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Explanatory Note

Franchise Group, Inc. (the "Company") is filing this Quarterly Report on Form 10-Q/A, Amendment No. 1 (the “Amended Report”) to amend our Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 2022 originally filed with the Securities and Exchange Commission (“SEC”) on May 5, 2022, (the “Original Report”). The purpose of this Amended Report is to amend and restate our Condensed Consolidated Statement of Cash Flows as of and for the three months ended March 26, 2022. Details regarding the restatement can be found in Note 15 "Restatement of Previously Issued Financial Statements" in this Amended Report.

The restatement has no impact on the balance sheet, the income statement or the operations of the Company. An explanation of the impact on the Company’s financial statements, and the Condensed Consolidated Statement of Cash Flows as of and for the three months ended March 26, 2022 as originally reported is contained in Note 15 “Impact of Corrections on Previously Issued Consolidated Financial Statements” in this Amended Report.
12/312022Q1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  
FORM 10-Q/A

Amendment No. 1
 
   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended March 26, 2022
 
OR
 
         Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from             to            
 
Commission File Number 001-35588
 
Franchise Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 27-3561876
(State of incorporation) (IRS employer identification no.)
 
109 Innovation Court, Suite J
Delaware, Ohio 43015
(Address of principal executive offices)
(740) 363-2222
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, par value $.01 per shareFRGNASDAQ Global Market
7.50% Series A Cumulative Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per shareFRGAPNASDAQ Global Market
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.  Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
 Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

The number of shares outstanding of the registrant's common stock, par value $0.01 value per share, as of April 30, 2022 was 40,354,436 shares.



Explanatory Note

Franchise Group, Inc. (the "Company") is filing this Quarterly Report on Form 10-Q/A, Amendment No. 1 (the “Amended Report”) to amend its Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 2022 originally filed with the Securities and Exchange Commission (“SEC”) on May 5, 2022, (the “Original Report”). The purpose of this Amended Report is to amend and restate the Company's Condensed Consolidated Statement of Cash Flows as of and for the three months ended March 26, 2022. Details regarding the restatement can be found in Note 15 "Restatement of Previously Issued Financial Statements" in this Amended Report.

The restatement has no impact on the balance sheet, the income statement or the operations of the Company. An explanation of the impact on the Company’s financial statements, and the Condensed Consolidated Statement of Cash Flows as of and for the three months ended March 26, 2022 as originally reported is contained in Note 15 “Impact of Corrections on Previously Issued Consolidated Financial Statements” in this Amended Report.
Items Amended in This Amended Report

This Amended Report amends and restates the following items of the Original Report as of and for the fiscal quarter ended March 26, 2022:

Part I — Item 1. Financial Statements (Unaudited)
Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I — Item 4. Controls and Procedures
Part II — Item 6. Exhibits

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), this Amended Report includes new certifications specified in Rule 13a-14 under the Exchange Act, from the Company's Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Amended Report.

Pursuant to Rule 12b-15 under the Exchange Act, this Amended Report contains only the items and exhibits to the Original Report that are being amended and restated, and unaffected items and exhibits are not included herein. Except as noted herein, the information included in the Original Report remains unchanged. This Amended Report continues to describe the conditions as of the date of the Original Report and, except as contained herein, we have not updated or modified the disclosures contained in the Original Report to reflect any events that have occurred after the Original Report. Accordingly, forward-looking statements included in this Amended Report may represent management’s views as of the Original Report and should not be assumed to be accurate as of any date thereafter. This Amended Report should be read in conjunction with the Company's filings made with the SEC subsequent to the filing of the Original Report, including any amendment to those filings.




FRANCHISE GROUP, INC. AND SUBSIDIARIES
 
Form 10-Q for the Quarterly Period Ended March 26, 2022
 
Table of Contents
 
  Page Number
   
   
 
 
 
 
   
   



PART I. FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS (UNAUDITED)
1


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)

 Three Months Ended
 (In thousands, except share count and per share data)March 26, 2022March 27, 2021
Revenues: 
Product$979,164 $583,816 
Service and other148,282 28,576 
Rental8,024 8,953 
Total revenues1,135,470 621,345 
Operating expenses:  
Cost of revenue:
   Product616,585 339,414 
   Service and other8,663 405 
   Rental2,861 3,005 
Total cost of revenue628,109 342,824 
Selling, general, and administrative expenses376,995 225,545 
Total operating expenses1,005,104 568,369 
Income from operations130,366 52,976 
Other expense:  
Bargain purchase gain(67)— 
Other(21,977)(36,726)
Interest expense, net(92,327)(47,435)
Income (loss) from continuing operations before income taxes15,995 (31,185)
Income tax expense (benefit)3,678 (2,851)
Income (loss) from continuing operations12,317 (28,334)
Income (loss) from discontinued operations, net of tax 42,147 
Net income (loss) attributable to Franchise Group, Inc.$12,317 $13,813 
Income (loss) per share from continuing operations:
Basic$0.25 $(0.76)
Diluted0.25 (0.76)
Net income (loss) per share:  
Basic$0.25 $0.29 
Diluted0.25 0.29 
Weighted-average shares outstanding:
Basic40,307,412 40,110,084 
Diluted41,107,793 40,110,084 

See accompanying notes to condensed consolidated financial statements.
2


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

 Three Months Ended
(In thousands)March 26, 2022March 27, 2021
Net income (loss)$12,317 $13,813 
Other comprehensive income (loss)
Unrealized (gain) loss on interest rate swap agreement, net of taxes of $ and $13, respectively
 48 
Foreign currency translation adjustment 223 
Forward contracts related to foreign currency exchange rates 16 
Other comprehensive income (loss) 287 
Comprehensive income (loss)$12,317 $14,100 
 
 See accompanying notes to condensed consolidated financial statements.
3


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share count and per share data)March 26, 2022December 25, 2021
Assets
Current assets:
Cash and cash equivalents$149,597 $292,714 
Current receivables, net 110,368 118,698 
Current securitized receivables, net386,886 369,567 
Inventories, net779,279 673,170 
Current assets held for sale203,679  
Other current assets28,403 24,063 
Total current assets1,658,212 1,478,212 
Property, plant, and equipment, net237,056 449,886 
Non-current receivables, net11,156 11,755 
Non-current securitized receivables, net48,355 47,252 
Goodwill806,697 806,536 
Intangible assets, net125,222 127,951 
Tradenames222,687 222,687 
Operating lease right-of-use assets713,820 714,741 
Investment in equity securities11,626 35,249 
Other non-current assets18,578 18,902 
Total assets$3,853,409 $3,913,171 
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations$487,957 $486,170 
Current operating lease liabilities173,295 173,101 
Accounts payable and accrued expenses 458,776 410,552 
Other current liabilities51,572 50,833 
Total current liabilities1,171,600 1,120,656 
Long-term obligations, excluding current installments1,286,972 1,383,725 
Non-current operating lease liabilities 552,412 557,071 
Other non-current liabilities 90,739 88,888 
Total liabilities3,101,723 3,150,340 
Stockholders' equity:
Common stock, $0.01 par value per share, 180,000,000 shares authorized, 40,353,865 and 40,296,688 shares issued and outstanding at March 26, 2022 and December 25, 2021, respectively
404 403 
Preferred stock, $0.01 par value per share, 20,000,000 shares authorized and 4,541,125 shares issued and outstanding at March 26, 2022 and December 25, 2021
45 45 
Additional paid-in capital480,628 475,396 
Retained earnings270,609 286,987 
Total equity751,686 762,831 
Total liabilities and equity$3,853,409 $3,913,171 

See accompanying notes to condensed consolidated financial statements.
4


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)  
Three Months Ended March 26, 2022
(In thousands)Common stock sharesCommon stockPreferred stock sharesPreferred stockAdditional paid-in-capitalAccumulated other comprehensive lossRetained earningsTotal Franchise Group equity
Balance at December 25, 202140,297 $403 4,541 $45 $475,396 $ $286,987 $762,831 
Net income— — — — — — 12,317 12,317 
Exercise of stock options15 — — — 180 — — 180 
Stock-based compensation expense, net41 1 — — 5,028 — — 5,029 
Issuance of common stock1 — — — 24 — — 24 
Common dividend declared ($0.625 per share)— — — — — — (26,567)(26,567)
Preferred dividend declared ($0.469 per share)— — — — — — (2,128)(2,128)
Balance at March 26, 202240,354 $404 4,541 $45 $480,628 $ $270,609 $751,686 


FRANCHISE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Three Months Ended March 27, 2021
(In thousands)Common stock sharesCommon stockPreferred stock sharesPreferred stockAdditional paid-in-capitalAccumulated other comprehensive lossRetained earningsTotal Franchise Group equity
Balance at December 26, 202040,092 $401 1,250 $13 $382,383 $(1,399)$3,769 $385,167 
Net income— — — — — — 13,813 13,813 
Total other comprehensive income— — — — — 287 — 287 
Exercise of stock options3 — — — 25 — — 25 
Stock-based compensation expense, net62 1 — — 2,189 — — 2,190 
Issuance of Series A Preferred Stock— — 3,291 32 79,509 — — 79,541 
Common dividend declared ($0.375 per share)— — — — — — (15,434)(15,434)
Preferred dividend declared ($0.469 per share)— — — — — — (2,129)(2,129)
Balance at March 27, 202140,157 $402 4,541 $45 $464,106 $(1,112)$19 $463,460 

See accompanying notes to condensed consolidated financial statements.
5



FRANCHISE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
(In thousands)March 26, 2022March 27, 2021
As Restated (1)
Operating Activities 
Net income$12,317 $13,813 
Adjustments to reconcile net income to net cash provided by (used in) operating activities: 
Provision for doubtful accounts15,103 710 
Depreciation, amortization, and impairment charges22,033 14,176 
Amortization of deferred financing costs and prepayment penalties36,180 67,699 
Stock-based compensation expense5,447 2,550 
Change in fair value of investment23,723 — 
(Gain) on bargain purchases and sales of Company-owned stores(2,206)(623)
Other non-cash items(2,227)(62)
Changes in operating assets and liabilities(101,227)(22,512)
Net cash provided by operating activities9,143 75,751 
Investing Activities 
Purchases of property, plant, and equipment(9,752)(11,667)
Proceeds from sale of property, plant, and equipment2,554 277 
Acquisition of business, net of cash and restricted cash acquired(3,930)(463,753)
Issuance of operating loans to franchisees (17,058)
Payments received on operating loans to franchisees 21,644 
Net cash (used in) investing activities(11,128)(470,557)
Financing Activities 
Dividends paid(27,315)(15,620)
Issuance of long-term debt and other obligations124,358 1,306,724 
Repayment of long-term debt and other obligations(237,192)(854,665)
Issuance of common stock24  
Issuance of preferred stock 79,541 
Principal payments of finance lease obligations(768)— 
Payment for debt issue costs and prepayment penalty on extinguishment (87,490)
Other stock compensation transactions(239)(336)
Net cash provided by (used in) financing activities(141,132)428,154 
Effect of exchange rate changes on cash, net 56 
Net increase (decrease) in cash equivalents and restricted cash(143,117)33,404 
Cash, cash equivalents and restricted cash at beginning of period292,714 151,502 
Cash, cash equivalents and restricted cash at end of period$149,597 $184,906 
Supplemental Cash Flow Disclosure 
Cash paid for taxes, net of refunds$274 $65 
Cash paid for interest21,424 39,730 
Accrued capital expenditures 3,177 3,019 
Tax receivable agreement included in other long-term liabilities 16,775 
(1) As restated - See Note 15 "Restatement of Previously Issued Financial Statements" to Condensed Consolidated Financial Statements. See accompanying notes to condensed consolidated financial statements.
6


The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.
(In thousands)March 26, 2022March 27, 2021
Cash and cash equivalents$149,597 $164,858 
Restricted cash included in other non-current assets 368 
Cash and cash equivalents for discontinued operations— 19,680 
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows$149,597 $184,906 

Amounts included in other non-current assets represent those required to be set aside by a contractual agreement with an insurer for the payment of specific workers’ compensation claims.
7


FRANCHISE GROUP, INC. AND SUBSIDIARIES
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
March 26, 2022 and March 27, 2021
 
(1) Basis of Presentation
 
Unless otherwise stated, references to the "Company," "we," "us," and "our" in this Quarterly Report on Form 10-Q (the "Quarterly Report") refer to Franchise Group, Inc. and its direct and indirect subsidiaries on a consolidated basis. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the Company's Form 10-K for the year ended December 25, 2021 that was filed with the Securities and Exchange Commission (“SEC”) on February 23, 2022 (the “Form 10-K”).

In the opinion of management, all adjustments (including those of a normal recurring nature) necessary for a fair presentation of such condensed consolidated financial statements in accordance with GAAP have been recorded. The December 25, 2021 balance sheet information was derived from the audited financial statements as of that date.

Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, "Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which changes how companies will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard replaces the "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost (which generally will result in the earlier recognition of allowances for losses) and requires companies to record allowances for available-for-sale debt securities, rather than reduce the carrying amount. In addition, companies will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables. The ASU should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the standard is effective. The ASU is effective for the Company for the fiscal year beginning January 1, 2023. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This standard eliminates Step 2 from the goodwill impairment test. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The ASU is effective for the Company for the fiscal year beginning January 1, 2023. The Company is currently evaluating the impact of the adoption of this standard to its consolidated financial statements.

(2) Acquisitions

The Company continually looks to diversify and grow its portfolio of brands through acquisitions. On March 10, 2021, the Company completed its acquisition (the "Pet Supplies Plus Acquisition") of Pet Supplies Plus, on September 27, 2021, the Company completed its acquisition (the "Sylvan Acquisition") of Sylvan Learning ("Sylvan"), and on November 22, 2021, the Company completed its acquisition (the "Badcock Acquisition" and, collectively with the Sylvan Acquisition and the Pet Supplies Plus Acquisition, the “Acquisitions”) of W.S. Badcock Corporation ("Badcock").

Badcock Acquisition

On November 22, 2021, the Company completed the Badcock Acquisition. The preliminary fair value of the consideration transferred at the acquisition date was $548.7 million. For the three months ended March 26, 2022, $0.6 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.

The table below summarizes the unaudited preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Badcock Acquisition on November 22, 2021. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in an adjustment to the preliminary values presented below. In the three months ended March 26, 2022, the preliminary estimates of the fair value of identifiable
8


assets acquired and liabilities assumed were adjusted, which resulted in an increase in the bargain purchase gain of $0.1 million. The increase was primarily due to an increase in operating lease right-of use assets of $3.9 million related to market lease terms partially offset by a $1.1 million increase in other long-term liabilities for deferred taxes and a net working capital true-up of $2.9 million. The Company expects to complete the purchase price allocation as soon as reasonably possible but not to exceed one year from the date of completion of the Badcock Acquisition.
(In thousands)Preliminary
November 22, 2021
Cash and cash equivalents$23,413 
Inventories, net130,045 
Accounts receivable411,268 
Other current assets5,023 
Property, plant, and equipment233,938 
Operating lease right-of-use assets55,626 
Other non-current assets2,506 
Total assets861,819 
Current operating lease liabilities12,070 
Accounts payable and accrued expenses71,436 
Other current liabilities18,942 
Current installments of long-term obligations5,261 
Long-term obligations, excluding current installments7,247 
Non-current operating lease liabilities39,599 
Other long-term liabilities26,504 
Total liabilities181,059 
Bargain purchase gain(132,110)
Consideration transferred$548,650 

Operating lease right-of-use assets of $55.6 million and operating and lease liabilities of $51.7 million, consist of leases for retail store locations, warehouses and office equipment.

Property, plant, and equipment consists of fixtures and equipment of $93.0 million, buildings and building improvements of $93.1 million, land and land improvements of $33.4 million, leasehold improvements of $23.7 million, and construction in progress of $1.4 million.

During the three months ended March 26, 2022, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted, which resulted in a $0.1 million increase to the bargain purchase gain for a cumulative bargain purchase gain of $132.1 million. The adjustment is classified as "Bargain purchase gain" on the Consolidated Statements of Operations for the three months ended March 26, 2022. The Company believes the seller in the Badcock Acquisition was willing to accept a bargain purchase price in return for the Company's ability to act more quickly, partially due to the Company's access to capital to complete the transaction, and with greater certainty than any other prospective acquirer. Additionally, the Company believes the seller in the Badcock Acquisition was motivated to complete the transaction as part of an overall repositioning of its business. Upon completion of this reassessment, the Company concluded that recording a bargain purchase gain with respect to the Badcock Acquisition was appropriate and required under GAAP. The tax impact related to the bargain purchase gain was non-taxable and impacted the Company's effective tax rate for the period.

Sylvan Acquisition

On September 27, 2021, the Company completed the Sylvan Acquisition. The preliminary fair value of the consideration transferred at the acquisition date was $82.9 million.

The table below summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Sylvan Acquisition on September 27, 2021. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in an adjustment to the preliminary values presented
9


below. In the three months ended March 26, 2022, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted, which resulted in a decrease in goodwill of $0.1 million. The decrease was due to a net working capital true-up of $0.1 million. The Company expects to complete the purchase price allocation as soon as reasonably possible but not to exceed one year from the date of completion of the Sylvan Acquisition.

(In thousands)Preliminary
September 27, 2021
Cash and cash equivalents$4,364 
Other current assets3,592 
Property, plant, and equipment26,324 
Goodwill19,406 
Tradenames24,987 
Operating lease right-of-use assets2,874 
Other intangible assets19,412 
Other non-current assets185 
Total assets101,144 
Current operating lease liabilities891 
Accounts payable and accrued expenses6,072 
Non-current operating lease liabilities1,984 
Other long-term liabilities9,320 
Total liabilities18,267 
Consideration transferred$82,877 

Other intangible assets consists of the franchise agreements of $18.3 million and proprietary content of $1.1 million.
Property, plant and equipment consists of fixtures and equipment of $0.3 million, leasehold improvements of $0.7 million, and software and electronic content of $25.3 million.

10



Pet Supplies Plus Acquisition

On March 10, 2021, the Company completed the Pet Supplies Plus Acquisition. The preliminary fair value of the consideration transferred at the acquisition date was $451.3 million.

The table below summarizes the unaudited estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Pet Supplies Plus Acquisition on March 10, 2021. In the three months ended March 26, 2022, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were finalized, which resulted in an increase in goodwill of $0.1 million. The increase was due to a $0.1 million decrease of deferred franchise fees. The Company has completed the purchase price allocation of the Pet Supplies Plus Acquisition.

(In thousands)Preliminary
 March 10, 2021
Cash and cash equivalents$2,131 
Other current assets39,844 
Inventories, net118,600 
Property, equipment and software, net75,616 
Goodwill335,995 
Operating lease right-of-use assets151,243 
Tradenames104,400 
Other intangible assets, net101,400 
Other non-current assets6,393 
Total assets935,622 
Current operating lease liabilities25,405 
Accounts payable and accrued expenses82,237 
Other current liabilities1,606 
Current installments of long-term obligations3,507 
Long-term obligations, excluding current installments247,458 
Non-current operating lease liabilities114,292 
Other long-term liabilities9,761 
Total liabilities484,266 
Consideration transferred$451,356 

Other intangible assets consists of franchise agreements of $67.1 million and customer relationships of $34.3 million.

Operating lease right-of-use assets and lease liabilities consist of leases for retail store locations, warehouses and office equipment. Operating lease right-of-use assets incorporates a favorable adjustment of $12.4 million, net for favorable and unfavorable Pet Supplies Plus real estate leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms.

Property, equipment and software, net consists of fixtures and equipment of $37.0 million, leasehold improvements of $33.5 million, construction in progress of $3.5 million and financing leases of $1.7 million.

Other non-current assets includes $0.4 million of restricted cash.

Wag N' Wash Acquisition

On February 22, 2022, the Company's Pet Supplies Plus segment completed the acquisition of Wag N' Wash ("Wag N' Wash Acquisition"), an emerging natural pet food, self-wash, and grooming franchise, for an all cash purchase price of $0.9 million, and five of the Wag N' Wash stores were subsequently sold to a franchisee for $0.6 million. The Company expects to complete the purchase price allocation as soon as reasonably possible but not to exceed one year from the date of completion of
11


the Wag N' Wash Acquisition. The components of the purchase price allocation are not presented herein due to the immateriality of the transaction to the Company overall.

Pro forma financial information
The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the Acquisitions as if they had occurred on December 25, 2021.
Pro forma (Unaudited)
Three Months Ended
(In thousands)March 26, 2022March 27, 2021
Revenue$1,135,469 $1,052,002 
Net income12,366 55,276 
Basic net income per share$0.31 $1.38 
Diluted net income per share$0.30 $1.35 

These unaudited pro forma results include adjustments such as inventory step-up, amortization of acquired intangible assets, depreciation of acquired property, equipment, and software and interest expense on debt financing in connection with the Acquisitions. Material, nonrecurring pro forma adjustments directly attributable to the Acquisitions include:

Acquired inventory step-up to its fair value of $2.3 million is assumed to be recorded in the first quarter of 2020 and therefore removed from the three months ended March 27, 2021.

Acquisition transaction related costs of $4.9 million that were incurred during the three months ended March 27, 2021 are assumed to have occurred on the pro forma close date of January 1, 2020, and recognized as if incurred in the first quarter of 2020.

The unaudited consolidated pro forma financial information was prepared in accordance with GAAP and is not necessarily indicative of the results of operations that would have occurred if the Acquisitions had been completed on the date indicated, nor is it indicative of the future operating results of the Company.

The unaudited pro forma results do not reflect events that either have occurred or may occur after the Acquisitions, including, but not limited to, the anticipated realization of operating synergies in subsequent periods. They also do not give effect to certain charges that the Company expects to incur in connection with the acquisition, including, but not limited to, additional professional fees and employee integration.

(3) Discontinued Operations and Assets Held for Sale

Liberty Tax Divestiture
On July 2, 2021, the Company completed the sale of its Liberty Tax business (the "Liberty Transaction") to NextPoint Acquisition Corp. ("Next Point") and received total consideration of approximately $255.3 million, consisting of approximately $181.2 million in cash and approximately $74.1 million in proportionate voting shares of NextPoint recorded as an investment in equity securities in "Investment in equity securities" on the Condensed Consolidated Balance Sheets. As a result of the Liberty Transaction, the financial position and results of operations of the Liberty Tax business are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for the three months ended March 27, 2021.

12



The following is a Condensed Consolidated Statement of Operations for the Liberty Tax business. The amounts are included in "Income (loss) from discontinued operations, net of tax" in the Company's Condensed Consolidated Statements of Operations.
 Three Months Ended
 (In thousands)March 26, 2022March 27, 2021
Revenue$ $76,480 
Selling, general, and administrative expenses 34,061 
Income from operations 42,419 
Other expense:
Other 153 
Interest expense, net (11)
Income before income taxes 42,561 
Income tax expense 414 
Net income attributable to discontinued operations$ $42,147 


The following is the operating and investing activities for the Liberty Tax business. These amounts are included in the Company's Condensed Consolidated Statement of Cash Flows.
Three Months Ended
(In thousands)March 26, 2022March 27, 2021
Cash flows provided by operating activities from discontinued operations$ $15,787 
Cash flows provided by investing activities from discontinued operations$ $2,058 

Assets Held for Sale
As of March 26, 2022, the Company's Badcock segment was negotiating sale-leaseback transactions for retail locations, distribution centers, and its corporate headquarters. The net book value of the properties of $203.7 million is classified as "Current assets held for sale" on the Condensed Consolidated Balance Sheets. The retail locations, distribution centers, and corporate headquarters are classified as assets held for sale as the Company is presently in active negotiations and the assets are expected to be sold within a year. The sale of the retail locations was completed on March 31, 2022 for net proceeds of $94.0 million. Purchases and sale agreements for the distribution centers for net proceeds of $150.0 million and the headquarters for net proceeds of $18.5 million were entered into on April 15, 2022 and April 26, 2022, respectively. The sales of the distribution centers and headquarters are expected to close during the second quarter of fiscal year 2022, at which time a corresponding operating lease right of use asset and operating lease liability will be recorded to the Condensed Consolidated Balance Sheets for the transactions.
13




(4) Accounts and Notes Receivable

Current and non-current receivables as of March 26, 2022 and December 25, 2021 are presented in the Condensed Consolidated Balance Sheets as follows:

(In thousands)March 26, 2022December 25, 2021
Accounts receivable$82,848 $86,087 
Notes receivable1,506 1,681 
Interest receivable55 54 
Income tax receivable27,149 32,448 
Allowance for doubtful accounts(1,190)(1,572)
   Current receivables, net110,368 118,698 
Notes receivable, non-current11,580 12,183 
Allowance for doubtful accounts, non-current(424)(428)
   Non-current receivables, net11,156 11,755 
      Total receivables$121,524 $130,453 

Notes receivable are due from the Company's franchisees and are collateralized by the underlying franchise. The debtors' ability to repay the notes is dependent upon both the performance of the franchisee's industry as a whole and the individual franchise areas.

Secured Borrowing Accounting

On December 20, 2021, Badcock entered into a Master Receivables Purchase Agreement (the “Receivables Purchase Agreement”) with B. Riley Receivables, LLC (the "Purchaser") and consummated the sale to the Purchaser of the existing consumer credit receivables portfolio of Badcock as of December 15, 2021 for a purchase price of $400.0 million in cash and the sale of additional receivables for up to 90 days after the signing of the Receivables Purchase Agreement. In connection with the Receivables Purchase Agreement, Badcock entered into a Servicing Agreement (the “Servicing Agreement”) with the Purchaser pursuant to which Badcock will provide to the Purchaser certain customary servicing and account management services in respect of the receivables purchased by the Purchaser under the Receivables Purchase Agreement.

As a result of the transaction, the Company's Badcock segment sold beneficial interests in revolving lines of credit that it originated. The sales of the beneficial interests in the revolving lines of credit are accounted for as secured borrowings on our Condensed Consolidated Balance Sheets, with both assets and non-recourse liabilities, since the sales do not qualify as a sale under ASC 860 - "Transfers and Servicing," even though the underlying receivables are deemed to be legally sold. The income earned on the securitized revolving lines of credit is recorded as interest income in "Service and other revenues" and the accretion of the securitized debt is recorded in "Interest expense, net" on the Condensed Consolidated Statements of Operations.

Current securitized receivables, net includes $463.3 million of securitized receivables and an unamortized discount of  $76.4 million. Non-current securitized receivables, net includes $57.9 million of securitized receivables and an unamortized discount of $9.6 million.

14



(5) Goodwill and Intangible Assets

The Company performs impairment tests for goodwill as of the end of July of each fiscal year and between annual impairment tests if an event occurs or circumstances change that would more likely than not reduce the fair values of the Company's reporting units below their carrying values. There are no accumulated goodwill impairment losses recorded.

Changes in the carrying amount of goodwill for the three months ended March 26, 2022 are as follows:
Vitamin ShoppePet Supplies PlusAmerican FreightBuddy'sSylvanTotal
Balance as of December 25, 2021$1,277 $335,875 $370,829 $79,099 $19,456 $806,536 
Acquisitions 937    937 
Disposals and purchase accounting adjustments (726)  (50)(776)
Balance as of March 26, 2022$1,277 $336,086 $370,829 $79,099 $19,406 $806,697 

Components of intangible assets as of March 26, 2022 and December 25, 2021 were as follows:
 March 26, 2022
(In thousands)Gross carrying amountAccumulated
amortization
Net carrying amount
Indefinite lived tradenames$222,687 $— $222,687 
Intangible assets
Franchise and dealer agreements$95,865 $(8,379)$87,486 
Customer contracts42,414 (6,128)36,286 
Other intangible assets1,929 (479)1,450 
Total intangible assets$140,208 $(14,986)$125,222 

 December 25, 2021
(In thousands)Gross carrying amountAccumulated amortizationNet carrying amount
Indefinite lived tradenames$222,687 $— $222,687 
Intangible assets
Franchise and dealer agreements$95,865 $(6,571)$89,294 
Customer contracts42,414 (5,215)37,199 
Other intangible assets1,836 (378)1,458 
Total intangible assets$140,115 $(12,164)$127,951 

15



(6) Revenue

For details regarding the principal activities from which the Company generates its revenue, see "Note 1. Description of Business and Summary of Significant Account Policies Presentation" in the Form 10-K. For more detailed information regarding reportable segments, see "Note 13. Segments" in this Quarterly Report. The following represents the disaggregated revenue by reportable segments for the three months ended March 26, 2022:

March 26, 2022
Vitamin ShoppePet Supplies PlusBadcockAmerican FreightBuddy'sSylvanConsolidated
(In thousands)Three Months Ended
Retail sales$310,430 $162,549 $166,642 $211,513 $1,070 $11 $852,215 
Wholesale sales175 123,232  3,542   126,949 
Total product revenue310,605 285,781 166,642 215,055 1,070 11 979,164 
Royalties and other franchise based fees
134 9,062  548 4,824 9,509 24,077 
Financing revenue   8,175   8,175 
Interest income— 73 65,269 195  — 65,537 
Warranty and damage revenue  13,546 11,479 1,604  26,629 
Other revenues214 6,298 10,802 5,964 63 523 23,864 
Total service revenue348 15,433 89,617 26,361 6,491 10,032 148,282 
Rental revenue, net    8,024  8,024 
Total rental revenue    8,024  8,024 
Total revenue$310,953 $301,214 $256,259 $241,416 $15,585 $10,043 $1,135,470 

The following represents the disaggregated revenue by reportable segments for the three months ended March 27, 2021:

March 27, 2021
Vitamin Shoppe
Pet Supplies Plus †
American FreightBuddy'sConsolidated
(In thousands)Three Months Ended
Retail sales$294,739 $31,365 $239,058 $1,368 $566,530 
Wholesale sales— 17,287 — — 17,287 
Total product revenue294,739 48,652 239,058 1,368 583,817 
Royalties and other franchise based fees
— 1,390  4,555