HAWKINS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS HAWKINS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data) June 28, 2020 March 29, 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,510 $ 4,277 Trade receivables — less allowance for doubtful accounts: $530 as of June 28, 2020 and $784 as of March 29, 2020 69,453 67,391 Inventories 63,389 54,436 Prepaid expenses and other current assets 3,053 4,927 Total current assets 140,405 131,031 PROPERTY, PLANT, AND EQUIPMENT: 271,990 267,221 Less accumulated depreciation 144,929 140,877 Net property, plant, and equipment 127,061 126,344 OTHER ASSETS: Right-of-use assets 8,755 9,090 Goodwill 58,440 58,440 Intangible assets, net 59,384 60,653 Other 5,417 3,770 Total other assets 131,996 131,953 Total assets $ 399,462 $ 389,328 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable — trade $ 31,069 $ 34,129 Accrued payroll and employee benefits 6,827 13,538 Income tax payable 4,323 59 Current portion of long-term debt 9,907 9,907 Short-term lease liability 1,493 1,523 Container deposits 1,408 1,376 Other current liabilities 1,654 1,688 Total current liabilities 56,681 62,220 LONG-TERM DEBT, LESS CURRENT PORTION 55,775 49,751 LONG-TERM LEASE LIABILITY 7,306 7,649 PENSION WITHDRAWAL LIABILITY 4,892 4,978 DEFERRED INCOME TAXES 25,102 25,106 OTHER LONG-TERM LIABILITIES 6,277 6,140 Total liabilities 156,033 155,844 COMMITMENTS AND CONTINGENCIES — — SHAREHOLDERS’ EQUITY: Common stock; authorized: 30,000,000 shares of $0.05 par value; 10,515,835 and 10,512,229 shares issued and outstanding as of June 28, 2020 and March 29, 2020, respectively 526 526 Additional paid-in capital 50,736 50,090 Retained earnings 192,256 182,947 Accumulated other comprehensive loss ( 89 ) ( 79 ) Total shareholders’ equity 243,429 233,484 Total liabilities and shareholders’ equity $ 399,462 $ 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 Ended June 28, 2020 June 30, 2019 Sales $ 143,172 $ 147,336 Cost of sales ( 112,196 ) ( 118,539 ) Gross profit 30,976 28,797 Selling, general and administrative expenses ( 15,038 ) ( 14,836 ) Operating income 15,938 13,961 Interest expense, net ( 380 ) ( 763 ) Other income 477 117 Income before income taxes 16,035 13,315 Income tax expense ( 4,247 ) ( 3,508 ) Net income $ 11,788 $ 9,807 Weighted average number of shares outstanding - basic 10,515,728 10,604,306 Weighted average number of shares outstanding - diluted 10,642,673 10,665,709 Basic earnings per share $ 1.12 $ 0.92 Diluted earnings per share $ 1.11 $ 0.92 Cash dividends declared per common share $ 0.2325 $ 0.2300 See accompanying notes to condensed consolidated financial statements. 2 HAWKINS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (In thousands) Three Months Ended June 28, 2020 June 30, 2019 Net income $ 11,788 $ 9,807 Other comprehensive loss, net of tax: Unrealized loss on interest rate swap ( 10 ) ( 179 ) Total comprehensive income $ 11,778 $ 9,628 See accompanying notes to condensed consolidated financial statements. 3 HAWKINS, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands, except share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount BALANCE — March 29, 2020 10,512,229 $ 526 $ 50,090 $ 182,947 $ ( 79 ) $ 233,484 Cash dividends declared and paid ( 2,479 ) ( 2,479 ) Share-based compensation expense 700 700 Vesting of restricted stock 5,263 — — — Shares surrendered for payroll taxes ( 1,657 ) — ( 54 ) ( 54 ) Other comprehensive loss, net of tax ( 10 ) ( 10 ) Net income 11,788 11,788 BALANCE — June 28, 2020 10,515,835 $ 526 $ 50,736 $ 192,256 $ ( 89 ) $ 243,429 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount BALANCE — March 31, 2019 10,592,450 $ 530 $ 52,609 $ 164,405 $ 317 $ 217,861 Cash dividends declared and paid ( 2,460 ) ( 2,460 ) Share-based compensation expense 509 509 Vesting of restricted stock 27,620 1 ( 1 ) — Shares surrendered for payroll taxes ( 9,160 ) ( 1 ) ( 342 ) ( 343 ) Shares repurchased ( 47,136 ) ( 2 ) ( 1,801 ) ( 1,803 ) Other comprehensive loss, net of tax ( 179 ) ( 179 ) Net income 9,807 9,807 BALANCE — June 30, 2019 10,563,774 $ 528 $ 50,974 $ 171,752 $ 138 $ 223,392 See accompanying notes to condensed consolidated financial statements. 4 HAWKINS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Three Months Ended June 28, 2020 June 30, 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,788 $ 9,807 Reconciliation to cash flows: Depreciation and amortization 5,484 5,353 Operating leases 493 515 Gain on deferred compensation assets ( 477 ) ( 117 ) Stock compensation expense 700 509 Other 22 29 Changes in operating accounts providing (using) cash: Trade receivables ( 1,992 ) ( 5,044 ) Inventories ( 8,952 ) 1,789 Accounts payable ( 2,354 ) 2,742 Accrued liabilities ( 6,689 ) ( 7,667 ) Lease liabilities ( 513 ) ( 623 ) Income taxes 4,263 3,510 Other ( 220 ) ( 693 ) Net cash provided by operating activities 1,553 10,110 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant, and equipment ( 4,848 ) ( 9,159 ) Other 61 63 Net cash used in investing activities ( 4,787 ) ( 9,096 ) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends declared and paid ( 2,479 ) ( 2,460 ) Shares surrendered for payroll taxes ( 54 ) ( 343 ) Shares repurchased — ( 1,803 ) Net proceeds from revolver borrowings 6,000 — Net cash provided by (used in) financing activities 3,467 ( 4,606 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 233 ( 3,592 ) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,277 9,199 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,510 $ 5,607 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 288 $ 756 Noncash investing activities - capital expenditures in accounts payable $ 334 $ 410 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 three months ended June 28, 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 - 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. 6 The following tables disaggregate external customer net sales by major revenue stream for the three months ended June 28, 2020 and June 30, 2019: Three months ended June 28, 2020 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 8,824 $ 3,875 $ 25,945 $ 38,644 Manufactured, blended or repackaged products (2) 61,842 35,506 6,098 103,446 Other 836 333 ( 87 ) 1,082 Total external customer sales $ 71,502 $ 39,714 $ 31,956 $ 143,172 Three months ended June 30, 2019 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 15,013 $ 4,708 $ 24,605 $ 44,326 Manufactured, blended or repackaged products (2) 59,471 38,150 4,144 101,765 Other 841 394 10 1,245 Total external customer sales $ 75,325 $ 43,252 $ 28,759 $ 147,336 (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 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 3 – 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. 7 Basic and diluted EPS were calculated using the following: Three Months Ended June 28, 2020 June 30, 2019 Weighted-average common shares outstanding—basic 10,515,728 10,604,306 Dilutive impact of performance units and restricted stock 126,945 61,403 Weighted-average common shares outstanding—diluted 10,642,673 10,665,709 For each of the periods presented, there were no shares excluded from the calculation of weighted-average common shares for diluted EPS. Note 4 – Derivative Instruments We have 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 notional amount on which the interest payments are calculated. The $ 20 million swap agreement will terminate on December 23, 2020. We have designated this swap as a cash flow hedge and have determined that it qualifies for hedge accounting treatment. For so long as the hedge is effective, changes in fair value of the cash flow hedge are recorded in other comprehensive income (net of tax) until income or loss from the cash flows of the hedged item is realized. For the three months ended June 28, 2020, we recorded a nominal amount in other comprehensive loss related to unrealized losses (net of tax) on the cash flow hedge described above. For the three months ended June 30, 2019, we recorded $ 0.2 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 June 28, 2020 and March 29, 2020. Unrealized gains 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. 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. Note 5 – 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 June 28, 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 is classified as other current liabilities on our balance sheet. The fair value of the interest rate swap is 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 8 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 June 28, 2020 and March 29, 2020. 0 (In thousands) June 28, 2020 March 29, 2020 Assets Deferred compensation plan assets Level 1 $ 5,279 $ 3,564 Liabilities Interest rate swap Level 2 $ 122 $ 108 Note 6– Assets Held for Sale In the first quarter of fiscal 2021, management determined that an office building that was previously held for sale no 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 7 – Inventories Inventories at June 28, 2020 and March 29, 2020 consisted of the following: June 28, 2020 March 29, 2020 (In thousands) Inventory (FIFO basis) $ 69,116 $ 60,090 LIFO reserve ( 5,727 ) ( 5,654 ) Net inventory $ 63,389 $ 54,436 The first in, first out (“FIFO”) value of inventories accounted for under the last in, first out (“LIFO”) method was $ 46.7 million at June 28, 2020 and $ 43.3 million at March 29, 2020. The remainder of the inventory was valued and accounted for under the FIFO method. Note 8 – Goodwill and Intangible Assets The carrying amount of goodwill was $ 58.4 million as of June 28, 2020 and March 29, 2020, of which $ 44.9 million was related to our Health and Nutrition segment, $ 7.0 million was related to our Water Treatment segment, and $ 6.5 million was related to our Industrial segment. A summary of our intangible assets as of June 28, 2020 and March 29, 2020 is as follows: June 28, 2020 March 29, 2020 (In thousands) Gross Amount Accumulated Amortization Net Gross Amount Accumulated Amortization Net Finite-life intangible assets Customer relationships $ 78,383 $ ( 22,523 ) $ 55,860 $ 78,383 $ ( 21,400 ) $ 56,983 Trademarks and trade names 6,045 ( 3,772 ) 2,273 6,045 ( 3,640 ) 2,405 Other finite-life intangible assets 3,648 ( 3,624 ) 24 3,648 ( 3,610 ) 38 Total finite-life intangible assets 88,076 ( 29,919 ) 58,157 88,076 ( 28,650 ) 59,426 Indefinite-life intangible assets 1,227 — 1,227 1,227 — 1,227 Total intangible assets $ 89,303 $ ( 29,919 ) $ 59,384 $ 89,303 $ ( 28,650 ) $ 60,653 9 Note 9 – Debt Debt at June 28, 2020 and March 29, 2020 consisted of the following: June 28, 2020 March 29, 2020 (In thousands) Senior secured revolving loan $ 66,000 $ 60,000 Less: unamortized debt issuance costs ( 318 ) ( 342 ) Total debt, net of debt issuance costs 65,682 59,658 Less: current portion of long-term debt ( 9,907 ) ( 9,907 ) Total long-term debt $ 55,775 $ 49,751 Note 10 – 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 three months ended June 28, 2020 was 26.5 % and was 26.3 % for the three months ended June 30, 2019. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes. Note 11 – Leases Lease Obligations. As of June 28, 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 June 28, 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 three months ended June 28, 2020 was no t material. Total lease expense was $ 0.7 million for the three months ended June 28, 2020 and June 30, 2019. Other information related to our operating leases was as follows: June 28, 2020 Lease Term and Discount Rate Weighted average remaining lease term (years) 8.67 Weighted average discount rate 4.0 % Maturities of lease liabilities as of June 28, 2020 were as follows: (In thousands) Operating Leases Remaining fiscal 2021 $ 1,727 Fiscal 2022 1,547 Fiscal 2023 1,297 Fiscal 2024 1,119 Fiscal 2025 1,126 Thereafter 3,838 Total $ 10,654 Less: Interest ( 1,855 ) Present value of lease liabilities $ 8,799 10 Note 12 – 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 zero 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 three months ended June 28, 2020: Shares Weighted- Average Grant Date Fair Value Unvested at beginning of period 74,515 $ 34.27 Granted 64,813 37.37 Vested ( 5,263 ) 31.35 Unvested at end of period 134,065 $ 35.88 We recorded compensation expense related to performance share units and restricted stock of $ 0.5 million for the three months ended June 28, 2020 and $ 0.3 million the three months ended June 30, 2019. 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 one year from the date of issuance, based on the market value on the date of grant. As of June 28, 2020, there were 8,008 shares of restricted stock with a grant date fair value of $ 43.67 outstanding under this program. Compensation expense for both the three months ended June 28, 2020 and June 30, 2019 related to restricted stock awards to the Board was $ 0.1 million. Note 13 – 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 months ended June 28, 2020, no shares were repurchased. During the three months ended June 30, 2019, we repurchased 47,136 shares at an aggregate purchase price of $ 1.8 million. As of June 28, 2020, 358,797 shares remained available to be repurchased under the share repurchase program. Note 14 – 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. Environmental Remediation. During fiscal 2018, we recorded a liability of $ 0.6 million related to estimated remediation expenses associated with existing trichloroethylene contamination at our Minneapolis facility. The liability was decreased to $ 0.1 million as of June 28, 2020 and March 29, 2020, to reflect payments made and management’s revised expectations related to the cost of this environmental remediation. The liability is not discounted as management expects to incur these expenses within the next twelve months. Given the many uncertainties involved in assessing environmental claims, our reserves may prove to be insufficient. While it is possible that additional expenses related to remediation will be incurred in future periods if currently unknown issues arise, we are unable to estimate the extent of any further financial impact. Note 15 – Segment Information We have three 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 . 11 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 no 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) Industrial Water Treatment Health and Nutrition Total Three months ended June 28, 2020: Sales $ 71,502 $ 39,714 $ 31,956 $ 143,172 Gross profit 12,457 11,339 7,180 30,976 Selling, general, and administrative expenses 6,067 5,293 3,678 15,038 Operating income 6,390 6,046 3,502 15,938 Three months ended June 30, 2019: Sales $ 75,325 $ 43,252 $ 28,759 $ 147,336 Gross profit 10,915 12,091 5,791 28,797 Selling, general, and administrative expenses 6,096 4,988 3,752 14,836 Operating income 4,819 7,103 2,039 13,961 No significant changes to identifiable assets by segment occurred during the three months ended June 28, 2020. Note 16 – Subsequent Events On July 28, 2020, we acquired substantially all the assets of American Development Corporation of Tennessee, Inc. (“ADC”) for $ 25 million under the terms of an asset purchase agreement among us, ADC and the ADC shareholders. ADC is a water treatment chemical distribution company focused largely in Tennessee, Georgia and Kentucky. 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. 12