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Item 7. Management’s Discussion and Analysis

2021-06-02 compared with 2020-05-20 · 101 added, 150 removed, 122 unchanged (67% of the section changed)

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This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report because that disclosure was already included in our Annual Report on Form 10-K for fiscal 2020, filed with the SEC on May 20, 2020.

You are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and result of operations for fiscal 2019 compared to fiscal 2020.

We derive substantially all of our revenues from the sale of chemicals and specialty ingredients to our customers in a wide variety of industries.

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An overview of our financial performance in fiscal 2021 is provided below:

• Sales of $540.2 million, a 2.9% decrease from fiscal 2019;

• Sales of $596.9 million, a 10% increase from fiscal 2020;

• Gross profit of $123.8 million, an increase of $22.8 million, or 23% from fiscal 2020;

• Selling, general and administrative (“SG&A”) expenses were relatively flat year over year, and up 0.4% as a percentage of sales from fiscal 2019;

• Selling, general and administrative (“SG&A”) expenses increased $8.6 million year over year, and were relatively flat as a percentage of sales from fiscal 2020;

• Net cash provided by operating activities of $43.8 million, as compared to $58.9 million for fiscal 2020.

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The costs for certain of our raw materials can rise or fall rapidly, causing fluctuations in gross profit as a percentage of sales.

We use the last in, first out (“LIFO”) method of valuing the majority of our inventory in our Industrial and Water Treatment segments, which causes the most recent product costs to be recognized in our income statement.

The valuation of LIFO inventory for interim periods is based on our estimates of fiscal year-end inventory levels and costs.

We use the last in, first out (“LIFO”) method of valuing the inventory in our Industrial and Water Treatment segments, which causes the most recent product costs to be recognized in our income statement.

The LIFO inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices.

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Our definition of bulk commodity products includes products that we do not modify in any way, but receive, store, and ship from our facilities, or direct ship to our customers in large quantities.

Business and Property Acquisitions

In the fourth quarter of fiscal 2021, we acquired substantially all the assets of C & L Aqua Professionals, Inc.

and LC Blending, Inc.

(together, “C&L Aqua”) under the terms of an asset purchase agreement among us, C&L Aqua and its shareholders.

C&L Aqua was a water treatment chemical distribution company operating primarily in Louisiana.

The results of operations since the acquisition date are included in our Water Treatment segment.

In the third quarter of fiscal 2021, we acquired a manufacturing facility to allow further expansion and growth in both our Industrial and Water Treatment segments.

This site is adjacent to our facility in Rosemount, Minnesota, adding 40,000 square feet of manufacturing and warehouse space on 28 acres of land to bring us to a total of 105,000 square feet of space on 56 acres of land, with rail access at both of the sites.

The expansion will allow for future growth and provide supply chain flexibility on certain raw materials to better serve our customers.

In the second quarter of fiscal 2021, 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.

ADC was a water treatment chemical distribution company operating primarily in Tennessee, Georgia and Kentucky.

The results of operations since the acquisition date are included in our Water Treatment segment.

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

On March 1, 2021, we effected a two-for-one split of our common stock, and adjusted the par value from $.05 per share to $0.01 per share.

At the same time, we increased the number of authorized shares from 30 million to 60 million.

Our consolidated financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.

Statement on COVID-19

The pandemic caused by COVID-19 was first reported in Wuhan, China in December 2019 and has since spread throughout the world.

Financial markets have been volatile in 2020, primarily due to uncertainty with respect to the severity and duration of the pandemic .

The pandemic has resulted in federal, state and local governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions or bans, business curtailments, school closures, and other protective measures.

All of our manufacturing facilities qualify as essential operations (or the equivalent) under applicable federal and state orders.

As a result, all of our manufacturing sites and facilities have continued to operate and are doing so safely, with no significant impact to output levels.

We are enforcing social distancing and enhanced health, safety and sanitization measures in accordance with guidelines from the Center for Disease Control.

We have also implemented necessary procedures and support to enable a significant portion of our office personnel to work remotely.

