WELBILT, INC.
WELBILT, INC.
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(in millions) | | Three Months Ended March 31, 2020 |
| Parent | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities | | | | | | | | | | |
Net cash (used in) provided by operating activities | | $ | (69.7 | ) | | $ | (4.5 | ) | | $ | 1.7 |
| | $ | — |
| | $ | (72.5 | ) |
Cash flows from investing activities | | | | | | | | | | |
Capital expenditures | | — |
| | (4.5 | ) | | (1.1 | ) | | — |
| | (5.6 | ) |
Intercompany investment | | — |
| | 7.6 |
| | (7.1 | ) | | (0.5 | ) | | — |
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Other | | (3.9 | ) | | — |
| | — |
| | — |
| | (3.9 | ) |
Net cash (used in) provided by investing activities | | (3.9 | ) | | 3.1 |
| | (8.2 | ) | | (0.5 | ) | | (9.5 | ) |
Cash flows from financing activities | | | | | | | | | | |
Proceeds from long-term debt | | 128.0 |
| | — |
| | — |
| | — |
| | 128.0 |
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Repayments on long-term debt and finance leases | | (23.0 | ) | | (0.2 | ) | | (0.1 | ) | | — |
| | (23.3 | ) |
Exercises of stock options | | 1.1 |
| | — |
| | — |
| | — |
| | 1.1 |
|
Payments on tax withholdings for equity awards | | (0.7 | ) | | — |
| | — |
| | — |
| | (0.7 | ) |
Intercompany financing | | (0.5 | ) | | — |
| | — |
| | 0.5 |
| | — |
|
Net cash provided by (used in) financing activities | | 104.9 |
| | (0.2 | ) | | (0.1 | ) | | 0.5 |
| | 105.1 |
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Effect of exchange rate changes on cash | | — |
| | — |
| | (5.3 | ) | | — |
| | (5.3 | ) |
Net increase (decrease) in cash and cash equivalents and restricted cash | | 31.3 |
| | (1.6 | ) | | (11.9 | ) | | — |
| | 17.8 |
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Balance at beginning of period | | 10.7 |
| | 0.7 |
| | 119.3 |
| | — |
| | 130.7 |
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Balance at end of period | | $ | 42.0 |
| | $ | (0.9 | ) | | $ | 107.4 |
| | $ | — |
| | $ | 148.5 |
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WELBILT, INC.
ConsolidatingConsolidating Statement of Cash Flows
(Unaudited)
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(in millions) | | Three Months Ended March 31, 2019 |
| Parent | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities | | | | | | | | | | |
Net cash used in operating activities | | $ | (62.5 | ) | | $ | (138.2 | ) | | $ | (154.0 | ) | | $ | (2.3 | ) | | $ | (357.0 | ) |
Cash flows from investing activities | | | | | | | | | | |
Cash receipts on beneficial interest in sold receivables | | — |
| | 35.6 |
| | 160.4 |
| | — |
| | 196.0 |
|
Capital expenditures | | (1.7 | ) | | (2.4 | ) | | (0.7 | ) | | — |
| | (4.8 | ) |
Intercompany investment | | — |
| | 105.6 |
| | (8.9 | ) | | (96.7 | ) | | — |
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Other | | 0.2 |
| | — |
| | — |
| | — |
| | 0.2 |
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Net cash (used in) provided by investing activities | | (1.5 | ) | | 138.8 |
| | 150.8 |
| | (96.7 | ) | | 191.4 |
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Cash flows from financing activities | | | | | | | | | | |
Proceeds from long-term debt | | 196.5 |
| | — |
| | — |
| | — |
| | 196.5 |
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Repayments on long-term debt and finance leases | | (32.5 | ) | | (0.3 | ) | | — |
| | — |
| | (32.8 | ) |
Repayment of short-term borrowings | | — |
| | — |
| | (15.0 | ) | | — |
| | (15.0 | ) |
Payment of contingent consideration | | — |
| | (0.8 | ) | | — |
| | — |
| | (0.8 | ) |
Exercises of stock options | | 0.6 |
| | — |
| | — |
| | — |
| | 0.6 |
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Payments on tax withholdings for equity awards | | (1.8 | ) | | — |
| | — |
| | — |
| | (1.8 | ) |
Intercompany financing | | (96.8 | ) | | — |
| | — |
| | 96.8 |
| | — |
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Net cash provided by (used in) financing activities | | 66.0 |
| | (1.1 | ) | | (15.0 | ) | | 96.8 |
| | 146.7 |
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Effect of exchange rate changes on cash | | — |
| | — |
| | 1.0 |
| | — |
| | 1.0 |
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Net increase (decrease) in cash and cash equivalents and restricted cash | | 2.0 |
| | (0.5 | ) | | (17.2 | ) | | (2.2 | ) | | (17.9 | ) |
Balance at beginning of period | | 0.2 |
| | 0.5 |
| | 72.5 |
| | — |
| | 73.2 |
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Balance at end of period | | $ | 2.2 |
| | $ | — |
| | $ | 55.3 |
| | $ | (2.2 | ) | | $ | 55.3 |
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(in millions) | | Three Months Ended March 31, 2020 |
| Parent | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
Cash flows from operating activities | | | | | | | | | | |
Net cash (used in) provided by operating activities | | $ | (69.7) | | | $ | (4.5) | | | $ | 1.7 | | | $ | 0 | | | $ | (72.5) | |
Cash flows from investing activities | | | | | | | | | | |
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Capital expenditures | | 0 | | | (4.5) | | | (1.1) | | | 0 | | | (5.6) | |
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Intercompany investment | | 0 | | | 7.6 | | | (7.1) | | | (0.5) | | | 0 | |
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Other | | (3.9) | | | 0 | | | 0 | | | 0 | | | (3.9) | |
Net cash (used in) provided by investing activities | | (3.9) | | | 3.1 | | | (8.2) | | | (0.5) | | | (9.5) | |
Cash flows from financing activities | | | | | | | | | | |
Proceeds from long-term debt | | 128.0 | | | 0 | | | 0 | | | 0 | | | 128.0 | |
Repayments on long-term debt and finance leases | | (23.0) | | | (0.2) | | | (0.1) | | | 0 | | | (23.3) | |
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Exercises of stock options | | 1.1 | | | 0 | | | 0 | | | 0 | | | 1.1 | |
Payments on tax withholdings for equity awards | | (0.7) | | | 0 | | | 0 | | | 0 | | | (0.7) | |
Intercompany financing | | (0.5) | | | 0 | | | 0 | | | 0.5 | | | 0 | |
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Net cash provided by (used in) financing activities | | 104.9 | | | (0.2) | | | (0.1) | | | 0.5 | | | 105.1 | |
Effect of exchange rate changes on cash | | 0 | | | 0 | | | (5.3) | | | 0 | | | (5.3) | |
Net increase (decrease) in cash and cash equivalents and restricted cash | | 31.3 | | | (1.6) | | | (11.9) | | | 0 | | | 17.8 | |
Balance at beginning of period | | 10.7 | | | 0.7 | | | 119.3 | | | 0 | | | 130.7 | |
Balance at end of period | | $ | 42.0 | | | $ | (0.9) | | | $ | 107.4 | | | $ | 0 | | | $ | 148.5 | |
20.
19. Subsequent Event
Amendment to 2016 Credit Facility
On April 17, 2020,20, 2021, the Company entered into Amendment No. 7an Agreement and Plan of Merger ("Merger Agreement") with The Middleby Corporation ("Middleby"), Middleby Marshall Inc., a wholly owned subsidiary of Middleby ("Acquiror") and Mosaic Merger Sub, Inc., a wholly owned subsidiary of the Acquiror ("Merger Sub"). At the time of the merger, Merger Sub will merge with and into Welbilt, Inc., with the Company surviving as an indirect wholly owned subsidiary of Middleby (the “Amendment”"Merger"). Subject to the 2016 Creditterms and conditions set forth in the Merger Agreement, to amendat the financial covenantseffective time of the Revolving Credit Facility. The termsMerger, each share of the Amendment, among other items, (i) suspendCompany's common stock, $0.01 per share, issued and outstanding immediately prior to the Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio covenants, in each case, as defined ineffective time of the 2016 Credit Agreement, for four fiscal quarters until March 31, 2021 ("Suspension Period") and (ii) temporarily replace the suspended covenants with a Minimum Consolidated EBITDA covenant and a Maximum Capital Expenditure covenant, each computed on a trailing four quarters basis and measured quarterly and a Minimum Liquidity covenant that is measured monthly, each as defined in the Amendment, throughout the Suspension Period, with the Minimum Liquidity covenant extending through June 30, 2021.
Beginning in the second quarter of 2021, the Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio covenantsMerger will be reinstated at modified levels as comparedconverted into the right to receive 0.1240 shares of validly issued, fully paid and non-assessable shares of common stock, par value $0.01 per share, of Middleby common stock. Upon closing of the covenants in effect asMerger, Middleby stockholders will own approximately 76% and the Company's stockholders will own approximately 24% of March 31, 2020 and will return to the March 31, 2020 covenant levels by the fourth quarter of 2021.combined company.
The Amendment prohibits draws under the Revolving Credit Facility (i) ifrespective boards of directors of the Company has not evidenced compliance withand Middleby have unanimously approved the financial covenants for the year ended December 31, 2021 by deliveryMerger Agreement. The board of a compliance certificate within 90 days, and ii) to the extent the draw would result in a consolidated cash balance of $100 million or greater (excluding cash held in China) through December 31, 2021, with the exception of draws to meet cash uses anticipated in the ordinary course of business that are expected to be paid within 10 daysdirectors of the draw. The Amendment also includes additional limitations on restricted payments, investmentsCompany have agreed to recommend that the Company’s stockholders adopt the Merger Agreement, and other actionsthe board of directors of Middleby have agreed to recommend that are otherwise allowed underMiddleby’s stockholders approve the 2016 Credit Agreement, with a $25.0 million carve-out for a general investments basket. These limitations expire on December 31, 2021.
The Amendment includes a quarterly fee applicable through the fourth quarter of 2021 in an amount equal to a per annum rate of 0.50% on the average outstanding balanceissuance of the Revolving Credit Facility payable on a quarterly basis. The Company estimates total debt issuance costsshares of Middleby Common Stock in connection with this Amendment to be approximately $2.3 million, which will be capitalized and included as a component of "Other non-current assets" on the Company's Consolidated Balance Sheets and amortized using the effective interest method through the maturityMerger.
The completion of the Revolving Credit FacilityMerger is subject to the satisfaction or waiver of customary closing conditions, including: (i) expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) receipt of applicable approvals under certain foreign competition, antitrust or merger control laws, (iii) there being no law or order prohibiting consummation of the Merger, (iv) subject to specified materiality standards, the accuracy of the representations and warranties of the parties, (v) compliance by the parties in October 2023.all material respects with their respective covenants, and (vi) the absence of a material adverse effect with respect to each of the Company and Middleby. The completion of the Merger is not conditioned upon receipt of financing by Middleby and the Merger is expected to close in late 2021.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020. The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods. See "Cautionary Statements Regarding Forward-Looking Information" below for a discussion of the uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additionally, we use certain non-GAAP financial measures to evaluate our results of operations, financial condition and liquidity. For important information regarding the use of such non-GAAP measures, including reconciliations to the most comparable GAAP measure, see the section titled “Non-GAAP Financial Measures” below. The financial condition, results of operations and cash flows discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Welbilt, Inc. and its consolidated subsidiaries, collectively, the "Company," "Welbilt," "we," "our" or "us."
Overview
Business Overview
We design, manufacture and supply best-in-class equipment for the global commercial foodservice market whichwith our suite of products capable of storing, cooking, holding, displaying, dispensing and serving in both hot and cold foodservice categories. Our portfolio of products is used by commercial and institutional foodservice operators including full-service restaurants, quick-service restaurant chains, hotels, resorts, cruise ships, caterers, supermarkets, convenience stores, hospitals, schools and other institutions. Our products, product-based services and aftermarket parts and service support are recognized by our customers and channel partners for their quality, reliability and durability andwhich support our end customers by improving menus, enhancing operations and reducing costs. We sell our products through a global network of over 5,000 distributors, dealers, buying groups and manufacturers' representatives.
We manage our business in three geographic business segments: Americas, EMEA and APAC. The Americas segment includes the United States ("U.S."), Canada and Latin America. The EMEA segment consists of markets in Europe, including the Middle East, Russia, Africa Russia and the Commonwealth of Independent States. The APAC segment consists primarily of markets in China, India, Australia, South Korea, Singapore, Philippines, Japan, Indonesia, Malaysia, Thailand, Hong Kong, Taiwan, New Zealand and Vietnam. We are required to prepare and present our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP" or "GAAP"). These geographic business segments represent the level at which separate financial information is available and which is used by management to assess operating performance and allocate resources. WeIn addition to GAAP financial measures, we also evaluate our segment performance based upon Adjusted Operating EBITDA (a non-GAAP measure). See the definition of Adjusted Operating EBITDA and other non-GAAP measures used by management within the section titled "Non-GAAP Financial Measures" of this Management's Discussion and Analysis of Financial Condition and Results of Operations. In addition, see
Note 18,17, "Business Segments," of the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of our geographic business segments.
Executive Summary
Merger with The Middleby Corporation
On April 20, 2021, we entered into an Agreement and Plan of Merger ("Merger Agreement) with The Middleby Corporation ("Middleby"). Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger, each share of our common stock, $0.01 per share, issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive 0.1240 shares of validly issued, fully paid and non-assessable shares of common stock, par value $0.01 per share, of Middleby common stock. Upon closing of the Merger, Middleby stockholders will own approximately 76% and our stockholders will own approximately 24% of the combined company. The Merger with Middleby is also referred to in this document as the "Transaction".
Our board of directors and Middleby's board of directors have unanimously approved the Merger Agreement, our board of directors has agreed to recommend that our stockholders adopt the Merger Agreement and the board of directors of Middleby has agreed to recommend that Middleby’s stockholders approve the issuance of the shares of Middleby Common Stock in connection with the Merger.
The completion of the Merger is subject to the satisfaction or waiver of customary closing conditions, including: (i) expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) receipt of applicable approvals under certain foreign competition, antitrust or merger control laws, (iii) there being no law or order prohibiting consummation of the Merger, (iv) subject to specified materiality standards, the accuracy of the representations and warranties of the parties, (v) compliance by the parties in all material respects with their respective covenants, and (vi) the absence of a material adverse effect with respect to us and Middleby. The completion of the Merger is not conditioned upon receipt of financing by Middleby and the Merger is expected to close in late 2021.
Financial Results Highlights
Highlights of our financial results as of and for the three months ended March 31, 20202021, and for select line items, as compared to the same period of the prior year, are as applicable, include the following:follows:
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• | •Net sales were$316.8 million, a decrease of 3.7%.
•$328.9 million, a decrease of 12.4%. |
Organic net sales (a non-GAAP measure) decreased 11.6%were $309.1 million, a decrease of 6.0%.
•Gross profit (as a percentage of net sales) was 37.2% compared to 34.9% for the same quarter of 2020.
•Earnings from operations were $0.6$31.5 million, which included an impairment chargeincrease of $11.1$30.9 million.
•Adjusted Operating EBITDA (a non-GAAP measure) was $49.8 million, on trademarkan increase of 9.5% while Adjusted Operating EBITDA margin (a non-GAAP measure) was 15.7% compared to 13.8% for the same quarter of 2020.
•Net earnings were $7.9 million and trade names in our EMEA segment.
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• | Adjusted Operating EBITDA (a non-GAAP measure) was $45.5 million, a decrease of 9.2% while Adjusted Operating EBITDA margin (a non-GAAP measure) was 13.8%, an increase of 50 basis points.
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Net loss was $15.1 million, while Adjusted Net Earnings (a non-GAAP measure) was $1.4$11.9 million.
•Diluted net lossearnings per share was $0.11,$0.06 and Adjusted Diluted Net Earnings Per Share (a non-GAAP measure) was $0.01.$0.08.
•As of March 31, 2020,2021, our total liquidity was $299.5$353.7 million, consisting of $148.5$140.3 million of cash and cash equivalents and $151.0$213.4 million available for additional borrowingsborrowing under theour senior secured revolving credit facility, comparedto the extent we are compliant with financial covenants which permit such borrowings. This compares to liquidity of $384.8$375.0 million as of December 31, 2019. 2020.
•Our total outstanding long-term debt, excluding finance leases, as of March 31, 20202021 was $1,524.1$1,460.0 million.
The following is a summary of factors that impacted our operating results and liquidity during the three months ended March 31, 2021.
COVID-19 Impact on Business
In March 2020, the World Health Organization ("WHO") declared the outbreakImpact of COVID-19 Pandemic on our Business
The ongoing COVID-19 pandemic has resulted in governments around the world implementing stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, curfews, travel restrictions, border closures, limitations on public gatherings, social distancing measures and mandated business limitations and closures. These measures resulted in a disruption in the foodservice industry including substantial restaurant closures, and, as a pandemic, which continues to spread throughout the United States and the world. The pandemic, along with the measures implemented by governmental authorities and other third-parties in response, has caused disruptionresult, in commercial foodservice equipment end markets across the geographies in which we operate. While many professional kitchens remain open for takeout, drive-thru
The exact timing and delivery, manypace of the recovery from the COVID-19 pandemic is indeterminable, as certain geographic markets have closed to dine-in customersreopened, some of which have since experienced a resurgence of COVID-19 cases, including new strains of the virus, while others, haveparticularly international markets, remain closed completely. Beginning in March 2020, we experienced lower demandor are enforcing extended public health measures. The impact of the COVID-19 pandemic is fluid and continues to evolve, and the speed of recovery for the commercial foodservice equipment industry also remains uncertain. In order to protect the interests of our stakeholders and aftermarket parts and anticipate that demand will continue to be negatively impacted throughensure the second quarterviability of 2020 and beyond.
In response to the decreased customer demand for our products and services as a result of COVID-19,business, we have executed contingency plans for our operations and have taken steps to reduce operating expenses and capital spending as necessary, including reductionsnumerous actions during these disruptions in the size of our workforce and temporary employee furloughs. We have also implemented health safety measuresorder to protect our employees, customers, suppliers and stockholders including:
•implementing health and safety measures,
•reviewing operating costs, adjusting budgets and reducing discretionary spending,
•reducing hiring activities, adjusting compensation and benefits and furloughing employees consistent with reductions in ourproduct demand and manufacturing plants, distribution centers and offices. We have and will continue to adjustlevels,
•adjusting the operating schedules of our manufacturing plants based on governmental requirements, health, safety and demand factors,
•canceling non-essential travel plans,
•evaluating our supply chain, determining critical raw material requirements and identifying additional suppliers beyond our first-tier suppliers,
•amending covenants governing our debt agreements to maintain compliance, and
•obtaining government assistance, where applicable. During the three months ended March 31, 2021, we met the requirements in certain jurisdictions to receive a total of $1.8 million of government assistance in the form of cash, cost abatements and retention credits, with $1.9 million of the total government assistance received recorded as we proceed througha receivable at March 31, 2021.
Our Company's first quarter 2021 net sales, earnings from operations and cash flows all improved in comparison to the second quarter of 2020, which was the first full quarter of operations subsequent to the World Health Organization declaring the outbreak of COVID-19 as a global pandemic in March 2020. While the commercial foodservice industry has continued to gradually recover from the negative impacts of the COVID-19 pandemic, and related market impacts. Our supply chain continues to see minimal disruption and has not caused significant production delays to date.
Thethe extent of the effectultimate impact of the COVID-19 pandemic on our operational and financial performance will dependdepend significantly on future developments, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact in each of the countries thatwhere we operate globally, the developmentdistribution of treatments orCOVID-19 vaccines, emergence of new strains of the virus, and the timelinesstiming of the resumption of widespread economic activity. Whileactivity to pre-pandemic levels. During the first quarter of 2021, we expectbegan to see increases in the pandemiccost of specific commodities, components and parts purchased, including the impact of rising inflation rates and tariffs, compared to the first three months of fiscal 2020. We anticipate that the average cost of commodities, components and parts purchased, including the impact of rising inflation and tariffs, for the remainder of fiscal 2021 will be higher than the costs experienced during the comparable period of the year ended December 31, 2020.
We continue to negatively impactproactively monitor the developments surrounding COVID-19 and may take additional actions based on the requirements and recommendations of governmental and health authorities around the world in an attempt to protect our results of operations, financial position and cash flows, duestakeholders. We are currently unable to quantify with certainty the inherent uncertainty of such factors, our estimatesultimate severity or duration of the impact of COVID-19 on our business may change based on future developments.
As of March 31, 2020, we determined that it was more-likely-than-not that the indefinite-lived intangible assets of our EMEA and APAC regions carrying values exceeded their fair values due to the expected operational performance of these regions. As a result, we performed quantitative impairment assessments and determined that the carrying value of the indefinite-lived intangible assets in the EMEA region exceeded their estimated fair value. An impairment charge was recognized in the amount of $11.1 million, which was recorded as a component of "Loss from impairment and disposal of assets — net" for the three months ended March 31, 2020. Management determined that the fair value of the indefinite-lived intangible assets in the APAC region exceeded the carrying value of these assets and, therefore, concluded there was no impairment of these assets as of March 31, 2020. The duration and severity of the COVID-19 pandemic or other industry or competitive changes could result in additional future impairment charges to the Company's goodwill and remaining indefinite-lived intangible assets.on our business.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 and includes many measures intended to assist companies during the COVID-19 pandemic, including temporary changes to income and non-income-based tax laws, some of which werehad been enacted under the Tax Cuts and Jobs Act ("Tax Act") in 2017. As a result of the Tax Act and the CARES Act, additional legislative and regulatory guidance has been and may continue to be issued, including final regulations that could impact our effective tax rate in future periods. Certain provisions
The American Rescue Plan Act of 2021 was enacted on March 11, 2021 and, among other things, includes a second extension of the payroll support program provided under the CARES Act, provide benefits in our 2020 effective income tax rates as it relates to our net operating loss carryback and the increase in the allowable deductionswhich we will apply for interest expense. We also intend to apply additional provisions of the CARES Act in payroll-related payment deferrals and credits and other benefits, as applicable.
On April 17, 2020, we entered into Amendment No. 7 (the “Amendment”) to the 2016 Credit Agreement, to amend the financial covenants of the Revolving Credit Facility to prevent non-compliance with financial covenants of the Revolving Credit Facility for the quarter ending June 30, 2020 due to the impact of the COVID-19 pandemic on the commercial foodservice industry and the resulting decrease in demand for our products. The terms of the Amendment (i) suspend the Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio covenants, in each case, as defined in the 2016 Credit Agreement, for four fiscal quarters until March 31, 2021 ("Suspension Period") and (ii) temporarily replace the suspended covenants with a Minimum Consolidated EBITDA covenant and a Maximum Capital Expenditure covenant, each computed on a trailing four quarters basis and measured quarterly, and a Minimum Liquidity covenant that is measured monthly, each as defined in the Amendment, throughout the Suspension Period, with the Minimum Liquidity covenant extending through June 30, 2021.
Strategic Objectives
While our strategic objectives are long-term and remain intact, the execution of the Merger Agreement with Middleby and the uncertainty surrounding the COVID-19 pandemic will impact the extent and timing of our execution of these objectives. As such, our strategic objectives continue to include achieving sustainable growth globally and increased profitability by leveraging our position as a leading commercial foodservice equipment provider, while selectively pursuing longer-term strategic acquisitions and partnerships, growing our customer base and expanding the frontiers of foodservice innovation, as well as attracting and developing industry-leading talent.
Our specific strategic objectives include:
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• | Achieve profitable growth. We intend to grow sales organically with our best-in-class foodservice equipment product portfolio and kitchen systems approach. While organic growth across all three of our regions is our first priority, we will selectively pursue strategic acquisitions and partnerships. Our industry is fragmented, and we believe there is significant opportunity for consolidation through acquisitions, partnerships and other strategic relationships to drive growth.
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•Achieve profitable growth: We intend to grow sales organically with our best-in-class foodservice equipment portfolio of products and an integrated kitchen solution approach. While organic growth across all three of our regions is our first priority, we may selectively pursue strategic partnerships as our capital structure allows in the future. Our industry is fragmented, and we believe there is significant opportunity for consolidation through partnerships and other strategic relationships to drive growth.
•Business Transformation Program Update.Update: We are currently incontinuing the midstexecution of ourthe Business Transformation Program ("Transformation Program") whichto maintain and increase productivity gains and material cost reductions. We are encouraged by our progress to date and are committed to completing the activities included within the scope of the Transformation Program by the end of 2021 as originally planned. We remain confident in our ability to achieve the $75.0 million of annualized savings when our sales and volume levels return to pre-pandemic levels.
Our Transformation Program is structured in multiple phases extending through 2021 and is focused on specific areas of opportunity including strategic sourcing, manufacturing facility workflow redesign, distribution and administrative process efficiencies and optimizing our global brand platforms. We expect to conclude the planned execution actions of the Transformation Program by the end of 2021 and anticipate incurring total consulting costs, restructuring charges, and other related transformation expenses of $75$70.0 to $85$75.0 million from the inception of the program through 2021. The business disruption resulting fromHowever, the global COVID-19timing of realizing the full savings will be delayed until sales and manufacturing volumes return to pre-COVID levels. We may update our timing and cost estimates as the circumstances surrounding the pandemic and the uncertainty around the timing and extent of its impacts may extend the execution costs and related savings we expect from this program.foodservice industry recovery evolve.
In connection with the ongoing execution of the Transformation Program, we incurred $11.6$2.2 million of consulting and other related Transformation Program costs for the three months ended March 31, 2020, resulting in2021. We have also incurred $0.2 million of restructuring charges during the three months ended March 31, 2021, intended to reduce operating expenses as a result of the improved efficiencies gained from the execution of the Transformation Program. We have incurred total costs of $46.9$69.8 million from the inception of the operational reviewTransformation Program through March 31, 2020. We expect to incur the remaining costs associated with the Transformation Program in 2020 with a lesser portion expected to extend into 2021. We expect to settle2021 and have settled these costs primarily in cash. We intend to continuously evaluate the total investment in, and financial benefits of, the various initiatives associated with the Transformation Program. Since
•Create innovative products and solutions: To remain an industry leader and grow our reputation as an innovative company, we continuously develop dynamic product and system solutions for the entire kitchen. We leverage our suppliers and customers to actively address product competitiveness and life cycle extensions. We co-create innovation and refresh existing products with new, locally relevant food-inspiring technologies, while simultaneously finding new ways to integrate those technologies into global platforms in a cost-effective manner and create cohesive kitchen systems for our customers.
•Enhance customer satisfaction: We believe our broad product portfolio and the positioning of our industry-leading brands enables us to further grow the number of customers we serve and improve overall customer satisfaction as a trusted provider to the largest companies in the foodservice industry.
•Drive operational excellence: We are focused on productivity gains and cost reductions across our business and plan to continue to leverage our global footprint to drive greater efficiencies across our operations. We are executing these cost reduction initiatives through our Transformation Program's inceptionProgram, focused on specific areas of opportunity including strategic sourcing, manufacturing facility workflow redesign, distribution and administrative process efficiencies and optimizing our global brand platforms.
•Develop great people: We strive to make Welbilt an employer of choice in our industry. We believe that we have targeted annualized savings, including the realization of benefits from pricing optimization developed in conjunction with this program, in excess of $75 milliondemonstrate a strong commitment to our people by the second half of 2021. The actual timing of future costsproviding a diverse and realized savings of the program may differ materially from our current expectationsinclusive culture and estimates.environment where employee input, efforts and achievements are recognized and valued.
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• | Create innovative products and solutions: To remain an industry leader and grow our reputation as an innovative company, we continuously develop dynamic product and system solutions for the entire kitchen. We leverage our suppliers and customers to actively address product competitiveness and life cycle extensions. We co-create innovation and refresh existing products with new, locally relevant food-inspiring technologies, while simultaneously finding new ways to integrate those technologies into global platforms in a cost-effective manner and create cohesive kitchen systems for our customers.
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• | Enhance customer satisfaction: We believe our broad product portfolio and the positioning of our industry-leading brands enables us to further grow the number of customers we serve and improve overall customer satisfaction as a trusted provider to the largest companies in the foodservice industry.
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• | Drive operational excellence: We are focused on productivity gains and cost reductions across our business and plan to continue to leverage our global footprint to drive greater efficiencies across our operations. We are executing these cost reduction initiatives through our Transformation Program, focused on specific areas of opportunity including strategic sourcing, manufacturing facility workflow redesign, distribution and administrative process efficiencies and optimizing our global brand platforms.
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• | Develop great people: We strive to make Welbilt an employer of choice in our industry. We believe that we demonstrate a strong commitment to our people by providing a diverse and inclusive culture and environment where employee input, efforts and achievements are recognized and valued.
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Results of Operations for the Three Months Ended March 31, 20202021 and 20192020
The following table sets forth our consolidated financial results for the periods presented:
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(in millions, except percentage data) | | Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | $ | | % |
Net sales | | $ | 316.8 | | | $ | 328.9 | | | $ | (12.1) | | | (3.7) | % |
Cost of sales | | 199.0 | | | 214.1 | | | (15.1) | | | (7.1) | % |
Gross profit | | 117.8 | | | 114.8 | | | 3.0 | | | 2.6 | % |
Gross margin (% of Net sales) | | 37.2 | % | | 34.9 | % | | | | 2.3 | % |
Selling, general and administrative expenses | | 76.0 | | | 86.5 | | | (10.5) | | | (12.1) | % |
Amortization expense | | 10.1 | | | 9.7 | | | 0.4 | | | 4.1 | % |
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Restructuring and other expense | | 0.2 | | | 6.8 | | | (6.6) | | | (97.1) | % |
Loss from impairment and disposal of assets — net | | — | | | 11.2 | | | (11.2) | | | (100.0) | % |
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Earnings from operations | | 31.5 | | | 0.6 | | | 30.9 | | | 5,150.0 | % |
Interest expense | | 18.7 | | | 22.4 | | | (3.7) | | | (16.5) | % |
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Other expense (income) — net | | 3.0 | | | (6.5) | | | (9.5) | | | (146.2) | % |
Earnings (loss) before income taxes | | 9.8 | | | (15.3) | | | 25.1 | | | 164.1 | % |
Income tax expense (benefit) | | 1.9 | | | (0.2) | | | 2.1 | | | N/M |
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Net earnings (loss) | | $ | 7.9 | | | $ | (15.1) | | | $ | 23.0 | | | 152.3 | % |
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(in millions, except percentage data) | | Three Months Ended March 31, | | Change |
| 2020 | | 2019 | | $ | | % |
Net sales | | $ | 328.9 |
| | $ | 375.3 |
| | $ | (46.4 | ) | | (12.4 | )% |
Cost of sales | | 214.1 |
| | 248.8 |
| | (34.7 | ) | | (13.9 | )% |
Gross profit | | 114.8 |
| | 126.5 |
| | (11.7 | ) | | (9.2 | )% |
Gross margin (% of Net sales) | | 34.9 | % | | 33.7 | % | | | | 1.2 | % |
Selling, general and administrative expenses | | 86.5 |
| | 88.3 |
| | (1.8 | ) | | (2.0 | )% |
Amortization expense | | 9.7 |
| | 9.5 |
| | 0.2 |
| | 2.1 | % |
Restructuring and other expenses | | 6.8 |
| | 4.2 |
| | 2.6 |
| | 61.9 | % |
Loss from impairment and disposal of assets — net | | 11.2 |
| | — |
| | 11.2 |
| | 100.0 | % |
Earnings from operations | | 0.6 |
| | 24.5 |
| | (23.9 | ) | | (97.6 | )% |
Interest expense | | 21.3 |
| | 24.0 |
| | (2.7 | ) | | (11.3 | )% |
Other (income) expense — net | | (5.4 | ) | | 3.0 |
| | 8.4 |
| | 280.0 | % |
Loss before income taxes | | (15.3 | ) | | (2.5 | ) | | (12.8 | ) | | 512.0 | % |
Income taxes | | (0.2 | ) | | 0.1 |
| | (0.3 | ) | | (300.0 | )% |
Net loss | | $ | (15.1 | ) | | $ | (2.6 | ) | | $ | (12.5 | ) | | 480.8 | % |
N/M - Not Meaningful
Analysis of Net Sales
"Net sales" for our geographic business segments consistedconsist of the following for the periods presented:
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(in millions) | | Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | $ | | % |
Americas | | $ | 246.4 | | | $ | 250.5 | | | $ | (4.1) | | | (1.6) | % |
EMEA | | 93.4 | | | 90.0 | | | 3.4 | | | 3.8 | % |
APAC | | 48.7 | | | 51.3 | | | (2.6) | | | (5.1) | % |
Elimination of intersegment sales | | (71.7) | | | (62.9) | | | (8.8) | | | (14.0) | % |
Total net sales | | $ | 316.8 | | | $ | 328.9 | | | $ | (12.1) | | | (3.7) | % |
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(in millions, except percentage data) | | Three Months Ended March 31, | | Change |
| 2020 | | 2019 | | $ | | % |
Americas | | $ | 250.5 |
| | $ | 275.1 |
| | $ | (24.6 | ) | | (8.9 | )% |
EMEA | | 90.0 |
| | 106.7 |
| | (16.7 | ) | | (15.7 | )% |
APAC | | 51.3 |
| | 54.8 |
| | (3.5 | ) | | (6.4 | )% |
Elimination of intersegment sales | | (62.9 | ) | | (61.3 | ) | | (1.6 | ) | | (2.6 | )% |
Total net sales | | $ | 328.9 |
| | $ | 375.3 |
| | $ | (46.4 | ) | | (12.4 | )% |
Net sales totaled $328.9$316.8 million for the three months ended March 31, 20202021 representing a decrease of $46.4$12.1 million, or 12.4%3.7%, compared to the same period of the prior year. The decrease in net sales was primarily the result of decreased volumes largely due to rollouts with large chain customers in the prior year which did not recur and a decrease in general market demand primarily dueand to a much lesser extent decreased KitchenCare aftermarket sales, both of which were negatively impacted by the impact of theongoing COVID-19 pandemic on foodservice providers globally and the resulting decrease in demand for our products. This decrease was partially offset by increased net pricing.pricing and increased volumes related to rollouts with large chain customers as we move forward with the growth and expansion efforts that were disrupted as a result of the COVID-19 pandemic. Foreign currency translation negativelypositively impacted third-party net sales for the three months ended March 31, 20202021 by $2.9$7.7 million or 0.8%. Organic net sales (a non-GAAP measure) decreased 11.6% foras compared to the three months ended March 31, 2020 compared to the same period of the prior year.2020.
Net sales in the Americas segment for the three months ended March 31, 20202021 decreased $24.6$4.1 million, or 8.9%1.6%, as a resultcompared to the same period of lower third-party net sales of $22.7 million and a decrease in intersegment sales of $1.9 million.the prior year. The decrease in third-party net sales was primarily driven by decreased volumes largely due to a decrease in general market demand and a $7.0 million decrease in intersegment sales, both of which were significantly impacted by the ongoing COVID-19 pandemic on foodservice providers in the Americas and the resulting decrease in demand for our products. This decrease was partially offset by an increase in third-party net sales of $2.9 million and an increase in net pricing. The increase in third-party sales was primarily driven by an increase in KitchenCare aftermarket sales and increased volumes related to rollouts with certainlarge chain customers. Foreign currency translation positively impacted third-party net sales for the three months ended March 31, 2021 by $1.4 million as compared to the same period of the prior year.
Net sales in the EMEA segment for the three months ended March 31, 2021 increased $3.4 million, or 3.8%, compared to the same period of the prior year. The increase in net sales was primarily driven by a $14.0 million increase in intersegment sales due primarily to the America's rollout with large chain customers discussed above. This increase was partially offset by a decrease in third-party net sales of $10.6 million, which was primarily driven by decreased volumes in the general market and decreased KitchenCare aftermarket sales, both of which were significantly impacted by the ongoing COVID-19 pandemic on foodservice providers in EMEA and the resulting decrease in demand for our products. Foreign currency translation positively impacted third-party net sales for the three months ended March 31, 2021 by $5.2 million.
Net sales in the APAC segment for the three months ended March 31, 2021 decreased $2.6 million, or 5.1%, compared to the same period of the prior yearyear. The decrease in net sales was primarily driven by decreased third-party net sales of $4.4 million driven by decreased volumes in the general market demand and decreased KitchenCare aftermarket sales, which did not recur as well as the impact ofwere significantly impacted by the COVID-19 pandemic on foodservice providers and the resulting decrease in demand for our products. ThisThe decrease was partially offset by increased net pricing.an increase in intersegment sales of $1.8 million. Foreign currency translation also negativelypositively impacted third-party net sales for the three months ended March 31, 20202021 by $0.4 million. Organic net sales (a non-GAAP measure) decreased 9.3% for the three months ended March 31, 2020$1.1 million as compared to the same period of the prior year.
Net sales in the EMEA segment for the three months ended March 31, 2020 decreased $16.7 million, or 15.7% driven by lower third-party net sales of $19.3 million partially offset by a $2.6 million increase in intersegment sales. The decrease in third-party net sales was primarily driven by decreased volumes largely due to a rollout with a large chain customer in the prior year along with decreased volumes largely due to the impact of the COVID-19 pandemic on foodservice providers and the resulting decrease in demand for our products. This decrease was slightly offset by increased net pricing. Foreign currency translation also negatively impacted third-party net sales for the three months ended March 31, 2020 by $2.0 million. Organic net sales (a non-GAAP measure) decreased 19.0% for the three months ended March 31, 2020 compared to the same period of the prior year.
Net sales in the APAC segment for the three months ended March 31, 2020 decreased $3.5 million, or 6.4% consisting of lower third-party net sales of $4.4 million partially offset by a $0.9 million increase in intersegment sales. The decrease in third-party net sales was primarily driven by decreased volumes largely due to the impact of the COVID-19 pandemic on foodservice providers and the resulting decrease in demand for our products. Foreign currency translation also negatively impacted third-party net sales for the three months ended March 31, 2020 by $0.5 million. Organic net sales (a non-GAAP measure) decreased 8.9% for the three months ended March 31, 2020 compared to the same period of the prior year.
Analysis of Earnings from Operations
Gross profit
"Gross profit" for the three months ended March 31, 20202021 totaled $114.8$117.8 million, a decreasean increase of $11.7$3.0 million, or 9.2%2.6%, compared to the same period of the prior year. This decreaseincrease was primarily driven by: (i) a $22.4 million unfavorable impact from product volumes and mix, (ii) $5.4$7.7 million of higherfavorable labor and other manufacturing costs and warranty$5.4 million of favorable material costs, (iii) a $1.6primarily driven by the realizations of our efforts associated with the Transformation Program which are partially offset by inflationary pressures experienced during the first quarter of 2021, (ii) $4.2 million negativeof positive foreign currency translation impact, and (iv) $0.8 million of increased costs incurred in connection with the Transformation Program. These unfavorable impacts were largely offset by(iii) a $12.1$3.2 million favorable impact from increased net pricing. These favorable impacts were partially offset by: (i) a $12.6 million unfavorable impact from decreased product volumes and $6.6mix, (ii) a $3.5 million unfavorable impact from increased inbound freight costs resulting from the macroeconomic impacts of lower material costs.the COVID-19 pandemic to the supply chain and (iii) a $1.2 million unfavorable impact from increased tariffs.
Selling, general and administrative expenses
"Selling, general and administrative expenses" for the three months ended March 31, 20202021 totaled $86.5$76.0 million, representing a decrease of $1.8$10.5 million, or 2.0%12.1%, compared to the same period of the prior year. TheThis decrease in selling, general and administrative expenses is primarily the result of:due to: (i) $2.9$9.1 million of lower marketing and sales commission costs, (ii) $1.6 million of lower net employee-related and controllable travel costs, (iii) $0.9 million of lower professional fees, (iv) $0.9 million of lower other expenses primarily associated with information technology spending and (v) a $0.5 million positive foreign currency translation impact. These decreases were partially offset by $5.0 million of higher third-party consulting and other costs incurred in connection with our Transformation Program.Program (ii) $2.5 million of lower travel and other controllable costs, (iii) $2.4 million of lower marketing and commission costs, primarily attributable to lower sales volumes, (iv) $0.7 million of lower professional fees and (v) $0.3 million lower of depreciation expense. The impact of these decreases were partially offset by $2.4 million of increased employee-related costs, comprised primarily of $2.2 million of increased stock compensation costs and a $1.8 million unfavorable foreign currency translation impact as compared to the same period of the prior year.
Restructuring and other expenses
expense
"Restructuring and other expense" for the three months ended March 31, 2021 were $0.2 million, as a result of a restructuring plan initiated during the first quarter of 2021 for the consolidation of a manufacturing facility in EMEA and final costs associated with a restructuring action initiated during the fourth quarter of 2019 in the APAC region.
"Restructuring and other expenses" for the three months ended March 31, 2020 were $6.8 million, consisting of $3.7 million of severance and related costs and a $3.1 million loss contingency charge. The severance and related costs were associated with workforce reductions in the Americas and Corporate and a limited management restructuring to reduce operating expenses in response to the negative impact of the global COVID-19 pandemic on our operations as well as restructuring actions initiated during the fourth quarter of 2019 in the EMEA and APAC regions. The loss contingency charge was associated with our voluntary review of certain errors in declarations to the U.S. Customs and Border Protection for customs duties, fees and interest owed for previously imported products.products. See Note 12,11, "Contingencies and Significant Estimates," for further information.
Restructuring and other expenses for the three months ended March 31, 2019 were $4.2 million as a result of a global and limited executive management restructuring action which included personnel across all levels of our organization as well as executive management changes.
Loss from impairment and disposal of assets — net
"Loss from impairment and disposal of assets — net" for the three months ended March 31, 2020 was $11.2 million and consisted primarily of an impairment charge of $11.1 million on trademark and trade names in our EMEA segment. See Note 6 "Goodwill and Other Intangibles" of the Notes to the Consolidated Financial Statements for additional details.
Analysis of Segment Adjusted Operating EBITDA
As described in Note 18, "Business Segments," in the Notes to the Consolidated Financial Statements, during the first quarter of 2020, the Company revised the allocation of certain of its functional expenses between the corporate-level and the geographic business segments. Management believes the revised allocation methodology better aligns the operating results of the geographic business segments with how management assesses performance and makes operating decisions. The prior period segment results and related disclosures have been recast to conform to the current period presentation. These changes did not impact the Company's previously reported consolidated financial results.
Adjusted Operating EBITDAEBITDA" (a non-GAAP measure) for our geographic segments consisted of the following for the periods presented:
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(in millions, except percentage data) | | Three Months Ended March 31, | | Change |
| 2020 | | 2019 | | $ | | % |
Americas | | $ | 52.3 |
| | $ | 44.5 |
| | $ | 7.8 |
| | 17.5 | % |
EMEA | | 13.6 |
| | 18.2 |
| | (4.6 | ) | | (25.3 | )% |
APAC | | 8.2 |
| | 7.9 |
| | 0.3 |
| | 3.8 | % |
Total Segment Adjusted Operating EBITDA | | 74.1 |
| | 70.6 |
| | 3.5 |
| | 5.0 | % |
Less: Corporate and unallocated expenses | | (28.6 | ) | | (20.5 | ) | | (8.1 | ) | | (39.5 | )% |
Total Adjusted Operating EBITDA | | $ | 45.5 |
| | $ | 50.1 |
| | $ | (4.6 | ) | | (9.2 | )% |
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Adjusted Operating EBITDA margin(1) | | 13.8 | % | | 13.3 | % | | | | 0.5 | % |
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(in millions, except percentage data) | | Three Months Ended March 31, | | Change |
| 2021 | | 2020 | | $ | | % |
Americas | | $ | 50.3 | | | $ | 52.3 | | | $ | (2.0) | | | (3.8) | % |
EMEA | | 14.6 | | | 13.6 | | | 1.0 | | | 7.4 | % |
APAC | | 6.8 | | | 8.2 | | | (1.4) | | | (17.1) | % |
Total Segment Adjusted Operating EBITDA | | 71.7 | | | 74.1 | | | (2.4) | | | (3.2) | % |
Less: Corporate and unallocated expenses | | (21.9) | | | (28.6) | | | 6.7 | | | 23.4 | % |
Total Adjusted Operating EBITDA | | $ | 49.8 | | | $ | 45.5 | | | $ | 4.3 | | | 9.5 | % |
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Adjusted Operating EBITDA margin (1) | | 15.7 | % | | 13.8 | % | | | | 1.9 | % |
(1) Adjusted Operating EBITDA margin is calculated by dividing the dollar amount of Adjusted Operating EBITDA by net sales.
