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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                            to                               
Commission File No. 001-38880
Whole Earth Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
38-4101973
(I.R.S. Employer
Identification No.)
125 S. Wacker Drive, Suite 3150
Chicago, Illinois
60606
(Address of Principal Executive Offices)(Zip Code)
(312) 840-6000
(Registrant’s telephone number, including area code)
Act II Global Acquisition Corp.
745 5th Avenue
New York, New York 10151
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which
registered
Common stock, par value $0.0001 per shareFREEThe NASDAQ Stock Market LLC
Warrants to purchase one-half of one share of common stockFREEWThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No ☒
As of November 13, 2020, there were 38,426,669 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.



TABLE OF CONTENTS
WHOLE EARTH BRANDS, INC.
(f/k/a ACT II GLOBAL ACQUISITION CORP.)
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
Page

2

TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1.         Financial Statements.
3

TABLE OF CONTENTS
Whole Earth Brands, Inc.
Condensed Consolidated Financial Statements (Unaudited)
For the Quarter Ended September 30, 2020
Condensed Consolidated Financial Statements
 24

4

TABLE OF CONTENTS
Whole Earth Brands, Inc.
Condensed Consolidated Balance Sheets
(In thousands of dollars, except for share and per share data)
(Unaudited)
(Successor)(Predecessor)
September 30, 2020
December 31, 2019
Assets
Current Assets
Cash and cash equivalents$49,081 $10,395 
Accounts receivable (net of allowances of $15 and $2,832, respectively)
54,281 55,031 
Inventories103,546 121,129 
Prepaid expenses and other current assets5,134 7,283 
Total current assets212,042 193,838 
Property, Plant and Equipment, net41,398 20,340 
Other Assets
Operating lease right-of-use assets12,378  
Goodwill124,874 130,870 
Other intangible assets, net144,809 251,243 
Deferred tax assets, net1,023 1,368 
Other assets3,772 2,192 
Total Assets$540,296 $599,851 
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$21,643 $26,240 
Accrued expenses and other current liabilities29,777 28,040 
Current portion of operating lease liabilities3,423  
Current portion of long-term debt7,000  
Total current liabilities61,843 54,280 
Non-Current Liabilities
Long-term debt126,281  
Due to related party 8,400 
Deferred tax liabilities, net17,400 31,538 
Operating lease liabilities, less current portion11,659  
Other liabilities15,892 17,883 
Total Liabilities233,075 112,101 
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 capital324,417  
Accumulated deficit(20,345) 
Accumulated other comprehensive income3,145  
Net parent investment 487,750 
Total stockholders’ equity307,221 487,750 
Total Liabilities and Stockholders’ Equity$540,296 $599,851 
See Notes to Unaudited Consolidated Financial Statements

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TABLE OF CONTENTS
Whole Earth Brands, Inc.
Condensed Consolidated Statements of Operations
(In thousands of dollars, except for share and per share data)
(Unaudited)
(Successor)(Predecessor)
Three Months Ended
September 30, 2020
From
June 26, 2020 to September 30, 2020
From
January 1, 2020 to June 25, 2020
Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
Product revenues, net$67,002 $71,480 $128,328 $64,060 $203,354 
Cost of goods sold48,357 51,065 77,627 38,173 121,037 
Gross profit18,645 20,415 50,701 25,887 82,317 
Selling, general and administrative expenses14,881 16,827 43,355 14,770 49,020 
Amortization of intangible assets2,700 2,841 4,927 2,656 7,968 
Asset impairment charges  40,600   
Restructuring and other expenses   608 1,150 
Operating income (loss)1,064 747 (38,181)7,853 24,179 
Interest expense, net(2,045)(2,161)(238)(237)(342)
Other (expense) income, net(170)(232)801 (716)(666)
(Loss) income before income taxes(1,151)(1,646)(37,618)6,900 23,171 
Provision (benefit) for income taxes1,684 1,694 (3,482)1,627 5,228 
Net (loss) income$(2,835)$(3,340)$(34,136)$5,273 $17,943 
Net loss per share – Basic and diluted$(0.07)$(0.09)

See Notes to Unaudited Consolidated Financial Statements

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TABLE OF CONTENTS
Whole Earth Brands, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands of dollars)
(Unaudited)
(Successor)(Predecessor)
Three Months Ended
September 30, 2020
From
June 26, 2020 to September 30, 2020
From
 January 1, 2020 to June 25, 2020
Three Months Ended September 30, 2019
Nine Months Ended September 30, 2019
Net (loss) income$(2,835)$(3,340)$(34,136)$5,273 $17,943 
Other comprehensive income (loss), net of tax:
Net change in pension benefit obligations recognized  318   
Foreign currency translation adjustments3,130 3,145 (2,286)(3,013)(4,067)
Total other comprehensive income (loss), net of tax3,130 3,145 (1,968)(3,013)(4,067)
Comprehensive income (loss)$295 $(195)$(36,104)$2,260 $13,876 
See Notes to Unaudited Consolidated Financial Statements

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TABLE OF CONTENTS
Whole Earth Brands, Inc.
Condensed Consolidated Statements of Equity
(In thousands of dollars)
(Unaudited)
(Predecessor)
Total Equity
Balance at January 1, 2019$484,492 
Funding to Parent, net(12,117)
Net income9,164 
Other comprehensive loss, net of tax(2,439)
Balance at March 31, 2019$479,100 
Funding to Parent, net(3,237)
Net income3,506 
Other comprehensive income, net of tax1,385 
Balance at June 30, 2019$480,754 
Funding to Parent, net(8,586)
Net income5,273 
Other comprehensive loss, net of tax(3,013)
Balance at September 30, 2019$474,428 
Balance at January 1, 2020$487,750 
Funding to Parent, net(12,262)
Net loss(28,655)
Other comprehensive loss, net of tax(1,836)
Balance at March 31, 2020$444,997 
Funding to Parent, net338 
Net loss(5,481)
Other comprehensive loss, net of tax(132)
Balance at June 25, 2020$439,722 
Common StockPreferred StockAdditional
Paid-in
AccumulatedAccumulated
Other
Comprehensive
Total
Stockholders’
SharesAmountSharesAmountCapitalDeficitIncomeEquity
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 stock7,500,000 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 
Other— — — — (948)(302)— (1,250)
Other comprehensive income, net of tax
— — — — — — 3,130 3,130 
Net loss— — — — — (2,835)— (2,835)
Balance at September 30, 2020 (Successor)38,426,669 $4  $ $324,417 $(20,345)$3,145 $307,221 
See Notes to Unaudited Consolidated Financial Statements

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Whole Earth Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands of dollars)
(Unaudited)
(Successor)(Predecessor)
From June 26, 2020 to September 30, 2020
From January 1, 2020 to June 25, 2020
Nine Months Ended September 30, 2019
Operating activities
Net (loss) income$(3,340)$(34,136)$17,943 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation797 1,334 2,232 
Amortization of intangible assets2,841 4,927 7,968 
Deferred income taxes(3,490)(5,578)1,857 
Asset impairment charges 40,600  
Pension benefit (credit) expense, net(154)126 705 
Changes in current assets and liabilities:
Accounts receivable(6,535)7,726 2,312 
Inventories5,022 3,576 2,580 
Prepaid expenses and other current assets(2,516)3,330 (569)
Accounts payable, accrued liabilities and income taxes(5,618)507 (6,589)
Other, net278 (2,504)(1,870)
Net cash (used in) provided by operating activities(12,715)19,908 26,569 
Investing activities
Capital expenditures(2,139)(3,532)(2,276)
Acquisitions, net of cash acquired(376,674)  
Transfer from trust account178,875   
Net cash used in investing activities(199,938)(3,532)(2,276)
Financing activities
Proceeds from revolving credit facility 3,500  
Repayments of revolving credit facility (8,500) 
Long-term borrowings140,000   
Repayments of long-term borrowings(1,750)  
Debt issuance costs(7,139)  
Proceeds from sale of common stock and warrants75,000   
Funding to Parent, net (11,924)(23,940)
Net cash provided by (used in) financing activities206,111 (16,924)(23,940)
Effect of exchange rate changes on cash and cash equivalents88 215 117 
Net change in cash and cash equivalents(6,454)(333)470 
Cash and cash equivalents, beginning of period55,535 10,395 7,205 
Cash and cash equivalents, end of period$49,081 $10,062 $7,675 
Supplemental disclosure of cash flow information
Interest paid$1,667 $798 $ 
Taxes paid, net of refunds$1,722 $2,244 $4,160 
See Notes to Unaudited Consolidated Financial Statements

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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 has a global platform of branded products and ingredients, focused on the consumer transition towards natural alternatives and clean label products.
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 Worldwide”), and (ii) certain assets and liabilities of Merisant and Mafco Worldwide 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 was deemed to be the acquirer and Mafco Worldwide and Merisant Company were deemed to be the acquired parties and, collectively, the 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”).
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 September 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. All significant intercompany accounts and transactions have been eliminated in consolidation.
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Whole Earth Brands, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)    


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 PronouncementsThe Company qualifies as an emerging growth company (an “EGC”) and as such, has elected 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.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-2, “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 2017-7, “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 2017-7 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 period from January 1, 2020 to June 25, 2020.
In February 2018, the FASB issued ASU 2018-2, “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 2018-2 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.
New Accounting Standards—In March 2020, the FASB issued ASU 2020-4, “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 2020-4 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 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.

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Whole Earth Brands, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)    


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 on its consolidated financial statements.
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 on its consolidated financial statements.
Stock-Based Compensation—In accordance with ASC Topic 718, “Compensation—Stock Compensation,” the Company recognizes stock-based compensation cost in its Consolidated Statements of Operations. Stock-based compensation cost is measured at the grant date for equity-classified awards and at the end of each reporting period for liability-classified awards based on the estimated fair value of the awards. ASC Topic 718 requires stock-based compensation expense to be recognized over the period from the date of grant to the date when the award is no longer contingent on the employee providing additional service. Additional information pertaining to the Company’s stock-based compensation is provided in Note 11.
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 was 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(764)
Total Purchase Price$386,736 
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Whole Earth Brands, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)    


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 receivable46,959 
Inventories106,436 
Prepaid expenses and other current assets2,461 
Property, plant and equipment, net39,814 
Operating lease right-of-use assets12,541 
Intangible assets147,650 
Deferred tax assets, net1,202 
Other assets1,585 
Total assets acquired368,710 
Accounts payable19,356 
Accrued expenses and other current liabilities35,728 
Current portion of operating lease liabilities3,007 
Operating lease liabilities, less current portion12,208 
Deferred tax liabilities, net21,082 
Other liabilities15,467 
Total liabilities assumed106,848 
Net assets acquired261,862 
Goodwill124,874 
Total Purchase Price$386,736 
The preliminary values allocated to identifiable intangible assets and their estimated useful lives are as follows:
Identifiable intangible assetsFair Value
(in thousands)
Useful life
(in Years)
Customer relationships$44,640 
0.5 to 10
Tradenames92,310 25
Product formulations10,700 Indefinite
$147,650 
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 was based upon preliminary valuations performed to determine the fair value of the net assets as of the acquisition date and is 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.
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Whole Earth Brands, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)    


In the third quarter of 2020, the Company recorded measurement period adjustments to its initial allocation of purchase price as a result of ongoing valuation procedures on assets acquired and liabilities assumed, including (i) a decrease in accounts receivable of $0.3 million; (ii) a decrease in inventory of $2.7 million; (iii) a decrease in prepaid expenses and other current assets of $10.4 million (see discussion below); (iv) an increase in property, plant and equipment of $17.9 million due to the valuation of certain real estate; (v) a decrease in operating lease right-of-use assets of $2.7 million to adjust the value of the Company’s leases to market value; (vi) a decrease in intangible assets of $9.8 million; (vii) an increase in other assets of $0.6 million; (viii) an increase in accounts payable of $0.4 million; (ix) a decrease in deferred tax liabilities, net of $2.9 million; (x) a decrease in other liabilities of $1.0 million; and (xi) a decrease to goodwill of $6.2 million due to the incremental period adjustments discussed in items (i) through (x). The impact of measurement period adjustments to the results of operations resulted in an increase in cost of goods sold related to the fair value step-up in inventory acquired that was subsequently sold of $0.8 million for the period of June 26, 2020 to June 30, 2020.
The initial allocation of purchase price reflects a $10.1 million adjustment to prepaid expenses and other current assets as a result of a change to the consideration transferred relative to the initial purchase price allocation. This adjustment was also reflected as a reduction to the estimated closing adjustments, and therefore, the total purchase price.
Direct transaction-related costs consist of costs incurred in connection with the Acquisition. Act II incurred transaction costs of $17.0 million prior to the Acquisition which are reflected within the accumulated deficit within the Condensed Consolidated Statement of Changes in Equity. During the three months ended September 30, 2020, the Company identified $1.2 million of additional Act II transaction costs that had been incurred in connection with the Acquisition. The effect of correcting for these costs decreased additional paid-in capital by $0.9 million and accumulated deficit by $0.3 million.
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 EndedNine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Revenue$67,002 $64,060 $199,808 $203,354 
Net income (loss)$4,971 $5,037 $(20,350)$4,317 
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 nine months ended September 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, depreciation expense for certain real estate that has been adjusted to fair value, the release of the inventory fair value step-down into cost of goods sold and the elimination of non-recurring expense related to Predecessor transaction bonuses. These adjustments are net of taxes.
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 as of June 26, 2020. The right-of-use assets and operating lease liabilities at June 26, 2020 also included approximately $0.3 million related to one lease that Act II had applied the provisions of Topic 842 to effective January 1, 2020. In the third quarter of 2020, the Company recorded a measurement period adjustment that reduced the right-of-use assets by $2.7 million to adjust the value of the leases to market value. All leases are classified as operating leases.
The Company’s lease portfolio includes a factory building, office space, warehouses, material handling equipment, vehicles and office equipment.
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Whole Earth Brands, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)    


Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to five 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 separates 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. Lease expense for the three months ended September 30, 2020 was $1.1 million.
The following table presents the future maturities of the Company’s lease obligations as of September 30, 2020 (in thousands):
Remainder of 2020$1,004 
20213,738 
20223,462 
20233,387 
20241,865 
Thereafter2,896 
Total lease payments16,352 
Less: imputed interest1,270 
Total operating lease liabilities$15,082 
The weighted-average remaining lease term is 4.9 years and the weighted-average discount rate is 3.42%.
Cash paid for amounts included in the measurement of the lease liability and for supplemental non-cash information for the three months ended September 30, 2020 was $0.9 million and for the period from June 26, 2020 through June 30, 2020 was not material.
NOTE 4: INVENTORIES
Inventories consisted of the following (in thousands):
(Successor)(Predecessor)
September 30, 2020December 31, 2019
Raw materials and supplies$60,418 $89,611 
Work in process1,122 387 
Finished goods42,006 31,131 
Total inventories$103,546 $121,129 

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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):
(Successor)(Predecessor)
September 30, 2020
December 31, 2019
GrossAccumulated
Amortization
NetGrossAccumulated
Amortization
Net
Other intangible assets subject to amortization
Customer relationships (useful life of 0.5 to 10 years)
$44,640 $(1,866)$42,774 $105,000 $(38,731)$66,269 
Tradenames (useful life of 25 years)
92,310 (975)91,335 95,055 (19,939)75,116 
Total$136,950 $(2,841)$134,109 $200,055 $(58,670)$141,385 
Other intangible assets not subject to amortization
Product formulations10,700 109,858 
Total other intangible assets, net144,809 251,243 
Goodwill124,874 130,870 
Total goodwill and other intangible assets$269,683 $382,113 
The Successor’s amortization expense for intangible assets was $2.7 million and $2.8 million for the three months ended September 30, 2020 and for the period from June 26, 2020 through September 30, 2020, respectively. The Predecessor’s amortization expense for intangible assets was $4.9 million, $2.7 million and $8.0 million for the periods from January 1, 2020 to June 25, 2020 and for the three and nine months ended September 30, 2019, respectively.
Amortization expense relating to amortizable intangible assets as of September 30, 2020 for the next five years is expected to be as follows (in thousands):
Remainder of 2020$2,667 
20219,004 
20229,004 
20239,004 
20249,004 
20258,963 
NOTE 6: DEBT
Debt consisted of the following (in thousands):
(Successor)(Predecessor)
September 30, 2020December 31, 2019
Term Loan$138,250 $ 
Less: current portion(7,000) 
Less: debt issuance costs(4,969) 
Total non-current borrowings$126,281 $ 
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Whole Earth Brands, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)    


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 credit 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 credit 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 credit 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. As of September 30, 2020, there were $2.1 million of outstanding letters of credit that reduced the Company’s availability under the revolving credit 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 are being amortized ratably over the commitment period of five years. There were no borrowings under the revolving credit facility as of September 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%. Borrowings under the Loan Agreement are collateralized by substantially all of the Company’s assets, and the Loan Agreement includes restrictive qualitative and quantitative covenants. The Company was in compliance with its covenants under the Loan Agreement on September 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.
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.
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.
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Whole Earth Brands, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)    


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 September 30, 2020, the Company had obligations to purchase $22 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
For the Successor 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 the earnings in the various locations at their applicable statutory tax rates.
For the Predecessor period, 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 during the predecessor period 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 payable as if the Company had been a separate taxpayer.
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.
The Successor’s income tax provision was $1.7 million for the three months ended September 30, 2020. The effective tax rate for the three months ended September 30, 2020 was an income tax provision of (146.3%) on a pretax loss of $1.2 million which 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 income tax provision for the three months ended September 30, 2019 was $1.6 million. The effective tax rate for the three months ended September 30, 2019 was an income tax provision of 23.6% on pretax income of $6.9 million.
The Successor’s income tax provision was $1.7 million for the period from June 26, 2020 through September 30, 2020. The effective tax rate for the period from June 26, 2020 through September 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 an income tax provision of (102.9%) on a pretax loss of $1.6 million for the period from June 26, 2020 through September 30, 2020 which 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 Predecessor’s income tax provision was an income tax benefit of $3.5 million for the period from January 1, 2020 through June 25, 2020. The effective tax rate for the period from January 1, 2020 through June 25, 2020 was computed using a discrete method as if the Company closed its books and records, The Predecessor’s effective tax rate was 9.3% for the period from January 1, 2020 to June 25, 2020 which 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. tax effect of international operations including GILTI recorded during the period.
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Notes to Condensed Consolidated Financial Statements
(Unaudited)    


The Predecessor’s income tax provision was $5.2 million for the nine months ended September 30, 2019. The Predecessor’s effective tax rate for the nine months ended September 30, 2019 was 22.6% on pretax income of $23.2 million which differs from the statutory federal rate of 21% primarily due to state and local taxes and the U.S. tax effect of international operations.
As of September 30, 2020, the Company had an uncertain tax position liability of $1.0 million, including interest and penalties. The unrecognized tax benefits include amounts related to various foreign tax issues.
NOTE 10: PENSION BENEFITS
Certain current and former employees of the Company are covered under a funded defined benefit retirement plan. Plan provisions covering certain of the Company’s salaried employees generally provide pension benefits based on years of service and compensation. Plan provisions covering the Company’s union members generally provide stated benefits for each year of credited service. The Company’s funding policy is to contribute annually the statutory required amount as actuarially determined. The Company uses December 31 as a measurement date for the plan. The Company froze the pension plan on December 31, 2019.
The components of net periodic benefit (credit) cost for the Company’s defined benefit pension plan for the Successor and Predecessor were as follows (in thousands):
(Successor)(Predecessor)
Three Months Ended
September 30, 2020
From
June 26, 2020 to September 30, 2020
From
January 1, 2020 to June 25, 2020
Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
Service cost$ $ $ $152 $456 
Interest cost210 210 452 275 841 
Expected return on plan assets(392)(392)(818)(365)(1,096)
Recognized actuarial loss  108 276 828 
Amortization of prior service cost   21 63 
Net periodic benefit (credit) cost$(182)$(182)$(258)$359 $1,092 
Net periodic benefit (credit) cost is reflected in the Company’s consolidated financial statements as follows for the Successor and Predecessor periods presented (in thousands):
(Successor)(Predecessor)
Three Months Ended
September 30, 2020
From
June 26, 2020 to September 30, 2020
From
January 1, 2020 to June 25, 2020
Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
Cost of Goods Sold$ $ $ $125 $387 
Selling, general and administrative expense   234 705 
Other income, net(182)(182)(258) 
Net periodic benefit (credit) cost$(182)$(182)$(258)$359 $1,092 
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 the three months ended September 30, 2020 and 2019 was $0.1 million and $0.2 million, respectively. The net periodic benefit cost for January 1, 2020 to June 25, 2020 and the nine months ended September 30, 2019 was $0.4 million and $0.5 million, respectively. The net periodic benefit cost for the period June 26, 2020 to June 30, 2020 was insignificant.
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Notes to Condensed Consolidated Financial Statements
(Unaudited)    


NOTE 11: STOCK-BASED COMPENSATION

On June 24, 2020, the Whole Earth Brands, Inc. 2020 Long-Term Incentive Plan (the “Plan”) was approved for the purpose of promoting the long-term financial interests and growth of the Company and its subsidiaries by attracting and retaining management and other personnel and key service providers. The Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units and other stock-based awards to officers, employees and non-employee directors of, and certain other service providers to, the Company and its subsidiaries. Under the terms of the Plan an aggregate of 9,300,000 shares of common stock are authorized for issuance under the Plan.
On September 30, 2020, 719,038 restricted stock units (“RSUs”) and 68,946 restricted stock awards (“RSAs”) were granted and remain outstanding. The RSUs and RSAs have a grant-date fair value equal to the fair market value of the underlying stock on the grant date. The RSUs granted to employees on September 30, 2020 cliff vest over the employee service period of approximately 14 months. The RSAs granted to non-employee board members on September 30, 2020 cliff vest over a service period of approximately 19 months. The Company accounts for forfeitures in the period incurred. As the RSUs and RSAs were granted on September 30, 2020, no stock compensation expense has been recognized for the three months ended September 30, 2020. There were no units or awards vested or forfeited as of September 30, 2020.
The aggregate grant date fair value of RSUs and RSAs granted during the three months ended September 30, 2020 was $6 million and $0.6 million, respectively. The unrecognized compensation costs related to the RSUs and RSAs as of September 30, 2020 was $6.6 million. This amount will be recognized over a weighted average period of 1.18 years.
A summary of activity and weighted average fair values related to the RSUs is as follows:
Three Months Ended
September 30, 2020
SharesWeighted Average Fair Value
Outstanding at June 30, 2020 $ 
Granted719,038 8.34 
Outstanding and nonvested at September 30, 2020719,038 $8.34 
A summary of activity and weighted average fair values related to the RSAs is as follows:
Three Months Ended
September 30, 2020
SharesWeighted Average Fair Value
Outstanding at June 30, 2020 $ 
Granted68,946 8.34 
Outstanding and nonvested at September 30, 202068,946 $8.34 
NOTE 12: STOCKHOLDERS' EQUITY
On September 8, 2020, the Company announced that its board of directors had authorized a stock repurchase plan of up to $20 million of shares of the Company’s common stock. The shares may be repurchased from time to time over a 12-month period expiring on September 15, 2021 (or upon the earlier completion of all purchases contemplated by the repurchase plan or the earlier termination of the repurchase plan), in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with U.S. federal securities laws.
During the three months ended September 30, 2020, there were no repurchases of the Company’s common stock under the stock repurchase plan.
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Notes to Condensed Consolidated Financial Statements
(Unaudited)    


NOTE 13: EARNINGS PER SHARE
Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Warrants issued are not considered outstanding at the date of issuance. Restricted Stock Units and Restricted Stock Awards also are not considered outstanding until the Units and Awards have vested.
Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding assuming dilution. Dilutive common shares outstanding is computed using the treasury stock method and reflects the additional shares that would be outstanding if dilutive warrants were exercised and restricted stock units and restricted stock awards were settled for common shares during the period.
For the three months ended September 30, 2020 and for the period from June 26, 2020 to September 30, 2020, 10,131,748 warrants were excluded from the calculation as these warrants were anti-dilutive.
For the three months ended September 30, 2020 and for the period from June 26, 2020 to September 30, 2020, 719,038 restricted stock units and 68,946 restricted stock awards, respectively, each weighted for the portion of the period for which they were outstanding, were excluded from the computation of diluted earnings per share as the effect was determined to be anti-dilutive.
The computation of basic and diluted loss per common share for the three months ended September 30, 2020 and for the period from June 26, 2020 to September 30, 2020 is shown below (in thousands, except for share and per share data).
(Successor)
Three Months Ended
September 30, 2020
From
June 26, 2020 to September 30, 2020
EPS numerator:
Net loss attributable to common shareholders$(2,835)$(3,340)
EPS denominator:
Weighted average shares outstanding - basic38,426,669 38,426,669 
Effect of dilutive securities  
Weighted average shares outstanding - diluted38,426,669 38,426,669 
Net loss per share:
Basic $(0.07)$(0.09)
Diluted$(0.07)$(0.09)

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Notes to Condensed Consolidated Financial Statements
(Unaudited)    


NOTE 14: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes accumulated other comprehensive income (loss) (“AOCI”), net of taxes, by component (in thousands):
Net Currency Translation Gains (Losses)Funded Status of
Benefit Plans
Total Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2018 (Predecessor)
$4,428 $(10,375)$(5,947)
Other comprehensive loss before reclassifications(2,439)(2,439)
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 reclassifications1,385 1,385 
Balance at June 30, 2019 (Predecessor)3,374 (12,512)(9,138)
Other comprehensive loss before reclassifications(3,013) (3,013)
Balance at September 30, 2019 (Predecessor)$361 $(12,512)$(12,151)
Balance at December 31, 2019 (Predecessor)
$2,836 $(10,980)$(8,144)
Other comprehensive loss before reclassifications(