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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 84 added, 109 removed, 107 unchanged (64% of the section changed)

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Important factors that could cause actual events to vary from our predictions include those discussed below under the heading “Risk Factors.” We assume no obligation to update our forward-looking statements to reflect new information or developments.

We urge readers to review carefully the risk factors described in the other documents that we file with the Securities and Exchange Commission, or SEC.

We urge readers to review carefully the risk factors described in the other documents that we file with the Securities and Exchange Commission ("SEC").

You can read these documents at www.sec.gov.

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Critical Accounting Policies and Estimates

Our critical accounting policies involving the more significant estimates and judgments used in the preparation of our financial statements as of October 2, 2021 remain unchanged from January 2, 2021.

Please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, filed with the Securities and Exchange Commission on March 4, 2021 (the "2020 Form 10-K") for details on these critical accounting policies.

Our critical accounting policies involving the more significant estimates and judgments used in the preparation of our financial statements as of April 2, 2022 remain unchanged from January 1, 2022, except for the accounting policies related to business combinations as described below.

Please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the SEC on March 3, 2022 (the "2021 Form 10-K") for details on these critical accounting policies.

Business Combinations .

We account for business acquisitions using the acquisition method of accounting, which requires assets acquired and liabilities assumed to be measured and recorded at their estimated fair values as of the acquisition date, with certain exceptions.

Right-of-use assets and lease liabilities are recorded on the date of acquisition in accordance with ASC Topic 842, Leases .

In addition, contract assets and contract liabilities are recorded in accordance with ASC 606, as we adopted Accounting Standards Update No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers on the first day of fiscal 2022.

All other tangible assets and identifiable intangible assets acquired and liabilities assumed are recorded at their fair value as of the date of acquisition.

The purchase price is determined as the fair value of consideration transferred.

Goodwill is recognized for the excess of consideration transferred over the net value of assets acquired and liabilities assumed.

Intangible assets that are separate from goodwill and have determinable useful lives are valued separately.

Fair value measurements require extensive use of estimates and assumptions, including estimates of future cash flows to be generated by the acquired assets, discount rates that we believe reflect the risk factors associated with the related cash flows, and estimates of useful lives.

The useful lives of identifiable intangible assets acquired in a business acquisition are estimated based on the expected period that we will receive substantially all of the projected future benefits from the intangible asset.

Recent Accounting Standards

Please refer to the sections captioned “Recent Accounting Standards Adopted” included in Note 1, “Summary of Significant Accounting Policies” in Part I, Item I, “Financial Statements” of this report.

Results of Operations—For the Fiscal Quarter and Fiscal Year-to-Date Period Ended October 2, 2021, Compared to the Fiscal Quarter and Fiscal Year-to-Date Period Ended September 26, 2020

Please refer to the sections captioned “Recent Accounting Standards” included in Note 1, “Summary of Significant Accounting Policies” in Part I, Item I, “Financial Statements” of this report.

Results of Operations—For the Fiscal Quarter Ended April 2, 2022, Compared to the Fiscal Quarter Ended April 3, 2021

The following table provides operating information as a percentage of revenues for the periods indicated:

Fiscal Quarter

Ended Fiscal Year-to-Date

2021 September 26,

2020 October 2,

2021 September 26,

2022 April 3,

Revenues 100.0 % 100.0 %

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Net income 7.7 % 7.2 %

Fiscal Quarter Ended October 2, 2021, Compared to the Fiscal Quarter Ended September 26, 2020

Revenues increased by $14.6 million, or 12.0%, to $136.4 million for the third quarter of fiscal 2021 from $121.8 million for the third quarter of fiscal 2020.

The increase in net revenue was a result of an increase in gross revenues of $13.7 million as compared to the third quarter of fiscal 2020, as well as a decrease in write-offs and reserves of $0.9 million compared to the third quarter of fiscal 2020.

Utilization increased to 73% for the third quarter of fiscal 2021 from 69% for the third quarter of fiscal 2020, while consultant headcount grew 6.8% from 826 at the end of the third quarter of fiscal 2020 to 882 at the end of the third quarter of fiscal 2021.

