SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



þ☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Delaware		95-0725980
(State or Other Jurisdiction of ~~Incorporation)~~Incorporation of Organization)		(I.R.S. Employer Identification No.)
1912 Farmer Brothers Drive, Northlake, Texas 76262
(Address of Principal Executive Offices; Zip Code)

~~888-998-2468~~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:~~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~~ ýYes ☒ NO ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). ~~YES~~ ýYes ☒ 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

ý☒

Non-accelerated filer

☐

~~(Do not check if a smaller reporting company)~~

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).

As of ~~February 6, 2018,~~November 1, 2023, the registrant had ~~16,899,667~~20,748,269 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		1

~~Condensed~~ Consolidated Balance Sheets at ~~December 31, 2017~~September 30, 2023 and June 30, ~~2017~~2023		1

~~Condensed~~ Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~December 31, 2017~~September 30, 2023 and ~~2016~~2022		2

~~Condensed~~ Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss for the Three ~~and Six~~ Months Ended ~~December 31, 2017~~September 30, 2023 and ~~2016~~2022		3

~~Condensed~~ Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2023 and 2022		4

Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~December 31, 2017~~September 30, 2023 and ~~2016~~2022		45

Notes to ~~Condensed~~ Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3421

Item 3. Quantitative and Qualitative Disclosures About Market Risk		4929

Item 4. Controls and Procedures		5130

PART II – OTHER INFORMATION

Item 1. Legal Proceedings		5230

Item 1A. Risk Factors		30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30

Item 3. Defaults Upon Senior Securities		30

Item 4. Mine Safety Disclosures		30

Item 5. Other Information		30

Item 6. Exhibits		5231

SIGNATURES		5332

~~EXHIBIT INDEX~~	54

PART I - FINANCIAL INFORMATION (UNAUDITED)

Item 1. Financial Statements

FARMER BROS. CO.

~~CONDENSED~~ CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)


								September 30, 2023		June 30, 2023
	December 31, 2017			June 30, 2017
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	5,414		$	6,241		Cash and cash equivalents	$	4,038	$	5,244
Short-term investments	—			368
Accounts receivable, net	62,275			46,446
Restricted cash							Restricted cash	175		175
Accounts receivable, net of allowance for credit losses of $418 and $416, respectively							Accounts receivable, net of allowance for credit losses of $418 and $416, respectively	35,009		45,129
Inventories	73,284			56,251			Inventories	54,291		49,276
Income tax receivable	206			318

Short-term derivative assets							Short-term derivative assets	5		68
Prepaid expenses	9,176			7,540			Prepaid expenses	5,119		5,334
Assets held for sale							Assets held for sale	6,362		7,770
Total current assets	150,355			117,164			Total current assets	104,999		112,996
Property, plant and equipment, net	178,148			176,066			Property, plant and equipment, net	33,778		33,782
Goodwill	21,861			10,996
Intangible assets, net	51,036			18,618			Intangible assets, net	12,900		13,493
Right-of-use operating lease assets							Right-of-use operating lease assets	23,758		24,593
Other assets	7,263			6,837			Other assets	2,675		2,917
Deferred income taxes	45,593			63,055
Total assets	$	454,256		$	392,736		Total assets	$	178,110	$	187,781
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	51,218			39,784			Accounts payable	52,608		60,088
Accrued payroll expenses	17,286			17,345			Accrued payroll expenses	11,276		10,082
Short-term borrowings under revolving credit facility	84,430			27,621
Short-term obligations under capital leases	488			958
Short-term derivative liabilities	1,649			1,857
Right-of-use operating lease liabilities - current							Right-of-use operating lease liabilities - current	8,040		8,040

Short-term derivative liability							Short-term derivative liability	890		2,636
Other current liabilities	10,991			9,702			Other current liabilities	3,846		4,519
Total current liabilities	166,062			97,267			Total current liabilities	76,660		85,365
Long-term borrowings under revolving credit facility							Long-term borrowings under revolving credit facility	23,300		23,021

Accrued pension liabilities	50,505			51,281			Accrued pension liabilities	19,585		19,761
Accrued postretirement benefits	19,112			19,788			Accrued postretirement benefits	774		763
Accrued workers’ compensation liabilities	6,365			7,548			Accrued workers’ compensation liabilities	3,155		3,065
Other long-term liabilities-capital leases	116			237
Right-of-use operating lease liabilities - noncurrent							Right-of-use operating lease liabilities - noncurrent	16,332		17,157
Other long-term liabilities	2,156			1,480			Other long-term liabilities	506		537
Total liabilities	$	244,316		$	177,601		Total liabilities	$	140,312	$	149,669
Commitments and contingencies (Note 21)
Commitments and contingencies							Commitments and contingencies
Stockholders’ equity:							Stockholders’ equity:
Preferred stock, $1.00 par value, 500,000 shares authorized; Series A Convertible Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; 14,700 and zero shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively; liquidation preference of $38.32 at December 31, 2017	15			—
Common stock, $1.00 par value, 25,000,000 shares authorized; 16,899,667 and 16,846,002 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively	16,900			16,846
Preferred stock, $1.00 par value, 500,000 shares authorized; Series A Convertible Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; no shares outstanding as of September 30, 2023 and June 30, 2023							Preferred stock, $1.00 par value, 500,000 shares authorized; Series A Convertible Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; no shares outstanding as of September 30, 2023 and June 30, 2023	—		—
Common stock, $1.00 par value, 50,000,000 shares authorized; 20,576,483 and 20,142,973 shares issued and outstanding as of September 30, 2023 and June 30, 2023, respectively							Common stock, $1.00 par value, 50,000,000 shares authorized; 20,576,483 and 20,142,973 shares issued and outstanding as of September 30, 2023 and June 30, 2023, respectively	20,578		20,144
Additional paid-in capital	53,322			41,495			Additional paid-in capital	78,465		77,278
Retained earnings	203,289			221,182
Unearned ESOP shares	(2,145		)	(4,289		)
Accumulated deficit							Accumulated deficit	(27,786)		(26,479)

Accumulated other comprehensive loss	(61,441		)	(60,099		)	Accumulated other comprehensive loss	(33,459)		(32,831)
Total stockholders’ equity	$	209,940		$	215,135		Total stockholders’ equity	$	37,798	$	38,112
Total liabilities and stockholders’ equity	$	454,256		$	392,736		Total liabilities and stockholders’ equity	$	178,110	$	187,781

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

FARMER BROS. CO.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)

Three Months Ended December 31, Six Months Ended December 31,
2017 2016 2017 2016
Net sales $ 167,366
$ 139,025
$ 299,079
$ 269,513
Cost of goods sold 101,847
83,929
184,553
163,219
Gross profit 65,519
55,096
114,526
106,294
Selling expenses 49,328
39,097
88,243
77,535
General and administrative expenses 13,914
13,793
25,241
22,729
Restructuring and other transition expenses 139
3,965
259
6,995
Net gain from sale of Torrance Facility —
(37,449 ) —
(37,449 )
Net gains from sale of spice assets (395 ) (334 ) (545 ) (492 )
Net losses (gains) from sales of other assets 91
114
144
(1,439 )
Operating expenses 63,077
19,186
113,342
67,879
Income from operations 2,442
35,910
1,184
38,415
Other (expense) income:
Dividend income 6
270
11
535
Interest income 1
159
2
288
Interest expense (861 ) (524 ) (1,384 ) (913 )
Other, net 554
(2,323 ) 641
(2,132 )
Total other expense (300 ) (2,418 ) (730 ) (2,222 )
Income before taxes 2,142
33,492
454
36,193
Income tax expense 20,910
13,416
20,200
14,499
Net (loss) income $ (18,768 ) $ 20,076
$ (19,746 ) $ 21,694
Less: Cumulative preferred dividends, undeclared and unpaid 129
—
129
—
Net (loss) income available to common stockholders $ (18,897 ) $ 20,076
$ (19,875 ) $ 21,694
Net (loss) income per common share available to common stockholders—basic $ (1.13 ) $ 1.21
$ (1.19 ) $ 1.31
Net (loss) income per common share available to common stockholders—diluted $ (1.13 ) $ 1.20
$ (1.19 ) $ 1.30
Weighted average common shares outstanding—basic 16,723,498
16,584,106
16,711,660
16,573,545
Weighted average common shares outstanding—diluted 16,723,498
16,707,003
16,711,660
16,695,687


	Three Months Ended September 30,
		2023		2022
Net sales		$	81,888	$	79,826
Cost of goods sold		51,100		52,808
Gross profit		30,788		27,018
Selling expenses		26,829		25,755
General and administrative expenses		12,832		9,228
Net gains from sale of assets		(6,785)		(7,182)

Operating expenses		32,876		27,801
Loss from operations		(2,088)		(783)
Other (expense) income:
Interest expense		(2,222)		(2,070)
Other, net		2,871		1,316
Total other income (expense)		649		(754)
Loss from continuing operations before taxes		(1,439)		(1,537)
Income tax (benefit) expense		(132)		43
Loss from continuing operations		$	(1,307)	$	(1,580)
Loss from discontinued operations, net of income taxes		$	—	$	(5,794)
Net loss		$	(1,307)	$	(7,374)
Loss from continuing operations available to common stockholders per common share, basic and diluted		$	(0.06)	$	(0.08)
Loss from discontinued operations available to common stockholders per common share, basic and diluted		$	—	$	(0.31)
Net loss available to common stockholders per common share, basic and diluted		$	(0.06)	$	(0.39)
Weighted average common shares outstanding—basic and diluted		20,366,017		18,948,453

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

FARMER BROS. CO.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~(LOSS) INCOME~~LOSS (UNAUDITED)

(In thousands)


	Three Months Ended September 30,
		2023		2022
Net loss		$	(1,307)	$	(7,374)
Other comprehensive loss, net of taxes:
Unrealized losses on derivatives designated as cash flow hedges		(456)		(527)
Gains on derivatives designated as cash flow hedges reclassified to cost of goods sold		(172)		(1,281)
Losses on derivative instruments undesignated as cash flow hedges reclassified to interest expense		—		287


Total comprehensive loss		$	(1,935)	$	(8,895)

Three Months Ended
December 31,

Six Months Ended
December 31,
2017 2016 2017 2016
Net (loss) income $ (18,768 ) $ 20,076
$ (19,746 ) $ 21,694
Other comprehensive (loss) income, net of tax:
Unrealized losses on derivative instruments designated as cash flow hedges, net of tax (1,279 ) (1,800 ) (1,711 ) (1,356 )
Losses (gains) on derivative instruments designated as cash flow hedges reclassified to cost of goods sold, net of tax 365
(132 ) 369
153
Total comprehensive (loss) income, net of tax $ (19,682 ) $ 18,144
$ (21,088 ) $ 20,491

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

FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended December 31,
2017 2016
Cash flows from operating activities:
Net (loss) income $ (19,746 ) $ 21,694
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization 15,330
10,086
Provision for (recovery of) doubtful accounts 129
(44 )
Interest on sale-leaseback financing obligation —
681
Restructuring and other transition expenses, net of payments (958 ) 1,082
Deferred income taxes 19,375
13,640
Net gain from sale of Torrance Facility —
(37,449 )
Net gains from sales of spice assets and other assets (401 ) (1,931 )
ESOP and share-based compensation expense 1,844
2,094
Net losses on derivative instruments and investments 1,033
2,583
Change in operating assets and liabilities:
Purchases of trading securities —
(2,959 )
Proceeds from sales of trading securities 375
1,268
Accounts receivable (8,102 ) (4,545 )
Inventories (7,682 ) (10,071 )
Income tax receivable 112
(27 )
Derivative assets (liabilities), net (3,000 ) 4,329
Prepaid expenses and other assets 352
33
Accounts payable 1,264
18,356
Accrued payroll expenses and other current liabilities 1,178
(5,210 )
Accrued postretirement benefits (676 ) (447 )
Other long-term liabilities (1,960 ) (1,849 )
Net cash (used in) provided by operating activities $ (1,533 ) $ 11,314
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired $ (39,608 ) $ (11,183 )
Purchases of property, plant and equipment (14,672 ) (26,864 )
Purchases of assets for construction of New Facility (1,577 ) (21,783 )
Proceeds from sales of property, plant and equipment 85
3,332
Net cash used in investing activities $ (55,772 ) $ (56,498 )
(continued on next page)

FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended December 31,
2017 2016
Cash flows from financing activities:
Proceeds from revolving credit facility $ 69,758
$ 34,323
Repayments on revolving credit facility (12,949 ) (15,900 )
Proceeds from sale-leaseback financing obligation —
42,455
Proceeds from New Facility lease financing obligation —
7,662
Repayments of New Facility lease financing obligation —
(35,772 )
Payments of capital lease obligations (591 ) (641 )
Payment of financing costs (365 ) —
Proceeds from stock option exercises 625
405
Net cash provided by financing activities $ 56,478
$ 32,532
Net decrease in cash and cash equivalents $ (827 ) $ (12,652 )
Cash and cash equivalents at beginning of period 6,241
21,095
Cash and cash equivalents at end of period $ 5,414
$ 8,443

Supplemental disclosure of non-cash investing and financing activities:
        Net change in derivative assets and liabilities
           included in other comprehensive (loss) income, net of tax
$ (1,342 ) $ (1,203 )
    Non-cash additions to property, plant and equipment $ 557
$ 11,253
    Non-cash portion of earnout receivable recognized—spice assets sale $ 545
$ 492
    Non-cash portion of earnout payable recognized—China Mist acquisition $ —
$ 500
    Non-cash receivable from West Coast Coffee—post-closing final working capital adjustment $ 218
$ —
    Non-cash consideration given—Issuance of Series A Preferred Stock $ 11,756
$ —
    Non-cash Multiemployer Plan Holdback payable recognized—Boyd Coffee acquisition $ 1,056
$ —
    Cumulative preferred dividends, undeclared and unpaid $ 129
$ —


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 Deficit		Accumulated Other Comprehensive Loss		Total
Balance at June 30, 2023	20,142,973	$	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 reclassifications	154,046	154		653		—		—		807
Share-based compensation	—	—		814		—		—		814
Issuance of common stock and stock option exercises	279,464	280		(280)		—		—		—

Balance at September 30, 2023	20,576,483	$	20,578	$	78,465	$	(27,786)	$	(33,459)	$	37,798


FARMER BROS. CO. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (In thousands, except share and per share data)

	Preferred Shares	Preferred Stock Amount		Common Shares	Common Stock Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at June 30, 2022	14,700	$	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

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


FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
	Three Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(1,307)	$	(7,374)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization	2,948		5,652

Gain on settlement related to Boyd's acquisition	—		(1,917)

Net gains from sale of assets	(6,785)		(7,182)
Net gains on derivative instruments	(1,551)		(2,011)
401(k) and share-based compensation expense	1,621		2,362
Provision for (recovery of) credit losses	53		(43)
Change in operating assets and liabilities:
Accounts receivable, net	10,067		(339)
Inventories	(5,015)		3,859
Derivative (liabilities) assets, net	(760)		1,069
Other assets	504		(67)
Accounts payable	(7,470)		(7,243)
Accrued expenses and other	558		(185)
Net cash used in operating activities	(7,137)		(13,419)
Cash flows from investing activities:
Purchases of property, plant and equipment	(3,511)		(2,988)
Proceeds from sales of property, plant and equipment	9,258		9,061
Net cash provided by investing activities	5,747		6,073
Cash flows from financing activities:
Proceeds from Credit Facilities	2,279		54,000
Repayments on Credit Facilities	(2,000)		(48,600)
Payments of finance lease obligations	(48)		(48)
Payment of financing costs	(47)		(262)
Net cash provided by financing activities	184		5,090
Net decrease in cash and cash equivalents and restricted cash	(1,206)		(2,256)
Cash and cash equivalents and restricted cash at beginning of period	5,419		9,994
Cash and cash equivalents and restricted cash at end of period	$	4,213	$	7,738


Supplemental disclosure of non-cash investing and financing activities:

Right-of-use assets obtained in exchange for new operating lease liabilities	$	847	$	1,205
Non-cash issuance of ESOP and 401(K) common stock	154		257
Non cash additions to property, plant and equipment	10		65

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

FARMER BROS. CO.

NOTES TO UNAUDITED ~~CONDENSED~~ 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”~~“Company,” or “Farmer Bros.”), is a ~~national~~leading coffee roaster, wholesaler, equipment servicer and distributor of coffee, tea and ~~culinary~~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 ~~condensed~~ 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 ~~(consisting only of normal recurring accruals, unless otherwise indicated)~~ 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, 2017~~September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2018. Events occurring subsequent to December 31, 2017 have been evaluated for potential recognition or disclosure in the unaudited condensed consolidated financial statements for the three and six months ended December 31, 2017.2024.

The accompanying unaudited ~~condensed~~ 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, ~~2017,~~2023, filed with the Securities and Exchange Commission (the “SEC”) on September ~~28, 2017~~12, 2023 (the ~~“2017~~“2023 Form 10-K”) and the Form 10-K/A filed on October 27, 2023 (the “2023 Form 10-K”).

Principles of Consolidation

The ~~condensed~~ consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries FBC Finance Company, a California corporation, Coffee Bean Holding Co., Inc., a Delaware corporation, the parent company of Coffee Bean International, Inc., an Oregon corporation (“CBI”), CBI, China Mist Brands, Inc., a Delaware corporation, and Boyd Assets Co., a Delaware corporation.subsidiaries. All ~~inter-company~~intercompany balances and transactions have been eliminated. Certain amounts disclosed in 2022 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 ~~condensed~~ 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.

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,” ~~to the consolidated financial statements~~ in the ~~2017~~Notes to Consolidated Financial Statements in the 2023 Form 10-K.

During the three ~~and six~~ months ended December 31, 2017, other than as set forth below and the adoption of Accounting Standards Update (“ASU”) No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”), ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), and ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”),September 30, 2023, there were no significant updates made to the Company’s significant accounting policies.

~~Coffee Brewing Equipment~~Concentration of Credit Risk

At September 30, 2023 and ~~Service~~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 ~~classifies certain expenses~~does not have any credit-risk related contingent features that would require it to ~~coffee brewing equipment provided to customers as cost~~post additional collateral in support of ~~goods sold. These costs include the cost of the equipment as well as the cost of servicing that equipment (including service~~its net derivative asset positions.

Farmer Bros. Co.

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements (continued)

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.

~~employees’ salaries, cost~~Recent Accounting Pronouncements

The Company considers the applicability and impact of ~~transportation~~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 ~~cost of supplies and parts) and are considered directly attributable~~recent ASUs applicable to the ~~generation~~Company:

Standard

Description

Effective Date

Effect 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.

Note 3. Discontinued Operations

On June 30, 2023, the Company completed the sale of ~~revenues from~~certain assets of the Company related to its ~~customers.~~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, ~~such costs included in cost of goods sold in~~ the ~~accompanying unaudited condensed~~ consolidated financial statements inreflect the ~~three months ended December 31, 2017 and 2016 were $7.1 million and $5.8 million, respectively. Coffee brewing equipment costs included in cost~~results of ~~goods sold in~~ the ~~six months ended December 31, 2017 and 2016 were $13.5 million and $12.3 million, respectively.~~Sale as a discontinued operation.

The Company ~~capitalizes coffee brewing equipment~~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 ~~depreciates it over five years~~Buyer will manufacture certain products for each other on a temporary basis and ~~reports~~(iii) a Lease Agreement with the ~~depreciation expense in cost of goods sold. Such depreciation expense~~Buyer pursuant to which the Company will lease office and warehouse space from the Buyer on a temporary basis.

There was no activity related to ~~capitalized coffee brewing equipment reported in cost~~the discontinued operations for the quarter ended September 30, 2023. The operating results of ~~goods sold~~the divested operations have been reclassified as discontinued operations in the ~~three months~~Consolidated Statements of Operations for the quarter ended ~~December 31, 2017 and 2016 was $2.3 million and $2.1 million, respectively, and $4.4 million and $4.5 million, respectively,~~September 30, 2022, as detailed in the six months ended December 31, 2017 and 2016. The Company capitalized coffee brewing equipment (included in machinery and equipment) in the amounts of $4.8 million and $5.9 million in the six months ended December 31, 2017 and 2016, respectively.table below:

~~Net (Loss) Income Per Common Share~~

Net (loss) income per share (“EPS”) represents net (loss) income available to common stockholders divided by the weighted-average number of common shares outstanding for the period, excluding unallocated shares held by the Company's Employee Stock Ownership Plan (“ESOP”). Dividends on the Company’s outstanding Series A Convertible Participating Cumulative Perpetual Preferred Stock, par value $1.00 per share (“Series A Preferred Stock”), that the Company has paid or intends to pay are deducted from net (loss) income in computing net (loss) income available to common stockholders.

Under the two-class method, net (loss) income available to nonvested restricted stockholders and holders of Series A Preferred Stock is excluded from net (loss) income available to common stockholders for purposes of calculating basic and diluted EPS.

Diluted EPS represents net income available to holders of common stock divided by the weighted-average number of common shares outstanding, inclusive of the dilutive impact of common equivalent shares outstanding during the period. Common equivalent shares include potentially dilutive shares from share-based compensation including stock options, unvested restricted stock, performance-based restricted stock units, and shares of Series A Preferred Stock, as converted, because they are deemed participating securities. In the absence of contrary information, the Company assumes 100% of the target shares are issuable under performance-based restricted stock units.

