HAWKINS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS HAWKINS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data) December 27, 2020 March 29, 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,969 $ 4,277 Trade receivables — less allowance for doubtful accounts: $ 549 as of December 27, 2020 and $ 784 as of March 29, 2020 76,822 67,391 Inventories 64,657 54,436 Income taxes receivable 946 — Prepaid expenses and other current assets 5,075 4,927 Total current assets 155,469 131,031 PROPERTY, PLANT, AND EQUIPMENT: 291,491 267,221 Less accumulated depreciation 152,568 140,877 Net property, plant, and equipment 138,923 126,344 OTHER ASSETS: Right-of-use assets 8,181 9,090 Goodwill 67,657 58,440 Intangible assets, net of accumulated amortization 69,726 60,653 Other 6,049 3,770 Total other assets 151,613 131,953 Total assets $ 446,005 $ 389,328 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable — trade $ 31,160 $ 34,129 Accrued payroll and employee benefits 13,406 13,538 Current portion of long-term debt 9,907 9,907 Short-term lease liability 1,440 1,523 Container deposits 1,426 1,376 Other current liabilities 1,693 1,747 Total current liabilities 59,032 62,220 LONG-TERM DEBT, LESS CURRENT PORTION 85,821 49,751 LONG-TERM LEASE LIABILITY 6,854 7,649 PENSION WITHDRAWAL LIABILITY 4,719 4,978 DEFERRED INCOME TAXES 25,097 25,106 DEFERRED COMPENSATION LIABILITY 7,054 5,026 OTHER LONG-TERM LIABILITIES 514 1,114 Total liabilities 189,091 155,844 COMMITMENTS AND CONTINGENCIES — — SHAREHOLDERS’ EQUITY: 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, respectively 523 526 Additional paid-in capital 48,975 50,090 Retained earnings 207,416 182,947 Accumulated other comprehensive loss — ( 79 ) Total shareholders’ equity 256,914 233,484 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 Ended Nine Months Ended December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019 Sales $ 142,927 $ 120,406 $ 433,900 $ 407,785 Cost of sales ( 114,688 ) ( 98,928 ) ( 341,888 ) ( 329,516 ) Gross profit 28,239 21,478 92,012 78,269 Selling, general and administrative expenses ( 17,750 ) ( 14,702 ) ( 49,009 ) ( 44,355 ) Operating income 10,489 6,776 43,003 33,914 Interest expense, net ( 382 ) ( 584 ) ( 1,101 ) ( 2,013 ) Other income 478 131 1,282 274 Income before income taxes 10,585 6,323 43,184 32,175 Income tax expense ( 2,664 ) ( 1,776 ) ( 11,285 ) ( 8,571 ) Net income $ 7,921 $ 4,547 $ 31,899 $ 23,604 Weighted average number of shares outstanding - basic 10,506,918 10,546,453 10,521,521 10,575,432 Weighted average number of shares outstanding - diluted 10,611,655 10,605,895 10,639,372 10,656,115 Basic earnings per share $ 0.75 $ 0.43 $ 3.03 $ 2.23 Diluted earnings per share $ 0.75 $ 0.43 $ 3.00 $ 2.22 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 Ended Nine Months Ended December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019 Net income $ 7,921 $ 4,547 $ 31,899 $ 23,604 Other comprehensive loss, net of tax: Unrealized gain (loss) on interest rate swap 50 ( 11 ) 79 ( 259 ) 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 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 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 Cash dividends declared and paid ( 2,471 ) ( 2,471 ) Share-based compensation expense 917 917 Shares repurchased ( 83,044 ) ( 4 ) ( 4,136 ) ( 4,140 ) Other comprehensive income, net of tax 50 50 Net income 7,921 7,921 BALANCE — December 27, 2020 10,462,159 $ 523 $ 48,975 $ 207,416 $ — $ 256,914 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 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 Cash dividends declared and paid ( 2,445 ) ( 2,445 ) Share-based compensation expense 685 685 Other comprehensive income, net of tax ( 11 ) ( 11 ) Net income 4,547 4,547 BALANCE — December 29, 2019 10,546,453 $ 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) Nine Months Ended December 27, 2020 December 29, 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 31,899 $ 23,604 Reconciliation to cash flows: Depreciation and amortization 16,735 16,181 Operating leases 1,419 1,538 Gain on deferred compensation assets ( 1,282 ) ( 274 ) Stock compensation expense 2,303 1,830 Other 170 ( 42 ) Changes in operating accounts providing (using) cash: Trade receivables ( 8,121 ) 8,035 Inventories ( 9,431 ) 2,940 Accounts payable ( 3,569 ) ( 2,469 ) Accrued liabilities 1,160 ( 3,148 ) Lease liabilities ( 1,363 ) ( 1,565 ) Income taxes ( 1,006 ) ( 82 ) Other ( 2,308 ) ( 1,557 ) Net cash provided by operating activities 26,606 44,991 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant, and equipment ( 13,200 ) ( 19,426 ) Acquisitions, net of cash acquired ( 35,017 ) — Other 154 326 Net cash used in investing activities ( 48,063 ) ( 19,100 ) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends declared and paid ( 7,430 ) ( 7,350 ) New shares issued 773 661 Shares surrendered for payroll taxes ( 54 ) ( 343 ) Shares repurchased ( 4,140 ) ( 3,793 ) Net proceeds from (payments on) revolving loan 36,000 ( 17,000 ) Net cash provided by (used in) financing activities 25,149 ( 27,825 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,692 ( 1,934 ) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,277 9,199 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,969 $ 7,265 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for income taxes $ 12,345 $ 8,653 Cash paid for interest $ 893 $ 1,960 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 nine months ended December 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 — Acquisitions 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 among us, ADC and its shareholders. We paid $ 25 million for the acquisition, using funds available under our revolving 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 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 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 nine months ended December 27, 2020 and December 29, 2019: Three months ended December 27, 2020 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 10,016 $ 3,896 $ 27,839 $ 41,751 Manufactured, blended or repackaged products (2) 53,501 35,129 11,577 100,207 Other 839 273 ( 143 ) 969 Total external customer sales $ 64,356 $ 39,298 $ 39,273 $ 142,927 Three months ended December 29, 2019 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 11,562 $ 4,280 $ 19,115 $ 34,957 Manufactured, blended or repackaged products (2) 50,600 30,251 3,199 84,050 Other 856 359 184 1,399 Total external customer sales $ 63,018 $ 34,890 $ 22,498 $ 120,406 Nine months ended December 27, 2020 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 28,153 $ 12,129 $ 82,737 $ 123,019 Manufactured, blended or repackaged products (2) 166,498 115,473 25,808 307,779 Other 2,378 950 ( 226 ) 3,102 Total external customer sales $ 197,029 $ 128,552 $ 108,319 $ 433,900 Nine months ended December 29, 2019 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 38,174 $ 13,959 $ 66,608 $ 118,741 Manufactured, blended or repackaged products (2) 165,678 108,888 10,532 285,098 Other 2,581 1,163 202 3,946 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 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 Ended Nine Months Ended December 27, 2020 December 29, 2019 December 27, 2020 December 29, 2019 Weighted-average common shares outstanding—basic 10,506,918 10,546,453 10,521,521 10,575,432 Dilutive impact of performance units and restricted stock 104,737 59,442 117,851 80,683 Weighted-average common shares outstanding—diluted 10,611,655 10,605,895 10,639,372 10,656,115 For each of the periods presented, there were no shares excluded from the calculation of weighted-average common shares for diluted EPS. Note 5 – Derivative Instruments We had 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 no tional amount on which the interest payments are calculated. The $ 20 million swap agreement terminated on December 23, 2020. We had designated this swap as a cash flow hedge and determined that it qualified for hedge accounting treatment. For so long as the hedge was effective, changes in fair value of the cash flow hedge were recorded in other comprehensive income (net of tax) until income or loss from the cash flows of the hedged item was realized. For the three and nine months ended December 27, 2020, we recorded $ 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 December 29, 2019, we recorded a no minal amount in other comprehensive loss related to unrealized losses (net of tax) on the cash flow hedge. For the nine months ended December 29, 2019, we recorded $ 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 March 29, 2020. The interest rate swap ended on December 23, 2020, and 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. 8 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 December 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 was classified as other current liabilities on our balance sheet. The fair value of the interest rate swap was 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 December 27, 2020 and March 29, 2020. 0 (In thousands) December 27, 2020 March 29, 2020 Assets Deferred compensation plan assets Level 1 $ 5,937 $ 3,564 Liabilities Interest rate swap Level 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 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 8 – Inventories Inventories at December 27, 2020 and March 29, 2020 consisted of the following: 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 $ 43.7 million at December 27, 2020 and $ 43.3 million at March 29, 2020. The remainder of the inventory was valued and accounted for under the FIFO method. 9 Note 9 – Goodwill and Intangible Assets The carrying amount of goodwill was $ 67.7 million as of December 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 nine months ended December 27, 2020 represents goodwill recorded in connection with the ADC acquisition as discussed in Note 2. A summary of our intangible assets as of December 27, 2020 and March 29, 2020 is as follows: December 27, 2020 March 29, 2020 (In thousands) Gross Amount Accumulated Amortization Net Gross Amount Accumulated Amortization Net Finite-life intangible assets Customer relationships $ 91,483 $ ( 25,094 ) $ 66,389 $ 78,383 $ ( 21,400 ) $ 56,983 Trademarks and trade names 6,150 ( 4,123 ) 2,027 6,045 ( 3,640 ) 2,405 Other finite-life intangible assets 3,753 ( 3,670 ) 83 3,648 ( 3,610 ) 38 Total finite-life intangible assets 101,386 ( 32,887 ) 68,499 88,076 ( 28,650 ) 59,426 Indefinite-life intangible assets 1,227 — 1,227 1,227 — 1,227 Total intangible assets $ 102,613 $ ( 32,887 ) $ 69,726 $ 89,303 $ ( 28,650 ) $ 60,653 Note 10 – Debt Debt at December 27, 2020 and March 29, 2020 consisted of the following: December 27, 2020 March 29, 2020 (In thousands) Senior secured revolving loan $ 96,000 $ 60,000 Less: unamortized debt issuance costs ( 272 ) ( 342 ) Total debt, net of debt issuance costs 95,728 59,658 Less: current portion of long-term debt ( 9,907 ) ( 9,907 ) 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 nine months ended December 27, 2020 was 26.1 % and was 26.6 % for the nine months ended December 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 December 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 December 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 nine months ended December 27, 2020 was no t material. Total lease expense was $ 0.7 million for both the three months ended December 27, 2020 and December 29, 2019. Total lease expense for the nine months ended December 27, 2020 and December 29, 2019 was $ 2.1 million and $ 2.2 million, respectively. 10 Other information related to our operating leases was as follows: December 27, 2020 Lease Term and Discount Rate Weighted average remaining lease term (years) 8.45 Weighted average discount rate 3.2 % Maturities of lease liabilities as of December 27, 2020 were as follows: (In thousands) Operating Leases Remaining fiscal 2021 $ 400 Fiscal 2022 1,750 Fiscal 2023 1,624 Fiscal 2024 1,270 Fiscal 2025 1,279 Thereafter 4,337 Total $ 10,660 Less: Interest ( 2,366 ) Present value of lease liabilities $ 8,294 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 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 nine months ended December 27, 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 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 $ 0.7 million and $ 1.6 million for the three and nine months ended December 27, 2020, respectively. We recorded compensation expense related to performance share units and restricted stock of $ 0.5 million and $ 1.3 million for the three and nine months ended December 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 December 27, 2020, there were 6,593 shares of restricted stock with an average grant date fair value of $ 51.17 outstanding under this program. Compensation expense for both the three months ended December 27, 2020 and December 29, 2019 related to restricted stock awards to the Board was $ 0.1 million. Compensation expense for both the nine months ended December 27, 2020 and December 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 nine months ended December 27, 2020, we repurchased 83,044 shares at an aggregate purchase price of $ 4.1 million. During the three months ended December 29, 2019, no 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 December 27, 2020, 275,753 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 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 . 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 December 27, 2020: Sales $ 64,356 $ 39,298 $ 39,273 $ 142,927 Gross profit 9,207 10,027 9,005 28,239 Selling, general, and administrative expenses 6,978 6,788 3,984 17,750 Operating income 2,229 3,239 5,021 10,489 Three months ended December 29, 2019: Sales $ 63,018 $ 34,890 $ 22,498 $ 120,406 Gross profit 8,418 8,362 4,698 21,478 Selling, general, and administrative expenses 6,050 4,834 3,818 14,702 Operating income 2,368 3,528 880 6,776 Nine months ended December 27, 2020: Sales $ 197,029 $ 128,552 $ 108,319 $ 433,900 Gross profit 32,100 35,888 24,024 92,012 Selling, general and administrative expenses 19,474 17,654 11,881 49,009 Operating income 12,626 18,234 12,143 43,003 Nine months ended December 29, 2019: Sales $ 206,433 $ 124,010 $ 77,342 $ 407,785 Gross profit 30,007 33,206 15,056 78,269 Selling, general and administrative expenses 18,041 14,956 11,358 44,355 Operating income 11,966 18,250 3,698 33,914 No significant changes to identifiable assets by segment occurred during the nine months ended December 27, 2020. 12 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. 13