Overall, revenues outside of the U.S.

represented approximately 20% and 21% of net revenues for the third quarters of fiscal 2021 and fiscal 2020, respectively.

Revenues derived from fixed-price projects increased to 23% of net revenues for the third quarter of fiscal 2021 compared with 22% of net revenue for the third quarter of fiscal 2020.

The percentage of revenue derived from fixed-price projects depends largely on the proportion of our revenues derived from our management consulting business, which typically has a higher concentration of fixed-price service contracts.

Costs of Services (exclusive of depreciation and amortization).

Costs of services (exclusive of depreciation and amortization) increased by $7.7 million, or 8.7%, to $96.0 million for the third quarter of fiscal 2021 from $88.3 million for the third quarter of fiscal 2020.

The increase in costs of services was due primarily to an increase of $3.0 million in employee compensation and fringe benefit costs attributable to our increased consultant headcount, an increase in incentive and retention compensation costs of $2.3 million, and an increase in forgivable loan amortization of $0.7 million, partially offset by a decrease in the valuation expense of the contingent consideration of $0.9 million.

Additionally, client reimbursable expenses increased by $2.6 million in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020.

As a percentage of revenues, costs of services (exclusive of depreciation and amortization) decreased to 70.4% for the third quarter of fiscal 2021 from 72.5% for the third quarter of fiscal 2020.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased by $2.3 million, or 10.3%, to $24.5 million for the third quarter of fiscal 2021 from $22.2 million for the third quarter of fiscal 2020.

Within this category of expenses, there was a $0.8 million increase in commissions to our non-employee experts, a $0.4 million increase in employee and incentive compensation, a $0.7 million increase in travel and entertainment, and a $0.6 million increase in miscellaneous and other costs.

Partially offsetting the increase in these expenses was a $0.2 million decrease in bad debt expense for the third quarter of fiscal 2021 as compared to the third quarter of fiscal 2020.

As a percentage of revenues, selling, general and administrative expenses decreased to 18.0% for the third quarter of fiscal 2021 from 18.2% for the third quarter of fiscal 2020.

Commissions to our non-employee experts increased to 3.2% of revenues for the third quarter of fiscal 2021 compared to 3.0% of revenues for the third quarter of fiscal 2020.

Provision for Income Taxes.

The income tax provision was $1.9 million and the effective tax rate ("ETR") was 14.8% for the third quarter of fiscal 2021 compared to $2.1 million and 28.2% for the third quarter of fiscal 2020.

The ETR for the third quarter of fiscal 2021 was lower than the third quarter of fiscal 2020 primarily due to an increase in the tax benefit related to the accounting for stock-based compensation.

The ETR for the third quarter of fiscal 2021 was lower than the combined federal and state statutory tax rate due to the tax benefit related to the accounting for stock-based compensation, partially offset by non-deductible items resulting primarily from limitations of compensation paid to executive officers.

The ETR for the third quarter of fiscal 2020 was higher than the combined federal and state statutory tax rate due to non-deductible items resulting primarily from limitations of compensation paid to executive officers as well as the remeasurement of U.S.

deferred tax assets and liabilities, partially offset by the tax benefit related to the accounting for stock-based compensation.

Net income increased by $5.5 million to $10.9 million for the third quarter of fiscal 2021 from $5.4 million for the third quarter of fiscal 2020.

The net income per diluted share was $1.44 per share for the third quarter of fiscal 2021, compared to $0.68 of net income per diluted share for the third quarter of fiscal 2020.

Weighted average diluted shares outstanding decreased by approximately 374,000 shares to approximately 7,560,000 shares for the third quarter of fiscal 2021 from approximately 7,934,000 shares for the third quarter of fiscal 2020.

The decrease in weighted average diluted shares outstanding was primarily due to the repurchase of shares of our common stock since September 26, 2020, offset in part by the vesting of shares of restricted stock and time-vesting restricted stock units, the issuance of common stock for contingent consideration, and the exercise of stock options since September 26, 2020.