The dilutive effect of Series A Preferred Stock is reflected in diluted EPS by application of the if-converted method. In applying the if-converted method, conversion will not be assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. The Series A Preferred Stock is anti-dilutive whenever the amount of the dividend declared or accumulated in the current period per common share obtainable upon conversion exceeds basic EPS. See ~~Note 19~~.

~~Impairment of Goodwill and Indefinite-lived Intangible Assets~~

Historically, the Company performed its annual assessment of impairment of goodwill and indefinite-lived intangible assets as of June 30. During the three months ended December 31, 2017, the Company voluntarily changed its annual impairment assessment date from June 30 to January 31. The Company believes this change in assessment date, which represents a change in the method of applying an accounting principle, is preferred under the circumstances. Due to recent acquisitions, the Company’s goodwill and indefinite-lived intangible asset balances have increased. The Company believes the change in measurement date will provide additional time to complete the annual assessment of impairment of goodwill and indefinite-lived intangible assets in advance of year-end reporting.

~~Shipping and Handling Costs~~

Shipping and handling costs incurred through outside carriers are recorded as a component of the Company’s selling expenses and were $6.9 million and $6.4 million, respectively, in the three months ended December 31, 2017 and 2016, and $12.1 million and $11.2 million, respectively, in the six months ended December 31, 2017 and 2016.

~~Share-based Compensation~~

The Company measures all share-based compensation cost at the grant date, based on the fair values of the awards that are ultimately expected to vest, and recognizes that cost as an expense on a straight line-basis in its consolidated statements of operations over the requisite service period. Fair value of restricted stock and performance-based restricted stock units is


(In thousands)	Three Months Ended September 30, 2022

Net sales	$	41,554
Cost of goods sold	41,975
Gross (loss) profit	(421)
Selling expenses	1,835
General and administrative expenses	1,259

Operating expense	3,094
Loss from discontinued operations	(3,515)
Other (expense) income:
Interest expense	(2,571)
Other, net	292
Total other (expense)	(2,279)
Loss from discontinued operations before taxes	(5,794)
Income tax benefit	—

Loss from discontinued operations, net of income taxes	$	(5,794)

Farmer Bros. Co.

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements (continued)

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 ~~closing price of~~divested operations for the ~~Company's common stock on~~quarter ended September 30, 2022 is detailed in the ~~date of grant.~~ table below:

(In thousands)

September 30, 2022

Cash Flows from Discontinued Operations

Net cash used in operating activities

(7,165)

Net cash used in investing activities

(165)

Note 4. Leases

The Company ~~estimates~~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 ~~fair value~~lease for up to 10 years. For purposes of ~~option awards using~~calculating operating lease liabilities, lease terms are deemed not to include options to extend the ~~Black-Scholes option valuation model, which requires management to make~~lease renewal until it is reasonably certain ~~assumptions for estimating the fair value of stock options at the date of grant. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options~~ that have no vesting restrictions and are fully transferable. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management’s opinion, the existing models may not necessarily provide a reliable single measure of the fair value of the Company’s stock options. Although the fair value of stock options is determined using an option valuation model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

~~In addition,~~ the Company ~~estimates the expected impact~~will exercise that option. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of ~~forfeited awards~~lease expense are as follows:


	Three Months Ended September 30,
(In thousands)		2023		2022

Operating lease expense		$	2,073	$	1,960
Finance lease expense:
Amortization of finance lease assets		41		41
Interest on finance lease liabilities		7		10
Total lease expense		$	2,121	$	2,011

Maturities of lease liabilities are as follows:


	September 30, 2023
(In thousands)	Operating Leases		Finance Leases
2024	$	6,187	$	144
2025	7,125		193
2026	6,006		96
2027	4,292		—
2028	3,259		—
Thereafter	927		—
Total lease payments	27,796		433
Less: interest	(3,424)		(31)
Total lease obligations	$	24,372	$	402

Lease term and recognizes share-based compensation cost only for those awards ultimately expected to vest. If actual forfeiture rates differ materially from the Company’s estimates, share-based compensation expense could differ significantly from the amounts the Company has recorded in the current period. The Company periodically reviews actual forfeiture experience and will revise its estimates, as necessary. The Company will recognize as compensation cost the cumulative effect of the change in estimated forfeiture rates on current and prior periods in earnings of the period of revision. As a result, if the Company revises its assumptions and estimates, the Company’s share-based compensation expense could change materially in the future.discount rate:

The Company’s outstanding share-based awards include performance-based non-qualified stock options (“PNQs”) and performance-based restricted stock units (“PBRSUs”) that have performance-based vesting conditions in addition to time-based vesting. Awards with performance-based vesting conditions require the achievement of certain financial and other performance criteria as a condition to the vesting. The Company recognizes the estimated fair value of performance-based awards, net of estimated forfeitures, as share-based compensation expense over the service period based upon the Company’s determination of whether it is probable that the performance targets will be achieved. At each reporting period, the Company reassesses the probability of achieving the performance criteria and the performance period required to meet those targets. Determining whether the performance criteria will be achieved involves judgment, and the estimate of share-based compensation expense may be revised periodically based on changes in the probability of achieving the performance criteria. Revisions are reflected in the period in which the estimate is changed. If performance goals are not met, no share-based compensation expense is recognized for the cancelled PNQs or PBRSUs, and, to the extent share-based compensation expense was previously recognized for those cancelled PNQs or PBRSUs, such share-based compensation expense is reversed. If performance goals are exceeded and the payout is more than 100% of the target shares, additional compensation expense is recorded in the period when that determination is certified by the Compensation Committee of the Board of Directors. See ~~Note 16~~.

~~Recently Adopted Accounting Standards~~

In August 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-12. ASU 2017-12 amends the hedge accounting model in Accounting Standards Codification (“ASC”) 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. ASU 2017-12 expands an entity’s ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. The guidance in ASU 2017-12 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company beginning July 1, 2019. Early adoption is permitted in any interim period or fiscal year before the effective date. For cash flow and net investment hedges existing at the date of adoption, entities will apply the new guidance using a modified retrospective approach (i.e., with a cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date). The guidance provides transition relief to make it easier for entities to apply certain amendments to existing hedges (including fair value hedges) where the hedge documentation needs to be modified. The Company early adopted ASU 2017-12 as of September 30, 2017 for its cash flow hedges related to coffee commodity purchases. Adoption of ASU 2017-12 resulted in a cumulative adjustment of $0.3 million to the opening balance of retained earnings. Adoption of ASU 2017-12 did not have any other material effect on the results of operations, financial position or cash flows of the Company.

In March 2016, the FASB issued ASU 2016-09. ASU 2016-09 was issued as part of the FASB’s Simplification Initiative. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification


	September 30, 2023		June 30, 2023
Weighted-average remaining lease terms (in years):
Operating lease	5.7		5.9
Finance lease	2.3		2.5

Weighted-average discount rate:
Operating lease	6.26	%	6.20	%
Finance lease	6.50	%	6.50	%

Farmer Bros. Co.

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements (continued)

Other Information:

on the statement of cash flows. ASU 2016-09 requires that the tax impact related to the difference between share-based compensation for book and tax purposes be recognized as income tax benefit or expense in the reporting period in which such awards vest. ASU 2016-09 also required a modified retrospective adoption for previously unrecognized excess tax benefits. The guidance in ASU 2016-09 is effective for public business entities for annual periods beginning after December 15, 2016, including interim periods within those annual reporting periods. The Company adopted ASU 2016-09 beginning July 1, 2017 on a modified retrospective basis, recognizing all excess tax benefits previously unrecognized, as a cumulative-effect adjustment increasing deferred tax assets by $1.6 million and increasing retained earnings by the same amount as of July 1, 2017. Adoption of ASU 2016-09 did not have any other material effect on the results of operations, financial position or cash flows of the Company.


	Three Months Ended September 30,
(In thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,063	$	1,920
Operating cash flows from finance leases	7		10
Financing cash flows from finance leases	48		48

In July 2015, the FASB issued ASU 2015-11. ASU 2015-11 simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. Entities will continue to apply their existing impairment models to inventories that are accounted for using last-in first-out or LIFO and the retail inventory method or RIM. Under current guidance, net realizable value is one of several calculations an entity needs to make to measure inventory at the lower of cost or market. ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, and the guidance must be applied prospectively after the date of adoption. The Company adopted ASU 2015-11 beginning July 1, 2017. Adoption of ASU 2015-11 did not have a material effect on the results of operations, financial position or cash flows of the Company.

~~New Accounting Pronouncements~~

In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). ASU 2017-07 amends the requirements in GAAP related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. ASU 2017-07 changes the income statement presentation of defined benefit plan expense by requiring separation between operating expense (service cost component) and non-operating expense (all other components, including interest cost, amortization of prior service cost, curtailments and settlements, etc.). The operating expense component is reported with similar compensation costs while the non-operating expense components are reported in other income and expense. In addition, only the service cost component is eligible for capitalization as part of an asset such as inventory or property, plant and equipment. The guidance in ASU 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years, and is effective for the Company beginning July 1, 2018. Because the expected operating expense component and non-operating expense components of net periodic benefit cost are not material to the consolidated financial statements of the Company, adoption of ASU 2017-07 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The amendments in ASU 2017-04 address concerns regarding the cost and complexity of the two-step goodwill impairment test, and remove the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 does not amend the optional qualitative assessment of goodwill impairment. The guidance in ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and is effective for the Company beginning July 1, 2020. Adoption of ASU 2017-04 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in ASU 2017-01 clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses and provide a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace the missing elements. The guidance in ASU 2017-01 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted in certain circumstances. ASU 2017-01 is effective for the Company beginning July 1, 2018. Adoption of ASU 2017-01 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The guidance in ASU 2016-18 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted in certain circumstances. ASU 2016-18 is effective for the Company beginning July 1, 2018. Adoption of ASU 2016-18 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15 addresses certain issues where diversity in practice was identified in classifying certain cash receipts and cash payments based on the guidance in ASC 230. ASC 230 is principles based and often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities. The application of judgment has resulted in diversity in how certain cash receipts and cash payments are classified. Certain cash receipts and cash payments may have aspects of more than one class of cash flows. ASU 2016-15 clarifies that an entity will first apply any relevant guidance in ASC 230 and in other applicable topics. If there is no guidance that addresses those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. The guidance in ASU 2016-15 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted in certain circumstances. ASU 2016-15 is effective for the Company beginning July 1, 2018. Adoption of ASU 2016-15 is not expected to have a material effect on the results of operations, financial position or cash flows of the Company.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which introduces a new lessee model that brings substantially all leases onto the balance sheet. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments and a related right-of-use asset. For public business entities, ASU 2016-02 is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early application is permitted. ASU 2016-02 is effective for the Company beginning July 1, 2019. The Company is evaluating the impact this guidance will have on its consolidated financial statements and expects the adoption will have a significant impact on the Company’s financial position resulting from the increase in assets and liabilities.

In May 2014, the FASB issued accounting guidance which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. On August 12, 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 by one year allowing early adoption as of the original effective date of January 1, 2017. The deferral results in the new accounting standard being effective for public business entities for annual reporting periods beginning after December 31, 2017, including interim periods within those fiscal years. ASU 2014-09 is effective for the Company beginning July 1, 2018. The Company is in the process of evaluating the provisions of ASU 2014-09 and assessing its impact on the Company’s financial statements, information systems, business processes, and financial statement disclosures. The Company has analyzed its revenue streams and is in the process of performing detailed contract reviews for each stream, and evaluating the impact ASU 2014-09 may have on revenue recognition. The Company primarily recognizes revenue at point of sale or delivery and does not expect that this will change under the new standard. Based on its preliminary reviews, the Company does not expect that the adoption of ASU 2014-09 will have a material impact on its consolidated financial statements; however, the Company’s assessment of contracts related to recent acquisitions is still in process. At a minimum, the Company anticipates expanded disclosures related to revenue in order to comply with ASU 2014-09. The Company will continue to evaluate the impact of the adoption of ASU 2014-09. Preliminary assessments made by the Company are subject to change. The Company has not yet concluded which transition method it will elect but will determine the transition method in the third quarter of fiscal 2018.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~Note 3. Acquisitions~~

~~China Mist Brands, Inc.~~

On October 11, 2016, the Company, through a wholly owned subsidiary, acquired substantially all of the assets and certain specified liabilities of China Mist Brands, Inc. dba China Mist Tea Company (“China Mist”), a provider of flavored and unflavored iced and hot teas. As part of the transaction, the Company assumed the lease on China Mist’s existing 17,400 square foot distribution and warehouse facility in Scottsdale, Arizona which is terminable upon twelve months’ notice.

The Company acquired China Mist for aggregate purchase consideration of $12.2 million, consisting of $11.2 million in cash paid at closing including estimated working capital adjustments of $0.4 million, post-closing final working capital adjustments of $0.6 million, and up to $0.5 million in contingent consideration to be paid as earnout if certain sales levels are achieved in the calendar years of 2017 or 2018. This contingent earnout liability is estimated to have a fair value of $0.5 million as of the closing date and is recorded in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet at December 31, 2017 and June 30, 2017. The earnout is estimated to be paid in calendar 2019.

The financial effect of this acquisition was not material to the Company’s condensed consolidated financial statements. The Company has not presented pro forma results of operations for the acquisition because it is not significant to the Company’s consolidated results of operations.

~~The following table summarizes the final allocation of consideration transferred as of the acquisition date:~~

(In thousands) Fair Value
Estimated
Useful Life
(years)

Cash paid, net of cash acquired $ 11,183

Post-closing final working capital adjustments 553

Contingent consideration 500

Total consideration $ 12,236

Accounts receivable $ 811

Inventory 544

Prepaid assets 48

Property, plant and equipment 189

Goodwill 2,927

Intangible assets:
  Recipes 930
7
  Non-compete agreement 100
5
  Customer relationships 2,000
10
  Trade name/Trademark—indefinite-lived 5,070

Accounts payable (383 )
  Total consideration, net of cash acquired $ 12,236

In connection with this acquisition, the Company recorded goodwill of $2.9 million, which is deductible for tax purposes. The Company also recorded $3.0 million in finite-lived intangible assets that included recipes, a non-compete agreement and customer relationships and $5.1 million in indefinite-lived trade name/trademark. The weighted average amortization period for the finite-lived intangible assets is 8.9 years. See ~~Note 13~~.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

The determination of the fair value of intangible assets acquired was primarily based on significant inputs not observable in an active market and thus represent Level 3 fair value measurements as defined under GAAP.

The fair value assigned to the recipes was determined utilizing the replacement cost method, which captures the direct cost of the development effort plus lost profits over the time to re-create the recipes.

The fair value assigned to the non-compete agreement was determined utilizing the with and without method. Under the with and without method, the fair value of the intangible asset is estimated based on the difference in projected earnings with the agreement in place versus projected earnings based on starting with no agreement in place. Revenue and earnings projections were significant inputs into estimating the value of China Mist’s non-compete agreement.

The fair value assigned to the customer relationships was determined based on management’s estimate of the retention rate utilizing certain benchmarks. Revenue and earnings projections were also significant inputs into estimating the value of customer relationships.

The fair value assigned to the trade name/trademark was determined utilizing a multi-period excess earnings approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be the present value of future earnings attributable to the asset and this method utilizes revenue and cost projections including an assumed contributory asset charge.

~~West Coast Coffee Company, Inc.~~

On February 7, 2017, the Company acquired substantially all of the assets and certain specified liabilities of West Coast Coffee Company, Inc. (“West Coast Coffee”), a coffee roaster and distributor with a focus on the convenience store, grocery and foodservice channels. As part of the transaction, the Company entered into a three-year lease on West Coast Coffee’s existing 20,400 square foot production, distribution and warehouse facility in Hillsboro, Oregon, which expires January 31, 2020, and assumed leases on six branch warehouses consisting of an aggregate of 24,150 square feet in Oregon, California and Nevada, expiring on various dates through November 2020. The Company acquired West Coast Coffee for aggregate purchase consideration of $15.5 million, which included $14.7 million in cash paid at closing including working capital adjustments of $1.2 million, post-closing final working capital adjustments of $(0.2) million, and up to $1.0 million in contingent consideration to be paid as earnout if certain sales levels are achieved in the twenty-four months following the closing. This contingent earnout liability is estimated to have a fair value of $0.6 million as of the closing date and is recorded in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet at December 31, 2017 and June 30, 2017. The earnout is estimated to be paid within twenty-four months following the closing.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~The following table summarizes the final allocation of consideration transferred as of the acquisition date:~~

(In thousands) Fair Value Estimated Useful Life (years)

Cash paid, net of cash acquired $ 14,671

Post-closing final working capital adjustments (218 )
Fair value of contingent consideration 600

Total consideration $ 15,053

Accounts receivable $ 956

Inventory 910

Prepaid assets 16

Property, plant and equipment 1,546

Goodwill 7,630

Intangible assets:
  Non-compete agreements 100
5
  Customer relationships 4,400
10
  Trade name—finite-lived 260
7
  Brand name—finite-lived 250
1.7
Accounts payable (833 )
Other liabilities (182 )
  Total consideration, net of cash acquired $ 15,053

In connection with this acquisition, the Company recorded goodwill of $7.6 million, which is deductible for tax purposes. The Company also recorded $5.0 million in finite-lived intangible assets that included non-compete agreements, customer relationships, a trade name and a brand name. The weighted average amortization period for the finite-lived intangible assets is 9.3 years. See ~~Note 13~~.

The fair value assigned to the non-compete agreements was determined utilizing the with and without method. Under the with and without method, the fair value of the intangible asset is estimated based on the difference in projected earnings with the agreements in place versus projected earnings based on starting with no agreements in place. Revenue and earnings projections were significant inputs into estimating the value of West Coast Coffee’s non-compete agreements.

The fair value assigned to the customer relationships was determined utilizing a multi-period excess earnings approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be the present value of future earnings attributable to the asset and this method utilizes revenue and cost projections including an assumed contributory asset charge.

The fair values assigned to the trade name and the brand name were determined utilizing the relief from royalty method. The relief from royalty method is based on the premise that the intangible asset owner would be willing to pay a royalty rate to license the subject asset. The analysis involves forecasting revenue over the life of the asset, applying a royalty rate and a tax rate, and then discounting the savings back to present value at an appropriate discount rate.

~~Boyd Coffee Company~~

On October 2, 2017 (“Closing Date”), the Company, through a wholly owned subsidiary, acquired substantially all of the assets and certain specified liabilities of Boyd Coffee Company (“Boyd Coffee” or “Seller”), a coffee roaster and distributor with a focus on restaurants, hotels, and convenience stores on the West Coast of the United States. The acquired business of Boyd Coffee (the “Boyd Business”) is expected to add to the Company’s product portfolio, improve growth potential, increase the density and penetration of the Company’s distribution footprint, and increase capacity utilization at

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~the Company’s production facilities.~~

~~At closing, as consideration for the purchase, the Company paid the Seller $38.9 million in cash from borrowings under its senior secured revolving credit facility (see~~ ~~Note 15~~), and issued to Boyd Coffee 14,700 shares of the Company’s Series A Preferred Stock, with a fair value of $11.8 million as of the Closing Date. Additionally, the Company held back $3.2 million in cash (“Holdback Cash Amount”) and 6,300 shares of Series A Preferred Stock (“Holdback Stock”) with a fair value of $4.8 million as of the Closing Date, for the satisfaction of any post-closing working capital adjustment and to secure the Seller’s (and the other seller parties’) indemnification obligations under the purchase agreement. Any Holdback Cash Amount and Holdback Stock not used to satisfy indemnification claims (including pending claims) will be released to the Seller on the 18-month anniversary of the Closing Date.

In addition to the Holdback Cash, as part of the consideration for the purchase, at closing the Company held back $1.1 million in cash (the “Multiemployer Plan Holdback”) to pay, on behalf of the Seller, any assessment of withdrawal liability made against the Seller following the Closing Date in respect of the Seller’s multiemployer plans. As the Company has not made this payment as of December 31, 2017 and expects settling the pension liability will take greater than twelve months, the Multiemployer Plan Holdback is recorded in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet at December 31, 2017. See ~~Note 17~~.

The parties are in the process of determining the final net working capital under the purchase agreement. At December 31, 2017, the Company estimated a net working capital adjustment of $(8.1) million, which is reflected in the preliminary purchase price allocation set forth below.

~~The following table summarizes the preliminary allocation of consideration transferred as of the acquisition date:~~

(In thousands) Fair Value
Estimated
Useful Life
(years)

Cash paid $ 38,871

Holdback Cash Amount 3,150

Multiemployer Plan Holdback 1,056

Fair value of Series A Preferred Stock (14,700 shares)(1) 11,756

Fair value of Holdback Stock (6,300 shares)(1) 4,825

Preliminary estimated post-closing working capital adjustment (8,059 )
Total consideration $ 51,599

Accounts receivable $ 7,166

Inventory 9,415

Prepaid expense and other assets 1,951

Property, plant and equipment 4,936

Goodwill 11,032

Intangible assets:
  Customer relationships 31,000
10
  Trade name/trademark—indefinite-lived 2,800

Accounts payable (15,080 )
Other liabilities (1,621 )
  Total consideration $ 51,599

~~______________~~

(1) Fair value of Series A Preferred Stock and Holdback Stock as of the Closing Date, estimated as the sum of (a) the present value of the dividends payable thereon and (b) the stated value of the Series A Preferred Stock or Holdback Stock, as the case may be, adjusted for both the conversion premium and the discount for lack of marketability arising from conversion restrictions.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

The acquisition was accounted for as a business combination. The fair value of consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated amount recorded as goodwill. The purchase price allocation is preliminary as the Company is in the process of finalizing the valuation inputs including growth assumptions, cost projections and discount rates which are used in the fair value calculation of certain assets as well as the determination of the final post-closing net working capital adjustment. The preliminary purchase price allocation is subject to change and such change could be material based on numerous factors, including the final estimated fair value of the assets acquired and liabilities assumed and the amount of the final post-closing net working capital adjustment.

