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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 October 2, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
 
  
Utz Brands, Inc.
(Exact name of registrant as specified in its charter)
  
Delaware 001-38686 85-2751850
(State or other jurisdiction
of incorporation)
 (Commission File Number) (IRS Employer
Identification No.)
 
900 High Street
Hanover, PA 17331
(Address of principal executive offices, including zip code)
 
Registrant’s telephone number, including area code: (717) 637-6644

N/A
(Former name or former address, if changed since last report)
  
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share
UTZ
New York Stock Exchange

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 (§ 232.405 of this chapter) 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, 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 ⌧




As of November 7, 2022, 80,812,835 shares of Class A Common Stock, par value $0.0001 per share, and 59,349,000 shares of Class V Common Stock, par value $0.0001 per share, were issued and outstanding.

INTRODUCTORY NOTE

On August 28, 2020 (the "Closing Date"), Utz Brands, Inc. (formerly Collier Creek Holdings) (the "Company"), consummated a business combination (the "Business Combination") with Utz Brands Holdings, LLC ("UBH") pursuant to the terms of the Business Combination Agreement, dated as of June 5, 2020 (the "Business Combination Agreement"), entered into by and among the Company, UBH, and Series U of UM Partners, LLC ("Series U") and Series R of UM Partners, LLC ("Series R" and together with Series U, the "Continuing Members"). Additional information about the Business Combination can be found in our Annual Report on Form 10-K for the year ended January 2, 2022.
Throughout this Quarterly Report on Form 10-Q, unless otherwise noted the "Company", "we", "us", "our", "UBI" and "Utz" refer to Utz Brands, Inc. and its consolidated subsidiaries.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for the Company’s business. Specifically, forward-looking statements may include statements relating to:

The financial position, capital structure, indebtedness, business strategy and plans and objectives of management for future operations;
The benefits of acquisitions, dispositions and similar transactions;
The future performance of, and anticipated financial impact on, the Company;
Expansion plans and opportunities;
The impact of inflation and supply chain disruptions on the Company's business; and
Other statements preceded by, followed by or that include the words "may," "can," "should," "will," "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target" or similar expressions.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and the Company management’s current expectations, forecasts and assumptions, and involve a number of judgments, known and unknown risks and uncertainties and other factors, many of which are outside the control of the Company and its directors, officers and affiliates. Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date. The Company does not undertake any obligation to update, add or to otherwise correct any forward-looking statements contained herein to reflect events or circumstances after the date they were made, whether as a result of new information, future events, inaccuracies that become apparent after the date hereof or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, the Company’s results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ are described under Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended January 2, 2022. There have been no material changes to our risk factors since the filing of the Annual Report on Form 10-K.






PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Utz Brands, Inc.
CONSOLIDATED BALANCE SHEETS
October 2, 2022 and January 2, 2022
(In thousands)
 
As of
October 2, 2022
As of January 2, 2022
 (Unaudited)
ASSETS
Current Assets
Cash and cash equivalents$51,805 $41,898 
Accounts receivable, less allowance of $1,826 and $1,391, respectively
144,016 131,388 
Inventories107,382 79,517 
Prepaid expenses and other assets34,484 18,395 
Current portion of notes receivable9,467 6,706 
Total current assets347,154 277,904 
Non-current Assets
Property, plant and equipment, net333,908 303,807 
Goodwill915,295 915,438 
Intangible assets, net1,109,802 1,142,509 
Non-current portion of notes receivable14,014 20,725 
Other assets99,261 55,963 
Total non-current assets2,472,280 2,438,442 
Total assets$2,819,434 $2,716,346 
LIABILITIES AND EQUITY
Current Liabilities
Current portion of term debt$15,089 $11,414 
Current portion of other notes payable13,617 9,957 
Accounts payable101,654 95,369 
Accrued expenses and other76,447 71,280 
Total current liabilities206,807 188,020 
  Non-current portion of term debt and revolving credit facility887,270 830,548 
  Non-current portion of other notes payable19,643 24,709 
  Non-current accrued expenses and other64,687 55,838 
  Non-current warrant liability42,192 46,224 
  Deferred tax liability135,337 136,334 
Total non-current liabilities1,149,129 1,093,653 
Total liabilities1,355,936 1,281,673 
Commitments and Contingencies
Equity
Shares of Class A Common Stock, $0.0001 par value; 1,000,000,000 shares authorized; 80,812,835 and 77,644,645 shares issued and outstanding as of October 2, 2022 and January 2, 2022, respectively.
8 8 
Shares of Class V Common Stock, $0.0001 par value; 61,249,000 shares authorized; 59,349,000 shares issued and outstanding as of October 2, 2022 and January 2, 2022.
6 6 
Additional paid-in capital941,375 912,574 
Accumulated deficit (264,845)(236,598)
Accumulated other comprehensive income 32,620 3,715 
Total stockholders' equity709,164 679,705 
Noncontrolling interest754,334 754,968 
Total equity1,463,498 1,434,673 
Total liabilities and equity$2,819,434 $2,716,346 
The accompanying notes are an integral part of these consolidated financial statements.
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Utz Brands, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the thirteen and thirty-nine weeks ended October 2, 2022 and October 3, 2021
(In thousands, except share information)
(Unaudited)
Thirteen weeks ended October 2, 2022Thirteen weeks ended October 3, 2021Thirty-nine weeks ended October 2, 2022Thirty-nine weeks ended October 3, 2021
Net sales$362,818 $312,680 $1,053,732 $879,781 
Cost of goods sold244,545 210,053 720,123 586,353 
Gross profit118,273 102,627 333,609 293,428 
Selling, distribution, and administrative expenses
Selling and distribution69,263 67,985 226,169 189,152 
Administrative33,182 30,724 110,549 89,698 
Total selling, distribution, and administrative expenses102,445 98,709 336,718 278,850 
(Loss) gain on sale of assets, net(823)(1,043)919 1,965 
Income (loss) from operations15,005 2,875 (2,190)16,543 
Other (expense) income
Interest expense(11,648)(7,726)(31,478)(26,483)
Other income205 740 80 2,216 
(Loss) gain on remeasurement of warrant liability(3,672)36,288 4,032 34,155 
Other (expense) income, net(15,115)29,302 (27,366)9,888 
(Loss) income before taxes(110)32,177 (29,556)26,431 
Income tax (benefit) expense(1,595)827 (1,688)2,251 
Net income (loss)1,485 31,350 (27,868)24,180 
Net (gain) loss attributable to noncontrolling interest(2,373)1,902 12,589 4,122 
Net (loss) income attributable to controlling interest$(888)$33,252 $(15,279)$28,302 
Earnings (loss) per Class A Common stock: (in dollars)
Basic $(0.01)$0.43 $(0.19)$0.36 
Diluted$(0.01)$0.40 $(0.19)$0.34 
Weighted-average shares of Class A Common stock outstanding
Basic80,812,835 76,713,241 79,852,137 76,380,244 
Diluted80,812,835 80,906,618 79,852,137 81,082,177 
Net income (loss)$1,485 $31,350 $(27,868)$24,180 
Other comprehensive income:
Change in fair value of interest rate swap19,655 686 50,475 2,115 
Comprehensive income21,140 32,036 22,607 26,295 
Net comprehensive (income) loss attributable to noncontrolling interest(10,696)1,902 (8,981)4,122 
Net comprehensive income attributable to controlling interest$10,444 $33,938 $13,626 $30,417 
The accompanying notes are an integral part of these consolidated financial statements.
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Utz Brands, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
For the thirteen and thirty-nine weeks ended October 2, 2022 and October 3, 2021
In thousands, except share data) (Unaudited)
Class A Common StockClass V Common StockAdditional Paid-in CapitalAccumulated (Deficit)Accumulated Other Comprehensive IncomeTotal Stockholders' EquityNon-controlling InterestTotal Equity
SharesAmountSharesAmount
Balance at January 3, 202171,094,714 $7 60,349,000 $6 $793,461 $(241,490)$924 $552,908 $831,994 $1,384,902 
Conversion of warrants4,976,717 — — 144,659 — — 144,659 (32,714)111,945 
Share-based compensation498,991 1 — 6,638 — — 6,639 — 6,639 
Net loss— — — (4,950)— (4,950)(2,220)(7,170)
Other comprehensive income— — — — 1,429 1,429 — 1,429 
Cash dividends declared ($0.10 per share of Class A Common Stock)
— — — (7,645)— (7,645)— (7,645)
Distribution to noncontrolling interest— — — — — — (10,829)(10,829)
Balance at July 4, 202176,570,422 8 60,349,000 6 944,758 (254,085)2,353 693,040 786,231 1,479,271 
Stock-based compensation— — 2,041 — — 2,041 — 2,041 
Exchange1,000,000 — (1,000,000)— 12,949 — — 12,949 (12,949)— 
Net income (loss)— — — 33,252 — 33,252 (1,902)31,350 
Other comprehensive income— — — — 686 686 — 686 
Cash dividends declared ($0.05 per share of Class A Common Stock)
— — — (3,829)— (3,829)— (3,829)
Distribution to noncontrolling interest— — — — — — (3,131)(3,131)
Balance at October 3, 202177,570,422 $8 59,349,000 $6 $959,748 $(224,662)$3,039 $738,139 $768,249 $1,506,388 
Balance at January 2, 202277,644,645 $8 59,349,000 $6 $912,574 $(236,598)$3,715 $679,705 $754,968 $1,434,673 
Payments of tax withholding requirements for employee stock awards— — (6,217)— — (6,217)— (6,217)
Share-based compensation1,062,817 — — 5,779 — — 5,779 — 5,779 
Issuance of common stock in connection with private placement sale2,105,373 — — 28,000 — — 28,000 — 28,000 
Tax impact arising from share issuance— — (561)— — (561)— (561)
Net loss— — — (14,391)— (14,391)(14,962)(29,353)
Other comprehensive income— — — — 17,573 17,573 13,247 30,820 
Cash dividends declared ($0.108 per share of Class A Common Stock)
— — — (8,604)— (8,604)— (8,604)
Distribution to noncontrolling interest— — — — — — (6,410)(6,410)
Balance at July 3, 202280,812,835 8 59,349,000 6 939,575 (259,593)21,288 701,284 746,843 1,448,127 
Stock-based compensation— — 1,800 — — 1,800 — 1,800 
Net (loss) income— — — (888)— (888)2,373 1,485 
Other comprehensive income— — — — 11,332 11,332 8,323 19,655 
Cash dividends declared ($0.054 per share of Class A Common Stock)
— — — (4,364)— (4,364)— (4,364)
Distribution to noncontrolling interest— — — — — — (3,205)(3,205)
Balance at October 2, 202280,812,835 $8 59,349,000 $6 $941,375 $(264,845)$32,620 $709,164 $754,334 $1,463,498 
The accompanying notes are an integral part of these consolidated financial statements.
3


Utz Brands, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the thirty-nine weeks ended October 2, 2022 and October 3, 2021
(In thousands)
(Unaudited)
Thirty-nine weeks ended October 2, 2022Thirty-nine weeks ended October 3, 2021
Cash flows from operating activities
Net (loss) income$(27,868)$24,180 
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment and other charges4,678  
Depreciation and amortization66,345 59,295 
Gain on remeasurement of warrant liability (4,032)(34,155)
Gain on sale of assets(919)(1,965)
Share-based compensation7,579 8,680 
Deferred taxes(1,315)723 
Deferred financing costs1,047 3,498 
Changes in assets and liabilities:
Accounts receivable, net(12,628)(30,577)
Inventories(27,866)(7,564)
Prepaid expenses and other assets(18,308)(9,598)
Accounts payable and accrued expenses and other21,358 (8,235)
Net cash provided by operating activities8,071 4,282 
Cash flows from investing activities
Acquisitions, net of cash acquired(75)(66,631)
Purchases of property and equipment(68,708)(17,794)
Purchases of intangibles (1,757)
Proceeds from sale of property and equipment4,100 1,604 
Proceeds from sale of routes16,819 8,027 
Proceeds from the sale of IO notes5,017 7,922 
Proceeds from insurance claims for capital investments3,935  
Notes receivable, net(14,028)(9,452)
Net cash used in investing activities(52,940)(78,081)
Cash flows from financing activities
Line of credit borrowings, net 40,390  
Borrowings on term debt and notes payable33,969 820,617 
Repayments on term debt and notes payable(20,692)(789,662)
Payment of debt issuance cost(1,471)(9,210)
Payments of tax withholding requirements for employee stock awards(6,217) 
Exercised warrants 57,232 
Proceeds from issuance of shares28,000  
Dividends (12,793)(11,908)
Distribution to noncontrolling interest(6,410)(14,140)
Net cash provided by financing activities54,776 52,929 
Net increase (decrease) in cash and cash equivalents9,907 (20,870)
Cash and cash equivalents at beginning of period41,898 46,831 
Cash and cash equivalents at end of period$51,805 $25,961 
The accompanying notes are an integral part of these consolidated financial statements.
4


Utz Brands, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The accompanying consolidated financial statements comprise the financial statements of Utz Brands, Inc. ("UBI" or the "Company", formerly Collier Creek Holdings ("CCH")) and its wholly owned subsidiaries. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). They do not include all information and notes required by U.S. GAAP for annual financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Company’s financial statements for the year ended January 2, 2022. The balance sheet as of January 2, 2022 has been derived from the audited combined financial statements as of and for the year ended January 2, 2022. In the opinion of management, such financial information reflects all normal and recurring adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with the U.S. GAAP. Operating results for the interim period are not necessarily indicative of the results that may be expected for any future period or for the full year. The consolidated interim financial statements, including our significant accounting policies, should be read in conjunction with the audited combined financial statements and notes thereto for the year ended January 2, 2022.
All intercompany transactions and balances have been eliminated in consolidation.
Reclassification – Certain prior year amounts have been reclassified for consistency with the current year presentation. In our Consolidated Statements of Operation and Comprehensive Income and our Consolidated Statements of Cash Flows, included in our Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2022, the Company began combining gain on disposal of property, plant and equipment, net and gain on sale of routes, net, into one line item as (loss) gain on sale of assets to simplify our reporting presentation. The reclassification had no impact on total operating costs, earnings from operations, net earnings, earnings per share or total equity.
Operations – The Company through its subsidiary, Utz Quality Foods, LLC ("UQF"), has been a premier producer, marketer and distributor of snack food products since 1921. The Company has steadily expanded its distribution channels to where it now sells products to supermarkets, mass merchants, club stores, dollar and discount stores, convenience stores, independent grocery stores, drug stores, food service, vending, military, and other channels in most regions of the United States through routes to market, that include direct-store-delivery (“DSD”), direct to warehouse, and third-party distributors. The Company manufactures and distributes a full line of high-quality salty snack items, such as potato chips, tortilla chips, pretzels, cheese balls, pork skins, party mixes, and popcorn. The Company also sells dips, crackers, dried meat products and other snack food items packaged by other manufacturers.

