Document



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (date of earliest event reported):  June 19, 2020
 
FRANCHISE GROUP, INC.
(Exact name of registrant as specified in charter)
 
Delaware
(State or other jurisdiction of incorporation)
001-35588
(Commission File Number)
27-3561876
(I.R.S. Employer
Identification Number)
 
1716 Corporate Landing Parkway, Virginia Beach, Virginia 23454
(Address of Principal Executive Offices)  (Zip Code)
 
(757) 493-8855
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, $0.01 par value
 
FRG
 
NASDAQ Global Market
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.  ☐ 






Item 8.01. Other Events.
On February 14, 2020, Franchise Group, Inc. (the “Company”) completed its acquisition of American Freight Group, Inc. (“American Freight”), pursuant to the terms of that certain Agreement and Plan of Merger (as amended, the “Merger Agreement”) by and among Franchise Group Newco Intermediate AF, LLC (“Parent”), American Freight, Franchise Group Merger Sub AF, Inc., a Delaware limited liability company and a subsidiary of Parent (“Merger Sub”), and The Jordan Company, L.P., a Delaware limited partnership, solely in its capacity as representative for the Fully-Diluted Stockholders (as defined in the Merger Agreement), pursuant to which, among other things, Merger Sub merged with and into American Freight, with American Freight surviving as a wholly owned subsidiary of Parent. The Acquisition was reported on a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on December 30, 2019, which was amended by a Form 8-K/A filed with the SEC on May 4, 2020 to include the audited financial statements of American Freight as of and for the years ended December 29, 2019 and December 30, 2018 and the unaudited pro forma combined balance sheet as of December 28, 2018 and the unaudited pro forma combined statement of operations for the eight months ended December 29, 2019 and year ended April 30, 2019. The Company is filing this Current Report on Form 8-K to file certain pro forma financial information as of and for the three months ended March 28, 2020, for the eight months ended December 28, 2019 and for the year ended April 30, 2019, so that such financial information may be incorporated by reference into the Company’s filings with the SEC.

Item 9.01. Financial Statements and Exhibits.

(b) Pro Forma Financial Information
The following information is attached hereto as Exhibit 99.1 and incorporated herein by reference:
 
(i)
Unaudited Pro Forma Combined Financial Statements as of and for the three months ended March 28, 2020, for the eight months ended December 28, 2019 and for the year ended April 30, 2019.
(ii)    Notes to the Unaudited Pro Forma Combined Financial Statements.
 
(d) Exhibits
 
The following exhibits are filed herewith:
 
Exhibit No.
Description of Exhibits


* Filed herewith






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
FRANCHISE GROUP, INC.
 
 
 
 
 
 
Date: June 19, 2020
By: 
/s/ Eric Seeton        
 
 
Eric Seeton
 
 
Chief Financial Officer



Exhibit


Exhibit 99.1

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF
THE COMBINED COMPANY AND RELATED NOTES

Introduction

The following unaudited pro forma combined statement of operations for the three months ended March 28, 2020, the eight months ended December 28, 2019 (the “Transition Period’) and for the year ended April 30, 2019 and the pro forma combined balance sheet as of March 28, 2020 are based on the historical financial statements of Franchise Group, Inc. (“Franchise Group” or the "Company”), Buddy’s Newco, LLC (“Buddy’s”), the Sears Outlet business (“Sears Outlet”) of Sears Hometown and Outlet Stores, Inc’s (“SHOS”), Vitamin Shoppe, Inc. (“VSI”), and American Freight Group, Inc. (“American Freight”).

The unaudited pro forma combined financial statements give effect to the following transactions (collectively, the “Transactions”):

the acquisitions of Buddy’s, Sears Outlet, VSI and American Freight;

the completion of the offer to acquire any and all outstanding shares of Franchise Group common stock other than shares of Franchise Group common stock held by Vintage Capital Management, LLC (“Vintage”) and B. Riley FBR, Inc. (“B. Riley”) and certain of its affiliates, who agreed not to tender their shares of Franchise Group common stock in the offer, for a purchase price of $12.00 per share in cash;

the exchange of Franchise Group New Holdco LLC units into Franchise Group common shares and related adjustments pursuant to the tax receivable agreement (“TRA”) that occurred in March and April 2020; and

the related debt and equity financings.

On October 1, 2019, the Company changed its fiscal year end from April 30 to the Saturday closest to December 31 and filed a Transition Report on Form 10-K/T for the Transition Period ended December 28, 2019 with the Securities and Exchange Commission (the “SEC”) on April 24, 2020. The unaudited pro forma combined financial statements are based on the assumptions, adjustments and eliminations described in the accompanying notes to the unaudited pro forma combined financial statements.

The unaudited pro forma combined statement of operations for the fiscal year ended April 30, 2019, eight months ended December 28, 2019 and three months ended March 28, 2020 give effect to the Transactions as if they had occurred on the first day of the fiscal year May 1, 2018. Prior to October 1, 2019, Franchise Group had a fiscal year ending on April 30 while Buddy’s reported its results of operations on a calendar year basis, Sears Outlet had a fiscal year ending on February 2, VSI had a fiscal year ending on the last Saturday in December and American Freight had a fiscal year ending on the last Sunday in December. As a result:

the historical statement of operations for the fiscal year ended December 31, 2018 of Buddy’s, the historical statement of operations for the fiscal year ended December 29, 2018 of VSI, and the historical statement of operations for the fiscal year ended December 30, 2018 of American Freight have been adjusted to reflect a trailing twelve month period ending March 31, 2019 by adding Buddy’s, VSI’s and American Freight’s statement of operations for the three months ended March 31, 2019, March 30, 2019, and March 31, 2019, respectively, and subtracting their statement of operations for the three months ended March 31, 2018; and

the historical combined statement of operations for the fiscal year ended February 2, 2019 of Sears Outlet has been adjusted to reflect a trailing twelve month period ending May 4, 2019 by adding Sears Outlet’s statement of operations for the three months ended May 4, 2019 and subtracting Sears Outlet’s statement of operations for the three months ended May 5, 2018.
The unaudited pro forma combined statement of operations for the eight months ended December 28, 2019 combines the historical consolidated statement of operations for the eight months ended December 28, 2019 of Franchise Group (that includes certain post-acquisition financial information of Buddy’s, VSI and Sears Outlet), the historical consolidated statement of operations for the three months ended June 30, 2019 of Buddy’s, the historical combined statement of operations for the six months ended August 3, 2019 of Sears Outlet, the historical consolidated statement of operations for the eight months ended





