTP and foreign tax credits.limitations.

The Company expects $0.8 million of existing reserves for UTPs to either be settled or expire within the next 12 months as the statute of limitations expire. One of our Canadian subsidiaries is currently under auditreceived proposed assessments resulting from audits by the taxing authority for tax periods from Marchyears 2017-2020, and we have included the immaterial impact of the proposed assessments in the income tax expense for the nine months ended December 31, 2017 to March 31, 2020.2023.



19


16.15. 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,
20222021
Three Months Ended December 31,Three Months Ended December 31,
202320232022
Currency translation adjustments:Currency translation adjustments:
Balance at beginning of period
Balance at beginning of period
Balance at beginning of periodBalance at beginning of period$(10,120)$(4,436)
Adjustments for foreign currency translationAdjustments for foreign currency translation1,606 (71)
Balance at end of periodBalance at end of period$(8,514)$(4,507)
Interest rate swaps:Interest rate swaps:
Interest rate swaps:
Interest rate swaps:
Balance at beginning of periodBalance at beginning of period$339 $(825)
Unrealized gains (losses), net of taxes of $10 and $(10), respectively (a)(39)37 
Reclassification of losses included in interest expense, net, net of taxes of $0 and $(15), respectively— 56 
Balance at beginning of period
Balance at beginning of period
Unrealized losses, net of taxes of $331 and $10, respectively (a)
Reclassification of losses (gains) included in interest expense, net of taxes of $83 and $0, respectively
Other comprehensive income (loss)(39)93 
Other comprehensive income
Other comprehensive income
Other comprehensive income
Balance at end of periodBalance at end of period$300 $(732)
Defined benefit plans:Defined benefit plans:
Defined benefit plans:
Defined benefit plans:
Balance at beginning of periodBalance at beginning of period$(353)$(767)
Amortization of net gains (losses), net of taxes of $(35) and $14, respectively (b)133 (52)
Balance at beginning of period
Balance at beginning of period
Amortization of net losses, net of taxes of $0 and $(35), respectively (b)
Balance at end of periodBalance at end of period$(220)$(819)
Balance at end of period
Balance at end of period
18


Nine Months Ended December 31,
20222021
Nine Months Ended December 31,Nine Months Ended December 31,
202320232022
Currency translation adjustments:Currency translation adjustments:
Balance at beginning of period
Balance at beginning of period
Balance at beginning of periodBalance at beginning of period$(4,438)$(4,394)
Adjustments for foreign currency translationAdjustments for foreign currency translation(4,076)(113)
Balance at end of periodBalance at end of period$(8,514)$(4,507)
Interest rate swaps:Interest rate swaps:
Interest rate swaps:
Interest rate swaps:
Balance at beginning of periodBalance at beginning of period$(270)$(803)
Unrealized gains (losses), net of taxes of $(137) and $27, respectively (a)516 (100)
Reclassification of losses included in interest expense, net,
net of taxes of $(14) and $(45), respectively
54 171 
Balance at beginning of period
Balance at beginning of period
Unrealized gains, net of taxes of $(336) and $(137), respectively (a)
Reclassification of (gains) losses included in interest expense, net,
net of taxes of $229 and $(14), respectively
Other comprehensive incomeOther comprehensive income570 71 
Balance at end of periodBalance at end of period$300 $(732)
Defined benefit plans:Defined benefit plans:
Defined benefit plans:
Defined benefit plans:
Balance at beginning of periodBalance at beginning of period$(366)$(799)
Amortization of net gains (losses), net of taxes of $(39) and $5, respectively (b)146 (20)
Balance at beginning of period
Balance at beginning of period
Amortization of net losses, net of taxes of $(1) and $(39), respectively (b)
Balance at end of periodBalance at end of period$(220)$(819)
Balance at end of period
Balance at end of period

(a) Unrealized gain (loss) is reclassified to earnings as underlying cash interest payments are made. As discussed in Note 9, the interest rate swap was terminated on January 9, 2023, which resultedWe expect to recognize a gain of $0.1$0.7 million, net of deferred taxes, duringover the threenext twelve months ended Marchrelated to the designated cash flow hedge based on its fair value at December 31, 2023.

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


20


17.16. REVENUE RECOGNITION

Refer to Note 2019 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, 2022Nine Months Ended December 31, 2022
Contractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsTotalContractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsTotal
Three Months Ended December 31, 2023
Three Months Ended December 31, 2023
Three Months Ended December 31, 2023
Contractor Solutions
Contractor Solutions
Contractor Solutions
Build-to-order
Build-to-order
Build-to-orderBuild-to-order$— $21,509 $— $21,509 $— $68,366 $— $68,366 
Book-and-shipBook-and-ship110,171 3,110 36,303 149,584 374,377 10,612 108,864 493,853 
Book-and-ship
Book-and-ship
Net revenuesNet revenues$110,171 $24,619 $36,303 $171,093 $374,377 $78,978 $108,864 $562,219 
Net revenues
Net revenues

Three Months Ended December 31, 2021Nine Months Ended December 31, 2021
Contractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsTotalContractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsTotal
Three Months Ended December 31, 2022
Three Months Ended December 31, 2022
Three Months Ended December 31, 2022
Contractor Solutions
Contractor Solutions
Contractor Solutions
Build-to-order
Build-to-order
Build-to-orderBuild-to-order$— $21,890 $— $21,890 $— $67,301 $— $67,301 
Book-and-shipBook-and-ship81,005 2,015 31,376 114,396 294,538 6,088 85,209 385,835 
Book-and-ship
Book-and-ship
Net revenuesNet revenues$81,005 $23,905 $31,376 $136,286 $294,538 $73,389 $85,209 $453,136 
Net revenues
Net revenues

19


Contract liabilities, which are included in accrued and other current liabilities in our condensed consolidated balance sheets were as follows (in thousands):
Balance at April 1, 2022:2023:$1,026637 
Revenue recognized during the period(910)(574)
New contracts and revenue added to existing contracts during the period326585 
Balance at December 31, 20222023$442648 


18.17. 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 resourcesAs discussed in Note 20 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,consolidated financial statements in our business is organized intoAnnual Report, we conduct our operations through three reportable segments:
Contractor Solutions
Engineered BuildingSpecialized Reliability Solutions
Specialized ReliabilityEngineered Building 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, 2022:2023:
(in thousands)(in thousands)Contractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsSubtotal - Reportable SegmentsEliminations and OtherTotal(in thousands)Contractor SolutionsSpecialized Reliability SolutionsEngineered Building SolutionsSubtotal - Reportable SegmentsEliminations and OtherTotal
Revenues, net to external customersRevenues, net to external customers$110,171 $24,619 $36,303 $171,093 $— $171,093 
Intersegment revenueIntersegment revenue1,736 — 32 1,768 (1,768)— 
Operating incomeOperating income21,829 2,257 3,921 28,007 (4,895)23,112 

21


Three Months Ended December 31, 2021*:2022:
(in thousands)(in thousands)Contractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsSubtotal - Reportable SegmentsEliminations and OtherTotal(in thousands)Contractor SolutionsSpecialized Reliability SolutionsEngineered Building SolutionsSubtotal - Reportable SegmentsEliminations and OtherTotal
Revenues, net to external customersRevenues, net to external customers$81,005 $23,905 $31,376 $136,286 $— $136,286 
Intersegment revenueIntersegment revenue1,454 — 1,462 (1,462)— 
Operating incomeOperating income11,324 3,200 3,384 17,908 (4,459)13,449 


Nine months endedMonths Ended December 31, 2022:2023
(in thousands)Contractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsSubtotal - Reportable SegmentsEliminations and OtherTotal
Revenues, net to external customers$374,377 $78,978 $108,864 $562,219 $— $562,219 
Intersegment revenue5,454 — 95 5,549 (5,549)— 
Operating income90,416 10,172 13,658 114,246 (14,944)99,302 

Nine months ended December 31, 2021*:
(in thousands)Contractor SolutionsEngineered Building SolutionsSpecialized Reliability SolutionsSubtotal - Reportable SegmentsEliminations and OtherTotal
Revenues, net to external customers$294,538 $73,389 $85,209 $453,136 $— $453,136 
Intersegment revenue1,510 — 80 1,590 (1,590)— 
Operating income67,589 9,388 5,290 82,267 (13,824)68,443 

*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.
(in thousands)Contractor SolutionsSpecialized Reliability SolutionsEngineered Building SolutionsSubtotal - Reportable SegmentsEliminations and OtherTotal
Revenues, net to external customers$389,392 $107,929 $84,659 $581,980 $— $581,980 
Intersegment revenue5,876 108 — 5,984 (5,984)— 
Operating income104,443 15,534 13,029 133,006 (18,226)114,780 


2220


Nine Months Ended December 31, 2022

(in thousands)Contractor SolutionsSpecialized Reliability SolutionsEngineered Building SolutionsSubtotal - Reportable SegmentsEliminations and OtherTotal
Revenues, net to external customers$374,377 $108,864 $78,978 $562,219 $— $562,219 
Intersegment revenue5,454 95 — 5,549 (5,549)— 
Operating income90,416 13,658 10,172 114,246 (14,944)99,302 


21


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, 20222023 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

CSW Industrials, Inc. (“CSWI,” “we,” “our” or “us”) is a diversified industrial growth company with a strategic focus on providing niche, value-added products in the end markets we serve. We operate in three business segments: Contractor Solutions, Specialized Reliability Solutions and Engineered Building Solutions. Our products include mechanical products for heating, ventilation, air conditioning and refrigeration ("(“HVAC/R"R”), plumbing products, grilles, registers and diffusers ("GRD"(“GRD”), building safety solutions and high-performance specialty lubricants and sealants. End markets that we serve include HVAC/R, architecturally-specified building products, plumbing, general industrial, energy, rail miningtransportation and general industrial.mining. Our manufacturing operations are concentrated in the United States (“U.S.”), CanadaVietnam and Vietnam,Canada, 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,the U.S., Canada, the U.K. and the U.S.Australia.

Many ofDrawing on our productsinnovative and proven technologies, we seek to deliver solutions primarily to contractors that place a premium on superior performance and reliability. We believe our brands are used to protectwell-known in the capital assets of our customers that are expensive to repair or replacespecific end markets we serve 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.reputation for high quality. 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®AC Guard®, Air Sentry®, Big Red®Balco®, Cover GuardTM, AC GuardDeacon®, FalconTM, Deacon®Greco®, Jet-Lube®, Kopr-Kote®, Leak Freeze®, Falcon Stainless, Inc.®Metacaulk®, Greco®No. 5®, OilSafe®, RectorSeal®, Safe-T-Switch®, Shoemaker Manufacturing®, Smoke Guard®, TRUaire® and Shoemaker Manufacturing®Whitmore®. These products are distributed through an extensive wholesale distribution network serving the HVAC/R, architecturally-specified buildings products, plumbing, general industrial, energy, rail transportation and mining end markets. Our desire to develop solutions for our contractors, combined with the differentiated nature of our niche product offerings, drives loyalty to our brands. We rely on both organic growth and inorganic growth through acquisitions to provide an increasingly broad portfolio of performance optimizing solutions that meet our customers’ ever-changing needs. We have a successful record of making attractive and synergistic acquisitions that support expansion of our broad portfolio of solutions, and we remain focused on identifying additional acquisition opportunities in our core end markets.

We operate in three business segments: Contractor Solutions, Engineered Building Solutions and Specialized Reliability Solutions. Our Contractor Solutions segment manufactures efficiency and performance enhancing products predominantly for residential and commercial HVAC/R and plumbing applications, which are designed primarily for professional end-use customers. Our Engineered Building Solutions segment provides primarily code-driven, life-safety products 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 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 environmentalassess and other regulatory compliance, combinedproactively manage the impacts of COVID-19 on all aspects of our business and geographies, including with overall global economic uncertainty.

respect to our employees, customers, communities and supply chain. During the three and nine months of our prior fiscal year ended December 31, 2021,2023, the COVID-19 pandemic had no direct andor indirect impacts on our operations including reduced production activities at our Vietnam operations, material and freight cost inflation, supply chain disruptions and freight delays, driven by numerous factors including government actions, labor supply shortages and recovering demand. In addition, COVID-19 and its indirect effects also contributed to increased demand in certain parts of our business, including the HVAC/R end market. During the three and nine months of our current fiscal year ended December 31, 2022, the direct and indirect impacts of the COVID-19 pandemicimpact on our consolidated operating results were immaterial as economic activities recovered andresults. While the effects ofFederal COVID-19 Public Health Emergency Declaration expired on May 11, 2023, the pandemic lessened.

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

We are closely monitoringcontinue to monitor the Russian invasion of Ukraine and its global impacts.impact. 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. ShortlySince shortly after the Russian invasion of Ukraine began in February 2022, we indefinitely suspended allhave had no commercial activities including sales in Russia. Additionally, during the quarter ended December 31, 2022, we had no sales intoRussia, Belarus or
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Ukraine. While the conflict continues to evolve and the outcome remains highly uncertain, we do not currently believe the Russia-Ukraine conflict will have a material impact on our business and results of operations. However, if the Russia-Ukraine conflict continues or worsens, leading to greater global economic or political disruptions and uncertainty, our business and results of operations could be materially impacted as a result.

We are monitoring the Israel and the Gaza Strip conflict and its global impact. While the conflict continues to evolve and the outcome remains uncertain, we do not currently believe the conflict will have a material impact on our business and results of operations.


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Our Outlook

We expect to maintain a strong balance sheet in fiscal year 2023,2024, 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-adjustedrisk 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, which are 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.

We remain disciplined in our approach to acquisitions, particularly as it relates to our assessment of valuation, prospective synergies, diligence, cultural fit and ease of integration, especially in light of uncertain and volatile global economic conditions.


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. Falcon Stainless, IncInc. ("Falcon") activity has been included in our results within our Contractor Solutions segment since the October 4, 2022 acquisition date. Cover Guard, Inc. (“CG”) and AC Guard, Inc. ("ACG") activities have been included in our results within our Contractor Solutions segment since the July 8, 2022 acquisition date. Shoemaker Manufacturing, LLC ("Shoemaker") activity has been included in our results within our Contractor Solutions segment since the December 15, 2021 acquisition date. Activity of Whitmore Manufacturing, LLC's joint venture with Shell (the "Whitmore JV") 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 T.A. Industries, Inc. (“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 December 31,Three Months Ended December 31,
(Amounts in thousands)(Amounts in thousands)20222021(Amounts in thousands)20232022
Revenues, netRevenues, net$171,093 $136,286 
Nine Months Ended December 31,
Nine Months Ended December 31,
Nine Months Ended December 31,
Nine Months Ended December 31,
(Amounts in thousands)(Amounts in thousands)20222021(Amounts in thousands)20232022
Revenues, netRevenues, net$562,219 $453,136 

Net revenues for the three months ended December 31, 20222023 increased $34.8$3.9 million, or 25.5%2.3%, as compared with the three months ended December 31, 2021. The increase2022. Revenue growth was partially due to the acquisitions of Shoemaker, CG, ACGentirely organic, driven primarily by increased unit volumes and Falcon acquisitions ($12.0 million or 8.8%). Excluding the impact of the acquisitions, organic sales increased $22.8 million, or 16.7%, from the prior year primarily due to pricing initiatives.actions. Net revenue increased in the HVAC/R, general industrial, architecturally-specified building products, plumbing, HVAC/R, energy and mining end markets and decreased in the rail transportation and general industrial end markets.


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Net revenues for the nine months ended December 31, 20222023 increased $109.1$19.8 million, or 24.1%3.5%, as compared with the nine months ended December 31, 2021. The increase was partially2022. Excluding the impact of acquisitions, organic revenue increased $12.3 million, or 2.2% from the prior year period, driven by pricing actions. Inorganic revenue increased $7.5 million, or 1.3%, due to the acquisitions of Shoemaker, CG, ACG and Falcon ($31.6 million or 7.0%). Excluding the impact of the acquisitions, organic sales increased $77.5 million, or 17.1%, from the prior year due to pricing initiatives.Falcon. Net revenue increased in all the plumbing, architecturally-specified building products, general industrial, HVAC/R, mining and energy end markets served.and decreased in the rail transportation end market.


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Gross Profit and Gross Profit Margin
Three Months Ended December 31,
(Amounts in thousands, except percentages)20222021*
Gross profit$65,798 $51,343 
Gross profit margin38.5 %37.7 %
Nine Months Ended December 31,
(Amounts in thousands, except percentages)20222021*
Gross profit$232,870 $183,620 
Gross profit margin41.4 %40.5 %
*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.
Three Months Ended December 31,
(Amounts in thousands, except percentages)20232022
Gross profit$73,981 $65,798 
Gross profit margin42.3 %38.5 %
Nine Months Ended December 31,
(Amounts in thousands, except percentages)20232022
Gross profit$257,107 $232,870 
Gross profit margin44.2 %41.4 %

Gross profit for the three months ended December 31, 20222023 increased $14.5$8.2 million, or 28.2%12.4%, as compared with the three months ended December 31, 2021.2022. The increase was primarily a result of pricing initiativesthe ocean and the acquisitions of Shoemaker, CG, ACGdomestic freight expense reduction and Falcon.increased net revenue. Gross profit margin of 42.3% for the three months ended December 31, 2023 increased as compared to 38.5% for the three months ended December 31, 2022 increased as compared to 37.7% for the three months ended December 31, 2021.2022. The increase was driven by net revenue growth in the Contractor Solutions segment outpacing other segments.reduced ocean and domestic freight expenses and pricing actions.

Gross profit for the nine months ended December 31, 20222023 increased $49.2$24.2 million, or 26.8%10.4%, as compared with the nine months ended December 31, 2021.2022. The increase was primarily a result of pricing initiatives,actions, the ocean and domestic freight expense reduction, and the acquisitions of Shoemaker, CG, ACG and Falcon, along with the $3.9 million TRUaire purchase accounting effect and TRUaire Vietnam's COVID related expenses ($1.7 million) incurred in the prior year period that did not recur.Falcon. Gross profit margin of 44.2% for the nine months ended December 31, 2023 increased as compared to 41.4% for the nine months ended December 31, 2022 increased2022. The increase was driven by pricing actions and reduced ocean and domestic freight expenses as compared to 40.5% for the nine months ended December 31, 2021. The increase was primarily due to the above-mentioned TRUaire-related expenses incurred in prior year period that did not recur.period.

