10-Q 1 farm-20231231.htm 10-Q farm-20231231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number: 001-34249
FARMER BROS. CO.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-0725980
(State or Other Jurisdiction of Incorporation of Organization) (I.R.S. Employer Identification No.)
1912 Farmer Brothers Drive, Northlake, Texas 76262
(Address of Principal Executive Offices; Zip Code)
682-549-6600
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share
FARM
Nasdaq Global Select Market
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      NO  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      NO  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer

  Accelerated filer 
Non-accelerated filer

  Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
YES  NO  
As of February 5, 2024, the registrant had 21,074,434 shares outstanding of its common stock, par value $1.00 per share, which is the registrant’s only class of common stock.



TABLE OF CONTENTS
 
 Page




PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
December 31, 2023June 30, 2023
ASSETS
Current assets:
Cash and cash equivalents$6,932 $5,244 
Restricted cash175 175 
Accounts receivable, net of allowance for credit losses of $710 and $416, respectively
32,850 45,129 
Inventories55,469 49,276 
Short-term derivative assets279 68 
Prepaid expenses5,140 5,334 
Assets held for sale3,573 7,770 
Total current assets104,418 112,996 
Property, plant and equipment, net33,933 33,782 
Intangible assets, net12,330 13,493 
Right-of-use operating lease assets29,142 24,593 
Other assets2,023 2,917 
Total assets$181,846 $187,781 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable44,204 60,088 
Accrued payroll expenses12,681 10,082 
Right-of-use operating lease liabilities - current12,404 8,040 
Short-term derivative liability498 2,636 
Other current liabilities3,757 4,519 
Total current liabilities73,544 85,365 
Long-term borrowings under revolving credit facility23,300 23,021 
Accrued pension liabilities19,354 19,761 
Accrued postretirement benefits785 763 
Accrued workers’ compensation liabilities2,504 3,065 
Right-of-use operating lease liabilities - noncurrent17,346 17,157 
Other long-term liabilities1,752 537 
Total liabilities$138,585 $149,669 
Commitments and contingencies
Stockholders’ equity:
Common stock, $1.00 par value, 50,000,000 shares authorized; 20,793,956 and 20,142,973 shares issued and outstanding as of December 31, 2023 and June 30, 2023, respectively
20,795 20,144 
Additional paid-in capital79,598 77,278 
Accumulated deficit(25,082)(26,479)
Accumulated other comprehensive loss(32,050)(32,831)
Total stockholders’ equity$43,261 $38,112 
Total liabilities and stockholders’ equity$181,846 $187,781 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1


FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
 
 Three Months Ended December 31,Six Months Ended December 31,
 2023202220232022
Net sales$89,453 $88,919 $171,340 $168,746 
Cost of goods sold53,344 57,896 104,444 110,704 
Gross profit36,109 31,023 66,896 58,042 
Selling expenses28,141 25,632 54,969 51,388 
General and administrative expenses9,655 8,587 22,486 17,815 
Net (gains) losses from sale of assets(6,138)55 (12,922)(7,127)
Operating expenses31,658 34,274 64,533 62,076 
Income (loss) from operations4,451 (3,251)2,363 (4,034)
Other (expense) income:
Interest expense(1,907)(1,858)(4,129)(3,928)
Other, net324 (3,533)3,195 (2,217)
Total other expense(1,583)(5,391)(934)(6,145)
Income (loss) from continuing operations before taxes2,868 (8,642)1,429 (10,179)
Income tax expense164 40 32 83 
Income (loss) from continuing operations$2,704 $(8,682)$1,397 $(10,262)
Loss from discontinued operations, net of income taxes$ $(4,926)$ $(10,720)
Net income (loss) $2,704 $(13,608)$1,397 $(20,982)
Income (loss) from continuing operations available to common stockholders per common share, basic and diluted$0.13 $(0.47)$0.07 $(0.53)
Loss from discontinued operations available to common stockholders per common share, basic and diluted$ $(0.26)$ $(0.56)
Net income (loss) available to common stockholders per common share, basic and diluted$0.13 $(0.73)$0.07 $(1.09)
Weighted average common shares outstanding—basic20,728,699 18,723,957 20,565,492 19,243,707 
Weighted average common shares outstanding—diluted20,917,562 18,723,957 20,740,303 19,243,707 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2


FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)
Three Months Ended December 31,Six Months Ended December 31,
2023202220232022
Net income (loss)$2,704 $(13,608)$1,397 $(20,982)
Other comprehensive loss, net of taxes:
Unrealized gains (losses) on derivatives designated as cash flow hedges606 (2,284)151 (2,812)
Losses (gains) on derivatives designated as cash flow hedges reclassified to cost of goods sold802 (600)630 (1,881)
Losses on derivative instruments undesignated as cash flow hedges reclassified to interest expense 279  566 
Total comprehensive income (loss)$4,112 $(16,213)$2,178 $(25,109)

The accompanying notes are an integral part of these unaudited consolidated financial statements.



3




FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share and per share data) 
Common
Shares
Common Stock
Amount
Additional
Paid-in
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Total
Balance at June 30, 202320,142,973 $20,144 $77,278 $(26,479)$(32,831)$38,112 
Net loss— — — (1,307)— (1,307)
Cash flow hedges, net of taxes— — — — (628)(628)
401(k) compensation expense, including reclassifications154,046 154 653 — — 807 
Share-based compensation— — 814 — — 814 
Issuance of common stock and stock option exercises279,464 280 (280)— —  
Balance at September 30, 202320,576,483 $20,578 $78,465 $(27,786)$(33,459)$37,798 
Net income— — — 2,704 — 2,704 
Cash flow hedges, net of taxes— — — — 1,409 1,409 
401(k) compensation expense, including reclassifications171,786 172 740 — — 912 
Share-based compensation— — 438 — — 438 
Issuance of common stock and stock option exercises45,687 45 (45)— —  
Balance at December 31, 202320,793,956 $20,795 $79,598 $(25,082)$(32,050)$43,261 


FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share and per share data) 
Preferred SharesPreferred Stock AmountCommon
Shares
Common Stock
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Balance at June 30, 202214,700 $15 18,464,966 $18,466 $71,997 $52,701 $(38,431)$104,748 
Net loss— — — — — (7,374)— (7,374)
Cash flow hedges, net of taxes— — — — — — (1,521)(1,521)
401(k) compensation expense, including reclassifications— — 257,052 257 940 — — 1,197 
Share-based compensation— — — — 1,165 — — 1,165 
Issuance of common stock and stock option exercises— — 158,744 159 (159)— —  
Conversion and cancellation of preferred shares(14,700)(15)399,208 399 (1,750)— — (1,366)
Balance at September 30, 2022  19,279,970 $19,281 $72,193 $45,327 $(39,952)$96,849 
Net loss— — — — — (13,608)— (13,608)
Cash flow hedges, net of taxes— — — — — — (2,606)(2,606)
401(k) compensation expense, including reclassifications— — 264,712 265 1,059 — — 1,324 
Share-based compensation— — — — 979 — — 979 
Issuance of common stock and stock option exercises— — 137,261 137 (137)— —  
Balance at December 31, 2022  19,681,943 $19,683 $74,094 $31,719 $(42,558)$82,938 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
4


 
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 Six Months Ended December 31,
20232022
Cash flows from operating activities:
Net income (loss)$1,397 $(20,982)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization5,792 11,316 
Gain on settlement related to Boyd's acquisition (1,917)
Net gains from sale of assets(14,136)(7,127)
Net losses (gains) on derivative instruments429 2,074 
401(k) and share-based compensation expense2,970 4,665 
Provision for credit losses450 211 
Change in operating assets and liabilities:
Accounts receivable, net13,044 (3,589)
Inventories(6,193)16,081 
Derivative (liabilities) assets, net(779)(1,668)
Other assets1,146 (219)
Accounts payable(15,936)9,877 
Accrued expenses and other 949 (5,159)
Net cash (used in) provided by operating activities(10,867)3,563 
Cash flows from investing activities:
Sale of business(1,214) 
Purchases of property, plant and equipment(6,853)(7,714)
Proceeds from sales of property, plant and equipment20,497 9,933 
Net cash provided by investing activities12,430 2,219 
Cash flows from financing activities:
Proceeds from Credit Facilities2,279 54,000 
Repayments on Credit Facilities(2,000)(49,383)
Payments of finance lease obligations(96)(96)
Payment of financing costs(58)(357)
Net cash provided by financing activities125 4,164 
Net increase in cash and cash equivalents and restricted cash1,688 9,946 
Cash and cash equivalents and restricted cash at beginning of period5,419 9,994 
Cash and cash equivalents and restricted cash at end of period$7,107 $19,940 
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities$6,456 $2,965 
Non-cash issuance of ESOP and 401(K) common stock326 522 
Non cash additions to property, plant and equipment52 138 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5



FARMER BROS. CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Introduction and Basis of Presentation
Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires, the “Company,” or “Farmer Bros.”), is a leading coffee roaster, wholesaler, equipment servicer and distributor of coffee, tea and other allied products. The Company serves a wide variety of customers, from small independent restaurants and foodservice operators to large institutional buyers like restaurant, department and convenience store retailers, hotels, casinos, healthcare facilities, and gourmet coffee houses, as well as grocery chains with private brand and consumer-branded coffee and tea products, and foodservice distributors.
On June 30, 2023, the Company completed its sale of certain assets of the Company related to its direct ship and private label business, including the Company’s production facility and corporate office building in Northlake, Texas (the "Sale"). The Sale and the related direct ship and private label operations are reported in loss from discontinued operations, net of income taxes on the consolidated statements of operations. See Note 3, Discontinued Operations for more information related to the Sale and the discontinued operations. All other footnotes present results of the continuing operations.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial data have been included. Operating results for the three and six months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2024.
The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the Securities and Exchange Commission (the “SEC”) on September 12, 2023, as amended by the Form 10-K/A filed on October 27, 2023 (as amended, the “2023 Form 10-K”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain amounts disclosed in fiscal 2023 have been reclassified to conform with the discontinued operations.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results may differ from those estimates.
Correction of an Immaterial Error
In conjunction with our close process for the second quarter of fiscal year 2024, the Company identified an error related to certain vehicle operating leases which were not properly recorded as a right of use asset and right of use liability in accordance with ASC Topic 842 and were corrected as of December 31, 2023. The correction of this error had no impact on the statements of operations, statements of comprehensive income (loss), or the statement of cash flows. No adjustments were necessary for prior periods as the effects were immaterial.
Note 2. Summary of Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies, see Note 2, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements in the 2023 Form 10-K.
During the three and six months ended December 31, 2023, there were no significant updates made to the Company’s significant accounting policies.
6

