HAWKINS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS HAWKINS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data) December 31, 2023 April 2, 2023 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,741 $ 7,566 Trade accounts receivables, net 113,016 129,252 Inventories 68,805 88,777 Prepaid expenses and other current assets 7,442 6,449 Total current assets 195,004 232,044 PROPERTY, PLANT, AND EQUIPMENT: 376,952 344,753 Less accumulated depreciation 173,457 158,950 Net property, plant, and equipment 203,495 185,803 OTHER ASSETS: Right-of-use assets 13,400 10,199 Goodwill 101,495 77,401 Intangible assets, net of accumulated amortization 116,728 73,060 Deferred compensation plan asset 9,617 7,367 Other 4,308 4,661 Total other assets 245,548 172,688 Total assets $ 644,047 $ 590,535 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable — trade $ 42,857 $ 53,705 Accrued payroll and employee benefits 17,753 17,279 Income tax payable 1,504 3,329 Current portion of long-term debt 9,913 9,913 Other current liabilities 7,651 6,645 Total current liabilities 79,678 90,871 LONG-TERM DEBT, LESS CURRENT PORTION 109,797 101,731 LONG-TERM LEASE LIABILITY 11,107 8,687 PENSION WITHDRAWAL LIABILITY 3,633 3,912 DEFERRED INCOME TAXES 23,698 23,800 DEFERRED COMPENSATION LIABILITY 11,437 9,343 OTHER LONG-TERM LIABILITIES 10,943 2,175 Total liabilities 250,293 240,519 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Common stock; authorized: 60,000,000 shares of $ 0.01 par value; 20,790,292 and 20,850,454 shares issued and outstanding as of December 31, 2023 and April 2, 2023, respectively 208 209 Additional paid-in capital 36,781 44,443 Retained earnings 354,069 302,424 Accumulated other comprehensive income 2,696 2,940 Total shareholders’ equity 393,754 350,016 Total liabilities and shareholders’ equity $ 644,047 $ 590,535 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 31, 2023 January 1, 2023 December 31, 2023 January 1, 2023 Sales $ 208,496 $ 219,218 $ 696,142 $ 706,953 Cost of sales ( 166,248 ) ( 182,947 ) ( 548,017 ) ( 577,559 ) Gross profit 42,248 36,271 148,125 129,394 Selling, general and administrative expenses ( 23,774 ) ( 21,004 ) ( 64,173 ) ( 59,727 ) Operating income 18,474 15,267 83,952 69,667 Interest expense, net ( 1,168 ) ( 1,546 ) ( 3,033 ) ( 3,858 ) Other income (expense) 853 465 901 ( 744 ) Income before income taxes 18,159 14,186 81,820 65,065 Income tax expense ( 3,274 ) ( 3,453 ) ( 20,289 ) ( 16,637 ) Net income $ 14,885 $ 10,733 $ 61,531 $ 48,428 Weighted average number of shares outstanding - basic 20,781,632 20,818,347 20,864,349 20,847,285 Weighted average number of shares outstanding - diluted 20,907,321 20,974,264 21,004,077 21,004,849 Basic earnings per share $ 0.72 $ 0.52 $ 2.95 $ 2.32 Diluted earnings per share $ 0.71 $ 0.51 $ 2.93 $ 2.31 Cash dividends declared per common share $ 0.16 $ 0.14 $ 0.47 $ 0.42 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 31, 2023 January 1, 2023 December 31, 2023 January 1, 2023 Net income $ 14,885 $ 10,733 $ 61,531 $ 48,428 Other comprehensive income, net of tax: Unrealized (loss) gain on interest rate swap ( 1,299 ) ( 139 ) ( 244 ) 2,303 Total comprehensive income $ 13,586 $ 10,594 $ 61,287 $ 50,731 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 — April 2, 2023 20,850,454 $ 209 $ 44,443 $ 302,424 $ 2,940 $ 350,016 Cash dividends declared and paid ($ 0.15 per share) — — — ( 3,160 ) — ( 3,160 ) Share-based compensation expense — — 959 — — 959 Vesting of restricted stock 105,600 1 ( 1 ) — — — Shares surrendered for payroll taxes ( 48,478 ) ( 1 ) ( 2,139 ) — — ( 2,140 ) ESPP shares issued 35,281 — 1,147 — — 1,147 Other comprehensive income, net of tax — — — — 749 749 Net income — — — 23,430 — 23,430 BALANCE — July 2, 2023 20,942,857 $ 209 $ 44,409 $ 322,694 $ 3,689 $ 371,001 Cash dividends declared and paid ($ 0.16 per share) — — — ( 3,375 ) — ( 3,375 ) Share-based compensation expense — — 1,260 — — 1,260 Vesting of restricted stock 12,565 — — — — — Shares repurchased ( 167,796 ) ( 1 ) ( 9,751 ) — — ( 9,752 ) Other comprehensive income, net of tax — — — — 306 306 Net income — — — 23,216 — 23,216 BALANCE — October 1, 2023 20,787,626 $ 208 $ 35,918 $ 342,535 $ 3,995 $ 382,656 Cash dividends declared and paid ($ 0.16 per share) — — — ( 3,351 ) — ( 3,351 ) Share-based compensation expense — — 1,287 — — 1,287 ESPP shares issued 26,731 — 1,096 — — 1,096 Shares repurchased ( 24,065 ) — ( 1,520 ) — — ( 