As the spread of the virus began to be identified within the United States in March 2020, we acted by imposing travel restrictions, transitioning large meetings from in-person to virtual formats, assessing our information technology infrastructure to ensure readiness for a remote workforce, staying connected to customers, suppliers and business partners, planning for return to the workplace and making operational adjustments as needed to ensure continued safety of our workforce, while also ensuring the ability to continue to supply products to meet the nation’s essential needs and evolving market demands.

During this public health crisis, we remain focused on the health and safety of our employees, customers and suppliers and maintaining safe and reliable operations of our manufacturing sites.

The pandemic caused by COVID-19 has resulted in federal, state and local governments around the world implementing stringent measures to help control the spread of the virus, including, from time to time, quarantines, “shelter in place” and “stay at home” orders, travel restrictions or bans, business curtailments, school closures, and other protective measures.

While many restrictions have eased since the start of the COVID-19 pandemic, certain restrictions remain in place or new restrictions may be implemented in the future.

Certain restrictions may remain in place for some time.

All of our manufacturing facilities have qualified as essential operations (or the equivalent) under applicable federal and state orders.

As a result, all of our manufacturing sites and facilities have continued to operate, with no significant impact to our output levels.

During this public health crisis, we have remained focused on the health and safety of our employees, customers and suppliers and maintaining safe and reliable operations of our manufacturing sites.

As our operations and products are essential to critical national infrastructure, it is imperative that we continue to supply materials including the products needed to maintain safe drinking water, ingredients essential for large-scale food, pharmaceutical and other health product manufacturing and nutrition products needed to support our critical infrastructure.

Our manufacturing sites have continued to operate during the COVID-19 pandemic, with no significant impact to manufacturing.

We ended fiscal 2020 with a leverage ratio below 1.0x, net debt of $55.7 million and significant amounts available for borrowing under our Revolving Loan Facility.

The COVID-19 pandemic has created tremendous uncertainty in the economy.

The financial impact to our company has been mixed, as sales to certain end-markets such as food, bottled bleach and health and nutrition have benefited our reporting segments, while decreased sales to other end-markets such as ethanol, pools and resorts have negatively impacted them.

As uncertainty continues with this pandemic, we expect mixed results to continue for the foreseeable future.

We will continue to be cautious in our capital expenditures and investments, and delay investments where deemed appropriate, while still investing for the future by opening new Water Treatment branches and making capital investments to drive higher margin business.

With our current debt levels and available borrowings, we believe we are well-positioned to weather a continued economic downturn.

Share Repurchase Program

Our Board of Directors has authorized the repurchase of up to 800,000 shares of our outstanding common stock.

The shares may be repurchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations.

The primary objective of the share repurchase program is to offset the impact of dilution from issuances relating to employee and director equity grants and our employee stock purchase program.

During fiscal 2020, we repurchased 145,583 shares of common stock with an aggregate purchase price of $5.9 million.

During fiscal 2019, we repurchased 108,166 shares of common stock with an aggregate purchase price of $4.4 million.

No shares were repurchased during fiscal 2018.

As of March 29, 2020, 358,797 shares remained available for purchase under the program.

The financial impact of the COVID-19 pandemic to our company has been mixed, as sales to certain end-markets such as food, bottled bleach and health and nutrition have benefited our reporting segments, while decreased sales to other end-markets such as ethanol, pools and resorts have negatively impacted them.

In addition, certain expenses, such as travel and entertainment and trade show expenses, were lower than historical levels during fiscal 2021.

We expect mixed results to continue until conditions normalize following the end of the pandemic.

Results of Operations

The following table sets forth certain items from our statement of income as a percentage of sales from period to period:

Fiscal 2020 Fiscal 2019 Fiscal 2018

Fiscal 2021 Fiscal 2020

Sales 100.0 % 100.0 %

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Selling, general and administrative expenses (11.4) % (11.0) %

Goodwill impairment — % — % (7.8) %

Operating income (loss) 9.4 % 7.7 %

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Fiscal 2021 Compared to Fiscal 2020

Sales decreased $16.1 million, or 2.9%, to $540.2 million for fiscal 2020, as compared to sales of $556.3 million for fiscal 2019.

Sales were $596.9 million for fiscal 2021, an increase of $56.7 million, or 10%, from sales of $540.2 million for fiscal 2020.

Industrial Segment.

Industrial segment sales decreased $1.9 million, or 1%, to $273.4 million for fiscal 2021, as compared to $275.2 million for fiscal 2020.

Sales of bulk commodity products in the Industrial segment were approximately 18% of sales dollars in fiscal 2020 and 22% in fiscal 2019.

The decrease in sales dollars from the prior year was driven by lower pricing due to lower costs of one of our major commodities as well as an overall decrease in volumes sold, particularly of lower-priced bulk commodities driven by a weak ethanol industry.

This was offset somewhat by an increase in volumes sold of our manufactured, blended and re-packaged products that typically carry higher per-unit selling prices.

Sales of bulk commodity products in the Industrial segment were approximately 14% of sales dollars in fiscal 2021 and 18% of sales dollars in fiscal 2020.

Increased sales resulting from a product mix shift to more sales of certain of our higher-priced manufactured, blended and repackaged products, in particular certain of our food ingredient and agricultural products, as well as increased sales of our bleach products, was more than offset by decreased sales into the ethanol industry in the first half of fiscal 2021, due largely to weakened economic conditions in that industry.

Water Treatment Segment.

Water Treatment segment sales increased $10.1 million, or 6%, to $170.0 million for fiscal 2021, as compared to $159.9 million for fiscal 2020.

Sales of bulk commodity products in the Water Treatment segment were approximately 12% of sales dollars in fiscal 2020 and 15% in fiscal 2019.

The increase in sales dollars was driven by increased volumes sold of certain manufactured, blended and re-packaged products that carry higher per-unit selling prices.

This was offset somewhat by lower volumes sold of our bulk commodity products as well as lower pricing due to lower costs of one of our major commodities.

Health and Nutrition Segment.

Sales for our Health and Nutrition segment decreased $19.9 million, or 15.9%, to $105.1 million for fiscal 2020, as compared to $125.0 million for fiscal 2019.

The decline in sales was driven by decreased sales of our distributed specialty products, some of which was due to a previously anticipated worldwide supply shortage of a significant product that we experienced in the first two quarters of this fiscal year, and the ramp-up of sales with new partners replacing previous product lines.

Gross profit increased $5.0 million to $100.9 million, or 18.7% of sales, for fiscal 2020, from $95.9 million, or 17.2% of sales, for fiscal 2019.

During the current year, the LIFO reserve increased, and gross profits decreased, by $0.6 million.

In the same period a year ago, the LIFO reserve decreased, and gross profits increased, by $0.5 million.

Industrial Segment.

Gross profit for the Industrial segment increased $4.0 million to $38.9 million, or 14.1% of sales, for fiscal 2020, from $34.9 million, or 12.4% of sales, for fiscal 2019.

During fiscal 2020, the LIFO reserve increased, and gross profits decreased, by $0.6 million.

In fiscal 2019, the LIFO reserve decreased, and gross profits increased, by $0.8 million.

In spite of the $1.4 million year-over-year unfavorable LIFO impact and lower overall sales dollars, total gross profit increased from a year ago due to a favorable product mix shift to more sales of our higher margin manufactured, blended and re-packaged products.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $3.9 million to $41.9 million, or 26.2% of sales, for fiscal 2020, from $38.0 million, or 25.4% of sales, for fiscal 2019.

During fiscal 2020, the LIFO reserve changed nominally and therefore had a minimal impact on gross margin.

In fiscal 2019, the LIFO reserve increased, and gross profits decreased, by $0.3 million.

Gross profit increased as a result of increased sales of our manufactured, blended and re-packaged products compared to a year ago, offset somewhat by higher operating costs.

Health and Nutrition Segment.

Gross profit for our Health and Nutrition segment decreased $3.0 million to $20.1 million, or 19.1% of sales, for fiscal 2020, compared to $23.1 million, or 18.4% of sales, for fiscal 2019.

Gross profit decreased as a result of lower sales, while gross profit as a percent of sales improved year over year due to increased profitability on certain products as well as lower operational costs.

The decrease in operational costs was offset somewhat by a $0.6 million impairment charge related to certain manufacturing equipment that will not be used in production as previously planned.

Selling, General and Administrative Expenses

SG&A expenses were relatively flat at $59.2 million, or 11.0% of sales, for fiscal 2020, and $59.1 million, or 10.6% of sales, for fiscal 2019.

Fiscal 2020 includes a favorable adjustment to compensation expense related to our non-qualified deferred compensation plan of $0.2 million compared to a nominal adjustment in the prior year.

These adjustments are offset in other income/expense.

Increases in other variable expenses largely offset this year-over-year benefit.

Operating Income (Loss)

Operating income was $41.7 million, or 7.7% of sales, for fiscal 2020, as compared to $36.8 million, or 6.6% of sales, for fiscal 2019 due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $2.5 million for fiscal 2020, a decrease of $0.9 million from interest expense of $3.4 million for fiscal 2019.

Interest expense decreased due to lower outstanding borrowings and lower borrowing rates compared to the prior year.

Income Tax Provision

Our effective tax rate was relatively flat at 27.2% for fiscal 2020 and 27.1% for fiscal 2019.

Fiscal 2019 Compared to Fiscal 2018

Sales increased $52.2 million, or 10.3%, to $556.3 million for fiscal 2019, as compared to sales of $504.2 million for fiscal 2018.

Sales increased year over year in all segments.

Industrial Segment.

Industrial segment sales increased $34.5 million, or 13.9%, to $281.9 million for fiscal 2019.

Sales of bulk commodity products in the Industrial segment were approximately 22% of sales dollars in fiscal 2019 and 20% in fiscal 2018.

Sales dollars increased in fiscal 2019 due to increased volumes, particularly of certain specialty products that carry higher per-unit selling prices, as well as increased selling prices on certain products resulting from increased raw material costs.

Water Treatment Segment.

Water Treatment segment sales increased $11.0 million, or 8.0%, to $149.5 million for fiscal 2019.

Sales of bulk commodity products in the Water Treatment segment were approximately 15% of sales dollars in both fiscal 2019 and 2018.

Sales dollars increased in fiscal 2019 as a result of increased sales volumes across many product lines as well as a favorable product mix shift.

Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in fiscal 2021 and 12% of sales dollars in fiscal 2020.

The increase in sales dollars resulted from the added sales from the acquisition of ADC and C&L Aqua as well as increased sales of certain manufactured, blended and re-packaged products in our legacy business, partially offset by a first quarter sales decline as a result of COVID-19 which reduced sales to certain end markets, primarily swimming pools.

Health and Nutrition Segment.

Sales for our Health and Nutrition segment increased $6.6 million, or 5.6%, to $125.0 million for fiscal 2019.

Increased sales of distributed specialty products drove the year-over-year increase in sales.

Gross profit was $95.9 million, or 17.2% of sales, for fiscal 2019, an increase of $9.2 million from $86.8 million, or 17.2% of sales, for fiscal 2018.

Sales for our Health and Nutrition segment increased $48.4 million, or 46%, to $153.5 million for fiscal 2021, as compared to $105.1 million for fiscal 2020.

The increase in sales was driven by increased sales of both our manufactured and specialty distributed products largely as a result of increased demand for health and immunity products.

Gross profit increased $22.8 million, or 23%, to $123.8 million, or 21% of sales, for fiscal 2021, from $100.9 million, or 19% of sales, for fiscal 2020.

During fiscal 2021, the LIFO reserve decreased, and gross profits increased, by $0.1 million.

Conversely, during fiscal 2018, the LIFO reserve increased, and gross profits decreased, by $4.1 million.

In addition to this $4.6 million year-over-year positive impact, the increase in gross profit during fiscal 2019 was a result of increased sales across all three segments, somewhat offset by increased operating costs.

In fiscal 2020, the LIFO reserve increased, and gross profits decreased, by $0.6 million.

Industrial Segment.

Gross profit for the Industrial segment was $34.9 million, or 12.4% of sales, for fiscal 2019, an increase of $5.3 million from $29.6 million, or 12.0% of sales, for fiscal 2018.

Gross profit for the Industrial segment increased $4.4 million, or 11%, to $43.3 million, or 16% of sales, for fiscal 2021, from $38.9 million, or 14% of sales, for fiscal 2020.

During fiscal 2021, the LIFO reserve decreased, and gross profits increased, by $0.2 million.

Conversely, during fiscal 2018, the LIFO reserve increased, and gross profits decreased, by $3.3 million.

In addition to this $4.1 million positive year-over-year impact, the increase in gross profit dollars was due to a favorable product mix shift to more products with higher per-unit margins as well as improved pricing on certain products, offset somewhat by an increase in operational overhead costs driven largely by repair and maintenance costs, as well as increased transportation costs due to a tight carrier market and increased fuel costs.

In fiscal 2020, the LIFO reserve increased, and gross profits decreased, by $0.6 million.

Total gross profit, and gross profit as a percentage of sales, increased due to a product mix shift to more sales of certain higher-margin manufactured, blended and re-packaged products, partially offset by higher operating costs.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $1.7 million, or 4.7%, to $38.0 million, or 25.4% of sales, for fiscal 2019, as compared to $36.3 million, or 26.2% of sales, for fiscal 2018.

The increase in gross profit was largely a result of higher sales volumes compared to a year ago, offset in part by an increase in certain variable costs, including variable pay, as well as higher transportation costs, primarily due to rising fuel costs.

Gross profit for the Water Treatment segment increased $4.9 million, or 12%, to $46.8 million, or 28% of sales, for fiscal 2021, from $41.9 million, or 26% of sales, for fiscal 2020.

During fiscal 2021, the LIFO reserve increased, and gross profits decreased, by $0.1 million.

Conversely, during fiscal 2018, the LIFO reserve increased, and gross profits decreased, by $0.8 million.

During fiscal 2020, the LIFO reserve had a nominal impact on gross profit.

Gross profit increased as a result of the added gross profit from sales in the acquired businesses of ADC and C&L Aqua.

Gross profit, and gross profit as a percentage of sales, also increased as a result of a product mix shift to more sales of certain of our manufactured, blended and repackaged products in our legacy business.

Health and Nutrition Segment.

Gross profit for our Health and Nutrition segment increased $2.2 million, or 10.4%, to $23.1 million, or 18.4% of sales, for fiscal 2019, as compared to $20.9 million, or 17.6% of sales, for fiscal 2018.

Gross profit increased as a result of the combined impact of higher sales and lower operating costs compared to the same period a year ago.

Gross profit for our Health and Nutrition segment increased $13.6 million, or 68% to $33.6 million, or 22% of sales, for fiscal 2021, from $20.1 million, or 19% of sales, for fiscal 2020.

The increase in gross profit was a result of higher sales compared to the prior year.

Gross profit as a percentage of sales increased primarily as a result of product mix changes.

Selling, General and Administrative Expenses

SG&A expenses were $59.1 million, or 10.6% of sales, for fiscal 2019, and $59.4 million, or 11.8% of sales, for fiscal 2018.

The decrease in SG&A expenses resulted from actions taken by management in the prior year, offset somewhat by increased variable pay expense.

SG&A expense as a percentage of sales was favorable year over year in all three reporting segments.

Operating Income (Loss)

Operating income was $36.8 million, or 6.6% of sales, for fiscal 2019, as compared to an operating loss of $11.8 million, or (2.3)% of sales, for fiscal 2018 due to the combined impact of the factors discussed above.

SG&A expenses increased $8.6 million to $67.9 million, or 11% of sales, for fiscal 2021, from $59.2 million, or 11% of sales, for fiscal 2020.

Expenses increased primarily due to increased variable pay, the added costs from the acquired businesses of ADC and C&L Aqua, including $0.8 million expense for amortization of intangibles, and a year-over-year increase in compensation expense related to our non-qualified deferred compensation plan, with the expense offset in other income.

Operating Income

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

Interest Expense, Net

Interest expense was $3.4 million in both fiscal 2019 and 2018.

The impact from higher interest rates in fiscal 2019 was offset by a nearly $20 million reduction in average borrowings.

Interest expense was $1.5 million for fiscal 2021, a decrease of $1.0 million from interest expense of $2.5 million for fiscal 2020.

The additional interest cost as a result of the increase in outstanding borrowings was more than offset by lower borrowing rates compared to the prior year.

Income Tax Provision

Our effective tax rate was 27.1% for fiscal 2019 and 39.1% for fiscal 2018.

Our effective tax rate for fiscal 2018 was impacted by a $13.9 million one-time income tax benefit which was recognized as a result of the U.S.

Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

Our effective tax rate for fiscal 2018 was also impacted by the $39.1 million goodwill impairment charge which was recorded for book purposes but was not deductible for tax purposes.

Our effective tax rate was approximately 27% for both fiscal 2021 and fiscal 2020.

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

Selected Quarterly Financial Data

(In thousands, except per share data) Fiscal 2021

First Second Third Fourth

Sales $ 143,172 $ 147,801 $ 142,927 $ 162,971

Gross profit 30,976 32,797 28,239 31,750

Selling, general, and administrative expenses 15,038 16,221 17,750 18,875

Operating income 15,938 16,576 10,489 12,875

Net income 11,788 12,190 7,921 9,081

Basic earnings per share $ 0.56 $ 0.58 $ 0.38 $ 0.43

Diluted earnings per share $ 0.55 $ 0.57 $ 0.37 $ 0.43

First Second Third Fourth

Sales $ 147,336 $ 140,043 $ 120,406 $ 132,413

Gross profit 28,797 27,994 21,478 22,648

Selling, general, and administrative expenses 14,836 14,817 14,702 14,891

Operating income 13,961 13,177 6,776 7,757

Net income 9,807 9,250 4,547 4,763

Basic earnings per share $ 0.46 $ 0.44 $ 0.22 $ 0.23

Diluted earnings per share $ 0.46 $ 0.43 $ 0.21 $ 0.22

First Second Third Fourth

Sales $ 149,800 $ 145,324 $ 128,151 $ 133,051

Gross profit 28,457 25,772 21,033 20,674

Selling, general, and administrative expenses 14,979 14,941 14,312 14,886

Operating income 13,478 10,831 6,721 5,788

Net income 9,123 7,409 4,130 3,771

Basic earnings per share $ 0.43 $ 0.35 $ 0.19 $ 0.18

Diluted earnings per share $ 0.43 $ 0.35 $ 0.19 $ 0.18

Earnings (loss) per share may not equal the face of the Consolidated Statements of Income (Loss) due to rounding.

Liquidity and Capital Resources

Cash provided by operating activities in fiscal 2021 was $43.8 million compared to $58.9 million in fiscal 2020.

The increase in cash provided by operating activities in fiscal 2020 as compared to fiscal 2019 was primarily driven by favorable year-over-year changes in certain components of working capital, in particular lower cash used for accounts payable and inventory, as well as the improvement in net income.

The decrease in cash provided by operating activities in fiscal 2021 as compared to fiscal 2020 was primarily driven by increases in customer receivables, resulting from higher sales, as well as higher inventory levels, partially offset by an increase in net income.

Increased customer demand in our Health and Nutrition segment resulted in an increase in on-hand inventory due to increased stocking levels to fill the increased demand and to offset longer lead times from our suppliers for many products.

Due to the nature of our operations, which includes purchases of large quantities of bulk chemicals, the timing of purchases can result in significant changes in working capital and the resulting operating cash flow.

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Capital expenditures were $20.8 million in fiscal 2021 and $24.5 million in fiscal 2020.

Total cash used in investing activities in fiscal 2021 included an aggregate of $51.0 million for the acquisitions of ADC, C&L Aqua and the purchase of the manufacturing facility in Rosemount, Minnesota.

Capital expenditures in fiscal 2021 included $7.8 million of facility improvements, including $4.3 million to expand our pharmaceutical product manufacturing capabilities, vehicles and trucks of $4.7 million, the purchase of a previously leased Water Treatment branch facility for $0.9 million, along with other new and replacement equipment.

Capital expenditures in fiscal 2020 included $9.5 million in the aggregate for the purchase of our previously leased corporate headquarters and a previously leased Water Treatment branch facility as well as the purchase of a facility for a Water Treatment branch expansion.

The additional increase in capital expenditures primarily related to facility improvements and new and replacement equipment.

Cash used in financing activities was $39.6 million in fiscal 2020, as compared to cash used in financing activities of $31.4 million in fiscal 2019.

Cash used in financing activities included net debt repayments of $25.0 million in fiscal 2020 and $16.0 million in fiscal 2019.

Cash provided by financing activities was $26.4 million in fiscal 2021, as compared to cash used in financing activities of $39.6 million in fiscal 2020.

Cash provided by financing activities included net debt borrowings of $39.0 million in fiscal 2021 to partially fund the acquisitions in fiscal 2021, compared to net debt repayments of $25.0 million in fiscal 2020.

We also paid out cash dividends of $10.0 million in fiscal 2021 and $9.8 million in fiscal 2020.

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Our cash balance was $3.0 million at March 28, 2021, a decrease of $1.3 million as compared with March 29, 2020.

Cash flows generated by operations during fiscal 2020 were largely offset by debt repayments, capital expenditures and dividend payments.

We were party to a credit agreement (the “Prior Credit Agreement”) with U.S.

Bank National Association (“U.S.

Bank”) as Sole Lead Arranger and Sole Book Runner and other lenders from time to time party thereto (collectively, the “Prior Lenders”), whereby U.S.

Bank was also serving as Administrative Agent.

The Prior Credit Agreement provided us with senior secured credit facilities totaling $165.0 million, consisting of a $100.0 million senior secured term loan credit facility and a $65.0 million senior secured revolving loan credit facility.

The term loan facility required mandatory quarterly repayments, with the balance due at maturity.

The revolving loan facility included a letter of credit subfacility in the amount of $5.0 million and a swingline subfacility in the amount of $8.0 million.

The Prior Credit Agreement was scheduled to terminate on December 23, 2020 and the underlying credit facility was secured by substantially all of our personal property assets and those of our subsidiaries.

Borrowings under the Prior Credit Agreement bore interest at a variable rate per annum equal to one of the following, plus, in both cases, an applicable margin based upon our leverage ratio:

(a) LIBOR for an interest period of one, two, three or six months as selected by us, reset at the end of the selected interest period, or (b) a base rate determined by reference to the highest of (1) U.S.

Bank’s prime rate, (2) the Federal Funds Effective Rate plus 0.5%, or (3) one-month LIBOR for U.S.

dollars plus 1.0%.

The LIBOR margin was 1.125%, 1.25% or 1.5%, depending on our leverage ratio.

The base rate margin was either 0.125%, 0.25% or 0.5%, depending on our leverage ratio.

On November 30, 2018, we entered into an amended and restated credit agreement (the “Credit Agreement”) with U.S.

Cash flows generated by operations and financing activities during fiscal 2021 were offset by the cash expended for acquisitions in fiscal 2021, capital expenditures and dividend payments.

We are party to an amended and restated credit agreement (the “Credit Agreement”) with U.S.

Bank as Sole Lead Arranger and Sole Book Runner, and other lenders from time to time party thereto (collectively, the “Lenders”), whereby U.S.

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The Revolving Loan Facility is secured by substantially all of our personal property assets and those of our subsidiaries.

We used $91.0 million of the proceeds from the Revolving Loan Facility to refinance the obligations under the Prior Credit Agreement.

We may use the remaining amount of the Revolving Loan Facility for working capital, capital expenditures, share repurchases, restricted payments and acquisitions permitted under the Credit Agreement, and other general corporate purposes.

Borrowings under the Revolving Loan Facility bear interest at a rate per annum equal to one of the following, plus, in both cases, an applicable margin based upon our leverage ratio:

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The base rate margin is between 0.00% and 0.35%, depending on our leverage ratio.

In the event that the ICE Benchmark Administration (or any person that

takes over administration of such rate) determines that LIBOR is no longer available, including as a result of the intended phase out of LIBOR by the end of 2021, our Revolving Loan Facility provides for an alternative rate of interest to be jointly determined by us and U.S.

In the event that the ICE Benchmark Administration (or any person that takes over administration of such rate) determines that LIBOR is no longer available, including as a result of the intended phase out of LIBOR by the end of 2021, our Revolving Loan Facility provides for an alternative rate of interest to be jointly determined by us and U.S.

Bank, as administrative agent, that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States.

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Pension withdrawal liability (4) $ 467 $ 467 $ 467 $ 467 $ 467 $ 3,505 $ 5,840

(1) Represents balance outstanding as of March 29, 2020, and assumes such amount remains outstanding until its maturity date.

(1) Represents balance outstanding as of March 28, 2021, and assumes such amount remains outstanding until its maturity date, as periodic payments are not required under the terms of our Credit Agreement.

However, it is our intention to pay down our debt with available excess cash flow.

See Note 9 of our consolidated Financial Statements for further information.

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Our annual test for impairment is as of the first day of our fourth fiscal quarter, or December 28, 2020 for fiscal 2021.

For our Industrial and Water Treatment reporting units, we performed an analysis of qualitative factors to determine whether it is more likely than not that the fair value of either of these reporting units is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

Based on management’s analysis of qualitative factors, we determined that it was not necessary to perform a quantitative goodwill impairment test for either of these reporting units.

For our Health and Nutrition reporting unit, we performed a quantitative goodwill impairment analysis which required us to estimate the fair value of the reporting unit and compare the fair value to its carrying value.

We utilized a discounted cash flow approach to calculate the present value of projected future cash flows using appropriate discount rates.

In determining the fair value of our Health and Nutrition reporting unit using the discounted cash flow approach, we considered our projected operating results and then made a number of assumptions.

These assumptions included future business plans, economic projections and market data as well as management estimates regarding future cash flows and operating results.

The key assumptions we used in preparing our discounted cash flow analysis are (1) projected cash flows, (2) risk adjusted discount rate, and (3) expected long term growth rate.

We then compared the total fair values for all reporting units to our overall market capitalization as a test of the reasonableness of this approach.

For this comparison, the fair value of the Water Treatment reporting unit was estimated based on a multiple of EBITDA.

As of December 30, 2019, the estimated fair value of our Health and Nutrition reporting unit was more than its carrying values and accordingly no impairment charge was recorded.

Subsequent to our annual goodwill impairment testing date of December 30, 2019, the United States began to see economic impacts of the COVID-19 pandemic.

As a result, management evaluated the potential long-term impact to our businesses.

As a result of this qualitative analysis in the fourth quarter, we determined there were no material adverse changes to our initial projections as a result of the COVID-19 pandemic.

For each of our reporting units, we performed an analysis of qualitative factors to determine whether it is more likely than not that the fair value of any of our reporting units is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

Based on management’s analysis of qualitative factors, we determined that it was not necessary to perform a quantitative goodwill impairment test for any of our reporting units.

Business Acquisitions - We account for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values.

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All of these judgments and estimates can significantly impact the determination of the amortization period of the intangible asset, and thus net income.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments .

The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables.

update is intended to provide financial statement users with more decision-useful information about the expected credit losses.

This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2019, which for us is our fiscal year beginning March 30, 2020.

We have evaluated the requirements of this standard on our financial assets.

Upon adoption, this ASU will impact our method for calculating and estimating our allowance for doubtful accounts, but it will not have a material impact to our financial position or results of operations.

We do not expect that any other recently issued accounting pronouncements will have a material effect on our financial statements.

See Item 8, “Note 1 - Nature of Business and Significant Accounting Policies” of the Notes to Consolidated Financial Statements for information regarding recently adopted accounting standards.

Recent Accounting Pronouncements

See Note 1 to the consolidated financial statements included in Item 8 of this Form 10-K for a full description of recent accounting pronouncements, including expected dates of adoption and estimated effects on results of operations and financial condition.

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What changed 10-K

Item 7. Management’s Discussion and Analysis