Notes to Unaudited Condensed Consolidated Financial Statements
June 26, 2021 and June 27, 2020
(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 Exhibit 99.1 of Form 8-K filed on June 25, 2021, to reflect certain retrospective revisions for discontinued operations and changes in reportable segments in the consolidated financial statements of the Company in its Annual Report on Form 10-K for the year ended December 26, 2020 that was previously filed with the Securities and Exchange Commission (“SEC”) on March 10, 2021 (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 26, 2020 balance sheet information was derived from the audited financial statements as of that date.
Discontinued Operations
As previously disclosed, on February 21, 2021 the Company entered into a purchase agreement (the " Purchase Agreement") to sell its Liberty Tax business to NextPoint Acquisition Corp ("NextPoint"), a special purpose acquisition corporation incorporated under the laws of the Province of British Columbia (the "Transaction"). On July 2, 2021 the Company completed the Transaction and received total consideration of approximately $249 million consisting of approximately $182 million in cash and approximately $67 million in proportionate voting shares of NextPoint. In the quarter ending September 25, 2021, the Company expects to record a gain on the sale and a non-consolidated investment in NextPoint. As a result of the Transaction, the financial position and results of operations of the Liberty Tax segment are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. The accompanying Notes to the Condensed Consolidated Financial Statements and all prior year balances have been reclassified to conform to this presentation. Please refer to "Note 3. Divestitures" for additional information regarding discontinued operations.
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.
The London Interbank Offered Rate (“LIBOR”) is scheduled to be discontinued on December 31, 2021. In an effort to address the various challenges created by such discontinuance, the FASB issued an amendment to existing guidance, ASU No.
2020-04, "Reference Rate Reform." The amended guidance is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by the reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by the reference rate reform. Application of the guidance in the amendment is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022. The Company is currently evaluating the impacts of reference rate reform and the new guidance on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which amends and simplifies the requirements for income taxes. The ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The adoption did not result in a material impact to the Company's financial results or disclosures.
(2) Acquisitions
The assets acquired and liabilities assumed in the acquisitions below are recorded at fair value in accordance with ASC 805 - "Business Combinations." Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The goodwill recognized is attributable to operational synergies in the expected franchise models and growth opportunities. The recorded goodwill is deductible for tax purposes.
Pet Supplies Plus Acquisition
On March 10, 2021, the Company completed its acquisition of Pet Supplies Plus (the "Pet Supplies Plus Acquisition"). The preliminary fair value of the consideration transferred at the acquisition date was $451.1 million. As of June 26, 2021, $5.5 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 Pet Supplies Plus Acquisition as of March 10, 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 June 26, 2021 the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted which resulted in an increase in goodwill of $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 Pet Supplies Plus Acquisition date.
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Preliminary
March 10, 2021
|
|
Cash and cash equivalents
|
|
$
|
2,131
|
|
|
Other current assets
|
|
39,844
|
|
|
Inventories, net
|
|
118,600
|
|
|
Property, equipment and software, net
|
|
75,616
|
|
|
Goodwill
|
|
335,690
|
|
|
Operating lease right-of-use assets
|
|
151,243
|
|
|
Other intangible assets, net
|
|
205,800
|
|
|
Other non-current assets
|
|
6,393
|
|
|
Total assets
|
|
935,317
|
|
|
Current operating lease liabilities
|
|
25,405
|
|
|
Accounts payable and accrued expenses
|
|
80,404
|
|
|
Other current liabilities
|
|
3,372
|
|
|
Current installments of long-term obligations
|
|
3,507
|
|
|
Long-term obligations, excluding current installments
|
|
247,458
|
|
|
Non-current operating lease liabilities
|
|
114,292
|
|
|
Other long-term liabilities
|
|
9,761
|
|
|
Total liabilities
|
|
484,199
|
|
|
Consideration transferred
|
|
$
|
451,118
|
|
Other intangible assets, net consists of the Pet Supplies Plus trade name as an indefinite-lived intangible asset with a fair value of $104.4 million. The trade name is not subject to amortization but will be evaluated annually for impairment. Also included are franchise agreements of $67.1 million and customer relationships of $34.3 million.
Operating lease right-of-use assets and lease liabilities consists of leases for retail store locations, warehouses and office equipment. The 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.
Furniture Factory Outlet Acquisition
On December 27, 2020, the Company completed the acquisition of Furniture Factory Outlet ("FFO Home"), a regional retailer of furniture and mattresses, for an all cash purchase price of $13.8 million. The Company acquired 31 operating locations which were rebranded as American Freight stores and included into its American Freight segment. As of June 26, 2021, $0.4 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Preliminary
December 27, 2020
|
|
Cash and cash equivalents
|
|
$
|
6
|
|
|
Other current assets
|
|
96
|
|
|
Inventories, net
|
|
6,450
|
|
|
Property, equipment and software, net
|
|
2,934
|
|
|
Goodwill
|
|
3,293
|
|
|
Operating lease right-of-use assets
|
|
26,571
|
|
|
Total assets
|
|
39,350
|
|
|
Current operating lease liabilities
|
|
2,587
|
|
|
Other current liabilities
|
|
299
|
|
|
Non-current operating lease liabilities
|
|
22,624
|
|
|
Total liabilities
|
|
25,510
|
|
|
Consideration transferred
|
|
$
|
13,840
|
|
Operating lease right-of-use assets and lease liabilities consists of leases for retail store locations. The lease right of use assets incorporates a favorable adjustment of $1.4 million, net for favorable and unfavorable FFO Home leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms.
The property, equipment and software, net consists of leasehold improvements of $2.5 million and fixtures and equipment of $0.4 million.
American Freight Acquisition
On February 14, 2020, the Company completed its acquisition of American Freight (the "American Freight Acquisition") for an aggregate purchase price of $357.3 million. The Company accounted for the transaction as a business combination using the acquisition method of accounting.
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 Pet Supplies Plus and American Freight acquisitions as if they had occurred on December 28, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma (Unaudited)
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
(In thousands)
|
|
June 26, 2021
|
|
June 27, 2020
|
|
June 26, 2021
|
|
June 27, 2020
|
|
Revenue
|
|
$
|
862,758
|
|
|
$
|
690,614
|
|
|
$
|
1,677,693
|
|
|
$
|
1,437,322
|
|
|
Net income
|
|
$
|
36,298
|
|
|
$
|
(10,312)
|
|
|
$
|
58,339
|
|
|
$
|
(43,599)
|
|
|
Basic net income per share
|
|
$
|
0.85
|
|
|
$
|
(0.29)
|
|
|
$
|
1.35
|
|
|
$
|
(1.49)
|
|
|
Diluted net income per share
|
|
$
|
0.84
|
|
|
$
|
(0.29)
|
|
|
$
|
1.32
|
|
|
$
|
(1.49)
|
|
The unaudited consolidated pro forma financial information was prepared in accordance with accounting standards and is not necessarily indicative of the results of operations that would have occurred if the Pet Supplies Plus and American Freight 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 acquisition, 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 Disposition
As previously disclosed, on February 21, 2021, the Company and NextPoint entered into the Purchase Agreement to sell its Liberty Tax business to NextPoint. In connection with the Purchase Agreement, the parties entered into a transition services agreement pursuant to which both parties agreed to provide certain transition services to each other for a period not to exceed twelve months. On July 2, 2021, the Company completed the Transaction and received total consideration of approximately $249 million, consisting of approximately $182 million in cash and approximately $67 million in proportionate voting shares of NextPoint. In the quarter ended September 25, 2021, the Company expects to record a gain on the sale and a non-consolidated investment for the value of the shares received as consideration.
