HAWKINS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS HAWKINS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share data) June 29, 2025 March 30, 2025 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 14,502 $ 5,103 Trade accounts receivables, net 140,107 131,795 Inventories 95,716 83,512 Income taxes receivable — 2,864 Prepaid expenses and other current assets 6,098 7,417 Total current assets 256,423 230,691 PROPERTY, PLANT, AND EQUIPMENT: 444,716 420,953 Less accumulated depreciation 201,331 195,667 Net property, plant, and equipment 243,385 225,286 OTHER ASSETS: Right-of-use assets 13,162 13,449 Goodwill 218,899 135,409 Intangible assets, net of accumulated amortization 239,975 150,121 Deferred compensation plan asset 13,359 11,185 Other 3,071 3,726 Total other assets 488,466 313,890 Total assets $ 988,274 $ 769,867 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable — trade $ 62,792 $ 61,195 Accrued payroll and employee benefits 14,467 19,659 Income tax payable 6,967 — Current portion of long-term debt 9,812 9,913 Environmental remediation 7,700 7,700 Other current liabilities 9,196 8,668 Total current liabilities 110,934 107,135 LONG-TERM LIABILITIES: Long-term debt, less current portion 288,281 138,906 Long-term lease liability 10,572 10,920 Pension withdrawal liability 3,058 3,155 Deferred income taxes 22,236 22,356 Deferred compensation liability 14,293 13,132 Earnout liabilities 54,021 12,604 Other long-term liabilities 307 1,367 Total long-term liabilities 392,768 202,440 Total liabilities 503,702 309,575 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock; authorized: 60,000,000 shares of $ 0.01 par value; 20,717,850 and 20,684,621 shares issued and outstanding as of June 29, 2025 and March 30, 2025, respectively 207 207 Additional paid-in capital 23,277 24,094 Retained earnings 459,680 434,259 Accumulated other comprehensive income 1,408 1,732 Total shareholders’ equity 484,572 460,292 Total liabilities and shareholders’ equity $ 988,274 $ 769,867 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 June 29, 2025 June 30, 2024 Sales $ 293,272 $ 255,879 Cost of sales ( 220,910 ) ( 191,224 ) Gross profit 72,362 64,655 Selling, general and administrative expenses ( 31,029 ) ( 24,864 ) Operating income 41,333 39,791 Interest expense, net ( 3,269 ) ( 1,263 ) Other income 942 159 Income before income taxes 39,006 38,687 Income tax expense ( 9,831 ) ( 9,808 ) Net income $ 29,175 $ 28,879 Weighted average number of shares outstanding - basic 20,717,485 20,816,479 Weighted average number of shares outstanding - diluted 20,810,562 20,914,085 Basic earnings per share $ 1.41 $ 1.39 Diluted earnings per share $ 1.40 $ 1.38 Cash dividends declared per common share $ 0.18 $ 0.16 See accompanying notes to condensed consolidated financial statements. 2 HAWKINS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (In thousands) Three Months Ended June 29, 2025 June 30, 2024 Net income $ 29,175 $ 28,879 Other comprehensive income, net of tax: Unrealized loss on interest rate swap ( 324 ) ( 106 ) Total comprehensive income $ 28,851 $ 28,773 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 30, 2025 20,684,621 $ 207 $ 24,094 $ 434,259 $ 1,732 $ 460,292 Cash dividends declared and paid ($ 0.18 per share) — — — ( 3,754 ) — ( 3,754 ) Share-based compensation expense — — 2,212 — — 2,212 Vesting of restricted stock 61,819 — ( 1 ) — — ( 1 ) Shares surrendered for payroll taxes ( 28,590 ) — ( 3,028 ) — — ( 3,028 ) Other comprehensive income, net of tax — — — — ( 324 ) ( 324 ) Net income — — — 29,175 29,175 BALANCE — June 29, 2025 20,717,850 $ 207 $ 23,277 $ 459,680 $ 1,408 $ 484,572 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount BALANCE — March 31, 2024 20,790,261 $ 208 $ 38,154 $ 364,549 $ 3,115 $ 406,026 Cash dividends declared and paid ($ 0.16 per share) — — — ( 3,358 ) — ( 3,358 ) Share-based compensation expense — — 1,467 — — 1,467 Vesting of restricted stock 83,658 1 ( 1 ) — — — Shares surrendered for payroll taxes ( 34,047 ) ( 1 ) ( 2,540 ) — — ( 2,541 ) Shares repurchased ( 105,541 ) ( 1 ) ( 9,148 ) — — ( 9,149 ) Other comprehensive income, net of tax — — — — ( 106 ) ( 106 ) Net income — — — 28,879 — 28,879 BALANCE — June 30, 2024 20,734,331 $ 207 $ 27,932 $ 390,070 $ 3,009 $ 421,218 See accompanying notes to condensed consolidated financial statements. 4 HAWKINS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Three Months Ended June 29, 2025 June 30, 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 29,175 $ 28,879 Reconciliation to cash flows: Depreciation and amortization 12,291 9,329 Change in fair value of earnout liabilities ( 1,583 ) 342 Operating leases 923 782 Gain on deferred compensation assets ( 942 ) ( 159 ) Stock compensation expense 2,212 1,467 Other ( 25 ) ( 65 ) Changes in operating accounts providing (using) cash: Trade receivables ( 2,651 ) ( 10,576 ) Inventories ( 8,487 ) ( 6,037 ) Accounts payable ( 3,812 ) ( 7,300 ) Accrued liabilities ( 6,735 ) ( 8,949 ) Lease liabilities ( 973 ) ( 834 ) Income taxes 9,831 9,808 Other 2,266 899 Net cash provided by operating activities 31,490 17,586 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant, and equipment ( 13,544 ) ( 10,649 ) Acquisitions ( 151,328 ) ( 25,400 ) Other 327 245 Net cash used in investing activities ( 164,545 ) ( 35,804 ) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends declared and paid ( 3,754 ) ( 3,358 ) Payroll taxes paid in exchange for shares withheld ( 3,028 ) ( 2,541 ) Shares repurchased — ( 9,149 ) Payments on revolving loan ( 10,000 ) ( 10,000 ) Payments for debt issuance costs ( 764 ) — Proceeds from revolving loan borrowings 160,000 45,000 Net cash provided by financing activities 142,454 19,952 NET INCREASE IN CASH AND CASH EQUIVALENTS 9,399 1,734 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,103 7,153 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,502 $ 8,887 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 3,286 $ 1,347 Noncash investing activities - capital expenditures in accounts payable $ 1,493 $ 1,015 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 30, 2025 , 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 three months ended June 29, 2025 are not necessarily indicative of the results that may be expected for the full year. As used in this Form 10-Q, except where otherwise stated or indicated by the context, "Hawkins," "we," "us," the Company," or "our" means Hawkins, Inc. and its subsidiaries. References to "fiscal 2024" refer to the fiscal year ended March 31, 2024, references to "fiscal 2025" refer to the fiscal year ended March 30, 2025, and references to "fiscal 2026" refer to the fiscal year ending March 29, 2026. Effective beginning with the first quarter of fiscal 2026, we realigned our reporting segments to reflect organizational changes made and to reflect the way we manage our operations and allocate resources. We believe this realignment better reflects the value our company provides to our customers and our evolution from a bulk commodity distributor into a specialty ingredients company. We now organize and manage our business by the following three segments, each of which meets the definition of reportable segments under ASC 280-10, Segment Reporting : Water Treatment, Food & Health Sciences, and Industrial Solutions. These segments are defined primarily by product and type of customer. Information presented in this quarterly report has been recast to align with the new segments. Additional information regarding these new segments is set forth in Note 13 - Segment Information. 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 fiscal 2025 , previously filed with the SEC. There has been no significant change in our accounting policies since the end of fiscal 2025. Recently Issued Accounting Pronouncements Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU No.2023-09) In December 2023, the Financial Accounting Standards Board ("FASB") issued accounting standards update No. 2023-09 to enhance the transparency and decision-usefulness of income tax disclosures and to provide information to better assess how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024. The adoption of ASU No. 2023-09 is not expected to have a material impact on our consolidated financial statements but will require a lower level of disclosure in our Form 10-K for the year ending March 29, 2026 and in periodic reports thereafter. Disaggregation of Income Statement Expenses (ASU No.2024-03) In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires public entities to disclose, within the footnotes to the financial statements, disaggregated information about certain income statement expense captions, including disclosure of amounts for purchases of inventory, employee compensation, depreciation and intangible asset amortization, included in each relevant expense caption. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, on a prospective basis, with early adoption and retrospective application permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statement disclosures. 6 Note 2 — Acquisitions Acquisition of WaterSurplus, Inc.: On April 25, 2025, we acquired substantially all of the assets and assumed certain liabilities of Surplus Management, Inc. d/b/a WaterSurplus (“WaterSurplus”) for an initial purchase price of approximately $ 149.9 million under the terms of an asset purchase agreement by and among WaterSurplus and related entities and their shareholders, Panther Acquisition Corporation, and Hawkins, Inc., as well as a related real estate purchase agreement. In addition, we may be obligated to pay an additional earnout amount based on a target of accumulated gross profit for the first five years after the acquisition. The maximum earnout liability of $ 53.7 million was discounted and recorded at the estimated present value of $ 43.0 million. WaterSurplus is based in Rockford, IL and delivers sustainable water treatment solutions to customers throughout the United States. The total purchase price, including the estimated $ 43.0 million earnout liability, was preliminarily allocated as follows: $ 78.0 million to customer relationships, to be amortized over 15 years; 6.0 million to trade names, to be amortized over 15 years; $ 10.0 million to technology, to be amortized over 8 years; $ 82.7 million to goodwill; 13.1 million to property, plant and equipment; and the remaining amount to net working capital. 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 not yet complete due to the timing of the acquisition. 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 following pro forma information has been prepared as if the WaterSurplus acquisition and the borrowing that financed the acquisition had occurred as of the beginning of the fiscal years presented. The unaudited pro forma information is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition occurred at the beginning of each fiscal year, nor is it indicative of our future operational results. Three Months Ended (in thousands, except per share data) June 29, 2025 June 30, 2024 Pro forma sales $ 295,427 $ 263,673 Pro forma net income $ 28,203 $ 25,695 Pro forma basic earnings per share $ 1.36 $ 1.23 Pro forma diluted earnings per share $ 1.36 $ 1.23 The unaudited pro forma financial information above is adjusted to reflect the following: (a) interest expense, including amortization of debt issuance costs, related to the approximately $ 150 million of debt used to fund the acquisition and related purchase of real estate; (b) amortization expense related to the preliminary $ 94 million of identifiable intangible assets recognized in conjunction with the acquisition; (c) depreciation expense as adjusted for adjusted fixed asset values; (d) remeasurement of the earnout payable at fair value; (e) adjustment to cost of goods sold for the inventory step-up adjustment; (f) adjustment for acquisition costs incurred; (g) elimination of net interest previously reflected on WaterSurplus’ financial statements; and (h) recording income taxes at our effective tax rate for each period. Acquisition of Amerochem Corporation: In the fourth quarter of fiscal 2025, we acquired substantially all the assets and assumed certain liabilities of Amerochem Corporation ("Amerochem") for $ 44.0 million under the terms of a purchase agreement with Amerochem and its shareholders. Amerochem distributed water treatment chemicals and equipment to its customers primarily throughout North Carolina. The results of operations since the acquisition date and the assets are included in our Water Treatment segment. Acquisition of Waterguard, Inc.: In the third quarter of fiscal 2025, we acquired substantially all the assets and assumed certain liabilities of Waterguard, Inc. ("Water Guard") for $ 18.0 million under the terms of a purchase agreement with Water Guard and its shareholders. Water Guard distributed water treatment chemicals and equipment to its customers primarily throughout North Carolina. The results of operations since the acquisition date and the assets are included in our Water Treatment segment. Acquisition of Wofford Water Service, Inc.: In the first quarter of fiscal 2025, we acquired substantially all the assets and assumed certain liabilities of Wofford Water Service, Inc. ("Wofford") for $ 3.4 million under the terms of a purchase agreement with Wofford and its shareholders. Wofford distributed water treatment chemicals and equipment to customers mainly in Mississippi. The results of operations since the acquisition date and the assets are included in our Water Treatment segment. Acquisition of Intercoastal Trading, Inc.: In the first quarter of fiscal 2025, we acquired substantially all the assets and assumed certain liabilities of Intercoastal Trading, Inc. and certain related entities ("Intercoastal") for $ 22.0 million under the terms of a purchase agreement with Intercoastal and its shareholders. Intercoastal distributed water treatment chemicals and equipment to its customers in Maryland, Delaware and Virginia. The results of operations since the acquisition date and the assets are included in our Water Treatment segment. 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. The following tables disaggregate external customer net sales by major revenue stream as reviewed internally for the three months ended June 29, 2025 and June 30, 2024: Three months ended June 29, 2025 (In thousands) Water Treatment Food & Health Sciences Industrial Solutions Total Manufactured, blended, repackaged products or equipment (1) $ 136,347 $ — $ 41,318 $ 177,665 Bulk products (2) 11,969 — 11,844 23,813 Nutrition — 35,337 — 35,337 Food — 26,077 — 26,077 Pharmaceutical — 5,557 — 5,557 Agricultural — 21,469 — 21,469 Other 1,250 737 1,367 3,354 Total external customer sales $ 149,566 $ 89,177 $ 54,529 $ 293,272 Three months ended June 30, 2024 (In thousands) Water Treatment Food & Health Sciences Industrial Solutions Total Manufactured, blended, repackaged products or equipment (1) $ 105,007 $ — $ 40,348 $ 145,355 Bulk products (2) 10,918 — 11,674 22,592 Nutrition — 35,325 — 35,325 Food — 26,516 — 26,516 Pharmaceutical — 5,673 — 5,673 Agricultural — 16,994 — 16,994 Other 1,251 585 1,588 3,424 Total external customer sales $ 117,176 $ 85,093 $ 53,610 $ 255,879 (1) This line includes our non-bulk specialty products in our Water Treatment and Industrial Solutions segments that we either manufacture, blend, repackage, resell in their original form, or direct ship to our customers in smaller quantities, and equipment and services we provide for our customers. (2) This line includes bulk products in our Water Treatment and Industrial Solutions 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. 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 June 29, 2025 June 30, 2024 Weighted-average common shares outstanding—basic 20,717,485 20,816,479 Dilutive impact of performance units and restricted stock 93,077 97,606 Weighted-average common shares outstanding—diluted 20,810,562 20,914,085 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 earnout liabilities recorded in conjunction with the acquisitions of Water Solutions (acquired during fiscal 2024) and WaterSurplus are based upon achieving certain targets. The Water Solutions earnout is based on a target of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in year three of the acquisition. The earnout liability was valued based upon a risk-neutral pricing analysis within a Monte Carlo simulation framework, which is a Level 3 input. The WaterSurplus earnout liability is based on a target of accumulated gross profit for the first five years of the acquisition. The earnout liability was discounted and recorded at the present value of the anticipated, maximum payout amount, which is a Level 3 input. The earnout liabilities are adjusted to fair value at each reporting date until settled. Changes in fair value are included in selling, general and administrative expenses in our Condensed Consolidated Statements of Income. 9 The following tables summarize the balances of assets and liabilities measured at fair value on a recurring basis as of June 29, 2025 and March 30, 2025. 0 (In thousands) June 29, 2025 March 30, 2025 Assets Deferred compensation plan assets Level 1 $ 14,009 $ 11,723 Interest rate swap Level 2 $ 1,929 $ 2,373 Liabilities WaterSurplus earnout liability Level 3 $ 43,357 $ — Water Solutions earnout liability Level 3 $ 10,664 $ 12,604 Changes in the earnout liability measured at fair value using Level 3 inputs were as follows: (In thousands) Earnout liability at March 30, 2025 $ 12,604 Addition for acquisition of WaterSurplus Level 3 $ 43,000 Fair value adjustments to WaterSurplus earnout liability Level 3 $ 357 Fair value adjustments to Water Solutions earnout liability Level 3 $ ( 1,940 ) Earnout liability at June 29, 2025 $ 54,021 Note 6 – Inventories Inventories at June 29, 2025 and March 30, 2025 consisted of the following: June 29, 2025 March 30, 2025 (In thousands) Inventory (FIFO basis) $ 119,193 $ 106,357 LIFO reserve ( 23,477 ) ( 22,845 ) Net inventory $ 95,716 $ 83,512 We use the last in, first out (“LIFO”) method of valuing the majority of our inventory, which causes the most recent product costs to be recognized in our income statement. Note 7 – Goodwill and Intangible Assets The carrying amounts of goodwill for each of our three reportable segments were as follows: (In thousands) Water Treatment Food & Health Sciences Industrial Solutions Total Balance as of March 30, 2025 $ 83,968 $ 46,149 $ 5,292 $ 135,409 Addition due to acquisitions 83,490 — — 83,490 Balance as of June 29, 2025 $ 167,458 $ 46,149 $ 5,292 $ 218,899 10 The following is a summary of our identifiable intangible assets as of June 29, 2025 and March 30, 2025: June 29, 2025 March 30, 2025 (In thousands) Gross Amount Accumulated Amortization Net Gross Amount Accumulated Amortization Net Finite-life intangible assets Customer relationships $ 277,039 $ ( 61,362 ) $ 215,677 $ 198,364 $ ( 57,311 ) $ 141,053 Trademarks and trade names $ 20,970 $ ( 7,890 ) $ 13,080 $ 14,970 $ ( 7,368 ) $ 7,602 Other finite-life intangible assets 14,410 ( 4,419 ) 9,991 4,410 ( 4,171 ) 239 Total finite-life intangible assets 312,419 ( 73,671 ) 238,748 217,744 ( 68,850 ) 148,894 Indefinite-life intangible assets 1,227 — 1,227 1,227 — 1,227 Total intangible assets $ 313,646 $ ( 73,671 ) $ 239,975 $ 218,971 $ ( 68,850 ) $ 150,121 Note 8 – Debt On April 25, 2025, we entered into a second amendment that further amended the Existing Credit Agreement (as amended, the “Credit Agreement”). The second amendment increased the revolving commitment under the Existing Credit Agreement to provide us with senior secured revolving credit facilities (the “Revolving Loan Facility”) totaling $ 400.0 million. The Revolving Loan Facility includes a $ 10.0 million letter of credit subfacility and $ 25.0 million swingline subfacility. U.S. Bank, JP Morgan Chase Bank, N.A., Wells Fargo Bank, N.A., and Associated Bank, N.A. were lenders under the Credit Agreement as of the date of the second amendment. We drew approximately $ 150 million of the proceeds from the Revolving Loan Facility to acquire substantially all of the assets of WaterSurplus. We may use other proceeds from the Revolving Loan Facility for working capital, capital expenditures, restricted payments and other acquisitions permitted under the Credit Agreement, and other general corporate purposes. We paid fees of approximately $ 1.0 million associated with this refinancing. The Revolving Loan Facility is scheduled to mature on April 25, 2030. Borrowings under the Revolving Loan Facility bear interest at a variable rate based on term SOFR plus a margin. We have an interest rate swap in place to manage the risk associated with a portion of our variable-rate debt. The notional amount of the swap agreement is $ 60 million. At June 29, 2025, the effective interest rate on our borrowings was 4.9 %. Debt at June 29, 2025 and March 30, 2025 consisted of the following: June 29, 2025 March 30, 2025 (In thousands) Senior secured revolving loan $ 299,000 $ 149,000 Less: unamortized debt issuance costs ( 907 ) ( 181 ) Total debt, net of debt issuance costs 298,093 148,819 Less: current portion of long-term debt ( 9,812 ) ( 9,913 ) Total long-term debt $ 288,281 $ 138,906 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 April 3, 2022 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 approximately 25 % for both the three months ended June 29, 2025 and June 30, 2024. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes. 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 2026 and fiscal 2025. 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 58,353 shares in the aggregate for fiscal 2026. 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. 11 The following table represents the restricted stock activity for the three months ended June 29, 2025: Shares Weighted- Average Grant Date Fair Value Unvested at beginning of period 137,247 $ 61.49 Granted 61,418 119.67 Vested ( 61,819 ) 43.06 Unvested at end of period 136,846 $ 95.93 We recorded compensation expense related to performance share units and restricted stock of $ 1.8 million for the three months ended June 29, 2025 and $ 1.1 million for the three months ended June 30, 2024. 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 June 29, 2025, there were 6,734 shares of restricted stock with an average grant date fair value of $ 103.90 outstanding under this program. Compensation expense related to restricted stock awards to the Board was $ 0.2 million for the three months ended June 29, 2025 and $ 0.1 million for the three months ended June 30, 2024. 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 June 29, 2025, no shares were repurchased, and during the three months ended June 30, 2024, we repurchased 105,541 shares at an aggregate purchase price of $ 9.1 million. As of June 29, 2025, 731,544 shares remained available to be repurchased under the share repurchase program. Note 12 – Commitments and Contingencies Environmental Remediation. In the fourth quarter of fiscal 2024, we recorded a liability of $ 7.7 million related to estimated remediation expenses associated with perchlorinated biphenyls ("PCBs") discovered in the soil at our Rosemount, MN facility during our expansion project. We acquired the property, which had prior heavy industrial use, in fiscal 2012. While the source of the PCBs is unknown, we have never brought PCBs onto the property or used PCBs on the site. The liability is not discounted as management expects to incur these expenses within the next twelve months. Given the many uncertainties involved in assessing environmental claims, our reserves may prove to be insufficient. While it is possible that additional expense related to the remediation will be incurred in future periods if currently unknown issues arise, we are unable to estimate the extent of financial impact related to any such unknown issues. No expenses were charged against this liability during the three months ended June 29, 2025. Note 13 – Segment Information Effective beginning with the first fiscal quarter of fiscal 2026, we realigned our reporting segments to reflect organizational changes made and to reflect the way we manage our operations and allocate resources. We believe this realignment better reflects the value our company provides to our customers and our evolution from a bulk commodity distributor into a specialty ingredients company. In fiscal 2026, we organize and manage our business by the following three segments, each of which meets the definition of reportable segments under ASC 280-10, Segment Reporting : Water Treatment, Food & Health Sciences, and Industrial Solutions. These segments are defined primarily by product and type of customer. Our chief operating decision-maker (CODM), who is our President and Chief Executive Officer, regularly reviews the consolidated financial statements in their entirety and financial information at the reportable segment level. The CODM uses operating income and considers budget-to-actual variances on a quarterly basis when making decisions about the allocation of operating and capital resources to each segment. The CODM also uses segment operating income for evaluating pricing strategy, to assess the performance of each segment by comparing the results of each segment with one another, and in determining the compensation of certain employees. The CODM has ultimate responsibility for enterprise decisions and making resource allocation decisions for the Company and the segments. • Our Water Treatment segment specializes in providing chemicals, products, equipment, services and solutions for potable water, municipal and industrial wastewater, industrial process water, non-residential swimming pool water and agricultural water. This segment has the resources and flexibility to treat systems ranging in size from a single small well to a multi-million-gallon-per-day facility. • Our Food & Health Sciences segment specializes in processing and formulation solutions as well as ingredient distribution to manufacturers in the nutrition, pharmaceutical, food, and agricultural markets. This segment offers a 12 diverse product portfolio including base chemistry, acid based reactions, minerals, vitamins and amino acids, excipients, botanicals and herbs, sweeteners and enzymes, fertilizers, and food-grade and pharmaceutical salts and ingredients. • Our Industrial Solutions segment specializes in providing industrial chemicals, products and services to industries such as industrial manufacturing, chemical processing, electronics, energy, plating, and surface finishing. This segment’s principal products are acids and alkalis. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Product costs and expenses for each segment are based on actual costs incurred along with cost allocations of shared and centralized functions. There are no intersegment sales and no operating segments have been aggregated. In fiscal 2026 and 2025, none of our customers accounted for 10% or more of our total sales. Summarized financial information for our reportable segments is presented and reconciled to consolidated financial information in the following tables: (In thousands) Water Treatment Food & Health Sciences Industrial Solutions Total Three months ended June 29, 2025: Sales $ 149,566 $ 89,177 $ 54,529 $ 293,272 Cost of sales - materials 89,159 65,814 42,848 197,821 Cost of sales - operational overhead 16,660 4,015 2,414 23,089 Gross profit 43,747 19,348 9,267 72,362 Selling, general, and administrative expenses 19,085 8,381 3,563 31,029 Operating income 24,662 10,967 5,704 41,333 Interest expense, net ( 3,269 ) Other income 942 Income tax expense ( 9,831 ) Net income 29,175 Identifiable assets* 569,354 249,315 132,575 951,244 Capital expenditures 7,560 3,013 2,971 13,544 Depreciation and amortization 6,904 3,200 2,187 12,291 Three months ended June 30, 2024: Sales $ 117,176 $ 85,093 $ 53,610 $ 255,879 Cost of sales - materials 65,997 61,547 41,941 169,485 Cost of sales - operational overhead 15,971 3,643 2,125 21,739 Gross profit 35,208 19,903 9,544 64,655 Selling, general, and administrative expenses 14,079 7,365 3,420 24,864 Operating income 21,129 12,538 6,124 39,791 Interest expense, net ( 1,263 ) Other income 159 Income tax expense ( 9,808 ) Net income 28,879 Identifiable assets* 300,313 241,527 130,163 672,003 Capital expenditures 6,121 2,161 2,367 10,649 Depreciation and amortization 4,171 3,089 2,069 9,329 *Unallocated assets not included, consisting primarily of cash and cash equivalents, prepaid expenses, and non-qualified deferred compensation plan assets of $ 37.0 million at June 29, 2025 and $ 30.7 million at June 30, 2024. Note 14 – Subsequent Events On July 4, 2025, the “One Big Beautiful Bill Act” (the “Act”) was enacted into law. The Act includes changes to U.S. tax law that will be applicable to us beginning with our quarter ending September 28, 2026. These changes include provisions allowing 13 accelerated tax deductions for qualified property that will provide future income tax benefits to us. We are in the process of evaluating the impact of the Act to our consolidated financial statements. 14