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Excrept from filing document 2024-03-31

The aggregate market value of the registrant s common stock held by non affiliates based on the last sale price for the common stock as reported by the Nasdaq Global Select Market on September 30 2023 the last business day of our most recently completed second fiscal quarter was approximately 2 686 9 million
Unless otherwise specified or the context otherwise requires the references in this Annual Report on Form 10 K for the fiscal year ended March 31 2024 Annual Report to our company we us our or CSWI refer to CSW Industrials Inc together with our wholly owned subsidiaries
CSWI 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 plumbing products grilles registers and diffusers GRD building safety solutions and high performance specialty lubricants and sealants End markets that we serve include HVAC R architecturally specified building products plumbing general industrial energy rail transportation and mining Our manufacturing operations are concentrated in the United States U S Vietnam and 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 the U S Canada the U K and Australia
Drawing on our innovative and proven technologies we seek to deliver solutions primarily to our contractors that place a premium on superior performance and reliability We believe our brands are well known in the specific end markets we serve and have a reputation for high quality 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
Through our operating companies we have a well established legacy of providing high quality products accompanied by dependable service and attention to customer satisfaction We also have a long history of innovation through which we have developed a robust line of products to solve our customers specific challenges 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
CSWI is a Delaware corporation and was incorporated in 2014 in anticipation of CSWI s separation from Capital Southwest Corporation Capital Southwest Our well established operating companies provide a collective history that spans more than a century The separation was executed on September 30 2015 through a pro rata share distribution of all the then outstanding shares of common stock of CSWI to the holders of common stock of Capital Southwest the Share Distribution Since the separation CSWI has been an independent publicly traded company listed on the Nasdaq Global Select Market
The table below provides an overview of these business segments For financial information regarding our segments see Note 20 to our consolidated financial statements included in Item 8 Financial Statements and Supplementary Data Item 8 of this Annual Report
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 the professional trades It provides an innovative line of installation and service products designed to create efficiency and expediency for the professional trades Our Contractor Solutions segment is strategically positioned to grow in each market served by leveraging our sales channels and distribution networks HVAC R contractors ask for our products by name and professional plumbers have been using our industry leading solutions for generations We manufacture the majority of our mechanical and chemical products in house and we also strategically engage third party manufacturers for outsourced products and act as a master distributor for other products We ensure the quality of in house and outsourced manufactured products through our stringent quality control review procedures backed by our RectorSeal to the Rescue commitment around quality warranty and differentiated support
Customer experience is a core competency in our Contractor Solutions segment We gather voice of the customer market research through organized focus groups and online surveys as well as through less formal channels Ideas for new products or enhancements to existing products are also generated by our relationships with end users independent sales representatives distributors and our internal sales and marketing team We also actively monitor the competitive landscape and develop new products and modify existing products in our research and development R D labs co located with our manufacturing sites in Royse City Texas Fall River Massachusetts Houston Texas Dong Nai Vietnam and Cle Elum Washington
Our competition in the Contractor Solutions segment is varied Competitors range from small entrepreneurial companies with a single product to large multinational original equipment manufacturers OEMs In the products serving the HVAC R end market category we compete with DiversiTech DuraVent Intermatic Little Giant NSI Industries Nu Calgon RGF and others In the products serving the plumbing end market category we compete with BrassCraft IPS J R Smith Mainline Oatey and others Most of our products are sold through distribution channels and we compete in this space by leveraging the breadth of our product lines customer service and pricing
Our primary customers are wholesalers and distributors in the HVAC R and plumbing end markets Some of these are single location distributors while the majority are regional or national distributors with up to hundreds of locations Our products are generally sold domestically however a small portion is sold internationally through similar channels A small number of OEMs purchase these products directly
Our Specialized Reliability Solutions segment provides products for increasing the reliability efficiency performance and lifespan of industrial assets Through our commercial team and supply chain partners our Specialized Reliability Solutions segment delivers products that solve equipment maintenance challenges and protect assets in the most demanding environments and extreme conditions Our customers depend on their mission critical equipment and thus they depend on our trusted specialty lubricants compounds sealants desiccant breather filtration products and lubrication management systems Our Specialized Reliability Solutions segment manufactures and supplies highly specialized consumables that impart or enhance properties such as lubricity anti seize qualities friction sealing and heat control Our high performance products are typically used in harsh operating conditions including extreme heat and pressure and chemical exposure where commodity products would fail These products help minimize maintenance downtime protect and extend the working life of large capital equipment such as cranes rail transportation systems mining equipment oil rigs and rotating and grinding equipment found in various industrial segments such as steel mills canning and bottling mining and cement These products enhance repair or condition the internal working systems of industrial systems and are critical to ensuring safe efficient and effective long term operational integrity
We develop relationships with end users and channel partners to understand a multitude of operating conditions where technical innovation or enhancement is needed For example these relationships have generated innovation in the areas of modifying existing lubrication products to operate in arctic conditions or modifying an existing product for use in an application where saltwater may be present The development team is located in Rockwall Texas and actively targets additional end markets for product use and penetration
In general our products demand premium valuation as compared to commodity products and competitors tend to be varied and include global regional and local companies that may be large or small We compete primarily on the basis of product differentiation superior performance and quality and customer centric service When compared to many commodity consumables the product sales cycle is often long typically resulting in quantified verified and repeat product performance being the key driver of buying decisions rather than price As these products protect and enhance the operation of large capital equipment qualification is based on the proof of value in application resulting in a high changeover risk barrier Typical competitors include Exxon Mobil Fuchs Kleuber Shell and South Coast Products
Specialized Reliability Solutions products are primarily sold through value added distribution partners as well as maintenance and repair operations or catalog channels Our Specialized Reliability Solutions organization provides both market specific and product line specific training to both the distribution partners and potential end users Our specialists often visit end users with distribution partners to advise on critical application issues which enhances our ability to both pull demand from the end user and push demand to distributor partners Specialized Reliability Solutions customers include petrochemical facilities industrial manufacturers construction companies utilities plant maintenance customers building contractors and rail and mining operators among others
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 Engineered Building Solutions segment is a market leader in providing architects contractors and other construction professionals with unique solutions that meet code requirements and support life safety while adding functionality performance and aesthetically pleasing designs The safety and sustainability of our engineered building products enables them to be easily incorporated into the Leadership in Energy and Environmental Design LEED building market
Strategic investment in new product innovation technical advancement and customer driven product development enhances demand for our products and enriches our relationships with end users Development teams are located in Boise Idaho Hudson Florida Wichita Kansas and Windsor Ontario Canada
Our products generally demand premium valuation We compete primarily on the basis of competitive lead times superior custom specification standards and customer centric service which we believe are the key drivers of our customers buying decisions In the fire and smoke protection solutions category we compete with McKeon US Smoke Fire Won Door and others typically based on product quality knowledge of building codes and customer service In the architecturally specified building component we compete primarily with Construction Specialties Emseal and InPro on the basis of product quality price and driving architectural specifications
Fire and smoke protection products are sold through internal sales and installation teams as well as local building products distributors that also perform installations and service Architecturally specified building components and fire stopping solutions are primarily sold through independent sales representatives and building product distributors to general contractors or subcontractors Engineered Building Solutions end use customers include multi family residential buildings educational facilities and institutions warehouses construction companies plant maintenance companies building contractors and repair service companies among others
In our targeted end markets we have industry leading positions among our broad portfolio of products We believe our products and solutions are differentiated from those of our competitors by superior performance quality and total value delivered to customers For example RectorSeal s No 5
We focus on developing our presence in end markets with strong growth trends continuously evaluating the potential uses of existing products to broaden end market penetration We historically have a loyal customer base that recognizes the performance results and quality of our products and solutions Further our customer base is diverse For the year ended March 31 2024 no single customer represented 10 or more of our net revenues
These factors have enabled us to generate strong organic revenue growth performance while remaining focused on strong profitability through optimizing our manufacturing processes This effort is supported by a culture of continuous improvement which looks to refine processes in all of our manufacturing facilities to reduce manufacturing costs increase production capacity and improve product quality Additionally we often evaluate strategic investments to drive transformational changes in our manufacturing processes For example in all of our reportable segments we have taken actions to consolidate our
Many of our products are sold through full service distribution networks where product knowledge and customer satisfaction are key success factors We primarily market through an international network of both internal and third party sales representatives that call on our wholesale distributors contractors and direct customers The strong long term relationships we have developed with our wholesale distribution partners and exclusive dealers position us to successfully introduce organically developed products and acquired products In addition our extensive distribution network allows us to reach and serve niche end markets that provide organic growth opportunities and a source of opportunities for our acquisition strategy
We believe our experience in identifying completing and integrating acquisitions is one of our core competitive strengths as evidenced by our portfolio of more than 10 acquisitions completed since the inception of the Company Historically we have pursued product line acquisitions with relatively low integration risk that have the potential to benefit from our extensive distribution network and manufacturing efficiencies More recently we began targeting commercially proven products and solutions that are attractive in our existing end markets where we can drive revenue growth improved profitability and increased cash flow
In the fourth quarter of fiscal year ended March 31 2024 we acquired Dust Free LP based in Royse City Texas which offers an extensive line of patented products for residential and commercial indoor air quality and HVAC R applications In the third quarter of fiscal year ended March 31 2023 we acquired Falcon Stainless Inc Falcon based in Temecula California which offers products that enhance water flow delivery In the second quarter of fiscal year ended March 31 2023 we acquired the assets of Cover Guard Inc CG and AC Guard Inc ACG based in Orlando Florida which offer lineset covers and HVAC R condenser protection cages In the third quarter of the fiscal year ended March 31 2022 we acquired Shoemaker Manufacturing Shoemaker based in Cle Elum Washington which offers high quality customizable GRDs for commercial and residential markets and expands CSWI s HVAC R product offering and regional exposure in the northwest U S We invested more than 140 0 million for the multiple acquisitions made in fiscal 2022 2023 and 2024
Our highly trained and specialized personnel work closely with our customers industry experts and research partners to continuously improve our existing products to meet evolving customer and end market requirements We focus on product enhancements and product line extensions that are designed to meet the specific application needs of the professional trades Customer centric solutions underpin our strong industrial brands and reputation for high quality products in turn leading us to realize improved customer retention and loyalty Further our ability to meet the needs of high value niche end markets with customized solutions that leverage our existing products has enabled us to differentiate ourselves from larger competitors that may not be as willing or able to respond quickly to evolving customer demands
Through the height of the COVID 19 pandemic we worked closely with our customers to provide them with the products and services they needed to continue conducting their operations This included ensuring that our supply chains were secure that we maintained an adequate level of inventory to meet our customers needs and that we remained able to operate our facilities at the levels required to meet customer demand
We are focused on creating long term stockholder value by increasing our revenue profitability and cash flow Identifying strategic end markets yielding sustainable growth expanding market share through our new product development and targeted acquisitions are all components of our strategy
We expect to drive revenue growth by leveraging our reputation for providing high quality products to our broad customer base Our team of sales representatives engineers and other technical personnel continues to proactively collaborate with our distributors and contractors to enhance and adapt existing products and solutions to meet evolving customer needs In addition we seek to leverage our existing customer base to cross sell our products and solutions across our three business segments thereby driving organic growth
The collaborative relationships and open feedback channels we have with our distributors and end users allow us to add value not only through enhancing and adapting existing products and solutions but also through efficiently developing new products and solutions to meet existing and future customer needs Our team of R D sales and marketing personnel work together to identify product opportunities and methodically pursue development of innovative new products Through the development of new products and solutions to both address new markets and complement our product portfolio in markets we currently serve we create increased opportunities to drive organic growth
While we are focused on new product development improving our existing products and penetrating new markets with these products we expect to continue to identify and execute acquisitions that will broaden our portfolio of products and offer attractive risk adjusted returns We primarily focus on commercially proven products and solutions that would benefit from a broader distribution network and are attractive to customers in our targeted end markets Once acquired we strive to utilize our extensive distribution networks to increase revenue by selling those products and solutions to our diversified customer base
We rely on suppliers and commodity markets to secure components and raw materials such as base oils copper flakes steel aluminum polyvinyl chloride and tetra hydrofuran We acquire raw materials and components from numerous sources and we do not depend on a single source of supply for any significant amount of raw materials and components Utilizing our supply chain management experience and expertise honed through successful management of supply chain challenges caused by the COVID 19 pandemic we continue to take proactive steps to limit the impact of current and anticipated supply chain challenges We also work closely with our suppliers to ensure availability of products and implement other cost saving initiatives and we invest in our operations and supply chain to mitigate risk with a focus on the diversification of critical components
We own and maintain a substantial portfolio of trademarks and patents relating to the names designs and configurations of our products We consider our trademarks and patents to be valuable assets In addition our pool of proprietary information consisting of know how and trade secrets related to the design manufacture and operation of our products is considered particularly valuable Accordingly we take proactive measures to protect proprietary information In aggregate we own the rights to the products that we manufacture and sell and are not materially encumbered by licensing or franchise agreements Our trademarks can typically be renewed indefinitely as long as they remain in use whereas our patents generally expire 10 to 20 years from the dates they were filed Our patents expire from time to time but we do not believe that the expiration of any individual patent will have a material adverse impact on our business financial condition or results of operations
We are subject to export control regulations in countries from which we export products and services These controls may apply by virtue of the country in which the products are located or by virtue of the origin of the content contained in the products The level of control generally depends on the nature of the goods and services in question Where controls apply we typically need an export license or authorization either on a per product or per transaction basis or the transaction must qualify for a license exception or the equivalent In certain cases corresponding reporting requirements may apply See Note 20 to our consolidated financial statements included in Item 8 of this Annual Report for financial and other information regarding our operations on a geographical basis
We believe that our employees are our most valuable assets and that our skilled engaged workforce provides us with a competitive advantage As part of our commitment to our employees we provide a safe work environment ongoing training and professional development competitive compensation and a generous health and retirement benefits package that includes an employee stock ownership plan ESOP a defined contribution plan 401 k paid time off and health and wellness care
As of March 31 2024 we employed approximately 2 600 individuals globally Regionally approximately 1 300 of our employees are in North America approximately 1 300 are in Asia Pacific and approximately 10 are in Europe the Middle East and Africa Our workforce is made up of approximately 460 salaried employees and 2 100 hourly employees Of these employees approximately 1 7 of our U S workforce is represented by unions We also have an employee organization in Vietnam We believe that relations with our employees throughout our operations are generally positive including those employees represented by unions or employee organizations No unionized facility accounted for more than 10 of our consolidated revenues for the fiscal year ended March 31 2024
We assess employee engagement through targeted surveys which provide feedback on a variety of subjects including safety communications diversity and inclusion performance management development opportunities respect and recognition and management support The survey results are reviewed by our senior leadership team and shared with our managers and employees who collaborate to act on identified areas of improvement to implement measures of success About 75 of our employees participated in our fiscal 2024 survey which was conducted through Great Place To Work Employee feedback from the survey indicated our overall employee engagement score remains high and in February 2024 we received the Great Place To Work Certification marking the second consecutive year that we have received the award While we continuously work to build on our Company s strong culture our scores indicate that we are continuing to raise the bar to increase pride optimism and engagement across the Company and strive to create the best employee experience
As a result of maintaining a consistent focus on our employee centric culture the retention rate excluding retirements for our high performance talent in the fiscal year ended March 31 2024 was 94 representing a 3 improvement from prior fiscal year Our company wide all employees voluntary retention rate excluding retirements was 83 which reflects the same retention rate from the prior fiscal year
We are committed to creating and maintaining a safe healthy working environment and we have developed a health and safety program that focuses on implementing policies and training programs to ensure that all employees understand this commitment We maintain a global Environmental Health Safety policy that is applicable to all our employees operations and activities Our health and safety strategies are consistently reviewed and updated as changes occur in our business and employees are empowered to identify and report safety concerns and take corrective actions Our commitment to these health and safety practices was evidenced in how we responded to and managed through the COVID 19 pandemic Safety awareness and employee engagement programs have been implemented at the Company s facilities and have generated meaningful reductions in workplace safety incidents In particular we have continued to focus on the health and safety practices at our Vietnam facility since the acquisition in December 2020 through training and equipment upgrades For the calendar year ended December 31 2023 our total recordable incident rate TRIR for employees was a historically low rate of 0 9 which included the TRIR performance of recently acquired companies
Consistent with our belief that our employees are our most valuable assets developing our people is a critical aspect of our culture Successful execution of the Company s strategy depends on attracting and retaining highly qualified individuals We provide developmental opportunities to help our employees build the skills necessary to reach their career goals including on the job training online learning professional memberships and leadership and management training To help our employees see how their efforts contribute to our Company s overall success we utilize a robust performance management process and provide regular feedback to increase engagement and maximize talent development efforts We have also established various talent development programs for current and future leaders during the critical stages of their careers
Our core values of accountability citizenship teamwork respect integrity stewardship and excellence form the foundation for our decentralized entrepreneurial culture and our Code of Business Conduct our Code represents our shared commitment to living out these core values with the highest level of ethical conduct All our employees across the globe including our executive officers are required to abide by our Code to ensure that our business is conducted in a consistently legal and ethical manner Our Code covers many topics including conflicts of interest anticorruption financial reporting confidentiality insider trading antitrust and competition law cybersecurity and information security appropriate use of social media and respect in the workplace Every year through online and in person training our employees receive training on all topics addressed in our Code and they are required to certify that they will comply with our Code
