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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-12 · 259 added, 143 removed, 356 unchanged (53% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited combined interim consolidated financial statements as of and for the thirteen and twenty-six weeks ended July 4, 2021 (Successor), together with our audited combined consolidated financial statements for our most recently completed fiscal year set forth under Item 8 of our 2020 Form 10-K/A.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited combined interim consolidated financial statements as of and for the thirteen and thirty-nine weeks ended October 3, 2021 (Successor), together with our audited combined consolidated financial statements for our most recently completed fiscal year set forth under Item 8 of our 2020 Annual Report.

This discussion contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those discussed below.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in Item 1A “Risk Factors” of our 2020 Form 10-K/A and other filings under the Exchange Act.

See “Cautionary Note Regarding Forward-Looking Statements” included in this Quarterly Report.

Our fiscal year end is the Sunday closest to December 31.

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We are a leading manufacturer, marketer, and distributor of high-quality, branded snacking products in the United States.

We produce a broad offering of salty snacks, including potato chips, pretzels, cheese snacks, veggie snacks, pork skins, pub/party mixes, and other snacks.

We produce a broad offering of salty snacks, including potato chips, tortilla chips, pretzels, cheese snacks, veggie snacks, pork skins, pub/party mixes, and other snacks.

Our iconic portfolio of authentic, craft, and “better for you” brands, which includes Utz®, ON THE BORDER® , Zapp’s®, Golden Flake®, Good Health®, Boulder Canyon®, Hawaiian® Brand, and TORTIYAHS!®, among others, enjoys strong household penetration in the United States, where our products can be found in approximately 49% of U.S.

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salty snack category demonstrated strong performance during the novel coronavirus (“COVID-19”) pandemic which began in March 2020 in the U.S.

For the thirteen weeks ended July 4, 2021 (Successor), U.S.

For the thirteen weeks ended October 3, 2021 (Successor), U.S.

retail sales for salty snacks based on IRI data increased by 7.9% versus the comparable prior year period.

In the same period, our retail sales decreased by 7.2%.

In the same period, our retail sales increased by 4.4%.

salty snack category has grown at a 8.3% CAGR from June 30, 2019 to July 4, 2021, while the Company has grown at a 9.5% CAGR over the same time period.

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The deferred payroll taxes must be deposited in two installments, with half due on December 31, 2021 and the remainder on December 31, 2022.

The first installment occurred in September 2021.

We continue to evaluate the impact of the CARES Act;

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We continue to use low-cost, short- and long-term debt to finance our ongoing working capital, capital expenditures and other investments and dividends.

Our weighted average interest rate for the twenty-six weeks ended July 4, 2021 (Successor) was 3.5%, down from 5.4% during the twenty-six weeks ended June 28, 2020 (Predecessor).

Our weighted average interest rate for the thirty-nine weeks ended October 3, 2021 (Successor) was 3.5%, down from 4.7% during the thirty-nine weeks ended September 27, 2020 (Successor and Predecessor).

We have used interest rate swaps to help manage some of our exposure to interest rate changes, which can drive cash flow variability related to our debt.

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"Derivative Financial Instruments and Purchase Commitments" to our unaudited consolidated financial statements included under Part I, Item 1 of this filing for additional information on debt, derivative and purchase commitment activity.

LIBOR Transition – As of July 4, 2021, we had $791.2 million in variable rate indebtedness, up from $780.0 million at January 3, 2021.

As of July 4, 2021 our variable rate indebtedness is tied to the Eurocurrency Rate which currently uses the London Inter Bank Offered Rate ("LIBOR") as a benchmark for establishing applicable rates.

LIBOR Transition – As of October 3, 2021, we had $789.1 million in variable rate indebtedness, up from $780.0 million at January 3, 2021.

As of October 3, 2021 our variable rate indebtedness is tied to the Eurocurrency Rate which currently uses the London Inter Bank Offered Rate ("LIBOR") as a benchmark for establishing applicable rates.

As announced in July 2017, LIBOR is expected to be phased out by the end of 2021.

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The Company paid the purchase price of approximately $40.3 million which was funded in part from incremental financing on an existing term loan.

Commodity Trends

Commodity Trends and Labor and Transportation Costs

We regularly monitor worldwide supply and commodity costs so we can cost-effectively secure ingredients, packaging and fuel required for production.

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Our hedging techniques, such as forward contracts, limit the impact of fluctuations in the cost of our principal raw materials; however, we may not be able to fully hedge against commodity cost changes, where there is a limited ability to hedge, and our hedging strategies may not protect us from increases in specific raw material costs.

Toward the end of 2020, we began to experience an increase in pricing in certain commodities that has continued into the second quarter of fiscal year 2021.

We expect this trend to continue throughout 2021 and may adversely impact our net income.

Due to competitive or market conditions, planned trade or promotional incentives, or other factors, our pricing actions may also lag commodity cost changes.

While the costs of our principal raw materials fluctuate, we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available from numerous sources.

Toward the end of 2020, we began to experience an increase in pricing in certain commodities that has continued into the third quarter of fiscal year 2021.

We expect this trend to continue through early 2022 and may adversely impact our net income.

Additionally, the Company has experienced rising costs related to fuel and freight rates as well as rising labor costs which have negatively impacted profitability.

Transportation costs have been on the rise for the last few months and may continue to rise which may adversely impact net income.

The Company looks to offset rising costs through increasing manufacturing and distribution efficiencies as well as through price increases to our customers, although it is unclear whether historic customer sales levels will be maintained at these higher prices.

Due to competitive or market conditions, planned trade or promotional incentives, or other factors, our pricing actions may also lag commodity, delivery, and labor cost changes.

While the costs of our principal raw materials fluctuate and have increased significantly in the last few quarters, we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available from numerous sources.

Independent Operator Conversions

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In fiscal year 2017, we embarked on a multi-year strategy to convert all company owned RSP routes to the IO model.

The mix between IOs and RSP was approximately 83% and 17%, respectively as of July 4, 2021 versus 75% and 25% ratio for IOs and RSPs respectively as of June 28, 2020.

The mix between IOs and RSP was approximately 85% and 15%, respectively as of October 3, 2021 versus 78% and 22% ratio for IOs and RSPs respectively as of September 27, 2020.

We anticipate completing substantially all remaining conversions by the second quarter of fiscal year 2022.

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Results of Operations

The following table presents selected unaudited financial data for the thirteen and twenty-six weeks ended July 4, 2021 (Successor) and the thirteen and twenty-six weeks ended June 28, 2020 (Predecessor).

Successor Predecessor Successor Predecessor

(in thousands) Thirteen weeks ended July 4, 2021 Thirteen weeks ended June 28, 2020 Twenty-six weeks ended July 4, 2021 Twenty-six weeks ended June 28, 2020

The following table presents selected unaudited financial data for the thirteen weeks ended October 3, 2021 (Successor) and the Successor period from August 29, 2020 through September 27, 2020 and the Predecessor periods from June 29, 2020 through August 28, 2020 as well as the combined Predecessor period from June 29, 2020 through August 28, 2020 with the Successor period from August 29, 2020 through September 27, 2020.

Additionally, we have presented the thirty-nine weeks ended October 3, 2021 (Successor) and the Predecessor period from December 30, 2019 through August 28, 2020 and the combined Predecessor period from December 30, 2019 through August 28, 2020 with the Successor period from August 29, 2020 through September 27, 2020.

