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Item 2. Management’s Discussion and Analysis

2024-01-31 compared with 2023-11-01 · 101 added, 97 removed, 115 unchanged (63% 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 six months ended October 1, 2023 as compared to the similar period ended October 2, 2022.

The following is a discussion and analysis of our financial condition and results of operations for the nine months ended December 31, 2023 as compared to the similar period ended January 1, 2023.

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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Business Acquisitions and Asset Sales

In October 2023, after the end of our second quarter, we acquired substantially all the assets of Water Solutions Unlimited, Inc.

("Water Solutions") for $60 million and up to an additional $15 million to be paid after three years based on achieving certain targets, under the terms of an asset purchase agreement with Water Solutions and its shareholders.

Water Solutions is a manufacturer and distributor of water treatment chemicals serving customers primarily throughout Indiana, Illinois and Michigan.

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.

In October 2023, after the end of our second quarter, we acquired substantially all the assets of Miami Products & Chemical Company ("Miami Products") for $15.5 million, under the terms of an asset purchase agreement with Miami Products and its shareholders.

On October 31, 2023, we acquired substantially all the assets of Miami Products & Chemical Company ("Miami Products") for $15.5 million, under the terms of an asset purchase agreement with Miami Products and its shareholders.

Miami Products is a bleach manufacturer and distributor serving customers primarily throughout Ohio and the surrounding region.

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

On October 27, 2023, we acquired substantially all the assets of Water Solutions Unlimited, Inc.

("Water Solutions") for $60 million and an additional amount to be paid after three years based on achieving certain targets, under the terms of an asset purchase agreement with Water Solutions and its shareholders.

The total purchase price was estimated to be $70.7 million, including the estimated potential earnout to be paid of $10.7 million.

Water Solutions is a manufacturer and distributor of water treatment chemicals serving customers primarily throughout Indiana, Illinois and Michigan.

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

On July 14, 2023, we acquired substantially all the assets of EcoTech Enterprises, Inc.

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

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

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

The aggregate annual revenue of these three businesses acquired in fiscal 2024 totaled approximately $66 million, as determined using the applicable twelve-month period preceding each respective acquisition date.

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.

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

As of October 1, 2023, 961,552 shares remain available to be repurchased under this program.

As of December 31, 2023, 937,487 shares remain available to be repurchased under this program.

Financial Results

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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.

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.

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

Three Months Ended Six Months Ended

October 1, 2023 October 2, 2022 October 1, 2023 October 2, 2022

Three Months Ended Nine Months Ended

December 31, 2023 January 1, 2023 December 31, 2023 January 1, 2023

Sales 100.0 % 100.0 % 100.0 % 100.0 %

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Net income 7.1 % 4.8 % 8.9 % 6.9 %

Three Months Ended October 1, 2023 Compared to Three Months Ended October 2, 2022

Sales were $236.5 million for the three months ended October 1, 2023, a decrease of $4.7 million, or 2%, from sales of $241.2 million in the same period a year ago.

Decreased sales in our Industrial and Health and Nutrition segments more than offset increased sales in our Water Treatment segment.

Three Months Ended December 31, 2023 Compared to Three Months Ended January 1, 2023

Sales were $208.5 million for the three months ended December 31, 2023, a decrease of $10.7 million, or 5%, from sales of $219.2 million in the same period a year ago.

Increased sales in our Water Treatment segment were more than offset by decreased sales in our Industrial and Health and Nutrition segments.

Industrial Segment.

Industrial segment sales decreased $15.4 million or 14%, to $98.5 million for the three months ended October 1, 2023, from sales of $113.9 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 October 1, 2023 and 16% in the same period of the prior year.

The sale of our consumer bleach packaging business at the end of fiscal 2023 resulted in $4.0 million lower sales in the current quarter.

In addition, sales declined due to overall lower volumes.

Industrial segment sales decreased $21.4 million or 19%, to $93.0 million for the three months ended December 31, 2023, from sales of $114.4 million in the same period a year ago.

Sales of bulk commodity products in the Industrial segment were approximately 14% of sales dollars in the three months ended December 31, 2023 and 18% in the same period of the prior year.

The sale of our consumer bleach packaging business at the end of fiscal 2023 resulted in a $2.7 million decrease in sales in the current quarter.

In addition, sales declined due to overall lower volumes as well as lower selling prices on certain products driven by lower raw material costs and competitive pricing pressures.

Water Treatment Segment.

Water Treatment segment sales increased $14.4 million, or 17%, to $100.9 million for the three months ended October 1, 2023, from sales of $86.5 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 October 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 as well as increased sales volumes of certain of our products.

Water Treatment segment sales increased $13.5 million, or 20%, to $82.0 million for the three months ended December 31, 2023, from sales of $68.5 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 31, 2023 and 10% in the same period a year ago.

Sales increased as a result of increased selling prices on many of our products as well as increased sales volumes of certain of our products, including $8.2 million of added sales from acquired businesses.

Health & Nutrition Segment.

Health and Nutrition segment sales decreased $3.7 million, or 9%, to $37.1 million for the three months ended October 1, 2023, from sales of $40.8 million in the same period a year ago.

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

Gross profit increased $7.5 million, or 16%, to $53.9 million, or 23% of sales, for the three months ended October 1, 2023, from $46.4 million, or 19% of sales, in the same period a year ago.

During the three months ended October 1, 2023, the LIFO reserve decreased, and gross profit increased, by $3.2 million due primarily to decreasing raw material prices.

Health and Nutrition segment sales decreased $2.7 million, or 7%, to $33.5 million for the three months ended December 31, 2023, from sales of $36.2 million in the same period a year ago.

The decrease in sales was a result of lower sales of our manufactured products, offset somewhat by increased sales of our specialty distributed products.

Gross profit increased $5.9 million, or 16%, to $42.2 million, or 20% of sales, for the three months ended December 31, 2023, from $36.3 million, or 17% of sales, in the same period a year ago.

During the three months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $2.5 million due primarily to decreasing raw material prices.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $3.7 million due primarily to rising raw material prices.

Industrial Segment.

Gross profit for the Industrial segment increased $0.1 million, or 1%, to $17.8 million, or 18% of sales, for the three months ended October 1, 2023, from $17.7 million, or 16% of sales, in the same period a year ago.

During the three months ended October 1, 2023, the LIFO reserve decreased, and gross profit increased, by $2.6 million due primarily to decreasing raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $3.9 million due primarily to rising raw material prices.

Gross profit increased slightly due to improved unit margins on certain products.

Gross profit for the Industrial segment increased $0.5 million, or 3%, to $16.5 million, or 18% of sales, for the three months ended December 31, 2023, from $16.0 million, or 14% of sales, in the same period a year ago.

During the three months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $2.1 million due primarily to decreasing raw material costs.

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

$2.0 million due primarily to rising raw material prices.

Gross profit increased as the LIFO benefit offset lower unit margins on certain products.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $8.8 million, or 43%, to $29.3 million, or 29% of sales, for the three months ended October 1, 2023, from $20.5 million, or 24% of sales, in the same period a year ago.

During the three months ended October 1, 2023, the LIFO reserve decreased, and gross profit increased, by $0.6 million due primarily to decreasing raw material costs.

Gross profit for the Water Treatment segment increased $6.9 million, or 52%, to $20.2 million, or 25% of sales, for the three months ended December 31, 2023, from $13.3 million, or 19% of sales, in the same period a year ago.

During the three months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $0.4 million due primarily to decreasing raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $1.7 million due primarily to rising raw material prices.

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

Gross profit increased as a result of higher per-unit margins on many of our products as well as increased sales, including the added sales from our acquired businesses.

Health and Nutrition Segment .

Gross profit for our Health and Nutrition segment decreased $1.5 million, or 18%, to $6.7 million, or 18% of sales, for the three months ended October 1, 2023, from $8.2 million, or 20% of sales, in the same period a year ago.

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

Gross profit for our Health and Nutrition segment decreased $1.5 million, or 21%, to $5.5 million, or 16% of sales, for the three months ended December 31, 2023, from $7.0 million, or 19% 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 $1.1 million, or 6%, to $20.9 million, or 9% of sales, for the three months ended October 1, 2023, from $19.8 million, or 8% of sales, in the same period a year ago.

Expenses increased largely due to increased variable pay as well as added costs from acquired businesses.

Selling, general and administrative (“SG&A”) expenses increased $2.8 million, or 13%, to $23.8 million, or 11% of sales, for the three months ended December 31, 2023, from $21.0 million, or 10% of sales, in the same period a year ago.

Expenses increased due to acquisition costs of $0.7 million as well as added costs from the acquired businesses in our Water Treatment segment of $2.2 million, including $0.7 million of amortization of intangibles.

Operating Income

Operating income increased $6.5 million, or 25%, to $33.0 million, or 14% of sales, for the three months ended October 1, 2023, from $26.5 million, or 11% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Operating income increased $3.2 million, or 21%, to $18.5 million, or 9% of sales, for the three months ended December 31, 2023, from $15.3 million, or 7% 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 $0.7 million for the three months ended October 1, 2023 and $1.4 million the same period a year ago.

Interest expense was $1.2 million for the three months ended December 31, 2023 and $1.5 million the same period a year ago.

The decrease was due to a decrease in outstanding borrowings.

Other (Expense) Income

Other expense was $0.3 million for the three months ended October 1, 2023 compared to $0.4 million in the same period a year ago.

The expense represents losses recorded on investments held for our non-qualified deferred compensation plan.

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

Other income was $0.9 million for the three months ended December 31, 2023 compared to $0.5 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 an increase to compensation expense within SG&A expenses.

Income Tax Provision

Our effective income tax rate was 27% for both the three months ended October 1, 2023 and the three months ended October 2, 2022.

Our effective income tax rate was 18% for the three months ended December 31, 2023 and 24% for the three months ended January 1, 2023.

The effective tax rate in the third quarter of both years was impacted by favorable tax provision adjustments recorded.

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%.

Six Months Ended October 1, 2023 Compared to Six Months Ended October 2, 2022

Sales were $487.6 million for the six months ended October 1, 2023, a decrease of $0.1 million, or less than 1%, from sales of $487.7 million in the same period a year ago.

Decreased sales in our Industrial and Health and Nutrition segments were nearly offset by increased sales in our Water Treatment segment.

Our effective tax rate for the full year is expected to be approximately 25 to 26%.

Nine Months Ended December 31, 2023 Compared to Nine Months Ended January 1, 2023

Sales were $696.1 million for the nine months ended December 31, 2023, a decrease of $10.9 million, or 2%, from sales of $707.0 million in the same period a year ago.

Increased sales in our Water Treatment segment were more than offset by decreased sales in our Industrial and Health and Nutrition segments.

Industrial Segment.

Industrial segment sales decreased $19.2 million or 8%, to $219.4 million for the six months ended October 1, 2023, from sales of $238.6 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 six months ended October 1, 2023 and 16% in the same period of the prior year.The sale of our consumer bleach packaging business at the end of fiscal 2023 resulted in $8.8 million lower sales in the six months ended October 1, 2023.

In addition, sales declined due to overall lower volumes.

Industrial segment sales decreased $40.7 million or 12%, to $312.4 million for the nine months ended December 31, 2023, from sales of $353.1 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 nine months ended December 31, 2023 and 17% in the same period of the prior year.The sale of our consumer bleach packaging business at the end of fiscal 2023 resulted in and $11.4 million decrease in sales in the nine months ended December 31, 2023.

In addition, sales declined due to overall lower sales volumes.

Water Treatment Segment.

Water Treatment segment sales increased $29.6 million, or 18%, to $194.6 million for the six months ended October 1, 2023, from sales of $165.0 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 six months ended October 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 as well as increased sales volumes of certain of our products.

Water Treatment segment sales increased $43.1 million, or 18%, to $276.6 million for the nine months ended December 31, 2023, from sales of $233.5 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 31, 2023 and in the same period a year ago.

Sales increased as a result of increased selling prices on many of our products as well as increased sales volumes of certain of our products, including $9.8 million of added sales from acquired businesses.

Health & Nutrition Segment.

Health and Nutrition segment sales decreased $10.4 million, or 12%, to $73.7 million for the six months ended October 1, 2023, from sales of $84.1 million in the same period a year ago.

The sales decline experienced in the second quarter of fiscal 2023 was about half the decline experienced in the first quarter of fiscal 2023.

Gross profit increased $12.8 million, or 14%, to $105.9 million, or 22% of sales, for the six months ended October 1, 2023, from $93.1 million, or 19% of sales, in the same period a year ago.

During the six months ended October 1, 2023, the LIFO reserve decreased, and gross profit increased, by $3.4 million due primarily to decreasing raw material prices.

Health and Nutrition segment sales decreased $13.2 million, or 11%, to $107.1 million for the nine months ended December 31, 2023, from sales of $120.3 million in the same period a year ago.

The decrease in sales was a result of lower sales volumes of both our manufactured products and our specialty distributed products.

Gross profit increased $18.7 million, or 14%, to $148.1 million, or 21% of sales, for the nine months ended December 31, 2023, from $129.4 million, or 18% of sales, in the same period a year ago.

During the nine months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $6.0 million due primarily to decreasing raw material prices.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $12.7 million due primarily to rising raw material prices.

Industrial Segment.

Gross profit for the Industrial segment decreased $0.5 million, or 1%, to $37.2 million, or 17% of sales, for the six months ended October 1, 2023, from $37.7 million, or 16% of sales, in the same period a year ago.

During the six months ended October 1, 2023, the LIFO reserve decreased, and gross profit increased, by $3.0 million due primarily to decreasing raw material costs.

Gross profit for the Industrial segment was relatively flat at $53.6 million, or 17% of sales, for the nine months ended December 31, 2023, and $53.7 million, or 15% of sales, in the same period a year ago.

During the nine months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $5.0 million due primarily to decreasing raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $8.5 million due primarily to rising raw material prices.

Gross profit decreased due to lower sales volumes.

Gross profit was relatively unchanged as the decreased margins as a result of the sales decline was offset by improved per-unit margins on certain products.

Water Treatment Segment.

Gross profit for the Water Treatment segment increased $16.2 million, or 41%, to $55.7 million, or 29% of sales, for the six months ended October 1, 2023, from $39.5 million, or 24% of sales, in the same period a year ago.

During the six months ended October 1, 2023, the LIFO reserve decreased, and gross profit increased, by $0.5 million due primarily to decreasing raw material costs.

Gross profit for the Water Treatment segment increased $23.3 million, or 44%, to $76.0 million, or 27% of sales, for the nine months ended December 31, 2023, from $52.7 million, or 23% of sales, in the same period a year ago.

During the nine months ended December 31, 2023, the LIFO reserve decreased, and gross profit increased, by $0.9 million due primarily to decreasing raw material costs.

In the same quarter a year ago, the LIFO reserve increased, and gross profit decreased, by $4.2 million due primarily to rising raw material prices.

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

Gross profit increased as a result of improved per-unit margins on many of our products as well as increased sales, including the added sales from our acquired businesses.

Health and Nutrition Segment .

Gross profit for our Health and Nutrition segment decreased $2.9 million, or 18%, to $13.0 million, or 18% of sales, for the six months ended October 1, 2023, from $15.9 million, or 19% of sales, in the same period a year ago.

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

Gross profit for our Health and Nutrition segment decreased $4.4 million, or 19%, to $18.5 million, or 17% of sales, for the nine months ended December 31, 2023, from $23.0 million, or 19% of sales, in the same period a year ago.

Gross profit decreased as a result of the decreased sales.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $1.7 million, or 4%, to $40.4 million, or 8% of sales, for the six months ended October 1, 2023, from $38.7 million, or 8% of sales, in the same period a year ago.

In the current period, we recorded compensation expense of $0.1 million as a result of gains recorded on investments held for our non-qualified deferred compensation plan, as compared to $1.2 million decrease in compensation expense in the same period a year ago as a result of losses incurred.

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

In addition to this unfavorable year-over-year impact of $1.3 million, expenses increased largely due to increased variable pay as well as added costs from acquired businesses.

Selling, general and administrative (“SG&A”) expenses increased $4.5 million, or 7%, to $64.2 million, or 9% of sales, for the nine months ended December 31, 2023, from $59.7 million, or 8% of sales, in the same period a year ago.

In the current period, we recorded compensation expense of $0.9 million as a result of gains recorded on investments held for our non-qualified deferred compensation plan, as compared to a $0.7 million decrease in compensation expense in the same period a year ago as a result of losses incurred.

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

SG&A expenses also increased due to added costs from the acquired businesses in our Water Treatment segment of $2.4 million, including $0.8 million of amortization of intangibles, increased variable pay of $1.7 million, and acquisition costs of $0.8 million, offset somewhat by decreases in other variable expenses.

Operating Income

Operating income increased $11.1 million, or 20%, to $65.5 million, or 13% of sales, for the six months ended October 1, 2023, from $54.4 million, or 11% of sales, in the same period a year ago due to the combined impact of the factors discussed above.

Operating income increased $14.3 million, or 21%, to $84.0 million, or 12% of sales, for the nine months ended December 31, 2023, from $69.7 million, or 10% 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 $1.9 million for the six months ended October 1, 2023 and $2.3 million the same period a year ago.

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

Interest expense was $3.0 million for the nine months ended December 31, 2023 and $3.9 million the same period a year ago.

The decrease was primarily due to a decrease in outstanding borrowings.

Other (Expense) Income

Other income was nominal for the six months ended October 1, 2023 compared to other expense of $1.2 million in the same period a year ago.

The prior year expense represents losses recorded on investments held for our non-qualified deferred compensation plan.

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

Other income was $0.9 million for the nine months ended December 31, 2023 compared to other expense of $0.7 million in the same period a year ago.

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

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

Income Tax Provision

Our effective income tax rate was 27% for the six months ended October 1, 2023 and 26% the six months ended October 2, 2022.

Our effective income tax rate was 25% for the nine months ended December 31, 2023 and 26% the nine months ended January 1, 2023.

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 $11.0 million at October 1, 2023, an increase of $3.4 million as compared with the $7.6 million available as of April 2, 2023.

Cash provided by operating activities was $92.6 million for the six months ended October 1, 2023, compared to cash provided by operating activities of $18.8 million in the same period a year ago.

The year-over-year increase in cash provided by operating activities in the first six months of the current year was primarily driven by decreased cash expended for inventory and accounts payable, along with increased customer collections and increased net income compared to the same period a year ago.

Cash was $5.7 million at December 31, 2023, a decrease of $1.8 million as compared with the $7.6 million available as of April 2, 2023.

Cash provided by operating activities was $117.6 million for the nine months ended December 31, 2023, compared to cash provided by operating activities of $44.5 million in the same period a year ago.

The year-over-year increase in cash provided by operating activities in the first nine months of the current year was primarily driven by decreased cash expended for inventory, along with increased customer collections and increased net income compared to the same period a year ago.

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 $19.9 million for the six months ended October 1, 2023, compared to $20.4 million in the same period a year ago.

Capital expenditures were $16.9 million for the six months ended October 1, 2023, compared to $20.7 million in the same period a year ago.

In the first six 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 six months of the current year.

In addition, we we acquired substantially all the assets of EcoTech for $3.4 million in the first six months of the current year.

Cash used in financing activities was $69.3 million for the six months ended October 1, 2023, compared to $2.0 million of cash provided by financing activities in the same period a year ago.

Included in financing activities in the first six months of the current year were net debt repayments of $52.0 million, compared to net debt proceeds of $15.0 million in the first six months of the prior year.

In addition, we repurchased $9.8 million shares of our common stock in the first six months of the current year, compared to $6.6 million in the same period of the prior year.

Cash u sed in investing activities was $106.4 million for the nine months ended December 31, 2023, compared to $32.0 million in the same period a year ago.

Capital expenditures were $28.2 million for the nine months ended December 31, 2023, compared to $32.3 million in the same period a year ago.

In the first nine 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 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 safety equipment resulting in larger overall capital investments compared to the current year.

In addition, we acquired substantially all the assets of Water Solutions Unlimited for $60.0 million, Miami Products & Ch emical for $15.5 million and EcoTech for $3.4 million in the first nine months of the current year.

Cash used in financing activities was $13.1 million for the nine months ended December 31, 2023, compared to $9.9 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 $8.0 million, compared to net debt proceeds of $5.0 million in the first nine months of the prior year.

In addition, we repurchased $11.3 million of our common stock in the first nine months of the current year, compared to $6.6 million in the same period 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.

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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 six months ended October 1, 2023, we repurchased 167,796 shares of common stock with an aggregate purchase price of $9.8 million.

During the six months ended October 2, 2022, we repurchased 181,657 shares at an aggregate purchase price of $6.6 million.

As of October 1, 2023, 961,552 shares remained available to be repurchased under the share repurchase program.

During the nine months ended December 31, 2023, we repurchased 191,861 shares of common stock with an aggregate purchase price of $11.3 million.

During the nine months ended January 1, 2023, we repurchased 181,657 shares at an aggregate purchase price of $6.6 million.

As of December 31, 2023, 937,487 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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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.

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:

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dollars plus 1.0%.

The Term SOFR margin is between 0.85% and 1.35%, depending

on our leverage ratio.

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 October 1, 2023, the effective interest rate on our borrowings was 3.0%.

At December 31, 2023, the effective interest rate on our borrowings was 4.6%.

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 October 1, 2023, the unamortized balance of these costs was $0.3 million, and is reflected as a reduction of debt on our balance sheet.

As of December 31, 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 October 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 December 31, 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