Fiscal Year-to-Date Period Ended October 2, 2021, Compared to the Fiscal Year-to-Date Period Ended September 26, 2020

Revenues increased by $60.2 million, or 16.2%, to $431.2 million for the fiscal year-to-date period ended October 2, 2021 from $371.0 million for the fiscal year-to-date period ended September 26, 2020.

The increase in net revenue was a result of an increase in gross revenues of $61.3 million as compared to the fiscal year-to-date period ended September 26, 2020, partially offset by an increase in write-offs and reserves of $1.1 million as compared to the fiscal year-to-date period ended September 26, 2020.

Utilization increased to 75% for the fiscal year-to-date period ended October 2, 2021 from 69% for the fiscal year-to-date period ended September 26, 2020, while consultant headcount grew 6.8% from 826 at the end of the third quarter of fiscal 2020 to 882 at the end of the third quarter of fiscal 2021.

Fiscal Quarter Ended April 2, 2022, Compared to the Fiscal Quarter Ended April 3, 2021

Revenues increased by $1.9 million, or 1.3%, to $148.4 million for the first quarter of fiscal 2022 from $146.5 million for the first quarter of fiscal 2021.

Utilization decreased to 74% for the first quarter of fiscal 2022 from 76% for the first quarter of fiscal 2021, while consultant headcount grew 4.9% from 837 at the end of the first quarter of fiscal 2021 to 878 at the end of the first quarter of fiscal 2022.

The primary driver of consultant headcount growth was the addition of 37 consultants resulting from the acquisition of Welch Consulting, Ltd.

(“Welch Consulting”).

Overall, revenues outside of the U.S.

represented approximately 19% and 20% of net revenues for the fiscal year-to-date periods ended October 2, 2021 and September 26, 2020, respectively.

Revenues derived from fixed-price projects increased to 24% of net revenues for the fiscal year-to-date period ended October 2, 2021 compared with 23% of net revenue for the year-to-date period ended September 26, 2020.

represented approximately 21% and 20% of net revenues for the first quarters of fiscal 2022 and fiscal 2021, respectively.

Revenues derived from fixed-price projects decreased to 19% of net revenues for the first quarter of fiscal 2022 compared with 23% of net revenue for the first quarter of fiscal 2021.

Costs of Services (exclusive of depreciation and amortization).

Costs of services (exclusive of depreciation and amortization) increased by $36.9 million, or 13.7%, to $306.4 million for the fiscal year-to-date period ended October 2, 2021 from $269.5 million for the fiscal year-to-date period ended September 26, 2020.

The increase in costs of services was due primarily to an increase of $11.0 million in employee compensation and fringe benefit costs associated with our increased consulting headcount, an increase in incentive and retention compensation costs of $20.8 million, and an increase in forgivable loan amortization of $1.9 million, partially offset by a decrease in expense related to other compensation of $0.3 million and a decrease in the valuation expense of the contingent consideration of $1.5 million.

Additionally, client reimbursable expenses increased by $5.0 million in the fiscal year-to-date period ended October 2, 2021 compared to the fiscal year-to-date period ended September 26, 2020.

As a percentage of revenues, costs of services (exclusive of depreciation and amortization) decreased to 71.1% for the fiscal year-to-date period ended October 2, 2021 from 72.6% for the fiscal year-to-date period ended September 26, 2020.

Costs of services (exclusive of depreciation and amortization) decreased by $1.3 million, or 1.2%, to $104.1 million for the first quarter of fiscal 2022 from $105.4 million for the first quarter of fiscal 2021.

The decrease in costs of services was due primarily to a decrease in employee compensation and fringe benefit costs of $0.5 million, a decrease in the valuation expense of the contingent consideration of $0.4 million, a decrease in client reimbursable expenses of $0.3 million,and a decrease in forgivable loan amortization of $0.1 million.

As a percentage of revenues, costs of services (exclusive of depreciation and amortization) decreased to 70.1% for the first quarter of fiscal 2022 from 71.9% for the first quarter of fiscal 2021.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased by $4.0 million, or 5.9%, to $71.7 million for the fiscal year-to-date period ended October 2, 2021 from $67.7 million for the fiscal year-to-date period ended September 26, 2020.

Within this category of expenses, there was a $3.5 million increase in commissions to our non-employee experts, a $1.8 million increase in employee and incentive compensation, and a $1.3 million increase in miscellaneous and other costs.

Partially offsetting the increase in these expenses was a $0.5 million decrease in travel and entertainment, a $0.5 million decrease in legal and other professional services fees, a $1.4 million decrease in rent expense, and a $0.2 million decrease in bad debt expense for the fiscal year-to-date period ended October 2, 2021 as compared to the fiscal year-to-date period ended September 26, 2020.

As a percentage of revenues, selling, general and administrative expenses decreased to 16.6% for the fiscal year-to-date period ended October 2, 2021 from 18.3% for the fiscal year-to-date period ended September 26, 2020.

Commissions to our non-employee experts increased to 3.0% of revenues for the fiscal year-to-date period ended October 2, 2021 compared to 2.5% of revenues for the fiscal year-to-date period ended September 26, 2020.

Selling, general and administrative expenses increased by $2.6 million, or 11.3%, to $25.8 million for the first quarter of fiscal 2022 from $23.2 million for the first quarter of fiscal 2021.

Within this category of expenses, there was a $0.7 million increase in commissions to our non-employee experts, a $1.0 million increase in employee compensation and fringe benefit costs, a $0.4 million increase in travel and entertainment, and a $0.6 million increase in miscellaneous and other costs.

Partially offsetting the increase in these expenses was a $0.1 million decrease in bad debt expense for the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021.

As a percentage of revenues, selling, general and administrative expenses increased to 17.4% for the first quarter of fiscal 2022 from 15.8% for the first quarter of fiscal 2021.

Commissions to our non-employee experts increased to 3.0% of revenues for the first quarter of fiscal 2022 compared to 2.6% of revenues for the first quarter of fiscal 2021.

Provision for Income Taxes.

For the fiscal year-to-date period ended October 2, 2021, our income tax provision was $9.3 million, and the ETR was 22.0%, compared to $6.7 million and 27.5% for the fiscal year-to-date period ended September 26, 2020.

The ETR for the current fiscal year-to-date period was lower than the prior year-to-date period primarily due to an increase in the tax benefit related to the accounting for stock-based compensation, partially offset by the enactment of the U.K.

statutory tax rate increase during the second fiscal quarter whereby the U.K.'s long-term deferred tax liabilities were remeasured.

The ETR in the fiscal year-to-date period ended October 2, 2021 was lower than the combined federal and state statutory tax rate due to the tax benefit related to accounting for stock-based compensation, partially offset by non-deductible items resulting primarily from limitations on the deductibility of compensation paid to executive officers and the impact of the U.K.

statutory tax rate change.

The ETR for the fiscal year-to-date period ended September 26, 2020 was the same as the combined federal and state statutory tax rate but included increases in the rate for non-deductible compensation paid to executive officers and the remeasurement of U.S.

deferred tax assets and liabilities, offset by decreases in the rate related to the accounting for stock-based compensation.

Net income increased by $15.2 million to $33.0 million for the fiscal year-to-date period ended October 2, 2021 from $17.8 million for the fiscal year-to-date period ended September 26, 2020.

The diluted net income per share was

$4.31 for the fiscal year-to-date period ended October 2, 2021, compared to diluted net income per share of $2.23 for the fiscal year-to-date period ended September 26, 2020.

Weighted average diluted shares outstanding decreased by approximately 321,000 to approximately 7,643,000 shares for the fiscal year-to-date period ended October 2, 2021 from approximately 7,964,000 shares for the fiscal year-to-date period ended September 26, 2020.

The decrease in weighted average diluted shares outstanding was primarily due to the repurchase of shares of our common stock since September 26, 2020, offset in part by the vesting of restricted stock and time-vesting restricted stock units, the issuance of common stock for contingent consideration, and the exercise of stock options since September 26, 2020.

The income tax provision was $4.1 million and the effective tax rate ("ETR") was 26.4% for the first quarter of fiscal 2022 compared to $3.4 million and 24.4% for the first quarter of fiscal 2021.

The ETR for the first quarter of fiscal 2022 was higher than the first quarter of fiscal 2021 due to a decrease in the tax benefit related to share-based compensation, the establishment of a valuation allowance in a foreign jurisdiction, and higher state taxes and nondeductible compensation paid to executive officers.

The ETR for the first quarter of fiscal 2022 was approximately the same as the combined federal and state statutory tax rate and included offsetting items primarily related to the tax benefit for share-based compensation and nondeductible compensation paid to executive officers.

The ETR for the first quarter of fiscal 2021 was

lower than the combined federal and state statutory tax rate due to the tax benefit related to share-based compensation, partially offset by nondeductible items resulting primarily from limitations on the deductibility of compensation paid to executive officers.

Net income increased by $0.9 million to $11.4 million for the first quarter of fiscal 2022 from $10.5 million for the first quarter of fiscal 2021.

The net income per diluted share was $1.52 per share for the first quarter of fiscal 2022, compared to $1.34 of net income per diluted share for the first quarter of fiscal 2021.

Weighted average diluted shares outstanding decreased by approximately 328,000 shares to approximately 7,503,000 shares for the first quarter of fiscal 2022 from approximately 7,831,000 shares for the first quarter of fiscal 2021.

The decrease in weighted average diluted shares outstanding was primarily due to the repurchase of shares of our common stock since April 3, 2021, offset in part by the vesting of shares of restricted stock and time-vesting restricted stock units and the exercise of stock options since April 3, 2021.

Liquidity and Capital Resources

Fiscal Year-to-Date Period Ended October 2, 2021

We believe that our current cash, cash equivalents, cash generated from operations, and amounts available under our revolving credit facility will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months.

During the fiscal year-to-date period ended October 2, 2021, cash and cash equivalents decreased by $26.0 million.

We completed the period with cash and cash equivalents of $19.7 million.

The principal drivers of the reduction of cash were payment of a significant portion of our fiscal 2020 performance bonuses in the first and second fiscal quarters of fiscal 2021, the payment of the contingent consideration liability, the repurchase of shares, and the payment of dividends, offset by net borrowings of $6.0 million.

During the fiscal year-to-date period ended October 2, 2021, working capital (defined as current assets less current liabilities) increased by $12.0 million to $31.8 million.

The increase in working capital was principally due to an increase in accounts receivable and unbilled services of $21.4 million, a decrease in the current portion of deferred compensation of $16.5 million, and a decrease in accrued expenses of $7.7 million.

Partially offsetting these increases to working capital was a decrease in cash and cash equivalents of $26.0 million, a decrease in the current portion of our forgivable loans of $5.1 million, and an increase in borrowings of $6.0 million.

At October 2, 2021, $1.8 million of our cash and cash equivalents was held within the U.S.

We have sufficient sources of liquidity in the U.S., including cash flow from operations and availability on our revolving credit facility to fund U.S.

Fiscal Quarter Ended April 2, 2022

We believe that our current cash, cash generated from operations, and amounts available under our revolving credit facility through maturity will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months.

During the fiscal quarter ended April 2, 2022, cash decreased by $22.4 million.

We completed the period with cash of $43.7 million.

The principal drivers of the reduction of cash were payment of a significant portion of our fiscal 2021 performance bonuses in the first quarter of fiscal 2022, the consideration paid for the acquisition of Welch Consulting, the repurchase of shares, and the payment of dividends, offset by net borrowings of $60.0 million.

During the fiscal quarter ended April 2, 2022, working capital (defined as current assets less current liabilities) decreased by $3.1 million to $33.2 million.

The decrease in working capital was principally due to a decrease in cash of $22.4 million and an increase in borrowings of $60.0 million.

Partially offsetting these decreases to working capital was an increase in accounts receivable and unbilled services of $11.6 million, an increase in the current portion of our forgivable loans of $2.3 million, a decrease in accounts payable of $3.3 million, a decrease in accrued expenses of $52.7 million, a decrease in deferred revenue and other liabilities of $4.0 million, and a decrease in the current portion of deferred compensation of $4.9 million.

At April 2, 2022, $15.2 million of our cash was held within the U.S.