We have prepared our discussion of the results of operations by comparing the thirteen weeks ended October 3, 2021 (Successor) with the results of the combined Successor period from August 29, 2020 through September 27, 2020 and Predecessor period from June 29, 2020 through August 28, 2020.

Additionally, we compared the results of the thirty-nine weeks ended October 3, 2021 (Successor) with the combined Successor period from August 29, 2020 through September 27, 2020 and Predecessor period from December 30, 2019 through August 28, 2020.

We believe this approach provides the most meaningful basis of comparison and is more useful in identifying current business trends for the periods presented.

The combined results of operations included in our discussion below are not considered to be prepared in accordance with U.S.

GAAP and have not been prepared as pro forma results under applicable regulations, may not reflect the actual results we would have achieved had the Business Combination occurred at the beginning of fiscal 2019, and should not be viewed as a substitute for the results of operations of the Predecessor and Successor periods presented in accordance with U.S.

Successor Predecessor

Thirteen weeks ended October 3, 2021 Thirty-nine weeks ended October 3, 2021 From

August 29, 2020

September 27, 2020 From

June 29, 2020

August 28, 2020 From

December 30, 2019

August 28, 2020

Net sales $ 312,680 $ 879,781 $ 79,372 $ 168,656 $ 638,662

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Gain on sale of assets

Gain on disposal of property, plant and equipment 607 25 904 93

Gain on sale of routes, net 1,682 627 2,104 1,031

Total gain on sale of assets 2,289 652 3,008 1,124

Income from operations 4,369 17,451 13,668 29,664

Gain (loss) on disposal of property, plant and equipment, net 60 964 5 (14) 79

(Loss) gain on sale of routes, net (1,103) 1,001 59 233 1,264

Total (loss) gain on sale of assets (1,043) 1,965 64 219 1,343

Income (loss) from operations 2,875 16,543 (1,179) 3,117 32,781

Other income (expense)

Interest expense (7,726) (26,483) (1,818) (7,029) (26,659)

Other income 758 259 1,476 839

Other income (expense) 740 2,216 (2,323) 432 1,271

Gain (loss) on remeasurement of warrant liability 36,288 34,155 (18,008) — —

Other income (expense), net 29,302 9,888 (22,149) (6,597) (25,388)

Income (loss) before taxes 16,599 7,723 (5,746) 10,873

Income tax expense 420 1,171 1,424 2,629

Income (loss) before income tax expense 32,177 26,431 (23,328) (3,480) 7,393

Income tax expense (benefit) 827 2,251 (2,889) 1,344 3,973

Net income (loss) 31,350 24,180 (20,439) (4,824) 3,420

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Net income (loss) attributable to controlling interest $ 33,252 $ 28,302 $ (18,119) $ (4,824) $ 3,420

Thirteen weeks ended July 4, 2021 (Successor) versus thirteen weeks ended June 28, 2020 (Predecessor)

Net sales was $297.9 million and $242.0 million for the thirteen weeks ended July 4, 2021 (Successor), and the thirteen weeks ended June 28, 2020 (Predecessor), respectively.

Net sales for the thirteen weeks ended July 4, 2021 (Successor) increased $55.9 million or 23.1% over the comparable period in 2020.

The increase in net sales for the thirteen weeks ended July 4, 2021 (Successor) was primarily related to sales attributable to Truco, Vitner's, H.K.

Anderson, and Festida Foods following the acquisitions of such entities.

IO discounts increased to $30.4 million for the thirteen weeks ended July 4, 2021 (Successor) from $23.7 million for the corresponding thirteen weeks ended June 28, 2020 (Predecessor).

Excluding the impacts of acquisitions and changes to IO discounts due to RSP to IO conversion, total net sales declined 0.7% for the thirteen weeks ended July 4, 2021 (Successor) versus the corresponding period in 2020.

The thirteen weeks ended June 28, 2020 (Predecessor) experienced increased sales across customers and geographies that were heightened by increased in-home consumption of salty snacks due to COVID-19.

Successor Predecessor Non-GAAP Combined

August 29, 2020

September 27, 2020 From

June 29, 2020

August 28, 2020 Thirteen weeks ended September 27, 2020

Net sales $ 79,372 $ 168,656 $ 248,028

Cost of goods sold 55,305 106,484 161,789

Gross profit 24,067 62,172 86,239

Selling, general and administrative expenses

Selling 16,859 33,648 50,507

General and administrative 8,451 25,626 34,077

Total selling, general and administrative expenses 25,310 59,274 84,584

Gain on sale of assets

Gain (loss) on disposal of property, plant and equipment, net 5 (14) (9)

Gain on sale of routes, net 59 233 292

Total gain on sale of assets 64 219 283

(Loss) income from operations (1,179) 3,117 1,938

Other (expense) income

Interest expense (1,818) (7,029) (8,847)

Other (expense) income (2,323) 432 (1,891)

Loss on remeasurement of warrant liability (18,008) — (18,008)

Other (expense) income, net (22,149) (6,597) (28,746)

Loss before income tax expense (23,328) (3,480) (26,808)

Income tax (benefit) expense (2,889) 1,344 (1,545)

Net loss (20,439) (4,824) (25,263)

Net loss attributable to noncontrolling interest 2,320 — 2,320

Net loss attributable to controlling interest $ (18,119) $ (4,824) $ (22,943)

Successor Predecessor Non-GAAP Combined

August 29, 2020

September 27, 2020 From

December 30, 2019

August 28, 2020 Thirty-nine weeks ended September 27, 2020

Net sales $ 79,372 $ 638,662 $ 718,034

Cost of goods sold 55,305 411,595 466,900

Gross profit 24,067 227,067 251,134

Selling, general and administrative expenses

Selling 16,859 131,579 148,438

General and administrative 8,451 64,050 72,501

Total selling, general and administrative expenses 25,310 195,629 220,939

Gain on sale of assets

Gain on disposal of property, plant and equipment, net 5 79 84

Gain on sale of routes, net 59 1,264 1,323

Total gain on sale of assets 64 1,343 1,407

(Loss) income from operations (1,179) 32,781 31,602

Other (expense) income

Interest expense (1,818) (26,659) (28,477)

Other (expense) income (2,323) 1,271 (1,052)

Loss on remeasurement of warrant liability (18,008) — (18,008)

Other (expense) income, net (22,149) (25,388) (47,537)

(Loss) income before income tax expense (23,328) 7,393 (15,935)

Income tax (benefit) expense (2,889) 3,973 1,084

Net (loss) income (20,439) 3,420 (17,019)

Net loss attributable to noncontrolling interest 2,320 — 2,320

Net (loss) income attributable to controlling interest $ (18,119) $ 3,420 $ (14,699)

Thirteen weeks ended October 3, 2021 (Successor) versus thirteen weeks ended September 27, 2020 (Combined)

Net sales were $312.7 million, $79.4 million, and $168.7 million for the thirteen weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period June 29, 2020 through August 28, 2020, respectively.

Net sales for the thirteen weeks ended October 3, 2021 (Successor) increased $64.7 million or 26.1% over the comparable period in 2020.

The increase in net sales for the thirteen weeks ended October 3, 2021 (Successor) was primarily related to sales attributable to the acquisitions of Truco, Vitner's, H.K.

Anderson, and Festida Foods.