Operating Expenses
Three Months Ended December 31,
Three Months Ended December 31,Three Months Ended December 31,
(Amounts in thousands, except percentages)(Amounts in thousands, except percentages)20222021(Amounts in thousands, except percentages)20232022
Operating expensesOperating expenses$42,686 $37,894 
Operating expenses as a percentage of revenues, netOperating expenses as a percentage of revenues, net24.9 %27.8 %Operating expenses as a percentage of revenues, net26.5 %24.9 %
Nine Months Ended December 31,
Nine Months Ended December 31,
Nine Months Ended December 31,
Nine Months Ended December 31,
(Amounts in thousands, except percentages)(Amounts in thousands, except percentages)20222021(Amounts in thousands, except percentages)20232022
Operating expensesOperating expenses$133,568 $115,177 
Operating expenses as a percentage of revenues, netOperating expenses as a percentage of revenues, net23.8 %25.4 %Operating expenses as a percentage of revenues, net24.5 %23.8 %

Operating expenses for the three months ended December 31, 20222023 increased $4.8$3.7 million, or 12.6%8.7%, as compared with the three months ended December 31, 2021.2022. The increase was primarily due to addedincreased expenses related to the inclusion of Shoemaker in the current period, increased marketing expensesemployee compensation and third-party commissions to support the revenue growth, as well as the increased amortizations of intangible assets as a result of recent acquisitions. The decrease in operating expensestravel. Operating expense as a percentage of revenues was attributableincreased to revenue increasing by a greater percentage than26.5% for the increase in operating expenses.three months ended December 31, 2023 as compared to 24.9% for the three months ended December 31, 2022.


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Operating expenses for the nine months ended December 31, 20222023 increased $18.4$8.8 million, or 16.0%6.6%, as compared with the nine months ended December 31, 2021.2022. The increase was primarily due to increased third-party sales commissions to support revenue growth, increased employee compensation expenses including equity compensation, increased professional fees primarily related to Enterprise Resource Planning ("ERP") optimization and recent acquisitions, along with the increased amortizations of intangible assets as a result of recent acquisitions. Marketing and travel expenses increased in addition to added expenses related to the inclusion of Shoemaker in the current period. The decrease in operating expensesemployee compensation, travel, insurance and sales commissions driven by revenue growth. Operating expense as a percentage of revenues was attributableincreased to revenue increasing by a greater percentage than24.5% for the increase in operating expenses.nine months ended December 31, 2023 as compared to 23.8% for the nine months ended December 31, 2022.

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Operating Income
Three Months Ended December 31,
(Amounts in thousands, except percentages)20222021*
Operating income$23,112 $13,449 
Operating margin13.5 %9.9 %
Nine Months Ended December 31,
(Amounts in thousands, except percentages)20222021*
Operating income$99,302 $68,443 
Operating margin17.7 %15.1 %
*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.
Three Months Ended December 31,
(Amounts in thousands, except percentages)20232022
Operating income$27,581 $23,112 
Operating margin15.8 %13.5 %
Nine Months Ended December 31,
(Amounts in thousands, except percentages)20232022
Operating income$114,780 $99,302 
Operating margin19.7 %17.7 %

Operating income for the three months ended December 31, 20222023 increased $9.7$4.5 million, or 71.9%19.3%, as compared with the three months ended December 31, 2021,2022, 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, 20222023 increased $30.9$15.5 million, or 45.1%15.6%, as compared with the nine months ended December 31, 2021,2022, 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 $4.2$2.8 million for the three months ended December 31, 2022 increased $3.02023 decreased $1.4 million as compared to the three months ended December 31, 2021. 2022. The decrease was due to reduced borrowing under our Revolving Credit Facility as a result of strong operating cash flows generated during the three months ended December 31, 2023 and the benefit from our current $100 million interest rate swap, partially offset by higher interest rates.

Net interest expense of $9.1$10.1 million for the nine months ended December 31, 20222023 increased $4.9$1.0 million as compared to the nine months ended December 31, 2021.2022. The increase in the three and nine months ended December 31, 2022 was due to higher interest rates, and increasedpartially offset by reduced borrowing under our Revolving Credit Facility primarily in connection withas a result of strong operating cash flows generated during the acquisitions of Shoemaker, CG, ACGnine months ended December 31, 2023 and Falcon.the benefit from our current $100 million interest rate swap.

Other income (expense),expense, net increased $0.6$7.7 million to net expense of $8.4 million for the three months ended December 31, 2023 as compared with net expense of $0.7 million for the three months ended December 31, 20222022. The increase was due to the non-cash $8.5 million release of tax indemnification assets related to the TRUaire and Falcon acquisitions, as compared withdiscussed in Note 14 to our condensed financial statements included in this Quarterly report, in addition to gains arising from transactions in currencies other than functional currencies.

Other expense, net increased $5.7 million to net expense of $0.1$6.2 million for the threenine months ended December 31, 2021. The increase in the three months ended December 31, 2022 was due to the Canadian pension plan termination loss of $0.5 million in the current period. Other income (expense), net increased $0.1 million to2023 as compared with net expense of $0.5 million for the nine months ended December 31, 2022 as compared with net expense of 0.4 million for the nine months ended December 31, 2021.2022. The increase in the nine months ended December 31, 2022 was due to the Canadian pension plan termination loss mentioned above,non-cash $8.5 million release of tax indemnification assets related to the TRUaire and Falcon acquisitions, as discussed in Note 14 to our condensed financial statements included in this Quarterly report, partially offset by foreign currency exchange changes.losses arising from transactions in currencies other than functional currencies and by a gain of $1.4 million recognized from the sale of a property previously held for investment.


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Provision for Income Taxes and Effective Tax Rate

For the three months ended December 31, 2023, we earned $16.4 million from operations before taxes and provided for income taxes of $7.1 million, resulting in an effective tax rate of 43.2%. For the nine months ended December 31, 2023, we earned $98.5 million from operations before taxes and provided for income taxes of $28.0 million resulting in an effective tax rate of 28.4%. The provision for income taxes differed from the statutory rate for the three and nine months ended December 31, 2023 primarily due to the tax impact on the release of the indemnification assets related to the T.A. Industries, Inc. ("TRUaire") and Falcon acquisitions, the release of related uncertain tax positions ("UTP"), the impact of US federal provision to return adjustments, state income tax (net of federal benefit), executive compensation limitations, and the inclusions related to foreign operations.

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In connection with the TRUaire acquisition that closed in December 2020, the Company recognized a UTP of $17.3 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification included in the TRUaire acquisition agreement, the seller provided a contractual indemnification to the Company for up to $12.5 million related to UTPs taken in pre-acquisition years and we recognized a tax indemnification asset of $12.5 million. This tax indemnification asset will either be settled or expire by December 2023. During the three months ended March 31, 2021, as a result of the audit closure of a pre-acquisition tax period for TRUaire, $5.0 million of the tax indemnification asset was released along with the relevant UTP of $5.3 million. During the three months ended December 31, 2022, TRUaire's Vietnam entity concluded its audit for the tax periods from January 1, 2019 to March 31, 2022 and received an audit closing letter from the tax authority. As a result, $1.5 million of the UTP accrual (including penalties and interests accrued post-acquisition) was released and recorded as an income tax benefit for the three months ended December 31, 2022. During the three months ended December 31, 2023, the remaining $7.5 million tax indemnification asset expired and was recognized as non-cash other expense on the statement of income, which is not deductible for income tax purposes. As of December 31, 2023, the UTP accrual related to TRUaire's pre-acquisition tax periods was $14.3 million and is expected to be released in the future as the statutes on the open tax years expire.

In connection with the Falcon acquisition that closed in October 2022, the Company recognized a UTP of $3.0 million related to pre-acquisition tax periods. In addition, in accordance with the tax indemnification included in the Falcon acquisition agreement, the sellers provided a contractual indemnification to the Company for up to $4.5 million related to UTPs taken in pre-acquisition years, and we recognized an initial tax indemnification asset of $3.0 million through purchase accounting, which will increase as additional interest and penalties on UTPs are accrued. This tax indemnification asset will either be settled or expire upon the closure of the tax statutes for the pre-acquisition periods. During the three months ended December 31, 2023, as a result of the statute expiration of the 2019 federal tax return, $1.0 million UTP was released and the related $1.0 million tax indemnification asset expired concurrently and was recognized as non-cash other expense on the statement of income, which is not deductible for income tax purposes. As of December 31, 2023, the UTP reserve and offsetting indemnification asset related to Falcon's pre-acquisition period were $2.4 million. The Falcon UTP reserves and offsetting indemnification asset will either be settled or expire upon the closure of the tax statutes.

For the three months ended December 31, 2022, we earned $18.2 million from operations before taxes and provided for income taxes of $2.7 million, resulting in an effective tax rate of 14.7%. For the nine months ended December 31, 2022, we earned $89.7 million from operations before taxes and provided for income taxes of $20.2 million, resulting in an effective tax rate of 22.6%. The provision for income taxes differed from the statutory rate for the three and nine months ended December 31, 2022 primarily due to a net decrease in the reserves for uncertain tax positions ("UTP"), excess tax deductions related to stock compensation, excess tax deductions related to Foreign-derived intangible income ("FDII") and the impact of US federal provision to return adjustment, partially offset by state income tax, net of federal benefit and executive compensation limitations.

During the three months ended December 31, 2022, TRUaire's Vietnam entity concluded its audit for the tax periods from January 1, 2019 to March 31, 2022 and received an audit closing letter from the tax authority. As a result, $1.5The Company expects $0.8 million of existing reserves for UTPs to either be settled or expire within the UTP accrual (including penaltiesnext 12 months as the statute of limitations expire. One of our Canadian subsidiaries received proposed assessments resulting from audits by the taxing authority for tax years 2017-2020, and interests accrued post-acquisition) was released and recorded as anwe have included the immaterial impact of the proposed assessments in the income tax benefitexpense for the three months ended December 31, 2022.

For the three months ended December 31, 2021, we earned $12.1 million from operations before taxes and provided for income taxes of $2.4 million, resulting in an effective tax rate of 19.7%. For the nine months ended December 31, 2021, we earned $63.9 million from operations before taxes and provided for income taxes of $15.1 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, the impact of federal return to provision adjustments and deductions related to FDII, partially offset by state and foreign income taxes, executive compensation limitations, an increase in the reserve for UTP and foreign tax credits.

One of our Canadian subsidiaries is currently under audit by the taxing authority for tax periods from March 31, 2017 to March 31, 2020.2023.



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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 performance enhancing products predominantly for residential and commercial HVAC/R and plumbing applications, which are designed primarily for professional end-use customers.
Three Months Ended December 31,
Three Months Ended December 31,Three Months Ended December 31,
(Amounts in thousands)(Amounts in thousands)20222021*(Amounts in thousands)20232022
Revenues, netRevenues, net$111,907 $82,459 
Operating incomeOperating income21,829 11,324 
Operating margin Operating margin19.5 %13.7 %Operating margin22.3 %19.5 %
Nine Months Ended December 31,
Nine Months Ended December 31,
Nine Months Ended December 31,
Nine Months Ended December 31,
(Amounts in thousands)(Amounts in thousands)20222021*(Amounts in thousands)20232022
Revenues, netRevenues, net$379,831 $296,048 
Operating incomeOperating income90,416 67,589 
Operating margin Operating margin23.8 %22.8 % Operating margin26.4 %23.8 %
*Prior period has been adjusted
Net revenues for the three months ended December 31, 2023 increased $3.5 million, or 3.1%, as compared with the three months ended December 31, 2022. This increase was due entirely to reflectorganic revenue growth, resulting primarily from a slight increase in unit volumes. Net revenue increased in all end markets served.

Net revenues for the changenine months ended December 31, 2023 increased $15.4 million, or 4.1%, as compared with the nine months ended December 31, 2022. Inorganic revenue increased $7.5 million, or 2.0%, due the acquisitions of CG, ACG and Falcon. Excluding the impact of acquisitions, organic revenue increased $7.9 million, or 2.1%, primarily as a result of pricing actions, partially offset by a slight decrease in inventory accounting method,unit volumes. Net revenue increased in all end markets served.

Operating income for the three months ended December 31, 2023 increased $3.9 million, or 18.0%, as describedcompared with the three months ended December 31, 2022. The increase was driven by a reduction in ocean and domestic freight expenses and increased net revenue, partially offset by an increase in operating expenses. Operating margin of 22.3% for the Company's fiscal 2022 Annual Report on Form 10-K.three months ended December 31, 2023 increased as compared to 19.5% for the three months ended December 31, 2022. This increase was due to gross margin improvement driven primarily by the aforementioned reduction in ocean and domestic freight expenses.

Operating income for the nine months ended December 31, 2023 increased $14.0 million, or 15.5%, as compared with the nine months ended December 31, 2022. The increase was due to the increased net revenue, a reduction in ocean and domestic freight expenses, and the inclusion of the CG, ACG and Falcon acquisitions, partially offset by an increase in operating expenses. Operating margin of 26.4% for the nine months ended December 31, 2023 increased as compared to 23.8% for the nine months ended December 31, 2022. This increase was due to gross margin improvement driven primarily by pricing actions and the aforementioned reduction in ocean and domestic freight expenses.


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Specialized Reliability Solutions Segment Results

The Specialized Reliability Solutions segment provides products for increasing reliability, efficiency, performance and lifespan of industrial assets and solving equipment maintenance challenges.
Three Months Ended December 31,
(Amounts in thousands)20232022
Revenues, net$33,712 $36,334 
Operating income3,740 3,921 
Operating margin11.1 %10.8 %
Nine Months Ended December 31,
(Amounts in thousands)20232022
Revenues, net$108,037 $108,958 
Operating income15,534 13,658 
  Operating margin14.4 %12.5 %

Net revenues of $33.7 million for the three months ended December 31, 2022 increased $29.42023 decreased $2.6 million, or 35.7%7.2%, as compared withto the three months ended December 31, 2021. The increase2022. This decrease was partially due to the acquisitions of Shoemaker, CG, ACG and Falcon ($12.0 million or 14.6%). Excluding the impact of the acquisitions, organic sales increasedprimarily driven by $17.4 million, or 21.1%, due to pricing initiatives,a temporary shipment delay at quarter-end, which was partially offset by a slight decrease in unit volumes.pricing actions. Net revenue increased in the HVAC/Renergy and architecturally-specified building productmining end markets and decreased in the rail transportation and general industrial end markets.

Net revenues for the nine months ended December 31, 2022 increased $83.82023 decreased $0.9 million, or 28.3%0.8%, as compared withto the nine months ended December 31, 2021.2022. The increaseslight decrease was partiallyprimarily due to the acquisitions of Shoemaker, CG, ACG and Falcon ($31.6 million or 10.7%). Excluding the impact of the acquisitions, organic sales increased by $52.2 million, or 17.6%, due to pricing initiatives,a temporary shipment delay at quarter-end, which was partially offset by a slight decrease in unit volumes.pricing actions. Net revenue increased in the HVAC/Rgeneral industrial, mining, and architecturally-specified building productenergy end markets and decreased in the general industrialrail transportation end market.

Operating income for the three months ended December 31, 2022 increased $10.52023 decreased $0.2 million, or 92.8%4.6%, as compared with the three months ended December 31, 2021.2022. The increaseslight decrease was due todriven by the increased net revenue and the inclusion of recent acquisitions of Shoemaker, CG, ACG and Falcon, as well as the transaction expense ($0.5 million) related to the Shoemaker acquisition and TRUaire Vietnam's COVID related expenses ($0.5 million) incurreddecrease in the prior year period that did not recur.revenue. Operating margin of 19.5%11.1% for the three months ended December 31, 20222023 increased as compared to 13.7%10.8% for the three months ended December 31, 2021.2022. This increase was primarily due to gross margin improvement driven primarily by pricing initiatives and a reduction in cost of shipping containers, as well as reduced growth in operating expense as a percentage of revenue.improvement.

Operating income for the nine months ended December 31, 20222023 increased $22.8$1.9 million, or 33.8%13.7%, as compared with the nine months ended December 31, 2021.2022. The increase was due to the increased net revenue and the inclusion of recent acquisitions of Shoemaker, CG, ACG and Falcon as well as the $3.9 million TRUaire purchase accounting effect and TRUaire Vietnam's COVID related expenses ($1.7 million) incurredan improvement in the prior year period that did not recur.gross margin driven by pricing actions. Operating margin of 23.8%14.4% for the nine months ended December 31, 20222023 increased as compared to 22.8%12.5% for the nine months ended December 31, 2021.2022. This increase was primarily due to the above-mentioned TRUaire-related expenses incurred in the prior year period that did not recur.gross margin improvement.


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Engineered Building Solutions Segment Results

The Engineered Building Solutions segment provides primarily code-driven, life-safety products that are engineered to provide 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 December 31,Three Months Ended December 31,
(Amounts in thousands)(Amounts in thousands)20222021(Amounts in thousands)20232022
Revenues, netRevenues, net$24,619 $23,905 
Operating incomeOperating income2,257 3,200 
Operating margin Operating margin9.2 %13.4 %Operating margin12.7 %9.2 %
Nine Months Ended December 31,
Nine Months Ended December 31,
Nine Months Ended December 31,
Nine Months Ended December 31,
(Amounts in thousands)(Amounts in thousands)20222021(Amounts in thousands)20232022
Revenues, netRevenues, net$78,978 $73,389 
Operating incomeOperating income10,172 9,388 
Operating margin Operating margin12.9 %12.8 %Operating margin15.4 %12.9 %

Net revenues for the three months ended December 31, 20222023 increased $0.7$3.2 million, or 3.0%13.2%, as compared towith the three months ended December 31, 2021 due to sustained commercial activity2022 driven by the continued conversion of strong project bookings into revenue and retention of market share.pricing actions.
`
Net revenues for the nine months ended December 31, 20222023 increased $5.6$5.7 million, or 7.6%7.2%, as compared towith the nine months ended December 31, 2021 due to successful commercial initiatives2022 driven by the continued conversion of strong project bookings into revenue and new product introductions.pricing actions.


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Operating income for the three months ended December 31, 2022 decreased $0.92023 increased $1.3 million or 29.5%,56.7% as compared withto the three months ended December 31, 2021.2022. The decreaseincrease was due to a shift in sales to lower margin projects.driven by the increased net revenue and improved operating leverage. Operating margin of 12.7% for the three months ended December 31, 2023 increased as compared to 9.2% for the three months ended December 31, 2022 decreased as compared to 13.4% for the three months ended December 31, 2021.2022. This decreaseincrease was primarily due to gross margin improvement resulting from pricing actions, improved operating leverage and reduced operating expense as a shift in sales to lower margin projects.percentage of revenue.

Operating income for the nine months ended December 31, 20222023 increased $0.8$2.9 million or 8.4%, as compared with the nine months ended December 31, 2021. The increase was due to the increased net revenue and management of operating expenses. Operating margin of 12.9% for the nine months ended December 31, 2022 increased as compared to 12.8% for the nine months ended December 31, 2021. This slight increase was primarily due to effective management of operating expenses, mostly offset by the shift in sales to lower margin projects.


Specialized Reliability Solutions Segment Results

Specialized Reliability Solutions segment provides products for increasing reliability, efficiency, performance and lifespan of industrial assets and solving equipment maintenance challenges.
Three Months Ended December 31,
(Amounts in thousands)20222021*
Revenues, net$36,335 $31,384 
Operating income3,921 3,384 
Operating margin10.8 %10.8 %
Nine Months Ended December 31,
(Amounts in thousands)20222021*
Revenues, net$108,959 $85,289 
Operating income13,658 5,290 
Operating margin12.5 %6.2 %
*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, 2022 increased $5.0 million, or 15.8%, as compared with the three months ended December 31, 2021.  The increase was primarily due to increased unit volumes as well as additional pricing initiatives. Net revenue increased in all end markets including energy, general industrial, mining and rail.

Net revenues for the nine months ended December 31, 2022 increased $23.7 million, or 27.8%, as compared with the nine months ended December 31, 2021.  The increase was primarily due to pricing initiatives and increased unit volumes. Net revenue increased in all end markets including energy, mining, general industrial and rail.

Operating income for the three months ended December 31, 2022 increased $0.5 million or 15.9% as compared to the three months ended December 31, 2021. The increase was primarily due to the increased net revenue, partially offset by increased operating expenses. Operating margin of 10.8% for the three months ended December 31, 2022 remained same as the three months ended December 31, 2021.

Operating income for the nine months ended December 31, 2022 increased $8.4 million or 158.2%28.1% as compared to the nine months ended December 31, 2021.2022. The increase was primarily due to thedriven by increased net revenue partially offset by increasedand improved operating expenses.leverage. Operating margin of 12.5%15.4% for the nine months ended December 31, 20222023 increased as compared to 6.2%12.9% for the nine months ended December 31, 2021.2022. This increase was primarily due to gross margin improvement as a result ofresulting from pricing actions, improved operating leverage from revenue volume increase, pricing initiatives, as well asand reduced growth in operating expense as a percentage of revenue.





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LIQUIDITY AND CAPITAL RESOURCES

General

Existing cash on hand, cash generated by operations and borrowings available under our Revolving Credit Facility ("Revolver Borrowings") 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, weWe use our Revolving Credit FacilityRevolver Borrowings to support our working capital requirements, capital expenditures and strategic acquisitions. We seek to maintain adequate liquidity to meet working capital requirements, fund capital expenditures, and repaymake scheduled principal and interest payments on debt. Absent deterioration of market conditions, we believe that cash flows from operating and financing activities, primarily our Revolving Credit Facility,in the form of Revolver Borrowings, will provide adequate resources to satisfy our working capital, scheduled principal and 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 
Nine Months Ended December 31,
(Amounts in thousands)20222021*
Net cash provided by operating activities$84,072 $69,472 
Net cash used in investing activities(63,722)(44,762)
Net cash used in financing activities(21,619)(18,569)
*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,
(Amounts in thousands)20232022
Net cash provided by operating activities$141,914 $84,072 
Net cash used in investing activities(15,130)(63,722)
Net cash used in financing activities(119,495)(21,619)

Our cash balance (including cash and cash equivalents) atas of December 31, 20222023 was $14.7$25.0 million, as compared with $16.6$18.5 million at March 31, 2022.2023.

For the nine months ended December 31, 2022,2023, our cash provided by operating activities from operations was $84.1$141.9 million, as compared with $69.5$84.1 million for nine months ended December 31, 2021.2022. 

Working capital provided cash for the nine months ended December 31, 2023 due to lower accounts receivable ($17.8 million), higher accounts payable and other current liabilities ($9.6 million) and lower inventories ($7.8 million), partially offset by higher prepaid expenses and other current assets ($6.7 million).
Working capital used cash for the nine months ended December 31, 2022 due to higher inventories ($28.3 million), higher prepaid expenses and other current assets ($8.3 million) and lower accounts payable and other current liabilities ($7.3 million), partially offset by lower accounts receivable ($22.0 million).
Working capital used cash for the nine months ended December 31, 2021 due to higher inventories ($33.3 million) and higher prepaid and other current assets ($4.8 million), partially offset by higher accounts payable and other current liabilities ($12.0 million) and lower accounts receivable ($5.6 million).

Cash flows used in investing activities from operations during the nine months ended December 31, 20222023 were $63.7$15.1 million, as compared with $44.8$63.7 million used in investing activities for the nine months ended December 31, 2021.2022.

Capital expenditures during the nine months ended December 31, 2023 and 2022 and 2021 were $8.3$11.7 million and $8.4$8.3 million, respectively. Our capital expenditures have been focused on capacity expansion (including $3.6$2.5 million and $2.7$3.6 million during the current and prior year periods, respectively, for the Whitmore JV), enterprise resource planning systems, have been focused on capacity expansion, new product introductions, continuous improvement and automation of manufacturing facilities.
During the nine months ended December 31, 2023, $1.7 million cash was received from the sale of a property previously held for investment.
During the nine months ended December 31, 2023, $2.4 million cash was paid for immaterial product line acquisitions. In addition, the full deferred payment of $2.5 million as part of the Falcon acquisition was remitted to the Falcon sellers due to the performance obligation being met.
During the nine months ended December 31, 2022, the full contingent consideration payment of $2.0 million as part of the Shoemaker Manufacturing, LLC ("Shoemaker") acquisition was remitted to the Shoemaker sellers due to the performance obligation being met as part of the Shoemaker acquisition, as discussed in Note 2 to our condensed consolidated financial statements included in this Quarterly Report.met.
During the nine months ended December 31, 2022, we acquired the assets ofcertain CG and ACG assets and related intellectual property for $19.7$19.5 million in cash considerations, as discussed in Note 2 to our condensed consolidated financial statements included in this Quarterly Report.report.
During the nine months ended December 31, 2022, we acquired Falcon for an aggregate purchase price of $37.1 million, including $34.6 million in cash consideration at closing, as discussed in Note 2 to our condensed financial statements included in this Quarterly Report
During the nine months ended December 31, 2021, we received proceeds of $1.4 million as a result of a final working capital true-up adjustment related to the TRUaire acquisition.report.
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During the nine months ended December 31, 2021, we acquired Shoemaker for an aggregate purchase price of $43.6 million, including $38.6 in cash consideration, as discussed in Note 2 to our condensed financial statements in this Quarterly Report

Cash flows used in financing activities during the nine months ended December 31, 2023 and 2022 and 2021 were $21.6$119.5 million and $18.6$21.6 million, respectively. Cash outflows resulted from:

Net borrowing (repayments) borrowings on our Revolving Credit Facility and term loan (as discussed in Note 7 to our condensed consolidated financial statements included in this Quarterly Report) of $23.8$(100.0) million and $(11.4)$23.8 million during the nine months ended December 31, 2023 and 2022, and 2021, respectively.
Payments of $2.3 million of underwriting fees in connection with our Second Credit Agreement during the nine months ended December 31, 2021, as discussed in Note 7 to our condensed consolidated financial statements included in this Quarterly Report.
Payments of $0.7 million of underwriting fees in connection with our Second Amendment to the the Second Credit Agreement during the nine months ended December 31, 2022, 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 $35.7$5.8 million and $0.5$35.7 million during the nine months ended December 31, 20222023 and 2021,2022, respectively.
Proceeds from the redeemable noncontrolling interest shareholder for its investment in the consolidated Whitmore JV of $2.0 million$0 and $6.3$2.0 million during the nine months ended December 31, 20222023 and 2021,2022, respectively, as discussed in Note 3 to our condensed consolidated financial statements included in this Quarterly Report.
Dividend payments of $7.9$8.9 million and $7.1$7.9 million during the nine months ended December 31, 20222023 and 2021,2022, respectively.

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, 2022.

We entered into an interest rate swap agreement to hedge our exposure to variable interest payments related to our indebtedness.  On January 2023, the interest rate swap was terminated. This agreement is more fully described in2023. See 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.for a discussion of our interest rate swaps.


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 months ended December 31, 2022.2023.

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
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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.



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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.Report, if any.

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;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 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.

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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, 2022, we had $267.2 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, 2022, we had an interest rate swap agreement that covered 3.4% of our $276.5 million total outstanding indebtedness.agreements. As discussed in Note 9, the Whitmore Term Loan interest rate swap
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was terminated on January 9, 2023. On February 7, 2023, we entered into an interest rate swap to hedge our exposure to variability in cash flows from interest payments on the first $100.0 million borrowing under our Revolving Credit Facility (defined in Note 7). At December 31, 2023, we had $53.0 million in unhedged variable rate indebtedness with an average interest rate of 6.7%. Starting in JanuaryApril 2023, each quarter point change in interest rates would result in a $0.7change of approximately $0.1 million change in our interest expense on an annual basis.basis, inclusive of the interest rate swap.

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 smallan immaterial 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 gain (loss) of $0.5$0.2 million and less than $(0.1)$0.5 million for the nine months ended December 31, 20222023 and 2021,2022, respectively, which are included in other expense, net on our condensed consolidated statements of income. We realized a net gain (loss)loss associated with foreign currency translation of $(4.1)$0.6 million and $(0.1)$4.1 million for the nine months ended December 31, 20222023 and 2021,2022, respectively, which are included in accumulated other comprehensive income (loss).

Based on a sensitivity analysis at December 31, 2022,2023, a 10% change in the foreign currency exchange rates for the nine months ended December 31, 20222023 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.


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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, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

The disclosure contained in Note 1413 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.


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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, 2022.2023.
PeriodPeriod
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)
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)
(in millions)(in millions)
October 1 - 31October 1 - 3111,742 (a), (b)$119.68 300 $50.0 
November 1 - 30November 1 - 30566 114.83 566 49.9 
December 1 - 31December 1 - 31223 (c)116.36 — 100.0 
TotalTotal12,531 866 

(a) On December 15,16, 2022, 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 $100.0 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, 2024, for completion of the current repurchase program; however, the program may be limited or terminated at any time at our discretion without notice. No32,345 shares have been repurchased under the current program. As of December 31, 2022, 462,462 shares of our common stock had been repurchased under the prior program for an aggregate amount of $50.1 million.

(b) Includes 11,44211,939 shares tendered by employees to satisfy minimum tax withholding amounts related to the vesting of equity awards.

(c) Represents shares tendered by employees


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Item 5. Other Information.

Securities Trading Plans of Directors and Executive Officers

On November 17, 2023, Joseph B. Armes, Chairman, Chief Executive Officer and President of the Company, entered into an amended Rule 10b5-1 trading arrangement (as defined in Item 408 of Regulation S-K promulgated under the Exchange Act), the terms of which mirror his prior Rule 10b5-1 trading agreement that terminated in December 2023. The amended trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c) of the Exchange Act.

Under the amended trading agreement, Mr. Armes may sell in the open market at prevailing prices on specified dates (subject to minimum tax withholding amounts relatedprice thresholds) an aggregate of up to 12,000 shares of the Company’s common stock. The shares are intended to be sold on a monthly basis in equal installments, to the vesting of equity awards.extent practicable. Any sales under the trading arrangement will be made during the period beginning February 20, 2024 until the Plan terminates in January 2025.

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Item 6.    Exhibits
Exhibit No.Description
3.1
3.2
10.1
31.1*
31.2*
32.1**
32.2**
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation LinkBase Document
101.DEFXBRL Taxonomy Extension Definition LinkBase Document
101.LABXBRL Taxonomy Extension Label LinkBase Document
101.PREXBRL Taxonomy Extension Presentation LinkBase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

_________________________
* Filed herewith
**    Furnished herewith



36


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 2, 20231, 2024 /s/ Joseph B. Armes
Joseph B. Armes
Chief Executive Officer
(Principal Executive Officer)
February 2, 20231, 2024 /s/ James E. Perry
James E. Perry
Chief Financial Officer
(Principal Financial Officer)

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