In connection with this acquisition, the Company recorded goodwill of $11.0 million, which is deductible for tax purposes. The Company also recorded $31.0 million in finite-lived intangible assets that included customer relationships and $2.8 million in indefinite-lived intangible assets that included a trade name/trademark. The amortization period for the finite-lived intangible assets is 10.0 years. See ~~Note 13~~.

The fair value assigned to the customer relationships was determined based on management's estimate of the retention rate utilizing certain benchmarks. Revenue and earnings projections were also significant inputs into estimating the value of customer relationships.

The following table presents the net sales and income before taxes from the Boyd Business operations that are included in the Company’s Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2017 (unaudited):

Closing Date through December 31, 2017
(In thousands)
Net sales $ 26,290
Income before taxes $ 511

The Company has not presented pro forma results of operations for the acquisition because it is not significant to the Company’s consolidated results of operations. However, the Company considers the acquisition to be material to the Company’s financial statements and has provided certain pro forma disclosures pursuant to ASC 805, “Business Combinations.”

The following table sets forth certain unaudited pro forma financial results for the Company for the three and six months ended December 31, 2017 and 2016, as if the acquisition of the Boyd Business was consummated on the same terms as of the first day of the applicable fiscal period.

Three Months Ended December 31, Six Months Ended December 31,
2017 2016 2017 2016
(In thousands)
Net sales $ 167,366
$ 166,107
$ 321,061
$ 319,411
Income before taxes $ 2,142
$ 34,171
$ 779
$ 36,414

At closing, the parties entered into a transition services agreement where the Seller agreed to provide certain accounting, marketing, sales and distribution support during a transition period of up to 12 months. The Company also entered into a co-manufacturing agreement with the Seller for a transition period of up to 12 months as the Company

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~transitions production into its plants. Amounts paid by the Company to the Seller for these services totaled $9.2 million in the three and six months ended December 31, 2017.~~

The Company incurred transaction costs related to the Boyd Business acquisition, consisting primarily of legal and consulting expenses of $1.0 million and $3.4 million during the three and six months ended December 31, 2017, respectively, which are included in general and administrative expenses in the Company's Condensed Consolidated Statements of Operations.

~~Note 4. Restructuring Plans~~

~~Corporate Relocation Plan~~

On February 5, 2015, the Company announced a plan (the “Corporate Relocation Plan”) to close its Torrance, California facility (the “Torrance Facility”) and relocate its corporate headquarters, product development lab, and manufacturing and distribution operations from Torrance, California to a new facility in Northlake, Texas (“New Facility”). Approximately 350 positions were impacted as a result of the Torrance Facility closure. The Company’s decision resulted from a comprehensive review of alternatives designed to make the Company more competitive and better positioned to capitalize on growth opportunities.

In the three and six months ended December 31, 2017, no expenses associated with the Corporate Relocation Plan were incurred. As of December 31, 2017, the Company had $0.1 million in unpaid expenses related to employee-related costs, which is expected to be paid by the end of fiscal 2018.

The Company estimated that it would incur approximately $31 million in cash costs in connection with the Corporate Relocation Plan consisting of $18 million in employee retention and separation benefits, $5 million in facility-related costs and $8 million in other related costs. Since the adoption of the Corporate Relocation Plan through December 31, 2017, the Company has recognized a total of $31.5 million in aggregate cash costs including $17.1 million in employee retention and separation benefits, $7.0 million in facility-related costs related to the temporary office space, costs associated with the move of the Company’s headquarters, relocation of the Company’s Torrance operations and certain distribution operations and $7.4 million in other related costs. The Company also recognized from inception through December 31, 2017 non-cash depreciation expense of $2.3 million associated with the Torrance production facility resulting from the consolidation of coffee production operations with the Houston and Portland production facilities and $1.4 million in non-cash rent expense recognized in the sale-leaseback of the Torrance Facility. The Company may incur certain pension-related costs in connection with the Corporate Relocation Plan.

~~Direct Store Delivery (“DSD”) Restructuring Plan~~

On February 21, 2017, the Company announced a restructuring plan to reorganize its DSD operations in an effort to realign functions into a channel-based selling organization, streamline operations, acquire certain channel specific expertise, and improve selling effectiveness and financial results (the “DSD Restructuring Plan”). The strategic decision to undertake the DSD Restructuring Plan resulted from an ongoing operational review of various initiatives within the DSD selling organization. The Company has revised its estimated time of completion of the DSD Restructuring Plan from the end of the second quarter of fiscal 2018 to the end of fiscal 2018.

The Company estimates that it will recognize approximately $3.7 million to $4.9 million of pre-tax restructuring charges by the end of fiscal 2018 consisting of approximately $1.9 million to $2.7 million in employee-related costs, including severance, prorated bonuses for bonus eligible employees, contractual termination payments and outplacement services, and $1.8 million to $2.2 million in other related costs, including legal, recruiting, consulting, other professional services, and travel. The Company may also incur other charges not currently contemplated due to events that may occur as a result of, or associated with, the DSD Restructuring Plan.

Expenses related to the DSD Restructuring Plan in the three and six months ended December 31, 2017 consisted of $0 and $24,000, respectively, in employee-related costs and $0.1 million and $0.2 million, respectively, in other related costs. Since the adoption of the DSD Restructuring Plan through December 31, 2017, the Company has recognized and paid a total of $2.7 million in aggregate cash costs including $1.1 million in employee-related costs, and $1.6 million in other related

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~costs. The remaining estimated costs of $1.0 million to $2.2 million are expected to be incurred in the remainder of fiscal 2018.~~

~~Note 5. New Facility~~

~~Lease Agreement and Purchase Option Exercise~~

On June 15, 2016, the Company exercised the purchase option to purchase the land and the partially constructed New Facility located thereon pursuant to the terms of the lease agreement dated as of July 17, 2015, as amended (the “Lease Agreement”). On September 15, 2016 (“Purchase Option Closing Date”), the Company closed the purchase option and acquired the land and the partially constructed New Facility located thereon for an aggregate purchase price of $42.5 million (the “Purchase Price”), consisting of the purchase option price of $42.0 million based on actual construction costs incurred as of the Purchase Option Closing Date plus the option exercise fee, plus amounts paid in respect of real estate commissions, title insurance, and recording fees. Upon closing of the purchase option, the Company recorded the aggregate purchase price of the New Facility in “Property, plant and equipment, net” on its consolidated balance sheet. The asset related to the New Facility lease obligation included in “Property, plant and equipment, net,” the offsetting liability for the lease obligation included in “Other long-term liabilities” and the rent expense related to the land were reversed. Concurrent with the purchase option closing, on September 15, 2016, the Company terminated the Lease Agreement. The Company did not pay any early termination penalties in connection with the termination of the Lease Agreement.

~~Development Management Agreement~~

In conjunction with the Lease Agreement, the Company also entered into a Development Management Agreement with an affiliate of Stream Realty Partners (the “DMA”) to manage, coordinate, represent, assist and advise the Company on matters from the pre-development through construction of the New Facility. Services under the DMA have concluded. The Company incurred and paid $4.0 million under this agreement which is included in “Buildings and Facilities” (see ~~Note 12~~).

~~Amended Building Contract~~

On September 17, 2016, the Company and The Haskell Company (“Builder”) entered into a Change Order, which, among other things, amended the building contract previously entered into between the Company and Builder to provide a guaranteed maximum price and the basis for the price and the scope of Builder’s services in connection with the construction of the New Facility (the “Amended Building Contract”).

Pursuant to the Amended Building Contract, Builder provided pre-construction and construction services, including specialized industrial design and construction work in connection with Builder’s construction of certain production equipment installed in portions of the New Facility (the “Project”). In April 2017, the Company and Builder entered into a change order to change the scope of work which added $0.6 million to the Amended Building Contract. Builder's work on the Project has been completed. The Company incurred and paid $22.5 million for Builder’s services in connection with the Project which amount is included in “Machinery and equipment” (see ~~Note 12~~).

~~New Facility Costs~~

The Company estimated that the total construction costs including the cost of land for the New Facility would be approximately $60 million. As of December 31, 2017, the Company has incurred an aggregate of $60.8 million in construction costs. In addition to the costs to complete the construction of the New Facility, the Company estimated that it would incur approximately $35 million to $39 million for machinery and equipment, furniture and fixtures and related expenditures in connection with construction of the New Facility of which the Company has incurred an aggregate of $33.2 million as of December 31, 2017, including $22.5 million under the Amended Building Contract. The majority of the capital expenditures associated with machinery and equipment, furniture and fixtures, and related expenditures in connection with the initial construction of the New Facility were incurred in the first three quarters of fiscal 2017. The Company commenced distribution activities at the New Facility during the second quarter of fiscal 2017 and initial production activities late in the third quarter of fiscal 2017. The Company began roasting coffee in the New Facility in the fourth quarter of fiscal 2017.

~~At December 31, 2017, the Company had committed to purchase additional equipment for the New Facility totaling $6.3 million.~~

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~Note 6. Sales of Assets~~

~~Sale of Torrance Facility~~

On July 15, 2016, the Company completed the sale of the Torrance Facility, consisting of approximately 665,000 square feet of buildings located on approximately 20.3 acres of land, for an aggregate cash sale price of $43.0 million, which sale price was subject to customary adjustments for closing costs and documentary transfer taxes. Cash proceeds from the sale of the Torrance Facility were $42.5 million.

Following the closing of the sale, the Company leased back the Torrance Facility on a triple net basis through October 31, 2016 at zero base rent, and exercised two one-month extensions at a base rent of $100,000 per month. In accordance with ASC 840, “Leases,” due to the Company’s continuing involvement with the property, the Company accounted for the transaction as a financing transaction, deferred the gain on sale of the Torrance Facility and recorded the net sale proceeds of $42.5 million and accrued non-cash interest expense on the financing transaction in “Sale-leaseback financing obligation” on the Company's Condensed Consolidated Balance Sheet at September 30, 2016. The Company vacated the Torrance Facility in December 2016 and concluded the leaseback transaction. As a result, at December 31, 2016, the financing transaction qualified for sales recognition under ASC 840. Accordingly, in the three and six months ended December 31, 2016, the Company recognized the net gain from sale of the Torrance Facility in the amount of $37.4 million, including non-cash interest expense of $0.7 million and non-cash rent expense of $1.4 million, representing the rent for the zero base rent period previously recorded in “Other current liabilities” and removed the amounts recorded in “Assets held for sale” and the “Sale-leaseback financing obligation” on its consolidated balance sheet.

~~Sale of Northern California Branch Property~~

On September 30, 2016, the Company completed the sale of its branch property in Northern California for a sale price of $2.2 million and leased it back through March 31, 2017, at a base rent of $10,000 per month. The Company recognized a net gain on sale of the Northern California property in the six months ended December 31, 2016 in the amount of $2.0 million.

Note 7.5. 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~~Consolidated Financial Statements in the ~~2017~~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, 2017~~September 30, 2023 and June 30, ~~2017:~~

2023:


(In thousands)	December 31, 2017	June 30, 2017	(In thousands)	September 30, 2023	June 30, 2023
Derivative instruments designated as cash flow hedges:			Derivative instruments designated as cash flow hedges:
Long coffee pounds	31,763	33,038	Long coffee pounds	413	1,538
Derivative instruments not designated as cash flow hedges:			Derivative instruments not designated as cash flow hedges:
Long coffee pounds	1,612	2,121	Long coffee pounds	563	6,713
Short coffee pounds			Short coffee pounds	(113)	(4,388)
Total	33,375	35,159	Total	863	3,863

Coffee-related derivative instruments designated as cash flow hedges outstanding as of ~~December 31, 2017~~September 30, 2023 will expire within ~~19 months.~~1.25 years. At September 30, 2023 and June 30, 2023 approximately 48% and 40%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges.

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 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.

Farmer Bros. Co.

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements (continued)

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the Company’s ~~Condensed Consolidated Balance Sheets:~~

consolidated balance sheets:

Derivative Instruments
Designated as Cash Flow Hedges
Derivative Instruments Not Designated as Accounting Hedges
December 31, 2017 June 30, 2017 December 31, 2017 June 30, 2017
(In thousands)
Financial Statement Location:
Short-term derivative assets(1):
Coffee-related derivative instruments $ 233
$ 66
$ 40
$ —
Long-term derivative assets(2):
Coffee-related derivative instruments $ 99
$ 66
$ —
$ —
Short-term derivative liabilities(1):
Coffee-related derivative instruments $ 1,665
$ 1,733
$ 258
$ 190
Long-term derivative liabilities(2):
Coffee-related derivative instruments $ —
$ 446
$ —
$ —


	Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges
(In thousands)	September 30, 2023		June 30, 2023		September 30, 2023		June 30, 2023
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments (1)	$	—	$	4	$	5	$	64




Short-term derivative liabilities:
Coffee-related derivative instruments (2)	20		158		870		2,478

________________

(1) Included in “Short-term derivative ~~liabilities”~~assets” on the ~~Company’s Condensed Consolidated Balance Sheets.~~Company's consolidated balance sheets.

(2) Included in ~~"Other assets" and “Other long-term~~“Short-term derivative liabilities” on the ~~Company’s Condensed Consolidated Balance Sheets at December 31, 2017 and June 30, 2017, respectively.~~Company's consolidated balance sheets.

Statements of Operations

The following table presents pretax net gains and losses for the ~~Company’s coffee-related~~Company's derivative instruments designated as cash flow hedges, as recognized in ~~accumulated other comprehensive income (loss)~~ “AOCI,” “Cost of goods sold” and ~~“Other, net”:~~

“Interest expense”.

Three Months Ended
December 31,

Six Months Ended
December 31,
Financial Statement Classification
(In thousands) 2017 2016 2017 2016
Net losses recognized in AOCI $ (2,094 ) $ (2,943 ) $ (2,459 ) $ (2,217 ) AOCI
Net (losses) gains recognized in earnings $ (597 ) $ 215
$ (604 ) $ (250 ) Costs of goods sold
Net (losses) gains recognized in earnings (ineffective portion)(1) $ —
$ (41 ) $ 48
$ (28 ) Other, net


	Three Months Ended September 30,			Financial Statement Classification
(In thousands)		2023				2022


Net losses reclassified from AOCI to earnings for de-designated Interest rate swap		$	—	$	(287)		Interest Expense
Net losses recognized in AOCI - Coffee-related		(456)		(527)			AOCI
Net gains recognized in earnings - Coffee - related		172		1,281			Cost of goods sold

~~________________~~

~~(1) Amount included in six months ended December 31, 2017 relates to trades terminated prior to the adoption of ASU 2017-12. See~~ ~~Note 2~~.

For the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2023 and ~~2016,~~2022, there were no ~~gains~~ gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge ~~effectiveness or as a result of reclassifications to earnings following the discontinuance of any cash flow hedges.~~effectiveness.

Net losses (gains) on derivative instruments ~~and investments~~ in the Company’s ~~Condensed Consolidated Statements~~consolidated statements of ~~Cash Flows~~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 ~~six~~three months ended ~~December 31, 2017~~September 30, 2023 and ~~2016.~~2022. Gains and losses on coffee-related derivative instruments not designated as accounting hedges are included in “Other, net” in the Company’s ~~Condensed Consolidated Statements~~consolidated statements of ~~Operations~~operations and in ~~“Net~~Net losses (gains) on derivative instruments ~~and investments”~~ in the Company’s ~~Condensed Consolidated Statements~~consolidated statements of ~~Cash Flows.~~cash flows.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed 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,							Three Months Ended September 30,
(In thousands)	2017			2016			2017			2016			(In thousands)		2023		2022
Net losses on coffee-related derivative instruments	$	(190	)	$	(1,204	)	$	(93	)	$	(1,240	)
Net gains (losses) on investments	16			(1,320		)	7			(1,092		)
Net losses on derivative instruments and investments(1)	(174		)	(2,524		)	(86		)	(2,332		)
Net gains on coffee-related derivative instruments (1)													Net gains on coffee-related derivative instruments (1)		$	1,379	$	562

Non-operating pension and other postretirement benefits													Non-operating pension and other postretirement benefits		915		728
Other gains, net	728			201			727			200			Other gains, net		577		26
Other, net	$	554		$	(2,323	)	$	641		$	(2,132	)	Other, net		$	2,871	$	1,316

___________

(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, 2017~~September 30, 2023 and ~~2016.~~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 September 30,
(In thousands)		2023		2022
Accumulated other comprehensive loss (income) beginning balance		$	1,175	$	(1,692)




Net losses reclassified from AOCI to earnings for partial unwind of interest swap - Interest rate swap		—		(287)
Net losses recognized in AOCI - Coffee-related		456		527
Net gains recognized in earnings - Coffee - related		172		1,281

Accumulated other comprehensive loss (income) ending balance		$	1,803	$	(171)

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

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 ~~brokers~~counterparties to facilitate financial derivative transactions in support of its risk management activities. ~~Based on the value of the Company’s positions in these accounts and the associated margin requirements, the Company may be required to deposit cash into these broker accounts.~~

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 Sheet Netting Adjustments Cash Collateral Posted Net Exposure
December 31, 2017 Derivative Assets $ 372
$ (372 ) $ —
$ —
Derivative Liabilities $ 1,923
$ (372 ) $ —
$ 1,551
June 30, 2017 Derivative Assets $ 132
$ (132 ) $ —
$ —
Derivative Liabilities $ 2,369
$ (132 ) $ —
$ 2,237


(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments		Cash Collateral Posted		Net Exposure
September 30, 2023	Derivative Assets	$	5	$	(5)	$	—	$	—
	Derivative Liabilities	890		(5)		—		885
June 30, 2023	Derivative Assets	68		(68)		—		—
	Derivative Liabilities	2,636		(68)		—		2,568

Cash Flow Hedges

Changes in the fair value of the Company’s coffee-related derivative instruments designated as cash flow hedges ~~to the extent effective,~~ 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, 2017, $(4.1)~~September 30, 2023, $1.3 million of net losses on coffee-related derivative instruments designated as a cash flow ~~hedges~~hedge are expected to be reclassified into cost of goods sold within the next ~~twelve~~12 months. These recorded values are based on market prices of the commodities as of ~~December 31, 2017. Due to the volatile nature of commodity prices, actual gains or losses realized within the next twelve months will likely differ from these values.~~

September 30, 2023.

~~Note 8. Investments~~

~~The following table shows gains and losses on trading securities:~~

Three Months Ended December 31, Six Months Ended December 31,
(In thousands) 2017 2016 2017 2016
Total gains (losses) recognized from trading securities $ 16
$ (1,350 ) $ 7
$ (1,091 )
Less: Realized (losses) gains from sales of trading securities —
(2 ) 7
(2 )
Unrealized gains (losses) from trading securities $ 16
$ (1,348 ) $ —
$ (1,089 )

Note 9.6. Fair Value Measurements

Assets and liabilities measured and recorded at fair value on a recurring basis were as follows:

(In thousands) Total Level 1 Level 2 Level 3
December 31, 2017
Preferred stock $ —
$ —
$ —
$ —
Derivative instruments designated as cash flow hedges:
Coffee-related derivative assets(1) $ 332
$ —
$ 332
$ —
Coffee-related derivative liabilities(1) $ 1,665
$ —
$ 1,665
$ —
Derivative instruments not designated as accounting hedges:
Coffee-related derivative assets(1) $ 40
$ —
$ 40
$ —
Coffee-related derivative liabilities(1) $ 258
$ —
$ 258
$ —

Total Level 1 Level 2 Level 3
June 30, 2017
Preferred stock(2) $ 368
$ —
$ 368
$ —
Derivative instruments designated as cash flow hedges:
Coffee-related derivative assets(1) $ 132
$ —
$ 132

$ —
Coffee-related derivative liabilities(1) $ 2,179
$ —
$ 2,179
$ —
Derivative instruments not designated as accounting hedges:
Coffee-related derivative liabilities(1) $ 190
$ —
$ 190
$ —


(In thousands)	Total		Level 1		Level 2		Level 3
September 30, 2023

Derivative instruments designated as cash flow hedges:

Coffee-related derivative liabilities (1)	$	20	$	—	$	20	$	—
Derivative instruments not designated as accounting hedges:
Coffee-related derivative assets (1)	5		—		5		—
Coffee-related derivative liabilities (1)	870		—		870		—



	Total		Level 1		Level 2		Level 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.~~


~~(2)~~	~~Included in “Short-term investments” on the Company’s Condensed Consolidated Balance Sheets.~~

(1)The Company's coffee-related derivative instruments are traded over-the-counter and, therefore, classified as Level 2.

Note ~~10.~~7. Accounts Receivable, Net


(In thousands)	December 31, 2017			June 30, 2017			(In thousands)	September 30, 2023		June 30, 2023
Trade receivables	$	58,727		$	44,531		Trade receivables	$	28,911	$	42,914
Other receivables(1)	4,320			2,636
Allowance for doubtful accounts	(772		)	(721		)
Other receivables (1)							Other receivables (1)	6,516		2,631
Allowance for credit losses							Allowance for credit losses	(418)		(416)
Accounts receivable, net	$	62,275		$	46,446		Accounts receivable, net	$	35,009	$	45,129

__________

(1) ~~At December 31, 2017~~Includes vendor rebates, transition services receivables and ~~June~~other non-trade receivables.

There was no material change in the allowance for credit losses during the three months ended September 30, 2017, respectively, the Company had recorded $1.0 million and $0.4 million, in “Other receivables” included in “Accounts receivable, net” on its Condensed Consolidated Balance Sheets representing earnout receivable from Harris Spice Company.2023.

Farmer Bros. Co.

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements (continued)

Note 8. Inventories

~~Note 11. Inventories~~


(In thousands)	December 31, 2017		June 30, 2017		(In thousands)	September 30, 2023		June 30, 2023
Coffee					Coffee
Processed	$	14,514	$	14,085	Processed	$	19,473	$	15,860
Unprocessed	27,436		17,083		Unprocessed	8,665		7,409
Total	$	41,950	$	31,168	Total	$	28,138	$	23,269
Tea and culinary products					Tea and culinary products
Processed	$	23,432	$	20,741	Processed	22,096		21,418
Unprocessed	999		74		Unprocessed	84		63
Total	$	24,431	$	20,815	Total	$	22,180	$	21,481
Coffee brewing equipment parts	$	6,903	$	4,268	Coffee brewing equipment parts	3,973		4,526
Total inventories	$	73,284	$	56,251	Total inventories	$	54,291	$	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 ~~overhead~~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.

The Company does not expect inventory levels at June 30, 2018 to decrease from the levels at June 30, 2017 and, therefore, recorded no expected beneficial effect of the liquidation of LIFO inventory quantities in the three and six months ended December 31, 2017. The Company recorded $0.8 million and $1.7 million in expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold in the three and six months ended December 31, 2016, respectively. Interim LIFO calculations must necessarily be based on management’s estimates of expected fiscal year-end inventory levels and costs. Because these estimates are subject to many forces beyond management’s control, interim results are subject to the final fiscal year-end LIFO inventory valuation.

Note ~~12.~~9. Property, Plant and Equipment


(In thousands)	September 30, 2023		June 30, 2023
Buildings and facilities	$	20,255	$	20,146
Machinery, vehicles and equipment	140,543		144,473

Capitalized software	8,510		7,934
Office furniture and equipment	8,274		8,231
	$	177,582	$	180,784
Accumulated depreciation	(144,722)		(147,920)
Land	918		918
Property, plant and equipment, net	$	33,778	$	33,782

(In thousands) December 31, 2017 June 30, 2017
Buildings and facilities $ 108,999
$ 108,682
Machinery and equipment 212,180
201,236
Equipment under capital leases 7,516
7,540
Capitalized software 23,063
21,794
Office furniture and equipment 12,612
12,758
364,370
352,010
Accumulated depreciation (202,558 ) (192,280 )
Land 16,336
16,336
Property, plant and equipment, net $ 178,148
$ 176,066
Coffee Brewing Equipment (“CBE”) and Service

Capitalized CBE included in machinery and equipment above are:


(In thousands)	September 30, 2023		June 30, 2023
Coffee Brewing Equipment	$	92,504	$	93,159
Accumulated depreciation	(66,514)		(66,953)
Coffee Brewing Equipment, net	$	25,990	$	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:

~~Note 13. Goodwill~~


	Three Months Ended September 30,
(In thousands)		2023		2022
Depreciation expense in COGS		$	1,794	$	1,808
CBE Costs excl. depreciation exp		9,885		7,204

Other expenses related to CBE provided to customers, such as the cost of servicing that equipment (including service employees’ salaries, cost of transportation and ~~Intangible Assets~~

~~The carrying value~~the cost of ~~goodwill in the six months ended December 31, 2017 increased by $10.9 million. This was due~~supplies and parts), are considered directly attributable to the ~~acquisition~~generation of revenues from the ~~Boyd Business adding $11.0 million~~customers. Therefore, these costs are included in cost of goodwill as well as the final working capital adjustment made to the West Coast Coffee purchase price allocation which reduced goodwill by $0.1 million. The carrying value of goodwill at December 31, 2017 and June 30, 2017 was $21.9 million and $11.0 million, respectively.goods sold.

Farmer Bros. Co.

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements (continued)

Note 10. Intangible Assets

The following is a summary of the Company’s amortized and unamortized intangible ~~assets other than goodwill:~~assets:

December 31, 2017 June 30, 2017
(In thousands)
Gross Carrying
Amount(1)

Accumulated
Amortization(1)

Gross Carrying
Amount(1)

Accumulated
Amortization(1)
Amortized intangible assets:
Customer relationships $ 48,353
$ (12,074 ) $ 17,353
$ (10,883 )
Non-compete agreements 220
(61 ) 220
(38 )
Recipes 930
(155 ) 930
(88 )
Trade name/brand name 510
(185 ) 510
(84 )
Total amortized intangible assets $ 50,013
$ (12,475 ) $ 19,013
$ (11,093 )
Unamortized intangible assets:
Trade names with indefinite lives $ 3,640
$ —
$ 3,640
$ —
Trademarks and brand name with indefinite lives 9,858
—
7,058
—
Total unamortized intangible assets $ 13,498
$ —
$ 10,698
$ —
Total intangible assets $ 63,511
$ (12,475 ) $ 29,711
$ (11,093 )

~~___________~~

(1) Reflects the preliminary purchase price allocation for the acquisition of the Boyd Business. Subject to change based on numerous factors, including the final estimated fair value of the assets acquired and the liabilities assumed and the amount of the final post-closing net working capital adjustment. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to goodwill and intangible assets.


		September 30, 2023				June 30, 2023
(In thousands)	Weighted Average Amortization Period as of September 30, 2023	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Amortized intangible assets:
Customer relationships	3.5	$	33,003	$	(24,642)	$	8,361	$	33,003	$	(24,092)	$	8,911

Recipes	0.1	930		(919)		11		930		(885)		45
Trade name/brand name	0.2	510		(504)		6		510		(495)		15
Total amortized intangible assets		$	34,443	$	(26,065)	$	8,378	$	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	$	(26,065)	$	12,900	$	38,965	$	(25,472)	$	13,493

Aggregate amortization expense for the three months ended ~~December 31, 2017~~September 30, 2023 and ~~2016~~2022 was ~~$1.1~~$0.6 million ~~and $0.1 million, respectively. Aggregate amortization expense for the six months ended December 31, 2017 and 2016 was $1.4 million and $0.1 million, respectively.~~in each period.

Note ~~14.~~11. Employee Benefit Plans

The Company provides benefit plans for most full-time employees, including 401(k), health and other welfare benefit plans and, in certain circumstances, pension benefits. Generally, the plans provide benefits based on years of service and/or a combination of years of service and earnings. In addition, the Company contributes to two multiemployer defined benefit pension plans, one multiemployer defined contribution pension plan and ten 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. In addition, the Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union retirees and provides retiree medical coverage and, depending on the age of the retiree, dental and vision coverage. The Company also provides a postretirement death benefit to certain of its employees and retirees.

The Company is required to recognize the funded status of a benefit plan in its consolidated balance sheets. The Company is also required to recognize in other comprehensive income (“OCI”) certain gains and losses that arise during the period but are deferred under pension accounting rules.

Single Employer Pension Plans

~~The~~As of September 30, 2023, the Company has a defined benefit pension plan, the Farmer Bros. Co. Pension Plan for Salaried Employees (the “Farmer Bros. Plan”), for Company employees hired prior to January 1, 2010, who are not covered under a collective bargaining agreement. The Company amended the Farmer Bros. Plan, freezing the benefit for all participants effective June 30, 2011. After the plan freeze, participants do not accrue any benefits under the Farmer Bros. Plan, and new hires are not eligible to participate in the Farmer Bros. Plan. As all plan participants became inactive following this pension curtailment, net (gain) loss is now amortized based on the remaining life expectancy of these participants instead of the remaining service period of these participants.

~~The Company also~~ has two defined benefit pension plans for certain ~~hourly~~ employees, ~~covered under collective bargaining agreements (the “Brewmatic Plan”~~the "Farmer Bros. Plan" and the “Hourly ~~Employees’~~Employees' Plan”). ~~Effective October 1, 2016, the~~The Company

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

froze benefit accruals and participation in ~~the Hourly Employees’ Plan.~~these plans effective June 30, 2011 and October 1, 2016, respectively. After the plan ~~freeze,~~freezes, participants do not accrue any benefits under the plan, and new hires are not eligible to participate in the plan. ~~After the freeze, the participants in the plan are eligible to receive the Company’s matching contributions to their 401(k).~~

The net periodic benefit cost for the defined benefit pension plans is as follows:


	Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016				Three Months Ended September 30,
(In thousands)													(In thousands)		2023		2022
Service cost	$	—		$	124		$	—		$	248

Interest cost	1,432			1,397			2,864			2,794			Interest cost		$	1,204	$	1,156
Expected return on plan assets	(1,456		)	(1,607		)	(2,912		)	(3,214		)	Expected return on plan assets		(1,122)		(1,009)
Amortization of net loss⁽¹⁾	418			508			836			1,016			Amortization of net loss (1)		207		281

Net periodic benefit cost	$	394		$	422		$	788		$	844		Net periodic benefit cost		$	289	$	428

(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


	Fiscal
	2018	2017		September 30, 2023	June 30, 2023
Discount rate	3.80%	3.55%	Discount rate	5.05%	4.50%
Expected long-term return on plan assets	6.75%	7.75%	Expected long-term return on plan assets	7.00%	6.50%

~~Basis Used to Determine Expected Long-Term Return on Plan Assets~~

The expected long-term return on plan assets assumption was developed as a weighted average rate based on the target asset allocation of the plan and the Long-Term Capital Market Assumptions (CMA) 2014. The capital market assumptions were developed with a primary focus on forward-looking valuation models and market indicators. The key fundamental economic inputs for these models are future inflation, economic growth, and interest rate environment. Due to the long-term nature of the pension obligations, the investment horizon for the CMA 2014 is 20 to 30 years. In addition to forward-looking models, historical analysis of market data and trends was reflected, as well as the outlook of recognized economists, organizations and consensus CMA from other credible studies.

Multiemployer Pension Plans

The Company participates in ~~two~~one multiemployer defined benefit pension ~~plans~~plan that ~~are~~is union sponsored and collectively bargained for the benefit of certain employees subject to collective bargaining agreements, ~~of which~~called the Western Conference of Teamsters Pension Plan ~~(“WCTPP”~~("WCTPP") ~~is individually significant.~~. The Company makes contributions to ~~these plans~~this plan generally based on the number of hours worked by the participants in accordance with the provisions of negotiated labor contracts.

The ~~risks of participating in multiemployer~~company also contributes to two defined contribution pension plans (All Other Plans) that are ~~different from single-employer plans in that: (i) assets contributed~~union sponsored and collectively bargained for the benefit of certain employees subject to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (iii) if the Company stops participating in the multiemployer plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

On October 30, 2017, counsel to the Company received written confirmation that the Western Conference of Teamsters Pension Trust (the “WCT Pension Trust”) will be retracting its claim, stated in its letter to the Company dated July 10, 2017 (the “WCT Pension Trust Letter”), that certain of the Company’s employment actions in 2015 resulting from the Corporate Relocation Plan constituted a partial withdrawal from the WCTPP. The written confirmation stated that the WCT Pension Trust has determined that a partial withdrawal did not occur in 2015 and further stated that the withdrawal liability assessment has been rescinded. This rescinding of withdrawal liability assessment applies to Company employment actions in 2015 with respect to thecollective bargaining ~~units that were specified in the WCT Pension Trust Letter. As of~~agreements.

Farmer Bros. Co.

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements (continued)

~~December 31, 2017,~~Contributions made by the Company ~~is not able to predict whether the WCT Pension Trust may make a claim, or estimate the extent of potential withdrawal liability, related~~ to the ~~Corporate Relocation Plan for actions or bargaining units other than those specified in the WCT Pension Trust Letter.~~

In fiscal 2012, the Company withdrew from the Local 807 Labor-Management Pension Fund (“Pension Fund”) and recorded a charge of $4.3 million associated with withdrawal from this plan, representing the present value of the estimated withdrawal liability expected to be paid in quarterly installments of $0.1 million over 80 quarters. On November 18, 2014, the Pension Fund sent the Company a notice of assessment of withdrawal liability in the amount of $4.4 million, which the Pension Fund adjusted to $4.9 million on January 5, 2015. The Company is in the process of negotiating a reduced liability amount. The Company has commenced quarterly installment payments to the Pension Fund of $91,000 pending the final settlement of the liability. The total estimated withdrawal liability is $4.0 million and its present value are reflected in the Company’s Condensed Consolidated Balance Sheets at December 31, 2017 and June 30, 2017 as short-term with the expectation of paying off the liability in fiscal 2018.

~~Future collective bargaining negotiations may result in the Company withdrawing from the remaining~~ multiemployer pension plans ~~in which it participates and, if successful, the Company may incur a withdrawal liability, the amount of which could be material to the Company’s results of operations and cash flows.~~were as follows:


	Three Months Ended September 30,
(In thousands)		2023		2022
Contributions to WCTPP		$	316	$	287
Contributions to All Other Plans		8		8

Multiemployer Plans Other Than Pension Plans

The Company participates in ~~ten~~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 ~~July~~March 31, ~~2020.~~2027.

~~The Company’s~~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~~Company's matching contribution is discretionary, based on approval by the ~~Company’s~~Company's Board of Directors. ~~For~~

Beginning in January 2022, the ~~calendar years 2018 and 2017,~~Company amended the 401(k) matching program, whereby the Company on a quarterly basis, will contribute, instead of cash, shares of the Company’s ~~Board of Directors approved~~common stock, par value $1.00 per share (the “Common Stock”) with a ~~Company matching contribution of~~value equal to 50% of ~~an employee’s~~any non-union employee's annual contribution to the 401(k) Plan, up to 6% of ~~the employee’s~~such employee's eligible income. The ~~matching contributions (and any earnings thereon) vest at the rate of 20% for each~~terms of the ~~participant’s first 5 years of vesting service, so that a participant is fully vested in his or her matching contribution account after 5 years of vesting service, subject~~match are substantially the same as the safe-harbor non-elective contribution. Effective January 1, 2023, the Company changed its match to ~~accelerated vesting under certain circumstances in connection with the Corporate Relocation Plan due to the closure~~100% of the ~~Company’s Torrance Facility, a reduction-in-force at another Company facility designated by~~first 3% each eligible employee contributes plus 50% on the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans, or in connection with certain reductions-in-force that occurred during 2017. A participant is automatically vested in the event of death, disability or attainment of age 65 while employed by the Company. Employees are 100% vested in their contributions. For employees subject to a collective bargaining agreement, the match is only available if so provided in the labor agreement.

next 2% they contribute. The Company recorded matching contributions of ~~$0.5~~$0.2 million and ~~$0.3~~$0.5 million in operating expenses in the three months ended ~~December 31, 2017~~September 30, 2023 and ~~2016,~~2022, respectively

During the three months ended September 30, 2023 and ~~$1.0~~2022, the Company contributed a total of 154,046 and 257,052 of shares Common Stock with a value of $0.2 million and ~~$0.8~~$0.6 million, ~~in operating expenses in the six months ended December 31, 2017 and 2016, respectively.~~respectively, to eligible participants’ annual plan compensation.

Postretirement Benefits

The Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union retirees (“Retiree Medical Plan”). The plan provides medical, dental and vision coverage for retirees under age 65 and medical coverage only for retirees age 65 and above. Under this postretirement plan, the Company’s contributions toward premiums for retiree medical, dental and vision coverage for participants and dependents are scaled based on length of service, with greater Company contributions for retirees with greater length of service, subject to a maximum monthly Company contribution.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

The Company ~~also~~ provides a postretirement death benefit ~~(“Death~~(the “Death Benefit”) Plan) to certain ~~of its~~ employees and retirees, subject, in the case of current employees, to continued employment with the Company until retirement and certain other conditions related to the manner of employment termination and manner of death. ~~The~~In June 2021, the Company ~~records~~amended the ~~actuarially determined liability for the present value~~Death Benefit Plan effective immediately, which triggered re-measurement of the ~~postretirement death benefit. The Company has purchased life insurance policies to fund~~plan. In conjunction with the ~~postretirement death benefit wherein~~amendment, the Company ~~owns~~created a new Executive Death Benefit Plan (the “Executive Death Benefit Plan”) for a small group of participants in the ~~policy but~~Death Benefit Plan. Under the ~~postretirement death benefit is paid~~Executive Death Benefit Plan, the participants receive the same benefits they would have received under the Death Benefit Plan.

Farmer Bros. Co.

Notes to ~~the employee’s or retiree’s beneficiary. The Company records an asset for the fair value of the life insurance policies which equates to the cash surrender value of the policies.~~ Unaudited Consolidated Financial Statements (continued)

~~Retiree Medical Plan and Death Benefit~~

The following table shows the components of net periodic postretirement benefit cost for the ~~Retiree Medical Plan and~~ Death Benefit Plan for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2023 and ~~2016. Net periodic postretirement benefit cost for the three and six months ended December 31, 2017 was based on employee census information and asset information as of June 30, 2017.~~2022.

Weighted-Average Assumptions Used to Determine Net Periodic Postretirement Benefit Cost


	Fiscal year
	2024	2023

Death Benefit Plan discount rate	5.33%	4.77%

Fiscal
2018 2017
Retiree Medical Plan discount rate 4.13% 3.73%
Death Benefit discount rate 4.12% 3.79%

Note ~~15. Bank Loan~~12. Debt Obligations

The following table summarizes the Company’s debt obligations:

September 30, 2023

June 30, 2023

(In thousands)

Debt Origination Date

Maturity

Principal Borrowing Amount

Carrying Value

Weighted Average Interest Rate

Carrying Value

Weighted Average Interest Rate

Revolver

Various

4/26/2027

N/A

23,300

6.99

23,021

6.66

On April 26, 2021, the Company ~~maintains~~entered into a ~~$125.0 million~~ senior secured ~~revolving credit~~ facility which included a Revolver Credit Facility Agreement (the ~~“Revolving Facility”~~"Revolver Credit Facility") ~~with JPMorgan Chase Bank, N.A.~~. The Revolver Credit Facility had a commitment of up to $80.0 million and ~~SunTrust Bank (collectively,~~a maturity date of April 25, 2025. On August 8, 2022, the ~~“Lenders”~~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.

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;

2.sublimit on letters of credit of $10.0 million;

3.maturity date of April 26, 2027 and swingline loans of $30.0 million and $15.0 million respectively. The Revolving Facility includes an accordion feature whereby the Company may increase the Revolving Commitment by up to an additional $50.0 million, subject to certain conditions. Advances are basedhas no scheduled payback required on the ~~Company’s eligible accounts receivable, eligible inventory, and~~principal prior to the ~~value of certain real property and trademarks, less required reserves. The commitment fee is a flat fee of 0.25% per annum irrespective of average revolver usage. Outstanding obligations are~~maturity date;

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

4.fully collateralized by all existing and future capital stock of the ~~Company’s assets, excluding certain~~Borrowers (other than the Company) and all of the Borrowers' personal and real ~~property not included~~ 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 ~~borrowing base and machinery and equipment (other than inventory). Borrowings~~event that Borrowers’ availability to borrow under the ~~Revolving Facility bear interest based on average historical excess availability levels with a range of PRIME - 0.25%~~Revolver falls below $9.375 million, the financial covenant requires the Company to ~~PRIME + 0.50%~~meet or Adjusted LIBO Rate + 1.25% to Adjusted LIBO Rate + 2.00%. The Company is subject to a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including financial covenants relating to the maintenance ofexceed a fixed charge coverage ratio ~~in certain circumstances,~~of at least 1.00:1.00 at all such times.

The Revolver Credit Facility Agreement and the ~~right~~Revolver Security Agreement contain customary affirmative and negative covenants and restrictions typical for a financing of ~~the Lenders to establish reserve requirements, which may reduce the amount of credit otherwise available to the Company. The Company is allowed to pay dividends, provided,~~this type that, among other things, require the Company to satisfy certain ~~excess availability requirements are met,~~financial covenants and ~~no event~~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 ~~default exists~~its business, transfer and sell material assets and merge or ~~has occurred and is continuing as~~consolidate. Non-compliance with one or more of the ~~date~~covenants and restrictions could result in the full or partial principal balance of ~~any such payment~~the Revolver Credit Facility Agreement becoming immediately due and ~~after giving effect thereto. The Revolving Facility matures~~payable and termination of the commitments.

There are no required principal payments on ~~August 25, 2022.~~the Revolver debt obligation.

At ~~December 31, 2017,~~September 30, 2023, the Company ~~was eligible to borrow up to a total of $110.0 million under the Revolving Facility and~~ had outstanding borrowings on the Revolver Credit Facility of ~~$84.4~~$23.3 million and had utilized ~~$1.1~~$4.6 million of the letters of credit ~~sublimit, and~~sublimit. At September 30, 2023, we had ~~excess availability~~$25.4 million available for borrowing under ~~the Revolving Facility~~our Revolver Credit Facility.

