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Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-02-01 · 73 added, 118 removed, 82 unchanged (70% 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 January 1, 2023 as compared to the similar period ended December 26, 2021.

The following is a discussion and analysis of our financial condition and results of operations for the three months ended July 2, 2023 as compared to the similar period ended July 3, 2022.

This discussion should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included in this quarterly report on Form 10-Q and Item 8 of our Annual Report on Form 10-K for the fiscal year ended April 2, 2023 .

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Over the years, we have maintained the strong customer focus and have expanded our business by increasing our sales of value-added chemicals and specialty ingredients, including manufacturing, blending, and repackaging certain products.

Business Acquisitions

In the fourth quarter of fiscal 2022, we acquired substantially all the assets of NAPCO Chemical Company, Inc.

and its affiliates ("NAPCO") under the terms of an asset purchase agreement among us, NAPCO and certain other parties thereto.

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

The results of operations since the acquisition date are included in our Water Treatment segment.

In the third quarter of fiscal 2022, we acquired substantially all the assets of Water and Waste Specialties, LLC, under the terms of an asset purchase agreement with Water and Waste Specialties and its shareholders.

Water and Waste Specialties was a water treatment chemical distribution company operating primarily in Alabama.

The results of operations since the acquisition date are included in our Water Treatment segment.

In the second quarter of fiscal 2022, we acquired substantially all the assets of Southeast Water Systems LLC, under the terms of an asset purchase agreement with Southeast Water Systems and its shareholders.

Southeast Water Systems supplied and installed water treatment chemical equipment to its customers located primarily in Alabama, southern Georgia and the Florida panhandle.

The results of operations since the acquisition date are included in our Water Treatment segment.

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

Asset Sales and Business Acquisitions

In July 2023, after the end of our first quarter, we acquired substantially all the assets of EcoTech Enterprises, Inc.

("EcoTech") for $3.4 million, under the terms of an asset purchase agreement with EcoTech and its shareholders.

EcoTech is a manufacturer and distributor of water treatment chemicals serving customers throughout Arkansas and surrounding states.

The results of operations and the assets, including goodwill associated with this acquisition, if any, will be included as part of our Water Treatment segment from the date of acquisition forward.

The purchase accounting for this acquisition has not yet been completed.

In the fourth quarter of fiscal 2023, we sold certain assets in our Industrial segment related to our consumer bleach packaging business for $7 million.

These assets were not deemed core to our Industrial segment operations.

The assets sold included plant equipment, inventory, and intangible assets, all related to the packaging of bleach.

We realized a gain of $3 million on this sale, which was recorded as a reduction to selling, general and administrative expenses.

Share Repurchase Program

On August 4, 2022, our Board increased the number of shares authorized to be repurchased under our share repurchase program from 1.6 million to 2.6 million.

As of January 1, 2023, 1,129,348 shares remain available to be repurchased under this program.

We have in place a share repurchase program for up to 2.6 million shares of our common shares.

As of July 2, 2023, 1,129,348 shares remain available to be repurchased under this program.

Financial Results

We focus on total profitability dollars when evaluating our financial results as opposed to profitability as a percentage of sales, as sales dollars tend to fluctuate, particularly in our Industrial and Water Treatment segments, as raw material costs rise and fall.

We focus on total profitability dollars when evaluating our financial results as opposed to profitability as a percentage of sales, as sales dollars tend to fluctuate as raw material prices rise and fall, particularly in our Industrial and Water Treatment segments.

The costs for certain of our raw materials can rise or fall rapidly, causing fluctuations in gross profit as a percentage of sales.

We use the LIFO method for valuing the majority of our inventory in our Industrial and Water Treatment segments, which causes the most recent product costs for those products to be recognized in our income statement.

The valuation of LIFO inventory for interim periods is based on our estimates of fiscal year-end inventory levels and costs.

We use the last in, first out (“LIFO”) method of valuing the majority of our inventory in our Industrial and Water Treatment segments, which causes the most recent product costs to be recognized in our income statement.

The LIFO inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices.

Inventories in the Health and Nutrition segment are valued using the FIFO method.

Inventories in our Health and Nutrition segment are valued using the first-in, first-out (“FIFO”) method.

We disclose the sales of our bulk commodity products as a percentage of total sales dollars for our Industrial and Water Treatment segments.

Our definition of bulk commodity products includes products that we do not modify in any way, but receive, store, and ship from our facilities, or direct ship to our customers in large quantities.

We disclose the percentage of our overall sales that consist of sales of bulk commodity products as these products are generally distributed and we do not add significant value to these products in comparison to our non-bulk products.

Sales of these products are generally highly competitive and price sensitive.

As a result, bulk commodity products generally have our lowest margins.

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

January 1, 2023 December 26, 2021 January 1, 2023 December 26, 2021

Three Months Ended

July 2, 2023 July 3, 2022

Sales 100.0 % 100.0 %

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Net income 9.2 % 8.0 %

Three Months Ended January 1, 2023 Compared to Three Months Ended December 26, 2021

Sales were $219.2 million for the three months ended January 1, 2023, an increase of $32.1 million, or 17%, from sales of $187.1 million in the same period a year ago, driven primarily by increased selling prices.

Industrial Segment.

Industrial segment sales increased $13.8 million or 14%, to $114.4 million for the three months ended January 1, 2023, from sales of $100.6 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 18% of sales dollars in the three months ended January 1, 2023 and 16% in the same period of the prior year.

The increase in sales was driven by increased selling prices on many of our products driven by higher costs on many of our raw materials.

Water Treatment Segment.

Water Treatment segment sales increased $18.7 million, or 38%, to $68.5 million for the three months ended January 1, 2023, from sales of $49.8 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 10% of sales dollars in the three months ended January 1, 2023 and 9% in the same period a year ago.

Sales increased as a result of increased selling prices on many of our products driven by higher costs on many of our raw materials, added sales from acquired businesses and increased sales of our products.

Health & Nutrition Segment.

Health and Nutrition segment sales decreased $0.5 million, or 1%, to $36.2 million for the three months ended January 1, 2023, from sales of $36.7 million in the same period a year ago.

Increased sales of our manufactured products were more than offset by a decrease in sales of our specialty distributed products.

Gross profit increased $2.4 million, or 7%, to $36.3 million, or 17% of sales, for the three months ended January 1, 2023, from $33.9 million, or 18% of sales, in the same period a year ago.

During the three months ended January 1, 2023, the LIFO reserve increased, and gross profit decreased, by $3.7 million due primarily to rising raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $2.9 million.

Gross profit increased due to increased revenue, partially offset by the unfavorable year-over-year impact of the increased LIFO reserve.

Industrial Segment.

Gross profit for the Industrial segment increased $0.7 million, or 5%, to $16.0 million, or 14% of sales, for the three months ended January 1, 2023, from $15.3 million, or 15% of sales, in the same period a year ago.

During the three months ended January 1, 2023, the LIFO reserve increased, and gross profit decreased, by $2.0 million, primarily due to rising raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $2.2 million.

Gross profit increased as a result of increased sales as well as improved unit margins on many of our products.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $2.2 million, or 20%, to $13.3 million, or 19% of sales, for the three months ended January 1, 2023, from $11.1 million, or 22% of sales, in the same period a year ago.

During the three months ended January 1, 2023, the LIFO reserve increased, and gross profit decreased, by $1.7 million due primarily to rising raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $0.6 million.

Gross profit increased as a result of increased sales, partially offset by the unfavorable year-over-year impact of the increased LIFO reserve.

Health and Nutrition Segment .

Gross profit for our Health and Nutrition segment decreased $0.5 million, or 7.0%, to $7.0 million, or 19% of sales, for the three months ended January 1, 2023, from $7.5 million, or 21% of sales, in the same period a year ago.

Gross profit decreased as a result of decreased sales.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $1.3 million to $21.0 million, or 10% of sales, for the three months ended January 1, 2023, from $19.7 million, or 11% of sales, in the same period a year ago.

Expenses increased primarily due to the added costs from the acquired business in our Water Treatment segment.

Operating Income

Operating income increased $1.0 million, or 7%, to $15.3 million, or 7% of sales, for the three months ended January 1, 2023, from $14.3 million, or 8% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $1.5 million for the three months ended January 1, 2023 and $0.3 million the same period a year ago.

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

Other (Expense) Income

Other income was $0.5 million for the three months ended January 1, 2023 and $0.1 million in the same period a year ago.

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

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

Income Tax Provision

Our effective income tax rate was 24% for the three months ended January 1, 2023 and 27% the three months ended December 26, 2021.

The effective tax rate decreased from the prior year due to favorable tax provision adjustments recorded in the third quarter of fiscal 2023.

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 to 27%.

Nine Months Ended January 1, 2023 Compared to Nine Months Ended December 26, 2021

Sales were $707.0 million for the nine months ended January 1, 2023, an increase of $155.4 million, or 28%, from sales of $551.6 million in the same period a year ago, driven primarily by increased selling prices.

Three Months Ended July 2, 2023 Compared to Three Months Ended July 3, 2022

Sales were $251.1 million for the three months ended July 2, 2023, an increase of $4.6 million, or 2%, from sales of $246.5 million in the same period a year ago, driven by increased selling prices.

Industrial Segment.

Industrial segment sales increased $83.5 million, or 31%, to $353.1 million for the nine months ended January 1, 2023, from sales of $269.6 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 17% of sales dollars in the nine months ended January 1, 2023 and 15% in the same period of the prior year.

Sales increased as a result of increased selling prices on many of our products driven by higher costs on many of our raw materials.

Industrial segment sales decreased $3.8 million or 3%, to $120.9 million for the three months ended July 2, 2023, from sales of $124.7 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 13% of sales dollars in the three months ended July 2, 2023 and 17% in the same period of the prior year.The divestiture of our consumer bleach packaging business at the end of fiscal 2023 resulted in $4.7 million lower sales in the current quarter.

Offsetting that decrease were increases in sales resulting from increased selling prices on many of our products driven by higher raw material costs on overall lower volumes and, to a lesser extent, a product mix shift.

Water Treatment Segment.

Water Treatment segment sales increased $65.4 million, or 39%, to $233.5 million for the nine months ended January 1, 2023, from sales of $168.1 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 January 1, 2023 and the same period of the prior year.

Water Treatment segment sales increased $15.2 million, or 19%, to $93.7 million for the three months ended July 2, 2023, from sales of $78.5 million in the same period a year ago.

Sales of bulk commodity products in the Water Treatment segment were approximately 8% of sales dollars in the three months ended July 2, 2023 and 9% in the same period a year ago.

Sales increased as a result of increased selling prices on many of our products driven primarily by higher raw material costs.

Health & Nutrition Segment.

Health and Nutrition segment sales increased $6.4 million, or 6%, to $120.3 million for the nine months ended January 1, 2023, from sales of $113.9 million in the same period a year ago.

Increased sales of our manufactured products more than offset a decrease in sales of our specialty distributed products.

Gross profit increased $19.2 million or 17%, to $129.4 million, or 18% of sales, for the nine months ended January 1, 2023, from $110.2 million, or 20% of sales, in the same period a year ago.

During the nine months ended January 1, 2023, the LIFO reserve increased, and gross profit decreased, by $12.7 million, due primarily to rising raw material costs.

In the same period a year ago, the LIFO reserve increased, and gross profit decreased, by $7.6 million.

Gross profit increased due to increased revenue, partially offset by the unfavorable year-over-year impact of the increased LIFO reserve.

Health and Nutrition segment sales decreased $6.7 million, or 15%, to $36.6 million for the three months ended July 2, 2023, from sales of $43.3 million in the same period a year ago.

The sales decrease was due to decreased sales volumes of both our specialty distributed products and our manufactured products due to softened demand from our customers, which we believe was driven by excess inventory at many of our customers as well as lower consumer demand for health and immunity products.

Gross profit increased $5.3 million, or 11%, to $52.0 million, or 21% of sales, for the three months ended July 2, 2023, from $46.7 million, or 19% of sales, in the same period a year ago.

During the three months ended July 2, 2023, the LIFO reserve decreased, and gross profit increased, by $0.2 million.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $3.8 million due primarily to rising raw material prices.

Industrial Segment.

Gross profit for the Industrial segment increased $11.6 million, or 28%, to $53.7 million, or 15% of sales, for the nine months ended January 1, 2023, from $42.1 million, or 16% of sales, in the same period a year ago.

During the nine months ended January 1, 2023, the LIFO reserve increased, and gross profit decreased, by $8.5 million, due primarily to rising raw material costs.

In the same period a year ago, the LIFO reserve increased, and gross profit decreased, by $5.9 million.

Gross profit increased as a result of increased sales as well as improved unit margins on many of our products, partially offset by the unfavorable year-over-year impact of the increased LIFO reserve.

Gross profit for the Industrial segment decreased $0.7 million, or 4%, to $19.3 million, or 16% of sales, for the three months ended July 2, 2023, from $20.0 million, or 16% of sales, in the same period a year ago.

During the three months ended July 2, 2023, the LIFO reserve decreased, and gross profit increased, by $0.3 million.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $2.7 million due primarily to rising raw material prices.

Gross profit decreased due to decreased sales volumes, which was largely offset by the favorable impact of the change in the LIFO reserve.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $7.8 million, or 17%, to $52.7 million, or 23% of sales, for the nine months ended January 1, 2023, from $44.9 million, or 27% of sales, in the same period a year ago.

During the nine months ended January 1, 2023, the LIFO reserve increased, and gross profit decreased, by $4.2 million due primarily to rising raw material costs.

In the same period a year ago, the LIFO reserve increased and gross profit decreased by $1.7 million.

Gross profit increased as a result of increased sales, partially offset by the unfavorable year-over-year impact of the increased LIFO reserve.

Gross profit for the Water Treatment segment increased $7.4 million, or 39%, to $26.4 million, or 28% of sales, for the three months ended July 2, 2023, from $19.0 million, or 24% of sales, in the same period a year ago.

During the three months ended July 2, 2023, the LIFO reserve increased, and gross profit decreased, by $0.1 million.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $1.1 million due primarily to rising raw material prices.

Gross profit increased as a result of improved per-unit margins.

Health and Nutrition Segment .

Gross profit for our Health and Nutrition segment decreased $0.2 million, to $23.0 million, or 19% of sales, for the nine months ended January 1, 2023, from $23.2 million, or 20% of sales, in the same period a year ago.

In spite of an increase in overall sales dollars, gross profit decreased as a result of a product mix shift.

Gross profit for our Health and Nutrition segment decreased $1.5 million, or 19%, to $6.3 million, or 17% of sales, for the three months ended July 2, 2023, from $7.8 million, or 18% of sales, in the same period a year ago.

Gross profit decreased as a result of lower sales volumes and lower per-unit margins on certain products.

Selling, General and Administrative Expenses

SG&A expenses increased $5.5 million to $59.7 million, or 8% of sales, for the nine months ended January 1, 2023, from $54.2 million, or 10% of sales, in the same period a year ago.

Expenses increased primarily due to the added costs from the acquired businesses in our Water Treatment segment and increased wages, partially offset by and a $1.3 million decrease in compensation expense relating to the non-qualified deferred compensation plan liability which is offset in "Other (Expense) Income" as described below.

Selling, general and administrative (“SG&A”) expenses increased $0.6 million, or 3%, to $19.5 million, or 8% of sales, for the three months ended July 2, 2023, from $18.9 million, or 8% of sales, in the same period a year ago.

In the current quarter, we recorded compensation expense of $0.3 million as a result of gains recorded on investments held for our non-qualified deferred compensation plan, as compared to $0.8 million decrease in compensation expense in the same quarter a year ago as a result of losses incurred.

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

Offsetting this $1.1 million unfavorable year-over-year impact were decreases in SG&A expenses resulting largely from expense control measures.

Operating Income

Operating income increased $13.7 million, or 24%, to $69.7 million, or 10% of sales, for the nine months ended January 1, 2023, from $56.0 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 $4.6 million, or 16%, to $32.5 million, or 13% of sales, for the three months ended July 2, 2023, from $27.9 million, or 11% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Interest Expense, Net

Interest expense was $3.9 million for the nine months ended January 1, 2023 and $1.0 million for the same period a year ago.

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

Other (Expense) Income

Other expense was $0.7 million for the nine months ended January 1, 2023 compared to other income of $0.5 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 year represented gains recorded on those investments.

Interest expense was $1.1 million for the three months ended July 2, 2023 and $0.9 million the same period a year ago.

The increase was due to an increase in borrowing interest rates, largely offset by a decrease in outstanding borrowings.

Other Income (Expense)

Other income was $0.3 million for the three months ended July 2, 2023 compared to other expense of $0.8 million in the same period a year ago.

The income represents gains recorded on investments held for our non-qualified deferred compensation plan, whereas the expense in the same period a year ago represented losses 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 January 1, 2023 and in the same period a year ago.

Our effective income tax rate was 26% for the three months ended July 2, 2023 and 25% the three months ended July 3, 2022.

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 $6.1 million at January 1, 2023, an increase of $2.7 million as compared with the $3.5 million available as of April 3, 2022.

Cash provided by operating activities was $44.5 million for the nine months ended January 1, 2023, compared to cash provided by operating activities of $38.7 million in the same period a year ago.

The year-over-year increase in cash provided by operating activities was primarily driven by increased net income.

Cash was $7.0 million at July 2, 2023, a decrease of $0.5 million as compared with the $7.6 million available as of April 2, 2023.

Cash provided by operating activities was $34.9 million for the three months ended July 2, 2023, compared to cash used in operating activities of $9.4 million in the same period a year ago.

The year-over-year increase in cash provided by operating activities was primarily driven by decreased cash expended for inventory purchases and increased net income.

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 $32.0 million for the nine months ended January 1, 2023, compared to $18.0 million in the same period a year ago.

Capital expenditures were $32.3 million for the nine months ended January 1, 2023, compared to $15.7 million in the same period a year ago.

In the first nine months of the current year, we invested nearly $4 million on rail expansion projects at three of our facilities, an additional $1.1 million to complete an expansion of our Illinois manufacturing facility, purchased a previously leased facility for $0.9 million, and had larger investments in trucks, safety equipment and new and replacement equipment compared to the first nine months of the prior year.

Cash provided by financing activities was $9.9 million for the nine months ended January 1, 2023, compared to $0.2 million of cash used in 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 $5.0 million, compared to net debt proceeds of $17.0 million in the first nine months of the prior year.

In addition, we repurchased $6.6 million of shares of our common stock in the first nine months of the current fiscal year, compared to $8.5 million of shares repurchased in the same period a year ago.

Cash used in investing activities was $7.8 million for the three months ended July 2, 2023, compared to $11.5 million in the same period a year ago.

Capital expenditures were $7.9 million for the three months ended July 2, 2023, compared to $11.6 million in the same period a year ago.

In the first three months of the current year, we invested $5.1 million to complete an expansion of one of our Minnesota manufacturing facilities.

In the prior year, we invested $1.1 million to complete an expansion of our Illinois manufacturing facility, purchased a previously leased facility for $0.9 million, and had larger investments in vehicles, safety equipment and new and replacement equipment compared to the first three months of the current year.

Cash used in financing activities was $27.6 million for the three months ended July 2, 2023, compared to $23.4 million of cash provided by 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 repayments of $23.4 million, compared to net debt proceeds of $33.5 million in the first three months of the prior year.

In addition, we repurchased $6.6 million of shares of our common stock in the first three months of the prior year.

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.

Our Board has authorized the repurchase of up to 2.6 million shares of our outstanding common stock.

Our Board has authorized the repurchase of up to 2.6 million shares of our outstanding common shares.

The shares may be purchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations.

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 January 1, 2023, we repurchased 181,657 shares of common stock with an aggregate purchase price of $6.6 million.

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

As of January 1, 2023, 1,129,348 shares remained available to be repurchased under the share repurchase program.

During the three months ended July 2, 2023, no shares were repurchased, and during the three months ended July 2, 2023, we repurchased 181,657 shares of common stock with an aggregate purchase price of $6.6 million.

As of July 2, 2023, 1,129,348 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.

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Bank is also serving as Administrative Agent.

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

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.

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

At January 1, 2023, the effective interest rate on our borrowings was 4.2%.

At July 2, 2023, the effective interest rate on our borrowings was 3.9%.

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.

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

As of January 1, 2023, the unamortized balance of these costs was $0.4 million, and is reflected as a reduction of debt on our balance sheet.

As of July 2, 2023, the unamortized balance of these costs was $0.3 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.

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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 January 1, 2023 and expect to remain in compliance with all covenants for the next 12 months.

We were in compliance with all covenants of the Credit Agreement as of July 2, 2023 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.

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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