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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-39411

Vital Farms, Inc.

(Exact name of registrant as specified in its charter)

Delaware	27-0496985
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3601 South Congress Avenue Suite C100 Austin, Texas	78704
(Address of principal executive offices)	(Zip Code)

(877) 455-3063

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	VITL	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes ☒ No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ☐ No ☒

As of May 2, 2022, the registrant had 40,607,865 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

Page

Special Note Regarding Forward-Looking Statements		ii
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive (Loss) Income	3
	Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders' Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
	Signatures	59

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” (within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

• our expectations regarding our revenue, expenses and other operating results;

• our ability to acquire new customers and successfully retain existing customers;

• our ability to attract and retain our suppliers, distributors and co-manufacturers;

• our ability to sustain or increase our profitability;

• our ability to procure sufficient high-quality eggs, butter, cream and other raw materials;

• real or perceived quality with our products or other issues that adversely affect our brand and reputation;

• changes in the tastes and preferences of our consumers;

• the financial condition of, and our relationships with, our suppliers, co-manufacturers, distributors, retailers and foodservice customers, as well as the health of the foodservice industry generally;

• the ability of our suppliers and co-manufacturers to comply with food safety, environmental or other laws or regulations;

• the effects of the ongoing COVID-19 pandemic, or of other global outbreaks of pandemics or contagious diseases or fear of such outbreaks, including on our supply chain, the demand for our products, and on overall economic conditions and consumer confidence and spending levels;

• future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;

• anticipated changes in our product offerings and our ability to innovate to offer new products;

• the costs and success of our marketing efforts, and our ability to promote our brand;

• our reliance on key personnel and our ability to identify, recruit and retain personnel;

• our ability to effectively manage our growth;

• the potential influence of our focus on a specific public benefit purpose and producing a positive effect for society;

• our environmental, sustainability and governance goals, opportunities and initiatives, as well as the standards and expectations of third parties regarding these matters;

• our ability to compete effectively with existing competitors and new market entrants;

• the impact of adverse economic conditions, including as a result of the conflict between Ukraine and Russia and inflation;

• the sufficiency of our cash to meet our liquidity needs;

• seasonality; and

• the growth rates of the markets in which we compete.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. A summary of selected risks associated with our business is set forth at the beginning of the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances

ii

reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

iii

PART I – FINANCIAL INFORMATION

VITAL FARMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share amounts)

	March 27, 2022			December 26, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,774		$	30,966
Investment securities, available-for-sale		67,051			68,621
Accounts receivable, net		25,789			26,938
Inventories		13,336			10,945
Prepaid expenses and other current assets		3,112			3,817
Total current assets		134,062			141,287
Property, plant and equipment, net		47,294			44,608
Operating lease right-of-use assets		2,916			—
Goodwill		3,858			3,858
Other assets		3,131			189
Total assets	$	191,261		$	189,942
Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity
Current liabilities:
Accounts payable	$	20,567		$	22,520
Accrued liabilities		16,142			15,143
Operating lease liabilities		1,406			—
Finance lease liabilities		210			327
Total current liabilities		38,325			37,990
Operating lease liabilities, non-current		1,741			—
Other liabilities		206			192
Total liabilities		40,272			38,182
Commitments and contingencies (Note 15)
Redeemable noncontrolling interest		175			175
Stockholders’ equity:
Common stock, $0.0001 par value per share, 310,000,000 shares authorized as of March 27, 2022 and December 26, 2021; 40,596,297 and 40,493,969 shares issued and outstanding as of March 27, 2022 and December 26, 2021, respectively		5			5
Additional paid-in capital		150,550			149,000
Retained earnings		1,372			2,746
Accumulated other comprehensive loss		(1,064	)		(281	)
Total stockholders’ equity attributable to Vital Farms, Inc. stockholders		150,863			151,470
Noncontrolling interests		(49	)		115
Total stockholders’ equity	$	150,814		$	151,585
Total liabilities, redeemable noncontrolling interest, and stockholders’ equity	$	191,261		$	189,942

See accompanying notes to the unaudited condensed consolidated financial statements.

1

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)

(Unaudited)

	13-Weeks Ended
	March 27, 2022			March 28, 2021
Net revenue	$	77,058		$	58,545
Cost of goods sold		55,358			37,215
Gross profit		21,700			21,330
Operating expenses:
Selling, general and administrative		17,624			13,183
Shipping and distribution		8,162			5,063
Total operating expenses		25,786			18,246
(Loss) income from operations		(4,086	)		3,084
Other income (expense), net:
Interest expense		(8	)		(18	)
Other income (expense), net		179			110
Total other income (expense), net		171			92
Net (loss) income before income taxes		(3,915	)		3,176
Income tax benefit		(2,377	)		(304	)
Net (loss) income		(1,538	)		3,480
Less: Net loss attributable to    noncontrolling interests		(2	)		(11	)
Net (loss) income attributable to Vital Farms, Inc. common    stockholders	$	(1,536	)	$	3,491
Net (loss) income per share attributable to Vital Farms, Inc.    stockholders:
Basic:	$	(0.04	)	$	0.09
Diluted:	$	(0.04	)	$	0.08
Weighted average common shares outstanding:
Basic:		40,532,779			39,536,928
Diluted:		40,532,779			43,509,371

See accompanying notes to the unaudited condensed consolidated financial statements

2

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Amounts in thousands)

(Unaudited)

	13-Weeks Ended
	March 27, 2022			March 28, 2021
Net (loss) income	$	(1,538	)	$	3,480
Other comprehensive loss
Unrealized holding loss on available-for-sale securities, net of deferred tax benefit of $242 and $7 for the 13-weeks ended March 27, 2022 and March 28, 2021, respectively		(783	)		(22	)
Total comprehensive (loss) income	$	(2,321	)	$	3,458

See accompanying notes to the unaudited condensed consolidated financial statements

3

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share amounts)

(Unaudited)

	Redeemable Noncontrolling Interest		Common Stock												Total Stockholders’ Equity Attributable
	Amount		Shares		Amount		Additional Paid-In Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Loss			to Vital Farms, Inc. Stockholders’			Noncontrolling Interests			Total Stockholders’ Equity
Balances as of December 26, 2021	$	175		40,493,969	$	5	$	149,000	$	2,746		$	(281	)	$	151,470		$	115		$	151,585
Exercise of stock options		—		102,328		—		254		—			—			254			—			254
Stock-based compensation expense		—		—		—		1,296		—			—			1,296			—			1,296
Net loss attributable to non-    controlling interests - stockholders		—		—		—		—		162						162			(164	)		(2	)
Other comprehensive loss, net		—		—		—		—					(783	)		(783	)		—			(783	)
Net loss attributable to    Vital Farms, Inc.		—		—		—		—		(1,536	)		—			(1,536	)		—			(1,536	)
Balances as of March 27, 2022	$	175		40,596,297	$	5	$	150,550	$	1,372		$	(1,064	)	$	150,863		$	(49	)	$	150,814

See accompanying notes to the unaudited condensed consolidated financial statements.

4

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share amounts)

(Unaudited)

	Redeemable Noncontrolling Interest		Common Stock				Treasury Stock													Total Stockholders’ Equity Attributable
	Amount		Shares		Amount		Shares			Amount			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss			to Vital Farms, Inc. Stockholders’			Noncontrolling Interests			Total Stockholders’ Equity
Balances as of December 27, 2020	$	175		44,938,958	$	5		(5,494,918	)	$	(16,276	)	$	144,311	$	14,039		(31	)	$	142,048		$	163		$	142,211
Exercise of stock options		—		300,266		—		—			—			525		—					525			—			525
Stock-based compensation expense		—		—		—		—			—			853		—					853			—			853
Net loss attributable to non-    controlling interests - stockholders		—		—		—		—			—			—		—					—			(11	)		(11	)
Other comprehensive loss, net																		(22	)		(22	)					(22	)
Net income attributable to Vital    Farms, Inc.		—		—		—		—			—			—		3,491					3,491			—			3,491
Balances as of March 28, 2021	$	175		45,239,224	$	5		(5,494,918	)	$	(16,276	)	$	145,689	$	17,530	$	(53	)	$	146,895		$	152		$	147,047

See accompanying notes to the unaudited condensed consolidated financial statements.

5

VITAL FARMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	13-Weeks Ended
	March 27, 2022			March 28, 2021
Cash flows from operating activities:
Net (loss) income	$	(1,538	)	$	3,480
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		948			785
Amortization of right-of-use assets		413			—
Amortization of available-for-sale debt securities		321			405
Stock-based compensation expense		1,296			853
Deferred Taxes		(2,572	)		142
Other		199			(508	)
Changes in operating assets and liabilities:
Accounts receivable		1,080			2,717
Inventories		(2,363	)		1,636
Prepaid expenses and other current assets		538			1,492
Deposits and other assets		(49	)		—
Income taxes payable		(112	)		(449	)
Accounts payable		(2,973	)		(1,402	)
Accrued liabilities		240			(1,111	)
Operating lease liabilities		(367	)		—
Net cash (used in) provided by operating activities	$	(4,939	)	$	8,040
Cash flows from investing activities:
Purchases of property, plant and equipment		(1,686	)		(3,451	)
Purchases of available-for-sale debt securities		(13,973	)		(14,409	)
Sales of available-for sale debt securities		—			1,441
Maturities and call redemptions of available-for-sale debt securities		14,254			13,569
Proceeds from the sale of property, plant and equipment		50			—
Net cash used in investing activities	$	(1,355	)	$	(2,850	)
Cash flows from financing activities:
Payment of contingent consideration		(26	)		(42	)
Principal payments under finance lease obligations		(126	)		(116	)
Proceeds from exercise of stock options		254			525
Net cash provided by financing activities	$	102		$	367
Net (decrease) increase in cash and cash equivalents		(6,192	)		5,557
Cash and cash equivalents at beginning of the period		30,966			29,544
Cash and cash equivalents at end of the period	$	24,774		$	35,101
Supplemental disclosure of cash flow information:
Cash paid for interest	$	8		$	20
Cash paid for income taxes		7			—
Supplemental disclosure of non-cash investing and financing    activities:
Purchases of property, plant and equipment included in accounts payable and accrued liabilities		2,147			140

See accompanying notes to the unaudited condensed consolidated financial statements.

6

VITAL FARMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

Note 1. Nature of the Business and Basis of Presentation

Vital Farms, Inc. (the “Company”, “we”, “us” or “our”) was incorporated in Delaware on June 6, 2013 and is headquartered in Austin, Texas. Vital Farms packages, markets and distributes shell eggs, butter and other products. These products are sold under the trade names Vital Farms, Alfresco Farms, Lucky Ladies and RedHill Farms, primarily to retail and foodservice channels in the United States.

The accompanying unaudited condensed consolidated financial statements as of March 27, 2022 and for the 13-week periods ended March 27, 2022 and March 28, 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto on our Annual Report on Form 10-K for the fiscal year ended December 26, 2021 (“Annual Report on Form 10-K”).

In the opinion of management, the included disclosures are adequate and the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for a fair presentation of our consolidated financial position as of March 27, 2022, consolidated results of operations for the 13-week periods ended March 27, 2022 and March 28, 2021, and consolidated cash flows for the 13-week periods ended March 27, 2022 and March 28, 2021. Such adjustments are of a normal and recurring nature and certain reclassifications of previously reported amounts have been made to conform to the current year presentation. The condensed consolidated results of operations for the 13-week period ended March 27, 2022 are not necessarily indicative of the consolidated results of operations that may be expected for the fiscal year ending December 25, 2022.

Fiscal Year: The Company’s fiscal year ends on the last Sunday in December and contains either 52 or 53 weeks. In a 52-week fiscal year, each of the Company’s fiscal quarters consist of 13 weeks. The additional week in a 53-week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. Therefore, the financial results of certain 53-week fiscal years, and the associated 14-week quarters, will not be exactly comparable to the prior and subsequent 52-week fiscal years and the associated 13-week quarters. The quarters ended March 27, 2022 and March 28, 2021 both contain operating results for 13 weeks.

Impact of COVID-19 Pandemic: Due to the ongoing COVID-19 pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on the Company’s business. The Company does not currently anticipate that the COVID-19 pandemic will have a material impact on the timelines for the Company’s product development and expansion efforts. However, the extent to which the COVID-19 pandemic impacts the Company’s business, product development and expansion efforts, corporate development objectives and the value of and market for the Company’s common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, and the effectiveness of actions taken globally to contain and treat the disease, including the roll-out of vaccines. The global economic slowdown, the overall disruption of global supply chains and distribution systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.  

Note 2. Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the fiscal year ended December 26, 2021, and the notes thereto, which are included in our Annual Report on Form 10-K. Other than the adoption of the new accounting pronouncements as further described below, there have been no material changes to the Company’s significant accounting policies during the 13-week period ended March 27, 2022.  

Recently Adopted Accounting Pronouncements: The new accounting pronouncements recently adopted by the Company are described in the Company’s audited consolidated financial statements as of and for the fiscal year ended December 26, 2021, and the notes thereto, which are included in our Annual Report on Form 10-K. Except as described below, there have been no new accounting pronouncements adopted by the Company during the 13-week period ended March 27, 2022.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) and also issued subsequent amendments to the initial guidance, ASU 2017-13, ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20, ASU 2019-01, ASU

7

2019-10, ASU 2020-02, and ASU 2020-05 (collectively, “Topic 842”). The guidance in Topic 842 supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than twelve months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the unaudited condensed consolidated statement of operations. An entity may adopt the guidance either (1) retrospectively to each prior reporting period presented in the financial statements with a cumulative-effect adjustment recognized at the beginning of the earliest comparative period presented or (2) retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment. The Company adopted Topic 842 as of the beginning of the period of adoption, December 27, 2021, and has not applied the new standard to comparative periods presented.

To reduce the burden of adoption and ongoing compliance with Topic 842, a number of practical expedients and policy elections are available under the new guidance. The Company elected the "package of practical expedients" permitted under the transition guidance, which among other things, did not require reassessment of whether contracts entered into prior to adoption are or contain leases, and allowed carryforward of the historical lease classification for existing leases. The Company has not elected to adopt the “hindsight” practical expedient, and therefore will measure the right-of-use (“ROU”) assets and lease liabilities using the remaining portion of the lease term at adoption on December 27, 2021.  

The Company made an accounting policy election under Topic 842 not to recognize ROU assets and lease liabilities for leases with a term of twelve months or less.  For all other leases, the Company recognizes ROU assets and lease liabilities based on the present value of lease payments over the lease term at the commencement date of the lease (or December 27, 2021 for existing leases upon the adoption of Topic 842). The Company’s recognized ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date, which are reduced by any lease incentives.

Future lease payments may include fixed rent escalation clauses or payments that depend on an index (such as the Consumer Price Index measured by the U.S. Bureau of Labor Statistics). Subsequent index changes and other periodic market-rate adjustments to base rent are recorded as variable lease expense during the period in which they are incurred. Residual value guarantees or payments for terminating the lease are included in the lease payments only when it is probable they will be incurred.

The Company has made an accounting policy election to account for lease and non-lease components in its contracts as a single lease component for all asset classes. The non-lease components typically represent additional services transferred to the Company, such as common area maintenance for real estate, which are variable in nature and recorded in variable lease expense in the period incurred.  

As an emerging growth company, we use our lease-specific collateralized incremental borrowing rate to determine the present value of lease payments at lease commencement or upon the adoption of Topic 842. The adoption of the new lease standard had an immaterial impact on our consolidated net earnings and consolidated cash flows and did not result in a cumulative-effect adjustment to the opening balance of retained earnings. The adoption of Topic 842 as of December 27, 2021, resulted in the recording of right-of-use assets and lease liabilities of $4.1 million and $3.8 million, respectively.

Recently Issued Accounting Pronouncements Not Yet Adopted: In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance, ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02, and ASU 2020-03 (collectively, “Topic 326”), to introduce a new impairment model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Topic 326 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. 

The Company expects to adopt Topic 326 on December 26, 2022. Although the Company is currently evaluating the impact of its pending adoption of Topic 326, the Company does not expect it to have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which intends to simplify the guidance by removing certain exceptions to the general principles and clarifying or amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company expects to adopt ASU 2019-12 on December 26, 2022. Although the Company is currently evaluating the impact of the adoption of ASU 2019-12, the Company does not expect it to have a material impact on its consolidated financial statements.

8

Note 3. Investment Securities

The following table summarizes the Company’s available-for-sale investment securities as of March 27, 2022:

	Amortized Cost		Unrealized Losses			Fair Value
U.S. Corporate Bonds and U.S. Dollar    Denominated Foreign Bonds	$	66,270	$	(1,371	)	$	64,899
Commercial Paper		1,000		—			1,000
U.S. Treasury		1,177		(25	)		1,152
Total	$	68,447	$	(1,396	)	$	67,051

The following table summarizes the Company’s available-for-sale investment securities as of December 26, 2021:

	Amortized Cost		Unrealized Losses			Fair Value
U.S. Corporate Bonds and U.S. Dollar    Denominated Foreign Bonds	$	64,816	$	(364	)	$	64,452
Commercial Paper		2,999		—			2,999
U.S. Treasury		1,177		(7	)		1,170
Total	$	68,992	$	(371	)	$	68,621

The securities incurred unrealized losses of $1,026 and related tax benefit of $242 for the 13-weeks ended March 27, 2022. The unrealized losses in our U.S. corporate bond portfolio consist of losses on 89 diversified issuances with credit ratings ranging from BBB to AAA.  There are no individual bonds with unrealized losses exceeding $65 and only three issuances have been in a loss position greater than 12 months with aggregate unrealized losses of $124.  

The decline in fair value has resulted primarily from rising interest rates over the last 12 months and we do not believe there has been any significant decline in the creditworthiness of the issuers. We also do not believe it is likely that the bonds will be called early given the current interest rate environment and we do not have current liquidity needs that would necessitate a sale of the investments prior to maturity.  Therefore, we have not recorded an allowance for credit losses on the investment securities as of March 27, 2022.

Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Contractual maturities of investment securities as of March 27, 2022 are as follows:

	Amortized Cost		Fair Value
Due within one year	$	20,640	$	20,541
Due in 1-5 years		47,807		46,510
Total available-for-sale	$	68,447	$	67,051

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis for the periods presented:

	Fair Value Measurements as of March 27, 2022, Using:
	Level 1		Level 2		Level 3		Total
Assets:
U.S. Corporate Bonds and U.S. Dollar    Denominated Foreign Bonds	$	—	$	64,899	$	—	$	64,899
Commercial Paper		—		1,000		—		1,000
Money Market		19,431		—		—		19,431
U.S. Treasury		—		1,152		—		1,152