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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-7647
HAWKINS, INC.
(Exact name of registrant as specified in its charter) 

Minnesota 41-0771293
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

2381 Rosegate, Roseville, Minnesota
55113
(Address of principal executive offices)
(Zip code)

(612) 331-6910
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.05 per shareHWKNNasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   ☒    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
CLASS Shares Outstanding at October 16, 2020
Common Stock, par value $.05 per share 10,670,637





HAWKINS, INC.
INDEX TO FORM 10-Q
  Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

i


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
HAWKINS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
September 27,
2020
March 29,
2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$3,160 $4,277 
Trade receivables — less allowance for doubtful accounts:
$552 as of September 27, 2020 and $784 as of March 29, 2020
74,492 67,391 
Inventories63,194 54,436 
Prepaid expenses and other current assets1,735 4,927 
Total current assets142,581 131,031 
PROPERTY, PLANT, AND EQUIPMENT:276,228 267,221 
Less accumulated depreciation148,754 140,877 
Net property, plant, and equipment127,474 126,344 
OTHER ASSETS:
Right-of-use assets8,505 9,090 
Goodwill67,692 58,440 
Intangible assets, net of accumulated amortization71,247 60,653 
Other5,581 3,770 
Total other assets153,025 131,953 
Total assets$423,080 $389,328 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable — trade$32,708 $34,129 
Accrued payroll and employee benefits10,783 13,538 
Income tax payable851 59 
Current portion of long-term debt9,907 9,907 
Short-term lease liability1,458 1,523 
Container deposits1,412 1,376 
Other current liabilities1,639 1,688 
Total current liabilities58,758 62,220 
LONG-TERM DEBT, LESS CURRENT PORTION65,798 49,751 
LONG-TERM LEASE LIABILITY7,124 7,649 
PENSION WITHDRAWAL LIABILITY4,806 4,978 
DEFERRED INCOME TAXES25,116 25,106 
OTHER LONG-TERM LIABILITIES6,841 6,140 
Total liabilities168,443 155,844 
COMMITMENTS AND CONTINGENCIES  
SHAREHOLDERS’ EQUITY:
Common stock; authorized: 30,000,000 shares of $0.05 par value; 10,545,203 and 10,512,229 shares issued and outstanding as of September 27, 2020 and March 29, 2020, respectively
527 526 
Additional paid-in capital52,194 50,090 
Retained earnings201,966 182,947 
Accumulated other comprehensive loss(50)(79)
Total shareholders’ equity254,637 233,484 
Total liabilities and shareholders’ equity$423,080 $389,328 

See accompanying notes to condensed consolidated financial statements.
1


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per-share data)
 
 Three Months EndedSix Months Ended
 September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Sales$147,801 $140,043 $290,973 $287,379 
Cost of sales(115,004)(112,049)(227,200)(230,588)
Gross profit32,797 27,994 63,773 56,791 
Selling, general and administrative expenses(16,221)(14,817)(31,259)(29,653)
Operating income16,576 13,177 32,514 27,138 
Interest expense, net(339)(666)(719)(1,429)
Other income327 26 804 143 
Income before income taxes16,564 12,537 32,599 25,852 
Income tax expense(4,374)(3,287)(8,621)(6,795)
Net income$12,190 $9,250 $23,978 $19,057 
Weighted average number of shares outstanding - basic10,527,891 10,575,538 10,526,511 10,589,922 
Weighted average number of shares outstanding - diluted10,622,881 10,633,117 10,634,281 10,663,864 
Basic earnings per share$1.16 $0.87 $2.28 $1.80 
Diluted earnings per share$1.15 $0.87 $2.25 $1.79 
Cash dividends declared per common share$0.2325 $0.23 $0.465 $0.46 
See accompanying notes to condensed consolidated financial statements.

2


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
 
 Three Months EndedSix Months Ended
 September 27,
2020
September 29,
2019
September 27,
2020
September 29,
2019
Net income$12,190 $9,250 $23,978 $19,057 
Other comprehensive loss, net of tax:
Unrealized gain (loss) on interest rate swap39 (69)29 (248)
Total comprehensive income$12,229 $9,181 $24,007 $18,809 
See accompanying notes to condensed consolidated financial statements.

