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Item 9A. Controls and Procedures

2024-03-15 compared with 2023-03-21 · 70 added, 65 removed, 229 unchanged (37% of the section changed)

Controls and Procedures

Management’s Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s independent registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

Evaluation of Disclosure Controls and Procedures

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Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2023 due to the material weaknesses in our internal control over financial reporting, described below.

However, after giving full consideration to the material weaknesses, management believes that our consolidated financial statements included in this Annual Report on Form 10-K have been prepared in accordance with US GAAP.

Our Principal Executive Officer and Principal Financial Officer have certified that, based on such officer’s knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report.

Material Weaknesses in Internal Control Over Financial Reporting

Management’s Report on Internal Control Over Financial Reporting

Our management, with the participation of our Principal Executive Office and Principal Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013) (“COSO Framework”).

Based on that assessment, management has concluded that, as of December 31, 2023, due to the material weaknesses in internal control over financial reporting discussed below, the Company’s internal control over financial reporting was not effective.

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 a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

We have identified the following material weaknesses in our internal control over financial reporting, which remain outstanding as of December 31, 2023.

Westrock did not design and maintain effective controls in response to the risks of material misstatement as changes to existing controls or the implementation of new controls were not sufficient to respond to changes to the risks of material misstatement to financial reporting.

misstatement to financial reporting.

This material weakness in risk assessment contributed to the following material weaknesses:

Westrock did not design and maintain effective controls over the period-end financial reporting process to achieve complete and accurate financial accounting, reporting and disclosures, including the presentation and classification of various accounts in the financial statements, which resulted in immaterial adjustments to product revenues;

product costs of sales;

selling, general and administrative expense;

loss on disposal of property, plant and equipment;

other (income) expense, net;

accounts receivable, net, inventories;

derivative assets, net;

prepaid expenses and other current assets;

property, plant, and equipment, net;

intangible assets, net;

other longterm assets;

accounts payable;

accrued expenses and other current liabilities and the cash flow presentation of debt payments and proceeds within financing activities within the consolidated financial statements as of and for the year ended December 31, 2020.

● Westrock did not design and maintain effective controls over the period-end financial reporting process to achieve complete and accurate financial accounting, reporting and disclosures, including the presentation and classification of various accounts and the recognition of operating lease right-of-use assets and operating lease liabilities in the consolidated financial statements, which resulted in immaterial adjustments to certain interim and annual periods for the years ending December 31, 2020 through December 31, 2023, and material adjustments to the cash flow presentation of net repayments from repurchase agreements within financing activities within the condensed consolidated statement of cash flows for the six months ended June 30, 2023 and to operating lease right-of-use assets and operating lease liabilities within the consolidated balance sheet as of December 31, 2023.

● Westrock did not design and maintain effective controls related to ensuring appropriate segregation of duties as it relates to the preparation and review of journal entries and account reconciliations, which did not result in adjustments to the consolidated financial statements .

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However, the deficiencies, when aggregated, could impact Westrock’s ability to maintain effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

Accordingly, it was determined these deficiencies in the aggregate constitute a material weakness.

Accordingly, it was determined that these deficiencies in the aggregate constitute a material weakness .

Additionally, the material weaknesses could result in a misstatement of substantially all of Westrock’s accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Remediation Plans

This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for emerging growth companies.

Remediation Activities

Westrock has taken and is taking certain measures to remediate the material weaknesses described above, including the following:

● Hiring additional accounting and IT personnel, including a new chief accounting officer hired in May 2021 and a new technical accounting resource hired in April 2022, with the appropriate level of knowledge, training, and experience to improve our internal control over financial reporting and IT capabilities.

● Developing and formalizing a risk assessment process across the organization to identify risks and design new controls or enhance existing controls responsive to such risks to ensure timely and accurate financial reporting.

● Hired additional accounting and IT personnel, including a new chief accounting officer hired in May 2021, a new technical accounting resource hired in April 2022, a new IT compliance resource hired in March 2023, and a new internal controls resource hired in April 2023 with the appropriate level of knowledge, training, and experience to improve our internal control over financial reporting and IT capabilities.

Hired a Chief Information Officer in November 2023 with public company IT compliance and cybersecurity experience.

Entity level controls necessary to support management’s risk assessment and a process to evaluate the control environment in accordance with the COSO Framework were improved or implemented throughout 2023.

Management is at various stages of designing or implementing additional controls that would further improve risk assessment .

● Engaged a third party to assist in designing and implementing controls related to period-end financial reporting, segregation of duties and IT general controls .

● Designing and implementing controls to formalize roles and review responsibilities to align with Westrock’s team’s skills and experience and designing and implementing controls over segregation of duties.

● Designing and implementing formal accounting procedures and controls supporting Westrock’s period-end financial reporting process, including controls over the preparation and review of account reconciliations and journal entries.

● Enhancing policies and procedures related to the management and approval of (i) changes in our IT environment, including procedures to review changes in IT data and the configuration of systems, (ii) system implementations and projects to ensure adequate governance, development, change management, and implementation controls, (iii) security access, including policies and procedures to set up or remove users to our IT systems, (iv) periodic security access reviews of our key financial systems’ users to ensure the appropriateness of their roles and security access levels, and (v) review of service organization reports and related end-user control considerations.

● Designing and implementing IT general controls, including controls over change management, the review and update of user access rights and privileges, controls over batch jobs and data backups, and program development approvals and testing.

Remediation of Material Weakness in Internal Control Over Financial Reporting

As previously disclosed, we identified a material weakness in our internal control over financial reporting related to the identification of and accounting for certain non-routine, unusual or complex transactions, including the proper application of U.S.

GAAP to such transactions.

To remediate the material weakness, management has taken certain measures including the following:

● Hired additional accounting personnel, including a new chief accounting officer hired in May 2021 and a new technical accounting resource hired in April 2022, with the appropriate level of knowledge, training, and experience to improve our internal control over financial reporting capabilities.

● During the second and third quarter of 2022, designed and implemented controls to identify non-routine, unusual or complex transactions and required that the accounting implications of such transactions are formally assessed, documented and reviewed by a relevant senior member of our accounting team in a timely manner.

In addition, we have engaged third party subject matter experts to advise us with respect to certain complex non-routine transactions in addition to management’s review of such transactions, where appropriate.

During the fourth quarter of 2022, management successfully completed the testing necessary to conclude that the re-designed and enhanced controls were appropriately designed, implemented and operating effectively as of December 31, 2022 and concluded that the material weakness related to accounting for certain non-routine, unusual or complex transactions has been remediated.

● Designed and implemented controls during the quarters ended June 30, September 30, and December 31, 2023 to formalize roles and review responsibilities to align with Westrock’s team’s skills and experience and designing and implementing controls over segregation of duties that include workflow automation and documentation, task reassignment, and policies and procedures enhancement around the preparation, review and oversight of account reconciliations and journal entries .

● Designed and implemented formal accounting procedures and controls during the quarters ended September 30, and December 31, 2023 that support Westrock’s period-end financial reporting process, including controls over close procedures workflow, the preparation, review and oversight of account reconciliations and journal entries, evaluation of internal information for disclosure, and controls to reconcile financial statement and disclosure information to source documentation.

Management is at various stages of designing other controls that would further improve period-end financial reporting .

● During the quarter ended September 30, 2023, enhanced policies and procedures related to the management and approval of (i) changes in our IT environment, including procedures to review changes in IT data and the configuration of systems, (ii) system implementations and projects to ensure adequate governance, development, change management, and implementation controls, (iii) security access, including policies and procedures to set up or remove users to our IT systems, (iv) periodic security access reviews of our key financial systems’ users to ensure the appropriateness of their roles and security access levels, and (v) review of service organization reports and related end-user control considerations.

● Designed and implemented IT general controls, including controls over change management, the review and update of user access rights and privileges, controls over batch jobs and data backups, and program development approvals and testing for all IT systems during the quarters ended September 30, and December 31, 2023.

The enhancements are expected to remediate the material weaknesses described above when each is fully implemented and operating effectively.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act, that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other than the remediation activities related to the material weaknesses described above in the Remediation Activities section, there were no changes in our internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act, that occurred during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting .

Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

(b) During the three months ended December 31, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, (as such terms are defined in Item 408(a) of Regulation S-K).

Disclosure Regarding Foreign Jurisdictions that Prevent Inspection s

Not applicable.

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Information required to be set forth herein is incorporated by reference, when filed, from our Proxy Statement.

Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Except as set forth below, information required to be set forth herein is incorporated by reference, when filed, from our Proxy Statement.

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Securities Remaining

Available for

Future Issuance under

Securities to be Issued

Weighted-Average

Available for Future

Equity Compensation

Upon Exercise of

Exercise Price of

Issuance (excluding

Plans (excluding

Outstanding Options,

securities reflected in

securities reflected

Plan Category

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Warrants and Rights (2)

Equity compensation plans approved by shareholders

Equity compensation plans not approved by shareholders

(1) This amount represents the number of shares of common stock underlying (i) stock options granted under the 2020 Plan (605,246) and (ii) RSUs granted under the 2022 Plan (1,127,000).

in column (a))

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

(1) This amount represents the number of shares of common stock underlying (i) stock options granted under the 2020 Option Plan (841,705) and (ii) RSUs granted under the 2022 Equity Plan (1,989,782).

(2) The weighted average exercise price set forth in this column is calculated excluding outstanding RSUs since recipients are not required to pay an exercise price to receive the shares subject to such awards.

(3) Shares of common stock remaining available for grant under the 2022 Plan, excluding shares underlying awards reflected in column (a).

No further awards may be granted under the 2020 Plan.

(3) Shares of common stock remaining available for grant under the 2022 Equity Plan, excluding shares underlying awards reflected in column (a).

No further awards may be granted under the 2020 Option Plan.

Certain Relationships and Related Transactions, and Director Independence

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Information required to be set forth herein is incorporated by reference, when filed, from our Proxy Statement.

E xhibits and Financial Statement Schedules

E xhibit and Financial Statement Schedules

Financial Statements

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August 3, 2022

Investor Rights Agreement, dated as of April 4, 2022, by and among Westrock Coffee Company, Westrock Group, LLC, The Stephens Group, LLC, Sowell Westrock, L.P., BBH Capital Partners V, L.P., BBH Capital Partners V-A, L.P., BBH CPV WCC Co-Investment LLC and Riverview Sponsor Partners, LLC

August 3, 2022

Amended and Restated Investor Rights Agreement, dated as of June 29, 2023, by and among Westrock Coffee Company, Westrock Group, LLC, BBH Capital Partners V, L.P., BBH Capital Partners V-A, L.P., BBH CPV WCC Co-Investment LLC, Riverview Sponsor Partners, LLC and HF Direct Investments Pool, LLC

June 30, 2023

Form of Convertible Note of Westrock Coffee Company, dated February 15, 2024

February 15, 2024

Description of the Registrant’s Securities Registered under Section 12 of the Securities Exchange Act of 1934

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Incremental Assumption Agreement and Amendment No.

1, dated as of February 14, 2023, among Westrock Beverage Solutions, LLC, as borrower, Westrock Coffee Copmany, as holdings, the other guarantors party thereto, the Amendment No.

1, dated as of February 14, 2023, among Westrock Beverage Solutions, LLC, as borrower, Westrock Coffee Company, as holdings, the other guarantors party thereto, the Amendment No.

1 delayed draw term loan lenders, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent.

February 14, 2023

Amendment No.

2, dated as of June 30, 2023, among Westrock Beverage Solutions, LLC, as the borrower, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent.

June 30, 2023

Amendment No.

3, dated as of February 15, 2024, among Westrock Beverage Solutions, LLC, as the borrower, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent

February 15, 2024

Employment Agreement, dated August 26, 2022, by and between Westrock Coffee Company and Scott T.

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Employment Agreement, dated August 26, 2022, by and between Westrock Coffee Company and Robert P.

March 21, 2023

Employment Agreement, dated August 26, 2022, by and between Westrock Coffee Company and John Blake Schuhmacher

March 21, 2023

Westrock Coffee Company 2022 Equity Incentive Plan

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August 3, 2022

Westrock Coffee Company Deferred Compensation Plan for Non-Employee Directors

List of Subsidiaries of Westrock Coffee Company

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Westrock Coffee Company Compensation Recovery Policy (“Clawback Policy”)

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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March 15, 2024

/s/ Leslie Starr Keating

/s/ Leslie Starr

March 15, 2024

Leslie Starr Keating

/s/Oluwatoyin Umesiri

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Investment in consolidated subsidiaries

LIABILITIES, CONVERTIBLE PREFERRED SHARES, REDEEMABLE UNITS, AND SHAREHOLDERS' EQUITY (DEFICIT)

LIABILITIES, CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY

Accrued expenses and other current liabilities

Related party receivables

Related party payables

Total current liabilities

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Total liabilities

Series A Convertible Preferred Shares, $ 0.01 par value, 24,000 shares authorized, 23,588 shares issued and outstanding, $ 11.50 liquidation value

Series A Redeemable Common Equivalent Preferred Units:

$ 0.00 par value, 222,150 units authorized, no units and 222,150 units issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Series B Redeemable Common Equivalent Preferred Units:

$ 0.00 par value, 17,000 units authorized, no units and 17,000 units issued and outstanding at December 31, 2022 and December 31, 2021, respectively

Shareholders' Equity (Deficit) (1)

Series A Convertible Preferred Shares, $ 0.01 par value, 24,000 shares authorized, 23,512 shares and 23,588 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively, $ 11.50 liquidation value

Shareholders' Equity

Preferred stock, $ 0.01 par value, 26,000 shares authorized, no shares issued and outstanding

Common stock, $ 0.01 par value, 300,000 shares authorized, 75,020 shares issued and outstanding at December 31, 2022;

$ 0.00 par value, 39,389 shares authorized, 34,523 shares issued and outstanding at December 31, 2021

Common stock, $ 0.01 par value, 300,000 shares authorized, 88,051 shares and 75,020 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Additional paid-in-capital

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Accumulated other comprehensive income (loss)

Total shareholders' equity (deficit)

Total Liabilities, Convertible Preferred Shares, Redeemable Units and Shareholders' Equity (Deficit)

(1) Retroactively adjusted for de-SPAC merger transaction as described in Note 4 to the consolidated financial statements.

Total shareholders' equity

Total Liabilities, Convertible Preferred Shares and Shareholders' Equity

See accompanying notes to the condensed financial statements.

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(Thousands, except per share data)

Selling, general and administrative expense

Transaction, restructuring and integration expense

Total operating expenses

Loss from operations

Other (income) expense

Change in fair value of warrant liabilities

Earnings (loss) from consolidated subsidiaries

Loss (earnings) from consolidated subsidiaries

Loss before income taxes

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Payment of common equity issuance costs

Proceeds from common equity issuance

Payment of preferred equity issuance costs

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Proceeds from exercise of stock options

Proceeds from exercise of Public Warrants

Intercompany transactions, net

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures