Franchise Group, Inc. [FRG] Filings

10-Q 1 frg-20220326.htm 10-Q frg-20220326

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 March 26, 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 April 30, 2022 was 40,354,436 shares.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Form 10-Q for the Quarterly Period Ended March 26, 2022

Table of Contents


		Page Number

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Operation s	2
	Condensed Consolidated Statements of Comprehensive Income (Loss )	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Stockholders' Equit y	5
	Condensed Consolidated Statements of Cash Flow s	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
Signatures		38

PART I. FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS (UNAUDITED)

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)


	Three Months Ended
(In thousands, except share count and per share data)	March 26, 2022		March 27, 2021
Revenues:
Product	$	979,164	$	583,816
Service and other	148,282		28,576
Rental	8,024		8,953
Total revenues	1,135,470		621,345
Operating expenses:
Cost of revenue:
Product	616,585		339,414
Service and other	8,663		405
Rental	2,861		3,005
Total cost of revenue	628,109		342,824
Selling, general, and administrative expenses	376,995		225,545
Total operating expenses	1,005,104		568,369
Income from operations	130,366		52,976
Other expense:
Bargain purchase gain	(67)		—
Other	(21,977)		(36,726)
Interest expense, net	(92,327)		(47,435)
Income (loss) from continuing operations before income taxes	15,995		(31,185)
Income tax expense (benefit)	3,678		(2,851)
Income (loss) from continuing operations	12,317		(28,334)
Income (loss) from discontinued operations, net of tax	—		42,147


Net income (loss) attributable to Franchise Group, Inc.	$	12,317	$	13,813

Income (loss) per share from continuing operations:
Basic	$	0.25	$	(0.76)
Diluted	0.25		(0.76)

Net income (loss) per share:
Basic	$	0.25	$	0.29
Diluted	0.25		0.29

Weighted-average shares outstanding:
Basic	40,307,412		40,110,084
Diluted	41,107,793		40,110,084

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

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


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

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)


(In thousands, except share count and per share data)	March 26, 2022		December 25, 2021
Assets
Current assets:
Cash and cash equivalents	$	149,597	$	292,714
Current receivables, net	110,368		118,698
Current securitized receivables, net	386,886		369,567
Inventories, net	779,279		673,170
Current assets held for sale	203,679		—
Other current assets	28,403		24,063
Total current assets	1,658,212		1,478,212
Property, plant, and equipment, net	237,056		449,886
Non-current receivables, net	11,156		11,755
Non-current securitized receivables, net	48,355		47,252
Goodwill	806,697		806,536
Intangible assets, net	125,222		127,951
Tradenames	222,687		222,687
Operating lease right-of-use assets	713,820		714,741

Investment in equity securities	11,626		35,249
Other non-current assets	18,578		18,902
Total assets	$	3,853,409	$	3,913,171
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations	$	487,957	$	486,170
Current operating lease liabilities	173,295		173,101
Accounts payable and accrued expenses	458,776		410,552

Other current liabilities	51,572		50,833
Total current liabilities	1,171,600		1,120,656
Long-term obligations, excluding current installments	1,286,972		1,383,725
Non-current operating lease liabilities	552,412		557,071

Other non-current liabilities	90,739		88,888
Total liabilities	3,101,723		3,150,340

Stockholders' equity:
Common stock, $0.01 par value per share, 180,000,000 shares authorized, 40,353,865 and 40,296,688 shares issued and outstanding at March 26, 2022 and December 25, 2021, respectively	404		403
Preferred stock, $0.01 par value per share, 20,000,000 shares authorized and 4,541,125 shares issued and outstanding at March 26, 2022 and December 25, 2021	45		45
Additional paid-in capital	480,628		475,396
Retained earnings	270,609		286,987
Total equity	751,686		762,831
Total liabilities and equity	$	3,853,409	$	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 March 26, 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	—	—		—	—		—		—		12,317		12,317

Exercise of stock options	15	—		—	—		180		—		—		180
Stock-based compensation expense, net	41	1		—	—		5,028		—		—		5,029
Issuance of common stock	1	—		—	—		24		—		—		24
Common dividend declared ($0.625 per share)	—	—		—	—		—		—		(26,567)		(26,567)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(2,128)		(2,128)
Balance at March 26, 2022	40,354	$	404	4,541	$	45	$	480,628	$	—	$	270,609	$	751,686

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)


	Three Months Ended March 27, 2021
(In thousands)	Common stock 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	—	—		—	—		—		—		13,813		13,813
Total other comprehensive income	—	—		—	—		—		287		—		287
Exercise of stock options	3	—		—	—		25		—		—		25
Stock-based compensation expense, net	62	1		—	—		2,189		—		—		2,190
Issuance of Series A Preferred Stock	—	—		3,291	32		79,509		—		—		79,541
Common dividend declared ($0.375 per share)	—	—		—	—		—		—		(15,434)		(15,434)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(2,129)		(2,129)
Balance at March 27, 2021	40,157	$	402	4,541	$	45	$	464,106	$	(1,112)	$	19	$	463,460

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended
(In thousands)	March 26, 2022		March 27, 2021
Operating Activities
Net income	$	12,317	$	13,813
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for doubtful accounts	15,103		710
Depreciation, amortization, and impairment charges	22,033		14,176
Amortization of deferred financing costs and prepayment penalties	71,679		67,699
Stock-based compensation expense	5,447		2,550
Change in fair value of investment	23,723		—
(Gain) on bargain purchases and sales of Company-owned stores	(2,206)		(623)
Other non-cash items	(2,227)		(62)
Changes in operating assets and liabilities	(83,716)		(22,512)






Net cash provided by operating activities	62,153		75,751
Investing Activities
Purchases of property, plant, and equipment	(9,752)		(11,667)
Proceeds from sale of property, plant, and equipment	2,554		277
Acquisition of business, net of cash and restricted cash acquired	(3,930)		(463,753)

Issuance of operating loans to franchisees	—		(17,058)
Payments received on operating loans to franchisees	—		21,644
Net cash (used in) investing activities	(11,128)		(470,557)
Financing Activities
Dividends paid	(27,315)		(15,620)
Issuance of long-term debt and other obligations	124,358		1,306,724
Repayment of long-term debt and other obligations	(290,202)		(854,665)
Issuance of common stock	24		—
Issuance of preferred stock	—		79,541
Principal payments of finance lease obligations	(768)		—
Payment for debt issue costs and prepayment penalty on extinguishment	—		(87,490)
Other stock compensation transactions	(239)		(336)
Net cash provided by (used in) financing activities	(194,142)		428,154
Effect of exchange rate changes on cash, net	—		56
Net increase (decrease) in cash equivalents and restricted cash	(143,117)		33,404
Cash, cash equivalents and restricted cash at beginning of period	292,714		151,502
Cash, cash equivalents and restricted cash at end of period	$	149,597	$	184,906
Supplemental Cash Flow Disclosure
Cash paid for taxes, net of refunds	$	274	$	65
Cash paid for interest	21,424		39,730
Accrued capital expenditures	3,177		3,019

Tax receivable agreement included in other long-term liabilities	—		16,775

See accompanying notes to condensed consolidated financial statements.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.


(In thousands)	March 26, 2022		March 27, 2021
Cash and cash equivalents	$	149,597	$	164,858
Restricted cash included in other non-current assets	—		368
Cash and cash equivalents for discontinued operations	—		19,680
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	149,597	$	184,906

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

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

March 26, 2022 and March 27, 2021

(1) Basis of Presentation

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

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

Accounting Pronouncements

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

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

(2) Acquisitions

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

Badcock Acquisition

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

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

assets acquired and liabilities assumed were adjusted, which resulted in an increase in the bargain purchase gain of $0.1 million. The increase was primarily due to an increase in operating lease right-of use assets of $3.9 million related to market lease terms partially offset by a $1.1 million increase in other long-term liabilities for deferred taxes and a net working capital true-up of $2.9 million. The Company expects to complete the purchase price allocation as soon as reasonably possible but not to exceed one year from the date of completion of the Badcock Acquisition.


(In thousands)	Preliminary November 22, 2021
Cash and cash equivalents	$	23,413
Inventories, net	130,045
Accounts receivable	411,268
Other current assets	5,023
Property, plant, and equipment	233,938
Operating lease right-of-use assets	55,626
Other non-current assets	2,506
Total assets	861,819
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	26,504
Total liabilities	181,059

Bargain purchase gain	(132,110)

Consideration transferred	$	548,650

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

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

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

Sylvan Acquisition

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

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

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


(In thousands)	Preliminary September 27, 2021
Cash and cash equivalents	$	4,364
Other current 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.

Pet Supplies Plus Acquisition

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

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


(In thousands)	Preliminary March 10, 2021
Cash and cash equivalents	$	2,131
Other current assets	39,844
Inventories, net	118,600
Property, equipment and software, net	75,616
Goodwill	335,995
Operating lease right-of-use assets	151,243
Tradenames	104,400
Other intangible assets, net	101,400
Other non-current assets	6,393
Total assets	935,622
Current operating lease liabilities	25,405
Accounts payable and accrued expenses	82,237
Other current liabilities	1,606
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	484,266
Consideration transferred	$	451,356

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

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

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

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

Wag N' Wash Acquisition

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

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

Pro forma financial information

The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the Acquisitions as if they had occurred on December 25, 2021.


	Pro forma (Unaudited)
	Three Months Ended
(In thousands)	March 26, 2022		March 27, 2021
Revenue	$	1,135,469	$	1,052,002
Net income	12,366		55,276
Basic net income per share	$	0.31	$	1.38
Diluted net income per share	$	0.30	$	1.35

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

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

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

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

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

(3) Discontinued Operations and Assets Held for Sale

Liberty Tax Divestiture

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

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


	Three Months Ended
(In thousands)	March 26, 2022		March 27, 2021
Revenue	$	—	$	76,480
Selling, general, and administrative expenses	—		34,061
Income from operations	—		42,419
Other expense:
Other	—		153
Interest expense, net	—		(11)
Income before income taxes	—		42,561
Income tax expense	—		414


Net income attributable to discontinued operations	$	—	$	42,147

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


	Three Months Ended
(In thousands)	March 26, 2022		March 27, 2021
Cash flows provided by operating activities from discontinued operations	$	—	$	15,787
Cash flows provided by investing activities from discontinued operations	$	—	$	2,058

Assets Held for Sale

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

(4) Accounts and Notes Receivable

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


(In thousands)	March 26, 2022		December 25, 2021
Accounts receivable	$	82,848	$	86,087
Notes receivable	1,506		1,681
Interest receivable	55		54
Income tax receivable	27,149		32,448
Allowance for doubtful accounts	(1,190)		(1,572)
Current receivables, net	110,368		118,698
Notes receivable, non-current	11,580		12,183
Allowance for doubtful accounts, non-current	(424)		(428)
Non-current receivables, net	11,156		11,755
Total receivables	$	121,524	$	130,453

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

Secured Borrowing Accounting

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

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

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

(5) Goodwill and Intangible Assets

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

Changes in the carrying amount of goodwill for the three months ended March 26, 2022 are as follows:


	Vitamin Shoppe		Pet Supplies Plus		American Freight		Buddy's		Sylvan		Total
Balance as of December 25, 2021	$	1,277	$	335,875	$	370,829	$	79,099	$	19,456	$	806,536
Acquisitions	—		937		—		—		—		937
Disposals and purchase accounting adjustments	—		(726)		—		—		(50)		(776)
Balance as of March 26, 2022	$	1,277	$	336,086	$	370,829	$	79,099	$	19,406	$	806,697

Components of intangible assets as of March 26, 2022 and December 25, 2021 were as follows:


	March 26, 2022
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	222,687	$	—	$	222,687

Intangible assets
Franchise and dealer agreements	$	95,865	$	(8,379)	$	87,486
Customer contracts	42,414		(6,128)		36,286
Other intangible assets	1,929		(479)		1,450
Total intangible assets	$	140,208	$	(14,986)	$	125,222


	December 25, 2021
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	222,687	$	—	$	222,687

Intangible assets
Franchise and dealer agreements	$	95,865	$	(6,571)	$	89,294
Customer contracts	42,414		(5,215)		37,199
Other intangible assets	1,836		(378)		1,458
Total intangible assets	$	140,115	$	(12,164)	$	127,951

(6) Revenue

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


	March 26, 2022
	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy's		Sylvan		Consolidated
(In thousands)	Three Months Ended
Retail sales	$	310,430	$	162,549	$	166,642	$	211,513	$	1,070	$	11	$	852,215
Wholesale sales	175		123,232		—		3,542		—		—		126,949
Total product revenue	310,605		285,781		166,642		215,055		1,070		11		979,164
Royalties and other franchise based fees	134		9,062		—		548		4,824		9,509		24,077
Financing revenue	—		—		—		8,175		—		—		8,175
Interest income	—		73		65,269		195		—		—		65,537
Warranty and damage revenue	—		—		13,546		11,479		1,604		—		26,629
Other revenues	214		6,298		10,802		5,964		63		523		23,864
Total service revenue	348		15,433		89,617		26,361		6,491		10,032		148,282
Rental revenue, net	—		—		—		—		8,024		—		8,024
Total rental revenue	—		—		—		—		8,024		—		8,024
Total revenue	$	310,953	$	301,214	$	256,259	$	241,416	$	15,585	$	10,043	$	1,135,470

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


	March 27, 2021
	Vitamin Shoppe		Pet Supplies Plus †		American Freight		Buddy's		Consolidated
(In thousands)	Three Months Ended		Three Months Ended		Three Months Ended		Three Months Ended		Three Months Ended
Retail sales	$	294,739	$	31,365	$	239,058	$	1,368	$	566,530
Wholesale sales	—		17,287		—		—		17,287
Total product revenue	294,739		48,652		239,058		1,368		583,817
Royalties and other franchise based fees	—		1,390		—		4,555		5,945
Financing revenue	—		—		8,579		—		8,579
Interest income	—		13		295		—		308
Warranty and damage revenue	—		—		6,397		1,806		8,203
Other revenues	—		1,254		4,188		98		5,540
Total service revenue	—		2,657		19,459		6,459		28,575
Rental revenue, net	—		—		—		8,953

Franchise Group, Inc. [FRG] Filings

Franchise Group, Inc. [FRGAP] Filings