3


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
SharesAmount
BALANCE — March 29, 202010,512,229 $526 $50,090 $182,947 $(79)$233,484 
Cash dividends declared and paid(2,479)(2,479)
Share-based compensation expense700 700 
Vesting of restricted stock5,263    
Shares surrendered for payroll taxes(1,657) (54)(54)
Other comprehensive loss, net of tax(10)(10)
Net income11,788 11,788 
BALANCE — June 28, 202010,515,835 $526 $50,736 $192,256 $(89)$243,429 
Cash dividends declared and paid(2,480)(2,480)
Share-based compensation expense686 686 
Vesting of restricted stock8,008    
ESPP shares issued21,360 1 772 773 
Other comprehensive income, net of tax39 39 
Net income12,190 12,190 
BALANCE — September 27, 202010,545,203 $527 $52,194 $201,966 $(50)$254,637 
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
SharesAmount
BALANCE — March 31, 201910,592,450 $530 $52,609 $164,405 $317 $217,861 
Cash dividends declared and paid(2,460)(2,460)
Share-based compensation expense509 509 
Vesting of restricted stock27,620 1 (1) 
Shares surrendered for payroll taxes(9,160)(1)(342)(343)
Shares repurchased(47,136)(2)(1,801)(1,803)
Other comprehensive loss, net of tax(179)(179)
Net income9,807 9,807 
BALANCE — June 30, 201910,563,774 $528 $50,974 $171,752 $138 $223,392 
Cash dividends declared and paid(2,445)(2,445)
Share-based compensation expense636 636 
Vesting of restricted stock8,352    
ESPP shares issued18,586 1 660 661 
Shares repurchased(44,259)(2)(1,988)(1,990)
Other comprehensive loss, net of tax(69)(69)
Net income9,250 9,250 
BALANCE — September 29, 201910,546,453 $527 $50,282 $178,557 $69 $229,435 
See accompanying notes to condensed consolidated financial statements.
4


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
 Six Months Ended
 September 27,
2020
September 29,
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$23,978 $19,057 
Reconciliation to cash flows:
Depreciation and amortization11,065 10,739 
Operating leases963 1,030 
Amortization of debt issuance costs47 47 
Gain on deferred compensation assets(804)(143)
Stock compensation expense1,386 1,145 
Other88 (43)
Changes in operating accounts providing (using) cash:
Trade receivables(5,811)(1,409)
Inventories(8,004)(323)
Accounts payable(1,421)238 
Accrued liabilities(2,320)(4,504)
Lease liabilities(963)(1,101)
Income taxes792 1,262 
Other1,142 1,121 
Net cash provided by operating activities20,138 27,116 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment(8,120)(14,088)
Acquisitions, net of cash acquired(25,000) 
Other 105 209 
Net cash used in investing activities(33,015)(13,879)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends declared and paid(4,959)(4,905)
New shares issued773 661 
Shares surrendered for payroll taxes(54)(343)
Shares repurchased (3,793)
Net proceeds from (payments on) revolving loan16,000 (10,000)
Net cash provided by (used in) financing activities11,760 (18,380)
NET DECREASE IN CASH AND CASH EQUIVALENTS(1,117)(5,143)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD4,277 9,199 
CASH AND CASH EQUIVALENTS, END OF PERIOD$3,160 $4,056 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes$7,845 $5,533 
Cash paid for interest$610 $1,419 
Noncash investing activities - capital expenditures in accounts payable$191 $567 
See accompanying notes to condensed consolidated financial statements.

5


HAWKINS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, accordingly, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended March 29, 2020, previously filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position and the results of our operations and cash flows for the periods presented. All adjustments made to the interim condensed consolidated financial statements were of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the six months ended September 27, 2020 are not necessarily indicative of the results that may be expected for the full year.

References to fiscal 2019 refer to the fiscal year ended March 31, 2019, references to fiscal 2020 refer to the fiscal year ended March 29, 2020 and references to fiscal 2021 refer to the fiscal year ending March 28, 2021.