IO discounts increased to $31.6 million for the thirteen weeks ended October 3, 2021 (Successor) from $25.2 million for the comparable period in 2020.

Excluding the impacts of acquisitions and changes to IO discounts due to RSP to IO conversion, total net sales increased 2.0% for the thirteen weeks ended October 3, 2021 (Successor) versus the corresponding period in 2020 primarily driven by pricing actions to help offset inflationary pressures on raw materials and higher supply chain costs.

Net sales are evaluated based on our classification as Power and Foundation Brands.

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Our Foundation Brands (“Foundation Brands”) are comprised of several regional brands, including Bachman ®, Golden Flake ® Chips and Cheese, Tim’s Cascade ® Snacks , Snyder of Berlin ®, and “ Dirty ” Potato Chips® as well as partner and private label brands.

For the thirteen weeks ended July 4, 2021 (Successor), excluding brands acquired through our H.K.

Anderson, Festida Foods, Truco, and Vitner's acquisitions, Power Brand sales increased by approximately 1%, while Foundation Brand sales decreased approximately 3% from the thirteen weeks ended June 28, 2020 (Predecessor).

The decline in net sales for Foundation Brands is due to lapping of prior period sales driven by pantry loading and increased at home consumption at the onset of the COVID-19 pandemic starting in the first fiscal quarter of 2020 and continuing into the second fiscal quarter of 2020.

For the thirteen weeks ended October 3, 2021 (Successor), excluding brands acquired through our H.K.

Anderson, Festida Foods, Truco, and Vitner's acquisitions, Power Brand sales increased by approximately 4.1%, while Foundation Brand sales decreased approximately 3.1% from the comparable period in 2020.

The decline in net sales for Foundation Brands is due to planned reductions in private label volume and lapping higher sales driven by changes in consumer behavior as a result of COVID-19 in the prior year.

Partially offsetting the COVID-19 lap was a rebound in the convenience store channel, as well as "on-the-go" oriented channels such as food service.

Cost of goods sold and Gross profit

Gross profit was $95.6 million and $84.9 million for the thirteen weeks ended July 4, 2021 (Successor) and the thirteen weeks ended June 28, 2020 (Predecessor), respectively.

The increase in gross profit for thirteen weeks ended July 4, 2021 (Successor) was driven by higher sales driven by acquisitions, contributions from the acquisitions of Truco, Festida Foods, Vitner's, and H.K.

Anderson, which were partially offset by the commodity cost and wage inflation.

Our gross profit margin was 32.1% for the thirteen weeks ended July 4, 2021 (Successor) versus 35.1% for the thirteen weeks ended June 28, 2020 (Predecessor).

The decrease in gross profit margin was primarily driven by higher commodity inflation, higher labor costs, and inbound freight costs.

Additionally, IO discounts increased to $30.4 million for the thirteen weeks ended July 4, 2021 (Successor) from $23.7 million for the thirteen weeks ended June 28, 2020 (Predecessor), reducing gross profit by $6.7 million.

Gross profit was $102.6 million, $24.1 million and $62.2 million for the thirteen weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period June 29, 2020 through August 28, 2020, respectively.

The increase in gross profit for thirteen weeks ended October 3, 2021 (Successor) was driven by higher sales resulting from the acquisitions of Truco, Festida Foods, Vitner's, and H.K.

Anderson, along with pricing actions necessary to help offset higher commodity, wage, and supply chain costs due to inflationary pressure.

Our gross profit margin was 32.8% for the thirteen weeks ended October 3, 2021 (Successor) versus 34.8% for the comparable period in 2020.

The decrease in gross profit margin was primarily driven by higher commodity, labor, and inbound freight costs offset by pricing actions and year over year productivity gains.

Additionally, IO discounts increased to $31.6 million for the thirteen weeks ended October 3, 2021 (Successor) from $25.2 million for the comparable period in 2020, reducing gross profit by $6.4 million.

The increase to IO discounts was primarily attributable to the planned transition from Company owned DSD routes to independent operators, which was offset by a reduction of our selling, general, and administrative expense structure.

Selling, general and administrative expense

Selling, general and administrative expenses increased to $93.5 million, up $25.4 million or 37.3%, for the thirteen weeks ended July 4, 2021 (Successor) from $68.1 million for the thirteen weeks ended June 28, 2020 (Predecessor).

The increased expenses for the thirteen weeks ended July 4, 2021 (Successor) were primarily driven by incremental operating costs associated with acquisitions and being a public company, $10.3 million, along with the associated depreciation and amortization of $7.4 million, related to the acquisitions and the recent Business Combination.

Other factors driving increased year-over-year cost include industry-wide inflationary pressures in transportation and fuel costs of $4.5 million, and increased spend for marketing/media of $1.7 million, to drive future growth.

Selling, general and administrative expenses increased to $98.7 million, up $14.1 million or 16.7%, for the thirteen weeks ended October 3, 2021 (Successor) from $84.6 million for the comparable period in 2020.

The increased expenses for the thirteen weeks ended October 3, 2021 (Successor) were primarily driven by incremental operating costs associated with acquisitions and being a public company, totaling $10.4 million, along with incremental depreciation and amortization of $3.2 million associated with the Business Combination.

Other factors driving increased year-over-year cost include industry-wide inflationary pressures in transportation and fuel costs of $4.2 million, offset by savings due to the transition of Company owned DSD routes to independent operators and lower incentive based compensation.

Gain on sale of assets

Gain on sale of assets was $2.3 million and $0.7 million for the thirteen weeks ended July 4, 2021 (Successor), and the thirteen weeks ended June 28, 2020 (Predecessor), respectivel y.

Company owned routes were recorded at fair value as a result of the Business Combination, which resulted i n increasing the IO route asset by $10.5 million.

Conversions continued during the second fiscal quarter of 2021 and gains were offset by the values of the routes that were established as part of the Business Combination.

Gain on sale of assets was $(1.0) million, $0.1 million and $0.2 million for the thirteen weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period June 29, 2020 through August 28, 2020, respectively.

Company owned routes were recorded at fair value as a result of the Business Combination, which resulted in increasing the IO route asset by $10.5 million.

Conversions continued during the third fiscal quarter of 2021 and gains were offset by the values of the routes that were established as part of the Business Combination.

Other income (expense), net

Other income (expense), net was $12.2 million and $(9.7) million for the thirteen weeks ended July 4, 2021 (Successor), and the thirteen weeks ended June 28, 2020 (Predecessor), respectively.

The increase in income for the thirteen weeks ended July 4, 2021 (Successor) was primarily due to a $19.4 million gain from the remeasurement of warrant liability.

Inco me tax expense was $0.4 million and $1.2 million for the thirteen weeks ended July 4, 2021 (Successor), and the thirteen weeks ended June 28, 2020 (Predecessor), respectively.

Twenty-six weeks ended July 4, 2021 (Successor) versus twenty-six week periods ended June 28, 2020 (Predecessor)

Net sales was $567.1 million and $470.0 million for the twenty-six weeks ended July 4, 2021 (Successor), and the twenty-six weeks ended June 28, 2020 (Predecessor), respectively.

Net sales for the twenty-six weeks ended July 4, 2021 (Successor) increased $97.1 million or 20.7% over the comparable period in 2020.

The increase in net sales for the twenty-six weeks ended July 4, 2021 (Successor) was primarily related to the acquisitions of Truco, Vitner's, H.K.

Other income (expense), net was $29.3 million, $(22.1) million, and $(6.6) million for the thirteen weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period June 29, 2020 through August 28, 2020, respectively .

The increase in income for the thirteen weeks ended October 3, 2021 (Successor) was primarily due to a $36.3 million gain from the remeasurement of the warrant liability compared to a $18.0 million loss for the successor period August 29, 2020 through September 27, 2020.

Inco me tax expense (benefit) was $0.8 million, $(2.9) million and $1.3 million for the thirteen weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period June 29, 2020 through August 28, 2020, respectively .

Thirty-nine weeks ended October 3, 2021 (Successor) versus thirty-nine week periods ended September 27, 2020 (Combined)

Net sales were $879.8 million, $79.4 million and $638.7 million for the thirty-nine weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period December 30, 2019 through August 28, 2020, respectively .

Net sales for the thirty-nine weeks ended October 3, 2021 (Successor) increased $161.7 million or 22.5% over the comparable period in 2020.

The increase in net sales for the thirty-nine weeks ended October 3, 2021 (Successor) was primarily related to the acquisitions of Truco, Vitner's, H.K.

Anderson, and Festida Foods.

The twenty-six weeks ended June 28, 2020 (Predecessor) experienced increased sales across customers and geographies that were heightened by increased in-home consumption of salty snacks due to COVID-19.

IO discounts increased to $56.9 million for the twenty-six weeks ended July 4, 2021 (Successor) from $47.8 million for the corresponding twenty-six weeks ended June 28, 2020 (Predecessor).

Excluding the impacts of acquisitions and changes to IO discounts due to RSP to IO conversions, total net sales declined 1.6% for the twenty-six weeks ended July 4, 2021 (Successor) versus the corresponding period in 2020.

The thirty-nine weeks ended September 27, 2020 (Combined) experienced increased sales across customers and geographies that were heightened by increased in-home consumption of salty snacks due to COVID-19.

IO discounts increased to $88.6 million for the thirty-nine weeks ended October 3, 2021 (Successor) from $73.0 million for the comparable period in 2020.

Excluding the impacts of acquisitions and changes to IO discounts due to RSP to IO conversions, total net sales declined 0.7% for the thirty-nine weeks ended October 3, 2021 (Successor) versus the corresponding period in 2020 driven by lapping prior period incremental COVID-19 volume and impacts of supply chain disruptions in 2021.

Net sales are evaluated based on our classification as Power and Foundation brands.

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Our Foundation brands are comprised of several regional brands, including Bachman ®, Golden Flake ® Chips and Cheese, Tim’s Cascade ® Snacks , Snyder of Berlin ®, and “ Dirty ” Potato Chips® as well as partner and private label brands.

For the twenty-six weeks ended July 4, 2021 (Successor), excluding brands acquired through our H.K.

Anderson, Truco, Festida Foods, and Vitner's acquisitions, Power Brand sales were effectively flat, while Foundation Brand sales decreased approximately 4% from the twenty-six weeks ended June 28, 2020 (Predecessor).

The decline in Foundation Brands is due to lapping of prior period sales driven by pantry loading and greater at home consumption at the onset of the COVID-19 pandemic starting in the first fiscal quarter of 2020 and continuing through the second fiscal quarter of 2020.

For the thirty-nine weeks ended October 3, 2021 (Successor), excluding brands acquired through our H.K.

Anderson, Truco, Festida Foods, and Vitner's acquisitions, Power Brand sales increased by approximately 1.0%, while Foundation Brand sales decreased approximately 3.8% over the comparable period in 2020.

Partially offsetting the COVID-19 lap was a rebound in the convenience store channel, as well as "on-the-go" oriented channels such as food service.

Cost of goods sold and Gross profit

Gross profit was $190.8 million and $164.9 million for the twenty-six weeks ended July 4, 2021 (Successor) and the twenty-six weeks ended June 28, 2020 (Predecessor), respectively.

The increase in gross profit for twenty-six weeks ended July 4, 2021 (Successor) was primarily driven by higher sales driven by acquisitions, contributions from the acquisitions of Truco, Festida Foods, Vitner's, and H.K.

Anderson, which were partially offset by the commodity cost and wage inflation.

Our gross profit margin was 33.6% for the twenty-six weeks ended July 4, 2021 (Successor) versus 35.1% for the twenty-six weeks ended June 28, 2020 (Predecessor).

The decrease in gross profit margin was primarily driven by higher commodity inflation, higher labor and inbound freight costs .

Additionally, IO discounts increased to $56.9 million for the twenty-six weeks ended July 4, 2021 (Successor) from $47.8 million for the twenty-six weeks ended June 28, 2020 (Predecessor), reducing gross profit by $9.1 million.

Gross profit was $293.4 million, $24.1 million, and $227.1 million for the thirty-nine weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period December 30, 2019 through August 28, 2020, respectively.

The increase in gross profit for thirty-nine weeks ended October 3, 2021 (Successor) was primarily driven by higher sales resulting from the acquisitions of Truco, Festida Foods, Vitner's, and H.K.

Anderson, along with pricing actions necessary to help offset higher commodity, wage, and supply chain costs due to inflationary pressure.

Our gross profit margin was 33.4% for the thirty-nine weeks ended October 3, 2021 (Successor) versus 35.0% over the comparable period in 2020.

The decrease in gross profit margin was primarily driven by higher commodity, labor, and inbound freight costs due to industry wide inflationary pressures, somewhat offset by gains from pricing actions and benefits from year over year productivity programs.

Additionally, IO discounts increased to $88.6 million for the thirty-nine weeks ended October 3, 2021 (Successor) from $73.0 million for the comparable period in 2020, reducing gross profit by $15.6 million.

Selling, general and administrative expense

Selling, general and administrative expenses were $180.1 million and $136.4 million for the twenty-six weeks ended July 4, 2021 (Successor), and the twenty-six weeks ended June 28, 2020 (Predecessor), respectively.

Selling, general and administrative expenses for the twenty-six weeks ended July 4, 2021 (Successor) increased $43.8 million or 32.1% over the corresponding period in 2020.

The increased expenses for the twenty-six weeks ended July 4, 2021 (Successor) were primarily driven by incremental operating costs associated with acquisitions and being a public company of $20.5 million, along with the associated depreciation and amortization of $15.0 million, related to the acquisitions and the recent Business Combination.

Other factors driving increased year-over-year cost include industry-wide inflationary pressures in transportation and fuel costs of $7.7 million, and increased spend for marketing/media of $3.3 million, to drive future growth.

Selling, general and administrative expenses were $278.9 million, $25.3 million and $195.6 million for the thirty-nine weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period December 30, 2019 through August 28, 2020, respectively .

Selling, general and administrative expenses for the thirty-nine weeks ended October 3, 2021 (Successor) increased $57.9 million or 26.2% over the corresponding period in 2020.

The increased expenses for the thirty-nine weeks ended October 3, 2021 (Successor) were primarily driven by incremental operating costs associated with acquisitions and being a public company totaling $39.3 million, along with the associated depreciation and amortization of $10.6 million associated with the Business Combination.

Other factors driving increased year-over-year cost include industry-wide inflationary pressures in transportation and fuel costs of $10.6 million, increased spend for marketing/media of $4.7 million, to drive future growth, offset by savings due to the transition of Company owned DSD routes to independent operators and lower incentive based compensation.

Gain on sale of assets

Gain on sale of assets was $3.0 million and $1.1 million for the twenty-six weeks ended July 4, 2021 (Successor), and the twenty-six weeks ended June 28, 2020 (Predecessor), respectivel y.

Company owned routes were recorded at fair value as a result of the Business Combinati on, which resulted in increasing the IO route asset by $10.5 million.

Conversion continued during th e first fiscal quarter of 2021 and gains were offset by the values of the routes that were established as part of the Business Combination.

Other expense, net

Other expense, net was $19.4 million and $18.8 million for the twenty-six weeks ended July 4, 2021 (Successor), and the twenty-six weeks ended June 28, 2020 (Predecessor), respectively.

The incremental expense for the twenty-six weeks ended July 4, 2021 (Successor) was primarily due to a $2.1 million loss from the remeasurement of the warrant liability.

Inco me tax expense was $1.4 million and $2.6 million for the twenty-six weeks ended July 4, 2021 (Successor), and the twenty-six weeks ended June 28, 2020 (Predecessor), respectively.

Gain on sale of assets was $2.0 million, $0.1 million, and $1.3 million for the thirty-nine weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period December 30, 2019 through August 28, 2020, respectively .

Company owned routes were recorded at fair value as a result of the Business Combination, which resulted in increasing the IO route asset by $10.5 million.

Conversion continued during the first three quarters of 2021 and gains were offset by the values of the routes that were established as part of the Business Combination.

Other income (expense), net

Other income (expense), net was $9.9 million, $(22.1) million and $(25.4) million for the thirty-nine weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period December 30, 2019 through August 28, 2020, respectively .

The incremental income for the thirty-nine weeks ended October 3, 2021 (Successor) was primarily due to a $34.2 million gain from the remeasurement of the warrant liability, compared to a loss of $18.0 million from the remeasurement of the warrant liability for the successor period August 29, 2020 through September 27, 2020.

The other primary driver of the change in other income (expense) was related to interest expense which was down slightly from the comparable period.

Inco me tax expense (benefit) was $2.3 million, $(2.9) million and $4.0 million for the thirty-nine weeks ended October 3, 2021 (Successor), for the successor period August 29, 2020 through September 27, 2020 and the predecessor period December 30, 2019 through August 28, 2020, respectively .

EBITDA, Adjusted EBITDA, and Further Adjusted EBITDA

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We also report Adjusted EBITDA as a percentage of Net Sales as an additional measure for investors to evaluate our Adjusted EBITDA margins on Net Sales.

The following table provides a reconciliation from Net Income (Loss) to EBITDA and Adjusted EBITDA for the thirteen and twenty-six weeks ended July 4, 2021 (Successor) and June 28, 2020 (Predecessor), respectively:

Successor Predecessor Successor Predecessor

(dollars in millions) Thirteen weeks ended July 4, 2021 Thirteen weeks ended June 28, 2020 Twenty-six weeks ended July 4, 2021 Twenty-six weeks ended June 28, 2020

The following tables provides a reconciliation from Net (Loss) Income for the Successor period from August 29,2020 through September 27,2020 and the predecessor periods from June 29, 2020 through August 28, 2020 and December 30, 2019 through August 28, 2020 to the thirteen and thirty-nine weeks ended September 27, 2020 (Combined), respectively:

Successor Predecessor Combined

(dollars in millions) From

August 29, 2020

September 27, 2020 From

June 29, 2020

August 28, 2020 Thirteen weeks ended September 27, 2020

Net Loss $ (20.4) $ (4.8) $ (25.3)

Successor Predecessor Combined

(dollars in millions) From

August 29, 2020

September 27, 2020 From

December 30, 2019

August 28, 2020 Thirty-nine weeks ended September 27, 2020

Net (Loss) Income $ (20.4) $ 3.4 $ (17.0)

The following tables provides a reconciliation from Net Income (Loss) to EBITDA and Adjusted EBITDA for the thirteen and thirty-nine weeks ended October 3, 2021 (Successor) and September 27, 2020 (Combined), respectively:

Successor Combined

(dollars in millions) Thirteen weeks ended October 3, 2021 Thirteen weeks ended September 27, 2020

Net Income (Loss) $ 31.4 $ (25.3)

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Interest Income (IO loans) (1)

(0.4) (0.6) (1.3) (0.9)

EBITDA 60.0 (1.2)

Certain Non-Cash Adjustments (2)

2.8 1.7 7.0 2.8

Acquisition and Integration (3)

2.0 3.9 3.9 9.1

Business Transformation Initiatives (4)

6.5 0.8 9.8 2.4

Financing-Related Costs (5)

0.6 — 0.6 0.1

(Gain) loss on remeasurement of warrant liability (6)

(19.4) — 2.1 —

Adjusted EBITDA 44.8 38.2

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Truco Pre-Acquisition Adjusted EBITDA (7)

— 16.2 — 25.9

Festida Pre-Acquisition Adjusted EBITDA (7)

1.0 1.8 2.6 3.1

Further Adjusted EBITDA $ 44.8 $ 53.6

Successor Combined

(dollars in millions) Thirty-nine weeks ended October 3, 2021 Thirty-nine weeks ended September 27, 2020

Net Income (Loss) $ 24.2 $ (17.0)

Plus non-GAAP adjustments:

Income Tax Expense 2.3 1.1

Depreciation and Amortization 59.3 35.4

Interest Expense, Net 26.5 28.5

Interest Income (IO loans) (1)

EBITDA 110.3 46.2

Certain Non-Cash Adjustments (2)

Acquisition and Integration (3)

Business Transformation Initiatives (4)

Financing-Related Costs (5)

(Gain) loss on remeasurement of warrant liability (6)

Adjusted EBITDA 118.5 100.0

Adjusted EBITDA as a % of Net Sales 13.5% 13.9%

HKA Pre-Acquisition Adjusted EBITDA (7)

Vitner's Pre-Acquisition Adjusted EBITDA (7)

Truco Pre-Acquisition Adjusted EBITDA (7)

Festida Pre-Acquisition Adjusted EBITDA (7)

Further Adjusted EBITDA $ 121.1 $ 145.9

(1) Interest Income from IO Loans refers to Interest Income that we earn from IO notes receivable that have resulted from our initiatives to transition from RSP distribution to IO distribution (“Business Transformation Initiatives”) .

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Incentive programs – Utz Quality Foods, LLC, our wholly-owned subsidiary, established the 2018 Long-Term Incentive Plan (the “2018 LTIP”) for employees in February 2018.

The Company recorded expense of $1.1 million and $1.9 million for thirteen weeks and twenty-six weeks ended June 28, 2020 (Predecessor), respectively.

The Company recorded income of $4.1 million and $2.2 million for thirteen weeks and thirty-nine weeks ended September 27, 2020 (Combined), respectively.

Expenses incurred for the 2018 LTIP are non-operational in nature and are expected to decline upon the vesting of the remaining phantom units from fiscal year 2018 and fiscal year 2019 at the end of fiscal year 2021.

The phantom units under the 2018 LTIP were converted into the 2020 LTIP RSUs as part of the Business Combination.

For the thirteen weeks and twenty-six weeks ended July 4, 2021 (Successor), the Company incurred $2.7 million and $5.6 million, respectively, of stock-based compensation under the 2020 LTIP.

For the thirteen weeks and thirty-nine weeks ended October 3, 2021 (Successor), the Company incurred $2.1 million and $7.8 million, respectively, of stock-based compensation under the 2020 LTIP.

Purchase Commitments and Other Adjustments – We have purchased commitments for specific quantities at fixed prices for certain of our products’ key ingredients.

To facilitate comparisons of our underlying operating results, this adjustment was made to remove the volatility of purchase commitment related gains and losses.

For each of the thirteen weeks and twenty-six weeks ended July 4, 2021 (Successor) we recorded a loss of $0.0 million compared to a benefit of $0.7 million and $1.0 million for the thirteen weeks and twenty-six weeks ended June 28, 2020 (Predecessor), respectively.

(3) Adjustment for Acquisition and Integration Costs – This is comprised of consulting, transaction services, and legal fees incurred for acquisitions and certain potential acquisitions.

The majority of charges are related to costs incurred for the Vitner's acquisition, the Truco acquisition, the Kitchen Cooked acquisition, the Festida Foods acquisition, and related integration expenditures.

(4) Business Transformation Initiatives Adjustment – This adjustment is related to consultancy, professional, and legal fees incurred for specific initiatives and structural changes to the business that do not reflect the cost of normal business operations.

In addition, certain Rice/Lissette family-related costs incurred but not part of normal business operations, and gains realized from the sale of distribution rights to IOs and the subsequent disposal of trucks, and ERP transition costs, offset by severance costs associated with the elimination of RSP positions, fall into this category.

(3) Adjustment for Acquisition and Integration Costs – This is primarily comprised of the following:

(i) consulting, transaction services, and legal fees incurred for acquisitions and certain potential acquisitions;

(ii) integration and restructuring costs related to recently completed acquisitions, which include Vitner's, Truco, H.K.

Anderson, Festida Foods, and other acquisitions;

and (iii) costs associated with reclaiming distribution rights from distributors.

(4) Business Transformation Initiatives Adjustment – This adjustment is related to consultancy and professional fees incurred for specific initiatives and structural changes to the business that do not reflect the cost of normal business operations.

In addition, certain historical Rice/Lissette family-related costs incurred but not part of normal business operations prior to the Business Combination;

ERP conversion and transition costs;

costs incurred related to the conversion of company-owned independent operator routes (including gains or losses on the sale of routes and severance associated with the elimination of RSP positions);

and restructuring and business optimization costs, fall into this category.

(5) Financing-Related Costs – These costs include adjustments for various items related to raising debt and preferred equity capital or debt extinguishment costs.

The Company incurred expenses of $0.6 million for the thirteen weeks and twenty-six weeks ended July 4, 2021 (Successor), compared to $0.0 million and $0.1 million for the thirteen weeks and twenty-six weeks ended June 28, 2020 (Predecessor), respectively.

The Company incurred expenses of $0.1 million and $0.7 million for the thirteen weeks and thirty-nine weeks ended October 3, 2021 (Successor), compared to $2.5 million and $2.6 million for the thirteen weeks and thirty-nine weeks ended September 27, 2020 (Combined), respectively.

(6) Losses (or gains) related to the changes in the remeasurement of warrant liabilities are not expected to be settled in cash, and when exercised would result in a cash inflow to the Company with the Warrants converting to Class A Common Stock with the liability being extinguished and the fair value of the Warrants at the time of exercise being recorded as an increase to equity.

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Liquidity and Capital Resources

The following table presents net cash (used in) provided by operating activities, investing activities and financing activities for the twenty-six weeks ended July 4, 2021 (Successor) and twenty-six weeks ended June 28, 2020 (Predecessor).

Successor Predecessor

(in thousands) Twenty-six weeks ended July 4, 2021 Twenty-six weeks ended June 28, 2020

Net cash (used in) provided by operating activities $ (44) $ 20,313

The following table presents net cash provided by (used in) operating activities, used in investing activities and provided by (used in) financing activities for the thirty-nine weeks ended October 3, 2021 (Successor) and thirty-nine weeks ended September 27, 2020 (Combined).

Successor Predecessor Combined

(in thousands) Thirty-nine weeks ended October 3, 2021 From

August 29, 2020

September 27, 2020 From

December 30, 2019

August 28, 2020 Thirty-nine weeks ended September 27, 2020

Net cash provided by (used in) operating activities $ 4,282 $ (27,748) $ 30,627 $ 2,879

Net cash used in investing activities (78,081) (188,501) (21,516) (210,017)

Net cash provided by (used in) financing activities 52,929 (239,399) (10,451) (249,850)

For the twenty-six weeks ended July 4, 2021 (Successor), our consolidated cash balance, including cash equivalents, was $26.7 million or $20.1 million lower than at January 3, 2021.

Net cash provided by operating activities for the twenty-six weeks ended July 4, 2021 (Successor) was $0.0 million compared to $20.3 million twenty-six weeks ended June 28, 2020 (Predecessor), with the difference largely driven by changes in accounts receivable and inventory, and reductions in accrued expenses largely driven by higher year over year compensation payouts.

Cash used in investing activities for the twenty-six weeks ended July 4, 2021 (Successor) was $70.5 million mostly driven by the Vitner's and Festida Foods acquisitions totaling $66.6 million, versus cash used in investing activity of $18.0 million for the twenty-six weeks ended June 28, 2020 (Predecessor), which was primarily driven by the acquisition of Kitchen Cooked.

Net cash provided by financing activities was $50.5 million for the twenty-six weeks ended July 4, 2021 (Successor), which was primarily a result of the payoffs of the First Term Loan and the Bridge Credit Agreement, offset by the borrowings under Term Loan B, proceeds from the redemption of Warrants, and net borrowings on the ABL, versus net cash used in financing activities of $7.4 million for the twenty-six weeks ended June 28, 2020 (Predecessor) which was primarily the result of net repayments on the ABL and distributions to members.

For the thirty-nine weeks ended October 3, 2021 (Successor), our consolidated cash balance, including cash equivalents, was $26.0 million or $20.9 million lower than at January 3, 2021.

Net cash provided by operating activities for the thirty-nine weeks ended October 3, 2021 (Successor) was $4.3 million compared to $2.9 million thirty-nine weeks ended September 27, 2020 (Combined), with the difference largely driven by changes in accounts receivable and inventory, and reductions in accrued expenses largely driven by higher year over year compensation payouts.

Cash used in investing activities for the thirty-nine weeks ended October 3, 2021 (Successor) was $78.1 million mostly driven by the Vitner's and Festida Foods acquisitions totaling $66.6 million, versus cash used in investing activity of $210.0 million for the thirty-nine weeks ended September 27, 2020 (Combined), which was primarily driven by the acquisition of UBH and Kitchen Cooked.

Net cash provided by financing activities was $52.9 million for the thirty-nine weeks ended October 3, 2021 (Successor), which was primarily a result of the payoffs of the First Term Loan and the Bridge Credit Agreement, offset by the borrowings under Term Loan B, proceeds from the redemption of Warrants, and net borrowings on the ABL, versus net cash used in financing activities of $249.9 million for the thirty-nine weeks ended September 27, 2020 (Combined) which was primarily the result of payoff of debt with the business combination.

Financing Arrangements

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On December 18, 2020, the ABL facility was amended to increase the credit limit up to $161.0 million.

No amounts were outstanding under this facility as of July 4, 2021 and January 3, 2021.

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 and amounts borrowed.

As of July 4, 2021 and January 3, 2021, $109.0 million and $106.4 million, respectively, was available for borrowing, net of letters of credit.

No amounts were outstanding under this facility as of October 3, 2021 and January 3, 2021.

under the ABL facility is based on a monthly accounts receivable and inventory borrowing base certification, which is net of outstanding letters of credit and amounts borrowed.

As of October 3, 2021 and January 3, 2021, $133.2 million and $106.4 million, respectively, was available for borrowing, net of letters of credit.

The facility bears interest at an annual rate based on LIBOR plus an applicable margin of 1.50% (ranging from 1.50% to 2.00% based on availability) or the prime rate plus an applicable margin of 0.50% (ranging from 0.50% to 1.00%).

Had the Company elected to use the Prime rate, the interest rate on the facility as of July 4, 2021 and June 28, 2020, would have been 3.75% and 3.75%, respectively.

The Company elected to use the LIBOR rate, the interest rate on the ABL facility as of July 4, 2021 was 1.60%.

The Company elected to use the LIBOR rate as of June 28, 2020 and the interest rate was 1.66%.

The ABL facility is also subject to unused line fees (0.5% at July 4, 2021) and other fees and expenses.

Standby letters of credit in the amount of $11.6 million and $14.1 million have been issued as of July 4, 2021 and January 3, 2021, respectively.

Had the Company elected to use the Prime rate, the interest rate on the facility as of October 3, 2021 and September 27, 2020, would have been 3.75% and 3.75%, respectively.

The Company elected to use the LIBOR rate, the interest rate on the ABL facility as of October 3, 2021 was 1.58%.

Had there been outstanding balances and the Company elected to use the LIBOR rate as of September 27, 2020, the interest rate would have been 1.68%.

The ABL facility is also subject to unused line fees (0.5% at October 3, 2021) and other fees and expenses.

Standby letters of credit in the amount of $11.6 million and $14.1 million have been issued as of October 3, 2021 and January 3, 2021, respectively.

The standby letters of credit are primarily issued for insurance purposes.

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The First Lien Term Loan bears interest at an annual rate based on either LIBOR plus an applicable margin of 3.50%, or prime rate plus an applicable margin of 2.50%.

The interest rate on the First Lien Term Loan as of June 28, 2020 was 5.10%.

The interest rate on the First Lien Term Loan as of September 27, 2020 was 5.10%.

In connection with Amendment No.

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The Company incurred closing and other costs associated with the Term Loans, which were allocated to each loan on a specific identification basis based on original principal amounts.

Finance fees allocated to the First Lien Term Loan and the Second Lien Term Loan were $10.7 million and $4.1 million, respectively, which are presented net within “non-current portion of debt” on the consolidated balance sheets for the predecessor periods.

Finance fees allocated to the First Lien Term Loan and the Second Lien Term Loan were $10.7 million and $4.1 million, respectively, which were presented net within “non-current portion of debt” on the consolidated balance sheets for the predecessor periods.

Deferred fees are amortized ratably over the respective lives of each term loan.

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The Company incurred debt issuance costs and original issuance discounts of $8.4 million.

The interest rate on Term Loan B was 3.09% as of July 4, 2021.

The interest rate on Term Loan B was 3.08% as of October 3, 2021.

On June 22, 2021, the Company entered into Amendment No.

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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, of which $791.2 million remains outstanding as of July 4, 2021.

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, of which $789.1 million remains outstanding as of October 3, 2021.

The Company incurred additional debt issuance costs and original issuance discounts of $0.7 million related to the incremental funding.

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The credit agreements contain certain affirmative and negative covenants as to operations and the financial condition of UBH and its subsidiaries.

UBH and its subsidiaries were in compliance with its financial covenant as of July 4, 2021.

On July 2, 2021, the Company entered into an agreement with Bank of America Leasing & Capital, LLC, whereby the Company agreed to sell and lease-back certain manufacturing equipment and warehouse/distribution equipment for $13.0 million.

UBH and its subsidiaries were in compliance with its financial covenant as of October 3, 2021.

On July 2, 2021, the Company entered into an agreement with Banc of America Leasing & Capital, LLC, whereby the Company agreed to sell and lease-back certain manufacturing equipment and warehouse/distribution equipment for $13.0 million.

This was accounted for as a financing transaction.

The terms of the sale leaseback transaction are for 60 months at an interest rate of 3.26%.

On July 28, 2021, the Company entered into an agreement with Banc of America Leasing & Capital, LLC, whereby the Company amended a master lease agreement to draw up to $19.0 million on new capital improvement projects.

During the thirteen weeks ended October 3, 2021 the Company has drawn $9.8 million related to certain manufacturing equipment and warehouse/distribution equipment.

This was accounted for as a financing transaction, and bears interest at the Bloomberg Short-Term Bank Yield index plus 1.75%.

Only interest is due on these loans until the capital projects are completed.

The outstanding principal balance as of October 3, 2021 related to the equipment financing transactions above is $22.8 million.

Derivative Financial Instruments

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The Company entered into this transaction to reduce its exposure to changes in cash flows associated with its variable rate debt and has designated this derivative as a cash flow hedge.

At July 4, 2021, the effective fixed interest rate on the long-term debt hedged by this contract was 3.53%.

At October 3, 2021, the effective fixed interest rate on the long-term debt hedged by this contract was 3.48%.

For further treatment of the Company’s interest rate swap, refer to Note 10.

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IO Loan Purchase Commitments

The Company guarantees loans made to IOs by M&T Bank for the purchase of routes.

The agreement with M&T Bank was amended in January 2020 so that the Company guaranteed up to 25% of the greater of the aggregate principal amount of loans outstanding on the payment date or January 1st of the subject year.

The outstanding balance of loans guaranteed was $5.6 million and $6.6 million at July 4, 2021 and January 3, 2021, respectively, all of which was the Company's consolidated balance sheets.

The Company partially guarantees loans made to IOs by Cadence Bank for the purchase of routes.

The outstanding balance of loans guaranteed was $2.5 million and $4.1 million at October 3, 2021 and January 3, 2021, respectively, all of which was recorded by the Company as an off balance sheet arrangement.

The maximum amount of future payments the Company could be required to make under the guarantees equates to 25% of the outstanding loan balance up to $2.0 million.

These loans are collateralized by the routes for which the loans are made.

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Other Notes Payable and Capital Leases

During the first fiscal quarter of 2020, the Company closed on the acquisition of Kitchen Cooked and the acquisition included a deferred purchase price of $2.0 million, of which $1.0 million was outstanding as of July 4, 2021 and January 3, 2021.

Additionally, during the first fiscal quarter of 2020, the Company purchased intellectual property that include a deferred purchase price of $0.5 million, of which $0.4 million and $0.5 million was outstanding as of July 4, 2021 and January 3, 2021, respectively.

During the third quarter of 2021, the Company recorded liabilities related primarily to reclaiming distribution rights from distributors, of which $2.8 million was outstanding as of October 3, 2021.

During fiscal 2019, the Company sold $33.2 million of notes receivable from IOs on its books for $34.1 million in a series of transactions to a financial institution.

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Accordingly, the Company has the ability to recover substantially all of the outstanding loan value upon default.

Interest expense for the thirteen weeks ended July 4, 2021 (Successor) was $7.9 million, $7.3 million of which was related to the Company’s credit facility and other long-term debt, of which $0.3 million was related to amortization of deferred financing fees, and $0.3 million of which was related to IO loans.

Interest expense for the thirteen weeks ended June 28, 2020 (Predecessor) was $10.0 million, $8.7 million of which was related to the Company’s credit facility and other long-term debt, $0.7 million of which was related to amortization of deferred financing fees, and $0.6 million of which was related to IO loans.

Interest expense for the twenty-six weeks ended July 4, 2021 (Successor) was $18.8 million, $14.9 million of which was related to the Company’s credit facility and other long-term debt, of which $3.2 million was related to amortization of deferred financing fees, and $0.7 million of which was related to IO loans.

Interest expense for the twenty-six weeks ended June 28, 2020 (Predecessor) was $19.6 million, $17.1 million of which was related to the Company’s credit facility and other long-term debt, $1.3 million of which was related to amortization of deferred financing fees, and $1.2 million of which was related to IO loans.

Interest expense for the thirteen weeks ended October 3, 2021 (Successor) was $7.7 million, $7.0 million of which was related to the Company’s credit facility and other long-term debt, of which $0.3 million was related to amortization of deferred financing fees, and $0.4 million of which was related to IO loans.

Interest expense for the thirty-nine weeks ended October 3, 2021 (Successor) was $26.5 million, $21.9 million of which was related to the Company’s credit facility and other long-term debt, of which $3.5 million was related to amortization of deferred financing fees, and $1.1 million of which was related to IO loans.

Interest expense for the Successor period from August 29, 2020 to September 27, 2020 was $1.8 million, $1.7 million of which was related to the Company’s credit facility and other long-term debt and $0.1 million of which was related to IO loans.

Interest expense for the Predecessor period from June 28, 2020 to August 28, 2020 was $7.0 million, $6.2 million of which was related to the Company’s credit facility and other long-term debt, $0.4 million of which was related to amortization of deferred financing fees, and $0.4 million of which was related to IO loans.

Interest expense for the Predecessor period from December 30, 2019 to August 28, 2020 was $26.7 million, $23.3 million of which was related to the Company’s credit facility and other long-term debt, $1.7 million of which was related to amortization of deferred financing fees, and $1.7 million of which was related to IO loans.

The interest expense on IO loans is a pass-through expense that has an offsetting interest income within Other income (expense).

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Additionally, the Company has outstanding purchase commitments for specific quantities at fixed prices for certain key ingredients to economically hedge commodity input prices.

These purchase commitments totaled $64.6 million as of July 4, 2021.

The Company has recorded purchase commitment gain (losses) totaling $0.0 million and $(0.7) million for the thirteen weeks ended July 4, 2021 (Successor), and the thirteen weeks ended June 28, 2020 (Predecessor), respectively.

The Company has recorded purchase commitment gain (losses) totaling $0.0 million and $(1.0) million for the twenty-six weeks ended July 4, 2021 (Successor), and the twenty-six weeks ended June 28, 2020 (Predecessor), respectively.

These purchase commitments totaled $44.8 million as of October 3, 2021.

The Company has recorded purchase commitment gain (losses) totaling $0.1 million, $0.1 million and $0.2 million for the thirteen and thirty-nine weeks ended October 3, 2021 (Successor) and for the Successor period from August 29, 2020 to September 27, 2020, respectively.

The Company has recorded purchase commitment gain (losses) totaling $0.3 million and $(0.7) million for the predecessor periods from June 29, 2020 to August 28, 2020 and December 30, 2019 to August 28, 2020, respectively.

IO Guarantees-Off-Balance Sheet

The Company partially guarantees loans made to IOs by Cadence Bank for the purchase of routes.

The outstanding balance of loans guaranteed was $2.8 million and $4.1 million at July 4, 2021 and January 3, 2021, respectively, all of which was recorded by the Company as an off balance sheet arrangement.

The maximum amount of future payments the Company could be required to make under the guarantees equates to 25% of the outstanding loan balance up to $2.0 million.

These loans are collateralized by the routes for which the loans are made.

Accordingly, the Company has the ability to recover substantially all of the outstanding loan value upon default.

The Company partially guarantees loans made to IOs by Bank of America for the purchase of routes.

The outstanding balance of loans guaranteed that were issued by Bank of America was $10.0 million and $7.1 million at July 4, 2021 and January 3, 2021, respectively, which are off balance sheet.

The outstanding balance of loans guaranteed that were issued by Bank of America was $13.1 million and $7.1 million at October 3, 2021 and January 3, 2021, respectively, which are off balance sheet.

As discussed in Note 8.

"Long-Term Debt", the Company also sold notes receivable on its books to Bank of America during fiscal 2019 and fiscal 2021, which the Company partially guarantees.

The outstanding balance of notes purchased by Bank of America at July 4, 2021 and January 3, 2021 was $21.0 million and $16.5 million, respectively.

The outstanding balance of notes purchased by Bank of America at October 3, 2021 and January 3, 2021 was $18.7 million and $16.5 million, respectively.

Due to the structure of the transactions, the sales did not qualify for sale accounting treatment, as such the Company records the notes payable obligation owed by the IOs to the financial institution on its consolidated balance sheets;

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Accordingly, the Company has the ability to recover substantially all of the outstanding loan value upon default.

The Company guarantees loans made to IOs by M&T Bank for the purchase of routes.

The agreement with M&T Bank was amended in January 2020 so that the Company guaranteed up to 25% of the greater of the aggregate principal amount of loans

outstanding on the payment date or January 1st of the subject year.

The outstanding balance of loans guaranteed was $5.4 million and $6.6 million at October 3, 2021 and January 3, 2021, respectively, which are included in the notes payable and notes receivable sections of the Company's consolidated balance sheets.

These loans are collateralized by the routes for which the loans are made.

Accordingly, the Company has the ability to recover substantially all of the outstanding loan value upon default.

New Accounting Pronouncements

"Operations and Summary of Significant Accounting Policies," to the unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

"Operations and Summary of Significant Accounting Policies," to the unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.

Application of Critical Accounting Policies and Estimates

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For the qualitative analysis performed, which took place on the first day of the fourth quarter, we have 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 have taken place from the period of the business combination which assessed goodwill o n August 28, 2020.

We have determined that there was no significant impact that affected the fair value of the reporting unit.

There were no triggering events as of October 3, 2021 that would require an interim impairment analysis prior to the annual impairment test.

We account for income taxes pursuant to the asset and liability method of ASC 740, Income Taxes, which require us to recognize current tax liabilities or receivables for the amount of taxes we estimate 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.

10 unchanged sentences

Our policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling and administrative expenses.

As of July 4, 2021, and January 3, 2021, no liability for unrecognized tax benefits was required to be reported.

As of October 3, 2021, and January 3, 2021, no liability for unrecognized tax benefits was required to be reported.

We do not expect any significant changes in our unrecognized tax benefits in the next year.

16 unchanged sentences

For quantitative and qualitative disclosures about market risk, see Item 7A.

"Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K/A for the year ended January 3, 2021.

"Quantitative and Qualitative Disclosures About Market Risk" of our 2020 Annual Report.

Our exposures to market risk have not changed materially since January 3, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis