10-Q 1 hwkn-20221002.htm 10-Q hwkn-20221002
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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 October 2, 2022
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 $.01 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 filer
Accelerated 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 28, 2022
Common Stock, par value $.01 per share 21,019,448




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)
October 2,
2022
April 3,
2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$3,924 $3,496 
Trade accounts receivables, net131,392 122,826 
Inventories113,062 94,985 
Prepaid expenses and other current assets3,197 6,431 
Total current assets251,575 227,738 
PROPERTY, PLANT, AND EQUIPMENT:321,453 304,055 
Less accumulated depreciation150,442 142,209 
Net property, plant, and equipment171,011 161,846 
OTHER ASSETS:
Right-of-use assets10,019 10,606 
Goodwill77,401 77,401 
Intangible assets, net of accumulated amortization76,687 80,193 
Deferred compensation plan asset6,752 6,783 
Other5,838 2,761 
Total other assets176,697 177,744 
Total assets$599,283 $567,328 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable — trade$60,887 $66,693 
Accrued payroll and employee benefits12,059 19,034 
Income tax payable2,069 39 
Current portion of long-term debt9,913 9,913 
Short-term lease liability1,433 1,657 
Other current liabilities4,490 4,130 
Total current liabilities90,851 101,466 
LONG-TERM DEBT, LESS CURRENT PORTION130,688 115,644 
LONG-TERM LEASE LIABILITY8,758 9,143 
PENSION WITHDRAWAL LIABILITY4,095 4,276 
DEFERRED INCOME TAXES24,325 23,422 
DEFERRED COMPENSATION LIABILITY7,899 8,402 
OTHER LONG-TERM LIABILITIES1,253 2,374 
Total liabilities267,869 264,727 
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock; authorized: 60,000,000 shares of $0.01 par value; 20,817,625 and 20,889,777 shares issued and outstanding as of October 2, 2022 and April 3, 2022, respectively
208 209 
Additional paid-in capital41,294 46,717 
Retained earnings286,179 254,384 
Accumulated other comprehensive income3,733 1,291 
Total shareholders’ equity331,414 302,601 
Total liabilities and shareholders’ equity$599,283 $567,328 
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
 October 2,
2022
September 26,
2021
October 2,
2022
September 26,
2021
Sales$241,192 $183,277 $487,735 $364,518 
Cost of sales(194,818)(145,990)(394,612)(288,257)
Gross profit46,374 37,287 93,123 76,261 
Selling, general and administrative expenses(19,838)(17,679)(38,723)(34,535)
Operating income26,536 19,608 54,400 41,726 
Interest expense, net(1,383)(329)(2,312)(678)
Other (expense) income(446)184 (1,209)416 
Income before income taxes24,707 19,463 50,879 41,464 
Income tax expense(6,707)(5,330)(13,184)(10,703)
Net income$18,000 $14,133 $37,695 $30,761 
Weighted average number of shares outstanding - basic20,814,686 20,986,542 20,861,754 21,010,422 
Weighted average number of shares outstanding - diluted20,956,897 21,140,087 21,004,454 21,168,809 
Basic earnings per share$0.86 $0.67 $1.81 $1.46 
Diluted earnings per share$0.86 $0.67 $1.79 $1.45 
Cash dividends declared per common share$0.1400 $0.1300 $0.2800 $0.2525 
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
 October 2,
2022
September 26,
2021
October 2,
2022
September 26,
2021
Net income$18,000 $14,133 $37,695 $30,761 
Other comprehensive income, net of tax:
Unrealized gain on interest rate swap1,977  2,442  
Total comprehensive income$19,977 $14,133 $40,137 $30,761 
See accompanying notes to condensed consolidated financial statements.

3


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share data)
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
SharesAmount
BALANCE — April 3, 202220,889,777 $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 stock102,860 1 (1)   
Shares surrendered for payroll taxes(36,410) (1,550)  (1,550)
ESPP shares issued32,768  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, 202220,807,338 $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 stock10,287      
ESPP shares issued  17   17 
Other comprehensive income, net of tax   1,977 1,977 
Net income   18,000  18,000 
BALANCE — October 2, 202220,817,625 $208 $41,294 $286,179 $3,733 $331,414 
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
SharesAmount
BALANCE — March 28, 202120,969,746 $210 $51,138 $213,898 $ $265,246 
Cash dividends declared and paid ($0.1225 per share)
   (2,600) (2,600)
Share-based compensation expense  799   799 
Vesting of restricted stock123,002 1 (1)   
Shares surrendered for payroll taxes(45,390) (1,467)  (1,467)
Shares repurchased(100,954)(1)(3,400)  (3,401)
Net income   16,628  16,628 
BALANCE — June 27, 202120,946,404 $210 $47,069 $227,926 $ $275,205 
Cash dividends declared and paid ($0.13 per share)
   (2,756) (2,756)
Share-based compensation expense  862   862 
Vesting of restricted stock11,228      
ESPP shares issued40,300  889   889 
Shares repurchased(109,009)(1)(4,019)  (4,020)
Net income   14,133  14,133 
BALANCE — September 26, 202120,888,923 $209 $44,801 $239,303 $ $284,313 
See accompanying notes to condensed consolidated financial statements.
4


HAWKINS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
 Six Months Ended
 October 2,
2022
September 26,
2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$37,695 $30,761 
Reconciliation to cash flows:
Depreciation and amortization13,371 11,889 
Operating leases945 948 
Loss (Gain) on deferred compensation assets1,208 (416)
Stock compensation expense1,680 1,661 
Other187 54 
Changes in operating accounts providing (using) cash:
Trade receivables(8,481)596 
Inventories(18,077)(6,458)
Accounts payable(4,609)5,116 
Accrued liabilities(8,600)(5,392)
Lease liabilities(972)(991)
Income taxes2,031 1,053 
Other2,425 1,261 
Net cash provided by operating activities18,803 40,082 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment(20,668)(6,904)
Acquisitions (1,200)
Other 296 181 
Net cash used in investing activities(20,372)(7,923)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends declared and paid(5,900)(5,356)
New shares issued1,004 889 
Payroll taxes paid in exchange for shares withheld(1,550)(1,467)
Shares repurchased(6,557)(7,421)
Payments on revolving loan(30,000)(15,000)
Proceeds from revolving loan borrowings45,000  
Net cash provided by (used in) financing activities1,997 (28,355)
NET INCREASE IN CASH AND CASH EQUIVALENTS428 3,804 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD3,496 2,998 
CASH AND CASH EQUIVALENTS, END OF PERIOD$3,924 $6,802 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes$11,148 $9,650 
Cash paid for interest$1,879 $563 
Noncash investing activities - capital expenditures in accounts payable$2,535 $1,076 
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 April 3, 2022, 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 October 2, 2022 are not necessarily indicative of the results that may be expected for the full year.
References to fiscal 2022 refer to the fiscal year ended April 3, 2022 and references to fiscal 2023 refer to the fiscal year ending April 2, 2023.
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 3, 2022, previously filed with the SEC. There has been no significant change in our accounting policies since the end of fiscal 2022.
 
Note 2 — Acquisitions
Acquisition of NAPCO Chemical Company, Inc.: In the fourth quarter of fiscal 2022, we acquired substantially all the assets of NAPCO Chemical Company, Inc. ("NAPCO") for $19.0 million, under the terms of an asset purchase agreement with NAPCO and certain other parties thereto, to further the geographic reach of our Water Treatment segment. NAPCO manufactured and distributed water treatment chemicals from three locations in Texas. The results of operations since the acquisition date, and the assets, including the goodwill associated with this acquisition, are included in our Water Treatment segment. Costs associated with this transaction were not material and were expensed as incurred.
Acquisition of Water and Waste Specialties, Inc.: In the third quarter of fiscal 2022, we acquired substantially all the assets of Water and Waste Specialties, Inc. for $1.4 million, under the terms of a purchase agreement with Water and Waste Specialties and its shareholders. Water and Waste Specialties was a water treatment chemical distribution company operating primarily in Alabama. The results of operations since the acquisition date, and the assets, including the goodwill associated with this acquisition, are included in our Water Treatment segment. Costs associated with this transaction were not material and were expensed as incurred.
Acquisition of Southeast Water Systems LLC: In the second quarter of fiscal 2022, we acquired substantially all the assets of Southeast Water Systems LLC, under the terms of an asset purchase agreement with Southeast Water Systems and its shareholders. We paid $1.2 million at closing for the acquisition and may pay up to an additional $1.0 million over the next three years based on achieving certain goals. Southeast Water Systems supplied and installed water treatment chemical equipment to its customers located primarily in Alabama, southern Georgia and the Florida panhandle. The results of operations since the acquisition date, and the assets, including the goodwill associated with this acquisition, are included in our Water Treatment segment. Costs associated with this transaction were not material and were expensed as incurred.


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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 October 2, 2022 and September 26, 2021:
Three months ended October 2, 2022
(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Manufactured, blended or repackaged products (1)
$93,548 $77,172 $11,736 $182,456 
Distributed specialty products (2)
  28,677 28,677 
Bulk products (3)
18,132 7,720  25,852 
Other2,259 1,596 352 4,207 
Total external customer sales$113,939 $86,488 $40,765 $241,192 
Three months ended September 26, 2021
(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Manufactured, blended or repackaged products (1)
$68,150 $56,373 $7,883 $132,406 
Distributed specialty products (2)
  30,062 30,062 
Bulk products (3)
13,663 5,242  18,905 
Other1,355 496 53 1,904 
Total external customer sales$83,168 $62,111 $37,998 $183,277 
Six months ended October 2, 2022
(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Manufactured, blended or repackaged products (1)
$195,160 $147,529 $23,697 $366,386 
Distributed specialty products (2)
  59,766 59,766 
Bulk products (3)
38,587 14,510  53,097 
Other4,902 2,939 645 8,486 
Total external customer sales$238,649 $164,978 $84,108 $487,735 
Six months ended September 26, 2021
(In thousands)IndustrialWater
Treatment
Health and
Nutrition
Total
Manufactured, blended or repackaged products (1)
$140,716 $107,601 $15,934 $264,251 
Distributed specialty products (2)
  61,004 61,004 
Bulk products (3)
25,506 9,795  35,301 
Other2,796 953 213 3,962 
Total external customer sales$169,018 $118,349 $77,151 $364,518 

(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.

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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
October 02, 2022September 26, 2021October 02, 2022September 26, 2021
Weighted-average common shares outstanding—basic20,814,686 20,986,542 20,861,754 21,010,422 
Dilutive impact of performance units and restricted stock142,211 153,545 142,700 158,387 
Weighted-average common shares outstanding—diluted20,956,897 21,140,087 21,004,454 21,168,809 
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 other 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 October 2, 2022 and April 3, 2022.

 0
(In thousands)October 2, 2022April 3, 2022
Assets
Deferred compensation plan assets Level 1$7,092 $7,038 
Interest rate swapLevel 2$5,114 $1,769 
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Note 6 – Inventories
Inventories at October 2, 2022 and April 3, 2022 consisted of the following:
October 2,
2022
April 3,
2022
(In thousands)
Inventory (FIFO basis)$143,433 $116,325 
LIFO reserve(30,371)(21,340)
Net inventory$113,062 $94,985 
The first in, first out (“FIFO”) value of inventories accounted for under the last in, first out (“LIFO”) method was $110.3 million at October 2, 2022 and $83.7 million at April 3, 2022. The remainder of the inventory was valued and accounted for under the FIFO method.

Note 7 – Goodwill and Intangible Assets
The carrying amount of goodwill was $77.4 million as of October 2, 2022 and April 3, 2022, of which $44.9 million was related to our Health and Nutrition segment, $26.0 million was related to our Water Treatment segment, and $6.5 million was related to our Industrial segment.
A summary of our intangible assets as of October 2, 2022 and April 3, 2022 is as follows:
 October 2, 2022April 3, 2022
(In thousands)Gross
Amount
Accumulated
Amortization
NetGross 
Amount
Accumulated
Amortization
Net
Finite-life intangible assets
Customer relationships$109,644 $(35,552)$74,092 $109,644 $(32,399)$77,245 
Trademarks and trade names6,370 (5,026)1,344 6,370 (4,746)1,624 
Other finite-life intangible assets3,904 (3,880)24 3,904 (3,807)97 
Total finite-life intangible assets119,918 (44,458)75,460 119,918 (40,952)78,966 
Indefinite-life intangible assets1,227 — 1,227 1,227 — 1,227 
Total intangible assets$121,145 $(44,458)$76,687 $121,145 $(40,952)$80,193 

Note 8 – Debt
Debt at October 2, 2022 and April 3, 2022 consisted of the following:
October 2,
2022
April 3,
2022
(In thousands)
Senior secured revolving loan$141,000 $126,000 
Less: unamortized debt issuance costs(399)(443)
Total debt, net of debt issuance costs140,601 125,557 
Less: current portion of long-term debt(9,913)(9,913)
Total long-term debt$130,688 $115,644 
We were in compliance with all covenants of our credit agreement as of October 2, 2022.

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 31, 2019 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 26% for both the six months ended October 2, 2022 and the six months ended September 26, 2021. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.
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Note 10 – Leases
Lease Obligations. As of October 2, 2022, we were obligated under operating lease agreements for certain manufacturing facilities, warehouse space, the land on which some of our facilities sit, vehicles and information technology equipment. Our leases have remaining original lease terms of 1 year to 22 years, some of which include options to extend the lease for up to 10 years.
As of October 2, 2022, our operating lease components with initial or remaining terms in excess of one year were classified on the condensed consolidated balance sheet within right of use assets, short-term lease liability and long-term lease liability.
Expense for leases less than 12 months was not material for the three and six months ended October 2, 2022 and September 26, 2021. Total lease expense was $0.7 million for both the three months ended October 2, 2022 and September 26, 2021, and was $1.5 million and $1.4 million for the six months ended October 2, 2022 and September 26, 2021.

Other information related to our operating leases was as follows:
October 2, 2022April 3, 2022
Lease Term and Discount Rate
Weighted average remaining lease term (years)8.678.91
Weighted average discount rate2.6 %2.6 %

Maturities of lease liabilities as of October 2, 2022 were as follows:
(In thousands)Operating Leases
Remaining fiscal 2023$807 
Fiscal 20241,393 
Fiscal 20251,330 
Fiscal 20261,268 
Fiscal 20271,239 
Thereafter5,024 
Total$11,061 
Less: Interest(870)
Present value of lease liabilities$10,191 
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Note 11 – 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 2023 and fiscal 2022. 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 76,863 shares in the aggregate for fiscal 2023. 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 October 2, 2022:
SharesWeighted-
Average Grant
Date Fair Value
Unvested at beginning of period214,478 $25.48 
Granted88,524 38.31 
Vested(102,860)18.69 
Forfeited or expired(10,884)34.68 
Unvested at end of period189,258 $34.64 
We recorded compensation expense related to performance share units and restricted stock of $0.8 million and $1.2 million for the three and six months ended October 2, 2022, respectively. We recorded compensation expense related to performance share units and restricted stock of $0.6 million and $1.2 million for the three and six months ended September 26, 2021, respectively. Substantially all of the compensation expense was recorded in selling, general and administrative expenses in the condensed consolidated statements of income.
Restricted Stock Awards. As part of their retainer, our non-employee directors receive restricted stock for their Board services. The restricted stock awards are generally expensed over a one-year vesting period, based on the market value on the date of grant. As of October 2, 2022, there were 12,565 shares of restricted stock with an average grant date fair value of $38.98 outstanding under this program. Compensation expense for both the three months ended October 2, 2022 and September 26, 2021 related to restricted stock awards to the Board was $0.1 million. Compensation expense for both the six months ended October 2, 2022 and September 26, 2021 related to restricted stock awards to the Board was $0.2 million.
Note 12 – Share Repurchase Program
On August 4, 2022, our Board increased the number of shares authorized to be purchased from 1.6 million to 2.6 million shares of our outstanding common stock for cash on the open market or in privately negotiated transactions subject to applicable securities laws and regulations. Upon purchase of the shares, we reduce our common stock for the par value of the shares with the excess applied against additional paid-in capital. During the three months ended October 2, 2022, no shares were repurchased. During the six months ended October 2, 2022, we repurchased 181,657 shares at an aggregate purchase price of $6.6 million. During the three months ended September 26, 2021, we repurchased 109,009 shares at an aggregate purchase price of $4.0 million. During the six months ended September 26, 2021, we repurchased 209,963 shares at an aggregate purchase price of $7.4 million. As of October 2, 2022, 1,129,348 shares remained available to be repurchased under the share repurchase program.
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Note 13 – 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 3, 2022.
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)IndustrialWater
Treatment
Health and NutritionTotal
Three months ended October 2, 2022:
Sales$113,939 $86,488 $40,765 $241,192 
Gross profit17,713 20,504 8,157 46,374 
Selling, general, and administrative expenses6,891 9,082 3,865 19,838 
Operating income10,822 11,422 4,292 26,536 
Three months ended September 26, 2021:
Sales$83,168 $62,111 $37,998 $183,277 
Gross profit12,564 17,518 7,205 37,287 
Selling, general, and administrative expenses6,456 7,405 3,818 17,679 
Operating income 6,108 10,113 3,387 19,608 
Six months ended October 2, 2022:
Sales$238,649 $164,978 $84,108 $487,735 
Gross profit37,722 39,457 15,944 93,123 
Selling, general and administrative expenses13,276 17,783 7,664 38,723 
Operating income24,446 21,674 8,280 54,400 
Six months ended September 26, 2021:
Sales$169,018 $118,349 $77,151 $364,518 
Gross profit26,818 33,752 15,691 76,261 
Selling, general and administrative expenses12,697 14,467 7,371 34,535 
Operating income 14,121 19,285 8,320 41,726 

No significant changes to identifiable assets by segment occurred during the six months ended October 2, 2022.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and results of operations for the six months ended October 2, 2022 as compared to the similar period ended September 26, 2021. This discussion should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included in this quarterly report on Form 10-Q and Item 8 of our Annual Report on Form 10-K for the fiscal year ended April 3, 2022.
Overview
We derive substantially all of our revenues from the sale of chemicals and specialty ingredients to our customers in a wide variety of industries. We began our operations primarily as a distributor of bulk chemicals with a strong customer focus. Over the years, we have maintained the strong customer focus and have expanded our business by increasing our sales of value-added chemicals and specialty ingredients, including manufacturing, blending, and repackaging certain products.

Business Acquisitions

In the fourth quarter of fiscal 2022, we acquired substantially all the assets of NAPCO Chemical Company, Inc. and its affiliates ("NAPCO") under the terms of an asset purchase agreement among us, NAPCO and certain other parties thereto. NAPCO manufactured and distributed water treatment chemicals from three locations in Texas. The results of operations since the acquisition date are included in our Water Treatment segment.

In the third quarter of fiscal 2022, we acquired substantially all the assets of Water and Waste Specialties, LLC, under the terms of an asset purchase agreement with Water and Waste Specialties and its shareholders. Water and Waste Specialties was a water treatment chemical distribution company operating primarily in Alabama. The results of operations since the acquisition date are included in our Water Treatment segment.

In the second quarter of fiscal 2022, we acquired substantially all the assets of Southeast Water Systems LLC, under the terms of an asset purchase agreement with Southeast Water Systems and its shareholders. Southeast Water Systems supplied and installed water treatment chemical equipment to its customers located primarily in Alabama, southern Georgia and the Florida panhandle. The results of operations since the acquisition date are included in our Water Treatment segment.

The aggregate annual revenue of the three businesses acquired in fiscal 2022 totaled approximately $17 million, as determined using the applicable twelve-month period preceding each respective acquisition date.

Share Repurchase Program

On August 4, 2022, our Board increased the number of shares authorized to be repurchased under our share repurchase program from 1.6 million to 2.6 million. As of October 2, 2022, 1,129,348 shares remain available to be repurchased under this program.

Financial Results

We focus on total profitability dollars when evaluating our financial results as opposed to profitability as a percentage of sales, as sales dollars tend to fluctuate, particularly in our Industrial and Water Treatment segments, as raw material costs rise and fall. The costs for certain of our raw materials can rise or fall rapidly, causing fluctuations in gross profit as a percentage of sales.

We use the LIFO method for valuing the majority of our inventory in our Industrial and Water Treatment segments, which causes the most recent product costs for those products to be recognized in our income statement. The valuation of LIFO inventory for interim periods is based on our estimates of fiscal year-end inventory levels and costs. The LIFO inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices. Inve