Use of Estimates. The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, particularly receivables, inventories, property, plant and equipment, right-of-use assets, goodwill, intangibles, accrued expenses, short-term and long-term lease liability, income taxes and related accounts and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounting Policies. The accounting policies we follow are set forth in Note 1 – Nature of Business and Significant Accounting Policies to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 29, 2020, previously filed with the SEC. There has been no significant change in our accounting policies since the end of fiscal 2020.
 
Recently Adopted Accounting Pronouncements

On March 30, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this update replaced the incurred loss impairment methodology in previous GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. Our adoption of this ASU impacted our method for calculating and estimating our allowance for doubtful accounts but did not have a material impact to our financial position or results of operations.
Note 2 — Business Combinations

Acquisition of American Development Corporation of Tennessee, Inc.: On July 28, 2020, we acquired substantially all the assets of American Development Corporation of Tennessee, Inc. (“ADC”) under the terms of an asset purchase agreement with ADC and its shareholders. We paid $25 million for the acquisition, using funds available on our revolver to fund the acquisition. ADC is a water treatment chemical distribution company operating primarily in Tennessee, Georgia and Kentucky. The results of operations since the acquisition date, and the assets, including the goodwill associated with this acquisition, are included in our Water Treatment segment. Costs associated with this transaction were not material and were expensed as incurred.

The acquisition has been accounted for under the acquisition method of accounting, under which the total purchase price is allocated to the net tangible and intangible assets and liabilities of ADC acquired in connection with the acquisition based on their estimated fair values. We estimated the fair values of the assets acquired and liabilities assumed using a discounted cash flow analysis (income approach). Of the $25 million purchase price, we allocated $13.3 million to finite-lived intangible assets, primarily customer relationships to be amortized over 17 years, $1.6 million to property, plant and equipment, and $0.9 million to net working capital. The residual amount of $9.2 million was allocated to goodwill. The goodwill recognized as a result of this acquisition is primarily attributable to strategic and synergistic benefits, as well as the assembled workforce. Such goodwill is expected to be deductible for tax purposes. The purchase price allocation is preliminary and subject to adjustment within the first 12 months following the acquisition.




6


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 six months ended September 27, 2020 and September 29, 2019:
Three months ended September 27, 2020
(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Bulk / Distributed specialty products (1)
$9,313 $4,358 $28,953 $42,624 
Manufactured, blended or repackaged products (2)
51,155 44,838 8,133 104,126 
Other703 344 4 1,051 
Total external customer sales$61,171 $49,540 $37,090 $147,801 
Three months ended September 29, 2019
(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Bulk / Distributed specialty products (1)
$11,599 $4,971 $22,892 $39,462 
Manufactured, blended or repackaged products (2)
55,607 40,487 3,189 99,283 
Other884 410 4 1,298 
Total external customer sales$68,090 $45,868 $26,085 $140,043 
Six months ended September 27, 2020
(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Bulk / Distributed specialty products (1)
$18,137 $8,233 $54,898 $81,268 
Manufactured, blended or repackaged products (2)
112,997 80,344 14,231 207,572 
Other1,539 677 (83)2,133 
Total external customer sales$132,673 $89,254 $69,046 $290,973 
Six months ended September 29, 2019
(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Bulk / Distributed specialty products (1)
$26,612 $9,679 $47,495 $83,786 
Manufactured, blended or repackaged products (2)
115,078 78,637 7,333 201,048 
Other1,725 804 16 2,545 
Total external customer sales$143,415 $89,120 $54,844 $287,379 

(1)For our Industrial and Water Treatment segments, this line includes our bulk products that we do not modify in any way, but receive, store, and ship from our facilities, or direct ship to our customers in large quantities. For our Health and Nutrition segment, this line includes our non-manufactured distributed specialty products, which may be sold out of one of our facilities or direct shipped to our customers.
(2)For our Industrial and Water Treatment segments, this line includes our non-bulk specialty products that we either manufacture, blend, repackage, resell in their original form, or direct ship to our customers in smaller quantities, and services we provide for our customers. For our Health and Nutrition segment, this line includes products manufactured, processed or repackaged in our facility and/or with our equipment.

Net sales include products and shipping charges, net of estimates for product returns and any related sales rebates. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. Our criteria for recording revenue is consistent between our operating segments and types of products sold. We recognize revenue upon transfer of control of the promised products to the customer, with revenue recognized at the point in time the customer obtains control of the products. In
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arrangements where product is shipped directly from the vendor to our customer, we act as the principal in the transaction as we direct the other party to provide the product to our customer on our behalf, take inventory risk, establish the selling price, and are exposed to credit risk for the collection of the invoiced amount. If there were circumstances where we were to manufacture products for customers that were unique to their specifications and we would be prohibited by contract to use the product for any alternate use, we would recognize revenue over time if all criteria were met. We have made a policy election to treat shipping costs for FOB shipping point sales as fulfillment costs. As such, we recognize revenue for all shipping charges, if applicable, at the same time we recognize revenue on the products delivered. We estimate product returns based on historical return rates. Using probability assessments, we estimate sales rebates expected to be paid over the term of the contract. The majority of our contracts have a single performance obligation and are short term in nature. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. We offer certain customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded as a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations. We periodically review the assumptions underlying our estimates of discounts and volume rebates and adjust revenues accordingly.

Note 4 – Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net earnings by the weighted-average number of common shares outstanding. Diluted EPS includes the dilutive impact of incremental shares assumed to be issued as performance units and restricted stock.

Basic and diluted EPS were calculated using the following:
 Three Months EndedSix Months Ended
September 27, 2020September 29, 2019September 27, 2020September 29, 2019
Weighted-average common shares outstanding—basic10,527,891 10,575,538 10,526,511 10,589,922 
Dilutive impact of performance units and restricted stock94,990 57,579 107,770 73,942 
Weighted-average common shares outstanding—diluted10,622,881 10,633,117 10,634,281 10,663,864 

For each of the periods presented, there were no shares excluded from the calculation of weighted-average common shares for diluted EPS.

Note 5 – Derivative Instruments

We have an interest rate swap agreement to manage the risk associated with a portion of our variable-rate long-term debt. We do not utilize derivative instruments for speculative purposes. The interest rate swap involves the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. The $20 million swap agreement will terminate on December 23, 2020. We have designated this swap as a cash flow hedge and have determined that it qualifies for hedge accounting treatment. For so long as the hedge is effective, changes in fair value of the cash flow hedge are recorded in other comprehensive income (net of tax) until income or loss from the cash flows of the hedged item is realized.

For the three and six months ended September 27, 2020, we recorded a nominal amount in other comprehensive income related to unrealized gains (net of tax) on the cash flow hedge described above. For the three months ended September 29, 2019, we recorded $0.1 million in other comprehensive loss related to unrealized losses (net of tax) on the cash flow hedge. For the six months ended September 29, 2019, we recorded $0.2 million in other comprehensive loss related to unrealized losses (net of tax) on the cash flow hedge. Included in other current liabilities on our condensed consolidated balance sheet was $0.1 million as of September 27, 2020 and March 29, 2020. Unrealized gains and losses will be reflected in net income when the related cash flows or hedged transactions occur and offset the related performance of the hedged item.

By their nature, derivative instruments are subject to market risk. Derivative instruments are also subject to credit risk associated with counterparties to the derivative contracts. Credit risk associated with derivatives is measured based on the replacement cost should the counterparty with a contract in a gain position to us fail to perform under the terms of the contract. We do not anticipate nonperformance by the counterparty.





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Note 6 – Fair Value Measurements

Our financial assets and liabilities are measured at fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We classify the inputs used to measure fair value into the following hierarchy:
 
   
Level 1:  Quoted prices in active markets for identical assets or liabilities.
Level 2:  Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for the asset or liability.
Level 3:  Unobservable inputs for the asset or liability that are supported by little or no market activity. These fair values are determined using pricing models for which the assumptions utilize management’s estimates or market participant assumptions.


Assets and Liabilities Measured at Fair Value on a Recurring Basis.  The fair value hierarchy requires the use of observable market data when available. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
 

Our financial assets that are measured at fair value on a recurring basis are an interest rate swap and assets held in a deferred compensation retirement plan. As of September 27, 2020 and March 29, 2020, the assets held in a deferred compensation retirement plan are classified as other long-term assets on our balance sheet, with the portion of the plan assets expected to be paid within twelve months classified as current assets and the interest rate swap is classified as other current liabilities on our balance sheet. 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 September 27, 2020 and March 29, 2020.

 0
(In thousands)September 27, 2020March 29, 2020
Assets
Deferred compensation plan assets Level 1$5,573 $3,564 
Liabilities
Interest rate swapLevel 2$69 $108 

Note 7– Assets Held for Sale

In the first quarter of fiscal 2021, management determined that an office building that was previously held for sale no longer met the criteria to be classified as such. As a result, the $0.9 million net book value was reclassified out of “Prepaid expenses and other current assets” and is now classified as held and used within Property, Plant and Equipment on our balance sheet.

Note 8 – Inventories

Inventories at September 27, 2020 and March 29, 2020 consisted of the following:
September 27,
2020
March 29,
2020
(In thousands)
Inventory (FIFO basis)$68,707 $60,090 
LIFO reserve(5,513)(5,654)
Net inventory$63,194 $54,436 
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The first in, first out (“FIFO”) value of inventories accounted for under the last in, first out (“LIFO”) method was $44.6 million at September 27, 2020 and $43.3 million at March 29, 2020. The remainder of the inventory was valued and accounted for under the FIFO method.

Note 9 – Goodwill and Intangible Assets

The carrying amount of goodwill was $67.7 million as of September 27, 2020 and $58.4 million as of March 29, 2020, of which $44.9 million was related to our Health and Nutrition segment, $16.3 million was related to our Water Treatment segment, and $6.5 million was related to our Industrial segment. The increase in goodwill during the six months ended September 27, 2020 represents preliminary goodwill recorded in connection with the ADC acquisition as discussed in Note 2.

A summary of our intangible assets as of September 27, 2020 and March 29, 2020 is as follows:
 September 27, 2020March 29, 2020
(In thousands)Gross
Amount
Accumulated
Amortization
NetGross 
Amount
Accumulated
Amortization
Net
Finite-life intangible assets
Customer relationships$91,483 $(23,779)$67,704 $78,383 $(21,400)$56,983 
Trademarks and trade names6,150 (3,939)2,211 6,045 (3,640)2,405 
Other finite-life intangible assets3,753 (3,648)105 3,648 (3,610)38 
Total finite-life intangible assets101,386 (31,366)70,020 88,076 (28,650)59,426 
Indefinite-life intangible assets1,227 — 1,227 1,227 — 1,227 
Total intangible assets$102,613 $(31,366)$71,247 $89,303 $(28,650)$60,653 

Note 10 – Debt

Debt at September 27, 2020 and March 29, 2020 consisted of the following:
September 27,
2020
March 29,
2020
(In thousands)
Senior secured revolving loan$76,000 $60,000 
Less: unamortized debt issuance costs(295)(342)
Total debt, net of debt issuance costs75,705 59,658 
Less: current portion of long-term debt(9,907)(9,907)
Total long-term debt$65,798 $49,751 

Note 11 – Income Taxes

We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The tax years prior to our fiscal year ended April 3, 2016 are closed to examination by the Internal Revenue Service, and with few exceptions, state and local
income tax jurisdictions. Our effective tax rate for the six months ended September 27, 2020 was 26.4% and was 26.3% for the six months ended September 29, 2019. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

Note 12 – Leases

Lease Obligations. As of September 27, 2020, we were obligated under operating lease agreements for certain manufacturing facilities, warehouse space, the land on which some of our facilities sit, vehicles and information technology equipment. Our leases have remaining lease terms of 1 year to 24 years, some of which include options to extend the lease for up to 10 years.

As of September 27, 2020, our operating lease components with initial or remaining terms in excess of one year were classified on the condensed consolidated balance sheet within right of use assets, short-term lease liability and long-term lease liability.

