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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 July 3, 2022

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: 001-04321

https://cdn.kscope.io/8f1fccca37c38a2302e347f209171df5-dnut-20220703_g1.jpg
Krispy Kreme, Inc.
(Exact name of registrant as specified in its charter)
_________________________

Delaware37-1701311
(State or other jurisdiction of incorporation)
(IRS Employer Identification No.)
2116 Hawkins Street, Charlotte, North Carolina 28203
(Address of principal executive offices)

(800) 457-4779
(Registrant’s telephone number, including area code)

N/A
(Former name or former address, if changed since last report)
_________________________

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

Title of each classTrading SymbolName of each exchange on which registered
Common stock, $0.01 par value per share
DNUT
Nasdaq Global Select Market
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 Act). Yes No

The registrant had outstanding 167,428,302 shares of common stock as of August 10, 2022.


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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Krispy Kreme, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
Quarter EndedTwo Quarters Ended
July 3, 2022 (13 weeks)July 4, 2021 (13 weeks)July 3, 2022 (26 weeks)July 4, 2021 (26 weeks)
Net revenues
Product sales$367,777 $341,223 $731,829 $654,808 
Royalties and other revenues7,468 7,963 15,948 16,187 
Total net revenues375,245 349,186 747,777 670,995 
Product and distribution costs100,558 85,017 196,669 165,014 
Operating expenses173,942 157,877 342,668 305,418 
Selling, general and administrative expense51,754 60,930 105,465 110,467 
Marketing expenses11,215 10,052 21,374 19,559 
Pre-opening costs985 1,752 2,314 3,143 
Other expenses/(income), net1,469 (761)(1,164)(4,006)
Depreciation and amortization expense27,814 25,194 55,655 48,595 
Operating income7,508 9,125 24,796 22,805 
Interest expense, net7,586 9,793 14,937 18,042 
Interest expense — related party 4,821  10,387 
Other non-operating expense/(income), net756 (416)435 (858)
(Loss)/income before income taxes(834)(5,073)9,424 (4,766)
Income tax expense1,574 9,923 5,374 10,608 
Net (loss)/income(2,408)(14,996)4,050 (15,374)
Net income attributable to noncontrolling interest1,441 2,146 3,897 4,829 
Net (loss)/income attributable to Krispy Kreme, Inc.$(3,849)$(17,142)$153 $(20,203)
Net loss per share:
Common stock — Basic$(0.02)$(0.13)$0.00 $(0.16)
Common stock — Diluted$(0.02)$(0.13)$0.00 $(0.16)
Weighted average shares outstanding:
Basic167,367 132,351 167,314 128,669 
Diluted167,367 132,351 167,314 128,669 
See accompanying notes to Condensed Consolidated Financial Statements.
1

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Krispy Kreme, Inc.
Condensed Consolidated Statements of Comprehensive Income/(Loss) (Unaudited)
(in thousands)
 Quarter EndedTwo Quarters Ended
 July 3, 2022 (13 weeks)July 4, 2021 (13 weeks)July 3, 2022 (26 weeks)July 4, 2021 (26 weeks)
Net (loss)/income$(2,408)$(14,996)$4,050 $(15,374)
Other comprehensive (loss)/income, net of income taxes:
Foreign currency translation adjustment(37,513)(1,457)(36,179)(3,721)
Unrealized income on cash flow hedges, net of income taxes(1)
2,872 1,131 17,106 6,233 
Total other comprehensive (loss)/income, net of income taxes(34,641)(326)(19,073)2,512 
Comprehensive loss(37,049)(15,322)(15,023)(12,862)
Net income attributable to noncontrolling interest1,441 2,146 3,897 4,829 
Foreign currency translation adjustment attributable to noncontrolling interest(903) (903) 
Total comprehensive income attributable to noncontrolling interest538 2,146 2,994 4,829 
Comprehensive loss attributable to Krispy Kreme, Inc.$(37,587)$(17,468)$(18,017)$(17,691)
(1)Net of income tax expense of $1.0 million and $5.7 million for the quarter and two quarters ended July 3, 2022, respectively, and $0.4 million and $2.1 million for the quarter and two quarters ended July 4, 2021.
See accompanying notes to Condensed Consolidated Financial Statements.
2

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 Krispy Kreme, Inc. Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
As of
 (Unaudited) July 3, 2022January 2, 2022
ASSETS  
Current assets:  
Cash and cash equivalents$25,796 $38,562 
Restricted cash411 630 
Accounts receivable, net45,027 47,491 
Inventories47,420 34,851 
Taxes receivable14,614 14,662 
Prepaid expense and other current assets29,264 20,701 
Total current assets162,532 156,897 
Property and equipment, net443,898 438,918 
Goodwill1,083,199 1,105,322 
Other intangible assets, net969,319 992,520 
Operating lease right of use asset, net419,211 435,168 
Other assets21,761 16,429 
Total assets$3,099,920 $3,145,254 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt$39,844 $36,583 
Current operating lease liabilities45,936 50,359 
Accounts payable187,516 182,104 
Accrued liabilities108,497 140,750 
Structured payables135,542 116,361 
Total current liabilities517,335 526,157 
Long-term debt, less current portion686,013 680,307 
Noncurrent operating lease liabilities407,141 415,208 
Deferred income taxes, net142,361 145,418 
Other long-term obligations and deferred credits38,088 42,509 
Total liabilities1,790,938 1,809,599 
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value; 300,000 shares authorized as of both July 3, 2022 and January 2, 2022; 167,428 and 167,251 shares issued and outstanding as of July 3, 2022 and January 2, 2022, respectively
1,674 1,673 
Additional paid-in capital1,420,410 1,415,185 
Shareholder note receivable(4,573)(4,382)
Accumulated other comprehensive loss, net of income tax(20,647)(2,478)
Retained deficit(189,970)(178,409)
Total shareholders’ equity attributable to Krispy Kreme, Inc.1,206,894 1,231,589 
Noncontrolling interest102,088 104,066 
Total shareholders’ equity1,308,982 1,335,655 
Total liabilities and shareholders’ equity$3,099,920 $3,145,254 
See accompanying notes to Condensed Consolidated Financial Statements.
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Krispy Kreme, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands, except per share amounts)
 
Common Stock
Additional
Paid-in
Capital
Subscription Receivable
Shareholder
Note
Receivable
Accumulated Other Comprehensive
Income/(Loss)
Retained
(Deficit)/
Earnings
Noncontrolling
Interest
Total
 
Shares
Outstanding
Amount
Foreign
Currency
Translation
Adjustment
Unrealized
(Loss)/Income on
Cash Flow
Hedges
Unrealized  Loss on Employee
Benefit Plans
Balance at January 2, 2022167,251 $1,673 $1,415,185 $ $(4,382)$8,967 $(11,001)$(444)$(178,409)$104,066 $1,335,655 
Net income for the quarter ended April 3, 2022— — — — — — — — 4,002 2,456 6,458 
Other comprehensive income for the quarter ended April 3, 2022 before reclassifications— — — — — 1,334 11,724 — — — 13,058 
Reclassification from AOCI— — — — — — 2,510 — — — 2,510 
Capital contribution by shareholders— — (3)— 243 — — — — — 240 
Share-based compensation— — 5,041 — — — — — — — 5,041 
Purchase of shares by noncontrolling interest— — — — (58)— — — — 110 52 
Dividends declared on common stock and equivalents ($0.035 per share)
— — — — — — — — (5,855)— (5,855)
Distribution to noncontrolling interest— — — — 21 — — — — (1,383)(1,362)
Issuance of common stock upon settlement of RSUs, net of shares withheld46 — (390)— — — — — — — (390)
Other— — (2)— (14)— — — 1  (15)
Balance at April 3, 2022167,297 $1,673 $1,419,831 $ $(4,190)$10,301 $3,233 $(444)$(180,261)$105,249 $1,355,392 
Net (loss)/income for the quarter ended July 3, 2022— — — — — — — — (3,849)1,441 (2,408)
Other comprehensive (loss)/income for the quarter ended July 3, 2022 before reclassifications— — — — — (36,610)1,011 — — (903)(36,502)
Reclassification from AOCI— — — — — — 1,861 — — — 1,861 
Capital contribution from shareholders  (31)— (236)— — — — — (267)
Share-based compensation— — 5,452 — — — — — — — 5,452 
Purchase of shares by noncontrolling interest— — — — (133)— — — — 491 358 
Dividends declared on common stock and equivalents ($0.035 per share)(1)
— — — — — — — — (5,860)— (5,860)
Distribution to noncontrolling interest— — (3,944)— — — — — — (4,190)(8,134)
Issuance of common stock upon settlement of RSUs, net of shares withheld132 1 (898)— — — — — — — (897)
Other— —  — (14)— 1 —  — (13)
Balance at July 3, 2022167,428 $1,674 $1,420,410 $ $(4,573)$(26,309)$6,106 $(444)$(189,970)$102,088 $1,308,982 
(1)Includes a $0.035 cash dividend per common share declared in the second quarter of fiscal 2022 and expected to be paid in the third quarter of fiscal 2022.

See accompanying notes to Condensed Consolidated Financial Statements.
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Krispy Kreme, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands)
 
Common Stock
Additional
Paid-in
Capital
Subscription Receivable
Shareholder
Note
Receivable
Accumulated Other Comprehensive Income/(Loss)
Retained
(Deficit)/
Earnings
Noncontrolling
Interest
Total
 
Shares
Outstanding
Amount
Foreign
Currency
Translation
Adjustment
Unrealized
Loss on
Cash Flow
Hedges
Unrealized  Loss on Employee
Benefit Plans
Balance at January 3, 2021124,987 $1,250 $845,499 $ $(18,660)$23,508 $(24,610)$(106)$(142,197)$163,675 $848,359 
Net (loss)/income for the quarter ended April 4, 2021— — — — — — — — (3,061)2,683 (378)
Other comprehensive (loss)/income for the quarter ended April 4, 2021 before reclassifications— — — — — (2,264)2,572 — — — 308 
Reclassification from AOCI— — — — — 2,530 — — — 2,530 
Share-based compensation— — 2,368 — — — — — — 2,368 
Purchase of shares by noncontrolling interest— — — — 139 — — — 12,048 12,187 
Distribution to noncontrolling interest— — — — 363 — — — (2,239)(1,876)
Other— — (26)— (70)— — 2 (1)(95)
Balance at April 4, 2021124,987 $1,250 $847,841 $ $(18,228)$21,244 $(19,508)$(106)$(145,256)$176,166 $863,403 
Net (loss)/income for the quarter ended July 4, 2021— — — — — — — — (17,142)2,146 (14,996)
Other comprehensive loss for the quarter ended July 4, 2021 before reclassifications— — — — — (1,457)(1,430)— — — (2,887)
Reclassification from AOCI— — — — — — 2,561 — — — 2,561 
Capital contribution from shareholders6,997 70 120,862 — — — — — — — 120,932 
Share-based compensation— — 8,290 — — — — — — — 8,290 
Purchase of shares by noncontrolling interest— — — — 14,421 — — — — 26,648 41,069 
Distribution to shareholders— — (42,334)— — — — —  — (42,334)
Distribution to noncontrolling interest— — — —  — — — — (4,142)(4,142)
Conversion of noncontrolling interest to additional paid-in capital in connection with the Merger9,371 93 107,258 — — — — — — (107,351) 
Issuance of common stock in connection with initial public offering, net of underwriting discounts and issuance costs29,412 294 459,391 (471,250)— — — — — — (11,565)
Issuance of common stock upon settlement of RSUs, net of shares withheld1,267 13 (15,507)— — — — — — — (15,494)
Repurchase of common stock(8,439)(84)(122,922)— — — — — — — (123,006)
Other— — (4)— (20)— — — (1) (25)
Balance at July 4, 2021163,596 $1,636 $1,362,875 $(471,250)$(3,827)$19,787 $(18,377)$(106)$(162,399)$93,467 $821,806 
See accompanying notes to Condensed Consolidated Financial Statements.
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Krispy Kreme, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 Two Quarters Ended
 July 3, 2022 (26 weeks)July 4, 2021 (26 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income/(loss)$4,050 $(15,374)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation and amortization expense55,655 48,595 
Deferred income taxes(6,866)7,995 
Loss on extinguishment of debt 1,700 
Impairment and lease termination charges1,991 1,126 
(Gain)/loss on disposal of property and equipment(499)148 
Gain on sale-leaseback(2,374) 
Share-based compensation10,493 10,658 
Change in accounts and notes receivable allowances193 110 
Inventory write-off251 776 
Other(733)(425)
Change in operating assets and liabilities, excluding business acquisitions and foreign currency translation adjustments(8,238)1,536 
Net cash provided by operating activities53,923 56,845 
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment(51,460)(52,842)
Proceeds from disposals of assets872 147 
Proceeds from sale-leaseback3,000  
Acquisition of shops and franchise rights from franchisees, net of cash acquired (33,888)
Principal payments received from loans to franchisees29 45 
Disbursement for loan receivable(720) 
Maturities of held-to-maturity debt securities 277 
Net cash used for investing activities(48,279)(86,261)
CASH FLOWS (USED FOR)/FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt53,000 540,000 
Repayment of long-term debt and lease obligations(50,179)(541,353)
Payment of financing costs (1,700)
Proceeds from structured payables153,097 140,598 
Payments on structured payables(133,530)(138,100)
Payment of contingent consideration related to a business combination(900) 
Capital contribution by shareholders, net of loans issued(27)120,932 
Payments of issuance costs in connection with IPO(12,458) 
Proceeds from sale of noncontrolling interest in subsidiary410 53,256 
Distribution to shareholders(11,710)(34,364)
Payments for repurchase and retirement of common stock(2,363)(102,698)
Distribution to noncontrolling interest(9,496)(6,018)
Net cash (used for)/provided by financing activities(14,156)30,553 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(4,473)(1,161)
Net decrease in cash, cash equivalents and restricted cash(12,985)(24)
Cash, cash equivalents and restricted cash at beginning of period39,192 37,483 
Cash, cash equivalents and restricted cash at end of period$26,207 $37,459 
Supplemental schedule of non-cash investing and financing activities:
Increase in accrual for property and equipment$4,499 $1,381 
Stock issuance under shareholder notes324 446 
Common stock issuance under subscription receivable in connection with initial public offering, net of underwriting discounts and issuance costs 459,685 
Accrual for distribution to shareholders(5,860)(7,970)
Accrual for repurchase and retirement of common stock (35,803)
Reconciliation of cash, cash equivalents and restricted cash at end of period:
Cash and cash equivalents$25,796 $37,377 
Restricted cash411 82 
Total cash, cash equivalents and restricted cash$26,207 $37,459 
See accompanying notes to Condensed Consolidated Financial Statements.
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Krispy Kreme, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, unless otherwise specified)
Note 1 — Description of Business and Summary of Significant Accounting Policies
Description of Business
Krispy Kreme, Inc. (“KKI”) and its subsidiaries (collectively, the “Company” or “Krispy Kreme”) operate through their omni-channel business model to provide doughnut experiences and produce doughnuts for Doughnut Shops, Delivered Fresh Daily (“DFD”) outlets, Ecommerce and delivery, and Krispy Kreme branded sweet treats (“Branded Sweet Treat Line”) channels, expanding consumer access to the Krispy Kreme brand.
The Company has three reportable operating segments: 1) U.S. and Canada, which includes all Krispy Kreme Company-owned operations in the U.S. and Canada, Insomnia Cookies shops and the Branded Sweet Treat Line; 2) International, which includes all Krispy Kreme Company-owned operations in the U.K., Ireland, Australia, New Zealand and Mexico; and 3) Market Development, which includes worldwide franchise operations, as well as Krispy Kreme Company-owned shops in Japan. Unallocated corporate costs are excluded from the Company’s measurement of segment performance.
Basis of Presentation and Consolidation
The Company operates and reports financial information on a 52 or 53-week year with the fiscal year ending on the Sunday closest to December 31. The data periods contained within fiscal years 2021 and 2022 reflect the results of operations for the 52-week periods ended January 2, 2022 and January 1, 2023, respectively. The quarters ended July 3, 2022 and July 4, 2021 were both 13-week periods.
The unaudited Condensed Consolidated Financial Statements include the accounts of KKI and subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these interim financial statements do not include all information and footnotes required under GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results of operations, balance sheet, cash flows, and shareholders’ equity for the periods presented. All significant intercompany balances and transactions among KKI and subsidiaries have been eliminated in consolidation. Investments in entities over which the Company has the ability to exercise significant influence but which it does not control and whose financial statements are not otherwise required to be consolidated, are accounted for using the equity method.
These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto as of and for the year ended January 2, 2022, included in the Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet as of January 2, 2022 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The results of operations for the quarter and two quarters ended July 3, 2022 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending January 1, 2023.
Noncontrolling interest in the Company’s Condensed Consolidated Financial Statements represents the interest in subsidiaries held by joint venture partners and employee shareholders. The joint venture partners hold noncontrolling interests in the Company’s consolidated subsidiaries, Awesome Doughnut, LLC (“Awesome Doughnut”), W.K.S. Krispy Kreme, LLC (“WKS Krispy Kreme”), and Krispy K Canada, Inc. (“KK Canada”). Employee shareholders hold noncontrolling interests in the consolidated subsidiaries Krispy Kreme Holding U.K. Ltd. (“KKUK”), Krispy Kreme Holdings Pty Ltd. (“KK Australia”), Krispy Kreme Mexico S. de R.L. de C.V. (“KK Mexico”) and Insomnia Cookies Holdings, LLC (“Insomnia Cookies”). Since the Company consolidates the financial statements of these subsidiaries, the noncontrolling owners’ share of each subsidiary’s net assets and results of operations are deducted and reported as noncontrolling interest on the Condensed Consolidated Balance Sheets and as net income attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations and comprehensive income attributable to noncontrolling interest in the Condensed Consolidated Statements of Comprehensive Income/(Loss).
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Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements for the year ended January 2, 2022 included in the Annual Report on Form 10-K. There have been no material changes to the significant accounting policies during the quarter ended July 3, 2022.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. It is effective for all entities as of March 12, 2020 through December 31, 2022. A company may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company is currently evaluating the effect of the new guidance on its Condensed Consolidated Financial Statements and related disclosures.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which prescribes the measurement of acquired contract assets and contract liabilities arising from revenue contracts with customers recognized in a business combination. It is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect of the new guidance on its Condensed Consolidated Financial Statements and related disclosures.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires certain disclosures to be made when an entity receives government assistance, including the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements. It is effective for all entities for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. The Company is currently evaluating the effect of the new guidance on its annual disclosures.
Note 2 — Acquisitions
2022 Acquisitions
In the first two quarters of fiscal 2022, there were no acquisitions.
2021 Acquisitions
In the first quarter of fiscal 2021, the Company acquired the business and operating assets of two franchisees, collectively consisting of 17 Krispy Kreme shops in the U.S. On October 4, 2021, the Company acquired a 60% controlling ownership interest in ten franchise shops in Canada (KK Canada). The valuation for the acquisitions requires significant estimates and assumptions. The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for the acquisitions. Measurement period adjustments for the 2021 acquisitions did not have a material impact to the Condensed Consolidated Financial Statements for the quarter and two quarters ended July 3, 2022.
Note 3 — Inventories
The components of Inventories are as follows:
July 3, 2022January 2, 2022
Raw materials$18,084 $15,278 
Work in progress816 700 
Finished goods and purchased merchandise28,520 18,873 
Total inventories$47,420 $34,851 
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Note 4 — Goodwill and Other Intangible Assets, net
Goodwill
Changes in the carrying amount of goodwill by reportable segment are as follows:
U.S. and Canada
International
Market Development
Total
Balance as of January 2, 2022$