UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberDecember 27, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-7647
HAWKINS, INC.
(Exact name of registrant as specified in its charter) 

Minnesota 41-0771293
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

2381 Rosegate, Roseville, Minnesota55113
(Address of principal executive offices)(Zip code)

(612) 331-6910
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.05 per shareHWKNNasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   ☒    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
Yes  ☐    No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
CLASS Shares Outstanding at October 16, 2020January 22, 2021
Common Stock, par value $.05 per share 10,670,63710,611,026





HAWKINS, INC.
INDEX TO FORM 10-Q
  Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

i


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
HAWKINS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
September 27,
2020
March 29,
2020
December 27,
2020
March 29,
2020
ASSETSASSETSASSETS
CURRENT ASSETS:CURRENT ASSETS:CURRENT ASSETS:
Cash and cash equivalentsCash and cash equivalents$3,160 $4,277 Cash and cash equivalents$7,969 $4,277 
Trade receivables — less allowance for doubtful accounts:Trade receivables — less allowance for doubtful accounts:Trade receivables — less allowance for doubtful accounts:
$552 as of September 27, 2020 and $784 as of March 29, 202074,492 67,391 
$549 as of December 27, 2020 and $784 as of March 29, 2020$549 as of December 27, 2020 and $784 as of March 29, 202076,822 67,391 
InventoriesInventories63,194 54,436 Inventories64,657 54,436 
Income taxes receivableIncome taxes receivable946 
Prepaid expenses and other current assetsPrepaid expenses and other current assets1,735 4,927 Prepaid expenses and other current assets5,075 4,927 
Total current assetsTotal current assets142,581 131,031 Total current assets155,469 131,031 
PROPERTY, PLANT, AND EQUIPMENT:PROPERTY, PLANT, AND EQUIPMENT:276,228 267,221 PROPERTY, PLANT, AND EQUIPMENT:291,491 267,221 
Less accumulated depreciationLess accumulated depreciation148,754 140,877 Less accumulated depreciation152,568 140,877 
Net property, plant, and equipmentNet property, plant, and equipment127,474 126,344 Net property, plant, and equipment138,923 126,344 
OTHER ASSETS:OTHER ASSETS:OTHER ASSETS:
Right-of-use assetsRight-of-use assets8,505 9,090 Right-of-use assets8,181 9,090 
GoodwillGoodwill67,692 58,440 Goodwill67,657 58,440 
Intangible assets, net of accumulated amortizationIntangible assets, net of accumulated amortization71,247 60,653 Intangible assets, net of accumulated amortization69,726 60,653 
OtherOther5,581 3,770 Other6,049 3,770 
Total other assetsTotal other assets153,025 131,953 Total other assets151,613 131,953 
Total assetsTotal assets$423,080 $389,328 Total assets$446,005 $389,328 
LIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES AND SHAREHOLDERS’ EQUITYLIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:CURRENT LIABILITIES:CURRENT LIABILITIES:
Accounts payable — tradeAccounts payable — trade$32,708 $34,129 Accounts payable — trade$31,160 $34,129 
Accrued payroll and employee benefitsAccrued payroll and employee benefits10,783 13,538 Accrued payroll and employee benefits13,406 13,538 
Income tax payable851 59 
Current portion of long-term debtCurrent portion of long-term debt9,907 9,907 Current portion of long-term debt9,907 9,907 
Short-term lease liabilityShort-term lease liability1,458 1,523 Short-term lease liability1,440 1,523 
Container depositsContainer deposits1,412 1,376 Container deposits1,426 1,376 
Other current liabilitiesOther current liabilities1,639 1,688 Other current liabilities1,693 1,747 
Total current liabilitiesTotal current liabilities58,758 62,220 Total current liabilities59,032 62,220 
LONG-TERM DEBT, LESS CURRENT PORTIONLONG-TERM DEBT, LESS CURRENT PORTION65,798 49,751 LONG-TERM DEBT, LESS CURRENT PORTION85,821 49,751 
LONG-TERM LEASE LIABILITYLONG-TERM LEASE LIABILITY7,124 7,649 LONG-TERM LEASE LIABILITY6,854 7,649 
PENSION WITHDRAWAL LIABILITYPENSION WITHDRAWAL LIABILITY4,806 4,978 PENSION WITHDRAWAL LIABILITY4,719 4,978 
DEFERRED INCOME TAXESDEFERRED INCOME TAXES25,116 25,106 DEFERRED INCOME TAXES25,097 25,106 
DEFERRED COMPENSATION LIABILITYDEFERRED COMPENSATION LIABILITY7,054 5,026 
OTHER LONG-TERM LIABILITIESOTHER LONG-TERM LIABILITIES6,841 6,140 OTHER LONG-TERM LIABILITIES514 1,114 
Total liabilitiesTotal liabilities168,443 155,844 Total liabilities189,091 155,844 
COMMITMENTS AND CONTINGENCIESCOMMITMENTS AND CONTINGENCIESCOMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:SHAREHOLDERS’ EQUITY:SHAREHOLDERS’ EQUITY:
Common stock; authorized: 30,000,000 shares of $0.05 par value; 10,545,203 and 10,512,229 shares issued and outstanding as of September 27, 2020 and March 29, 2020, respectively527 526 
Common stock; authorized: 30,000,000 shares of $0.05 par value; 10,462,159 and 10,512,229 shares issued and outstanding as of December 27, 2020 and March 29, 2020, respectivelyCommon stock; authorized: 30,000,000 shares of $0.05 par value; 10,462,159 and 10,512,229 shares issued and outstanding as of December 27, 2020 and March 29, 2020, respectively523 526 
Additional paid-in capitalAdditional paid-in capital52,194 50,090 Additional paid-in capital48,975 50,090 
Retained earningsRetained earnings201,966 182,947 Retained earnings207,416 182,947 
Accumulated other comprehensive lossAccumulated other comprehensive loss(50)(79)Accumulated other comprehensive loss(79)
Total shareholders’ equityTotal shareholders’ equity254,637 233,484 Total shareholders’ equity256,914 233,484 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$423,080 $389,328 Total liabilities and shareholders’ equity$446,005 $389,328 

See accompanying notes to condensed consolidated financial statements.
1


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per-share data)
 
Three Months EndedSix Months Ended Three Months EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
December 27,
2020
December 29,
2019
December 27,
2020
December 29,
2019
SalesSales$147,801 $140,043 $290,973 $287,379 Sales$142,927 $120,406 $433,900 $407,785 
Cost of salesCost of sales(115,004)(112,049)(227,200)(230,588)Cost of sales(114,688)(98,928)(341,888)(329,516)
Gross profitGross profit32,797 27,994 63,773 56,791 Gross profit28,239 21,478 92,012 78,269 
Selling, general and administrative expensesSelling, general and administrative expenses(16,221)(14,817)(31,259)(29,653)Selling, general and administrative expenses(17,750)(14,702)(49,009)(44,355)
Operating incomeOperating income16,576 13,177 32,514 27,138 Operating income10,489 6,776 43,003 33,914 
Interest expense, netInterest expense, net(339)(666)(719)(1,429)Interest expense, net(382)(584)(1,101)(2,013)
Other incomeOther income327 26 804 143 Other income478 131 1,282 274 
Income before income taxesIncome before income taxes16,564 12,537 32,599 25,852 Income before income taxes10,585 6,323 43,184 32,175 
Income tax expenseIncome tax expense(4,374)(3,287)(8,621)(6,795)Income tax expense(2,664)(1,776)(11,285)(8,571)
Net incomeNet income$12,190 $9,250 $23,978 $19,057 Net income$7,921 $4,547 $31,899 $23,604 
Weighted average number of shares outstanding - basicWeighted average number of shares outstanding - basic10,527,891 10,575,538 10,526,511 10,589,922 Weighted average number of shares outstanding - basic10,506,918 10,546,453 10,521,521 10,575,432 
Weighted average number of shares outstanding - dilutedWeighted average number of shares outstanding - diluted10,622,881 10,633,117 10,634,281 10,663,864 Weighted average number of shares outstanding - diluted10,611,655 10,605,895 10,639,372 10,656,115 
Basic earnings per shareBasic earnings per share$1.16 $0.87 $2.28 $1.80 Basic earnings per share$0.75 $0.43 $3.03 $2.23 
Diluted earnings per shareDiluted earnings per share$1.15 $0.87 $2.25 $1.79 Diluted earnings per share$0.75 $0.43 $3.00 $2.22 
Cash dividends declared per common shareCash dividends declared per common share$0.2325 $0.23 $0.465 $0.46 Cash dividends declared per common share$0.2325 $0.2300 $0.6975 $0.6900 
See accompanying notes to condensed consolidated financial statements.

2


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
 
Three Months EndedSix Months Ended Three Months EndedNine Months Ended
September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
December 27,
2020
December 29,
2019
December 27,
2020
December 29,
2019
Net incomeNet income$12,190 $9,250 $23,978 $19,057 Net income$7,921 $4,547 $31,899 $23,604 
Other comprehensive loss, net of tax:Other comprehensive loss, net of tax:Other comprehensive loss, net of tax:
Unrealized gain (loss) on interest rate swapUnrealized gain (loss) on interest rate swap39 (69)29 (248)Unrealized gain (loss) on interest rate swap50 (11)79 (259)
Total comprehensive incomeTotal comprehensive income$12,229 $9,181 $24,007 $18,809 Total comprehensive income$7,971 $4,536 $31,978 $23,345 
See accompanying notes to condensed consolidated financial statements.

3


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
SharesAmountAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
BALANCE — March 29, 2020BALANCE — March 29, 202010,512,229 $526 $50,090 $182,947 $(79)$233,484 BALANCE — March 29, 202010,512,229 $526 $50,090 $182,947 $(79)$233,484 
Cash dividends declared and paidCash dividends declared and paid(2,479)(2,479)Cash dividends declared and paid(2,479)(2,479)
Share-based compensation expenseShare-based compensation expense700 700 Share-based compensation expense700 700 
Vesting of restricted stockVesting of restricted stock5,263 Vesting of restricted stock5,263 
Shares surrendered for payroll taxesShares surrendered for payroll taxes(1,657)(54)(54)Shares surrendered for payroll taxes(1,657)(54)(54)
Other comprehensive loss, net of taxOther comprehensive loss, net of tax(10)(10)Other comprehensive loss, net of tax(10)(10)
Net incomeNet income11,788 11,788 Net income11,788 11,788 
BALANCE — June 28, 2020BALANCE — June 28, 202010,515,835 $526 $50,736 $192,256 $(89)$243,429 BALANCE — June 28, 202010,515,835 $526 $50,736 $192,256 $(89)$243,429 
Cash dividends declared and paidCash dividends declared and paid(2,480)(2,480)Cash dividends declared and paid(2,480)(2,480)
Share-based compensation expenseShare-based compensation expense686 686 Share-based compensation expense686 686 
Vesting of restricted stockVesting of restricted stock8,008 Vesting of restricted stock8,008 
ESPP shares issuedESPP shares issued21,360 772 773 ESPP shares issued21,360 772 773 
Other comprehensive income, net of taxOther comprehensive income, net of tax39 39 Other comprehensive income, net of tax39 39 
Net incomeNet income12,190 12,190 Net income12,190 12,190 
BALANCE — September 27, 2020BALANCE — September 27, 202010,545,203 $527 $52,194 $201,966 $(50)$254,637 BALANCE — September 27, 202010,545,203 $527 $52,194 $201,966 $(50)$254,637 
Cash dividends declared and paidCash dividends declared and paid(2,471)(2,471)
Share-based compensation expenseShare-based compensation expense917 917 
Shares repurchasedShares repurchased(83,044)(4)(4,136)(4,140)
Other comprehensive income, net of taxOther comprehensive income, net of tax50 50 
Net incomeNet income7,921 7,921 
BALANCE — December 27, 2020BALANCE — December 27, 202010,462,159 $523 $48,975 $207,416 $$256,914 
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
SharesAmountAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
BALANCE — March 31, 2019BALANCE — March 31, 201910,592,450 $530 $52,609 $164,405 $317 $217,861 BALANCE — March 31, 201910,592,450 $530 $52,609 $164,405 $317 $217,861 
Cash dividends declared and paidCash dividends declared and paid(2,460)(2,460)Cash dividends declared and paid(2,460)(2,460)
Share-based compensation expenseShare-based compensation expense509 509 Share-based compensation expense509 509 
Vesting of restricted stockVesting of restricted stock27,620 (1)Vesting of restricted stock27,620 (1)
Shares surrendered for payroll taxesShares surrendered for payroll taxes(9,160)(1)(342)(343)Shares surrendered for payroll taxes(9,160)(1)(342)(343)
Shares repurchasedShares repurchased(47,136)(2)(1,801)(1,803)Shares repurchased(47,136)(2)(1,801)(1,803)
Other comprehensive loss, net of taxOther comprehensive loss, net of tax(179)(179)Other comprehensive loss, net of tax(179)(179)
Net incomeNet income9,807 9,807 Net income9,807 9,807 
BALANCE — June 30, 2019BALANCE — June 30, 201910,563,774 $528 $50,974 $171,752 $138 $223,392 BALANCE — June 30, 201910,563,774 $528 $50,974 $171,752 $138 $223,392 
Cash dividends declared and paidCash dividends declared and paid(2,445)(2,445)Cash dividends declared and paid(2,445)(2,445)
Share-based compensation expenseShare-based compensation expense636 636 Share-based compensation expense636 636 
Vesting of restricted stockVesting of restricted stock8,352 Vesting of restricted stock8,352 
ESPP shares issuedESPP shares issued18,586 660 661 ESPP shares issued18,586 660 661 
Shares repurchasedShares repurchased(44,259)(2)(1,988)(1,990)Shares repurchased(44,259)(2)(1,988)(1,990)
Other comprehensive loss, net of taxOther comprehensive loss, net of tax(69)(69)Other comprehensive loss, net of tax(69)(69)
Net incomeNet income9,250 9,250 Net income9,250 9,250 
BALANCE — September 29, 2019BALANCE — September 29, 201910,546,453 $527 $50,282 $178,557 $69 $229,435 BALANCE — September 29, 201910,546,453 $527 $50,282 $178,557 $69 $229,435 
Cash dividends declared and paidCash dividends declared and paid(2,445)(2,445)
Share-based compensation expenseShare-based compensation expense685 685 
Other comprehensive income, net of taxOther comprehensive income, net of tax(11)(11)
Net incomeNet income4,547 4,547 
BALANCE — December 29, 2019BALANCE — December 29, 201910,546,453 $527 $50,967 $180,659 $58 $232,211 
See accompanying notes to condensed consolidated financial statements.
4


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Six Months Ended Nine Months Ended
September 27,
2020
September 29,
2019
December 27,
2020
December 29,
2019
CASH FLOWS FROM OPERATING ACTIVITIES:CASH FLOWS FROM OPERATING ACTIVITIES:CASH FLOWS FROM OPERATING ACTIVITIES:
Net incomeNet income$23,978 $19,057 Net income$31,899 $23,604 
Reconciliation to cash flows:Reconciliation to cash flows:Reconciliation to cash flows:
Depreciation and amortizationDepreciation and amortization11,065 10,739 Depreciation and amortization16,735 16,181 
Operating leasesOperating leases963 1,030 Operating leases1,419 1,538 
Amortization of debt issuance costs47 47 
Gain on deferred compensation assetsGain on deferred compensation assets(804)(143)Gain on deferred compensation assets(1,282)(274)
Stock compensation expenseStock compensation expense1,386 1,145 Stock compensation expense2,303 1,830 
OtherOther88 (43)Other170 (42)
Changes in operating accounts providing (using) cash:Changes in operating accounts providing (using) cash:Changes in operating accounts providing (using) cash:
Trade receivablesTrade receivables(5,811)(1,409)Trade receivables(8,121)8,035 
InventoriesInventories(8,004)(323)Inventories(9,431)2,940 
Accounts payableAccounts payable(1,421)238 Accounts payable(3,569)(2,469)
Accrued liabilitiesAccrued liabilities(2,320)(4,504)Accrued liabilities1,160 (3,148)
Lease liabilitiesLease liabilities(963)(1,101)Lease liabilities(1,363)(1,565)
Income taxesIncome taxes792 1,262 Income taxes(1,006)(82)
OtherOther1,142 1,121 Other(2,308)(1,557)
Net cash provided by operating activitiesNet cash provided by operating activities20,138 27,116 Net cash provided by operating activities26,606 44,991 
CASH FLOWS FROM INVESTING ACTIVITIES:CASH FLOWS FROM INVESTING ACTIVITIES:CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipmentPurchases of property, plant, and equipment(8,120)(14,088)Purchases of property, plant, and equipment(13,200)(19,426)
Acquisitions, net of cash acquiredAcquisitions, net of cash acquired(25,000)Acquisitions, net of cash acquired(35,017)
OtherOther105 209 Other154 326 
Net cash used in investing activitiesNet cash used in investing activities(33,015)(13,879)Net cash used in investing activities(48,063)(19,100)
CASH FLOWS FROM FINANCING ACTIVITIES:CASH FLOWS FROM FINANCING ACTIVITIES:CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends declared and paidCash dividends declared and paid(4,959)(4,905)Cash dividends declared and paid(7,430)(7,350)
New shares issuedNew shares issued773 661 New shares issued773 661 
Shares surrendered for payroll taxesShares surrendered for payroll taxes(54)(343)Shares surrendered for payroll taxes(54)(343)
Shares repurchasedShares repurchased(3,793)Shares repurchased(4,140)(3,793)
Net proceeds from (payments on) revolving loanNet proceeds from (payments on) revolving loan16,000 (10,000)Net proceeds from (payments on) revolving loan36,000 (17,000)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities11,760 (18,380)Net cash provided by (used in) financing activities25,149 (27,825)
NET DECREASE IN CASH AND CASH EQUIVALENTS(1,117)(5,143)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTSNET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS3,692 (1,934)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIODCASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD4,277 9,199 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD4,277 9,199 
CASH AND CASH EQUIVALENTS, END OF PERIODCASH AND CASH EQUIVALENTS, END OF PERIOD$3,160 $4,056 CASH AND CASH EQUIVALENTS, END OF PERIOD$7,969 $7,265 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONSUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONSUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxesCash paid for income taxes$7,845 $5,533 Cash paid for income taxes$12,345 $8,653 
Cash paid for interestCash paid for interest$610 $1,419 Cash paid for interest$893 $1,960 
Noncash investing activities - capital expenditures in accounts payableNoncash investing activities - capital expenditures in accounts payable$191 $567 Noncash investing activities - capital expenditures in accounts payable$790 $394 
See accompanying notes to condensed consolidated financial statements.

5


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

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, accordingly, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended March 29, 2020, previously filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position and the results of our operations and cash flows for the periods presented. All adjustments made to the interim condensed consolidated financial statements were of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the sixnine months ended SeptemberDecember 27, 2020 are not necessarily indicative of the results that may be expected for the full year.

References to fiscal 2019 refer to the fiscal year ended March 31, 2019, references to fiscal 2020 refer to the fiscal year ended March 29, 2020 and references to fiscal 2021 refer to the fiscal year ending March 28, 2021.

Use of Estimates. The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, particularly receivables, inventories, property, plant and equipment, right-of-use assets, goodwill, intangibles, accrued expenses, short-term and long-term lease liability, income taxes and related accounts and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounting Policies. The accounting policies we follow are set forth in Note 1 – Nature of Business and Significant Accounting Policies to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 29, 2020, previously filed with the SEC. There has been no significant change in our accounting policies since the end of fiscal 2020.
 
Recently Adopted Accounting Pronouncements

On March 30, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this update replaced the incurred loss impairment methodology in previous GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. Our adoption of this ASU impacted our method for calculating and estimating our allowance for doubtful accounts but did not have a material impact to our financial position or results of operations.
Note 2 — Business CombinationsAcquisitions

Acquisition of American Development Corporation of Tennessee, Inc.: On July 28, 2020, we acquired substantially all the assets of American Development Corporation of Tennessee, Inc. (“ADC”) under the terms of an asset purchase agreement withamong us, ADC and its shareholders. We paid $25 million for the acquisition, using funds available onunder our revolverrevolving credit facility with U.S. Bank National Association to fund the acquisition. ADC is a water treatment chemical distribution company operating primarily in Tennessee, Georgia and Kentucky. The results of operations since the acquisition date, and the assets, including the goodwill associated with this acquisition, are included in our Water Treatment segment. Costs associated with this transaction were not material and were expensed as incurred.

The acquisition has been accounted for under the acquisition method of accounting,as a business combination, under which the total purchase price is allocated to the net tangible and intangible assets and liabilities of ADC acquired in connection with the acquisition based on their estimated fair values. We estimated the fair values of the assets acquired and liabilities assumed using a discounted cash flow analysis (income approach). Of the $25 million purchase price, we allocated $13.3 million to finite-lived intangible assets, primarily customer relationships to be amortized over 17 years, $1.6 million to property, plant and equipment, and $0.9 million to net working capital. The residual amount of $9.2 million was allocated to goodwill. The goodwill recognized as a result of this acquisition is primarily attributable to strategic and synergistic benefits, as well as the assembled workforce. Such goodwill is expected to be deductible for tax purposes. The purchase price allocation is preliminary and subject to adjustment within the first 12 months following the acquisition.

final.


Acquisition of Property

: On December 16, 2020, we acquired a manufacturing facility on 28 acres located adjacent to our facility in Rosemount, Minnesota to allow further expansion and growth in both our Industrial and Water Treatment segments. We paid $10 million for the property. The purchase of this facility adds approximately 40,000 square feet of manufacturing and warehouse space to bring us to a total of 105,000 square feet of space on 56 acres of land in the area, with
6


rail access at both of the sites to allow for future growth and provide for supply chain flexibility on certain raw materials to better serve the customer.

This acquisition has been accounted for as a property purchase.

Note 3 - Revenue

Our revenue arrangements generally consist of a single performance obligation to transfer promised goods or services. We disaggregate revenues from contracts with customers by operating segments as well as types of products sold. Reporting by operating segment is pertinent to understanding our revenues, as it aligns to how we review the financial performance of our operations. Types of products sold within each operating segment help us to further evaluate the financial performance of our segments.

The following tables disaggregate external customer net sales by major revenue stream for the three and sixnine months ended SeptemberDecember 27, 2020 and SeptemberDecember 29, 2019:
Three months ended September 27, 2020Three months ended December 27, 2020
(In thousands)(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Bulk / Distributed specialty products (1)
Bulk / Distributed specialty products (1)
$9,313 $4,358 $28,953 $42,624 
Bulk / Distributed specialty products (1)
$10,016 $3,896 $27,839 $41,751 
Manufactured, blended or repackaged products (2)
Manufactured, blended or repackaged products (2)
51,155 44,838 8,133 104,126 
Manufactured, blended or repackaged products (2)
53,501 35,129 11,577 100,207 
OtherOther703 344 1,051 Other839 273 (143)969 
Total external customer salesTotal external customer sales$61,171 $49,540 $37,090 $147,801 Total external customer sales$64,356 $39,298 $39,273 $142,927 
Three months ended September 29, 2019Three months ended December 29, 2019
(In thousands)(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Bulk / Distributed specialty products (1)
Bulk / Distributed specialty products (1)
$11,599 $4,971 $22,892 $39,462 
Bulk / Distributed specialty products (1)
$11,562 $4,280 $19,115 $34,957 
Manufactured, blended or repackaged products (2)
Manufactured, blended or repackaged products (2)
55,607 40,487 3,189 99,283 
Manufactured, blended or repackaged products (2)
50,600 30,251 3,199 84,050 
OtherOther884 410 1,298 Other856 359 184 1,399 
Total external customer salesTotal external customer sales$68,090 $45,868 $26,085 $140,043 Total external customer sales$63,018 $34,890 $22,498 $120,406 
Six months ended September 27, 2020Nine months ended December 27, 2020
(In thousands)(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Bulk / Distributed specialty products (1)
Bulk / Distributed specialty products (1)
$18,137 $8,233 $54,898 $81,268 
Bulk / Distributed specialty products (1)
$28,153 $12,129 $82,737 $123,019 
Manufactured, blended or repackaged products (2)
Manufactured, blended or repackaged products (2)
112,997 80,344 14,231 207,572 
Manufactured, blended or repackaged products (2)
166,498 115,473 25,808 307,779 
OtherOther1,539 677 (83)2,133 Other2,378 950 (226)3,102 
Total external customer salesTotal external customer sales$132,673 $89,254 $69,046 $290,973 Total external customer sales$197,029 $128,552 $108,319 $433,900 
Six months ended September 29, 2019Nine months ended December 29, 2019
(In thousands)(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Bulk / Distributed specialty products (1)
Bulk / Distributed specialty products (1)
$26,612 $9,679 $47,495 $83,786 
Bulk / Distributed specialty products (1)
$38,174 $13,959 $66,608 $118,741 
Manufactured, blended or repackaged products (2)
Manufactured, blended or repackaged products (2)
115,078 78,637 7,333 201,048 
Manufactured, blended or repackaged products (2)
165,678 108,888 10,532 285,098 
OtherOther1,725 804 16 2,545 Other2,581 1,163 202 3,946 
Total external customer salesTotal external customer sales$143,415 $89,120 $54,844 $287,379 Total external customer sales$206,433 $124,010 $77,342 $407,785 

(1)For our Industrial and Water Treatment segments, this line includes our bulk 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. For our Health and Nutrition segment, this line includes our non-manufactured distributed specialty products, which may be sold out of one of our facilities or direct shipped to our customers.
(2)For our Industrial and Water Treatment segments, this line includes our non-bulk specialty products that we either manufacture, blend, repackage, resell in their original form, or direct ship to our customers in smaller quantities, and services we provide for our customers. For our Health and Nutrition segment, this line includes products manufactured, processed or repackaged in our facility and/or with our equipment.




Net sales include products and shipping charges, net of estimates for product returns and any related sales rebates. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. Our criteria for recording revenue is consistent between our operating segments and types of products sold. We recognize revenue upon transfer of control of the promised products to the customer, with revenue recognized at the point in time the customer obtains control of the products. In
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arrangements where product is shipped directly from the vendor to our customer, we act as the principal in the transaction as we direct the other party to provide the product to our customer on our behalf, take inventory risk, establish the selling price, and are exposed to credit risk for the collection of the invoiced amount. If there were circumstances where we were to manufacture products for customers that were unique to their specifications and we would be prohibited by contract to use the product for any alternate use, we would recognize revenue over time if all criteria were met. We have made a policy election to treat shipping costs for FOB shipping point sales as fulfillment costs. As such, we recognize revenue for all shipping charges, if applicable, at the same time we recognize revenue on the products delivered. We estimate product returns based on historical return rates. Using probability assessments, we estimate sales rebates expected to be paid over the term of the contract. The majority of our contracts have a single performance obligation and are short term in nature. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. We offer certain customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded as a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations. We periodically review the assumptions underlying our estimates of discounts and volume rebates and adjust revenues accordingly.

Note 4 – Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted-average number of common shares outstanding. Diluted EPS includes the dilutive impact of incremental shares assumed to be issued as performance units and restricted stock.

Basic and diluted EPS were calculated using the following:
Three Months EndedSix Months Ended Three Months EndedNine Months Ended
September 27, 2020September 29, 2019September 27, 2020September 29, 2019December 27, 2020December 29, 2019December 27, 2020December 29, 2019
Weighted-average common shares outstanding—basicWeighted-average common shares outstanding—basic10,527,891 10,575,538 10,526,511 10,589,922 Weighted-average common shares outstanding—basic10,506,918 10,546,453 10,521,521 10,575,432 
Dilutive impact of performance units and restricted stockDilutive impact of performance units and restricted stock94,990 57,579 107,770 73,942 Dilutive impact of performance units and restricted stock104,737 59,442 117,851 80,683 
Weighted-average common shares outstanding—dilutedWeighted-average common shares outstanding—diluted10,622,881 10,633,117 10,634,281 10,663,864 Weighted-average common shares outstanding—diluted10,611,655 10,605,895 10,639,372 10,656,115 

For each of the periods presented, there were 0 shares excluded from the calculation of weighted-average common shares for diluted EPS.

Note 5 – Derivative Instruments

We havehad an interest rate swap agreement to manage the risk associated with a portion of our variable-rate long-term debt. We do not utilize derivative instruments for speculative purposes. The interest rate swap involves the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional0tional amount on which the interest payments are calculated. The $20 million swap agreement will terminateterminated on December 23, 2020. We havehad designated this swap as a cash flow hedge and have determined that it qualifiesqualified for hedge accounting treatment. For so long as the hedge iswas effective, changes in fair value of the cash flow hedge arewere recorded in other comprehensive income (net of tax) until income or loss from the cash flows of the hedged item iswas realized.

For the three and sixnine months ended SeptemberDecember 27, 2020, we recorded a 0minal amount$0.1 million in other comprehensive income related to unrealized gains (net of tax) on the cash flow hedge described above. For the three months ended SeptemberDecember 29, 2019, we recorded $0.1 milliona 0minal amount in other comprehensive loss related to unrealized losses (net of tax) on the cash flow hedge. For the sixnine months ended SeptemberDecember 29, 2019, we recorded $0.2$0.3 million in other comprehensive loss related to unrealized losses (net of tax) on the cash flow hedge. Included in other current liabilities on our condensed consolidated balance sheet was $0.1 million as of September 27, 2020 and March 29, 2020. Unrealized gainsThe interest rate swap ended on December 23, 2020, and losses will be reflected in net income when the related cash flows or hedged transactions occur and offset the related performance of the hedged item.is therefore no longer recorded on our balance sheet.

By their nature, derivative instruments are subject to market risk. Derivative instruments are also subject to credit risk associated with counterparties to the derivative contracts. Credit risk associated with derivatives is measured based on the replacement cost should the counterparty with a contract in a gain position to us fail to perform under the terms of the contract. We do not anticipate nonperformance by the counterparty.





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Note 6 – Fair Value Measurements

Our financial assets and liabilities are measured at fair value at 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 (exit price). We classify the inputs used to measure fair value into the following hierarchy:
 
   
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for the asset or liability.
Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity. These fair values are determined using pricing models for which the assumptions utilize management’s estimates or market participant assumptions.


Assets and Liabilities Measured at Fair Value on a Recurring Basis.  The fair value hierarchy requires the use of observable market data when available. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
 

Our financial assets that are measured at fair value on a recurring basis are an interest rate swap and assets held in a deferred compensation retirement plan. As of SeptemberDecember 27, 2020 and March 29, 2020, the assets held in a deferred compensation retirement plan are classified as other long-term assets on our balance sheet, with the portion of the plan assets expected to be paid within twelve months classified as current assets and the interest rate swap iswas classified as other current liabilities on our balance sheet. The fair value of the interest rate swap iswas determined by the respective counterparties based on interest rate changes. Interest rate swaps are valued based on observable interest rate yield curves for similar instruments. The deferred compensation plan assets relate to contributions made to a non-qualified compensation plan on behalf of certain employees who are classified as “highly compensated employees” as determined by IRS guidelines. The assets are part of a rabbi trust and the funds are held in mutual funds. The fair value of the deferred compensation is based on the quoted market prices for the mutual funds at the end of the period.

 
The following tables summarize the balances of assets and liabilities measured at fair value on a recurring basis as of SeptemberDecember 27, 2020 and March 29, 2020.

 0
(In thousands)(In thousands)September 27, 2020March 29, 2020(In thousands)December 27, 2020March 29, 2020
AssetsAssetsAssets
Deferred compensation plan assetsDeferred compensation plan assetsLevel 1$5,573 $3,564 Deferred compensation plan assetsLevel 1$5,937 $3,564 
LiabilitiesLiabilitiesLiabilities
Interest rate swapInterest rate swapLevel 2$69 $108 Interest rate swapLevel 2$$108 

Note 7– Assets Held for Sale

In the first quarter of fiscal 2021, management determined that an office building that was previously held for sale no0 longer met the criteria to be classified as such. As a result, the $0.9 million net book value was reclassified out of “Prepaid expenses and other current assets” and is now classified as held and used within Property, Plant and Equipment on our balance sheet.

Note 8 – Inventories

Inventories at SeptemberDecember 27, 2020 and March 29, 2020 consisted of the following:
September 27,
2020
March 29,
2020
(In thousands)
Inventory (FIFO basis)$68,707 $60,090 
LIFO reserve(5,513)(5,654)
Net inventory$63,194 $54,436 
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December 27,
2020
March 29,
2020
(In thousands)
Inventory (FIFO basis)$70,278 $60,090 
LIFO reserve(5,621)(5,654)
Net inventory$64,657 $54,436 
The first in, first out (“FIFO”) value of inventories accounted for under the last in, first out (“LIFO”) method was $44.6$43.7 million at SeptemberDecember 27, 2020 and $43.3 million at March 29, 2020. The remainder of the inventory was valued and accounted for under the FIFO method.
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Note 9 – Goodwill and Intangible Assets

The carrying amount of goodwill was $67.7 million as of SeptemberDecember 27, 2020 and $58.4 million as of March 29, 2020, of which $44.9 million was related to our Health and Nutrition segment, $16.3 million was related to our Water Treatment segment, and $6.5 million was related to our Industrial segment. The increase in goodwill during the sixnine months ended SeptemberDecember 27, 2020 represents preliminary goodwill recorded in connection with the ADC acquisition as discussed in Note 2.

A summary of our intangible assets as of SeptemberDecember 27, 2020 and March 29, 2020 is as follows:
September 27, 2020March 29, 2020 December 27, 2020March 29, 2020
(In thousands)(In thousands)Gross
Amount
Accumulated
Amortization
NetGross 
Amount
Accumulated
Amortization
Net(In thousands)Gross
Amount
Accumulated
Amortization
NetGross 
Amount
Accumulated
Amortization
Net
Finite-life intangible assetsFinite-life intangible assetsFinite-life intangible assets
Customer relationshipsCustomer relationships$91,483 $(23,779)$67,704 $78,383 $(21,400)$56,983 Customer relationships$91,483 $(25,094)$66,389 $78,383 $(21,400)$56,983 
Trademarks and trade namesTrademarks and trade names6,150 (3,939)2,211 6,045 (3,640)2,405 Trademarks and trade names6,150 (4,123)2,027 6,045 (3,640)2,405 
Other finite-life intangible assetsOther finite-life intangible assets3,753 (3,648)105 3,648 (3,610)38 Other finite-life intangible assets3,753 (3,670)83 3,648 (3,610)38 
Total finite-life intangible assetsTotal finite-life intangible assets101,386 (31,366)70,020 88,076 (28,650)59,426 Total finite-life intangible assets101,386 (32,887)68,499 88,076 (28,650)59,426 
Indefinite-life intangible assetsIndefinite-life intangible assets1,227 — 1,227 1,227 — 1,227 Indefinite-life intangible assets1,227 — 1,227 1,227 — 1,227 
Total intangible assetsTotal intangible assets$102,613 $(31,366)$71,247 $89,303 $(28,650)$60,653 Total intangible assets$102,613 $(32,887)$69,726 $89,303 $(28,650)$60,653 

Note 10 – Debt

Debt at SeptemberDecember 27, 2020 and March 29, 2020 consisted of the following:
September 27,
2020
March 29,
2020
December 27,
2020
March 29,
2020
March 29,
2020
(In thousands)(In thousands)(In thousands)
Senior secured revolving loanSenior secured revolving loan$76,000 $60,000 Senior secured revolving loan$96,000 $60,000 
Less: unamortized debt issuance costsLess: unamortized debt issuance costs(295)(342)Less: unamortized debt issuance costs(272)(342)
Total debt, net of debt issuance costsTotal debt, net of debt issuance costs75,705 59,658 Total debt, net of debt issuance costs95,728 59,658 
Less: current portion of long-term debtLess: current portion of long-term debt(9,907)(9,907)Less: current portion of long-term debt(9,907)(9,907)
Total long-term debtTotal long-term debt$65,798 $49,751 Total long-term debt$85,821 $49,751 

Note 11 – Income Taxes

We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The tax years prior to our fiscal year ended April 3, 2016 are closed to examination by the Internal Revenue Service, and with few exceptions, state and local
income tax jurisdictions. Our effective tax rate for the sixnine months ended SeptemberDecember 27, 2020 was 26.4%26.1% and was 26.3%26.6% for the sixnine months ended SeptemberDecember 29, 2019. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

Note 12 – Leases

Lease Obligations. As of SeptemberDecember 27, 2020, we were obligated under operating lease agreements for certain manufacturing facilities, warehouse space, the land on which some of our facilities sit, vehicles and information technology equipment. Our leases have remaining lease terms of 1 year to 24 years, some of which include options to extend the lease for up to 10 years.

As of SeptemberDecember 27, 2020, our operating lease components with initial or remaining terms in excess of one year were classified on the condensed consolidated balance sheet within right of use assets, short-term lease liability and long-term lease liability.

Expense for leases less than 12 months for the sixnine months ended SeptemberDecember 27, 2020 was 0t material. Total lease expense was $0.7 million for both the three months ended SeptemberDecember 27, 2020 and SeptemberDecember 29, 2019. Total lease expense for the sixnine months ended SeptemberDecember 27, 2020 and SeptemberDecember 29, 2019 was $1.4$2.1 million and $1.5$2.2 million, respectively.






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Other information related to our operating leases was as follows:
SeptemberDecember 27, 2020
Lease Term and Discount Rate
Weighted average remaining lease term (years)8.578.45
Weighted average discount rate3.2 %


Maturities of lease liabilities as of SeptemberDecember 27, 2020 were as follows:
(In thousands)Operating Leases
Remaining fiscal 2021$1,736400 
Fiscal 20221,6981,750 
Fiscal 20231,3551,624 
Fiscal 20241,2661,270 
Fiscal 20251,2561,279 
Thereafter3,7204,337 
Total$11,03110,660 
Less: Interest(2,449)(2,366)
Present value of lease liabilities$8,5828,294 

Note 13 – Share-Based Compensation

Performance-Based Restricted Stock Units. Our Board of Directors (the “Board”) approved a performance-based equity compensation arrangement for our executive officers during the first quarters of each of fiscal 2021 and fiscal 2020. These performance-based arrangements provide for the grant of performance-based restricted stock units that represent a possible future issuance of restricted shares of our common stock based on a pre-tax income target for the applicable fiscal year. The actual number of restricted shares to be issued to each executive officer is determined when our final financial information becomes available after the applicable fiscal year and will be between 0 shares and 62,385 shares in the aggregate for fiscal 2021. The restricted shares issued, if any, will fully vest approximately two years after the last day of the fiscal year on which the performance is based. We are recording the compensation expense for the outstanding performance share units and the converted restricted stock over the life of the awards.

The following table represents the restricted stock activity for the sixnine months ended SeptemberDecember 27, 2020:
SharesWeighted-
Average Grant
Date Fair Value
Unvested at beginning of period74,515 $34.27 
Granted64,813 37.37 
Vested(5,263)31.35 
Forfeited or expired(14,505)35.83 
Unvested at end of period119,560 $35.89 

We recorded compensation expense related to performance share units and restricted stock of $0.5$0.7 million and $1.0$1.6 million for the three and sixnine months ended SeptemberDecember 27, 2020, respectively. We recorded compensation expense related to performance share units and restricted stock of $0.4$0.5 million and $0.8$1.3 million for the three and sixnine months ended SeptemberDecember 29, 2019, respectively. Substantially all of the compensation expense was recorded in selling, general and administrative expenses in the condensed consolidated statements of income.

Restricted Stock Awards. As part of their retainers, each director who is not an executive officer receives an annual grant of restricted stock for their service on our Board. The restricted stock awards are expensed over the requisite vesting period, which is generally one year from the date of issuance, based on the market value on the date of grant. As of SeptemberDecember 27, 2020, there were 5,8746,593 shares of restricted stock with aan average grant date fair value of $51.06$51.17 outstanding under this program. Compensation expense for both the three months ended SeptemberDecember 27, 2020 and SeptemberDecember 29, 2019 related to restricted stock awards to the Board was $0.1 million. Compensation expense for both the sixnine months ended SeptemberDecember 27, 2020 and SeptemberDecember 29, 2019 related to restricted stock awards to the Board was $0.2 million.


11



Note 14 – Share Repurchase Program

Our Board has authorized the repurchase of up to 800,000 shares of our outstanding common stock for cash on the open market or in privately negotiated transactions subject to applicable securities laws and regulations. Upon purchase of the shares, we reduce our common stock for the par value of the shares with the excess applied against additional paid-in capital. During the three and sixnine months ended SeptemberDecember 27, 2020, 0 shares were repurchased. During the three months ended September 29, 2019, we repurchased 44,25983,044 shares at an aggregate purchase price of $2.0$4.1 million. During the sixthree months ended SeptemberDecember 29, 2019, 0 shares were repurchased. During the nine months ended December 29, 2019, we repurchased 91,395 shares at an aggregate purchase price of $3.8 million. As of SeptemberDecember 27, 2020, 358,797275,753 shares remained available to be repurchased under the share repurchase program.

Note 15 – Litigation, Commitments and Contingencies

Litigation. 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. Legal fees associated with such matters are expensed as incurred.

Note 16 – Segment Information

We have 3 reportable segments: Industrial, Water Treatment, and Health and Nutrition. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in our Annual Report on Form 10-K for the fiscal year ended March 29, 2020.

We evaluate performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses. Reportable segments are defined primarily by product and type of customer. Segments are responsible for the sales, marketing and development of their products and services. Other than our Health and Nutrition segment, the segments do not have separate accounting, administration, customer service or purchasing functions. We allocate certain corporate expenses to our operating segments. There are no intersegment sales and 0 operating segments have been aggregated. No single customer’s revenues amounted to 10% or more of our total revenue. Sales are primarily within the United States and all assets are located within the United States.
 
(In thousands)(In thousands)IndustrialWater
Treatment
Health and NutritionTotal(In thousands)IndustrialWater
Treatment
Health and NutritionTotal
Three months ended September 27, 2020:
Three months ended December 27, 2020:Three months ended December 27, 2020:
SalesSales$61,171 $49,540 $37,090 $147,801 Sales$64,356 $39,298 $39,273 $142,927 
Gross profitGross profit10,436 14,522 7,839 32,797 Gross profit9,207 10,027 9,005 28,239 
Selling, general, and administrative expensesSelling, general, and administrative expenses6,429 5,573 4,219 16,221 Selling, general, and administrative expenses6,978 6,788 3,984 17,750 
Operating incomeOperating income4,007 8,949 3,620 16,576 Operating income2,229 3,239 5,021 10,489 
Three months ended September 29, 2019:
Three months ended December 29, 2019:Three months ended December 29, 2019:
SalesSales$68,090 $45,868 $26,085 $140,043 Sales$63,018 $34,890 $22,498 $120,406 
Gross profitGross profit10,674 12,753 4,567 27,994 Gross profit8,418 8,362 4,698 21,478 
Selling, general, and administrative expensesSelling, general, and administrative expenses5,895 5,134 3,788 14,817 Selling, general, and administrative expenses6,050 4,834 3,818 14,702 
Operating incomeOperating income4,779 7,619 779 13,177 Operating income2,368 3,528 880 6,776 
Six months ended September 27, 2020:
Nine months ended December 27, 2020:Nine months ended December 27, 2020:
SalesSales$132,673 $89,254 $69,046 $290,973 Sales$197,029 $128,552 $108,319 $433,900 
Gross profitGross profit22,893 25,861 15,019 63,773 Gross profit32,100 35,888 24,024 92,012 
Selling, general and administrative expensesSelling, general and administrative expenses12,496 10,866 7,897 31,259 Selling, general and administrative expenses19,474 17,654 11,881 49,009 
Operating incomeOperating income10,397 14,995 7,122 32,514 Operating income12,626 18,234 12,143 43,003 
Six months ended September 29, 2019:
Nine months ended December 29, 2019:Nine months ended December 29, 2019:
SalesSales$143,415 $89,120 $54,844 $287,379 Sales$206,433 $124,010 $77,342 $407,785 
Gross profitGross profit21,589 24,844 10,358 56,791 Gross profit30,007 33,206 15,056 78,269 
Selling, general and administrative expensesSelling, general and administrative expenses11,991 10,122 7,540 29,653 Selling, general and administrative expenses18,041 14,956 11,358 44,355 
Operating incomeOperating income9,598 14,722 2,818 27,138 Operating income11,966 18,250 3,698 33,914 

No significant changes to identifiable assets by segment occurred during the sixnine months ended SeptemberDecember 27, 2020.
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Note 17 – Subsequent Events

On December 30, 2020, we acquired substantially all the assets of C & L Aqua Professionals, Inc. and LC
Blending, Inc. (together, “C&L Aqua”) for $16 million under the terms of an asset purchase agreement among us, C&L Aqua and its shareholders. C&L Aqua is a water treatment chemical distribution company operating primarily in Louisiana. The results of operations and the assets, including the goodwill associated with this acquisition, will be included as part of our Water Treatment segment from the date of acquisition forward. The purchase accounting for this acquisition has not yet been completed.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and results of operations for the sixnine months ended SeptemberDecember 27, 2020 as compared to the similar period ended SeptemberDecember 29, 2019. This discussion should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included in this quarterly report on Form 10-Q and Item 8 of our Annual Report on Form 10-K for the fiscal year ended March 29, 2020.
Overview
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 chemicals and specialty ingredients, including manufacturing, blending, and repackaging certain products.

Business Acquisitionand Property Acquisitions

On December 30, 2020, after the end of our third quarter, we acquired substantially all the assets of C & L Aqua Professionals, Inc. and LC Blending, Inc. (together, “C&L Aqua”) under the terms of an asset purchase agreement among us, C&L Aqua and its shareholders. C&L Aqua is a water treatment chemical distribution company operating primarily in Louisiana. The results of operations and the assets will be included as part of our Water Treatment segment from the date of acquisition forward.

In the third quarter of fiscal 2021, we acquired a manufacturing facility to allow further expansion and growth in both our Industrial and Water Treatment segments. This site is adjacent to our facility in Rosemount, Minnesota, adding 40,000 square feet of manufacturing and warehouse space on 28 acres of land to bring us to a total of 105,000 square feet of space on 56 acres of land in the area, with rail access at both of the sites to allow for future growth and provide for supply chain flexibility on certain raw materials to better serve the customer.

On July 28, 2020, we acquired substantially all the assets of American Development Corporation of Tennessee, Inc. (“ADC”) under the terms of an asset purchase agreement withamong us, ADC and its shareholders. ADC is a water treatment chemical distribution company operating primarily in Tennessee, Georgia and Kentucky. The results of operations since the acquisition date are included in our Water Treatment segment.

The annual revenue from C&L Aqua and ADC in the twelve months prior to our acquisitions totaled approximately $25 million in the aggregate.

Statement on COVID-19

The pandemic caused by COVID-19 has resulted in federal, state and local governments around the world implementing stringent measures to help control the spread of the virus, including, from time to time, quarantines, “shelter in place” and “stay at home” orders, travel restrictions or bans, business curtailments, school closures, and other protective measures. While some areasrestrictions have eased since the stare of the country have reopened and eased theseCOVID-19 pandemic, certain restrictions some still have certain restrictionsremain in place or are implementing or contemplating new restrictions.restrictions may be implemented in the future. Restrictions will likely remain in place for some time. Financial markets have been volatile, in 2020, primarily due to uncertainty with respect to the severity and duration of the pandemic.

All of our manufacturing facilities have qualified as essential operations (or the equivalent) under applicable federal and state orders. As a result, all of our manufacturing sites and facilities have continued to operate, with no significant impact to our output levels. We are enforcing social distancing and enhanced health, safety and sanitization measures in accordance with guidelines from the Center for Disease Control. We have also implemented necessary procedures and support to enable a significant portion of our office personnel to work remotely.

During this public health crisis, we remain focused on the health and safety of our employees, customers and suppliers and maintaining safe and reliable operations of our manufacturing sites. As our operations and products are essential to critical national infrastructure, it is imperative that we continue to supply materials including the products needed to maintain safe drinking water, ingredients essential for large-scale food, pharmaceutical and other health product manufacturing and nutrition products needed to support our critical infrastructure. Our manufacturing sites have continued to operate during the COVID-19 pandemic, with no significant impact to manufacturing.

We ended the secondthird quarter of fiscal 2021 with a leverage ratio of 1.0x,1.2x, net debt of $72.8$88 million and $74$54 million available for borrowing under our Revolving Loan Facility.

The COVID-19 pandemic has created tremendous uncertainty in the economy.
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The financial impact of the COVID-19 pandemic to our company has been mixed, as sales to certain end-markets such as food, bottled bleach and health and nutrition have benefited our reporting segments, while decreased sales to other end-markets such as ethanol, pools and resorts have negatively impacted them. In addition, certain expenses, such as travel and entertainment and trade show expenses, have been lower than historical levels during fiscal 2021. As uncertainty continues with this pandemic, we expect mixed results to continue for the foreseeable future. We will continue to be cautious in our capital expenditures and investments, while still investing for the future by opening new Water Treatment branches, pursuing strategic acquisitions and making capital investments to drive higher margin business. With our current debt levels and available borrowings, we believe we are well-positioned to weather a continued economic downturn.

Financial Results

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 costs 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.

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We use the LIFO method for valuing the majority of our inventory in our Industrial and Water Treatment segments, which causes the most recent product costs for those products 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 the Health and Nutrition segment are valued using the 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.

Results of Operations
The following table sets forth the percentage relationship of certain items to sales for the period indicated:
 
Three Months EndedSix Months Ended Three Months EndedNine Months Ended
September 27, 2020September 29, 2019September 27, 2020September 29, 2019December 27, 2020December 29, 2019December 27, 2020December 29, 2019
SalesSales100.0 %100.0 %100.0 %100.0 %Sales100.0 %100.0 %100.0 %100.0 %
Cost of salesCost of sales(77.8)%(80.0)%(78.1)%(80.2)%Cost of sales(80.2)%(82.2)%(78.8)%(80.8)%
Gross profitGross profit22.2 %20.0 %21.9 %19.8 %Gross profit19.8 %17.8 %21.2 %19.2 %
Selling, general and administrative expensesSelling, general and administrative expenses(11.0)%(10.6)%(10.7)%(10.3)%Selling, general and administrative expenses(12.4)%(12.2)%(11.3)%(10.9)%
Operating incomeOperating income11.2 %9.4 %11.2 %9.5 %Operating income7.4 %5.6 %9.9 %8.3 %
Interest expense, netInterest expense, net(0.2)%(0.5)%(0.2)%(0.5)%Interest expense, net(0.3)%(0.5)%(0.3)%(0.5)%
Other incomeOther income0.2 %— %0.3 %— %Other income0.3 %0.1 %0.3 %0.1 %
Income before income taxesIncome before income taxes11.2 %8.9 %11.3 %9.0 %Income before income taxes7.4 %5.2 %9.9 %7.9 %
Income tax expenseIncome tax expense(3.0)%(2.3)%(3.0)%(2.4)%Income tax expense(1.9)%(1.5)%(2.6)%(2.1)%
Net incomeNet income8.2 %6.6 %8.3 %6.6 %Net income5.5 %3.7 %7.3 %5.8 %

Three Months Ended SeptemberDecember 27, 2020 Compared to Three Months Ended SeptemberDecember 29, 2019
Sales
Sales were $147.8$142.9 million for the current quarter, an increase of $7.8$22.5 million, or 5.5%19%, from sales of $140.0$120.4 million a year ago.
Industrial Segment. Industrial segment sales decreased $6.9increased $1.4 million, or 10.2%2%, to $61.2$64.4 million for the current quarter, as compared to $68.1$63.0 million in the same period a year ago. Sales of bulk commodity products in the Industrial segment were approximately 15%16% of sales dollars in the current quarter and 17%18% in the same period of the prior year. The decreaseincrease in sales dollars as compared tofrom the prior year was driven largely by lower overall volumes sold.a product mix shift to more sales of certain of our higher-priced manufactured, blended and repackaged products.
Water Treatment Segment. Water Treatment segment sales increased $3.6$4.4 million, or 8.0%13%, to $49.5$39.3 million for the current quarter, as compared to $45.9$34.9 million in the same period a year ago. Sales of bulk commodity products in the Water Treatment segment were approximately 9%10% of sales dollars forin the current quarter and 11%12% in the same period a year ago.of the prior year. The increase in sales dollars from the prior year was largely attributable to added sales from the acquisition of ADC. Sales by our legacy business also increased overall due to increased sales of our manufactured, blended and repackaged products.
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Health & Nutrition Segment. Sales for our Health and Nutrition segment sales increased $11.0$16.8 million, or 42.2%75%, to $37.1$39.3 million for the current quarter, as compared to $26.1$22.5 million in the same period a year ago. The increase in sales was driven by increased sales of both our manufactured and specialty distributed products largely as a result of increased consumer demand for health and immunity products.

Gross Profit
Gross profit increased $4.8 million to $32.8$6.7 million, or 22.2%31%, to $28.2 million, or 20% of sales, for the current quarter, from $28.0$21.5 million, or 20.0%18% of sales, for the same period a year ago. During the current quarter, the LIFO reserve decreased,increased, and gross profits increased,decreased, by $0.2$0.1 million. In the same quarter a year ago, the LIFO reserve decreased, and gross profits increased, by $0.3 million.
Industrial Segment. Gross profit for the Industrial segment decreased $0.3 million to $10.4increased $0.8 million, or 17.0%9%, to $9.2 million, or 14% of sales, for the current quarter, from $10.7$8.4 million, or 15.7%13% of sales, in the same period of the prior year. During the current quarter, the change in the LIFO reserve decreased, andhad a nominal impact on gross profits increased, by $0.2 million.profit. In the same quarter a year ago, the LIFO reserve decreased, and gross profits increased, by $0.3$0.2 million. Total gross profit, and gross profit as a percentage of sales, decreased slightly due to the overall reduction in sales.a product mix shift to more sales of certain higher-margin manufactured, blended and repackaged products.
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Water Treatment Segment. Gross profit for the Water Treatment segment increased $1.8 million to $14.5$1.6 million, or 29.3%20%, to $10.0 million, or 26% of sales, for the current quarter, from $12.8$8.4 million, or 27.8%24% of sales, in the same period of the prior year. During the current and prior year quarters, the change in the LIFO reserve had a nominal impact on gross profit. Gross profit increased as a result of the added gross profit from the acquisition ofsales in the acquired ADC business, as well as the increased sales of manufactured, blended and repackaged products in our legacy business. Gross profit as a percentage of sales increased as a result of product mix changes.
Health and Nutrition Segment. Gross profit for our Health and Nutrition segment increased $3.2 million to $7.8$4.3 million, or 21.1%92%, to $9.0 million, or 23% of sales, for the current quarter, from $4.6$4.7 million, or 17.5%21% of sales, for the same period of the prior year. The increase in gross profit was primarily a result of higher sales compared to the prior year. Gross profit as a percentage of sales increased as a result of product mix changes.
Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses were $16.2increased $3.1 million to $17.8 million, or 11.0%12% of sales, for the current quarter, compared to $14.8from $14.7 million, or 10.6%12% of sales, for the same period of the prior year. Expenses increased in partprimarily due to increasedan increase in variable pay and thecosts, primarily variable compensation, added costs due tofrom the acquired ADC acquisition,business, including $0.2 million expense for amortization of intangibles, as well as an unfavorable adjustmentand acquisition expenses. In addition, we recorded a year-over-year expense increase of $0.3 million due to higher compensation expense related to our non-qualified deferred compensation plan, which expense is offset in other income. As a percentage of sales, SG&A was relatively flat year over year when adjusted for the expense relatedrelating to the non-qualified deferred compensation plan liability which is offset in other income as described below. These increases were partially offset by a decrease in travel and the amortizationtrade show expenses due to restrictions imposed as a result of the intangibles related to ADC.COVID-19.
Operating Income
Operating income increased $3.4 million to $16.6$3.7 million, or 11.2%55%, to $10.5 million, or 7% of sales, for the current quarter, from $13.2$6.8 million, or 9.4%6% of sales, for the same period of the prior year due to the combined impact of the factors discussed above.
Interest Expense, Net
Interest expense was $0.3$0.4 million for the current quarter, a decrease of $0.4$0.2 million from interest expense of $0.7$0.6 million for the same period a year ago. Interest expense decreased due to lower outstanding borrowings and lower borrowing rates compared to the prior year.
Other Income
Other income increased $0.3$0.4 million from the same period a year ago, with $0.3$0.5 million recorded in the current quarter, compared to a nominal amountfrom $0.1 million in the same quarter a year ago.period of the prior year. This amount represents gains recorded on investments held for our non-qualified deferred compensation plan. The amount recorded as a gain iswas offset by a similar amount recorded as an increase to compensation expense within SG&A expenses.
Income Tax Provision

Our effective income tax rate was 26.4%25.2% for the current quarter, compared to 26.2%28.1% in the same period of the prior year. The effective tax rate decreased from the prior year due to favorable tax provision adjustments recorded in the third quarter of fiscal 2021. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.
Six
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Nine Months Ended SeptemberDecember 27, 2020 Compared to SixNine Months Ended SeptemberDecember 29, 2019
Sales
Sales were $291.0$433.9 million for the sixnine months ended SeptemberDecember 27, 2020, an increase of $3.6$26.1 million, or 1.3%6%, from sales of $287.4$407.8 million for the same period a year ago.
Industrial Segment. Industrial segment sales decreased $10.7$9.4 million, or 7.5%5%, to $132.7$197.0 million for the sixnine months ended SeptemberDecember 27, 2020, as compared to $143.4$206.4 million for the same period a year ago. Sales of bulk commodity products in the Industrial segment were approximately 14% of sales dollars in the current year and 19%18% in the same period of the prior year. The decrease in sales dollars from the prior year was driven largely by weakened economic conditions in the ethanol industry, which decreased sales of products into that industry.industry in the first half of the year. In addition, the decrease in sales dollars fromwhen compared to the prior year was partially attributable to a temporary increasetemporarily higher sales in sales inthe first quarter of the prior year attributable to heavy rains and flooding along the Mississippi River, which increased demand from certain customers. These year-over-year sales decreases were partially offset by increased sales of certain of our manufacturing, blended and repackaged products, largely our food ingredient, pharmaceutical, and bleach products as a result of increased demand due to COVID-19.demand.
Water Treatment Segment. Water Treatment segment sales increased $0.2$4.5 million, or 0.2%4%, to $89.3$128.6 million for the sixnine months ended SeptemberDecember 27, 2020, as compared to $89.1$124.0 million for the same period a year ago. Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in the current year and 11% a year ago. The increase in sales dollars resulted primarily from the added sales from the acquisition of ADC and was largely offset by a first quarter sales decline due to reduced sales to certain end markets, primarily public pools, as a result of COVID-19.shutdowns due to the COVID-19 pandemic.
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Health & Nutrition Segment. Sales for our Health and Nutrition segment sales increased $14.2$31.0 million, or 25.9%40%, to $69.0$108.3 million for the sixnine months ended SeptemberDecember 27, 2020, as compared to $54.8$77.3 million for the same period a year ago. The increase in sales was driven by increased sales of both our manufactured and specialty distributed products largely as a result of increased consumer demand for health and immunity products.
Gross Profit
Gross profit increased $7.0 million to $63.8$13.7 million, or 21.9%18%, to $92.0 million, or 21% of sales, for the sixnine months ended SeptemberDecember 27, 2020, from $56.8$78.3 million, or 19.8%19% of sales, for the same period a year ago. During the current year, the LIFO reserve decreased, and gross profits increased, by $0.1 million. In the same period a year ago, the LIFO reserve decreased, and gross profits increased, by $0.3$0.6 million.
Industrial Segment. Gross profit for the Industrial segment increased $1.3 million to $22.9$2.1 million, or 17.3%7%, to $32.1 million, or 16% of sales, for the sixnine months ended SeptemberDecember 27, 2020, from $21.6$30.0 million, or 15.1%15% of sales, for the same period a year ago. During the current year, the LIFO reserve decreased, and gross profits increased, by $0.1 million. In the same period a year ago, the LIFO reserve decreased, and gross profits increased, by $0.3$0.5 million. GrossTotal gross profit, and gross profit as a percentage of sales, increased due to strong first quartera product mix shift to more sales of certainhigher-margin manufactured, blended and re-packaged products, largely our bleach products as a result of increased demand due to COVID-19.products.
Water Treatment Segment. Gross profit for the Water Treatment segment increased $1.1 million to $25.9$2.7 million, or 29.0%8%, to $35.9 million, or 28% of sales, for the sixnine months ended SeptemberDecember 27, 2020, from $24.8$33.2 million, or 27.8%27% of sales, for the same period a year ago. During the current and prior year, periods,changes in the LIFO reserve had a nominal impact on gross profit.profits. In the same period a year ago, the LIFO reserve decreased, and gross profits increased by $0.1 million. Gross profit increased primarily as a result of the added salesgross profit from the acquisitionsales in the acquired ADC business, as well as a product mix shift in our legacy business to more sales of ADC.manufactured, blended and repackaged products. Gross profit as a percentage of sales increased as a result of product mix changes.
Health and Nutrition Segment. Gross profit for our Health and Nutrition segment increased $4.6 million to $15.0$8.9 million, or 21.8%60%, to $24.0 million, or 22% of sales, for the sixnine months ended SeptemberDecember 27, 2020, from $10.4$15.1 million, or 18.9%20% of sales, for the same priorperiod a year period.ago. The increase in gross profit was primarily a result of higher sales compared to the prior year. Gross profit as a percentage of sales increased as a result of product mix changes.
Selling, General and Administrative Expenses

SG&A expenses were $31.3increased $4.6 million, or 10.7%11% to $49.0 million, or 11% of sales, for the sixnine months ended SeptemberDecember 27, 2020, compared to $29.7$44.4 million, or 10.3%11% of sales, for the same prior year period. Expenses increased in partprimarily due to increasedan increase in variable pay, thecosts, primarily variable compensation, added costs due tofrom the acquired ADC acquisition,business, including $0.2 million expense for amortization of intangibles, as well as an unfavorable adjustmentand acquisition expenses. In addition, we recorded a year-over-year expense increase of $1.0 million due to higher compensation expense related to our non-qualified deferred compensation plan, which expense is offset in other income. As a percentage of sales, SG&A was relatively flat year over year when adjusted for the expense relatedrelating to the non-qualified deferred compensation plan liability which is offset in other income as described below. These increases were partially offset by a decrease in travel and the amortizationtrade show expenses due to restrictions imposed as a result of the intangibles related to ADC.COVID-19.
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Operating Income
Operating income increased $5.4 million to $32.5$9.1 million, or 11.2%27%, to $43.0 million, or 10% of sales, for the sixnine months ended SeptemberDecember 27, 2020, from $27.1$33.9 million, or 9.5%8% of sales, for the same prior year period due to the combined impact of the factors discussed above.
Interest Expense, Net
Interest expense was $0.7decreased $0.9 million, to $1.1 million for the sixnine months ended SeptemberDecember 27, 2020,, a decrease of $0.7 million from interest expense of $1.4$2.0 million for the same period a year ago. Interest expense decreased due to lower outstanding borrowings and lower borrowing rates compared to the prior year.
Other Income
Other income increased $0.7$1.0 million, fromto $1.3 million for the same period a year ago, with $0.8 million of expense recorded in the sixnine months ended SeptemberDecember 27, 2020, compared to $0.1from $0.3 million in the same period a year ago. This represents gains recorded on investments held for our non-qualified deferred compensation plan. The amount recorded as a gain iswas offset by a similar amount recorded as an increase to compensation expense within SG&A expenses.

Income Tax Provision

Our effective income tax rate for the sixnine months ended SeptemberDecember 27, 2020 was 26.4%26.1%, compared to 26.3%26.6% in the same period of the prior year. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

Liquidity and Capital Resources
Cash was $3.2$8.0 million at SeptemberDecember 27, 2020, a decreasean increase of $1.1$3.7 million as compared with the $4.3 million available as of March 29, 2020.
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Cash provided by operating activities was $20.1$26.6 million for the sixnine months ended SeptemberDecember 27, 2020, compared to cash provided by operating activities of $27.1$45.0 million for the same period of the prior year. The year-over-year decrease in cash provided by operating activities was primarily driven by an increaseincreases in inventory and customer receivables, offset by an increase in net income for the first sixnine months of fiscal 2021 compared to the same period a year ago. Increased customer demand in our Health and Nutrition segment resulted in a significant increase in on-hand inventory due to requiredincreased 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, timing of purchases can result in significant changes in working capital investment and the resulting operating cash flow. Typically, our cash requirements increase during the period from April through November as caustic soda inventory levels increase because we receive the majority of barges during this period.
Cash used in investing activities was $33.0$48.1 million for the sixnine months ended SeptemberDecember 27, 2020, compared to $13.9$19.1 million for the same period of the prior year. In the sixnine months ended SeptemberDecember 27, 2020, we acquired ADC for $25 million. Capital expenditures were $8.1$13.2 million for the sixnine months ended SeptemberDecember 27, 2020, compared to $14.1$19.4 million in the same period of the prior year. In the first sixnine months of the priorcurrent year, we purchased a manufacturing facility on 28 acres to allow further expansion and growth in both our Industrial and Water Treatment segments for $10 million, compared to the purchases of our previously leased corporate headquarters facility for $6.4 million.million and a Water Treatment facility for $0.8 million in the first nine months of the prior year.

Cash provided by financing activities was $11.8$25.1 million for the sixnine months ended SeptemberDecember 27, 2020, compared to $18.4$27.8 million of cash used in financing activities in the same period of the prior year. Included in financing activities in the first sixnine months of the current year were net debt proceeds of $16.0$36.0 million used in part for the acquisition of ADC, compared to net debt repayments of $10$17 million in the first sixnine months of the prior year. In addition, we repurchased no$4.1 million of shares of our common stock in the first sixnine months of the current fiscal year, compared to $3.8 million in the same period in the prior year.

We expect our cash balances and funds available under our credit facility, discussed below, along with cash flows generated from operations, will be sufficient to fund the cash requirements of our ongoing operations for the foreseeable future.

Our Board has authorized the repurchase of up to 800,000 shares of our outstanding common stock. The shares may be purchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations. The primary objective of the share repurchase program is to offset the impact of dilution from issuances relating to employee and director equity grants and our employee stock purchase program. During the first sixnine months of fiscal 2021, we did not repurchase anyrepurchased 83,044 shares of common stock.stock with an aggregate purchase price of $4.1 million. In the first sixnine months of the
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prior fiscal year, we repurchased 91,395 shares of common stock with an aggregate purchase price of $3.8 million. As of SeptemberDecember 27, 2020, 358,797275,753 shares remained available for purchase under the program

We are party to an amended and restated credit agreement (the “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 “Lenders”), whereby U.S. Bank is also serving as Administrative Agent. The Credit Agreement provides us with senior secured revolving credit facilities (the “Revolving Loan Facility”) totaling $150.0 million. The Revolving Loan Facility includes a $5.0 million letter of credit subfacility and $15.0 million swingline subfacility. The Revolving Loan Facility has a five-year maturity date, maturing on November 30, 2023. The Revolving Loan Facility is secured by substantially all of our personal property assets and those of our subsidiaries.

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 sixnine 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% - 1.35%, depending on our leverage ratio. The base rate margin is between 0.00% - 0.35%, depending on our leverage ratio. In the event that the ICE Benchmark Administration (or any person that takes over administration of such rate) determines that LIBOR is no longer available, including as a result of the intended phase out of LIBOR by the end of 2021, our Revolving Loan Facility provides for an alternative rate of interest to be jointly determined by us and U.S. Bank, as administrative agent, that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States. Once such successor rate has been approved by us and U.S. Bank, the Revolving Credit Loan Facility would be amended to use such successor rate without any further action or consent of any other lender, so long as the administrative agent does not receive any objection from any other lender. At SeptemberDecember 27, 2020, the effective interest rate on our borrowings was 1.3%1.4%.

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% - 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 SeptemberDecember 27, 2020, the unamortized balance of these costs was $0.3 million, and is reflected as a reduction of debt on our balance sheet.
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The Credit Agreement requires us to maintain (a) a minimum fixed charge coverage ratio of 1.15 to 1.00 and (b) a maximum total cash flow leverage ratio of 3.0 to 1.0. The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict our ability to incur additional indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions, grant liens on our assets or rate management transactions, subject to certain limitations. We are permitted to make distributions, pay dividends and repurchase shares so long as no default or event of default exists or would exist as a result thereof. We were in compliance with all covenants of the Credit Agreement as of SeptemberDecember 27, 2020.

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 Revolving Loan 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.

Critical Accounting Estimates
There were no material changes in our critical accounting estimates since the filing of our Annual Report on Form 10-K for the fiscal year ended March 29, 2020.
Forward-Looking Statements
The information presented in this Quarterly Report on Form 10-Q 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.
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Words such as “anticipate,” “believe,” “estimate,”, “expect,” “intend,” “plan,” “will” and similar expressions to 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. Additional information concerning potential factors that could affect future financial results is included in our Annual Report on Form 10-K for the fiscal year ended March 29, 2020. 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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
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ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to the risk inherent in the cyclical nature of commodity chemical prices. However, we do not currently purchase forward contracts or otherwise engage in hedging activities with respect to the purchase of commodity chemicals. We attempt to pass changes in the cost of our materials to our customers. However, there are no assurances that we will be able to pass on the increases in the future.

We are exposed to market risks related to interest rates. Our exposure to changes in interest rates is limited to borrowings under our Revolving Loan Facility. A 25-basis point change in interest rates would potentially increase or decrease our annual interest expense by approximately $0.1 million. We have in place an interest rate swap that converts a portion of our variable-rate debt into a fixed-rate obligation. The swap agreement began September 1, 2017 and will end on December 23, 2020. The notional amount of the swap agreement is currently $20 million through its end date. We have designated this swap as a cash flow hedge and have determined that it qualifies for hedge accounting treatment. Changes in fair value of the cash flow hedge are recorded in other comprehensive loss (net of tax) until income or loss from the cash flows of the hedged item is realized.

Other types of market risk, such as foreign currency risk, do not arise in the normal course of our business activities.

ITEM ITEM��4.        CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of SeptemberDecember 27, 2020. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control
There was no change in our internal control over financial reporting during the secondthird quarter of fiscal 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
 
ITEM 1.        LEGAL PROCEEDINGS
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.
 
ITEM 1A.    RISK FACTORS
There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended March 29, 2020.

ITEM 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

As previously announced, our Board has authorized the repurchase of up to 800,000 shares of our outstanding common stock. The shares may be purchased 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 stock for the three months ended SeptemberDecember 27, 2020:

PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of a Publicly Announced Plan or ProgramMaximum Number of Shares that May Yet be Purchased under Plans or Programs
06/29/2020-07/26/2020— $— — 358,797 
07/27/2020-08/23/2020— — — 358,797 
08/24/2020-09/27/2020— — — 358,797 
         Total— — 
PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of a Publicly Announced Plan or ProgramMaximum Number of Shares that May Yet be Purchased under Plans or Programs
09/28/2020-10/25/2020— $— — 358,797 
10/26/2020-11/22/202083,044 49.89 83,044 275,753 
11/23/2020-12/27/2020— — — 275,753 
         Total83,044 83,044 


ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.        MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5.        OTHER INFORMATION

None.

2022


ITEM 6.        EXHIBITS

ExhibitDescriptionMethod of Filing
3.1 Incorporated by Reference
3.2 Incorporated by Reference
10.11 Filed Electronically
31.1 Filed Electronically
31.2 Filed Electronically
32.1 Filed Electronically
32.2 Filed Electronically
101 Financial statements from the Quarterly Report on Form 10-Q of Hawkins, Inc. for the period ended SeptemberDecember 27, 2020 filed with the SEC on October 21, 2020January 28, 2021 formatted in Inline Extensible Business Reporting Language (iXBRL); (i) the Condensed Consolidated Balance Sheets at SeptemberDecember 27, 2020 and March 29, 2020, (ii) the Condensed Consolidated Statements of Income for the three and sixnine months ended SeptemberDecember 27, 2020 and SeptemberDecember 29, 2019, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and sixnine months ended SeptemberDecember 27, 2020 and SeptemberDecember 29, 2019, (iv) the Condensed Consolidated Statements of Shareholder's Equity for the three and sixnine months ended SeptemberDecember 27, 2020 and SeptemberDecember 29, 2019, (v) the Condensed Consolidated Statements of Cash Flows for the sixnine months ended SeptemberDecember 27, 2020 and SeptemberDecember 29, 2019, and (vi) Notes to Condensed Consolidated Financial Statements.Filed Electronically
104 Cover Page Interactive Data File (embedded within the inline XBRL document)Filed Electronically


(1)Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed on July 29, 2010 (File no. 000-07647).
(2)Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated October 28, 2009 and filed November 3, 2009 (File no. 000-07647).

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
HAWKINS, INC.
By: /s/ Jeffrey P. Oldenkamp
 Jeffrey P. Oldenkamp
 Executive Vice President and Chief Financial Officer and Treasurer
 (On behalf of the registrant and as principal financial and accounting officer)
Dated: October 21, 2020January 28, 2021