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








Concentration of Credit Risk
At December 31, 2023 and June 30, 2023, the financial instruments which potentially expose the Company to concentration of credit risk consist of cash in financial institutions (in excess of federally insured limits), derivative instruments and trade receivables.
The Company does not have any credit-risk related contingent features that would require it to post additional collateral in support of its net derivative liability positions.
The Company estimates its credit risk for accounts receivable at the amount recorded on the balance sheet. The accounts receivable are generally short-term and all estimated credit losses have been appropriately considered in establishing the allowance for credit losses. There were no individual customers with balances over 10% of the Company’s accounts receivable balance.
Recent Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (the “FASB”). ASUs not listed below were assessed and either determined to be not applicable or expected to have minimal impact on its consolidated financial statements.
The following table provides a brief description of the recent ASUs applicable to the Company:
StandardDescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”)
The London Interbank Offered Rate (LIBOR) is being discontinued between December 2021 and June 2023. The Company has not entered into any new contracts after December 31, 2021 subject to LIBOR. With the overnight, 1-month, 3-month, 6-month and 12-month USD LIBOR rates being published through June 30, 2023, we will continue to leverage these for the existing contracts.
ASU 2020-04 provides temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the transition from LIBOR to alternative reference rate.
 Issuance date of March 12, 2020 through December 31, 2024.The Company does not anticipate any material impacts on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740)”, Improvements to Income Tax Disclosures
The amendments in this Update address investor requests for more
transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information.
Effective for
annual periods beginning after December 15, 2024.
The Company is still evaluating the impact of this standard.
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280)”, Improvements to Reportable Segment Disclosures.
The amendments in this Update are to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses.Effective for
annual periods beginning after December 15, 2024.
The Company is still evaluating the impact of this standard.
Note 3. Discontinued Operations
On June 30, 2023, the Company completed the sale of certain assets of the Company related to its direct ship and private label business, including the Company’s production facility and corporate office building in Northlake, Texas, pursuant to that certain Asset Purchase Agreement dated as of June 6, 2023, by and between the Company and TreeHouse Foods, Inc. (the "Buyer"), as amended by that certain Amendment to the Asset Purchase Agreement, dated June 30, 2023.
The accounting requirements for reporting the Sale as a discontinued operation were met when the Sale was completed as of June 30, 2023. Accordingly, the consolidated financial statements reflect the results of the Sale as a discontinued operation. As of December 31, 2023, the Company recorded a net loss of $1.2 million related to a working capital adjustment.
The Company also entered into (i) a Transition Services Agreement with the Buyer pursuant to which the Company will provide the Buyer certain specified services on a temporary basis, (ii) a Co-Manufacturing Agreement with the Buyer pursuant to which the Company and Buyer will manufacture certain products for each other on a temporary basis and (iii) a Lease Agreement with the Buyer pursuant to which the Company will lease office and warehouse space from the Buyer on a temporary basis.
7

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








There was no activity related to the discontinued operations for the three and six months ended December 31, 2023. The operating results of the divested operations have been reclassified as discontinued operations in the Consolidated Statements of Operations for the three and six months ended December 31, 2022, as detailed in the table below:
(In thousands)Three Months Ended December 31, 2022Six Months Ended December 31, 2022
Net sales$43,773 $85,327 
Cost of goods sold44,407 86,382 
Gross (loss) profit(634)(1,055)
Selling expenses1,588 3,423 
General and administrative expenses1,245 2,504 
Operating expense2,833 5,927 
Loss from discontinued operations(3,467)(6,982)
Other (expense) income:
Interest expense(1,722)(4,293)
Other, net263 555 
Total other (expense)(1,459)(3,738)
Loss from discontinued operations before taxes(4,926)(10,720)
Income tax benefit  
Loss from discontinued operations, net of income taxes$(4,926)$(10,720)
Interest expense for the Revolver (as defined below) was allocated on a ratio of net assets discontinued to the sum of consolidated net assets plus consolidated debt and the Term Loan (as defined below) was fully allocated to discontinued operations as it was required to be repaid in full.
Applicable Consolidated Statements of Cash Flow information related to the divested operations for the six month period ended December 31, 2022 is detailed in the table below:
(In thousands)December 31, 2022
Cash Flows from Discontinued Operations
Net cash used in operating activities$(13,518)
Net cash used in investing activities(1,782)
Note 4. Leases
The Company has entered into leases for building facilities, vehicles and other equipment. The Company’s leases have remaining contractual terms through April 30, 2030, some of which have options to extend the lease for up to 10 years. For purposes of calculating operating lease liabilities, lease terms are deemed not to include options to extend the lease renewal until it is reasonably certain that the Company will exercise that option. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of lease expense are as follows:
Three Months Ended December 31,Six Months Ended December 31,
(In thousands)2023202220232022
Operating lease expense$3,445 $1,986 $6,322 $3,946 
Finance lease expense:
Amortization of finance lease assets
41 41 82 82 
Interest on finance lease liabilities
7 9 13 18 
Total lease expense$3,493 $2,036 $6,417 $4,046 
8

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








Maturities of lease liabilities are as follows:
December 31, 2023
(In thousands)Operating LeasesFinance Leases
2024$6,371 $96 
202511,168 193 
20266,749 96 
20274,541  
20283,521  
Thereafter887  
Total lease payments33,237 385 
Less: interest (3,487)(25)
Total lease obligations$29,750 $360 
Lease term and discount rate:
December 31, 2023June 30, 2023
Weighted-average remaining lease terms (in years):
Operating lease4.75.9
Finance lease2.02.5
Weighted-average discount rate:
Operating lease6.56 %6.20 %
Finance lease6.50 %6.50 %
Other Information:
Six Months Ended December 31,
(In thousands)20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$6,319 $3,882 
Operating cash flows from finance leases13 18 
Financing cash flows from finance leases96 96 
Note 5. Derivative Instruments
Derivative Instruments Held
Coffee-Related Derivative Instruments
The Company is exposed to commodity price risk associated with its price to be fixed green coffee purchase contracts, which are described further in Note 2, “Summary of Significant Accounting Policies,” in the Notes to the Consolidated Financial Statements in the 2023 Form 10-K. The Company utilizes forward and option contracts to manage exposure to the variability in expected future cash flows from forecasted purchases of green coffee attributable to commodity price risk. Certain of these coffee-related derivative instruments utilized for risk management purposes have been designated as cash flow hedges, while other coffee-related derivative instruments have not been designated as cash flow hedges or do not qualify for hedge accounting despite hedging the Company’s future cash flows on an economic basis.
The following table summarizes the notional volumes for the coffee-related derivative instruments held by the Company at December 31, 2023 and June 30, 2023:
(In thousands)December 31, 2023June 30, 2023
Derivative instruments designated as cash flow hedges:
  Long coffee pounds300 1,538 
Derivative instruments not designated as cash flow hedges:
  Long coffee pounds22 6,713 
  Short coffee pounds (4,388)
      Total322 3,863 
Coffee-related derivative instruments designated as cash flow hedges outstanding as of December 31, 2023 will expire within 1 year. At December 31, 2023 and June 30, 2023 approximately 93% and 40%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges.
9

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








Interest Rate Swap Derivative Instruments
Pursuant to an International Swap Dealers Association, Inc. (“ISDA”) Master Agreement, which was effective March 20, 2019, the Company on March 27, 2019, entered into an interest rate swap transaction utilizing a notional amount of $80.0 million, with an effective date of April 11, 2019 and a maturity date of October 11, 2023 (the “Original Rate Swap”). In December 2019, the Company amended the notional amount to $65.0 million. The Original Rate Swap was intended to manage the Company’s interest rate risk on its floating-rate indebtedness under the Company’s revolving credit facility.
The Company had designated the Original Rate Swap derivative instrument as a cash flow hedge; however, during the quarter ended September 30, 2020, the Company de-designated the Original Rate Swap derivative instruments. On May 16, 2023, the Company settled the Original Rate Swap. The net settlement of the Original Rate Swap was a $13 thousand loss.
Effect of Derivative Instruments on the Financial Statements
Balance Sheets
Fair values of derivative instruments on the Company’s consolidated balance sheets:
Derivative Instruments
Designated as Cash Flow Hedges
Derivative Instruments Not Designated as Accounting Hedges
(In thousands)December 31, 2023June 30, 2023December 31, 2023June 30, 2023
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments (1)$94 $4 $185 $64 
Long-term derivative assets:
    Coffee-related derivative instruments (2)  19  
Short-term derivative liabilities:
Coffee-related derivative instruments (3) 158 498 2,478 
Long-term derivative liabilities:
Coffee-related derivative instruments (4)  1,218  
________________
(1) Included in “Short-term derivative assets” on the Company's consolidated balance sheets.
(2) Included in “Other Assets” on the Company's consolidated balance sheets.
(3) Included in “Short-term derivative liabilities” on the Company's consolidated balance sheets.
(4) Included in “Other long-term liabilities” on the Company's consolidated balance sheets.
Statements of Operations
The following table presents pretax net gains and losses for the Company's derivative instruments designated as cash flow hedges, as recognized in “AOCI,” “Cost of goods sold” and “Interest expense”.
Three Months Ended December 31,Six Months Ended December 31,Financial Statement Classification
(In thousands)2023202220232022
Net (losses) gains recognized from AOCI to earnings - Interest rate swap (6) 386 Interest Expense
Net losses reclassified from AOCI to earnings for de-designated Interest rate swap (273) (952)Interest Expense
Net gain (losses) recognized in AOCI - Coffee-related606 (2,284)151 (2,812)AOCI
Net (losses) gains recognized in earnings - Coffee - related(802)600 (630)1,881 Cost of goods sold
For the three and six months ended December 31, 2023 and 2022, there were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness.
Net losses (gains) on derivative instruments in the Company’s consolidated statements of cash flows also include net (gains) losses on coffee-related derivative instruments designated as cash flow hedges reclassified to cost of goods sold from AOCI in the three and six months ended December 31, 2023 and 2022. Gains and losses on coffee-related derivative instruments not designated as accounting hedges are included in “Other, net” in the Company’s consolidated statements of operations and in Net losses (gains) on derivative instruments in the Company’s consolidated statements of cash flows.
10

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








Net gains and losses recorded in “Other, net” are as follows:
 Three Months Ended December 31,Six Months Ended December 31,
(In thousands)2023202220232022
Net (gains) losses on coffee-related derivative instruments (1)$(1,177)$(4,167)$202 $(3,605)
Non-operating pension and other postretirement benefits915 727 1,831 1,455 
Other gains, net586 (93)1,162 (67)
             Other, net $324 $(3,533)$3,195 $(2,217)
___________
(1) Excludes net gains and losses on coffee-related derivative instruments designated as cash flow hedges recorded in cost of goods sold in the three and six months ended December 31, 2023 and 2022.
Statement of Comprehensive Income (Loss)
The following table provides the balances and changes in accumulated other comprehensive income (loss) related to derivative instruments for the indicated periods:
Three Months Ended December 31,Six Months Ended December 31,
(In thousands)2023202220232022
Accumulated other comprehensive loss (income) beginning balance$1,803 $(170)$1,176 $(1,692)
Net (losses) gains recognized from AOCI to earnings - Interest rate swap (6) 386 
Net losses reclassified from AOCI to earnings for partial unwind of interest swap - Interest rate swap (273) (952)
Net (gains) losses recognized in AOCI - Coffee-related(606)2,284 (151)2,812 
Net (losses) gains recognized in earnings - Coffee - related(802)600 (630)1,881 
Accumulated other comprehensive loss ending balance$395 $2,435 $395 $2,435 
Offsetting of Derivative Assets and Liabilities
The Company has agreements in place that allow for the financial right of offset for derivative assets and liabilities at settlement or in the event of default under the agreements. Additionally, under certain coffee derivative agreements, the Company maintains accounts with its counterparties to facilitate financial derivative transactions in support of its risk management activities.
The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash collateral on deposit with its counterparties as of the reporting dates indicated:
(In thousands)Gross Amount Reported on Balance SheetNetting AdjustmentsCash Collateral PostedNet Exposure
December 31, 2023Derivative Assets$298 $(298)$ $ 
Derivative Liabilities1,716 (298) 1,418 
June 30, 2023Derivative Assets68 (68)  
Derivative Liabilities2,636 (68) 2,568 
Cash Flow Hedges
Changes in the fair value of the Company’s coffee-related derivative instruments designated as cash flow hedges are deferred in AOCI and subsequently reclassified into cost of goods sold in the same period or periods in which the hedged forecasted purchases affect earnings, or when it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period. Based on recorded values at December 31, 2023, $0.1 million of net gains on coffee-related derivative instruments designated as a cash flow hedge are expected to be reclassified into cost of goods sold within the next 12 months. These recorded values are based on market prices of the commodities as of December 31, 2023.
11

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








Note 6. Fair Value Measurements
Assets and liabilities measured and recorded at fair value on a recurring basis were as follows: 
(In thousands)TotalLevel 1Level 2Level 3
December 31, 2023
Derivative instruments designated as cash flow hedges:
Coffee-related derivative assets (1)$94 $ $94 $ 
Derivative instruments not designated as accounting hedges:
Coffee-related derivative assets (1)204  204  
Coffee-related derivative liabilities (1)1,716  1,716  
TotalLevel 1Level 2Level 3
June 30, 2023
Derivative instruments designated as cash flow hedges:
Coffee-related derivative assets (1)$4 $ $4 $ 
Coffee-related derivative liabilities (1)158  158  
Derivative instruments not designated as accounting hedges:
Coffee-related derivative assets (1)64  64  
Coffee-related derivative liabilities (1)2,478  2,478  
____________________ 
(1)The Company's coffee-related derivative instruments are traded over-the-counter and, therefore, classified as Level 2.
Note 7. Accounts Receivable, Net
(In thousands)December 31, 2023June 30, 2023
Trade receivables$28,262 $42,914 
Other receivables (1)5,298 2,631 
Allowance for credit losses(710)(416)
    Accounts receivable, net$32,850 $45,129 
__________
(1) Includes vendor rebates, transition services receivables and other non-trade receivables.
There was no material change in the allowance for credit losses during the six months ended December 31, 2023.
Note 8. Inventories
(In thousands)December 31, 2023June 30, 2023
Coffee
   Processed$18,809 $15,860 
   Unprocessed8,576 7,409 
         Total$27,385 $23,269 
Tea and culinary products
   Processed23,749 21,418 
   Unprocessed54 63 
         Total$23,803 $21,481 
Coffee brewing equipment parts4,281 4,526 
              Total inventories$55,469 $49,276 
In addition to product cost, inventory costs include expenditures such as direct labor and certain supply, freight, warehousing, overhead variances, purchase price variance and other expenses incurred in bringing the inventory to its existing condition and location. The “Unprocessed” inventory values as stated in the above table represent the value of raw materials and the “Processed” inventory values represent all other products consisting primarily of finished goods.
12

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








Note 9. Property, Plant and Equipment
(In thousands)December 31, 2023June 30, 2023
Buildings and facilities $20,431 $20,146 
Machinery, vehicles and equipment 136,871 144,473 
Capitalized software8,770 7,934 
Office furniture and equipment8,291 8,231 
$174,363 $180,784 
Accumulated depreciation(141,348)(147,920)
Land 918 918 
Property, plant and equipment, net$33,933 $33,782 
Coffee Brewing Equipment (“CBE”) and Service
Capitalized CBE included in machinery and equipment above are:
(In thousands)December 31, 2023June 30, 2023
Coffee Brewing Equipment$92,250 $93,159 
Accumulated depreciation(66,183)(66,953)
  Coffee Brewing Equipment, net$26,067 $26,206 
Depreciation expense related to capitalized CBE and other CBE related expenses provided to customers and reported in cost of goods sold were as follows:
Three Months Ended December 31,Six Months Ended December 31,
(In thousands)2023202220232022
Depreciation expense in COGS$1,790 $1,810 $3,585 $3,618 
CBE Costs excl. depreciation exp8,807 7,215 18,691 14,419 
Other expenses related to CBE provided to customers, such as the cost of servicing that equipment (including service employees’ salaries, cost of transportation and the cost of supplies and parts), are considered directly attributable to the generation of revenues from the customers. Therefore, these costs are included in cost of goods sold.
Note 10. Intangible Assets
The following is a summary of the Company’s amortized and unamortized intangible assets: 
December 31, 2023June 30, 2023
(In thousands)
Weighted Average Amortization Period as of December 31, 2023
Gross Carrying
Amount
Accumulated
Amortization
NetGross Carrying
Amount
Accumulated
Amortization
Net
Amortized intangible assets:
Customer relationships3.2$33,003 $(25,195)$7,808 $33,003 $(24,092)$8,911 
Recipes0.0930 (930) 930 (885)45 
Trade name/brand name0.0510 (510) 510 (495)15 
Total amortized intangible assets$34,443 $(26,635)$7,808 $34,443 $(25,472)$8,971 
Unamortized intangible assets:
Trademarks, trade names and brand name with indefinite lives$4,522 $— $4,522 $4,522 $— $4,522 
Total unamortized intangible assets$4,522 $— $4,522 $4,522 $— $4,522 
 Total intangible assets$38,965 $(26,635)$12,330 $38,965 $(25,472)$13,493 
Aggregate amortization expense for the three months ended December 31, 2023 and 2022 was $0.6 million in each period. Aggregate amortization expense for the six months ended December 31, 2023 and 2022 was $1.2 million in each period.
13

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








Note 11. Employee Benefit Plans
Single Employer Pension Plans
As of December 31, 2023, the Company has two defined benefit pension plans for certain employees, the "Farmer Bros. Plan" and the “Hourly Employees' Plan.” The Company froze benefit accruals and participation in these plans effective June 30, 2011 and October 1, 2016, respectively. After the plan freezes, participants do not accrue any benefits under the plan, and new hires are not eligible to participate in the plan.
The net periodic benefit cost for the defined benefit pension plans is as follows:
 Three Months Ended December 31,Six Months Ended December 31,
(In thousands)2023202220232022
Interest cost$1,204 $1,156 $2,408 $2,312 
Expected return on plan assets(1,122)(1,009)(2,244)(2,018)
Amortization of net loss (1)
207 281 413 563 
Net periodic benefit cost$289 $428 $577 $857 
___________
(1) These amounts represent the estimated portion of the net loss in AOCI that is expected to be recognized as a component of net periodic benefit cost over the current fiscal year. 
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost
 December 31, 2023June 30, 2023
Discount rate5.05%4.50%
Expected long-term return on plan assets7.00%6.50%
 Multiemployer Pension Plans
The Company participates in one multiemployer defined benefit pension plan that is union sponsored and collectively bargained for the benefit of certain employees subject to collective bargaining agreements, called the Western Conference of Teamsters Pension Plan ("WCTPP"). The Company makes contributions to this plan generally based on the number of hours worked by the participants in accordance with the provisions of negotiated labor contracts. The company also contributes to two defined contribution pension plans (All Other Plans) that are union sponsored and collectively bargained for the benefit of certain employees subject to collective bargaining agreements.
Contributions made by the Company to the multiemployer pension plans were as follows:
 Three Months Ended December 31,Six Months Ended December 31,
(In thousands)2023202220232022
Contributions to WCTPP $356 $378 $672 $665 
Contributions to All Other Plans10 8 18 16 
Multiemployer Plans Other Than Pension Plans
The Company participates in nine multiemployer defined contribution plans other than pension plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to collective bargaining agreements. The plans are subject to the provisions of the Employee Retirement Income Security Act of 1974, and provide that participating employers make monthly contributions to the plans in an amount as specified in the collective bargaining agreements. Also, the plans provide that participants make self-payments to the plans, the amounts of which are negotiated through the collective bargaining process. The Company’s participation in these plans is governed by collective bargaining agreements which expire on or before March 31, 2027.
401(k) Plan
Farmer Bros. Co. 401(k) Plan (the “401(k) Plan”) is available to all eligible employees. The Company has a matching program that is available to all eligible employees who have worked more than 1,000 hours during a calendar year and were employed at the end of the calendar year. Participants in the 401(k) Plan may choose to contribute a percentage of their annual pay subject to the maximum contribution allowed by the Internal Revenue Service. The Company's matching contribution is discretionary, based on approval by the Company's Board of Directors.
Beginning in January 2022, the Company amended the 401(k) matching program, whereby the Company on a quarterly basis, will contribute, instead of cash, shares of the Company’s common stock, par value $1.00 per share (the “Common Stock”) with a value equal to 50% of any non-union employee's annual contribution to the 401(k) Plan, up to 6% of such employee's eligible income. The terms of the match are substantially the same as the safe-harbor non-elective contribution. On January 1, 2023, the Company changed its match to 100% of the first 3% each eligible employee contributes plus 50%
14

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








on the next 2% they contribute. Effective January 1, 2024, the Company amended the 401(k) matching program, whereby the Company on an annual basis will contribute cash for 100% of the first 3% each eligible employee contributes plus 50% on the next 2% they contribute.
The Company recorded matching contributions of $0.4 million and $0.6 million in operating expenses in the three months ended December 31, 2023 and 2022, respectively. The Company recorded matching contributions of $0.5 million and $1.1 million in operating expenses in the six months ended December 31, 2023 and 2022, respectively.
During the three months ended December 31, 2023 and 2022, the Company contributed a total of 171,786 and 264,712 of shares Common Stock with a value of $0.6 million and $0.6 million, respectively, to eligible participants’ annual plan compensation. During the six months ended December 31, 2023 and 2022, the Company contributed a total of 325,832 and 521,764 of shares Common Stock with a value of $0.8 million and $1.2 million, respectively, to eligible participants’ annual plan compensation.
Note 12. Debt Obligations
The following table summarizes the Company’s debt obligations:
December 31, 2023June 30, 2023
(In thousands)Debt Origination DateMaturityPrincipal Borrowing AmountCarrying Value
Weighted Average Interest Rate
Carrying Value
Weighted Average Interest Rate
RevolverVarious4/26/2027N/A$23,300 7.06 %$23,021 6.66 %
Revolver Facility
On April 26, 2021, the Company entered into a senior secured facility which included a Revolver Credit Facility Agreement (the "Revolver Credit Facility"). The Revolver Credit Facility had a commitment of up to $80.0 million and a maturity date of April 25, 2025. On August 8, 2022, the Company and certain of its subsidiaries entered into the Increase Joinder and Amendment No. 2 to Credit Agreement (the “2nd Amendment”), with Wells Fargo, as administrative agent for each member of the lender group and as a lender. On August 31, 2022, the Company entered into Amendment No. 3 to Credit Agreement (the “3rd Amendment”), with the lenders party thereto, and Wells Fargo Bank, N.A., as administrative agent for each member of the lender group and as a lender.
On June 30, 2023, the Company and certain of its subsidiaries entered into that certain Consent and Amendment No. 4 to Credit Agreement (the “Fourth Amendment”), with the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent for each member of the lender group. The Fourth Amendment amends that certain Revolver Credit Facility Agreement, originally entered into by and among the parties on April 26, 2021. The Fourth Amendment includes a consent to the Sale by the administrative agent and the lenders and amends certain terms and conditions of the Credit Agreement by, among other things: (i) reflecting the payoff in full, with proceeds from the Sale, of the $47.0 million outstanding amount of the Term Loan, (ii) reflecting the paydown, with proceeds from the Sale, of the Revolver Credit Facility (and a reduction of the maximum commitment of the lenders under the Revolver Credit Facility to $75.0 million), (iii) releasing liens of the administrative agent securing the obligations under the Credit Agreement on assets sold pursuant to the Sale, and (iv) amending the Credit Agreement so that the Company's financial covenant (i.e., fixed charge coverage ratio) is only in effect during such times when the Company's liquidity falls below certain thresholds.
On December 4, 2023 (the “Effective Date”), the Company, and certain of its subsidiaries entered into that certain Consent and Amendment No. 5 to Credit Agreement (the “Consent and Amendment”), with the lenders party thereto (the “Lenders”), and Wells Fargo Bank, National Association, as administrative agent for each member of the lender group (in such capacity, the “Agent”) to amended certain terms of the agreement, including the definition of specified real property and the release of security interests in certain real properties. The Consent and Amendment amends that certain Credit Agreement, originally entered into by the parties on April 26, 2021, which governs the Company’s revolving credit facility (as amended or otherwise modified, the “Credit Agreement”).
The following is a summary description of the Revolver Credit Facility Agreement and the Revolver Security Agreement (the "Revolver Security Facility") key items.
The Revolver Credit Facility Agreement, among other things include:
1.a commitment of up to $75.0 million (“Revolver”) calculated as the lesser of (a) $75.0 million or (b) the amount equal to the sum of (i) 85% of eligible accounts receivable (less a dilution reserve), plus (ii) the lesser of: (a) 80% of eligible raw material inventory, eligible in-transit inventory and eligible finished goods inventory (collectively, “Eligible Inventory”), and (b) 85% of the net orderly liquidation value of Eligible Inventory, minus (c) applicable reserve;
15

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








2.sublimit on letters of credit of $10.0 million;
3.maturity date of April 26, 2027 and has no scheduled payback required on the principal prior to the maturity date;
4.fully collateralized by all existing and future capital stock of the Borrowers (other than the Company) and all of the Borrowers' personal and real property;
5.interest under the Revolver is either  if the relevant Obligation is a SOFR Loan, at a per annum rate equal to Term SOFR plus the SOFR Margin (1.75%), and otherwise, at a per annum rate equal to the Base Rate (the greater of the Federal Funds Rate + 0.5% or Term SOFR +1%) plus the Base Rate Margin (0.75%).; and
6.in the event that Borrowers’ availability to borrow under the Revolver falls below $9.375 million, the financial covenant requires the Company to meet or exceed a fixed charge coverage ratio of at least 1.00:1.00 at all such times.
The Revolver Credit Facility Agreement and the Revolver Security Agreement contain customary affirmative and negative covenants and restrictions typical for a financing of this type that, among other things, require the Company to satisfy certain financial covenants and restrict the Company's and its subsidiaries' ability to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, transfer and sell material assets and merge or consolidate. Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the Revolver Credit Facility Agreement becoming immediately due and payable and termination of the commitments.
There are no required principal payments on the Revolver debt obligation.
At December 31, 2023, the Company had outstanding borrowings on the Revolver Credit Facility of $23.3 million and had utilized $4.6 million of the letters of credit sublimit. At December 31, 2023, we had $24.5 million available for borrowing under our Revolver Credit Facility.
As of December 31, 2023, the Company was in compliance with all of the financial covenants under the Revolver Credit Facility Agreement. Furthermore, the Company believes it will be in compliance with the related financial covenants under this agreement for the next 12 months.
Note 13. Share-based Compensation
Farmer Bros. Co. Amended and Restated 2017 Long-Term Incentive Plan (the “2017 Plan”)
As of December 31, 2023, there were 2,192,067 shares available under the 2017 Plan including shares that were forfeited under the prior plans for future issuance.
Farmer Bros. Co. 2020 Inducement Incentive Award Plan (the “2020 Inducement Plan”)
As of December 31, 2023, there were 202,256 shares available under the 2020 Inducement Plan.
Non-qualified stock options with time-based vesting (“NQOs”)
One-third of the total number of shares subject to each stock option vest ratably on each of the first three anniversaries of the grant date, contingent on continued employment, and subject to accelerated vesting in certain circumstances. There were no NQOs granted during the six months ended December 31, 2023.
The following table summarizes NQO activity for six months ended December 31, 2023:
Outstanding NQOs:Number
of NQOs
Weighted
Average
Exercise
Price ($)
Weighted
Average
Remaining
Life
(Years)
Aggregate
Intrinsic
Value
($ in thousands)
Outstanding at June 30, 2023331,658 11.693.35$— 
Granted — 
Exercised — 
Cancelled/Forfeited — 
Expired(312,208)11.31— 
Outstanding at December 31, 202319,450 17.752.64$ 
Exercisable at December 31, 2023
19,450 17.752.64$ 
There were no NQOs exercised during six months ended December 31, 2023 and 2022.
16

Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)








At December 31, 2023 and June 30, 2023, there was no unrecognized NQO compensation cost. Total compensation expense for NQOs was $24 thousand and $0.1 million for the three and six months ended December 31, 2022.
Non-qualified stock options with performance-based and time-based vesting (PNQs”)
The following table summarizes PNQ activity for the six months ended December 31, 2023:
Outstanding PNQs:Number
of
PNQs
Weighted
Average
Exercise
Price ($)
Weighted
Average
Remaining
Life
(Years)
Aggregate
Intrinsic
Value
($ in 
thousands)
Outstanding at June 30, 2023991 32.850.36$— 
Granted — 
Exercised