November 30, 2019 of VSI, and the historical consolidated statement of operations for the eight months ended December 29, 2019 of American Freight.
The unaudited pro forma combined statement of operations for the three months ended March 28, 2020 combines the historical consolidated statement of operations for the three months ended March 28, 2020 of Franchise Group and the pre-acquisition historical consolidated statement of operations for the period January 1, 2020 to February 14, 2020 of American Freight derived from American Freight’s books and records. The unaudited pro forma combined balance sheet as of March 28, 2020 reflects the historical consolidated balance sheet of Franchise Group as of March 28, 2020 adjusted for the full exchange of Franchise Group New Holdco LLC units into Franchise Group common shares and the related TRA adjustments as further discussed below.

The unaudited pro forma combined financial statements contain only adjustments that are factually supportable and directly attributable to the Transactions and do not reflect the costs of any integration activities or benefits that may result from realization of future revenue growth or operational synergies expected to result from the Transactions.

The unaudited pro forma combined financial statements should be read in conjunction with:
 
the accompanying notes to the unaudited pro forma combined financial statements;
 
Franchise Group’s audited historical consolidated financial statements and related notes for the year ended April 30, 2019, and for the Transition Period ended December 28, 2019; and the unaudited historical consolidated financial statements and related notes for the three months ended March 28, 2020;

Buddy’s audited and unaudited historical consolidated financial statements and related notes as of and for the fiscal year ended December 31, 2018 and as of and for the three months ended March 31, 2019 and March 31, 2018 incorporated by reference to Exhibit 99.1 and Exhibit 99.2 on Franchise Group’s Form 8-K/A filed with the SEC on September 24, 2019;

Sears Outlet’s audited and unaudited historical combined financial statements and related notes as of and for the fiscal year ended February 2, 2019 and as of and for the six months ended August 3, 2019 and August 4, 2018 incorporated by reference to Exhibit 99.1 and Exhibit 99.2 on Franchise Group’s Form 8-K/A filed with the SEC on January 8, 2020;

VSI’s audited historical consolidated financial statements and related notes as of and for the fiscal year ended December 29, 2018 incorporated by reference to Exhibit 99.3 on Franchise Group’s Form 8-K/A filed with the SEC on January 8, 2020; and

American Freight’s audited historical consolidated financial statements and related notes as of and for the fiscal year ended December 29, 2019 incorporated by reference to Exhibit 99.1 on Franchise Group’s Form 8-K/A filed with the SEC on May 4, 2020.

Description of the Transactions

Buddy’s merger, the offer and exchange of New Holdco units

Pursuant to a business combination agreement, Franchise Group and Buddy’s consummated a merger whereby Buddy’s became a wholly-owned subsidiary of Franchise Group New Holdco, LLC, a wholly-owned direct subsidiary of Franchise Group (“New Holdco”). In connection with the merger, Franchise Group formed New Holdco, which holds, directly or indirectly, all of Franchise Group’s and Buddy’s operating subsidiaries. In connection with the business combination agreement and the merger, Franchise Group designated its voting non-economic preferred stock pursuant to a certificate of designation. The certificate of designation, which was approved by the Company’s board of directors on July 10, 2019, and filed by Franchise Group with the Secretary of State of the State of Delaware on July 10, 2019, designated 1,616,667 shares of voting non-economic preferred stock, substantially all of which were issued to the Buddy’s equity holders as consideration in the merger along with approximately 8,083,333 New Holdco common units. Buddy’s equity holders had the option to exchange each New Holdco common unit and one-fifth (1/5) of a share of Franchise Group preferred stock, respectively, for one share of Franchise Group common stock beginning six months following the date of the merger. Following the merger, Franchise Group became the sole managing member of New Holdco and consolidates New Holdco for financial reporting purposes. The New Holdco common units held by Buddy’s equity holders were recorded as a non-controlling interest on the consolidated financial statements.






Concurrently with the execution of the business combination agreement, Franchise Group and the Buddy’s equity holders entered into a TRA. Subject to certain exceptions set forth in the tax receivable agreement, the tax receivable agreement generally provides that Franchise Group will pay the Buddy’s equity holders 40% of the cash savings, if any, in federal, state and local taxes that Franchise Group realizes or is deemed to realize as a result of any increase in tax basis of the assets of New Holdco resulting from future redemptions or exchanges of New Holdco common units held by Buddy’s equity holders Subsequent to the merger, the effects of each purchase or exchange of New Holdco common units resulted in adjustments to record a change in deferred tax balances, tax receivable liabilities equal to 40% of the estimated realizable tax benefits, and an increase to additional paid-in capital for the remainder. As of March 28, 2020, a portion of New Holdco common units and the Company’s preferred stock held by certain Buddy’s equity holders were exchanged for shares of Franchise Group common stock. As of April 1, 2020, all remaining New Holdco common units held by the Buddy’s equity holders were exchanged for shares of Franchise Group common stock and New Holdco became a wholly owned subsidiary of Franchise Group. Refer to the pro forma adjustments disclosed in Note 4 for further detail regarding the exchange of New Holdco units and preferred stock for the Company’s common stock and the related adjustments to deferred tax balances and liabilities pursuant to the TRA.

Following the merger, on August 1, 2019, Franchise Group commenced the offer to acquire any and all outstanding shares of its common stock other than shares of its common stock held by the Vintage and B. Riley and certain of its affiliates, who had agreed not to tender their shares of Franchise Group common stock in the offer, for a price per share of $12.00 in cash. The offer was subject to a minimum tender condition and was completed on November 13, 2019. The offer and transaction costs related to the Buddy’s merger were financed through both term loan financing and equity investments:

Term loan financing: Buddy’s executed the Buddy’s credit agreement with various lenders from time to time party thereto and Kayne Solutions Fund, L.P., as administrative agent and as collateral agent, with proceeds, net of financing costs, of approximately $80.2 million. The Buddy’s credit agreement was used to repay approximately $25.0 million of the existing line of credit financing of Buddy’s, $22.2 million towards the tender offer and the remaining amount of approximately $23.0 million was used towards the acquisition costs.

Equity investment from Tributum, L.P. (“Tributum”): Contemporaneously with the consummation of the merger and pursuant to the closing subscription agreement between Franchise Group and Tributum, Tributum purchased approximately 2,083,333 shares of Franchise Group common stock at a purchase price of $12.00 per share, for an aggregate purchase price of $25.0 million in cash. Such commitment financed the first $25.0 million of tender offer acceptances.

The unaudited pro forma combined financial information has been prepared based on Franchise Group’s final results of the tender offer completed on November 13, 2019. Franchise Group stockholders accepted the offer for 3.94 million shares of Franchise Group common stock, or approximately $47.2 million, financed by the closing subscription agreement of $25.0 million and $22.2 million cash from the Buddy’s term loan financing, all discussed above.

Sears Outlet Acquisition

On October 23, 2019, Franchise Group completed its acquisition of Sears Outlet and nine Buddy’s Home Furnishing franchisees from SHOS, pursuant to the terms of a purchase agreement dated as of August 27, 2019. Pursuant to the terms of the purchase agreement, Franchise Group paid SHOS an aggregate purchase price of $128.8 million including working capital adjustments. The acquisition costs related to the Sears Outlet acquisition were financed through the following term loan and equity contributions:

Term loan financing: Franchise Group Newco S, LLC, an indirect subsidiary of Franchise Group, executed a term loan agreement with Guggenheim Credit Services, LLC providing Franchise Group with a senior secured term loan facility in an amount equal to $105.0 million (the “Sears Outlet term loan”). The Sears Outlet term loan will mature on October 23, 2023 and bear interest at a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an interest margin of 6.5% with a 1.50% LIBOR floor.

Equity contributions from the Investors: On October 23, 2019, Stefac LP, an affiliate of Vintage, Brian R. Kahn, Lauren Kahn, and B. Riley (collectively, the “Investors”) provided Franchise Group with an aggregate $40.0 million of equity financing to fund a portion of the Sears Outlet acquisition through the purchase of Franchise Group common stock at $12.00 per share.






VSI Acquisition

On December 16, 2019, pursuant to the term of a merger agreement, Franchise Group completed the acquisition of VSI for an all-cash transaction valued at $161.8 million. The acquisition of VSI, including the related acquisition costs, were financed through a mix of a term loan, credit facility and equity contributions:

Term loan financing: On December 16, 2019, Vitamin Shoppe Industries, LLC, an indirect subsidiary of Franchise Group executed a term loan agreement with GACP Finance Co., LLC for an amount of $70.0 million (the “VSI term loan”). The VSI term loan will mature on December 16, 2022, unless the maturity is accelerated subject to the terms set forth in the VSI term loan. The VSI term loan will bear interest at a rate per annum based on LIBOR for an interest period of one month plus an interest rate margin of 9.0%.
 
Credit facility financing: On December 16, 2019, Franchise Group entered into a Second Amendment and Restated Loan and Security Agreement (the “ABL Agreement”) with JPMorgan Chase Bank, N.A. whereby JP Morgan Chase Bank, N.A. provided Franchise Group with a $100.0 million credit facility (the “VSI credit facility”). On December 16, 2019, Franchise Group borrowed $70.0 million on the VSI credit facility to finance the acquisition of VSI. The VSI credit facility will mature on December 16, 2022 unless the maturity is accelerated subject to the terms set forth in the ABL Agreement. The VSI credit facility bears interest at a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an interest rate margin that ranges from 1.25% to $1.75% depending on excess availability.

Equity contribution from Tributum: In addition, on December 16, 2019, Tributum, an affiliate of Vintage, purchased 2.5 million shares of common stock which provided Franchise Group with an aggregate of approximately $31.0 million of equity financing in order to partially fund the closing of the acquisition (the “VSI equity contribution”).

Equity contribution from Vintage in connection with the repurchase of VSI Convertible Notes: On January 3, 2020, Franchise Group entered into a subscription agreement with an affiliate of Vintage, pursuant to which the affiliate of Vintage purchased from the Company 2.4 million shares of common stock for an aggregate purchase price of $28.2 million in cash.

Equity contributions from certain other investors: On February 7, 2020, in connection with the Company’s repurchases of VSI’s outstanding 2.25% Convertible Senior Notes due 2020 (the “VSI Convertible Notes”), certain investors purchased approximately 3.9 million shares of the Company’s common stock for approximately $65.9 million. Franchise Group used the proceeds to complete the repurchase of approximately $60.4 million in aggregate principal amount of outstanding VSI Convertible Notes for a purchase price of approximately $60.6 million, which includes accrued interest.

American Freight acquisition and the refinancing of Buddy’s and Sears Outlet’s term loan

On February 14, 2020, pursuant to the term of a merger agreement, dated December 28, 2019, Franchise Group completed the acquisition of American Freight for $357.3 million in cash. The acquisition costs related to the American Freight acquisition were financed through a term loan and credit facility:

Term loan financing: On February 14, 2020, Franchise Group Intermediate Holdco, LLC and Franchise Group New Holdco, LLC, an indirect subsidiary of Franchise Group executed a term loan agreement with GACP Finance Co., LLC for an amount of $575.0 million (the “New Holdco term loan”), which consists of a $375.0 million first out tranche (the “New Holdco Tranche A-1”) and a $200.0 million last out Tranche (the “New Holdco Tranche A-2”). The New Holdco term loan will mature on May 14, 2025, unless the maturity is accelerated subject to the terms set forth in the New Holdco term loan. The New Holdco term loan will bear interest at a rate per annum based on LIBOR for an interest period of one, two, three or six months plus an interest rate margin of 8.0% for the New Holdco Tranche A-1 and 12.5% for the New Holdco Tranche A-2.

ABL credit facility financing: On February 14, 2020, Franchise Group entered into an ABL credit agreement with various lenders which provided Franchise Group with a $100.0 million credit facility (the “New Holdco credit facility”). On February 14, 2020, Franchise Group borrowed $100.0 million on the New Holdco credit facility to finance the acquisition of American Freight. The New Holdco credit facility will mature on September 30, 2020 and it bears interest at a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an interest rate margin of 7.5%, as amended on April 3, 2020.






In addition to financing the American Freight acquisition and its related acquisition costs, a portion of the proceeds from the New Holdco term loan and the New Holdco credit facility were used to repay the Buddy’s and Sears Outlet’s term loan discussed above for an outstanding amount of $104.6 million and $106.6 million including accrued interest, respectively.

Other transactions

On August 23, 2019, the Buddy’s segment of Franchise Group entered into an asset purchase agreement with A-Team Leasing, LLC, a franchisee of the Buddy’s segment (“A-Team”), pursuant to which Buddy’s completed the acquisition of 41 Buddy’s Home Furnishings stores from A-Team for total consideration of $26.6 million. To finance the acquisition, Buddy’s entered into a first amendment to the Buddy’s credit agreement which provided for an additional term loan in an amount of $23.0 million. The additional term loan was used to consummate the acquisition, including to repay certain existing indebtedness of A-Team and secure the release of liens on the assets acquired in connection with the acquisition and to pay fees and expenses in connection with the acquisition.

On September 30, 2019, the Buddy’s segment of Franchise Group entered into and completed an asset purchase agreement with various parties to acquire certain Buddy’s stores previously franchised in exchange for 1.35 million shares of New Holdco common units and 0.27 million share of Franchise Group voting non-economic preferred stock for an estimated fair value of $16.2 million. In addition, Franchise Group also forgave $0.6 million of receivables due to Buddy’s from the sellers. This resulted in an aggregated purchase price of $16.8 million.

While these other transactions are included in Franchise Group’s historical financial statements, the pro forma statement of operations was not adjusted to give effect to these other transactions as they were not deemed significant pursuant to Rule 3-05 of Regulation S-X.

The unaudited pro forma combined financial statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or financial position of the Combined Company (as defined below) would have been had the Transactions occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or financial position of the Combined Company on a standalone basis.






Unaudited Pro Forma Combined Statement of Operations
Year Ended April 30, 2019
 
 
Adjusted Franchise Group
 
Adjusted Buddy's
 
Adjusted Sears Outlet
 
Adjusted VSI
 
Adjusted American Freight
 
 
 
 
 
 
 
 
(Note 2)
 
(Note 2b)
 
(Note 2c)
 
(Note 2d)
 
(Note 2e)
 
 
 
 
 
 
 
 
Year Ended
 
Year Ended
 
Year Ended
 
Year Ended
 
Year Ended
 
Acquisition and related Pro Forma Adjustments
 
Financing and offer Pro Forma Adjustments
 
Pro Forma Combined Year Ended
(Dollars in thousands except per share amounts)
 
April 30, 2019
 
March 31, 2019
 
May 4, 2019
 
March 30, 2019
 
March 30, 2019
 
(Note 3)
 
(Note 4)
 
April 30, 2019
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Product
 
$

 
$
2,592

 
$
448,573

 
$
1,101,528

 
$
443,954

 
$

 
$

 
$
1,996,647

   Service and other
 
132,546

 
23,005

 
41,626

 

 

 
(177
)
(3b)

 
197,000

   Rental
 

 
26,504

 

 

 

 

 

 
26,504

      Total Revenues
 
132,546

 
52,101

 
490,199

 
1,101,528

 
443,954

 
(177
)
 

 
2,220,151

Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

   Product
 

 
1,844

 
334,068

 
745,028

 
243,548

 

 

 
1,324,488

   Service and other
 

 

 
20,428

 

 

 
(177
)
(3b)

 
20,251

   Rental
 

 
9,230

 

 

 

 

 

 
9,230

Total cost of revenue
 

 
11,074

 
354,496

 
745,028

 
243,548

 
(177
)
 

 
1,353,969

   Selling, general, and administrative expenses
 
124,060

 
29,098

 
133,364

 
347,191

 
155,810

 
936

(3a)

 
790,459

   Restructuring Costs
 
9,345

 

 

 

 

 

 

 
9,345

      Total operating expenses
 
133,405

 
40,172

 
487,860

 
1,092,219

 
399,358

 
759

 

 
2,153,773

      Gain (loss) from operations
 
(859
)
 
11,929

 
2,339

 
9,309

 
44,596

 
(936
)
 

 
66,378

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

   Interest expense, net
 
(3,023
)
 
(1,412
)
 
(6,410
)
 
(5,227
)
 
(8,161
)
 

 
(73,184
)
(4a)
(97,417
)
   Other
 
(113
)
 
259

 
1,440

 
4,400

 

 

 

 
5,986

      Income (loss) before income taxes
 
(3,995
)
 
10,776

 
(2,631
)
 
8,482

 
36,435

 
(936
)
 
(73,184
)
 
(25,053
)
   Income tax (benefit) expense
 
(1,839
)
 

 
271

 
1,101

 
9,399

 

 
(8,932
)
(4b)

   Net (loss) income
 
(2,156
)
 
10,776

 
(2,902
)
 
7,381

 
27,036

 
(936
)
 
(61,267
)
 
(25,053
)
   Less: Income/ (Loss) attributable to noncontrolling interests
 

 

 

 

 

 

 
 
 
 
Net (loss) income attributable to common stockholders
 
$
(2,156
)
 
$
10,776

 
$
(2,902
)
 
$
7,381

 
$
27,036

 
$
(1,012
)
 
$
(64,252
)
 
$
(25,053
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic (Note 5)
 
$
(0.16
)
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(0.71
)
   Diluted (Note 5)
 
(0.16
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(0.71
)
Weighted average common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic (Note 5)
 
13,800,884

 
 
 
 
 
 
 
 
 
 
 
 
 
35,157,042

   Diluted (Note 5)
 
13,800,884

 
 
 
 
 
 
 
 
 
 
 
 
 
35,157,042


See accompanying notes to the unaudited pro forma combined financial statements





Unaudited Pro Forma Combined Statement of Operations
for the eight months ended December 28, 2019

 
 
Adjusted Franchise Group
 
Adjusted Buddy's
 
Adjusted Sears Outlet
 
Adjusted VSI
 
Adjusted American Freight
 
 
 
 
 
 
 
 
(Note 2a)
 
(Note 2b)
 
(Note 2c)
 
(Note 2d)
 
(Note 2e)
 
 
 
 
 
 
(Dollars in thousands except per share amounts)
 
Eight Months Ended,
December 28, 2019
 
Three Months Ended,
June 30, 2019
 
Six Months Ended,
August 3, 2019
 
Eight Months Ended,
November 30, 2019
 
Eight Months Ended,
November 30, 2019
 
Acquisition and related Pro Forma Adjustments
 
Financing and offer
Pro Forma
Adjustments
 
Pro Forma
Combined
Eight Months Ended,
December 28, 2019
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Product
 
$
54,266

 
$
549

 
$
217,187

 
$
670,796

 
$
273,771

 
$

 
$

 
$
1,216,569

   Service and other
 
27,528

 
5,935

 
16,998

 

 

 
(261
)
(3b)

 
50,200

   Rental
 
22,303

 
6,589

 

 

 

 

 

 
28,892

      Total Revenues
 
104,097

 
13,073

 
234,185

 
670,796

 
273,771

 
(261
)
 

 
1,295,661

Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

   Product
 
44,684

 
441

 
161,350

 
425,839

 

 

 

 
632,314

   Service and other
 
(442
)
 

 
7,975

 

 

 
(261
)
(3b)

 
7,272

   Rental
 
8,121

 
2,400

 

 

 
151,951

 

 

 
162,472

Total cost of revenue
 
52,363

 
2,841

 
169,325

 
425,839

 
151,951

 
(261
)
 

 
802,058

   Selling, general, and administrative expenses
 
142,488

 
8,466

 
53,695

 
257,659

 
100,220

 
(16,752
)
(3c)

 
545,776

   Restructuring Costs
 

 

 

 

 

 
(933
)
(3a)

 
(933
)
      Total operating expenses
 
194,851

 
11,307

 
223,020

 
683,498

 
252,171

 
(17,946
)
 

 
1,346,901

      Gain (loss) from operations
 
(90,754
)
 
1,766

 
11,165

 
(12,702
)
 
21,600

 
17,685

 

 
(51,240
)
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

   Interest expense, net
 
(7,960
)
 
(360
)
 
(1,786
)
 
(2,828
)
 
(3,503
)
 

 
(46,253
)
(4a)
(62,690
)
   Other
 
37

 
11

 
2,883

 

 

 

 

 
2,931

      Income (loss) before income taxes
 
(98,677
)
 
1,417

 
12,262

 
(15,530
)
 
18,097

 
17,685

 
(46,253
)
 
(110,999
)
   Income tax (benefit) expense
 
(10,445
)
 

 
(290
)
 
(3,616
)
 
4,494

 

 
9,857

(4b)

   Net (loss) income
 
(88,232
)
 
1,417

 
12,552

 
(11,914
)
 
13,603

 
17,685

 
(56,110
)
 
(110,999
)
   Less: Income/ (Loss) attributable to noncontrolling interests
 
(36,039
)
 

 

 

 

 

 
36,039

(4c)

Net (loss) income attributable to common stockholders
 
$
(52,193
)
 
$
1,417

 
$
12,552

 
$
(11,914
)
 
$
13,603

 
$
17,685

 
$
(92,149
)
 
$
(110,999
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic (Note 5)
 
$
(3.13
)
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(3.16
)
   Diluted (Note 5)
 
(3.13
)
 
 
 
 
 
 
 
 
 
 
 
 
 
(3.16
)
Weighted average common share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic (Note 5)
 
16,669,065

 
 
 
 
 
 
 
 
 
 
 
 
 
35,157,042

   Diluted (Note 5)
 
16,669,065

 
 
 
 
 
 
 
 
 
 
 
 
 
35,157,042


See accompanying notes to the unaudited pro forma combined financial statements






Unaudited Pro Forma Combined Statement of Operations
for the three months ended March 28, 2020

 
 
Historical Franchise Group
 
American Freight
 
 
 
 
 
 
(Dollars in thousands except per share amounts)
 
Eight Months Ended,
December 28, 2019
 
Three Months Ended,
June 30, 2019
 
Acquisition and related Pro Forma Adjustments
 
Financing and offer Pro Forma Adjustments
 
Pro Forma
Combined
Eight Months Ended,
December 28, 2019
Revenue:
 
 
 
 
 
 
 
 
 
 
   Product
 
$
473,505

 
$
75,159

 
$

 
$

 
$
548,664

   Service and other
 
102,640

 

 

 

 
102,640

   Rental
 
16,420

 

 

 

 
16,420

      Total Revenues
 
592,565

 
75,159

 

 

 
667,724

Operating Expenses:
 
 
 
 
 
 
 
 
 

Cost of revenue:
 
 
 
 
 
 
 
 
 

   Product
 
287,818

 
42,095

 

 

 
329,913

   Service and other
 
756

 

 

 

 
756

   Rental
 
5,942

 

 

 

 
5,942

Total cost of revenue
 
294,516

 
42,095

 

 

 
336,611

   Selling, general, and administrative expenses
 
252,212

 
31,638

 
(3,188
)
 

 
280,662

   Restructuring Costs
 

 

 
322

 

 
322

      Total operating expenses
 
546,728

 
73,733

 
(2,866
)
 

 
617,595

      Gain (loss) from operations
 
45,837

 
1,426

 
2,866

 

 
50,129

Other income (expense):
 
 
 
 
 
 
 
 
 

   Interest expense, net
 
(25,752
)
 
(1,010
)
 

 
3,399

(4a)
(23,363
)
   Other
 
(4,056
)
 

 

 
4,042

(4d)
(14
)
      Income (loss) before income taxes
 
16,029

 
416

 
2,866

 
7,441

 
26,752

   Income tax (benefit) expense
 
(45,869
)
 
122

 

 
2,812

(4b)
(42,935
)
   Net (loss) income
 
61,898

 
294

 
2,866

 
4,629

 
69,687

   Less: Income/ (Loss) attributable to noncontrolling interests
 
2,359

 

 

 
(2,359
)
(4c)

Net (loss) income attributable to common stockholders
 
$
59,539

 
$
294

 
$
2,866

 
$
6,988

 
$
69,687

 
 
 
 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
 
 
 
   Basic (Note 5)
 
$
2.55

 
 
 
 
 
 
 
$
1.98

   Diluted (Note 5)
 
2.51

 
 
 
 
 
 
 
1.96

Weighted average common share
 
 
 
 
 
 
 
 
 
 
   Basic (Note 5)
 
23,373,980

 
 
 
 
 
 
 
35,157,042

   Diluted (Note 5)
 
23,696,035

 
 
 
 
 
 
 
35,479,097


See accompanying notes to the unaudited pro forma combined financial statements










Unaudited Pro Forma Combined Balance Sheet
as of March 28, 2020
 
 
Historical
 
 
 
 
 
Franchise Group
 
 
 
 
(Dollars in thousands, except per share amounts)
 
As of December 28, 2019
 
Financing and offer
Pro Forma
Adjustments
(Note 4)
 
Pro Forma
Combined
As of December 28, 2019
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
   Cash and cash equivalents
 
$
147,028

 
$

 
$
147,028

   Current receivables, net
 
136,254

 

 
136,254

   Inventories, net
 
359,447

 

 
359,447

   Other current assets
 
28,279

 

 
28,279

Total Current Assets
 
671,008

 

 
671,008

   Operating lease right-of-use assets
 
535,092

 

 
535,092

   Property, equipment, and software, net
 
154,713

 

 
154,713

   Non-current receivable, net
 
15,581

 

 
15,581

   Goodwill
 
469,459

 

 
469,459

   Intangible assets, net
 
148,779

 

 
148,779

   Other non-current assets
 
24,891

 

(4f)
24,891

Total Assets
 
2,019,523

 

 
2,019,523

 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
   Current installments of long-term obligations
 
257,466

 

 
257,466

   Accounts payable and accrued expenses
 
259,803

 

 
259,803

   Current portion of operating lease liabilities
 
126,701

 

 
126,701

   Other current liabilities
 
36,444

 

 
36,444

Total current Liabilities
 
680,414

 

 
680,414

   Long-term obligations, excluding current installments, net
 
554,004

 

 
554,004

   Operating Lease Liabilities - non-current
 
434,677

 

 
434,677

   Other non-current liabilities
 
21,408

 
9,699

(4f)
31,107

  Total Liabilities
 
$
1,690,503

 
$
9,699

 
$
1,700,202

 
 
 
 
 
 
 
Stockholders and Members' equity:
 
 
 
 
 
 
   Preferred stock, $0.01 par value per share,
 
11

 
(11
)
(4e)

   Common stock, $0.01 par value per share
 
297

 
55

(4e)
352

   Additional paid-in capital
 
237,354

 
19,968

(4e)
257,322

 
 
 
 
(9,699
)
(4f)
(9,699
)
   Accumulated other comprehensive loss, net of taxes
 
(2,306
)
 

 
(2,306
)
   Retained earnings
 
73,652

 

 
73,652

Total stockholders' equity attributable to Liberty
 
309,008

 
10,313

 
319,321

Non-controlling interest
 
20,012

 
(20,012
)
(4e)

Total stockholders' equity
 
329,020

 
(9,699
)
 
319,321

Total Liabilities, Mezzanine Equity and Equity
 
$
2,019,523

 
$

 
$
2,019,523


See accompanying notes to the unaudited pro forma combined financial statements






Notes to the Unaudited Pro Forma Combined Financial Statements
(dollars in thousands, except share and per share data)
 
Note 1: Basis of Presentation

The accompanying pro forma financial statements were prepared in accordance with Article 11 of Regulation S-X and present the pro forma statements of operations and pro forma balance sheet of the combined company based on the historical financial statements of Franchise Group, Buddy’s, Sears Outlet, VSI, and American Freight (the “Combined Company”), after giving effect to the Transactions as described above. The historical financial statements of Franchise Group, Buddy’s, Sears Outlet, VSI, and American Freight have been adjusted in the accompanying pro forma financial statements to give effect to pro forma events that are (i) directly attributable to the Transactions, (ii) factually supportable and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results of operations of the Combined Company.

The accompanying pro forma financial statements are presented for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the Combined Company if the Transactions had been consummated for the periods presented or that will be achieved in the future. The pro forma financial statements do not reflect the costs of any integration activities or benefits that may result from realization of revenue growth or operational synergies expected to result from the Transactions.

Note 2: Adjustments to Franchise Group’s, Buddy’s, Sears Outlet’s, VSI’s and American Freight’s Historical Financial Statements

(2a) Adjustments and reclassifications to Franchise Group’s historical financial statements:

Certain reclassifications have been made to the historical presentation of the statement of operations for the fiscal year ended April 30, 2019 of Franchise Group to conform to its financial statement presentation for the eight months ended December 28, 2019. The pro forma combined statement of operations for the eight months ended December 28, 2019 was prepared by combining the historical consolidated statement of operations for the eight months ended December 28, 2019 of Franchise Group and the pre-merger historical consolidated statement of operations for the three months ended June 30, 2019 of Buddy’s, the pre-acquisition historical combined statement of operations for the six months ended August 3, 2019 of Sears Outlet, the pre-acquisition historical consolidated statement of operations for the eight months ended November 30, 2019 of VSI, and the pre-acquisition historical consolidated statement of operations for the eight months ended December 29, 2019 of American Freight and giving effect to the Transactions as if they had occurred on the first day of the fiscal year May 1, 2018.







Unaudited Pro Forma Combined Statement of Operations
for the year-ended April 30, 2019

Dollars in thousands, except per share amounts
Historical Franchise Group
 
Reclassification
 
After Reclassification
Revenue:
 
 
 
 
 
Franchise fees
$
2,766

 
$
(2,766
)
 
$

Area Developer fees
3,146

 
(3,146
)
 

Royalties and advertising fees
63,716

 
(63,716
)
 

Financial products
33,478

 
(33,478
)
 

Interest income
8,189

 
(8,189
)
 

Assisted tax preparation fees, net of discounts
14,611

 
(14,611
)
 

Electronic Filing Fee
2,675

 
(2,675
)
 

Product

 

 

Service and other

 
132,546

 
132,546

Rental

 

 

Other revenues
3,965

 
(3,965
)
 

Total revenues
132,546

 

 
132,546

Operating Expenses:
 
 
 
 

Cost of revenue:

 

 

Product

 

 

Service and other

 

 

Rental

 

 

Total cost of revenue

 

 

Employee compensation and benefits
39,822

 
(39,822
)
 

Selling, general, and administrative expenses
42,038

 
82,022

 
124,060

Area Developer expense
15,584

 
(15,584
)
 

Advertising expense
12,532

 
(12,532
)
 

Depreciation, amortization, and impairment charges
14,084

 
(14,084
)
 

Restructuring Costs
9,345

 

 
9,345

Total operating expenses
133,405

 

 
133,405

Gain (loss) from operations
(859
)
 

 
(859
)
Other (expense) income:
 
 
 
 
 
Foreign currency transaction (loss) gain
(113
)
 
113

 

Interest expense, net
(3,203
)
 

 
(3,203
)
Other

 
(113
)
 
(113
)
Loss before income taxes
(3,995
)
 

 
(3,995
)
Income tax benefit
1,839

 

 
1,839

Net loss
(2,156
)
 

 
(2,156
)
Less: Net (loss) income attributable to participating securities

 

 

Net loss attributable to Class A and Class B common stockholders
$
(2,156
)
 
 
 
$
(2,156
)
 
 
 
 
 
 
Net (loss) income per share attributable to Class A and Class B common stockholders:
 
 
 
 

Basic
$
(0.16
)
 
 
 
$
(0.16
)
Diluted
(0.16
)
 
 
 
(0.16
)
 
 
 
 
 
 
Weighted-average shares used to compute net income (loss) per share attributable to Class A and Class B common stockholders:
 
 
 
 
 
Basic
13,800,884

 
 
 
13,800,884

Diluted
13,800,884

 
 
 
13,800,884







The statement of operations for the eight months ended December 28, 2019 includes post-merger operations of Buddy’s for the period July 10, 2019 to December 28, 2019, post-acquisition operations of Sears Outlet for the period October 23, 2019 to December 28, 2019, and post-acquisition operations of VSI for the period December 16, 2019 to December 28, 2019. Accordingly, the following adjustments to Franchise Group’s statement of operations were made to eliminate the post-merger operations of Buddy’s for the period July 11, 2019 to July 31, 2019, the post-acquisition operations of Sears Outlet for the period October 23, 2019 to October 31, 2019, and the post-acquisition operations of VSI for the period December 16, 2019 to December 28, 2019 in order to avoid combining operating results of Buddy’s, Sears Outlet, and VSI that exceed an eight-month period.

Unaudited Pro Forma Combined Statement of Operations
for the eight months ended December 28, 2019
 
 
Historical Franchise Group
 
Less: Buddy's adjustments
 
Less: Sears Outlet adjustments
 
Less: VSI adjustments
 
Adjusted Franchise Group
Dollars in thousands,
except per share amounts
 
Eight Months Ended
December 28, 2019
 
July 10, 2019 - July 31, 2019
 
October 23, 2019 - October 31, 2019
 
December 16, 2019 - December 28, 2019
 
Eight Months Ended
December 28, 2019
Revenue:
 
 
 
 
 
 
 
 
 
 
Product
 
$
96,139

 
$
118

 
$
11,181

 
$
30,574

 
$
54,266

Service and other
 
29,735

 
1,191

 
1,016

 
 
27,528

Rental
 
23,636

 
1,334

 
(1
)
 
 
22,303

Total revenues
 
149,510

 
2,643

 
12,196

 
30,574

 
104,097

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 

 
 

 
 

 
 
 
 

Product
 
71,820

 
93

 
7,565

 
19,478

 
44,684

Service and other
 
768

 

 
1,210

 
 
(442
)
Rental
 
8,661

 
540

 

 
 
8,121

Total cost of revenue
 
81,249

 
633

 
8,775

 
19,478

 
52,363

Selling, general, and administrative expenses
 
173,860

 
1,479

 
5,288

 
24,605

 
142,488

Total operating expenses
 
255,109

 
2,112

 
14,063

 
44,083

 
194,851

Loss from operations
 
(105,599
)
 
531

 
(1,867
)
 
(13,509
)
 
(90,754
)
Other income (expense):
 
 

 
 

 
 

 
 
 
 

Interest expense, net
 
(9,349
)
 
(487
)
 
(212
)
 
(690
)
 
(7,960
)
Other
 
37

 

 

 
 
37

Loss before income taxes
 
(114,911
)
 
44

 
(2,079
)
 
(14,199
)
 
(98,677
)
Income tax benefit
 
(10,445
)
 

 

 
 
(10,445
)
Loss before income taxes
 
(104,466
)
 
44

 
(2,079
)
 
(14,199
)
 
(88,232
)
Less: Net loss attributable to non-controlling interest
 
36,039

 

 

 
 
36,039

Net loss attributable to Franchise Group, Inc.
 
$
(68,427
)
 
$
44

 
$
(2,079
)
 
$
(14,199
)
 
$
(52,193
)

(2b) Adjustments and reclassifications of Buddy’s historical financial statements:

Certain reclassifications have been made to the historical presentation of the statement of operations of Buddy’s to conform to the financial statement presentation of Franchise Group. In addition, certain operations of Buddy’s, including its Flexi Buddy’s, BGTG LLC and 1357 LLC subsidiaries, were divested to the Buddy’s equity holders in December 2018 and therefore were not acquired or assumed by Franchise Group. The following summarizes the reclassification adjustments and elimination of the operations that were not acquired as part of the merger in the unaudited pro forma combined statement of operations for the trailing twelve-month period ended March 31, 2019 and the three months ended June 30, 2019.







Buddy's Statement of Operations
 
 
April 1, 2018 - March 31, 2019
 
April 1, 2019 - June 30, 2019
(in thousands)
 
Before Adjustment
 
Operations not contributed
 
Reclassification
 
After Adjustment
 
Before Adjustment
 
Reclassification
 
After Adjustment
Revenue
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Lease revenue
 
$
30,560

 
$
(4,056
)
 
$
(26,504
)
 
$

 
$
6,589

 
$
(6,589
)
 
$

Agreement, club and damage waiver fee
 
6,160

 
(792
)
 
(5,368
)
 

 
1,352

 
(1,352
)
 

Retail sales
 
2,874

 
(282
)
 
(2,592
)
 

 
549

 
(549
)
 

Franchising and licensing fees
 
15,204

 
532

 
(15,736
)
 

 
4,270

 
(4,270
)
 

Other support revenue
 
2,023

 
(122
)
 
(1,901
)
 

 
313

 
(313
)
 

Product
 

 

 
2,592

 
2,592

 

 
549

 
549

Service
 

 

 
23,005

 
23,005

 

 
5,935

 
5,935

Leasing
 

 

 
26,504

 
26,504

 

 
6,589

 
6,589

Revenue, net
 
56,821

 
(4,720
)
 

 
52,101

 
13,073

 

 
13,073

Leasing cost of sales
 
10,949

 
(1,719
)
 
(9,230
)
 

 
2,400

 
(2,400
)
 

Retail cost of sales
 
2,197

 
(353
)
 
(1,844
)
 

 
441

 
(441
)
 

Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 

Product
 

 

 
1,844

 
1,844

 

 
441

 
441

Leasing
 

 

 
9,230

 
9,230

 

 
2,400

 
2,400

Total cost of revenue
 
13,146

 
(2,072
)
 

 
11,074

 
2,841

 

 
2,841

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
16,375

 
(2,074
)
 
(14,301
)
 

 
3,722

 
(3,722
)
 

Occupancy expense
 
4,845

 
(635
)
 
(4,210
)
 

 
1,050

 
(1,050
)
 

Marketing expense
 
1,927

 
(89
)
 
(1,838
)
 

 
603

 
(603
)
 

Delivery/Vehicle expense
 
1,356

 
(208
)
 
(1,148
)
 

 
257

 
(257
)
 

General & Administrative expense
 
7,426

 
(339
)
 
(7,087
)
 

 
2,490

 
(2,490
)
 

Selling, general, and administrative expenses
 

 

 
29,098

 
29,098

 

 
8,466

 
8,466

Depreciation expenses
 
608

 
(95
)
 
(513
)
 

 
107

 
(107
)
 

Total operating costs
 
45,683

 
(5,512
)
 
1

 
40,172

 
11,070

 
237

 
11,307

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
11,138

 
792

 
(1
)
 
11,929

 
2,003

 
(237
)
 
1,766

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gain on sale of store related assets
 
178

 
81

 
(259
)
 

 
11

 
(11
)
 

Other
 

 

 
259

 
259

 

 
11

 
11

Amortization expense
 
(178
)
 
177

 
1

 

 
(237
)
 
237

 

Interest expense
 
(1,453
)
 
41

 

 
(1,412
)
 
(360
)
 

 
(360
)
Total other income (expense)
 
(1,453
)
 
299

 
1

 
(1,153
)
 
(586
)
 
237

 
(349
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income before income taxes
 
9,685

 
1,091

 

 
10,776

 
1,417

 

 
1,417

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income taxes
 

 

 
 
 

 

 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income from continuing operations
 
$
9,685

 
$
1,091

 
$

 
$
10,776

 
$
1,417

 
$

 
$
1,417







(2c) Reclassification of Sears Outlet’s historical combined financial statements:

Certain reclassifications have been made to the historical presentation of the statement of operations and balance sheet of Sears Outlet to conform to the financial statement presentation of Franchise Group. The following summarizes the reclassification adjustments in the unaudited pro forma carve-out statement of operations for the trailing twelve-month period ended May 4, 2019 and reclassification adjustment in the unaudited pro forma carve-out statement of operations for the six months ended August 3, 2019.


Sears Outlet Statement of Operations
 
 
May 5, 2018 - May 4, 2019
 
February 5, 2019 - August 3, 2019
(in thousands)
 
Before Adjustment
 
Reclassification
 
After Adjustment
 
Before Adjustment
 
Reclassification
 
After Adjustment
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Product
 
$

 
$
448,573

 
$
448,573

 
$

 
$
217,187

 
$
217,187

Service
 

 
41,626

 
41,626