Cash and Cash Equivalents – The Company considers all highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents. The majority of the Company’s cash is held in financial institutions with insurance provided by the Federal Deposit Insurance Corporation ("FDIC") of $250,000 per depositor. At various times, account balances may exceed federally insured limits.
Accounts Receivables – Accounts receivable are reported at net realizable value. The net realizable value is based on Company management’s estimate of the amount of receivables that will be collected based on analysis of historical data and trends, as well as review of significant customer accounts. Accounts receivable are considered to be past due when payments are not received within the customer’s credit terms. Accounts are written off when management determines the account is uncollectible. Finance charges are not usually assessed on past-due accounts.
Inventories – Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Inventory write-downs are recorded for shrinkage, damaged, stale and slow-moving items.

5


Property, Plant and Equipment – Property, plant and equipment are stated at cost net of accumulated depreciation. Major additions and betterments are recorded to the asset accounts, while maintenance and repairs, which do not improve or extend the lives of the assets, are charged to expense accounts as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operations in the disposal period. Depreciation is determined utilizing the straight-line method over the estimated useful lives of the various assets, which generally range from 2 to 20 years for machinery and equipment, 3 to 10 years for transportation equipment and 8 to 40 years for buildings. Assets held for sale are reported at the lower of the carrying amount or fair value less costs to sell. The Company assesses for impairment on property, plant and equipment upon the occurrence of a triggering event.

Income Taxes – The Company accounts for income taxes pursuant to the asset and liability method of Accounting Standards Codification (“ASC”) 740, Income Taxes, which requires it to recognize current tax liabilities or receivables for the amount of taxes it estimates are payable or refundable for the current year, and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax 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 operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.

The Company follows the provisions of ASC 740-10 related to accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.
The benefit of tax positions taken or expected to be taken in the Company’s income tax returns is recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as "unrecognized benefits". A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. Interest costs and penalties related to unrecognized tax benefits are required to be calculated, if applicable. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, distribution, and administrative expenses ("SD&A"). As of October 2, 2022 and January 2, 2022, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next fiscal year.
Goodwill and Other Identifiable Intangible Assets – The Company allocates the cost of acquired companies to the identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount classified as goodwill. The identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition, as well as the completion of impairment tests, require significant management judgments and estimates. These estimates are made based on, among other factors, review of projected future operating results and business plans, economic projections, anticipated highest and best use of future cash flows and the cost of capital. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of goodwill and other intangible assets, and potentially result in a different impact to the Company’s results of operations. Further, changes in business strategy and/or market conditions may significantly impact these judgments and thereby impact the fair value of these assets, which could result in an impairment of the goodwill or intangible assets.
Finite-lived intangible assets consist of distribution/customer relationships, technology, certain master distribution rights and certain trademarks. These assets are being amortized over their estimated useful lives. Finite-lived intangible assets are tested for impairment only when management has determined that potential impairment indicators are present.
Goodwill and other indefinite-lived intangible assets (including certain trade names, certain master distribution rights and Company-owned sales routes) are not amortized but are tested for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred. The Company tests goodwill for impairment at the reporting unit level. The Company has identified the existing snack food operations as its sole reporting unit.
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update ("ASU") No. 2017-04, Intangibles - Goodwill and Other ("Topic 350"): Simplifying the Test for Goodwill Impairment, the Company is required to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.
6


Topic 350 also permits an entity to first assess qualitative factors to determine whether it is necessary to perform quantitative impairment tests for goodwill and indefinite-lived intangibles. If an entity believes, as a result of each qualitative assessment, it is more likely than not that the fair value of goodwill or an indefinite-lived intangible asset exceeds its carrying value then a quantitative impairment test is not required.

For the latest qualitative analysis performed, which took place on the first day of the fourth quarter of 2021, we had taken into consideration all the events and circumstances listed in FASB ASC 350, Intangibles—Goodwill and Other, in addition to other entity-specific factors that had taken place. We have determined that there was no significant impact that affected the fair value of the reporting unit through October 2, 2022. Therefore, we have determined that it was not necessary to perform a quantitative goodwill impairment test for the reporting unit.

Fair Value of Financial Instruments – Financial instruments held by the Company include cash and cash equivalents, accounts receivable, hedging instruments, purchase commitments on commodities, accounts payable and debt. The carrying value of all cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to their short-term nature. The carrying value of the debt is also estimated to approximate its fair value based upon current market conditions and interest rates. The fair value of the hedging instruments are revalued at each reporting period.
Revenue Recognition – The Company’s revenues primarily consist of the sale of salty snack items to customers, including supermarkets, mass merchants, club stores, dollar and discount stores, convenience stores, independent grocery stores, drug stores, food service, vending, military, and other channels. The Company sells its products in most regions of the United States primarily through its DSD network, direct to warehouse shipments, and third-party distributors. These revenue contracts generally have a single performance obligation. Revenue, which includes shipping and handling charges billed to the customer, is reported net of variable consideration and consideration payable to customers, including applicable discounts, returns, allowances, trade promotion, consumer coupon redemption, unsaleable product, and other costs. Amounts billed and due from customers are classified as accounts receivables and require payment on a short-term basis and, therefore, the Company does not have any significant financing components.

The Company recognizes revenue when (or as) performance obligations are satisfied by transferring control of the goods to customers. Control is transferred upon delivery of the goods to the customer. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. Applicable shipping and handling are included in customer billing and are recorded as revenue as the products’ control is transferred to customers. The Company assesses the goods promised in customer purchase orders and identifies a performance obligation for each promise to transfer a good that is distinct.
The Company offers various forms of trade promotions and the methodologies for determining these provisions are dependent on local customer pricing and promotional practices, which range from contractually fixed percentage price reductions to provisions based on actual occurrence or performance. The Company’s promotional activities are conducted either through the retail trade or directly with consumers and include activities such as in store displays and events, feature price discounts, consumer coupons, and loyalty programs. The costs of these activities are recognized at the time the related revenue is recorded, which normally precedes the actual cash expenditure. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by either the retail trade customer or consumer. These estimates are made using various techniques including historical data on performance of similar promotional programs. The Company has reserves in place of $43.5 million as of October 2, 2022, which include adjustments taken by customers of $33.5 million that are awaiting final processing and reserves of $26.5 million as of January 2, 2022, which include adjustments taken by customers of $16.9 million that are awaiting final processing. Differences between estimated expense and actual redemptions are recognized as a change in management estimate as actual redemptions are incurred.
Business Combinations – The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is accounted for as a business combination or an acquisition of assets.

The Company uses the acquisition method of accounting for acquired businesses. Under the acquisition method, the Company’s financial statements reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
7


Distributor Buyouts - During the first and second fiscal quarters of 2022, the Company bought out and terminated the contracts of multiple third-party distributors who had previously been providing services to the Company. These transactions were accounted for as contract terminations and resulted in expense of $23.0 million for thirty-nine weeks ended October 2, 2022 and are included within selling and distribution expense on the Consolidated Statement of Operations and Comprehensive Income.
Use of Estimates – Management uses estimates and assumptions in preparing the consolidated financial statements in accordance with U.S. GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Some examples, but not a comprehensive list, include sales and promotional allowances, customer returns, allowances for doubtful accounts, inventory valuations, useful lives of fixed assets and related impairment, long-term investments, hedge transactions, goodwill and intangible asset valuations and impairments, incentive compensation, income taxes, self-insurance, contingencies, litigation, and inputs used to calculate deferred tax liabilities, tax valuation allowances, and tax receivable agreements. Actual results could vary materially from the estimates that were used.
Recently Issued Accounting Standards –In March 2020, the FASB issued "ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("Topic 848"). This ASU provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate ("LIBOR") or another reference rate expected to be discontinued as a result of reference rate reform. Topic 848 is elective and effective as of March 12, 2020 through December 31, 2022. Once elected, Topic 848 must be applied prospectively for all eligible contract modifications. As part of the response to reference rate reform, in September 2022 the Company modified contracts related to the revolving credit facility, Term Loan B, and the interest rate hedge from an interest rate based upon the LIBOR benchmark to the Term SOFR Screen Rate ("SOFR"). See Note 8. "Long-Term Debt" and Note 9. "Derivative Financial Instruments and Purchase Commitments" for additional details about these changes and to the referenced instruments. Concurrent with these modifications the Company adopted Topic 848. The Company utilized optional practical expedients for contract modifications and the adoption of the standard did not have a material impact on our debt or hedge instruments.

In June 2016, ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments ("Topic 326") was issued. Topic 326 requires entities to measure the impairment of certain financial instruments, including accounts receivables, based on expected losses rather than incurred losses. Topic 326 is effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted, and will be effective for the Company beginning in 2023. The Company is currently evaluating the impact of the new standard on the Company’s consolidated financial statements and related disclosures.

2.ACQUISITIONS
Vitner's

On January 11, 2021, the Company announced that its subsidiary, UQF, entered into a definitive agreement with Snak-King Corp. to acquire certain assets of the C.J. Vitner business ("Vitner's acquisition" or the "acquisition of Vitner's"), a leading brand of salty snacks in the Chicago, Illinois area. The Company closed this transaction on February 8, 2021 and the purchase price of approximately $25.2 million was funded from current cash-on-hand. The provisional fair values to which the purchase price was allocated were $2.9 million to trademarks, $0.8 million to customer relationships, $1.7 million to DSD routes, $1.9 million of other net assets, and $17.9 million to goodwill. The trademarks and customer relationships are being amortized over a period of 15 years. As of February 8, 2022, the purchase price allocation had been finalized.

Festida Foods

On May 11, 2021, the Company announced that its subsidiary, UQF, entered into a definitive agreement with Great Lakes Festida Holdings, Inc. to acquire all assets including real estate located in Grand Rapids, Michigan related to the operations of Festida Foods ("Festida Foods acquisition" or the "acquisition of Festida Foods"), a manufacturer of tortilla chips, corn chips, and pellet snacks, and the largest manufacturer of tortilla chips for the Company's ON THE BORDER® brand. The Company closed this transaction on June 7, 2021 and the purchase price of approximately $40.3 million was funded in part from incremental financing on an existing term loan. The customer relationships are being amortized over a period of 10 years. As of June 7, 2022, the purchase price allocation had been finalized.
8



RW Garcia

On November 2, 2021, the Company announced that certain of its subsidiaries, entered into a definitive agreement to acquire the equity of R.W. Garcia Holdings, LLC and its wholly-owned subsidiary, R.W. Garcia Co., Inc. (together "RW Garcia"), an artisan maker of high-quality organic tortilla chips, crackers, and corn chips ("RW Garcia acquisition" or the “acquisition of RW Garcia”). The Company closed on this transaction on December 6, 2021, and the cash purchase price of approximately $57.9 million funded in part from a draw on the Company's line of credit and cash on hand. In addition to this acquisition on December 6, 2021, the Company closed on an acquisition of a manufacturing facility of which RW Garcia was a tenant. The cost of the manufacturing facility was approximately $6.0 million.

The following table summarizes the provisional fair values of the assets acquired and liabilities assumed by the Company for the RW Garcia acquisition at the date of the acquisition:

(in thousands)
Purchase consideration$56,430 
Tax consideration1,458 
Total consideration57,888 
Assets acquired:
Cash5,401 
Accounts receivable4,660 
Inventory5,674 
Prepaid expenses and other assets2,102 
Property, plant and equipment20,210 
Trade name3,100 
Customer relationships4,720 
Total assets acquired:45,867 
Liabilities assumed:
Accounts payable6,017 
Accrued expenses1,838 
Deferred tax liability5,898 
Total liabilities assumed:13,753 
Net identifiable assets acquired32,114 
Goodwill$25,774 

The trade name and customer relationships are being amortized over a period of 15 years. As of October 2, 2022, the purchase price allocation has not been finalized. We expect to finalize the valuation report and complete the purchase price allocation no later than one-year from the acquisition date.

3.INVENTORIES
Inventories consisted of the following:
(in thousands)
As of
October 2, 2022
As of January 2, 2022
Finished goods$60,282 $43,533 
Raw materials39,457 29,428 
Maintenance parts7,643 6,556 
Total inventories$107,382 $79,517 
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4.PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consisted of the following:
(in thousands)
As of
October 2, 2022
As of January 2, 2022
Land$29,160 $25,886 
Buildings124,138 98,664 
Machinery and equipment238,495 214,319 
Land improvements3,608 3,393 
Building improvements3,379 3,048 
Construction-in-progress23,865 13,745 
 422,645 359,055 
Less: accumulated depreciation(88,737)(55,248)
Property, plant and equipment, net$333,908 $303,807 
On April 28, 2022, the Company purchased a brand new, recently completed snack food manufacturing facility in Kings Mountain, North Carolina from Evans Food Group Ltd. d/b/a Benestar Brands and related affiliates. The total purchase price of the facility was approximately $38.4 million, plus assumed liabilities of $1.3 million. The Company paid the full cash purchase price of $38.4 million at the closing and concurrently with the facility purchase, the Company sold 2.1 million shares of the Company’s Class A Common Stock for $28.0 million, to affiliates of Benestar in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933.

Depreciation expense was $12.0 million and $11.5 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively, and $37.1 million and $31.8 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectively. Depreciation expense is classified in cost of goods sold, selling, distribution, and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.
During the thirty-nine weeks ended October 2, 2022, the Company recorded impairments totaling $2.7 million related to property and equipment damaged in one of the Company's smaller manufacturing facilities by a natural disaster. The Company has received $3.9 million in insurance proceeds related to a partial settlement of damaged property and equipment, resulting in a gain to date of $1.2 million. As a result of the damage to the facility the Company has had to shift production to other facilities as well as utilize a co-manufacturer which has resulted in additional production and distribution costs. During the thirteen weeks ended October 2, 2022 the Company also received $4.0 million in proceeds related to a partial settlement of business interruption insurance. The Company has recognized receipts of the business interruption insurance as a reduction of the cost of goods sold and the receipts related to the damage to property plant and equipment within the (loss) gain on sale of assets, net in the Company's Consolidated Statement of Operations and Comprehensive Income. The Company continues to negotiate future payments with its insurance provider. The Company recognizes gains from insurance proceeds, at the earliest, after receipt of insurance proceeds.

5.GOODWILL AND INTANGIBLE ASSETS, NET
A rollforward of goodwill is as follows:
(in thousands)
Balance as of January 2, 2022$915,438 
RW Garcia acquisition adjustment(143)
Balance as of October 2, 2022$915,295 
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Intangible assets, net, consisted of the following:
(in thousands)
As of
October 2, 2022
As of January 2, 2022
Subject to amortization:  
Distributor/customer relationships$677,930 $677,930 
Technology 43 
Trademarks63,850 63,850 
Master distribution rights 2,221 
Amortizable assets, gross741,780 744,044 
Accumulated amortization(73,320)(45,224)
Amortizable assets, net668,460 698,820 
Not subject to amortization:
Trade names434,513 434,513 
Route assets6,829 9,176 
Intangible assets, net$1,109,802 $1,142,509 
Previously, the Company was granted certain exclusive distribution rights for certain products manufactured by another manufacturer. During the first fiscal quarter of 2022, the Company shifted the relationship with that manufacturer and converted that shelf space to Company-branded products. As a result, the Company recorded impairment expense of $2.0 million and the amortizable master distribution rights decreased by $2.2 million. There were no other significant changes to intangible assets during the thirty-nine weeks ended October 2, 2022, other than those which arise from the normal course of business of buying and selling of Company-owned route assets and amortization.

Amortization of the distributor/customer relationships, technology, and trade names amounted to $9.4 million and $8.9 million for the thirteen weeks ended October 2, 2022 and October 3, 2021, respectively, and $28.3 million and $27.3 million for the thirty-nine weeks ended October 2, 2022 and October 3, 2021, respectively. The expense related to the amortization of intangibles is classified in administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.
6.NOTES RECEIVABLE
The Company has undertaken a program in recent years to sell Company-managed DSD distribution routes to independent operators ("IOs"). Contracts are executed between the Company and the IOs for the sale of the product distribution route, including a note in favor of the Company, in certain cases. The notes bear interest at rates ranging from 0.00% to 8.55% with terms ranging generally from one to ten years. The notes receivable balances due from IOs at October 2, 2022 and January 2, 2022 totaled $23.3 million and $27.2 million, respectively, and are collateralized by the routes for which the loans are made. The Company has a corresponding notes payable liability, related to the IOs notes receivables, of $22.0 million and $24.8 million at October 2, 2022 and January 2, 2022, respectively. The related notes payable liability is discussed in further detail within Note 8. "Long-Term Debt."
Other notes receivable totaled $0.2 million as of each of October 2, 2022 and January 2, 2022.
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7.ACCRUED EXPENSES AND OTHER
Current accrued expenses and other consisted of the following:
(in thousands)As of October 2, 2022As of January 2, 2022
Accrued compensation and benefits$29,182 $20,081 
Right-of-use liability11,962 9,152 
Accrued freight and manufacturing related costs10,116 8,928 
Insurance liabilities7,889 8,620 
Acquisition tax consideration1,134 5,660 
Accrued interest1,120 371 
Short term interest rate hedge liability 4,548 
Accrued dividends and distributions7,569 4,189 
Accrued sales tax 1,300 
Other accrued expenses7,475 8,431 
Total accrued expenses and other$76,447 $71,280 
Non-current accrued expenses and other consisted of the following:
(in thousands)As of October 2, 2022As of January 2, 2022
Right-of-use liability$32,619 $23,226 
Tax Receivable Agreement liability
25,446 24,443 
Supplemental retirement and salary continuation plans6,538 8,117 
Other long term accrued expenses84 52 
Total accrued expenses and other$64,687 $55,838 
8.LONG-TERM DEBT
Revolving Credit Facility
On November 21, 2017, UBH entered into an asset based revolving credit facility (as amended, the "ABL facility"), pursuant to the terms of that certain First Lien Term Loan Credit Agreement, dated November 21, 2017 (the "Credit Agreement"). On April 1, 2020, the ABL facility was amended to increase the credit limit up to $116.0 million and to extend the maturity through August 22, 2024. On December 18, 2020, the ABL facility was amended to further increase the credit limit up to $161.0 million. On September 22, 2022, the ABL facility was amended to further increase the credit limit up to $175.0 million and replaced the interest rate benchmark from LIBOR to SOFR. As of October 2, 2022 and January 2, 2022, $76.4 million and $36.0 million, respectively, were outstanding under this facility. Availability under the ABL facility is based on a monthly accounts receivable and inventory borrowing base certification, which is net of outstanding letters of credit. As of October 2, 2022 and January 2, 2022, $86.1 million and $96.9 million, respectively, was available for borrowing, net of letters of credit. The ABL facility is also subject to unused line fees (0.5% at October 2, 2022) and other fees and expenses.

Standby letters of credit in the amount of $12.0 million and $10.3 million have been issued as of October 2, 2022 and January 2, 2022, respectively. The standby letters of credit are primarily issued for insurance purposes.
Term Loans
On December 14, 2020, the Company entered into a Bridge Credit Agreement with a syndicate of banks, led by Bank of America, N.A. (the "Bridge Credit Agreement"). The proceeds of the Bridge Credit Agreement were used to fund the Company’s acquisition of Truco and the IP Purchase (as defined below) from OTB Acquisition, LLC, in which the Company withdrew $490.0 million to finance the acquisition of Truco Holdco Inc. ("Truco" and such acquisition, the "Truco Acquisition") and certain intellectual property from OTB Acquisition, LLC (the "IP Purchase"). The Bridge Credit Agreement bears interest at an annual rate based on 4.25% plus 1 month LIBOR with scheduled incremental increases to the base rate, as defined in the Bridge Credit Agreement. The loan converts into an Extended Term Loan if the Loan remains open 365 days after the closing date. As of January 3, 2021, the outstanding balance of the Bridge Credit Agreement was $370.0 million, with $120.0 million being repaid from the exercise of the Company's warrants. Commitment fees and deferred financing costs on the Bridge Credit Agreement totaled $7.2 million, of which $2.6 million was expended in the thirteen weeks ended April 4, 2021. In connection with Amendment No. 2 (as defined below), and a $12.0 million repayment in the first quarter of 2021, the outstanding balance of $370.0 million was repaid in full.
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On January 20, 2021, the Company entered into Amendment No. 2 to the Bridge Credit Agreement ("Amendment No. 2") which provided additional operating flexibility and revisions to certain restrictive covenants. Pursuant to the terms of Amendment No. 2, the Company raised $720 million in aggregate principal of Term Loan B ("Term Loan B") which bore interest at LIBOR plus 3.00% and extended the maturity of the Bridge Credit Agreement to January 20, 2028. The proceeds were used, together with cash on hand and proceeds from our exercised warrants, to redeem the outstanding principal amount of existing Term Loan B and Bridge Credit Agreement of $410 million and $358 million, respectively. The refinancing was accounted for as an extinguishment. The Company incurred debt issuance costs and original issuance discounts of $8.4 million. On June 22, 2021, the Company entered into Amendment No. 3 to the Bridge Credit Agreement ("Amendment No. 3"). Pursuant to the terms of Amendment No. 3, the Company increased the principal balance of Term Loan B by $75.0 million to bring the aggregated balance of Term Loan B proceeds to $795.0 million. The Company incurred additional debt issuance costs and original issuance discounts of $0.7 million related to the incremental funding.

The First Lien Term Loan, the Secured First Lien Note, Term Loan B, and the ABL facility are collateralized by substantially all of the assets and liabilities of the Company. The credit agreements contain certain affirmative and negative covenants as to operations and the financial condition of the Company. The Company was in compliance with its financial covenant as of October 2, 2022.
Subsequent to the end of the third fiscal quarter of 2022, as further discussed in Note 18. "Subsequent events," the Company entered into a loan agreement in the amount of $88.1 million, which was secured by the majority of the Company's real estate assets. The Company used part of these proceeds to pay off the ABL facility.

Debt (in thousands)
Issue DatePrincipal BalanceMaturity DateOctober 2, 2022January 2, 2022
Term Loan B (1)
June-21$795,000 January-28$781,273 $787,236 
Equipment loans (2)
Various53,068 26,655 
ABL facility (3)
76,390 36,000 
Net impact of debt issuance costs and original issue discounts(8,372)(7,929)
Total long-term debt902,359 841,962 
Less: current portion(15,089)(11,414)
Long term portion of term debt and financing obligations$887,270 $830,548 
(1) On September 22, 2022, the Company entered into Amendment No. 4 to the Bridge Credit Agreement ("Amendment No. 4"), which replaced the interest rate benchmark from LIBOR to SOFR. The weighted average interest rate on the Term Loan B debt for the thirteen weeks ended October 2, 2022 was 5.26%.

(2) In July 2021, the Company entered into two separate finance lease obligations with Banc of America Leasing & Capital, LLC, which have been treated as secured borrowing. The Company has made a series of draws upon these agreements throughout fiscal year 2021 and has drawn a total of $29.9 million in fiscal year 2022. These draws bear interest ranging from 3.26% through 5.77% and have varying maturities up through 2028.
(3) The facility bore interest at an annual rate based on LIBOR plus an applicable margin of 1.75% (ranging from 1.50% to 2.00% based on availability) or the prime rate plus an applicable margin of 0.75% (ranging from 0.50% to 1.00%). The Company generally utilizes the prime rate for amounts that the Company expects to pay down within 30 days, the interest rate on the facility as of October 2, 2022 and October 3, 2021, was 7.00% and 4.00%, respectively, under the prime rate. The Company elects to use the LIBOR, prior to the amendment on September 22, 2022 which changed the reference rate to SOFR as described above, for balances that are expected to be carried longer than 30 days, the interest rate on the ABL facility as of October 2, 2022 was 4.82%.
Other Notes Payable and Capital Leases
During the first fiscal quarter of 2022, the Company bought out and terminated the contracts of multiple distributors who had previously been providing services to the Company. These transactions were accounted for as contract terminations and resulted in expense of $23.0 million for the thirty-nine weeks ended October 2, 2022. The outstanding balance of these transactions was $0.5 million as of October 2, 2022.
During the third quarter of 2021, the Company recorded liabilities related primarily to reclaiming distribution rights from distributors, of which $1.3 million was outstanding as of October 2, 2022 and January 2, 2022.</