We strive to support both the short term and long term well being of our employees This commitment extends to the communities in which our employees live where we are positive active corporate citizens A key element of employee well being is providing compensation and benefits for our employees that are competitive and equitable based on local markets Our compensation program includes market aligned salary grades an annual incentive compensation program for the majority of our employees referral and rewards incentive programs available to employees based on job function premium pay for employees working extended hours and a long term incentive plan LTIP for select employees We analyze our compensation and benefits program annually and make changes as necessary to ensure we remain competitive We believe maintaining competitive pay and benefits for our employees is important to promote professional excellence and career progression
As part of our comprehensive total rewards program our employees are eligible to participate in Company subsidized medical dental vision life short term and long term disability insurance plans We provide employees with a paid supplemental life and accident insurance plan and we offer employees the opportunity to contribute to a Flexible Spending Account and a Health Savings Account Our wellness plan offers a range of programs focused on improving health awareness and well being Helping our employees stay healthy and safe is a priority and our quarterly wellness challenges engage employees and often incorporate community outreach efforts and special events In calendar year 2024 Cigna recognized our wellness program with their Gold level Healthy Workforce Designation marking the third consecutive year that we have received Cigna s highest honor
Our retirement savings program includes a 401 k plan and an Employee Stock Ownership Plan ESOP Our 401 k plan has a 91 participation rate which is significantly higher than the recognized industry benchmark of approximately 63 according to Principal s manufacturing benchmark Current and former domestic employees who have participated in our ESOP collectively own approximately 3 of the company We believe this ESOP strongly aligns the interests of our employees with those of our stockholders
We maintain a culture that engages and rewards the performance of key leaders that is supported through LTIP an equity compensation plan through which employees receive equity awards in the form of restricted common stock and performance shares More than 100 employees received one or both of these forms of equity awards in fiscal 2024 Our equity compensation plans are designed to promote long term performance as well as to create long term employee retention continuity of leadership and an ownership culture whereby management and employees think and act as shareholders of the Company
We believe that the compensation benefits and other components of our total rewards program provided to our employees give us a competitive edge and differentiate us in a challenging labor market We seek to recruit and retain high performing talent and provide safe secure and dignified retirements for our employees
We are committed to promoting equal employment opportunities in all our operations which begins with the employee recruiting process and continues through our employees relationship with the Company We also believe that a truly innovative workforce needs to be diverse and must leverage the skills and perspectives of a broad range of backgrounds and experiences It is our policy specifically noted in our Code that we do not tolerate discrimination for any reason including without limitation race color religion marital status gender gender identity veteran status sexual orientation disability or perceived disability whether or not such discrimination violates law It is also our policy to fully comply with all laws prohibiting discrimination and promoting opportunity and advancement in employment This policy extends to all aspects of employment including recruitment hiring compensation benefits promotion transfer layoff recall reduction in force termination retirement placement training and all other privileges terms and conditions of employment It is our goal to create a positive and dynamic workplace where diversity and inclusion principles govern and all employees can flourish Our Board of Directors senior leadership and human resources team are fully aligned in their commitment to promoting the above policies to ensure we remain an employer of choice
Our operations are subject to an array of foreign federal state and local regulatory requirements including but not limited to trade labor and environmental health and safety matters Management believes that our business is operated in material compliance with all such regulations To date the cost of such compliance has not had a material impact on our capital expenditures earnings or competitive position or that of our operating subsidiaries While we have implemented policies
practices and procedures to prevent and mitigate risks violations may occur in the future as a result of human error equipment failure or other causes Further we cannot predict the nature scope or effect of future environmental legislation or regulatory requirements that could be imposed or how existing or future laws or regulations will be administered or interpreted
We file annual quarterly and current reports proxy statements and other information with the U S Securities and Exchange Commission SEC Our SEC filings are available to the public at the SEC s website www sec gov We also make these filings available free of charge on our website www cswindustrials com as soon as reasonably practicable after we electronically file those documents with the SEC
Also available on our website are our Corporate Governance Guidelines and Code of Business Conduct as well as the charters for the Audit Compensation Talent Development and Nominating Corporate Governance Committees of our Board of Directors and other important governance documents All of the foregoing may be obtained through our website noted above and are available in print without charge to stockholders who request them The information on or accessible through our website is not incorporated by reference into or otherwise made part of this Annual Report or any other document we file with or furnish to the SEC
Consider carefully the following risk factors which we believe are the principal risks that we face and of which we are currently aware and the other information in this Annual Report including our consolidated financial statements and related notes to those financial statements It is possible that additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations
Our served industries and key end markets are affected by changes in economic conditions outside our control which can affect our business in many ways Any adverse occurrence including among others industry slowdown recession public health crises political instability costly or constraining government policies laws and regulations armed hostilities including conflicts in the Middle East and Ukraine terrorism excessive inflation including the current high inflationary environment interest rates tax rates unemployment rates high labor costs labor disturbances prolonged disruptions in one or more of our customers production schedules supply chain disruptions including those caused by industry capacity constraints labor shortages raw material availability and transportation and logistics delays and constraints business disruptions due to cybersecurity incidents and other economic factors have in the past and could in the future materially adversely affect our business financial condition and operating results and that of our customers and third party suppliers
Additionally adverse changes in economic conditions in the United States and worldwide may reduce the demand for some of our products adversely impact our ability to predict and meet any future changes in the demand for our products and impair the ability of those with whom we do business to satisfy their obligations to us Reduced demand may cause us and our competitors to compete on the basis of price which would have a negative impact on our revenues and profitability In turn this could cause us to not be able to satisfy the financial and other covenants to which we are subject under our existing indebtedness
Reduced demand may also hinder our growth plans and otherwise delay or impede execution of our long term strategic plan and capital allocation strategy If there is deterioration in the general economy or in the industries we serve our business results of operations and financial condition could be materially adversely affected
The industries in which we operate are highly competitive and many of our products are in highly competitive markets We may lose market share to producers of other products that directly compete with or that can be substituted for our products
The industries in which we operate are highly competitive and we face significant competition from both large domestic and international competitors and from smaller regional competitors Our competitors may improve their competitive position in our served markets by successfully introducing new or substitute products improving their manufacturing processes or expanding their capacity or manufacturing facilities Further some of our competitors benefit from advantageous cost positions
that could make it increasingly difficult for us to compete in markets for less differentiated applications If we are unable to keep pace with our competitors products and manufacturing process innovations or cost position our financial condition and results of operations could be materially adversely affected
The cyclical nature of the supply and demand balance of certain end markets that we serve including HVAC R general industrial construction energy rail transportation and mining poses risks to us that are beyond our control and can affect our operating results These markets are highly competitive are driven to a large extent by end use markets are affected by distributor stocking behaviors and may experience overcapacity all of which may affect demand for and pricing of our products and result in volatile operating results and cash flows over our business cycle Our operations and earnings may also be significantly affected by changes in oil gas and petrochemical prices and drilling activities which depend on local regional and global events or conditions that affect supply and demand for the relevant commodity Product demand may not be sufficient to utilize current or future capacity Excess industry capacity may continue to depress our volumes and margins on some products Our operating results accordingly may be volatile as a result of excess industry capacity as well as from rising energy and raw materials costs
Growth of our business will depend in part on market awareness of our industrial brands and any failure to develop maintain protect or enhance our industrial brands would hurt our ability to retain or attract customers
We believe that building and maintaining market awareness brand recognition and goodwill is critical to our success This will depend largely on our ability to continue to provide high quality products and we may not be able to do so effectively Our efforts in developing our industrial brands may be affected by the marketing efforts of our competitors and our reliance on our independent dealers distributors and strategic partners to promote our industrial brands effectively If we are unable to cost effectively maintain and increase positive awareness of our industrial brands our businesses results of operations and financial condition could be harmed
While we seek to mitigate our business risks associated with climate change we recognize that there are inherent climate related risks wherever business is conducted and climate change could create physical and financial risk to our business Physical risks from climate change could among other things include an increase in extreme weather events such as floods droughts tornadoes or hurricanes limitations on availability of water and reliable energy and the health and well being of individuals in communities where we conduct business Such events have the potential to disrupt our business our third party suppliers or the businesses of our customers which in turn could have an adverse effect on our financial condition and results of operations
Increased global focus on climate change may result in the imposition of new or additional regulations or requirements applicable to and increased financial and transition risks for our business and the industries in which we operate A number of government authorities and agencies have introduced or are contemplating regulatory changes to address climate change including the regulation and disclosure of greenhouse gas emissions For example on March 6 2024 the SEC adopted final rules to enhance and standardize climate related disclosures by requiring registrants to disclose certain climate related information in registration statements and periodic reports On March 21 2024 the Judicial Panel on Multidistrict Litigation issued an order consolidating the petitions for review in the U S Court of Appeals for the Eighth Circuit and on April 4 2024 the SEC issued an order that the climate related disclosure rules were stayed pending the completion of judicial review of the consolidated Eighth Circuit petitions If the rules become effective and are not overturned we will be required to provide the enhanced climate related disclosures The outcome of new legislation or regulation in the U S and other jurisdictions in which we operate may result in fees or restrictions on certain activities or materials and new or additional requirements including directives to fund energy efficiency activities or renewable energy use and to disclose information regarding our greenhouse gas emissions performance renewable energy usage and efficiency waste generation and recycling rates climate related risks opportunities and oversight and related strategies and initiatives across our global operations The cost of compliance with stringent climate change regulations could adversely affect our ability to compete with companies in locations that are not subject to stringent climate change regulations Existing and future climate change driven environmental and social regulations may negatively impact our business customers or suppliers in terms of availability and cost of natural resources and raw materials product demand or manufacturing Despite our efforts to timely comply with climate change initiatives implement
measures to improve our operations and execute on our related strategies and initiatives any actual or perceived failure to comply with new or additional requirements or meet stakeholder expectations with respect to the impacts of our operations on the environment and related strategies and initiatives may result in adverse publicity and increased litigation risk which could adversely impact our business financial condition results of operation and cash flow
Our attempts to address evolving customer needs require that we continually enhance our products Our efforts to enhance our products may not be commercially viable and failure to develop commercially successful products or keep pace with our competitors could harm our business and results of operations
A failure to develop commercially successful products or product enhancements or to identify product extensions could materially adversely affect our financial results If our attempts to develop or enhance products are unsuccessful we may be unable to recover our development costs which could have an adverse effect on our business and results of operations In addition our inability to enhance or develop products that can meet the evolving needs of our customers could cause our products to lag behind those of new or existing competitors could reduce demand for our products and may have a material adverse effect on our business and results of operations
We have worldwide sales and manufacturing operations in North America Europe the Middle East Australia and Asia including Vietnam We also use third parties to manufacture certain of our products most of which are located in jurisdictions outside the United States including China Foreign sales and manufacturing are subject to a number of risks including political and economic uncertainty social unrest sudden changes in laws and regulations including those enacted in response to pandemics and those that may be related to climate change or otherwise ability to enforce existing or future contracts labor shortages and work stoppages natural disasters currency exchange rate fluctuations transportation delays or loss or damage to products in transit expropriation nationalization business disruptions due to cybersecurity incidents compliance with foreign laws and changes in domestic and foreign governmental policies including the imposition of new or increased tariffs and duties on exported and imported products
To the extent that we rely on independent third parties to perform sales and manufacturing functions we do not directly control their activity including product delivery schedules and quality assurance which may result in product shortages or quality assurance problems that could delay shipments of products increase manufacturing assembly testing or other costs or tarnishing the value of our brand or relationships with our customers If a third party sales representative or manufacturer experiences capacity constraints or financial difficulties suffers damage to its facilities experiences power outages natural disasters labor shortages or labor strikes or any other disruption we may not be able to obtain alternative resources in a timely manner or on commercially acceptable terms Any of these factors could negatively affect our business results of operations and financial condition
Loss of key suppliers the inability to secure raw materials on a timely basis the potential impacts of global inflation or our inability to pass commodity price increases on to customers could have an adverse effect on our business
Materials used in our manufacturing operations are generally available on the open market from multiple sources However some of the raw materials we use are only available from a limited number of sources Accordingly any disruptions to a critical suppliers operations or the availability of key product inputs could have a material adverse effect on our business and results of operations Macroeconomic conditions have caused supply chains for many companies to be interrupted slowed or temporarily rendered inoperable In addition supply chain shortages have negatively impacted and could continue to negatively impact our manufacturing costs and logistics costs and in turn our gross margins We may also be required to pay higher prices for raw materials due to inflationary trends regardless of supply
In addition inflation can also result in higher interest rates In response to increasing inflation the U S Federal Reserve began to raise interest rates in March 2022 has done so multiple times since then and has kept open the possibility of further increases We expect inflationary pressures to impact customer behavior during calendar year 2024 With inflation the cost of capital has increased and the purchasing power of our and our end users cash resources has declined Current or future efforts by the government to manage inflationary pressures or stimulate the economy may result in unintended economic consequences which could have a direct and indirect adverse impact on our business and results of operations
While we believe many challenges are temporary and can be managed in the near term our business and results of operations could be materially adversely affected by prolonged or increasing supply chain disruptions Availability and cost of raw materials could be affected by a number of factors including the cost of reliable energy commodity prices inflation tariffs and duties on imported materials foreign currency exchange rates and phases of the general business cycle and global demand We may be unable to pass along price increases to our customers which could have a material adverse effect on our business and results of operations
We rely on independent distributors as a channel to market for many of our products Termination of a substantial number of our distributor relationships or an increase in a distributor s sales of our competitors products could have a material adverse effect on our business financial condition results of operations or cash flows
We depend on the services of domestic and international independent distributors to sell our products and in many cases provide service and aftermarket support to end users of our products Rather than serving as passive conduits for delivery of products our distributors play a significant role in determining which of our products are available for purchase either by end users or by contractors to service end users While the use of distributors expands the reach and customer base for our products the maintenance and administration of distributor relationships is costly and time consuming The loss of a substantial number of our distributors for any reason could have a material adverse effect on our business financial condition results of operations or cash flows In certain international jurisdictions distributors are conferred certain legal rights that could limit our ability to modify or terminate distribution relationships
Many of the distributors with whom we transact business also offer competitors products and services to our customers An increase in the distributors sales of our competitors products to our customers or a decrease in the number of our products the distributor makes available for purchase could have a material adverse effect on our business financial condition results of operations or cash flows
We currently have insurance policies for certain business risks which include property damage business interruption operational and product liability transit directors and officers liability cybersecurity industrial accidents and other risks customary in the industries in which we operate However we may become subject to liability including in relation to pollution occupational illnesses injury resulting from tampering product contamination or degeneration or other hazards against which we have not insured or cannot fully insure
For example hurricanes may affect our facilities or the failure of our information systems as a result of breakdown malicious attacks unauthorized access viruses or other factors could severely impair several aspects of operations including but not limited to logistics revenues customer service and administration In addition in the event that a product liability or third party liability claim is brought against us we may be required to recall our products in certain jurisdictions if they fail to meet relevant quality or safety standards and we cannot guarantee that we will be successful in making an insurance claim under our policies or that the claimed proceeds will be sufficient to compensate the actual damages suffered
Should we suffer a major uninsured loss a product liability judgment against us or a product recall future earnings could be materially adversely affected We could be required to increase our debt or divert resources from other investments in our business to discharge product related claims In addition adverse publicity in relation to our products could have a significant effect on future revenues and insurance may not continue to be available at economically acceptable premiums As a result our insurance coverage may not cover the full scope and extent of claims against us or losses that we incur
Cybersecurity breaches and other disruptions to our information technology systems could compromise our information disrupt our operations and expose us to liability which may adversely impact our operations
In the ordinary course of our business we store sensitive data including our proprietary business information and that of our customers suppliers and business partners and personally identifiable information of our employees in our information technology systems including in our data centers and on our networks The secure processing maintenance and transmission of this data is critical to our operations Some of these systems are maintained or operated by third party contractors including cloud based systems Despite our efforts to secure our information systems from cyber security attacks or breaches our information technology systems may be vulnerable to attacks by hackers or breached or disrupted due to employee error malfeasance or other disruptions If these technologies systems products or services are damaged cease to function properly are compromised due to employee or third party contractor error user error malfeasance system errors or other vulnerabilities or are subject to cybersecurity attacks such as those involving denial of service attacks unauthorized access malicious software or other intrusions including by criminals nation states or insiders our business may be adversely