The following is a summary of the major categories of assets and liabilities for the Liberty Tax business. The balances for all periods are included in assets and liabilities held for sale in the Condensed Consolidated Balance Sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
June 26, 2021
|
|
December 26, 2020
|
|
(In thousands)
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,869
|
|
|
$
|
2,722
|
|
|
Current receivables, net
|
|
31,218
|
|
|
33,525
|
|
|
Other current assets
|
|
7,256
|
|
|
6,776
|
|
|
Total current assets
|
|
57,343
|
|
|
43,023
|
|
|
Property, equipment, and software, net
|
|
11,091
|
|
|
7,634
|
|
|
Non-current receivables, net
|
|
2,767
|
|
|
3,889
|
|
|
Goodwill
|
|
9,058
|
|
|
8,719
|
|
|
Intangible assets, net
|
|
23,577
|
|
|
24,804
|
|
|
Operating lease right-of-use assets
|
|
8,678
|
|
|
8,771
|
|
|
Other non-current assets
|
|
1,157
|
|
|
1,299
|
|
|
Total assets held for sale
|
|
$
|
113,671
|
|
|
$
|
98,139
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Current installments of long-term obligations
|
|
$
|
409
|
|
|
$
|
1,335
|
|
|
Current operating lease liabilities
|
|
4,828
|
|
|
4,658
|
|
|
Accounts payable and accrued expenses
|
|
13,072
|
|
|
20,200
|
|
|
Other current liabilities
|
|
6,830
|
|
|
14,383
|
|
|
Total current liabilities
|
|
25,139
|
|
|
40,576
|
|
|
Long-term obligations, excluding current installments
|
|
1,590
|
|
|
1,711
|
|
|
Non-current operating lease liabilities
|
|
4,567
|
|
|
4,738
|
|
|
Other non-current liabilities
|
|
2,126
|
|
|
2,330
|
|
|
Total liabilities held for sale
|
|
$
|
33,422
|
|
|
$
|
49,355
|
|
|
|
|
|
|
|
The following is a Condensed Consolidated Statement of Operations for the Liberty Tax business. The amounts for all periods are included in "Income (loss) from discontinued operations, net of tax" in the Company's Condensed Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
(In thousands)
|
|
June 26, 2021
|
|
June 28, 2020
|
|
June 26, 2021
|
|
June 28, 2020
|
|
Revenue
|
|
$
|
30,513
|
|
|
$
|
15,073
|
|
|
$
|
106,993
|
|
|
$
|
104,692
|
|
|
Selling, general, and administrative expenses
|
|
23,725
|
|
|
18,277
|
|
|
57,786
|
|
|
59,214
|
|
|
Income from operations
|
|
6,788
|
|
|
(3,204)
|
|
|
49,207
|
|
|
45,478
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
Other
|
|
16
|
|
|
20
|
|
|
168
|
|
|
(15)
|
|
|
Interest expense, net
|
|
10
|
|
|
(3,749)
|
|
|
—
|
|
|
(4,989)
|
|
|
Income before income taxes
|
|
6,814
|
|
|
(6,933)
|
|
|
49,375
|
|
|
40,474
|
|
|
Income tax expense
|
|
599
|
|
|
(1,629)
|
|
|
1,012
|
|
|
8,121
|
|
|
Net Income
|
|
6,215
|
|
|
(5,304)
|
|
|
48,363
|
|
|
32,353
|
|
|
Less: Net (income) attributable to non-controlling interest
|
|
—
|
|
|
(8)
|
|
|
—
|
|
|
11,791
|
|
|
Net income attributable to discontinued operations
|
|
$
|
6,215
|
|
|
$
|
(5,312)
|
|
|
$
|
48,363
|
|
|
$
|
44,144
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
(In thousands)
|
|
June 26, 2021
|
|
June 28, 2020
|
|
Cash flows provided by operating activities from discontinued operations
|
|
$
|
36,627
|
|
|
$
|
47,881
|
|
|
Cash flows provided by investing activities from discontinued operations
|
|
$
|
492
|
|
|
$
|
17,781
|
|
(4) 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 six months ended June 26, 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vitamin Shoppe
|
|
American Freight
|
|
Pet Supplies Plus
|
|
Buddy's
|
|
Total
|
|
Balance as of December 26, 2020
|
|
1,277
|
|
|
367,882
|
|
|
—
|
|
|
79,099
|
|
|
448,258
|
|
|
Acquisitions
|
|
—
|
|
|
3,293
|
|
|
335,690
|
|
|
—
|
|
|
338,983
|
|
|
Balance as of June 26, 2021
|
|
$
|
1,277
|
|
|
$
|
371,175
|
|
|
$
|
335,690
|
|
|
$
|
79,099
|
|
|
$
|
787,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of intangible assets as of June 26, 2021 and December 26, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2021
|
|
(In thousands)
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Indefinite lived tradenames
|
|
197,700
|
|
|
—
|
|
|
197,700
|
|
|
Franchise agreements
|
|
77,600
|
|
|
(3,410)
|
|
|
74,190
|
|
|
Customer contracts
|
|
43,080
|
|
|
(3,622)
|
|
|
39,458
|
|
|
Reacquired rights
|
|
1,478
|
|
|
(646)
|
|
|
832
|
|
|
Total intangible assets
|
|
$
|
319,858
|
|
|
$
|
(7,678)
|
|
|
$
|
312,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 26, 2020
|
|
(In thousands)
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net carrying amount
|
|
Indefinite lived tradenames
|
|
$
|
93,300
|
|
|
$
|
—
|
|
|
$
|
93,300
|
|
|
Customer contracts
|
|
8,781
|
|
|
(2,159)
|
|
|
6,622
|
|
|
Franchise agreements and non-compete agreements
|
|
10,500
|
|
|
(1,546)
|
|
|
8,954
|
|
|
Reacquired rights
|
|
1,478
|
|
|
(462)
|
|
|
1,016
|
|
|
Total intangible assets
|
|
$
|
114,059
|
|
|
$
|
(4,167)
|
|
|
$
|
109,892
|
|
|
|
|
|
|
|
|
|
(5) Revenue
For details regarding the principal activities from which the Company generates its revenue, see "Note 1. Basis of Presentation" in this quarterly report. 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 and six months ended June 26, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 26, 2021
|
|
|
|
Vitamin Shoppe
|
|
American Freight
|
Pet Supplies Plus
|
|
Buddy's
|
|
(In thousands)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
Six Months Ended †
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Retail sales
|
|
$
|
302,473
|
|
|
$
|
597,213
|
|
|
$
|
239,476
|
|
|
$
|
478,534
|
|
|
$
|
156,851
|
|
|
$
|
188,216
|
|
|
$
|
1,069
|
|
|
$
|
2,436
|
|
|
