Exhibit 99.2
W.S. Badcock LLC
(f/k/a W.S. Badcock Corporation)
Financial Statements (Unaudited) for the
Period from August 22, 2023 through and as of September 30, 2023 (Successor),
Period from January 1, 2023 through August 21, 2023 (Predecessor), and
Period from December 26, 2021 through September 24, 2022, (Predecessor)
W.S. BADCOCK LLC (f/k/a W.S. Badcock Corporation)
Financial Statements (Unaudited) for the
Period from August 22, 2023 through and as of September 30, 2023 (Successor),
Period from January 1, 2023 through August 21, 2023 (Predecessor), and
Period from December 26, 2021 to September 24, 2022, (Predecessor)
Table of Contents
W.S. BADCOCK LLC (f/k/a W.S. Badcock Corporation)
Statements of Operations (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | Successor | | Predecessor |
| (In thousands) | | Period from August 22 through September 30, 2023 | | Period from January 1 through August 21, 2023 | | Period from December 26, 2021 through September 24, 2022 |
| Revenues: | | | | | | |
| Product | | $ | 53,085 | | | $ | 323,455 | | | $ | 474,857 | |
| Service and other | | 29,664 | | | 128,703 | | | 224,978 | |
| Total revenues | | 82,749 | | | 452,158 | | | 699,835 | |
| | | | | | |
| Product cost of revenue | | 22,234 | | | 195,647 | | | 261,011 | |
| Selling, general, and administrative expenses | | 24,948 | | | 148,392 | | | 201,285 | |
| Dealer commissions | | 14,707 | | | 89,029 | | | 126,736 | |
| Total operating expenses | | 61,889 | | | 433,068 | | | 589,032 | |
| Income from operations | | 20,860 | | | 19,090 | | | 110,803 | |
| Other expense: | | | | | | |
| Gain on sale-leaseback transactions, net | | — | | | — | | | 59,225 | |
| Interest expense, net | | (30,431) | | | (107,381) | | | (175,467) | |
| Income (loss) from operations before income taxes | | (9,571) | | | (88,291) | | | (5,439) | |
| Income tax expense (benefit) | | (2,392) | | | (23,209) | | | (2,100) | |
| Net income (loss) | | $ | (7,179) | | | $ | (65,082) | | | $ | (3,339) | |
See accompanying notes to financial statements.
W.S. BADCOCK LLC (f/k/a W.S. Badcock Corporation)
Balance Sheets (Unaudited)
| | | | | | | | | | | | | | |
| | Successor | | Predecessor |
| (In thousands) | | September 30, 2023 | | December 31, 2022 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 11,797 | | | $ | 11,358 | |
| Current receivables, net of allowance for credit losses | | 80,649 | | | 60,066 | |
| Current securitized receivables, net of allowance for credit losses | | 187,317 | | | 292,913 | |
| Inventories | | 104,318 | | | 136,748 | |
| Current assets held for sale | | 12,052 | | | 8,528 | |
| Other current assets | | 4,682 | | | 4,192 | |
| Total current assets | | 400,815 | | | 513,805 | |
| Property, plant, and equipment, net | | 39,739 | | | 18,365 | |
| Non-current receivables, net | | 1,721 | | | 2,263 | |
| Non-current securitized receivables, net | | 23,171 | | | 39,527 | |
| Operating lease right-of-use assets | | 174,944 | | | 225,816 | |
| Non-current deferred tax assets | | 19,361 | | | 19,361 | |
| Other non-current assets | | 2,082 | | | 2,460 | |
| Total assets | | $ | 661,833 | | | $ | 821,597 | |
| Liabilities and Stockholders’ Equity | | | | |
| Current liabilities: | | | | |
| Current installments of long-term obligations, net | | $ | 2,983 | | | $ | 4,503 | |
| Current installments of debt secured by accounts receivable, at fair value | | 182,334 | | | — | |
| Current installments of debt secured by accounts receivable, net | | — | | | 340,021 | |
| Current operating lease liabilities | | 11,452 | | | 16,742 | |
| Accounts payable and accrued expenses | | 58,186 | | | 58,123 | |
| Other current liabilities | | 7,977 | | | 8,822 | |
| Total current liabilities | | 262,932 | | | 428,211 | |
| Long-term obligations, excluding current installments | | 307 | | | 2,310 | |
| Non-current liabilities debt secured by accounts receivable, at fair value | | 42,935 | | | — | |
| Non-current liabilities debt secured by accounts receivable, net | | — | | | 107,448 | |
| Non-current operating lease liabilities | | 159,016 | | | 204,911 | |
| Other non-current liabilities | | 10,794 | | | 11,057 | |
| Total liabilities | | 475,984 | | | 753,937 | |
| Stockholders’ equity: | | | | |
| Common stock Class A, voting, $100 par value. Authorized 5,000 shares; issued and outstanding 4,400 shares | | 440 | | | 440 | |
| Common stock Class B, non-voting, $1 par value. Authorized 350,000 shares; issued and outstanding 168,896 shares | | 169 | | | 169 | |
| Additional paid-in capital | | 336,545 | | | 173,167 | |
| Retained earnings (deficit) | | (151,305) | | | (106,116) | |
| Total stockholders' equity | | 185,849 | | | 67,660 | |
| Total liabilities and stockholders' equity | | $ | 661,833 | | | $ | 821,597 | |
See accompanying notes to financial statements.
W.S. BADCOCK LLC (f/k/a W.S. Badcock Corporation)
Statements of Stockholders' Equity (Unaudited)
Period from August 22 through September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Class A common stock | | Class B common stock | | Additional paid-in-capital | | Retained earnings / (deficit) | | Total stockholders' equity |
| Balance at August 21, 2023 | | $ | 440 | | | $ | 169 | | | $ | 357,987 | | | $ | (181,176) | | | $ | 177,420 | |
| Effect of Freedom Acquisition | | — | | | — | | | (21,442) | | | 181,176 | | | 159,734 | |
| Successor: Balance at August 22, 2023 | | $ | 440 | | | $ | 169 | | | $ | 336,545 | | | $ | — | | | $ | 337,154 | |
| Net income (loss) | | — | | | — | | | — | | | (7,179) | | | (7,179) | |
| Cash dividend | | — | | | — | | | — | | | (144,126) | | | (144,126) | |
| Balance at September 30, 2023 | | $ | 440 | | | $ | 169 | | | $ | 336,545 | | | $ | (151,305) | | | $ | 185,849 | |
Statements of Stockholders' Equity (Unaudited)
Period from January 1 through August 21, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Class A common stock | | Class B common stock | | Additional paid-in-capital | | Retained earnings / (deficit) | | Total stockholders' equity |
| Balance at December 31, 2022 | | $ | 440 | | | $ | 169 | | | $ | 173,167 | | | $ | (106,116) | | | $ | 67,660 | |
| Cumulative impact of adoption of ASC 326 | | — | | | — | | | — | | | (9,978) | | | (9,978) | |
| Net income (loss) | | — | | | — | | | — | | | (65,082) | | | (65,082) | |
| Contributions from Parent | | — | | | — | | | 184,820 | | | — | | | 184,820 | |
| Balance at August 21, 2023 | | $ | 440 | | | $ | 169 | | | $ | 357,987 | | | $ | (181,176) | | | $ | 177,420 | |
Statements of Stockholders' Equity (Unaudited)
Period from December 26, 2021 through September 24, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Class A common stock | | Class B common stock | | Additional paid-in-capital | | Retained earnings / (deficit) | | Total stockholders' equity |
| Balance at December 25, 2021 | | $ | 440 | | | $ | 169 | | | $ | 131,434 | | | $ | (8,056) | | | $ | 123,987 | |
| Net income (loss) | | — | | | — | | | — | | | (3,339) | | | (3,339) | |
| Effect of Franchise Group Acquisition | | — | | | — | | | 3,514 | | | — | | | 3,514 | |
| Cash dividend | | — | | | — | | | — | | | (93,237) | | | (93,237) | |
| Balance at September 24, 2022 | | $ | 440 | | | $ | 169 | | | $ | 134,948 | | | $ | (104,632) | | | $ | 30,925 | |
W.S. BADCOCK LLC (f/k/a W.S. Badcock Corporation)
Statements of Cash Flows (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | Successor | | Predecessor |
| (In thousands) | | Period from August 22 through September 30, 2023 | | Period from January 1 through August 21, 2023 | | Period from December 26, 2021 through September 24, 2022 |
| Operating Activities | | | | | | |
| Net income (loss) | | $ | (7,179) | | | $ | (65,082) | | | $ | (3,339) | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Provision for credit losses for accounts receivable | | 9,209 | | | 61,713 | | | 97,383 | |
| Depreciation and amortization | | 527 | | | 2,788 | | | 6,720 | |
| Amortization of deferred financing costs | | 2 | | | 17 | | | 7,935 | |
| Securitized financing costs | | 23,039 | | | 53,674 | | | 71,446 | |
| Gain on sale of property, plant and equipment | | — | | | — | | | (4,017) | |
| Gain on sale-leaseback | | — | | | — | | | (59,225) | |
| Other non-cash items | | — | | | 723 | | | 1 | |
| Changes in operating assets and liabilities | | | | | | |
| Accounts, notes, and securitized receivables | | 4,842 | | | (25,168) | | | (79,483) | |
| Income taxes receivable | | — | | | (546) | | | (1,494) | |
| Inventory | | (8,068) | | | 4,955 | | | (28,557) | |
| Other assets | | 1,641 | | | (1,700) | | | (3,118) | |
| Accounts payable and accrued expenses, deferred revenue (and other liabilities) | | (20,309) | | | (54,025) | | | (48,923) | |
| Net cash provided by (used in) operating activities | | 3,704 | | | (22,651) | | | (44,671) | |
| Investing Activities | | | | | | |
| Purchases of property, plant, and equipment | | (257) | | | (1,434) | | | (2,279) | |
| Proceeds from sale of property, plant, and equipment | | — | | | 265 | | | 260,426 | |
| Payments received on operating loans to franchisees and dealers | | — | | | 1,201 | | | 3,647 | |
| Net cash provided by (used in) investing activities | | (257) | | | 32 | | | 261,794 | |
| Financing Activities | | | | | | |
| Contributions from parent | | — | | | 194,190 | | | — | |
| Dividends paid | | (153,638) | | | — | | | (92,608) | |
| Repayment of long-term debt and other obligations | | — | | | — | | | (355,374) | |
| Proceeds from secured debt obligations | | 113,465 | | | 133,398 | | | 298,919 | |
| Repayment of secured debt obligations | | (52,490) | | | (215,314) | | | (262,796) | |
| Net cash provided by (used in) financing activities | | (92,663) | | | 112,274 | | | (411,859) | |
| Net increase (decrease) in cash equivalents and restricted cash | | (89,216) | | | 89,655 | | | (194,736) | |
| Cash, cash equivalents and restricted cash at beginning of period | | 101,013 | | | 11,358 | | | 203,556 | |
| Cash, cash equivalents and restricted cash at end of period | | $ | 11,797 | | | $ | 101,013 | | | $ | 8,820 | |
| Supplemental Cash Flow Disclosure | | | | | | |
| Cash paid for taxes, net of refunds | | $ | — | | | $ | 567 | | | $ | — | |
| Cash paid for interest | | $ | 18 | | | $ | 192 | | | $ | 6,021 | |
| Cash paid for interest on secured debt | | $ | 7,439 | | | $ | 53,665 | | | $ | 63,668 | |
| Supplemental schedule of non-cash financing activities | | | | | | |
| Impact of pushdown accounting | | $ | (21,442) | | | $ | — | | | $ | 3,514 | |
See accompanying notes to financial statements.
W.S. BADCOCK LLC (f/k/a W.S. Badcock Corporation)
Notes to Unaudited Financial Statements
(1) Organization and Significant Accounting Policies
Description of Business. On December 8, 2023, W.S. Badcock Corporation converted from a corporation to a limited liability company and was thereby renamed W.S. Badcock LLC (the “Company”, "Badcock", or "our"). The Company is a retailer of furniture, appliances, bedding, electronics, home office equipment, accessories and seasonal items in a showroom format. Additionally, Badcock offers multiple and flexible payment solutions and credit options through third parties and its consumer financing services. On November 21, 2021, Franchise Group Inc. ("FRG" or “Parent”) purchased 100% of the Class A common stock and Class B common stock from the former owners of W.S. Badcock Corporation (the "Badcock Acquisition").
In the opinion of management, all adjustments (including those of a normal recurring nature) necessary for a fair presentation of such financial statements in accordance with GAAP have been recorded. The December 31, 2022 balance sheet information was derived from the audited financial statements as of that date.
Franchise Group, Inc. Merger
On August 21, 2023, Franchise Group, Inc. completed certain transactions, including being acquired by Freedom VCM Holdings, LLC, contemplated by an Agreement and Plan of Merger, dated as of May 10, 2023. The merger met the definition of a business combination in accordance with ASC 805, “Business Combinations”. As a result, the assets acquired and the liabilities of the Company were remeasured at fair value on August 21, 2023 (the "Freedom Acquisition"). The Company elected the accounting policy option as allowed under ASC 805 to apply pushdown accounting in their separate financial statements after this change-in-control event.
Fair value option (FVO) - Successor Period Election
ASC 825-10, Financial Instruments, provides FVO election that allows companies an irrevocable election to use fair value as the initial and subsequent accounting measurement attribute for certain financial assets and liabilities. ASC 825-10 permits entities to elect to measure eligible financial assets and liabilities at fair value on an ongoing basis. Unrealized gains and losses on items for which the FVO has been elected are reported in earnings. The decision to elect the FVO is determined on an instrument-by-instrument basis, must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to ASC 825-10 are required to be reported separately from those instruments measured using another accounting method. In accordance with the options presented in ASC 825-10, the Company elected to present its current and non-current liabilities debt secured by accounts receivable beginning on August 21, 2023 when the Company’s assets and liabilities were remeasured as part of the Freedom Acquisition. The Freedom Acquisition was a remeasurement event which created an election date for the FVO as discussed in paragraph 825-10-25-4(e). Management believes the reporting of these liabilities at fair value method closely approximates the true economics of the agreement. The Company will record the gains or losses from the changes in fair value of the liabilities within Interest expense, net in the Statements of Operations.
See "Note 1 - Organization and Significant Accounting Policies" in the financial statements for the fiscal year ended December 31, 2022 for accounting policy of the measurement of the current and non-current liabilities debt secured by accounts receivable for the Predecessor period when FVO was not elected.
Sale-Leaseback Transactions
In the nine months ended September 24, 2022, the Company sold a number of its retail locations, distribution centers, and its corporate headquarters for a total of $265.8 million, resulting in a net gain of $59.2 million, comprised of $64.7 million of gains and $5.5 million of losses. Contemporaneously with these sales, the Company entered into lease agreements pursuant to which the Company leased back the retail locations, distribution centers, and corporate headquarters, all of which are being accounted for as operating leases. The net gain has been recognized as "Gain on sale-leaseback transactions, net" on the Statements of Operations for the nine months ended September 24, 2022.
Recent Accounting Pronouncements Adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-13, “Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” ("ASC 326"), which changes how companies measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard replaces the “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost (which generally will result in the earlier recognition of allowances for losses) and requires companies to record allowances for available-for-sale debt securities, rather than reduce the carrying amount. In addition, companies will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables.
Effective January 1, 2023, the Company adopted ASU 2016-13 and applied a cumulative-effect adjustment to retained earnings. The Company has reviewed its entire portfolio of assets recognized on the balance sheet as of December 31, 2022 and identified customer receivables and securitized receivables as the materially impacted assets within the scope of ASC 326. Upon adoption of ASC 326 the Company recorded a net decrease to retained earnings of $10.0 million as of January 1, 2023. Prior period amounts were not adjusted and will continue to be reported under the previous accounting standards.
The cumulative effect of the changes made to the Company’s Balance Sheet as a result of the adoption of ASC 326 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Impact of Adoption of ASC 326 |
| (In thousands) | | Balance at
December 31, 2022 | | Adjustments due to ASC 326 | | Balance at
January 1, 2023 |
| Assets | | | | | | |
| Current receivables, net | | $ | 60,066 | | | $ | (654) | | | $ | 59,412 | |
| Current securitized receivables, net | | 292,913 | | | (11,619) | | | 281,294 | |
| Non-current securitized receivables, net | | 39,527 | | | (1,568) | | | 37,959 | |
| Deferred income taxes | | 38,528 | | | 3,863 | | | 42,391 | |
| Stockholders’ Equity | | | | | | |
| Retained earnings | | (106,116) | | | (9,978) | | | (116,094) | |
(2) Acquisition and Pushdown Accounting
The following table summarizes the preliminary estimates of the Badcock fair values of the identifiable assets acquired and liabilities assumed in the Freedom Acquisition discussed in "Note 1 - Organization and Significant Accounting Policies", on
August 21, 2023. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in an adjustment to the preliminary values presented below.
| | | | | | | | |
| (In thousands) | | Preliminary 8/21/2023 |
| Cash and cash equivalents | | $ | 101,012 | |
| Inventories | | 96,250 | |
| Accounts receivable, net | | 194,406 | |
| Securitized accounts receivable, net | | 112,578 | |
| Other current assets | | 18,299 | |
| Property, plant, and equipment | | 40,015 | |
| Operating lease right-of-use assets | | 173,655 | |
| Other non-current assets | | 2,082 | |
| Total assets | | 738,297 | |
| Current installments of long-term obligations, net | | 3,205 | |
| Current installments of debt secured by accounts receivable, net | | 132,106 | |
| Current operating lease liabilities | | 11,225 | |
| Accounts payable and accrued expenses | | 60,967 | |
| Other current liabilities | | 6,865 | |
| Long-term obligations, excluding current installments | | 430 | |
| Non-current liabilities debt secured by accounts receivable, net | | 18,566 | |
| Non-current operating lease liabilities | | 158,637 | |
| Non-current deferred tax liabilities | | — | |
| Other non-current liabilities | | 9,142 | |
| Total liabilities | | 401,143 | |
| Total fair value of assets | | 337,154 | |
| | |
| Carrying value of assets recorded | | (177,420) | |
| Impact of pushdown accounting | | $ | 159,734 | |
In accordance with ASC 805, and the Company's election of push down accounting, the difference in carrying value and fair value has been recorded as an "Effect of Freedom Acquisition" to Additional Paid-in Capital in the Statements of Stockholders' Equity. The consideration allocated to Badcock as part of the Freedom Acquisition equals the fair value of the net assets above.
(3) Accounts and Notes Receivable
Current and non-current receivables as of September 30, 2023 and December 31, 2022 are presented in the Balance Sheets as follows:
| | | | | | | | | | | | | | |
| (In thousands) | | September 30, 2023 | | December 31, 2022 |
| Customer and dealer accounts receivable | | $ | 83,187 | | | $ | 60,859 | |
| Notes and interest receivable | | 641 | | | 1,305 | |
| Income tax receivable | | 332 | | | (214) | |
| Allowance for credit losses | | (3,511) | | | (1,884) | |
| Current receivables, net | | 80,649 | | | 60,066 | |
| Notes receivable, non-current | | 2,551 | | | 3,022 | |
| Allowance for credit losses, non-current | | (830) | | | (759) | |
| Non-current receivables, net | | 1,721 | | | 2,263 | |
| Total receivables | | $ | 82,370 | | | $ | 62,329 | |
Allowance for Credit Losses
The adequacy of the allowance for credit losses is assessed on a quarterly basis and adjusted as deemed necessary.
Activity in the allowance for credit losses for trade, customer, and dealer accounts receivable and notes receivable for the periods ended September 30, 2023 (Successor), August 21, 2023 (Predecessor) and September 24, 2022 (Predecessor), were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | Predecessor | |
| (In thousands) | | Period from August 22 through September 30, 2023 | | Period from January 1 through August 21, 2023 | | Period from December 24, 2021 through September 24, 2022 | |
| Balance at beginning of period | | $ | 11,728 | | | $ | 1,884 | | | $ | 903 | | |
| Cumulative effect of adopted accounting standards | | — | | | 654 | | | — | | |
| Provision for credit loss expense (benefit) | | (8,217) | | | 9,190 | | | (660) | | |
| Write-offs, net of recoveries | | — | | | — | | | — | | |
| Balance at end of period | | $ | 3,511 | | | $ | 11,728 | | | $ | 243 | | |
The non-current allowance for credit losses was deemed immaterial for both periods presented.
(4) Securitized Accounts Receivable
In order to monetize its customer credit receivables portfolio, Badcock sells beneficial interests in customer revolving lines of credit pursuant to securitization transactions. The Company securitized $346.2 million of its customer credit receivables portfolio for cash of $298.9 million during the nine months ended September 24, 2022. The Company securitized $161.1 million of its customer credit receivables portfolio for cash of $133.4 million during the period January 1, 2023 through August 21, 2023. The Company securitized an additional $162.1 million of its customer credit receivables portfolio for cash of $113.5 million with a related party, B. Riley Receivables II LLC (a wholly-owned subsidiary of Freedom VCM Holdings, LLC), during the period August 22, 2023 through September 30, 2023.
When securitized receivables are delinquent for approximately one year, the estimated uncollectible amount from the customer is written off and the corresponding securitized accounts receivable is reduced. Financial instruments that could potentially subject the Company to concentrations of credit risk consist of accounts receivable with its customers. The Company manages
such risk by managing the customer accounts receivable portfolio using delinquency as a key credit quality indicator. Management believes the allowance is adequate to cover the Company’s credit loss exposure. Prior to electing the fair value option, due to their non-recourse nature, the Company would record a gain on extinguishment for any debt secured by uncollectible accounts receivable in the future when the debt meets the extinguishment requirements in accordance with ASC 470, “Debt”.
Activity in the allowance for credit losses on securitized accounts for the periods ended September 30, 2023 (Successor), August 21, 2023 (Predecessor) and September 24, 2022 (Predecessor), was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | Predecessor | |
| (In thousands) | | Period from August 22 through September 30, 2023 | | Period from January 1 through August 21, 2023 | | Period from December 24, 2021 through September 24, 2022 | |
| Balance at beginning of period | | $ | 67,836 | | | $ | 64,800 | | | $ | — | | |
| Cumulative effect of adopted accounting standards | | — | | | 13,187 | | | — | | |
| Effect of purchase adjustment | | 11,451 | | | — | | | — | | |
| Provision for credit loss expense | | 17,464 | | | 52,368 | | | 99,120 | | |
| Write-offs, net of recoveries | | (8,329) | | | (62,519) | | | (53,858) | | |
| Balance at end of period | | $ | 88,422 | | | $ | 67,836 | | | $ | 45,262 | | |
Current amounts include receivables for customers who have made a payment in the past 30 days. Any customers who have not made a required payment within the last 30 days are considered past due. The following table presents the delinquency distribution of the gross value of customer accounts receivable by year of origination as of September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Delinquency Bucket | | 2023 | | 2022 | | 2021 | | Prior | | Total |
| (in thousands) | | | | | | | | | | |
| Current | | $ | 157,114 | | | $ | 76,526 | | | $ | 9,468 | | | $ | 3,044 | | | $ | 246,152 | |
| 1-30 | | 6,892 | | | 6,054 | | | 1,548 | | | 516 | | | 15,010 | |
| 31-60 | | 5,205 | | | 4,916 | | | 1,398 | | | 451 | | | 11,970 | |
| 61-90 | | 3,579 | | | 4,206 | | | 1,184 | | | 383 | | | 9,352 | |
| 91+ | | 8,523 | | | 36,311 | | | 12,153 | | | 3,425 | | | 60,412 | |
| Total | | $ | 181,313 | | | $ | 128,013 | | | $ | 25,751 | | | $ | 7,819 | | | $ | 342,896 | |
Servicing revenue, interest income and interest expense generated from securitized receivables for the periods ended September 30, 2023 (Successor), August 21, 2023 (Predecessor) and September 24, 2022 (Predecessor), were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | Predecessor | |
| (In thousands) | | Period from August 22 through September 30, 2023 | | Period from January 1 through August 21, 2023 | | Period from December 24, 2021 through September 24, 2022 | |
| Securitization servicing revenue | | $ | 1,756 | | | $ | 7,698 | | | $ | 6,636 | | |
Interest income from securitization1 | | 8,636 | | | 53,466 | | | 75,882 | | |
| Interest expense, debt secured by accounts receivable | | (30,426) | | | (107,339) | | | (163,557) | | |
(1) Includes interest income from Badcock customer receivables (refer to “Note 3 – Accounts and Notes Receivable”) and securitized receivables.
(5) Revenue
For details regarding the principal activities from which the Company generates its revenue, refer to “Note 1 – Organization and Significant Accounting Policies” in the financial statements for the fiscal year ended December 31, 2022. The following represents the disaggregated revenue for the periods ended September 30, 2023 (Successor), August 21, 2023 (Predecessor) and September 24, 2022 (Predecessor):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Successor | | Predecessor | |
| (In thousands) | | Period from August 22 through September 30, 2023 | | Period from January 1 through August 21, 2023 | | Period from December 24, 2021 through September 24, 2022 | |
| Total product revenue | | $ | 53,085 | | | $ | 323,455 | | | $ | 474,857 | | |
| Financing revenue | | 242 | | | 1,470 | | | 394 | | |
| Interest income | | 8,636 | | | 53,466 | | | 75,882 | | |
| Interest income from amortization of account receivable discount | | 11,016 | | | 15,982 | | | 78,603 | | |
| Warranty and damage revenue | | 4,708 | | | 30,173 | | | 39,187 | | |
| Other revenues | | 5,062 | | | 27,612 | | | 30,912 | | |
| Total service revenue | | 29,664 | | | 128,703 | | | 224,978 | | |
| Total revenue | | $ | 82,749 | | | $ | 452,158 | | | $ | 699,835 | | |
Contract Balances
The following table provides information about receivables and contract liabilities (deferred revenue) from contracts with customers as of September 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| (In thousands) | | September 30, 2023 | | December 31, 2022 |
| Accounts receivable | | $ | 83,187 | | | $ | 60,859 | |
| Notes receivable | | 3,192 | | | 4,327 | |
| | | | |
| Customer deposits | | 4,588 | | | 6,694 | |
| Gift cards | | 70 | | | 73 | |
| Other deferred revenue | | 4,772 | | | 2,794 | |
| Total deferred revenue | | $ | 9,430 | | | $ | 9,561 | |
Deferred revenue consists of (1) amounts received for merchandise of which customers have not yet taken possession, (2) gift card or store credits outstanding, which are primarily recognized within one year following the revenue deferral.
(6) Income Taxes
Overview
For the period ended September 30, 2023 (Successor) and August 21, 2023 (Predecessor), the Company had an effective tax rate of 25.0% and 26.3%, respectively. For the nine months ended September 24, 2022 (Predecessor), the Company had an effective tax rate of 38.6%. The changes in the effective tax rate compared to the prior year are due to discrete items related to prior year true ups and statute lapses related to prior year accruals on uncertain tax positions.
(7) Related Party Transactions
The Company paid management fees of $146 thousand, $728 thousand and $1.8 million for the periods ended September 30, 2023 (Successor), August 21, 2023 (Predecessor) and September 24, 2022 (Predecessor), respectively. Management fees are included in selling, general and administrative expenses in the Statements of Operations.
See Note 4 "Securitized Accounts Receivable" for disclosure of certain related party securitized receivable and secured borrowing transactions with B. Riley Receivables II, LLC, a wholly-owned subsidiary of the Company's ultimate Parent.
(8) Commitments and Contingencies
In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s business, financial condition, cash flows, or results of operations.
The Company is party to claims and lawsuits that are considered to be ordinary, routine litigation incidental to the business, including claims and lawsuits concerning the fees charged to customers for various products and services, relationships with dealers, intellectual property disputes, employment matters, and contract disputes. Although the Company cannot provide assurance that it will ultimately prevail in each instance, it believes the amount, if any, it will be required to pay in the discharge of liabilities or settlements in these claims will not have a material adverse impact on its results of operations, financial position, or cash flows.
(9) Subsequent Events
The financial statements and related disclosures include evaluation of events up through and including March 4, 2024, which is the date the accompanying financial statements were available to be issued.
Badcock Sale
On December 18, 2023, W.S. Badcock LLC (f/k/a W.S. Badcock Corporation) was sold by Freedom VCM Holdings, LLC and became a wholly-owned subsidiary of Conn's Inc. through an all-stock transaction.
