(612) 331-6910

(Registrant’s Telephone Number, Including Area Code)

The information presented in this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts, but rather are based on our current expectations, estimates and projections, and our beliefs and assumptions. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will” and similar expressions may identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. These factors could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties are described in the risk factors and elsewhere in this Annual Report on Form 10-K. We caution you not to place undue reliance on these forward-looking statements, which reflect our management’s view only as of the date of this Annual Report on Form 10-K. We are not obligated to update these statements or publicly release the result of any revisions to them to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events.

As used in this Annual Report on Form 10-K, except where otherwise stated or indicated by the context, “Hawkins,” “we,” “us,” “the Company,” “our,” or “the Registrant” means Hawkins, Inc. References to “fiscal 2022” means our fiscal year ending April 3, 2022, “fiscal 2021” means our fiscal year endingended March 28, 2021, “fiscal 2020” means our fiscal year ended March 29, 2020, “fiscal 2019” means our fiscal year ended March 31, 2019, and “fiscal 2018” means our fiscal year ended April 1, 2018, and “fiscal 2017” means our fiscal year ended April 2, 2017.2018.

Annual Report on Form 10-K

Hawkins, Inc. distributes, blendsWe distribute, blend and manufacturesmanufacture chemicals and specialty ingredients for our customers in a wide variety of industries. We began our operations primarily as a distributor of bulk chemicals with a strong customer focus. Over the years, we have maintained our strong customer focus and have expanded our business by increasing our sales of value-added chemical products and specialty ingredients, including manufacturing, blending and repackaging certain products. We believe that we create value for our customers through superb service and support, quality products, personalized applications and trustworthy, creative employees.

We conduct our business in three segments: Industrial, Water Treatment, and Health and Nutrition.

The Industrial Group:

The group’s sales are concentrated primarily in the Midwestern states,central United States, while the group’s products sold into the food and pharmaceutical markets are sold nationally. The Industrial Group relies on a specially trained sales staff that works directly with customers on their specific needs. The group conducts its business primarily through distribution centersmanufacturing locations and terminal operations. Agricultural sales within this group tend to be seasonal, with higher sales due to the application of fertilizer during the planting season of March through June given the regions of the country where we are located.

The group utilizes delivery routes operated by our employees who typically serve as route driver, salesperson and trained technician to deliver our products and diagnose our customers’ water treatment needs. We believe that the high level of service provided by these individuals allows us to serve as the trusted water treatment expert for many of the municipalities and other customers that we serve. We also believe that there are significant synergies between our Water Treatment and Industrial Groups in that we are able to obtain a competitive cost position on many of the chemicals sold by the Water Treatment Group due to the volumes of these chemicals purchased by our Industrial Group. In addition, our Industrial and Water Treatment groups share certain resources, which leverage fixed costs across both groups.

The Water Treatment group operates out of 2933 warehouses supplying products and services to customers primarily in the Midwestern statescentral United States and Florida. In fiscal 2021, we added three locations, including two by acquisition and one through organic growth. We expect to invest in existing and new branches to expand the group’s geographic coverage. Our Water Treatment Group has historically experienced higher sales during April to September, primarily due to a seasonal increase in chemicals used by municipal water treatment facilities.

The Health and Nutrition Group relies on a specially trained sales and product development staff that works directly with customers on their specific needs. The group’s extensive product portfolio combined with value-added services, including product formulation, sourcing and distribution, processing and blending and quality control and compliance, positions this group as a one-stop ingredient solutions provider to its customers. The group operates out of facilities in California and New York and its products are sold nationally and, in certain cases, internationally.

We strive to recruit the best people for the job regardless of race, color, nationality, gender, age, disability, sexual orientation or any other status protected by law. It is our policy to comply fully with all applicable laws relating to discrimination in 1938the workplace and incorporatedare committed to advancing an inclusive, collaborative and respectful culture.

The health and safety of our employees is our highest priority. We work to ensure our employees have a thorough understanding of health and safety precautions that need to be taken in Minnesotaall business functions. Specific safety initiatives include accident prevention work, improving process controls, safety training, safety committees, safety audits, incident investigation and improvement measures.

We have ensured the safety of our employees and our customers during the COVID-19 pandemic by implementing contingency and continuity plans to respond quickly and appropriately to identified risks, safe work practices in 1955.accordance with the guidance provided by the US Centers for Disease Control and Prevention ("CDC"), and flexible working policies. We becameleveraged technology to enable approximately 175 employees to transition to remote working and enhanced sanitation and hygiene practices at all of our facilities. Finally, we worked with a publicly-tradedprivate company in 1972. Our principal executive officesto offer our employees free, rapid testing for COVID-19 across the country. Through communication, enhanced resources and leadership, we were able to support our employees, serve our customers and keep our facilities clean and safe during the pandemic.

We strive to provide employees with competitive wages commensurate with their skill levels, experience, knowledge and the regional market. Full-time employees are located at 2381 Rosegate, Roseville, Minnesota.eligible for health, dental and vision insurance, paid and unpaid leaves, 401(K) plan, retirement plans, life and disability/accident coverage and our employee assistance program.

We operate in a highly competitive industry and compete with producers, manufacturers, distributors and sales agents offering products equivalent to substantially all of the products we offer. Competition is based on several key criteria, including product price, product performance, product quality, product availability and security of supply, breadth of product offerings, geographic reach, responsiveness of product development in cooperation with customers, technical expertise and customer service. Many of our competitors are larger than we are and may have greater financial resources, more product offerings and a broader geographic reach. As a result, these competitors may be able to offer a broader array of products to a larger geographic area and may be better able than us to withstand changes in conditions within our industry, changes in the prices and availability of raw materials and changes in general economic conditions as well as be able to introduce innovative products that reduce demand for or the profit from our products. Additionally, competitors’ pricing decisions could compel us to decrease our prices, which could adversely affect our margins and profitability. Our ability to maintain or increase our profitability would be dependent upon our ability to offset competitive decreases in the prices and margins of our products by improving production efficiency, investing in infrastructure to reduce freight costs, identifying and selling higher margin products, providing higher levels of technical expertise and customer service, and improving existing products through innovation and research and development. If we are unable to maintain our profitability or competitive position, we could lose market share to our competitors and experience reduced profitability.

The repackaging, blending, mixing and distribution of products by us, including chemical products and products used in food or food ingredients or with medical, pharmaceutical or dietary supplement applications, involve an inherent risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity, including, without limitation, claims for exposure to our products, spills or escape of our products, personal injuries, food-related claims and property damage or environmental claims. A product liability claim, judgment or recall against our customers could also result in substantial and unexpected expenditures for us, affect consumer confidence in our products and divert management’s attention from other responsibilities. Although we maintain product liability insurance, there can becyclical in nature, no assurance that the type or level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured judgment against us could have a material adverse effect on our operationsbusiness, financial condition and themargins we receive on salesresults of our products.operations.

Our products are used for a broad range of applications by our customers. Changes in our customers’ product needs or processes, or reductions in demand for their end products, may enable or require our customers to reduce or eliminate consumption of the products that we provide. Customers may also find alternative materials or processes that no longer require our products. Consequently, it is important that we develop new products to replace the sales of products that mature and decline in use.

Our products provide important performance attributes to our customers’ products. If our products fail to meet the customers’ specifications or comply with applicable laws or regulations, perform in a manner inconsistent with the customers’ expectations or have a shorter useful life than required, a customer could seek replacement of the product or damages for costs incurred as a result of the product failure. A successful claim or series of claims against us could have a material adverse effect on our financial condition and results of operations and could result in a loss of one or more customers. Reductions in demand for our products could adversely affect our sales and financial results and result in facility closures.

Our business is subject to hazards common to chemical manufacturing, blending, storage, handling and transportation, including explosions, fires, severe weather, natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, traffic accidents involving our delivery vehicles, chemical spills, discharges or releases of toxic or hazardous substances or gases and other risks. These hazards could cause personal injury and loss of life, severe damage to or destruction of property and equipment, and environmental contamination. In addition, the occurrence of material operating problems or the absence of personnel due to pandemics or other disasters at any of our facilities due to any of these hazards may make it impossible for us to make sales to our customers and may result in a negative public or political reaction. Many of our facilities are near significant residential populations which increases the risk of negative public or political reaction should an environmental issue occur and could lead to adverse zoning or other regulatory actions that could limit our ability to operate our business in those locations. Accordingly, these hazards and their consequences could have a material adverse effect on our operations as a whole, including our results of operations and cash flows, both during and after the period of operational difficulties.

Although we maintain a number of owned trucks and trailers, we rely heavily upon transportation provided by third parties (including common carriers, barge companies, rail companies and trans-ocean cargo companies) to deliver products to us and to our customers. Our access to third-party transportation is not guaranteed, and we may be unable to transport our products in a timely manner, or at all, in certain circumstances, or at economically attractive rates. Disruptions in transportation are common, are often out of our control, and can happen suddenly and without warning. Rail limitations, such as limitations in rail capacity, availability of railcars and adverse weather conditions have disrupted or delayed rail shipments in the past and we expect they will continue intocould do so in the future. Barge shipments are delayed or impossible under certain circumstances, including during times of high or low water levels, when waterways are frozen and when locks and dams are inoperable. Truck transportation has been negatively impacted by a number of factors, including limited availability of qualified drivers and equipment, and limitations on drivers’ hours of service. The volumes handled by, and operating challenges at, ocean ports have at times been volatile and can delay the receipt of goods, or cause the cost of shipping goods to be more expensive. Our failure to ship or receive products in a timely and efficient manner could have a material adverse effect on our financial condition and results of operations.

We are subject to numerous federal, state and local environmental, health and safety laws and regulations in the jurisdictions in which we operate, including the management, storage, transportation and disposal of chemicals and wastes; product regulation; air water and soil contamination; and the investigation and cleanup of any spills or releases that may result from our management, handling, storage, sale, or transportation of chemicals and other products. The nature of our business exposes us

In addition, we operate a fleet of more than 150 commercial vehicles, primarily in our Water Treatment Group, which are highly regulated, including by the U.S. Department of Transportation (“DOT”). The DOT governs transportation matters including authorization to engage in motor carrier service, including the necessary permits to conduct our businesses, equipment operation, and safety. We are audited periodically by the DOT to ensure that we are in compliance with various safety, hours-of-service, and other rules and regulations. If we were found to be out of compliance, the DOT could severely restrict or otherwise impact our operations, which could have a material adverse effect on our operations as a whole, including our results of operations and cash flows.

If we violate applicable laws or regulations, in addition to being required to correct such violations, we could be held liable in administrative, civil or criminal proceedings for substantial fines and other sanctions that could disrupt, limit or halt our operations, which could have a material adverse effect on our operations as a whole, including our results of operations and cash flows. Liabilities associated with the investigation and cleanup of releases of hazardous substances, as well as personal injury, property damages or natural resource damages arising out of such releases of hazardous substances, may be imposed in many situations without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally (so that a responsible party may be held liable for more than its share of the losses involved, or even the entire loss). Such liabilities can be difficult to identify and the extent of any such liabilities can be difficult to predict. We use, and in the past have used, hazardous substances at many of our facilities, and have generated, and continue to generate, hazardous wastes at a number of our facilities. We have in the past been, and may in the future be, subject to claims relating to exposure to hazardous materials and the associated liabilities may be material.

The manufacture, packaging, labeling, advertising, promotion, distribution and sale of our food, pharmaceutical and health and nutrition products are subject to regulation by numerous national and local governmental agencies in the United States and other countries. The primary regulatory bodies in the United States are the Food and Drug Administration (the “FDA”), the United States Department of Agriculture and the Federal Trade Commission, and we are also subject to similar regulators in other countries. Failure to comply with these regulatory requirements may result in various types of penalties or fines. These include injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. Individual states also regulate our products. A state may interpret claims or products presumptively valid under federal law as illegal under that state’s regulations. Approvals or licensing may be conditioned on reformulation of products or may be unavailable with respect to certain products or product ingredients. Any of these government agencies, as well as legislative bodies, can change existing regulations, or impose new ones, or could take aggressive measures, causing or contributing to a variety of negative consequences, including:

In particular, the FDA’s current good manufacturing practices (“GMPs”)GMPs describe policies and procedures designed to ensure that nutraceuticals, pharmaceuticals and dietary supplements are produced in a quality manner, do not contain contaminants or impurities, and are accurately labeled and cover the manufacturing, packaging, labeling and storing of supplements, with requirements for quality control, design and construction of manufacturing plants, testing of ingredients and final products, record keeping, and complaints processes. Those who manufacture, package or store dietary supplements must comply with current GMPs. If we or our suppliers fail to comply with current GMPs, the FDA may take enforcement action against us or our suppliers.

Any or all of the potential negative consequences described above could have a material adverse effect on us or substantially increase the cost of doing business in these areas. There can be no assurance that the regulatory environment in which we operate will not change or that such regulatory environment, or any specific action taken against us, will not result in a material adverse effect on us.

None.

Our facilities material to our operations consist of our locations described below. In addition to the facilities listed below, our Water Treatment group operates out of 2730 additional warehouse locations, the majority of which are owned by us. We believe that our facilities are adequate and suitable for the purposes they serve. Unless noted, each facility is owned by us and is primarily used as office and warehouse space. We believe that we carry customary levels of insurance covering the replacement of damaged property.

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries are a party or of which any of our property is the subject.

Our common stock isshares are listed on the Nasdaq Global Select Market under the symbol “HWKN.” As of May 15, 2020,28, 2021, shares of our common stockshares were held by approximately 378399 shareholders of record.

In 2014,As previously announced, our Board of Directors authorized the repurchase of up to 300,0001.6 million shares of our outstanding common stock. On February 7, 2019, our Board of Directors increased the authorization to up to 800,000 shares. The shares may be repurchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations. The following table sets forth information concerning purchases of our common stockshares for three months ended March 29, 2020:28, 2021:

The following graph compares the cumulative total shareholder return on our common shares with the cumulative total returns of the Nasdaq Industrial Index, the Nasdaq Composite Index, the Russell 2000 Index and the Standard & Poor’s (“S&P”) Small Cap 600 Index for our last five completed fiscal years. The graph assumes the investment of $100 in our stock and each of those indices on March 29, 2015,April 3, 2016, and reinvestment of all dividends.

The following is a discussion and analysis of our financial condition and results of operations for fiscal 2020, 20192021 and 2018.2020. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

We derive substantially all of our revenues from the sale of chemicals and specialty ingredients to our customers in a wide variety of industries. We began our operations primarily as a distributor of bulk chemicals with a strong customer focus. Over the years, we have maintained the strong customer focus and have expanded our business by increasing our sales of value-added chemical products and specialty ingredients, including manufacturing, blending and repackaging certain products.

Financial Overview

An overview of our financial performance in fiscal 20202021 is provided below:

We focus on total profitability dollars when evaluating our financial results as opposed to profitability as a percentage of sales, as sales dollars tend to fluctuate, particularly in our Industrial and Water Treatment segments, as raw material prices rise and fall. The costs for certain of our raw materials can rise or fall rapidly, causing fluctuations in gross profit as a percentage of sales.

We use the last in, first out (“LIFO”) method of valuing the majority of our inventory in our Industrial and Water Treatment segments, which causes the most recent product costs to be recognized in our income statement. The valuation of LIFO inventory for interim periods is based on our estimates of fiscal year-end inventory levels and costs. The LIFO inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices. Inventories in our Health and Nutrition segment are valued using the first-in, first-out (“FIFO”) method.

We disclose the sales of our bulk commodity products as a percentage of total sales dollars for our Industrial and Water Treatment segments. Our definition of bulk commodity products includes products that we do not modify in any way, but receive, store, and ship from our facilities, or direct ship to our customers in large quantities.

Statement on COVID-19

Sales

Sales decreased $16.1were $596.9 million for fiscal 2021, an increase of $56.7 million, or 2.9%10%, tofrom sales of $540.2 million for fiscal 2020, as compared to sales of $556.3 million for fiscal 2019.2020.

Gross profit increased $5.0 million to $100.9$22.8 million, or 18.7%23%, to $123.8 million, or 21% of sales, for fiscal 2020,2021, from $95.9$100.9 million, or 17.2%19% of sales, for fiscal 2019.2020. During fiscal 2021, the current year,LIFO reserve decreased, and gross profits increased, by $0.1 million. In fiscal 2020, the LIFO reserve increased, and gross profits decreased, by $0.6 million. In the same period a year ago, the LIFO reserve decreased, and gross profits increased, by $0.5 million.

Selling, General and Administrative Expenses

SG&A expenses were relatively flat at $59.2increased $8.6 million to $67.9 million, or 11.0%11% of sales, for fiscal 2020, and $59.12021, from $59.2 million, or 10.6%11% of sales, for fiscal 2019. Fiscal 2020 includes2020. Expenses increased primarily due to increased variable pay, the added costs from the acquired businesses of ADC and C&L Aqua, including $0.8 million expense for amortization of intangibles, and a favorable adjustment toyear-over-year increase in compensation expense related to our non-qualified deferred compensation plan, of $0.2 million compared to a nominal adjustment inwith the prior year. These adjustments areexpense offset in other income/expense. Increases in other variable expenses largely offset this year-over-year benefit.income.

Operating Income (Loss)

Operating income was $41.7$55.9 million, or 7.7%9% of sales, for fiscal 2020,2021, as compared to $36.8$41.7 million, or 6.6%8% of sales, for fiscal 20192020 due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $2.5$1.5 million for fiscal 2020,2021, a decrease of $0.9$1.0 million from interest expense of $3.4$2.5 million for fiscal 2019. Interest expense decreased due to lower2020. The additional interest cost as a result of the increase in outstanding borrowings andwas more than offset by lower borrowing rates compared to the prior year.

Income Tax Provision

Our effective tax rate was relatively flat at 27.2%approximately 27% for both fiscal 20202021 and 27.1% for fiscal 2019.

Cash provided by operating activities in fiscal 20202021 was $58.9$43.8 million compared to $48.0$58.9 million in fiscal 2019.2020. The increasedecrease in cash provided by operating activities in fiscal 20202021 as compared to fiscal 20192020 was primarily driven by favorable year-over-year changesincreases in certain components of working capital, in particular lower cash used for accounts payable and inventory,customer receivables, resulting from higher sales, as well as the improvementhigher inventory levels, partially offset by an increase in net income. Increased customer demand in our Health and Nutrition segment resulted in an increase in on-hand inventory due to increased stocking levels to fill the increased demand and to offset longer lead times from our suppliers for many products. Due to the nature of our operations, which includes purchases of large quantities of bulk chemicals, the timing of purchases can result in significant changes in working capital and the resulting operating cash flow. Historically, our cash requirements for working capital increase during the period from April through November as caustic soda inventory levels increase as most of our barges are received during this period.

Cash used in investing activities was $71.4 million in fiscal 2021 compared to $24.2 million in fiscal 2020 compared to $12.32020. Capital expenditures were $20.8 million in fiscal 2019. Capital expenditures were2021 and $24.5 million in fiscal 2020 and $12.6 million2020. Total cash used in investing activities in fiscal 2019.2021 included an aggregate of $51.0 million for the acquisitions of ADC, C&L Aqua and the purchase of the manufacturing facility in Rosemount, Minnesota. Capital expenditures in fiscal 2021 included $7.8 million of facility improvements, including $4.3 million to expand our pharmaceutical product manufacturing capabilities, vehicles and trucks of $4.7 million, the purchase of a previously leased Water Treatment branch facility for $0.9 million, along with other new and replacement equipment. Capital expenditures in fiscal 2020 included $9.5 million in the aggregate for the purchase of our previously leased corporate headquarters and a previously leased Water Treatment branch facility as well as the purchase of a facility for a Water Treatment branch expansion. The additional increase in capital expenditures primarily related to facility improvements and new and replacement equipment.

Cash used inprovided by financing activities was $39.6$26.4 million in fiscal 2020,2021, as compared to cash used in financing activities of $31.4$39.6 million in fiscal 2019.2020. Cash used inprovided by financing activities included net debt borrowings of $39.0 million in fiscal 2021 to partially fund the acquisitions in fiscal 2021, compared to net debt repayments of $25.0 million in fiscal 2020 and $16.0 million in fiscal 2019.2020. We also paid out cash dividends of $10.0 million in fiscal 2021 and $9.8 million in fiscal 2020 and $12.0 million in fiscal 2019.2020. In fiscal 2020,2021, we used $5.9$4.1 million to repurchase shares under our board-authorized share repurchase program, and in fiscal 2019,2020, we used $4.4$5.9 million to repurchase shares under the program.

Our cash balance was $4.3$3.0 million at March 29, 2020,28, 2021, a decrease of $4.9$1.3 million as compared with March 31, 2019.29, 2020. Cash flows generated by operations and financing activities during fiscal 20202021 were largely offset by debt repayments,the cash expended for acquisitions in fiscal 2021, capital expenditures and dividend payments.

We wereare party to a credit agreement (the “Prior Credit Agreement”) with U.S. Bank National Association (“U.S. Bank”) as Sole Lead Arranger and Sole Book Runner and other lenders from time to time party thereto (collectively, the “Prior Lenders”), whereby U.S. Bank was also serving as Administrative Agent. The Prior Credit Agreement provided us with senior secured credit facilities totaling $165.0 million, consisting of a $100.0 million senior secured term loan credit facility and a $65.0 million senior secured revolving loan credit facility. The term loan facility required mandatory quarterly repayments, with the balance due at maturity. The revolving loan facility included a letter of credit subfacility in the amount of $5.0 million and a swingline subfacility in the amount of $8.0 million. The Prior Credit Agreement was scheduled to terminate on December 23, 2020 and the underlying credit facility was secured by substantially all of our personal property assets and those of our subsidiaries. Borrowings under the Prior Credit Agreement bore interest at a variable rate per annum equal to one of the following, plus, in both cases, an applicable margin based upon our leverage ratio: (a) LIBOR for an interest period of one, two, three or six months as selected by us, reset at the end of the selected interest period, or (b) a base rate determined by reference to the highest of (1) U.S. Bank’s prime rate, (2) the Federal Funds Effective Rate plus 0.5%, or (3) one-month LIBOR for U.S. dollars plus 1.0%. The LIBOR margin was 1.125%, 1.25% or 1.5%, depending on our leverage ratio. The base rate margin was either 0.125%, 0.25% or 0.5%, depending on our leverage ratio.

Borrowings under the Revolving Loan Facility bear interest at a rate per annum equal to one of the following, plus, in both cases, an applicable margin based upon our leverage ratio: (a) LIBOR for an interest period of one, two, three or six months as selected by us, reset at the end of the selected interest period, or (b) a base rate determined by reference to the highest of (1) U. S. Bank’s prime rate, (2) the Federal Funds Effective Rate plus 0.5%, or (3) one-month LIBOR for U.S. dollars plus 1.0%. The LIBOR margin is between 0.85% and 1.35%, depending on our leverage ratio. The base rate margin is between 0.00% and 0.35%, depending on our leverage ratio. In the event that the ICE Benchmark Administration (or any person that

In addition to paying interest on the outstanding principal under the Revolving Loan Facility, we are required to pay a commitment fee on the unutilized commitments thereunder. The commitment fee is between 0.15% and 0.25%, depending on our leverage ratio.

Debt issuance costs paid to the Lenders are being amortized as interest expense over the term of the Credit Agreement. As of March 29, 2020,28, 2021, the unamortized balance of these costs was $0.3 million, and is reflected as a reduction of debt on our balance sheet.

The Credit Agreement contains customary events of default, including failure to comply with covenants in the Credit Agreement and other loan documents, cross default to other material indebtedness, failure by us to pay or discharge material judgments, bankruptcy, and change of control. The occurrence of an event of default would permit the lenders to terminate their commitments and accelerate loans under the Credit Facility.

As part of our growth strategy, we have acquired businesses and may pursue acquisitions or other strategic relationships in the future that we believe will complement or expand our existing businesses or increase our customer base. We believe we could borrow additional funds under our current or new credit facilities or sell equity for strategic reasons or to further strengthen our financial position.

We do not have any off-balance sheet arrangements.

In preparing the financial statements, we follow U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We consider the following policies to involve the most judgment in the preparation of our financial statements.