Expense for leases less than 12 months for the six months ended September 27, 2020 was not material. Total lease expense was $0.7 million for both the three months ended September 27, 2020 and September 29, 2019. Total lease expense for the six months ended September 27, 2020 and September 29, 2019 was $1.4 million and $1.5 million, respectively.
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Other information related to our operating leases was as follows:
September 27, 2020
Lease Term and Discount Rate
Weighted average remaining lease term (years)8.57
Weighted average discount rate3.2 %


Maturities of lease liabilities as of September 27, 2020 were as follows:
(In thousands)Operating Leases
Remaining fiscal 2021$1,736 
Fiscal 20221,698 
Fiscal 20231,355 
Fiscal 20241,266 
Fiscal 20251,256 
Thereafter3,720 
Total$11,031 
Less: Interest(2,449)
Present value of lease liabilities$8,582 

Note 13 – Share-Based Compensation

Performance-Based Restricted Stock Units. Our Board of Directors (the “Board”) approved a performance-based equity compensation arrangement for our executive officers during the first quarters of each of fiscal 2021 and fiscal 2020. These performance-based arrangements provide for the grant of performance-based restricted stock units that represent a possible future issuance of restricted shares of our common stock based on a pre-tax income target for the applicable fiscal year. The actual number of restricted shares to be issued to each executive officer is determined when our final financial information becomes available after the applicable fiscal year and will be between zero shares and 62,385 shares in the aggregate for fiscal 2021. The restricted shares issued, if any, will fully vest approximately two years after the last day of the fiscal year on which the performance is based. We are recording the compensation expense for the outstanding performance share units and the converted restricted stock over the life of the awards.

The following table represents the restricted stock activity for the six months ended September 27, 2020:
SharesWeighted-
Average Grant
Date Fair Value
Unvested at beginning of period74,515 $34.27 
Granted64,813 37.37 
Vested(5,263)31.35 
Forfeited or expired(14,505)35.83 
Unvested at end of period119,560 $35.89 

We recorded compensation expense related to performance share units and restricted stock of $0.5 million and $1.0 million for the three and six months ended September 27, 2020, respectively. We recorded compensation expense related to performance share units and restricted stock of $0.4 million and $0.8 million for the three and six months ended September 29, 2019, respectively. Substantially all of the compensation expense was recorded in selling, general and administrative expenses in the condensed consolidated statements of income.

Restricted Stock Awards. As part of their retainers, each director who is not an executive officer receives an annual grant of restricted stock for their service on our Board. The restricted stock awards are expensed over the requisite vesting period, which is one year from the date of issuance, based on the market value on the date of grant. As of September 27, 2020, there were 5,874 shares of restricted stock with a grant date fair value of $51.06 outstanding under this program. Compensation expense for both the three months ended September 27, 2020 and September 29, 2019 related to restricted stock awards to the Board was $0.1 million. Compensation expense for both the six months ended September 27, 2020 and September 29, 2019 related to restricted stock awards to the Board was $0.2 million.
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Note 14 – Share Repurchase Program

Our Board has authorized the repurchase of up to 800,000 shares of our outstanding common stock for cash on the open market or in privately negotiated transactions subject to applicable securities laws and regulations. Upon purchase of the shares, we reduce our common stock for the par value of the shares with the excess applied against additional paid-in capital. During the three and six months ended September 27, 2020, no shares were repurchased. During the three months ended September 29, 2019, we repurchased 44,259 shares at an aggregate purchase price of $2.0 million. During the six months ended September 29, 2019, we repurchased 91,395 shares at an aggregate purchase price of $3.8 million. As of September 27, 2020, 358,797 shares remained available to be repurchased under the share repurchase program.

Note 15 – Litigation, Commitments and Contingencies

Litigation. There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries are a party or of which any of our property is the subject. Legal fees associated with such matters are expensed as incurred.

Note 16 – Segment Information

We have three reportable segments: Industrial, Water Treatment, and Health and Nutrition. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in our Annual Report on Form 10-K for the fiscal year ended March 29, 2020.

We evaluate performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses. Reportable segments are defined primarily by product and type of customer. Segments are responsible for the sales, marketing and development of their products and services. Other than our Health and Nutrition segment, the segments do not have separate accounting, administration, customer service or purchasing functions. We allocate certain corporate expenses to our operating segments. There are no intersegment sales and no operating segments have been aggregated. No single customer’s revenues amounted to 10% or more of our total revenue. Sales are primarily within the United States and all assets are located within the United States.