The following is a discussion and analysis of our financial condition and results of operations for our fiscal years ended March 29, 2009, March 30, 2008, and April 1, 2007. This discussion should be read in conjunction with the Financial Statements and Notes to Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Overview

We derive substantially all of our revenues from the sale of bulk and specialty chemicals 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 specialty chemical products, including repackaging, blending and manufacturing certain products. In recent years, we significantly expanded the sales of our higher-margin blended and manufactured products, including our food-grade products. We expect this specialty chemical portion of our business to continue to grow.

We have continued to invest in growing our business. In fiscal 2008, we acquired the assets of Trumark, Inc., a producer of antimicrobial products for the food industry, for approximately $6,500,000. These operations have been consolidated into our Industrial Group. In fiscal 2008, we also opened two new warehouses for our Water Treatment Group to expand its geographic coverage. In fiscal 2009, we invested in two new facilities, which we expect will expand our ability to service our customers and facilitate growth within our Industrial Group. Our new facility in Centralia, Illinois, will primarily serve our food-grade products business and is expected to become operational in June 2009. We also opened a facility in Minneapolis, Minnesota, to handle bulk chemicals sold to pharmaceutical manufacturers. The total capital expenditures in fiscal 2009 on these two facilities were approximately $7,500,000 with approximately $2,600,000 of additional capital spending on these facilities expected in fiscal 2010. We opened one warehouse for our Water Treatment Group in the first quarter of fiscal 2010 and expect to continue to invest in new branches to expand our geographic coverage. The cost of these new branches is not expected to be material.

In February 2009, we entered into two agreements whereby we agreed to sell our inventory and enter into a marketing relationship regarding the business of our Pharmaceutical Segment, which provided pharmaceutical chemicals to retail pharmacies and small-scale pharmaceutical manufacturers. The transaction closed in May 2009 and we have no significant obligations to fulfill under the agreements. The results of the Pharmaceutical Segment have been reported as discontinued operations in our Financial Statements and Notes to Financial Statements for all periods presented in this Annual Report on Form 10-K.

Our financial performance in fiscal 2009 was highlighted by:

• Sales from continuing operations of $284,356,000, a 52.3% increase over fiscal 2008;
• Gross profit from continuing operations of $62,420,000 or 22.0% of sales, an increase of $23,892,000 over our gross profit in fiscal 2008;
• Net cash provided by operating activities of $24,429,000, an increase of 100.2% over that of fiscal 2008; and
• Cash and cash equivalents of $29,536,000 as of the end of fiscal 2009.

The prices of the majority of our primary raw materials increased substantially and rapidly during the first three quarters of fiscal 2009 due to high demand and, in some cases constrained supply. Due to this rapid escalation in pricing, we benefited from selling at the higher market prices the lower cost inventory that we had on hand, in part as a result of our strategic investments made in storage capacity over the last several years. In addition, our ability to continue to obtain supplies of key raw material ingredients at favorable prices while many of our competitors were facing raw material shortages and a resultant inability to supply their customers, allowed us to significantly expand our market share to new and existing customers. We expect to retain a portion of this new business, but expect a portion of it to return to our competition. These market and supply factors significantly increased our sales and gross profit in fiscal 2009 compared to prior periods. The raw material supply constraints experienced by our industry in fiscal 2009 have eased and commodity prices have leveled off or, in many cases, begun to decline with the slowing economy. With the changes in commodity pricing and decreases in demand resulting from the national economic downturn, we expect our fiscal 2010 business and the gross profit realized to return to levels more in line with our historic results prior to fiscal 2009.

While market forces in fiscal 2009 generated higher gross profit dollars and gross profit margins as a percentage of sales than we had experienced in the past, we seek to maintain relatively constant gross profit dollars on each of our products as the cost of our commodity chemical raw materials increase or decrease. Our product costs are subject to fluctuations, which are expected to continue in future periods. With this volatility in cost and the resulting fluctuations in selling prices, we believe that gross profit dollars is the best measure of our profitability from the sale of our products. If we maintain relatively stable profit dollars on each of our products, our reported gross margin percentage will decrease when the cost of the product increases and will increase when the cost of the product decreases. We use the last in, first out (LIFO) method of valuing inventory, which causes the most recent product costs to be recognized in our income statement. The LIFO inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current commodity chemical raw material prices.

The following table sets forth certain items from our statement of income as a percentage of sales from period to period.

                                                         Fiscal     Fiscal     Fiscal
                                                          2009       2008       2007

 Sales                                                     100.0 %    100.0 %    100.0 %
 Cost of sales                                             (78.0 )%   (79.4 )%   (77.1 )%
 Gross profit                                               22.0 %     20.6 %     22.9 %
 Selling, general and administrative expenses               (8.8 )%   (14.2 )%   (15.8 )%
 Operating income                                           13.1 %      6.4 %      7.1 %
 Investment income                                           0.1 %      0.7 %      1.1 %
 Income from continuing operations before income taxes      13.2 %      7.1 %      8.2 %
 Provision for income taxes                                  5.0 %      2.6 %      3.1 %
 Income from continuing operations                           8.2 %      4.5 %      5.1 %
 Income from discontinued operations, net of tax             0.1 %      0.3 %      0.2 %
 Net income                                                  8.4 %      4.9 %      5.3 %


Fiscal 2009 Compared to Fiscal 2008

Sales

Sales increased $97,692,000, or 52.3%, to $284,356,000 for fiscal 2009, as compared to sales of $186,664,000 for fiscal 2008. Sales of bulk chemicals, including caustic soda, were approximately 33% of sales compared to approximately 34% in the previous year. Caustic soda volumes sold were comparable to the prior year.

Industrial Segment.Industrial segment sales increased $76,999,000, or 61.8%, to $201,596,000 for fiscal 2009. The sales increase was primarily attributable to increases in selling prices related to rising material costs along existing product lines and supply constraints for certain products as well as higher volumes in higher value manufactured and specialty chemical products driven by increased demand.

Water Treatment Segment.Water Treatment segment sales increased $20,693,000, or 33.3%, to $82,760,000 for fiscal 2009. The sales increase was primarily attributable to price increases related to increased material costs and expansion of sales of existing product lines, including specialty chemical products, to new and existing customers.

Gross Profit

Gross profit was $62,420,000, or 22.0% of sales, for fiscal 2009, as compared to $38,528,000, or 20.6% of sales, for fiscal 2008. LIFO charges reduced gross profit by $10,026,000 in fiscal 2009 and $1,332,000 in fiscal 2008. To more accurately reflect their underlying nature, certain expenses that were classified as selling, general and administrative expenses in fiscal 2008 are now classified as cost of sales in fiscal 2009. These expenses totaled $3,509,000 in fiscal 2008.

Industrial Segment. Gross profit for the Industrial segment was $41,466,000, or 20.6% of sales, for fiscal 2009, as compared to $19,796,000, or 15.9% of sales, for fiscal 2008. The increases in gross profit and gross profit margin as a percent of sales were primarily driven by the sale of lower-cost inventory on hand in a period of rapidly escalating market prices and, to a lesser degree, an increase in profits and volumes on certain products where we had the inventory to meet escalating demand from current and new customers during a period of constrained supply. This was partially offset by a decrease in demand for lower-margin products sold into the agricultural markets during the second half of fiscal 2009 as compared to the second half of fiscal 2008. Additionally, charges related to the LIFO method of valuing inventory negatively impacted gross profit in this segment by $6,932,000 in fiscal 2009, as compared to $917,000 in fiscal 2008.

Water Treatment Segment. Gross profit for the Water Treatment segment was $20,954,000, or 25.3% of sales, for fiscal 2009, as compared to $18,732,000, or 30.2% of sales, for fiscal 2008. The increase in gross profit was primarily driven by the sale of lower-cost inventory on hand and increased demand for specialty chemical products. The decrease in gross profit margin as a percent of sales was due to increased raw material costs. Additionally, charges related to the LIFO method of valuing inventory negatively impacted gross profit in this segment by $3,094,000 in fiscal 2009, as compared to $415,000 in fiscal 2008.

Selling, general and administrative (SG&A) expenses were $25,083,000, or 8.8% of sales, for fiscal 2009, as compared to $26,524,000, or 14.2% of sales, for fiscal 2008. The decrease in expense in fiscal 2009 was primarily due to the reclassification of certain expenses as cost of sales in fiscal 2009, which were classified as SG&A in fiscal 2008. These expenses totaled $3,509,000 in fiscal 2008. Additionally, SG&A expenses were reduced by the reduction of contractor and consulting fees related to our implementation of an Enterprise Resource Planning (ERP) system and approximately $300,000 of non-recurring acquisition-related expenses associated with the Trumark acquisition recorded in the first quarter of fiscal 2008. These reductions were partially offset by increased variable pay expenses that we paid as a result of the higher profitability levels achieved in fiscal 2009.

Operating Income

Operating income was $37,337,000, or 13.1% of sales, for fiscal 2009, as compared to $12,004,000, or 6.4% of sales, for fiscal 2008. Of the fiscal 2009 increase of $25,333,000, $23,202,000 was attributable to the Industrial segment, and $2,131,000 was attributable to the Water Treatment segment. The increases were driven primarily by higher than usual profits on certain products due to the sale of lower-cost inventory during a period of rapidly escalating commodity chemical prices and higher margins caused by supply constraints for certain products as well as higher volumes of sales of higher value manufactured and specialty chemical products which were driven by increased demand. Shortages of certain raw materials in our Industrial segment restricted the ability of certain competitors to meet their customers' product requirements, while our inventory position allowed us to meet the requirements of our current customer base and to expand our business and to add additional customers.

Investment Income

Investment income was $338,000 for fiscal 2009, as compared to $1,341,000 for fiscal 2008. The decrease was primarily due to lower average investment balances during the year due to higher working capital requirements and capacity expansion projects initiated during fiscal 2009. The decrease was also attributable to lower yields on investment balances in the current year as compared to the prior year.

Provision for Income Taxes

Our effective income tax rate was 37.8% for fiscal 2009 compared to 36.4% for fiscal 2008. The higher effective tax rate for fiscal 2009 as compared to fiscal 2008 was primarily due to the increase in pre-tax income subject to higher marginal income tax rates and the reversal of a valuation allowance and tax contingency reserve in fiscal 2008.

Fiscal 2008 Compared to Fiscal 2007

Sales

Sales increased $34,898,000, or 23.0%, to $186,664,000 for fiscal 2008, as compared to sales of $151,766,000 for fiscal 2007. Sales of bulk chemicals, including caustic soda, were approximately 34% of sales compared to approximately 35% in the previous year. Caustic soda volumes sold were comparable to the prior year.

Industrial Segment. Industrial segment sales increased $29,202,000, or 30.6%, to $124,597,000 for fiscal 2008. Sales were impacted by the acquisition of Trumark, Inc. completed in May 2007, which accounted for approximately 8.0% of the increase in sales in fiscal 2008. The remaining portion of the increase in sales was primarily attributable to price increases related to increased material costs as well as higher volumes of sales of certain products.

Water Treatment Segment. Water Treatment segment sales increased $5,696,000, or 10.1%, to $62,067,000 for fiscal 2008. The sales increase was primarily attributable to price increases related to increased material costs, successful expansion of sales of existing product lines, including specialty chemical products, to new and existing customers, and volume increases during the first quarter of fiscal 2008 related to favorable weather conditions.

Gross Profit

Gross profit was $38,528,000, or 20.6% of sales, for fiscal 2008, as compared to $34,709,000, or 22.9% of sales, for fiscal 2007. LIFO charges reduced gross profit by $1,332,000 in fiscal 2008 and increased gross profit by $689,000 in fiscal 2007.

Industrial Segment. Gross profit for the Industrial segment was $19,796,000, or 15.9% of sales, for fiscal 2008, as compared to $18,030,000, or 18.9% of sales, for fiscal 2007. Changes in product mix toward higher volume, lower margin products and higher material costs negatively impacted gross profit margin as a percent of sales. Additionally, charges related to the LIFO method of valuing inventory negatively impacted fiscal 2008 gross profit by $917,000 and positively impacted fiscal 2007 by $737,000.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $26,524,000, or 14.2% of sales, for fiscal 2008 compared to $23,999,000, or 15.8% of sales, for fiscal 2007. The acquisition of Trumark accounted for approximately $1,600,000 of the $2,525,000 increase in fiscal 2008. This included the amortization of intangible assets and approximately $300,000 of non-recurring acquisition-related expenses. The increase in expense was also driven by higher employee compensation, including the issuance of restricted stock, sales incentive compensation expense, and a full year of depreciation expense related to the ERP system. These increases were partially offset by a decrease in professional and consulting expenses related to the ERP implementation.

Operating Income

Operating income was $12,004,000, or 6.4% of sales, for fiscal 2008, as compared to $10,710,000, or 7.1% of sales, for fiscal 2007. The increase of $1,294,000 in fiscal 2008 was driven by higher gross profits in both the Water Treatment and Industrial segments, partially offset by higher SG&A expenses.

Investment Income

Investment income was $1,341,000 for fiscal 2008, as compared to $1,692,000 for fiscal 2007. The decrease was primarily related to an approximately $300,000 gain realized on the repayment of three notes receivable that were paid in full during the fourth quarter of fiscal 2007, lower average investment balances due to the Trumark acquisition and lower yields on investments. This was partially offset by a $245,000 gain on the sale of a mutual fund in fiscal 2008.

Provision for Income Taxes

Our effective income tax rate was 36.4% for fiscal 2008 compared to 37.7% for fiscal 2007. The lower effective tax rate for fiscal 2008 as compared to fiscal 2007 was primarily due to the reversal of a valuation allowance and tax contingency reserve in fiscal 2008.

Liquidity and Capital Resources

Cash provided by operations in fiscal 2009 was $24,429,000 compared to $12,205,000 in fiscal 2008 and $8,730,000 in fiscal 2007. The increase in fiscal 2009 was due primarily to the increase in net income and was partially offset by higher working capital balances caused by the higher commodity chemical costs in inventory and the resulting increase in selling prices which resulted in higher accounts receivable balances. Due to the nature of our operations, which includes purchases of large quantities of bulk chemicals, the timing of purchases can result in significant changes in working capital investment and the resulting operating cash flow. Historically, our cash requirements for working capital increase during the period from April through November as caustic soda inventory levels increase as the majority of barges are received during this period. Additionally, due to the seasonality of the water treatment business, our trade receivable balance generally increases during this period.

Cash and investments available-for-sale of $29,536,000 at March 29, 2009 increased by $5,422,000 as compared with the $24,114,000 available as of March 30, 2008, primarily due to the increase in cash generated from operations that was partially offset by capital expenditures and dividend payments. In February 2009, we sold our remaining investments classified as available-for-sale. The $29,536,000 balance at March 29, 2009 consisted entirely of cash and cash equivalents. Cash equivalents consist of a money market account and certificates of deposit with original maturities of three months or less.

Capital Expenditures

Capital expenditures were $14,211,000 in fiscal 2009, $5,778,000 in fiscal 2008 and $4,688,000 in fiscal 2007. The total capital expenditures in fiscal 2009 for our new facilities projects were approximately $7,500,000. Additional significant capital expenditures during fiscal 2009 consisted of approximately $2,700,000 for facilities improvements and increased storage capacity, $1,100,000 for returnable containers, and $1,100,000 for new route sales trucks. We expect that recurring capital expenditures for storage, facilities improvements, returnable containers, and new route sales trucks in fiscal 2010 will be comparable with the fiscal 2009 spend rate. We also plan to spend approximately $2,600,000 to complete the new facilities projects that we started in fiscal 2009. We expect our cash flows from operations will be sufficient to fund our capital expenditures in fiscal 2010.

Our Board of Directors increased our semi-annual cash dividend by 8.3% during the second quarter of fiscal 2009 to $0.26 per share from $0.24 per share. We first started paying cash dividends in 1985 and have continued to do so since. Future dividend levels will be dependent upon our results of operations, financial position, cash flows and other factors, and will be evaluated by our Board of Directors.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations and Commercial Commitments

The following table provides aggregate information about our contractual payment
obligations and the periods in which payments are due:


                                                       Payments due by period
Contractual                                                                          More than
Obligation                2010        2011        2012        2013        2014        5 Years        Total

Operating lease
obligations             $ 496,000   $ 408,000   $ 372,000   $ 379,000   $ 383,000   $ 3,108,000   $ 5,146,000

Critical Accounting Policies

In preparing the financial statements, we follow accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We consider the following policies to involve the most judgment in the preparation of our financial statements.

Revenue Recognition - We recognize revenue when there is evidence that the customer has agreed to purchase the product, the price and terms of the sale are fixed, the product has shipped and title passes to our customer, performance has occurred, and collection of the receivable is reasonably assured.

Inventories - Inventories are valued at the lower of cost or market. On a quarterly basis, management assesses the inventory quantities on hand to estimated future usage and sales and, if necessary, writes down to net realizable the value of inventory deemed obsolete or excess. Though management considers these reserves adequate and proper, changes in sales volumes due to unexpected economic or competitive conditions are among the factors that could materially affect the adequacy of this reserve.

LIFO Reserve - Inventories are primarily valued at the lower of cost or market with cost being determined using the last-in, first-out (LIFO) method. We may incur significant fluctuations in our gross margins due primarily to changes in the cost of a single, large-volume component of inventory. The price of this inventory component may fluctuate depending on the balance between supply and demand. Management reviews the LIFO reserve on a quarterly basis.

Impairment of Long-Lived Assets- We review the recoverability of long-lived assets to be held and used, such as property, plant and equipment and intangible assets subject to amortization, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable, such as prolonged industry downturn or significant reductions in projected future cash flows. The assessment of possible impairment is based on our ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset or asset group, an impairment is recognized equal to the amount by which the carrying value exceeds the fair value of the long-lived assets. The measurement of impairment requires us to estimate future cash flows and the fair value of long-lived assets. Significant judgments and assumptions are required in the forecast of future operating results used in the preparation of the estimated future cash flows. We periodically review the appropriateness of the estimated useful lives of our long-lived assets. Changes in these estimates could have a material effect on the assessment of long-lived assets subject to amortization. There were no material assets that were determined to be impaired during fiscal 2009.

Income Taxes - In the preparation of our financial statements, management calculates income taxes. This includes estimating the current tax liability as well as assessing temporary differences resulting from different treatment of items for tax and book accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded on the balance sheet. These assets and liabilities are analyzed regularly and management assesses the likelihood that deferred tax assets will be recovered from future taxable income. A valuation allowance is established to the extent that management believes that recovery is not likely. Reserves are also established for potential and ongoing audits of federal and state tax issues. We routinely monitor the potential impact of such situations and believe that it is properly reserved. Valuations related to amounts owed and tax rates could be impacted by changes to tax codes, changes in statutory tax rates, our future taxable income levels and the results of tax audits.

Recently Issued Accounting Pronouncements

See Item 8, Note 1 of the Notes to Financial Statements for information regarding recently adopted accounting standards or accounting standards to be adopted in the future.