Adjusted Operating EBITDA inin the Americas segment for the three months ended March 31, 2020 increased2021 decreased by $7.8$2.0 million, or 17.5%3.8%. This increasedecrease was primarily the result of $14.1 million of unfavorable product volumes and mix and $3.1 million of unfavorable inbound freight costs and $1.2 million of increased tariffs, both resulting from the macroeconomic impacts to the supply chain as a result of the COVID-19 pandemic. The impact of these decreases were partially offset by (i) $5.4 million of lower in materials costs and $6.4 million of decreases in labor and other manufacturing costs, both primarily driven by: (i) an $11.2by the realizations of our efforts associated with the Transformation Program which are partially offset by inflationary pressures experienced during the first quarter of 2021, (ii) $2.2 million favorable impact from net pricing, , (ii) $6.0 million improvement of material costs, (iii) $2.1$1.6 million of lower marketing and commissions costs (iii) $1.8and (iv) $0.8 million of lower product warranty costs and (iv) $0.6 million of lower employee related and controllable travel costs. These increases were partially offset by $7.1 million of lower product volumes and mix and $5.7 million of increases in other manufacturing costs.favorable foreign currency translation impact.
Adjusted Operating EBITDA in the EMEA segment for the three months ended March 31, 2020 decreased2021 increased by $4.6$1.0 million, or 25.3%, which7.4%. This increase was primarily driven by: (i) $3.3 million of lower product volumes and mix, (ii) $1.9 million higher other manufacturing costs , (iii) $1.3 million higher professional services and research and development costs , (iv) $0.6 million of higher product warranty costs and (v) a $0.5 million unfavorable foreign currency translation impact. These decreases were partially offset by:the result of: (i) a $1.3 million of favorable foreign currency translation impact, from net pricing, (ii) $0.7 million of lower marketing expenses and (iii) $0.5$1.1 million of lower employee-related travel and other controllable costs, (iii) $0.7 million of lower marketing and commissions costs and (iv) $0.6 million of lower professional fees. The impact of these favorable items were partially offset by $2.1 million of decreased net pricing and product volumes and $0.9 million higher materials and other manufacturing costs.
Adjusted Operating EBITDA in the APAC segment for the three months ended March 31, 2020 increased2021 decreased by $0.3$1.4 million, or 3.8%17.1%. This increasedecrease was primarily driven by: (i) $0.6by $1.1 million lower product volumes and $0.5 million of lower employee-related, travel and other controllable costs, (ii) $0.4 million of lower research and development costs and (iii) a $0.2 million favorable impact from net pricing.unfavorable manufacturing costs. These increasesdecreases were partially offset by $0.8$0.4 million of decreased product volumes and mix and a $0.2 million unfavorable impact offavorable foreign currency translation.translation impact.
Corporate and unallocated expenses reflect certain corporate-level expenses and eliminations, which are not allocated to the geographic business segments. For the three months ended March 31, 2020,2021, corporate and unallocated costs increasedexpenses decreased by $8.1$6.7 million,, or 39.5%,23.4%. This increasedecrease was primarily driven by an increase$8.1 million decrease in the elimination of profit in inventory attributable to higherresulting from lower intercompany inventory on hand and a $2.2 million decrease in travel and other controllable costs. These decreases were partially offset by $3.6 million of increased employee-related costs, comprised primarily of $2.2 million of lower professional services and information technology costs and $1.2 million of lower stock-basedincreased stock compensation expenses.costs.
Analysis of Non-Operating Income Statement Items
For the three months ended March 31, 2020,2021, "Interest expense" was $21.3$18.7 million, a $2.7$3.7 million decrease as compared to the same period of the prior year, primarily driven by a decrease in the average borrowings outstanding and an overall decrease in the weighted average interest rates.rate of outstanding debt resulting from a decrease in LIBOR during the current period.
For the three months ended March 31, 2020,2021, "Other expense (income) expense — net" was an incomeexpense of $5.4$3.0 million, compared to an expenseincome of $3.0$6.5 million for the same period of the prior year. The $8.4decrease of $9.5 million change is primarily the result of higher net foreign currency transaction gains and a decrease in expenses associated withlosses compared to the pension settlement losssame period of $1.2 million recognized in 2019 which did not recur in 2020.
prior year.
Analysis of Income Taxes
For the three months ended March 31, 2020,2021, we recorded a $1.9 million income tax expense, reflecting a 19.4% effective tax rate, compared to a $0.2 million income tax benefit reflecting a 1.3% effective tax rate, compared to a $0.1 million income tax provision, reflecting a (4.0)% effective tax rate, recorded for the three months ended March 31, 2019.2020, reflecting a 1.3% effective tax rate. The increasechange in the effective tax rate for the three months ended March 31, 20202021 compared to the same period of the prior year is primarily due tothe result of our increase in earnings, changes in discrete tax items as a result of the change in uncertain tax positions, CARES Act net operating loss carryback provisions enacted in 2020 and the relative weighting of jurisdictional income and loss. For the three months ended March 31, 2020,2021, the income tax benefit includes $4.6 million of net discrete expensesprovision is primarily related to the provisionsrelative weighting of the CARES Act including changes allowing for net operating loss carrybackjurisdictional income and an increase in the allowable deduction limitation of interest expense (from 30% to 50%), compared to $0.8 million of discrete expenses related to stock-based compensation and foreign tax adjustments for the three months ended March 31, 2019.loss.
Liquidity and Capital Resources
Overview of Factors Affecting our Liquidity
We manage cash centrally, generally reinvest net earnings locally and meet our working capital requirements from cash and cash equivalents, cash flows from operations and capacity under our existing credit facilities. As of March 31, 2020,2021, our total liquidity was $299.5$353.7 million, consisting of $148.5$140.3 million of cash and cash equivalents and $151.0$213.4 million available for additional borrowings under our senior secured revolving credit facility ("Revolving Credit Facility"), to the extent the Company'sour compliance with financial covenants permits such borrowings, compared to total liquidity of $384.8$375.0 million as of December 31, 2019.2020. Our annual liquidity trend generally decreases in the first quarter and increases in the remaining quarters of the year driven by our earnings cycle as well as the timing of large cash payments in the first quarter such as annual rebates, incentive compensation and others.the build-up of inventory in advance of the historically higher sales period in the spring and early summer months.
As of March 31, 2020, 72.4%2021, approximately 90% of our cash and cash equivalents and restricted cash were held outside of the U.S. The majority of the cash generated in the U.S. is used to fund current and expected future working capital requirements and to fund debt service obligations. We maintain significant operations outside of the U.S., and as a result, a significant portion of our cash is denominated in foreign currencies. We manage our worldwide cash requirements by reviewing available funds among our subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to keepmaintain cash balances outside of the U.S. and to meet our liquidity needs through ongoing cash flows, external borrowings, or both. We plan to continue reinvesting foreign earnings indefinitely outside of the U.S. with certain limited exceptions.
Our
The expectations for our future cash needs are currently expected to be primarily related to operating activities, inclusive of ongoing Transformation Program costs,capital investments, working capital and debt service and capital investments.service. We estimate that our capital expenditures will be between $24$33.0 million and $28$37.0 million for the year ending December 31, 2020, which2021. The amount of actual capital expenditures may be impacted by general economic, financial or operational changes, including the future impact of the COVID-19 pandemic on our operating results, and competitive, legislative and regulatory factors, among other things.considerations. Our ability to satisfy our cash requirements depends on our ongoing ability to generate and, if necessary, raise cash. In response to the global COVID-19 pandemic throughout 2020 and the first quarter of 2021, we have actioned contingency plans for our operations and takentook what we believe to be appropriate steps to reduce operating expenses and capital spending, as necessary, including reductions in the size of our workforce and temporary employee furloughs. Additionally, in April 2020, we executed an amendment on our 2016 Credit Facility to prevent non-compliance with the financial covenants of our senior secured revolving credit facility for the quarter ending June 30, 2020. We continue to expect that our future cash generated from operations, together with our capacity under our existing senior secured revolving credit facility and our access to capital markets, will provide adequate resources to meet our working capital needs and cash requirements for at least the next 12 months.
Our access to, and the availability of, financing on acceptable terms in the future willmay be affected by many factors including the overall liquidity in the financial and capital markets, the state of the economy, the closing of the Merger Agreement with Middleby and our credit rating. The ongoing COVID-19 pandemic, which has caused disruptioncontinued to cause volatility in the capital markets, could also makeimpact our ability to pursue additional financing more difficult and at increased expense.opportunities in the future. Moreover, we are unable to quantify the extentultimate severity or duration of the effectimpact of the COVID-19 pandemic on our operational and financial performance, will depend significantly on future developments for which our estimates may change; however, it could have a materialan adverse impact on our results of operations, cash flows and financial position, compared to our current expectations, potentially resulting in a default or an acceleration of indebtedness, and could otherwise negatively impact our liquidity and ability to make additional borrowings under our revolving credit facility.Revolving Credit Facility.
Sources and Uses of Cash
Cash and cash equivalents and restricted cash as of March 31, 20202021 totaled $148.5$140.8 million, an increase of $17.8$15.4 million from the December 31, 20192020 balance of $130.7$125.4 million.
The table below summarizes our cash flows:
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | Three Months Ended March 31, | | Change |
| 2021 | | 2020 | |
Cash (used in) provided by: | | | | | | |
Operating activities | | $ | (16.4) | | | $ | (72.5) | | | $ | 56.1 | |
Investing activities | | (4.7) | | | (9.5) | | | 4.8 | |
Financing activities | | 37.1 | | | 105.1 | | | (68.0) | |
Effect of exchange rate changes on cash | | (0.6) | | | (5.3) | | | 4.7 | |
Net increase in cash and cash equivalents and restricted cash | | $ | 15.4 | | | $ | 17.8 | | | $ | (2.4) | |
|
| | | | | | | | | | | | |
(in millions) | | Three Months Ended March 31, | | Change |
| 2020 | | 2019 | |
Cash (used in) provided by: | | | | | | |
Operating activities | | $ | (72.5 | ) | | $ | (357.0 | ) | | $ | 284.5 |
|
Investing activities | | (9.5 | ) | | 191.4 |
| | (200.9 | ) |
Financing activities | | 105.1 |
| | 146.7 |
| | (41.6 | ) |
Effect of exchange rate changes on cash | | (5.3 | ) | | 1.0 |
| | (6.3 | ) |
Net increase (decrease) in cash and cash equivalents and restricted cash | | $ | 17.8 |
| | $ | (17.9 | ) | | $ | 35.7 |
|
Operating Activities
Cash used in operating activities for the three months ended March 31, 2021 was $16.4 million, consisting primarily of $23.7 million use of cash related to an increase in inventory, $12.8 million use of cash for rebate payments to customers, a $10.5 million use of cash related to a net increase in accounts receivable, $1.3 million use of cash for the settlement of restructuring activities, a $0.9 million net use of cash for professional fees and a change in deferred income taxes of $0.2 million. These outflows were partially offset by net income of $7.9 million, adjusted for non-cash charges of $20.4 million for depreciation and amortization expense, amortization of debt issuance costs and stock-based compensation. Additionally, there were net cash inflows of $4.6 million associated with the timing of other current and long-term liabilities, other assets and trade accounts payable.
Cash used in operating activities for the three months ended March 31, 2020 was $72.5 million, comparedconsisting primarily of a net loss of $15.1 million and a use of cash of $104.6 million related to $357.0the timing of accounts receivables, inventories, other assets and other current and long-term liabilities. These outflows were partially offset by a cash inflow of $11.7 million resulting from an increase in trade accounts payable, non-cash charges of $17.3 million for depreciation and amortization expense, amortization of debt issuance costs and stock-based compensation, an $11.2 million non-cash impairment charge on trademarks and tradenames in the EMEA segment and a non-cash inflow of $7.0 million for changes in deferred income taxes.
Investing Activities
Cash used in investing activities of $4.7 million for the three months ended March 31, 2019. The decrease in cash used in operating activities2021 was primarily driven by a decrease of $285.0 million from the timing of collections on accounts receivable combined with the termination of our accounts receivable securitization program during the first quarter of 2019 and a net impact of $14.4 million for the change in timing of payables and other current and long-term liabilities. Also contributing to the decrease in cash usage was a $4.1 million decrease in the net loss adjusted for non-cash items, including impairment charges of $11.1 million on trademarks and trade names in the EMEA segment. These decreases in usage were partially offset by an increase in cash use driven by timing of activity for other assets of $14.4 million and inventory build of $4.6 million.capital expenditures.
Investing Activities
Cash used in investing activities of $9.5 million for the three months ended March 31, 2020 consisted of capital expenditures of $5.6 million and $3.9 million of payments, net of interest received, made in connection with the maturity of our cross-currency swap in March 2020.
Financing Activities
Cash provided by investingfinancing activities of $191.4 million for the three months ended March 31, 20192021 of $37.1 million consisted primarily of $196.0$36.7 million of cash receiptsnet borrowings on beneficial interests in sold receivables. These cash inflows were partially offset by capital expenditures of $4.8 million.long-term debt and finance leases.
Financing Activities
Cash provided by financing activities for the three months ended March 31, 2020 of $105.1 million consisted primarily of net borrowings on long-term debt and finance leases of $104.7 million.
Cash provided by financing activities for the three months ended March 31, 2019 of $146.7 million consisted primarily of net borrowings on long-term debt and finance leases of $163.7 million, partially offset by repayments on short-term borrowings of $15.0 million.
Financing Resources
Our primary financing resources have historically consistedconsist of our 2016 Credit Agreement and our 9.50% Senior Notes due 2024. Collectively, these arrangements represent the majority of our financing resources, which combined with cash generated by our business operations, are used to meet our financial obligations and liquidity requirements. The general terms of our financing arrangements as of March 31, 20202021 are set forth below.
2016 Credit Agreement
Our 2016 Credit Agreement provides for a $1,300.0 million Senior Secured Credit Facility consisting of (i) a senior secured Term Loan B Facility for $900.0 million and (ii) a Senior Secured Revolving Credit Facility ("Revolving Credit Facility") with aggregate commitments of $400.0 million. OnThe maturities of the Term Loan B Facility and Senior Secured Revolving Credit Facility are October 2025 and October 2023, respectively.
In April 17,of 2020, we entered into Amendment No. 7 (the “Amendment”) to the 2016 Credit Agreement, to amend the financial covenants of the Revolving Credit Facility. The terms of the Amendment, among others as set forth in the Amendment, (i) suspend the Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio covenants, in each case, as defined in the 2016 Credit Agreement, for four fiscal quarters until March 31, 2021 ("Suspension Period") and (ii) temporarily replace the suspended covenants with a Minimum Consolidated EBITDA covenant and a Maximum Capital Expenditure covenant, each computed on a trailing four quarters basis and measured quarterly, and a Minimum Liquidity covenant that is measured monthly, each as defined in the Amendment, throughout the Suspension Period, with the Minimum Liquidity covenant extending through June 30, 2021.
Beginning in the second quarter of 2021, the Consolidated Total Leverage Ratio and Consolidated Interest Coverage Ratio covenants will be reinstated at modified levels as compared to the covenants that were in effect as of March 31,beginning June 30, 2020 and will returnphase-in to the March 31, 2020pre-amendment covenant levels by the fourth quarter of 2021.
As of March 31, 20202021, borrowings under the 2016 Credit Agreement bore interest at a rate per annum equal to, at our option, either (i) London InterbankInter-bank Offered Rate ("LIBOR") plus an applicable margin of 2.50% for the Term Loan B Facility and 1.50% to 2.50%, for the Revolving Credit Facility (depending on the Company'sour Consolidated Total Leverage Ratio) or (ii) an alternate base rate plus an applicable margin that is 1.00% less than the LIBOR-based applicable margin. The Amendment includes a quarterly fee applicable through the fourth quarter of 2021 in an amount equal to a per annum rate of 0.50% on the average outstanding balance of the Revolving Credit Facility, payable on a quarterly basis.
Senior Notes
On February 18, 2016, we issued 9.50% Senior Notes due 2024 (the "Senior Notes") in an aggregate principal amount of $425.0 million, all of which was outstanding as of March 31, 2020.2021. The Senior Notes were issued under an indenture with Wells Fargo Bank, National Association, as trustee, and are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of our domestic restricted subsidiaries who are a borrower or guarantor under the 2016 Credit Agreement.
Revolving Loan Facility
Our short-term secured revolving loan facility provided for borrowings of up to $30.0 million. During the first quarter of 2019, we repaid the outstanding balance on this facility, which matured on April 18, 2019.
Covenant Compliance
As discussed above, in April 2020, we entered into an Amendment to the 2016 Credit Agreement, to amend the financial covenants of the Revolving Credit Facility for periods subsequent to March 31, 2020. The 2016 Credit Agreement and indenture governing the Senior Secured Credit FacilityNotes contains limitations on our ability to effect mergers and change of control events as well as certain other limitations, including limitations on: (i) the declaration and payment of dividends or other restricted payments, (ii) incurrence of additional indebtedness or issuing preferred stock, (iii) the creation or existence of certain liens, (iv) incurrence of restrictions on the ability of certain of our subsidiaries to pay dividends or other payments, (v) transactions with affiliates and (vi) sales of assets.
As of March 31, 2020, our 2016 Credit Agreement contained financial covenants including, but not limited to (a) a Consolidated Interest Coverage Ratio, which measures the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense, and (b) a Consolidated Total Leverage Ratio, which measures the ratio of (i) Consolidated Indebtedness to (ii) Consolidated EBITDA for the most recent four fiscal quarters, in each case, as defined in the 2016 Credit Agreement.
We were in compliance with all affirmative and negative covenants, including any financial covenants, pertaining to our financing arrangements, in effect as of March 31, 2020. As discussed above, on April 17, 2020, we entered into an Amendment to2021. We continually monitor our compliance with the 2016 Credit Agreement, to amend the financial covenants of thein our Revolving Credit Facility, and in doing so have made estimates of the negative impact of the COVID-19 pandemic on our financial position, results of operations and cash flows. We believe we will remain in compliance with all such covenants for periods after March 31, 2020.the next 12 months; however, due to the inherent uncertainty of the severity and duration of the COVID-19 pandemic on our business, management's estimates of the achievement of our financial covenants may change in the future.
A summary of our outstanding financing obligations, excluding finance leases, is as follows:
|
| | | | | | | | |
(in millions) | | March 31, | | December 31, |
| 2020 | | 2019 |
Revolving credit facility | | $ | 244.9 |
| | $ | 141.8 |
|
Term Loan B facility | | 855.0 |
| | 855.0 |
|
9.50% Senior Notes due 2024 | | 425.0 |
| | 425.0 |
|
Total debt | | $ | 1,524.9 |
| | $ | 1,421.8 |
|
| | | | | | | | | | | | | | |
(in millions) | | March 31, | | December 31, |
| 2021 | | 2020 |
| | | | |
Revolving Credit Facility | | $ | 180.0 | | | $ | 143.0 | |
Term Loan B Facility | | 855.0 | | | 855.0 | |
9.50% Senior Notes due 2024 | | 425.0 | | | 425.0 | |
Total debt | | $ | 1,460.0 | | | $ | 1,423.0 | |
Further information regarding our financing resources can be found in Part I, Item I of this Form 10-Q in Note 9,8, "Debt," and Note 20, "Subsequent Event," of the Notes to the Consolidated Financial Statements.
Leasing Arrangements
We lease various assets under leasing arrangements. The future estimated payments under these arrangements are disclosed in Note 18, "Leases," of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Off-Balance Sheet Arrangements
As of March 31, 2020,2021, we had no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures discussed below to evaluate our results of operations, financial condition and liquidity. We believe that the presentation of these non-GAAP financial measures, when viewed as a supplement to our results prepared in accordance with U.S. GAAP, provides useful information to investors in evaluating the ongoing performance of our operating businesses, provides greater transparency into our results of operations and is consistent with how management evaluateswe evaluate our operating performance and liquidity. In addition, these non-GAAP measures address questions we routinely receive from analysts and investors and, in order to ensure that all investors have access to similar data, we make this data available to the public. None of the non-GAAP measures presented should be considered as an alternative to net earnings, earnings from operations, net cash used in operating activities, net sales or any other measures derived in accordance with U.S. GAAP. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for financial measures presented in accordance with U.S. GAAP. The presentation of our non-GAAP financial measures may change from time to time, including as a result of changed business conditions, new accounting rules or otherwise. Further, our use of these terms may vary from the use of similarly-titled measures by other companies due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.
Free Cash Flow
We refer to "Free Cash Flow", a non-GAAP measure, as our net cash provided by or used in operating activities less capital expenditures plus cash receipts on our beneficial interest in sold receivables and the related impact of terminating our accounts receivable securitization program during the first quarter of 2019.expenditures. We believe this non-GAAP financial measure is useful to investors in measuring our ability to generate cash internally to fund our debt repayments, acquisitions, dividends and share repurchases, if any. Free Cash Flow reconciles to net cash used in operating activities included in our Consolidated Statements of Cash Flows presented in accordance with U.S. GAAP, as follows:
| | | | | | | | | | | | | | |
(in millions) | | Three Months Ended March 31, |
| 2021 | | 2020 |
Net cash used in operating activities | | $ | (16.4) | | | $ | (72.5) | |
Capital expenditures | | (4.7) | | | (5.6) | |
| | | | |
| | | | |
Free Cash Flow | | $ | (21.1) | | | $ | (78.1) | |
|
| | | | | | | | |
(in millions) | | Three Months Ended March 31, |
| 2020 | | 2019 |
Net cash used in operating activities |
| $ | (72.5 | ) | | $ | (357.0 | ) |
Capital expenditures |
| (5.6 | ) | | (4.8 | ) |
Cash receipts on beneficial interest in sold receivables (1) |
| — |
| | 196.0 |
|
Termination of accounts receivable securitization program (2) | | — |
| | 96.9 |
|
Free Cash Flow |
| $ | (78.1 | ) | | $ | (68.9 | ) |
(1)Represents the cash receipts from the beneficial interest on sold receivables within the accounts receivable securitization program and were classified as “Cash flows from investing activities” in the Consolidated Statements of Cash Flows through final settlement of the program in the second quarter of 2019.
(2)Represents the increase in accounts receivable resulting from the termination of the accounts receivable securitization program during the first quarter of 2019, which is reflected in "Cash flows from operating activities" in the Consolidated Statements of Cash Flows.
Adjusted Operating EBITDA
In addition to analyzing our operating results on a U.S. GAAP basis, managementwe also reviewsreview our results on an “Adjusted Operating EBITDA” basis. Adjusted Operating EBITDA is defined as net earnings before interest expense, income taxes, other income or expense, depreciation and amortization expense plus certain other items such as loss from impairment of assets, gain or loss from disposal of assets, restructuring activities, loss on modification or extinguishment of debt, acquisition-related transaction and integration costs, Transformation Program expense and certain other items,. Management uses which are non-operating and unusual in nature. We use Adjusted Operating EBITDA as the basis on which we evaluate our financial performance and make resource allocations and other operating decisions. Management considersWe consider it important that investors review the same operating information used by management.us. Our Adjusted Operating EBITDA reconciles to net earnings (loss) as presented in the Consolidated Statements of Operations in accordance with U.S. GAAP as follows:
|
| | | | | | | | |
(in millions, except percentage data) | | Three Months Ended March 31, |
| 2020 | | 2019 |
Net loss | | $ | (15.1 | ) | | $ | (2.6 | ) |
Income taxes | | (0.2 | ) | | 0.1 |
|
Other (income) expense — net | | (5.4 | ) | | 3.0 |
|
Interest expense | | 21.3 |
| | 24.0 |
|
Earnings from operations | | 0.6 |
| | 24.5 |
|
Loss from impairment and disposal of assets — net | | 11.2 |
| | — |
|
Restructuring activities (1) | | 3.7 |
| | 4.2 |
|
Amortization expense | | 10.0 |
| | 9.5 |
|
Depreciation expense | | 5.2 |
| | 4.9 |
|
Transformation Program expense (2) | | 11.6 |
| | 5.8 |
|
Transaction costs (3) | | 0.1 |
| | 0.4 |
|
Other items (4) | | 3.1 |
| | 0.8 |
|
Total Adjusted Operating EBITDA | | $ | 45.5 |
| | $ | 50.1 |
|
| | | | |
Adjusted Operating EBITDA margin (5) | | 13.8 | % | | 13.3 | % |
| | | | | | | | | | | | | | |
(in millions, except percentage data) | | Three Months Ended March 31, |
| 2021 | | 2020 |
Net earnings (loss) | | $ | 7.9 | | | $ | (15.1) | |
Income tax expense (benefit) | | 1.9 | | | (0.2) | |
Other expense (income) — net(1) | | 3.0 | | | (6.5) | |
| | | | |
| | | | |
Interest expense (1) | | 18.7 | | | 22.4 | |
Earnings from operations | | 31.5 | | | 0.6 | |
Loss from impairment and disposal of assets — net | | — | | | 11.2 | |
Restructuring activities (2) | | 0.2 | | | 3.7 | |
| | | | |
Amortization expense | | 10.5 | | | 10.0 | |
Depreciation expense | | 5.4 | | | 5.2 | |
Transformation Program expense (3) | | 2.2 | | | 11.6 | |
Transaction costs (4) | | — | | | 0.1 | |
Other items (5) | | — | | | 3.1 | |
Total Adjusted Operating EBITDA | | $ | 49.8 | | | $ | 45.5 | |
| | | | |
Adjusted Operating EBITDA margin (6) | | 15.7 | % | | 13.8 | % |
(1) As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, amortization of debt issuance costs previously included as a component of "Other expense (income) — net" totaled $1.1 million for the three months ended March 31, 2020 and has been reclassified to include as a component of "Interest expense" in our Consolidated Statements of Operations.
(2) Restructuring activities include costs associated with actions to improve operating efficiencies and rationalization of our cost structure. Refer to Note 15,14, "Business Transformation Program and Restructuring" for discussion of the impact to the Consolidated Statements of Operations.
(2) (3) Transformation Program expense includes consulting and other costs associated with executing our Transformation Program initiatives. Refer to Note 15,14, "Business Transformation Program and Restructuring" for discussion of the impact to the Consolidated Statements of Operations.
(3) (4) Transaction costs are associated with acquisition-related transactionacquisition and integrationintegrated-related activities. Transaction costs recorded in "Cost of Sales" include $0.2 million related to inventory fair value purchase accounting adjustments for the three months ended March 31, 2019. Professional services and other direct acquisition and integration costs recorded in "Selling, general and administrative expenses" were $0.1 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.2020.
(4)(5) Other items are costs which are not representative of our operational performance. For the three months ended March 31, 2020, other items represent the changes in the loss contingency estimate of amounts due for customcustoms duties, fees and interest on previously imported products, which are included in "Restructuring and other expenses." Refer to Note 12,11, "Contingencies and Significant Estimates" for discussion of the impact to the Consolidated Statements of Operations. For the three months ended March 31, 2019, the amount represents other professional fees which are included in "Selling, general and administrative expenses."
(5) (6) Adjusted Operating EBITDA margin in the section above is calculated by dividing the dollar amount of Adjusted Operating EBITDA by net sales.
Adjusted Diluted Net Earnings and Adjusted Diluted Net Earnings Per Share
We define Adjusted Diluted Net Earnings as net lossearnings (loss) before the impact of certain items, such as loss on modification or extinguishment of debt, loss from impairment of assets, gain or loss from disposal of assets, restructuring activities, Transformation Program expense, acquisition-related transaction and integration costs, certain other items, expenses associated with pension settlements, foreign currency transaction gain or loss and the tax effect of the aforementioned adjustments, as applicable. Adjusted Diluted Net Earnings Per Share for each period represents Adjusted Diluted Net Earnings while giving effect to all potentially dilutive shares of common stock that were outstanding during the period. We believe these measures are useful to investors in assessing the ongoing performance of our underlying businesses before the impact of certain items. The following table presents Adjusted Diluted Net Earnings and Adjusted Diluted Net Earnings Per Share reconciled to net loss and diluted net loss per share, respectively, presented in accordance with U.S. GAAP:
| | (in millions, except per share data) | | Three Months Ended March 31, | (in millions, except per share data) | | Three Months Ended March 31, |
| 2020 | | 2019 | | 2021 | | 2020 |
Net loss | | $ | (15.1 | ) | | $ | (2.6 | ) | |
Net earnings (loss) | | Net earnings (loss) | | $ | 7.9 | | | $ | (15.1) | |
Loss from impairment and disposal of assets — net | | 11.2 |
| | — |
| Loss from impairment and disposal of assets — net | | — | | | 11.2 | |
Restructuring activities (1) | | 3.7 |
| | 4.2 |
| Restructuring activities (1) | | 0.2 | | | 3.7 | |
| Transformation Program expense (2) | | 11.6 |
| | 5.8 |
| Transformation Program expense (2) | | 2.2 | | | 11.6 | |
Transaction costs (3) | | 0.1 |
| | 0.4 |
| Transaction costs (3) | | — | | | 0.1 | |
Other items (4) | | 3.1 |
| | 0.8 |
| Other items (4) | | — | | | 3.1 | |
Pension settlement (5) | | — |
| | 1.2 |
| |
Foreign currency transaction (gain) loss (6) | | (7.7 | ) | | 0.8 |
| |
Tax effect of adjustments (7) | | (5.5 | ) | | (3.2 | ) | |
| Foreign currency transaction loss (gain) (5) | | Foreign currency transaction loss (gain) (5) | | 2.8 | | | (7.7) | |
| Tax effect of adjustments (6) | | Tax effect of adjustments (6) | | (1.2) | | | (5.5) | |
Total Adjusted Net Earnings | | $ | 1.4 |
| | $ | 7.4 |
| Total Adjusted Net Earnings | | $ | 11.9 | | | $ | 1.4 | |
| | | | | | | | |
Per share basis | | | | | Per share basis | |
Diluted net loss | | $ | (0.11 | ) | | $ | (0.02 | ) | |
Diluted net earnings (loss) | | Diluted net earnings (loss) | | $ | 0.06 | | | $ | (0.11) | |
Loss from impairment and disposal of assets — net | | 0.08 |
| | — |
| Loss from impairment and disposal of assets — net | | — | | | 0.08 | |
Restructuring activities (1) | | 0.03 |
| | 0.03 |
| Restructuring activities (1) | | — | | | 0.03 | |
| Transformation Program expense (2) | | 0.08 |
| | 0.04 |
| Transformation Program expense (2) | | 0.01 | | | 0.08 | |
Transaction costs (3) | | — |
| | — |
| |
| Other items (4) | | 0.02 |
| | 0.01 |
| Other items (4) | | — | | | 0.02 | |
Pension settlement (5) | | — |
| | 0.01 |
| |
Foreign currency transaction (gain) loss (6) | | (0.05 | ) | | — |
| |
Tax effect of adjustments (7) | | (0.04 | ) | | (0.02 | ) | |
| Foreign currency transaction loss (gain) (5) | | Foreign currency transaction loss (gain) (5) | | 0.02 | | | (0.05) | |
| Tax effect of adjustments (6) | | Tax effect of adjustments (6) | | (0.01) | | | (0.04) | |
Total Adjusted Diluted Net Earnings | | $ | 0.01 |
| | $ | 0.05 |
| Total Adjusted Diluted Net Earnings | | $ | 0.08 | | | $ | 0.01 | |
(1) Restructuring activities include costs associated with actions to improve operating efficiencies and rationalization of our cost structure. Refer to Note 15,14, "Business Transformation Program and Restructuring" for discussion of the impact to the Consolidated Statements of Operations.
(2) Transformation Program expense includes consulting and other costs associated with executing our Transformation Program initiatives. Refer to Note 15,14, "Business Transformation Program and Restructuring" for discussion of the impact to the Consolidated Statements of Operations.
(3) Transaction costs are associated with acquisition-related transactionacquisition and integrationintegrated-related activities. Transaction costs recorded in "Cost of Sales" include $0.2 million related to inventory fair value purchase accounting adjustments for the three months ended March 31, 2019. Professional services and other direct acquisition and integration costs recorded in "Selling, general and administrative expenses" were $0.1 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.2020.
(4) Other items are costs which are not representative of our operational performance. For the three months ended March 31, 2020, other items represent the changes in the loss contingency estimate of amounts due for customcustoms duties, fees and interest on previously imported products, which are included in "Restructuring and other expenses." Refer to Note 12,11, "Contingencies and Significant Estimates" for discussion of the impact to the Consolidated Statements of Operations. For the three months ended March 31, 2019, the amount represents other professional fees which are included in "Selling, general and administrative expenses."
(5)Pension settlement represents a non-cash pension settlement loss of $1.2 million incurred during the three months ended March 31, 2019, resulting from the settlement of a portion of our United Kingdom pension obligations.
(6) Foreign currency transaction gains and losses are inclusive of gains and losses on related foreign currency exchange contracts not designated as hedging instruments for accounting purposes.
(7) (6) The tax effect of adjustments is determined using the statutory tax rates for the countries comprising such adjustments.
Organic Net Sales
We define "Organic net sales" as net sales before the impacts of acquisitions and foreign currency translations during the period. We believe the Organic net sales measure is useful to investors in assessing the ongoing performance of our underlying businesses. Organic net sales reconcile to net sales presented in accordance with U.S. GAAP as follows:
| | (in millions) | | Three Months Ended March 31, | (in millions) | | Three Months Ended March 31, |
| 2020 | | 2019 | | 2021 | | 2020 |
Consolidated: | | | | | Consolidated: | | | | |
Net sales | | $ | 391.8 |
| | $ | 436.6 |
| Net sales | | $ | 388.5 | | | $ | 391.8 | |
Less: Intersegment sales | | (62.9 | ) | | (61.3 | ) | Less: Intersegment sales | | (71.7) | | | (62.9) | |
Net sales (as reported) | | 328.9 |
| | 375.3 |
| Net sales (as reported) | | 316.8 | | | 328.9 | |
| Impact of foreign currency translation(1) | | 2.9 |
| | — |
| Impact of foreign currency translation(1) | | (7.7) | | | — | |
Organic net sales | | $ | 331.8 |
| | $ | 375.3 |
| Organic net sales | | $ | 309.1 | | | $ | 328.9 | |
| | | | | | | | |
Americas: | | | | | Americas: | |
Net sales | | $ | 250.5 |
| | $ | 275.1 |
| Net sales | | $ | 246.4 | | | $ | 250.5 | |
Less: Intersegment sales | | (32.4 | ) | | (34.3 | ) | Less: Intersegment sales | | (25.4) | | | (32.4) | |
| Third-party net sales | | 218.1 |
| | 240.8 |
| Third-party net sales | | 221.0 | | | 218.1 | |
Impact of foreign currency translation(1) | | 0.4 |
| | — |
| Impact of foreign currency translation(1) | | (1.4) | | | — | |
Total Americas organic net sales | | $ | 218.5 |
| | $ | 240.8 |
| Total Americas organic net sales | | $ | 219.6 | | | $ | 218.1 | |
| | | | | | | | |
EMEA: | | | | | EMEA: | |
Net sales | | $ | 90.0 |
| | $ | 106.7 |
| Net sales | | $ | 93.4 | | | $ | 90.0 | |
Less: Intersegment sales | | (18.4 | ) | | (15.8 | ) | Less: Intersegment sales | | (32.4) | | | (18.4) | |
Third-party net sales | | 71.6 |
| | 90.9 |
| Third-party net sales | | 61.0 | | | 71.6 | |
| Impact of foreign currency translation(1) | | 2.0 |
| | — |
| Impact of foreign currency translation(1) | | (5.2) | | | — | |
Total EMEA organic net sales | | $ | 73.6 |
| | $ | 90.9 |
| Total EMEA organic net sales | | 55.8 | | | $ | 71.6 | |
| | | | | | | | |
APAC: | | | | | APAC: | |
Net sales | | $ | 51.3 |
| | $ | 54.8 |
| Net sales | | $ | 48.7 | | | $ | 51.3 | |
Less: Intersegment sales | | (12.1 | ) | | (11.2 | ) | Less: Intersegment sales | | (13.9) | | | (12.1) | |
Third-party net sales | | 39.2 |
| | 43.6 |
| Third-party net sales | | 34.8 | | | 39.2 | |
| Impact of foreign currency translation(1) | | 0.5 |
| | — |
| Impact of foreign currency translation(1) | | (1.1) | | | — | |
Total APAC organic net sales | | $ | 39.7 |
| | $ | 43.6 |
| Total APAC organic net sales | | $ | 33.7 | | | $ | 39.2 | |
(1) The impact from foreign currency translation is calculated by translating current period activity at the weighted average prior period rates.
Critical Accounting Policies
Our critical accounting policies have not materially changed since we filed our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
New Accounting Pronouncements
See Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," of the Notes to the Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q for discussion of recently issued accounting pronouncements applicable to us and the estimated impact of the adoption of thesethose standards on our Consolidated Financial Statementsconsolidated financial statements and related disclosures.
Cautionary Statements Regarding Forward-Looking Information
Certain statements contained in this Quarterly Report on Form 10-Q, including matters discussed under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations," constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts are forward-looking statements and include, for example:example, statements about the potential future impacts of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows (including demand, sales, operating expenses, Adjusted Operating EBITDA, net income (loss), operating cash flows, intangible assets, staffing levels, supply chain, government assistance and compliance with financial covenants), our ability to meet working capital needs and cash requirements over the next 12 months; our ability to realize savings from reductions in force and other cost saving measures; compliance with the financial covenants under our credit facility; our ability to obtain financial and tax benefits from the CARES Act; our expectations regarding future results; descriptions of the Business Transformation Program ("Transformation Program"), including related costs, completion dates and targeted annualized savings; expected impact of restructuring and other plans and objectives for future operations; assumptions on which all such projects, plans or objectives are based; and discussions of condition and demand in the global foodservice market and foodservice equipment industry. Certain of these forward-looking statements can be identified by the use of words such as "anticipates," "believes," "intends," "estimates," "targets," "expects," "endeavors", "could," "will," "may," "future," "likely," "on track to deliver," "gaining momentum," "plans," "projects," "assumes," "should" or other similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties, and our actual results could differ materially from future results expressed or implied in these forward-looking statements. The forward-looking statements included in this report are based on the current beliefs and expectations of our management as of the date of this report. These statements are not guarantees or indicators of future performance.performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those risks, uncertainties and factors described below and in more detail under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 20202021 and in our other filings with the SEC. To the extent theThe COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of amplifyingamplifies many of these risks, uncertainties and factors. We do not intend, and, except as required by law, we undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect any future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Important risks, uncertainties and other factors that could affect our future results and could cause actual results to differ materially from those expressed or implied in the forward-looking statements included in this report include, but are not limited to:
•the impact of the COVID-19 pandemic on the dining and hospitality industries and the measures taken by governmental authorities and third parties in response to the pandemic;
•risks related to adverse market conditions having the effect of changing one or more of the critical assumptions or estimates, which could change the estimation of fair value and could result in an impairment in the recorded value of our goodwill or intangible assets;
risks relateddisruptions to our indebtedness, including our ability to comply with covenants containedsupply chain, resulting in our debt agreements, generate sufficient cash to comply with principaldelays, difficulties and interest repayment obligations, meet working capital needs and cash requirements over the next 12 months, and refinance such indebtedness on favorable terms;increased costs of acquiring raw materials;
•our ability to timely and efficiently execute on our Transformation Program and manufacturing strategies, including reducing excess manufacturing capacity, opening or closing plants in a manner consistent with our strategy, executing workforce reductions, and/or consolidating existing facilities and operations;operations and achieving procurement savings;
•our ability to generate cash and manage working capital consistent with our stated goals;
•our ability to realize anticipated or targeted earnings enhancements, cost savings, strategic options and other synergies (through the Business Transformation Program or otherwise), and the anticipated timing to realize those enhancements, savings, synergies, and options;
•the successful development of innovative products and market acceptance of new and innovative products;
•risks associated with manufactured products, including issues related to product quality and reliability, our reliance on third-party sourced components and costs associated with product liability and product warranty claims;
•unanticipated issues associated with refresh/renovation plans, new product rollouts and/or new equipment by national restaurant accounts and global chains;
•risks relating to the acquisition and integration of businesses or products, including: our ability to successfully identify, finance, acquire and integrate acquisition targets; our ability to complete divestitures, strategic alliances, joint ventures and other strategic alternatives on favorable terms; and uncertainties and unanticipated costs in completing such strategic transactions;
•actions of activist stockholders;
•our ability to recruit and retain highly qualified executives and other key personnel;
•unanticipated changes in capital and financial markets, including unfavorable changes in the interest rate environment and changes relating to the discontinuation, reform or replacement of LIBOR;
•risks thatrelated to our actual operating performance and cash flows are substantially different from forecasted results impactingindebtedness, including our ability to comply with covenants contained in our debt covenants or pursue our strategic objectives, among other things;agreements, generate sufficient cash to comply with principal and interest repayment obligations, meet working capital needs and cash requirements over the next 12 months, and refinance such indebtedness on favorable terms;
our ability to compete against companies that are larger and have greater financial and other resources than we do;
changes in the competitive conditions in the markets and countries in which we operate, including the impact of competitive pricing by our competitors or consolidation of dealers or distributors;
the successful development of innovative products and market acceptance of new and innovative products;
factors affecting demand for foodservice equipment, including: impacts of COVID-19 on the various economies in which we operate, foodservice equipment replacement cycles in the U.S. and other mature markets; unanticipated changes in consumer spending impacting the foodservice industry; and population and income growth in emerging markets;
•our ability to source raw materials and commodities on favorable terms and respond to volatility in the price of raw materials and commodities, including through the use of hedging transactions;
risks associated with manufactured products, including issues related•our ability to product qualitycompete against companies that are larger and reliability, our reliance on third-party sourced components and costs associated with product liability and product warranty claims;
unanticipated issues associated with refresh/renovation plans, new product rollouts and/or new equipment by national restaurant accounts and global chains;
natural disasters, acts of war, terrorism, pandemics (such as the recent outbreak of COVID-19)have greater financial and other events that may disrupt the supply chain or distribution network in one or more regions of the world or otherwise cause instability of financial markets throughout the world;resources;
general worldwide political and economic risks, uncertainties and adverse events resulting in instability, including financial bailouts and defaults of sovereign nations;
economic and other consequences associated with the United Kingdom's withdrawal from the European Union;
unanticipated changes in capital and financial markets, including unfavorable •changes in the interest rate environmentcompetitive conditions in the markets and changes relating to the discontinuation, reform or replacement of LIBOR;
foreign currency fluctuations and their impact on reported results and hedges in place;
issues related to compliance with complex and evolving laws, rules and regulations affecting our business, including increased costs of compliance, potentially conflicting laws among the countries in which we operate, and including the impact of competitive pricing by our competitors or consolidation of dealers or distributors;
•pricing pressure imposed by buying groups with significant purchasing power in our industry;
•our ability to quickly respondretain our independent dealers and distribution partners to changes in such laws;sell our products;
•adverse changes in domestic or international tax laws, export and import controls or trade regulations, including new tariffs imposed by the U.S. or other governments, the adoption of trade restrictions affecting our products or suppliers, a U.S. withdrawal from, or significant renegotiation of, existing trade agreements without ratification of a replacement trade agreement, or the threat or occurrence of trade wars;
•unexpected issues affecting our current and future effective tax rate, including, but not limited to, tariffs, global tax policies, tax reform, tax legislation, Organization for Economic Cooperation and Development ("OECD") initiatives, including the global anti-base erosion ("GloBE") Pillar Two proposal envisaging global minimum taxation;
•economic and other consequences associated with the United Kingdom's withdrawal from the European Union;
•foreign currency fluctuations and their impact on reported results and hedges in place;
•risks associated with data security and technology systems, including our ability to protect information systems against, or effectively respond to, a cybersecurity incident or other disruption, and compliance with complex regulations in the countries in which we operate;
•the availability of, and our ability to obtain and maintain, adequate insurance coverage and/or our ability to cover or insure against the total amount of the claims and liabilities we face, whether through third-party insurance or self-insurance;
•our ability to adequately prevent or mitigate against increasingly sophisticated methods to engage in illegal or fraudulent activities targeted at large, multi-national companies;
•the expense, timing and outcome of legal and regulatory proceedings, arbitrations, investigations, tax audits and other regulatory audits, including without limitation those disclosed in Note 13, "Contingencies and Significant Estimates," of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020;
•the risk that our products could cause, or be alleged to cause, personal injury and adverse effects, leading to an increase in the volume of product liability lawsuits, unfavorable outcomes in such lawsuits and/or withdrawals of products from the market;
the expense, timing and outcome of legal and regulatory proceedings, arbitrations, investigations, tax audits and other regulatory audits and the outcome of our review of our import practices in order to quantify additional customs duties and related fees we may be assessed;
our ability to comply with evolving and complex accounting rules, many of which involve the use of significant judgment and assumptions;
the availability of, and our ability to obtain and maintain, adequate insurance coverage and/or our ability to cover or insure against the total amount of the claims and liabilities we face, whether through third-party insurance or self-insurance;
•unexpected costs incurred in connection with protecting our intellectual property rights and defending against challenges to such rights;
costs of litigation and our ability to defend against lawsuits and other claims, including without limitation those disclosed in Part II, Item I "Legal Proceedings", of this Quarterly Report on Form 10-Q;
costs associated with unanticipated environmental liabilities;
our ability to generate cash and manage working capital consistent with our stated goals;
our ability to recruit and retain highly qualified executives and other key personnel;
•risks associated with our labor relations, including work stoppages, delays in renewing labor agreements and our inability to renegotiate labor rates on favorable terms, as well as the availability of skilled and temporary labor at our manufacturing facilities and other locations;
risks•unanticipated issues associated with data securitythe resolution or settlement of unrecognized tax benefits or unfavorable resolution of tax audits;
•risks related to unfunded or underfunded pension obligations;
•costs associated with unanticipated environmental liabilities;
•general worldwide political and technology systems,economic risks, uncertainties and adverse events resulting in instability, including financial bailouts and defaults of sovereign nations;
•risks related to adverse market conditions having the effect of changing one or more of the critical assumptions or estimates, which could change the estimation of fair value and could result in an impairment in the recorded value of our goodwill or intangible assets;
•risks that our actual operating performance and cash flows are substantially different from forecasted results impacting our ability to protectcomply with our debt covenants or pursue our strategic objectives, among other things;
•factors affecting demand for foodservice equipment, including impacts of the COVID-19 pandemic on the various economies in which we operate, foodservice equipment replacement cycles in the U.S. and other mature markets; unanticipated changes in consumer spending impacting the foodservice industry; changing consumer tastes and government regulations affecting the quick-service restaurant industry; and population and income growth in emerging markets;
•risks and uncertainties relating to the material weakness in our internal control over financial reporting, which, if not timely remediated, may adversely affect the accuracy and reliability of our financial statements;
•our inability to successfully remediate the material weakness in our internal control over financial reporting and the risk that additional information systems against,may arise that would require us to make adjustments or effectively respondrevisions to a cybersecurity incidentour financial statements or other disruption;delay the filing of our financial statements;
our ability to adequately prevent or mitigate against increasingly sophisticated methods to engage in illegal or fraudulent activities targeted at large, multi-national companies; actions of activist stockholders;
unexpected issues affecting our current and future effective tax rate, including, but not limited to, tariffs, global tax policies, tax reform, tax legislation, the United Kingdom’s departure from the European Union and Organization for Economic Cooperation and Development ("OECD") initiatives, including the global anti-base erosion ("GloBE") proposal envisaging global minimum taxation;
•our ability to effectively transfer cash between foreign entities and/or jurisdictions, including in a manner that is consistent with our strategic goals and priorities;
unanticipated issues•costs associated with compliance with conflict minerals regulations;
•risks related to our proposed merger with Middleby, including the resolutionrisk that the conditions to the closing of the transaction are not satisfied, including the risk that required approvals of the transaction from the stockholders of Middleby or settlementour stockholders or from regulators are not obtained, the risk of unrecognized tax benefitslitigation relating to the transaction, uncertainties as to the timing of the consummation of the transaction and the ability of each party to consummate the transaction, risks that the proposed transaction disrupts our current plans or unfavorable resolutionoperations or the current plans or operations of tax audits;Middleby, our ability or the ability of Middleby to retain and hire key personnel, competitive responses to the proposed transaction; unexpected costs, charges or expenses resulting from the transaction, potential adverse reactions or changes to relationships with customers, suppliers, distributors and other business partners resulting from the announcement or completion of the transaction, the combined company’s ability to achieve the synergies expected from the transaction, as well as delays, challenges and expenses associated with integrating the combined company’s existing businesses; and
and •other events outside our control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company'sOur quantitative and qualitative disclosures about market risk are incorporated by reference from Part II, Item 7A of the Company'sour Annual Report on Form 10-K for the year ended December 31, 2019. The Company's2020. Our market risk exposures have not materially changed since itsour Annual Report on Form 10-K for the year ended December 31, 20192020 was filed.
We have global operations and are exposed to market risks in the ordinary course of our business. The recent COVID-19 pandemic has caused disruption on a global scale in commercial foodservice equipment end markets across the geographies in which we operate. VolatileContinued volatile market conditions arising from the COVID-19 pandemic may result in significant changes in exchange rates in the future, and in particular a weakening of foreign currencies relativehave continued to the U.S. dollar may negatively affectimpact our results of operations, financial position and cash flows.flows throughout the three months ended March 31, 2021. Due to the inherent uncertainty of such factors,the pace of the recovery from the COVID-19 pandemic, our estimates of the impact of COVID-19the pandemic on our business may change based on future developments. The market risks may also change over time as business practices evolve and include, but are not limited to, changes in interest rates, commodity price risk and changes in foreign currency exchange rates. To reduce these risks, we may selectively use derivative financial instruments and other proactive management techniques. Our corporate governance includes policies and procedures that place financial instruments under the direction of corporate finance and restrict all derivative transactions to those intended for hedging purposes only. The use of financial instruments for trading purposes or speculation is strictly prohibited.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has established and maintains disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2021, due to the material weakness in our internal control over financial reporting previously identified in our 2020 Annual Report on Form 10-K ("2020 Form 10-K") which, as described below, continues to exist, our disclosure controls and procedures were not effective.
Previously Reported Material Weakness in Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). We previously disclosed in our 2020 Form 10-K that we did not maintain effective internal control over financial reporting as of December 31, 2020 as a result of a material weakness that we identified. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that material misstatements of our annual or interim financial statements will not be prevented or detected on a timely basis. Refer to Item 9A in our 2020 Form 10-K for a description of the material weakness and the initial remediation efforts undertaken by management.
Status of Remediation Efforts to Address Material Weakness
Management is committed to maintaining a strong internal control environment. In response to the identified material weakness, management, with the oversight of the Audit Committee of the Board of Directors, has taken actions towards the remediation of the material weakness in internal control over financial reporting as outlined below. We have implemented processes and controls to enhance our internal control over financial reporting with respect to the identified material weakness.
During the three months ended March 31, 2021, the following steps were taken to develop and implement enhanced control activities, which are incremental to the remediation efforts described in Item 9A in our 2020 Form 10-K, to remediate the deficiencies underlying the material weakness over certain aspects of one of our significant information technology ("IT") systems:
•Automated alerts for all changes to privileged user access are now monitored and reviewed by the Chief Information Officer or the IT Director to ensure such changes are valid, approved and completed in accordance with our policies and controls. These alerts are also monitored, reviewed and tracked by IT's service desk.
•The logging functionality of the IT system has been enabled to track any changes, including deletions, for all users with privileged access. All changes are reviewed on a monthly basis by the IT Director to ensure such changes are valid, approved and completed in accordance with our policies and controls.
•On a monthly basis, the IT Director or appropriate delegate performs a "user access review" for all users with privileged access to verify such access is valid, approved and completed in accordance with our policies and controls.
Management believes that these actions, once implemented and operating effectively, will remediate the material weakness discussed above. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and
management has concluded, through testing, that these enhanced internal controls are operating effectively. Until the identified material weakness is remediated, we will not be able to assert that our internal control over financial reporting is effective.
Changes in Internal Control Over Financial Reporting
ThereExcept as disclosed above, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting despite the fact that many of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation to minimize any impact on our disclosure controls and procedures and their operating effectiveness.reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we become involved in various lawsuits, claims and proceedings arising out of, or incident to, our ordinary course of business, including lawsuits, claims, investigations or proceedings pertaining to product liability, patent infringement, environmental matters, commercial disputes, warranty claims, trade practices and employment matters. While we cannot predict the outcome of any lawsuit, claim, investigation or proceeding with certainty, we do not believe that the ultimate disposition of any pending matter is likely to have a material adverse effect on our consolidated financial position, liquidity, or results of operations.
On December 13, 2018, a purported securities class action lawsuit was filed in the U.S. District Court for the Middle District of Florida against the Company and certain of its former executive officers. The lawsuit was captioned Schlimm v. Welbilt, Inc., et al., and alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by making material misstatements or omissions in certain of its periodic reports filed with the Securities and Exchange Commission ("SEC") relating to, among other things, the Company's business operations and the effectiveness of its internal control over financial reporting. The lawsuit sought an unspecified amount of damages and an award of attorney’s fees, in addition to other relief. On October 17, 2019, the defendants filed a motion to dismiss the lawsuit. On February 6, 2020, the Court issued an order granting defendants’ motion and dismissed the Schlimm lawsuit without prejudice. On March 30, 2020, the Court issued an amended order of dismissal with prejudice. On April 2, 2020, the plaintiffs filed a notice of appeal regarding the Court’s order granting the defendants’ motion to dismiss. The appeal is pending.
On March 15, 2019, a purported stockholder derivative action was filed in the U.S. District Court for the District of Delaware against certain of the Company's current and former executive officers and directors, and the Company was named as a nominal defendant. The lawsuit is captioned Quinney v. Muehlhaeuser, et al., and alleges violation of Section 14(a) of the Securities Exchange Act of 1934 and breach of fiduciary duty, among other claims, based upon similar underlying allegations as those in the Schlimm lawsuit. The Quinney lawsuit seeks an unspecified amount of damages and an award of attorney’s fees, in addition to other relief. On June 5, 2019, the Delaware court stayed the Quinney lawsuit, pending further developments in the Schlimm lawsuit. On April 1, 2020, the parties filed a stipulation of dismissal, and the Delaware court dismissed the Quinney lawsuit without prejudice.
On September 4, 2019, a purported stockholder derivative action was filed in the U.S. District Court for the Middle District of Florida against certain of the Company's current and former executive officers and directors, and the Company was named as a nominal defendant. The lawsuit was captioned The Lee S. Kosby Trust v. Muehlhaeuser, et al., and alleged violation of Section 14(a) of the Securities Exchange Act of 1934 and breach of fiduciary duty, among other claims, based upon similar underlying allegations as those in the Quinney and Schlimm lawsuits. The Kosby lawsuit sought an unspecified amount of damages and an award of attorney’s fees, in addition to other relief. On March 18, 2020, the plaintiff filed a notice of voluntary dismissal, and on March 19, 2020, the Florida court dismissed the Kosby lawsuit without prejudice.
We intend to defend vigorously against all lawsuits, as they may arise in the ordinary course of business. However, litigation is inherently uncertain, and we are unable to predict the outcome of these lawsuits and are unable to estimate the range of loss, if any, that could result from an unfavorable outcome. We also cannot provide any assurance that the ultimate resolution of each of theseany lawsuits will not have a material adverse effect on our reputation, business, prospects, results of operations or financial condition.
ITEM 1A. RISK FACTORS
Except as set forth below or as disclosed immediately above under "Item 1. Legal Proceedings" (which disclosure is incorporated herein by reference), thereRisks Related to the Proposed Transaction with The Middleby Corporation.
There are several risks and uncertainties related to the proposed transaction with Middleby Corporation ("Middleby") (the "Transaction"). Because of these risks and uncertainties, we have been no material changes tosupplemented the risk factors described under the caption "Risk Factors"previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.2020, to add the risk factors below.
The Transaction is subject to customary closing conditions to both our obligations and the obligations of Middleby to complete the Transaction, and if these conditions are not satisfied or waived, the Transaction may not be completed on a timely basis or at all.
The completion of the Transaction is subject to several of customary conditions to closing and there can be no assurance that such conditions to closing that remain outstanding will be satisfied or waived (to the extent permitted by law). The failure to timely satisfy the required conditions could delay the completion of the Transaction for a significant period of time or prevent the completion of the Transaction from occurring at all. These closing conditions include, among others, (i) approval of the issuance of Middleby Common Stock in connection with the Transaction by Middleby’s stockholders, (ii) approval for listing of the Middleby Common Stock to be issued in connection with the Transaction on NASDAQ, (iii) the effectiveness of a registration statement on Form S-4 with respect to the Middleby Common Stock to be issued in connection with the Transaction, (iv) approval and adoption of the Merger Agreement by our stockholders, (v) expiration or termination of any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and receipt of applicable approvals under certain foreign competition, antitrust or merger control laws, (vi) there being no law or order prohibiting consummation of the Transaction, (vii) subject to specified materiality standards, the accuracy of the representations and warranties of the parties, (viii) compliance by the parties in all material respects with their respective covenants, (ix) the absence of a material adverse effect with respect to us and Middleby, and (x) the delivery of an officer’s closing certificate by both parties.
Many of the conditions to completion of the Transaction are not within either our or Middleby’s control, and neither company can predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to April 20, 2022 (subject to extension if certain approvals have not been obtained by such date), it is possible that the Merger Agreement may be terminated. Although we and Middleby have agreed in the Merger Agreement to use reasonable best efforts to, subject to certain limitations, complete the Transaction as promptly as practicable, these and other conditions to the completion of the Transaction may fail to be satisfied. In addition, satisfying the conditions to and completion of the Transaction may take longer, and could cost more, than we and Middleby expect. We can not and Middleby cannot predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the Transaction for a significant period of time or prevent them from occurring. Any delay in completing the Transaction may adversely affect the cost savings and other benefits that we and Middleby expect to achieve if the Transaction and the integration of the companies’ respective businesses are not completed within the expected timeframe. There can be no assurance that all required regulatory approvals will be obtained or obtained prior to the termination date. The governmental agencies from which the parties have sought or are seeking certain approvals in connection with the Transaction have broad discretion in administering applicable governing regulations, and may impose requirements, limitations or costs, require divestitures or place restrictions on the conduct of the combined company’s business after the closing. Such requirements, limitations, costs, divestitures or restrictions could delay or prevent the consummation of the Transaction or have a material adverse effect on the combined company’s business and results of operations.
Failure to consummate the Transaction could negatively impact the share price and our future business and financial results.
If the Transaction is not consummated, our ongoing business may be adversely affected and, without realizing any of the potential benefits of having consummated the Transaction, we will be subject to several risks, including the following:
•We may experience negative reactions from the financial markets, including negative impacts on our stock price;
•We may experience negative reactions from our customers, distributors, suppliers, vendors, business partners and employees;
•We will be required to pay certain costs and expenses relating to the Transaction whether or not the Transaction is consummated, such as legal, accounting, financial advisor and printing fees;
•Matters relating to the Transaction (including integration planning) may require substantial management time and resources, which could otherwise have been devoted to other beneficial opportunities;
•The Merger Agreement restricts us, without Middleby’s consent and subject to certain exceptions, from taking certain specified actions until the Transaction occurs or the Merger Agreement terminates. These restrictions may prevent us from pursuing otherwise attractive business opportunities, entering into contracts, incurring capital expenditures to grow our business and making other changes to our business prior to completion of the Transaction or termination of the Merger Agreement;
•We could become subject to litigation related to any failure to consummate the Transaction or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement; and
•If the Merger Agreement is terminated in certain circumstances, we may be required to pay a termination fee of $110 million to Middleby.
If the Transaction is not consummated, these risks may materialize and may materially and adversely affect our business, operations, financial results and share price.
The Merger Agreement subjects us to restrictions on our business activities prior to the Effective Time.
The Merger Agreement subjects us to restrictions on our business activities prior to the Effective Time. The Merger Agreement obligates us to generally conduct our businesses in the ordinary course until the Effective Time and to use our reasonable best efforts to (i) preserve our assets and business organization, (ii) maintain our existing relationships and goodwill with material customers, suppliers, distributors, governmental authorities and business partners, and (iii) to keep available the services of our officers and key employees. These restrictions could prevent us from pursuing certain business opportunities that arise prior to the Effective Time.
Our stockholders will not be entitled to appraisal rights in the Transaction.
Under Delaware law, holders of our Common Stock do not have appraisal rights in connection with the Transaction.
The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Transaction, may discourage certain other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require us to pay the other party a termination fee.
Under the Merger Agreement, we are subject to certain restrictions on our ability to solicit alternative business combination proposals from third parties, engage in discussion or negotiations with respect to such proposals or provide information in connection with such proposals, subject to certain customary exceptions. We may terminate the Merger Agreement and enter into an agreement providing for a superior proposal only if specified conditions have been satisfied, and such a termination would result in us being required to pay Middleby a termination fee equal to $110 million. If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Transaction. While we believe these provisions and agreements are reasonable and customary and are not preclusive of other offers, these provisions could discourage a third party that may have an interest in acquiring all or a significant part of us from considering or proposing such acquisition, even if such third party were prepared to pay consideration with a higher value than the merger consideration. These provisions might also result in a potential third party acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.
In specified circumstances, Middleby could terminate the Merger Agreement to accept an alternative proposal.
Middleby may in certain circumstances terminate the Merger Agreement to enter into an agreement providing for a superior proposal prior to obtaining approval of the proposed transaction from its shareholders. In such event, Middleby would be obligated to pay the us a termination fee equal to $160 million, but would have no further material obligation or liabilities to us relating to or arising out of the Merger Agreement or the Transaction. Such termination would deny us and our stockholders any benefits from the Transaction and could materially and negatively impact our share price.
Because the number of Middleby shares that our stockholders will be entitled to receive as a result of the Transaction will be based on a fixed exchange ratio, and the value of the Middleby shares has fluctuated and will continue to fluctuate, our stockholders cannot be sure of the value of the merger consideration they will receive.
Upon completion of the Transaction, our stockholders will be entitled to receive 0.1240 shares of Middleby common stock in exchange for each outstanding and issued share of our common stock. Because this exchange ratio is fixed and will only be adjusted in certain limited circumstances (including reclassifications, stock splits or combinations, exchanges or readjustments of shares, or stock dividends, recapitalization or similar transactions involving us or Middleby), any changes in the market value of shares of Middleby common stock or our common stock may affect the value that our stockholders will be entitled to receive upon completion of the Transaction. Share price changes may result from a variety of factors, including changes in the business, operations or prospects of Middleby or us, market assessments of the likelihood that the Transaction will be completed, the timing of the Transaction, regulatory considerations, general market and economic conditions and other factors.
While the Transaction is pending, we will be subject to business uncertainties which could adversely affect our business, results of operations, financial condition and cash flows.
Uncertainty about the effect of the Transaction on our employees, customers, distributors, suppliers, vendors and other business partners may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Transaction is consummated and for a period thereafter. If, despite our retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, the combined company’s (or, if the Transaction is not consummated, our stand alone company) business could be harmed and the ability to realize the anticipated benefits of the Transaction could be adversely affected.
Parties with which we do business may experience uncertainty associated with the Transaction, including with respect to current or future business relationships with us. Our business relationships may be subject to disruption as customers and suppliers may attempt to negotiate changes in existing business relationships or consider entering into business relationships with other parties. These disruptions could have an adverse effect on the businesses, financial condition, our results of operations or our prospects, including an adverse effect on the anticipated benefits of the Transaction. The risk and adverse effect of such disruptions could be exacerbated by a delay in completion of the Transaction or termination of the Merger Agreement. Additionally,
Completion of the Transaction may trigger change in control or other provisions in certain agreements to which we are a party.
Certain contracts entered into by us contain change in control, anti-assignment, or certain other provisions that may be triggered as a result of the Transaction. If the counterparties to these agreements do not consent to the Transaction or waive such provisions, the counterparties may have the ability to exercise certain rights (including termination rights), resulting in the combined company incurring liabilities as a consequence of breaching such agreements, or causing the combined company to lose the benefit of such agreements or incur costs in seeking replacement agreements. Even if we and Middleby are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to us.
If completed, the Transaction may not achieve the intended results.
We and Middleby entered into the Merger Agreement with the expectation that the Transaction will result in various benefits. Achieving the anticipated benefits of the transaction is subject to several uncertainties, including whether our business and Middleby's business can be integrated in an efficient and effective manner. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected revenues and could adversely affect the combined company’s future business, financial condition, operating results and cash flows.
We and Middleby may be unable to successfully integrate their respective operations. Failure to successfully integrate our business and Middleby's business in the expected timeframe may adversely affect the future results of the combined company, and, consequently, the value of the Middleby shares that our stockholders will receive as the merger consideration.
It is possible that the integration process could take longer than anticipated, could give rise to unanticipated costs and could result in the loss of valuable employees, the disruption of each of our and Middleby’s ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect the combined company’s ability to achieve the anticipated benefits of the transaction. The combined company’s results of operations could also be adversely affected by any issues attributable to either company’s operations that arise or are based on events or actions that occur prior to the completion of the Transaction. We and Middleby may have difficulty addressing possible differences in corporate cultures and management philosophies. The integration process is subject to several uncertainties, and cautionary statements described therein, togetherno assurance can be given that the anticipated benefits will be realized or, if realized, the timing of their realization.
After the Transaction, our stockholders will have a significantly lower ownership and voting interest in Middleby than they currently have in us and will exercise less influence over management.
Based on the number of shares of our common stock outstanding as of April 15, 2021, our former stockholders are expected to own Middleby shares representing approximately 24% of the combined company and Middleby stockholders are expected to own Middleby shares representing approximately 76% of the combined company. Our stockholders currently have the right to vote for their directors and on other matters affecting us. Following the completion of the Transaction, the Middleby shares that each of our former stockholders will receive as merger consideration will represent a percentage ownership of Middleby that is smaller than our stockholders’ percentage ownership of us before the completion of the Transaction. As a result of this reduced ownership percentage, our former stockholders will have less influence over the management and policies of Middleby than they currently have over our current management and policies.
The shares of Middleby common stock to be received by our stockholders upon the completion of the Transaction will have different rights from shares of our common stock.
Upon the completion of the Transaction, our stockholders will no longer be stockholders of Welbilt, Inc. Instead, our former stockholders will become Middleby stockholders and while their rights as Middleby stockholders will continue to be governed by the laws of the state of Delaware, their rights will be subject to and governed by the terms of the Middleby restated certificate of incorporation and the Middleby amended and restated bylaws. The terms of the Middleby restated certificate of incorporation and the Middleby amended and restated bylaws are in some respects different than the terms of our amended and restated certificate of incorporation and our amended and restated bylaws, which currently govern the rights of our stockholders.
We and Middleby may be targets of legal proceedings that could result in substantial costs and may delay or prevent the Transaction from being completed.
Although, currently, we are not aware of any legal proceedings having been brought against us or Middleby in connection with the Transaction, securities class action lawsuits, derivative lawsuits and other disclosureslegal proceedings are often brought against public companies that have entered into merger agreements. Even if such legal proceedings are without merit, defending against these claims can result in this Quarterly Reportsubstantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Form 10-Qour and Middleby’s respective liquidity and financial condition. Additionally, if a plaintiff is successful in our other public filings withobtaining an injunction prohibiting completion of the Securities and Exchange Commission should be carefully considered. AnyTransaction, such risks and uncertainties, as well as risks and uncertainties not currently known to usinjunction may delay or that we currently deem to be immaterial,prevent the Transaction from being completed, or from being completed within the expected timeframe, which may materially adversely affect our business, financial position and results of operation.
We and Middleby will incur substantial transaction fees and costs in connection with the Transaction.
We and Middleby expect to incur several non-recurring transaction-related costs associated with completing the Transaction, combining the operations of the two organizations and achieving desired benefits of the Transaction. These fees and costs will be substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, retention, severance, change in control and other integration-related costs, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of our business and Middleby's business. There can be no assurance that the integration process will deliver all or substantially all of the benefits of the Transaction in the near term, the long term or at all. The costs described above and any unanticipated costs and expenses, many of which will be borne by Middleby or us even if the Transaction is not completed, could have an adverse effect on Middleby’s or our financial condition and operating results.
The ongoing COVID-19 pandemic,market price of the Middleby common stock after the Transaction may be affected by factors different from those currently affecting the market price of our common stock.
Upon completion of the Transaction, our stockholders will no longer be stockholders of Welbilt, Inc. but will instead become holders of Middleby common stock. The businesses of Middleby differ from our businesses in important respects, and, accordingly, the measures implemented by governmental authorities and other third parties in response to the pandemic, have adversely impacted and will continue to adversely impact our business, results of operations cash flows and financial position.
The global economy generally, andof Middleby after the foodservice industry in particular, continue to be negatively impacted by the pandemic and actions taken to control the spread of the virus, including quarantines, curfews, travel restrictions, and mandated non-essential business closures. Many professional kitchens have closed to dine-in customers, remaining open only for takeout, drive-thru, and/or delivery, or closed completely. As a result, we have experienced a reduced demand for our products, which has negatively impacted and will likely continue to negatively impact our business and financial performance. If this decrease in demand continues for a prolonged period, our results of operations, cash flows and financial position could be materially adversely impacted. The financial impact of the pandemic could, in turn, negatively impact our future compliance with financial covenants contained in agreements governing our indebtedness, potentially resulting in a default or an acceleration of indebtedness, and could otherwise negatively impact our liquidity and ability to make additional borrowings under our revolving credit facility. The pandemic may also affect the health and availability of our workforce,Transaction, as well as the workforce of our suppliers and customers. Weaker economic conditions may result a decrease in fair value of our tangible or intangible assets, which in turn, could result in an impairment charge in our financial statements. We may also experience disruptions to our supply chain, resulting in difficulties and increased costs of acquiring raw materials. We could also incur delays in shipments of our products, which could harm our customer relations and adversely impact our sales. Any of these factors could lead to a further decline in our stock price.
The extentmarket price of the effectMiddleby common stock, may be affected by factors different from those currently affecting our results of the COVID-19 pandemic on our operational and financial performance will depend significantly on future developments which are highly uncertain and cannot be predicted, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impactoperations. In addition, general fluctuations in each of the countries in which we operate, the development of treatments or vaccines, the availability of federal, state, local or non-U.S. funding programs, how quickly and to what extent normal economic and operating conditions can resume, particularly with respect to the foodservice industry, and the impacts on our supply chain. Due to the inherent uncertainty of such factors, we cannot predict the extent or materiality of the ultimate impact of COVID-19 on our business with confidence at this time; however, itstock markets could have a material adverse impacteffect on the market for, or liquidity of, Middleby common stock, regardless of Middleby’s actual operating performance.
Our directors and executive officers have interests in the Transaction that may be different from, or in addition to, the interests of our resultsstockholders generally.
Our directors and executive officers have interests in the Transaction that may be different from, or in addition to, the interests of operations, cash flowsour stockholders generally. The interests of our directors and financial position comparedexecutive officers include, among others, severance rights, vesting protections for equity awards in the event of termination of employment in connection with a change in control, rights to continuing indemnification and directors’ and officers’ liability insurance. Our board of directors was aware of and carefully considered the interests of our current expectations.respective directors and officers, among other matters, in evaluating the terms and structure, and overseeing the negotiation of the Transaction, in approving the Merger Agreement, the merger and the other transactions contemplated thereby, and the recommendation of our board of directors that our stockholders adopt the Merger Agreement
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Exhibit No. | | Description | | | Filings for Incorporation by Reference |
| | Amendment No. 7 to Credit Agreement and Plan of Merger, dated as of April 17, 2020,20, 2021, by and among The Middleby Corporation, Welbilt, Inc., the subsidiary borrowers party thereto, the lendersMiddleby Marshall Inc. and other financial parties from timeMosaic Merger Sub, Inc. | | | Exhibit 2.1 to time party theretoCurrent Report on Form 8-K filed on April 21, 2021 |
| | | | | Exhibit 10.1 to Current Report on Form 8-K filed on April 20, 202026, 2021 |
| | | | | Filed herewith |
| | | | | Filed herewith |
| | | | | Furnished herewith |
| | | | | Furnished herewith |
101 | | The following materials from the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 20202021 formatted in Inline Extensible Business Reporting Language ("iXBRL"): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) related notes, tagged as blocks of text and including detailed tags. | | | Filed herewith |
104 | | Cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020,2021, formatted in iXBRL (included as Exhibit 101). | | | Filed herewith |
* Represents a management contract or compensatory plan, contract or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
Date: May 6, 2020
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Welbilt, Inc. | |
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Welbilt, Inc. | |
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/s/ Martin D. Agard | |
Martin D. Agard, | |
Executive Vice President and Chief Financial Officer | |
(Principal Financial Officer) | |
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/s/ Jamie E. PalmKimberly Perez | |
Jamie E. Palm | |
Kimberly Perez, Vice President Corporate Controller and Chief Accounting Officer | |
(Principal Accounting Officer) | |
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