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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-02-02 · 83 added, 145 removed, 74 unchanged (75% of the section changed)

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 nine months ended December 26, 2021 as compared to the similar period ended December 27, 2020.

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 March 28, 2021 .

The following is a discussion and analysis of our financial condition and results of operations for the three months ended July 3, 2022 as compared to the similar period ended June 27, 2021.

We derive substantially all of our revenues from the sale of chemicals and specialty ingredients to our customers in a wide variety of industries.

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Business Acquisitions

On December 30, 2021, after the end of our third quarter, we acquired substantially all the assets of NAPCO Chemical Company, Inc.

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 manufactures and distributes water treatment chemicals from three locations in Texas.

NAPCO manufactured and distributed water treatment chemicals from three locations in Texas.

The results of operations beginning at the date of acquisition will be included as part of our Water Treatment segment from the date of acquisition forward.

On October 29, 2021, 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.

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.

On September 20, 2021, 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.

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.

In the fourth quarter of fiscal 2021, we acquired substantially all the assets of C&L Aqua Professionals, Inc.

and LC Blending, Inc.

(together, “C&L Aqua”) under the terms of an asset purchase agreement among us, C&L Aqua and its shareholders.

C&L Aqua was a water treatment chemical distribution company operating primarily in Louisiana.

The results of operations and the assets are included as part of our Water Treatment segment.

In the second quarter of fiscal 2021, we acquired substantially all the assets of American Development Corporation of Tennessee, Inc.

(“ADC”) under the terms of an asset purchase agreement among us, ADC and its shareholders.

ADC was a water treatment chemical distribution company operating primarily in Tennessee, Georgia and Kentucky.

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 the current fiscal year totaled approximately $17 million, as determined using the applicable twelve-month period preceding each respective acquisition date.

In the fourth quarter of fiscal 2021, we effected a two-for-one split of our common stock, and adjusted the par value from $0.05 per share to $0.01 per share.

At the same time, we increased the number of authorized shares from 30 million to 60 million.

Our consolidated financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.

Statement on COVID-19

During the pandemic caused by COVID-19, federal, state and local governments around the world implemented stringent measures to help control the spread of the virus, including, from time to time, quarantines, “shelter in place” and “stay at home” orders, travel restrictions or bans, business curtailments, school closures, and other protective measures.

While most restrictions have eased since the start of the COVID-19 pandemic, certain restrictions remain in place or new restrictions may be implemented in the future.

All of our manufacturing facilities have qualified as essential operations (or the equivalent) under applicable federal and state orders.

As a result, all of our manufacturing sites and facilities have continued to operate, with no significant impact to our output levels.

During this public health crisis, we remained focused on the health and safety of our employees, customers and suppliers and maintaining safe and reliable operations of our manufacturing sites.

As our operations and products are essential to critical national infrastructure, it is imperative that we continue to supply materials including the products needed to maintain safe drinking water, ingredients essential for large-scale food, pharmaceutical and other health product manufacturing and nutrition products needed to support our country's critical infrastructure.

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.

Accordingly, as of August 4, 2022, 1,129,348 shares remain available to be repurchased under this program.

Financial Results

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

Three Months Ended Nine Months Ended

December 26, 2021 December 27, 2020 December 26, 2021 December 27, 2020

Three Months Ended

July 3, 2022 June 27, 2021

Sales 100.0 % 100.0 %

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Interest expense, net (0.4) % (0.2) %

Other income 0.1 % 0.3 % 0.1 % 0.3 %

Other (expense) income (0.3) % 0.1 %

Income before income taxes 10.6 % 12.1 %

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Net income 8.0 % 9.1 %

Three Months Ended December 26, 2021 Compared to Three Months Ended December 27, 2020

Sales were $187.1 million for the three months ended December 26, 2021, an increase of $44.2 million, or 31%, from sales of $142.9 million in the same period a year ago.

Three Months Ended July 3, 2022 Compared to Three Months Ended June 27, 2021

Sales were $246.5 million for the three months ended July 3, 2022, an increase of $65.3 million, or 36%, from sales of $181.2 million in the same period a year ago, driven primarily by price increases.

Industrial Segment.

Industrial segment sales increased $36.2 million, or 56%, to $100.6 million for the three months ended December 26, 2021, from sales of $64.4 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 16% of sales dollars in both the three months ended December 26, 2021 and the same period of the prior year.

The increase in Industrial segment sales was driven primarily by increased sales volumes of both our bulk and our manufactured, blended and repackaged products.

The increase included sales of certain of our agricultural products lines due in large part due to both favorable crop prices and early purchases as customers anticipated additional price increases later in the season.

Sales also increased due to increased selling prices driven by higher costs on many of our raw materials.

Industrial segment sales increased $38.8 million, or 45%, to $124.7 million for the three months ended July 3, 2022, from sales of $85.9 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 16% of sales dollars in the three months ended July 3, 2022 and 14% the same period of the prior year.

The growth in Industrial segment sales was driven by increased selling prices on many of our products driven by higher costs on many of our raw materials as well as a product mix shift to more sales of our food ingredient products, which typically have higher margins.

Water Treatment Segment.

Water Treatment segment sales increased $10.5 million, or 27%, to $49.8 million for the three months ended December 26, 2021, from sales of $39.3 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in the three months ended December 26, 2021 and 10% in the same period of the prior year.

Sales increased as a result of increased demand for many of our products, as well as $3.1 million in added sales from acquired businesses.

Water Treatment segment sales increased $22.3 million, or 40%, to $78.5 million for the three months ended July 3, 2022, from sales of $56.2 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in the three months ended July 3, 2022 and 8% in the same period of the prior year.

The sales growth was a result of increased selling prices on many of our products driven by higher costs on many of our raw materials, increased demand for our products and the added sales from acquisitions.

Health & Nutrition Segment.

Health and Nutrition segment sales decreased $2.6 million, or 7%, to $36.7 million for the three months ended December 26, 2021, from sales of $39.3 million in the same period a year ago.

The decrease in sales was primarily driven by decreased sales of our manufactured products when compared to strong demand for those products in the prior year, partially offset by an increase in sales of our specialty distributed products.

Gross profit increased $5.7 million, or 20%, to $33.9 million, or 18% of sales, for the three months ended December 26, 2021, from $28.2 million, or 20% of sales, for the same period a year ago.

During the three months ended December 26, 2021, the LIFO reserve increased, and gross profit decreased, by $2.9 million, primarily due to rising raw material prices.

Health and Nutrition segment sales increased $4.1 million, or 10%, to $43.3 million for the three months ended July 3, 2022, from sales of $39.2 million in the same period a year ago.

Sales growth of our manufactured products was partially offset by a decrease in sales of our specialty distributed products.

Gross profit increased $7.7 million, or 20%, to $46.7 million, or 19% of sales, for the three months ended July 3, 2022, from $39.0 million, or 22% of sales, for the same period a year ago.

During the three months ended July 3, 2022, the LIFO reserve increased, and gross profit decreased, by $3.8 million, primarily due to rising raw material prices.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $1.8 million.

Industrial Segment.

Gross profit for the Industrial segment increased $6.1 million, or 66%, to $15.3 million, or 15% of sales, for the three months ended December 26, 2021, from $9.2 million, or 14% of sales, in the same period a year ago.

During the three months ended December 26, 2021, the LIFO reserve increased, and gross profit decreased, by $2.2 million, primarily due to rising raw material prices.

In the same quarter a year ago, the change in the LIFO reserve had a nominal impact on gross profit.

Gross profit increased as a result of the increase in sales, partially offset by the negative impact of the increase in the LIFO reserve.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $1.1 million, or 11%, to $11.1 million, or 22% of sales, for the three months ended December 26, 2021, from $10.0 million, or 26% of sales, in the same period a year ago.

During the three months ended December 26, 2021, the LIFO reserve increased, and gross profit decreased, by $0.6 million.

In the same quarter a year ago, the change in the LIFO reserve had a nominal impact on gross profit.

Gross profit increased as a result of the increase in sales, including the added sales from the acquired businesses, partially offset by the negative $0.6 million year-over-year impact of the increase in the LIFO reserve.

Gross profit as a percentage of sales declined in part due to rising raw material costs and our inability in some cases to pass cost increases on to customers with contracts in place.

Health and Nutrition Segment .

Gross profit for our Health and Nutrition segment decreased $1.5 million, or 16%, to $7.5 million, or 21% of sales, for the three months ended December 26, 2021, from $9.0 million, or 23% of sales, for the same period a year ago.

The decrease in gross profit was a result of the year-over-year decline in sales.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $1.9 million to $19.7 million, or 11% of sales, for the three months ended December 26, 2021, from $17.8 million, or 12% of sales, for the same period a year ago.

Expenses increased in part due to the added costs from the acquired businesses in our Water Treatment segment, including $0.1 million of expense for amortization of intangibles, as well as increased variable pay expense and increased travel expense.

Increased expenses were partially offset by a year-over-year decrease of $0.4 million due to lower compensation expense relating to the non-qualified deferred compensation plan liability which is offset in other income as described below.

Operating Income

Operating income increased $3.8 million, or 36%, to $14.3 million, or 8% of sales, for the three months ended December 26, 2021, from $10.5 million, or 7% of sales, for the same period a year ago due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $0.3 million for the three months ended December 26, 2021 and $0.4 million the three months ended December 27, 2020.

Additional interest cost as a result of the increase in outstanding borrowings was more than offset by lower borrowing rates compared to the prior year.

Other income was $0.1 million for the three months ended December 26, 2021 and $0.5 million in the same period a year ago.

This represents gains recorded on investments held for our non-qualified deferred compensation plan.

The amount recorded as a gain was offset by a similar amount recorded as an increase to compensation expense within SG&A expenses .

Income Tax Provision

Our effective income tax rate was 27% for the three months ended December 26, 2021, compared to 25% in the same period a year ago.

The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

Our effective tax rate for the full year is currently expected to be approximately 26-27%.

Nine Months Ended December 26, 2021 Compared to Nine Months Ended December 27, 2020

Sales were $551.6 million for the nine months ended December 26, 2021, an increase of $117.7 million, or 27%, from sales of $433.9 million in the same period a year ago.

Industrial Segment.

Industrial segment sales increased $72.6 million, or 37%, to $269.6 million for the nine months ended December 26, 2021, from sales of $197.0 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 15% of sales dollars in the nine months ended December 26, 2021 and 14% in the same period of the prior year.

The increase in Industrial segment sales was driven primarily by increased sales volumes of both our bulk and our manufactured, blended and repackaged products.

Sales also increased due to increased selling prices driven by higher costs on many of our raw materials.

Water Treatment Segment.

Water Treatment segment sales increased $39.6 million, or 31%, to $168.1 million for the nine months ended December 26, 2021, from sales of $128.6 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in both the nine months ended December 26, 2021 and the same period in the prior year.

Sales increased as a result of increased demand for many of our products, as well as $14.7 million in added sales from acquired businesses.

Health & Nutrition Segment.

Health and Nutrition segment sales increased $5.6 million, or 5%, to $113.9 million for the nine months ended December 26, 2021, from sales of $108.3 million in the same period a year ago.

The increase in sales was driven by increased sales of our specialty distributed products partially offset by the decrease in sales of our manufactured products when compared to the strong demand for those products in the prior year.

Gross profit increased $18.2 million, or 20%, to $110.2 million, or 20% of sales, for the nine months ended December 26, 2021, from $92.0 million, or 20% of sales, in the same period a year ago.

During the nine months ended December 26, 2021, the LIFO reserve increased, and gross profit decreased, by $7.6 million, primarily due to rising raw material costs.

In the same period a year ago, the LIFO reserve decreased, and gross profit increased, by $0.1 million.

Industrial Segment.

Gross profit for the Industrial segment increased $10.0 million, or 31%, to $42.1 million, or 16% of sales, for the nine months ended December 26, 2021, from $32.1 million, or 16% of sales, in the same period a year ago.

During the nine months ended December 26, 2021, the LIFO reserve increased, and gross profit decreased, by $5.9 million, primarily due to rising raw material costs.

In the same period a year ago, the LIFO reserve decreased, and gross profit increased, by $0.1

Gross profit increased as a result of the increase in sales, partially offset by the negative impact resulting from the increase in the LIFO reserve.

Gross profit for the Industrial segment increased $5.7 million, or 40%, to $20.0 million, or 16% of sales, for the three months ended July 3, 2022, from $14.3 million, or 17% of sales, in the same period a year ago.

During the three months ended July 3, 2022, the LIFO reserve increased, and gross profit decreased, by $2.7 million, primarily due to rising raw material prices.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $1.4 million.

Gross profit increased as a result of sales growth and product mix shift, partially offset by the decrease in gross profits as a result of the increased LIFO reserve.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $9.0 million, or 25%, to $44.9 million, or 27% of sales, for the nine months ended December 26, 2021, from $35.9 million, or 28% of sales, in the same period a year ago.

During the nine months ended December 26, 2021, the LIFO reserve increased, and gross profit decreased, by $1.7 million.

In the same period a year ago, the change in the LIFO reserve had a nominal impact on gross profit.

Gross profit increased as a result of the increase in sales, including the added sales from the acquired businesses.

Gross profit for the Water Treatment segment increased $2.8 million, or 17%, to $19.0 million, or 24% of sales, for the three months ended July 3, 2022, from $16.2 million, or 29% of sales, in the same period a year ago.

During the three months ended July 3, 2022, the LIFO reserve increased, and gross profit decreased, by $1.1 million due primarily to rising raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $0.4 million.

Gross profit increased as a result of sales growth, partially offset by the decrease in gross profits as a result of the increased LIFO reserve.

Health and Nutrition Segment .

Gross profit for our Health and Nutrition segment decreased $0.8 million, or 3%, to $23.2 million, or 20% of sales, for the nine months ended December 26, 2021, from $24.0 million, or 22% of sales, in the same period a year ago.

The decrease in gross profit was a result of product mix changes as well as inventory adjustments of approximately $1.0 million due to increased reserves for excess product on hand, in accordance with our reserve policies.

Gross profit for our Health and Nutrition segment decreased $0.7 million, or 8%, to $7.8 million, or 18% of sales, for the three months ended July 3, 2022, from $8.5 million, or 22% of sales, for the same period a year ago.

While sales increased year over year, the decrease in gross profit was a result of inventory adjustments made to increase reserves for excess product on hand.

Selling, General and Administrative Expenses

SG&A expenses increased $5.2 million to $54.2 million, or 10% of sales, for the nine months ended December 26, 2021, from $49.0 million, or 11% of sales, in the same period a year ago.

Expenses increased in part due to the added costs from the acquired businesses in our Water Treatment segment, including $0.7 million of expense for amortization of intangibles, as well as increased variable pay expense and increased travel expense.

Increased expenses were partially offset by a year-over-year decrease of $0.8 million due to lower compensation expense relating to the non-qualified deferred compensation plan liability which is offset in other income as described below.

Selling, general and administrative (“SG&A”) expenses increased $2.0 million to $18.9 million, or 8% of sales, for the three months ended July 3, 2022, from $16.9 million, or 9% of sales, for the same period a year ago.

The increase was mainly a result of added costs associated with the acquired businesses in our Water Treatment segment, as well as increased variable expenses.

Partially offsetting the increase was a reduction of $0.8 million to compensation expense as a result of losses incurred on investments held for our non-qualified deferred compensation plan, as compared to $0.2 million increase in compensation expense in the same quarter a year ago as a result of gains incurred.

These amounts were offset by similar amounts recorded in other (expense) income.

Operating Income

Operating income increased $13.0 million, or 30%, to $56.0 million, or 10% of sales, for the nine months ended December 26, 2021, from $43.0 million, or 10% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Operating income increased $5.8 million, or 26%, to $27.9 million, or 11% of sales, for the three months ended July 3, 2022, from $22.1 million, or 12% of sales, for the same period a year ago due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $1.0 million for the nine months ended December 26, 2021 and $1.1 million the nine months ended December 27, 2020.

Additional interest cost as a result of the increase in outstanding borrowings was more than offset by lower borrowing rates compared to the prior year.

Other income was $0.5 million for the nine months ended December 26, 2021 and $1.3 million in the same period a year ago.

This represents gains recorded on investments held for our non-qualified deferred compensation plan.

The amount recorded as a gain was offset by a similar amount recorded as an increase to compensation expense within SG&A expenses .

Interest expense was $0.9 million for the three months ended July 3, 2022 and $0.3 million the three months ended June 27, 2021.

The increase was due an increase in outstanding borrowings due to increased working capital needs as well as an increase in borrowing rates.

Other (Expense) Income

Other expense was $0.8 million for the three months ended July 3, 2022 compared to other income of $0.2 million in the same period a year ago.

The current year expense represents losses recorded on investments held for our non-qualified deferred compensation plan, whereas the income in the prior represented gains recorded on those investments.

The amounts recorded as a gain or loss were offset by similar amounts recorded as a decrease or increase to compensation expense within SG&A expenses.

Income Tax Provision

Our effective income tax rate was 26% for both the nine months ended December 26, 2021 and in the same period a year ago.

Our effective income tax rate was 25% for the three months ended July 3, 2022, compared to 24% in the same period a year ago.

The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.

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Liquidity and Capital Resources

Cash was $23.4 million at December 26, 2021, an increase of $20.4 million as compared with the $3.0 million available as of March 28, 2021.

Generally we expect cash to be lower at the end of a quarter as debt is paid down, but due to the NAPCO acquisition closing occurring within a few days after quarter end the funds were borrowed within the quarter.

Cash provided by operating activities was $38.7 million for the nine months ended December 26, 2021, compared to cash provided by operating activities of $26.6 million in the same period a year ago.

The year-over-year increase in cash provided by operating activities was primarily driven by an increase in net income combined with year-over-year changes in uses of working capital, including less cash expended in the first nine months of the current year for accounts payable, partially offset by an increase in inventory and customer receivables for the nine months ended December 26, 2021 compared to the same period a year ago.

Cash was $6.0 million at July 3, 2022, an increase of $2.5 million as compared with the $3.5 million available as of April 3, 2022.

Cash used in operating activities was $9.4 million for the three months ended July 3, 2022, compared to cash provided by operating activities of $14.8 million in the same period a year ago.

The year-over-year decrease in cash provided by operating activities was primarily driven by an increase in year-over-year changes in uses of working capital, including more cash expended in the first three months of the current year for accounts payable, inventory, and customer receivables, partially offset by increased net income for the three months ended July 3, 2022 compared to the same period a year ago.

The current year increase in accounts receivable and inventory was largely due to increased sales and increased raw material prices.

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.

Cash used in investing activities was $18.0 million for the nine months ended December 26, 2021, compared to $48.1 million in the same period a year ago.

Capital expenditures were $15.7 million for the nine months ended December 26, 2021,

compared to $13.2 million in the same period a year ago.

In the first nine months of the current year, we had larger investments in containers and replacement equipment compared to the first nine months of the prior year.

Acquisition spending was $2.6 million in the current year compared to $35.0 million in the same period of the prior year.

Cash used in financing activities was $0.2 million for the nine months ended December 26, 2021, compared to $25.1 million of cash provided by financing activities in the same period a year ago.

Included in financing activities in the first nine months of the current year were net debt proceeds of $17.0 million, compared to net debt proceeds of $36.0 million in the first nine months of the prior year.

In addition, we repurchased $8.5 million of shares of our common stock in the first nine months of the current fiscal year, compared to $4.1 million shares repurchased in the same period a year ago.

Cash used in investing activities was $11.5 million for the three months ended July 3, 2022, compared to $2.1 million in the same period a year ago.

Capital expenditures were $11.6 million for the three months ended July 3, 2022, compared to $2.2 million in the same period a year ago.

In the first three months of the current year, we invested $1.1 million to expand one of our facilities, purchased a previously leased facility for $0.9 million, and had larger investments in trucks, containers and new and replacement equipment compared to the first three months of the prior year.

Cash provided by financing activities was $23.4 million for the three months ended July 3, 2022, compared to $10.5 million of cash used in financing activities in the same period a year ago.

Included in financing activities in the first three months of the current year were net debt proceeds of $33.5 million, compared to net debt payments of $3.0 million in the first three months of the prior year.

The large increase in our working capital needs in the current year as discussed above required us to increase our borrowings.

In addition, we repurchased $6.6 million of shares of our common stock in the first three months of the current fiscal year, compared to $3.4 million of shares repurchased in the same period a year ago.

We expect our cash balances and funds available under our credit facility, discussed below, along with cash flows generated from operations, will be sufficient to fund the cash requirements of our ongoing operations for the foreseeable future.

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The primary objective of the share repurchase program is to offset the impact of dilution from issuances relating to employee and director equity grants and our employee stock purchase program.

During the nine months ended December 26, 2021, we repurchased 240,501 shares of common stock with an aggregate purchase price of $8.5 million.

During the nine months ended December 27, 2020, 166,088 shares were repurchased with an aggregate purchase price of $4.1 million.

As of December 26, 2021, 311,005 shares remained available to be repurchased under the share repurchase program.

We are party to an amended and restated credit agreement (the “Credit Agreement”) with U.S.

During the three months ended July 3, 2022, we repurchased 181,657 shares of common stock with an aggregate purchase price of $6.6 million.

During the three months

ended June 27, 2021, 100,954 shares were repurchased with an aggregate purchase price of $3.4 million.

As of July 3, 2022, 129,348 shares remained available to be repurchased under the share repurchase program.

We are party to a second amended and restated credit agreement (the “Credit Agreement”) with U.S.

Bank National Association (“U.S.

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Bank is also serving as Administrative Agent.

The Credit Agreement provides us with senior secured revolving credit facilities (the “Revolving Loan Facility”) totaling $150.0 million.

The Credit Agreement refinanced the revolving loan under our previous credit agreement with U.S.

Bank and provides us with senior secured revolving credit facilities (the “Revolving Loan Facility”) totaling $250 million.

The Revolving Loan Facility includes a $10 million letter of credit subfacility and $25 million swingline subfacility.

The Revolving Loan Facility has a five-year maturity date, maturing on November 30, 2023.

The Revolving Loan Facility has a five-year maturity date, maturing on April 30, 2027.

The Revolving Loan Facility is secured by substantially all of our personal property assets and those of our subsidiaries.

We may use the amount available under the Revolving Loan Facility for working capital, capital expenditures, share repurchases, restricted payments and acquisitions permitted under the Credit Agreement, and other general corporate purposes.

Borrowings under the Revolving Loan Facility bear interest at a rate per annum equal to one of the following, plus, in both cases, an applicable margin based upon our leverage ratio:

(a) LIBOR for an interest period of one, two, three or nine months as selected by us, reset at the end of the selected interest period, or (b) a base rate determined by reference to the highest of (1) U.

Bank’s prime rate, (2) the Federal Funds Effective Rate plus 0.5%, or (3) one-month LIBOR for U.S.

(a) Term SOFR, which includes a credit spread adjustment of 0.10%, for an interest period of one, three or six months as selected by us, reset at the end of the selected interest period, or (b) a base rate determined by reference to the highest of (1) U.

Bank’s prime rate, (2) the Federal Funds Effective Rate plus 0.5%, or (3) one-month Term SOFR for U.S.

dollars plus 1.0%.

The LIBOR margin is between 0.85% - 1.35%, depending on our leverage ratio.

The base rate margin is between 0.00% - 0.35%, depending on our leverage ratio.

In the event that the ICE Benchmark Administration (or any person that takes over administration of such rate) determines that LIBOR is no longer available, including as a result of the intended phase out of LIBOR by the end of 2021, our Revolving Loan Facility provides for an alternative rate of interest to be jointly determined by us and U.S.

Bank, as administrative agent, that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States.

Once such successor rate has been approved by us and U.S.

Bank, the Revolving Credit Loan Facility would be amended to use such successor rate without any further action or consent of any other lender, so long as the administrative agent does not receive any objection from any other lender.

At December 26, 2021, the effective interest rate on our borrowings was 0.9% .

The Term SOFR margin is between 0.85% and 1.35%, depending on our leverage ratio.

The base rate margin is between 0.00% and 0.35%, depending on our leverage ratio.

At July 3, 2022, the effective interest rate on our borrowings was 2.8%.

In addition to paying interest on the outstanding principal under the Revolving Loan Facility, we are required to pay a commitment fee on the unutilized commitments thereunder.

The commitment fee is between 0.15% - 0.25%, depending on our leverage ratio.

The commitment fee is between 0.15% and 0.25%, depending on our leverage ratio.

Debt issuance costs paid to the Lenders are being amortized as interest expense over the term of the Credit Agreement.

As of December 26, 2021, the unamortized balance of these costs was $0.2 million, and is reflected as a reduction of debt on our balance sheet.

As of July 3, 2022, the unamortized balance of these costs was $0.4 million, and is reflected as a reduction of debt on our balance sheet.

The Credit Agreement requires us to maintain (a) a minimum fixed charge coverage ratio of 1.15 to 1.00 and (b) a maximum total cash flow leverage ratio of 3.0 to 1.0.

The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict our ability to incur additional indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions, grant liens on our assets or rate management transactions, subject to certain limitations.

The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict our ability to incur additional indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions, grant liens on our assets or enter into rate management transactions, subject to certain limitations.

We are permitted to make distributions, pay dividends and repurchase shares so long as no default or event of default exists or would exist as a result thereof.

We were in compliance with all covenants of the Credit Agreement as of December 26, 2021.

We were in compliance with all covenants of the Credit Agreement as of July 3, 2022 and expect to remain in compliance with all covenants for the next 12 months.

The Credit Agreement contains customary events of default, including failure to comply with covenants in the Credit Agreement and other loan documents, cross default to other material indebtedness, failure by us to pay or discharge material judgments, bankruptcy, and change of control.

The occurrence of an event of default would permit the Lenders to terminate their commitments and accelerate loans under the Revolving Loan Facility.

The occurrence of an event of default would permit the lenders to terminate their commitments and accelerate loans under the Credit Facility.

We have in place an interest rate swap agreement to manage the risk associated with a portion of our variable-rate long-term debt.

We do not utilize derivative instruments for speculative purposes.

The interest rate swap involves the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated.

The notional amount of the swap agreement is $60 million and it will terminate on May 1, 2027.

As part of our growth strategy, we have acquired businesses and may pursue acquisitions or other strategic relationships in the future that we believe will complement or expand our existing businesses or increase our customer base.

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Critical Accounting Estimates

There were no material changes in our critical accounting estimates since the filing of our Annual Report on Form 10-K for the fiscal year ended March 28, 2021 .

There were no material changes in our critical accounting estimates since the filing of our Annual Report on Form 10-K for the fiscal year ended April 3, 2022 .

Forward-Looking Statements

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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 March 28, 2021 .

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 3, 2022 .

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.

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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