Tupperware Brands (TUPBQ) 10-Q2023 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________________________________

FORM 10-Q

_________________________________________________________________

For the 13 weeks ended September 30, 2023

OR

Commission file number 1-11657

_________________________________________________________________

(Exact name of registrant as specified in its charter)

(Address of principal executive offices)     (Zip Code)

(407) 826-5050

(Registrant's telephone number, including area code)

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

TABLE OF CONTENTS

TUPPERWARE BRANDS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(Unaudited)

TUPPERWARE BRANDS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

TUPPERWARE BRANDS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

TUPPERWARE BRANDS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(Unaudited)

TUPPERWARE BRANDS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(Unaudited)

TUPPERWARE BRANDS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(a) Includes $0.0 million and $0.0 million of cash on discontinued operations as of September 30, 2023 and September 24, 2022, respectively.

(b) Includes Short-term restricted cash of $6.7 million and $2.8 million as of September 30, 2023 and September 24, 2022, respectively, and Long-term restricted cash of $8.4 million and $5.9 million as of September 30, 2023 and September 24, 2022, respectively.

TUPPERWARE BRANDS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Summary of Significant Accounting Policies

Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts of Tupperware Brands Corporation and its subsidiaries, collectively, “Tupperware” or the “Company” with all intercompany transactions and balances having been eliminated. The Company prepared the unaudited Condensed Consolidated Financial Statements in accordance with United States generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and, in the Company’s opinion, reflect all adjustments, including normal recurring items that are necessary for a fair statement of results of operations, comprehensive income, financial position, equity and cash flows for the periods presented.

Certain information and note disclosures normally included in the financial statements prepared in conformity with GAAP for complete financial statements have been condensed or omitted as permitted by such rules and regulations. As such, the accompanying unaudited Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited 2022 Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K (“2022 10-K”) for the year ended December 31, 2022. Operating results of any interim period presented herein are not necessarily indicative of the results that may be expected for a full fiscal year.

Fiscal Quarter

The Company’s quarterly periods are the 13 weeks ending on the Saturday closest to March 30, June 30, September 30, and December 31. The third quarter in fiscal year 2023 and 2022 ended on September 30, 2023 and September 24, 2022, respectively.

Restatement of Previously Issued Financial Statements

As previously disclosed in the Company's 2022 10-K filed with the SEC on October 16, 2023, the Company restated its previously issued unaudited interim Condensed Consolidated Financial Information for the first three quarters of 2022 and all quarters of 2021 and its 2021 and 2020 annual Consolidated Financial Statements due to multiple prior period misstatements. The accompanying 2022 Condensed Consolidated Interim Financial Statements have been restated in this Quarterly Report on Form 10-Q. In addition, the Company has corrected the accompanying footnotes in connection with the restatement see Note 21: Restated Previously Issued 2022 Financial Statements.

Reclassifications

Certain prior period amounts in the Condensed Consolidated Financial Statements and accompanying notes have been reclassified to conform with the current period presentation and are not the result of an error in classification, but are separately presented on the face of the Condensed Consolidated Balance Sheets for additional visibility.

For the quarter ended September 30, 2023, Short-term restricted cash and Long-term restricted cash, which were reported as a component of Prepaid expenses and other current assets and Other assets, net, respectively, in the 2022 10-K, are now separately presented. In the 2022 10-K, Trade name, net was presented separately, but is presented as a component of Other assets, net at the quarter ended September 30, 2023. Additionally, for the quarter ended September 30, 2023, Income taxes payable and Long-term deferred income taxes, which were reported as a component of Accrued liabilities and Other liabilities, respectively, in the 2022 10-K, are now separately presented.

The reclassifications had no impact on the Condensed Consolidated Statements of (Loss) Income, Condensed Consolidated Statements of Comprehensive (Loss) Income, Condensed Consolidated Balance Sheets, or Condensed Consolidated Statements of Stockholders’ Deficit.

Going Concern and Liquidity

The Company has concluded that there is substantial doubt about its ability to continue as a going concern for at least one year from the issuance date of these financial statements. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

As described in Note 7: Debt, the Company and certain of its wholly owned subsidiaries entered into the Credit Agreement Amendments (as defined below), many of which were to address, among other things, expected non-compliance by the Company with the financial covenants under its Credit Agreement given that the Company was forecasting that it would not meet such financial covenants absent such modifications.

The Company classified $709.3 million of borrowings under its Amended Credit Agreement as of December 31, 2022 as a current obligation in its 2022 Consolidated Balance Sheet, as a result of the continued expectation that it would not meet certain of its financial and non-financial covenants under its Amended Credit Agreement absent additional modifications.

As previously disclosed, the Company had no ability to borrow further under its revolving credit facility (the “Revolver Facility”) until August 2, 2023, when it entered into the Debt Restructuring Agreement (the “DRA”), which enabled immediate access to up to $21.0 million on the Revolver Facility subject to liquidity and other cash covenants. While the Company believed when entering into the DRA that it would provide additional flexibility to fund its operations and satisfy its obligations as then anticipated in the near term, it also imposed new covenants, including liquidity covenants requiring the use of excess cash for debt reduction. On February 13, 2024, the Company entered into the Forbearance Agreement (the “Forbearance Agreement”), amending, modifying, and otherwise affecting the Amended Credit Agreement pursuant to which the Lenders party thereto have agreed to forbear from exercising any of their respective rights and remedies, and from directing the Administrative Agent to exercise any of the rights and remedies available to the Administrative Agent and the Lenders, and the Administrative Agent has agreed to forbear from unilaterally exercising any of its rights and remedies, in each case, arising under the Credit Agreement and applicable law as a result of the occurrence and continuance of certain specified existing and anticipated defaults and events of default (the “Specified Defaults”) until the earlier of (a) June 30, 2024 at 11:59 p.m. Eastern time and (b) the date and time on which the Administrative Agent (at the direction of the majority Lenders) elects to terminate such forbearance after the occurrence and during the continuance of certain other defaults and/or events of default or breaches of certain representations and warranties (the “Forbearance Period”). The Forbearance Agreement, among other things, (a) required, as a condition to effectiveness, the Borrowers to make a principal payment in respect of the USD Term A Loans in an aggregate amount equal to approximately $10.9 million, (b) permits the Borrowers to continue to access the revolving credit facility under the Credit Agreement, subject to the terms and conditions set forth therein, during the Forbearance Period, notwithstanding the existence of the Specified Defaults, but limits availability thereunder to approximately $36.4 million, (c) alleviates and/or otherwise modifies certain of the mandatory prepayment requirements in respect of asset sales and tax refunds set forth in the Credit Agreement during the Forbearance Period, (d) reduces the Company’s weekly minimum U.S. liquidity requirement under the Credit Agreement from $15.0 million to $10.0 million during the Forbearance Period, (e) modifies certain of the Company’s financial and other reporting obligations under the Credit Agreement, and (f) requires the Company to comply with certain specified milestones with respect to business planning and repayment transactions during the Forbearance Period. Given the uncertainties around the Company’s liquidity, ability to execute its revised business plan, and ability to comply (and current non-compliance) with covenants under its Credit Agreement, the Company has concluded that there is substantial doubt about its ability to continue as a going concern for at least one year from the date of issuance of these Consolidated Financial Statements. Refer to Note 2: Turnaround Plan.

The Company’s Board of Directors (the “Board”) is actively engaged with management and financial advisors to further explore strategic alternatives and advise on potential means to improve the Company’s liquidity and capital structure. If the Company raises funds in the future by issuing equity securities, such as warrants issued under the DRA or through the future sale of the Company’s common stock, it is highly likely that existing stockholders will be diluted. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of common stock. If the Company raises funds in the future by issuing additional debt securities, these debt securities will likely have rights, preferences, and privileges senior to those of stockholders. The ability to raise additional debt is subject to the limitations, conditions and preferences of the Amended Credit Agreement and anticipated future increases in federal fund rates set by the Federal Reserve, which serve as a benchmark for rates on borrowing, which will continue to impact the cost of debt financing. In addition, the Company is reviewing its real property portfolio for real estate available for potential dispositions, or sale-leaseback transactions, and is exploring right-sizing efforts, monetization of fixed assets, enhancing cash management, and marketing and channel optimization, to deliver additional liquidity, within this calendar year; however the timing, amount and ability to effect such dispositions is uncertain. As the aforementioned actions are conditional upon the receipt of offers and execution of agreements with new or existing investors or the execution of sales agreements with third parties, which are considered outside of the Company’s control, there is no assurance of the timing or outcome of these actions, and as a result they are not considered probable of occurring until such time as they are completed.

As a result of the volatility of the Company’s earnings and ability to generate cash from operations, coupled with the increased levels and cost of borrowings under its Revolver Facility, the Company forecasts that it will not have adequate liquidity to fund its operations and meet its financial obligations in the near term.

As mentioned above, the Company is also in violation of certain non-financial covenants under the Amended Credit Agreement as of the date of the filing of these financial statements, which has resulted in certain defaults and/or events of default under the Amended Credit Agreement. In particular, the report of the Independent Registered Public Accounting Firm accompanying the consolidated financial statements for the year ended December 31, 2022 contains an explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern.

If the Company is unable to execute its revised business plan it would require management to modify its operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of the Company’s ongoing or planned investments in corporate infrastructure, business development, sales and marketing, research and development and other activities, which would have a material impact on the Company’s operations, or it may be forced to file for bankruptcy protection.

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Condensed Consolidated Financial Statements, as well as the reported amounts of net sales and expenses during the reporting period. Actual results could differ materially from these estimates.

New Accounting Pronouncements

Standards Recently Adopted

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-02, “Financial Instruments - Credit Losses” (Topic 326) (“ASU 2022-02”), which eliminates the troubled debt restructuring (“TDR”) accounting model for creditors that have adopted Topic 326. All other creditors must continue to apply the TDR accounting model until they adopt Topic 326. Due to the removal of the TDR accounting model, all loan modifications will now be accounted for under the general loan modification guidance in Subtopic ASC 310-20, “Nonrefundable Fees and Other Costs”. In addition, on a prospective basis, entities will be subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. The guidance was effective for reporting periods beginning after December 15, 2022. The Company adopted this guidance during the first quarter of 2023 and the adoption did not have any material impact on its Consolidated Financial Statements.

In September 2022, the FASB issued ASU No. 2022-04, “Liabilities – Supplier Finance Programs” (Subtopic 405—50) giving guidance to enhance the transparency of supplier finance programs to allow financial statement users to understand the effect on working capital, liquidity, and cash flows. The new guidance requires disclosure of key terms of the program, including a description of the payment terms, payment timing and assets pledged as security or other forms of guarantees provided to the finance provider or intermediary. Other requirements include the disclosure of the amount that remains unpaid as of the end of the reporting period, a description of where these obligations are presented in the balance sheet and a rollforward of the obligation during the annual period. The guidance is effective for fiscal years beginning after December 15, 2022, except for the rollforward, which is effective in 2024. The Company adopted this guidance during the first quarter of 2023 and the adoption did not have any material impact on its Consolidated Financial Statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform” (Topic 848), and in December 2022 subsequently issued ASU 2022-06, to temporarily ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying accounting principles generally accepted in the United States to existing contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate to be discontinued because of reference rate reform. The guidance was effective upon issuance and can generally be applied through December 31, 2024. The Company adopted this guidance during the first quarter of 2023 and the adoption did not have any material impact on its Consolidated Financial Statements.

Standards Not Yet Adopted

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements”, Codification Amendments in Response to the. SEC’s Disclosure Update and Simplification Initiative. In the SEC’s Release No. 33-10532, “Disclosure Update and Simplification,” issued August 17, 2018, the SEC referred certain of its disclosure requirements that overlap with, but require incremental information to, GAAP to the FASB for potential incorporation into the Codification. ASU 2023-06 incorporates into the Codification 14 of the 27

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures” which is an update to FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information,” issued in 2012. ASU 2023-07 requires disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. The amendments in ASU 2023-07 require, among other things, enhanced disclosures about significant segment expenses. The annual and interim disclosures are: the significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss; an amount for other segment items by reportable segment and a description of its composition; and the reportable segment’s profit or loss and assets currently required by Topic 280. Additionally, the update allows for the reporting of additional measures of a segment’s profit or loss, requires the disclosure of the chief operating decision maker’s title and position, and an explanation of how the chief operating decision maker uses the reported measure in assessing segment performance and deciding how to allocate resources. Adoption should apply retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect the adoption to have a material impact on the Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) - improvements to Income Tax Disclosures” to enhance the transparency and decision usefulness of income tax disclosures, and provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. ASU 2023-09 requires that public business entities on an annual basis disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). Additionally ASU 2023-09 requires that all entities disclose on an annual basis information about income taxes paid, income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The guidance is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect the adoption to have a material impact on the Consolidated Financial Statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Consolidated Financial Statements.

Note 2: Turnaround Plan

The Company has continued to execute on a turnaround plan originally developed in 2020 (the “Turnaround Plan”), one that was developed in order to leverage consumer acceptance of the iconic Tupperware brand, and which was expected to give the Company the ability to expand into new product categories, increase consumer access points, and grow distribution channels, all while strengthening the Company’s core direct selling business.

A deteriorating macroeconomic environment, which included increasing inflationary pressures, sharply rising interest rates, and the strengthening of the U.S. Dollar against most major currencies, coupled with increasing geopolitical tensions and deteriorating consumer confidence, further eroded the Company’s underlying business economics and liquidity in 2022. The Company took additional restructuring actions, which pushed out the Turnaround Plan timeline, and evolved the Turnaround Plan into a new Transformation Plan, as further described below.

In line with the Turnaround Plan, the Company decided to dispose of the operations of certain key brands of the Company’s beauty business to better focus on the core business. The Company completed this aspect of the Turnaround Plan with the sale of 100% of its shares in Nuvo on August 7, 2023. See Note 3: Held for Sale Assets and Discontinued Operations and Note 4: Sale-Leaseback Transactions.

While the DRA (as amended) provides additional flexibility to fund operations and satisfy obligations, it also imposes new covenants, including liquidity covenants requiring the use of excess cash for debt reduction. See Note 7: Debt. The provisions of the DRA required the Company to provide a revised transformation plan to its creditors, which was provided in 2024 (the “Transformation Plan”). This Transformation Plan was developed by the reconstituted Board and Executive leadership team described above. The Transformation Plan focuses on steps to further simplify the Company’s core business with digital transformation and global exchange of best-selling practices supporting growing revenues. The Company expects to continue shifting from a distributor push model to a consumer pull model to capture the needs of today’s customer sets; opening up access to Tupperware products in channels where today’s consumers want to shop as part of its omnichannel evolution; and expanding into new product categories to bring more innovative solutions to the market. The timing and investment in support of the Transformation Plan could most likely be constrained by the Company’s liquidity.

Re-engineering and impairment charges relate to headcount reductions and facility downsizing and closures. See Note 15: Re-engineering and Impairment Charges.

One of the key elements of the Turnaround Plan was the divestiture of non-core assets such as the Company’s beauty business. The dispositions of the Company’s beauty business included the sale of Avroy Shlain in 2021, House of Fuller in the second quarter of 2022, and Nutrimetics in the third quarter of 2022. The Company completed this aspect of the Turnaround Plan with the sale of 100%

As these dispositions represented a strategic shift that had a major effect on its results of operations, the Company has reflected the results of the beauty businesses as discontinued operations including all comparative prior period information in these Condensed Consolidated Financial Statements. Certain costs previously allocated to the beauty business for segment reporting purposes do not qualify for classification within discontinued operations and have been reallocated to continuing operations.

Approximately $132.7 million of currency translation losses and $30.1 million of currency translation gains in accumulated other comprehensive income and the equivalent amount of the contra-asset and liability were derecognized and removed from the balance sheet in the second quarter of 2022 and third quarter of 2022 upon the completion of the sale of House of Fuller Mexico and Nutrimetics, respectively. Upon the completion of the sale of Nuvo, $7.4 million of currency translation gains in accumulated other comprehensive income were derecognized from the balance sheet in the third quarter of 2023, and offset the gain(loss) on held for sale assets and dispositions on the income statement.

Financial Information of Discontinued Operations

The results of operations are presented as discontinued operations as summarized below:

As described in Note 2: Turnaround Plan, the Company executed on accelerating the divestiture of non-core assets to strengthen the balance sheet which included the sale of certain owned properties. Accordingly, the properties described below have been sold. The Company determined that the sale of the two properties described below did not represent a strategic shift and will not have a major effect on its results of operations as the Company will leaseback most of the facilities on these properties. The sales proceeds from certain of these sales are required to be applied to pay down the term loans under the Amended Credit Agreement and will generally not be available for working capital purposes. In addition, once the Company determines that management has committed to a disposal plan that is unlikely to change, the property is available for sale in its immediate condition, the sale is probable and it is being actively marketed at a price that makes it likely to conclude within twelve months, then the property meets the criteria in ASC 360-10-45 which requires that the property be reclassified as held for sale and depreciation ceases. As both of these were actively being marketed in the first quarter of 2023 and the preceding conditions were met, the Company determined that the properties should be classified as held for sale. See Note 3: Held for Sale Assets and Discontinued Operations for material properties that were recorded as long-term assets held for sale.

ASC 842-40-30 requires sale-leaseback transactions to be accounted for at fair value, based on the fair value of the property sold or the rents agreed to, whichever is more reliably determinable. Generally the Company has determined the fair value of the property sold is more reliably determinable as in material transactions the Company receives an independent valuation while in the marketing phase. Accordingly, the cash terms of a sale-leaseback may not correspond with the final accounting determination. Any incremental fair value in excess of the sale is deemed to be an increase in the sale price received resulting in an increase to the gain with an incremental right of use asset to be amortized over the determined lease term.

In October 2023, the Company sold its Hemingway, South Carolina manufacturing plant for a cash purchase price of $15.0 million while the fair value of the property was determined to be $22.0 million based on a market assessment. The incremental fair value of $7.0 million was reflected pursuant to the accounting set forth above as additional gain on sale and was deferred as additional right of use asset which will be amortized over the leaseback term. In connection with the closing of the transaction, the Company also entered into a leaseback agreement for an initial lease term of 14 months, an additional renewal option of 6 months, and the further ability to extend upon mutual agreement. A cash prepayment of rent in the amount of $3.0 million for the initial 12 months was made concurrent with the sale-leaseback transaction.

In the second quarter of 2023, the Company sold its Indonesia warehouse and office for a cash purchase price of $12.2 million. The $5.8 million carrying value of the properties approximated the fair value based on an assessment of the sublease rental rate. In connection with the closing of the transaction, the Company agreed to leaseback its warehouse for an initial lease term of three years. The Company also entered into a lease agreement for new office space with an initial term of two years.

Inventories balance was:

As of September 30, 2023 and December 31, 2022, the Company’s inventories are carried at their net realizable value.

The long-term receivables and the related allowance for credit losses balance and activity were as follows:

Majority of long-term receivables from both active and inactive customers that are past due were reserved through the Company's allowance for credit losses.

Credit Agreement

On November 23, 2021, the Company and its wholly owned subsidiaries Tupperware Products AG, Administradora Dart, S. de R.L. de C.V., and Tupperware Brands Asia Pacific Pte. Ltd. entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, N.A. as administrative agent (the “Administrative Agent”), and each of the lenders from time to time party thereto. The Company subsequently entered into the following amendments to the Credit Agreement:

Collectively the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Waiver, the DRA, the Fifth Amendment, the Sixth Amendment, and the Forbearance Agreement are referred to as the “Credit Agreement Amendments” and the Credit Agreement as amended by the Credit Agreement Amendments, the “Amended Credit Agreement.”

On February 13, 2024, the Company entered into the Forbearance Agreement (the “Forbearance Agreement”), amending, modifying, and otherwise affecting the Amended Credit Agreement pursuant to which the Lenders party thereto have agreed to forbear from exercising any of their respective rights and remedies, and from directing the Administrative Agent to exercise any of the rights and remedies available to the Administrative Agent and the Lenders, and the Administrative Agent has agreed to forbear from unilaterally exercising any of its rights and remedies, in each case, arising under the Credit Agreement and applicable law as a result of the occurrence and continuance of certain specified existing and anticipated defaults and events of default (the “Specified Defaults”) until the earlier of (a) June 30, 2024 at 11:59 p.m. Eastern time and (b) the date and time on which the Administrative Agent (at the direction of the majority Lenders) elects to terminate such forbearance after the occurrence and during the continuance of certain other defaults and/or events of default or breaches of certain representations and warranties (the “Forbearance Period”).

The Forbearance Agreement, among other things, (a) required, as a condition to effectiveness, the Borrowers to make a principal payment in respect of the USD Term A Loans in an aggregate amount equal to approximately $10.9 million, (b) permits the Borrowers to continue to access the revolving credit facility under the Credit Agreement, subject to the terms and conditions set forth therein, during the Forbearance Period, notwithstanding the existence of the Specified Defaults, but limits availability thereunder to approximately $36.4 million, (c) alleviates and/or otherwise modifies certain of the mandatory prepayment requirements in respect of asset sales and tax refunds set forth in the Credit Agreement during the Forbearance Period, (d) reduces the Company’s weekly minimum U.S. liquidity requirement under the Credit Agreement from $15.0 million to $10.0 million during the Forbearance Period, (e) modifies certain of the Company’s financial and other reporting obligations under the Credit Agreement, and (f) requires the Company to comply with certain specified milestones with respect to business planning and repayment transactions during the Forbearance Period. Given the uncertainties around the Company’s liquidity, ability to execute its revised business plan, and ability to comply (and current non-compliance) with covenants under its Amended Credit Agreement, the Company has concluded that there is substantial doubt about its ability to continue as a going concern for at least one year from the date of issuance of these Condensed Consolidated Financial Statements. Refer to Note 2: Turnaround Plan.

The Amended Credit Agreement provides for, subject to the terms of, and the modifications and other matters provided in, the Forbearance Agreement:

The Amended Credit Agreement also provides, subject to the terms of the Forbearance Agreement, for the payment of:

In light of the Facility Fee having become due and payable as described above, waivers of the Facility Fee are no longer permitted under the Amended Credit Agreement. On the date immediately following the date any Repayment Incentive Milestone is not satisfied, the following will occur, (i) the Company will incur a 0.50% increase in interest rates for the 2025 Maturity Date Loans; provided that if the Company thereafter satisfies a Repayment Incentive Milestone, such interest rates will be automatically reduced, on the date immediately following such Repayment Incentive Milestone Date, by the aggregate amount of increases thereto effectuated pursuant to the failure to satisfy any Repayment Incentive Milestone (and that are still in effect) and (ii) certain warrants issued to the lenders under the Amended Credit Agreement for a fixed number of shares of common stock of the Company representing in total an aggregate of approximately 2.00% of the total issued and outstanding shares of common stock of the Company as of the grant date will become exercisable. The matters described in the immediately preceding clauses (i) and (ii) have occurred as a result of, and with respect to, the Company’s failure to fully satisfy the January 31, 2024 Repayment Incentive Milestone.

The Amended Credit Agreement contains covenants that include a maximum capital expenditure covenant, a minimum liquidity covenant, a minimum earnings before interest, income taxes, depreciation and amortization (“EBITDA”) covenant, a minimum interest coverage ratio covenant, a maximum net leverage ratio covenant, an anti-cash hoarding covenant and a covenant restricting cash held by subsidiaries of the Company that are not U.S. Loan Parties as well as affirmative and negative covenants, including, among other things, compliance with laws, delivery of monthly, quarterly and annual financial statements, the delivery of weekly account balance reports and account lists, the delivery of weekly 13-week cash flow forecasts and variance reports, the continued retention of a chief restructuring officer until the CRO Release Date (as defined in the Amended Credit Agreement), restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments and other customary covenants. The Amended Credit Agreement also includes events of default relating to customary matters (and customary notice and cure periods), including, among other things, nonpayment of principal, interest or other amounts; violation of covenants; incorrectness of representations and warranties in any material respect; cross-payment default and cross acceleration with respect to material indebtedness; bankruptcy; material judgments; and certain ERISA events. However, as previously disclosed on February 13, 2024, the Lenders party to the Forbearance Agreement agreed, during the Forbearance Period, to forbear from exercising any of their respective rights and remedies arising under the Amended Credit Agreement and applicable law as a result of the occurrence and continuance of certain specified existing and anticipated breaches of certain of the foregoing covenants.

As the Company entered into certain of the Credit Agreement Amendments within the preceding twelve months, the Company compared the terms of each of the most recent modification(s) to the terms of its Credit Agreement that existed as of the last extinguishment, or the terms twelve months prior, whichever was applicable. The DRA did not provide a concession in terms affecting cash flows and the effective interest rate increased accordingly, the Company accounted for the DRA under ASC Subtopic 470-50. The DRA was considered not substantially different from the original debt arrangement, resulting in this being considered a modification, because cash flows were not changed by greater than 10.0% under the testing methodology set forth in ASC Subtopic 470-50.

Under modification accounting, the related fees to lenders are deferred and amortized as an adjustment to the effective interest rate and previous fees are written off while fees to third parties are expensed as incurred. Accordingly, the Restructuring Fee totaling $16.2 million and the Facility Fee totaling $10.0 million were initially deferred in the third quarter of 2023, along with the fair value of the warrants, which totaled $9.3 million. However, as all previously deferred fees were written off in 2022 due to the Company’s forecasted noncompliance with its covenants, no previously deferred fees were expensed in this modification. The Restructuring Fee, Facility Fee, conversion of accrued interest, and conversion of accrued fees of $16.2 million, $10.0 million, $18.2 million, and $4.0 million, respectively represent non-cash financing activities in the third quarter of 2023 statement of cash flows. In addition the conversion of the outstanding revolver balances of $200.0 million and $171.6 million to loan principal in the first and third quarters of 2023, respectively represent non-cash financing activities in the statement of cash flows. Further, as the Company continues to forecast noncompliance absent receiving additional waivers, all fees related to the DRA totaling $35.5 million were charged to Loss on financing transactions in this modification immediately after the initial deferral.

The DRA warrants were determined to be detachable and separately exercisable from the host debt instrument but were not considered indexed to the Company’s common stock due to contingent provisions outside the Company’s control which could result in their cash settlement in certain circumstances. As a result, these were treated as incremental fees on the related debt and the liability included in Accrued liabilities with future changes in their fair value being reflected in earnings. These fees were treated consistent with other fees associated with the DRA as described in the preceding paragraph.

Debt portfolio balances

The debt portfolio consisted of:

As of December 31, 2022, the Company had $120.1 million of unused lines of credit, including $106.3 million under the committed, secured Amended Credit Agreement, and $13.8 million available under various uncommitted lines around the world.

Long-term debt and other lease financing obligations includes a $3.3 million and $3.1 million financing liability as of September 30, 2023 and December 31, 2022, respectively, associated with the lease of the Company’s headquarters in Orlando, Florida. The obligation originated on October 30, 2020 with the commencement of the sale-leaseback agreement for the facility that matures in the fourth quarter of 2031.

As of September 30, 2023, the Company had a weighted average interest rate of 12.60% with a base rate spread of 600 basis points on SOFR-based borrowings under the Amended Credit Agreement. Interest is payable in arrears and at maturity. As of September 30, 2023, the Company had a Consolidated Net Leverage Ratio of 7.20x resulting from trailing twelve months EBITDA, as defined in the Amended Credit Agreement of $94.0 million and a Consolidated Interest Coverage Ratio of 1.21x.

As of December 31, 2022, the Company had a weighted-average interest rate of 7.52% with a base rate spread of 375 basis points on SOFR-based borrowings under the Amended Credit Agreement. Interest is payable in arrears and at maturity. As of December 31, 2022, the Company had a Consolidated Net Leverage Ratio of 4.73x resulting from trailing twelve months EBITDA, as defined in the Amended Credit Agreement, of $129.7 million, and a Consolidated Interest Coverage Ratio of 3.19x. The Company was in compliance with the financial covenants under its Amended Credit Agreement, as of December 31, 2022 but was forecasting non-compliance with covenants in subsequent quarters. See Note 1: Summary of Significant Accounting Policies - Going Concern and Liquidity.

The Company applies the applicable accounting guidance for fair value measurements. This guidance provides the definition of fair value, describes the method used to appropriately measure fair value in accordance with generally accepted accounting principles, and outlines fair value disclosure requirements. The fair value hierarchy established under this guidance prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

Due to their short maturities or their insignificance, the carrying amounts of Cash and cash equivalents, restricted cash, Accounts receivable, net, Accounts payable, Accrued liabilities, leased assets and liabilities, and short-term borrowings approximated their fair values at September 30, 2023 and December 31, 2022.

The fair values of the Term Loans and Revolver Facility are measured using a market approach whose fair value inputs are considered Level 2 inputs within the fair value hierarchy.

The carrying amounts of the Term Loans and Revolver Facility were as follows:

See Note 9: Derivative Financial Instruments and Hedging Activities for discussion of the Company’s derivative financial instruments and related fair value measurements.

The Company is exposed to fluctuations in foreign currency exchange rates on the earnings, cash flows, and financial position of its international operations. Although this currency risk is partially mitigated by the natural hedge arising from the Company’s local manufacturing in many markets, a strengthening United States Dollar generally has a negative impact on the Company’s financial results. In response, the Company previously used financial instruments to hedge certain of its exposures and to manage the foreign exchange impact to its financial statements. At its inception, a derivative financial instrument was designated as an economic, cash flow, or net investment hedge.

In the first quarter of 2023, the Company engaged only in new economic hedge transactions resulting in foreign exchange volatility impacting the Company’s results. Ultimately, the Company’s going concern status became a barrier to engaging in any new hedging transaction.

Economic Hedges

The Company previously determined certain foreign currency derivatives, primarily comprised of foreign currency forward contracts, were freestanding derivatives that the Company did not designate as hedges and therefore hedge accounting did not apply and changes in the fair market value were recognized in Other income, net in the Consolidated Statements of (Loss) Income. The Company primarily used these instruments to hedge foreign currency-denominated intercompany transactions and to partially mitigate the impact of foreign currency fluctuations. The Company’s foreign currency derivative contracts are generally executed on a monthly basis. The fair value of the freestanding foreign currency derivatives is based on third party quotes.

The (loss) gain recorded to current earnings related to derivative financial instruments not designated as hedging instruments was as follows:

Cash Flow Hedges

The Company previously designated as cash flow hedges foreign currency forward contracts entered into for the purpose of hedging forecasted inventory purchases and intercompany dividends that were subject to foreign currency exposures for periods up to twelve months. Changes in the fair value of these forward contracts designated as cash flow hedges were recorded as a component of Accumulated other comprehensive loss within Total stockholders’ deficit and reclassified into earnings through the same line item as

Net Investment Hedges

The Company previously designated as net investment hedges those foreign currency forward contracts it entered into to hedge the currency risk associated with a portion of its net equity investment in international operations. Changes in the fair value of these forward contracts designated as net investment hedges were recorded as a component of Accumulated other comprehensive loss within Total stockholders’ deficit. Due to the permanent nature of the investments at the time of designation, the amounts previously recorded as a component of Accumulated other comprehensive loss were reclassified to earnings if the hedged investment was sold, substantially liquidated, or control was lost. As of September 30, 2023 there were no open net investment hedges and therefore no amount remaining in Accumulated other comprehensive loss to be reclassified into earnings within the next twelve months.

The pre-tax gains (losses) recorded in Other comprehensive income (loss) related to derivative financial instruments designated as net investment hedges were as follows:

Notional Value

The Company considers the total notional value of its forward contracts as the best measure of the volume of derivative transactions. These forward contracts matured on or before June 30, 2023. The notional value of forward contracts to purchase and sell currencies was:

There were no outstanding positions as of September 30, 2023. The notional value of largest outstanding positions to purchase and sell currencies as of December 31, 2022 was:

Fair Value Measurement

Fair values of the Company’s derivative positions were determined based on third party quotations (Level 2 fair value measurement). The following table summarizes the Company’s derivative positions, which are the only assets and liabilities recorded at fair value on a recurring basis:

The Company’s theoretical credit risk for each foreign exchange contract is its replacement cost, but management believes that the risk of incurring credit losses is remote and such losses, if any, would not be material. The Company is also exposed to market risk on its derivative instruments due to potential changes in foreign exchange rates; however, such market risk would be fully offset by changes in the valuation of the underlying items being hedged. For all outstanding derivative instruments, the net accrued gain or loss was recorded either in non-trade Accounts receivable, net or Accrued liabilities, depending upon the net position of the individual contracts. The gain or loss amounts change based upon the Company’s outstanding exposure to fair value fluctuations. The Company has an accounting policy to present derivative assets and derivative liabilities on a gross basis.

Including the effect of master netting arrangements that provide a right of offset upon default of the counterparty, the Company’s net derivative position amounts were:

Significant components of Accrued liabilities were:

During the year-to-date periods ended September 30, 2023 and September 24, 2022, respectively, approximately $0.3 million of pre-tax losses and $0.7 million of pre-tax losses were reclassified from Other comprehensive income to a component of net periodic (benefit) cost, respectively. As they relate to non-U.S. plans, the Company uses current exchange rates to make these reclassifications. The impact of exchange rate fluctuations is included on the net amortization line of the table above. The Company included $2.1 million and $1.4 million related to the components of net periodic (benefit) cost, excluding service cost, in Other expense (income), net in the year-to-date periods ended September 30, 2023 and September 24, 2022, respectively.

Stock Options

Stock option activity for 2023, under all of the Company’s incentive plans, is summarized in the following table:

Market and Performance Awards, Restricted Stock and Restricted Stock Units

The Company also grants restricted stock, restricted stock units, performance-vested awards, and market-vested awards to employees and directors, which typically have initial vesting periods ranging from one year to three years. The activity for such awards in 2023 is summarized in the following table:

Stock-based compensation expense was: