What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-02 compared with 2022-03-03 · 216 added, 336 removed, 296 unchanged (65% of the section changed)

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

Our fiscal year 2019 ended December 29, 2019 and was a fifty-two-week period, our fiscal year 2020 ended January 3, 2021 and was a fifty-three-week fiscal year, and our fiscal year 2021 ended January 2, 2022 and was a fifty-two-week fiscal year.

Our fiscal quarters are comprised of thirteen weeks each, except for fifty-three-week fiscal periods for the which the fourth quarter is comprised of fourteen weeks, and end on the thirteenth Sunday of each quarter (fourteenth Sunday of the fourth quarter, when applicable).

Our fiscal year 2020 ended January 3, 2021 and was a fifty-three-week fiscal year, our fiscal year 2021 ended January 2, 2022 and was a fifty-two-week fiscal year, and our fiscal year 2022 ended January 1, 2023 and was a fifty-two-week fiscal year.

Our fiscal quarters are comprised of thirteen weeks each, except for fifty-three-week fiscal periods for which the fourth quarter is comprised of fourteen weeks, and end on the thirteenth Sunday of each quarter (fourteenth Sunday of the fourth quarter, when applicable).

We are a leading United States manufacturer of branded salty snacks.

We produce a broad offering of salty snacks, including potato chips, tortilla chips, pretzels, cheese snacks, veggie snacks, pork skins, veggie snacks, 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.

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 BFY brands, includes Utz®, ON THE BORDER® , Zapp’s®, Golden Flake®, Good Health®, Boulder Canyon®, Hawaiian® Brand, and TORTIYAHS!®, among others, and enjoy strong household penetration in the United States, where our products can be found in approximately 48% of U.S.

We operate 16 manufacturing facilities with a broad range of capabilities, and our products are distributed nationally to grocery, mass merchant, club, convenience, drug and other retailers through direct shipments, distributors, and approximately 2,100 direct-store-delivery (“DSD”) routes.

Our company was founded in 1921 in Hanover, Pennsylvania, and benefits from 100 years of brand awareness and heritage in the salty snack industry.

We have historically expanded our geographic reach and product portfolio organically and through acquisitions.

Based on 2021 retail sales, we are second-largest producer of branded salty snacks in our Core geographies, where we have acquired strong regional brands and distribution capabilities in recent years.

Based on 2022 retail sales, we are the second-largest producer of branded salty snacks in Alabama, Connecticut, Delaware, Louisiana, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia, West Virginia, Washington, and Washington D.C., where we have acquired strong regional brands and distribution capabilities in recent years.

Business Combination

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snack foods as of January 1, 2023.

The salty snacks category has grown retail sales at an approximately 6.4% compound annual growth rate (“CAGR”) from 2017 through 2021 with a major spike in 2020 driven by COVID-19 consumption.

The salty snacks category has grown retail sales at an approximate 9.2% compound annual growth rate (“CAGR”) during 2019 through 2022, with a major spike in 2020 driven by consumption following the outbreak of the novel coronavirus ("COVID-19") and again in 2022 driven by inflation.

In the last few years snacking occasions have been on the rise as consumers increasingly seek out convenient, delicious snacks for both on-the-go and at-home lifestyles.

According to data from the Hartman Group, The Consumer Goods Forum, and IRI as of January 2, 2022, approximately 50% of U.S.

eating occasions are snacks, with 95% of the U.S.

population snacking daily and the average American snacking 2.6 times per day based upon the latest available IRI data.

According to data from the Mintel’s 2022 Snacking Motivation and Attitudes study, approximately 95% of the U.S.

population snacks daily and IRI 2022 Seesaw State of U.S.

Snacking study reports that the average American snacks 2.7 times per day.

Additionally, the salty snacks category has historically benefited from favorable competitive dynamics, including low private label penetration and category leaders competing primarily through marketing and innovation.

We expect these consumer and category trends to continue to drive strong retail sales growth for salty snacks.

As a staple food product with resilient consumer demand and a predominantly domestic supply chain, the salty snack category is well positioned to navigate periods of economic disruption or other unforeseen global events.

salty snack category has demonstrated strong performance through economic downturns historically, growing at a 4% CAGR from 2007 to 2010 during the last recession.

More recently, the U.S.

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

For the 52 weeks ended January 1, 2023, U.S.

retail sales for salty snacks based on IRI data increased by 15.8% versus the comparable prior year period while our retail sales increased by 16.6% in the same period.

The 2 year CAGR from 2020 to 2021 was 8.1% for U.S.retail sales of salty snacks, during which time our retail sales increased by 8.3%.

The 2 year CAGR during 2021 and 2022 was 11.0% for U.S.

retail sales of salty snacks, during which time our retail sales increased by 8.8%.

Competition – The salty snack industry is highly competitive and includes many diverse participants.

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We believe we compete effectively with respect to each of these factors.

Operating Costs – Our operating costs include raw materials, labor, manufacturing overhead, selling, distribution, general and administrative expenses.

Operating Costs – Our operating costs include raw materials, labor, manufacturing overhead, selling, distribution, and administrative expenses.

We manage these expenses through annual cost saving and productivity initiatives, sourcing and hedging programs, pricing actions, refinancing and tax optimization.

Additionally, we maintain ongoing efforts led by our project management office, or PMO, to expand our profitability, including implementing significant reductions to our operating cost structure in both supply chain and overhead costs.

Additionally, we maintain ongoing efforts led by our project management office (“PMO”), to expand our profitability, including implementing significant reductions to our operating cost structure in both supply chain and overhead costs.

Taxes – On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted which includes various tax provisions with retroactive effect.

The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions.

The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak, which among other things contains numerous income tax provisions.

Some of these tax provisions are effective retroactively for years ending before the date of enactment.

We deferred $7.8 million of payroll tax deposits per the CARES Act.

The deferred payroll taxes must be deposited in two installments, with the first installment of $3.9 million paid as of December 31, 2021, and the remaining $3.9 million due on December 31, 2022.

The deferred payroll taxes must be deposited in two installments, with the first installment of $3.9 million paid as of December 31, 2021, and the remaining $3.9 million was paid shortly after fiscal year 2022.

We continue to evaluate the impact of the CARES Act;

however, we believe it is unlikely to have a material effect on our consolidated financial position, results of operations, and cash flow.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022, which, among other things, implemented a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy.

The Company continues to evaluate the impact of the Inflation Reduction Act;

however, we believe it is unlikely to have a material effect on our consolidated financial position, results of operations, and cash flow.

Financing Costs – We regularly evaluate our variable and fixed-rate debt.

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 fiscal year ended January 2, 2022 was 3.5%, down from 4.9% during the same timeframe in fiscal 2020.

We have begun to use interest rate swaps to manage our exposure to interest rate changes, which can drive cash flow variability related to our debt.

Our weighted average interest rate for the fiscal year ended January 1, 2023 was 4.6%, up from 3.5% in fiscal year 2021.

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

Refer to Note 8.

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"Derivative Financial Instruments and Purchase Commitments" to our audited consolidated financial statements included under Part II, Item 8 of this Annual Report on Form 10-K (our "Audited Financial Statements") for additional information on debt, derivative and purchase commitment activity.

LIBOR Transition – As of January 2, 2022, we had $823.2 million in variable rate indebtedness, up from $780.0 million at January 3, 2021, all or a portion of which uses London Inter Bank Offered Rate ("LIBOR") as a benchmark for establishing applicable rates.

As announced in July 2017, LIBOR was phased out on December 31, 2021 for new contracts.

On November 30, 2020, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of Currency and the Federal Deposit Insurance Corporation issued a public statement that the administrator of LIBOR announced it will consult on an extension of publication of certain U.S.

LIBOR Transition – On November 30, 2020, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of Currency and the Federal Deposit Insurance Corporation issued a public statement that the administrator of the London Inter Bank Offered Rate (“LIBOR”) announced it will consult on an extension of publication of certain U.S.

Dollar LIBOR tenors until June 30, 2023, which would allow additional legacy USD LIBOR contracts to mature before the succession of LIBOR.

The administrator has not yet announced the results of its consultation.

Although many of our LIBOR-based obligations provide for alternative methods of calculating the interest rate payable if LIBOR is not reported, the extent and manner of any future changes with respect to methods of calculating LIBOR or replacing LIBOR with another benchmark are unknown and impossible to predict at this time and, as such, may result in interest rates that are materially higher than current interest rates.

As of January 1, 2023, we had $867.4 million in variable rate indebtedness, up from $823.2 million at January 2, 2022.

During most of 2022, our variable rate indebtedness was tied to the Eurocurrency Rate which currently uses LIBOR as a benchmark for establishing applicable rates.

As part of the Company's response to reference rate reform, in September 2022 the Company amended the asset based revolving credit facility (the “ABL facility”), Term Loan B, and our interest rate swap agreement from a LIBOR benchmark to the Term SOFR Screen Rate (‘SOFR”).

If interest rates applicable to our variable interest indebtedness increase, our interest expense will also increase, which could make it difficult for us to make interest payments and fund other fixed costs and, in turn, adversely impact our cash flow available for general corporate purposes.

As of January 1, 2023 we have entered into interest rate hedges covering $588.1 million of debt, of which, $500.0 million is covered through September 30, 2026 and a hedge that covers the principle balance of the Real Estate Term Loan through September 2032.

Our interest rate hedge strategy has limited some of our exposure to changes in interest rates.

COVID-19 – In March 2020, the World Health Organization declared that COVID-19 constituted a “Public Health Emergency of International Concern” and later characterized it as a “pandemic”.

In response, we have taken necessary preventive actions and continue to implement safety measures to protect our employees who are working on and off site.

In response, we took necessary preventive actions and continue to implement safety measures to protect our associates who are working on and off site.

The same time period, March 2020, also marked the beginning of COVID-19’s impact on the consumption, distribution and production of our products.

Demand for product increased significantly for several weeks in late March and into April 2020 as customers “pantry-loaded” in response to “shelter-in-place” measures that were enacted in many markets.

Following that initial spike, in the weeks that followed, demand for product continued to out-pace prior year rates as families have favored “at-home” dining at a greater rate than pre-pandemic levels.

We have serviced that demand by increasing production and distribution activities.

Our strategic manufacturing capabilities and DSD distribution network have allowed us to effectively service the increased demand and be responsive to evolving market dynamics driven by changes in consumer behavior.

During this time we picked up a significant number of new customers and have experienced a high level of repeat customers within fiscal year 2021.

During this time, we picked up a significant number of new customers and have experienced a high level of repeat customers within fiscal year 2021 and through fiscal year 2022.

We will continue to monitor customer and consumer activity and adapt our plans as necessary to best service the business.

Recent Developments and Significant Items Affecting Comparability

On October 21, 2019, we closed on our acquisition of Kennedy Endeavors, LLC (“Kennedy”) from Conagra Brands Inc.

The Company paid the aggregate purchase price of approximately $138.1 million.

Kennedy consists of Tim’s Cascade Snacks and Snyder of Berlin, which are snack food manufacturers.

We acquired this business to expand our national footprint and our DSD snacks business as well as capture significant synergies.

The acquisition provided us with the second largest DSD network for branded salty snacks in the Pacific Northwest, a leased, regional production facility outside of Seattle, Washington, and increased scale with retailers in the Western United States.

We also acquired regional DSD routes and a production facility in Berlin, Pennsylvania, which are highly complementary with our existing business in that region.

On November 11, 2020 the Company caused its subsidiaries, UQF and Heron, to enter into a Stock Purchase Agreement (the "Truco Acquisition") among UQF, Heron, Truco Holdco Inc.

(“Truco”) and Truco Holdings LLC ("Truco Seller").

On December 14, 2020, pursuant to the Stock Purchase Agreement, the Company caused its subsidiary, Heron, to purchase and acquire from Truco Holdings LLC all of the issued and outstanding shares of common stock of Truco (the “Truco Acquisition”).

Upon completion of the Truco Acquisition, Truco became a wholly owned subsidiary of Heron.

At the closing of the Truco Acquisition, the Company paid the aggregate cash purchase price of approximately $405.1 million to Truco Holdings LLC, including payments of approximately $3.0 million for cash on hand at Truco at the closing of the Truco Acquisition, less estimated working capital adjustments, subject to customary post-closing adjustments.

In addition, on December 14, 2020, UQF purchased and acquired from OTB Acquisition, LLC certain intellectual property (“OTB IP”) assets (“IP Purchase”) pursuant to an Asset Purchase Agreement, dated November 11, 2020, among UQF, Truco Seller and OTB Acquisition, LLC.

The IP Purchase was determined to be an asset acquisition under the provisions of ASC Subtopic 805-50.

The IP Purchase is accounted for separately from the Truco Acquisition, as Truco and the OTB IP were acquired from two different selling parties that were not under common control and are two separate transactions.

The OTB IP was initially recognized and measured by the Company based on its purchase price of $79.0 million since it was acquired in asset purchase and is treated as an indefinite lived intangible assets.

Acquisitions and Vertical Integration

On February 8, 2021, the Company closed on a definitive agreement with Snak-King Corp.

to acquire certain assets of the C.J.

Vitner's business, a leading brand of salty snacks in the Chicago, IL area.

Vitner's business, a leading brand of salty snacks in the Chicago, Illinois area.

The acquisition increases our distribution in the Chicago area and Midwest Region and expands our product offering.

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("RW Garcia") to acquire the equity of RW Garcia., an artisan maker of high-quality organic tortilla chips, crackers, and corn chips (RW Garcia acquisition").

The Company closed on this transaction on December 6, 2021, with the purchase price of approximately $58.3 million funded in part from a draw on the Company's line of credit and cash on hand.

In addition to this acquisition on December 6, 2021, the Company closed on an acquisition of a manufacturing facility of which RW Garcia was a tenant.

The Company closed on the RW Garcia acquisition on December 6, 2021, with the purchase price of approximately $57.9 million funded in part from a draw on the Company's line of credit and cash on hand.

In addition to the RW Garcia acquisition on December 6, 2021, the Company closed on an acquisition of a manufacturing facility of which RW Garcia was a tenant.

The cost of the manufacturing facility was approximately $6.0 million.

During fiscal year 2022, the Company focused on increasing manufacturing and streamlining distribution.

In April 2022, the Company purchased a brand new, recently completed snack food manufacturing facility in Kings Mountain, North Carolina from Evans Food Group Ltd.

d/b/a Benestar Brands and related affiliates.

The Company paid the full cash purchase price of $38.4 million at the closing and concurrently with the facility purchase, the Company sold 2.1 million shares of the Company’s Class A Common Stock for $28.0 million, to affiliates of Benestar in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933.

During fiscal year 2022, the Company bought out and terminated the contracts of multiple distributors who had previously been providing services to the Company.

These transactions were accounted for as contract terminations and asset purchases and resulted in expense of $23.0 million for the 52-week period ended January 1, 2023.

Commodity Trends

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

A number of external factors such as weather conditions, commodity market conditions, and the effects of governmental, agricultural or other programs affect the cost and availability of raw materials and agricultural materials used in our products.

A number of external factors such as weather, which may be impacted in unanticipated ways due to climate change, commodity market conditions, and the effects of governmental, agricultural or other programs affect the cost and availability of raw materials and agricultural materials used in our products.

We address commodity costs primarily through the use of buying-forward, which locks in pricing for key materials between three and 18 months in advance.

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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 commodity trends that continued to rise over 2021.

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

Toward the end of fiscal year 2020, we began to experience an increase in pricing in certain commodity trends that continued to rise throughout fiscal year 2021 and have continued to rise through fiscal year 2022.

Continued cost increases in commodity trends 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.

Transportation costs have been on the rise since early in 2021 and may continue to rise which may also 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.

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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 88% and 12%, respectively, as of January 2, 2022 versus a 79% and 21% ratio for IOs and RSPs, respectively, as of January 3, 2021.

We anticipate completing substantially all remaining conversions during fiscal year 2022.

The mix between IOs and RSP was approximately 93% and 7%, respectively, as of January 1, 2023 versus an 88% and 12% ratio for IOs and RSPs, respectively, as of January 2, 2022.

We anticipate continuing to work to complete conversions of remaining RSPs in fiscal year 2023.

The conversion process involves selling distribution rights to a defined route to an IO.

As we convert a large number of routes in a year, there is a meaningful decrease in the selling, general and administrative costs that we previously incurred on RSPs and a corresponding increase in discounts paid to IOs to cover their costs to distribute our product.

As we convert a large number of routes in a year, there is a meaningful decrease in the selling, distribution and administrative costs that we previously incurred on RSPs and a corresponding increase in discounts paid to IOs to cover their costs to distribute our product.

The net impact is a reduction in selling expenses and a decrease in net sales and gross profit.

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Since the consummation of the Business Combination, we are required to comply with the SEC’s rules implementing Section 302 of the Sarbanes-Oxley Act, which require our management to certify financial and other information in our quarterly and annual reports.

We are required to provide an annual management report on the effectiveness of our internal control over financial reporting beginning with our annual report for the fiscal year ending January 3, 2021.

Beginning with the fiscal year ended January 2, 2022 our independent registered public accounting firm is required to assess and attest to the effectiveness of our internal control over financial reporting.

We were required to provide an annual management report on the effectiveness of our internal control over financial reporting beginning with our annual report for the fiscal year ended January 3, 2021.

Beginning with the fiscal year ended January 2, 2022 our independent registered public accounting firm was required to assess and attest to the effectiveness of our internal control over financial reporting.

Results of Operations

The following tables present selected financial data for the year ended January 2, 2022, fiscal periods ended January 3, 2021 and August 28, 2020, and year ended December 29, 2019.

We have prepared our discussion of the results of operations by comparing the results for the year ended January 2, 2022, the combined successor fiscal period from August 29, 2020 through January 3, 2021 and the Predecessor period from December 30, 2019 through August 28, 2020, and the year ended December 29, 2019.

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, and 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

For the year ended January 2, 2022 From

August 29, 2020

January 3, 2021 From

December 30, 2019

August 28, 2020 For the year ended December 29, 2019

The following tables present selected financial data for the fiscal year ended January 1, 2023, fiscal year ended January 2, 2022.

We have prepared our discussion of the results of operations by comparing the results for the fiscal year ended January 1, 2023 to the results of operations for the fiscal year ended January 2, 2022.

Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022, for discussion of the results of operations for the fiscal year ended January 2, 2022, compared to the combined successor fiscal period from August 29, 2020 through January 3, 2021 and the Predecessor period from December 30, 2019 through August 28, 2020, which is incorporated by reference herein.

For the year ended January 1, 2023 For the year ended January 2, 2022

Net sales $ 1,408,401 $ 1,180,713

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Gross profit 449,057 383,909

Selling, general and administrative expenses

Selling 249,352 63,616 131,579 163,589

General and administrative 125,855 43,871 64,050 64,723

Total selling, general and administrative expenses 375,207 107,487 195,629 228,312

Gain on sale of assets

Gain on disposal of property, plant and equipment, net 1,133 109 79 6,028

Gain on sale of routes, net 731 749 1,264 7,232

Total gain on sale of assets 1,864 858 1,343 13,260

Selling, distribution and administrative expenses

Selling and distribution 294,061 249,352

Administrative 150,343 125,855

Total selling, distribution, and administrative expenses 444,404 375,207

Gain on sale of assets, net 691 1,864

Income (loss) from operations 5,344 10,566

Other income (expense)

Other (expense) income

Interest expense (44,424) (34,708)

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Gain (loss) on remeasurement of warrant liability 720 36,675

Other income (expense), net 5,518 (107,210) (25,388) (48,964)

Income (loss) before income taxes 16,084 (108,168) 7,393 (10,218)

Income tax expense (benefit) 8,086 (267) 3,973 3,146

Net income (loss) 7,998 (107,901) 3,420 (13,364)

Net loss (income) attributable to noncontrolling interest 12,557 7,971 — (2,808)

Net income (loss) attributable to controlling interest $ 20,555 $ (99,930) $ 3,420 $ (16,172)

Successor Predecessor Non-GAAP Combined

(in thousands) From

August 29, 2020

January 3, 2021 From

December 30, 2019

August 28, 2020 For the year ended January 3, 2021

Net sales $ 325,648 $ 638,662 $ 964,310

Cost of goods sold 219,977 411,595 631,572

Gross profit 105,671 227,067 332,738

Selling, general and administrative expenses

Selling 63,616 131,579 195,195

General and administrative 43,871 64,050 107,921

Total selling, general and administrative expenses 107,487 195,629 303,116

Gain on sale of assets

Gain on disposal of property, plant and equipment 109 79 188

Gain on sale of routes, net 749 1,264 2,013

Total gain on sale of assets 858 1,343 2,201

(Loss) income from operations (958) 32,781 31,823

Other (expense) income

Interest expense (13,301) (26,659) (39,960)

Other (expense) income (2,058) 1,271 (787)

Loss on remeasurement of warrant liabilities (91,851) — (91,851)

Other (expense) income, net (43,304) 5,518

(Loss) income before taxes (108,168) 7,393 (100,775)

(Loss) income before income taxes (37,960) 16,084

Income tax (benefit) expense (23,919) 8,086

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Net (loss) income attributable to controlling interest $ (392) $ 20,555

Successor Non-GAAP Combined Predecessor

(in thousands) For the year ended January 2, 2022 For the year ended January 3, 2021 For the year ended December 29, 2019

Net sales $ 1,180,713 $ 964,310 $ 768,228

Cost of goods sold 796,804 631,572 514,430

Gross profit 383,909 332,738 253,798

Selling, general and administrative expenses

Selling 249,352 195,195 163,589

General and administrative 125,855 107,921 64,723

Total selling, general and administrative expenses 375,207 303,116 228,312

Gain on sale of assets

Gain on disposal of property, plant and equipment 1,133 188 6,028

Gain on sale of routes, net 731 2,013 7,232

Total gain on sale of assets 1,864 2,201 13,260

Income from operations 10,566 31,823 38,746

Other income (expense)

Interest expense (34,708) (39,960) (48,388)

Other (expense) income 3,551 (787) (576)

Loss on remeasurement of warrant liability 36,675 (91,851) —

Other income (expense), net 5,518 (132,598) (48,964)

Income (loss) before taxes 16,084 (100,775) (10,218)

Income tax expense 8,086 3,706 3,146

Net income (loss) 7,998 (104,481) (13,364)

Net loss (income) attributable to noncontrolling interest 12,557 7,971 (2,808)

Net income (loss) attributable to controlling interest $ 20,555 $ (96,510) $ (16,172)

52 week Year Ended January 2, 2022 (Successor) versus 53 week Year Ended January 3, 2021 (Successor and Predecessor)

Net sales were $1,180.7 million for the year ended January 2, 2022 and $325.6 million for the Successor period August 29, 2020 through January 3, 2021 and $638.7 million for the Predecessor period December 30, 2019 through August 28, 2020.

Net sales for the year ended January 2, 2022 increased $216.4 million or 22.4% over the combined fiscal year 2020.

The increase in net sales for the 52 weeks ended January 2, 2022 was related to the acquisitions of H.K.

Anderson, Festida, Vitner's, RW Garcia and Truco, along with increased sales across customers and geographies resulting from customer programs and pricing actions put in place to help offset inflation pressures on higher input and supply chain costs in fiscal year 2021, partially offset by an extra week of sales in fiscal 2020, which represented $15.9 million.

The Company lapped higher sales that were heightened by increased in-home consumption of salty snacks due to COVID-19 and has kept a high rate of repeat customers.

IO discounts increased from $96.7 million for the combined year ended January 3, 2021 to $109.7 million for the corresponding year ended January 2, 2022.

Excluding the impacts of acquisitions and changes to IO discounts, total net sales increased 0.8% for the year ended January 2, 2022 versus the corresponding period in 2020.

52 week Year Ended January 1, 2023 versus 52 week Year Ended January 2, 2022

Net sales were $1,408.4 million for the fiscal year ended January 1, 2023 and $1,180.7 million for the fiscal year ended January 2, 2022.

Net sales for the fiscal year ended January 1, 2023 increased $227.7 million or 19.3% over the fiscal year 2021.

The increase in net sales for the 52 weeks ended January 1, 2023 was primarily related to favorable price/mix of 13.9%, which was largely driven by pricing actions in the second half of fiscal year 2021 and throughout fiscal year 2022 as a response to inflationary pressures, as well as organic volume growth, distribution gains, and the full year sales benefit from the acquisitions of Vitner's, Festida Foods, and R.W.

Garcia, partially offset by the Company's stock keeping units ("SKU") reduction as the Company continue to optimize product offerings.

IO discounts increased from $109.7 million for the fiscal year ended January 2, 2022 to $156.8 million for the corresponding year ended January 1, 2023.

Excluding the impacts of acquisitions, which contributed $58.4 million to net sales, and increased IO discounts related to RSP to IO conversion, which reduced net sales by $14.2 million, organic net sales increased 15.5% for the fiscal year ended January 1, 2023 versus the fiscal year ended January 2, 2022.

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

Power brands include our iconic heritage Utz brand and iconic ON THE BORDER®;

Power brands include our iconic heritage Utz brand and iconic ON THE BORDER® brand;

craft brands such as Zapp’s ®, Golden Flake ® Pork Skins, TORTIYAHS!, and Hawaiian ®;

“better for you” brands such as Good Health ® and Boulder Canyon ®;

and selected licensed brands such as TGI Fridays ®.

BFY brands such as Good Health ® and Boulder Canyon ®;

and select licensed brands such as TGI Fridays ®.

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®, R.W.

Garcia® and selected licensed brands such as Herdez ® as well as other partner and private label brands.

For the year ended January 2, 2022, excluding the impact of higher IO discounts and brands acquired through our H.K.

Anderson, Vitner's, Truco, Festida, and R.W.

Garcia acquisitions, Power Brand sales increased by approximately 3%, while Foundation Brand sales decreased approximately 3% from 2020.

Growth in Power Brands was led by Utz®, Zapp’s®, TORTIYAHS!® and Golden Flake Pork® Skins brands, with strong increases across Core, Expansion and Emerging Geographies.

The decline in Foundation Brands reflects our strategy to focus on our Power Brands .

Garcia®, as well as other partner and private label brands.

For the fiscal year ended January 1, 2023, excluding brands acquired through our Vitner's, Festida Foods, and R.

Garcia acquisitions, Power brand sales increased by approximately 21.0%, while Foundation brand sales increased approximately 4.7% from 2021.

The increase in Power brand sales is due primarily to favorable pricing actions, organic volume growth, and distribution gains, offset by continued IO conversions.

Foundation brand sales increase was primarily driven by favorable pricing actions, partially offset by continued IO conversion and SKU rationalization.

Cost of goods sold and Gross profit

Gross profit was $383.9 million for the year ended January 2, 2022, $105.7 million for the Successor period August 29, 2020 through January 3, 2021, and $227.1 million from for the Predecessor period December 30, 2019 through August 28, 2020.

Gross profit for the year ended January 2, 2022 increased $51.2 million or 15.4% over the comparable period in 2020.

The increase in gross profit for fiscal year 2021 was driven by higher sales, contributions from the acquisitions of H.K.

Anderson, Festida, Vitner's, RW Garcia and Truco, leveraging our existing infrastructure and available capacity, as well as the ramp-up of productivity initiatives driving improvement in manufacturing capability.

Gross profit was $449.1 million for the fiscal year ended January 1, 2023 and $383.9 million for the fiscal year ended January 2, 2022.

Gross profit for the year ended January 1, 2023 increased $65.1 million or 17.0% over the comparable period in fiscal year 2021.

The increase in gross profit for fiscal year 2022 was driven by organic volume growth, distribution gains, the gross profit contributions related to the acquisitions of Vitner's, Festida Foods, and R.W.

Garcia, and the benefits of leveraging our existing infrastructure and available capacity while also improving efficiencies through productivity initiatives, including implementation of IBM, SKU rationalization, and full integration of our Enterprise Resource Planning ("ERP") system.

In addition, pricing initiatives were put in place to help reduce the impact of continued commodity, transportation, and wage inflation.

The fiscal year ended January 1, 2023 was benefited by $6.0 million recorded as a reduction of cost of goods sold related to proceeds received from a partial settlement of business interruption insurance, which reimbursed the Company for incremental expenses as the Company shifted production to other facilities, including co-manufacturers, due to a natural disaster that affected one of the Company's smaller manufacturing facilities.

Our gross profit margin was 31.9% for the fiscal year 2022 versus 32.5% for the combined fiscal year ended 2021.

IO discounts increased from $96.7 million in fiscal 2020 to $109.7 million in fiscal 2021 primarily as the result of continued route conversions to independent operators, accounting for about 1.1% of the decline in gross profit margin.

The remaining reduction of gross profit margin was primarily driven by labor, freight and commodity inflation.

In response to these inflationary pressures the Company initiated pricing actions, which due to timing, did not fully cover the incremental costs in fiscal 2021.

Selling, general and administrative expenses

Selling, general and administrative expenses were $375.2 million for the year ended January 2, 2022 with $107.5 million for the Successor period August 29, 2020 through January 3, 2021, and $195.6 million for the Predecessor period December 30, 2019 through August 28, 2020.

Selling, general and administrative expenses for the year ended January 2, 2022 increased $72.1 million or 23.8% over the comparable period in 2020.

The increased expenses in fiscal year 2021 resulted mostly from higher operational costs related to H.K.

Anderson, Festida, Vitner's, RW Garcia and Truco acquisitions, along with inflationary pressures and higher supply chain costs largely driven by higher freight costs, partially offset by an extra week in fiscal year 2020 and by savings due to the transition of Company owned DSD routes to independent operators.

IO discounts increased from $109.7 million in fiscal year 2021 to $156.8 million in fiscal year 2022, $14.2 million of which was the result of continued route conversions to IOs and the remaining IO discount growth driven by volume and pricing actions.

The IO conversions accounting for approximately 1.0% of the decline in gross profit margin.

Apart from the IO discount impact, in fiscal year 2022 the Company improved margins over fiscal year 2021 as the Company continued pricing actions in response to the labor, freight, and commodity inflation that the Company experienced in fiscal years 2021 and 2022.

Selling, distribution and administrative expenses

Selling, distribution and administrative expenses were $444.4 million for the fiscal year ended January 1, 2023 and $375.2 million for the fiscal year ended January 2, 2022.

Selling, distribution and administrative expenses for the fiscal year ended January 1, 2023 increased $69.2 million or 18.4% greater than the fiscal year ended January 2, 2022.

The increased expenses in fiscal year 2022 was driven by increased distribution, and the acquired operations of the R.W.

Garcia businesses, as well as, higher accruals for incentive compensation resulting from improved fiscal year 2022 performance as compared to fiscal year 2021, and increased investments in additional compensation for our associates, brands, selling infrastructure, and planning capabilities to support growth.

These incremental costs were partially offset by the reductions of selling costs related to the continued conversion of Company-owned DSD routes from RSP to IO.

Gain on sale of assets

Gain on sale of assets was $1.9 million for the year ended January 2, 2022, $0.9 million for the Successor period August 29, 2020 through January 3, 2021 and $1.3 million for the Predecessor period December 30, 2019 through August 28, 2020.

Gain on sale of assets was $0.7 million for the fiscal year ended January 1, 2023 and $1.9 million for the fiscal year ended January 2, 2022.

The decrease in the gain on sale of assets of $1.2 million was primarily the result of a lower route conversions in 2022 offset by gains on disposals of equipment.

Other income (expense), net

Other income (expense), net was $5.5 million for the year ended January 2, 2022, $(107.2) million for the Successor period August 29, 2020 through January 3, 2021, and $(25.4) million for the Predecessor period December 30, 2019 through August 28, 2020.

The primary change was driven by the evaluation of the company's warrants.

In fiscal year 2021, the warrants resulted in a gain of $36.7 million versus a loss of $91.9 million for fiscal year 2020.

Also significant was interest expense of $(34.7) million for the year ended January 2, 2022 compared to $(13.3) million for the Successor period August 29, 2020 through January 3, 2021 and $(26.7) million for the Predecessor period December 30, 2019 through August 28, 2020.

Income taxes were an expense of $8.1 million for the year ended January 2, 2022, a benefit of $(0.3) million for the Successor period August 29, 2020 through January 3, 2021, and an expense of $4.0 million for the Predecessor period December 30, 2019 through August 28, 2020 .

53 week Year Ended January 3, 2021 (Successor and Predecessor) versus 52 week Year Ended December 29, 2019 (Predecessor)

Net sales were $325.6 million for the Successor period, $638.7 million from December 30, 2019 through August 28, 2020, and $768.2 million for the year ended December 29, 2019.

Net sales for the combined year ended January 3, 2021 increased $196.1 million or 25.5% over the comparable period in 2019.

The increase in net sales for the 53 weeks ended January 3, 2021 was related to the acquisitions of Kennedy, Kitchen Cooked, H.K.

Anderson and Truco, increased sales across customers and geographies that were heightened by increased in-home consumption of salty snacks due to COVID-19, as well as a 53rd week.

The 53rd week represents an increase of approximately $15.9 million.

IO discounts increased from $77.2 million for the year ended December 29, 2019 to $96.7 million for the corresponding combined year ended January 3, 2021.

Excluding the impacts of acquisitions and changes to IO discounts, total net sales grew 16.7% for the combined year ended January 3, 2021 versus the corresponding period in 2019.

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

Power brands include our iconic heritage Utz brand and iconic ON THE BORDER®;

craft brands such as Zapp’s ®, Golden Flake ® Pork Skins, and Hawaiian ®;

“better for you” brands such as Good Health ® and Boulder Canyon ®;

and selected licensed brands such as TGI Fridays ®.

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

For the combined year ended January 3, 2021, excluding the impact of higher IO discounts and brands acquired through our Kennedy, Kitchen Cooked, H.K.

Anderson and Truco acquisitions, Power Brand sales increased by approximately 14%, while Foundation Brand sales decreased approximately 1% from 2019.

Growth in Power Brands was led by Utz®, Zapp’s®, TORTIYAHS!® and Golden Flake Pork® Skins brands, with strong increases across Core, Expansion and Emerging Geographies.

The decline in Foundation Brands reflects our strategy to focus on our Power Brands and continued softness in food service, up-and-down-the-street customers, and the convenience channel due to COVID-19.

Conversely, our Power Brands have a stronger presence in large format channels, which have performed well during this time period.

Cost of goods sold and Gross profit

Gross profit was $105.7 million for the Successor period, $227.1 million from December 30, 2019 through August 28, 2020, and $253.8 million for the year ended December 29, 2019.

Gross profit for the combined year ended January 3, 2021 increased $78.9 million or 31.1% over the comparable period in 2019.

The increase in gross profit for fiscal year 2020 was driven by higher sales, contributions from the acquisition of Kennedy, Kitchen Cooked, H.K.

Anderson and Truco, leveraging our existing infrastructure and available capacity, as well as lower per unit costs for materials and overhead driven by productivity initiatives, and lower commodity costs, which were partially offset by the amortization of acquired inventory of $5.8 million.

Our gross profit margin was 34.5% for the combined fiscal year 2020 versus 33.0% for the fiscal year ended 2019.

Excluding the amortization of acquired inventory, the improvement in gross profit margin was primarily driven by the sales volume leverage on controllable overhead costs and productivity savings.

IO discounts increased from $77.2 million in fiscal 2019 to $96.5 million in fiscal 2020, reducing gross profit by $19.3 million.

Selling, general and administrative expenses

Selling, general and administrative expenses were $107.5 million for the Successor period, $195.6 million from December 30, 2019 through August 28, 2020, and $228.3 million for the year ended December 29, 2019.

Selling, general and administrative expenses for the combined year ended January 3, 2021 increased $74.8 million or 33% over fiscal 2019.

The increased expenses in fiscal 2020 were driven by higher transaction-related service provider fees, higher operational costs related to incremental sales volume, operating expense of the acquired Kennedy, Kitchen Cooked, H.K.

Anderson and Truco businesses, higher incentive compensation expense and an additional 53rd week.

Gain on sale of assets

Gain on sale of assets was $0.9 million for the Successor period, $1.3 million from December 30, 2019 through August 28, 2020, and $13.3 million for the year ended December 29, 2019.

Gain on sale of assets was primarily driven by a reduction in the number of conversions of RSP routes to IO routes, which resulted in lower proceeds from the sale of routes in fiscal year 2020 compared to the same time period in fiscal year 2019.

Additionally, 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.

Other (expense) income, net

Other expense, net was $107.2 million for the Successor period, $25.4 million from December 30, 2019 through August 28, 2020, and $49.0 million for the year ended December 29, 2019.

During the Successor period the Company recognized an expense of $91.9 million due to the remeasurement of the warrant liability.

The Warrants were not part of the Predecessor and therefore no such expense is shown in the Predecessor periods.

In addition, the Company incurred $2.5 million of expenses in connection with the repayment of the Senior Secured First Lien Note and incremental interest of $1.1 million and deferred financing fees that were expensed of $4.7 million related to the bridge loan in connection with the acquisition of Truco during the Successor period.

Interest expense decreased $8.4 million for the combined year ended January 3, 2021, versus the fiscal year 2019.

The lower interest expense was driven by a reduction in the comparative average LIBOR rate and payoff of the existing second lien term loan and subsequent origination of a new term loan with a lower fixed rate component in the fiscal fourth quarter of 2019, which favorably impacted the fiscal year 2020.

Inco me taxes were a benefit of $0.3 million for the Successor period, expense of $4.0 million for December 30, 2019 through August 28, 2020, and expense of $3.1 million for the year ended December 29, 2019 .

Other income (expense), net was $(43.3) million for the fiscal year ended January 1, 2023 and $5.5 million for the fiscal year ended January 2, 2022.

The primary change was driven by the valuation of the Company's warrants.

In fiscal year 2022, the warrants resulted in a gain of $0.7 million versus a gain of $36.7 million for fiscal year 2021.

In addition, interest expense was $(44.4) million for the fiscal year ended January 1, 2023 and $(34.7) million for the fiscal year ended January 2, 2022.

The additional increase in interest expense is primarily attributable to the additional equipment loan and ABL facility draws, which were used in connection with the acquisition of R.W.

Garcia, financing related to the Kings Mountain, North Carolina facility, and the buyout of multiple distributors, which were accounted for as contract terminations and asset purchases.

Another significant driver increasing interest expense relates to an increase in interest rates, which impacted the portion of debt that the Company has not hedged.

Income taxes were a benefit of $23.9 million for the fiscal year ended January 1, 2023 and an expense of $8.1 million for the fiscal year ended January 2, 2022 .

The income tax benefit recognized for the year ended January 1, 2023 is largely driven by the removal of part of a portion of a valuation allowance, which partially offsets a deferred tax asset, which resulted in a $17.2 million income tax benefit.

Please see Note 15.

"Income Taxes" of our Audited Financial Statements for addition information.

Non-GAAP Financial Measures

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GAAP and non-GAAP financial measures below, and we also discuss our underlying U.S.

GAAP results throughout this MD&A section.

GAAP results throughout this discussion and analysis of our financial condition and results of operations.

Our primary non-GAAP financial measures are listed below and reflect how we evaluate our current and prior-year operating results.

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When the definitions change, we will provide the updated definitions and present the related non-GAAP historical results on a comparable basis.

EBITDA, Adjusted EBITDA, and Further Adjusted EBITDA

EBITDA and Adjusted EBITDA

We define EBITDA as Net Income before Interest, Income Taxes, and Depreciation and Amortization.

3 unchanged sentences

and Financing-Related Costs.

We define Further Adjusted EBITDA as Adjusted EBITDA after giving effect to pre-acquisition EBITDA of Kennedy, pre-acquisition Adjusted EBITDA of Kitchen Cooked, and pre-acquisition EBITDA of Collier Creek Holdings.

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

Adjusted EBITDA is one of the key performance indicators we use in evaluating our operating performance and in making financial, operating, and planning decisions.

We believe EBITDA, Adjusted EBITDA, and Further Adjusted EBITDA are useful to investors in the evaluation of Utz’s operating performance compared to other companies in the salty snack industry, as similar measures are commonly used by companies in this industry.

We have also historically reported an Adjusted EBITDA metric to investors and banks for covenant compliance.

We believe EBITDA and Adjusted EBITDA are useful to investors in the evaluation of Utz’s operating performance compared to other companies in the salty snack industry, as similar measures are commonly used by companies in this industry.

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 (Loss) Income for the Successor period from August 29,2020 through January 3, 2021 and the Predecessor period from December 30, 2019 through August 28, 2020 and for the year ended January 3, 2021 (Combined).

Successor Predecessor Combined

(dollars in millions) From

August 29, 2020

January 3, 2021 From

December 30, 2019

August 28, 2020 For the year ended January 3, 2021

The following table provides a reconciliation from Net Income (Loss) to EBITDA and Adjusted EBITDA for the fiscal year ended January 1, 2023 and the fiscal year ended January 2, 2022:

(dollars in millions) For the year ended January 1, 2023 For the year ended January 2, 2022

Net (loss) income $ (14.0) $ 8.0

The following table provides a reconciliation from Net Income (Loss) to EBITDA and Adjusted EBITDA the year ended January 2, 2022, combined period ended January 3, 2021, and year ended December 29, 2019:

Successor Non-GAAP Combined Predecessor

(dollars in millions) For the year ended January 2, 2022 For the year ended January 3, 2021 For the year ended December 29, 2019

Net income (loss) $ 8.0 $ (104.5) $ (13.4)

Plus non-GAAP adjustments:

Income Tax Expense 8.1 3.7 3.2

Income Tax (Benefit) Expense (23.9) 8.1

Depreciation and Amortization 86.8 80.7

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Interest Income (IO loans) (1)

(2.4) (2.4) (3.4)

EBITDA 91.7 129.1

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Acquisition and Integration (3)

27.0 40.0 3.3

Business Transformation Initiatives (4)

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

(36.7) 91.9 —

Adjusted EBITDA 170.5 156.2

Adjusted EBITDA as a % of Net Sales 12.1 % 13.2 %

Adjustment to remove 53rd week — (3.1) —

Conagra DSD Snacks (Kennedy) Pre-Acquisition EBITDA (7)

Kitchen Cooked Pre-Acquisition Adjusted EBITDA (7)

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)

Garcia Pre-Acquisition Adjusted EBITDA (7)

Further Adjusted EBITDA $ 164.2 $ 192.7 $ 140.7

(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”) .

There is a Notes Payable recorded that mirrors the IO notes receivable, and the interest expense associated with the Notes Payable is part of the Interest Expense, Net adjustment.

There is a Notes Payable recorded that mirrors most IO notes receivable, and the interest expense associated with the Notes Payable is part of the Interest Expense, Net adjustment.

(2) Certain Non-Cash Adjustments are comprised primarily of the following:

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 income of $3.0 million for the Predecessor period from December 30, 2019 to August 28, 2020.

The income was the result of the conversion rate of the 2018 LTIP Phantom Units into the 2020 LTIP RSUs.

The Company recorded expenses of $6.5 million in 2019.

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.

Additionally, the Company incurred $13.0 million and $10.6 million of share-based compensation for the Successor period from August 29, 2020 to January 3, 2021 and for fiscal 2021, respectively.

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

Incentive programs – The Company incurred $8.8 million and $10.6 million of share-based compensation that was awarded to associates and directors for the fiscal year ended January 1, 2023 and the fiscal year ended January 2, 2022, respectively.

Asset Impairments and Write-Offs — For the fiscal year ended January 1, 2023, the Company recorded an adjustment for an impairment of $2.0 million related to the termination of distribution agreements.

There were no adjustments for impairments recorded in fiscal year 2021.

Purchase Commitments and Other Adjustments – We have purchase 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 unrealized gains and losses.

Asset Impairments and Write-Offs — There were no adjustments for impairments recorded in 2021 or 2020.

However, we did record an impairment on certain trade name intangible brand assets in fiscal year 2019 totaling $3.8 million.

The impairment recorded in fiscal year 2019 was for a brand acquired from Inventure.

(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;

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

In 2021, acquisition related costs included $9.5 million of expense related to reclaiming distribution rights through purchases and terminations, in addition to $7.1 million of expense for the three acquired entities and the evaluation of other potential acquisition targets.

The adjustment related to Purchase Commitment and Other non-cash adjustments were $0.5 million and $1.0 million for the fiscal year ended January 1, 2023 and the fiscal year ended January 2, 2022, 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, in addition to expenses associated with integrating recent acquisitions.

The majority of charges are related to the buyout of multiple distributors, which were accounted for as contract terminations resulting in expense of $23.0 million for the fiscal year ended January 1, 2023 as well as other integration costs.

During the fiscal year ended January 1, 2023, we incurred incremental costs of $21.8 million, for the integration of Truco Holdco Inc.

(“Truco”), R.W.

Garcia, Kings Mountain, distributor buyouts, and costs to evaluate other potential acquisitions, as well as $1.0 million for the incremental Tax Receivable Agreement Liability associated with the Business Combination included in the fiscal year ended January 1, 2023.

In fiscal year 2021, acquisition related costs included $9.5 million of expense related to reclaiming distribution rights through purchases and terminations, in addition to $7.1 million of expense for the three acquired entities and the evaluation of other potential acquisition targets.

Additionally in 2021, we incurred $10.4 million of expenses related to restructuring and integration costs related to recent acquisitions.

In 2020, the majority of charges are related to costs incurred for the Business Combination, the HK Anderson acquisition, and the Truco acquisition, and related integration expenditures where we incurred costs of $40.0 million.

In 2019, we incurred net expenses of $3.3 million related to acquisition expenses, which was partly offset by a $4.6 million gain from the sale of a manufacturing plant in Denver, CO previously written down as part of the Inventure Foods acquisition.

(4) Business Transformation Initiatives – 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 pre-Business Combination 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, offset by severance costs associated with the elimination of RSP positions, fall into this category.

Additionally, in 2021, we incurred certain one-time costs of $3.3 million associated with the damage of a manufacturing facility, net of expected proceeds from insurance policies, and one-time expenses as a result of COVID-19 of $1.9 million.

In 2021, total net cost was $24.5 million compared to $8.8 million and $5.1 million net cost for the 2020 and 2019, respectively.

The increase in fiscal 2021 costs is primarily a result of increased IO conversions, enhancements in our supply chain capabilities and costs associated with our transition of IT systems, including a new ERP.

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

In 2021, we incurred $0.7 million of expense compared to fiscal 2020, and 2019 expenses of $2.7 million and $4.7 million, respectively.

In 2020 we incurred $2.5 million of expenses related to a prepayment penalty for the pay-down of debt and in 2019, these costs include expenses related to the sale of preferred and common units by Series U, Series R, and SRS to an outside investor, the repayment of the Second Lien Term Loan, and the issuance of the Secured First Lien Note to finance the Kennedy Acquisition.

(6) (Gain) or loss 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.

(7) Pre-Acquisition Adjusted EBITDA- This adjustment represents the adjusted EBITDA of acquired companies prior to the acquisition date.

(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, gains and losses realized from the sale of distribution rights to IOs and the subsequent disposal of trucks, severance costs associated with the elimination of RSP positions, and ERP transition costs, fall into this category.

The Company incurred such costs of $22.1 million for the fiscal year ended January 1, 2023 and $19.3 million for fiscal year 2021.

Additionally, in fiscal year 2021, we incurred certain one-time costs of $3.3 million associated with the damage of a manufacturing facility, net of expected proceeds from insurance policies, and one-time expenses as a result of COVID-19 of $1.9 million.

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

(6) Gains and losses 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.

Liquidity and Capital Resources

The following table presents net cash provided by operating activities, investing activities and financing activities for the year ended January 2, 2022, fiscal periods ended January 3, 2021 and August 28, 2020, and year ended December 29, 2019.

Successor Predecessor

(in thousands) For the year ended January 2, 2022 From

August 29, 2020

January 3, 2021 From

December 30, 2019

August 28, 2020 For the year ended December 29, 2019

Net cash provided by (used in) operating activities $ 48,387 $ (932) $ 30,627 $ 27,992

We believe that the cash provided by operating activities, our revolving credit facility, our term loans, and derivative financial instruments will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, and tax obligations.

We continually evaluate our financing strategy to meet our short- and longer-term capital needs.

To date, we have been successful in generating cash and raising financing as needed.

However, if a serious economic or credit market crisis ensues or other adverse developments arise, it could have a material adverse effect on our liquidity, results of operations and financial condition.

Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, benefit plan obligations and lease expenses) as well as periodic expenditures for acquisitions, shareholder returns (such as dividend payments), property, plant and equipment and any significant one-time non-operating items.

Long-term cash requirements primarily relate to funding long-term debt repayments, refer to Note 8.

"Long-Term Debt" and our deferred taxes (refer to Note 15.

"Income Taxes").

The following table presents net cash provided by operating activities, investing activities, and financing activities for the fiscal year ended January 1, 2023, and fiscal year ended January 2, 2022:

(in thousands) For the fiscal year ended January 1, 2023 For the fiscal year ended January 2, 2022

Net cash provided by operating activities $ 48,193 $ 48,387

Net cash used in investing activities (76,067) (136,098)

Net cash provided by (used in) financing activities 82,778 241,973 (10,451) 96,029

Net cash provided by financing activities 58,906 82,778

For the period ended January 1, 2023, our consolidated cash balance, including cash equivalents, was $72.9 million or $31.0 million lower than at January 2, 2022.

Net cash provided by operating activities for the fifty-two weeks ended January 2, 2022 was $48.4 million compared to $29.7 million for the combined fiscal year ended January 3, 2021, with the difference largely driven by the increase in the non-cash expenses of depreciation and amortization, driven largely by the fair value adjustments to Property, Plant and Equipment and Intangibles as part of the Business Combination.

Cash used in investing activities for the fiscal year ended January 2, 2022 was $136.1 million mostly driven by the acquisitions of Vitner's, Festida, and R.W.

Garcia and capital expenditures of $31.7 million, versus cash used in investing activity of $703.4 million for the combined fiscal year ended January 3, 2021, which was largely driven by the Business Combination, acquisition of Truco and IP purchase of the On the Border tradename.

Net cash provided by financing activities was $82.8 million for the fiscal year ended January 2, 2022, which was primarily a result of an increase in term and equipment loans and exercise of warrants, versus net cash provided by financing activities of $231.5 million for the combined fiscal year ended January 3, 2021, which was primarily a result of the bridge credit agreement for the acquisition of Truco and exercise of warrants.

Net cash provided by operating activities for the fiscal year ended January 1, 2023 was $48.2 million compared to $48.4 million for the combined fiscal year ended January 2, 2022.

The fiscal year ended January 1, 2023 include cash outflows related to operating activities related to the buyout, and contract termination, of multiple distributors resulting in expense and an operating outflow of $23.0 million.

Fiscal year 2022 also included a larger cash outflow related to the building of inventory compared to fiscal year 2021.

This inventory build-up was the result of increased production at Company owned facilities related largely to our OTB-branded snacks, as well as expanded production capacity with our Kings Mountain facilities purchase, and our shift in running regions which were previously serviced by distributors, as well as higher inventory to service sales volume growth.

Other factors that contributed to the inventory growth were higher commodity and overhead costs, as well as production and logistics shifts in the business.

Working capital also benefited by faster collections of accounts receivable as we work with customers and implement programs to speed up cash collections.

Cash used in investing activities for the fiscal year ended January 1, 2023 was $76.1 million compared to $136.1 million for the fiscal year ended January 2, 2022.

Fiscal year 2022 was mostly driven by capital expenditures of $88.0 million, including $38.4 million related to a facilities purchase described further in Note 4.

and Equipment", offset by proceeds from the sale of routes of $23.4 million.

Fiscal year 2021 was mostly driven by the acquisitions of Vitner's, Festida, and R.W.

Garcia and capital expenditures of $31.7 million.

Net cash provided by financing activities was $58.9 million for the fiscal year ended January 1, 2023, which was primarily attributable to the Real Estate Term loan and equipment loan funding as well as, the proceeds of $28.0 million from the private placement, offset by the distributions and payments on the ABL facility and other term loans and notes payable.

Compared to net cash provided by financing activities of $82.8 million for the fiscal year ended January 2, 2022, which was primarily a result of an increase in term and equipment loans and exercise of warrants.

Financing Arrangements

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On April 1, 2020, the ABL facility was amended to increase the credit limit up to $116.0 million and to extend the maturity through August 22, 2024.

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

As of January 2, 2022 and January 3, 2021, $36.0 million and $0.0 million were outstanding under this facility.

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

On September 22, 2022, the ABL facility was amended to further increase the credit limit up to $175.0 million, and replaced the interest rate benchmark from LIBOR to SOFR.

As of January 1, 2023 and January 2, 2022, $0.0 million and $36.0 million, respectively, were outstanding under this facility.

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

As of January 1, 2023 and January 2, 2022, $163.0 million and $96.9 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 January 2, 2022 and January 3, 2021 would have been 3.75%.

The Company elected to use the LIBOR rate, the interest rate on the ABL facility as of January 2, 2022 was 1.58%.

Had there been outstanding balances and the Company elected to use the LIBOR rate, the interest rate on the ABL facility as of January 2, 2022 and January 3, 2021 would have been 1.60% and 1.64%, respectively.

The ABL facility is also subject to unused line fees (0.5% at January 2, 2022) and other fees and expenses.

Standby letters of credit in the amount of $12.0 million and $10.3 million have been issued as of January 1, 2023 and January 2, 2022, respectively.

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On November 21, 2017, the Company entered into a First Lien Term Loan Credit Agreement (the "First Lien Term Loan”) in a principal amount of $535.0 million and a Second Lien Term Loan Credit Agreement (the “Second Lien Term Loan”, and collectively with the First Lien Term Loan, the "Term Loans”) in a principal amount of $125.0 million.

The proceeds of the Term Loans were used to refinance the Company’s January 2017 credit facility and fund the acquisition of Inventure Foods and the repurchase of the predecessor membership units held by a minority investor.

The proceeds of the Term Loans were used to refinance the Company’s January 2017 credit facility and fund the acquisition of Inventure Foods, Inc.

and the repurchase of the predecessor membership units held by a minority investor.

The First Lien Term Loan requires quarterly principal payments of $1.3 million beginning March 2018, with a balloon payment due for any remaining balance on the seventh anniversary of closing, or November 21, 2024.

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" Operations and Summary of Significant Accounting Policies" and Note 2.

"Acquisitions") an advance payment of principal was made on the First Lien Term Loan of $111.6 million, as such no principal payments are due until November 21, 2024.

"Acquisitions") an advance payment of principal was made on the First Lien Term Loan of $111.6 million.

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.

Deferred fees associated with the term loans under the January 2017 credit agreement were fully expensed during 2017 and other deferred financing fees were derecognized as a result of the Business Combination as described in the Note 1 " Operations and Summary of Significant Accounting Policies" and Note 2.

Deferred fees associated with the term loans under the January 2017 credit agreement were fully expensed during 2017 and other deferred financing fees were derecognized as a result of the Business Combination as described in Note 1 " Operations and Summary of Significant Accounting Policies" and Note 2.

"Acquisitions".

On October 1, 2019, the Company repaid the Second Lien Term Loan with the proceeds of the sale of preferred and common units by Series U, Series R, and SRS.

On October 1, 2019, the Company repaid the Second Lien Term Loan with the proceeds of the sale of preferred and common units by Series U, Series R, and SRS Leasing LLC, which together with its subsidiaries, were companies formed to acquire, hold and lease real estate to UQF prior to its merger into UQF on December 30, 2019.

The Company accounted for the repayment of the Second Lien Term Loan as a debt extinguishment as the investors who purchased the preferred units and common units were not parties to the Second Lien Term Loan.

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(the "Bridge Credit Agreement”).

The proceeds of the Bridge Credit Agreement were used to fund the Company’s acquisition of Truco and the IP Purchase from OTB Acquisition, LLC, in which the Company withdrew $490.0 million to finance the Truco Acquisition and IP Purchase.

As of January 3, 2021, the outstanding balance of the Bridge Credit Agreement was $370.0 million, with $120.0 million being repaid from the redemption of the Company's warrants.

The proceeds of the Bridge Credit Agreement were used to fund the Company’s acquisition of Truco and the IP Purchase (as defined below) from OTB Acquisition, LLC, in which the Company withdrew $490.0 million to finance the acquisition of Truco (“such acquisition, the "Truco Acquisition") and certain intellectual property from OTB Acquisition, LLC (the "IP Purchase").

The Bridge Credit Agreement bears interest at an annual rate based on 4.25% plus 1 month LIBOR with scheduled incremental increases to the base rate, as defined in the Bridge Credit Agreement.

The loan converts into an Extended Term Loan if the Loan remains open 365 days after the closing date.

As of January 3, 2021, the outstanding balance of the Bridge Credit Agreement was $370.0 million, with $120.0 million being repaid from the exercise of the Company's warrants.

Commitment fees and deferred financing costs on the Bridge Credit Agreement totaled $7.2 million, of which $2.6 million remained on the books as of January 3, 2021.

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In connection with Amendment No.

2 to the Credit Agreement, and a $12.0 million repayment in the first quarter of 2021, the outstanding balance of $370.0 million was repaid in full and the Bridge Credit Agreement was terminated.

2 (as defined below), and a $12.0 million repayment in the first quarter of 2021, the outstanding balance of $370.0 million was repaid in full and the Bridge Credit Agreement was terminated.

On January 20, 2021, the Company entered into Amendment No.

2 to the Credit Agreement ("Amendment No.

2 to the Bridge Credit Agreement ("Amendment No.

2") which provided additional operating flexibility and revisions to certain restrictive covenants.

Pursuant to the terms of Amendment No.

2, the Company raised $720 million in aggregate principal of Term Loan B ("Term Loan B") which bears interest at LIBOR plus 3.00%, and extended the maturity of the Credit Agreement to January 20, 2028.

2, the Company raised $720 million in aggregate principal of Term Loan B ("Term Loan B") which bore interest at LIBOR plus 3.00%, and extended the maturity of the Bridge Credit Agreement to January 20, 2028.

The proceeds were used, together with cash on hand and proceeds from our exercised warrants, to redeem the outstanding principal amount of existing Term Loan B and Bridge Credit Agreement of $410 million and $358 million, respectively.

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

3 to the Credit Agreement ("Amendment No.

3 to the Bridge Credit Agreement ("Amendment No.

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 $787.2 million remains outstanding as of January 2, 2022.

3, the Company increased the principal balance of Term Loan B by $75.0 million to bring the aggregated balance of Term Loan B proceeds to $795.0 million.

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

The First Lien Term Loan, the Secured First Lien Note, Term Loan B, and the ABL facility are collateralized by substantially all of the assets of UBH and its subsidiaries, including equity interests in certain of UBH’s subsidiaries.

On October 12, 2022, the Company, through its subsidiaries UQF, Kennedy and Condor Snack Foods, LLC (together with UQF and Kennedy, the “Real Estate Financing Borrowers”), entered into a loan agreement (the “Real Estate Term Loan”) with City National Bank which was secured by a majority of the Real Estate Financing Borrowers’ real estate assets.

The Real Estate Term Loan holds a principle balance of $88.1 million, with net proceeds of approximately $85.0 million after transaction fees and expenses.

The Real Estate Term Loan has a ten-year maturity and amortizes approximately $3.5 million in principal annually, with a balloon payment due at maturity.

The Company used a portion of the proceeds from the Real Estate Term Loan to pay off the ABL facility.

The Real Estate Term Loan contains a single financial maintenance covenant consisting of a fixed charge coverage ratio that is tested quarterly only during a covenant trigger period consistent with the existing ABL facility.

Concurrent with the closing of the Real Estate Term Loan, UQF entered into an interest rate swap transaction to fix the effective interest rate at approximately 6%, as discussed in further detail within "Note 9.

Derivative Financial Instruments and Purchase Commitments”.

The Term Loan B, and the ABL facility are collateralized by substantially all of the assets and liabilities of UBH and its subsidiaries excluding the real estate assets secured by the Real Estate Term Loan, including equity interests in certain of UBH’s subsidiaries.

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 January 1, 2023.

In July 2021, the Company entered into two separate finance lease obligations with Banc of America Leasing & Capital, LLC.

In the first agreement, we agreed to sell and lease-back certain manufacturing equipment and warehouse/distribution equipment for $13.0 million with an interest rate of 3.26%.

In the second agreement, we drew $9.8 million related to certain manufacturing equipment and warehouse/distribution equipment.

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

In November 2021, we entered into an additional two agreements for $1.5 million with an interest rate of 3.97% and $2.2 million with an interest rate of 3.98%.

Derivative Financial Instruments

To reduce the effect of interest rate fluctuations, the Company entered into a three year interest rate swap contract on September 6, 2019, with an effective date of September 30, 2019, with a counter-party to make a series of payments based on a fixed interest rate of 1.339% and receive a series of payments based on the greater of LIBOR or 0.00%.

Both the fixed and floating payment streams are based on a notional amount of $250 million.

Both the fixed and floating payment streams were based on a notional amount of $250 million.

On December 21, 2021, with an effective date of December 31, 2021, the Company entered into an accreting interest rate swap contract with a counter-party to make a series of payments based on a fixed interest rate of 1.3885% and receive a series of payments based on the greater of LIBOR or 0.00%.

Both the fixed and floating payment streams are based on a notional amount of $250 million, accreting to $500 million and maturing on September 30, 2026.

The Company entered into these 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 January 2, 2022, the effective fixed interest rate on the long-term debt hedged by these contract was 3.5%.

Both the fixed and floating payment streams were based on a notional amount of $250 million and have accreted to $500 million and maturing on September 30, 2026.

Effective on September 30, 2022 the Company amended the swap contract to reference the 1 month SOFR plus a credit spread adjustment of 11.448 basis points, as well as setting the new fixed rate to 1.408%;

under this amended swap agreement the Company will receive a series of payments based on the greater of SOFR plus CSA or 0.00%.

On October 12, 2022 and effective on November 1, 2022, the Company entered into a 10-year swap contract, with an effective date of November 1, 2022, with a counter-party to make a series of payments based on a fixed interest rate of 3.829% and receive a series of payments based on the greater of the 1-month.

SOFR or 0.00%.

The agreement covers $88.1 million as of January 1, 2023.

This swap effectively fixes the rate of the Real Estate Term Loan to 5.929%.

The balance that the hedge covers is designed to abate as principle payments on the Real Estate Term Loan are made.

The Company entered into these transactions to reduce its exposure to changes in cash flows associated with the Real Estate Term Loan and has designated this derivative as a cash flow hedge.

At January 1, 2023, the effective fixed interest rate on the long-term debt hedged by these contracts was 5.5%.

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

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IO Loan Commitments

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.

During fiscal 2021, the Company sold an additional $11.8 million of notes receivable from IOs on its books for $12.5 million in a series of transactions to a financial institution.

Due to the structure of the transactions, they did not qualify for sale accounting treatment and the Company has recorded the notes payable obligation owed by the IOs to the financial institution on its books;

During fiscal year 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.

During fiscal year 2021, the Company sold an additional $11.8 million of notes receivable from IOs on its books for $12.5 million in a series of transactions to a financial institution.

During fiscal year 2022, the Company sold an additional $5.0 million of notes receivable from IOs on its books for $5.0 million to a financial institution.

Due to the structure of these transactions, they did not qualify for sale accounting treatment and the Company has recorded the notes payable obligation owed by the IOs to the financial institution on its books;

the corresponding notes receivable also remained on the Company’s books.

The Company services the loans for the financial institution by collecting principal and interest from the IOs and passing it through to the institution.

The underlying notes have various maturity dates through April 2030.

The outstanding balance of notes purchased by Bank of America at January 2, 2022 and January 3, 2021 was $19.7 million and $16.5 million, respectively.

The underlying notes have various maturity dates through June 2032.

The Company partially guarantees the outstanding loans, as discussed in further detail within "Note 12.

Contingencies”.

The maximum amount of future payments the Company could be required to make under these guarantees equates to 25% of the outstanding loan balance on the first day of each calendar year plus 25% of the amount of any new loans issued during such calendar year.

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

2 unchanged sentences

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 $4.9 million and $6.6 million at January 2, 2022 and January 3, 2021, respectively, all of which was on balance sheet.

The outstanding balance of loans guaranteed was $3.4 million and $4.9 million at January 1, 2023 and January 2, 2022, respectively, all of which were included in 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.

Other Notes Payable and Finance 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 still outstanding as of January 3, 2021 and the remaining balance was repaid in fiscal year 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 January 2, 2022 and January 3, 2021, respectively.

Other Notes Payable and Capital Leases

During the first fiscal quarter of 2022, the Company bought out and terminated the contracts of multiple distributors who had previously been providing services to the Company.

These transactions were accounted for as contract terminations and asset purchases and resulted in an expense of $23.0 million for the 52 weeks ended January 1, 2023.

The outstanding balance of these transactions was $0.5 million as of January 1, 2023.

During the first fiscal quarter of 2020, the Company purchased intellectual property that include a deferred purchase price of $0.5 million, of which $0.3 million and $0.4 million was outstanding as of January 1, 2023 and January 2, 2022, respectively.

During the third quarter of 2021, the Company recorded liabilities related primarily to reclaiming distribution rights from distributors, of which $1.3 million was outstanding as of January 2, 2022.

There was no balance outstanding as of January 1, 2023.

Amounts outstanding under notes payable consisted of the following:

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Interest expense consisted of the following:

Successor Predecessor

(in thousands) Year Ended January 2, 2022 From

August 29, 2020

January 3, 2021 From

December 30, 2019

August 28, 2020 Year Ended December 29, 2019

(in thousands) For the Fiscal Year Ended January 1, 2023 For the Fiscal Year Ended January 2, 2022

Company’s ABL facility and other long-term debt $ 41,231 $ 29,270

7 unchanged sentences

The Company accrues for losses on firm purchase commitments in a loss position at the end of each reporting period to the extent that there is an active observable market.

The Company has recorded purchase commitment gain (losses) totaling $2.8 million for the year ended January 2, 2022, $0.9 million and $(0.7) million for the Successor period from August 29, 2020 to January 3, 2021 and for the Predecessor period from December 30, 2019 to August 28, 2020, respectively, and $0.9 million for the year ended December 29, 2019, respectively.

The Company has recorded purchase commitment gains (losses) totaling $0.0 million for the year ended January 1, 2023 and $1.0 million for the year ended January 2, 2022.

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 $2.2 million and $4.1 million at January 2, 2022 and January 3, 2021, respectively, all of which was recorded by the Company as an off balance sheet arrangement.

The outstanding balance of loans guaranteed was $1.5 million and $2.2 million at January 1, 2023 and January 2, 2022, respectively, all of which was recorded by the Company as off balance sheet arrangements.

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.

2 unchanged sentences

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 $18.6 million and $7.1 million at January 2, 2022 and January 3, 2021, respectively, which are off balance sheet.

The outstanding balance of loans guaranteed that were issued by Bank of America was $36.0 million and $18.6 million at January 1, 2023 and January 2, 2022, respectively, which are accounted for as an off balance sheet arrangement.

As discussed in "Note 8.

Long-Term Debt”, the Company also sold notes receivable on its books to Bank of America during fiscal year 2019, fiscal year 2021, and fiscal year 2022, which the Company partially guarantees.

The outstanding balance of notes purchased by Bank of America at January 1, 2023 and January 2, 2022 was $17.9 million and $19.7 million, respectively.

Due to the structure of the transactions, the sale did not qualify for sale accounting treatment, and as such the Company records the notes payable obligation owed by the IOs to the financial institution on its Consolidated Balance Sheets;

the corresponding note receivable also remained on 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

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These estimates are made using various techniques including historical data on performance of similar promotional programs.

In 2019, we implemented a system that improves our ability to analyze and estimate the reserve for unpaid costs relating to our promotional activities.

Differences between estimated expense and actual redemptions are recognized as a change in management estimate as the actual redemption is incurred.

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Finite-lived intangible assets are tested for impairment only when management has determined that potential impairment indicators are present.

Goodwill and other indefinite-lived intangible assets (including trade names, master distribution rights and Company owned routes) are not amortized but are tested for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred.

Goodwill and other indefinite-lived intangible assets (including trade names, trademarks, master distribution rights and Company owned routes) are not amortized but are tested for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred.

We test goodwill for impairment at the reporting unit level.

As we have early adopted Accounting Standards Update 2017-04, simplifying the Test for Goodwill Impairment, we will record an impairment charge based on the excess of a reporting unit’s carrying amount over our fair value.

As we have adopted Accounting Standards Update 2017-04, simplifying the Test for Goodwill Impairment, we will record an impairment charge based on the excess of a reporting unit’s carrying amount over our fair value.

ASC 350, Goodwill and Other Intangible Assets also permits an entity to first assess qualitative factors to determine whether it is necessary to perform quantitative impairment tests for goodwill and indefinite-lived intangibles.

If an entity believes, as a result of each qualitative assessment, it is more likely than not that goodwill or an indefinite-lived intangible asset is not impaired, a quantitative impairment test is not required.

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, on August 28, 2020.

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 Financial Accounting Standards Board (“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, on August 28, 2020.

Our fiscal year 2022 qualitative analysis concluded that Goodwill and all but one of our intangible assets is not more likely than not to be impaired.

We performed a quantitative impairment test on the intangible asset during which we compared the fair value of the intangible, using a relief from royalty method, to the carrying value of the asset and determined that the intangible asset was not impaired.

We performed a quantitative impairment test on that intangible asset during which we compared the fair value of the intangible, using a relief from royalty method, to the carrying value of the asset and determined that the intangible asset was not impaired.

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.

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Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable.

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

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

As of January 1, 2023, and January 2, 2022, no liability for unrecognized tax benefits was required to be reported.

10 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis