Notes to Consolidated Financial Statements
(1) Organization and Significant Accounting Policies
Description of Business. Franchise Group, Inc. (the "Company") is an owner and operator of franchised and franchisable businesses that continually looks to grow its portfolio of brands while utilizing its operating and capital allocation philosophies to generate strong cash flows. The Company has a diversified and growing portfolio of highly recognized brands.
Change in Fiscal Year-End. On October 1, 2019, the Board of Directors of the Company approved a change in the Company's fiscal year-end from April 30 to the Saturday closest to December 31 of each year. The decision to change the fiscal year-end was related to the Company's recent acquisitions to more closely align the Company’s operations and internal controls with that of its subsidiaries. As a result of the change in fiscal year-end the Company previously filed a Transition Report on Form 10-K/T reporting the Company's financial results for the period beginning May 1, 2019 through December 28, 2019.
Acquisitions. For a complete description of the Company's acquisitions, see "Note 2 - Acquisitions". On March 10, 2021, the Company completed its acquisition of Pet Supplies Plus for an aggregate purchase price of $451.1 million. On September 27, 2021, the Company completed its acquisition of Sylvan Learning ("Sylvan") for an aggregate purchase price of $$82.9 million. On November 22, 2021, the Company completed its acquisition of Badcock Home Furniture & More ("Badcock") for an aggregate purchase price of $545.8 million.
The assets acquired and the liabilities assumed in the acquisitions above are recorded at fair value in accordance with Accounting Standards Codification ("ASC") 805, "Business Combinations." Acquisition-related costs are expensed as incurred. The purchase price is allocated to the various tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values, some of which are preliminary as of December 25, 2021. In the case where there is an excess of aggregate net fair value of assets acquired and liabilities assumed over the fair value of consideration transferred, the purchase price will be recorded as a bargain purchase gain. Determining the fair value of certain assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, which are inherently uncertain. Many of the estimates and assumptions used to determine fair values, such as those used for intangible assets are made based on forecasted information and discount rates. In addition, the judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company's results of operations.
During the measurement period, which is not to exceed one year from the acquisitions, the Company may record adjustments to the acquired assets and liabilities assumed or the preliminary purchase price, with a corresponding offset to goodwill or bargain purchase gain, to reflect new information obtained about facts and circumstances that existed as of the acquisition dates. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Divestitures. On July 2, 2021, the Company completed the sale of its Liberty Tax business to NextPoint, as described in "Note 3 - Discontinued Operations".
Segment Information. The Company currently operates in six reportable segments: Vitamin Shoppe, Pet Supplies Plus, Badcock, American Freight, Buddy’s, and Sylvan.
The Vitamin Shoppe segment is an omnichannel specialty retailer of vitamins, minerals, herbs, specialty supplements, sports nutrition, and other health and wellness products. The Vitamin Shoppe segment markets approximately 700 nationally recognized brands as well as its own brands, which include The Vitamin Shoppe®, BodyTech®, True Athlete®, plnt®, ProBioCare®, Fitfactor Weight Management System® and Vthrive The Vitamin Shoppe®, and is headquartered in Secaucus, New Jersey.
The Pet Supplies Plus segment is a leading omnichannel retail chain and franchisor and retailer of pet supplies and services. Pet Supplies Plus has a diversified revenue model comprised of Company-owned store revenue, franchise royalties and revenue generated from 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 Badcock segment is a specialty retailer of furniture, appliances, bedding, electronics, home office equipment, accessories and seasonal items in a showroom format. Additionally, Badcock offers multiple and flexible payment solutions and credit options through its consumer financing services. We expect Badcock to shift its consumer financing business to third-
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Notes to Consolidated Financial Statements
party vendors in the future. The Badcock segment operates under the brand "Badcock Home Furniture & More" and is headquartered in Mulberry, Florida.
The American Freight segment is a retail chain offering in-store and online access to furniture, mattresses, new and out-of-box home appliances and home accessories and seasonal items in a showroom format. The American Freight segment consists of our operations under the "American Freight" banner and is headquartered in Delaware, Ohio.
The Buddy's segment is a specialty retailer of high quality, name brand consumer electronics, residential furniture, appliances and household accessories through rent-to-own agreements. The Buddy's segment consists of the Company's operations under the "Buddy's" brand and is headquartered in Orlando, Florida.
The Sylvan segment is an established and growing franchisor of supplemental education for Pre-K-12 students and families in the United States and Canada. The Sylvan segment consists of the Company's operations under the "Sylvan" brand and is headquartered in Hunt Valley, Maryland.
Principles of Consolidation. The audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). The Company consolidates any entities in which it has a controlling interest, the usual condition of which is ownership of a majority voting interest. Prior to April 1, 2020, the Company reported a non-controlling interest representing the economic interest in New Holdco held by the Buddy’s Members. As of April 1, 2020, the Company redeemed all outstanding New Holdco units for shares of common stock of the Company and now has a 100% interest in New Holdco. Refer to "Note 10 - Stockholders Equity" for more information on the non-controlling interest.
The Company does not possess any ownership interests in franchisee entities; however, the Company may provide financial support to franchisee entities. Because the Company's franchise arrangements provide franchisee entities the power to direct the activities that most significantly impact their economic performance, the Company does not consider itself the primary beneficiary of any such entity that meets the definition of a variable interest entity ("VIE"). The primary beneficiary is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it. Based on the results of management's analysis of potential VIEs, the Company has not consolidated any franchisee entities. The Company's maximum exposure to loss resulting from involvement with potential VIEs is attributable to accounts and notes receivables and future lease payments due from franchisees. When the Company does not have a controlling interest in an entity but has the ability to exert significant influence over the entity, the Company applies the equity method of accounting. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation. Revenues have been classified into product, service and other and rental revenues as further discussed in "Note 7 - Revenue." Costs of sales for product includes the cost of merchandise, transportation and warehousing costs. Service and other costs of sales include the direct costs of warranties. Rental cost of sales represents the amortization of inventory costs over the leased term. Other operating expenses, including employee costs, depreciation and amortization, and advertising expenses have been classified in selling, general and administrative expenses. The Company also includes occupancy costs in selling, general and administrative expenses.
Cash and Cash Equivalents. The Company considers all highly liquid instruments with maturities of three months or less at the time of purchase, as well as credit card receivables for sales to customers in its Company-operated stores that generally settle within two to five business days, to be cash equivalents. The Company maintains cash and cash equivalent balances with financial institutions that exceed federally-insured limits. The Company has not experienced any losses related to these balances, and the Company believes credit risk to be minimal.
Inventories. Inventory for the Vitamin Shoppe segment is recorded at the lower of cost or market value using the weighted-average cost method. Inventory includes costs directly incurred in bringing the product to its existing condition and location. In addition, the cost of inventory is reduced by purchase discounts and other allowances received from vendors. A markdown reserve is estimated based on a variety of factors, including, but not limited to, the amount of inventory on hand and its remaining shelf life, current and expected market conditions and product expiration dates. In addition, the Company has established a reserve for estimated inventory shrinkage based on the actual, historical shrinkage of its most recent physical
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inventories adjusted, if necessary, for current economic conditions and business trends. Physical inventories and cycle counts are taken on a regular basis. These adjustments are estimates, which could vary significantly from actual results if future economic conditions, customer demand or competition differ from management expectations.
Inventory for the Pet Supplies Plus segment is recorded at the lower of cost, determined on the average cost method or net realizable value for store inventories. Pet Supplies Plus includes freight and labor costs on products purchased from its distribution center in cost of products sold. Wholesale inventories are valued at the lower of cost (including freight), determined on the average cost method or net realizable value. Volume-based vendor allowances, rebates, and credits that relate to the Company's store merchandising activities are applied to product cost and recognized in cost of goods sold as the related product is sold.
Inventory for the Badcock segment is comprised of finished goods and is valued at the lower of cost or market value, with cost determined by the first-in, first-out method. Inventory includes the purchase price of the inventory plus costs of freight for moving merchandise from vendors to distribution centers as well as from distribution centers to stores. An obsolescence reserve is estimated based on the amount of inventory on hand, its age, and its condition. Estimates are compared to the actual results of the physical inventory counts as they are taken and adjust the shrink estimates accordingly.
Inventory for American Freight is comprised of finished goods and is valued at the lower of cost or market, with cost determined by the first-in, first-out method. The Company writes down inventory, the impact of which is reflected in cost of sales in the consolidated statements of operations, if the cost of specific inventory items on hand exceeds the amount the Company expects to be realized from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding future demand and market conditions and analysis of historical experience. Inventory includes the purchase price of the inventory plus costs of freight for moving merchandise from vendors to distribution centers as well as from distribution centers to stores. A provision for estimated shrinkage is maintained based on the actual historical results of physical inventories. Estimates are compared to the actual results of the physical inventory counts as they are taken and adjust the shrink estimates accordingly.
Inventory for the Buddy's segment is recorded at cost, including shipping and handling fees. Upon purchase, merchandise is not initially depreciated until it is leased or three months after the purchase date. Non-leased merchandise is depreciated on a straight-line basis over a period of 24 months. Leased merchandise is depreciated over the lease term of the rental agreement and recorded in rental cost of revenue. On a weekly basis, all damaged, lost, stolen, or unsalable merchandise identified is written off. Maintenance and repairs of lease merchandise are charged to operations as incurred.
Receivables and Allowance for Doubtful Accounts. 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. The adequacy of the allowance for doubtful accounts is assessed on a quarterly basis and adjusted as deemed necessary. Management believes the recorded allowance is adequate based upon its consideration of the estimated value of the franchises, which collateralize the receivables. Any adverse change in the individual franchisees' areas could affect the Company's estimate of the allowance.
Goodwill and Non-amortizing Intangible Assets. Goodwill and non-amortizing intangible assets (Tradenames), including the segments' tradenames, are not amortized, but rather tested for impairment at least annually. In addition, goodwill and non-amortizing intangible assets will be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. The Company performs a qualitative and/or quantitative assessment to determine whether it is more likely than not that each reporting unit's fair value is less than its carrying value, including goodwill. If the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, the Company then estimates the fair value. The Company uses either a market multiple method or a discounted cash flow method to estimate the fair value of its reporting units and recognizes goodwill impairment for any excess of the carrying amount of a reporting unit’s goodwill over its estimated fair value. The Company evaluates the segments' tradenames for impairment by comparing the fair value, based on an income approach using the relief-from-royalty method, to the carrying value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess. The Company's reporting units are determined in accordance with the provisions of ASC 350, “Intangibles - Goodwill and Other.” The Company performs its annual impairment testing of goodwill and non-amortizing intangible assets on the last day of the first month of the Company's third quarter. Refer to “Note 6 - Goodwill and Intangible Assets” for additional information on these balances.
Intangible Assets and Asset Impairment. Components of intangible assets consist of customer contracts, franchise and dealer agreements, and proprietary content. Amortization of intangible assets is calculated using the straight-line method over the estimated useful lives of the assets. Amortization of intangible assets is generally two to ten years. Purchased intangible
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Notes to Consolidated Financial Statements
assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. Recognition and measurement of a potential impairment is performed for these assets at the lowest level where cash flows are individually identifiable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.