Wholesale sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
105,899
|
|
|
123,186
|
|
|
—
|
|
|
—
|
|
|
Total product revenue
|
|
302,473
|
|
|
597,213
|
|
|
239,476
|
|
|
478,534
|
|
|
262,750
|
|
|
311,402
|
|
|
1,069
|
|
|
2,436
|
|
|
Franchise fees
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
225
|
|
|
242
|
|
|
12
|
|
|
21
|
|
|
Royalties and advertising fees
|
|
82
|
|
|
82
|
|
|
411
|
|
|
411
|
|
|
5,597
|
|
|
6,727
|
|
|
3,302
|
|
|
7,181
|
|
|
Financial products
|
|
—
|
|
|
—
|
|
|
11,951
|
|
|
20,530
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest income
|
|
—
|
|
|
—
|
|
|
290
|
|
|
585
|
|
|
71
|
|
|
84
|
|
|
—
|
|
|
—
|
|
|
Agreement, club and damage waiver fees
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,716
|
|
|
3,522
|
|
|
Warranty revenue
|
|
—
|
|
|
—
|
|
|
13,100
|
|
|
19,498
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other revenues
|
|
—
|
|
|
—
|
|
|
3,579
|
|
|
7,765
|
|
|
7,117
|
|
|
8,614
|
|
|
740
|
|
|
1,506
|
|
|
Total service revenue
|
|
82
|
|
|
82
|
|
|
29,331
|
|
|
48,789
|
|
|
13,010
|
|
|
15,667
|
|
|
5,770
|
|
|
12,230
|
|
|
Rental revenue, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,797
|
|
|
17,750
|
|
|
Total rental revenue
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,797
|
|
|
17,750
|
|
|
Total revenue
|
|
$
|
302,555
|
|
|
$
|
597,295
|
|
|
$
|
268,807
|
|
|
$
|
527,323
|
|
|
$
|
275,760
|
|
|
$
|
327,069
|
|
|
$
|
15,636
|
|
|
$
|
32,416
|
|
† Reflects the results from the March 10, 2021 acquisition date.
The following represents the disaggregated revenue by reportable segments for the three and six months ended June 27, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2020
|
|
|
|
Vitamin Shoppe
|
|
American Freight
|
|
Pet Supplies Plus
|
|
Buddy's
|
|
(In thousands)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Retail sales
|
|
$
|
237,735
|
|
|
$
|
513,622
|
|
|
$
|
227,253
|
|
|
$
|
423,353
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,721
|
|
|
$
|
3,239
|
|
|
Total product revenue
|
|
237,735
|
|
|
513,622
|
|
|
227,253
|
|
|
423,353
|
|
|
—
|
|
|
—
|
|
|
1,721
|
|
|
3,239
|
|
|
Franchise fees
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
Royalties and advertising fees
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,406
|
|
|
4,829
|
|
|
Financial products
|
|
—
|
|
|
—
|
|
|
686
|
|
|
1,291
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Interest income
|
|
—
|
|
|
—
|
|
|
333
|
|
|
672
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Agreement, club and damage waiver fees
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,369
|
|
|
6,689
|
|
|
Warranty revenue
|
|
—
|
|
|
—
|
|
|
4,727
|
|
|
8,979
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other revenues
|
|
—
|
|
|
—
|
|
|
1,428
|
|
|
2,879
|
|
|
—
|
|
|
—
|
|
|
707
|
|
|
1,339
|
|
|
Total service revenue
|
|
—
|
|
|
—
|
|
|
7,174
|
|
|
13,821
|
|
|
—
|
|
|
—
|
|
|
6,495
|
|
|
12,870
|
|
|
Rental revenue, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,176
|
|
|
33,596
|
|
|
Total rental revenue
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,176
|
|
|
33,596
|
|
|
Total revenue
|
|
$
|
237,735
|
|
|
$
|
513,622
|
|
|
$
|
234,427
|
|
|
$
|
437,174
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,392
|
|
|
$
|
49,705
|
|
Contract Balances
The following table provides information about receivables and contract liabilities (deferred revenue) from contracts with customers as of June 26, 2021 and December 26, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
June 26, 2021
|
|
December 26, 2020
|
|
Accounts Receivable
|
|
$
|
68,760
|
|
|
$
|
38,444
|
|
|
Notes receivable
|
|
$
|
13,800
|
|
|
$
|
28,240
|
|
|
Deferred revenue
|
|
$
|
40,041
|
|
|
$
|
25,616
|
|
Significant changes in deferred revenue were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
(In thousands)
|
|
June 26, 2021
|
|
June 26, 2021
|
|
Deferred revenue at beginning of period
|
|
$
|
45,225
|
|
|
$
|
25,616
|
|
|
Revenue recognized during the period
|
|
(28,338)
|
|
|
(21,709)
|
|
|
Deferred revenue from acquisitions
|
|
—
|
|
|
10,714
|
|
|
New deferred revenue during the period
|
|
23,154
|
|
|
25,420
|
|
|
Deferred revenue at end of period
|
|
$
|
40,041
|
|
|
$
|
40,041
|
|
Anticipated Future Recognition of Deferred Revenue
The following table reflects when deferred revenue is expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the period:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fiscal Year
|
|
Remainder of 2021
|
|
$
|
27,351
|
|
|
2022
|
|
1,473
|
|
|
2023
|
|
1,153
|
|
|
2024
|
|
597
|
|
|
2025
|
|
486
|
|
|
Thereafter
|
|
8,981
|
|
|
Total
|
|
$
|
40,041
|
|
(6) Long-Term Obligations
Long-term obligations at June 26, 2021 and December 26, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
June 26, 2021
|
|
December 26, 2020
|
|
Revolving credit facilities
|
|
$
|
—
|
|
|
$
|
78,310
|
|
|
Term loan, net of debt issuance costs
|
|
1,252,819
|
|
|
491,836
|
|
|
Finance lease liabilities
|
|
4,102
|
|
|
851
|
|
|
Total long-term obligations
|
|
1,256,921
|
|
|
570,997
|
|
|
Less current installments
|
|
11,544
|
|
|
104,053
|
|
|
Total long-term obligations, excluding current installments, net
|
|
$
|
1,245,377
|
|
|
$
|
466,944
|
|
First Lien Credit Agreement and Term Loan
On March 10, 2021 (the “Closing Date”), the Company entered into a First Lien Credit Agreement (the “First Lien Credit Agreement”) with various lenders that provides for a $1,000.0 million senior secured term loan (the “First Lien Term Loan”).