As of ~~$24.5 million. At December 31, 2017, the weighted average interest rate~~

~~on the Company’s outstanding borrowings under the Revolving Facility was 3.62% and~~September 30, 2023, the Company was in compliance with all of the ~~restrictive~~financial covenants under the ~~Revolving Facility.~~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 ~~16.~~13. Share-based Compensation

Farmer Bros. Co. ~~2017 Long-Term Incentive Plan~~

~~On June 20, 2017 (the “Effective Date”), the Company’s stockholders approved the Farmer Bros. Co.~~Amended and Restated 2017 Long-Term Incentive Plan (the “2017 Plan”). The 2017 Plan succeeded the Company’s prior long-term incentive plans, the Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (the “Amended Equity Plan”) and the Farmer Bros. Co. 2007 Omnibus Plan (collectively, the “Prior Plans”). On the Effective Date, the Company ceased granting awards under the Prior Plans; however, awards outstanding under the Prior Plans will remain subject to the terms of the applicable Prior Plan. The 2017 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance shares and other stock- or cash-based awards to eligible participants. The 2017 Plan also authorizes the grant of awards that are intended to qualify as “qualified performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code. Non-employee directors of the Company and employees of the Company or any of its subsidiaries are eligible to receive awards under the 2017 Plan.

The 2017 Plan authorizes the issuance of (i) 900,000 shares of common stock plus (ii) the number of shares of common stock subject to awards under the Company’s Prior Plans that are outstanding as of the Effective Date and that expire or are forfeited, cancelled or similarly lapse following the Effective Date. Subject to certain limitations, shares of common stock covered by awards granted under the 2017 Plan that are forfeited, expire or lapse, or are repurchased for or paid in cash, may be used again for new grants under the 2017 Plan. As of ~~December 31, 2017,~~September 30, 2023, there were ~~950,914~~2,330,298 shares available under the 2017 Plan including shares that were forfeited under the ~~Prior Plans. Shares~~prior plans for future issuance.

Farmer Bros. Co. 2020 Inducement Incentive Award Plan (the “2020 Inducement Plan”)

As of ~~common stock granted~~September 30, 2023, there were 54,868 shares available under the 2017 Plan may be authorized but unissued shares, shares purchased on the open market or treasury shares. In no event will more than 900,000 shares of common stock be issuable pursuant to the exercise of incentive stock options under the 20172020 Inducement Plan.

The 2017 Plan contains a minimum vesting requirement, subject to limited exceptions, that awards made under the 2017 Plan may not vest earlier than the date that is one year following the grant date of the award. The 2017 Plan also contains provisions with respect to payment of exercise or purchase prices, vesting and expiration of awards, adjustments and treatment of awards upon certain corporate transactions, including stock splits, recapitalizations and mergers, transferability of awards and tax withholding requirements.

The 2017 Plan may be amended or terminated by the Board at any time, subject to certain limitations requiring stockholder consent or the consent of the applicable participant. In addition, the Administrator of the 2017 Plan may not, without the approval of the Company’s stockholders, authorize certain re-pricings of any outstanding stock options or stock appreciation rights granted under the 2017 Plan. The 2017 Plan will expire on June 20, 2027.

Non-qualified stock options with time-based vesting (“NQOs”)

In the six months ended December 31, 2017, the Company granted 124,278 shares issuable upon the exercise of NQOs to eligible employees under the 2017 Plan. These NQOs have an exercise price of $31.70 per share, which was the closing price of the Company’s common stock as reported on the NASDAQ Global Select Market on the date of grant. One-third of the total number of shares subject to each ~~such~~ 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 three months ended September 30, 2023.

The following table summarizes NQO activity for three months ended September 30, 2023:


Outstanding NQOs:	Number of NQOs	Weighted Average Exercise Price ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2023	331,658	11.69	3.35	$	—
Granted	—	—	—	—
Exercised	—	—	—	—
Cancelled/Forfeited	—	—	—	—
Expired	—	—	—	—
Outstanding at September 30, 2023	331,658	11.69	0.40	$	—
Exercisable at September 30, 2023	331,658	11.69	0.40	$	—

There were no NQOs exercised during three months ended September 30, 2023 and 2022.

At September 30, 2023 and June 30, 2023, there was no unrecognized NQO compensation cost. Total compensation expense for NQOs was $0.1 million for the three months ended September 30, 2022.

Farmer Bros. Co.

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements (continued)

~~Following are the assumptions used in the Black-Scholes valuation model for NQOs granted during the six months ended December 31, 2017.~~



		~~Six Months Ended~~ ~~December 31, 2017~~
~~Weighted average fair value of NQOs~~	~~$31.70~~
~~Risk-free interest rate~~	~~2.0%~~
~~Dividend yield~~	—%
~~Average expected term~~	~~4.6 years~~
~~Expected stock price volatility~~	~~35.4%~~

~~The following table summarizes NQO activity for the six months ended December 31, 2017:~~

Outstanding NQOs:
Number
of NQOs

Weighted
Average
Exercise
Price ($)

Weighted
Average
Grant Date
Fair Value ($)

Weighted
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
($ in thousands)
Outstanding at June 30, 2017 133,464
13.05 5.99 2.6 2,299
Granted 124,278
31.70 10.41 6.9 —
Exercised (37,266 ) 12.09 5.57 — 752
Cancelled/Forfeited (4,194 ) 24.41 10.60 — —
Outstanding at December 31, 2017 216,282
23.71 8.51 4.8 1,825
Vested and exercisable at December 31, 2017 89,055
12.33 5.74 2.0 1,765
Vested and expected to vest at December 31, 2017 205,308
23.28 8.41 4.7 1,820

The aggregate intrinsic values outstanding at the end of each fiscal period in the table above represent the total pretax intrinsic values, based on the Company’s closing stock price of $32.15 at December 29, 2017 and $30.25 at June 30, 2017, representing the last trading day of the respective fiscal periods, which would have been received by NQO holders had all award holders exercised their NQOs that were in-the-money as of those dates. The aggregate intrinsic value of NQO exercises in the six months ended December 31, 2017 represents the difference between the exercise price and the value of the Company’s common stock at the time of exercise. NQOs outstanding that are expected to vest are net of estimated forfeitures.

During the six months ended December 31, 2017, 945 NQOs vested and 37,266 NQOs were exercised. Total fair value of NQOs vested during the six months ended December 31, 2017 was $12,000. The Company received $0.5 million and $0.4 million in proceeds from exercises of vested NQOs in the six months ended December 31, 2017 and 2016, respectively.

At December 31, 2017 and June 30, 2017, respectively, there was $1.3 million and $80,000 of unrecognized compensation cost related to NQOs. The unrecognized compensation cost related to NQOs at December 31, 2017 is expected to be recognized over the weighted average period of 2.8 years. Total compensation expense for NQOs in the three months ended December 31, 2017 and 2016 was $62,000 and $47,000, respectively. Total compensation expense for NQOs in the six months ended December 31, 2017 and 2016 was $64,000 and $89,000, respectively.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

Non-qualified stock options with performance-based and time-based vesting (“PNQs”)

~~In the six months ended December 31, 2017, the Company granted no shares issuable upon the exercise of PNQs.~~ The following table summarizes PNQ activity for the ~~six months ended December 31, 2017:~~

Outstanding PNQs:
Number
of
PNQs

Weighted
Average
Exercise
Price ($)

Weighted
Average
Grant Date
Fair Value ($)

Weighted
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
($ in
thousands)
Outstanding at June 30, 2017 358,786
27.75 10.96 5.2 1,181
Granted —
— — — —
Exercised (6,679 ) 26.10 10.87 — 45
Cancelled/Forfeited (43,330 ) 32.10 11.43 — —
Outstanding at December 31, 2017 308,777
27.17 10.93
10.90 4.6 1,590
Vested and exercisable at December 31, 2017 200,904
25.87 10.80 4.2 1,278
Vested and expected to vest at December 31, 2017 303,990
27.10 10.89 4.5 1,585

The aggregate intrinsic values outstanding at the end of each fiscal period in the table above represent the total pretax intrinsic values, based on the Company’s closing stock price of $32.15 at December 29, 2017 and $30.25 at June 30, 2017 representing the last trading day of the respective fiscal periods, which would have been received by PNQ holders had all award holders exercised their PNQs that were in-the-money as of those dates. The aggregate intrinsic value of PNQ exercises in the six months ended December 31, 2017 represents the difference between the exercise price and the value of the Company’s common stock at the time of exercise. PNQs outstanding that are expected to vest are net of estimated forfeitures.

During the six months ended December 31, 2017, 56,822 PNQs vested and 6,679 PNQs were exercised. Total fair value of PNQs vested during the six months ended December 31, 2017 was $0.6 million. The Company received $0.2 million and $0.1 million in proceeds from exercises of vested PNQs in the six months ended December 31, 2017 and 2016, respectively.

~~As of December 31, 2017, the Company met the performance targets for the fiscal 2016 PNQ awards and the fiscal 2015 PNQ awards.~~

In the six months ended December 31, 2017, based on the Company’s failure to achieve certain financial objectives over the applicable performance period, a total of 33,738 shares subject to fiscal 2017 PNQ awards were forfeited, representing 20% of the shares subject to each such award. Subject to certain continued employment conditions and subject to accelerated vesting in certain circumstances, one half of the remaining PNQs subject to the fiscal 2017 PNQ awards are scheduled to vest on each of the second and third anniversaries of the grant date.

At December 31, 2017 and June 30, 2017, there was $0.9 million and $1.8 million, respectively, of unrecognized compensation cost related to PNQs. The unrecognized compensation cost related to PNQs at December 31, 2017 is expected to be recognized over the weighted average period of 1.2 years. Total compensation expense related to PNQs in the three months ended ~~December 31, 2017~~September 30, 2023:


Outstanding PNQs:	Number of PNQs	Weighted Average Exercise Price ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2023	991	32.85	0.36	$	—
Granted	—	—	—	—
Exercised	—	—	—	—
Cancelled/Forfeited	—	—	—	—
Expired	—	—	—	—
Outstanding at September 30, 2023	991	32.85	0.11	$	—
Exercisable at September 30, 2023	991	32.85	0.11	$	—

There were no PNQs exercised during three months ended September 30, 2023 and ~~2016~~2022.

At September 30, 2023 and 2022, there was ~~$0.2 million and $0.4 million, respectively. Total~~no PNQ compensation expense ~~related to PNQs in the six months ended December 31, 2017~~ and ~~2016 was $0.4 million and $0.6 million, respectively.~~no unrecognized PNQ compensation cost.

During the six months ended December 31, 2017, the Company granted 13,110 shares of restricted stock under the 2017 Plan, including 11,406 shares of restricted stock to non-employee directors with a grant date fair value of $34.20 per share and 1,704 shares of restricted stock to eligible employees with a grant date fair value of $31.70 per share. The fiscal 2018 restricted stock awards cliff vest on the earlier of the one year anniversary of the grant date or the date of the first annual meeting of the Company’s stockholders immediately following the grant date, in the case of non-employee directors, and the third anniversary of the grant date, in the case of eligible employees, in each case subject to continued service to the Company through the vesting date and the acceleration provisions of the 2017 Plan and restricted stock agreement. During the six months ended December 31, 2016, the Company granted 5,106 shares of restricted stock to non-employee directors.

~~During the six months ended December 31, 2017, 7,934 shares of restricted stock vested.~~

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

The following table summarizes restricted stock activity for the ~~six~~three months ended ~~December 31, 2017:~~

September 30, 2023:

The weighted average grant date fair value of RSUs granted during the quarter ended September 30, 2023 and 2022 were $2.79 and $5.10, respectively. The total grant-date fair value of restricted stock granted during the three months ended September 30, 2023 was $0.2 million. The total fair value of awards vested during the three months ended September 30, 2023 and 2022 were $0.4 million and $0.9 million, respectively.

The aggregate intrinsic values of shares outstanding at the end of each fiscal period in the table above represent the total pretax intrinsic values, based on the Company’s closing stock price of $32.15 at December 29, 2017 and $30.25 at JuneAt September 30, ~~2017, representing the last trading day of the respective fiscal periods. Restricted stock that is expected to vest is net of estimated forfeitures.~~

~~At December 31, 2017~~2023 and June 30, ~~2017,~~2023, there was ~~$0.5~~$1.8 million and ~~$0.3~~$3.6 million, respectively, of unrecognized compensation cost related to restricted stock. The unrecognized compensation cost related to restricted stock at ~~December 31, 2017~~September 30, 2023 is expected to be recognized over the weighted average period of ~~1.1 years.~~ 1.6 years. Total compensation expense for restricted stock was ~~$0.1~~$0.6 million and $0.7 million, respectively, in ~~each of~~ the three months ended ~~December 31, 2017~~September 30, 2023 and ~~2016. Total compensation expense for restricted stock was $0.1 million in each of the six months ended December 31, 2017 and 2016.~~2022.

Performance-Based Restricted Stock Units (“PBRSUs”)

During the six months ended December 31, 2017, the Company granted 37,414 PBRSUs under the 2017 Plan to eligible employees with a grant date fair value of $31.70 per unit. The fiscal 2018 PBRSU awards cliff vest on the third anniversary of the date of grant based on the Company’s achievement of certain financial performance goals for the performance period July 1, 2017 through June 30, 2020, subject to certain continued employment conditions and subject to acceleration provisions of the 2017 Plan and restricted stock unit agreement. At the end of the three-year performance period, the number of PBRSUs that actually vest will be 0% to 150% of the target amount, depending on the extent to which the Company meets or exceeds the achievement of those financial performance goals measured over the full three-year performance period. No PBRSUs were granted during the six months ended December 31, 2016.

The following table summarizes PBRSU activity for the ~~six~~three months ended ~~December 31, 2017:~~

September 30, 2023:

Outstanding and Nonvested PBRSUs:
PBRSUs
Awarded

Weighted
Average
Grant Date
Fair Value
($)

Weighted
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
($ in thousands)
Outstanding and nonvested at June 30, 2017 —
—
—
—
Granted(1) 37,414
31.70
—
1,186
Vested/Released —
—
—
—
Cancelled/Forfeited —
—
—
—
Outstanding and nonvested at December 31, 2017 37,414
31.70
2.9
1,203
Expected to vest at December 31, 2017 32,495
31.70
2.9
1,045


Outstanding and Nonvested PBRSUs:	PBRSUs Awarded (1)	Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2023	549,291	5.92
Granted	—	—
Vested/Released	(134,660)	4.10
Cancelled/Forfeited	(397,053)	6.52
Outstanding and nonvested at September 30, 2023	17,578	6.40

~~(1)~~There were no PBRSUs granted during the quarters ended September 30, 2023 and 2022, respectively. The target number of PBRSUs is presented in the table. Under the terms of the awards, the recipient may earn between 0% and 150% of the target number of PBRSUs depending on the extent to which the Company meets or exceeds the achievement of the applicable financial performance goals.

~~The aggregate intrinsic~~total fair value of ~~PBRSUs outstanding at December 31, 2017 represents~~awards vested during the total pretax intrinsic value, based on the Company’s closing stock price of $32.15 at December 29, 2017, representing the last trading day of the fiscal period. PBRSUs that are expected to vest are net of estimated forfeitures.three months ended September 30, 2023 were $0.3 million.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

At ~~December 31, 2017~~September 30, 2023 and June 30, ~~2017,~~2023, there was ~~$1.1~~$0.1 million and ~~$0,~~$1.7 million, respectively, of unrecognized PBRSU compensation cost. The unrecognized PBRSU compensation cost ~~related to PBRSUs. The unrecognized compensation cost related to PBRSUs~~ at ~~December 31, 2017~~September 30, 2023 is expected to be recognized over the weighted average period of ~~2.9~~2.1 years. Total compensation expense for PBRSUs was ~~$48,000~~$0.2 million and $0$0.2 million, respectively, for the three months ended September 30, 2023 and 2022.

Cash-Settled Restricted Stock Units (“CSRSUs”)

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

CSRSUs vest in equal installments over a three-year period from the grant date, and are cash-settled upon vesting based on the closing share price of Common Stock on the vesting date.

The CSRSUs are accounted for as liability awards, and compensation expense is measured at fair value on the date of grant and recognized on a straight-line basis over the vesting period net of forfeitures. Compensation expense is remeasured at each reporting date with a cumulative adjustment to compensation cost during the period based on changes in the closing share price of Common Stock.

The following table summarizes CSRSU activity for the three months ended ~~December 31, 2017~~September 30, 2023:


Outstanding and Nonvested CSRSUs:	CSRSUs Awarded	Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2023	184,807	6.15
Granted	—	—
Vested/Released	(7,011)	8.91
Cancelled/Forfeited	(12,198)	6.41
Outstanding and nonvested at September 30, 2023	165,598	5.96

There were no CSRSUs granted during the quarters ended September 30, 2023 and ~~2016,~~2022, respectively. The total fair value of awards vested during the three months ended September 30, 2023 and 2022 was $15 thousand and $0.1 million, respectively.

At September 30, 2023 and June 30, 2023, there was $0.4 million and $0.4 million, respectively, of unrecognized compensation cost related to CSRSU. The unrecognized compensation cost related to CSRSU at September 30, 2023 is expected to be recognized over the weighted average period of 2.0 years. Total compensation expense for ~~PBRSUs~~CSRSUs was ~~$48,000~~$0.1 million and $0$0.1 million, respectively for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2023 and ~~2016, respectively.~~2022.

Note 14. Other Current Liabilities


(In thousands)	September 30, 2023		June 30, 2023

Accrued workers’ compensation liabilities	$	822	$	992
Finance lease liabilities	193		193

Other (1)	2,831		3,334
Other current liabilities	$	3,846	$	4,519

(1) Includes accrued property taxes, sales and use taxes and insurance liabilities.

Note ~~17.~~15. Other Long-Term Liabilities

(In thousands) December 31, 2017 June 30, 2017
Earnout payable(1) $ 1,100
$ 1,100
Derivative liabilities—noncurrent —
380
Multiemployer Plan Holdback—Boyd Coffee 1,056
—
Other long-term liabilities $ 2,156
$ 1,480


(In thousands)	September 30, 2023		June 30, 2023


Deferred compensation (1)	$	294	$	267
Finance lease liabilities	212		270

Other long-term liabilities	$	506	$	537

The ~~SEC subsequently issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), which provides guidance on accounting for the~~Company’s interim tax ~~effects of the Tax Act. Under SAB 118, companies are able to record a reasonable estimate of the impacts of the Tax Act if one~~provision is ~~able to be~~ determined and report it as a provisional amount during the measurement period. The measurement period is not to extend beyond one year from the enactment date. Impacts of the Tax Act that a company is not able to make a reasonable estimate for should not be recorded until a reasonable estimate can be made during the measurement period.

~~In the three months ended December 31, 2017, the Company revised its~~using an estimated annual effective tax rate ~~to reflect a change~~and adjusted for discrete taxable events that may occur during the quarter. The Company recognizes the effects of tax legislation in the ~~federal statutory rate from 35.0%~~period in which the law is enacted. Deferred tax assets and liabilities are remeasured using enacted tax rates expected to ~~28.1%. The change~~apply to taxable income in ~~statutory rate was made as a result of~~ the ~~Tax Act. The rate change is administratively effective as of the enactment date and~~years the Company ~~is using a blended rate of 28.1% for its fiscal year ending on June 30, 2018, as prescribed. In addition, in~~estimates the ~~three months ended December 31, 2017, the Company recognized tax expense~~ related temporary differences to adjusting its deferred tax balances to reflect the new corporate tax rate. Deferred tax amounts are calculated based on the rates at which they are expected to reverse in the future. The Company is analyzing certain aspects of the Tax Act and refining its calculations which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of the Company’s deferred tax balance was $(20.3) million at December 31, 2017.

The Company’s effective tax rates for the three months ended December 31, 2017 and 2016 were 976.2% and 40.1%, respectively. The Company’s effective tax rates for the six months ended December 31, 2017 and 2016 were 4,449.3% and 40.1%, respectively. The effective tax rates for the three and six months ended December 31, 2017 and 2016 were higher than the U.S. statutory rates of 28.1% and 35.0%, respectively, primarily due to income tax expense of $(20.3) million resulting from the adjustment of deferred tax amounts due to enactment of the Tax Act.

reverse. The Company evaluates its deferred tax assets quarterly to determine if a valuation allowance is required. In making such assessment,

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

Tax benefit in the three months ended September 30, 2023 was $132 thousand compared to tax expense of ~~positive~~$43 thousand in the three months ended September 30, 2022, which primarily relates to state income tax, the change in previously recorded valuation allowance and ~~negative evidence, including~~ the ~~recent history~~change in our estimated deferred tax liability.

The Company files its tax returns as prescribed by the tax laws of ~~income,~~the jurisdictions in which it operates. In the normal course of business, the Company ~~concluded that it~~ is ~~more likely than not that~~subject to examination by U.S. federal, state and local tax authorities. With limited exceptions, as of September 30, 2023, the Company is no longer subject to income tax audits by taxing authorities for any years prior to 2020. Although the outcome of tax audits is always uncertain, the Company does not believe the outcome of any future audit will ~~generate future income sufficient~~have a material adverse effect on the Company’s consolidated financial statements.

Basic net loss per common share is calculated by dividing net loss attributable to ~~realize~~ the ~~majority~~Company by the weighted average number of common shares outstanding during the periods presented. Diluted net loss per common share is calculated by dividing diluted net loss attributable to the Company by the weighted average number of common shares outstanding adjusted to include the effect, if dilutive, of the exercise of in-the-money stock options, unvested performance-based restricted stock units, and shares of the Company’s ~~deferred tax assets.~~

~~As of December 31, 2017 and June 30, 2017 the Company had no unrecognized tax benefits.~~

~~As discussed in~~ ~~Note 2~~, the Company adopted ASU 2016-09 beginning July 1, 2017 and upon adoption recognized the excess tax benefits of $1.6 million as an increase to deferred tax assets and a corresponding increase to retained earnings.

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~Note 19. Net (Loss) Income Per Common Share~~

Computation of EPS for the three and six months ended December 31, 2017 excludes the dilutive effect of 525,059 shares issuable under stock options, 37,414 PBRSUs and 383,611 shares issuable upon the assumed conversion of the outstanding Series A Convertible Participating Cumulative Perpetual Preferred Stock, par value $1.00 per share (“Series A Preferred ~~Stock because~~Stock”), as converted, during the ~~Company incurred net losses in~~periods presented. The calculation of dilutive shares outstanding excludes out-of-the-money stock options (i.e., such option’s exercise prices were greater than the ~~three and six months ended December 31, 2017 so their inclusion would be anti-dilutive.~~

~~Computation~~average market price of ~~EPS~~our common shares for the ~~three~~period) and ~~six months ended December 31, 2016 includes the dilutive effect of 122,897 shares and 122,142 shares, respectively, issuable under~~unvested performance-based restricted stock options with exercise prices below the closing price of the Company’s common stock on the last trading day of the applicable period, but excludes the dilutive effect of 29,032 and 24,804 shares, respectively, issuable under stock options with exercise prices above the closing price of the Company’s common stock on the last trading day of the applicable periodunits because their inclusion would behave been anti-dilutive.

Three Months Ended
December 31,

Six Months Ended
December 31,
(In thousands, except share and per share amounts) 2017 2016 2017 2016
Undistributed net (loss) income available to common stockholders $ (18,887 ) $ 20,052
$ (19,865 ) $ 21,669
Undistributed net (loss) income available to nonvested restricted stockholders (10 ) 24
(10 ) 25
Net (loss) income available to common stockholders—basic $ (18,897 ) $ 20,076
$ (19,875 ) $ 21,694

Weighted average common shares outstanding—basic 16,723,498
16,584,106
16,711,660
16,573,545
Effect of dilutive securities:
Shares issuable under stock options —
122,897
—
122,142
Shares issuable PBRSUs —
—
—
—
Shares issuable under convertible preferred stock —
—
—
—
Weighted average common shares outstanding—diluted 16,723,498
16,707,003
16,711,660
16,695,687
Net (loss) income per common share available to common stockholders—basic $ (1.13 ) $ 1.21
$ (1.19 ) $ 1.31
Net (loss) income per common share available to common stockholders—diluted $ (1.13 ) $ 1.20
$ (1.19 ) $ 1.30


	Three Months Ended September 30,
(In thousands, except share and per share amounts)		2023		2022
Loss from continuing operations available to common stockholders		$	(1,307)	$	(1,580)
Loss from discontinued operations available to common stockholders		—		(5,794)
Net loss available to common stockholders—basic and diluted		(1,307)		(7,374)

Weighted average shares outstanding - basic and diluted		20,366,017		18,948,453





Loss from continuing operations per share available to common stockholders—basic and diluted		$	(0.06)	$	(0.08)
Loss from discontinued operations per share available to common stockholders—basic and diluted		$	—	$	(0.31)
Net loss per common share available to stockholders—basic and diluted		$	(0.06)	$	(0.39)

The following table summarizes weighted average anti-dilutive securities excluded from the computation of diluted net loss per common share for the periods indicated:


	Three Months Ended September 30,
		2023	2022
Shares issuable under stock options		331,658	439,318

Shares issuable under PBRSUs		17,578	437,453

Note ~~20.~~18. Preferred Stock

The Company is authorized to issue 500,000 shares of preferred stock at a par value of $1.00, including 21,000 authorized shares of Series A Preferred Stock. There are no preferred shares issued and outstanding as of September 30, 2023.

~~Series A Convertible Participating Cumulative Perpetual Preferred Stock~~

~~On October 2, 2017, the Company issued 14,700~~Effective August 25, 2022, 12,964 shares of Series A Preferred Stock were converted into 399,208 shares of common stock at a conversion price of $38.32, in ~~connection~~accordance with the ~~Boyd Coffee acquisition.~~ terms of the Company’s Designation of Series A Preferred Stock.

The shares of Series A Preferred Stock ~~pays an annual dividend, when, as~~were originally issued to Boyd Coffee Company (“Boyd”) on October 2, 2017 pursuant to the Boyd Purchase Agreement. 1,736 shares of Series A Preferred Stock originally issued to Boyd in accordance with the terms of the Boyd Purchase Agreement were previously reacquired and ~~if declared~~cancelled by the ~~Company’s Board~~Company as part of ~~Directors,~~a settlement with Boyd on July 26, 2022. The shares of ~~3.5%~~Series A Preferred Stock converted represented all of the stated value per share payable in four quarterly installments in arrears, and has an initial stated value of $1,000 per share, adjustable up or down by the amount of undeclared and unpaid dividends or subsequent payment of accumulated dividends thereon, respectively, and a conversion premium of 22.5%. Dividends may be paid in cash. At December 31, 2017, the Company had undeclared and unpaid preferred dividends of $128,625 on 14,700 issued and outstanding shares of Series A Preferred Stock. Series A Preferred Stock is a participating security because it has rights to earnings that otherwise would have been available to common stockholders. On an as converted basis, holders of Series A Preferred Stock are entitled to vote together with the holders of the Company’s common stock and are entitled to share in the dividends on common stock, when declared. Each share of Series A Preferred Stock is convertible into 26 shares of the Company’s common stock (rounded down to the nearest whole share and subject to adjustment in accordance with the terms of the Certificate of Designations filed with the Secretary of State of the State of Delaware). Series A Preferred Stock is a perpetual stock and, therefore, not redeemable. Based on its characteristics,In connection therewith, the Company ~~classified Series A Preferred Stock as permanent equity.~~withheld the Holdback Shares against Boyd.

Farmer Bros. Co.

Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements (continued)

In fiscal year 2023, as a result of the settlement entered into with Boyd, the Company recorded a $1.9 million gain on settlement with Boyd, in general and administrative expense on the consolidated statement of operations, which included the cancellation of preferred shares and settlement of acquisition-related contingent liabilities.

~~Series A Preferred Stock~~

Note 19. Revenue Recognition

The Company’s primary sources of revenue are sales of coffee, tea and culinary products. The Company recognizes revenue when control of the promised good or service is ~~carried~~transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various shipping terms applicable to the Company’s sales.

The Company delivers products to customers through Direct-store-delivery (“DSD”) to the Company’s customers at their place of business and Direct ship from the Company’s warehouse to the customer’s warehouse, facility or address. Each delivery or shipment made to a third party customer is to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. The Company is entitled to collection of the sales price under normal credit terms in the regions in which it operates.

The Company disaggregates net sales from contracts with customers based on the characteristics of the products sold:


	Three Months Ended September 30,
		2023	2022
(In thousands)			$		% of total		$		% of total
Net Sales by Product Category:
Coffee (Roasted)			$	37,892	46.3	%	$	37,865	47.4	%
Tea & Other Beverages (1)			20,234		24.7	%	20,155		25.2	%
Culinary			16,910		20.7	%	14,811		18.6	%
Spices			5,613		6.8	%	6,024		7.5	%
Delivery Surcharge			1,239		1.5	%	971		1.3	%
Net sales from continuing operations by product category			$	81,888	100.0	%	$	79,826	100.0	%

The Company does not have any material contract assets and liabilities as of September 30, 2023. Receivables from contracts with customers are included in “Accounts receivable, net” on the Company’s consolidated balance ~~sheet at the amount recorded at inception until converted. The Company may mandatorily convert all but not a portion of the Series A Preferred Stock one year~~sheets. At September 30, 2023 and June 30, 2023, “Accounts receivable, net” included, $28.9 million and $42.9 million, respectively, in receivables from the date of issue. The holder may convert 20%, 30% and 50%, of the Series A Preferred Stock at the end of the first, second and third year, respectively, from the date of issue. Series A Preferred Stock cannot be sold or transferred by the holder for a period of three years from the date of issue,contracts with ~~the exception of transfer by holder, not for value, or to the holder’s shareholder.~~customers.

For a detailed discussion about the Company’s commitments and contingencies, see Note ~~23, “Commitments~~19, “Commitments and ~~Contingencies” to the consolidated financial statements~~Contingencies” in the ~~2017~~Notes to Consolidated Financial Statements in the 2023 Form 10-K. During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2023, other than the following, or as otherwise disclosed herein, there were no material changes in the Company’s commitments and contingencies.

~~New Facility Construction and Equipment Contracts~~

~~At December 31, 2017, the Company had committed to purchase additional equipment for the New Facility totaling $6.3 million.~~

~~Borrowings Under Revolving Credit Facility~~

At December 31, 2017, the Company had outstanding borrowings of $84.4 million under its Revolving Facility, as compared to outstanding borrowings of $27.6 million at June 30, 2017. The increase in outstanding borrowings in the six months ended December 31, 2017 included $39.5 million to fund the cash paid at closing for the purchase of the Boyd Business and the initial Company obligations under the post-closing transition services agreement.

~~Non-cancelable~~ Purchase ~~Orders~~Commitments

As of ~~December 31, 2017,~~September 30, 2023, the Company had committed to purchase green coffee inventory totaling ~~$55.3~~$36.5 million under fixed-price contracts, and $15.8 million in inventory and other purchases ~~totaling $12.9 million~~ under non-cancelable purchase orders.

On August 31, 2012, CERT filed an amendment to a private enforcement action adding a number of companies as defendants, including CBI, which sell coffee in California. The suit alleges that the defendants have failed to issue clear and reasonable warnings in accordance with Proposition 65 that the coffee they produce, distribute and sell contains acrylamide. This lawsuit was filed in Los Angeles Superior Court (the “Court”). CERT has demanded that the alleged violators remove acrylamide from their coffee or provide Proposition 65 warnings on their products and pay $2,500 per day for each and every violation while they are in violation of Proposition 65.

Acrylamide is produced naturally in connection with the heating of many foods, especially starchy foods, and is believed to be caused by the Maillard reaction, though it has also been found in unheated foods such as olives. With respect to coffee, acrylamide is produced when coffee beans are heated during the roasting process-it is the roasting itself that produces the acrylamide. While there has been a significant amount of research concerning proposals for treatments and other processes aimed at reducing acrylamide content of different types of foods, to our knowledge there is currently no known strategy for reducing acrylamide in coffee without negatively impacting the sensorial properties of the product.

The Company has joined a Joint Defense Group, or JDG, and, along with the other co-defendants, has answered the complaint, denying, generally, the allegations of the complaint, including the claimed violation of Proposition 65 and further denying CERT’s right to any relief or damages, including the right to require a warning on products. The Joint Defense Group contends that based on proper scientific analysis and proper application of the standards set forth in Proposition 65, exposures to acrylamide from the coffee products pose no significant risk of cancer and, thus, these exposures are exempt from Proposition 65’s warning requirement.

To date, the pleadings stage of the case has been completed. The Court has phased trial so that the “no significant risk level” defense, the First Amendment defense, and the preemption defense will be tried first. Fact discovery and expert

~~Farmer Bros. Co.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

discovery on these “Phase 1” defenses have been completed, and the parties filed trial briefs. Trial commenced on September 8, 2014, and testimony completed on November 4, 2014, for the three Phase 1 defenses.

Following final trial briefing, the Court heard, on April 9, 2015, final arguments on the Phase 1 issues. On September 1, 2015, the Court ruled against the JDG on the Phase 1 affirmative defenses. The JDG received permission to file an interlocutory appeal, which was filed by writ petition on October 14, 2015. On January 14, 2016, the Court of Appeals denied the JDG’s writ petition thereby denying the interlocutory appeal so that the case stays with the trial court.

On February 16, 2016, the Plaintiff filed a motion for summary adjudication arguing that based upon facts that had been stipulated by the JDG, the Plaintiff had proven its prima facie case and all that remains is a determination of whether any affirmative defenses are available to Defendants. On March 16, 2016, the Court reinstated the stay on discovery for all parties except for the four largest defendants. Following a hearing on April 20, 2016, the Court granted Plaintiff’s motion for summary adjudication on its prima facie case. Plaintiff filed its motion for summary adjudication of affirmatives defenses on May 16, 2016. At the August 19, 2016 hearing on Plaintiff’s motion for summary adjudication (and the JDG’s opposition), the Court denied Plaintiff’s motion, thus maintaining the ability of the JDG to defend the issues at trial. On October 7, 2016, the Court continued the Plaintiff’s motion for preliminary injunction until the trial for Phase 2.

~~In November 2016, the parties pursued mediation, but were not able to resolve the dispute.~~

In December 2016, discovery resumed for all defendants. Depositions of “person most knowledgeable” witnesses for each defendant in the JDG commenced in late December and proceeded through early 2017, followed by new interrogatories served upon the defendants. The Court set a fact and discovery cutoff of May 31, 2017 and an expert discovery cutoff of August 4, 2017. Depositions of expert witnesses were completed by the end of July. On July 6, 2017, the Court held hearings on a number of discovery motions and denied Plaintiff’s motion for sanctions as to all the defendants.

At a final case management conference on August 21, 2017 the Court set August 31, 2017 as the new trial date for Phase 2, though later changed the starting date for trial to September 5, 2017. The Court elected to break up trial for Phase 2 into two segments, the first focused on liability and the second on remedies. After 14 days at trial, both sides rested on the liability segment, and the Court set a date of November 21, 2017 for the hearing for all evidentiary issues related to this liability segment. The Court also set deadlines for evidentiary motions, issues for oral argument, and oppositions to motions. This hearing date was subsequently moved to January 19, 2018. The Court has indicated that following the January 19, 2018 hearing it will schedule another hearing to announce its decision on the liability phase of the trial. Based upon the Court’s decision on the liability phase, if there is a remedies phase, then the remedies phase would commence later in 2018.

~~At this time, the Company is not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.~~

The Company is a party to various ~~other~~ pending legal and administrative proceedings. It is management’s opinion that the outcome of such proceedings will not have a material impact on the Company’s financial position, results of operations, or cash flows.

~~On February 6, 2018,~~Sale of Branch Property

During the three months ended September 30, 2023, the Company ~~entered into an amendment to~~completed the ~~lease for its Portland, Oregon production~~sale of four branch properties. The total sales price was $9.7 million and ~~distribution facility. Pursuant to the lease amendment, the term~~net proceeds was $8.9 million. The completed sale of ~~the lease is extended for 10 years, commencing~~branch properties resulted in a gain on ~~October 1, 2018 and expiring on September 30, 2028, with options to renew up to an additional 10 years.~~ ~~The aggregate~~sale of ~~the future minimum operating lease payments over the~~ 10~~-year lease term is $8.7~~$7.5 million.

~~Certain statements contained in this~~This Quarterly Report on Form 10-Q ~~are not based on historical fact~~ and are forward-looking statements within the meaning of federal securities laws and regulations. These statements are based on management’s current expectations, assumptions, estimates and observations of future events and include any statements that do not directly relate to any historical or current fact; actual results may differ materially due in part to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2017 filedother documents we file with the Securities and Exchange Commission ~~(the “SEC”~~(“SEC”) contain forward-looking statements that are based on ~~September 28, 2017.~~current expectations, estimates, forecasts and projections about us, our future performance, our financial condition, our products, our business strategy, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. These forward-looking statements can be identified by the use of words like “anticipates,” “estimates,” “projects,” “expects,” “plans,” “believes,” “intends,” “will,” “could,” “may,” “assumes” and other words of similar meaning. ~~Owing~~These statements are based on management’s beliefs, assumptions, estimates and observations of future events based on information available to our management at the time the statements are made and include any statements that do not relate to any historical or current fact. These statements are not guarantees of future performance and they involve certain risks, uncertainties ~~inherent in forward-looking statements, actual~~and assumptions that are difficult to predict. Actual outcomes and results ~~could~~may differ materially from ~~those~~what is expressed, implied or forecast by our forward-looking statements due in part to the risks, uncertainties and assumptions set forth in ~~forward-looking statements. We intend these forward-looking statements~~Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 filed with the SEC on September 12, 2023 (the “2023 Form 10-K”), as well as those discussed elsewhere in this Quarterly Report on Form 10-Q and other factors described from time to ~~speak only at the~~ time ~~of this report and do not undertake to update or revise these statements as more information becomes available except as required under federal securities laws and the rules and regulations of~~in our filings with the SEC. The Company’s results of operations for all periods presented have been adjusted to reflect the discontinued operations related to the Sale.

Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, severe weather, levels of consumer confidence in national and local economic business conditions, the impact of labor shortages, the increase of costs due to inflation, an economic downturn caused by any pandemic, epidemic or other disease outbreak, comparable or similar to COVID-19, the success of our turnaround strategy, the ~~Corporate Relocation Plan, the timing and success~~impact of ~~implementation of the DSD Restructuring Plan, the Company’s success in consummating acquisitions and integrating acquired businesses,~~capital improvement projects, the adequacy and availability of capital resources to fund ~~the Company’s~~our existing and planned business operations and ~~the Company’s~~our capital expenditure requirements, our ability to meet financial covenant requirements in our Credit Facility, which could impact, among other things, our liquidity, the relative effectiveness of compensation-based employee incentives in causing improvements in ~~Company~~our performance, the capacity to meet the demands of our large national account customers, the extent of execution of plans for the growth of ~~Company~~our business and achievement of financial metrics related to those plans, ~~the~~our success ~~of the Company~~in retaining and/or attracting qualified employees, our success in adapting to ~~retain and/or attract qualified employees,~~technology and new commerce channels, the effect of the capital markets as well as other external factors on stockholder value, fluctuations in availability and cost of green coffee, competition, organizational changes, the effectiveness of our hedging strategies in reducing price and interest rate risk, changes in consumer preferences, our ability to provide sustainability in ways that do not materially impair profitability, changes in the strength of the economy, including any effects from inflation, business conditions in the coffee industry and food industry in general, our continued success in attracting new customers, variances from budgeted sales mix and growth rates, weather and special or unusual events, as well as other risks described in this ~~report~~Quarterly Report on Form 10-Q and other factors described from time to time in our filings with the SEC. ~~The results~~

Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of ~~operations for the three and six months ended December 31, 2017 are not necessarily indicative~~actual results. Any or all of the ~~results that~~forward-looking statements contained in this Quarterly Report on Form 10-Q and any other public statement made by us, including by our management, may turn out to be ~~expected for any future period.~~

incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a ~~national~~result of new information, future events, changes in assumptions or otherwise, except as required under federal securities laws and the rules and regulations of the SEC.

(2) Includes all beverages other than roasted coffee, roaster, wholesaler and distributor of coffee, tea and culinary products manufactured under supply agreements, under our owned brands, as well as under private labels on behalf of certain customers. We were founded in 1912, incorporated in California in 1923, and reincorporated in Delaware in 2004. We operate in one business segment.

We serve a wide variety of customers, from small independent restaurants and foodservice operators to large institutional buyers like restaurants and convenience store chains, hotels, casinos, healthcare facilities, and gourmet coffee houses, as well as grocery chains with private brand and consumer brandedfrozen liquid coffee, and tea products. Through our sustainability, stewardship, environmental efforts, and leadership we are not only committed to serving the finest products available, considering the cost needs of the customer, but also insist on their sustainable cultivation, manufacture and distribution whenever possible. Our product categories consist of a robust line of roast and ground coffee, including organic, Direct Trade, Direct Trade Verified Sustainable (“DTVS”) and sustainably-produced offerings; frozen liquid coffee; flavored and unflavored iced and hot teas; culinary products including gelatins and puddings, soup bases, dressings, gravy and sauce mixes, pancake and biscuit mixes, jellies and preserves, and coffee-related products such as coffee filters, sugar and creamers; spices; and other beveragestea, including cappuccino, cocoa, granitas, and concentrated and ready-to-drink cold brew and iced coffee. We offer a comprehensive approach to our customers by providing not only a breadth of high-quality products, but also value-added services such as market insight, beverage planning, and equipment placement and service.

or third-party distributors. DSD sales are made “off-truck” to our customers at their places of business. We operate a large fleet of trucks and other vehicles to distribute and deliver our products, and we rely on third-party logistics service providers for our long-haul distribution.

~~Corporate Relocation~~

In an effort to make the Company more competitive and better positioned to capitalize on growth opportunities, in fiscal 2015 we began the process of relocating our corporate headquarters, product development lab, and manufacturing and distribution operations from Torrance, California (the “Torrance Facility”) to the New Facility (the “Corporate Relocation Plan”). Approximately 350 positions were impacted as a result of the Torrance Facility closure. We completed the Corporate Relocation Plan in the fourth quarter of fiscal 2017.

~~Recent Developments~~

~~Acquisitions~~

On October 2, 2017, we acquired substantially all of the assets and certain specified liabilities of Boyd Coffee Company (“Boyd Coffee”), a coffee roaster and distributor with a focus on restaurants, hotels, and convenience stores on the West Coast of the United States, in consideration of cash and preferred stock. The acquired business of Boyd Coffee (the “Boyd Business”) is expected to add to our product portfolio, improve growth potential, increase the density and penetration of our distribution footprint, and increase capacity utilization at our production facilities.

In fiscal 2017, we completed two acquisitions. On October 11, 2016, we acquired substantially all of the assets and certain specified liabilities of China Mist Brands, Inc. dba China Mist Tea Company (“China Mist”), a provider of flavored and unflavored iced and hot teas, and on February 7, 2017, we acquired substantially all of the assets and certain specified liabilities of West Coast Coffee Company, Inc. (“West Coast Coffee”), a coffee roaster and distributor with a focus on the convenience store, grocery and foodservice channels. The China Mist acquisition is expected to extend our tea product offerings and give us a greater presence in the high-growth premium tea industry, while the acquisition of West Coast Coffee is expected to broaden our reach in the Northwestern United States.

~~See~~ ~~Liquidity, Capital Resources and Financial Condition~~ ~~below for further details of the impact of these acquisitions on our financial condition and liquidity, and~~ ~~Note 3~~, ~~Acquisitions,~~ ~~of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.~~

~~DSD Restructuring Plan~~

As a result of an ongoing operational review of various initiatives within our DSD selling organization, in the third quarter of fiscal 2017, we commenced a plan to reorganize our DSD operations in an effort to realign functions into a channel based selling organization, streamline operations, acquire certain channel specific expertise, and improve selling effectiveness and financial results (the “DSD Restructuring Plan”). See ~~Liquidity, Capital Resources and Financial Condition—Liquidity—DSD Restructuring Plan, below, and~~ ~~Note 4~~, ~~Restructuring Plans—Direct Store Delivery (“DSD”) Restructuring Plan, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.~~

Results of Operations

~~Financial Highlights~~

~~Volume~~The following table sets forth information regarding our consolidated results of ~~green coffee pounds processed and sold increased 18.7% and 9.4%, respectively, in the three and six months ended December 31, 2017 as compared to the three and six months ended December 31, 2016.~~

~~Gross profit increased $10.4 million to $65.5 million in~~continuing operations for the three months ended ~~December 31, 2017 from $55.1 million in the three months ended December 31, 2016. Gross profit increased $8.2 million~~September 30, 2023 and 2022 (in thousands, except percentages):


	Three Months Ended September 30,	Favorable (Unfavorable)
		2023		2022		Change	% Change
Net sales		$	81,888	$	79,826	$2,062	2.6%
Cost of goods sold		51,100		52,808		1,708	3.2%
Gross profit		30,788		27,018		3,770	14.0%
Selling expenses		26,829		25,755		(1,074)	(4.2)%
General and administrative expenses		12,832		9,228		(3,604)	(39.1)%
Net gains from sale of assets		(6,785)		(7,182)		(397)	(5.5)%

Operating expenses		32,876		27,801		(5,075)	(18.3)%
Loss from operations		(2,088)		(783)		(1,305)	NM
Other (expense) income:
Interest expense		(2,222)		(2,070)		(152)	(7.3)%
Other, net		2,871		1,316		1,555	NM
Total other expense		649		(754)		1,403	NM
Loss before taxes		(1,439)		(1,537)		98	6.4%
Income tax (benefit) expense		(132)		43		175	NM
Loss from continuing operations		$	(1,307)	$	(1,580)	$273	17.3%

___________

NM - Not Meaningful

Three Months Ended September 30, 2023 Compared to ~~$114.5 million in the six months ended December 31, 2017, from $106.3 million in the six months ended December 31, 2016.~~Three Months Ended September 30, 2022

~~Gross margin decreased to 39.1% and 38.3%, respectively, in the three and six months ended December 31, 2017, from 39.6% and 39.4%, respectively, in the three and six months ended December 31, 2016.~~

Income from operations was $2.4 million and $1.2 million, respectively, in the three and six months ended December 31, 2017 as compared to income from operations of $35.9 million and $38.4 million, respectively, in the three and six months ended December 31, 2016. Income from operations in the three and six months ended December 31, 2016 included a $37.4 million net gain from the sale of the Torrance Facility.

Net loss was $(18.8) million, or $(1.13) per common share available to common stockholders, in the three months ended December 31, 2017, compared to net income of $20.1 million, or $1.20 per common share available to common stockholders—diluted, in the three months ended December 31, 2016. Net loss was $(19.7) million, or $(1.19) per common share available to common stockholders, in the six months ended December 31, 2017, compared to net income of $21.7 million, or $1.30 per common share available to common stockholders—diluted, in the six months ended December 31, 2016. Net loss in the three and six months ended December 31, 2017 included income tax expense of $20.9 million and $20.2 million, respectively, as compared to income tax expense of $13.4 million and $14.5 million, respectively, in the three and six months ended December 31, 2016.

EBITDA decreased (71.7)% to $11.1 million and EBITDA Margin was 6.6% in the three months ended December 31, 2017, as compared to EBITDA of $39.1 million and EBITDA Margin of 28.1% in the three months ended December 31, 2016. EBITDA decreased (63.6)% to $17.2 million and EBITDA Margin was 5.7% in the six months ended December 31, 2017, as compared to EBITDA of $47.2 million and EBITDA Margin of 17.5% in the six months ended December 31, 2016.*

Adjusted EBITDA increased 15.7% to $12.9 million and Adjusted EBITDA Margin was 7.7% in the three months ended December 31, 2017, as compared to Adjusted EBITDA of $11.2 million and Adjusted EBITDA Margin of 8.0% in the three months ended December 31, 2016. Adjusted EBITDA increased 0.3% to $22.2 million and Adjusted EBITDA Margin was 7.4% in the six months ended December 31, 2017, as compared to Adjusted EBITDA of $22.2 million and Adjusted EBITDA Margin of 8.2% in the six months ended December 31, 2016.*


•	~~(* EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. See~~ ~~Non-GAAP Financial Measures~~ ~~in Part I, Item 2 of this report for a reconciliation of these non-GAAP measures to their corresponding GAAP measures.)~~

Net Sales

Net sales in the three months ended ~~December 31, 2017~~September 30, 2023 increased ~~$28.4~~$2.1 million, or ~~20.4%~~2.6%, to ~~$167.4~~$81.9 million from ~~$139.0~~$79.8 million in the three months ended ~~December 31, 2016 due to a $17.6 million~~September 30, 2022. The increase in net sales of roast and ground coffee, a $5.5 million increase in net sales of other beverages, a $3.7 million increase in net sales of culinary products, a $0.8 million increase in net sales of frozen liquid coffee, a $0.4 million increase in net sales of tea products, and a $0.4 million increase in net sales of spice products. These changes werefor the three months ended September 30, 2023 was primarily due to higher pricing compared to the ~~addition~~prior period.

The following table presents the effect of ~~the Boyd Business which added a total of $26.3 million to net~~changes in unit sales, ~~as well as the benefit of higher prices to our cost plus customers. Net sales~~and unit pricing and product mix in the three months ended ~~December 31, 2017 included $(0.4) million in price decreases~~September 30, 2023 compared to ~~customers utilizing commodity-based pricing arrangements, where~~ the ~~changes~~same period in the ~~green coffee commodity costs are passed on to the customer, as compared to $(2.3) million~~prior fiscal year (in millions):


	Three Months Ended September 30, 2023 vs. 2022
Effect of change in unit sales	$	(5.6)
Effect of pricing and product mix changes	7.7
Total increase in net sales	$	2.1

Unit sales decreased 6.5% and average unit price ~~decreases to customers utilizing such arrangements~~increased by 9.4% in the three months ended ~~December 31, 2016.~~

Net sales in the six months ended December 31, 2017 increased $29.6 million, or 11.0%, to $299.1 million from $269.5 million in the six months ended December 31, 2016 due to a $19.2 million increase in net sales of roast and ground coffee, a $4.2 million increase in net sales of other beverages, a $3.6 million increase in net sales of culinary products, a $1.7 million increase in net sales of tea products, a $0.8 million increase in net sales of frozen liquid coffee, and a $0.3 million increase in net sales of spice products. These changes were primarily due to the addition of the Boyd Business which added a total of $26.3 million to net sales as well as the benefit of higher prices to our cost plus customers. Net sales in the six months ended December 31, 2017 included the benefit of $0.5 million in price increases to customers utilizing commodity-based pricing arrangements, where the changes in the green coffee commodity costs are passed on to the customer, as compared to $(6.6) million in price decreases to customers utilizing such arrangements in the six months ended December 31, 2016.

~~The changes in net sales in the three and six months ended December 31, 2017 compared to the same periods in the prior fiscal year were due to the following:~~

(In millions)
Three Months Ended
December 31, 2017 vs. 2016

Six Months Ended
December 31,
2017 vs. 2016
Effect of change in unit sales $ 29.7
$ 18.9
Effect of pricing and product mix changes (1.3 ) 10.7
Total increase in net sales $ 28.4
$ 29.6

~~Unit sales increased 21.6% in the three months ended December 31, 2017~~September 30, 2023 as compared to the same period in the prior fiscal year, ~~while average unit price decreased by (1.0)%~~ resulting in an increase in our net sales of ~~20.4%~~2.6%. The increase in unit sales was primarily due to a 76.9% increase in unit sales of other beverages, which accounted for approximately 13% of total net sales, a 53.2% increase in unit sales of frozen liquid coffee products, which accounted for approximately 6% of total net sales, a 24.8% increase in unit sales of culinary products, which accounted for approximately 10% of total net sales, and a 18.7% increase in unit sales of roast and ground coffee products, which accounted for approximately 62% of total net sales. Average unit price ~~decreased (1.0)% primarily due to the addition of the Boyd Business. In~~increased during the three months ended ~~December 31, 2017, we processed~~September 30, 2023 due to a higher DSD product mix and ~~sold approximately 29.1 million pounds of green coffee as compared to approximately 24.5 million pounds of green coffee processed and sold in the three months ended December 31, 2016.~~price increases. There were no new product category introductions ~~in the three months ended December 31, 2017 or 2016~~ which had a material impact on our net ~~sales.~~

Unit sales increased 6.7% in the six months ended December 31, 2017 as compared to the same period in the prior fiscal year, and average unit price increased by 3.9% resulting in an increase in net sales of 11.0%. The increase in unit sales was primarily due to a 41.9% increase in unit sales of other beverages, which accounted for approximately 11% of total net sales, a 26.0% increase in unit sales of frozen liquid coffee products, which accounted for approximately 6% of total net sales, and a 9.4% increase in unit sales of roast and ground coffee which accounted for approximately 63% of total net sales, offset by a (22.8)% decrease in unit sales of culinary products, which accounted for approximately 10% of total net sales, and a (21.6)% decrease in unit sales of spice products, which accounted for approximately 4% of total net sales. Average unit price increased primarily due to price increases on substantially all of our products with the exception of coffee (frozen liquid). In the six months ended December 31, 2017, we processed and sold approximately 52.3 million pounds of green coffee as compared to approximately 47.8 million pounds of green coffee processed and sold in the six months ended December 31, 2016. There were no new product category introductions in the six months ended December 31, 2017 or 2016 which had a material impact on our net sales.

~~The following tables present net sales aggregated by product category for the respective periods indicated:~~

Three Months Ended December 31,
2017 2016
(In thousands) $ % of total $ % of total
Net Sales by Product Category:
Coffee (Roast & Ground) $ 104,457
62 % $ 86,838
62 %
Coffee (Frozen Liquid) 9,326
6 % 8,484
6 %
Tea (Iced & Hot) 7,751
5 % 7,341
5 %
Culinary 17,376
10 % 13,689
10 %
Spice 6,333
4 % 5,966
4 %
Other beverages(1) 21,429
13 % 15,976
12 %
Net sales by product category 166,672
100 % 138,294
99 %
Fuel surcharge 694
— % 731
1 %
Net sales $ 167,366
100 % $ 139,025
100 %

~~____________~~

~~(1) Includes all beverages other than coffee and tea.~~

Six Months Ended December 31,
2017 2016
(In thousands) $ % of total $ % of total
Net Sales by Product Category:
Coffee (Roast & Ground) $ 187,340
63 % $ 168,180
62 %
Coffee (Frozen Liquid) 17,150
6 % 16,395
6 %
Tea (Iced & Hot) 15,423
5 % 13,709
5 %
Culinary 31,139
10 % 27,499
10 %
Spice 12,607
4 % 12,355
5 %
Other beverages(1) 34,035
11 % 29,884
11 %
Net sales by product category 297,694
99 % 268,022
99 %
Fuel surcharge 1,385
1 % 1,491
1 %
Net sales $ 299,079
100 % $ 269,513
100 %

~~____________~~

~~(1) Includes all beverages other than coffee and tea.~~

~~Cost of Goods Sold~~

~~Cost of goods sold in the three months ended December 31, 2017 increased $17.9 million, or 21.3%, to $101.8 million, or 60.9% of net sales, from $83.9 million, or 60.4% of net~~ sales in the three months ended ~~December 31, 2016. The increase in cost of goods sold was primarily due~~September 30, 2023 or 2022.

Gross Profit

Gross profit increased to ~~the addition of the Boyd Business making up $16.2~~$30.8 million of the increase. Cost of goods sold as a percentage of net sales in the three months ended December 31, 2017 increased primarily due to higher manufacturing costs associated with the production operations in the New Facility, higher cost of green coffee, and the absence of the beneficial effect of the liquidation of LIFO inventory quantities in the three months ended December 31, 2017, as compared to the same period in the prior fiscal year. In the three months ended December 31, 2016, we recorded $0.8 million in expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold which increased income before taxes for the three months ended ~~December 31, 2016 by $0.8 million. In~~September 30, 2023, compared to $27.0 million for the three months ended ~~December 31, 2017, we recorded no expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold.~~

~~Cost of goods sold in the six months ended December 31, 2017~~September 30, 2022. Gross margin increased ~~$21.3 million, or 13.1%,~~ to $184.6 million, or 61.7% of net sales, from $163.2 million, or 60.6% of net sales, in the six months ended December 31, 2016. The increase in cost of goods sold was primarily due to the addition of the Boyd Business making up $16.2 million of the increase. Cost of goods sold as a percentage of net sales in the six months ended December 31, 2017 increased primarily due to higher manufacturing costs associated with the production operations in the New Facility, higher cost of green coffee, and the absence of the beneficial effect of the liquidation of LIFO inventory quantities in the six months ended December 31, 2017, as compared to the same period in the prior fiscal year. In the six months ended December 31, 2016, we recorded $1.7 million in expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold which increased income before taxes37.6% for the six months ended December 31, 2016 by $1.7 million. In the six months ended December 31, 2017, we recorded no expected beneficial effect of the liquidation of LIFO inventory quantities in cost of goods sold.

~~Gross Profit~~

~~Gross profit in~~ the three months ended ~~December 31, 2017 increased $10.4 million, or 18.9%, to $65.5 million~~September 30, 2023 from ~~$55.1 million in~~33.8% for the three months ended ~~December 31, 2016 and gross margin decreased to 39.1% in the three months ended December 31, 2017 from 39.6% in the three months ended December 31, 2016. This~~September 30, 2022. The increase in gross profit was primarily due to ~~the addition of the Boyd Business, while the~~improved pricing and a decrease in gross margin was primarily due to the addition of the Boyd Business carrying a slightly lower gross margin, higher manufacturing costs associated with the production operations in the New Facility, and the absence of the beneficial effect of the liquidation of LIFO inventory quantities in the three months ended December 31, 2017, as compared to the same period in the prior fiscal year.

Gross profit in the six months ended December 31, 2017 increased $8.2 million, or 7.7%, to $114.5 million from $106.3 million in the six months ended December 31, 2016 and gross margin decreased to 38.3% in the six months ended December 31, 2017 from 39.4% in the six months ended December 31, 2016. This increase in gross profit was primarily due to the addition of the Boyd Business, while the decrease in gross margin was primarily due to the addition of the Boyd Business carrying a slightly lower gross margin, higher manufacturing costs associated with the production operations in the New Facility, and the absence of the beneficial effect of the liquidation of LIFO inventory quantities in the six months ended December 31, 2017, asunderlying commodities pricing compared to the same period in the prior fiscal year.

Operating Expenses

In the three months ended ~~December 31, 2017,~~September 30, 2023, operating expenses increased ~~$43.9~~$5.1 million to $32.9 million, or ~~228.8%, to $63.1 million, or 37.7%~~40.1% of net sales, from ~~$19.2~~$27.8 million, or ~~13.8%~~34.8% of net sales in the ~~three months ended December 31, 2016, primarily~~prior year period. This increase was due to the effect of the recognition of $37.4 million in net gain from the sale of the Torrance Facility in the three months ended December 31, 2016, a $10.2 million increase in selling expenses, and a $0.1 million increase in general and administrative expenses. The increase in operating expenses was partially offset by a $(3.8) million decrease in restructuring and other transition expenses associated with the Corporate Relocation Plan. Restructuring and other transition expenses in the three months ended December 31, 2017 included expenses associated with the DSD Restructuring Plan.

Selling expenses increased $10.2 million in the three months ended December 31, 2017 as compared to the same period in the prior fiscal year, primarily due to $5.9 million and $0.8 million in selling expenses from the addition of the Boyd Business and West Coast Coffee, respectively, exclusive of their related depreciation and amortization expense, and $1.4 million in higher depreciation and amortization expense.

General and administrative expenses increased $0.1 million in the three months ended December 31, 2017 as compared to the same period in the prior fiscal year primarily due to $2.6 million and $0.2 million in general and administrative expenses from the addition of the Boyd Business and West Coast Coffee, exclusive of their related depreciation and amortization expense, $1.0 million in acquisition and integration costs and $0.3 million in higher depreciation and amortization expense, partially offset by the absence of $3.7 million in non-recurring 2016 proxy contest expenses incurred in the three months ended December 31, 2016.

Restructuring and other transition expenses in the three months ended December 31, 2017 decreased $(3.8) million, as compared to the same period in the prior fiscal year primarily due to the absence of expenses related to our Corporate Relocation Plan, partially offset by $0.1 million in costs incurred in connection with the DSD Restructuring Plan in the three months ended December 31, 2017.

~~In the three months ended December 31, 2017 and 2016 net gains from sale of spice assets included $0.4 million and $0.3 million, respectively, in earnout.~~

In the six months ended December 31, 2017, operating expenses increased $45.5 million, or 67.0%, to $113.3 million or 37.9% of net sales, from $67.9 million, or 25.2% of net sales, in the six months ended December 31, 2016, primarily due to the effect of the recognition of $37.4 million in net gain from the sale of the Torrance Facility in the six months ended December 31, 2016, a $10.7 million increase in selling expenses, a $2.5$3.6 million increase in general and administrative expenses, ~~and a $1.6~~$0.4 million ~~reduction in net gains from sales of other assets. The increase in operating expenses was partially offset by a $(6.7) million~~ decrease in restructuring and other transition expenses associated with the Corporate Relocation Plan. Restructuring and other transition expenses in the six months ended December 31, 2017 also included expenses associated with the DSD Restructuring Plan.

Selling expenses increased $10.7 million in the six months ended December 31, 2017 as compared to the same period in the prior fiscal year, primarily due to $5.9 million and $1.5 million in selling expenses from the addition of the Boyd

~~Business and West Coast Coffee, respectively, exclusive of their related depreciation and amortization expense and $2.1 million in higher depreciation and amortization expense.~~

General and administrative expenses increased $2.5 million in the six months ended December 31, 2017 as compared to the same period in the prior fiscal year primarily due to $3.4 million in acquisition and integration costs, $2.6 million in expenses from the addition of the Boyd Business, and $1.1 million in higher depreciation and amortization expense, partially offset by the absence of $5.0 million in non-recurring 2016 proxy contest expenses incurred in the six months ended December 31, 2016.

Restructuring and other transition expenses in the six months ended December 31, 2017 decreased $(6.7) million, as compared to the same period in the prior fiscal year primarily due to the absence of expenses related to our Corporate Relocation Plan, partially offset by $0.3 million in costs incurred in connection with the DSD Restructuring Plan in the six months ended December 31, 2017.

~~In each of the six months ended December 31, 2017 and 2016 net gains from sale of spice assets included $0.5 million in earnout.~~

~~Income from Operations~~

Income from operations in the three and six months ended December 31, 2017 was $2.4 million and $1.2 million, respectively, as compared to $35.9 million and $38.4 million, respectively, in the three and six months ended December 31, 2016.

Income from operations in the three and six months ended December 31, 2017 as compared to the comparable periods of the prior fiscal year was primarily driven by lower net gains from sales of assets, including $37.4 million in net gains from the sale of branch properties and other assets during the ~~Torrance Facility recognized~~three months ended September 30, 2023 and a $1.1 million increase in selling expenses. The increase in selling expenses during the three months ended September 30, 2023 was primarily due to additional spend on vehicles, fleet and

freight. The increase in general and administrative expenses during the three months ended September 30, 2023 was primarily due to severance-related costs of a $2.3 million. Further, the increase was impacted by the non-recurrence of a $1.9 million gain related to the settlement of the Boyd’s acquisition, offset slightly by an increase in contract services in the prior period.

Total Other Expense

Total other expense for the three months ended September 30, 2023 increased $1.4 million to income of $0.6 million compared to $0.8 million of expense in the three months ended September 30, 2022.

Interest expense in the three months ended September 30, 2023 increased $0.1 million to $2.2 million from $2.1 million in the prior year ~~periods, and~~period. The increase is primarily related to higher ~~selling expenses and higher general and administrative expenses primarily due~~interest rates compared to the addition of the Boyd Business, acquisition and integration costs, and higher depreciation and amortization expense, partially offset by higher gross profit and lower restructuring and other transition expenses associated with the Corporate Relocation Plan.prior year period.