Property, Plant, and Equipment. Property, plant, and equipment are stated at cost less accumulated depreciation and amortization. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, generally seven years for land and land improvements, twenty to thirty years for buildings, and seven, fifteen, or thirty-nine years for building improvements. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the assets. Furniture, fixtures, and equipment are amortized five to ten years, which includes machinery (amortized for seven years) and computer equipment (amortized three to five years). Certain allowable costs of software acquired, developed, or obtained for internal use are capitalized and typically amortized over the estimated useful life of the software. Software also includes educational materials, which is amortized two to five years.
Insurance Programs. The Company maintains its own insurance arrangements with third-party insurance companies for exposures incurred for a number of risks including worker's compensation and general liability claims. The liability represents an estimate of the discounted cost of claims incurred and is recorded in other current and long-term liabilities. The Company may use restricted cash as collateral for these programs which is recorded in "Other non-current assets".
Employee Compensation and Benefits. The Company records the cost of its employee compensation and benefits as compensation expense in SG&A within its consolidated statements of operations. For the year ended December 25, 2021, total employee compensation and expense was $494.9 million. Accrued compensation and benefits is recorded within accounts payable and accrued expenses within the consolidated balance sheet and totaled $63.4 million as of December 25, 2021.
Stock-Based Compensation. The Company records the cost of its employee stock-based compensation as compensation expense in its consolidated statements of operations. Compensation costs related to stock options are based on the grant-date fair value of awards using the Black-Scholes-Merton option pricing model and considering forfeitures. Compensation costs related to restricted stock units are based on the grant-date fair value and are amortized on a straight-line basis over the vesting period. The Company recognizes compensation costs for an award that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Compensation costs related to market-based restricted stock units are based on the grant-date fair value of the awards using a Monte Carlo simulation valuation model to calculate grant date fair value. Compensation expense is recognized over the requisite service period using the proportionate amount of the award’s fair value that has been earned through service to date.
Revenue Recognition. The following is a description of the principal activities from which the Company generates its revenues. For more detailed information regarding reportable segments, see "Note 7 - Revenue."
•Product revenues: These include sales of merchandise at the stores and online. Revenue is measured based on the amount of fixed consideration that the Company expects to receive, reduced by estimates for variable consideration such as returns. Revenue also excludes any amounts collected from customers and remitted or payable to governmental authorities. In arrangements where the Company has multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. The Company satisfies its performance obligations at the point of sale for retail store transactions and upon delivery for online transactions. The Company recognizes revenue for retail store and online transactions when it transfers control of the goods to the customer. Merchandise sales also include payments received for the exercise of the early purchase option offered through rental-purchase agreements or merchandise sold through point of sale transactions. Revenue for merchandise sales associated with rental purchase agreements is recognized when payment is received, and ownership of the merchandise passes to the customer.
•Service and other revenues: These may include the following:
◦Franchise fees;
◦Royalties and advertising fees;
◦Financing revenue;
◦Warranty and damage revenue;
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Notes to Consolidated Financial Statements
◦Interest income;
◦Services and extended-service plans; and
◦Other miscellaneous income.
Commissions earned on services and financing revenue are presented net of related costs because the Company is acting as an agent in arranging the services for the customer and does not control the services being rendered. The Company recognizes revenue on the commissions on extended-service plans when it transfers control of the related goods to the customer. The Company recognizes franchise fee revenue for the sales of individual territories on a straight-line basis over the initial contract term and renewal periods when the obligations of the Company to prepare the franchisee for operation are substantially complete, not to exceed the estimated amount of cash to be received. Royalties and advertising fees are recognized as franchisees generate sales.
•Rental revenue: The Company provides merchandise, consisting of consumer electronics, computers, residential furniture, appliances, and household accessories to its customers pursuant to rental-purchase agreements which provide for weekly, semi-monthly or monthly non-refundable rental payments. The average rental term is twelve to eighteen months and the Company maintains ownership of the lease merchandise until all payment obligations are satisfied under sales and lease ownership agreements. Customers have the option to purchase the leased goods at any point in the lease term. Customers can terminate the agreement at the end of any rental term without penalty. Therefore, rental transactions are accounted for as operating leases and rental revenue is recognized over the rental term. Cash received prior to the beginning of the lease term is recorded as deferred revenue. Revenue related to various reinstatement or late fees are recognized when paid by the customer. The Company offers additional product plans along with rental agreements that provide customers with liability protection against significant damage or loss of a product, and club membership benefits, including various discount programs, product services and replacement benefits in the event merchandise is damaged or lost. Customers renew product plans in conjunction with their rental term renewals and can cancel the plans at any time. Revenue for product plans is recognized over the term of the plan.
Leases. The Company's lease portfolio primarily consists of leases for its retail store locations, office space and distribution centers, as well as in the operation of certain of our dealer-owned stores. The Company also leases tractors and trucks used in its Badcock segment, local delivery trucks used in its American Freight segment, and leases certain office equipment under finance leases. The finance lease right of use assets are included in property, plant, and equipment ("PP&E") and the finance lease liabilities are included in current installments of long-term obligations. The Company determines if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. Operating leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets, and the Company recognizes rent expense for these leases on a straight-line basis over the lease term. For leases with an initial term in excess of 12 months, lease right-of-use assets and lease liabilities are recognized based on the present value of the future lease payments over the committed lease term at the lease commencement date. The Company’s leases do not provide an implicit rate; therefore, the Company uses its incremental borrowing rate and the information available at the lease commencement date in determining the present value of future lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Most leases include one or more options to renew and the exercise of renewal options is at the Company’s sole discretion. The Company does not include renewal options in its determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement. For leases where the Company is a lessor, rent income and related operating lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company uses the long-lived assets impairment guidance in ASC 360-10, “Property, Plant, and Equipment - Overall,” to determine whether a right-of-use asset is impaired, and if so, the amount of the impairment loss to recognize.
The Company subleases some of its real estate leases. Our lessor and sublease portfolio primarily consists of stores within our Badcock segment that have been leased to dealers. For these leases, which are all classified as operating leases, we account for the lease and non-lease components as one lease component, as discussed above. For operating leases, lease costs are recorded within selling, general, and administrative expenses ("SG&A") within the consolidated statements of operations as follows: (1) rental expense related to leases for Company-owned stores (2) rental expense for leased properties that are subsequently subleased to dealers, and (3) rental income from sublease agreements with dealers. For finance leases where the Company is the lessee, lease cost includes the amortization of the right-of-use ("ROU") asset, which is amortized on a straight-line basis and recorded to "SG&A" and interest expense on the finance lease liabilities is recorded to "Interest expense, net." Finance lease ROU assets are amortized over the shorter of their estimated useful lives or the terms of the respective leases.
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Notes to Consolidated Financial Statements
The Company has lease agreements with lease and non-lease components, which the Company elects to combine as one lease component for all classes of underlying assets. Non-lease components include variable costs based on actual costs incurred by the lessor related to the payment of real estate taxes, common area maintenance, and insurance. These variable payments are expensed as incurred as variable lease costs.
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. The carrying value of Cash and cash equivalents, restricted cash, accounts receivable and accounts payable as reported in the accompanying unaudited 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. The fair value for the Company's Investment in equity securities for which it does not have the ability to exercise significant influence is based on quoted prices in active markets.
Deferred Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities, which are recorded within "Other non-current assets" and "Other non-current liabilities" within the consolidated balance sheets, are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company has elected to classify interest charged on a tax settlement in interest expense, and accrued penalties, if any, in selling, general, and administrative expenses.
The determination of the Company's provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items. The Company records unrecognized tax benefit liabilities for known or anticipated tax issues based on an analysis of whether, and the extent to which, additional taxes will be due.
Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation. The Company reclassified "Intangible assets, net" to segregate "Tradenames" in the consolidated balance sheet statement due to significance. There was no impact on total assets.
Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 2023 fiscal year. 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 2023 fiscal year. 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 June 30, 2023. 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
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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 expects to adopt the guidance and begin transitioning from LIBOR to alternative reference rates in the first quarter of fiscal 2023. The Company does not expect adoption and transition to alternative reference rates to have a material impact on its consolidated financial statements.
Effective as of May 1, 2019, the Company has adopted ASU No. 2016-02, "Leases (Topic 842)". The guidance in ASU 2016-02 (as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20) requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The Company has adopted utilizing the transition election to not restate comparative periods for the impact of adopting the standard and recognizing the cumulative impact of adoption in the opening balance of retained earnings.
(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 of Pet Supplies Plus, on September 27, 2021, the Company completed its acquisition of Sylvan Learning ("Sylvan"), and on November 22, 2021, the Company completed its acquisition of Badcock. For a complete description of the Company's accounting policy regarding acquisitions, see "Note 1 – Organization and Significant Accounting Policies".
Badcock Acquisition
On November 22, 2021, the Company completed its acquisition (the "Badcock Acquisition") of Badcock Home Furniture and More. The preliminary fair value of the consideration transferred at the acquisition date was $545.8 million. As of December 25, 2021, $5.9 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.
The table below summarizes the 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 or bargain purchase gain presented below. As of February 23, 2022, the fair value of certain working capital accounts, leases and PP&E are preliminary estimates and are subject to revisions. 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.
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Notes to Consolidated Financial Statements
| | | | | | | | |
(In thousands) | | Preliminary November 22, 2021 |
Cash and cash equivalents | | $ | 23,413 | |
Inventories | | 130,045 | |
Accounts receivable | | 411,268 | |
Other current assets | | 5,023 | |
Property, plant, and equipment | | 233,938 | |
Operating lease right-of-use assets | | 51,669 | |
Other non-current assets | | 2,506 | |
Total assets | | 857,862 | |
Current operating lease liabilities | | 12,070 | |
Accounts payable and accrued expenses | | 71,436 | |
Other current liabilities | | 18,942 | |
Current installments of long-term obligations | | 5,261 | |
Long-term obligations, excluding current installments | | 7,247 | |
Non-current operating lease liabilities | | 39,599 | |
Other long-term liabilities | | 25,424 | |
Total liabilities | | 179,979 | |
| | |
Bargain purchase gain | | (132,043) | |
| | |
Consideration transferred | | $ | 545,840 | |
Operating lease right-of-use assets 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.
As a result of the Badcock Acquisition, the excess of the aggregate net fair value of assets acquired and liabilities assumed over the fair value of consideration transferred as the purchase price has been recorded as a bargain purchase gain of $132.0 million. The gain is recorded in "Bargain purchase gain" in the consolidated statements of operations. 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 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 its acquisition of Sylvan (the "Sylvan Acquisition"). The preliminary fair value of the consideration transferred at the acquisition date was $82.9 million. As of December 25, 2021, $1.8 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.
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 below. 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.
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Notes to Consolidated Financial Statements
| | | | | | | | |
(In thousands) | | Preliminary September 27, 2021 |
Cash and cash equivalents | | $ | 4,364 | |
Other current assets | | 3,592 | |
Property, plant, and equipment | | 26,324 | |
Goodwill | | 19,456 | |
Tradenames | | 24,987 | |
Operating lease right-of-use assets | | 2,874 | |
Other intangible assets | | 19,412 | |
Other non-current assets | | 185 | |
Total assets | | 101,194 | |
Current operating lease liabilities | | 891 | |
Accounts payable and accrued expenses | | 6,072 | |
Non-current operating lease liabilities | | 1,984 | |
Other long-term liabilities | | 9,320 | |
Total liabilities | | 18,267 | |
Consideration transferred | | $ | 82,927 | |
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.
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 December 25, 2021, $5.5 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.