The Company’s obligations under the First Lien Credit Agreement are guaranteed by the Company and each of the Company’s other direct and indirect subsidiaries (other than certain excluded subsidiaries) pursuant to a First Lien Guarantee Agreement (the “First Lien Guarantee Agreement”) and are required to be guaranteed by each of the Company’s direct and indirect subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date. The obligations of the Company under the First Lien Credit Agreement are secured on a first priority basis by substantially all of the assets and are secured on a second priority basis by credit card receivables, accounts receivable, deposit accounts, securities accounts, commodity accounts, inventory and goods (other than equipment) of the Company, and in each case are required to be secured by such assets of the Company (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date.
The proceeds of the First Lien Term Loan, together with the proceeds of the Second Lien Term Loan (as defined below) and certain cash on hand of the Company, were used to consummate the Pet Supplies Plus Acquisition and to pay fees and expenses for certain related transactions, including the entry into the ABL Agreement (as defined below). A portion of the First Lien Term Loan and Second Lien Term Loan were also used to repay existing lenders.
The First Lien Term Loan will mature on March 10, 2026 and will bear interest at a variable rate with a floor of 5.50%. Interest is payable on either the last day of the interest period or the last business day of the calendar quarter. The Company is required to repay the First Lien Term Loan in equal quarterly installments of $2.5 million on the last day of each calendar quarter, commencing on June 30, 2021 subject to certain early payment requirements based on certain events. On July 2, 2021, the Company repaid $182 million of principal of the First Lien Term Loan.
The First Lien Credit Agreement, the First Lien Collateral Agreement and the First Lien Guarantee Agreement collectively include customary affirmative, negative, and financial covenants binding on the Company, including delivery of financial statements and other reports. The negative covenants limit the ability of the Company to, among other things, incur
debt, incur liens, make investments, sell assets, pay dividends and enter into transactions with affiliates. The financial covenants set forth in the First Lien Credit Agreement include a maximum total leverage ratio (net of certain cash) and a minimum fixed charge coverage ratio to be tested at the end of each fiscal quarter commencing with the first full fiscal quarter ending after the Closing Date. In addition, the First Lien Credit Agreement includes customary events of default, the occurrence of which may require the Company to pay an additional 2.00% interest on the First Lien Term Loan and/or may result in, among other consequences, acceleration of the payment obligations with respect to the First Lien Term Loan, calling on the guarantees, or exercise of remedies with respect to the collateral.
Second Lien Credit Agreement and Second Lien Term Loan
On the Closing Date, the Company entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement”) with various lenders (the "Second Lien Lenders", and together with the First Lien Lenders, the "Term Loan Lenders") which provides for a $300.0 million senior secured term loan (the “Second Lien Term Loan”, and together with the First Lien Term Loan, the “Term Loans”), made by the Second Lien Lenders to the Company.
The Company's obligations under the Second Lien Credit Agreement are guaranteed by the Loan Parties pursuant to a Second Lien Guarantee Agreement (the “Second Lien Guarantee Agreement”) and are required to be guaranteed by each of the Company’s direct and indirect subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date. The obligations of the Company under the Second Lien Credit Agreement are secured on a second priority basis by the Term Priority Collateral and are secured on a third priority basis by the ABL Priority Collateral pursuant to a Second Lien Collateral Agreement (the “Second Lien Collateral Agreement”) and are required to be secured by such assets of each of the Company’s direct and indirect subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date.
The Second Lien Term Loan will mature on September 10, 2026 and bears interest at a variable rate with an 8.50% floor. Interest is payable on either the last day of the interest period or the last business day of the calendar quarter.
The Second Lien Term Loan is not subject to scheduled amortization. Solely to the extent the First Lien Term Loan and related obligations have been repaid in full, the Company is required to prepay the Second Lien Term Loan with 50% of consolidated excess cash flow on an annual basis, subject to certain exceptions and to leverage-based step-downs to 25% and 0%, and with 100% of the net cash proceeds of certain other customary events, including certain asset sales (but excluding sales of ABL Priority Collateral), including customary reinvestment rights and leverage-based step-downs to 25% and 0%, in each case, subject to certain exceptions.
Third Amended and Restated Loan and Security Agreement (ABL)
On the Closing Date, the Company entered into a Third Amended and Restated Loan and Security Agreement (the “ABL Agreement”) with various lenders. The ABL Agreement provides for a senior secured revolving loan facility (the “ABL Revolver”) with aggregate commitments available to Company of the lesser of (i) $150.0 million and (ii) a specified borrowing base based on a percentage of the Company's eligible credit card receivables, accounts (subject to certain limitations) and inventory (subject to certain limitations), less certain reserves (the “Aggregate Borrowing Cap”). Furthermore, the ABL Agreement includes separate borrowing caps equal to (A) the lesser of (1) $100.0 million and (2) a specified borrowing base based on a percentage of the certain of the Company's subsidiaries eligible credit card receivables, accounts (subject to certain limitations) and inventory (subject to certain limitations), less certain reserves.
As of the Closing Date, the ABL Revolver was undrawn. The ABL Agreement amended and restated the existing Second Amended and Restated Loan and Security Agreement, dated as of December 16, 2019. The Company's obligations under the ABL Agreement are guaranteed pursuant to a Second Amended and Restated Guaranty Agreement, dated as of the Closing Date. The obligations of the Company under the ABL Agreement are secured by substantially all of the assets of the Company pursuant to the ABL Agreement and a Third Amended and Restated Pledge Agreement (the “ABL Pledge”).
The ABL Revolver will mature on March 10, 2025, and borrowings under the ABL Revolver will, at the option of the Company, bear interest at a variable rate with a 1.75% floor. Interest is payable on either the last day of the interest period or the last business day of the calendar quarter.
Subject to an intercreditor agreement, the Company is required to repay the excess amount of borrowings under the ABL Revolver if: (i) the aggregate outstanding principal amount of all borrowings by the Company under the ABL Revolver at any time exceeds the Aggregate Borrowing Cap, or (ii) the aggregate outstanding principal amount of all borrowings of certain of the Company's subsidiaries exceeds their borrowing caps.
The ABL Agreement and ABL Pledge include customary affirmative and negative covenants binding on the Company, including delivery of financial statements, borrowing base certificates and other reports. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets, pay dividends and enter into transactions with affiliates. In addition, the ABL Agreement includes customary events of default, the occurrence of which may require the Company to pay an additional 2.0% interest on the borrowings under the ABL Revolver.
