FILE NO. 333-240089
SUPPLEMENT NO. 1 TO
This prospectus supplement (this “Supplement
No. 1”) is part of the prospectus of Whole Earth Brands, Inc. (the “Company”) dated August 5, 2020 (the “Prospectus”).
This Supplement No. 1 supplements, modifies or supersedes certain information contained in the Prospectus. Any statement in the
Prospectus that is modified or superseded is not deemed to constitute a part of the Prospectus, except as modified or superseded
by this Supplement No. 1. Except to the extent that the information in this Supplement No. 1 modifies or supersedes the information
contained in the Prospectus, this Supplement No. 1 should be read, and will be delivered, with the Prospectus. This Supplement
No. 1 is not complete without, and may not be utilized except in connection with, the Prospectus.
The purpose of this Supplement No. 1 is
to update and supplement the information in the Prospectus with the information contained in the Company’s Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2020, as filed with the Securities and Exchange Commission (“SEC”)
on August 14, 2020, which is attached hereto.
(Former name, former address and former
fiscal year, if changed since last report)
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 x
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 x 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.
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 x
As of August 14, 2020,
there were 38,426,669 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.
PART
I - FINANCIAL INFORMATION
Item
1. Financial
Statements.
Whole Earth
Brands, Inc.
Condensed
Consolidated Financial Statements (unaudited)
For the Quarter Ended June 30, 2020
Condensed
Consolidated Financial Statements
|
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2020 (Successor) and December 31, 2019 (Predecessor)
|
5
|
|
|
Condensed
Consolidated Statements of Operations for periods June 26, 2020 through June 30, 2020 (Successor), April 1, 2020 through June
25, 2020 (Predecessor), January 1, 2020 through June 25, 2020 (Predecessor), and the three and six months ended June 30, 2019
(Predecessor)
|
6
|
|
|
Condensed
Consolidated Statements of Comprehensive (Loss) Income for periods June 26, 2020 through June 30, 2020 (Successor), April
1, 2020 through June 25, 2020 (Predecessor), January 1, 2020 through June 25, 2020 (Predecessor), and the three and six months
ended June 30, 2019 (Predecessor)
|
7
|
|
|
Condensed
Consolidated Statements of Changes in Equity for periods June 26, 2020 through June 30, 2020 (Successor), April 1, 2020 through
June 25, 2020 (Predecessor), January 1, 2020 through June 25, 2020 (Predecessor), and the three and six months ended June
30, 2019 (Predecessor)
|
8
|
|
|
Condensed
Consolidated Statements of Cash Flows for the periods June 26, 2020 through June 30, 2020 (Successor), January 1, 2020 through
June 25, 2020 (Predecessor) and the six months ended June 30, 2019
|
9
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
10
|
|
|
Note
1: Basis of Presentation and Significant Accounting Policies
|
10
|
|
|
Note
2: business combination
|
14
|
|
|
Note
3: Leases
|
16
|
|
|
Note
4: Inventories
|
17
|
|
|
Note
5: Goodwill and Other Intangible Assets
|
18
|
|
|
Note
6: debt
|
19
|
|
|
Note
7: Fair Value of Financial Instruments
|
20
|
|
|
Note
8: Commitments and Contingencies
|
21
|
|
|
Note
9: Income Taxes
|
21
|
|
|
Note
10: Pension Benefits
|
22
|
|
|
Note
11: Earnings Per Share
|
24
|
|
|
Note
12: Accumulated Other Comprehensive Income (loss)
|
25
|
|
|
Note
13: Related Party Transactions
|
26
|
|
|
Note
14: Business Segments
|
26
|
Whole Earth Brands,
Inc.
Condensed
Consolidated Balance Sheets
(In thousands
of dollars, except for share and per share data)
(Unaudited)
|
|
June
30, 2020
|
|
|
December
31, 2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
61,607
|
|
|
$
|
10,395
|
|
Accounts
receivable (net of allowances of $0 and $2,832, respectively)
|
|
|
49,112
|
|
|
|
55,031
|
|
Inventories
|
|
|
108,785
|
|
|
|
121,129
|
|
Prepaid expenses
and other current assets
|
|
|
3,063
|
|
|
|
7,283
|
|
Total current
assets
|
|
|
222,567
|
|
|
|
193,838
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
21,927
|
|
|
|
20,340
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
|
15,436
|
|
|
|
-
|
|
Goodwill
|
|
|
131,109
|
|
|
|
130,870
|
|
Other intangible
assets, net
|
|
|
157,309
|
|
|
|
251,243
|
|
Deferred
tax assets, net
|
|
|
1,202
|
|
|
|
1,368
|
|
Other
assets
|
|
|
2,860
|
|
|
|
2,192
|
|
Total
Assets
|
|
$
|
552,410
|
|
|
$
|
599,851
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
21,858
|
|
|
$
|
26,240
|
|
Accrued
expenses and other current liabilities
|
|
|
31,695
|
|
|
|
28,040
|
|
Current
portion of operating lease liabilities
|
|
|
3,292
|
|
|
|
-
|
|
Current
portion of long-term debt
|
|
|
7,000
|
|
|
|
-
|
|
Total current
liabilities
|
|
|
63,845
|
|
|
|
54,280
|
|
Non-Current
Liabilities
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
127,758
|
|
|
|
-
|
|
Due to
related party
|
|
|
-
|
|
|
|
8,400
|
|
Deferred
tax liabilities, net
|
|
|
23,983
|
|
|
|
31,538
|
|
Operating
lease liabilities, less current portion
|
|
|
12,208
|
|
|
|
-
|
|
Other
liabilities
|
|
|
16,440
|
|
|
|
17,883
|
|
Total
Liabilities
|
|
|
244,234
|
|
|
|
112,101
|
|
Commitments
and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Preferred
shares, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock,
$0.0001 par value; 220,000,000 shares authorized; 38,426,669 shares issued and outstanding
|
|
|
4
|
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
325,365
|
|
|
|
-
|
|
Net parent
investment
|
|
|
-
|
|
|
|
487,750
|
|
Accumulated
other comprehensive income
|
|
|
15
|
|
|
|
-
|
|
Accumulated
deficit
|
|
|
(17,208
|
)
|
|
|
-
|
|
Total
stockholders’ equity
|
|
|
308,176
|
|
|
|
487,750
|
|
Total
Liabilities and Stockholders’ equity
|
|
$
|
552,410
|
|
|
$
|
599,851
|
|
See Notes to Unaudited Consolidated
Financial Statements
Whole
Earth Brands, Inc.
Condensed Consolidated
Statements of Operations
(In thousands
of dollars, except for share and per share data)
(Unaudited)
|
|
From
|
|
|
From
|
|
|
From
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
June 26, 2020
to
|
|
|
April 1, 2020
|
|
|
January 1,
2020
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30, 2020
|
|
|
to
June 25, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues, net
|
|
$
|
4,478
|
|
|
$
|
62,356
|
|
|
$
|
128,328
|
|
|
$
|
68,993
|
|
|
$
|
139,294
|
|
Cost of goods sold
|
|
|
2,708
|
|
|
|
37,515
|
|
|
|
77,627
|
|
|
|
41,324
|
|
|
|
82,864
|
|
Gross profit
|
|
|
1,770
|
|
|
|
24,841
|
|
|
|
50,701
|
|
|
|
27,669
|
|
|
|
56,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,946
|
|
|
|
27,307
|
|
|
|
43,355
|
|
|
|
18,674
|
|
|
|
34,250
|
|
Amortization of intangible assets
|
|
|
141
|
|
|
|
2,393
|
|
|
|
4,927
|
|
|
|
2,656
|
|
|
|
5,312
|
|
Asset impairment charges
|
|
|
-
|
|
|
|
-
|
|
|
|
40,600
|
|
|
|
-
|
|
|
|
-
|
|
Restructuring and other expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
394
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(317
|
)
|
|
|
(4,859
|
)
|
|
|
(38,181
|
)
|
|
|
5,945
|
|
|
|
16,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(116
|
)
|
|
|
(66
|
)
|
|
|
(238
|
)
|
|
|
(53
|
)
|
|
|
(105
|
)
|
Other (expense) income, net
|
|
|
(62
|
)
|
|
|
(920
|
)
|
|
|
801
|
|
|
|
(1,410
|
)
|
|
|
50
|
|
(Loss) income before income taxes
|
|
|
(495
|
)
|
|
|
(5,845
|
)
|
|
|
(37,618
|
)
|
|
|
4,482
|
|
|
|
16,271
|
|
Provision (benefit) for income
taxes
|
|
|
10
|
|
|
|
(364
|
)
|
|
|
(3,482
|
)
|
|
|
976
|
|
|
|
3,601
|
|
Net (loss) income
|
|
$
|
(505
|
)
|
|
$
|
(5,481
|
)
|
|
$
|
(34,136
|
)
|
|
$
|
3,506
|
|
|
$
|
12,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share – Basic
and diluted
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding – Basic and diluted
|
|
|
38,426,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited
Condensed Consolidated Financial Statements
Whole
Earth Brands, Inc.
Condensed Consolidated
Statements of Comprehensive Income
(In thousands
of dollars)
(Unaudited)
|
|
From
|
|
|
From
|
|
|
From
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
June 26, 2020
to
|
|
|
April 1, 2020
|
|
|
January 1,
2020
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30, 2020
|
|
|
to
June 25, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Net
(loss) income
|
|
$
|
(505
|
)
|
|
$
|
(5,481
|
)
|
|
$
|
(34,136
|
)
|
|
$
|
3,506
|
|
|
$
|
12,670
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
in pension benefit obligations recognized
|
|
|
-
|
|
|
|
270
|
|
|
|
318
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
currency translation adjustments
|
|
|
15
|
|
|
|
(402
|
)
|
|
|
(2,286
|
)
|
|
|
1,385
|
|
|
|
(1,054
|
)
|
Total
other comprehensive income (loss), net of tax
|
|
|
15
|
|
|
|
(132
|
)
|
|
|
(1,968
|
)
|
|
|
1,385
|
|
|
|
(1,054
|
)
|
Comprehensive
(loss) income
|
|
$
|
(490
|
)
|
|
$
|
(5,613
|
)
|
|
$
|
(36,104
|
)
|
|
$
|
4,891
|
|
|
$
|
11,616
|
|
See Notes to Unaudited Condensed Consolidated
Financial Statements
Whole
Earth Brands, Inc.
Condensed Consolidated
Statements of Equity
(In thousands
of dollars)
(Unaudited)
|
|
Total
Equity
|
|
|
|
(Predecessor)
|
|
Balance, January
1, 2019
|
|
$
|
484,492
|
|
Funding
to Parent, net
|
|
|
(12,117
|
)
|
Net income
|
|
|
9,164
|
|
Other
comprehensive loss, net of tax
|
|
|
(2,439
|
)
|
Balance, March 31, 2019
|
|
$
|
479,100
|
|
Funding
to Parent, net
|
|
|
(3,237
|
)
|
Net income
|
|
|
3,506
|
|
Other
comprehensive loss, net of tax
|
|
|
1,385
|
|
Balance,
June 30, 2019
|
|
$
|
480,754
|
|
|
|
|
|
|
Balance, January 1, 2020
|
|
$
|
487,750
|
|
Funding
to Parent, net
|
|
|
(12,262
|
)
|
Net loss
|
|
|
(28,655
|
)
|
Other
comprehensive loss, net of tax
|
|
|
(1,836
|
)
|
Balance, March 31, 2020
|
|
$
|
444,997
|
|
Funding
to Parent, net
|
|
|
338
|
|
Net loss
|
|
|
(5,481
|
)
|
Other
comprehensive loss, net of tax
|
|
|
(132
|
)
|
Balance,
June 25, 2020
|
|
$
|
439,722
|
|
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
Additional
Paid in
|
|
|
Accumulated
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
Balance
at June 26, 2020
|
|
|
30,926,669
|
|
|
$
|
3
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
250,366
|
|
|
$
|
(16,703
|
)
|
|
$
|
-
|
|
|
$
|
233,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,895
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,895
|
|
Issuance of common stock
|
|
|
7,500,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
67,104
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,105
|
|
Other
comprehensive income, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(505
|
)
|
|
|
-
|
|
|
|
(505
|
)
|
Balance
at June 30, 2020 (Successor)
|
|
|
38,426,669
|
|
|
$
|
4
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
325,365
|
|
|
$
|
(17,208
|
)
|
|
$
|
15
|
|
|
$
|
308,176
|
|
See Notes to Unaudited
Condensed Consolidated Financial Statements
Whole
Earth Brands, Inc.
Condensed Consolidated
Statements of Cash Flows
(In thousands
of dollars)
(Unaudited)
|
|
From
|
|
|
From
|
|
|
Six Months
|
|
|
|
June 26, 2020
to
|
|
|
January 1,
2020
|
|
|
Ended
|
|
|
|
June
30, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(505
|
)
|
|
$
|
(34,136
|
)
|
|
$
|
12,670
|
|
Adjustments
to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
43
|
|
|
|
1,334
|
|
|
|
1,514
|
|
Amortization
of intangible assets
|
|
|
141
|
|
|
|
4,927
|
|
|
|
5,312
|
|
Deferred
income taxes
|
|
|
9
|
|
|
|
(5,578
|
)
|
|
|
564
|
|
Asset
impairment charges
|
|
|
-
|
|
|
|
40,600
|
|
|
|
-
|
|
Pension
expense, net
|
|
|
-
|
|
|
|
126
|
|
|
|
1,047
|
|
Changes
in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,834
|
)
|
|
|
7,726
|
|
|
|
(3,953
|
)
|
Inventories
|
|
|
311
|
|
|
|
3,576
|
|
|
|
2,941
|
|
Prepaid
expenses and other current assets
|
|
|
(29
|
)
|
|
|
3,330
|
|
|
|
58
|
|
Accounts
payable, accrued liabilities and income taxes
|
|
|
(2,161
|
)
|
|
|
507
|
|
|
|
(5,274
|
)
|
Other,
net
|
|
|
28
|
|
|
|
(2,504
|
)
|
|
|
140
|
|
Net cash
(used in) provided by operating activities
|
|
|
(3,997
|
)
|
|
|
19,908
|
|
|
|
15,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(10
|
)
|
|
|
(3,532
|
)
|
|
|
(1,294
|
)
|
Acquisitions
|
|
|
(386,736
|
)
|
|
|
-
|
|
|
|
-
|
|
Transfer
from trust account
|
|
|
178,875
|
|
|
|
-
|
|
|
|
-
|
|
Net cash
used in investing activities
|
|
|
(207,871
|
)
|
|
|
(3,532
|
)
|
|
|
(1,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from revolving credit facility
|
|
|
-
|
|
|
|
3,500
|
|
|
|
-
|
|
Repayments
of revolving credit facility
|
|
|
-
|
|
|
|
(8,500
|
)
|
|
|
-
|
|
Long-term
borrowings
|
|
|
140,000
|
|
|
|
-
|
|
|
|
-
|
|
Debt issuance
costs
|
|
|
(7,139
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from sale of common stock and warrants
|
|
|
75,000
|
|
|
|
-
|
|
|
|
-
|
|
Funding
to Parent, net
|
|
|
-
|
|
|
|
(11,924
|
)
|
|
|
(15,354
|
)
|
Net cash
provided by (used in) financing activities
|
|
|
207,861
|
|
|
|
(16,924
|
)
|
|
|
(15,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
17
|
|
|
|
215
|
|
|
|
(23
|
)
|
Net
change in cash and cash equivalents
|
|
|
(3,990
|
)
|
|
|
(333
|
)
|
|
|
(1,652
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
65,597
|
|
|
|
10,395
|
|
|
|
7,205
|
|
Cash
and cash equivalents, end of period
|
|
$
|
61,607
|
|
|
$
|
10,062
|
|
|
$
|
5,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
113
|
|
|
$
|
798
|
|
|
$
|
-
|
|
Taxes paid,
net of refunds
|
|
$
|
-
|
|
|
$
|
2,244
|
|
|
$
|
3,066
|
|
See Notes to Unaudited Condensed Consolidated
Financial Statements
Whole
Earth Brands, Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
NOTE 1: BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES
Whole Earth Brands,
Inc. and its consolidated subsidiaries (“Whole Earth Brands” or the “Company”) is a global industry-leading
platform, focused on the “better for you” consumer packaged goods (“CPG”) and ingredients space. The Company’s
branded products and ingredients are uniquely positioned to capitalize on the global secular consumer shift away from sugar toward
clean label products and natural alternatives.
On June 24, 2020,
Act II Global Acquisition Corp., a Cayman Islands exempted company (“Act II”), domesticated into a Delaware corporation
(the “Domestication”), and on June 25, 2020 (the “Closing”), consummated the indirect acquisition (the
“Acquisition”) of (i) all of the issued and outstanding equity interests of Merisant Company (“Merisant”),
Merisant Luxembourg Sarl (“Merisant Luxembourg”), Mafco Worldwide LLC (“Mafco Worldwide”), Mafco Shanghai
LLC (“Mafco Shanghai”), EVD Holdings LLC (“EVD Holdings”), and Mafco Deutschland GmbH (together with Merisant,
Merisant Luxembourg, Mafco Worldwide, Mafco Shanghai, and EVD Holdings, and their respective direct and indirect subsidiaries,
“Merisant and Mafco”), and (ii) certain assets and liabilities of Merisant and Mafco included in the Transferred Assets
and Liabilities (as defined in the Purchase Agreement (as hereafter defined)), from Flavors Holdings Inc. (“Flavors Holdings”),
MW Holdings I LLC (“MW Holdings I”), MW Holdings III LLC (“MW Holdings III”), and Mafco Foreign Holdings,
Inc. (“Mafco Foreign Holdings,” and together with Flavors Holdings, MW Holdings I, and MW Holdings III, the “Sellers”),
pursuant to that certain Purchase Agreement (the “Purchase Agreement”) entered into by and among Act II and the Sellers
dated as of December 19, 2019, as amended. In connection with the Domestication, Act II changed its name to “Whole Earth
Brands, Inc.”
Upon the completion
of the Domestication, each of Act II’s then-issued and outstanding ordinary shares converted, on a one-for-one basis, into
shares of common stock of Whole Earth Brands. Additionally, immediately after the Acquisition, the Company issued an aggregate
of 7,500,000 shares of Whole Earth Brands common stock and 5,263,500 private placement warrants exercisable for 2,631,750 shares
of Whole Earth Brands common stock to certain investors. On the date of Closing, the Company’s common stock and warrants
began trading on The Nasdaq Stock Market under the symbols “FREE” and “FREEW,” respectively.
As a result of the
Acquisition, for accounting purposes, Act II is the acquirer and Mafco Worldwide and Merisant Company are the acquired parties
and accounting predecessor. The Company’s financial statement presentation includes the combined financial statements of
Mafco Worldwide and Merisant Company as the “Predecessor” for periods prior to the completion of the Acquisition and
includes the consolidation of Mafco Worldwide and Merisant Company, for periods after the Closing (referred to as the “Successor”).
All significant intercompany
accounts and transactions have been eliminated in consolidation.
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Basis of Presentation—The
accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. The balance sheet data as
of December 31, 2019 was derived from the audited Combined Financial Statements for Mafco Worldwide and Merisant included in the
final prospectus and definitive proxy statement (the “proxy statement/prospectus”) filed with the Securities and Exchange
Commission on May 13, 2020 by Act II. These unaudited condensed consolidated interim financial statements should be read in conjunction
with the audited combined financial statements and accompanying notes of Mafco Worldwide and Merisant for each of the two years
ended December 31, 2019 and 2018 and the audited financial statements and accompanying notes for Act II for the year ended December
31, 2019, which are included in the proxy statement/prospectus.
In the opinion of
management, the financial statements contain all adjustments necessary to state fairly the financial position of the Company as
of June 30, 2020 and the results of operations and cash flows for all periods presented. All adjustments reflected in the accompanying
unaudited consolidated financial statements, which management believes are necessary to state fairly the financial position, results
of operations and cash flows, have been reflected and are of a normal recurring nature. Results of operations for interim periods
are not necessarily indicative of results to be expected for the full year. Certain prior year amounts have been reclassified
to conform to the current year presentation.
Principles of
Consolidation—The consolidated financial statements include the accounts of Whole Earth Brands, Inc., and its indirect
and wholly owned subsidiaries: Merisant Company, Merisant Luxembourg Sarl, Mafco Worldwide LLC, Mafco Shanghai LLC, EVD Holdings
LLC, and Mafco Deutschland GmbH. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates—The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from
these estimates.
Recently Adopted
Accounting Pronouncements—The Company qualifies as an emerging growth company (“EGC”) and as such,
has elected not to opt out of the extended transition period for complying with certain new or revised accounting pronouncements.
During the extended transition period, the Company is not subject to certain new or revised accounting standards applicable to
public companies. The accounting pronouncements pending adoption below reflect effective dates for the Company as an EGC with
the extended transition period.
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
In February 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
“Leases (Topic 842)”, and issued subsequent amendments to the initial guidance. The new guidance requires lessees
to recognize assets and liabilities arising from leases as well as extensive quantitative and qualitative disclosures. The lessee
needs to recognize on its balance sheet a right-of-use asset and a lease liability for the majority of its leases (other than
leases with a term of less than 12 months). The lease liabilities should be equal to the present value of lease payments not yet
paid. The right-of-use asset is measured at the lease liability amount, adjusted for lease prepayment, lease incentives received
and the lessee’s initial indirect costs. For public entities, the updated standard is effective for fiscal years beginning
after December 15, 2018. This standard is effective for the Company as an EGC for fiscal years beginning after December 15, 2020
and interim periods within fiscal years beginning after December 15, 2021, with early adoption permitted. Act II adopted the standard
as of January 1, 2020. The Company recognized the leases acquired as part of the Acquisition on June 25, 2020, which were recorded
pursuant to the aforementioned ASU. Refer to Note 3 for additional details.
In March 2017, the
FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715).” Under the new guidance, employers are required
to present the service cost component of net periodic benefit cost in the same statement of operations caption as other employee
compensation costs arising from services rendered during the period. Employers are required to present the other components of
the net periodic benefit cost separately from the caption that includes the service costs and outside of any subtotal of operating
profit and are required to disclose the caption used to present the other components of net periodic benefit cost, if not presented
separately on the statement of operations. The Company adopted ASU 2017-07 effective in the second quarter of 2020. The adoption
of this standard did not have an effect on the Company’s historically reported net income (loss) but resulted in a presentation
reclassification which increased the Company’s historically reported operating profit by $0.1 million for the six month
period ended June 25, 2020.
In February 2018,
the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220),” which amends existing
standards for income statement-reporting comprehensive income to allow a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from Tax Cuts and Jobs Act and improve the usefulness of information
reported to financial statements users. ASU 2018-02 was effective for years beginning after December 15, 2018, and early adoption
was permitted. On January 1, 2019, the Predecessor elected to adopt this standard on a full retrospective approach and reclassified
$2.1 million from accumulated other comprehensive income within net parent investment.
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
New Accounting
Standards— 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.” Subject to meeting certain criteria, the new guidance provides
optional expedients and exceptions to applying contract modification accounting under existing U.S. GAAP, to address the expected
phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2021. The amendments in ASU 2020-04 apply
only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be
discontinued because of reference rate reform. The new standard was effective upon issuance and generally can be applied to applicable
contract modifications through December 31, 2022. The Company is currently evaluating the impact of adopting this standard but
does not expect it to have a material impact on its Condensed Consolidated Financial Statements.
In December 2019,
the FASB issued ASU 2019-12, “Income Taxes (ASC 740) - Simplifying the Accounting for Income Taxes.” The standard
enhances and simplifies various aspects of the income tax accounting guidance. For public entities, the standard is effective
for annual periods and interim periods beginning after December 15, 2020. This standard is effective for the Company as an
EGC for the fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the
impact of adopting ASU 2019-12 on its consolidated financial statements.
In August 2018, the
FASB issued ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20).”
The standard modifies certain disclosure requirements for employers that sponsor defined benefit pension and other postretirement
benefit plans by removing disclosures that are no longer considered cost beneficial, clarifying specific requirements of disclosures,
and adding disclosure requirements identified as relevant. This standard is effective for the Company as an EGC for the fiscal
years beginning after December 15, 2021. Early adoption is permitted. The amendments in ASU 2018-14 should be applied retrospectively
to each period presented. The Company is currently evaluating the impact of adopting ASU 2018-14.
In June 2016, the
FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The standard requires entities to estimate
losses on financial assets measured at amortized cost, including trade receivables, debt securities and loans, using an expected
credit loss model. The expected credit loss differs from the previous incurred losses model primarily in that the loss recognition
threshold of “probable” has been eliminated and that expected loss should consider reasonable and supportable forecasts
in addition to the previously considered past events and current conditions. Additionally, the guidance requires additional disclosures
related to the further disaggregation of information related to the credit quality of financial assets by year of the asset’s
origination for as many as five years. Entities must apply the standard provision as a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is effective. This standard is effective for
the Company as an EGC for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years.
The Company is currently evaluating the impact of adopting ASU 2016-13.
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
NOTE 2: BUSINESS COMBINATION
On June 25, 2020,
pursuant to the Acquisition, the Company indirectly acquired Merisant and Mafco Worldwide in a transaction accounted for as a
business combination under ASC Topic 805, “Business Combinations,” and is accounted for using the acquisition method.
Under the acquisition method, the acquisition date fair value of the consideration paid by the Company was allocated to the assets
acquired and the liabilities assumed based on their estimated fair values.
The following summarizes the preliminary
purchase consideration (in thousands):
Base
cash consideration
|
|
$
|
387,500
|
|
Closing
adjustment estimate
|
|
|
9,316
|
|
Total
Purchase Price
|
|
$
|
396,816
|
|
The Company preliminarily
recorded the fair value of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed
as follows (in thousands):
Cash
and cash equivalents
|
|
$
|
10,062
|
|
Accounts
receivable
|
|
|
47,278
|
|
Inventories
|
|
|
109,095
|
|
Prepaid
expenses and other current assets
|
|
|
12,819
|
|
Property,
plant and equipment, net
|
|
|
21,960
|
|
Operating
lease right-of-use assets
|
|
|
15,216
|
|
Intangible
assets
|
|
|
157,450
|
|
Deferred
tax assets, net
|
|
|
1,202
|
|
Other
assets
|
|
|
986
|
|
Total
assets acquired
|
|
|
376,068
|
|
Accounts
payable
|
|
|
18,993
|
|
Accrued
expenses and other current liabilities
|
|
|
35,747
|
|
Current
portion of operating lease liabilities
|
|
|
3,007
|
|
Operating
lease liabilities, less current portion
|
|
|
12,208
|
|
Deferred
tax liabilities, net
|
|
|
23,974
|
|
Other
liabilities
|
|
|
16,432
|
|
Total
liabilities assumed
|
|
|
110,361
|
|
Net assets
acquired
|
|
|
265,707
|
|
Goodwill
|
|
|
131,109
|
|
Total
Purchase Price
|
|
$
|
396,816
|
|
The preliminary values allocated to identifiable
intangible assets and their estimated useful lives are as follows:
|
|
Fair Value
|
|
|
Useful life
|
Identifiable intangible assets
|
|
(in
thousands)
|
|
|
(in Years)
|
Customer
relationships
|
|
$
|
52,720
|
|
|
0.5 to 10
|
Tradenames
|
|
|
97,030
|
|
|
25
|
Product
formulations
|
|
|
7,700
|
|
|
Indefinite
|
|
|
$
|
157,450
|
|
|
|
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Goodwill represents
the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired
and liabilities assumed and represents the future economic benefits expected to arise from other intangible assets acquired that
do not qualify for separate recognition, including assembled workforce and expected future market opportunities.
The Company’s
preliminary allocation of purchase price is based upon preliminary valuations performed to determine the fair value of the net
assets as of the acquisition date. The amounts recorded to goodwill, identifiable intangible assets and inventory are based on
preliminary valuations and are subject to adjustments for up to one year after the closing date of the acquisition to reflect
final valuations. These final valuations of the assets and liabilities could have a material impact on the preliminary purchase
price allocation disclosed above.
Direct transaction-related
costs consist of costs incurred in connection with the Acquisition. Act II incurred transaction costs of $16.7 million prior to
the Acquisition which are reflected within the opening accumulated deficit within the Condensed Consolidated Statement of Changes
in Equity.
Pro Forma Financial
Information—The following unaudited pro forma financial information summarizes the results of operations for the Company
as though the Acquisition had occurred on January 1, 2019 (in thousands):
|
|
Pro
Forma
Statements of Operations
|
|
|
|
Three
Months Ended June 30, 2020
|
|
|
Three
Months Ended June 30, 2019
|
|
|
Six
Months Ended June 30, 2020
|
|
|
Six
Months Ended June 30, 2019
|
|
Revenue
|
|
$
|
66,834
|
|
|
$
|
68,993
|
|
|
$
|
132,806
|
|
|
$
|
139,294
|
|
Net (loss)
income
|
|
$
|
(3,759
|
)
|
|
$
|
(1,576
|
)
|
|
$
|
(33,849
|
)
|
|
$
|
8,160
|
|
The unaudited pro
forma financial information does not include any costs related to the Acquisition. In addition, the unaudited pro forma financial
information does not assume any impacts from revenue, cost or other operating synergies that could be generated as a result of
the acquisition. The unaudited pro forma financial information is for informational purposes only and is not indicative of the
results of operations that would have been achieved had the acquisition been consummated on January 1, 2019.
The Successor and
Predecessor periods have been combined in the pro forma for the three and six months ended June 30, 2020 and 2019 and include
adjustments to reflect intangible asset amortization based on the economic values derived from definite-lived intangible assets,
interest expense on the new debt financing and the elimination of non-recurring expense related to Predecessor transaction bonuses. These adjustments are net of taxes.
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
NOTE 3: LEASES
The Company measured
Merisant and Mafco’s legacy lease agreements as if the leases were new at the Acquisition date and applied the provisions
of Topic 842. This resulted in the recognition of right-of-use assets and operating lease liabilities of $15.2 million. The right-of-use
assets and operating lease liabilities at June 30, 2020 also include approximately $0.3 million related to one lease that Act
II had applied the provisions of Topic 842 to effective January 1, 2020. All leases are classified as operating leases.
The Company’s
lease portfolio includes one factory building, office space, warehouses, material handling equipment, vehicles and office equipment.
Certain leases include
one or more options to renew, with renewal terms that can extend the lease term from one to eight years or more. The exercise
of lease renewal options is at the Company’s sole discretion. For purposes of calculating operating lease liabilities, lease
terms include options to extend the lease when it is reasonably certain that the Company will exercise that option.
Lease liabilities
and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease
term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate
incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal
to the lease payments in a similar economic environment.
The Company’s
lease agreements do not contain any residual value guarantees. Some leases include variable payments that are based on the usage
and occupancy of the leased asset. The Company has elected not to record leases with an initial term of twelve months or less
on the balance sheet.
For real estate and
vehicle leases, the Company elected the practical expedient to not separate lease from non-lease components within the contract.
Electing this practical expedient means the Company would account for each lease component and the related non-lease component
together as a single component. For equipment leases, the Company has not elected this practical expedient and will be separating
the non-lease components from the lease component.
The right-of-use
asset is subsequently measured throughout the lease term at the carrying amount of the lease liability. Lease expense for lease
payments is recognized on a straight-line basis over the lease term. Lease expense for the period from June 26, 2020 through June
30, 2020 was not material.
Whole
Earth Brands, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents the future
maturities of the Company’s lease obligations as of June 30, 2020 (in thousands):
Remainder of 2020
|
|
$
|
1,797
|
|
2021
|
|
|
3,683
|
|
2022
|
|
|
3,374
|
|
2023
|
|
|
3,300
|
|
2024
|
|
|
1,839
|
|
Thereafter
|
|
|
2,874
|
|
Total lease payments
|
|
|
16,867
|
|
Less: imputed interest
|
|
|
1,367
|
|
Total operating lease liabilities
|
|
$
|
15,500
|
|
The weighted-average remaining lease term
is 5.1 years and the weighted-average discount rate is 3.44%.
Cash paid for amounts
included in the measurement of the lease liability and for supplemental non-cash information for the period from June 26, 2020
through June 30, 2020 was not material.
NOTE 4: INVENTORIES
Inventories consisted
of the following (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Raw
materials and supplies
|
|
$
|
58,160
|
|
|
$
|
89,611
|
|
Work in
process
|
|
|
909
|
|
|
|
387
|
|
Finished
goods
|
|
|
49,716
|
|
|
|
31,131
|
|
|
|
$
|
108,785
|
|
|
$
|
121,129
|
|
Whole
Earth Brands, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
NOTE
5: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other
intangible assets consisted of the following (in thousands):
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Other intangible assets subject
to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
(useful life of 0.5 to 10 years
|
|
$
|
52,720
|
|
|
$
|
(88
|
)
|
|
$
|
52,632
|
|
|
$
|
105,000
|
|
|
$
|
(38,731
|
)
|
|
$
|
66,269
|
|
Tradenames (useful life of 25
years
|
|
|
97,030
|
|
|
|
(53
|
)
|
|
|
96,977
|
|
|
|
95,055
|
|
|
|
(19,939
|
)
|
|
|
75,116
|
|
Total
|
|
$
|
149,750
|
|
|
$
|
(141
|
)
|
|
$
|
149,609
|
|
|
$
|
200,055
|
|
|
$
|
(58,670
|
)
|
|
$
|
141,385
|
|
Other intangible assets not
subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product formulations
|
|
|
|
|
|
|
|
|
|
|
7,700
|
|
|
|
|
|
|
|
|
|
|
|
109,858
|
|
Total other intangible assets,
net
|
|
|
|
|
|
|
|
|
|
|
157,309
|
|
|
|
|
|
|
|
|
|
|
|
251,243
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
131,109
|
|
|
|
|
|
|
|
|
|
|
|
130,870
|
|
Total goodwill and other intangible
assets
|
|
|
|
|
|
|
|
|
|
$
|
288,418
|
|
|
|
|
|
|
|
|
|
|
$
|
382,113
|
|
The Successor’s
amortization expense for intangible assets was $0.1 million for the period from June 26, 2020 through June 30, 2020. The Predecessor’s
amortization expense for intangible assets was $2.4 million and $4.9 million for the periods from April 1, 2020 to June 25, 2020
and January 1, 2020 to June 25, 2020, respectively. The Predecessor’s amortization expense for intangible assets was $2.7
million and $5.3 million for the three and six months ended June 30, 2019, respectively.
Amortization expense relating to amortizable
intangible assets as of June 30, 2020 for the next five years is expected to be as follows (in thousands):
Remainder of 2020
|
|
$
|
6,600
|
|
2021
|
|
|
10,362
|
|
2022
|
|
|
10,362
|
|
2023
|
|
|
10,362
|
|
2024
|
|
|
10,362
|
|
2025
|
|
|
10,128
|
|
Whole
Earth Brands, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
NOTE
6: DEBT
Debt consisted of the following (in thousands):
|
|
June
30,
2020
|
|
|
December
31,
2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Term Loan
|
|
$
|
140,000
|
|
|
$
|
-
|
|
Less: current portion
|
|
|
(7,000
|
)
|
|
|
-
|
|
Less: debt issuance costs
|
|
|
(5,242
|
)
|
|
|
-
|
|
Total non-current borrowings
|
|
$
|
127,758
|
|
|
$
|
-
|
|
Loan Agreement—The
Company entered into a Loan Agreement (the “Loan Agreement”) on June 25, 2020, with Toronto Dominion (Texas) LLC,
as administrative agent, BMO Capital Markets Corp. and Truist Bank, as documentation agents, and the other lenders party thereto,
which provided (x) a senior secured first lien term loan facility of $140 million that matures in five years on June 25, 2025
and (y) a first lien revolving loan facility of up to $50 million that also matures in five years. Loans outstanding under the
first lien term loan facility and the first lien revolving loan facility accrue interest at a rate per annum equal to LIBOR subject
to a floor of 1% plus a margin ranging from 3.00% to 3.75% or, at Company’s option, a Base Rate subject to a floor of 2%
plus a margin ranging from 2.00% to 2.75%, depending on the achievement of certain leverage ratios. Undrawn amounts under the
first lien revolving loan facility are expected to accrue a commitment fee at a rate per annum of 0.40% on the average daily undrawn
portion of the commitments thereunder, with step downs to 0.30% upon achievement of certain leverage ratios. On June 30, 2020,
there was a $0.7 million outstanding letter of credit that reduced the Company’s availability under the revolving loan facility.
Additionally, approximately $1.9 million of issuance costs allocated to the Revolving Credit Facility were capitalized as an asset
as of June 30, 2020 and will be amortized ratably over the commitment period of five years. There were no borrowings under the
revolving loan facility at June 30, 2020.
The Company converted
the Base Rate term loan to a LIBOR loan on July 1, 2020 at an interest rate of 4.50%. The Loan Agreement is collateralized by
substantially all of the Company’s assets, and includes restrictive qualitative and quantitative covenants, as defined in
the Loan Agreement. The Company was in compliance with its covenants under the Loan Agreement on June 30, 2020. The unpaid principal
amount of the term loan is payable in quarterly installments on the last day of each fiscal quarter commencing on September 30,
2020. The payment for each of the first 12 fiscal quarters is equal to 1.25% of the beginning principal amount, or $1.75 million,
and for the following seven fiscal quarters thereafter is 2.50%, or $3.5 million. The remaining principal payment on the term
loan is due upon maturity.
Whole
Earth Brands, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The Company’s
debt outstanding as of June 30, 2020 matures as shown below (in thousands):
2020
|
|
$
|
3,500
|
|
2021
|
|
|
7,000
|
|
2022
|
|
|
7,000
|
|
2023
|
|
|
10,500
|
|
2024
|
|
|
14,000
|
|
2025
|
|
|
98,000
|
|
|
|
$
|
140,000
|
|
NOTE 7: FAIR
VALUE OF FINANCIAL INSTRUMENTS
The Company measures
and records in its consolidated financial statements certain assets and liabilities at fair value. ASC Topic 820 “Fair Value
Measurement and Disclosures,” establishes a fair value hierarchy for instruments measured at fair value that distinguishes
between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). This
hierarchy consists of the following three levels:
|
•
|
Level
1 – Assets and liabilities whose values are based on unadjusted quoted prices for
identical assets or liabilities in an active market.
|
|
•
|
Level
2 – Assets and liabilities whose values are based on inputs other than those included
in Level 1, including quoted market prices in markets that are not active; quoted prices
of assets or liabilities with similar attributes in active markets; or valuation models
whose inputs are observable or unobservable but corroborated by market data.
|
|
•
|
Level
3 – Assets and liabilities whose values are based on valuation models or pricing
techniques that utilize unobservable inputs that are significant to the overall fair
value measurement.
|
Certain assets are
measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but
are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
Current Assets
and Other Financial Assets and Liabilities—Cash and cash equivalents, trade accounts receivable and trade accounts payable
are measured at carrying value, which approximates fair value because of the short-term maturities of these instruments.
Whole
Earth Brands, Inc.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Debt—The
Company measures its first lien term loan and revolving facilities at original carrying value including accrued interest, net
of unamortized deferred financing costs and fees. The fair value of the credit facilities approximates carrying value, as they
consist of variable rate loans.
NOTE 8: COMMITMENTS
AND CONTINGENCIES
The Company is subject
to various claims, pending and possible legal actions for product liability and other damages, and other matters arising out of
the conduct of the business. The Company believes, based on current knowledge and consultation with counsel, that the outcome
of such claims and actions will not have a material adverse effect on the Company’s consolidated financial position or results
of operations.
As of June 30, 2020,
the Company had obligations to purchase $26.3 million of raw materials through 2025; however, it is unable to make reasonably
reliable estimates of the timing of such payments.
NOTE 9: INCOME TAXES
Income taxes as presented
herein attribute current and deferred income taxes of the Company’s financial statements in a manner that is systematic,
rational, and consistent with the asset and liability method described by ASC 740, “Income Taxes.” Accordingly, the
Company’s income tax provision was prepared following the separate return method. The separate return method applies ASC
740 to the stand-alone financial statements of each member of the consolidated group as if the group member were a separate taxpayer
and a stand-alone enterprise. Use of the separate return method may result in differences when the sum of the amounts allocated
to stand-alone tax provisions are compared with amounts presented in consolidated financial statements. In that event, the related
deferred tax assets and liabilities could be significantly different from those presented herein.
The consolidated
financial statements reflect the Company’s portion of income taxes currently payable as if the Company had been a separate
taxpayer during the Predecessor period.
The Company’s
provision for income taxes consists of U.S., state and local and foreign taxes. The Company has significant operations in various
locations outside the U.S. The annual effective tax rate is a composite rate reflecting earnings in the various locations at their
applicable statutory tax rates.
On March 27, 2020,
the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic.
Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted.
The CARES Act made various tax law changes including among other things (i) increased the limitation under IRC Section 163(j)
for 2019 and 2020 to permit additional expensing of interest (ii) enacted a technical correction so that qualified improvement
property can be immediately expensed under IRC Section 168(k) (iii) made modifications to the federal net operating loss rules
including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable
years in order to generate a refund of previously paid income taxes and (iv) enhanced recoverability of alternative minimum tax
credit carryforwards. The income tax provisions of the CARES Act had limited applicability to the Company and did not have a material
impact on the Company’s consolidated financial statements.
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
The Successor’s
income tax provision was $.01 million for the period from June 26, 2020 through June 30, 2020. The Predecessor’s income
tax benefit was $0.4 million and $3.5 million for the periods from April 1, 2020 to June 25, 2020 and January 1, 2020 to June
25, 2020, respectively. The Predecessor’s income tax provision was $1.0 million and $3.6 million for the three and six months
ended June 30, 2019, respectively. The effective tax rate for the six months ended June 25, 2020 was an income tax benefit of
9.3% compared to an income tax provision of 22.1% for the six months ended June 30, 2019.
The effective tax
rate for the period ended June 25, 2020 was computed using a discrete method as if the Company closed its books and records. The
effective tax rate for the period from June 26, 2020 through June 30, 2020 was computed by applying an estimate of the annual effective
tax rate for the Successor period to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently
occurring discrete items) for the reporting period. The Successor’s effective tax rate was (2.0%) from June 26, 2020 through
June 30, 2020. The effective tax rate from June 26, 2020 through June 30, 2020 differs from the statutory federal rate of 21% primarily
due to the U.S. tax effect of international operations including Global Intangible Low-Taxed Income (“GILTI”) recorded
during the period. The Predecessor’s effective tax rate was 6.2% and 9.3% for the periods from April 1, 2020 to June 25,
2020 and January 1, 2020 to June 25, 2020, respectively. The effective tax rate for the period ended June 25, 2020 differs from
the statutory federal rate of 21% primarily due to the impact of the impairment charges of non-deductible goodwill and the U.S.
effect of international operations including GILTI recorded during the period. The effective tax rate of 22.1% for the six months
ended June 30, 2019 differs from the statutory federal rate of 21% primarily due to state and local taxes and the U.S. effect of
international operations including GILTI.
At June 30, 2020,
the Company had an uncertain tax position liability of $1.0 million, including interest and penalties. The unrecognized tax benefits
include amounts related to various foreign tax issues.
NOTE 10: PENSION BENEFITS
Certain current and
former employees of the Company are covered under a funded defined benefit retirement plan. Plan provisions covering certain of
the Company’s salaried employees generally provide pension benefits based on years of service and compensation. Plan provisions
covering the Company’s union members generally provide stated benefits for each year of credited service. The Company’s
funding policy is to contribute annually the statutory required amount as actuarially determined. The Company uses December 31
as a measurement date for the plan. The Company froze the pension plan on December 31, 2019.
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
The components of
net periodic benefit (credit) expense for the Company’s defined benefit pension plan for the Successor and Predecessor were
as follows (in thousands):
|
|
From
|
|
|
From
|
|
|
From
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
June 26, 2020
|
|
|
April 1, 2020
|
|
|
January 1,
2020
|
|
|
Ended
|
|
|
Ended
|
|
|
|
to
June 30, 2020
|
|
|
to
June 25, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Service
cost
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
152
|
|
|
$
|
304
|
|
Interest
cost
|
|
|
-
|
|
|
|
452
|
|
|
|
452
|
|
|
|
275
|
|
|
|
566
|
|
Expected
return on plan assets
|
|
|
-
|
|
|
|
(818
|
)
|
|
|
(818
|
)
|
|
|
(365
|
)
|
|
|
(731
|
)
|
Recognized
actuarial loss
|
|
|
-
|
|
|
|
108
|
|
|
|
108
|
|
|
|
276
|
|
|
|
552
|
|
Amortization
of prior service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
42
|
|
Net
periodic benefit (credit) expense
|
|
$
|
-
|
|
|
$
|
(258
|
)
|
|
$
|
(258
|
)
|
|
$
|
359
|
|
|
$
|
733
|
|
Net periodic benefit
(credit) expense is reflected in the Company’s consolidated financial statements as follows for the Successor and Predecessor
periods presented (in thousands):
|
|
From
|
|
|
From
|
|
|
From
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
June 26, 2020
|
|
|
April 1, 2020
|
|
|
January 1,
2020
|
|
|
Ended
|
|
|
Ended
|
|
|
|
to
June 30, 2020
|
|
|
to
June 25, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Cost of
Goods Sold
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
125
|
|
|
$
|
262
|
|
Selling,
general and administrative expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
234
|
|
|
|
471
|
|
Other
(income) expense, net
|
|
|
-
|
|
|
|
(258
|
)
|
|
|
(258
|
)
|
|
|
-
|
|
|
|
-
|
|
Net
periodic benefit (credit) expense
|
|
$
|
-
|
|
|
$
|
(258
|
)
|
|
$
|
(258
|
)
|
|
$
|
359
|
|
|
$
|
733
|
|
The Company currently
does not expect to make contributions to its funded defined benefit pension plan in 2020 due to the funded status.
In addition to the
expense shown above, the Company has an unfunded supplemental benefit plan to provide certain salaried employees with additional
retirement benefits due to limitations established by U.S. income tax regulation. The net periodic benefit cost for April 1, 2020
to June 25, 2020 and the three months ended June 30, 2019 was $0.3 million and $0.2 million, respectively. The net periodic benefit
cost for January 1, 2020 to June 25, 2020 and the six months ended June 30, 2019 was $0.4 million and $0.3 million, respectively.
The net periodic benefit cost for the period June 26, 2020 to June 30, 2020 was insignificant.
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
NOTE 11: EARNINGS PER SHARE
Basic earnings per
share of common stock is computed by dividing net income attributable to the Company by the weighted average number of shares
of common stock outstanding during the period. Diluted earnings per share of common stock is computed by dividing net income attributable
to the Company by the weighted average number of shares of common stock outstanding adjusted to give effect to potentially dilutive
elements. During the Successor period from June 26, 2020 to June 30, 2020, basic and diluted net loss per common share are the
same since the inclusion of any convertible securities would have been anti-dilutive.
The following table
summarizes net loss attributable to the Company and the weighted average basic and diluted shares outstanding during the Successor
period (in thousands, except for share and per share data).
|
|
From
June 26, 2020 to
|
|
|
|
June
30, 2020
|
|
|
|
(Successor)
|
|
Net
loss
|
|
$
|
(505
|
)
|
|
|
|
|
|
Weighted
average share of common stock outstanding – basic and diluted
|
|
|
38,426,669
|
|
Loss
per share of common stock outstanding – basic and diluted
|
|
$
|
(0.01
|
)
|
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
NOTE 12: ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
The following table summarizes accumulated
other comprehensive income, net of taxes, by component (in thousands):
|
|
Net
Currency Translation Gains (Losses)
|
|
|
Funded
Status of
Benefit Plans
|
|
|
Total
Accumulated Other Comprehensive Loss
|
|
Balance at December 31, 2018 (Predecessor)
|
|
$
|
4,428
|
|
|
$
|
(10,375
|
)
|
|
$
|
(5,947
|
)
|
Other comprehensive income before reclassifications
|
|
|
(2,439
|
)
|
|
|
-
|
|
|
|
(2,439
|
)
|
Amounts reclassified from AOCI
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adoption of ASU 2018-02
|
|
|
-
|
|
|
|
(2,137
|
)
|
|
|
(2,137
|
)
|
Balance at March 31, 2019 (Predecessor)
|
|
|
1,989
|
|
|
|
(12,512
|
)
|
|
|
(10,523
|
)
|
Other comprehensive income before
reclassifications
|
|
|
1,385
|
|
|
|
-
|
|
|
|
1,385
|
|
Balance at June 30, 2019 (Predecessor)
|
|
$
|
3,374
|
|
|
$
|
(12,512
|
)
|
|
$
|
(9,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 (Predecessor)
|
|
$
|
2,836
|
|
|
$
|
(10,980
|
)
|
|
$
|
(8,144
|
)
|
Other comprehensive income before reclassifications
|
|
|
(1,884
|
)
|
|
|
-
|
|
|
|
(1,884
|
)
|
Amounts reclassified from AOCI
|
|
|
-
|
|
|
|
48
|
|
|
|
48
|
|
Balance at March 31, 2020 (Predecessor)
|
|
|
952
|
|
|
|
(10,932
|
)
|
|
|
(9,980
|
)
|
Other comprehensive income before reclassifications
|
|
|
(402
|
)
|
|
|
-
|
|
|
|
(402
|
)
|
Amounts reclassified from AOCI
|
|
|
-
|
|
|
|
270
|
|
|
|
270
|
|
Balance at June 25, 2020 (Predecessor)
|
|
|
550
|
|
|
|
(10,662
|
)
|
|
|
(10,112
|
)
|
Purchase
accounting adjustments to eliminate Predecessor's accumulated other comprehensive loss
|
|
|
(550
|
)
|
|
|
10,662
|
|
|
|
10,112
|
|
Balance at June 26, 2020 (Successor)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other comprehensive income before reclassifications
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amounts reclassified from AOCI
|
|
|
15
|
|
|
|
-
|
|
|
|
15
|
|
Balance at June 30, 2020 (Successor)
|
|
$
|
15
|
|
|
$
|
-
|
|
|
$
|
15
|
|
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
NOTE 13: RELATED PARTY TRANSACTIONS
The Predecessor participated
in MacAndrews & Forbes’ (“MacAndrews”) directors and officer’s insurance program, which covered the
Predecessor along with MacAndrews and its other affiliates. The limits of coverage are available on aggregate losses to any or
all of the participating companies and their respective directors and officers. For the period January 1, 2020 to June 25, 2020
and the six months ended June 30, 2019, the Predecessor reimbursed MacAndrews an immaterial amount for its allocable portion of
the premiums for such coverage, which the Predecessor believed was more favorable than the premiums that it could have secured
were it to secure its own coverage. The Predecessor also participated in certain other insurance programs with MacAndrews under
which it paid premiums directly to the insurance broker.
In March 2018, the
Predecessor entered into a revolving credit agreement with Wesco US LLC, an indirect and wholly-owned subsidiary of Merisant.
This revolving credit facility, as amended, matured on January 3, 2022 and provided for maximum outstanding borrowings of up $9.0
million. The revolving credit facility was unsecured and bore interest at 3-month LIBOR plus 4.0% and provided for periodic interest
payments with all principal due upon maturity. MacAndrews had the right to accept or reject any borrowing request made by the
Predecessor pursuant to the revolving credit agreement in its sole discretion. The outstanding balance on the revolving credit
agreement at June 25, 2020 was $3.4 million and was forgiven by MacAndrews in connection with the Acquisition. Outstanding borrowings
at December 31, 2019 were $8.4 million and the interest rate at December 31, 2019 was 5.95%. The interest expense for the period
from April 1, 2020 to June 25, 2020 and January 1, 2020 to June 25, 2020 was approximately $0.1 million and $0.2 million, respectively.
The interest expense for the three and six months ended June 30, 2019 was approximately $0.1 million and $0.2 million, respectively.
NOTE 14: BUSINESS SEGMENTS
The Company has two
reportable segments: Branded CPG and Flavors & Ingredients. The Branded CPG and Flavors & Ingredients segments are managed
and organized through the Company’s indirect and wholly-owned subsidiaries Merisant and Mafco Worldwide, respectively. The
Company does not present assets by reportable segments as they are not reviewed by the Chief Operating Decision Maker for purposes
of assessing segment performance and allocating resources.
Whole Earth Brands,
Inc.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
The following table presents selected
financial information relating to the Company’s business segments (in thousands):
|
|
From
|
|
|
From
|
|
|
From
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
June 26, 2020
|
|
|
April 1, 2020
|
|
|
January 1,
2020
|
|
|
Ended
|
|
|
Ended
|
|
|
|
to
June 30, 2020
|
|
|
to
June 25, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Product
revenues, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded
CPG
|
|
$
|
2,551
|
|
|
$
|
40,530
|
|
|
$
|
80,749
|
|
|
$
|
41,323
|
|
|
$
|
82,806
|
|
Flavors
& Ingredients
|
|
|
1,927
|
|
|
|
21,826
|
|
|
|
47,579
|
|
|
|
27,670
|
|
|
|
56,488
|
|
Total
Product revenues, net
|
|
|
4,478
|
|
|
|
62,356
|
|
|
|
128,328
|
|
|
|
68,993
|
|
|
|
139,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded
CPG
|
|
|
(106
|
)
|
|
|
(5,151
|
)
|
|
|
(14,463
|
)
|
|
|
737
|
|
|
|
4,517
|
|
Flavors
& Ingredients
|
|
|
(211
|
)
|
|
|
292
|
|
|
|
(23,718
|
)
|
|
|
5,208
|
|
|
|
11,809
|
|
Total
operating (loss) income
|
|
$
|
(317
|
)
|
|
$
|
(4,859
|
)
|
|
$
|
(38,181
|
)
|
|
$
|
5,945
|
|
|
$
|
16,326
|
|
The following table presents revenues
disaggregated by geographic operating segments (in thousands):
|
|
From
|
|
|
From
|
|
|
From
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
June 26, 2020
|
|
|
April 1, 2020
|
|
|
January 1,
2020
|
|
|
Ended
|
|
|
Ended
|
|
|
|
to
June 30, 2020
|
|
|
to
June 25, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2019
|
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Branded CPG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
873
|
|
|
$
|
14,678
|
|
|
$
|
29,926
|
|
|
$
|
14,603
|
|
|
$
|
29,751
|
|
Europe, Middle East and Africa
|
|
|
1,105
|
|
|
|
17,389
|
|
|
|
35,360
|
|
|
|
19,513
|
|
|
|
37,946
|
|
Asia-Pacific
|
|
|
376
|
|
|
|
5,357
|
|
|
|
9,584
|
|
|
|
3,979
|
|
|
|
8,709
|
|
Latin
America
|
|
|
197
|
|
|
|
3,106
|
|
|
|
5,879
|
|
|
|
3,228
|
|
|
|
6,400
|
|
Flavors & Ingredients
|
|
|
1,927
|
|
|
|
21,826
|
|
|
|
47,579
|
|
|
|
27,670
|
|
|
|
56,488
|
|
Total
product revenues, net
|
|
$
|
4,478
|
|
|
$
|
62,356
|
|
|
$
|
128,328
|
|
|
$
|
68,993
|
|
|
$
|
139,294
|
|
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following
discussion and analysis of financial condition and results of operations should be read together with our unaudited condensed
consolidated financial statements and the related notes to those statements included under Item 1 hereof and the combined financial
statements of Mafco Worldwide & Merisant beginning on page F-1 in the final prospectus and definitive proxy statement, each
filed with the Securities and Exchange Commission (the “SEC”) by Act II Global Acquisition Corp. on May 13, 2020. For purposes of this section, "Whole Earth Brands,"
the “Company," "we," or "our" refer to (i) Mafco Worldwide & Merisant and their subsidiaries
("Predecessor") for the period from January 1, 2020 through June 25, 2020 and the three and six month periods ended
June 30, 2019 (each referred to herein as a "Predecessor Period") prior to the consummation of the Acquisition, as defined
hereafter, and (ii) Whole Earth Brands, Inc. and its subsidiaries (the "Successor") for the period from June 26, 2020
through June 30, 2020 (the "Successor Period") after the consummation of the Acquisition, unless the context otherwise
requires. Certain figures have been rounded for ease of presentation and may not sum due to rounding.
Cautionary
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”) and Section 21E of the Exchange Act (the “Exchange Act”) concerning us and other matters. These statements
may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition,
or otherwise, based on current beliefs of management, as well as assumptions made by, and information currently available to,
management.
Forward-looking statements
may be accompanied by words such as “achieve,” “aim,” “anticipate,” “believe,”
“can,” “continue,” “could,” “drive,” “estimate,” “expect,”
“forecast,” “future,” “grow,” “improve,” “increase,” “intend,”
“may,” “outlook,” “plan,” “possible,” “potential,” “predict,”
“project,” “should,” “target,” “will,” “would,” or similar words,
phrases or expressions. Factors that could cause actual results to differ materially from those in the forward-looking statements
include, but are not limited to, our ability to achieve or maintain profitability; the extent of the impact of the COVID-19 pandemic,
including the duration, spread, severity, and any recurrence of the COVID-19 pandemic, the duration and scope of related government
orders and restrictions, the impact on our employees, and the extent of the impact of the COVID-19 pandemic on overall demand
for our products; local, regional, national, and international economic conditions that have deteriorated as a result of the (COVID-19)
pandemic including the risks of a global recession or a recession in one or more of our key markets, and the impact they may have
on us and our customers and management’s assessment of that impact; the projected financial information, anticipated growth
rate, and market opportunity of our Branded CPG and Flavors & Ingredients business segments; the ability to maintain the listing
of our securities on Nasdaq; the potential liquidity and trading of our public securities; our expected capital requirements and
the availability of additional financing; our ability to attract or retain highly qualified personnel, including in accounting
and finance roles; extensive and evolving government regulations that impact the way we operate; the impact of the COVID-19 pandemic
on our suppliers, including disruptions and inefficiencies in the supply chain; factors relating to the business, operations and
financial performance of our Branded CPG and Flavors & Ingredients segments; our success in integrating the various operating
companies constituting Merisant and MAFCO; our ability to continue to use, maintain, enforce, protect and defend its owned and
licensed intellectual property, including the Whole Earth® brand; and such other factors as discussed throughout
Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Part II, Item
1A. Risk Factors of this Quarterly Report on Form 10-Q.
These forward-looking
statements are subject to risks, uncertainties and other factors, many of which are outside of our control, which could cause
actual results to differ materially from the results contemplated by the forward-looking statements. These statements are subject
to the risks and uncertainties indicated from time to time in the documents we file (or furnish) with the U.S. Securities and
Exchange Commission.
Overview
On June 24, 2020,
Act II Global Acquisition Corp., a Cayman Islands exempted company (“Act II”), domesticated into a Delaware corporation
(the “Domestication”), and on June 25, 2020 (the “Closing”), consummated the indirect acquisition (the
“Acquisition”) of (i) all of the issued and outstanding equity interests of Merisant Company (“Merisant”),
Merisant Luxembourg Sarl (“Merisant Luxembourg”), Mafco Worldwide LLC (“Mafco Worldwide”), Mafco Shanghai
LLC (“Mafco Shanghai”), EVD Holdings LLC (“EVD Holdings”), and Mafco Deutschland GmbH (together with Merisant,
Merisant Luxembourg, Mafco Worldwide, Mafco Shanghai, and EVD Holdings, and their respective direct and indirect subsidiaries,
“Merisant and Mafco”), and (ii) certain assets and liabilities of Merisant and Mafco included in the Transferred Assets
and Liabilities (as defined in the Purchase Agreement (as hereafter defined)), from Flavors Holdings Inc. (“Flavors Holdings”),
MW Holdings I LLC (“MW Holdings I”), MW Holdings III LLC (“MW Holdings III”), and Mafco Foreign Holdings,
Inc. (“Mafco Foreign Holdings,” and together with Flavors Holdings, MW Holdings I, and MW Holdings III, the “Sellers”),
pursuant to that certain Purchase Agreement (the “Purchase Agreement”) entered into by and among Act II and the Sellers
dated as of December 19, 2019, as amended. In connection with the Domestication, Act II changed its name to “Whole Earth
Brands, Inc.”
We are a global industry-leading
platform, focused on the “better for you” consumer packaged goods (“CPG”) and ingredients space. Our branded
products and ingredients are uniquely positioned to capitalize on the global secular consumer shift away from sugar and toward
clean label products and natural alternatives. We operate a proven platform organized into two reportable segments.
Our Branded CPG and
Flavors & Ingredient reportable segments are managed and organized through our indirect and wholly-owned subsidiaries, Merisant
Company (collectively with its subsidiaries, “Merisant”) and Mafco Worldwide LLC (collectively with its subsidiaries
and affiliates, “Mafco Worldwide,” and together with Merisant, “Merisant and MAFCO”), respectively.
|
·
|
Branded
CPG, comprised of our Merisant division of operating companies, is a global CPG business
focused on building a branded portfolio oriented toward serving customers seeking zero-calorie,
low-calorie, natural, no-sugar-added and plant-based products. Our Branded CPG business
operates leading brands in the low- and zero-calorie sweetener market, such as Whole
Earth®, Equal®, Canderel® and Pure Via®, and existing branded adjacencies.
|
|
·
|
Flavors
& Ingredients, comprised of our Mafco Worldwide division of operating companies,
is our global, business-to-business focused operations with a long history as a trusted
supplier of essential, functional ingredients to some of the CPG industry’s largest
and most demanding customers. Our Flavors & Ingredients segment operates as our licorice-derived
products business.
|
Acquisition
On June 24, 2020,
we domesticated into a Delaware corporation and changed our name from “Act II Global Acquisition Corp.” to “Whole
Earth Brands, Inc.” On June 25, 2020, we consummated the remainder of the Acquisition.
As a result of the
Acquisition, Act II was identified as the acquirer for accounting purposes, and Merisant and MAFCO, which is the business conducted
prior to the closing of the Acquisition, is the acquiree and accounting Predecessor. The Acquisition was accounted for as a business
combination using the acquisition method of accounting, and the Successor’s financial statements reflect a new basis of
accounting that is based on the fair value of net assets acquired. As a result of the application of the acquisition method of
accounting as of the effective time of the Acquisition, the financial statements for the Predecessor Period and for the Successor
Period are presented on different bases. The historical financial information of Act II prior to the Acquisition has not been
reflected in the Predecessor Period financial statements.
Covid-19 Impact
COVID-19 surfaced
in Wuhan, China in late 2019, and has since spread throughout the rest of the world. In March 2020, COVID-19 was declared a pandemic
by the World Health Organization and a national emergency by the U.S. Government. The pandemic has negatively affected the U.S.
and global economies, disrupted global supply chains and financial markets, and resulted in significant travel restrictions, including
mandated facility closures and shelter-in-place orders.
We have taken measures
to protect the health and safety of our employees and implemented work from home arrangements, where possible, social distancing
where working from home is not feasible including in our manufacturing facilities, deep cleaning protocols at all of our facilities
and travel restrictions, among other measures. We have also taken appropriate measures to work with our customers to minimize
potential disruption and to support the communities that we serve to address the challenges posed by the pandemic.
While we are currently
experiencing stable to increasing consumer and customer demand for our products and have no supply disruptions, we are unable
to fully determine the future impact of COVID-19 on demand for our products or our ability to supply our products. The full extent
of the impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on future developments,
including the duration and spread of the pandemic and related containment and mitigation actions taken by national, state and
local government officials across the world to prevent disease spread. The extent of the pandemic’s impact on us will also
depend upon our employees’ ability to work safely in our facilities, our customers’ ability to continue to operate
or receive our products, the ability of our suppliers to continue to operate, and the level of activity and demand for the ultimate
product and services of our customers or their customers.
Results of Operations
Consolidated
|
|
Successor
|
|
|
Predecessor
|
|
|
|
From
June
26, 2020 to
|
|
|
From
April
1, 2020 to
|
|
|
From
January
1, 2020
|
|
|
Three Months
Ended
|
|
|
Six Months
Ended
|
|
(In thousands)
|
|
June
30, 2020
|
|
|
June
25, 2020
|
|
|
To
June 25, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2019
|
|
Product revenues, net
|
|
$
|
4,478
|
|
|
$
|
62,356
|
|
|
$
|
128,328
|
|
|
$
|
68,993
|
|
|
$
|
139,294
|
|
Cost of goods sold
|
|
|
2,708
|
|
|
|
37,515
|
|
|
|
77,627
|
|
|
|
41,324
|
|
|
|
82,864
|
|
Gross profit
|
|
|
1,770
|
|
|
|
24,841
|
|
|
|
50,701
|
|
|
|
27,669
|
|
|
|
56,430
|
|
Selling, general and administrative expenses
|
|
|
1,946
|
|
|
|
27,307
|
|
|
|
43,355
|
|
|
|
18,674
|
|
|
|
34,250
|
|
Amortization of intangible assets
|
|
|
141
|
|
|
|
2,393
|
|
|
|
4,927
|
|
|
|
2,656
|
|
|
|
5,312
|
|
Asset impairment charges
|
|
|
-
|
|
|
|
-
|
|
|
|
40,600
|
|
|
|
-
|
|
|
|
-
|
|
Restructuring and other expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
394
|
|
|
|
542
|
|
Operating (loss) income
|
|
|
(317
|
)
|
|
|
(4,859
|
)
|
|
|
(38,181
|
)
|
|
|
5,945
|
|
|
|
16,326
|
|
Interest expense, net
|
|
|
(116
|
)
|
|
|
(66
|
)
|
|
|
(238
|
)
|
|
|
(53
|
)
|
|
|
(105
|
)
|
Other (expense) income, net
|
|
|
(62
|
)
|
|
|
(920
|
)
|
|
|
801
|
|
|
|
(1,410
|
)
|
|
|
50
|
|
(Loss) income before income taxes
|
|
|
(495
|
)
|
|
|
(5,845
|
)
|
|
|
(37,618
|
)
|
|
|
4,482
|
|
|
|
16,271
|
|
Provision (benefit) for income
taxes
|
|
|
10
|
|
|
|
(364
|
)
|
|
|
(3,482
|
)
|
|
|
976
|
|
|
|
3,601
|
|
Net (loss) income
|
|
$
|
(505
|
)
|
|
$
|
(5,481
|
)
|
|
$
|
(34,136
|
)
|
|
$
|
3,506
|
|
|
$
|
12,670
|
|
Three Months Ended June 30, 2020 Compared to Three Months
Ended June 30, 2019
Product revenues, net. Product
revenues, net were $4.5 million for the period from June 26, 2020 through June 30, 2020 and $62.4 million from April 1, 2020 through
June 25, 2020. Product revenues for the combined three months ended June 30, 2020 were $66.8 million, a decrease of $2.2 million,
or 3%, from $69.0 million for the three months ended June 30, 2019 due to a $3.9 million decline in revenues at Flavors &
Ingredients, partially offset by a $1.8 million increase in product revenues at Branded CPG, as further described below.
Cost of goods sold. Cost
of goods sold was $2.7 million for the period from June 26, 2020 through June 30, 2020 and $37.5 million from April 1, 2020 through
June 25, 2020. Cost of goods sold for the combined three months ended June 30, 2020 was $40.2 million, a decrease of $1.1 million,
or 3%, from $41.3 million for the three months ended June 30, 2019. The decline was primarily driven by lower volumes in the Flavors
& Ingredients segment, partially offset by transaction bonuses of $0.4 million in 2020.
Selling, general
and administrative expenses. Selling, general and administrative expenses were $1.9 million for the period from June 26,
2020 through June 30, 2020 and $27.3 million from April 1, 2020 through June 25, 2020. Selling, general and administrative expenses
for the combined three months ended June 30, 2020 were $29.3 million, an increase of $10.6 million, or 57%, from $18.7 million
for the three months ended June 30, 2019 primarily due to transaction bonuses of $10.6 million in 2020.
Amortization
of intangible assets. Amortization of intangible assets was $0.1 million for the period from June 26, 2020 through June
30, 2020 and $2.4 million from April 1, 2020 through June 25, 2020. Amortization of intangible assets for the combined three months
ended June 30, 2020 was $2.5 million, a decrease of $0.1 million from $2.7 million for the three months ended June 30, 2019.
Restructuring
and other expenses. Restructuring and other expenses for the three months ended June 30, 2019 were $0.4 million.
Interest expense,
net. Interest expense, net was $0.1 million for the period from June 26, 2020 through June 30, 2020 and $0.1 million from
April 1, 2020 through June 25, 2020. Interest expense, net for the combined three months ended June 30, 2020 was $0.2 million,
an increase of $0.1 million from $0.1 million for the three months ended June 30, 2019.
Other (expense)
income, net. Other (expense) income, net was expense of $0.1 million for the period from June 26, 2020 through June 30,
2020 and expense of $0.9 million from April 1, 2020 through June 25, 2020. Other (expense) income, net for the combined three
months ended June 30, 2020 was expense of $1.0 million, a decrease of $0.4 million from $1.4 million for the three months ended
June 30, 2019. The decrease was due to lower foreign exchange losses.
Provision (benefit)
for income taxes. Provision for income taxes was $0.01 million for the period from June 26, 2020 through June 30, 2020
and an income tax benefit of $0.4 million from April 1, 2020 through June 25, 2020. The benefit for income taxes for the combined
three months ended June 30, 2020 was $0.4 million, an increase of $1.3 million from a tax provision for income taxes of $1.0 million
for the three months ended June 30, 2019. The effective tax rate from June 26, 2020 through June 30, 2020 was an income tax provision
of 2%. The effective tax rate from April 1, 2020 to June 25, 2020 was an income tax benefit of 6.2% compared to an income tax
provision of 21.8% for the three months ended June 30, 2019. The effective tax rate for the period from June 26, 2020 through
June 30, 2020 and for the period from April 1, 2020 through June 25, 2020 differs from the statutory federal rate of 21% primarily
due to the U.S. tax effect of international operations including Global Intangible Low-Taxed Income (“GILTI”) recorded
during the period.
Six Months Ended June 30, 2020 Compared
to Six Months Ended June 30, 2019
Product revenues,
net. Product revenues, net were $4.5 million for the period from June 26, 2020 through June 30, 2020 and $128.3 million
from January 1, 2020 through June 25, 2020. Product revenues, net for the combined six months ended June 30, 2020 were $132.8
million, a decrease of $6.5 million, or 5%, from $139.3 million for the six months ended June 30, 2019 due to a decline of $7.0
million at Flavors & Ingredients, partially offset by a $0.5 million increase in product revenues at Branded CPG, as further
discussed below.
Cost of goods
sold. Cost of goods sold was $2.7 million for the period from June 26, 2020 through June 30, 2020 and $77.6 million from
January 1, 2020 through June 25, 2020. Cost of goods sold for the combined six months ended June 30, 2020 was $80.3 million, a
decrease of $2.5 million, or 3%, from $82.9 million for the six months ended June 30, 2019. This decrease was the result of lower
volumes in the Flavors & Ingredients segment, partially offset by transaction bonuses of $0.4 million in 2020.
Selling, general
and administrative expenses. Selling, general and administrative expenses were $1.9 million for the period from June 26,
2020 through June 30, 2020 and $43.4 million from January 1, 2020 through June 25, 2020. Selling, general and administrative expenses
for the combined six months ended June 30, 2020 were $45.3 million, an increase of $11.1 million, or 32%, from $34.3 million for
the six months ended June 30, 2019 primarily due to transaction bonuses of $10.6 million in 2020.
Amortization
of intangible assets. Amortization of intangible assets was $0.1 million for the period from June 26, 2020 through June
30, 2020 and $4.9 million from January 1, 2020 through June 25, 2020. Amortization of intangible assets for the combined six months
ended June 30, 2020 was $5.1 million, a decrease of $0.2 million, or 5%, from $5.3 million for the six months ended June 30, 2019.
Asset impairment
charges. Asset impairment charges were $40.6 million for the combined six months ended June 30, 2020 and included an impairment
charge of $22.9 million related to indefinite-lived intangible assets and a goodwill impairment charge of $17.7 million. The goodwill
impairment charge of $17.7 million was the result of the Flavors & Ingredients and Branded CPG reporting units carrying value
exceeding their fair value by $6.6 million and $11.1 million, respectively.
Restructuring
and other expenses. Restructuring and other expenses were $0.5 million for the six months ended June 30, 2019.
Interest expense,
net. Interest expense, net was $0.1 million for the period from June 26, 2020 through June 30, 2020 and $0.2 million from
January 1, 2020 through June 25, 2020. Interest expense, net for the combined six months ended June 30, 2020 was $0.4 million,
an increase of $0.2 million from $0.1 million for the six months ended June 30, 2019. The increase was due to the new credit facility
and amortization of debt issuance costs.
Other (expense)
income, net. Other (expense) income, net was expense of $0.1 million for the period from June 26, 2020 through June 30,
2020 and income of $0.8 million from January 1, 2020 through June 25, 2020. Other (expense) income, net for the combined six months
ended June 30, 2020 was income of $0.8 million, an increase of $0.7 million from income of $0.1 million for the six months ended
June 30, 2019. The increase was the result of higher foreign exchange gains.
Provision (benefit)
for income taxes. Provision for income taxes was $0.01 million for the period from June 26, 2020 through June 30, 2020
and an income tax benefit of $3.5 million from January 1, 2020 through June 25, 2020. The benefit for income taxes for the combined
six months ended June 30, 2020 was $3.5 million, an increase of $7.1 million from a tax provision for income taxes of $3.6 million
for the six months ended June 30, 2019. The effective tax rate from June 26, 2020 through June 30, 2020 was an income tax provision
of 2%. The effective tax rate for the period from June 26, 2020 through June 30, 2020 differs from the statutory federal rate
of 21% primarily due to the U.S. tax effect of international operations including GILTI recorded during the period. The effective
tax rate from January 1, 2020 through June 25, 2020 was an income tax benefit of 9.3% compared to an income tax provision of 22.1%
for the prior period. The effective tax rate from January 1, 2020 through June 25, 2020 differs from the statutory federal rate
of 21% primarily due to the impact of impairment charges on non-deductible goodwill and the U.S. tax effect of international operations
including GILTI recorded during the period.
Results of Operations by Segment
Branded CPG
|
|
Successor
|
|
|
Predecessor
|
|
|
|
From
|
|
|
From
|
|
|
From
|
|
|
Three
|
|
|
Six
|
|
|
|
June 26, 2020
|
|
|
April 1, 2020
|
|
|
January 1, 2020
|
|
|
Months Ended
|
|
|
Months Ended
|
|
(In thousands)
|
|
to
June 30, 2020
|
|
|
to
June 25, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2019
|
|
Product revenues, net
|
|
$
|
2,551
|
|
|
$
|
40,530
|
|
|
$
|
80,749
|
|
|
$
|
41,323
|
|
|
$
|
82,806
|
|
Operating (loss) income
|
|
$
|
(106
|
)
|
|
$
|
(5,151
|
)
|
|
$
|
(14,463
|
)
|
|
$
|
737
|
|
|
$
|
4,517
|
|
Three Months Ended June 30, 2020 Compared to Three Months
Ended June 30, 2019
Segment Product
Revenues, net. Product revenues, net for Branded CPG were $2.6 million for the period from June 26, 2020 through June
30, 2020 and $40.5 million from April 1, 2020 through June 25, 2020. Product revenues, net for Branded CPG for the combined three
months ended June 30, 2020 were $43.1 million, an increase of $1.8 million, or 4%, from $41.3 million for the three months ended
June 30, 2019. Higher sales were driven by increased distribution of Whole Earth Sweetener, growth in adjacencies, and continued
growth in our Asia-Pacific business, partially offset by the negative impact of foreign exchange.
Segment Operating
(Loss) Income. Operating loss for Branded CPG was $0.1 million for the period from June 26, 2020 through June 30, 2020
and $5.2 million from April 1, 2020 through June 25, 2020. Operating loss for Branded CPG for the combined three months ended
June 30, 2020 was $5.3 million, a decrease of $6.0 million
from operating income of $0.7 million for the three months ended June 30, 2019.
This decrease was due to transaction bonuses of $7.2 million in 2020, partially offset by increased revenue as discussed above.
Six Months Ended June 30, 2020 Compared to Six Months
Ended June 30, 2019
Segment Product
Revenues, net. Product revenues, net for Branded CPG were $2.6 million for the period from June 26, 2020 through June
30, 2020 and $80.7 million from January 1, 2020 through June 25, 2020. Product revenues, net for Branded CPG for the combined
six months ended June 30, 2020 were $83.3 million, an increase of $0.5 million, or 1%, from $82.8 million for the six months ended
June 30, 2019. Higher sales were driven by increased distribution of Whole Earth Sweetener, growth in adjacencies, and continued
growth in our Asia-Pacific business, partially offset by the negative impact of foreign exchange.
Segment Operating
(Loss) Income. Operating loss for Branded CPG was $0.1 million for the period from June 26, 2020 through June 30, 2020
and $14.5 million from January 1, 2020 through June 25, 2020. Operating loss for Branded CPG for the combined six months ended
June 30, 2020 was $14.6 million, a decrease of $19.1 million as compared
to operating income of $4.5 million in the six month period ended June 30, 2019.
The decline was primarily due to transaction bonuses of $7.2 million and a goodwill impairment charge of $11.1 million recorded
in the first quarter of 2020.
Flavors & Ingredients
|
|
Successor
|
|
|
Predecessor
|
|
|
|
From
|
|
|
From
|
|
|
From
|
|
|
Three
|
|
|
Six
|
|
|
|
June 26, 2020
|
|
|
April 1, 2020
|
|
|
January 1, 2020
|
|
|
Months Ended
|
|
|
Months Ended
|
|
(In thousands)
|
|
to
June 30, 2020
|
|
|
to
June 25, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2019
|
|
Product revenues, net
|
|
$
|
1,927
|
|
|
$
|
21,826
|
|
|
$
|
47,579
|
|
|
$
|
27,670
|
|
|
$
|
56,488
|
|
Operating (loss) income
|
|
$
|
(211
|
)
|
|
$
|
292
|
|
|
$
|
(23,718
|
)
|
|
$
|
5,208
|
|
|
$
|
11,809
|
|
Three Months Ended June 30, 2020 Compared to Three Months
Ended June 30, 2019
Segment Product
Revenues, net. Product revenues, net for Flavors & Ingredients were $1.9 million for the period from June 26, 2020
through June 30, 2020 and $21.8 million from April 1, 2020 through June 25, 2020. Product revenues, net for Flavors & Ingredients
for the combined three months ended June 30, 2020 were $23.8 million, a decrease of $3.9 million, or 14%, from $27.7 million for
the three months ended June 30, 2019, primarily driven by the decline in international tobacco revenues, partially offset by growth
in Magnasweet and Pure Derivatives.
Segment Operating
(Loss) Income. Operating loss for Flavors & Ingredients was $0.2 million for the period from June 26, 2020 through
June 30, 2020 and operating income of $0.3 million from April 1, 2020 through June 25, 2020. Operating income for Flavors &
Ingredients for the combined three months ended June 30, 2020 was $0.1 million, a decline of $5.1
million, from operating income of $5.2 million in the three months
ended June 30, 2019, primarily driven by transaction bonuses of $3.8 million
and a decline in revenues.
Six Months Ended June 30, 2020 Compared to Six Months
Ended June 30, 2019
Segment Product
Revenues, net. Product revenues, net for Flavors & Ingredients was were $1.9 million for the period from June 26,
2020 through June 30, 2020 and $47.6 million from January 1, 2020 through June 25, 2020. Product revenues, net for Flavors &
Ingredients for the combined six months ended June 30, 2020 were $49.5 million, a decrease of $7.0 million, or 12%, from $56.5
million for the six months ended June 30, 2019, primarily driven by the decline in International Tobacco revenues, partially offset
by growth in Magnasweet and Pure Derivatives.
Segment Operating
(Loss) Income. Operating loss for Flavors & Ingredients was $0.2 million for the period from June 26, 2020 through
June 30, 2020 and $23.7 million from January 1, 2020 through June 25, 2020. Operating loss for Flavors & Ingredients for the
combined six months ended June 30, 2020 was $23.9 million, a decrease of $35.7
million as compared to operating income of $11.8 million for the
six months ended June 30, 2019. The decline was primarily due to asset impairment
charges totaling $29.5 million recorded in the first quarter of 2020, lower revenues, and transaction bonuses of $3.8 million
in 2020.
Liquidity and Capital Resources
The Predecessor has
historically funded operations with cash flow from operations and, when needed, with borrowings, which are described below.
We believe our sources
of liquidity and capital, and new Loan Agreement will be sufficient to finance our continued operations, growth strategy and additional
expenses we expect to incur for at least the next twelve months.
The following table
shows summary cash flow information for the periods from June 26, 2020 through June 30, 2020, January 1, 2020 through June 25,
2020 and the six months ended June 30, 2019 (in thousands).
|
|
Successor
|
|
|
Predecessor
|
|
|
|
From
|
|
|
From
|
|
|
Six
|
|
|
|
June 26, 2020
|
|
|
January 1, 2020
|
|
|
Months Ended
|
|
|
|
to
June 30, 2020
|
|
|
to
June 25, 2020
|
|
|
June
30, 2019
|
|
Net cash (used in)
provided by operating activities
|
|
$
|
(3,997
|
)
|
|
$
|
19,908
|
|
|
$
|
15,019
|
|
Net cash used in investing activities
|
|
|
(207,871
|
)
|
|
|
(3,532
|
)
|
|
|
(1,294
|
)
|
Net cash provided by (used in)
financing activities
|
|
|
207,861
|
|
|
|
(16,924
|
)
|
|
|
(15,354
|
)
|
Effect of
exchange rates on cash and cash equivalents
|
|
|
17
|
|
|
|
215
|
|
|
|
(23
|
)
|
Net decrease
in cash and cash equivalents
|
|
$
|
(3,990
|
)
|
|
$
|
(333
|
)
|
|
$
|
(1,652
|
)
|
Operating activities.
Net cash used in operating activities was $4.0 million in the period from June 26, 2020 through June 30, 2020. Net cash
provided by operating activities was $19.9 million from January 1, 2020 through June 25, 2020. Net cash provided by operating
activities for the combined six month period ended June 30, 2020 was $15.9 million compared to $15.1 million for the six months
ended June 30, 2019. The increase was primarily attributable to favorable working capital changes.
Investing activities.
Net cash used in investing activities was $207.9 million in the period from June 26, 2020 through June 30, 2020 which
included cash paid of $386.7 related to the Acquisition and $178.9 million of cash transferred from the trust account. Net cash
used in investing activities was $3.5 million from January 1, 2020 through June 25, 2020 and was entirely related to capital expenditures.
Net cash used in investing activities was $1.3 million in the six months ended June 30, 2019.
Financing activities.
Net cash provided by financing activities was $207.9 million in the period from June 26, 2020 to June 30, 2020 and reflects
$140 million of proceeds from the new Loan Agreement (as defined and described below), net of debt issuance costs of $7.1 million
and proceeds from the sale of common stock and warrants of $75 million. Net cash used in financing activities was $16.9 million
from January 1, 2020 through June 25, 2020 due to $8.5 million of payments, offset by $3.5 million of borrowings related to the
prior revolving credit facility and $11.9 million due to funding to the parent. Net cash used by financing activities was $15.4
million in the six months ended June 30, 2019 due to funding to the parent.
Indebtedness
New Loan Agreement
In connection
with the Acquisition, on June 25, 2020, we entered into a senior secured loan agreement (the “Loan Agreement”)
which contained a Revolving Credit Facility and a Term Loan Facility with Toronto Dominion (Texas) LLC, as administrative
agent, BOFA Securities Inc., as Syndication Agent, BMO Capital Markets Corp. and Truist Bank, as documentation agents, and
the other lenders party thereto. For more information on the Loan Agreement, see the section entitled “Item
1.01 — Entry into Material Definitive Agreement — Credit Agreement” in the first Current Report on
Form 8-K we filed with the SEC on June 30, 2020 (the “Closing Form 8-K”).
The
Loan Agreement provides for a term loan facility of $140.0 million and a revolving credit facility of up to $50.0 million. As
of June 30, 2020, there was a $0.7 million outstanding letter of credit that reduced
our availability under the revolving loan facility.
As of June 30, 2020,
we had term loan borrowings of $134.8 million, net of deferred issuance costs under the Loan Agreement and were in compliance
with the related financial covenants. Additionally, there were no borrowings under the revolving loan facility at June 30, 2020.
The Loan Agreement
requires us to make certain mandatory prepayments, with (i) 100% of net cash proceeds of all non-ordinary course asset sales or
other dispositions of property in excess of $5,000,000 in any fiscal year, subject to the ability to reinvest such proceeds and
certain other exceptions, (ii) 100% of the net cash proceeds of any debt incurrence, other than debt permitted under the definitive
agreements (but excluding debt incurred to refinance the Loan Agreement) and (iii) 50% of “Excess Cash Flow,” as defined
in the Loan Agreement which is included as an exhibit to this Quarterly Report on Form 10-Q, with a reduction to 25% if the total
net leverage ratio for the fiscal year is less than or equal to 2.50 to 1.00 but greater than 2.00 to 1.00, and a reduction to
0% if the total net leverage ratio for the fiscal year is less than or equal to 2.00 to 1.00. We are also required to make quarterly
amortization payments equal to (i) 1.25% per annum of the original principal amount of the Term Loan Facility during the first,
second and third years after the closing date of the Credit Facilities, commencing after the first full fiscal quarter after the
closing date of the Loan Agreement, and (ii) 2.50% per annum of the original principal amount of the term loan facility during
the fourth and fifth years after the closing date of the Loan Agreement (subject to reductions by optional and mandatory prepayments
of the loans). We may prepay the term loan facility at any time without premium or penalty, subject to payment of customary
breakage costs.
The Loan Agreement
contains financial covenants and a number of traditional negative covenants including negative covenants related to the following
subjects: consolidations, mergers, and sales of assets; limitations on the incurrence of certain liens; limitations on certain
indebtedness; limitations on the ability to pay dividends; and certain affiliate transactions.
The Loan Agreement
also contains certain customary representations and warranties, affirmative covenants and events of default. If an event of default
occurs, the lenders under the Loan Agreement are entitled to take various actions, including the acceleration of amounts due under
the loan and all actions permitted to be taken by a secured creditor.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future material effect on its financial condition, changes in financial
condition, income or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
The following table
summarizes certain of our obligations as of June 30, 2020 and the estimated timing and effect that such obligations are expected
to have on liquidity and cash flows in future periods (in thousands):
|
|
Total
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
Debt
|
|
$
|
140,000
|
|
|
$
|
3,500
|
|
|
$
|
7,000
|
|
|
$
|
7,000
|
|
|
|
10,500
|
|
|
$
|
14,000
|
|
|
$
|
98,000
|
|
Interest on debt
|
|
|
27,527
|
|
|
|
3,182
|
|
|
|
6,107
|
|
|
|
5,788
|
|
|
|
5,448
|
|
|
|
4,883
|
|
|
|
2,119
|
|
Minimum lease obligations(a)
|
|
|
16,867
|
|
|
|
1,797
|
|
|
|
3,683
|
|
|
|
3,374
|
|
|
|
3,300
|
|
|
|
1,839
|
|
|
|
2,874
|
|
Total
|
|
$
|
184,394
|
|
|
$
|
8,479
|
|
|
$
|
16,790
|
|
|
$
|
16,162
|
|
|
$
|
19,248
|
|
|
$
|
20,722
|
|
|
$
|
102,993
|
|
(a) Minimum lease obligations do not include sublease rental
income.
In addition, at June
30, 2020, Mafco Worldwide had obligations to purchase $26.3 million of raw materials; however, we are unable to make reasonably
reliable estimates of the timing of such payments and, therefore, the related commitment has been excluded from the table above.
Critical Accounting Policies and Recently Issued Accounting
Pronouncements
Leasing
As of the Acquisition
date, we account for leases pursuant to Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). Under
the new standard, a right-of-use asset and a lease liability is recorded for all leases with a term greater than 12 months. Lease
right-of-use assets and lease liabilities are initially recognized based on the present value of the future minimum lease payments
over the lease term at commencement date calculated using our incremental borrowing rate applicable to the lease asset, unless
the implicit rate is readily determinable.
Our lease portfolio
includes one factory building, office space, warehouses, material handling equipment, vehicles and office equipment. All of our
leases are classified as operating leases as of June 30, 2020.
For information regarding
our other critical accounting policies and recently issued accounting pronouncements, see our unaudited condensed consolidated
financial statements and the related notes to those statements included under Item 1 hereof and our audited combined financial
statements and accompanying notes of Mafco Worldwide and Merisant for each of the two years ended December 31, 2019 and 2018 and
the audited financial statements and accompanying notes for Act II for the year ended December 31, 2019, which are included in
the final prospectus and definitive proxy statement filed with the Securities and Exchange Commission by Act II on May 13, 2020.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
Not applicable as a smaller reporting company.
Item
4. Controls
and Procedures
Controls and Procedures
Disclosure controls
and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
Evaluation of Disclosure Controls and
Procedures
As of the end of
the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of these disclosure controls and
procedures, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2020, our disclosure controls
and procedures were effective to ensure that the information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms.
Changes in Internal Control over Financial
Reporting
During the fiscal
quarter ended June 30, 2020, we completed the Acquisition and the internal controls of Merisant and MAFCO became our internal
controls. We are engaged in the process of the design and implementation of our internal control over financial reporting in a
manner commensurate with the scale of our operations subsequent to the Acquisition.