The table below summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Pet Supplies Plus Acquisition on 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. Subsequent to the acquisition, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted, which resulted in an increase in goodwill of $0.2 million. The increase was primarily due to $0.3 million of accrued taxes and $1.3 million of net working capital true-up netted with an increase of tenant improvement allowances of $1.7 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 Pet Supplies Plus Acquisition.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | | | | | | |
(In thousands) | | Preliminary March 10, 2021 |
Cash and cash equivalents | | $ | 2,131 | |
Other current assets | | 39,844 | |
Inventories | | 118,600 | |
Property, plant, and equipment | | 75,616 | |
Goodwill | | 335,876 | |
Operating lease right-of-use assets | | 151,243 | |
Tradenames | | 104,400 | |
Other intangible assets | | 101,400 | |
Other non-current assets | | 6,393 | |
Total assets | | 935,503 | |
Current operating lease liabilities | | 25,405 | |
Accounts payable and accrued expenses | | 82,237 | |
Other current liabilities | | 1,725 | |
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 | | 484,385 | |
Consideration transferred | | $ | 451,118 | |
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, plant, and equipment 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 (the "FFO Home Acquisition") of FFO Home, a regional retailer of furniture and mattresses, for an all cash purchase price of $13.8 million. In the twelve months ended December 25, 2021, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted, which resulted in a decrease in goodwill of $0.3 million and a corresponding $0.3 million increase of property, plant, and equipment. The Company acquired 31 operating locations which were rebranded as American Freight stores and included in its American Freight segment. As of December 25, 2021, $0.4 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | | | | | | |
(In thousands) | | Preliminary December 27, 2020 |
Cash and cash equivalents | | $ | 6 | |
Other current assets | | 96 | |
Inventories | | 6,450 | |
Property, plant, and equipment | | 3,280 | |
Goodwill | | 2,947 | |
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 consist of leases for retail store locations. Operating 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, plant, and equipment consists of leasehold improvements of $2.5 million and fixtures and equipment of $0.8 million.
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 Badcock Acquisition, the Sylvan Acquisition, the Pet Supplies Plus Acquisition, the FFO Home Acquisition, the American Freight Acquisition, the Vitamin Shoppe Acquisition, the Sears Outlet Acquisition, the Buddy's Acquisition, the A-Team Leasing Acquisition and the Buddy's Partners Acquisition as if they had occurred on May 1, 2018.
| | | | | | | | | | | | | | |
| | (Unaudited) |
(In thousands) | | Fiscal Year Ended 12/25/2021 | | Fiscal Year Ended 12/26/2020 |
Revenue | | $ | 4,282,329 | | | $ | 3,849,583 | |
Net income (loss) from continuing operations | | 184,574 | | | 92,954 | |
Basic net income per share - continuing operations | | 4.59 | | | 2.69 | |
Diluted net income per share - continuing operations | | 4.51 | | | 2.66 | |
These unaudited pro forma results include adjustments such as inventory step-up, amortization of acquired intangible assets, depreciation of acquired property, plant, and equipment and interest expense on debt financing in connection with the Acquisitions. Material, nonrecurring pro forma adjustments directly attributable to the Acquisitions include the following. Acquired inventory step-up to its fair value of $7.1 million was removed from net income for the year ended December 25, 2021 and recognized as an incremental product cost in the year ended December 26, 2020, and acquisition related costs of $11.3 million were removed from net income for the year ended December 25, 2021 and recognized as an expense in the year ended December 26, 2020.
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 Acquisitions had been completed on the dates 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 these 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 these Acquisitions, including, but not limited to, additional professional fees and employee integration.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Discontinued Operations
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 $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 Consolidated Balance Sheet. The transaction resulted in a gain on the sale of $188.1 million recorded in "Income (loss) from discontinued operations, net of tax" on the Consolidated Statement of Operations. The total unrealized loss on the investment in NextPoint was $31.8 million, recorded in "Other" on the consolidated statement of operations. During the three months ended December 25, 2021, a correction to the calculation of the share-based component of the purchase price resulted in an additional $14.3 million recognized on the gain on the sale of the Liberty Tax business. As part of the divestiture, the Company incurred transaction costs of approximately $7.1 million which were paid using shares of NextPoint. As a result of the 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 all periods presented.
The following is a summary of the major categories of assets and liabilities for the Liberty Tax business. The balances for
all periods prior to the sale are included in assets and liabilities held for sale in the Consolidated Balance Sheet.
| | | | | | | | | | | | | | |
(In thousands) | | December 25, 2021 | | December 26, 2020 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | — | | | $ | 2,722 | |
Current receivables, net | | — | | | 33,525 | |
Other current assets | | — | | | 6,776 | |
Total current assets held for sale | | — | | | 43,023 | |
Property, plant, and equipment, net | | — | | | 7,634 | |
Non-current receivables, net | | — | | | 3,889 | |
Goodwill | | — | | | 8,719 | |
Intangible assets, net | | — | | | 24,804 | |
Operating lease right-of-use assets | | — | | | 8,771 | |
Other non-current assets | | — | | | 1,299 | |
Total assets held for sale | | $ | — | | | $ | 98,139 | |
Liabilities | | | | |
Current liabilities: | | | | |
Current installments of long-term obligations | | $ | — | | | $ | 1,335 | |
Current operating lease liabilities | | — | | | 4,658 | |
Accounts payable and accrued expenses | | — | | | 20,200 | |
Other current liabilities | | — | | | 14,383 | |
Total current liabilities held for sale | | — | | | 40,576 | |
Long-term obligations, excluding current installments | | — | | | 1,711 | |
Non-current operating lease liabilities | | — | | | 4,738 | |
Other non-current liabilities | | — | | | 2,330 | |
Total liabilities held for sale | | $ | — | | | $ | 49,355 | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following is a 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 Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended | | Twelve Months Ended | | Transition Period 5/1/2019- | | Period from 5/1/2018- | | Twelve Months Ended |
(In thousands) | | 12/25/2021 | | 12/26/2020 | | 12/28/2019 | | 12/29/2018 | | 4/30/2019 |
Revenue | | $ | 107,486 | | | $ | 122,777 | | | $ | 14,984 | | | $ | 16,647 | | | $ | 132,546 | |
Selling, general, and administrative expenses | | 66,042 | | | 99,166 | | | 77,562 | | | 77,612 | | | 133,405 | |
Income from operations | | 41,444 | | | 23,611 | | | (62,578) | | | (60,965) | | | (859) | |
Other expense: | | | | | | | | | | |
Other | | 188,256 | | | 107 | | | 37 | | | (12) | | | (113) | |
Interest expense, net | | (3) | | | (4,977) | | | (2,351) | | | (1,802) | | | (3,023) | |
Income before income taxes | | 229,697 | | | 18,741 | | | (64,892) | | | (62,779) | | | (3,995) | |
Income tax expense | | 57,875 | | | 2,531 | | | (1,868) | | | (19,726) | | | (1,839) | |
Net Income | | 171,822 | | | 16,210 | | | (63,024) | | | (43,053) | | | (2,156) | |
Less: Net (income) attributable to non-controlling interest | | — | | | (11,791) | | | 17,211 | | | — | | | — | |
Net income attributable to discontinued operations | | $ | 171,822 | | | $ | 4,419 | | | $ | (45,813) | | | $ | (43,053) | | | $ | (2,156) | |
The Company applied the "Intraperiod Tax Allocation" rules under ASC 740 "Income Taxes", which requires the allocation of an entity's total income tax provision among continuing operations and, in the Company's case, discontinued operations.
The following is the operating and investing activities for the Liberty Tax business. These amounts are included in the Company's Consolidated Statements of Cash Flows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended | | Twelve Months Ended | | Transition Period 5/1/2019- | | Period from 5/1/2018- | | Twelve Months Ended |
(In thousands) | | 12/25/2021 | | 12/26/2020 | | 12/28/2019 | | 12/29/2018 | | 4/30/2019 |
Cash flows provided by operating activities from discontinued operations | | $ | 39,334 | | | $ | 52,185 | | | $ | (21,477) | | | $ | (51,774) | | | $ | 17,129 | |
Cash flows provided by investing activities from discontinued operations | | 173,633 | | | 6,259 | | | (26,004) | | | (28,215) | | | (2,666) | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Notes and Accounts Receivable
Current and non-current receivables, as of December 25, 2021 and December 26, 2020 are presented in the consolidated balance sheets as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Accounts receivable | | $ | 86,087 | | | $ | 38,444 | |
Notes receivable | | 1,681 | | | 15,440 | |
Interest receivable | | 54 | | | 84 | |
Income tax receivable | | 32,448 | | | 13,650 | |
Allowance for doubtful accounts | | (1,572) | | | (283) | |
Current receivables, net | | 118,698 | | | 67,335 | |
Notes receivable - non-current | | 12,183 | | | 12,800 | |
Allowance for doubtful accounts - non-current | | (428) | | | — | |
Non-current receivables, net | | 11,755 | | | 12,800 | |
Total receivables | | $ | 130,453 | | | $ | 80,135 | |
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.
Allowance for Doubtful Accounts
The adequacy of the allowance for doubtful accounts is assessed on a quarterly basis and adjusted as deemed necessary. Management believes the recorded allowance is adequate based upon its consideration of the estimated value of the franchises, which collateralize the receivables. Any adverse change in the individual franchisees' areas could affect the Company's estimate of the allowance.
Activity in the allowance for doubtful accounts for the years ended December 25, 2021 and December 26, 2020 was as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Balance at beginning of year | | $ | 283 | | | $ | — | |
Provision for doubtful accounts | | 1,720 | | | 283 | |
Payments received against previous write-offs | | (2) | | | — | |
Write-offs and reduction from repurchases of franchises | | (1) | | | — | |
Balance at end of year | | $ | 2,000 | | | $ | 283 | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Analysis of Past Due Receivables
The breakdown of accounts and notes receivable past due at December 25, 2021 and December 26, 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 12/25/2021 |
(In thousands) | | Past due | | Current | | Interest receivable | | Total receivables |
Accounts receivable | | $ | 7,966 | | | $ | 78,121 | | | $ | — | | | $ | 86,087 | |
Notes and interest receivable | | 452 | | | 13,412 | | | 54 | | | 13,918 | |
Total accounts, notes, and interest receivable | | $ | 8,418 | | | $ | 91,533 | | | $ | 54 | | | $ | 100,005 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 12/26/2020 |
(In thousands) | | Past due | | Current | | Interest receivable | | Total receivables |
Accounts receivable | | $ | 505 | | | $ | 37,939 | | | $ | — | | | $ | 38,444 | |
Notes and interest receivable | | — | | | 28,240 | | | 84 | | | 28,324 | |
Total accounts, notes, and interest receivable | | $ | 505 | | | $ | 66,179 | | | $ | 84 | | | $ | 66,768 | |
Secured Borrowing Accounting
On December 20, 2021, Badcock entered into a Master Receivables Purchase Agreement (“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. 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 are accounted for as secured borrowings on our Consolidated Balance Sheets with both assets and non-recourse liabilities because the sales do not qualify as a sale under ASC 860 - "Transfers and Servicing," although 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 recorded in "Interest expense, net" on the consolidated statements of operations.
Current securitized receivables, net includes $476.1 million of securitized receivables and an amortized discount of $106.5 million. Non-current securitized receivables, net includes $60.9 million of securitized receivables and an amortized discount of $13.6 million.
