What changed in this filing

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Item 1. Financial Statements

2020-10-21 compared with 2020-07-31 · 133 added, 62 removed, 338 unchanged (37% of the section changed)

3 unchanged sentences

(In thousands, except share data)

September 27,

2020 March 29,

2 unchanged sentences

Trade receivables — less allowance for doubtful accounts:

$530 as of June 28, 2020 and $784 as of March 29, 2020 69,453 67,391

$ 552 as of September 27, 2020 and $ 784 as of March 29, 2020

74,492 67,391

Inventories 63,194 54,436

8 unchanged sentences

Goodwill 67,692 58,440

Intangible assets, net 59,384 60,653

Intangible assets, net of accumulated amortization 71,247 60,653

Other 5,581 3,770

21 unchanged sentences

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

10,545,203 and 10,512,229 shares issued and outstanding as of September 27, 2020 and March 29, 2020, respectively

Additional paid-in capital 52,194 50,090

7 unchanged sentences

(In thousands, except share and per-share data)

Three Months Ended

2020 June 30,

Three Months Ended Six Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Sales $ 147,801 $ 140,043 $ 290,973 $ 287,379

17 unchanged sentences

(In thousands)

Three Months Ended

2020 June 30,

Three Months Ended Six Months Ended

September 27,

2020 September 29,

2019 September 27,

2020 September 29,

Net income $ 12,190 $ 9,250 $ 23,978 $ 19,057

Other comprehensive loss, net of tax:

Unrealized loss on interest rate swap ( 10 ) ( 179 )

Unrealized gain (loss) on interest rate swap 39 ( 69 ) 29 ( 248 )

Total comprehensive income $ 12,229 $ 9,181 $ 24,007 $ 18,809

16 unchanged sentences

BALANCE — June 28, 2020 10,515,835 $ 526 $ 50,736 $ 192,256 $ ( 89 ) $ 243,429

Cash dividends declared and paid ( 2,480 ) ( 2,480 )

Share-based compensation expense 686 686

Vesting of restricted stock 8,008 — — —

ESPP shares issued 21,360 1 772 773

Other comprehensive income, net of tax 39 39

Net income 12,190 12,190

BALANCE — September 27, 2020 10,545,203 $ 527 $ 52,194 $ 201,966 $ ( 50 ) $ 254,637

Common Stock Additional

12 unchanged sentences

BALANCE — June 30, 2019 10,563,774 $ 528 $ 50,974 $ 171,752 $ 138 $ 223,392

Cash dividends declared and paid ( 2,445 ) ( 2,445 )

Share-based compensation expense 636 636

Vesting of restricted stock 8,352 — — —

ESPP shares issued 18,586 1 660 661

Shares repurchased ( 44,259 ) ( 2 ) ( 1,988 ) ( 1,990 )

Other comprehensive loss, net of tax ( 69 ) ( 69 )

Net income 9,250 9,250

BALANCE — September 29, 2019 10,546,453 $ 527 $ 50,282 $ 178,557 $ 69 $ 229,435

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended

2020 June 30,

Six Months Ended

September 27,

2020 September 29,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Operating leases 963 1,030

Amortization of debt issuance costs 47 47

Gain on deferred compensation assets ( 804 ) ( 143 )

Stock compensation expense 1,386 1,145

Other 88 ( 43 )

Changes in operating accounts providing (using) cash:

9 unchanged sentences

Purchases of property, plant, and equipment ( 8,120 ) ( 14,088 )

Acquisitions, net of cash acquired ( 25,000 ) —

Other 105 209

Net cash used in investing activities ( 33,015 ) ( 13,879 )

1 unchanged sentence

Cash dividends declared and paid ( 4,959 ) ( 4,905 )

New shares issued 773 661

Shares surrendered for payroll taxes ( 54 ) ( 343 )

Shares repurchased — ( 3,793 )

Net proceeds from revolver borrowings 6,000 —

Net proceeds from (payments on) revolving loan 16,000 ( 10,000 )

Net cash provided by (used in) financing activities 11,760 ( 18,380 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 233 ( 3,592 )

NET DECREASE IN CASH AND CASH EQUIVALENTS ( 1,117 ) ( 5,143 )

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,277 9,199

1 unchanged sentence

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for income taxes $ 7,845 $ 5,533

Cash paid for interest $ 610 $ 1,419

10 unchanged sentences

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.

The results of operations for the six months ended September 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.

10 unchanged sentences

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 Combinations

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 with ADC and its shareholders.

We paid $ 25 million for the acquisition, using funds available on our revolver 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, 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.

Note 3 - Revenue

3 unchanged sentences

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 months ended June 28, 2020 and June 30, 2019:

Three months ended June 28, 2020

The following tables disaggregate external customer net sales by major revenue stream for the three and six months ended September 27, 2020 and September 29, 2019:

Three months ended September 27, 2020

(In thousands) Industrial Water

7 unchanged sentences

Total external customer sales $ 61,171 $ 49,540 $ 37,090 $ 147,801

Three months ended June 30, 2019

Three months ended September 29, 2019

(In thousands) Industrial Water

7 unchanged sentences

Total external customer sales $ 68,090 $ 45,868 $ 26,085 $ 140,043

Six months ended September 27, 2020

(In thousands) Industrial Water

Treatment Health and

Nutrition Total

Bulk / Distributed specialty products (1)

$ 18,137 $ 8,233 $ 54,898 $ 81,268

Manufactured, blended or repackaged products (2)

112,997 80,344 14,231 207,572

Other 1,539 677 ( 83 ) 2,133

Total external customer sales $ 132,673 $ 89,254 $ 69,046 $ 290,973

Six months ended September 29, 2019

(In thousands) Industrial Water

Treatment Health and

Nutrition Total

Bulk / Distributed specialty products (1)

$ 26,612 $ 9,679 $ 47,495 $ 83,786

Manufactured, blended or repackaged products (2)

115,078 78,637 7,333 201,048

Other 1,725 804 16 2,545

Total external customer sales $ 143,415 $ 89,120 $ 54,844 $ 287,379

(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.

7 unchanged sentences

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.

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.

12 unchanged sentences

Basic and diluted EPS were calculated using the following:

Three Months Ended

2020 June 30,

Three Months Ended Six Months Ended

September 27, 2020 September 29, 2019 September 27, 2020 September 29, 2019

Weighted-average common shares outstanding—basic 10,527,891 10,575,538 10,526,511 10,589,922

9 unchanged sentences

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.

For the three and six months ended September 27, 2020, we recorded a no minal amount in other comprehensive income related to unrealized gains (net of tax) on the cash flow hedge described above.

For the three months ended September 29, 2019, we recorded $ 0.1 million in other comprehensive loss related to unrealized losses (net of tax) on the cash flow hedge.

For the six months ended September 29, 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 September 27, 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.

15 unchanged sentences

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.

As of September 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 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

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 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 June 28, 2020 and March 29, 2020.

(In thousands) June 28, 2020 March 29, 2020

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

(In thousands) September 27, 2020 March 29, 2020

Deferred compensation plan assets Level 1 $ 5,573 $ 3,564

4 unchanged sentences

Note 8 – Inventories

Inventories at June 28, 2020 and March 29, 2020 consisted of the following:

Inventories at September 27, 2020 and March 29, 2020 consisted of the following:

September 27,

2020 March 29,

3 unchanged sentences

Net inventory $ 63,194 $ 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 first in, first out (“FIFO”) value of inventories accounted for under the last in, first out (“LIFO”) method was $ 44.6 million at September 27, 2020 and $ 43.3 million at March 29, 2020.

The remainder of the inventory was valued and accounted for under the FIFO method.

Note 9 – 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

The carrying amount of goodwill was $ 67.7 million as of September 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 six months ended September 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 September 27, 2020 and March 29, 2020 is as follows:

September 27, 2020 March 29, 2020

(In thousands) Gross

11 unchanged sentences

Note 10 – Debt

Debt at June 28, 2020 and March 29, 2020 consisted of the following:

Debt at September 27, 2020 and March 29, 2020 consisted of the following:

September 27,

2020 March 29,

10 unchanged sentences

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.

Our effective tax rate for the six months ended September 27, 2020 was 26.4 % and was 26.3 % for the six months ended September 29, 2019.

The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

1 unchanged sentence

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.

As of September 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 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.

As of September 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 six months ended September 27, 2020 was no t material.

Total lease expense was $ 0.7 million for both the three months ended September 27, 2020 and September 29, 2019.

Total lease expense for the six months ended September 27, 2020 and September 29, 2019 was $ 1.4 million and $ 1.5 million, respectively.

Other information related to our operating leases was as follows:

June 28, 2020

September 27, 2020

Lease Term and Discount Rate

1 unchanged sentence

Weighted average discount rate 3.2 %

Maturities of lease liabilities as of June 28, 2020 were as follows:

Maturities of lease liabilities as of September 27, 2020 were as follows:

(In thousands) Operating Leases

15 unchanged sentences

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:

The following table represents the restricted stock activity for the six months ended September 27, 2020:

Shares Weighted-

4 unchanged sentences

Vested ( 5,263 ) 31.35

Forfeited or expired ( 14,505 ) 35.83

Unvested at end of period 119,560 $ 35.89

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.

We recorded compensation expense related to performance share units and restricted stock of $ 0.5 million and $ 1.0 million for the three and six months ended September 27, 2020, respectively.

We recorded compensation expense related to performance share units and restricted stock of $ 0.4 million and $ 0.8 million for the three and six months ended September 29, 2019, respectively.

Substantially all of the compensation expense was recorded in selling, general and administrative expenses in the condensed consolidated statements of income.

2 unchanged sentences

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.

As of September 27, 2020, there were 5,874 shares of restricted stock with a grant date fair value of $ 51.06 outstanding under this program.

Compensation expense for both the three months ended September 27, 2020 and September 29, 2019 related to restricted stock awards to the Board was $ 0.1 million.

Compensation expense for both the six months ended September 27, 2020 and September 29, 2019 related to restricted stock awards to the Board was $ 0.2 million.

Note 14 – Share Repurchase Program

1 unchanged sentence

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.

During the three and six months ended September 27, 2020, no shares were repurchased.

During the three months ended September 29, 2019, we repurchased 44,259 shares at an aggregate purchase price of $ 2.0 million.

During the six months ended September 29, 2019, we repurchased 91,395 shares at an aggregate purchase price of $ 3.8 million.

As of September 27, 2020, 358,797 shares remained available to be repurchased under the share repurchase program.

Note 15 – Litigation, Commitments and Contingencies

1 unchanged sentence

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 16 – Segment Information

12 unchanged sentences

Treatment Health and Nutrition Total

Three months ended June 28, 2020:

Three months ended September 27, 2020:

Sales $ 61,171 $ 49,540 $ 37,090 $ 147,801

2 unchanged sentences

Operating income 4,007 8,949 3,620 16,576

Three months ended June 30, 2019:

Three months ended September 29, 2019:

Sales $ 68,090 $ 45,868 $ 26,085 $ 140,043

2 unchanged sentences

Operating income 4,779 7,619 779 13,177

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.

Six months ended September 27, 2020:

Sales $ 132,673 $ 89,254 $ 69,046 $ 290,973

Gross profit 22,893 25,861 15,019 63,773

Selling, general and administrative expenses 12,496 10,866 7,897 31,259

Operating income 10,397 14,995 7,122 32,514

Six months ended September 29, 2019:

Sales $ 143,415 $ 89,120 $ 54,844 $ 287,379

Gross profit 21,589 24,844 10,358 56,791

Selling, general and administrative expenses 11,991 10,122 7,540 29,653

Operating income 9,598 14,722 2,818 27,138

No significant changes to identifiable assets by segment occurred during the six months ended September 27, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements