Franchise Group, Inc. [FRG] Filings

10-Q 1 frg-20220625.htm 10-Q frg-20220625

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 25, 2022

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-35588

Franchise Group, Inc.

(Exact name of registrant as specified in its charter)


Delaware						27-3561876
(State of incorporation)						(IRS employer identification no.)

109 Innovation Court, Suite J

Delaware, Ohio 43015

(Address of principal executive offices)

(740) 363-2222

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $.01 per share	FRG	NASDAQ Global Market
7.50% Series A Cumulative Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share	FRGAP	NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

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

The number of shares outstanding of the registrant's common stock, par value $0.01 value per share, as of July 29, 2022 was 40,361,906 shares.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Form 10-Q for the Quarterly Period Ended June 25, 2022

Table of Contents


		Page Number

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Stockholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		40

PART I. FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS (UNAUDITED)

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)


	Three Months Ended				Six Months Ended
(In thousands, except share count and per share data)	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenues:
Product	$	952,009	$	805,768	$	1,931,173	$	1,389,585
Service and other	135,648		48,193		283,929		76,768
Rental	7,341		8,797		15,365		17,750
Total revenues	1,094,998		862,758		2,230,467		1,484,103
Operating expenses:
Cost of revenue:
Product	600,780		522,576		1,217,364		861,991
Service and other	8,732		934		17,395		1,339
Rental	2,741		2,935		5,603		5,940
Total cost of revenue	612,253		526,445		1,240,362		869,270
Selling, general, and administrative expenses	405,639		278,157		782,633		503,702
Total operating expenses	1,017,892		804,602		2,022,995		1,372,972
Income from operations	77,106		58,156		207,472		111,131
Other expense:
Bargain purchase gain	3,581		—		3,514		—
Gain on sale-leaseback transactions, net	49,854		—		49,854		—
Other	12,853		—		(9,122)		(36,726)
Interest expense, net	(88,839)		(22,865)		(181,167)		(70,300)
Income from continuing operations before income taxes	54,555		35,291		70,551		4,105
Income tax expense (benefit)	13,572		2,770		17,250		(81)
Income from continuing operations	40,983		32,521		53,301		4,186
Income from discontinued operations, net of tax	—		6,215		—		48,363
Net income attributable to Franchise Group, Inc.	$	40,983	$	38,736	$	53,301	$	52,549

Income per share from continuing operations:
Basic	$	0.96	$	0.76	$	1.22	$	—
Diluted	0.94		0.74		1.19		—

Net income per share:
Basic	$	0.96	$	0.91	$	1.22	$	1.20
Diluted	0.94		0.89		1.19		1.20

Weighted-average shares outstanding:
Basic	40,356,299		40,175,058		40,331,855		40,142,571
Diluted	41,126,605		40,905,567		41,148,668		40,142,571

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)


	Three Months Ended				Six Months Ended
(In thousands)	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Net income	$	40,983	$	38,736	$	53,301	$	52,549
Other comprehensive income (loss)
Unrealized (gain) loss on interest rate swap agreement, net of taxes of $0, $(1), $0, and $13, respectively	—		(2)		—		45
Foreign currency translation adjustment	—		158		—		381
Forward contracts related to foreign currency exchange rates	—		(17)		—		—
Other comprehensive income	—		139		—		426
Comprehensive income	$	40,983	$	38,875	$	53,301	$	52,975

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)


(In thousands, except share count and per share data)	June 25, 2022		December 25, 2021
Assets
Current assets:
Cash and cash equivalents	$	95,038	$	292,714
Current receivables, net	178,687		118,698
Current securitized receivables, net	322,028		369,567
Inventories, net	825,393		673,170
Current assets held for sale	27,999		—
Other current assets	26,389		24,063
Total current assets	1,475,534		1,478,212
Property, plant, and equipment, net	226,771		449,886
Non-current receivables, net	10,402		11,755
Non-current securitized receivables, net	40,820		47,252
Goodwill	806,653		806,536
Intangible assets, net	122,347		127,951
Tradenames	222,703		222,687
Operating lease right-of-use assets	866,226		714,741

Investment in equity securities	24,394		35,249
Other non-current assets	19,151		18,902
Total assets	$	3,815,001	$	3,913,171
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations	$	322,363	$	486,170
Current operating lease liabilities	178,278		173,101
Accounts payable and accrued expenses	425,728		410,552

Other current liabilities	41,671		50,833
Total current liabilities	968,040		1,120,656
Long-term obligations, excluding current installments	1,281,530		1,383,725
Non-current operating lease liabilities	701,185		557,071

Other non-current liabilities	95,392		88,888
Total liabilities	3,046,147		3,150,340

Stockholders' equity:
Common stock, $0.01 par value per share, 180,000,000 shares authorized, 40,358,754 and 40,296,688 shares issued and outstanding at June 25, 2022 and December 25, 2021, respectively.	404		403
Preferred stock, $0.01 par value per share, 20,000,000 shares authorized, and 4,541,125 shares issued and outstanding at June 25, 2022 and December 25, 2021, respectively.	45		45
Additional paid-in capital	486,059		475,396
Retained earnings	282,346		286,987
Total equity	768,854		762,831
Total liabilities and equity	$	3,815,001	$	3,913,171

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)


	Three Months Ended June 25, 2022
(In thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital		Accumulated other comprehensive loss		Retained earnings		Total Franchise Group equity
Balance at March 26, 2022	40,354	$	404	4,541	$	45	$	480,628	$	—	$	270,609	$	751,686
Net income	—	—		—	—		—		—		40,983		40,983

Stock-based compensation expense, net	4	—		—	—		5,407		—		—		5,407
Issuance of common stock	1	—		—	—		24		—		—		24
Common dividend declared ($0.625 per share)	—	—		—	—		—		—		(27,117)		(27,117)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(2,129)		(2,129)
Balance at June 25, 2022	40,359	$	404	4,541	$	45	$	486,059	$	—	$	282,346	$	768,854


	Six Months Ended June 25, 2022
(In thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital		Accumulated other comprehensive loss		Retained earnings		Total Franchise Group equity
Balance at December 25, 2021	40,297	$	403	4,541	$	45	$	475,396	$	—	$	286,987	$	762,831
Net income	—	—		—	—		—		—		53,301		53,301
Exercise of stock options	15	—		—	—		180		—		—		180
Stock-based compensation expense, net	46	1		—	—		10,434		—		—		10,435
Issuance of common stock	1	—		—	—		49		—		—		49
Common dividend declared ($0.625 per share)	—	—		—	—		—		—		(53,685)		(53,685)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(4,257)		(4,257)
Balance at June 25, 2022	40,359	$	404	4,541	$	45	$	486,059	$	—	$	282,346	$	768,854

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)


	Three Months Ended June 26, 2021
(In thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital		Accumulated other comprehensive loss		Retained earnings		Total Franchise Group equity
Balance at March 27, 2021	40,157	$	402	4,541	$	45	$	464,106	$	(1,112)	$	19	$	463,460
Net income	—	—		—	—		—		—		38,736		38,736
Total other comprehensive income	—	—		—	—		—		139		—		139
Exercise of stock options	33	—		—	—		360		—		—		360
Stock-based compensation expense, net	18	—		—	—		2,884		—		—		2,884
Issuance of Series A Preferred Stock	—	—		—	—		1		—		—		1
Common dividend declared ($0.375 per share)	—	—		—	—		—		—		(15,457)		(15,457)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(2,128)		(2,128)
Balance at June 26, 2021	40,208	$	402	4,541	$	45	$	467,351	$	(973)	$	21,170	$	487,995


	Six Months Ended June 26, 2021
(In thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital		Accumulated other comprehensive loss		Retained earnings		Total Franchise Group equity
Balance at December 26, 2020	40,092	$	401	1,250	$	13	$	382,383	$	(1,399)	$	3,769	$	385,167
Net income	—	—		—	—		—		—		52,549		52,549
Total other comprehensive income	—	—		—	—		—		426		—		426
Exercise of stock options	36	—		—	—		385		—		—		385
Stock-based compensation expense, net	80	1		—	—		5,073		—		—		5,074
Issuance of Series A Preferred Stock	—	—		3,291	32		79,510		—		—		79,542
Common dividend declared ($0.375 per share)	—	—		—	—		—		—		(30,891)		(30,891)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(4,257)		(4,257)
Balance at June 26, 2021	40,208	$	402	4,541	$	45	$	467,351	$	(973)	$	21,170	$	487,995

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended
(In thousands)	June 25, 2022		June 26, 2021
Operating Activities
Net income	$	53,301	$	52,549
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for doubtful accounts	56,840		1,910
Depreciation, amortization, and impairment charges	42,236		31,157
Amortization of deferred financing costs and prepayment penalties	12,032		69,923
Amortization of securitized debt discount	128,208		—
Stock-based compensation expense	10,853		5,478
Change in fair value of investment	10,855		—
Gain on sale-leaseback, bargain purchases, and sales of Company-owned stores	(55,883)		(731)
Other non-cash items	(2,182)		645
Changes in operating assets and liabilities	(206,572)		(55,305)






Net cash provided by operating activities	49,688		105,626
Investing Activities
Purchases of property, plant, and equipment	(21,809)		(25,028)
Proceeds from sale of property, plant, and equipment	240,558		293
Acquisition of business, net of cash and restricted cash acquired	(3,754)		(462,821)

Issuance of operating loans to franchisees	—		(17,612)
Payments received on operating loans to franchisees	1,000		23,013
Net cash (used in) investing activities	215,995		(482,155)
Financing Activities
Dividends paid	(54,665)		(32,808)
Issuance of long-term debt and other obligations	219,056		1,306,724
Repayment of long-term debt and other obligations	(625,746)		(856,385)
Issuance of common stock	49		—
Issuance of preferred stock	—		79,542
Principal payments of finance lease obligations	(1,383)		—
Payment for debt issue costs and prepayment penalty on extinguishment	(431)		(87,502)
Other stock compensation transactions	(239)		(18)
Net cash provided by (used in) financing activities	(463,359)		409,553
Effect of exchange rate changes on cash, net	—		142
Net increase (decrease) in cash equivalents and restricted cash	(197,676)		33,166
Cash, cash equivalents and restricted cash at beginning of period	292,714		151,502
Cash, cash equivalents and restricted cash at end of period	$	95,038	$	184,668
Supplemental Cash Flow Disclosure
Cash paid for taxes, net of refunds	$	17,842	$	1,284
Cash paid for interest	42,013		61,249
Accrued capital expenditures	2,751		3,406
Capital expenditures funded by finance lease liabilities	—		1,211

See accompanying notes to condensed consolidated financial statements.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Statements of Cash Flows.


(In thousands)	June 25, 2022		June 26, 2021
Cash and cash equivalents	$	95,038	$	165,432
Restricted cash included in other non-current assets	—		367
Cash and cash equivalents for discontinued operations	—		18,869
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	95,038	$	184,668

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

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 25, 2022 and June 26, 2021

(1) Basis of Presentation

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

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

Accounting Pronouncements

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

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

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 the reference rate reform. It also provides option expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by the reference rate reform. As further described in "Note 7. Long-Term Obligations", the Company entered into an amendment to a debt agreement which changed the reference rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). The adoption of ASU 2020-04 did not result in a material impact to the Company's financial results or disclosures.

(2) Acquisitions

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

Badcock Acquisition

On November 22, 2021, the Company completed the Badcock Acquisition. The preliminary fair value of the consideration transferred at the acquisition date was $548.8 million. For the six months ended June 25, 2022, $0.8 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.

The table below summarizes the unaudited preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Badcock Acquisition on November 22, 2021. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in an adjustment to the preliminary values presented below. In the six months ended June 25, 2022, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted, which resulted in an increase to the bargain purchase gain of $3.5 million. The increase was primarily due to the valuation of the property, plant, and equipment partially offset by an increase in other long-term liabilities for deferred taxes. The Company expects to complete the purchase price allocation as soon as reasonably possible but not to exceed one year from the date of completion of the Badcock Acquisition.


(In thousands)	Preliminary November 22, 2021
Cash and cash equivalents	$	23,413
Inventories, net	130,045
Accounts receivable	411,268
Other current assets	5,023
Property, plant, and equipment	238,865
Operating lease right-of-use assets	55,626
Other non-current assets	2,506
Total assets	866,746
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	27,849
Total liabilities	182,404

Bargain purchase gain	(135,557)

Consideration transferred	$	548,785

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

Property, plant, and equipment consists of fixtures and equipment of $93.0 million, buildings and building improvements of $98.0 million, land and land improvements of $33.4 million, leasehold improvements of $23.7 million, and construction in progress of $1.4 million.

During the six months ended June 25, 2022, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted, which resulted in a $3.5 million increase to the bargain purchase gain for a cumulative bargain purchase gain of $135.6 million. The adjustment is classified as "Bargain purchase gain" on 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 in the Badcock Acquisition was motivated to complete the transaction as part of an overall repositioning of its business. Upon completion of this reassessment, the Company concluded that recording a bargain purchase gain with respect to the Badcock

Acquisition was appropriate and required under GAAP. The tax impact related to the bargain purchase gain was non-taxable and impacted the Company's effective tax rate for the period.

Sylvan Acquisition

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

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


(In thousands)	Preliminary September 27, 2021
Cash and cash equivalents	$	4,364
Other current assets	3,592
Property, plant, and equipment	26,324
Goodwill	19,406
Tradenames	24,987
Operating lease right-of-use assets	2,874
Other intangible assets	19,412
Other non-current assets	185
Total assets	101,144
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	$	82,877

Other intangible assets consists of the franchise agreements of $18.3 million and proprietary content of $1.1 million.

Property, plant and equipment consists of fixtures and equipment of $0.3 million, leasehold improvements of $0.7 million, and software and electronic content of $25.3 million.

Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The goodwill recognized is attributable to operational synergies in the expected franchise models and growth opportunities. None of the acquired goodwill is deductible for tax purposes.

Pet Supplies Plus Acquisition

On March 10, 2021, the Company completed its acquisition of Pet Supplies Plus. Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The goodwill recognized is attributable to operational synergies in the expected franchise models and growth opportunities. All of the acquired goodwill is deductible for tax purposes.

Wag N' Wash Acquisition

On February 22, 2022, the Company's Pet Supplies Plus segment completed the acquisition of Wag N' Wash, an emerging natural pet food, self-wash, and grooming franchise, for an all cash purchase price of $0.9 million, and five of the Wag N' Wash stores were subsequently sold to a franchisee for $0.6 million. The components of the purchase price allocation are not presented herein due to the immateriality of the transaction to the Company overall.

Pro forma financial information

The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the Acquisitions as if they had occurred on January 1, 2020.


	Pro forma (Unaudited)
	Three Months Ended				Six Months Ended
(In thousands)	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenue	$	1,094,997	$	1,101,517	$	2,230,467	$	2,145,743
Net income	38,275		64,277		50,642		119,691
Basic net income per share	$	0.90	$	1.55	$	1.15	$	2.88
Diluted net income per share	$	0.88	$	1.52	$	1.13	$	2.82

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

•Acquired inventory step-up to its fair value of $2.3 million is assumed to be recorded in the first quarter of 2020 and therefore removed from the six months ended June 26, 2021.

•Acquisition transaction related costs of $4.9 million that were incurred during the six months ended June 26, 2021 are assumed to have occurred on the pro forma close date of January 1, 2020, and recognized as if incurred in the first quarter of 2020.

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

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

(3) Divestitures

Liberty Tax Divestiture

On July 2, 2021, the Company completed the sale of its Liberty Tax business (the "Liberty Transaction") to NextPoint Acquisition Corp. ("NextPoint") and received total consideration of approximately $255.3 million, consisting of approximately $181.2 million in cash and approximately $74.1 million in proportionate voting shares of NextPoint recorded as an investment in equity securities in "Investment in equity securities" on the Condensed Consolidated Balance Sheets. As a result of the Liberty Transaction, the financial position and results of operations of the Liberty Tax business are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for the three and six months ended June 26, 2021.

The following is a Condensed Consolidated Statement of Operations for the Liberty Tax business. The amounts are included in "Income (loss) from discontinued operations, net of tax" in the Company's Condensed Consolidated Statements of Operations.


	Three Months Ended		Six Months Ended
(In thousands)	June 26, 2021		June 26, 2021
Revenue	$	30,513	$	106,993
Selling, general, and administrative expenses	23,725		57,786
Income from operations	6,788		49,207
Other expense:

Other	16		168
Interest expense, net	10		—
Income before income taxes	6,814		49,375
Income tax expense	599		1,012
Net income attributable to discontinued operations	$	6,215	$	48,363

The following is the operating and investing activities for the Liberty Tax business. These amounts are included in the Company's Condensed Consolidated Statement of Cash Flows.


	Six Months Ended
(In thousands)	June 26, 2021
Cash flows provided by operating activities from discontinued operations	$	36,627
Cash flows provided by investing activities from discontinued operations	$	492

Assets Held for Sale

As of June 25, 2022, the Company's Badcock segment was negotiating sale-leaseback transactions for its headquarters and sale of certain non-operating properties. The net book value of the properties of $28.0 million is classified as "Current assets held for sale" on the Condensed Consolidated Balance Sheets. The Company's Badcock segment headquarters and non-operating properties are classified as assets held for sale as the Company was in active negotiations and the assets were expected to be sold within a year as of June 25, 2022. Purchase and sale agreements for the headquarters for gross proceeds of $23.5 million were entered into on April 26, 2022, as amended on May 25, 2022. On August 2, 2022, Badcock completed the sale of its headquarters. Please refer to "Note 14 - Subsequent Events" in this Quarterly Report. Upon the closing of the sales for the headquarters, a corresponding operating lease right of use asset and operating lease liability was recorded to the Condensed Consolidated Balance Sheets for the Lease Transactions.

Sale-Leaseback Transactions

In the six months ended June 25, 2022, the Company's Badcock segment sold a number of its retail locations and distribution centers for a total of $238.0 million, resulting in a net gain of $49.9 million, comprised of $54.1 million of gains and $4.2 million of losses. Contemporaneously with the sale, the Company entered into lease agreements pursuant to which the Company leased back the retail locations and distribution centers, which are being accounted for as operating leases. The net gain has been recognized as "Gain on sale-leaseback transactions" on the Consolidated Statements of Operations for the three and six months ended June 25, 2022.

(4) Accounts and Notes Receivable

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


(In thousands)	June 25, 2022		December 25, 2021
Accounts receivable	$	162,329	$	86,087
Notes receivable	1,233		1,681
Interest receivable	52		54
Income tax receivable	27,441		32,448
Allowance for doubtful accounts	(12,368)		(1,572)
Current receivables, net	178,687		118,698
Notes receivable, non-current	10,821		12,183
Allowance for doubtful accounts, non-current	(419)		(428)
Non-current receivables, net	10,402		11,755
Total receivables	$	189,089

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