(5) Property, Plant, and Equipment, Net
Property, plant, and equipment at December 25, 2021, and December 26, 2020 was as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Land and land improvements | | $ | 36,306 | | | $ | — | |
Buildings and building improvements | | 176,188 | | | — | |
Leasehold improvements | | 115,539 | | | 67,114 | |
Furniture, fixtures, and equipment | | 117,973 | | | 66,885 | |
Software | | 97,427 | | | 44,250 | |
Construction in progress | | 4,388 | | | 3,578 | |
Finance lease asset | | 6,148 | | | 1,913 | |
Property, plant, and equipment, gross | | 553,969 | | | 183,740 | |
Less accumulated depreciation and amortization | | 104,083 | | | 47,868 | |
Property, plant, and equipment, net | | $ | 449,886 | | | $ | 135,872 | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total depreciation and amortization expense on property, plant, and equipment was $56.0 million, $47.6 million, $2.1 million and $0.0 million for the years ended December 25, 2021, December 26, 2020, the Transition Period, and the year ended April 30, 2019, respectively.
(6) Goodwill and Intangible Assets
Changes in the carrying amount of goodwill for the years ended December 25, 2021 and December 26, 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Vitamin Shoppe | | Pet Supplies Plus | | | | American Freight | | Buddy's | | Sylvan | | Total |
Balance as of December 28, 2019 | | $ | 4,951 | | | $ | — | | | | | $ | 31,028 | | | $ | 88,542 | | | $ | — | | | $ | 124,521 | |
Acquisitions | | — | | | — | | | | | 336,854 | | | — | | | — | | | 336,854 | |
Disposals and purchase accounting adjustments | | (3,674) | | | — | | | | | — | | | (9,443) | | | — | | | (13,117) | |
Balance as of December 26, 2020 | | $ | 1,277 | | | $ | — | | | | | $ | 367,882 | | | $ | 79,099 | | | $ | — | | | $ | 448,258 | |
Acquisitions | | — | | | 335,875 | | | | | 3,293 | | | — | | | 19,456 | | | 358,624 | |
Disposals and purchase accounting adjustments | | — | | | — | | | | | (346) | | | — | | | — | | | (346) | |
Balance as of December 25, 2021 | | $ | 1,277 | | | $ | 335,875 | | | | | $ | 370,829 | | | $ | 79,099 | | | $ | 19,456 | | | $ | 806,536 | |
The Company performed its annual impairment test of goodwill as of July 25, 2021. No impairment has been recorded for any of the reporting units.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Components of intangible assets as of December 25, 2021 and December 26, 2020, were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Tradenames | | Vitamin Shoppe | | Pet Supplies Plus | | Badcock | | American Freight | | Buddy's | | Sylvan | | Total |
Gross carrying amount | | $ | 12,000 | | | $ | 104,400 | | | $ | — | | | $ | 70,200 | | | $ | 11,100 | | | $ | 24,987 | | | $ | 222,687 | |
Accumulated Amortization | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net carrying amount | | 12,000 | | | 104,400 | | | — | | | 70,200 | | | 11,100 | | | 24,987 | | | 222,687 | |
Customer contracts | | | | | | | | | | | | | | |
Gross carrying amount | | — | | | 34,300 | | | — | | | — | | | 8,114 | | | — | | | 42,414 | |
Accumulated Amortization | | — | | | (1,856) | | | — | | | — | | | (3,359) | | | — | | | (5,215) | |
Net carrying amount | | — | | | 32,444 | | | — | | | — | | | 4,755 | | | — | | | 37,199 | |
Franchise and dealer agreements | | | | | | | | | | | | | | |
Gross carrying amount | | — | | | 67,100 | | | — | | | — | | | 10,500 | | | 18,265 | | | 95,865 | |
Accumulated Amortization | | — | | | (3,576) | | | — | | | — | | | (2,596) | | | (399) | | | (6,571) | |
Net carrying amount | | — | | | 63,524 | | | — | | | — | | | 7,904 | | | 17,866 | | | 89,294 | |
Other intangible assets | | | | | | | | | | | | | | |
Gross carrying amount | | — | | | — | | | — | | | 44 | | | 566 | | | 1,226 | | | 1,836 | |
Accumulated Amortization | | — | | | — | | | — | | | (3) | | | (319) | | | (56) | | | (378) | |
Net carrying amount | | — | | | — | | | — | | | 41 | | | 247 | | | 1,170 | | | 1,458 | |
Total intangible assets | | $ | 12,000 | | | $ | 200,368 | | | $ | — | | | $ | 70,241 | | | $ | 24,006 | | | $ | 44,023 | | | $ | 350,638 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 12/26/2020 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Tradenames | | Vitamin Shoppe | | American Freight | | Buddy's | | Total |
Gross carrying amount | | $ | 12,000 | | | $ | 70,200 | | | $ | 11,100 | | | $ | 93,300 | |
Accumulated Amortization | | — | | | — | | | — | | | — | |
Net carrying amount | | 12,000 | | | 70,200 | | | 11,100 | | | 93,300 | |
Customer contracts | | | | | | | | |
Gross carrying amount | | — | | | — | | | 8,780 | | | $ | 8,780 | |
Accumulated Amortization | | — | | | — | | | (2,159) | | | (2,159.00) | |
Net carrying amount | | — | | | — | | | 6,621 | | | 6,621 | |
Franchise and dealer agreements | | | | | | | | |
Gross carrying amount | | — | | | — | | | 10,500 | | | $ | 10,500 | |
Accumulated Amortization | | — | | | — | | | (1,545) | | | (1,545.00) | |
Net carrying amount | | — | | | — | | | 8,955 | | | 8,955 | |
Other intangible assets | | | | | | | | |
Gross carrying amount | | — | | | — | | | 1,478 | | | $ | 1,478 | |
Accumulated Amortization | | — | | | — | | | (462) | | | (462.00) | |
Net carrying amount | | — | | | — | | | 1,016 | | | 1,016 | |
Total intangible assets | | $ | 12,000 | | | $ | 70,200 | | | $ | 27,692 | | | $ | 109,892 | |
The Company's tradenames have an indefinite life and their annual impairment test was performed as of July 25, 2021. No impairment has been recorded for any of the reporting units. The Company also reviews amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company did not record impairment expense related to the amortizable intangible assets during the years ended December 25, 2021, December 26, 2020, the Transition Period, or year ended April 30, 2019.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the years ended December 25, 2021, December 26, 2020, the Transition Period, and year ended April 30, 2019, amortization expense was $8.7 million, $4.6 million, $1.8 million, and $0.0 million respectively. Annual amortization expense for the next five years is estimated to be as follows:
| | | | | | | | |
(In thousands) | | Estimate for Fiscal Year |
2022 | | $ | 10,786 | |
2023 | | 10,750 | |
2024 | | 10,623 | |
2025 | | 9,952 | |
2026 | | 9,206 | |
Thereafter | | 76,634 | |
Total estimated amortization expense | | $ | 127,951 | |
(7) Revenue
For details regarding the principal activities from which the Company generates its revenue, see "Note 1 - Organization and Significant Accounting Policies". For more detailed information regarding reportable segments, see "Note 15 - Segments."
The following represents the disaggregated revenue by reportable segments for the years ended December 25, 2021, December 26, 2020, the Transition Period, the period May 1, 2018 through December 29, 2018, and year ended April 30 2019. All revenue for periods prior to the Transition Period was from discontinued operations, see "Note 3. Discontinued Operations".
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended 12/25/2021 |
(In thousands) | | Vitamin Shoppe | | Pet Supplies Plus † | | Badcock † | | American Freight | | Buddy's | | Sylvan † | | Consolidated |
Retail sales | | $ | 1,172,462 | | | $ | 517,508 | | | $ | 67,353 | | | $ | 894,905 | | | $ | 3,913 | | | $ | 8 | | | $ | 2,656,149 | |
Wholesale sales | | — | | | 355,377 | | | — | | | 945 | | | — | | | — | | | 356,322 | |
Total product revenue | | 1,172,462 | | | 872,885 | | | 67,353 | | | 895,850 | | | 3,913 | | | 8 | | | 3,012,471 | |
Franchise fees | | 1 | | | 623 | | | — | | | — | | | 84 | | | 89 | | | 797 | |
Royalties and advertising fees | | 262 | | | 19,538 | | | — | | | 1,287 | | | 14,390 | | | 8,217 | | | 43,694 | |
Financing revenue | | — | | | — | | | — | | | 41,623 | | | — | | | — | | | 41,623 | |
Warranty and damage revenue | | — | | | — | | | 5,389 | | | 34,786 | | | 6,667 | | | — | | | 46,842 | |
Interest income | | — | | | 228 | | | 25,508 | | | 986 | | | — | | | — | | | 26,722 | |
Other revenues | | — | | | 24,165 | | | 3,807 | | | 14,360 | | | 5,725 | | | 1,368 | | | 49,425 | |
Total service and other revenue | | 263 | | | 44,554 | | | 34,704 | | | 93,042 | | | 26,866 | | | 9,674 | | | 209,103 | |
Rental revenue, net | | — | | | — | | | — | | | — | | | 33,630 | | | — | | | 33,630 | |
Total rental revenue | | — | | | — | | | — | | | — | | | 33,630 | | | — | | | 33,630 | |
Total revenue | | $ | 1,172,725 | | | $ | 917,439 | | | $ | 102,057 | | | $ | 988,892 | | | $ | 64,409 | | | $ | 9,682 | | | $ | 3,255,204 | |
† Reflects the results from the March 10, 2021, November 22, 2021, and September 27, 2021 acquisition dates for the Pet Supplies Plus Acquisition, the Badcock Acquisition, and the Sylvan Acquisition, respectively.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended 12/26/2020 |
(In thousands) | | Vitamin Shoppe | | Pet Supplies Plus | | Badcock | | American Freight | | Buddy's | | Sylvan | | Consolidated |
Retail sales | | $ | 1,035,964 | | | $ | — | | | $ | — | | | $ | 857,955 | | | $ | 5,743 | | | $ | — | | | $ | 1,899,662 | |
Total product revenue | | 1,035,964 | | | — | | | — | | | 857,955 | | | 5,743 | | | — | | | 1,899,662 | |
Franchise fees | | — | | | — | | | — | | | — | | | 99 | | | — | | | 99 | |
Royalties and advertising fees | | — | | | — | | | — | | | — | | | 9,993 | | | — | | | 9,993 | |
Financing revenue | | — | | | — | | | — | | | 15,977 | | | — | | | — | | | 15,977 | |
Warranty and damage revenue | | — | | | — | | | — | | | 16,799 | | | 12,668 | | | — | | | 29,467 | |
Interest income | | — | | | — | | | — | | | 1,288 | | | — | | | — | | | 1,288 | |
Other revenues | | — | | | — | | | — | | | 4,412 | | | 4,562 | | | — | | | 8,974 | |
Total service and other revenue | | — | | | — | | | — | | | 38,476 | | | 27,322 | | | — | | | 65,798 | |
Rental revenue, net | | — | | | — | | | — | | | — | | | 64,267 | | | — | | | 64,267 | |
Total rental revenue | | — | | | — | | | — | | | — | | | 64,267 | | | — | | | 64,267 | |
Total revenue | | $ | 1,035,964 | | | $ | — | | | $ | — | | | $ | 896,431 | | | $ | 97,332 | | | $ | — | | | $ | 2,029,727 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Transition Period From 5/1/2019 - 12/28/2019 |
(In thousands) | | Vitamin Shoppe | | Pet Supplies Plus | | Badcock | | American Freight | | Buddy's | | Sylvan | | Consolidated |
Retail sales | | $ | 30,574 | | | $ | — | | | $ | — | | | $ | 64,067 | | | $ | 1,498 | | | $ | — | | | $ | 96,139 | |
Total product revenue | | 30,574 | | | — | | | — | | | 64,067 | | | 1,498 | | | — | | | 96,139 | |
Franchise fees | | — | | | — | | | — | | | — | | | 160 | | | — | | | 160 | |
Royalties and advertising fees | | — | | | — | | | — | | | — | | | 4,042 | | | — | | | 4,042 | |
Financing revenue | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Warranty and damage revenue | | — | | | — | | | — | | | 2,734 | | | 4,937 | | | — | | | 7,671 | |
Interest income | | — | | | — | | | — | | | 267 | | | — | | | — | | | 267 | |
Other revenues | | — | | | — | | | — | | | 1,162 | | | 1,449 | | | — | | | 2,611 | |
Total service and other revenue | | — | | | — | | | — | | | 4,163 | | | 10,588 | | | — | | | 14,751 | |
Rental revenue, net | | — | | | — | | | — | | | — | | | 23,636 | | | — | | | 23,636 | |
Total rental revenue | | — | | | — | | | — | | | — | | | 23,636 | | | — | | | 23,636 | |
Total revenue | | $ | 30,574 | | | $ | — | | | $ | — | | | $ | 68,230 | | | $ | 35,722 | | | $ | — | | | $ | 134,526 | |
Contract Balances
The following table provides information about receivables and contract liabilities (deferred revenue) from contracts with customers as of December 25, 2021 and December 26, 2020:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Accounts receivable | | $ | 86,087 | | | $ | 38,444 | |
Notes receivable | | 13,864 | | | 28,240 | |
| | | | |
Customer deposits | | $ | 37,626 | | | $ | 18,065 | |
Gift cards and loyalty programs | | 7,604 | | | 4,221 | |
Deferred franchise fee revenue | | 16,984 | | | 827 | |
Other deferred revenue | | 8,400 | | | 2,503 | |
Total deferred revenue | | $ | 70,614 | | | $ | 25,616 | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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) | | Estimate for Fiscal Year |
2022 | | $ | 49,038 | |
2023 | | 3,165 | |
2024 | | 2,780 | |
2025 | | 1,787 | |
2026 | | 1,624 | |
Thereafter | | 12,220 | |
Total | | $ | 70,614 | |
(8) Leases
See "Leases" under "Note 1 - Organization and Significant Accounting Policies" for a discussion of our accounting policies. The finance lease right of use assets and lease liabilities are included in PP&E, current installments of long-term debt and long-term debt respectively. These lease are immaterial to the financial statements.
Company as Lessee
The components of lease costs for leases that were recognized in the accompanying consolidated statement of operations for the years ended December 25, 2021 and December 26, 2020 were as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Operating lease cost | | $ | 212,837 | | | $ | 94,387 | |
Short-term operating lease costs | | 2,261 | | | 2,495 | |
Variable operating lease costs | | 35,367 | | | 14,137 | |
Sublease income | | (1,753) | | | (868) | |
Total operating lease cost | | 248,712 | | | 110,151 | |
As of December 25, 2021, maturities of lease liabilities were as follows: | | | | | | | | |
(In thousands) | | Operating leases |
2022 | | $ | 225,395 | |
2023 | | 199,063 | |
2024 | | 155,360 | |
2025 | | 112,046 | |
2026 | | 80,557 | |
Thereafter | | 116,313 | |
Total undiscounted lease payments | | 888,734 | |
Less interest | | 158,562 | |
Present value of lease liabilities | | $ | 730,172 | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following represents other information pertaining to the Company's lease arrangements for the year ended December 25, 2021:
| | | | | | | | | | | | | | |
(In thousands) | | Operating |
| | December 25, 2021 | | December 26, 2020 |
Right-of-use assets obtained in exchange for lease obligations(1) | | $ | 153,538 | | | $ | 157,007 | |
Cash paid for amounts included in the measurement of lease liabilities | | 191,827 | | | 87,399 | |
Weighted average remaining lease terms (years) | | 4.9 | | 4.7 |
Weighted average discount rates | | 9.03 | % | | 11.17 | % |
(1) As of December 25, 2021, the majority of the lease liabilities arising from right-of-use assets were a result of the Pet Supplies Plus Acquisition. As of December 26, 2020, the majority of the lease liabilities arising from right-of-use assets were a result of the American Freight Acquisition.
Company as Lessor
Total rental income for the years ended December 25, 2021 and December 26, 2020 were $0.9 million and $0. Total rental income includes sublease income of $0.7 million and $0 recognized during 2021 and 2020, respectively.
The Company subleases some of its Badcock segment's leased locations to certain dealers for operation as Badcock stores. The terms of these leases generally match those of the lease the Company has with the lessor. The following table illustrates the Company's maturity analysis of lease payments to be received for non-cancelable operating leases and subleases as of December 25, 2021:
| | | | | | | | | | | | | | |
(In thousands) | | Operating Leases |
Fiscal Year: | | Subleases | | Owned Properties |
2022 | | $ | 6,841 | | | $ | 1,937 | |
2023 | | 5,938 | | | 1,817 | |
2024 | | 4,461 | | | 1,721 | |
2025 | | 3,536 | | | 1,519 | |
2026 | | 2,560 | | | 1,391 | |
Thereafter | | 1,791 | | | 2,533 | |
Total future minimum receipts | | $ | 25,127 | | | $ | 10,918 | |
Our Vitamin Shoppe, Pet Supplies Plus, and American Freight segments have subleases but the lease payments on those locations are immaterial to the financial statements.
Properties owned by the Company and leased to dealers and other third parties under operating leases include:
| | | | | | | | | | | | | | |
(In thousands) | | December 25, 2021 | | December 26, 2020 |
Buildings and improvements | | $ | 34,172 | | | $ | — | |
| | | | |
Total properties owned and leased by the Company | | 34,172 | | | $ | — | |
Accumulated depreciation | | (88) | | | $ | — | |
Total properties owned and leased by the Company, net | | $ | 34,084 | | | $ | — | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Long-Term Obligations
Long-term obligations as of December 25, 2021 and December 26, 2020 were as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Revolving credit facilities | | $ | 20,000 | | | $ | 78,310 | |
Term loan, net of debt issuance costs | | 1,435,928 | | | 491,836 | |
Debt securitized by accounts receivable, net of discount | | 407,502 | | | — | |
Finance lease liabilities | | 6,465 | | | 851 | |
Total long-term obligations | | 1,869,895 | | | 570,997 | |
Less current installments | | 486,170 | | | 104,053 | |
Total long-term obligations, excluding current installments | | $ | 1,383,725 | | | $ | 466,944 | |
First Lien Credit Agreement and Term Loan
On March 10, 2021 (the “PSP 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 PSP 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 PSP 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 bears 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 $182.1 million of principal of the First Lien Term Loan using cash proceeds from the sale of the Liberty Tax business. The payment also satisfied the requirements for the quarterly principal payments so no additional principal payments are due until the First Term Loan maturity date. The early repayment resulted in additional interest expense of $6.1 million for the write-off of deferred financing costs.
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 PSP 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.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Second Lien Credit Agreement and Second Lien Term Loan
On the PSP 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 PSP 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 50% and 0%, in each case, subject to certain exceptions.
Third Amended and Restated Loan and Security Agreement (ABL)
On the PSP 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 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 December 25, 2021, there was $20.0 million drawn on the ABL Revolver. 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 PSP 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 matures on March 10, 2025, and borrowings under the ABL Revolver will 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
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
Badcock First Lien Credit Agreement and First Lien Badcock Term Loan
On November 22, 2021 (the “Badcock Closing Date”), the Company entered into a First Lien Credit Agreement (the “First Lien Badcock Credit Agreement”) with various lenders. The First Lien Badcock Credit Agreement provides for a $425.0 million senior secured term loan (the "First Lien Badcock Term Loan"), made by the First Lien Badcock Lenders to the Company.
The Company's obligations under the First Lien Badcock Credit Agreement are guaranteed by the Company, the FRG Guarantors, and Badcock (also referred to as the “Badcock Guarantor” and collectively with the Company and FRG Guarantors, the “Loan Parties”) pursuant to the First Lien Guarantee Agreements (collectively, the “First Lien Guarantee Agreements”) and are required to be guaranteed by each of the Company’s direct and indirect domestic subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Badcock Closing Date. The obligations of the Borrowers under the First Lien Badcock Credit Agreement are secured on a first priority basis by liens on substantially all of the assets of the Badcock Guarantor (the “Badcock Collateral”) and substantially all assets of the Loan Parties, pursuant to certain First Lien Collateral Agreements (collectively, the “First Lien Collateral Agreements”), by and among the Loan Parties party thereto and the First Lien Badcock Agent, and are required to be secured by such assets of each of the Company’s direct and indirect domestic subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Badcock Closing Date.
The proceeds of the First Lien Badcock Term Loan, together with the proceeds of the Second Lien Badcock Term Loan and certain cash on hand of the Company and its subsidiaries, were used to consummate the Badcock Acquisition and to pay fees and expenses incurred in connection therewith and with certain related transactions, including the entry into the Credit Agreement.
The First Lien Badcock Term Loan will mature on November 22, 2023, unless the maturity is accelerated subject to the terms set forth in the First Lien Badcock Credit Agreement. The First Lien Badcock Term Loan will, at the option of the Borrowers, bear interest at either (i) a rate per annum based on Term Secured Overnight Financing Rate ("SOFR") for an interest period of one, three or six months (or under certain circumstances, twelve months or less than one month), plus an interest rate margin of 4.75% (each, a “Badcock First Lien SOFR Loan”), or (ii) an alternate base rate determined as provided in the First Lien Credit Agreement, plus an interest rate margin of 3.75% (each, a “Badcock First Lien ABR Loan”), with an effective 1.00% alternate base rate floor. Interest on Badcock First Lien SOFR Loans is payable in arrears at the end of each applicable interest period (and, with respect to an interest period of longer than three months, at three-month intervals during such interest period), and interest on Badcock First Lien ABR Loans is payable in arrears on the last business day of each calendar quarter.
The First Lien Badcock Term Loan will not be subject to amortization payments. The Borrowers are required to prepay the First Lien Badcock Term Loan with 100% of the net cash proceeds of certain customary events, including certain asset sales of Badcock Collateral. Subject to certain exceptions, repayments of the First Lien Badcock Term Loan within six months after the Closing Date in connection with a refinancing to reduce the pricing with respect to the First Lien Term Loan are subject to a prepayment premium of 1.00%. The Borrowers may also be required to pay SOFR breakage and redeployment costs in certain limited circumstances.
On December 23, 2021, the Company repaid $219.0 million of principal of the First Lien Badcock Term Loan using cash proceeds from the Receivables Purchase Agreement. The early repayment resulted in additional interest expense of $5.0 million for the write-off of deferred financing costs.
On December 27, 2021, the Company repaid an additional $31.0 million of principal of the First Lien Badcock Term Loan using cash proceeds from the Receivables Purchase Agreement, which is included in current installments of long-term obligations within the consolidated balance sheet.
Badcock Second Lien Credit Agreement and Term Loan
On the Badcock Closing Date, the Company entered into a Second Lien Credit Agreement (the “Second Lien Badcock Credit Agreement” and together with the First Lien Badcock Credit Agreement, the “Badcock Credit Agreements”) with the various lenders from time-to-time party thereto (the “Second Lien Badcock Lenders”) and Alter Domus (US) LLC, as administrative agent and collateral agent (“Second Lien Badcock Agent” and together with the First Lien Badcock Agent, the
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
“Badcock Agents”). The Second Lien Badcock Credit Agreement provides for a $150.0 million senior secured term loan (the “Second Lien Badcock Term Loan” and together with the First Lien Badcock Term Loan, the “Badcock Term Loans”), made by the Second Lien Badcock Lenders to one or more of the Borrowers.
The Borrowers’ obligations under the Second Lien Badcock Credit Agreement are guaranteed by the Borrowers and the other Loan Parties pursuant to the Second Lien Guarantee Agreements (collectively, the “Second Lien Guarantee Agreements”), by and among the Loan Parties party thereto and the Second Lien Badcock Agent, and are required to be guaranteed by each of the Company’s direct and indirect domestic subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date. The obligations of the Borrowers under the Second Lien Badcock Credit Agreement are secured on a second priority basis by liens on the Badcock Collateral and substantially all assets of the Loan Parties, pursuant to certain Second Lien Collateral Agreements (collectively, the “Second Lien Collateral Agreements”), by and among the Loan Parties party thereto and the Second Lien Badcock Agent, and are required to be secured by such assets of each of the Company’s direct and indirect domestic subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Badcock Closing Date.
The proceeds of the Second Lien Badcock Term Loan, together with the proceeds of the First Lien Badcock Term Loan and certain cash on hand of the Company and its subsidiaries, were used to consummate the Acquisition and to pay fees and expenses incurred in connection therewith and with certain related transactions, including the entry into the Credit Agreement Amendments.
The Second Lien Badcock Term Loan will mature on November 22, 2023, unless the maturity is accelerated subject to the terms set forth in the Second Lien Badcock Credit Agreement. The Second Lien Badcock Term Loan will, at the option of the Borrowers, bear interest at either (i) a rate per annum based on Term SOFR for an interest period of one, three or six months (or under certain circumstances, twelve months or less than one month), plus an interest rate margin of 7.50% (each, a “Second Lien SOFR Loan”), or (ii) an alternate base rate determined as provided in the Second Lien Badcock Credit Agreement, plus an interest rate margin of 6.50% (each, a “Second Lien Badcock ABR Loan”), with an effective 1.00% SOFR floor and a 2.00% alternate base rate floor. Interest on Second Lien Badcock SOFR Loans is payable in arrears at the end of each applicable interest period (and, with respect to an interest period of longer than three months, at three-month intervals during such interest period), and interest on Second Lien Badcock ABR Loans is payable in arrears on the last business day of each calendar quarter.
The Second Lien Badcock Term Loan will not be subject to amortization payments. The Borrowers are required to prepay the Second Lien Badcock Term Loan with 100% of the net cash proceeds of certain customary events, including certain asset sales of Badcock Priority Collateral. The Second Lien Badcock Term Loan may be voluntarily prepaid at any time without premium or penalty. The Borrowers may also be required to pay SOFR breakage and redeployment costs in certain limited circumstances.
On December 27, 2021, the Company repaid $150.0 million, the full outstanding balance of principal, of the Second Lien Badcock Term Loan using cash proceeds from the Receivables Purchase Agreement, which is included in current installments of long-term obligations within the consolidated balance sheet. The early repayment resulted in additional interest expense of $3.5 million for the write-off of deferred financing costs.
Debt Related to the Securitization of Accounts Receivable
In December 2021, the Company's Badcock segment sold beneficial interests in revolving lines of credit that it originated. The sales are accounted for as secured borrowings on our consolidated balance sheets with both assets and non-recourse liabilities because the sales do not qualify as a sale under ASC 860 - "Transfers and Servicing," although 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 with a corresponding amount recorded in Interest expense, net on the consolidated statements of operations.
Proceeds from secured borrowings issued in the securitization are accounted for as non-recourse notes payable. The Company's customers are responsible for repaying the debt from a secured borrowing, and the Company is not liable for the repayment of non-recourse loans unless representations or warranties in the loan agreements are breached. The lender assumes the credit risk and their only recourse, upon default by the customer, is against the customer.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Debt securitized by accounts receivable, net includes $400.0 million of securitized debt and an amortized discount of $7.5 million. Current installments of debt securitized by accounts receivable, net includes $296.7 million of securitized debt and an amortized discount of $5.6 million.
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 December 25, 2021, the Company was in compliance with all financial covenants under these agreements and, based on a continuation of current operating results, the Company expects to continue to be in compliance for the next twelve months.
Aggregate maturities of long-term debt at December 25, 2021 were as follows:
| | | | | | | | |
(In thousands) | | Estimate for fiscal year |
2022 | | $ | 485,838 | |
2023 | | 284,055 | |
2024 | | 1,325 | |
2025 | | 1,056 | |
2026 | | 1,097,621 | |
Thereafter | | — | |
Total long-term obligations | | $ | 1,869,895 | |
The following debt agreements have been repaid since reported in the Company's Form 10-K for the fiscal year ended December 26, 2020.
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 year ended December 25, 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.
(10) 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 underwriters named therein (the “Underwriters”), to issue and sell an aggregate of 2,976,191 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
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. 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 December 25, 2021 and December 26, 2020, are as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Foreign currency adjustment | | $ | — | | | $ | (1,254) | |
| | | | |
| | | | |
Interest rate swap agreements, net of tax | | — | | | (145) | |
Total accumulated other comprehensive loss | | $ | — | | | $ | (1,399) | |
For the years ended December 25, 2021 and December 26, 2020, all components of accumulated other comprehensive loss were from discontinued operations.
Non-controlling interest
The Company is the sole managing member of Franchise Group New Holdco, LLC ("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 became 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 Tax Receivable Agreement ("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 12 - Income Taxes" for further discussion of the TRA.
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.
The computation of basic and diluted net income per share for the years ended December 25, 2021, December 26, 2020, the Transition Period, and year ended April 30, 2019 is as follows:
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 12/25/2021 | | 12/26/2020 | | 12/28/2019 | | 4/30/2019 |
(In thousands, except for share and per share amounts) | | Common stock | | Common stock | | Common stock | | Common stock |
Net income (loss) from continuing operations attributable to Franchise Group | | $ | 191,966 | | | $ | 20,645 | | | $ | (22,614) | | | $ | — | |
Less: Preferred dividend declared | | 8,515 | | | 755 | | | — | | | — | |
Adjusted net income (loss) from continuing operations attributable to Franchise Group available to Common Stockholders | | 183,451 | | | 19,890 | | | (22,614) | | | — | |
Net income (loss) from discontinued operations attributable to Franchise Group | | 171,822 | | | 4,419 | | | (45,813) | | | (2,156) | |
Adjusted net income (loss) available to Common Stockholders | | $ | 355,273 | | | $ | 24,309 | | | $ | (68,427) | | | $ | (2,156) | |
| | | | | | | | |
Weighted-average common shares outstanding | | 40,199,681 | | | 34,531,362 | | | 16,669,065 | | | 13,800,884 | |
Net dilutive effect of stock options and restricted stock | | 764,501 | | | 440,573 | | | — | | | — | |
Weighted-average dilutive shares outstanding | | 40,964,182 | | | 34,971,935 | | | 16,669,065 | | | 13,800,884 | |
| | | | | | | | |
Basic net income (loss) per share: | | | | | | | | |
Continuing operations | | $ | 4.56 | | | $ | 0.57 | | | $ | (1.35) | | | $ | — | |
Discontinued operations | | 4.27 | | | 0.13 | | | (2.76) | | | (0.16) | |
Basic net income (loss) per share | | $ | 8.83 | | | $ | 0.70 | | | $ | (4.11) | | | $ | (0.16) | |
| | | | | | | | |
Diluted net income (loss) per share: | | | | | | | | |
Continuing operations | | $ | 4.48 | | | $ | 0.57 | | | $ | (1.36) | | | $ | — | |
Discontinued operations | | 4.19 | | | 0.13 | | | (2.75) | | | (0.16) | |
Diluted net income (loss) per share | | $ | 8.67 | | | $ | 0.70 | | | $ | (4.11) | | | $ | (0.16) | |
Diluted net income per share excludes the impact of shares of potential common stock from the exercise of options and vesting of restricted stock units to purchase 206,899 and 524,649 shares for the Transition Period and year ended April 30, 2019, respectively, because the effect would be anti-dilutive.
(11) Stock Compensation Plan
2019 Omnibus Incentive Plan
In December 2019, the Company's stockholders approved the Company's 2019 Omnibus Incentive Plan (the "2019 Plan"). The 2019 Plan provides for a variety of awards, including stock options, stock appreciation rights, performance units, performance shares, shares of the Company’s common stock, par value $0.01 per share, restricted stock, restricted stock units, incentive awards, dividend equivalent units and other stock-based awards. Awards under the 2019 Plan may be granted to the Company’s eligible employees, directors, or consultants or advisors. The 2019 Plan provides that an aggregate maximum of 5,000,000 shares of common stock are reserved for issuance under the 2019 Plan, subject to adjustment for certain corporate events. At December 25, 2021 and December 26, 2020, 3,004,259 and 4,062,558 shares of common stock remained available for grant, respectively.
Simultaneously with stockholder approval of the Plan, the Company's prior equity incentive compensation plan, the JTH Holding Inc. 2011 Equity and Cash Incentive Plan (the "2011 Plan"), was terminated. No new awards will be granted under the 2011 Plan, although awards previously granted under the 2011 Plan and still outstanding will continue to be subject to all terms and conditions of the 2011 Plan.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Restricted Stock Units
The Company has awarded service-based restricted stock units ("RSUs") to its non-employee directors, officers and certain employees. The Company recognizes expense based on the estimated fair value of the RSUs granted over the vesting period on a straight-line basis. The fair value of RSUs is determined using the Company's closing stock price on the date of the grant. At December 25, 2021, unrecognized compensation cost related to RSUs was $5.0 million. These costs are expected to be recognized through fiscal 2023.
The following table summarizes the status of service-based RSU activity during the years ended December 25, 2021 and December 26, 2020, the Transition Period, and year ended April 30, 2019:
| | | | | | | | | | | | | | |
| | Number of RSUs | | Weighted-Average Fair Value at Grant Date |
Balance at April 30, 2018 | | 127,030 | | | $ | 12.48 | |
Granted | | 147,991 | | | 10.40 | |
Vested | | (28,029) | | | 13.47 | |
Forfeited | | (78,200) | | | 12.31 | |
Balance at April 30, 2019 | | 168,792 | | | $ | 10.56 | |
Granted | | 153,085 | | | 14.10 | |
Vested | | (80,549) | | | 10.73 | |
Forfeited | | (36,122) | | | 10.72 | |
Balance at December 28, 2019 | | 205,206 | | | $ | 13.11 | |
Granted | | 192,809 | | | 24.83 | |
Vested | | (85,911) | | | 12.67 | |
Forfeited | | (15,957) | | | 19.69 | |
Balance at December 26, 2020 | | 296,147 | | | $ | 20.51 | |
Granted | | 124,350 | | | 35.95 | |
Vested | | (148,447) | | | 20.11 | |
Forfeited | | (2,342) | | | 12.22 | |
Balance at December 25, 2021 | | 269,708 | | | $ | 27.92 | |
Performance Restricted Stock Units
The Company has awarded performance restricted stock units ("PRSUs") to its officers and certain employees. The Company recognizes expense based on the estimated fair value of the PRSUs granted over the vesting period on a straight-line basis. The fair value of PRSUs is determined using the Company's closing stock price on the date of the grant. At December 25, 2021, unrecognized compensation cost related to PRSUs was $8.3 million. These costs are expected to be recognized through fiscal 2023.
The following table summarizes the status of PRSU activity during the years ended December 25, 2021 and December 26, 2020 and the Transition Period:
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | |
| | Number of PRSUs | | Weighted-Average Fair Value at Grant Date |
Balance at April 30, 2019 | | — | | | $ | — | |
Granted | | 465,833 | | | 14.40 | |
Vested | | — | | | — | |
Forfeited | | — | | | — | |
Balance at December 28, 2019 | | 465,833 | | | $ | 14.40 | |
Granted | | 154,904 | | | 24.84 | |
Vested | | — | | | — | |
Forfeited | | (2,000) | | | 14.40 | |
Balance at December 26, 2020 | | 618,737 | | | $ | 17.00 | |
Granted | | 107,023 | | | 35.66 | |
Vested | | (19,500) | | | 14.40 | |
Forfeited | | — | | | — | |
Balance at December 25, 2021 | | 706,260 | | | $ | 19.90 | |
Market-Based Restricted Stock Units
The Company has awarded market-based restricted stock units ("MPRSUs") to its officers and certain employees. The Company recognizes expense based on the estimated fair value of the MPRSUs granted over the vesting period on a straight-line basis. The fair value of MPRSUs is determined using a Monte Carlo simulation valuation model to calculate grant date fair value. Compensation expense is recognized over the requisite service period using the proportionate amount of the award’s fair value that has been earned through service to date. At December 25, 2021, unrecognized compensation cost related to MPRSUs was $14.1 million. These costs are expected to be recognized through fiscal 2024.
The following table summarizes the status of MPRSU activity during the year ended December 25, 2021:
| | | | | | | | | | | | | | |
| | Number of MPRSUs | | Weighted-Average Fair Value at Grant Date |
Balance at December 26, 2020 | | — | | | $ | — | |
Granted | | 826,926 | | | 20.13 | |
Vested | | — | | | — | |
Forfeited | | — | | | — | |
Balance at December 25, 2021 | | 826,926 | | | $ | 20.13 | |
Stock Options
The Company has awarded stock options to its non-employee directors and officers. As of December 25, 2021 and December 26, 2020, there were 332,033 and 391,409 stock options outstanding, respectively. During the year ended December 25, 2021, there were 0 stock options granted, 59,376 stock options exercised, and 0 stock options forfeited. The weighted-average exercise price of stock options outstanding was $10.02 per share as of December 25, 2021. Stock options vest from the date of grant to three years after the date of grant and expire from 4 to 5 years after the vesting date.
As of December 25, 2021 and December 26, 2020, there were 0 and 63,334 non-vested stock options outstanding, respectively. During the year ended December 25, 2021, there were 0 non-vested stock options granted, 63,334 options vested, and 0 non-vested stock options forfeited. At December 25, 2021, there was no remaining unrecognized compensation cost related to vested or non-vested stock options.
The following table summarizes information about stock options outstanding and exercisable at December 25, 2021.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Options outstanding | | Options exercisable |
Range of Exercise Prices | | Number of options outstanding | | Weighted-average exercise price | | Weighted-average remaining contractual life (in years) | | Number of options exercisable | | Weighted-average exercise price |
0.00 - 10.89 | | 204,500 | | | $ | 8.80 | | | 1.5 | | 204,500 | | | $ | 8.80 | |
10.90 - 12.01 | | 127,533 | | | 11.98 | | | 2.3 | | 127,533 | | | 11.98 | |
| | 332,033 | | | $ | 10.02 | | | | | 332,033 | | | $ | 10.02 | |
Stock Compensation Expense
The Company recorded $13.4 million, $8.9 million, and $2.3 million of expense related to stock awards from continuing operations for the years ended December 25, 2021, December 26, 2020, and the Transition Period, respectively. There were no expenses related to stock awards from continuing operations recorded for the year ended April 30, 2019.
The Company has stock based incentive plans at various operating companies which are recorded as liabilities. The total aggregate liability for these plans as of December 25, 2021 is $1.7 million, recorded in "Accounts payable and accrued expenses" on the Consolidated Balance Sheet. During the year ended December 25, 2021, total expense recognized related to these plans was $1.5 million, included in the total $13.4 million of expense related to stock awards from continuing operations noted above. Future expense to be recognized for these plans as of December 25, 2021 is $19.9 million.
(12) Income Taxes
TRA
The Company previously had a non-controlling interest as a result of its acquisition of Buddy's on July 10, 2019. On April 1, 2020, the Company redeemed all of the non-controlling interest units. On July 10, 2019, the Company entered into a tax receivable agreement (the "TRA") with the then-existing non-controlling interest holders, which comprised the former equity holders of Buddy's ("the "Buddy's Members") 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.
During the year ended December 26, 2020, the Company acquired an aggregate of 9,433,332 New Holdco units, which resulted in an increase in the tax basis of its investment in New Holdco subject to the provisions of the TRA. As of December 25, 2021, the Company recognized a total liability in the amount of $17.3 million for the payments due to the redeeming members under the Tax Receivable Agreement ("TRA Payments"), representing 40% of the cash savings it expects to realize from the tax basis increases related to the redemption of New Holdco units. In the year ended December 25, 2021, the Company recognized an additional $0.5 million for the payments due to the redeeming members. TRA 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 year ended December 25, 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.
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 the year ended December 26, 2020 associated with the income tax components contained in the Act. As of December 25, 2021, the Company has completed its analysis of the tax effects of the Act but
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
continues to monitor developments by federal and state rule making authorities regarding implementation of the Act. The Company will adjust, if needed, as new laws or guidance becomes available.
Global intangible low-taxed income (GILTI)
The Tax Act subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company elected to account for GILTI in the year the tax is incurred as a period cost.
Components of income tax expense for the fiscal years ended December 25, 2021, December 26, 2020, the Transition Period, and year ended April 30, 2019 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 | | 12/28/2019 | | 4/30/2019 |
Current: | | | | | | | | |
Federal | | $ | — | | | $ | (62,897) | | | $ | — | | | $ | — | |
State | | 1,362 | | | 615 | | | 56 | | | — | |
| | | | | | | | |
Current tax expense | | 1,362 | | | (62,282) | | | 56 | | | — | |
Deferred: | | | | | | | | |
Federal | | (37,816) | | | 3,931 | | | (3,971) | | | — | |
State | | 2,916 | | | (2,150) | | | (4,662) | | | — | |
| | | | | | | | |
Deferred tax expense (benefit) | | (34,900) | | | 1,781 | | | (8,633) | | | — | |
| | | | | | | | |
Total income tax expense (benefit) | | $ | (33,538) | | | $ | (60,501) | | | $ | (8,577) | | | $ | — | |
For the years ended December 25, 2021, December 26, 2020, Transition Period, and year ended April 30, 2019, income before taxes consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 | | 12/28/2019 | | | | 4/30/2019 |
Income (loss) before income taxes | | $ | 158,428 | | | $ | (49,557) | | | $ | (50,019) | | | | | $ | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax benefit differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pre-tax income from continuing operations as a result of the following for years ended December 25, 2021 and December 26, 2020 are as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Computed "expected" income tax benefit | | $ | 33,270 | | | $ | (10,407) | |
Increase (decrease) in income taxes resulting from: | | | | |
State income taxes, net of federal benefit | | 5,304 | | | (2,083) | |
Bargain purchase gain | | (27,729) | | | — | |
162(m) limitation | | 2,019 | | | — | |
Nondeductible expenses | | 197 | | | 55 | |
Stock compensation expense | | (900) | | | 196 | |
Transaction costs | | 858 | | | 392 | |
Permanent goodwill on sale of Buddy's stores | | — | | | 1,062 | |
CARES Act | | — | | | (52,337) | |
Non-controlling interest in New Holdco | | — | | | 1,782 | |
Research credit | | — | | | (676) | |
Decrease in DTL due to change in tax status | | — | | | (8,882) | |
Decrease to valuation allowance due to change in tax status | | — | | | 8,882 | |
Decrease in valuation allowance due to CARES Act | | — | | | (11,417) | |
Increase in valuation allowance due to operations | | — | | | 2,456 | |
Increase in DTL for current year activity | | — | | | 10,254 | |
Decrease in valuation allowance due to current year income | | (45,180) | | | — | |
Other | | (1,377) | | | 222 | |
Total income tax benefit | | $ | (33,538) | | | $ | (60,501) | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effect of temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to significant portions of deferred tax assets and liabilities as of December 25, 2021 and December 26, 2020 are as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Deferred tax assets: | | | | |
Federal and state net operating loss carryforward | | $ | 16,865 | | | $ | 19,364 | |
Section 743 adjustment | | 38,604 | | | 39,974 | |
Interest expense carryforward | | 1,485 | | | 559 | |
State bonus depreciation | | 5,069 | | | 4,791 | |
Equity compensation | | 3,806 | | | 2,316 | |
Inventory | | 4,528 | | | 5,793 | |
Goodwill, intangible assets, and assets held for sale (Canada) | | — | | | 33 | |
R&D Credits | | — | | | 601 | |
Deferred revenue | | 4,176 | | | 1,056 | |
Accrued expenses and reserves | | 9,976 | | | 4,212 | |
Property, plant, and equipment (Canada) | | — | | | 115 | |
Allowances | | 795 | | | 4,272 | |
Unrealized gain/loss | | — | | | 29 | |
Lease liability (ASC 842) | | 185,064 | | | 138,850 | |
Other | | 3,463 | | | 2 | |
Total deferred tax assets (before valuation allowance) | | 273,831 | | | 221,967 | |
Valuation allowance | | (8,213) | | | (53,004) | |
Total deferred tax assets (after valuation allowance) | | 265,618 | | | 168,963 | |
Deferred tax liabilities | | | | |
Property, plant, and equipment (U.S.) | | (78,895) | | | (30,147) | |
Goodwill, intangible assets, and assets held for sale (U.S.) | | (33,786) | | | (16,678) | |
Right-of-use assets (ASC 842) | | (181,227) | | | (131,637) | |
Prepaid expenses | | (4,968) | | | (2,620) | |
Total deferred tax liabilities | | (298,876) | | | (181,082) | |
Net deferred tax liability | | $ | (33,258) | | | $ | (12,119) | |
In assessing the realizability of the gross deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company increased its valuation allowance by $47.0 million, of which $45.2 million was attributable to continuing operations. The Company increased its valuation allowance by $2.2 million related to acquired net operating losses subject to Section 382 limitation.
As of December 25, 2021, the Company has gross U.S. federal net operating losses of $40.4 million, state net operating losses of $172.5 million, a portion of which will begin to expire in 2024. A portion of the Company's net operating loss carry forwards is subjected to an annual limitation under Section 382, which may restrict the Company's ability to use them to offset its taxable income in future periods.
The Company adopted the accounting and disclosure requirements for uncertain tax positions, which require a two-step approach to evaluate tax positions. This approach involves recognizing any tax positions that are more likely than not to occur and then measuring those positions to determine the amounts to be recognized in the financial statements. The Company increased reserves for uncertain tax positions by $4.8 million as of December 25, 2021 related to prior tax positions. The
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Company decreased its position of $0.2 million related to its Canadian entity. It is reasonably possible that $1.5 million of uncertain tax positions may be recognized in the coming year as a result of a lapse of the statute of limitations.
A reconciliation of the beginning and ending balance of the gross liability for uncertain tax positions for the fiscal years ended December 25, 2021 and December 26, 2020, is as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Liability for uncertain tax positions, beginning of year | | $ | 357 | | | $ | 461 | |
Decreases related to current year positions | | (219) | | | (104) | |
Increases related to prior year positions | | 4,819 | | | — | |
Liability for uncertain tax positions, end of year | | $ | 4,957 | | | $ | 357 | |
As of December 25, 2021, the Company's earliest open tax year for U.S. federal income tax purposes was its fiscal year ended April 30, 2019.
(13) 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 12.3% of the aggregate voting power of the Company through their ownership of common stock as of December 25, 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 4.0% of the aggregate ownership of the Company's common stock as of December 25, 2021. Mr. Riley was also a member of the Company's Board of Directors from September 2018 through March 2020. Prior to the second quarter of 2021, Mr. Riley held greater than 5.0% of the aggregate ownership of the Company's common stock, as such, the transactions with Mr. Riley while his ownership was greater than 5.0% included:
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. 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
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Alternative First Lien Facility.
M. Brent Turner
Mr. Turner was 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 Purchase Agreement. The Company previously entered into certain agreements with Revolution Financial, Inc., an entity partially owned by Mr. Turner, which were terminated upon completion of the sale of the Liberty Tax business. During the year ended December 25, 2021, the Company earned less than $0.2 million in royalties related to such agreements which was recorded in "Income (loss) from discontinued operations, net of tax" in the accompanying consolidated statements of operations.
Tax Receivable Agreement
In connection with the Company's acquisition of Buddy's, the Company entered into a TRA 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 TRA to the Buddy's Members as of December 25, 2021, were $17.3 million which is recorded in "Other non-current liabilities" in the accompanying consolidated balance sheets. No payments were made to Buddy's Members pursuant to the Tax Receivable Agreement during the year ended December 25, 2021.
(14) 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.
The Company is party to claims and lawsuits that are considered to be ordinary, routine litigation incidental to the business, including claims and lawsuits concerning 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.
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 $22.9 million as of December 25, 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 December 25, 2021.
(15) Segments
The Company's operations are conducted in six reporting business segments: Vitamin Shoppe, Pet Supplies Plus, Badcock, American Freight, Buddy's, and Sylvan. 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 Buddy's are included in the Company's results of operations beginning on July 10, 2019, the results of operations of Vitamin Shoppe are included in the Company's results of operations beginning on December 16, 2019, while the results of operations of American Freight are included in the Company's results of operations beginning on February 14, 2020. The results of operations of the Sears Outlet business are included in the Company's results of operations beginning on October 23, 2019 and are included in the results of operations of the American Freight segment. The results of operations of the FFO business are included in the Company's results of operations beginning on December 27, 2020 and are included in the results of operations of the American Freight segment. The results of Pet Supplies Plus are included in the Company's results of operations beginning on March 10, 2021, the results of operations of Sylvan are included in the Company's results of operations beginning on September 27, 2021, and the results of Badcock are included in the Company's results of operations beginning on November 22, 2021. As a result of the Company's sale of its Liberty Tax business, as discussed in "Note 3. Discontinued Operations", the
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Company's Liberty Tax business is not reported in segment information as this business is reported as a discontinued operation. Current and prior year amounts have been revised to reflect this change.
The Company measures the results of our segments using, among other measures, each segment's net revenues, operating expenses and operating income (loss). The Company may revise the measurement of each segment's operating income, including the allocation of overhead costs, as determined by the information regularly reviewed by the CODM. When the measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation. Because the Pet Supplies Plus Acquisition, Sylvan Acquisition, and Badcock Acquisition occurred in the year ended December 25, 2021, comparable information is not available; therefore, aforementioned segments' information is not provided in this discussion. Due to our Liberty Tax business being a discontinued operation, there is no comparative segment information to report.
The Company measures the results of its segments, using, among other measures, each segment's total revenue and income (loss) from operations. The Company may revise the measurement of each segment's income (loss) from operations as determined by the information regularly reviewed by the CODM. For the period ended December 29, 2018 and the year ended April 30, 2019, all revenues and operating income (loss) were from discontinued operations so no amounts are presented in the tables below.
Total revenues by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended | | Twelve Months Ended | | Transition Period From 5/1/2019 - |
(In thousands) | | 12/25/2021 | | 12/26/2020 | | 12/28/2019 |
Total revenue: | | | | | | |
Vitamin Shoppe | | $ | 1,172,725 | | | $ | 1,035,964 | | | $ | 30,574 | |
Pet Supplies Plus | | 917,439 | | | — | | | — | |
Badcock | | 102,057 | | | — | | | — | |
American Freight | | 988,892 | | | 896,431 | | | 68,230 | |
Buddy's | | 64,409 | | | 97,332 | | | 35,722 | |
Sylvan | | 9,682 | | | — | | | — | |
Consolidated total revenue | | $ | 3,255,204 | | | $ | 2,029,727 | | | $ | 134,526 | |
Operating income (loss) by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended | | Twelve Months Ended | | Transition Period From 5/1/2019 - |
(In thousands) | | 12/25/2021 | | 12/26/2020 | | 12/28/2019 |
Income (loss) from operations: | | | | | | |
Vitamin Shoppe | | $ | 104,004 | | | $ | 5,371 | | | $ | (13,509) | |
Pet Supplies Plus | | 41,654 | | | — | | | — | |
Badcock | | 22,674 | | | — | | | — | |
American Freight | | 66,541 | | | 40,348 | | | (18,539) | |
Buddy's | | 16,685 | | | 20,364 | | | 3,172 | |
Sylvan | | (712) | | | — | | | — | |
Total Segments | | 250,846 | | | 66,083 | | | (28,876) | |
Corporate | | (24,495) | | | (13,572) | | | (14,145) | |
Consolidated income (loss) from operations | | $ | 226,351 | | | $ | 52,511 | | | $ | (43,021) | |
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total assets by segment are as follows:
| | | | | | | | | | | | | | |
(In thousands) | | 12/25/2021 | | 12/26/2020 |
Total assets: | | | | |
Vitamin Shoppe | | $ | 596,964 | | | $ | 607,148 | |
Pet Supplies Plus | | 957,849 | | | — | |
Badcock | | 1,062,310 | | | — | |
American Freight | | 959,282 | | | 801,731 | |
Buddy's | | 146,033 | | | 137,698 | |
Sylvan | | 103,850 | | | — | |
Total Segments | | 3,826,288 | | | 1,546,577 | |
Corporate | | 86,883 | | | 203,196 | |
Consolidated total assets | | $ | 3,913,171 | | | $ | 1,749,773 | |
(16) Subsequent Events
On February 22, 2022, the Company's Board of Directors declared quarterly dividends of $0.625 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 April 15, 2022 to holders of record of the Company's common stock and Series A Preferred Stock on the close of business on April 1, 2022.
On February 22, 2022, the Company's Board of Directors approved a change in the Company's fiscal year-end from the Saturday in December closest to December 31st to the Saturday closest to December 31st.
FRANCHISE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Selected Quarterly Financial Information (Unaudited)
The following tables show a summary of the Company's quarterly financial information for each of the four quarters of 2021 and 2020 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fourth Quarter | | Third Quarter | | Second Quarter | | First Quarter |
Fiscal year ended December 25, 2021: | | | | | | | | |
Total revenues(1) | | $ | 942,276 | | | $ | 828,826 | | | $ | 862,758 | | | $ | 621,345 | |
Income from operations(1) | | $ | 60,457 | | | $ | 54,763 | | | $ | 58,156 | | | $ | 52,976 | |
Net income (loss) from continuing operations | | $ | 151,782 | | | $ | 35,998 | | | $ | 32,521 | | | $ | (28,334) | |
Net income (loss) from discontinued operations | | $ | (4,613) | | | $ | 128,072 | | | $ | 6,215 | | | $ | 42,147 | |
Net income (loss) attributable to Franchise Group, Inc. | | $ | 147,169 | | | $ | 164,070 | | | $ | 38,736 | | | $ | 13,813 | |
| | | | | | | | |
Basic earnings (loss) per share: | | | | | | | | |
Continuing operations | | $ | 3.71 | | | $ | 0.84 | | | $ | 0.76 | | | $ | (0.76) | |
Discontinued operations | | (0.11) | | | 3.18 | | | 0.15 | | | 1.05 | |
Total basic earnings per share | | $ | 3.60 | | | $ | 4.02 | | | $ | 0.91 | | | $ | 0.29 | |
| | | | | | | | |
Diluted earnings (loss) per share | | | | | | | | |
Continuing operations | | $ | 3.64 | | | $ | 0.83 | | | $ | 0.74 | | | $ | (0.76) | |
Discontinued operations | | (0.11) | | | 3.13 | | | 0.15 | | | 1.05 | |
Total diluted earnings per share | | $ | 3.53 | | | $ | 3.96 | | | $ | 0.89 | | | $ | 0.29 | |
| | | | | | | | |
Fiscal year ended December 26, 2020: | | | | | | | | |
Total revenues(1) | | $ | 491,534 | | | $ | 537,692 | | | $ | 497,554 | | | $ | 502,947 | |
Income from operations(1) | | $ | 15,899 | | | $ | 24,680 | | | $ | 14,777 | | | $ | (2,845) | |
Net income (loss) from continuing operations | | $ | 7,748 | | | $ | (4,726) | | | $ | (16,361) | | | $ | 33,984 | |
Net income (loss) from discontinued operations | | $ | (11,953) | | | $ | (3,871) | | | $ | (5,312) | | | $ | 25,555 | |
Net income (loss) attributable to Franchise Group, Inc. | | $ | (4,205) | | | $ | (8,597) | | | $ | (21,673) | | | $ | 59,539 | |
| | | | | | | | |
Basic earnings (loss) per share: | | | | | | | | |
Continuing operations | | $ | 0.19 | | | $ | (0.12) | | | $ | (0.47) | | | $ | 1.45 | |
Discontinued operations | | (0.30) | | | (0.10) | | | (0.15) | | | 1.09 | |
Total basic earnings per share(2) | | $ | (0.11) | | | $ | (0.22) | | | $ | (0.62) | | | $ | 2.54 | |
| | | | | | | | |
Diluted earnings (loss) per share: | | | | | | | | |
Continuing operations | | $ | 0.19 | | | $ | (0.12) | | | $ | (0.47) | | | $ | 1.43 | |
Discontinued operations | | (0.30) | | | (0.10) | | | (0.15) | | | 1.08 | |
Total diluted earnings per share(2) | | $ | (0.11) | | | $ | (0.22) | | | $ | (0.62) | | | $ | 2.51 | |
(1) Slight variations in totals are due to rounding.
(2) Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.