The following is a discussion and analysis of our financial condition and results of operations for the three and nine months ended December 30, 2012 as compared to January 1, 2012. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements included in this Form 10-Q and Item 8 of our Annual Report on Form 10-K for the fiscal year ended April 1, 2012 ("fiscal 2012"). References to fiscal 2013 refer to the fiscal year ending March 31, 2013 and references to fiscal 2014 refer to the fiscal year ending March 30, 2014.

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 our 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 expanded the sales of our higher-margin blended and manufactured products.

We have continued to invest in growing our business. During fiscal 2012, we purchased a 28-acre parcel of land in Rosemount, Minnesota and began construction of a new facility on the site, which is expected to be operational by the end of fiscal 2013. The site provides capacity for future business growth and lessens our dependence on our flood-prone sites on the Mississippi River. While we expect to transfer some blending and manufacturing activity to the Rosemount site, we do not intend to close any sites we currently operate. We expect to incur incremental cash and non-cash expenses beginning in fiscal 2013 and fiscal 2014 as we ramp up staffing and production at the new facility.

We seek to maintain relatively constant gross profit dollars on each of our products as the cost of our raw materials increase or decrease. Since we expect that we will continue to experience fluctuations in our raw material costs and resulting prices in the future, 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 profit percentage will decrease when the cost of the product increases and will increase when the cost of the product decreases.

In the third quarter of fiscal 2013, we recorded a pre-tax charge of $7.2 million in our Industrial segment (approximately $4.5 million after tax or $0.43 per share, fully diluted). This charge represents the discounted value of our estimated withdrawal payment obligation from the Central States, Southeast and Southwest Areas Pension Fund ("CSS" or "the plan"), a collectively bargained multiemployer pension plan. Our participation in the plan is pursuant to two collective bargaining agreements that each expire on February 28, 2013. Management commenced negotiations in the third quarter of fiscal 2013 to modify the collective bargaining agreements when they expire. Subject to our good-faith bargaining obligations and based on our negotiations undertaken to date, we believe it is probable that we will withdraw from CSS for both bargaining units, thus completely discontinuing our participation in CSS. As a replacement for CSS, we have offered to provide defined-contribution retirement benefits to our union employees that are similar to those benefits currently offered to our non-union employees.

We estimate the aggregate cash payments to be made to total approximately $9.3 million, or $467,000 per year beginning some time in fiscal 2014. We have accrued the discounted value of that payment obligation in the "Pension withdrawal" line item on the condensed consolidated statements of income for the three and nine months ended December 30, 2012.

The ultimate amount of the withdrawal liability assessed by CSS could be impacted by a number of factors, including, among other things, when we actually withdraw, a mass withdrawal (generally a withdrawal of substantially all contributing employers), the number of work weeks reported to CSS by us, the hourly contribution rate paid by us, the continued participation of other employers in CSS, financial difficulty of other participating employers in the plan (including bankruptcy), investment returns, benefit levels, and interest rates. Any assessment in excess of our accrual could impact our future results of operations and financial condition.

During the first quarter of fiscal 2013 we entered into a settlement agreement with ICL Performance Products LP ("ICL"), a chemical supplier to us, pursuant to which we mutually resolved the previously disclosed litigation and all disputes among us. The settlement agreement provides for a cash payment by us to ICL and provides that both parties will enter into new contracts for the supply by ICL of certain chemicals to us. Our obligations under the settlement agreement resulted in a $3.2 million charge to pretax income recorded in cost of sales (approximately $2.0 million after tax or $0.19 per share, fully diluted) for the fiscal quarter ended July 1, 2012.

Results of Operations

The following table sets forth the percentage relationship of certain items to
sales for the period indicated:



                                            Three months ended                         Nine months ended
                                     December 30,           January 1,          December 30,          January 1,
                                         2012                  2012                 2012                 2012
Sales                                        100.0 %              100.0 %               100.0 %             100.0 %
Cost of sales                                (82.1 )              (81.4 )               (81.0 )             (79.9 )
Pension withdrawal                            (8.4 )                 -                   (2.7 )                -

Gross profit                                   9.5                 18.6                  16.3                20.1
Selling, general and
administrative expenses                       (8.9 )               (8.5 )                (8.9 )              (8.8 )

Operating income                               0.6                 10.1                   7.4                11.3
Investment income                               -                    -                     -                   -

Income from continuing
operations before income taxes                 0.6                 10.1                   7.4                11.3
Income tax provision benefit
(expense)                                      1.0                 (3.8 )                (2.5 )              (4.2 )

Income from continuing
operations                                     1.6                  6.3                   4.9                 7.1
Income from discontinued
operations, net of tax                          -                   0.3                    -                  0.3

Net income                                     1.6 %                6.6 %                 4.9 %               7.4 %

Three Months Ended December 30, 2012 Compared to the Three Months Ended January 1, 2012

Sales

Sales increased $1.3 million, or 1.6%, to $85.5 million for the three months ended December 30, 2012 as compared to $84.2 million in the same period of the prior year. Sales of bulk chemicals, including caustic soda, were approximately 24% of sales during the three months ended December 30, 2012 as compared to 23% during the same period of the prior year.

Industrial Segment. Industrial segment sales decreased $0.7 million, or 1.0%, to $63.1 million for the three months ended December 30, 2012 as compared to the same period of the prior year. The decrease in sales was primarily due to a shift in product mix to more bulk products, which generally carry lower per-unit selling prices.

Water Treatment Segment. Water Treatment segment sales increased $2.0 million, or 9.8%, to $22.4 million for the three months ended December 30, 2012 as compared to the same period of the prior year. The increase in sales was primarily due to volume growth of lower-priced commodity products.

Gross Profit

Gross profit was $8.1 million, or 9.5% of sales, for the three months ended December 30, 2012, as compared to $15.7 million, or 18.6% of sales, for the same period of the prior year. Gross profit was negatively impacted by the $7.2 million charge resulting from the CSS pension withdrawal liability, which charge constituted 8.4% of sales for the quarter. The LIFO method of valuing inventory decreased gross profit by $0.1 million for the three months ended December 30, 2012 whereas it increased gross profit by $0.6 million for the three months ended January 1, 2012.

Water Treatment Segment. Gross profit for the Water Treatment segment was $5.5 million, or 24.5% of sales, for the three months ended December 30, 2012, as compared to $5.5 million, or 26.8% of sales, for the same period in the prior year. The LIFO Method of valuing inventory had a negligible impact on gross profit for this segment for the three months ended December 30, 2012 while it increased gross profit for this segment by $0.3 million for the three months ended January 1, 2012. Gross profit as a percentage of sales for this segment was negatively impacted by a shift in product mix to sales of more lower-margin commodity products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $7.6 million, or 8.9% of sales, for the three months ended December 30, 2012 as compared to $7.2 million, or 8.5% of sales, for the three months ended January 1, 2012. Selling expenses increased by $0.6 million while administrative expenses decreased by $0.2 million. Selling expenses increased primarily as a result of additional sales staff expenses.

Operating Income

Operating income was $0.5 million for the three months ended December 30, 2012 and $8.5 million for the three months ended January 1, 2012. Operating income for the Industrial segment decreased $7.8 million primarily related to the $7.2 million charge resulting from the CSS pension withdrawal liability, and operating income for the Water Treatment segment decreased $0.2 million.

Investment Income

Investment income was not material during the three months ended December 30, 2012 and January 1, 2012.

Provision for Income Taxes

In the current quarter, we have recorded an income tax benefit primarily as a result of a $0.8 million non-recurring increase in the benefits recorded related to the domestic manufacturing deduction and investment tax credits. As a result, the computation of our effective income tax rate is not meaningful for the three months ended December 30, 2012, while it was 38.1% for the three months ended January 1, 2012. The effective tax rate is generally impacted by projected levels of taxable income, permanent items, and state taxes.

Nine Months Ended December 30, 2012 Compared to the Nine Months Ended January 1, 2012

Sales

Sales increased $2.2 million, or 0.8%, to $262.8 million for the nine months ended December 30, 2012 as compared to $260.6 million in the same period of the prior year. Sales of bulk chemicals, including caustic soda, were approximately 23% of sales during the nine months ended December 30, 2012 as compared to 22% during the same period of the prior year.

Industrial Segment. Industrial segment sales decreased $6.1 million, or 3.3%, to $182.5 million for the nine months ended December 30, 2012 as compared to the same period of the prior year. The decrease in sales was primarily due to reduced volumes and a shift in product mix to more bulk products, which generally carry lower per-unit selling prices.

Water Treatment Segment. Water Treatment segment sales increased $8.3 million, or 11.6%, to $80.3 million for the nine months ended December 30, 2012 as compared to the same period of the prior year. The increase in sales was primarily due to favorable weather conditions in the first two quarters of fiscal 2013 and volume growth of lower-priced commodity products.

Gross profit was $42.6 million, or 16.2% of sales, for the nine months ended December 30, 2012, as compared to $52.4 million, or 20.1% of sales, for the same period of the prior year. Gross profit was negatively impacted by the $7.2 million CSS pension withdrawal during the third quarter and the $3.2 million charge resulting from the ICL litigation settlement in the first quarter of the current fiscal year, which charges together constituted 4.0% of sales for the nine month period. The LIFO method of valuing inventory decreased gross profit by $0.2 million for the nine months ended December 30, 2012 and increased gross profit by $0.2 million for the same period of the prior year.

Industrial Segment. Gross profit for the Industrial segment was $20.0 million, or 11.0% of sales, for the nine months ended December 30, 2012, as compared to $31.8 million, or 16.8% of sales, for the same period of the prior year. Gross profit for this segment was negatively impacted by the $7.2 million CSS pension withdrawal charge and the $3.2 million charge resulting from the ICL litigation settlement, which charges together constituted 5.7% of sales for this segment for the nine month period. The LIFO method of valuing inventory decreased gross profit in this segment by $0.2 million for the nine months ended December 30, 2012 while it had a minimal impact on gross profit for the same period of the prior year. The remainder of the decline was primarily due to reduced volumes and pricing pressures which led to lower per-unit profits and $0.6 million of incremental expenses related to the new Rosemount facility.

Water Treatment Segment. Gross profit for the Water Treatment segment was $22.6 million, or 28.2% of sales, for the nine months ended December 30, 2012, as compared to $20.6 million, or 28.6% of sales, for the same period in the prior year. The increase in gross profit was primarily due to increased volumes, partially due to favorable weather conditions during the first two quarters of fiscal 2013, and higher per-unit margins across most product lines. These increases were partially offset by a shift in product mix to sales of more lower-margin commodity products. The LIFO method of valuing inventory decreased gross profit in this segment nominally for the nine months ended December 30, 2012 while increasing gross profit by $0.2 million for the same period of the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $23.3 million, or 8.9% of sales, for the nine months ended December 30, 2012 as compared to $22.9 million, or 8.8% of sales, for the nine months ended January 1, 2012 with higher selling costs due to additional sales staffing offset by lower administration expenses in the period.

Operating Income

Operating income was $19.3 million for the nine months ended December 30, 2012 and $29.5 million for the nine months ended January 1, 2012. Operating income for the Industrial segment decreased $11.4 million, primarily due to the $7.2 million CSS pension withdrawal charge and the $3.2 million charge resulting from the ICL litigation settlement recorded within that segment. Operating income for the Water Treatment segment increased $1.2 million for the nine months ended December 30, 2012, as compared to the same period of the prior year due to increased volumes and higher per-unit margins.

Investment Income

Investment income was $0.1 for the nine month periods ended December 30, 2012 and January 1, 2012.

Provision for Income Taxes

Our effective income tax rate was 33.4% for the nine months ended December 30, 2012, compared to 38.0% for the nine months ended January 1, 2012. The effective tax rate is generally impacted by projected levels of taxable income, permanent items, and state taxes. The reduction in our effective tax rate in the current fiscal year is primarily due to a $0.8 million non-recurring increase in the benefits recorded related to the domestic manufacturing deduction and investment tax credits.

Cash provided by operating activities for the nine months ended December 30, 2012 was $30.0 million compared to $20.5 million for the nine months ended January 1, 2012. The increase in cash provided by operating activities was primarily due to reduced cash used to fund working capital, including the timing of inventory purchases and other trade payables. Due to the nature of our operations, which includes purchases of large quantities of bulk chemicals, timing of purchases can result in significant changes in working capital investment and the resulting operating cash flow. Historically, our cash requirements 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 accounts receivable balance generally increases during the period of April through September.

Cash and investments available-for-sale of $50.2 million at December 30, 2012 increased by $4.3 million as compared with the $45.9 million available as of April 1, 2012, primarily due to cash flows generated from operations, partially offset by capital expenditures and dividends paid.

We expect cash balances and our cash flows from operations will be sufficient to fund our cash requirements in fiscal 2013.

Capital Expenditures

Capital expenditures were $20.1 million for the nine months ended December 30, 2012 compared to $13.8 million in the same period in the prior fiscal year. Significant capital expenditures during the nine months ended December 30, 2012 consisted of approximately $14.9 million related to business expansion and process improvement projects including the new facility in Rosemount, Minnesota, compared to $8.2 million spent for expansion and process improvements during the same period in fiscal 2012. Other capital spending was related to regulatory, safety, and facility improvements and replacement trucks for the Water Treatment segment.

Critical Accounting Policies

Our significant accounting policies are set forth in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended April 1, 2012. The accounting policies used in preparing our interim fiscal 2013 condensed consolidated financial statements are the same as those described in our Annual Report.

Forward-Looking Statements

The information presented in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts, but rather are based on our current expectations, estimates and projections, and our beliefs and assumptions. We intend words such as "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate," "will" and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. These factors could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Additional information concerning potential factors that could affect future financial results is included in our Annual Report on Form 10-K for the fiscal year ended April 1, 2012. We caution you not to place undue reliance on these forward-looking statements, which reflect our management's view only as of the date of this Quarterly Report on Form 10-Q. We are not obligated to update these statements or publicly release the result of any revisions to them to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.