impacted The impacts of any such circumstances could include production downtimes operational delays and other impacts on our operations and ability to provide products and services to our customers compromise of confidential proprietary or otherwise protected information including personal information and customer confidential data destruction corruption or theft of data or intellectual property manipulation disruption or improper use of these technologies systems products or services financial losses from fraudulent transactions remedial actions loss of business or potential liability adverse media coverage and legal claims or legal proceedings including regulatory investigations actions and fines and damage to our reputation There has been a rise in the number of cyberattacks targeting confidential business information generally and in the manufacturing industry specifically Moreover there has been a rise in the number of cyberattacks that depend on human error or manipulation including phishing attacks or schemes that use social engineering to gain access to systems or perpetuate wire transfer or other frauds
These trends increase the likelihood of such events occurring as well as the costs associated with protecting against such attacks Although such attempts have been made to attack our information technology systems no material harm has resulted Any such attack breach or disruption could compromise our information technology systems and the information stored in them could be accessed publicly disclosed lost or stolen and our business operations could be disrupted Additionally any significant disruption or slowdown of our systems could cause customers to cancel orders or cause standard business processes to become inefficient or ineffective which could adversely affect our financial position results of operations or cash flows Any such access disclosure or other loss of information or business disruption could result in legal claims or proceedings liability under laws that protect the privacy of personal information and damage to our reputation which could adversely impact our operations
The domestic and international regulatory environment related to information security collection and privacy is increasingly rigorous and complex with new and rapidly changing requirements applicable to our business which often require changes to our business practices Compliance with these new requirements including the European Union s General Data Protection Regulation the California Privacy Rights Act and other international and domestic regulations are costly and will result in additional costs in our efforts to continue to comply
As a manufacturing company we rely on a positive relationship with our employees to produce our products and maintain our manufacturing processes and productivity As of March 31 2024 we had approximately 2 600 full time employees of which 15 were subject to collective bargaining agreements in the United States and approximately 1 300 of which are located in Vietnam If our workers were to engage in a strike work stoppage or other slowdown our operations could be disrupted or we could experience higher labor costs In addition if significant portions of our employees were to become unionized we could experience significant operating disruptions and higher ongoing labor costs which could adversely affect our business financial condition and results of operations
Our success in the highly competitive end markets in which we operate will continue to depend to a significant extent on the experience and expertise of our senior leaders The loss of any of our key leaders or failure to fill new positions created by expansion turnover or retirement could adversely affect our ability to implement our business strategy The competition for talent has become increasingly intense and we may experience increased employee turnover due to a tightening labor market resulting in skilled labor shortages The challenge to attract and retain qualified talent in the current competitive labor market could lead to increased wage inflation or impede our ability to execute certain key strategic initiatives as we respond to labor shortages Failure to successfully attract and retain an appropriately qualified workforce could materially adversely affect our business financial condition and results of operations
Inorganic growth is an important part of our strategic growth plan and we also seek to acquire businesses some of which may be material in pursuit of our plans Acquiring businesses involves a number of financial accounting managerial operational legal compliance and other risks and challenges including the following any of which could adversely affect our financial statements
any acquired business technology service or product could under perform relative to our expectations and the price that we paid for it not achieve cost savings or other synergies in accordance with our anticipated timetable or require us to take an impairment related to the acquired business
we may decide to divest businesses technologies services or products for financial strategic or other reasons which may require significant financial and managerial resources and may result in unfavorable accounting treatment
we may incur or assume significant debt in connection with our acquisitions which would increase our leverage and interest expense thereby reducing funds available to us for purposes such as working capital capital expenditures research and development and other general corporate purposes
the process of integrating acquired operations may create operating difficulties and may require significant financial and managerial resources that would otherwise be available for existing operations
conforming the acquired company s standards process procedures and controls including accounting systems and controls with our operations could cause deficiencies related to our internal control over financial reporting or exposure to regulatory sanctions resulting from the acquired company s activities
From time to time our business has engaged in strategic initiatives and such activities may occur in the future These efforts have included consolidating manufacturing facilities rationalizing our manufacturing processes and establishing a joint venture within our Specialized Reliability Solutions segment
While we expect meaningful financial benefits from our strategic initiatives we may not realize the full benefits expected within the anticipated time frame Adverse effects from strategy driven organizational change could interfere with our realization of anticipated synergies customer service improvements and cost savings from these strategic initiatives Additionally our ability to fully realize the benefits and implement strategic initiatives may be limited by certain contractual commitments Moreover we may incur substantial expenses in connection with the execution of strategic plans in excess of what is forecasted Further strategic initiatives can be a complex and time consuming process that can place substantial demands on management which could divert attention from other business priorities or disrupt our daily operations Any of these failures could materially adversely affect our business financial condition results of operations and cash flows which could constrain our liquidity
Changes in future business or other market conditions could cause business investments and or recorded goodwill or other long term assets to become impaired resulting in substantial losses and write downs that would materially adversely affect our results of operations and financial condition
From time to time we acquire businesses following careful analysis and due diligence procedures designed to achieve a desired return or strategic objective These procedures often involve certain assumptions and judgments in determining acquisition price After acquisition such assumptions and judgments may prove to be inaccurate due to a variety of circumstances which could adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price Additionally actual operating results for an acquisition may vary significantly from initial estimates As of March 31 2024 we had goodwill of 247 2 million recorded in our consolidated balance sheet We evaluate the recoverability of recorded goodwill annually as well as when we changed reporting units and when events or circumstances indicate the possibility of impairment Because of the significance of our goodwill and other intangible assets a future impairment of these assets could have a material adverse effect on our results of operations and financial condition For additional information on
We are required to make scheduled repayments and under certain events of default accelerated repayments on our outstanding indebtedness which may require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness Such repayment requirements could reduce the availability of our cash flows to fund working capital acquisitions capital expenditures R D efforts and other general corporate purposes and could generally limit our flexibility in planning for or reacting to changes in our business and industry
In addition the agreements governing our indebtedness impose certain operating and financial restrictions on us and somewhat limit management s discretion in operating our businesses These agreements limit or restrict our ability among other things to incur additional debt pay dividends and make other distributions make investments and other restricted payments create liens sell assets and enter into transactions with affiliates
We are also required to comply with leverage and interest coverage financial covenants and deliver to our lenders audited annual and unaudited quarterly financial statements Our ability to comply with these covenants may be affected by events beyond our control Failure to comply with these covenants could result in an event of default that if not cured or waived may have a material adverse effect on our business financial condition results of operations and cash flows In the event we incur additional indebtedness or if interest rates on our indebtedness increase the risks described above could increase
Our operations are conducted in many countries The results of the operations and the financial position of these subsidiaries are reported in the relevant foreign currencies and then translated into U S dollars at the applicable exchange rates for inclusion in our consolidated financial statements The main currencies to which we are exposed besides the U S dollar are primarily the Australian dollar the British pound the Canadian dollar and the Vietnamese dong The exchange rates between these currencies and the U S dollar in recent years have fluctuated significantly and may continue to do so in the future for a variety of reasons including general economic conditions and event driven circumstances A depreciation of these currencies against the U S dollar will decrease the U S dollar equivalent of the amounts derived from these operations reported in our consolidated financial statements and an appreciation of these currencies will result in a corresponding increase in such amounts
Because many of our raw material costs are determined with respect to the U S dollar rather than these currencies depreciation of these currencies may have an adverse effect on our profit margins or our reported results of operations Conversely to the extent that we are required to pay for goods or services in foreign currencies the appreciation of such currencies against the U S dollar will tend to negatively impact our results of operations In addition currency fluctuations may affect the comparability of our results of operations between financial periods
We incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the local currency of the transacting entity Given the volatility of exchange rates there can be no assurance that we will be able to effectively manage our currency transaction risks that our hedging activities will be effective or that any volatility in currency exchange rates will not have a material adverse effect on our financial condition or results of operations
We are subject to tax laws and regulations in the United States and multiple foreign jurisdictions Our future effective tax rates could be adversely affected by changes in tax laws regulations accounting principles or interpretations thereof as well as changes in related interpretations and other tax guidance For example
the Organization for Economic Co operation and Development an international association of 38 countries including the United States has proposed changes to numerous long standing tax principles These proposals if finalized and adopted by the associated countries will likely increase tax uncertainty and may adversely affect our provision for income taxes
as well as any additional tax reform legislation in the U S U K Canada Australia Vietnam or elsewhere could have a material adverse effect on our business financial condition and results of operations In addition we are also subject to periodic examination of our income tax returns by the Internal Revenue Service and other tax authorities We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes As of March 31 2024 we had a reserve of 17 0 million relating to uncertain tax positions and taxing authorities may disagree with the positions we have taken regarding the tax treatment or characterization of our transactions Although we believe that our tax filing positions are appropriate the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions and accruals If future audits find that additional taxes are due we may be subject to incremental tax liabilities possibly including interest and penalties which could have a material adverse effect on our business financial condition and results of operations
We may seek to hedge against commodity price fluctuations and credit risk by using structured financial instruments such as futures options swaps and forward contracts Use of structured financial instruments for hedging purposes may present significant risks including the risk of loss of the amounts invested Defaults by the other party to a hedging transaction can result in losses in the hedging transaction Hedging activities also involve the risk of an imperfect correlation between the hedging instrument and the asset being hedged which could result in losses both on the hedging transaction and on the instrument being hedged Use of hedging activities may not prevent significant losses and could increase our losses
Effective internal controls are necessary for us to provide reliable financial reports effectively prevent fraud and operate successfully as a public company If we cannot provide reliable financial reports or effectively prevent fraud our reputation and operating results could be harmed If we are unable to maintain effective disclosure controls and procedures and internal controls over financial reporting we may not be able to provide reliable financial reports which in turn could affect our operating results or cause us to fail to meet our reporting obligations Ineffective internal controls could also cause investors to lose confidence in reported financial information which could negatively affect our stock price limit our ability to access capital markets in the future and require additional costs to improve internal control systems and procedures
We and many of our customers are subject to various national state and local laws rules and regulations Changes in any of these areas could result in additional compliance costs seizures confiscations recalls or monetary fines any of which could prevent or inhibit the development distribution and sale of our products
In addition we benefit from certain regulations including building code regulations which require the use of products that we and other manufacturers sell For example certain environmental regulations may encourage the use of more environmentally friendly products such as some of the lubricants and greases that we manufacture If these regulations were to change demand for our products could be reduced and our results of operations could be adversely affected
Our operations and properties are subject to regulation under environmental laws which can impose substantial sanctions for violations We must conform our operations to applicable regulatory requirements and adapt to changes in such requirements in all jurisdictions in which we operate Certain materials we use in the manufacture of our products can represent potentially significant health and safety concerns We use hazardous substances and generate hazardous wastes in certain of our manufacturing operations Consequently our operations are subject to extensive environmental health and safety laws and regulations at the international national state and local level in multiple jurisdictions These laws and regulations govern among other things air emissions wastewater discharges solid and hazardous waste management site remediation programs and chemical use and management Many of these laws and regulations have become more stringent over time and the costs of compliance with these requirements may increase including costs associated with any necessary capital investments In addition our production facilities require operating permits that are subject to renewal and in some circumstances revocation The necessary permits may not be issued or continue in effect and renewals of any issued permits may contain significant new requirements or restrictions
Compliance with environmental laws and regulations generally increases the costs of transportation and storage of raw materials and finished products as well as the costs of storage and disposal of wastes We may incur substantial costs including fines damages criminal or civil sanctions and remediation costs or experience interruptions in our operations for violations arising under environmental laws regulations or permit requirements
We are subject to the U S Foreign Corrupt Practices Act and other anti corruption laws as well as other laws governing our operations If we fail to comply with these laws we could be subject to civil or criminal penalties other remedial measures and legal expenses which could adversely affect our business financial condition and results of operations
Our operations are subject to anti corruption laws including the U S Foreign Corrupt Practices Act FCPA and other anti corruption laws that apply in countries where we do business The FCPA and these other laws generally prohibit us and our employees and intermediaries from bribing being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage We conduct business in a number of jurisdictions that pose a high risk of potential FCPA violations and we participate in relationships with third parties whose actions could potentially subject us to liability under the FCPA or other anti corruption laws In addition we cannot predict the nature scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted
We are also subject to other laws and regulations governing our international operations including regulations administered by the U S Department of Commerce s Bureau of Industry and Security the U S Department of Treasury s Office of Foreign Asset Control and various non U S government entities including applicable export control regulations economic sanctions on countries and persons customs requirements currency exchange regulations and transfer pricing regulations collectively Trade Control Laws
We have and maintain a compliance program with policies procedures and employee training to help ensure compliance with applicable anti corruption laws and the Trade Control Laws However despite our compliance programs there is no assurance that we will be completely effective in ensuring our compliance with all applicable anti corruption laws including the FCPA or other legal requirements or Trade Control Laws If we are not in compliance with the FCPA and other anti corruption laws or Trade Control Laws we may be subject to criminal and civil penalties disgorgement and other sanctions and
Likewise any investigation of any potential violations of the FCPA other anti corruption laws or Trade Control Laws by the U S or foreign authorities could also have an adverse impact on our reputation business financial condition and results of operations
Our permits licenses registrations or authorizations and those of our customers or distributors may be modified suspended terminated or revoked before their expiration or we and or they may be unable to renew them upon their expiration We may bear liability for failure to obtain maintain or comply with required authorizations
We are required to obtain and maintain and may be required to obtain and maintain in the future various permits licenses registrations and authorizations for the ownership or operation of our business including the manufacturing distribution sale and marketing of our products and importing of raw materials These permits licenses registrations and authorizations could be modified suspended terminated or revoked or we may be unable to renew them upon their expiration for various reasons including for non compliance These permits licenses registrations and authorizations can be difficult costly and time consuming to obtain and could contain conditions that limit our operations Our failure to obtain maintain and comply with necessary permits licenses registrations or authorizations for the conduct of our business could result in fines or penalties which may be significant Additionally any such failure could restrict or otherwise prohibit certain aspects of our operations which could have a material adverse effect on our business financial condition and results of operations
Many of our customers and distributors require similar permits licenses registrations and authorizations to operate If a significant customer distributor or group thereof were to lose an important permit license registration or authorization forcing them to cease or reduce their business our revenues could decrease which would have a material adverse effect on our business financial condition and results of operations
Hazards associated with our manufacturing processes and the related storage and transportation of raw materials products and wastes exist in our operations and the operations of other occupants with whom we share manufacturing sites These hazards could lead to an interruption or suspension of operations and have an adverse effect on the productivity and profitability of a particular manufacturing facility or on us as a whole These potential risks include but are not necessarily limited to spills and other discharges or releases of toxic or hazardous substances or gases pipeline and storage tank leaks and ruptures explosions and fires and mechanical failure These hazards may result in personal injury and loss of life damage to property and contamination of the environment which may result in a suspension of operations and the imposition of civil or criminal penalties including governmental fines expenses for remediation and claims brought by governmental entities or third parties The loss or shutdown of operations over an extended period at any of our major operating facilities could have a material adverse effect on our financial condition and results of operations Our property business interruption and casualty insurance may not fully insure us against all potential hazards incidental to our business
Certain chemicals and other raw materials that we use in the manufacture of our products may have adverse health effects The Occupational Safety and Health Administration limits the permissible employee exposure to some of those materials Future studies on the health effects of certain chemicals and materials may result in additional or new regulations that further restrict or prohibit the use of and exposure to certain chemicals and materials Additional regulation of certain chemicals and materials could require us to change our operations and these changes could affect the quality of our products and materially increase our costs
Our ability to protect and preserve our trademarks trade secrets and other intellectual property and proprietary information relating to our business is an important factor to our success However we may be unable to prevent third parties from using our intellectual property and other proprietary information without our authorization or from independently developing intellectual property and other proprietary information that is similar to ours particularly in those countries where the laws do not protect our proprietary rights to the same degree as in the U S In addition because certain of our products are manufactured
by third parties we have necessarily shared some of our intellectual property with those third parties There can be no guarantee that those third parties some of whom are located in jurisdictions where intellectual property risks may be more pronounced will comply with contractual and other legal commitments to preserve and protect our intellectual property
The use of our intellectual property and other proprietary information by others could reduce or eliminate any competitive advantage we have developed potentially causing us to lose sales or otherwise harm our business If it becomes necessary for us to litigate to protect these rights any proceedings could be burdensome and costly and we may not prevail
Our intellectual property may not provide us with any competitive advantage and may be challenged by third parties Moreover our competitors may already hold or in the future may hold intellectual property rights in the U S or abroad that if enforced or issued could possibly prevail over our rights or otherwise limit our ability to manufacture or sell one or more of our products in the U S or internationally Despite our efforts we may be sued for infringing on the intellectual property rights of others This litigation is costly and even if we prevail the costs of such litigation could adversely affect our financial condition
Adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets and manufacturing expertise The loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our revenues and operating results to decline as a result of increased competition In addition others may obtain knowledge of our trade secrets through independent development or other access by legal means
Adverse developments affecting the financial services industry including events or concerns involving liquidity defaults or non performance by financial institutions or transactional counterparties could adversely affect our business financial condition or results of operations