We have sufficient sources of liquidity in the U.S., including cash flow from operations and availability on our revolving credit facility through maturity to fund U.S.

operations for the next 12 months without the need to repatriate funds from our foreign subsidiaries.

Sources and Uses of Cash.

During the fiscal year-to-date period ended October 2, 2021, net cash provided by operating activities was $13.9 million.

Net income was $33.0 million for the fiscal year-to-date period ended October 2, 2021.

During the fiscal quarter ended April 2, 2022, net cash used in operating activities was $61.8 million.

Net income was $11.4 million for the fiscal quarter ended April 2, 2022.

Uses of cash for operating activities included a $4.0 million decrease in lease liabilities, a net increase of $7.1 million in accounts receivable and unbilled receivables due primarily to the increase in revenues and the timing of billings, and a $1.1 million increase in prepaid expenses and other current assets primarily related to the timing of renewing annual subscriptions.

Other uses of cash included a decrease in accounts payable, accrued expenses, and other liabilities of $17.7 million, primarily due to the payment of a significant portion of our fiscal 2020 performance bonuses and performance awards and the payment of the contingent consideration liability, and a decrease in forgivable loans for the period of $9.3 million, which was primarily driven by $9.6 million of forgivable loan issuances offset by $18.9 million of forgivable loan amortization.

Cash provided by operations included incentive cash award expense of $5.0 million, non-cash depreciation and amortization expense of $9.7 million, right-of-use amortization of $9.7 million, share-based compensation expenses of $2.8 million, and other non-cash deductions of $1.5 million.

During the fiscal year-to-date period ended October 2, 2021, net cash used in investing activities was $1.7 million for capital expenditures primarily related to purchases of office equipment.

During the fiscal year-to-date period ended October 2, 2021, net cash used in financing activities was $37.8 million, primarily as a result of $40.0 million of repurchases of common stock, payment of $5.9 million of cash dividends and dividend equivalents, tax withholding payments reimbursed by restricted shares of $0.6 million, and a portion of the payment of the contingent consideration classified as a financing activity in the amount of $2.4 million.

Offsetting these decreases in cash used in financing activities were borrowings, net of repayments, under the revolving credit facility of $6.0 million and $5.0 million received upon the issuance of shares of common stock related to the exercise of stock options.

Other uses of cash included a decrease in accounts payable, accrued expenses, and other liabilities of $66.5 million, primarily due to the payment of a significant portion of our fiscal 2021 performance bonuses and performance awards, and an increase in forgivable loans for the period of $3.4 million, which was primarily driven by $8.8 million of forgivable loan issuances offset by $5.4 million of forgivable loan amortization.

Cash used in operations included incentive cash award expense of $1.8 million, non-cash depreciation and amortization expense of $3.0 million, right-of-use amortization of $3.4 million, share-based compensation expenses of $1.0 million, and other non-cash deductions of $0.3 million.

During the fiscal quarter ended April 2, 2022, net cash used in investing activities was $12.0 million, which included $10.6 million of consideration paid for the acquisition of Welch Consulting and $1.4 million for capital expenditures, primarily related to purchases of office equipment.

During the fiscal quarter ended April 2, 2022, net cash provided by financing activities was $52.0 million, primarily as a result of borrowings under the revolving credit facility of $60.0 million and $0.3 million received upon the issuance of shares of common stock related to the exercise of stock options.

Offsetting these increases in cash provided by financing activities were $5.0 million of repurchases of common stock, payment of $2.4 million of cash for dividends and dividend equivalents, and tax withholding payments reimbursed by restricted shares on vesting of $0.9 million.

Lease Commitments

We are a lessee under certain operating leases for office space and equipment.

Certain of our operating leases have terms that impose asset retirement obligations due to office modifications or the periodic redecoration of the premises, which are included in facility-related liabilities on our consolidated balance sheets and are recorded at a value based on their estimated discounted cash flows.

Certain of our operating leases have terms that impose asset retirement obligations due to office modifications or the periodic redecoration of the premises, which are included in other liabilities on our consolidated balance sheets and are recorded at a value based on their estimated discounted cash flows.

We expect to satisfy these lease and related obligations, as they become due, from cash generated from operations.

We are party to an amended and restated credit agreement that provides us with a $175.0 million revolving credit facility, which reflects an increase to the capacity by $50.0 million per an amendment to the credit agreement on January 12, 2021, and includes a $15.0 million sublimit for the issuance of letters of credit.

We may use the proceeds of the revolving credit facility to provide working capital and for other general corporate purposes.

Generally, we may repay any borrowings under the revolving credit facility at any time, but we must repay all borrowings no later than October 24, 2022.

There was $6.0 million in borrowings outstanding under the revolving credit facility as of October 2, 2021.

The amount available under the revolving credit facility is reduced by certain letters of credit outstanding, which amounted to $4.2 million as of October 2, 2021.

Certain of our operating leases have terms that impose asset retirement obligations due to office modifications or the periodic redecoration of the premises, which are included in other liabilities on our consolidated balance sheets and are recorded at a value based on their estimated discounted cash flows.

We do not expect to incur asset retirement obligation or redecoration obligation costs over the next twelve months.

The remainder of our asset retirement obligations and redecoration obligations are approximately $2.8 million and are expected to be paid between fiscal 2026 and fiscal 2031 when the underlying leases terminate.

We expect to satisfy these lease and related obligations as they become due from cash generated from operations.

We are party to a $175.0 million revolving credit facility that includes a $15.0 million sublimit for the issuance of letters of credit.

We may use the proceeds of the revolving credit facility for working capital and for other general corporate purposes.

Generally, we may repay borrowings under the revolving credit facility at any time, but we must repay all borrowings no later than October 24, 2022, the maturity date.

There was $60.0 million in borrowings outstanding under the revolving credit facility as of April 2, 2022.

The amount available under this revolving credit facility was reduced by $4.4 million of letters of credit outstanding as of April 2, 2022.

Borrowings under the revolving credit facility bear interest at a rate per annum, at our election, of either (i) the Base Rate, as defined in the credit agreement, plus an applicable margin, which varies between 0.25% and 1.25% depending on our total leverage ratio as determined under the credit agreement, or (ii) the Adjusted Eurocurrency Rate, as defined in the credit agreement, plus an applicable margin, which varies between 1.25% and 2.25% depending on our total leverage ratio.

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Borrowings under the revolving credit facility are secured by 100% of the stock of certain of our U.S.

subsidiaries and 65% of the stock of certain of our foreign subsidiaries, which represent approximately $32.3 million in net assets as of October 2, 2021.

subsidiaries and 65% of the stock of certain of our foreign subsidiaries, which represent approximately $35.2 million in net assets as of April 2, 2022.

Under the credit agreement, we must comply with various financial and non-financial covenants.

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The non-financial covenant restrictions of the senior credit agreement include, but are not limited to, our ability to incur additional indebtedness, engage in acquisitions or dispositions, and enter into business combinations.

At October 2, 2021 and currently, we are in compliance with the covenants of our credit agreement.

At April 2, 2022 and currently, we are in compliance with all such tests under the credit agreement.

Forgivable Loans

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A portion of these loans is collateralized by key person life insurance.

The forgivable loans have terms that are generally between two and seven years.

The forgivable loans have terms that are generally between two and six years.

The principal amount of forgivable loans and accrued interest is forgiven by us over the term of the loans, so long as the employee or non-employee expert continues employment or affiliation with us and complies with certain contractual requirements.

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The amounts of the awards to be paid under these compensation arrangements could fluctuate depending on future performance during the applicable measurement periods.

Increases in estimated awards are expensed prospectively over the remaining service period.

Decreases in estimated awards are recorded in the period incurred.

We believe that we will have sufficient funds to satisfy any obligations related to the performance awards.

Changes in the estimated awards are expensed prospectively over the remaining service period.

We believe that we will have sufficient funds to satisfy any cash

obligations related to the performance awards.

We expect to fund any cash payments from existing cash resources, cash generated from operations, or borrowings on our revolving credit facility.

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Our ability to secure short-term and long-term debt or equity financing in the future, including our ability to refinance our credit agreement, will depend on several factors, including our future profitability, the levels of our debt and equity, restrictions under our existing revolving credit facility, and the overall credit and equity market environments.

We completed a business acquisition during the fiscal quarter ended April 2, 2022, which is further described in Note 2, "Business Acquisition” in Part I, Item I, “Financial Statements” of this report.

Share Repurchases

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We may repurchase shares under this program in open market purchases (including through any Rule 10b5-1 plan adopted by us) or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations.

Refer to the section titled "Self-Tender Offer" below for discussion of shares repurchased during the second quarter of fiscal 2021 under our modified "Dutch auction" self-tender offer.

During the fiscal quarter and fiscal year-to-date period ended October 2, 2021, we repurchased and retired 53,012 shares and 219,564 shares, respectively, under our share repurchase program at an average price per share of $94.32 and $66.72, respectively.

During the fiscal quarter and fiscal year-to-date period ended September 26, 2020, we repurchased and retired 110,154 shares and 192,767 shares, respectively, under our share repurchase program at an average price per share of $45.39 and $45.72, respectively.

As of October 2, 2021, we had approximately $35.5 million available for future repurchases under our share repurchase program.

During the fiscal quarter ended April 2, 2022, we repurchased and retired 56,665 shares under our share repurchase program at an average price per share of $87.46.

During the fiscal quarter ended April 3, 2021, we repurchased and retired 166,552 shares under our share repurchase program at an average price per share of $57.93.

As of April 2, 2022, we had approximately $45.5 million available for future repurchases under our share repurchase program.

We plan to finance future repurchases with available cash, cash from future operations, and funds from our revolving credit facility.

We expect to continue to repurchase shares under our share repurchase program.

Self-Tender Offer

On March 8, 2021, we commenced a modified "Dutch auction" self-tender offer to purchase up to $25.0 million in value of shares of our common stock at a price of not less than $66.25 per share nor greater than $76.00 per share.

The self-tender offer expired on April 5, 2021.

On April 8, 2021, we paid $25.3 million, including transaction costs, to repurchase 337,837 shares at a purchase price of $74.00 per share.

The purchase price and transaction costs were funded from the revolving credit facility and cash on hand.

The repurchased shares were retired.

Dividends to Shareholders

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Although we anticipate paying regular quarterly dividends on our common stock for the foreseeable future, the declaration, timing and amounts of any such dividends remain subject to the discretion of our Board of Directors.

During the fiscal quarter and fiscal year-to-date period ended October 2, 2021, we paid dividends and dividend equivalents of $1.9 million and $5.9 million, respectively.

During the fiscal quarter and fiscal year-to-date period ended September 26, 2020, we paid dividends and dividend equivalents of $1.8 million and $5.4 million, respectively.

During the fiscal quarter ended April 2, 2022, we paid dividends and dividend equivalents of $2.4 million.

During the fiscal quarter ended April 3, 2021, we paid dividends and dividend equivalents of $2.1 million.

Impact of Inflation

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• capital expenditures, primarily for information technology equipment, office furniture and leasehold improvements;

• debt service and repayments, including interest payments on borrowings under our revolving credit facility;

• debt service and repayments, including interest payments on borrowings from our revolving credit facility and any principal due at maturity in October 2022;

• share repurchases under programs that we may have in effect from time to time;

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As such, our operating model provides flexibility with respect to the deployment of cash flow from operations.

Given this flexibility, we believe that our cash flows from operations, supplemented by cash on hand and borrowings under our revolving credit facility (as necessary), will provide adequate cash to fund our long-term cash needs from normal operations for at least the next twelve months.

Given this flexibility, we believe that our cash flows from operations, supplemented by cash on hand and borrowings from our revolving credit facility through maturity (as necessary), will provide adequate cash to fund our long-term cash needs from normal operations for at least the next twelve months.

Our conclusion that we will be able to fund our cash requirements by using existing capital resources and cash generated from operations does not take into account the impact of any future acquisition transactions or any unexpected significant changes in the number of employees or other expenditures that are currently not contemplated.

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Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to raise additional debt or equity funding to meet those needs on terms that may be less favorable compared to our current sources of capital.

Our ability to raise additional capital over the next twelve months, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:

Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:

• our future profitability;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis