HAWKINS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS HAWKINS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data) December 26, 2021 March 28, 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 23,438 $ 2,998 Trade accounts receivables, net 102,020 90,603 Inventories 76,242 63,864 Income taxes receivable 811 175 Prepaid expenses and other current assets 6,967 5,367 Total current assets 209,478 163,007 PROPERTY, PLANT, AND EQUIPMENT: 294,264 300,404 Less accumulated depreciation 146,790 155,792 Net property, plant, and equipment 147,474 144,612 OTHER ASSETS: Right-of-use assets 10,905 11,630 Goodwill 72,917 70,720 Intangible assets, net of accumulated amortization 72,575 76,368 Other 7,795 6,213 Total other assets 164,192 164,931 Total assets $ 521,144 $ 472,550 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable — trade $ 44,021 $ 37,313 Accrued payroll and employee benefits 15,848 18,048 Current portion of long-term debt 9,907 9,907 Short-term lease liability 1,673 1,587 Container deposits 1,543 1,452 Other current liabilities 2,543 2,155 Total current liabilities 75,535 70,462 LONG-TERM DEBT, LESS CURRENT PORTION 105,915 88,845 LONG-TERM LEASE LIABILITY 9,397 10,231 PENSION WITHDRAWAL LIABILITY 4,366 4,631 DEFERRED INCOME TAXES 24,445 24,445 DEFERRED COMPENSATION LIABILITY 8,251 7,322 OTHER LONG-TERM LIABILITIES 1,541 1,368 Total liabilities 229,450 207,304 COMMITMENTS AND CONTINGENCIES — — SHAREHOLDERS’ EQUITY: Common stock; authorized: 60,000,000 shares of $ 0.01 par value; 20,858,385 and 20,969,746 shares issued and outstanding as of December 26, 2021 and March 28, 2021, respectively 209 210 Additional paid-in capital 44,723 51,138 Retained earnings 246,762 213,898 Total shareholders’ equity 291,694 265,246 Total liabilities and shareholders’ equity $ 521,144 $ 472,550 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 26, 2021 December 27, 2020 December 26, 2021 December 27, 2020 Sales $ 187,050 $ 142,927 $ 551,568 $ 433,900 Cost of sales ( 153,110 ) ( 114,688 ) ( 441,367 ) ( 341,888 ) Gross profit 33,940 28,239 110,201 92,012 Selling, general and administrative expenses ( 19,681 ) ( 17,750 ) ( 54,216 ) ( 49,009 ) Operating income 14,259 10,489 55,985 43,003 Interest expense, net ( 317 ) ( 382 ) ( 995 ) ( 1,101 ) Other income 132 478 548 1,282 Income before income taxes 14,074 10,585 55,538 43,184 Income tax expense ( 3,870 ) ( 2,664 ) ( 14,573 ) ( 11,285 ) Net income $ 10,204 $ 7,921 $ 40,965 $ 31,899 Weighted average number of shares outstanding - basic 20,885,232 21,013,836 20,968,692 21,043,042 Weighted average number of shares outstanding - diluted 21,054,603 21,223,310 21,142,515 21,278,744 Basic earnings per share $ 0.49 $ 0.38 $ 1.95 $ 1.52 Diluted earnings per share $ 0.48 $ 0.37 $ 1.94 $ 1.50 Cash dividends declared per common share $ 0.13000 $ 0.11625 $ 0.38250 $ 0.34875 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 26, 2021 December 27, 2020 December 26, 2021 December 27, 2020 Net income $ 10,204 $ 7,921 $ 40,965 $ 31,899 Other comprehensive loss, net of tax: Unrealized gain on interest rate swap — 50 — 79 Total comprehensive income $ 10,204 $ 7,971 $ 40,965 $ 31,978 See accompanying notes to condensed consolidated financial statements. 3 HAWKINS, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED) (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 28, 2021 20,969,746 $ 210 $ 51,138 $ 213,898 $ — $ 265,246 Cash dividends declared and paid — — — ( 2,600 ) — ( 2,600 ) Share-based compensation expense — — 799 — — 799 Vesting of restricted stock 123,002 1 ( 1 ) — — — Shares surrendered for payroll taxes ( 45,390 ) — ( 1,467 ) — — ( 1,467 ) Shares repurchased ( 100,954 ) ( 1 ) ( 3,400 ) — — ( 3,401 ) Net income — — — 16,628 — 16,628 BALANCE — June 27, 2021 20,946,404 $ 210 $ 47,069 $ 227,926 $ — $ 275,205 Cash dividends declared and paid — — — ( 2,756 ) — ( 2,756 ) Share-based compensation expense — — 862 — — 862 Vesting of restricted stock 11,228 — — — — — ESPP shares issued 40,300 — 889 — — 889 Shares repurchased ( 109,009 ) ( 1 ) ( 4,019 ) — — ( 4,020 ) Net income — — — 14,133 — 14,133 BALANCE — September 26, 2021 20,888,923 $ 209 $ 44,801 $ 239,303 $ — $ 284,313 Cash dividends declared and paid — — — ( 2,745 ) — ( 2,745 ) Share-based compensation expense — — 1,046 — — 1,046 Shares repurchased ( 30,538 ) — ( 1,124 ) — — ( 1,124 ) Net income — — — 10,204 — 10,204 BALANCE — December 26, 2021 20,858,385 $ 209 $ 44,723 $ 246,762 $ — $ 291,694 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount BALANCE — March 29, 2020 21,024,458 $ 211 $ 50,405 $ 182,947 $ ( 79 ) $ 233,484 Cash dividends declared and paid — — — ( 2,479 ) — ( 2,479 ) Share-based compensation expense — — 700 — — 700 Vesting of restricted stock 10,526 — — — — — Shares surrendered for payroll taxes ( 3,314 ) — ( 54 ) — — ( 54 ) Other comprehensive loss, net of tax — — — — ( 10 ) ( 10 ) Net income — — — 11,788 — 11,788 BALANCE — June 28, 2020 21,031,670 $ 211 $ 51,051 $ 192,256 $ ( 89 ) $ 243,429 Cash dividends declared and paid — — — ( 2,480 ) — ( 2,480 ) Share-based compensation expense — — 686 — — 686 Vesting of restricted stock 16,016 — — — — — ESPP shares issued 42,720 — 773 — — 773 Other comprehensive income, net of tax — — — — 39 39 Net income — — — 12,190 — 12,190 BALANCE — September 27, 2020 21,090,406 $ 211 $ 52,510 $ 201,966 $ ( 50 ) $ 254,637 Cash dividends declared and paid — — — ( 2,471 ) — ( 2,471 ) Share-based compensation expense — — 918 — — 918 Shares repurchased ( 166,088 ) ( 2 ) ( 4,138 ) — — ( 4,140 ) Other comprehensive income, net of tax — — — — 50 50 Net income — — — 7,921 $ — 7,921 BALANCE — December 27, 2020 20,924,318 $ 209 $ 49,290 $ 207,416 $ — $ 256,915 See accompanying notes to condensed consolidated financial statements. 4 HAWKINS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine Months Ended December 26, 2021 December 27, 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 40,965 $ 31,899 Reconciliation to cash flows: Depreciation and amortization 17,859 16,735 Operating leases 1,416 1,419 Gain on deferred compensation assets ( 548 ) ( 1,282 ) Stock compensation expense 2,707 2,303 Other 379 170 Changes in operating accounts providing (using) cash: Trade receivables ( 10,847 ) ( 8,121 ) Inventories ( 12,311 ) ( 9,431 ) Accounts payable 6,094 ( 3,569 ) Accrued liabilities ( 1,589 ) 1,160 Lease liabilities ( 1,431 ) ( 1,363 ) Income taxes ( 635 ) ( 1,006 ) Other ( 3,350 ) ( 2,308 ) Net cash provided by operating activities 38,709 26,606 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant, and equipment ( 15,700 ) ( 13,200 ) Acquisitions ( 2,575 ) ( 35,017 ) Other 230 154 Net cash used in investing activities ( 18,045 ) ( 48,063 ) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends declared and paid ( 8,101 ) ( 7,430 ) New shares issued 889 773 Payroll taxes paid in exchange for shares withheld ( 1,467 ) ( 54 ) Shares repurchased ( 8,545 ) ( 4,140 ) Payments on revolving loan ( 15,000 ) ( 24,000 ) Proceeds from revolving loan borrowings 32,000 60,000 Net cash (used in) provided by financing activities ( 224 ) 25,149 NET INCREASE IN CASH AND CASH EQUIVALENTS 20,440 3,692 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,998 4,277 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,438 $ 7,969 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for income taxes $ 15,208 $ 12,345 Cash paid for interest $ 746 $ 893 Noncash investing activities - capital expenditures in accounts payable $ 1,018 $ 790 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 28, 2021 , 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 26, 2021 are not necessarily indicative of the results that may be expected for the full year. References to fiscal 2020 refer to the fiscal year ended March 29, 2020, references to fiscal 2021 refer to the fiscal year ended March 28, 2021 and references to fiscal 2022 refer to the fiscal year ending April 3, 2022. As compared to our normal 52-week fiscal years, fiscal 2022 will be a 53-week year, with the extra week to be recorded in our fourth quarter's results of operations. 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 28, 2021 , previously filed with the SEC. There has been no significant change in our accounting policies since the end of fiscal 2021. Note 2 — Acquisitions Acquisition of Water and Waste Specialties, Inc.: On October 29, 2021, we acquired substantially all the assets of Water and Waste Specialties, Inc., under the terms of a purchase agreement with Water and Waste Specialties and its shareholders. We paid $ 1.4 million at closing for the acquisition. Water and Waste Specialties was a water treatment chemical distribution company operating primarily in Alabama. 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 Water and Waste Specialties 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 total $ 1.4 million purchase price, we allocated $ 0.5 million to finite-lived intangible assets, primarily customer relationships to be amortized over 11 years, and $ 0.4 million to property, plant and equipment. The residual amount of $ 0.5 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. 6 Acquisition of Southeast Water Systems LLC: On September 20, 2021, we acquired substantially all the assets of Southeast Water Systems LLC, under the terms of an asset purchase agreement with Southeast Water Systems and its shareholders. We paid $ 1.2 million at closing for the acquisition and may pay up to an additional $ 1.0 million over the next three years based on achieving certain goals. Southeast Water Systems supplied and installed water treatment chemical equipment to its customers located primarily in Alabama, southern Georgia and the Florida panhandle. 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 Southeast Water Systems 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 total $ 2.2 million purchase price, which includes a contingent consideration liability of $ 1.0 million, we allocated $ 0.4 million to finite-lived intangible assets, primarily customer relationships to be amortized over 10 years, and $ 0.1 million to property, plant and equipment. The residual amount of $ 1.7 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. Acquisitions of C&L Aqua Professionals, Inc. and LC Blending, Inc. : 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. We paid $ 16 million for the acquisition. C&L Aqua was a water treatment chemical distribution company operating primarily in Louisiana. 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. Acquisition of Property : In the third quarter of fiscal 2021, 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 added 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 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 our customers. Acquisition of American Development Corporation of Tennessee, Inc. : 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. We paid $ 25 million for the acquisition. ADC was 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. 7 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 26, 2021 and December 27, 2020: Three months ended December 26, 2021 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 15,659 $ 4,689 $ 29,082 $ 49,430 Manufactured, blended or repackaged products (2) 82,905 44,241 7,750 134,896 Other 1,990 826 ( 92 ) 2,724 Total external customer sales $ 100,554 $ 49,756 $ 36,740 $ 187,050 Three months ended December 27, 2020 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 10,174 $ 3,896 $ 27,695 $ 41,765 Manufactured, blended or repackaged products (2) 53,343 35,129 11,577 100,049 Other 839 273 1 1,113 Total external customer sales $ 64,356 $ 39,298 $ 39,273 $ 142,927 Nine months ended December 26, 2021 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 41,165 $ 14,484 $ 90,086 $ 145,735 Manufactured, blended or repackaged products (2) 223,621 151,842 23,684 399,147 Other 4,786 1,779 121 6,686 Total external customer sales $ 269,572 $ 168,105 $ 113,891 $ 551,568 Nine months ended December 27, 2020 (In thousands) Industrial Water Treatment Health and Nutrition Total Bulk / Distributed specialty products (1) $ 28,311 $ 12,129 $ 82,593 $ 123,033 Manufactured, blended or repackaged products (2) 166,340 115,473 25,808 307,621 Other 2,378 950 ( 82 ) 3,246 Total external customer sales $ 197,029 $ 128,552 $ 108,319 $ 433,900 (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. 8 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 26, 2021 December 27, 2020 December 26, 2021 December 27, 2020 Weighted-average common shares outstanding—basic 20,885,232 21,013,836 20,968,692 21,043,042 Dilutive impact of performance units and restricted stock 169,371 209,474 173,823 235,702 Weighted-average common shares outstanding—diluted 21,054,603 21,223,310 21,142,515 21,278,744 For each of the periods presented, there were no shares excluded from the calculation of weighted-average common shares for diluted EPS. Note 5 – Fair Value Measurements Our financial assets and liabilities are measured at fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We classify the inputs used to measure fair value into the following hierarchy: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for the asset or liability. Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity. These fair values are determined using pricing models for which the assumptions utilize management’s estimates or market participant assumptions. Assets and Liabilities Measured at Fair Value on a Recurring Basis. The fair value hierarchy requires the use of observable market data when available. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. Our financial assets that are measured at fair value on a recurring basis are assets held in a deferred compensation retirement plan. As of December 26, 2021 and March 28, 2021, the assets held in a deferred compensation retirement plan were 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 on our balance sheet. 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. Our financial liability that is measured at fair value on a recurring basis consists of a contingent earnout liability in connection with our acquisition of Southeast Water Systems LLC. The contingent earnout liability was classified as other long-term liabilities on our balance sheet, with the portion of the contingent earnout liability expected to be paid within 12 months classified as current liabilities on our balance sheet. The following tables summarize the balances of assets and liabilities measured at fair value on a recurring basis as of December 26, 2021 and March 28, 2021. 0 (In thousands) December 26, 2021 March 28, 2021 Assets Deferred compensation plan assets Level 1 $ 7,496 $ 5,946 Liabilities Contingent consideration liability Level 3 $ 970 $ — 9 Note 6– Assets Held for Sale Included in assets held for sale as of March 28, 2021 was $ 0.7 million for an office building in St. Louis, Missouri which was utilized in the administration of our Industrial segment and $ 0.2 million for a former water treatment branch located in Eldridge, Iowa, which has been relocated to another owned facility. Both were sold in the first quarter of fiscal 2022. These amounts were recorded as assets held for sale within prepaid expenses and other current assets on our balance sheet. Note 7 – Inventories Inventories at December 26, 2021 and March 28, 2021 consisted of the following: December 26, 2021 March 28, 2021 (In thousands) Inventory (FIFO basis) $ 89,442 $ 69,438 LIFO reserve ( 13,200 ) ( 5,574 ) Net inventory $ 76,242 $ 63,864 The first in, first out (“FIFO”) value of inventories accounted for under the last in, first out (“LIFO”) method was $ 64.3 million at December 26, 2021 and $ 46.8 million at March 28, 2021. The remainder of the inventory was valued and accounted for under the FIFO method. Note 8 – Goodwill and Intangible Assets The carrying amount of goodwill was $ 72.9 million as of December 26, 2021 and $ 70.7 million as of March 28, 2021, of which $ 44.9 million was related to our Health and Nutrition segment, $ 21.5 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 26, 2021 represents goodwill recorded in connection with the acquisitions of the assets of Southeast Water Systems and Water and Waste Specialties as discussed in Note 2. A summary of our intangible assets as of December 26, 2021 and March 28, 2021 is as follows: December 26, 2021 March 28, 2021 (In thousands) Gross Amount Accumulated Amortization Net Gross Amount Accumulated Amortization Net Finite-life intangible assets Customer relationships $ 100,484 $ ( 30,823 ) $ 69,661 $ 99,588 $ ( 26,522 ) $ 73,066 Trademarks and trade names 6,210 ( 4,606 ) 1,604 6,210 ( 4,275 ) 1,935 Other finite-life intangible assets 3,849 ( 3,766 ) 83 3,833 ( 3,693 ) 140 Total finite-life intangible assets 110,543 ( 39,195 ) 71,348 109,631 ( 34,490 ) 75,141 Indefinite-life intangible assets 1,227 — 1,227 1,227 — 1,227 Total intangible assets $ 111,770 $ ( 39,195 ) $ 72,575 $ 110,858 $ ( 34,490 ) $ 76,368 Note 9 – Debt Debt at December 26, 2021 and March 28, 2021 consisted of the following: December 26, 2021 March 28, 2021 (In thousands) Senior secured revolving loan $ 116,000 $ 99,000 Less: unamortized debt issuance costs ( 178 ) ( 248 ) Total debt, net of debt issuance costs 115,822 98,752 Less: current portion of long-term debt ( 9,907 ) ( 9,907 ) Total long-term debt $ 105,915 $ 88,845 We were in compliance with all covenants of the Credit Agreement as of December 26, 2021. 10 Note 10 – Income Taxes We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The tax years prior to our fiscal year ended April 1, 2018 are closed to examination by the Internal Revenue Service, and with few exceptions, state and local income tax jurisdictions. Our effective tax rate was approximately 26 % for both the nine months ended December 26, 2021 and for the nine months ended December 27, 2020. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes. Note 11 – Leases Lease Obligations. As of December 26, 2021, 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 original lease terms of 1 year to 23 years, some of which include options to extend the lease for up to 10 years . As of December 26, 2021, 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 was no t material for the three and nine months ended December 26, 2021 and December 27, 2020. Total lease expense was $ 0.7 million for both the three months ended December 26, 2021 and December 27, 2020, and was $ 2.1 million for both the nine months ended December 26, 2021 and December 27, 2020. Other information related to our operating leases was as follows: December 26, 2021 March 28, 2021 Lease Term and Discount Rate Weighted average remaining lease term (years) 9.16 9.73 Weighted average discount rate 2.6 % 2.7 % Maturities of lease liabilities as of December 26, 2021 were as follows: (In thousands) Operating Leases Remaining fiscal 2022 $ 443 Fiscal 2023 1,764 Fiscal 2024 1,411 Fiscal 2025 1,356 Fiscal 2026 1,297 Thereafter 6,335 Total $ 12,606 Less: Interest ( 1,536 ) Present value of lease liabilities $ 11,070 11 Note 12 – Share-Based Compensation Performance-Based Restricted Stock Units . Our Board of Directors (the “Board”) approved a performance-based equity compensation arrangement for our executive officers during the first quarters of each of fiscal 2022 and fiscal 2021. 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 88,524 shares in the aggregate for fiscal 2022. 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 26, 2021: Shares Weighted- Average Grant Date Fair Value Unvested at beginning of period 239,120 $ 17.94 Granted 111,618 31.74 Vested ( 123,002 ) 17.25 Unvested at end of period 227,736 $ 25.08 We recorded compensation expense related to performance share units and restricted stock of $ 0.8 million and $ 2.0 million for the three and nine months ended December 26, 2021, respectively. 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. 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 retainer, our non-employee directors receive restricted stock for their Board services. The restricted stock awards are generally expensed over a one-year vesting period, based on the market value on the date of grant. As of December 26, 2021, there were 10,287 shares of restricted stock with an average grant date fair value of $ 32.80 outstanding under this program. Compensation expense for both the three months ended December 26, 2021 and December 27, 2020 related to restricted stock awards to the Board was $ 0.1 million. Compensation expense for both the nine months ended December 26, 2021 and December 27, 2020 related to restricted stock awards to the Board was $ 0.2 million. Note 13 – Share Repurchase Program Our Board has authorized the repurchase of up to 1.6 million shares of our outstanding common stock for cash on the open market or in privately negotiated transactions subject to applicable securities laws and regulations. Upon purchase of the shares, we reduce our common stock for the par value of the shares with the excess applied against additional paid-in capital. During the three months ended December 26, 2021, we repurchased 30,538 shares at an aggregate purchase price of $ 1.1 million. During the nine months ended December 26, 2021, we repurchased 240,501 shares at an aggregate purchase price of $ 8.5 million. During the three and nine months ended December 27, 2020, we repurchased 166,088 shares at an aggregate purchase price of $ 4.1 million. As of December 26, 2021, 311,005 shares remained available to be repurchased under the share repurchase program. 12 Note 14 – 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 28, 2021 . 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. 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 26, 2021: Sales $ 100,554 $ 49,756 $ 36,740 $ 187,050 Gross profit 15,303 11,103 7,534 33,940 Selling, general, and administrative expenses 7,367 8,254 4,060 19,681 Operating income 7,936 2,849 3,474 14,259 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 Nine months ended December 26, 2021: Sales $ 269,572 $ 168,105 $ 113,891 $ 551,568 Gross profit 42,121 44,855 23,225 110,201 Selling, general and administrative expenses 20,064 22,721 11,431 54,216 Operating income 22,057 22,134 11,794 55,985 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 No significant changes to identifiable assets by segment occurred during the nine months ended December 26, 2021. Note 15 – Subsequent Events On December 30, 2021, we acquired substantially all the assets of NAPCO Chemical Company, Inc. and its affiliates ("NAPCO") for $ 18.5 million, subject to a working capital adjustment, under the terms of an asset purchase agreement among us, NAPCO and certain other parties thereto. NAPCO manufactures and distributes water treatment chemicals from three locations in Texas. 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