1,520 ) Other comprehensive loss, net of tax — — — — ( 1,299 ) ( 1,299 ) Net income — — — 14,885 — 14,885 BALANCE — December 31, 2023 20,790,292 $ 208 $ 36,781 $ 354,069 $ 2,696 $ 393,754 4 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount BALANCE — April 3, 2022 20,889,777 $ 209 $ 46,717 $ 254,384 $ 1,291 $ 302,601 Cash dividends declared and paid ($ 0.14 per share) — — — ( 2,958 ) — ( 2,958 ) Share-based compensation expense — — 595 — — 595 Vesting of restricted stock 102,860 1 ( 1 ) — — — Shares surrendered for payroll taxes ( 36,410 ) — ( 1,550 ) — — ( 1,550 ) ESPP shares issued 32,768 — 986 — — 986 Shares repurchased ( 181,657 ) ( 2 ) ( 6,555 ) — — ( 6,557 ) Other comprehensive income, net of tax — — — — 465 465 Net income — — — 19,695 — 19,695 BALANCE — July 3, 2022 20,807,338 $ 208 $ 40,192 $ 271,121 $ 1,756 $ 313,277 Cash dividends declared and paid ($ 0.14 per share) — — — ( 2,942 ) — ( 2,942 ) Share-based compensation expense — — 1,085 — — 1,085 Vesting of restricted stock 10,287 — — — — — ESPP shares issued — — 17 — — 17 Other comprehensive income, net of tax — — — — 1,977 1,977 Net income — — — 18,000 — 18,000 BALANCE — October 2, 2022 20,817,625 $ 208 $ 41,294 $ 286,179 $ 3,733 $ 331,414 Cash dividends declared and paid ($ 0.14 per share) — — — ( 2,943 ) — ( 2,943 ) Share-based compensation expense — — 1,084 — — 1,084 ESPP shares issued 32,829 1 1,010 — — 1,011 Other comprehensive income, net of tax — — — — ( 139 ) ( 139 ) Net income — — — 10,733 $ — 10,733 BALANCE — January 1, 2023 20,850,454 $ 209 $ 43,388 $ 293,969 $ 3,594 $ 341,160 See accompanying notes to condensed consolidated financial statements. 5 HAWKINS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine Months Ended December 31, 2023 January 1, 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 61,531 $ 48,428 Reconciliation to cash flows: Depreciation and amortization 22,849 20,373 Operating leases 1,884 1,442 (Gain) loss on deferred compensation assets ( 901 ) 744 Stock compensation expense 3,506 2,764 Other 70 225 Changes in operating accounts providing (using) cash: Trade receivables 22,500 ( 2,336 ) Inventories 25,665 ( 6,596 ) Accounts payable ( 14,334 ) ( 16,231 ) Accrued liabilities ( 610 ) ( 3,652 ) Lease liabilities ( 1,804 ) ( 1,453 ) Income taxes ( 1,824 ) 1,762 Other ( 922 ) ( 929 ) Net cash provided by operating activities 117,610 44,541 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant, and equipment ( 28,248 ) ( 32,307 ) Acquisitions ( 78,855 ) — Other 723 352 Net cash used in investing activities ( 106,380 ) ( 31,955 ) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends declared and paid ( 9,886 ) ( 8,843 ) New shares issued 2,243 2,014 Payroll taxes paid in exchange for shares withheld ( 2,140 ) ( 1,550 ) Shares repurchased ( 11,272 ) ( 6,557 ) Payments on revolving loan ( 67,000 ) ( 40,000 ) Proceeds from revolving loan borrowings 75,000 45,000 Net cash used in financing activities ( 13,055 ) ( 9,936 ) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 1,825 ) 2,650 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,566 3,496 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,741 $ 6,146 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for income taxes $ 22,125 $ 14,847 Cash paid for interest $ 3,252 $ 3,345 Noncash investing activities - capital expenditures in accounts payable $ 2,887 $ 3,844 See accompanying notes to condensed consolidated financial statements. 6 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 April 2, 2023 , 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 31, 2023 are not necessarily indicative of the results that may be expected for the full year. References to fiscal 2023 refer to the fiscal year ended April 2, 2023 and references to fiscal 2024 refer to the fiscal year ending March 31, 2024. 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 April 2, 2023 , previously filed with the SEC. There has been no significant change in our accounting policies since the end of fiscal 2023. 7 Note 2 — Acquisitions and Asset Sales Acquisition of The Miami Products & Chemical Company: On October 31, 2023, we acquired substantially all the assets of The Miami Products & Chemical Company ("Miami Products") for $ 15.5 million under the terms of a purchase agreement with Miami Products and its shareholders. Miami Products is a bleach manufacturer and distributor serving customers primarily throughout Ohio and the surrounding region. The results of operations since the acquisition date and the assets 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 Miami Products 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 $ 15.5 million purchase price, $ 8.2 million was allocated to customer lists, to be amortized over 11 years, and $ 0.8 million was allocated to trade names, to be amortized over 10 years. The remaining amount was allocated to net working capital and property, plant and equipment, with the residual amount of $ 3.1 million allocated to goodwill. The goodwill recognized as a result of this acquisition is primarily attributable to strategic and synergistic benefits, as well as the assembled workforce. Such goodwill is expected to be deductible for tax purposes. The purchase price allocation is preliminary and subject to adjustment within the first 12 months following the acquisition. Acquisition of Water Solutions Unlimited, Inc.: On October 27, 2023, we acquired substantially all the assets of Water Solutions Unlimited, Inc. ("Water Solutions") under the terms of a purchase agreement with Water Solutions and its shareholders. We paid $ 60 million at closing and may be obligated to pay an additional amount based on achieving a certain earnings target three years after the acquisition. Water Solutions is a manufacturer and distributor of water treatment chemicals serving customers primarily throughout Indiana, Illinois and Michigan. The results of operations since the acquisition date and the assets 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 Solutions 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). The total purchase price was estimated to be $ 70.7 million, including the estimated potential earnout to be paid of $ 10.7 million. Of the $ 70.7 million purchase price, $ 32.0 million was allocated to customer lists, to be amortized over 13 years, $ 6.4 million was allocated to trade names, to be amortized over 10 years, and $ 0.2 million was allocated to non-compete agreements, to be amortized over five years. The remaining amount was allocated to net working capital and property, plant and equipment, with the residual amount of $ 21.0 million allocated to goodwill. The goodwill recognized as a result of this acquisition is primarily attributable to strategic and synergistic benefits, as well as the assembled workforce. Such goodwill is expected to be deductible for tax purposes. The purchase price allocation is preliminary and subject to adjustment within the first 12 months following the acquisition. Acquisition of EcoTech Enterprises, Inc.: On July 14, 2023, we acquired substantially all the assets of EcoTech Enterprises, Inc. ("EcoTech") for $ 3.4 million, under the terms of a purchase agreement with EcoTech and its shareholders. EcoTech was a water treatment chemical distribution company operating primarily in Arkansas. The $ 3.4 million purchase price was allocated primarily to customer lists, to be amortized over 10 years, property, plant and equipment, and net working capital. The results of operations since the acquisition date and the assets are included in our Water Treatment segment. Costs associated with this transaction were not material and were expensed as incurred. Sale of bleach packaging assets: In the fourth quarter of fiscal 2023, we sold certain assets in our Industrial segment related to our consumer bleach packaging business for $ 7 million. These assets were not core to our Industrial segment operations, where we tend to focus our manufacturing operations on bulk products. The assets sold included plant equipment, inventory and intangible assets, all related to the packaging of bleach. We realized a gain of $ 3 million on this sale, which has been recorded within selling, general and administrative expenses. 8 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 nine months ended December 31, 2023 and January 1, 2023: Three months ended December 31, 2023 (In thousands) Industrial Water Treatment Health and Nutrition Total Manufactured, blended or repackaged products (1) $ 78,313 $ 73,406 $ 7,857 $ 159,576 Distributed specialty products (2) — — 25,678 25,678 Bulk products (3) 12,921 7,629 — 20,550 Other 1,756 984 ( 48 ) 2,692 Total external customer sales $ 92,990 $ 82,019 $ 33,487 $ 208,496 Three months ended January 1, 2023 (In thousands) Industrial Water Treatment Health and Nutrition Total Manufactured, blended or repackaged products (1) $ 91,658 $ 60,583 $ 11,935 $ 164,176 Distributed specialty products (2) — — 23,833 23,833 Bulk products (3) 20,364 6,649 — 27,013 Other 2,414 1,317 465 4,196 Total external customer sales $ 114,436 $ 68,549 $ 36,233 $ 219,218 Nine months ended December 31, 2023 (In thousands) Industrial Water Treatment Health and Nutrition Total Manufactured, blended or repackaged products (1) $ 264,878 $ 249,155 $ 28,956 $ 542,989 Distributed specialty products (2) — — 77,945 77,945 Bulk products (3) 41,280 23,710 — 64,990 Other 6,240 3,730 248 10,218 Total external customer sales $ 312,398 $ 276,595 $ 107,149 $ 696,142 Nine months ended January 1, 2023 (In thousands) Industrial Water Treatment Health and Nutrition Total Manufactured, blended or repackaged products (1) $ 286,818 $ 208,112 $ 35,632 $ 530,562 Distributed specialty products (2) — — 83,599 83,599 Bulk products (3) 58,951 21,159 — 80,110 Other 7,316 4,256 1,110 12,682 Total external customer sales $ 353,085 $ 233,527 $ 120,341 $ 706,953 (1) 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. (2) This line includes non-manufactured distributed specialty products in our Health and Nutrition segment, which may be sold out of one of our facilities or direct shipped to our customers. (3) This line includes bulk products in our Industrial and Water Treatment segments 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. 9 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 31, 2023 January 01, 2023 December 31, 2023 January 01, 2023 Weighted-average common shares outstanding—basic 20,781,632 20,818,347 20,864,349 20,847,285 Dilutive impact of performance units and restricted stock 125,689 155,917 139,728 157,564 Weighted-average common shares outstanding—diluted 20,907,321 20,974,264 21,004,077 21,004,849 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). The carrying value of cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short-term nature of these instruments. Because of the variable-rate nature of our debt under our credit facility, our debt also approximates fair value. 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. Both of these assets are classified as long-term assets on our balance sheet, with the portion of the deferred compensation retirement plan assets expected to be paid within twelve months classified as current assets. The fair value of the interest rate swap is determined by the respective counterparties based on interest rate changes. Interest rate swaps are valued based on observable interest rate yield curves for similar instruments. The deferred compensation plan assets relate to contributions made to a non-qualified compensation plan on behalf of certain employees who are classified as “highly compensated employees” as determined by IRS guidelines. The 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 31, 2023 and April 2, 2023. 0 (In thousands) December 31, 2023 April 2, 2023 Assets Deferred compensation plan assets Level 1 $ 9,803 $ 7,659 Interest rate swap Level 2 $ 3,694 $ 4,028 Note 6 – Inventories Inventories at December 31, 2023 and April 2, 2023 consisted of the following: December 31, 2023 April 2, 2023 (In thousands) Inventory (FIFO basis) $ 102,657 $ 128,589 LIFO reserve ( 33,852 ) ( 39,812 ) Net inventory $ 68,805 $ 88,777 The first in, first out (“FIFO”) value of inventories accounted for under the last in, first out (“LIFO”) method was $ 78.7 million at December 31, 2023 and $ 101.4 million at April 2, 2023. The remainder of the inventory was valued and accounted for under the FIFO method. 10 Note 7 – Goodwill and Intangible Assets The carrying amount of goodwill was $ 101.5 million as of December 31, 2023 and $ 77.4 million as of April 2, 2023, of which $ 44.9 million was related to our Health and Nutrition segment, $ 50.1 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 31, 2023 represents goodwill recorded in connection with the acquisitions of the assets of Water Solutions and Miami Products as discussed in Note 2. A summary of our intangible assets as of December 31, 2023 and April 2, 2023 is as follows: December 31, 2023 April 2, 2023 (In thousands) Gross Amount Accumulated Amortization Net Gross Amount Accumulated Amortization Net Finite-life intangible assets Customer relationships $ 151,094 $ ( 43,709 ) $ 107,385 $ 109,107 $ ( 38,377 ) $ 70,730 Trademarks and trade names $ 13,570 $ ( 5,688 ) $ 7,882 $ 6,370 $ ( 5,267 ) $ 1,103 Other finite-life intangible assets 4,171 ( 3,937 ) 234 3,904 ( 3,904 ) — Total finite-life intangible assets 168,835 ( 53,334 ) 115,501 119,381 ( 47,548 ) 71,833 Indefinite-life intangible assets 1,227 — 1,227 1,227 — 1,227 Total intangible assets $ 170,062 $ ( 53,334 ) $ 116,728 $ 120,608 $ ( 47,548 ) $ 73,060 Note 8 – Debt Debt at December 31, 2023 and April 2, 2023 consisted of the following: December 31, 2023 April 2, 2023 (In thousands) Senior secured revolving loan $ 120,000 $ 112,000 Less: unamortized debt issuance costs ( 290 ) ( 356 ) Total debt, net of debt issuance costs 119,710 111,644 Less: current portion of long-term debt ( 9,913 ) ( 9,913 ) Total long-term debt $ 109,797 $ 101,731 We were in compliance with all covenants of our credit agreement as of December 31, 2023. Note 9 – 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 March 28, 2021 are closed to examination by the Internal Revenue Service, and with few exceptions, state and local income tax jurisdictions. Our effective income tax rate was 25 % for the nine months ended December 31, 2023, compared to 26 % for the nine months ended January 1, 2023. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes. 11 Note 10 – 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 2024 and fiscal 2023. 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 70,859 shares in the aggregate for fiscal 2024. 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 31, 2023: Shares Weighted- Average Grant Date Fair Value Unvested at beginning of period 189,258 $ 34.64 Granted 61,819 43.06 Vested ( 105,600 ) 31.74 Unvested at end of period 145,477 $ 40.33 We recorded compensation expense related to performance share units and restricted stock of $ 1.0 million and $ 2.7 million for the three and nine months ended December 31, 2023, respectively. 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 January 1, 2023, 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 directors, other than the Chief Executive Officer, 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 31, 2023, there were 10,647 shares of restricted stock with an average grant date fair value of $ 46.00 outstanding under this program. Compensation expense for both the three months ended December 31, 2023 and January 1, 2023 related to restricted stock awards to the Board was $ 0.1 million. Compensation expense related to restricted stock awards to the Board for the nine months ended December 31, 2023 was $ 0.4 million and for the nine months ended January 1, 2023 was $ 0.3 million. Note 11 – Share Repurchase Program Our Board has authorized the repurchase of up to 2.6 million shares of our outstanding common shares. The shares may be repurchased 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 31, 2023, we repurchased 24,065 shares at an aggregate purchase price of $ 1.5 million. During the nine months ended December 31, 2023, we repurchased 191,861 shares at an aggregate purchase price of $ 11.3 million. During the three months ended January 1, 2023, no shares were repurchased, and during the nine months ended January 1, 2023, we repurchased 181,657 shares at an aggregate purchase price of $ 6.6 million. As of December 31, 2023, 937,487 shares remained available to be repurchased under the share repurchase program. 12 Note 12 – 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 April 2, 2023 . 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 31, 2023: Sales $ 92,990 $ 82,019 $ 33,487 $ 208,496 Gross profit 16,495 20,241 5,512 42,248 Selling, general, and administrative expenses 7,292 12,470 4,012 23,774 Operating income 9,203 7,771 1,500 18,474 Three months ended January 1, 2023: Sales $ 114,436 $ 68,549 $ 36,233 $ 219,218 Gross profit 15,994 13,268 7,009 36,271 Selling, general, and administrative expenses 7,978 9,003 4,023 21,004 Operating income 8,016 4,265 2,986 15,267 Nine months ended December 31, 2023: Sales $ 312,398 $ 276,595 $ 107,149 $ 696,142 Gross profit 53,645 75,957 18,523 148,125 Selling, general and administrative expenses 20,673 31,741 11,759 64,173 Operating income 32,972 44,216 6,764 83,952 Nine months ended January 1, 2023: Sales $ 353,085 $ 233,527 $ 120,341 $ 706,953 Gross profit 53,716 52,725 22,953 129,394 Selling, general and administrative expenses 21,254 26,786 11,687 59,727 Operating income 32,462 25,939 11,266 69,667 No significant changes to identifiable assets by segment occurred during the nine months ended December 31, 2023. 13