The following debt agreements have been repaid since reported in the Form 10-K. Refer to the Form 10-K for further information regarding these debt agreements.
Franchise Group New Holdco Credit Agreement and Term Loan
On March 10, 2021, the outstanding amount of $527.4 million, including accrued interest, under the Franchise Group New Holdco Credit Agreement and Term Loan was paid in full in connection with the issuance of the First Lien Term Loan and the Second Lien Term Loan. The early repayment resulted in additional interest expense of $20.1 million for the write-off of deferred financing costs and $36.7 million for a prepayment penalty. The prepayment penalty is recorded in the Other expense line of the Consolidated Statement of Operations for the six months ended June 26, 2021.
Franchise Group New Holdco New ABL Credit Agreement and New ABL Term Loan
On March 10, 2021, the Franchise Group New Holdco New ABL Credit Agreement and Term Loan was replaced by the ABL Agreement and the outstanding amount of $37.0 million, including accrued interest, under the Franchise Group New Holdco New ABL Credit Agreement and Term Loan was paid in full by the Company in connection with the issuance of the First Lien Term Loan and the Second Lien Term Loan. The early repayment resulted in additional interest expense of $8.1 million for the write-off of deferred financing costs.
Vitamin Shoppe ABL Revolver
On March 10, 2021, the outstanding amount of $43.0 million, including accrued interest, under the Vitamin Shoppe ABL Revolver was paid in full with the proceeds from the First Lien Term Loan and the Second Lien Term Loan which resulted in a write-off of $1.2 million of deferred financing costs.
Compliance with Debt Covenants
The Company's revolving credit and long-term debt agreements impose restrictive covenants on it, including requirements to meet certain ratios. As of June 26, 2021, the Company was in compliance with all covenants under these agreements and, based on a continuation of current operating results, the Company expects to be in compliance for the next twelve months.
(7) Income Taxes
Overview
For the three months ended June 26, 2021 and June 27, 2020, the Company had an effective tax rate from continuing operations of 7.8% and (26.7)%, respectively. For the six months ended June 26, 2021 and June 27, 2020, the Company had an effective tax rate from continuing operations of (2.0)% and 117.1%, respectively. The impact of the enactment of the CARES Act was included in the three and six months ended June 27, 2020 which is the primary driver of the difference in the effective tax rate for both periods. The Company is also expecting to utilize a portion of its deferred tax assets, including net operating loss carryforwards, which previously had a full valuation allowance.
CARES Act
The Coronavirus, Aid, Relief, and Economic Security, or CARES Act (the “Act”) was enacted on March 27, 2020. The Act retroactively changed the eligibility of certain assets for expense treatment in the year placed in service, back to 2018, and permitted any net operating loss for the tax years 2018, 2019 and 2020 to be carried back for 5 years. The Company recorded a total income tax benefit of $52.3 million during 2020 associated with the income tax components contained in the Act.
Tax Receivable Agreement
On July 10, 2019, the Company entered into a tax receivable agreement with the then-existing non-controlling interest holders (the "Tax Receivable Agreement") that provides for the payment by the Company to the non-controlling interest holders of 40% of the cash savings, if any, in federal, state and local taxes that the Company realizes or is deemed to realize as a result of any increases in tax basis of the assets of New Holdco resulting from future redemptions or exchanges of New Holdco units.
Payments will be made when such TRA related deductions actually reduce the Company’s income tax liability. No payments were made to members of New Holdco pursuant to the TRA during the quarter ended June 26, 2021. Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company has obtained an increase in its share of the tax basis in the net assets of New Holdco when the New Holdco units were redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. The Company has treated the redemptions and exchanges of New Holdco units by the non-controlling interest holders as direct purchases of New Holdco units for U.S. federal income tax purposes. This increase in tax basis will reduce the amounts that it would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
(8) Stockholders’ Equity
Stockholders' Equity Activity
On January 11, 2021, the Company entered into an Underwriting Agreement with B. Riley Securities, Inc., as representative of the several underwriters named therein (the “Underwriters”), to issue and sell an aggregate of 2,976,191 shares (the “Firm Shares”) of the Company’s 7.50% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share (the “Series A Preferred Stock”), in a public offering at a price to the public of $25.20 per share. The Company also granted the Underwriters an option (the “Option”) to purchase up to 446,428 additional shares of Series A Preferred Stock during the 30 days following the date of the Underwriting Agreement. On January 14, 2021, the Underwriters partially exercised the Option for 314,934 shares (together with the Firm Shares, the “Shares”). The offering closed on January 14, 2021, and the net proceeds to the Company were approximately $79.5 million, after deducting underwriting discounts, an advisory fee and offering expenses totaling approximately $3.2 million.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss at June 26, 2021 and December 26, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
June 26, 2021
|
|
December 26, 2020
|
|
Foreign currency adjustment
|
|
$
|
(873)
|
|
|
$
|
(1,254)
|
|
|
Interest rate swap agreements, net of tax
|
|
(100)
|
|
|
(145)
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
(973)
|
|
|
$
|
(1,399)
|
|
Non-controlling interest
The Company is the sole managing member of New Holdco and, as a result, consolidates the financial results of New Holdco. Prior to April 1, 2020, the Company reported a non-controlling interest representing the economic interest in New Holdco held by the former equity holders of Buddy's (the "Buddy’s Members"). Changes in the Company's ownership interest in New Holdco while it retained a controlling interest in New Holdco were accounted for as equity transactions. On March 26, 2020, the Company redeemed 3,937,726 New Holdco units and 787,545 shares of preferred stock for common stock. On April 1, 2020, the Company redeemed the remaining 5,495,606 New Holdco units and 1,099,121 shares of preferred stock for common stock and the Company is the sole owner of New Holdco.
The exchange of New Holdco units for common stock resulted in an increase in the tax basis of the net assets of New Holdco and a liability to be recognized pursuant to the TRA. The difference of $10.0 million in the adjustment of the deferred tax balances and the tax receivable agreement liability was recorded as an adjustment to additional paid-in-capital. Refer to "Note 7. Income Taxes" for further discussion of the TRA.
Net Income (Loss) per Share
Diluted net income (loss) per share is computed using the weighted-average number of common stock and, if dilutive, the potential common stock outstanding during the period. Potential common stock consists of the incremental common stock issuable upon the exercise of stock options and vesting of restricted stock units. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. Additionally, the computation of the diluted net income (loss) per share of common stock assumed the conversion of exchangeable shares, and Preferred Stock, if dilutive.
The following table sets forth the calculations of basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
(In thousands, except for share and per share amounts)
|
|
June 26, 2021
|
|
June 27, 2020
|
|
June 26, 2021
|
|
June 27, 2020
|
|
Net income (loss) from continuing operations attributable to Franchise Group
|
|
$
|
32,521
|
|
|
$
|
(16,361)
|
|
|
$
|
4,186
|
|
|
$
|
(6,278)
|
|
|
Less: Preferred dividend declared
|
|
(2,128)
|
|
|
—
|
|
|
(4,257)
|
|
|
—
|
|
|
Adjusted net income (loss) from continuing operations available to Common Stockholders
|
|
30,393
|
|
|
(16,361)
|
|
|
(71)
|
|
|
(6,278)
|
|
|
Net income from discontinued operations attributable to Franchise Group
|
|
6,215
|
|
|
(5,312)
|
|
|
48,363
|
|
|
44,144
|
|
|
Adjusted net income (loss) available to Common Stockholders
|
|
$
|
36,608
|
|
|
$
|
(21,673)
|
|
|
$
|
48,292
|
|
|
$
|
37,866
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding
|
|
40,175,058
|
|
|
34,972,364
|
|
|
40,142,571
|
|
|
29,173,172
|
|
|
Net dilutive effect of stock options and restricted stock
|
|
730,509
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Weighted-average diluted shares outstanding
|
|
40,905,567
|
|
|
34,972,364
|
|
|
40,142,571
|
|
|
29,173,172
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.76
|
|
|
$
|
(0.47)
|
|
|
$
|
—
|
|
|
$
|
(0.22)
|
|
|
Discontinued operations
|
|
0.15
|
|
|
(0.15)
|
|
|
1.20
|
|
|
1.51
|
|
|
Basic net income per share
|
|
$
|
0.91
|
|
|
$
|
(0.62)
|
|
|
$
|
1.20
|
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.74
|
|
|
$
|
(0.47)
|
|
|
$
|
—
|
|
|
$
|
(0.22)
|
|
|
Discontinued operations
|
|
0.15
|
|
|
(0.15)
|
|
|
1.20
|
|
|
1.51
|
|
|
Diluted net income per share
|
|
$
|
0.89
|
|
|
$
|
(0.62)
|
|
|
$
|
1.20
|
|
|
$
|
1.29
|
|
(9) Stock-Based Compensation Plans
For a discussion of our stock-based compensation plans, refer to “Note 11. - Stock-Based Compensation Plans” of the Form 10-K for the year ended December 26, 2020.
Stock Options
Stock option activity during the six months ended June 26, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
Weighted
average
exercise price
|
|
Outstanding at December 26, 2020
|
|
391,409
|
|
|
$
|
10.19
|
|
|
Exercised
|
|
(36,188)
|
|
|
10.66
|
|
|
Expired or forfeited
|
|
—
|
|
|
—
|
|
|
Outstanding at June 26, 2021
|
|
355,221
|
|
|
$
|
10.15
|
|
Intrinsic value is defined as the fair value of the stock less the cost to exercise. The total intrinsic value of stock options outstanding at June 26, 2021 was $9.1 million. Stock options vest from the date of grant to three years after the date of grant and expire from four to five years after the vesting date.
Nonvested stock options activity during the six months ended June 26, 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
options
|
|
Weighted
average
exercise price
|
|
Outstanding at December 26, 2020
|
|
63,334
|
|
|
$
|
8.83
|
|
|
Vested
|
|
(63,334)
|
|
|
8.83
|
|
|
Expired or forfeited
|
|
—
|
|
|
—
|
|
|
Outstanding at June 26, 2021
|
|
—
|
|
|
$
|
—
|
|
At June 26, 2021, there were no unrecognized compensation costs related to nonvested stock options.
The following table summarizes information about stock options outstanding and exercisable at June 26, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of exercise prices
|
|
Number
|
|
Weighted average exercise price
|
|
Weighted average remaining contractual life (in years)
|
|
Number
|
|
Weighted average exercise price
|
|
|
|
|
|
|
|
$0.00 - $10.89
|
|
204,500
|
|
|
$
|
8.80
|
|
|
3.8
|
|
204,500
|
|
|
$
|
8.80
|
|
|
$10.90 - $12.79
|
|
150,721
|
|
|
11.98
|
|
|
2.5
|
|
150,721
|
|
|
11.98
|
|
|
|
|
355,221
|
|
|
$
|
10.15
|
|
|
|
|
355,221
|
|
|
$
|
10.15
|
|
Restricted Stock Units
The Company has awarded service-based restricted stock units ("RSUs") and performance restricted stock units ("PRSUs") to its non-employee directors, officers and certain employees. The Company recognizes expense based on the estimated fair value of the RSUs or PRSUs granted over the vesting period on a straight-line basis. The fair value of RSUs and PRSUs is determined using the Company's closing stock price on the date of the grant. At June 26, 2021, unrecognized compensation costs related to RSUs and PRSUs were $6.8 million and $28.2 million, respectively. These costs are expected to be recognized through fiscal 2024.
The following table summarizes the status of RSUs as of and changes during the six months ended June 26, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of restricted stock units
|
|
Weighted average fair value at grant date
|
|
Balance at December 26, 2020
|
|
296,147
|
|
|
$
|
20.51
|
|
|
Granted
|
|
120,952
|
|
|
35.72
|
|
|
Vested
|
|
(91,856)
|
|
|
22.34
|
|
|
Canceled
|
|
—
|
|
|
—
|
|
|
Balance at June 26, 2021
|
|
325,243
|
|
|
$
|
25.65
|
|
The following table summarizes the status of PRSUs as of and changes during the six months ended June 26, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of restricted stock units
|
|
Weighted average fair value at grant date
|
|
Balance at December 26, 2020
|
|
618,737
|
|
|
$
|
17.00
|
|
|
Granted
|
|
913,875
|
|
|
21.72
|
|
|
Vested
|
|
—
|
|
|
—
|
|
|
Canceled
|
|
—
|
|
|
—
|
|
|
Balance at June 26, 2021
|
|
1,532,612
|
|
|
$
|
19.81
|
|
Stock Compensation Expense
The Company recorded $5.5 million and $4.3 million during the six months ended June 26, 2021 and June 27, 2020, respectively.
(10) Fair Value of Financial Instruments
As required, financial assets and liabilities are classified in the fair value hierarchy in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). The Company did not record any impairment charges during the six months ended June 26, 2021 and June 27, 2020.
Fair Value of Financial Instruments
The carrying value of Cash and cash equivalents, restricted cash, accounts receivable and accounts payable as reported in the accompanying unaudited condensed consolidated balance sheets approximate fair value due to their short-term maturities. The carrying amount of Long-term debt approximates fair value because the interest rate paid has a variable component.
(11) Related Party Transactions
The Company considers directors and their affiliated companies, as well as named executive officers and members of their immediate families, to be related parties.
Messrs. Kahn and Laurence
Vintage Capital Management, LLC and its affiliates ("Vintage") held approximately 31% of the aggregate voting power of the Company through their ownership of common stock as of June 26, 2021. Brian Kahn and Andrew Laurence are principals of Vintage. Mr. Kahn is a member of the Board of Directors, President and Chief Executive Officer of the Company. Mr. Laurence is an Executive Vice President of the Company, served as a member of the Company's Board of Directors until the Company's annual meeting of stockholders in May 2021 and served as the Company's Chairman of the Board until March 31, 2020.
Buddy's Franchises. Mr. Kahn's brother-in-law owns seven Buddy's franchises. All transactions between the Company's Buddy's segment and Mr. Kahn's brother-in-law are conducted on a basis consistent with other franchisees.
Bryant Riley (former director)
Bryant Riley, through controlled entities or affiliates held approximately 4% of the aggregate ownership of the Company's common stock as of June 26, 2021. Prior to the quarter ended June 26, 2021, Mr. Riley held greater than 5% of the aggregate
ownership of the Company's common stock. Mr. Riley was also a member of the Company's Board of Directors from September 2018 through March 2020.
January 2021 Underwritten Offering of Preferred Stock. On January 11, 2021, the Company reopened its original issuance of its Series A Preferred Stock, which closed on September 18, 2020 as noted above. The Company completed the reopened underwritten offering on January 15, 2021 in which B. Riley Securities, an affiliate of Mr. Riley, acted as representative of the underwriters. In connection with the offering B. Riley Securities and the other underwriters in the offering were entitled to an underwriting discount and reimbursement of certain out-of-pocket expenses incurred of approximately $3.0 million and B. Riley Securities was entitled to a structuring fee of $0.3 million.
Debt Commitment Letter and Fee Letter. On January 23, 2021, in connection with the Pet Supplies Plus Acquisition and the refinancing of the Company's existing indebtedness, the Company entered into a debt commitment letter with, among others, BRF Finance Co., LLC (“BRF”), an affiliate of Mr. Riley, pursuant to which BRF committed to provide (i) $100.0 million of a then-contemplated first lien term loan credit facility and (ii) $300.0 million of a then-contemplated senior unsecured term loan credit facility (the “Senior Unsecured Facility”). On January 23, 2021, the Company entered into a fee letter with BRF pursuant to which (a) BRF committed to provide $100.0 million of an alternative then-contemplated first lien term loan credit facility (the “Alternative First Lien Facility”) and (b) BRF (or its affiliates) received, on March 10, 2021, (i) a $9.0 million arrangement fee as consideration for BRF’s commitments and agreements with respect to the Senior Unsecured Facility and (ii) a $1.0 million take-out fee as consideration for BRF’s commitments and agreements with respect to the Alternative First Lien Facility.
M. Brent Turner
Mr. Turner is the President and Chief Executive Officer of the Company’s Liberty Tax business which was sold to NextPoint on July 2, 2021 in connection with the Transaction. The Company previously entered into certain agreements with Revolution Finance, an entity partially owned by Mr. Turner, which were terminated upon completion of the sale of the Liberty Tax business. During the six months ended June 26, 2021, the Company earned less than $0.2 million in royalties related to such agreements which was recorded in Discontinued Operations.
Tax Receivable Agreement
In connection with the acquisition of Buddy's, the Company entered into the Tax Receivable Agreement with the Buddy's Members that provides for the payment to the Buddy's Members of 40% of the amount of any tax benefits that the Company actually realizes as a result of increases in the tax basis of the net assets of New Holdco resulting from any redemptions or exchanges of New Holdco units. Amounts due under the Tax Receivable Agreement to the Buddy's Members as of June 26, 2021 were $16.8 million which is recorded in "Other non-current liabilities" in the accompanying condensed consolidated balance sheets. No payments were made to Buddy's Members pursuant to the Tax Receivable Agreement during the six months ended June 26, 2021.
(12) Commitments and Contingencies
In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company's business, financial condition, cash flows, or results of operations except as provided below.
Guarantees
The Company remains secondarily liable under various real estate leases that were assigned to franchisees who acquired Pet Supplies Plus stores from the Company. In the event of the failure of an acquirer to pay lease payments, the Company could be obligated to pay the remaining lease payments which extend through 2033 and aggregated $9.4 million as of June 26, 2021. If the Company is required to make payments under these guarantees, the Company could seek to recover those amounts from the franchisees or in some cases their affiliates. The Company believes that payment under these guarantees is remote as of June 26, 2021.
In July 2021, the Company completed the sale of its Liberty Tax business pursuant to the terms of the Purchase Agreement. In connection with the Transaction, as discussed in "Note 3. Divestitures," all obligations and liabilities with respect to legal proceedings associated with the Liberty Tax segment, including, but not limited, to the below referenced
matters, namely: (i) Rene Labrado v. JTH Tax, Inc., (ii) the DOJ and IRS Matter settlement and (iii) Convergent Mobile, Inc. v. JTH Tax, Inc., were assumed by NextPoint in connection with the Transaction.
Class Action Litigation
Rene Labrado v. JTH Tax, Inc. On July 3, 2018, a class action complaint was filed in the Superior Court of California, County of Los Angeles by a former employee for herself and on behalf of all other “similarly situated” persons. The Complaint alleges, among other things, that the Company allegedly violated various provisions of the California Labor Code, including: unpaid overtime, unpaid meal period premiums, unpaid rest premiums, unpaid minimum wages, final wages not timely paid, wages not timely paid, non-compliant wage statements, failure to keep pay records, unreimbursed business expenses and violation of California Business and Profession Code Section 17200. The Complaint seeks actual, consequential and incidental losses and damages, injunctive relief and other damages. On May 24, 2021, the parties agreed to settle this matter in principle for $1.1 million and the matter has been stayed pending the parties’ filing of settlement papers. The settlement is expected to contain broad and customary releases. Despite the parties' desire to settle the matter, there is no assurance that the settlement will be approved by the Court. As of June 26, 2021, the Company had accrued $1.1 million related to this case, which is included in current liabilities held for sale in the accompanying condensed balance sheet.
Department of Justice ("DOJ") and IRS Matters
On December 3, 2019, the DOJ initiated a legal proceeding against the Company, in the U.S. District Court for the Eastern District of Virginia. Also, on December 3, 2019, the DOJ and the Company filed a joint motion asking the court to approve a proposed order setting forth certain enhancements to the Company's Liberty Tax segments compliance program and requiring the Company to retain an independent monitor to oversee the implementation of the required enhancements to the compliance program. The monitor will work with the Company's Liberty Tax segments compliance team and may make recommendations for further refinements to improve the tax compliance program. As part of the proposed order, the Company also agreed that it would not rehire or otherwise engage the Company’s former chairman, John T. Hewitt, under whose supervision the conduct at issue occurred, and agreed not to grant Mr. Hewitt any options or other rights to acquire equity in the Company, or to nominate him to the Company’s Board of Directors. On December 20, 2019 the Court granted the joint motion for the proposed order and the confidentiality motion, which fully resolved the legal proceeding initiated by DOJ.
In addition, the Company entered into a settlement agreement resolving the previously disclosed investigation by the IRS with respect to the tax return preparation activities of the Company’s Liberty Tax segments franchise operations and Company-owned stores. Pursuant to that agreement, the Company agreed to make a compliance payment to the IRS in the amount of $3.0 million, to be paid in installments over four years, starting with an upfront payment of $1.0 million, followed by a $0.5 million payment on each anniversary thereof.
Convergent Mobile
Convergent Mobile, Inc. v. JTH Tax, Inc. On August 26, 2019, Convergent Mobile, Inc. (“Convergent”) filed a complaint in the Superior Court of the State of California, County of Sonoma, against the Company (the "California Complaint"). The California Complaint alleges that the Company breached a contract between it and Convergent, and Convergent has asserted counts for breach of contract, promissory estoppel, and breach of the covenant of good faith and fair dealing. On April 23, 2021 the Court ruled in favor of the plaintiff and awarded a judgment of $0.6 million which is accrued in current liabilities held for sale of discontinued operations in the accompanying condensed consolidated balance sheet.
The Company is also party to claims and lawsuits that are considered to be ordinary, routine litigation incidental to the business, including claims and lawsuits concerning the preparation of customers' income tax returns, the fees charged to customers for various products and services, relationships with franchisees, intellectual property disputes, employment matters, and contract disputes. Although the Company cannot provide assurance that it will ultimately prevail in each instance, it believes the amount, if any, it will be required to pay in the discharge of liabilities or settlements in these claims will not have a material adverse impact on its consolidated results of operations, financial position, or cash flows.
(13) Segments
The Company's operations are conducted in four reportable business segments: Vitamin Shoppe, American Freight, Pet Supplies Plus and Buddy's. The Company defines its segments as those operations which results its chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. The results of operations of American Freight are included in the Company's results of operations beginning on February 14, 2020 and the results of operations of Pet Supplies Plus are included in the Company's results of operations beginning on March 11, 2021. As a result of the Company's
sale of its Liberty Tax business, as discussed in "Note 3. Divestitures," the Company's Liberty Tax business is not reported in segment information since this business is reported as a discontinued operation. Current and prior year amounts have been revised to reflect this change.
The Vitamin Shoppe segment is an omni-channel specialty retailer and wellness lifestyle company with the mission of providing customers with the most trusted products, guidance, and services to help them become their best selves, however they define it. The Vitamin Shoppe segment offers a comprehensive assortment of nutritional solutions, including vitamins, minerals, specialty supplements, herbs, sports nutrition, homeopathic remedies, green living products, and natural beauty aids. The Vitamin Shoppe segment consists of our operations under the "Vitamin Shoppe" brand and is headquartered in Secaucus, New Jersey.
The American Freight segment provides in-store and online access to purchase new, one-of-a-kind, out-of-box, discontinued, obsolete, reconditioned, overstocked, scratched and dented household appliances and unbranded furniture and mattresses at value prices. The American Freight segment consists of our operations under the "American Freight" banner and is headquartered in Delaware, Ohio.
The Pet Supplies Plus segment is a franchisor and retailer in the pet industry. Pet Supplies Plus has a diversified revenue model comprised of corporate store revenue, royalties and wholesale distribution to franchisees. The Pet Supplies Plus segment consists of the Company's operations under the "Pet Supplies Plus" brand and is headquartered in Livonia, Michigan.
The Buddy's segment leases and sells electronics, residential furniture, appliances and household accessories. The Buddy's segment consists of the Company's operations under the "Buddy's" brand and is headquartered in Orlando, Florida.
Total revenues by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
(In thousands)
|
|
June 26, 2021
|
|
June 27, 2020
|
|
June 26, 2021
|
|
June 27, 2020
|
|
Total revenue:
|
|
|
|
|
|
|
|
|
|
Vitamin Shoppe
|
|
$
|
302,555
|
|
|
$
|
237,735
|
|
|
$
|
597,295
|
|
|
$
|
513,622
|
|
|
American Freight
|
|
268,807
|
|
|
234,427
|
|
|
527,323
|
|
|
437,174
|
|
|
Pet Supplies Plus
|
|
275,760
|
|
|
—
|
|
|
327,069
|
|
|
—
|
|
|
Buddy's
|
|
15,636
|
|
|
25,392
|
|
|
32,416
|
|
|
49,705
|
|
|
Consolidated total revenue
|
|
$
|
862,758
|
|
|
$
|
497,554
|
|
|
$
|
1,484,103
|
|
|
$
|
1,000,501
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
(In thousands)
|
|
June 26, 2021
|
|
June 27, 2020
|
|
June 26, 2021
|
|
June 27, 2020
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
Vitamin Shoppe
|
|
$
|
29,763
|
|
|
$
|
(587)
|
|
|
$
|
63,037
|
|
|
$
|
(6,063)
|
|
|
American Freight
|
|
21,956
|
|
|
12,422
|
|
|
47,086
|
|
|
14,009
|
|
|
Pet Supplies Plus
|
|
10,578
|
|
|
—
|
|
|
6,409
|
|
|
—
|
|
|
Buddy's
|
|
3,367
|
|
|
5,338
|
|
|
7,640
|
|
|
8,683
|
|
|
Total Segments
|
|
65,664
|
|
|
17,173
|
|
|
124,172
|
|
|
16,629
|
|
|
Corporate
|
|
(7,508)
|
|
|
(2,396)
|
|
|
(13,041)
|
|
|
(4,697)
|
|
|
Consolidated income (loss) from operations
|
|
$
|
58,156
|
|
|
$
|
14,777
|
|
|
$
|
111,131
|
|
|
$
|
11,932
|
|
Total assets by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
June 26, 2021
|
|
December 26, 2020
|
|
Total assets:
|
|
|
|
|
|
Vitamin Shoppe
|
|
$
|
591,724
|
|
|
$
|
607,148
|
|
|
American Freight
|
|
882,107
|
|
|
801,731
|
|
|
Pet Supplies Plus
|
|
941,335
|
|
|
—
|
|
|
Buddy's
|
|
144,430
|
|
|
137,698
|
|
|
Total Segments
|
|
2,559,596
|
|
|
1,546,577
|
|
|
Corporate
|
|
214,184
|
|
|
203,196
|
|
|
Consolidated total assets
|
|
$
|
2,773,780
|
|
|
$
|
1,749,773
|
|
(14) Subsequent Events
On July 2, 2021, the Company repaid $182 million of principal outstanding under the First Lien Term Loan with the cash proceeds from the sale of its Liberty Tax business.
On August 3, 2021, the Company's Board of Directors declared quarterly dividends of $0.375 per share of common stock and $0.46875 per share of Series A Preferred Stock. The dividends will be paid in cash on or about October 15, 2021 to holders of record of the Company's common stock and Series A Preferred Stock on the close of business on October 1, 2021.
ITEM 2