Events involving limited liquidity defaults non performance or other adverse developments that affect financial institutions transactional counterparties or other companies in the financial services industry or the financial services industry generally or concerns or rumors about any events of these kinds or other similar risks have in the past and may in the future lead to market wide liquidity problems
Although we assess our banking and customer relationships as we believe necessary or appropriate our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us the financial services industry or the economy in general
These factors could include among others events such as liquidity constraints or failures the ability to perform obligations under various types of financial credit or liquidity agreements or arrangements disruptions or instability in the financial services industry or financial markets or concerns or negative expectations about the prospects for companies in the financial services industry
In addition investor concerns regarding the U S or international financial systems could result in less favorable commercial financing terms including higher interest rates or costs and more restrictive financial and operating covenants or systemic limitations on access to credit and liquidity sources thereby making it more difficult for us to acquire financing on acceptable terms or at all
Any decline in available funding or access to our cash and liquidity resources could among other risks adversely impact our ability to meet our operating expenses financial obligations or fulfill our other obligations
Any of these impacts or any other impacts resulting from the factors described above or other related or similar factors not described above could have material adverse impacts on our liquidity and our business financial condition or results of operations
This Annual Report contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 These statements reflect the current views of our senior management with respect to future events and our financial performance These statements include forward looking statements with respect to our business and industry in general Statements that include the words may expects plans anticipates estimates believes potential projects forecasts intends or the negative thereof or other comparable terminology and similar statements of a future or forward looking nature identify forward looking statements for purposes of the federal securities laws or otherwise
Although we believe that the expectations reflected in the forward looking statements are reasonable based on our current knowledge of our business and operations we cannot guarantee future results levels of activity performance or achievements The foregoing factors should not be construed as exhaustive If one or more of these or other risks or uncertainties materialize or if our underlying assumptions prove to be incorrect actual results may differ materially from what we anticipate Any forward looking statements you read in this Annual Report reflect our views as of the date of this Annual Report with respect to future events and are subject to these and other risks uncertainties and assumptions relating to our operations results of operations growth strategy and liquidity You should not place undue reliance on these forward looking statements and you should carefully consider all of the factors identified in this Annual Report that could cause actual results to differ We assume no obligation to update or revise these forward looking statements except as required by law
To identify and manage the material risks of cybersecurity threats to our business operations and control environments we have established an information security framework with a focus on cybersecurity incident prevention and mitigation to help safeguard the confidentiality integrity and access of our information assets and to ensure regulatory contractual and operational compliance
Our cybersecurity program is integrated into our Enterprise Risk Management program and is managed by a dedicated cybersecurity team that is responsible for leading enterprise wide cybersecurity strategy policy standards architecture and processes The program is aligned with industry standards and best practices such as the National Institute of Standards and Technology Cybersecurity Framework As part of our cybersecurity process we engage external experts and consultants to assess our cybersecurity program effectiveness and compliance with applicable practices and standards
The Company mitigates risks from cybersecurity incidents using a multifaceted approach that includes but is not limited to establishing information security policies implementing information protection processes and technologies assessing cybersecurity risk and vulnerability implementing cybersecurity training monitoring our information technology assets applications and users and managing vendors and service providers for third party risk management The Company is currently in material compliance with relevant information privacy and cybersecurity governmental standards with which it is required to comply
The Company has not experienced a material cybersecurity incident during the year ended March 31 2024 For more information on how material cybersecurity incidents may impact our business see Part I Item 1A Risk Factors of this Form 10 K
The Company s head of Information Technology in coordination with the Company s Chief Financial Officer General Counsel Corporate Controller and other internal stakeholders is responsible for leading the team responsible for assessing identifying and managing cybersecurity risks including implementation of our cybersecurity risk management program Our head of Information Technology has extensive experience in cybersecurity risk management and along with the cybersecurity risk management team has subject matter expertise in varied topics including data integrity IT risk enterprise architecture third party risk threat intelligence incident response and regulatory compliance Our Board of Directors oversees cybersecurity risk and strategy and the Audit Committee of the Board of Directors oversees information security compliance as part of its broader compliance oversight mandate
Senior officers of the Company regularly receive briefings on cybersecurity matters who in turn regularly report to the Board of Directors and its committees on such matters The Board of Directors receives cybersecurity updates from senior management including our head of Information Technology at least twice per year and the Audit Committee receives quarterly reports on any notable incidents or control issues that may have occurred during the quarter
Our principal executive offices are located at 5420 Lyndon B Johnson Freeway Suite 500 Dallas Texas 75240 Our headquarters is a leased facility The current lease term expires August 31 2026 but may be renewed
We consider the many manufacturing and R D facilities distribution centers warehouses offices and other properties that we own or lease to be in good condition and generally suitable for the purposes for which they are used The following table presents our principal physical locations by segment and excludes facilities classified as discontinued operations
We believe that our facilities are adequate for our current operations We may endeavor to selectively reduce or expand our existing lease commitments as circumstances warrant See Note 9 to our consolidated financial statements included in Item 8 of this Annual Report for additional information regarding our lease obligations
We may from time to time be involved in litigation arising out of our operations in the normal course of business or otherwise Furthermore third parties may try to seek to impose liability on us in connection with the activities of our operating companies We are not currently a party to any legal proceedings that individually or in the aggregate are expected to have a material effect on our business financial condition results of operations or financial statements taken as a whole
As of May 20 2024 there were 314 holders of record of our common stock The number of holders of record is based upon the actual numbers of holders registered at such date and does not include holders of shares in street name or persons partnerships associates corporations or other entities in security position listings maintained by depositories
Note 12 to our consolidated financial statements included in Item 8 of this Annual Report includes a discussion of our share repurchase program The following table represents the number of shares repurchased during the quarter ended March 31 2024
a On December 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 new repurchase program however the program may be limited or terminated at any time at our discretion without notice As of March 31 2024 53 133 shares were repurchased for an aggregate amount of 10 5 million under the current 100 0 million program
The following graph compares the cumulative total shareholder return on our common stock from April 1 2019 through March 31 2024 compared with the Russell 2000 Index of which CSWI is a component and a composite custom peer group which was selected on an industry basis and is periodically reviewed and updated if necessary to ensure it provides reasonable comparability based on products offered and end markets served by CSWI The graph assumes that 100 was invested at the market close on April 1 2019 and that all dividends were reinvested The stock price performance of the following graph is not necessarily indicative of future stock price performance The custom peer group consists of the following
This graph is furnished and not filed with the SEC Notwithstanding anything to the contrary set forth in any of our previous filings made under the Securities Act of 1933 or the Exchange Act that incorporate future filings made by us under those statutes the stock performance graph below is not to be incorporated by reference in any prior filings nor shall it be incorporated by reference into any future filings made by us under those statutes
The following discussion and analysis is provided to increase the understanding of and should be read in conjunction with the accompanying consolidated financial statements and notes See Item 1A Risk Factors and the Forward Looking Statements included in this Annual Report for a discussion of the risks uncertainties and assumptions associated with these statements Unless otherwise noted all amounts discussed herein are consolidated
We are 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 plumbing products grilles registers and diffusers GRD building safety solutions and high performance specialty lubricants and sealants End markets that we serve include HVAC R architecturally specified building products plumbing general industrial energy rail transportation and mining Our manufacturing operations are concentrated in the United States U S Vietnam and 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 the U S Canada the U K and Australia
Drawing on our innovative 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 well known in the specific end markets we serve and have a reputation for high quality 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 synergistic acquisitions in support of this objective and we remain focused on identifying additional acquisition opportunities in our core end markets
Many of our products are used to protect the capital assets of our customers that are expensive to repair or replace and are critical to their operations We have a source of recurring revenue from the maintenance repair and overhaul and consumable nature of many of our products We also provide some custom engineered products that strengthen and enhance our customer relationships The reputation of our product portfolio is built on more than 100 well respected brand names such as AC Guard
On February 6 2024 we acquired 100 of the outstanding equity of Dust Free LP Dust Free based in Royse City Texas for an aggregate purchase price of 34 7 million including 0 6 million cash acquired comprised of cash consideration of 27 9 million and contingent consideration initially measured at 6 8 million based on Dust Free meeting defined operational and financial targets over a period of six years The cash consideration was funded with cash on hand and borrowings under our existing Revolving Credit Facility as defined in Note 8 The Dust Free products offer residential and commercial indoor air quality and HVAC R applications and supplement our Contractor Solutions segment s existing product portfolio Dust Free activity has been included in our Contractor Solutions segment since the acquisition date
On October 4 2022 we acquired 100 of the outstanding equity of Falcon Stainless Inc Falcon based in Temecula California for an aggregate purchase price of 37 1 million including 1 0 million cash acquired comprised of cash consideration of 34 6 million and an additional payment of 2 5 million that was paid one year from the acquisition date based on certain business conditions being met The cash consideration was funded with cash on hand and borrowings under our existing Revolving Credit Facility as defined in Note 8 The 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 Falcon activity has been included in our Contractor Solutions segment since the acquisition date
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 consideration initially measured at 0 4 million based on CG and ACG meeting defined financial targets over a period of five 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 CG and ACG products further expand Contractor Solutions offering of leading HVAC R accessories including lineset covers and HVAC R condenser protection cages Through these differentiated products our Contractor Solutions segment expects to achieve incremental ductless and ducted HVAC R market penetration CG and ACG activity has been included in our Contractor Solutions segment since the acquisition date
On December 15 2021 we acquired 100 of the 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 expected contingent consideration Shoemaker offers high quality customizable GRD for commercial and residential markets and expands CSWI s HVAC R product offering and regional exposure in the northwest U S The aggregate purchase price was comprised of cash consideration of 38 6 million 25 483 shares of the Company s common stock valued at 3 0 million at transaction close and additional contingent consideration of up to 2 0 million based on Shoemaker meeting a defined financial target during the quarter ended March 31 2022 which was achieved Shoemaker activity has been included in our Contractor Solutions segment since the acquisition date
On April 1 2021 Whitmore Manufacturing LLC Whitmore a wholly owned subsidiary of CSWI completed the formation of a joint venture 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 HVAC R market is our largest market served and it represented approximately 54 and 55 of our net revenues in the years ended March 31 2024 and 2023 respectively We provide an extensive array of products for installation repair and maintenance of HVAC R systems that includes condensate switches pans and pumps GRD refrigerant caps line set covers and other chemical and mechanical products The industry is driven by replacement and repair of existing HVAC R systems as well as new construction projects New HVAC R systems are heavily influenced by macro trends while replacement and repair of existing HVAC R systems are dependent on weather and age of unit The HVAC R market tends to be seasonal with the peak sales season beginning in March and continuing through August Construction and repair is typically performed by contractors and we utilize our global distribution network to drive sales of our brands to such contractors
Architecturally specified building products represented approximately 19 and 18 of our net revenues in the years ended March 31 2024 and 2023 respectively We manufacture and sell products such as engineered railings smoke and fire protection systems expansion joints and stair edge nosings for end use customers including multi family residential buildings educational facilities or institutions warehouses construction companies plant maintenance customers building contractors and repair service companies Sales of these products are driven by architectural specifications and safety and building codes The sales process is typically long as these can be multi year construction projects The construction market both commercial and multi family is a key driver for sales of architecturally specified building products
The plumbing market represented approximately 8 and 7 of our net revenues in the years ended March 31 2024 and 2023 respectively We provide many products to the plumbing industry including thread sealants solvent cements fire stopping products condensate switches and trap guards water and gas connectors as well as other mechanical products such as drain traps Installation is typically performed by contractors and we utilize our global distribution network to drive sales of our products to contractors
The general industrial end market represented approximately 7 and 6 of our net revenues in the years ended March 31 2024 and 2023 respectively We provide products focused on asset protection and reliability including lubricants desiccant breathers and fluid management products The general industrial market includes the manufacture of chemicals steel cement food and beverage pulp and paper and a wide variety of other processed materials We serve this market primarily through a network of distributors
The energy market represented approximately 6 and 7 of our net revenues in the years ended March 31 2024 and 2023 respectively We provide market leading lubricants and anti seize compounds as well as greases for use in oilfield drilling activity and maintenance of oilfield drilling and valve related equipment We sell our products primarily through distributors that are strategically situated near the major oil and gas producing areas across the globe The outlook for the energy industry is heavily dependent on the global demand expectations from developed and emerging economies as well as oil price and local government policies relative to oil exploration drilling storage and transportation
The mining market represented approximately 4 and 4 of our net revenues in the years ended March 31 2024 and 2023 respectively Across the globe we provide market leading lubricants to open gears used in large mining excavation equipment primarily through direct sales agents as well as a network of strategic distributors The North American mining industry is heavily weighted toward coal production and has experienced headwinds due to continued decline in domestic coal demand partially mitigated by the seaborne coal export market Globally coal demand has been robust and focused efforts in coal markets outside of the U S coupled with enhanced focus on markets such as iron gold diamonds and uranium in Southeast Asia South America and Africa have delivered growth that has generally offset the weakness in North American coal demand Outside of coal the mining market tends to move with global industrial output as basic industrial metals such as copper tin aluminum and zinc which are critical inputs to many industrial products
The rail transportation market represented approximately 2 and 3 of our net revenues in each of the years ended March 31 2024 and 2023 We provide an array of products into the rail transportation industry including lubricants and lubricating devices for rail transportation lines which increase efficiency reduce noise and extend the life of rail transportation equipment such as rails and wheels We leverage our technical expertise to build relationships with key decision makers to ensure our products meet required specifications We sell our products primarily through a direct sales force as well as through distribution partners End markets for rail transportation include Class 1 Rail as the primary end market in North America and Transit Rail as the primary end market in all other geographies Cyclical product classes such as farm products and petrochemical products can impact volumes in Class 1 Rail While coal transport is diminishing demand for Class 1 Rail in North America global investment in Transit Rail systems is expected to more than offset this decline
In fiscal 2025 we maintain our optimism in key end markets and our ability to outperform We expect revenue and profit growth in each of our three operating segments with strong generation of operating cash flows for the full year We offer innovative and high value products that our customers prefer and we remain focused on the products and subcategories that are growing faster than the overall industry We believe we have the strategy and the team to deliver strong performance in fiscal 2025
We expect to maintain a strong balance sheet in fiscal year 2025 which provides us with access to capital through our cash on hand internally generated cash flow and availability under our Revolving Credit Facility Our capital allocation strategy continues to guide our investing decisions with a priority to direct capital to the highest risk adjusted return opportunities within the categories of organic growth strategic acquisitions and the return of cash to shareholders through our share repurchase and dividend programs With the strength of our financial position we will continue to invest in financially and strategically attractive expanded product offerings key elements of our long term strategy of targeting long term profitable growth We will continue to invest our capital in maintaining our facilities and in continuous improvement initiatives We recognize the importance of and remain committed to continuing to drive organic growth as well as investing additional capital in opportunities with attractive risk adjusted returns driving increased penetration in the end markets we serve 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 economic conditions
The operations of Dust Free have been included in our consolidated results of operations and in the operating results of our Contractor Solutions segment since the February 6 2024 date of acquisition The operations of Falcon have been included in our consolidated results of operations and in the operating results of our Contractor Solutions segment since the October 4 2022 date of acquisition The operations of CG and ACG have been included in our consolidated results of operations and in the operating results of our Contractor Solutions segment since the July 8 2022 date of acquisition The operations of Shoemaker have been included in our consolidated results of operations and in the operating results of our Contractor Solutions segment since the December 15 2021 date of acquisition All acquisitions are described in Note 2 to our consolidated financial statements included in Item 8 of this Annual Report
Net revenues for the year ended March 31 2024 increased 34 9 million or 4 6 as compared with the year ended March 31 2023 Excluding the impact of the acquisitions organic sales increased 23 9 million or 3 1 from the prior year driven primarily by increased unit volumes and pricing initiatives Inorganic revenue increased 11 0 million or 1 5 due to the acquisitions of CG ACG Falcon and Dust Free Net revenue increased in the architecturally specified building products HVAC R plumbing general industrial mining and energy end markets and decreased in the rail transportation end market
Net revenues for the year ended March 31 2023 increased 131 5 million or 21 0 as compared with the year ended March 31 2022 Excluding the impact of the acquisitions organic sales increased 95 6 million or 15 3 from the prior year due to pricing initiatives The increase was partially due to the acquisitions of Shoemaker CG ACG and Falcon 35 9 million or 5 7 Net revenue increased in all end markets including HVAC R architecturally specified building products energy mining general industrial rail transportation and plumbing
Net revenues into the Americas Europe Middle East and Africa EMEA and the Asia Pacific regions for the year ended March 31 2024 2023 and 2022 are presented below The presentation of net revenues by geographic region is based on the location of the customer For additional information regarding net revenues by geographic region see Note 20 to our consolidated financial statements included in Item 8 of this Annual Report
Gross profit for the year ended March 31 2024 increased 32 5 million or 10 2 as compared with the year ended March 31 2023 The increase was primarily a result of a reduction in ocean and domestic freight expense pricing initiatives increased unit volumes and the acquisitions of CG ACG Falcon and Dust Free Gross profit margin for the year ended
March 31 2024 of 44 2 increased from 42 0 for the year ended March 31 2023 The increase was primarily due to pricing initiatives and reduced ocean and domestic freight expenses as compared to the prior year period
Gross profit for the year ended March 31 2023 increased 62 3 million or 24 3 as compared with the year ended March 31 2022 The increase was primarily a result of pricing initiatives the acquisitions of Shoemaker CG ACG and Falcon along with the prior year 3 9 million TRUaire purchase accounting effect and non recurring 1 7 million of under absorption costs resulting from reduced production levels and incremental compensation expenses incurred at the TRUaire Vietnam facility during the prior year to maintain TRUaire Vietnam s operations in accordance with COVID 19 restrictions that did not recur TRUaire Vietnam COVID Impact Gross profit margin for the year ended March 31 2023 of 42 0 increased from 40 9 for the year ended March 31 2022 was due to the above mentioned TRUaire related expenses incurred in the prior year period that did not recur and pricing initiatives
Selling general and administrative expenses for the year ended March 31 2024 increased 12 5 million or 7 0 as compared with the year ended March 31 2023 The increase is primarily due to increased expenses related to employee compensation a trademark impairment and travel along with increased depreciation and amortization and added expenses related to the inclusion of Dust Free in the current year The increase in operating expenses as a percentage of sales was primarily attributable to sales increasing by a lower percentage than the increase in operating expenses
Selling general and administrative expenses for the year ended March 31 2023 increased 20 6 million or 13 0 as compared with the year ended March 31 2022 The increase was primarily due to added expenses related to the inclusion of Shoemaker in the current year increases related to employee compensation expenses third party sales commissions marketing and travel expenses to support revenue growth increased professional fees primarily related to support business growth and recent acquisitions along with increased depreciation and amortization The decrease in operating expenses as a percentage of sales was primarily attributable to sales increasing by a greater percentage than the increase in operating expenses
Operating income for the year ended March 31 2024 increased by 20 1 million or 14 4 as compared with the year ended March 31 2023 The increase was a result of the 32 5 million increase in gross profit partially offset by the 12 5 million increase in selling general and administrative expense as discussed above
Operating income for the year ended March 31 2023 increased by 41 7 million or 42 8 as compared with the year ended March 31 2022 The increase was a result of the 62 3 million increase in gross profit partially offset by the 20 6 million increase in selling general and administrative expense as discussed above
Interest expense net for the year ended March 31 2024 decreased 0 5 million or 3 6 to 12 7 million as compared with the year ended March 31 2023 due to reduced borrowing under our Revolving Credit Facility described in Note 8 to our consolidated financial statements included in Item 8 of this Annual Report as a result of strong operating cash flows generated during the current year and the benefit from our current 100 million interest rate swap partially offset by higher interest rates
Interest expense net for the year ended March 31 2023 increased 7 7 million or 142 2 to 13 2 million as compared with the year ended March 31 2022 due to higher interest rates and increased borrowing during the year under our Revolving Credit Facility primarily in connection with the acquisitions of Shoemaker CG ACG and Falcon
Other expense net increased by 6 0 million for the year ended March 31 2024 to expense of 5 9 million as compared with the year ended March 31 2023 The increase was primarily due to the non cash 8 5 million release of tax indemnification assets related to the TRUaire and Falcon acquisitions as discussed in Note 15 to our consolidated financial statements included in Item 8 of this Annual Report which was partially offset by a gain of 1 4 million recognized from the sale of a property previously held for investment and foreign currency exchange gains
Other expense net decreased by 0 5 million for the year ended March 31 2023 to income of less than 0 1 million as compared with the year ended March 31 2022 The decrease was primarily due to foreign currency exchange changes
The effective tax rates for the years ended March 31 2024 2023 and 2022 were 27 0 23 3 and 26 4 respectively As compared with the statutory rate for the year ended March 31 2024 the provision for income taxes was primarily impacted by state tax expense net of federal benefits which increased the provision by 6 4 million and effective rate by 4 5 impact of the tax indemnification asset release which increased the provision by 1 8 million and the effective tax rate by 1 3 executive compensation limitation which increased the provision by 1 2 million and the effective tax rate by 0 9 impact of repatriation of foreign earnings which increased the provision by 0 5 million and the effective rate by 0 3 This was partially offset by IRC section 250 deductions which decreased the provision by 1 1 million and the effective tax rate by 0 7
As compared with the statutory rate for the year ended March 31 2023 the provision for income taxes was primarily impacted by the state tax expense which increased the provision by 2 9 million and the effective rate by 2 3 executive compensation limitation which increased the provision by 1 6 million and the effective rate by 1 2 impact of GILTI inclusions which increased the provision by 1 1 million and the effective tax rate by 0 9 impact of repatriation of foreign earnings which increased the provision by 0 9 million and the effective rate by 0 7 and the additional non deductible expenses which increased the provision by 0 6 million and the effective rate by 0 4 This was offset by IRC section 250 deductions which decreased the provision by 1 6 million and the effective tax rate by 1 3 foreign tax credits which decreased the provision by 0 6 million and the effective tax rate by 0 5
During the year ended March 31 2024 we released a reserve of 1 5 million including accrued interest of 0 2 million and accrued penalty of 0 2 million as a result of the lapse of statute for the 2019 period We also recorded additional uncertain tax positions reserve of 1 7 million including accrued interest of 1 2 million and accrued penalty of 0 5 million on historical tax positions We also recorded an additional 0 2 million reserve and a corresponding tax indemnification asset through purchase accounting in connection with the Falcon acquisition during the measurement period
During the year ended March 31 2023 we released a reserve of 1 6 million primarily as a result of the conclusion of TRUaire s Vietnam s audit for the tax periods from January 1 2019 to March 31 2022 discussed below including accrued interest of 0 4 million and accrued penalties of 0 5 million We also recorded total tax reserves of 2 8 million including accrued interest and penalty of 0 1 million and 0 2 million respectively through purchase accounting in connection with the Falcon Stainless acquisition For the year ended March 31 2023 we recorded an additional tax reserve of less than 0 1 million accrued interest of 0 7 million and accrued penalty of 0 6 million
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 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 March 31 2024 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 pre acquisition period
In connection with the TRUaire acquisition 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 purchase agreement the sellers 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 expired in
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 March 31 2024 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
The Company expects 3 3 million of existing reserves for UTPs to either be settled or expire within the next 12 months as the statutes of limitations expire Our federal income tax returns remain subject to examination for the years ended March 31 2023 2022 and 2021 Our income tax returns for TRUaire s pre acquisition periods including calendar years 2018 2019 and 2020 remain subject to examinations Our income tax returns in certain state income tax jurisdictions remain subject to examination for various periods for the period ended September 30 2015 and subsequent years
We conduct our operations through three business segments based on the type of product and how we manage the businesses We evaluate segment performance and allocate resources based on each segment s operating income The key operating results for our three business segments are discussed below
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 the professional trades
Net revenues for the year ended March 31 2024 increased 22 7 million or 4 4 as compared with the year ended March 31 2023 Excluding the impact of acquisitions organic sales increased by 11 7 million or 2 3 due primarily to pricing initiatives and an increase in unit volumes The remainder of the increase was due to the acquisitions of CG ACG Falcon and Dust Free 11 0 million or 2 1 Net revenue increased in all end markets served
Net revenues for the year ended March 31 2023 increased 97 3 million or 23 4 as compared with the year ended March 31 2022 Excluding the impact of acquisitions organic sales increased by 61 4 million or 14 8 due primarily to pricing initiatives partially offset by a slight decrease in unit volumes The remainder of the increase was due to the acquisitions of Shoemaker CG ACG and Falcon 35 9 million or 8 6 Net revenue increased in the HVAC R architecturally specified building products and plumbing end markets and decreased in the general industrial end market
Operating income for the year ended March 31 2024 increased 15 8 million or 12 5 as compared with the year ended March 31 2023 The increase was primarily due to a reduction in ocean and domestic freight expenses increased net revenue and the inclusion of the CG ACG Falcon and Dust Free acquisitions partially offset by increased operating expenses including employee compensation and a trademark impairment Operating margin of 26 5 for the year ended March 31 2024 increased as compared to 24 6 for the year ended March 31 2023 This increase was due to gross margin improvement driven primarily by the aforementioned reduction in ocean and domestic freight expenses combined with the positive effect of pricing initiatives
Operating income for the year ended March 31 2023 increased 30 1 million or 31 3 as compared with the year ended March 31 2022 The increase was primarily 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 1 7 million TRUaire Vietnam COVID Impact incurred in the prior year period that did not recur Operating margin of 24 6 for the year ended March 31 2023 increased as compared to 23 1 for the year ended March 31 2022 This increase was primarily due to the
The Specialized Reliability Solutions segment provides long established products for increasing the reliability performance and lifespan of industrial assets and solving equipment maintenance challenges
Net revenues for the year ended March 31 2024 increased 2 2 million or 1 5 as compared with the year ended March 31 2023 The increase was primarily due to pricing initiatives Net revenue increased in the general industrial mining and energy end markets and decreased in the rail transportation end market
Net revenues for the year ended March 31 2023 increased 31 4 million or 27 1 as compared with the year ended March 31 2022 The increase was primarily due to increased unit volumes and pricing initiatives Net revenue increased in all end markets including energy mining general industrial and rail transportation
Operating income for the year ended March 31 2024 increased 2 1 million or 10 4 as compared with the year ended March 31 2023 The increase was primarily due to the increased net revenue combined with a slight decrease in operating expenses Operating margin of 14 9 for the year ended March 31 2024 increased as compared to 13 7 for the year ended March 31 2023 This increase was primarily due to an improvement in gross margin driven by pricing initiatives and reduced operating expenses
Operating income for the year ended March 31 2023 increased 11 2 million or 124 0 as compared with the year ended March 31 2022 The increase was primarily due to the increased net revenue partially offset by increased operating expenses Operating margin of 13 7 for the year ended March 31 2023 increased as compared to 7 8 for the year ended March 31 2022 This increase was primarily due to gross margin improvement as a result of leverage from revenue volume increase pricing initiatives as well as reduced growth in operating expense as a percentage of revenue
segment provides primarily code driven products focused on life safety that are engineered to provide aesthetically pleasing solutions for the construction refurbishment and modernization of commercial institutional and multi family residential buildings
Net revenues for the year ended March 31 2024 increased 10 8 million or 10 4 as compared with the year ended March 31 2023 The increase was driven by increased volumes as a result of the continued conversion of strong project bookings into revenue and pricing initiatives
Net revenues for the year ended March 31 2023 increased 6 7 million or 6 9 as compared with the year ended March 31 2022 The increase was primarily due to sustained commercial activity retention of market share and pricing initiatives
Operating income for the year ended March 31 2024 increased 5 8 million or 45 1 as compared with the year ended March 31 2023 The increase was driven by increased net revenue and a positive impact from pricing initiatives as well as a 1 2 million gain recognized from the sale of a property previously used in operations Operating margin of 16 3 for the year
ended March 31 2024 increased as compared to 12 4 for the year ended March 31 2023 This increase was primarily due to gross margin improvement resulting from pricing initiatives and the aforementioned gain from property sale along with reduced operating expense as a percentage of revenue
Operating income for the year ended March 31 2023 increased 1 8 million or 16 1 as compared with the year ended March 31 2022 The increase was due to the increased net revenue and management of operating expenses Operating margin of 12 4 for the year ended March 31 2023 increased as compared to 11 4 for the year ended March 31 2022 This increase was primarily due to effective management of operating expenses partially offset by the shift in sales to lower margin projects
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 Additionally we use our Revolver 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 make scheduled principal and interest payments on debt and meet our contingent consideration obligations Absent deterioration of market conditions we believe that cash flows from operating and financing activities primarily Revolver Borrowings will provide adequate resources to satisfy our working capital scheduled principal and interest payments on debt anticipated dividend payments periodic share repurchases contingent consideration obligations and anticipated capital expenditure requirements for both our short term and long term capital needs
Working capital provided cash for the year ended March 31 2024 due to higher accounts payable and other current liabilities 12 3 million lower inventories 10 4 million lower prepaid expenses and other current assets 4 6 million and lower other assets 1 1 million partially offset by higher accounts receivable 17 9 million
Working capital used cash for the year ended March 31 2023 due to higher inventories 11 4 million and lower accounts payable and other current liabilities 7 0 million and higher prepaid expenses and other current assets 1 3 million partially offset by lower accounts receivable 1 1 million
Working capital used cash for the year ended March 31 2022 due to higher inventory 49 4 million and higher accounts receivable 26 7 million partially offset by higher accounts payable and other current liabilities 28 0 million and lower prepaid expenses and other assets 3 5 million
Capital expenditures during the years ended March 31 2024 2023 and 2022 were 16 6 million 14 0 million and 15 7 million respectively Our capital expenditures have been focused on capacity expansion continuous
March 31 2024 we acquired Dust Free for an aggregate purchase price of 34 7 million comprised of 27 4 million in cash consideration net of cash received Additionally 2 4 million cash was paid for immaterial product line acquisitions and a deferred payment of 2 5 million was remitted to the Falcon sellers due to the performance obligation being met
During the year ended March 31 2023 we acquired Falcon for an aggregate purchase price of 37 1 million comprised of 33 6 million in cash consideration net of cash received the assets of CG and ACG and the related intellectual property for 19 7 million in cash consideration and additional 0 3 million annuity payments and other acquisitions for 2 7 million in cash consideration Additionally a contingent payment of 2 0 million was remitted to the Shoemaker sellers due to the performance obligation set forth in the acquisition agreement being met as part of the Shoemaker acquisition
During the year ended March 31 2022 we acquired Shoemaker for an aggregate purchase price of 43 6 million including 37 4 million in cash consideration net of cash received Additionally we received proceeds of 1 4 million as a result of the final working capital true up adjustment related to the TRUaire acquisition
Net borrowings payments from our Revolving Credit Facility and the Whitmore Term Loan as discussed in Note 8 to our consolidated financial statements included in Item 8 of this Annual Report of 87 0 million 0 2 million and 10 4 million during the years ended March 31 2024 2023 and 2022 respectively
Payments of 0 0 million 0 7 million and 2 3 million of underwriting discounts and fees in connection with amending our Revolving Credit Facility during the years ended March 31 2024 2023 and 2022 respectively as discussed in Note 8 to our consolidated financial statements included in Item 8 of this Annual Report
Proceeds from the redeemable noncontrolling interest shareholder for its investment in the consolidated Whitmore JV of 0 0 million 3 0 million and 6 3 million during the years ended March 31 2024 2023 and 2022 respectively as discussed in Note 3 to our consolidated financial statements included in Item 8 of this Annual Report
Repurchases of shares under our share repurchase programs as discussed in Note 12 to our consolidated financial statements included in Item 8 of this Annual Report of 10 5 million 35 7 million and 14 4 million during the years ended March 31 2024 2023 and 2022 respectively
We believe that available cash and cash equivalents cash flows generated through operations and cash available under our Revolving Credit Facility will be sufficient to meet our liquidity needs including capital expenditures for at least the next 12 months
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 During the year ended March 31 2024 we acquired 100 of the outstanding equity of Dust Free based in Royse City Texas for an aggregate purchase price of 34 7 million During the year ended March 31 2023 we acquired 100 of the outstanding equity of Falcon based in Temecula California for an aggregate purchase price of 37 1 million and the assets of CG and ACG and related intellectual properties based in Orlando Florida for an aggregate purchase price of 22 1 million During the year ended March 31 2022 we acquired 100 of the outstanding equity of Shoemaker for an aggregate purchase price of 43 6 million These acquisitions were funded through a combination of cash on hand borrowings under our Revolving Credit Facility and stock consideration See Note 2 to our consolidated financial statements included in Item 8 of this Annual Report for a discussion of our acquisitions
Our long term debt obligation consists of the Revolver Borrowings with a maturity date in fiscal 2027 As of March 31 2024 we had 166 0 million in outstanding Revolver Borrowings which resulted in a borrowing capacity of 334 0 million See Note 8 to our consolidated financial statements included in Item 8 of this Annual Report for a discussion of our indebtedness
Total dividends of 11 9 million were paid during the year ended March 31 2024 On April 12 2024 we declared a quarterly dividend and announced an increase of our quarterly dividend rate to 0 21 per share paid on May 10 2024 to shareholders of record as of April 26 2024 We currently expect to continue to pay a regular quarterly dividend to shareholders in the future but such payments are subject to approval of our Board of Directors and are dependent upon our financial conditions results of operations capital requirements and other factors including those set forth under Item 1A Risk Factors of this Annual Report See Note 12 to our consolidated financial statements included in Item 8 of this Annual Report for a discussion of dividends
On October 30 2020 our Board of Directors approved a repurchase program authorizing the repurchase of up to 100 0 million of our common stock which replaced a prior 75 0 million repurchase 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 100 0 million repurchase program 53 133 shares were repurchased during the year ended March 31 2024 for 10 5 million and no shares were repurchased during the year ended March 31 2023 Under the prior 100 0 million repurchase program 336 347 shares were repurchased during the year ended March 31 2023 for 35 7 million A total of 462 462 shares had been repurchased for an aggregate amount of 50 1 million under the prior 100 0 million program As of March 31 2024 a total of 53 133 shares had been repurchased for an aggregate amount of 10 5 million under the current 100 0 million program Our Board of Directors has established an expiration of December 31 2024 for the current 100 0 million repurchase program and we currently expect to continue to repurchase shares in the near future but such repurchases are dependent upon our financial condition results of operations capital requirements and other factors including those set forth under Item 1A Risk Factors of this Annual Report See Note 12 to our consolidated financial statements included in Item 8 of this Annual Report for a discussion of our share repurchase program
During the year ended March 31 2024 we invested 16 6 million in capital expenditures related to continuous improvement and automation safety capacity expansion enterprise resource planning systems and new product introductions We plan to continue investing in capital expenditures in the future to improve manufacturing productivity enhance operational safety upgrade information technology infrastructure and security and implement advanced technologies for our existing facilities
Our contractual obligations as of March 31 2024 primarily included purchase obligations and operating lease commitments Purchase obligations include agreements to purchase goods or services that are enforceable legally binding and specify all significant terms including fixed or minimum quantities to be purchased fixed minimum or variable price provisions and the approximate timing of the transaction Purchase obligations exclude agreements that are cancellable without penalty We expect to incur 62 3 million in purchase obligations over the next 12 months For operating lease commitments see Note 9 to our consolidated financial statements included in Item 8 of this Annual Report
The process of preparing financial statements in conformity with U S GAAP requires the use of estimates and assumptions to determine reported amounts of certain assets liabilities revenues and expenses and the disclosure of related contingent assets and liabilities These estimates and assumptions are based upon information available at the time of the estimates or assumptions including our historical experience where relevant The most significant estimates made by management include timing and amount of revenue recognition realization of the deferred taxes and measurement of tax reserves and valuation of goodwill and indefinite lived intangible assets both at the time of initial acquisition as well as part of recurring impairment
analyses as applicable The significant estimates are reviewed at least annually if not quarterly by management Because of the uncertainty of factors surrounding the estimates assumptions and judgments used in the preparation of our financial statements actual results may differ from the estimates and the difference may be material
Our critical accounting policies are those policies that are both most important to our financial condition and results of operations and require the most difficult subjective or complex judgments on the part of management in their application often as a result of the need to make estimates about the effect of matters that are inherently uncertain We believe that the following represent our critical accounting policies For a summary of all of our significant accounting policies see Note 1 to our consolidated financial statements included in Item 8 of this Annual Report Management has discussed our critical accounting estimates and policies with the Audit Committee of our Board of Directors
We recognize revenues to depict the transfer of control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services Refer to Note 19 for further discussion We recognize revenue when all of the following criteria have been met i a contract with a customer exists ii performance obligations have been identified iii the price to the customer has been determined iv the price to the customer has been allocated to the performance obligations and v performance obligations are satisfied which are more fully described below
i We identify a contract with a customer when a sales agreement indicates approval and commitment of the parties identifies the rights of the parties identifies the payment terms has commercial substance and it is probable that we will collect the consideration to which we will be entitled in exchange for the goods or services that will be transferred to the customer In most instances our contract with a customer is the customer s purchase order For certain customers we may also enter into a sales agreement that outlines a framework of terms and conditions that apply to all future purchase orders for that customer In these situations our contract with the customer is both the sales agreement and the specific customer purchase order Because our contract with a customer is typically for a single transaction or customer purchase order the duration of the contract is one year or less As a result we have elected to apply certain practical expedients and as permitted by the Financial Accounting Standards Board omit certain disclosures of remaining performance obligations for contracts that have an initial term of one year or less
ii We identify performance obligations in a contract for each promised good or service that is separately identifiable from other promises in the contract and for which the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer Goods and services provided to our customers that are deemed immaterial are included with other performance obligations
iii We determine the transaction price as the amount of consideration we expect to be entitled to in exchange for fulfilling the performance obligations including the effects of any variable consideration
iv For any contracts that have more than one performance obligation we allocate the transaction price to each performance obligation in an amount that depicts the amount of consideration to which we expect to be entitled in exchange for satisfying each performance obligation We have excluded disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less as the majority of our contracts are short term in nature with a term of one year or less
We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue producing transaction and collected from a customer As such we present revenue net of sales and other similar taxes Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenues Costs to obtain a contract which include sales commissions recorded in selling general and administrative expense are expensed when incurred as the amortization period is one year or less We do not have customer contracts that include significant financing components
Deferred tax assets and liabilities are determined based on temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date Based on the evaluation of available evidence both positive and negative we recognize future tax benefits such as net operating loss carryforwards and tax credit carryforwards to the extent
that these benefits are more likely than not to be realized We base our judgment of the recoverability of our deferred tax assets primarily on historical earnings our estimate of current and expected future earnings using historical and projected future operating results and prudent and feasible tax planning strategies
The amount of income taxes we pay is subject to ongoing audits by federal state and foreign tax authorities which may result in proposed assessments Significant judgment is required in determining income tax provisions and evaluating tax positions We establish reserves for open tax years for uncertain tax positions that may be subject to challenge by various taxing authorities The consolidated tax provision and related accruals include the impact of such reasonably estimable losses and related interest and penalties as deemed appropriate Tax benefits recognized in the financial statements from uncertain tax positions are measured based on the largest benefit that has a greater than 50 likelihood of being realized upon ultimate settlement
During the year ended March 31 2024 we released a reserve of 1 5 million including accrued interest of 0 2 million and accrued penalty of 0 2 million as a result of the lapse of statute for the 2019 period We also recorded additional uncertain tax position reserve of 1 7 million including accrued interest of 1 2 million and accrued penalty of 0 5 million on historical tax positions We also recorded an additional 0 2 million uncertain tax position reserve and a corresponding tax indemnification asset through purchase accounting in connection with the Falcon acquisition during the measurement period
During the year ended March 31 2023 we released a reserve of 1 6 million primarily as a result of the conclusion of TRUaire s Vietnam s audit for the tax periods from January 1 2019 to March 31 2022 discussed below including accrued interest of 0 4 million and accrued penalties of 0 5 million We also recorded total tax reserves of 2 8 million including accrued interest and penalty of 0 1 million and 0 2 million respectively through purchase accounting in connection with the Falcon Stainless acquisition For the year ended March 31 2023 we recorded an additional tax reserve of less than 0 1 million accrued interest of 0 7 million and accrued penalty of 0 6 million
The Company expects 3 3 million of existing reserves for UTPs to either be settled or expire within the next 12 months as the statutes of limitations expire Our federal income tax returns remain subject to examination for the years ended March 31 2023 2022 and 2021 Our income tax returns for TRUaire s pre acquisition periods including calendar years 2018 2019 and 2020 remain subject to examinations Our income tax returns in certain state income tax jurisdictions remain subject to examination for various periods for the period ended September 30 2015 and subsequent years
While we believe we have adequately provided for any reasonably foreseeable outcome related to these matters our future results may include favorable or unfavorable adjustments to our estimated tax liabilities To the extent that the expected tax outcome of these matters changes such changes in estimate will impact the income tax provision in the period in which such determination is made
The initial recording of goodwill and intangible assets requires subjective judgements concerning estimates of the fair value of the acquired assets We test the value of goodwill for impairment as of January 31 each year or whenever events or circumstances indicate such asset may be impaired
The test for goodwill impairment involves significant judgement in estimating projections of fair value generated through future performance of each of the reporting units The identification of our reporting units began at the operating segment level and considered whether components one level below the operating segment levels should be identified as reporting units for purpose of testing goodwill for impairment based on certain conditions These conditions included among other factors i the extent to which a component represents a business and ii the aggregation of economically similar components within the operating segments Other factors that were considered in determining whether the aggregation of components was appropriate included the similarity of the nature of the products and services the nature of the production processes the methods of distribution and the types of industries served
Accounting Standards Codification ASC 350 allows an optional qualitative assessment prior to a quantitative assessment test to determine whether it is more likely than not that the fair value of a reporting unit exceeds its carrying amount We bypassed the qualitative assessment and proceeded directly to the quantitative test If the carrying value of a reporting unit exceeds its fair value the goodwill of that reporting unit is impaired and an impairment loss is recorded equal to the excess of the carrying value over its fair value We estimate the fair value of our reporting units based on an income approach whereby we calculate the fair value of a reporting unit based on the present value of estimated future cash flows A discounted cash flow analysis requires us to make various judgmental assumptions about future sales operating margins growth rates and discount rates which are based on our budgets business plans economic projections anticipated future cash
flows and market participants Our quantitative test performed as of January 31 2024 indicated that no goodwill impairment loss should be recognized for the year ended March 31 2024 There was no impairment loss recognized for the years ended March 31 2023 and 2022 respectively
We have indefinite lived intangible assets in the form of trademarks We test these intangible assets for impairment at least annually as of January 31 or whenever events or circumstances indicate that the carrying amount may not be recoverable Significant assumptions used in the impairment test include the discount rate royalty rate future sales projections and terminal value growth rate These inputs are considered non recurring level three inputs within the fair value hierarchy An impairment loss would be recognized when estimated future cash flows are less than their carrying amount We recorded a 1 5 million impairment for the year ended March 31 2024 relating to a trademark and no impairment for the fiscal years March 31 2023 and 2022
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 these risks through regular operating and financing activities and when deemed appropriate through the use of interest rate swaps 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
We are subject to interest rate risk on our variable rate indebtedness Fluctuations in interest rates have a direct effect on the interest expense associated with our outstanding indebtedness We manage or hedge interest rate risks related to our borrowings by means of interest rate swap agreements As discussed in Note 10 the Whitmore Term Loan interest rate swap 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 8 At March 31 2024 we had 66 0 million in unhedged variable rate indebtedness with an average interest rate of 6 68 Starting in April 2024 each quarter point change in interest rates would result in a change of approximately 0 2 million in our interest expense on an annual 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
We conduct a 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 realized net losses gains associated with foreign currency translation of 1 9 million 3 8 million and a loss of less than 0 1 million for the years ended March 31 2024 2023 or 2022 respectively which are included in accumulated other comprehensive income loss We recognized foreign currency transaction net gains losses of 0 3 million 0 4 million and 0 2 million for the years ended March 31 2024 2023 or 2022 respectively which are included in other income expense net on our consolidated statements of operations
Based on a sensitivity analysis as of March 31 2024 a 10 change in the foreign currency exchange rates for the year ended March 31 2024 would have impacted our income by approximately 5 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
We have audited the accompanying consolidated balance sheets of CSW Industrials Inc a Delaware corporation and subsidiaries the Company as of March 31 2024 and 2023 the related consolidated statements of operations comprehensive income equity and cash flows for each of the three years in the period ended March 31 2024 and the related notes collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of March 31 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended March 31 2024 in conformity with accounting principles generally accepted in the United States of America
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of March 31 2024 based on criteria established in the 2013
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter
As described further in note 2 to the financial statements on February 6 2024 the Company completed the acquisition of Dust Free LP for an aggregate purchase price of 34 7 million The Company s accounting for the acquisition required the estimation of the fair value of assets acquired and liabilities assumed which included a customer lists intangible asset of 20 1 million The estimated fair value of the customer lists intangible asset was determined using the excess earnings method We identified the estimation of the fair value of the customer lists intangible asset in management s purchase price allocation as a critical audit matter
The principal consideration for our determination that the valuation of the customer lists intangible asset is a critical audit matter is the significant estimation uncertainty involved in determining fair value The significant assumptions include the expected revenues growth rates gross profit margins EBITDA margins and the discount rate These assumptions required a high degree of auditor judgment subjectivity and effort in performing procedures and evaluating management s significant assumptions and involved the use of valuation specialists
We evaluated the methodologies and tested the significant assumptions used by the company by involving valuation specialists to evaluate the appropriateness of the methodology and the significant assumptions in the fair value estimate by comparing the discount rate to relevant observable market data
We tested the underlying data by comparing the estimated future revenues gross profit margins and EBITDA margins to historical operating results as well as tested the completeness and accuracy of the underlying data used in the excess earnings method valuation
CSWI 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 plumbing products grilles registers and diffusers GRD building safety solutions and high performance specialty lubricants and sealants End markets that we serve include HVAC R architecturally specified building products general industrial plumbing energy rail transportation and mining Drawing on our innovative and proven technologies we seek to deliver solutions to our professional customers that require superior performance and reliability The reputation of our product portfolio is built on more than 100 well respected brand names such as AC Guard
The consolidated financial position results of operations and cash flows included in this Annual Report on Form 10 K for the fiscal year ended March 31 2024 Annual 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 consolidated financial statements are for us and our consolidated subsidiaries each of which is a wholly owned subsidiary except our 50 investment in a variable interest entity for which we have determined that we are the primary beneficiary and therefore have consolidated into our financial statements All significant intercompany transactions have been eliminated in consolidation
We evaluate whether an entity is a variable interest entity VIE and determine if the primary beneficiary status is appropriate on a quarterly basis We consolidate a VIE for which we are the primary beneficiary When assessing the determination of the primary beneficiary we consider all relevant facts and circumstances including the power to direct the activities of the VIE that most significantly impact the VIE s economic performance the obligation to absorb the expected losses and or the right to receive the expected returns of the VIE Through this evaluation we determined that the Whitmore JV is a VIE and the Company is the primary beneficiary of this VIE primarily due to Whitmore having the power to direct the manufacturing activities which are considered the most significant activities for the Whitmore JV
The process of preparing financial statements in conformity with U S GAAP requires us to make estimates and assumptions that affect reported amounts of certain assets liabilities revenues and expenses We believe our estimates and assumptions are reasonable however actual results may differ materially from such estimates The most significant estimates and assumptions are used in determining
We consider all highly liquid instruments purchased with original maturities of three months or less and money market accounts to be cash equivalents We maintain our cash and cash equivalents at financial institutions for which the combined account balances in individual institutions may exceed insurance coverage and as a result there is a concentration of credit risk related to amounts on deposit in excess of insurance coverage We had deposits in domestic banks of 12 6 million and 10 1 million at March 31 2024 and 2023 respectively and balances of 9 5 million and 8 4 million were held in foreign banks at March 31 2024 and 2023 respectively
Trade accounts receivables are recorded at the invoiced amounts and do not bear interest We record an allowance for credit losses on trade receivables that when deducted from the gross trade receivables balance presents the net amount expected to be collected We estimate the allowance based on an aging schedule and according to historical losses as determined from our billings and collections history This may be adjusted after consideration of customer specific factors such as financial difficulties liquidity issues or insolvency as well as both current and forecasted macroeconomic conditions as of the reporting date We adjust the allowance and recognize credit losses in the income statement each period Trade receivables are written off against the allowance in the period when the receivable is deemed to be uncollectible Subsequent recoveries of amounts previously written off are reflected as a reduction to periodic credit losses in the income statement Our allowance for expected credit losses for trade receivables as of March 31 2024 was 0 9 million compared to 1 4 million as of March 31 2023
Credit risks are mitigated by the diversity of our customer base across many different industries and by performing creditworthiness analyses on our customers Additionally we mitigate credit risk through letters of credit and advance payments received from our customers We do not believe that we have any significant concentrations of credit risk
Inventories are stated at the lower of cost or net realizable value and include raw materials supplies direct labor and manufacturing overhead Inventories are accounted for using a standard costing methodology which approximates cost on a first in first out FIFO basis
Reserves are provided for slow moving or excess and obsolete inventory based on the difference between the cost of the inventory and its net realizable value and by reviewing quantities on hand in comparison with historical and expected future usage In estimating the reserve for excess or slow moving inventory management considers factors such as product aging current and future customer demand and market conditions
Property plant and equipment are stated at cost and depreciated using the straight line method over the estimated useful lives of the individual assets When property plant and equipment are retired or otherwise disposed of the related cost and accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income from operations for the period Generally the estimated useful lives of assets are
Repairs and maintenance costs are expensed as incurred and significant improvements that either extend the useful life or increase the capacity or efficiency of property and equipment are capitalized and depreciated
The value of goodwill is tested for impairment at least annually as of January 31 or whenever events or circumstances indicate such assets may be impaired The identification of our reporting units began at the operating segment level and considered whether components one level below the operating segment levels should be identified as reporting units for purpose of testing goodwill for impairment based on certain conditions These conditions included among other factors i the extent to which a component represents a business and ii the aggregation of economically similar components within the operating segments Other factors that were considered in determining whether the aggregation of components was appropriate included the similarity of the nature of the products and services the nature of the production processes the methods of distribution and the types of industries served
Accounting Standards Codification ASC 350 allows an optional qualitative assessment prior to a quantitative assessment test to determine whether it is more likely than not that the fair value of a reporting unit exceeds its carrying amount We bypassed the qualitative assessment and proceeded directly to the quantitative test If the carrying value of a reporting unit exceeds it fair value the goodwill of that reporting unit is impaired and an impairment loss is recorded equal to the excess of the carrying value over its fair value We estimate the fair value of our reporting units based on an income approach whereby we calculate the fair value of a reporting unit base on the present value of estimated future cash flows A discounted cash flow analysis requires us to make various judgmental assumptions about future sales operating margins growth rates and discount rates which are based on our budgets business plans economic projections anticipated future cash flows and market participants and are considered non recurring Level III inputs within the fair value hierarchy No goodwill impairment loss was recognized as a result of the impairment tests for the years ended March 31 2024 2023 or 2022
We have intangible assets consisting of patents trademarks customer lists and non compete agreements Definite lived intangible assets are assessed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable In addition we have other trademarks that are considered to have indefinite lives We test indefinite lived intangible assets for impairment at least annually as of January 31 or whenever events or circumstances indicate that the carrying amount may not be recoverable Significant assumptions used in the impairment test include the discount rate royalty rate future sales projections and terminal value growth rate These inputs are considered non recurring Level III inputs within the fair value hierarchy An impairment loss would be recognized when estimated future cash flows are less than their carrying
Deferred loan costs related to our credit facility which are reported in other assets and consist of fees and other expenses associated with debt financing are amortized over the term of the associated debt using the effective interest method
Our financial instruments are presented at fair value in our consolidated balance sheets with the exception of our long term debt as discussed in Note 8 Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date Where available fair value is based on observable market prices or parameters or derived from such prices or parameters Where observable prices or inputs are not available valuation models may be applied
Assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values Hierarchical levels as defined by Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities An asset or a liability s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation Hierarchical levels are as follows
Level II Inputs other than quoted prices included in Level I are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument s anticipated life
Level III Inputs reflect management s best estimate of what market participants would use in pricing the asset or liability at the measurement date Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model
Recurring fair value measurements include redeemable noncontrolling interest investments in derivative instruments and contingent consideration liability 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 fair value measurements of our derivative instruments are determined using models that maximize the use of the observable market inputs including interest rate curves and are classified as Level II under the fair value hierarchy The fair value of the contingent consideration liability is determined using either a scenario based analysis on forecasted future results or an option pricing model simulation that determines an average projected payment value across numerous iterations The contingent consideration liability is initially recorded at fair value on the acquisition date and is remeasured quarterly based on the then assessed fair value with any change in the fair value recorded in Other income expense net in the Consolidated Statements of Operations The change in the fair value of the contingent consideration can result from changes in future operations forecasted revenue and in assumed discount rates The fair value measurement is based on significant inputs that are not observable in the market and is classified as Level III under the fair value hierarchy As of March 31 2024 and 2023 the contingent consideration liability reported in the balance sheets was 7 2 million and 0 6 million respectively
The redemption value of the redeemable noncontrolling interest is included in Note 3 The fair values of our derivative instruments are included in Note 10 The fair value of our contingent consideration is included in Note 13
We determine if a contract is or contains a lease at inception by evaluating whether the contract conveys the right to control the use of an identified asset Right of Use ROU assets and lease liabilities are initially recognized at the commencement date based on the present value of remaining lease payments over the lease term calculated using our incremental borrowing rate unless the implicit rate is readily determinable ROU assets represent the right to use an underlying asset for the lease term including any upfront lease payments made and excluding lease incentives Lease liabilities represent the obligation to make future lease payments throughout the lease term As most of our operating leases do not provide an implicit rate we apply our incremental borrowing rate to determine the present value of remaining lease payments Our incremental borrowing rate is determined based on information available at the commencement date of the lease The lease term includes renewal periods when we are reasonably certain to exercise the option to renew The ROU asset is amortized over the
expected lease term Lease and non lease components when present on our leases are accounted for separately Leases with an initial term of 12 months or less are excluded from recognition in the balance sheet and the expense for these short term leases and for operating leases is recognized on a straight line basis over the lease term We have certain lease contracts with terms and conditions that provide for variability in the payment amount based on changes in facts or circumstances occurring after the commencement date These variable lease payments are recognized in our consolidated income statements as the obligation is incurred As of March 31 2024 we did not have material leases that imposed significant restrictions or covenants material related party leases or sale leaseback arrangements
We do not use derivative instruments for trading or speculative purposes We enter into interest rate swap agreements for the purpose of hedging our cash flow exposure to floating interest rates on certain portions of our debt All derivative instruments are recognized on the balance sheet at their fair values Changes in the fair value of a designated interest rate swap are recorded in other comprehensive loss until earnings are affected by the underlying hedged item Any ineffective portion of the gain or loss is immediately recognized in earnings Upon settlement realized gains and losses are recognized in interest expense in the consolidated statements of operations
We discontinue hedge accounting when 1 we deem the hedge to be ineffective and determine that the designation of the derivative as a hedging instrument is no longer appropriate 2 the derivative matures terminates or is sold or 3 occurrence of the contracted or committed transaction is no longer probable or will not occur in the originally expected period When hedge accounting is discontinued and the derivative remains outstanding we carry the derivative at its estimated fair value on the balance sheet recognizing changes in the fair value in current period earnings If a cash flow hedge becomes ineffective any deferred gains or losses remain in accumulated other comprehensive loss until the underlying hedged item is recognized If it becomes probable that a hedged forecasted transaction will not occur deferred gains or losses on the hedging instrument are recognized in earnings immediately
We are exposed to risk from credit related losses resulting from nonperformance by counterparties to our financial instruments We perform credit evaluations of our counterparties under interest rate swap agreements and expect all counterparties to meet their obligations If necessary we adjust the values of our derivative contracts for our or our counterparties credit risk
Determination of pension benefit obligations is based on estimates made by management in consultation with independent actuaries Inherent in these valuations are assumptions including discount rates expected rates of return on plan assets retirement rates mortality rates and rates of compensation increase and other factors all of which are reviewed annually and updated if necessary Current market conditions including changes in rates of return interest rates and medical inflation rates are considered in selecting these assumptions Actuarial gains and losses and prior service costs are recognized in accumulated other comprehensive loss as they arise and we amortize these costs into net pension expense over the remaining expected service period We used a measurement date of March 31 for all periods presented
Noncontrolling interests with redemption features that are not solely within our control are considered redeemable noncontrolling interests Our redeemable noncontrolling interest relates to Shell s 50 equity interest in the Whitmore JV and is classified in temporary equity that is reported between liabilities and shareholders equity on our Consolidated Balance Sheets initially at its formation date fair value We adjust the redeemable noncontrolling interest each reporting period for the net income or loss attributable to the noncontrolling interest We also make a measurement period adjustment if any to adjust the redeemable noncontrolling interest to the higher of the redemption value or carrying value each reporting period These adjustments are recognized through retained earnings and are not reflected in net income or net income attributable to CSWI The redemption value of the redeemable noncontrolling interest is estimated using a discounted cash flow analysis which requires management judgment with respect to future revenue operating margins growth rates and discount rates Net income or loss attributable to the redeemable noncontrolling interests are presented as a separate line on the consolidated statements of operations which is necessary to identify the income or loss specifically attributable to CSWI The financial results and position of the redeemable noncontrolling interest acquired through the formation of the Whitmore JV are included in their entirety in our consolidated statements of operations and consolidated balance sheets beginning with the first quarter of fiscal 2022
When calculating earnings per share attributable to CSWI we adjust net income attributable to CSWI for the excess portion of the measurement period adjustment to the extent the redemption value exceeds both the carrying value and the fair value of the redeemable noncontrolling interest on a cumulative basis Refer to Note 3 for further information regarding the redeemable noncontrolling interest
We recognize revenues to depict the transfer of control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services Refer to Note 19 for further discussion We recognize revenue when all of the following criteria have been met i a contract with a customer exists ii performance obligations have been identified iii the price to the customer has been determined iv the price to the customer has been allocated to the performance obligations and v performance obligations are satisfied which are more fully described below
i We identify a contract with a customer when a sales agreement indicates approval and commitment of the parties identifies the rights of the parties identifies the payment terms has commercial substance and it is probable that we will collect the consideration to which we will be entitled in exchange for the goods or services that will be transferred to the customer In most instances our contract with a customer is the customer s purchase order For certain customers we may also enter into a sales agreement that outlines a framework of terms and conditions that apply to all future purchase orders for that customer In these situations our contract with the customer is both the sales agreement and the specific customer purchase order Because our contract with a customer is typically for a single transaction or customer purchase order the duration of the contract is one year or less As a result we have elected to apply certain practical expedients and as permitted by the Financial Accounting Standards Board FASB omit certain disclosures of remaining performance obligations for contracts that have an initial term of one year or less
ii We identify performance obligations in a contract for each promised good or service that is separately identifiable from other promises in the contract and for which the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer Goods and services provided to our customers that are deemed immaterial are included with other performance obligations
iii We determine the transaction price as the amount of consideration we expect to be entitled to in exchange for fulfilling the performance obligations including the effects of any variable consideration
iv For any contracts that have more than one performance obligation we allocate the transaction price to each performance obligation in an amount that depicts the amount of consideration to which we expect to be entitled in exchange for satisfying each performance obligation We have excluded disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less as the majority of our contracts are short term in nature with a term of one year or less
We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue producing transaction and collected from a customer As such we present revenue net of sales and other similar taxes Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of revenues Costs to obtain a contract which include sales commissions recorded in selling general and administrative expense are generally expensed when incurred as the amortization period is one year or less We do not have customer contracts that include significant financing components
R D R D costs are expensed as incurred Costs incurred for R D primarily include salaries and benefits and consumable supplies as well as rent professional fees utilities and the depreciation of property and equipment used in R D activities R D costs included in selling general and administrative expense were 5 9 million 4 8 million and 4 8 million for the years ended March 31 2024 2023 and 2022 respectively
Share based compensation is measured at the grant date fair value The exercise price of stock option awards and the fair value of restricted share awards are set at the closing price of our common stock on the Nasdaq Global Select Market on the date of grant which is the date such grants are authorized by our Board of Directors The fair value of performance based restricted share awards is determined using a Monte Carlo simulation model incorporating all possible outcomes against the Russell 2000 Index The fair value of share based payment arrangements is amortized on a straight line basis to compensation expense over the period in which the restrictions lapse based on the expected number of shares that will vest Share based compensation expense net of estimated forfeitures is included in selling general and administrative expenses The forfeiture rate is estimated upon grant and is adjusted when actual forfeitures occur Upon the vesting of granted shares the participants may elect to cover tax withholdings by selling back a portion of vested shares to the Company In such cases we repurchase the shares from the participant to satisfy the minimum tax withholding requirements on their behalf and report such share repurchase as a financing cash outflow in the consolidated statement of cash flows To cover the exercise of options and vesting of restricted shares we generally issue new shares from our authorized but unissued share pool although we may instead issue treasury shares in certain circumstances
We apply the liability method in accounting and reporting for income taxes Under the liability approach deferred tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and the tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax rates expected to be in effect when these differences are expected to reverse The effect on deferred tax assets and liabilities resulting from a change in tax rates is recognized in the period that includes the enactment date The deferred income tax assets are adjusted by a valuation allowance if necessary to recognize future tax benefits only to the extent based on available evidence that it is more likely than not to be realized This analysis is performed on a jurisdictional basis and reflects our ability to utilize these deferred tax assets through a review of past current and estimated future taxable income in addition to the establishment of viable tax strategies that will result in the utilization of the deferred assets
During the fiscal quarter ended March 31 2023 we lifted our assertion that the earnings of Greco Canada are indefinitely invested outside of the U S As of fiscal year ended March 31 2024 we assert that all of our foreign earnings of the U K Australian Vietnam and Canadian subsidiaries will be remitted to the U S through distributions A provision was made for taxes that may become payable upon distribution of earnings from our foreign subsidiaries Deferred income tax has not been recognized on any remaining basis difference that is permanently invested outside the United States
We establish income tax liabilities to remove some or all of the income tax benefit of any of our income tax positions based upon one of the following 1 the tax position is not more likely than not to be sustained 2 the tax position is more likely than not to be sustained but for a lesser amount or 3 the tax position is more likely than not to be sustained but not in the financial period in which the tax position was originally taken The amount of income taxes we pay is subject to ongoing audits by federal state and foreign taxing authorities which often result in proposed assessments We establish reserves for open tax years for uncertain tax positions that may be subject to challenge by various taxing authorities The consolidated tax provision and related accruals include the impact of such reasonably estimable losses and related interest and penalties as deemed appropriate
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 likelihood of being realized upon ultimate settlement
We use the two class method of calculating earnings per share which determines earnings per share for each class of common stock and participating security as if all earnings of the period had been distributed If the holders of restricted stock awards are entitled to vote and receive dividends during the restriction period unvested shares of restricted stock qualify as participating securities and accordingly are included in the basic computation of earnings per share Our unvested restricted shares participate on an equal basis with common shares therefore there is no difference in undistributed earnings allocated to each participating security Accordingly the presentation in Note 11 is prepared on a combined basis and is presented as earnings per common share Diluted earnings per share is based on the weighted average number of shares as determined for basic earnings per share plus shares potentially issuable in connection with stock options and restricted stock awards not entitled to vote and receive dividends during the restriction period
Assets and liabilities of our foreign subsidiaries are translated to U S dollars at exchange rates prevailing at the balance sheet date while income and expenses are translated at average rates for each month Translation gains and losses are reported as a component of accumulated other comprehensive loss Transactional currency gains and losses arising from transactions in currencies other than our sites functional currencies are included in our consolidated statements of operations
Transaction and translation gains and losses arising from intercompany balances are reported as a component of accumulated other comprehensive loss when the underlying transaction stems from a long term equity investment or from debt designated as not due in the foreseeable future Otherwise we recognize transaction gains and losses arising from intercompany transactions as a component of income
We conduct our operations through three business segments based on how we manage the business Our Chief Executive Officer views our business assesses performance and allocates resources using financial information generated and
manufactures efficiency and performance enhancing products predominantly for residential and commercial HVAC R and plumbing applications which are designed primarily for the professional trades This segment is comprised primarily of our RectorSeal and Shoemaker operating companies
provides products for increasing the reliability performance and lifespan of industrial assets and solving equipment maintenance challenges This segment is comprised primarily of our Whitmore operating company and the Whitmore JV
provides primarily code driven products focused on life safety that are engineered to provide aesthetically pleasing solutions for the construction refurbishment and modernization of commercial institutional and multi family residential buildings This segment is comprised of our Balco Greco and Smoke Guard operating companies
Intersegment sales and transfers are recorded at cost plus a profit margin with the revenues and related margin on such sales eliminated in consolidation We do not allocate share based compensation expense interest expense or interest income to our segments Our corporate headquarters does not constitute a separate segment The Eliminations and Other segment information is included to reconcile segment data to the consolidated financial statements and includes assets and expenses primarily related to corporate functions and excess non operating properties
In November 2023 the FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which provides updates to qualitative and quantitative reportable segment disclosure requirements including enhanced disclosures about significant segment expenses and increased interim disclosure requirements among others ASU 2023 07 is effective for fiscal years beginning after December 15 2023 and interim periods within fiscal years beginning after December 15 2024 Early adoption is permitted and the amendments should be applied retrospectively This ASU will be effective for our Form 10 K for fiscal 2025 and our Form 10 Q for the first quarter of fiscal 2026 We are currently evaluating the impact this ASU may have on our financial statement disclosures
In December 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 income 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 for fiscal years beginning after December 15 2024 with early adoption permitted This ASU should be applied prospectively however retrospective application is also permitted This ASU will be effective for our Form 10 K for fiscal 2026 We are currently evaluating the impact this ASU may have on our financial statement disclosures
On February 6 2024 we acquired 100 of the outstanding equity of Dust Free LP Dust Free based in Royse City Texas for an aggregate purchase price of 34 7 million including 0 6 million cash acquired comprised of cash consideration of 27 9 million and contingent considerations initially measured at 6 8 million based on Dust Free meeting defined operational and financial targets over a period of 6 years The cash consideration was funded with cash on hand and borrowings under our existing Revolving Credit Facility as defined in Note 8 The Dust Free products offer residential and commercial indoor air quality and HVAC R applications and supplement our Contractor Solutions segment s existing product portfolio As of the acquisition date the estimated fair value of the contingent consideration was classified as a long term liability of 6 8 million of which 2 1 million was determined using an option pricing model simulation that determines an average projected payment value across numerous iterations and 4 7 million was determined using a scenario based analysis on forecasted future results During the year ended March 31 2024 we incurred 0 7 million in transaction expenses in connection with the Dust Free acquisition which were included in selling general and administrative expenses in the Consolidated Statement of Operations under the Contractor Solution segment
The Dust Free 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 4 0 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 customers The preliminary allocation of the fair value of the net assets acquired comprises customer lists 20 1 million trademark 1 6 million accounts receivable 2 9 million cash 0 6 million inventory 3 9 million other current asset 0 4 million and equipment 3 6 million net of current liabilities 2 3 million Customer lists are being amortized over 15 years and the definite life trademark 0 6 million is being amortized over 2 years while the indefinite life trademark 1 0 million and goodwill are not being amortized The Company s evaluation of the facts and circumstances available as of February 6 2024 to assign fair values to assets acquired is ongoing We expect to finalize the purchase price allocation as soon as practicable but no later than one year from the acquisition date Goodwill and all intangible assets are deductible and amortized over 15 years for income tax purposes Dust Free activity has been included in our Contractor Solutions segment since the acquisition date No pro forma information has been provided due to immateriality
On October 4 2022 we acquired 100 of the outstanding equity of Falcon Stainless Inc Falcon based in Temecula California for an aggregate purchase price of 37 1 million including 1 0 million cash acquired comprised of 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 which they were The cash consideration was funded with cash on hand and borrowings under our existing Revolving Credit Facility as defined in Note 8 Falcon s products are well known among the professional trades for supplying enhanced water flow delivery and supplement our Contractor Solutions segment s existing product portfolio
The Falcon 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 fair value of the identifiable assets acquired was 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 customers The allocation of the fair value of the net assets acquired comprises customer lists 17 7 million trademark 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 3 0 million net of current liabilities 0 7 million and other liabilities 8 4 million Customer lists are being amortized over 15 years while the trademark and goodwill are not being amortized The Company completed the analysis of the assets acquired liabilities assumed and the related allocation during the 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
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 consideration 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 Note 8 CG and ACG product lines further expand Contractor Solutions offering of leading HVAC R accessories including lineset covers and HVAC R condenser protection cages 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 value of the contingent consideration was classified as a long 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 Topic 805 The excess of the purchase price over fair value of the identifiable assets acquired was 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 customers The allocation of the fair value of the net assets acquired included customer lists 9 8 million patent 1 8 million trademarks 0 7 million inventory 3 1 million accounts receivable 0 9 million and equipment 0 3 million Customer lists and patents are being amortized over 15 years and 10 years respectively while trademarks and goodwill are not being amortized The Company completed the analysis of the assets acquired liabilities assumed and the related allocation during the three months ended September 30 2023 Goodwill and all intangible assets 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
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 expected contingent consideration Shoemaker offers high quality customizable GRD for commercial and residential markets and expands CSWI s HVAC R product offering and regional exposure in the northwest U S The aggregate purchase price was comprised of 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 up to 2 0 million based on Shoemaker meeting a defined financial target during the quarter ended March 31 2022 which was achieved The cash consideration was funded with cash on hand and borrowings under our existing Revolving Credit Facility The 25 483 shares of common stock delivered to the sellers as consideration were issued from treasury shares As of the acquisition date the estimated fair value of the contingent consideration obligation was classified as a current liability of 2 0 million and was determined using a scenario based analysis on forecasted future results In May 2022 the full earn out amount of 2 0 million was remitted to the sellers as the performance obligation had been met During the year ended March 31 2022 we incurred 0 7 million in transaction expenses in connection with the Shoemaker acquisition which were included in selling general and administrative expenses in the Consolidated Statement of Operations under the Contractor Solution segment
The Shoemaker acquisition was accounted for as a business combination under Topic 805 The excess of the purchase price over the 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 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 tangible assets intangible assets liabilities assumed and the related allocation during the three months
ended December 31 2022 Goodwill and all intangible assets 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
On April 1 2021 Whitmore Manufacturing LLC Whitmore a wholly owned subsidiary of CSWI completed the formation of a 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 manufacturing activities which are considered the most significant activities for the Whitmore JV Whitmore JV s total net assets are presented below in thousands
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 during the month of July 2024 and every two years 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 year ended March 31 2024 were as follows in thousands
During the three months ended June 30 2021 we revised our segment structure creating three reportable segments Contractor Solutions Specialized Reliability Solutions and Engineered Building Solutions As part of our segment realignment we changed our reporting units and reallocated existing goodwill to each of the new reportable segments and associated reporting units based on management s estimate of the relative fair value of each reporting unit The result of this reallocation of goodwill has been recast by reportable segment as of March 31 2021
Amortization expense for the years ended March 31 2024 2023 and 2022 was 22 9 million 22 1 million and 24 8 million including the amortization of inventory purchase accounting adjustment of 3 9 million respectively The following table presents the estimated future amortization of finite lived intangible assets for the next five fiscal years ending March 31 in thousands
We maintain the shareholder approved 2015 Equity and Incentive Compensation Plan the 2015 Plan which provides for the issuance of up to 1 230 000 shares of CSWI common stock through the grant of stock options stock appreciation rights restricted shares restricted stock units performance shares performance units or other share based awards to employees officers and non employee directors As of March 31 2024 336 032 shares were available for issuance under the 2015 Plan
Stock option activity which represents outstanding CSWI awards held by CSWI employees resulting from the conversion of Capital Southwest stock options held by former Capital Southwest employees was as follows
No options were granted or vested during the years ended March 31 2024 2023 and 2022 and all stock options were vested and recognized prior to the year ended March 31 2019 The intrinsic value of options exercised during the years ended March 31 2024 2023 and 2022 was 0 0 million 1 2 million and 5 8 million respectively Cash received for options exercised during the years ended March 31 2024 2023 and 2022 was 0 0 million 0 3 million and 1 3 million respectively and the tax benefit received was 0 0 million 0 3 million and 1 4 million respectively As of March 31 2024 there were no outstanding stock options
During the restriction period the holders of restricted shares are entitled to vote and receive dividends Unvested restricted shares outstanding as of March 31 2024 and 2023 included 96 945 and 99 463 shares at target respectively with performance based vesting provisions having vesting ranges from 0 200 based on predefined 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 29 120 and 21 087 awards with performance based vesting provisions during the years ended March 31 2024 and 2023 respectively with a vesting range of 0 200
At March 31 2024 we had unrecognized compensation cost related to unvested restricted shares of 19 6 million which will be amortized into net income over the remaining weighted average vesting period of 2 16 years The total fair value of restricted shares vested during the years ended March 31 2024 and 2023 was 14 9 million and 10 2 million respectively
Inventories are stated at the lower of cost or net realizable value and include raw materials supplies direct labor and manufacturing overhead Inventories are accounted for using a standard costing methodology which approximates cost on a first in first out FIFO basis
Depreciation of property plant and equipment was 13 9 million 12 9 million and 11 6 million for the years ended March 31 2024 2023 and 2022 respectively Of these amounts cost of revenues includes 9 1 million 8 4 million and 8 3 million respectively
On December 11 2015 we entered into a five year 250 0 million Revolving Credit Facility agreement with an additional 50 0 million accordion feature with JPMorgan Chase Bank N A as administrative agent and the other lenders party thereto The agreement was amended on September 15 2017 to allow for multi currency borrowing with a 125 0 million sublimit and to extend the maturity date to September 15 2022 On December 1 2020 the Company entered into an amendment to the Revolving Credit Facility the First Credit Agreement to utilize the accordion feature thus increasing the commitment from 250 0 million to 300 0 million and hence eliminating the available incremental commitment by a corresponding amount On March 10 2021 the Revolving Credit Facility was amended to facilitate the formation and future operation of the joint venture discussed in Note 3
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 provided for a 400 0 million revolving credit facility that contained a 25 0 million sublimit for the issuance of letters of credit and a 10 0 million sublimit for swingline loans with an additional 150 0 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 which are being amortized over the life of the Second Credit Agreement Borrowings under the Second Credit Agreement bore interest at either base rate plus between 0 25 to 1 5 or one month 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 monthly and quarterly respectively 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 Dollars The Company incurred a total of 0 7 million in underwriting fees which are being amortized over the remaining term of the Revolving Credit Facility
During the year ended March 31 2024 we borrowed 112 3 million and repaid 199 3 million under the Revolving Credit Facility As of March 31 2024 and 2023 we had 166 0 million and 253 0 million respectively in our outstanding balance which resulted in borrowing capacity under the Revolving Credit Facility of 334 0 million and 247 0 million respectively The financial covenants contained in the Revolving Credit Facility 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 Revolving Credit Facility The Revolving Credit Facility 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 Revolving Credit Facility Agreement Covenant compliance is tested quarterly and we were in compliance with all covenants as of March 31 2024
Prior to January 20 2023 Whitmore Manufacturing LLC one of our wholly owned operating subsidiaries maintained a secured term loan related to the warehouse corporate office building and remodel of the existing manufacturing and R D facility The term loan required a payment of 140 000 each quarter Borrowings under the term loan bore interest at a variable annual rate equal to one month LIBOR plus 2 0 On January 20 2023 the Whitmore Term Loan was paid off using borrowings under our existing Revolving Credit Facility discussed above As of March 31 2024 and 2023 there were no outstanding principal amounts under the Whitmore Term Loan
We have operating leases for manufacturing facilities offices warehouses vehicles and certain equipment Our leases have remaining lease terms of 1 year to 24 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
Prior to January 9 2023 we had an interest rate swap to hedge our exposure to variability in cash flows from interest payments on our Whitmore Term Loan On January 9 2023 the interest rate swap was terminated 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 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 March 31 2024 we had 100 0 million of notional amount in outstanding designated interest rate swaps with third parties
Current and non current derivative assets are reported in our consolidated balance sheets in prepaid expenses and other current assets and other assets respectively Current and non current derivative liabilities are reported in our consolidated balance sheets in accrued and other current liabilities and other long term liabilities respectively
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 time period On October 30 2020 we announced that our Board of Directors authorized a new program to repurchase up to 100 0 million of our common stock which replaced the previously announced 75 0 million program 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 of December 31 2024 for completion of the new repurchase program however the program may be limited or terminated at any time at our discretion without notice
Under the current 100 0 million repurchase program 53 133 shares were repurchased during the year ended March 31 2024 for 10 5 million and no shares were repurchased during the year ended March 31 2023 Under the prior 100 0 million repurchase program no shares were repurchased during the year ended March 31 2024 and 336 347 shares were repurchased during the year ended March 31 2023 for 35 7 million A total of 462 462 shares had been repurchased for an aggregate amount of 50 1 million under the prior 100 0 million program As of March 31 2024 a total of 53 133 shares were repurchased for an aggregate amount of 10 5 million under the current 100 0 million program
On April 4 2019 we announced we had commenced a dividend program and that our Board of Directors approved a regular quarterly dividend of 0 135 per share On April 15 2021 we announced a quarterly dividend increase to 0 15 per share On April 14 2022 we announced a quarterly dividend increase to 0 17 per share On April 14 2023 we announced a quarterly dividend increase to 0 19 per share On April 12 2024 we announced a quarterly dividend increase to 0 21 per share which dividend was paid on May 10 2024 to shareholders of record as of April 26 2024 Any future dividends at the existing 0 21 per share quarterly rate or otherwise will be reviewed individually and declared by our Board of Directors in its
The fair value of interest rate swaps discussed in Note 10 are determined using Level II inputs The carrying value of our debt included in Note 8 approximates fair value as it bears interest at floating rates The carrying amounts of other financial instruments i e cash and cash equivalents accounts receivable net accounts payable approximated their fair values at March 31 2024 and 2023 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
The fair value of the contingent consideration liability is determined using either a scenario based analysis on forecasted future results or an option pricing model simulation that determines an average projected payment value across numerous iterations The contingent consideration liability is recorded at fair value on the acquisition date and is remeasured quarterly based on the then assessed fair value The increases or decreases in the fair value of the contingent consideration can result from changes in future operations forecasted revenue and in assumed discount rates The fair value measurement is based on significant inputs that are not observable in the market and is classified as Level III under the fair value hierarchy As of March 31 2024 and 2023 the contingent consideration liability reported in the balance sheets was 7 2 million and 0 6 million respectively
We had a frozen qualified defined benefit pension plan the Qualified Plan that covered certain of our U S employees In September 2019 the Qualified Plan was terminated and resulted in an overall termination charge of 7 0 million
We maintain a frozen unfunded retirement restoration plan the Restoration Plan that is a non qualified plan providing for the payment to participating employees upon retirement of the difference between the maximum annual payment permissible under the Qualified Plan pursuant to federal limitations and the amount that would otherwise have been payable under the Qualified Plan The Restoration Plan was closed to new participants on January 1 2015 and was amended to freeze benefit accruals and to modify certain ancillary benefits effective as of September 30 2015 As of March 31 2024 and 2023 the Restoration Plan reported liabilities of 1 2 million and 1 3 million respectively
We had a registered defined benefit pension plan the Canadian Plan that covered all of our employees based at our facility in Alberta Canada The plan was amended to freeze benefit accruals effective as of January 31 2022 In January 2023 the Canadian Plan was terminated 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
The plans described above collectively the Plans are presented in aggregate as the impact of the Restoration Plan and Canadian Plan to our consolidated financial position and results of operations is not material
Effective October 1 2015 we began to sponsor a defined contribution plan covering substantially all of our U S employees Employees may contribute to this plan and these contributions are matched 100 by us up to 6 0 of eligible earnings We also contribute an additional percentage of eligible earnings to employees regardless of their level of participation in the plan which is discretionary and varies based on profitability We made total contributions to the plan of 6 3 million and 5 7 million during the years ended March 31 2024 and 2023 respectively
We sponsor a qualified non leveraged employee stock ownership plan ESOP in which domestic employees are eligible to participate following the completion of one year of service The ESOP provides annual discretionary contributions of up to the maximum amount that is deductible under the Internal Revenue Code Contributions to the ESOP are invested in our common stock A participant s interest in contributions to the ESOP fully vests after three years of credited service or upon retirement permanent disability each as defined in the plan document or death
We recorded total contributions to the ESOP of 4 8 million 3 1 million and 2 3 million during the years ended March 31 2024 2023 and 2022 respectively based on performance in the prior year During the year ended March 31 2024 4 4 million was recorded to expense based on performance in the year ended March 31 2024 and is expected to be contributed to the ESOP during the year ending March 31 2025
In August 2022 the Inflation Reduction Act of 2022 IRA was signed into law Among other things the IRA imposes a fifteen percent corporate alternative minimum tax the Corporate AMT for tax years beginning after December 31 2022 and levies a one percent excise tax on net share repurchases after December 31 2022 The excise tax on the share repurchase portion of the IRA did not have an impact on our results of operations or financial position for the year ended March 31 2023 or March 31 2024 We do not expect the Corporate AMT excise tax or other provisions of the IRA to have a material impact on our consolidated financial statements
The effective tax rates for the years ended March 31 2024 2023 and 2022 were 27 0 23 3 and 26 4 respectively As compared with the statutory rate for the year ended March 31 2024 the provision for income taxes was primarily impacted by state tax expense net of federal benefits which increased the provision by 6 4 million and effective rate by 4 5 impact of the tax indemnification asset release which increased the provision by 1 8 million and the effective tax rate by 1 3 executive compensation limitation which increased the provision by 1 2 million and the effective tax rate by 0 9 impact of repatriation of foreign earnings which increased the provision by 0 5 million and the effective rate by 0 3 This was partially offset by IRC section 250 deductions which decreased the provision by 1 1 million and the effective tax rate by 0 7
As compared with the statutory rate for the year ended March 31 2023 the provision for income taxes was primarily impacted by the state tax expense which increased the provision by 2 9 million and the effective rate by 2 3 executive compensation limitation which increased the provision by 1 6 million and the effective rate by 1 2 impact of GILTI inclusions which increased the provision by 1 1 million and the effective tax rate by 0 9 impact of repatriation of foreign earnings which increased the provision by 0 9 million and the effective rate by 0 7 and the additional non deductible expenses which increased the provision by 0 6 million and the effective rate by 0 4 This was offset by IRC section 250 deductions which decreased the provision by 1 6 million and the effective tax rate by 1 3 foreign tax credits which decreased the provision by 0 6 million and the effective tax rate by 0 5
As of March 31 2024 we had immaterial valuation allowance related to foreign tax credits During the year ended March 31 2024 we utilized the remaining net operating loss carryforward and released the related valuation allowance As of March 31 2023 we had immaterial valuation allowance related to operating loss carryforward and foreign tax credits
A provision was made for taxes that may become payable upon distribution of earnings from our foreign subsidiaries Deferred income tax has not been recognized on any remaining basis difference that is permanently invested outside the United States
During the year ended March 31 2024 we released a reserve of 1 5 million including accrued interest of 0 2 million and accrued penalty of 0 2 million as a result of the lapse of statute for the 2019 period We also recorded additional uncertain tax positions reserve of 1 7 million including accrued interest of 1 2 million and accrued penalty of 0 5 million on historical tax positions We also recorded an additional 0 2 million reserve and a corresponding tax indemnification asset through purchase accounting in connection with the Falcon acquisition during the measurement period
During the year ended March 31 2023 we released a reserve of 1 6 million primarily as a result of the conclusion of TRUaire s Vietnam s audit for the tax periods from January 1 2019 to March 31 2022 discussed below including accrued interest of 0 4 million and accrued penalties of 0 5 million We also recorded total tax reserves of 2 8 million including accrued interest and penalty of 0 1 million and 0 2 million respectively through purchase accounting in connection with the Falcon Stainless acquisition For the year ended March 31 2023 we recorded an additional tax reserve of less than 0 1 million accrued interest of 0 7 million and accrued penalty of 0 6 million
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 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 March 31 2024 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 pre acquisition period
In connection with the TRUaire acquisition 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 purchase agreement the sellers 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 expired in 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 March 31 2024 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
The Company expects 3 3 million of existing reserves for UTPs to either be settled or expire within the next 12 months as the statutes of limitations expire Our federal income tax returns remain subject to examination for the years ended March 31 2023 2022 and 2021 Our income tax returns for TRUaire s pre acquisition periods including calendar years 2018 2019 and 2020 remain subject to examinations Our income tax returns in certain state income tax jurisdictions remain subject to examination for various periods for the period ended September 30 2015 and subsequent years
From time to time we are involved in various claims and legal actions which arise in the ordinary course of business There are not any matters pending that we currently believe are reasonably possible of having a material impact on our business consolidated financial position results of operations or cash flows
a Unrealized gains are reclassified to earnings as underlying cash interest payments are made We expect to recognize a gain of 0 9 million net of deferred taxes over the next twelve months related to a designated cash flow hedge based on its fair value as of March 31 2024
We conduct our operations in three reportable segments Contractor Solutions Specialized Reliability Solutions and Engineered Building Solutions With the adoption of ASC Topic 606 we have concluded that the disaggregation of revenues that would be most useful in understanding the nature timing and extent of revenue recognition is the breakout of build to order and book and ship as defined below
products are architecturally specified building products generally sold into the construction industry Revenue generated from sales of products under build to order transactions are currently reflected in the results of our Engineered Building Solutions segment Occasionally our built to order business lines enter into arrangements for the delivery of a customer specified product and the provision of installation services These orders are generally negotiated as a package and are commonly subject to retainage by the customer which means the final 10 of the transaction price when applicable is not collectible until the overall construction project into which our products are incorporated is complete The lead times for transfer to the customer can be up to 12 weeks Revenue for goods is recognized at a point in time but installation services are recognized over time as those services are performed Installation services represented approximately 2 of total consolidated revenue for the year ended March 31 2024
products are sold across all of our end markets Revenue generated from sales of products under book and ship transactions have historically been presented in the Contractor Solutions Engineered Building Solutions and Specialized Reliability Solutions segments These sales are typically priced on a product by product basis using price lists provided to our customers The lead times for transfer to the customer is usually one week or less as these items are generally built to stock Revenue for products sold under these arrangements is recognized at a point in time
We attribute revenues to different geographic areas based on the destination of the product or service delivery Long lived assets are classified based on the geographic area in which the assets are located and exclude deferred taxes No individual country except for the U S accounted for more than 10 of consolidated net revenues or total long lived assets
We have a large number of customers across our locations and we do not have sales to any individual customer that represented 10 or more of consolidated net revenues for any of the fiscal years presented
Our disclosure controls and procedures as defined in Rule 13a 15 e under the Securities Exchange Act of 1934 the Exchange Act are designed to ensure that the information which we are required to disclose in the reports that we file or submit under the Exchange Act is recorded processed summarized and reported within the time periods specified in the United States Securities and Exchange Commission s rules and forms and that such information is accumulated and communicated to our management including our Principal Executive Officer and Principal Financial Officer as appropriate to allow timely decisions regarding required disclosure
In connection with the preparation of this Annual Report on Form 10 K for the year ended March 31 2024 our management under the supervision and with the participation of our Principal Executive Officer and our Principal Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31 2024 as required by Rule 13a 15 b under the Exchange Act Based on this evaluation our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31 2024
Our management under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a 15 f and 15d 15 f under the Exchange Act Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States U S GAAP Internal control over financial reporting includes policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U S GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of our assets that could have a material effect on the financial statements
The design of any system of control is based upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated objectives under all future events no matter how remote or that the degree of compliance with the policies or procedures may not deteriorate
Under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer our management conducted an assessment of our internal control over financial reporting as of March 31 2024 based on the criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission Based on this assessment our management has concluded that as of March 31 2024 our internal control over financial reporting was effective based on those criteria
The effectiveness of our internal control over financial reporting as of March 31 2024 has been audited by Grant Thornton LLP our independent registered public accounting firm as stated in their report which is included herein
There were no changes in our internal control over financial reporting during the quarter ended March 31 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of March 31 2024 based on criteria established in the 2013
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements of the Company as of and for the year ended March 31 2024 and our report dated May 23 2024 expressed an unqualified opinion on those financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
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 price 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 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
The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the fiscal year ended March 31 2024
The Company has adopted an Insider Trading Policy which governs the purchase sales and or other dispositions of our securities by directors officers and employees which we believe is reasonably designed to promote compliance with insider trading laws rules and regulations and any listing standards applicable to the registrant Our Insider Trading Policy is attached hereto as Exhibit 19 1 and incorporated herein by reference
The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the fiscal year ended March 31 2024
The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the fiscal year ended March 31 2024
The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the fiscal year ended March 31 2024
The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the fiscal year ended March 31 2024
Second Amended and Restated Credit Facility Agreement dated May 18 2021 by and among CSW Industrials Holdings LLC CSW Industrials Inc the other Loan Parties party thereto the other lenders party thereto and JPMorgan Chase Bank N A individually and in its capacity as the Administrative Agent incorporated by reference to Exhibit 10 1 of the Company s Quarterly Report on Form 10 Q filed on August 4 2021
Incremental Assumption Agreement No 1 and Amendment No 2 to the Second Credit Agreement by and among the Company the Borrower the other loan parties party thereto JPMorgan Chase Bank N A as administrative agent collateral agent swingline lender and issuing bank and each other lender and issuing bank party thereto incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed on December 20 2022
Employment agreement by and between CSW Industrials Inc and Joseph Armes dated October 1 2015 incorporated by reference to Exhibit 10 1 to the Company s Quarterly Report on Form 10 Q filed on February 16 2016
Form of Employee Performance Share Award Form of Employee Performance Share Award Agreement incorporated by reference to Exhibit 10 1 to the Company s Quarterly Report on Form 10 Q filed on August 8 2019
Form of Non Qualified Stock Option Right Award Agreement executive compensation plan replacement award agreement incorporated by reference to Exhibit 10 8 to the Company s Quarterly Report on Form 10 Q filed on February 16 2016
Pursuant to the requirements of Section 13 or 15 d 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
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

Company Name	CSW INDUSTRIALS, INC. Vist SEC web-site
Category	ADHESIVES & SEALANTS
Trading Symbol	CSWI