~~Total~~ Other, ~~(Expense) Income~~

~~Total other expense~~net in the three ~~and six~~ months ended ~~December 31, 2017 was $(0.3)~~September 30, 2023 increased by $1.6 million ~~and $(0.7)~~to $2.9 million ~~respectively,~~ compared to ~~$(2.4) million and $(2.2)~~$1.3 million in the ~~three and six months ended December 31, 2016.~~prior year period. The ~~changes in total other expense in the three and six months ended December 31, 2017 were~~change was primarily a result of liquidating substantially all of our investment in preferred securities in the fourth quarter of fiscal 2017 to fund expenditures associated with our New Facility, and lower mark-to-market losses on coffee-related derivative instruments, offset by higher ~~interest expense as compared to the same periods in the prior fiscal year.~~

Net gains on investments in the three and six months ended December 31, 2017 were $16,000 and $7,000, respectively, as compared to net losses on investments of $(1.3) million and $(1.1) million in the comparable periods of the prior fiscal year. Net losses on coffee-related derivative instruments in the three and six months ended December 31, 2017 were $(0.2) million and $(0.1) million, respectively, compared to $(1.2) million in each of the comparable periods of the prior fiscal year due to mark-to-market net ~~losses~~gains on coffee-related derivative instruments not designated as accounting ~~hedges.~~

~~Interest expense~~hedges in the ~~three and six months ended December 31, 2017, was $(0.9) million and $(1.4) million, respectively, as~~current period compared to ~~$(0.5) million and $(0.9) million, respectively, in the comparable periods of~~ the prior ~~fiscal year. The higher interest expense in the three and six months ended December 31, 2017 was primarily due to higher outstanding borrowings on our revolving credit facility.~~year period.

Income Taxes

In the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2023 and September 30, 2022, we recorded income tax benefit of $132 thousand and an income tax expense of $20.9 million and $20.2 million, respectively, compared to $13.4 million and $14.5 million, respectively, in the three and six months ended December 31, 2016. As of June 30, 2017, our net deferred tax assets totaled $63.1 million. In the six months ended December 31, 2017, our net deferred tax assets decreased by $17.5 million to $45.6 million. These changes are primarily the result of the Tax Cut and Jobs Act of 2017 effective December 22, 2017.$43 thousand, respectively. See Note 1816, Income Taxes, of the Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements included in Part I, Item 1 of this ~~report.~~Quarterly Report on Form 10-Q.

~~Net Loss~~

As a result of the foregoing factors, net loss was $(18.8) million, or $(1.13) per common share available to common stockholders, in the three months ended December 31, 2017 as compared to net income of $20.1 million, or $1.20 per common share available to common stockholders—diluted, in the three months ended December 31, 2016. Net loss was $(19.7) million, or $(1.19) per common share available to common stockholders, in the six months ended December 31, 2017 as compared to net income of $21.7 million, or $1.30 per common share available to common stockholders—diluted, in the six months ended December 31, 2016.

Non-GAAP Financial Measures

In addition to net ~~(loss) income~~loss determined in accordance with U.S. generally accepted accounting principles (“GAAP”), we use the following non-GAAP financial measures in assessing our operating performance:

“~~Non-GAAP net (loss) income”~~ EBITDA” is defined as net ~~(loss) income~~loss from continuing operations excluding the impact of:

~~restructuring and other transition expenses;~~

~~net gains and losses from sales of assets;~~

~~non-cash~~ •income tax ~~expense (benefit), including the release of valuation allowance on deferred tax assets;~~expense;

~~non-recurring 2016 proxy contest-related expenses;~~

~~non-cash interest expense accrued on the Torrance Facility sale-leaseback financing obligation;~~

~~acquisition and integration costs;~~

~~and including the impact of:~~

~~income taxes on non-GAAP adjustments.~~

~~“Non-GAAP net (loss) income per diluted common share”~~ is defined as Non-GAAP net (loss) income divided by the weighted-average number of common shares outstanding, inclusive of the dilutive effect of common equivalent shares outstanding during the period.

~~“EBITDA”~~ ~~is defined as net (loss) income excluding the impact of:~~

~~income taxes;~~

•interest expense; and

•depreciation and amortization expense.

“EBITDA Margin” is defined as EBITDA expressed as a percentage of net sales.

“Adjusted EBITDA” is defined as net ~~(loss) income~~loss from continuing operations excluding the impact of:

•income ~~taxes;~~tax (benefit) expense;

•interest expense;

~~(loss) income from short-term investments;~~

•depreciation and amortization expense;

•401(k), ESOP and share-based compensation expense;

~~non-cash impairment losses;~~•gain on settlement with Boyd’s sellers;

~~non-cash pension withdrawal expense;~~

~~other similar non-cash expenses;~~

~~restructuring and other transition expenses;~~

•net ~~gains and~~(gains) losses from sales of assets; and

~~non-recurring 2016 proxy contest-related expenses; and~~•severance costs.

~~acquisition and integration costs.~~

“Adjusted EBITDA Margin” is defined as Adjusted EBITDA expressed as a percentage of net sales.

~~Restructuring~~For purposes of calculating EBITDA and ~~other transition expenses are expenses that are directly attributable to (i) the Corporate Relocation Plan, consisting primarily of employee retention~~EBITDA Margin and separation benefits, facility-related costs and other related costs such as travel, legal, consulting and other professional services; and (ii) beginning in the third quarter of fiscal 2017, the DSD Restructuring Plan, consisting primarily of severance, prorated bonuses for bonus eligible employees, contractual termination payments and outplacement services, and other related costs, including legal, recruiting, consulting, other professional services, and travel.

In the first quarter of fiscal 2017, we modified the calculation of Non-GAAP net (loss) income and Non-GAAP net (loss) income per diluted common share (i) to exclude non-recurring expenses for legal and other professional services incurred in connection with the 2016 proxy contest that were in excess of the level of expenses normally incurred for an annual meeting of stockholders (“2016 proxy contest-related expenses”) and non-cash interest expense accrued on the

Torrance Facility sale-leaseback financing obligation which has been included in the computation of the gain on sale upon conclusion of the leaseback arrangement, and (ii) to include income tax expense (benefit) on the non-GAAP adjustments based on the Company’s applicable marginal tax rate. We also modified Adjusted EBITDA and Adjusted EBITDA Margin, ~~to exclude 2016 proxy contest-related expenses. These modifications to~~we have not adjusted for the impact of interest expense on our pension and postretirement benefit plans.

We believe these non-GAAP financial measures ~~were made because such expenses are not reflective~~provide a useful measure of ~~our~~the Company’s operating results, a meaningful comparison with historical results and with the results of other companies, and insight into the Company’s ongoing operating ~~results~~performance. Further, management utilizes these measures, in addition to GAAP measures, when evaluating and ~~adjusting for them will help investors with comparability of our results.~~comparing the Company’s operating performance against internal financial forecasts and budgets.

~~Beginning in the third quarter of fiscal 2017 and for all periods presented, we include EBITDA in our non-GAAP financial measures.~~ We believe that EBITDA facilitates operating performance comparisons from period to period by isolating the effects of certain items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and EBITDA Margin because (i) we believe that these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use these measures internally as benchmarks to compare our performance to that of our competitors.

Beginning in the third quarter of fiscal 2017, we modified the calculation of Adjusted EBITDA and Adjusted EBITDA Margin to exclude (loss) income from our short-term investments because we believe excluding (loss) income generated from our investment portfolio is a measure more reflective of our operating results. The historical presentation of Adjusted EBITDA and Adjusted EBITDA Margin was recast to be comparable to the current period presentation.

Beginning in the fourth quarter of fiscal 2017, we modified the calculation of Non-GAAP net (loss) income, Non-GAAP net (loss) income per diluted common share, Adjusted EBITDA and Adjusted EBITDA Margin to exclude acquisition and integration costs. Acquisition and integration costs include legal expenses, consulting expenses and internal costs associated with acquisitions and integration of those acquisitions. Beginning in the fourth quarter of fiscal 2017 acquisition and integration costs were significant and, we believe, excluding them will help investors to better understand our operating results and more accurately compare them across periods. We have not adjusted the historical presentation of Non-GAAP net (loss) income, Non-GAAP net (loss) income per diluted common share, Adjusted EBITDA and Adjusted EBITDA Margin because acquisition and integration costs in prior periods were not material to the Company’s results of operations.

We believe these non-GAAP financial measures provide a useful measure of the Company’s operating results, a meaningful comparison with historical results and with the results of other companies, and insight into the Company’s ongoing operating performance. Further, management utilizes these measures, in addition to GAAP measures, when evaluating and comparing the Company’s operating performance against internal financial forecasts and budgets.

~~Non-GAAP net (loss) income, Non-GAAP net (loss) income per diluted common share,~~ EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin, as defined by us, may not be comparable to similarly titled measures reported by other companies. We do not intend for non-GAAP financial measures to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP.

Set forth below is a reconciliation of reported net loss from continuing operations to EBITDA (unaudited):


	Three Months Ended September 30,
(In thousands)		2023			2022
Net loss from continuing operations, as reported		$	(1,307)		$	(1,580)
Income tax (benefit) expense		(132)			43
Interest expense (1)		1,007			904
Depreciation and amortization expense		2,948			3,381
EBITDA		$	2,516		$	2,748
EBITDA Margin		3.1		%	3.4		%

____________

(1) Excludes interest expense related to pension plans and postretirement benefit plans.

Set forth below is a reconciliation of reported net ~~(loss) income to Non-GAAP net (loss) income and reported net (loss) income per common share-diluted to Non-GAAP net (loss) income per diluted common share (unaudited):~~

Three Months Ended December 31, Six Months Ended December 31,
(In thousands, except per share data) 2017 2016 2017 2016
Net (loss) income, as reported $ (18,768 ) $ 20,076
$ (19,746 ) $ 21,694
Restructuring and other transition expenses 139
3,965
259
6,995
Net gain from sale of Torrance Facility —
(37,449 ) —
(37,449 )
Net gains from sale of spice assets (395 ) (334 ) (545 ) (492 )
Net losses (gains) from sales of other assets 91
114
144
(1,439 )
Non-recurring 2016 proxy contest-related expenses —
3,719
—
4,990
Interest expense on sale-leaseback financing obligation —
371
—
681
Acquisition and integration costs 972
—
3,382
—
Income tax (benefit) expense on non-GAAP adjustments (258 ) 11,549
(1,037 ) 10,418
Non-GAAP net (loss) income $ (18,219 ) $ 2,011
$ (17,543 ) $ 5,398

Net (loss) income per common share—diluted, as reported $ (1.12 ) $ 1.20
$ (1.18 ) $ 1.30
Impact of restructuring and other transition expenses $ 0.01
$ 0.24
$ 0.02
$ 0.42
Impact of net gain from sale of Torrance Facility $ —
$ (2.24 ) $ —
$ (2.24 )
Impact of net gains from sale of spice assets $ (0.02 ) $ (0.02 ) $ (0.03 ) $ (0.03 )
Impact of net losses (gains) from sales of other assets $ 0.01
$ 0.01
$ 0.01
$ (0.09 )
Impact of non-recurring 2016 proxy contest-related expenses $ —
$ 0.22
$ —
$ 0.30
Impact of interest expense on sale-leaseback financing obligation $ —
$ 0.02
$ —
$ 0.04
Impact of acquisition and integration costs $ 0.06
$ —
$ 0.20
$ —
Impact of income tax (benefit) expense on non-GAAP adjustments $ (0.02 ) $ 0.69
$ (0.06 ) $ 0.62
Non-GAAP net (loss) income per diluted common share $ (1.09 ) $ 0.12
$ (1.05 ) $ 0.32

~~Set forth below is a reconciliation of reported net (loss) income to EBITDA (unaudited):~~

Three Months Ended December 31, Six Months Ended December 31,
(In thousands) 2017 2016 2017 2016
Net (loss) income, as reported $ (18,768 ) $ 20,076
$ (19,746 ) $ 21,694
Income tax expense 20,910
13,416
20,200
14,499
Interest expense 861
524
1,384
913
Depreciation and amortization expense 8,077
5,075
15,330
10,086
EBITDA $ 11,080
$ 39,091
$ 17,168
$ 47,192
EBITDA Margin 6.6 % 28.1 % 5.7 % 17.5 %

~~Set forth below is a reconciliation of reported net (loss) income~~loss from continuing operations to Adjusted EBITDA (unaudited):


	Three Months Ended September 30,
(In thousands)		2023			2022
Net loss from continuing operations, as reported		$	(1,307)		$	(1,580)
Income tax (benefit) expense		(132)			43
Interest expense (1)		1,007			904
Depreciation and amortization expense		2,948			3,381
401(k), ESOP and share-based compensation expense		1,552			2,197
Gain on settlement with Boyd's sellers (2)		—			(1,917)
Net gains from sale of assets		(6,785)			(7,182)
Severance costs		2,265			234



Adjusted EBITDA		$	(452)		$	(3,920)
Adjusted EBITDA Margin		(0.6)		%	(4.9)		%

____________

(1) Excludes interest expense related to pension plans and postretirement benefit plans.

(2) Result of the settlement related to the acquisition of Boyd Coffee Company which included the cancellation of shares of Series A Preferred Stock and settlement of liabilities.

Our Business

Three Months Ended December 31, Six Months Ended December 31,
(In thousands) 2017 2016 2017 2016
Net (loss) income, as reported $ (18,768 ) $ 20,076
$ (19,746 ) $ 21,694
Income tax expense 20,910
13,416
20,200
14,499
Interest expense 861
524
1,384
913
(Income) loss from short-term investments (21 ) 895
(19 ) 274
Depreciation and amortization expense 8,077
5,075
15,330
10,086
ESOP and share-based compensation expense 1,038
1,152
1,844
2,094
Restructuring and other transition expenses 139
3,965
259
6,995
Net gain from sale of Torrance Facility —
(37,449 ) —
(37,449 )
Net gains from sale of spice assets (395 ) (334 ) (545 ) (492 )
Net losses (gains) from sales of other assets 91
114
144
(1,439 )
Non-recurring proxy contest-related expenses —
3,719
—
4,990
Acquisition and integration costs 972
—
3,382
—
Adjusted EBITDA $ 12,904
$ 11,153
$ 22,233
$ 22,165
Adjusted EBITDA Margin 7.7 % 8.0 % 7.4 % 8.2 %
We are a leading coffee roaster, wholesaler, equipment servicer and distributor of coffee, tea and other allied products manufactured under our owned brands, as well as under private labels on behalf of certain customers. We were founded in 1912, incorporated in California in 1923, and reincorporated in Delaware in 2004. Our principal office is located in Northlake, Texas. We operate in one business segment.

We serve a wide variety of customers, from small independent restaurants and foodservice operators to large institutional buyers like restaurants, 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. Through our sustainability, stewardship, environmental efforts, and leadership we are not only committed to serving the finest products available, considering the cost needs of the customer, but also focus on their sustainable cultivation, manufacture and distribution whenever possible.

Our product categories consist of a robust line of roast and ground coffee, including organic, Direct Trade, Project D.I.R.E.C.T.®, Fair Trade Certified™ ® and other sustainably-produced offerings; frozen liquid coffee; flavored and unflavored iced and hot teas; including organic and Rainforest Alliance Certified™; culinary products including premium spices, pancake and biscuit mixes, gravy and sauce mixes, soup bases, dressings, syrups and sauces, and coffee-related products such as coffee filters, cups, sugar and creamers; and other beverages including cappuccino, cocoa, granitas, and other blender-based beverages and concentrated and ready-to-drink cold brew and iced coffee. We offer a comprehensive approach to our customers by providing not only a breadth of high-quality products, but also value added services such as market insight, beverage planning, and equipment placement and service.

We operate a production facility in Portland, Oregon. We distribute our products from our Portland, Oregon production facility, as well as separate distribution centers in Northlake, Texas; Portland, Oregon; Northlake, Illinois; Moonachie, New Jersey; and Rialto, California. Our products reach our customers primarily through our nationwide DSD network of 241 delivery routes and 106 branch warehouses as of September 30, 2023. DSD sales are primarily made “off-truck” to our customers at their places of business. We operate a large fleet of trucks and other vehicles to distribute and deliver our products through our DSD network, and we rely on 3PL service providers for our long-haul distribution.

Liquidity, Capital Resources and Financial Condition

The following table summarizes our debt obligations:

September 30, 2023

June 30, 2023

(In thousands)

Debt Origination Date

Maturity

Principal Borrowing Amount

Carrying Value

Weighted Average Interest Rate (1)

Carrying Value

Weighted Average Interest Rate (1)

Revolver

Various

4/26/2027

N/A

23,300

6.99

23,021

6.66

The revolver under the Credit Facility

~~We maintain~~ has a ~~$125.0 million senior secured revolving credit facility (the “Revolving Facility”) with JPMorgan Chase Bank, N.A. and SunTrust Bank (collectively, the “Lenders”), with a sublimit on letters~~commitment of ~~credit and swingline loans of $30.0~~up to $75.0 million and ~~$15.0~~a maturity date of April 26, 2027. Availability under the revolver is calculated as the lesser of (a) $75.0 million ~~respectively. The Revolving Facility includes an accordion feature whereby we may increase~~or (b) the ~~Revolving Commitment by up~~amount equal to ~~an additional $50.0 million, subject to certain conditions. Advances are based on our~~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 ~~certain real property and trademarks, less required reserves.~~Eligible Inventory, minus (c) applicable reserve. The commitment fee is a flat fee of 0.25% per annum irrespective of average revolver usage. Outstanding obligations are collateralized by all of our assets, excluding certain real property not included in the borrowing base, and machinery and equipment (other than inventory). BorrowingsTerm Loan under the ~~Revolving~~Term Credit Facility ~~bear interest based~~was fully paid down on ~~average historical excess availability levels with a range of PRIME - 0.25% to PRIME + 0.50% or Adjusted LIBO Rate + 1.25% to Adjusted LIBO Rate + 2.00%. We are subject to a variety of~~June 30, 2023.

The Credit Facility contains customary affirmative and negative covenants and restrictions typical for a financing of ~~types customary in an asset-based lending facility, including financial covenants relating to the maintenance of a fixed charge coverage ratio in certain circumstances, and the right~~this type. Non-compliance with one or more of the ~~Lenders to establish reserve requirements, which may reduce~~covenants and restrictions could result in the ~~amount of credit otherwise available to us. We are allowed to pay dividends, provided, among other things, certain excess availability requirements are met, and no event of default exists~~full or ~~has occurred and is continuing as~~partial principal balance of the ~~date of any such payment~~Credit Facility becoming immediately due and ~~after giving effect thereto. The Revolving Facility matures on August 25, 2022.~~

~~At December 31, 2017, we were eligible to borrow up to a total of $110.0 million under the Revolving Facility~~payable and ~~had outstanding borrowings of $84.4 million, utilized $1.1 million~~termination of the ~~letters~~commitments. As of ~~credit sublimit,~~ and had excess availability under the Revolving Facility of $24.5 million. At December 31, 2017, the weighted average interest rate on our outstanding borrowings under the Revolving Facility was 3.62%. At December 31, 2017,through September 30, 2023, we were in compliance with all of the ~~restrictive~~ covenants under the ~~Revolving~~Credit Facility.

The Credit Facility provides us with increased flexibility to proactively manage our liquidity and working capital, while maintaining compliance with our debt financial covenants, and preserving financial liquidity to mitigate the impact of the uncertain business environment and continue to execute on key strategic initiatives.

Pursuant to an International Swap Dealers Association, Inc. Master Agreement (“ISDA”) effective March 20, 2019, the Company on March 27, 2019, entered into a 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”). On May 16, 2023, the Company settled the Original Rate Swap. The net settlement of the Original Rate Swap was a $13 thousand loss. There was no remaining balance frozen in AOCI as of June 30, 2023.

At ~~January 31, 2018, we~~September 30, 2023, the Company had ~~estimated~~ outstanding borrowings on the Revolver Credit Facility of ~~$80.2~~$23.3 million and had utilized ~~$1.1~~$4.6 million of the letters of credit sublimit, and had excess availability under the Revolving Facility of $28.7 million. At January 31, 2018, the weighted average interest rate on our outstanding borrowings under the Revolving Facility was 3.59%.

sublimit.

Liquidity

We generally finance our operations through cash flows from operations and borrowings under our ~~Revolving~~Credit Facility described above. ~~At December 31, 2017, we had $5.4 million in cash and cash equivalents.~~ In ~~the fourth quarter of fiscal 2017, we liquidated substantially all~~light of our ~~preferred stock portfolio, net~~financial position, operating performance and current economic conditions, including the state of ~~purchases,~~the global capital markets, there can be no assurance as to ~~fund expenditures associated with our New Facility in Northlake, Texas. In the second quarter ended December 31, 2017,~~whether or when we ~~liquidated the remaining security in our preferred stock portfolio and at December 31, 2017 the preferred stock portfolio was closed.~~

will be able to raise capital by issuing securities. We believe ~~our Revolving~~that the Credit Facility, to the extent available, in addition to our cash flows from operations, ~~and other liquid assets,~~ collectively, will be sufficient to fund our working capital and capital expenditure requirements for the next 12 ~~to 18~~ months.

~~Changes~~At September 30, 2023, we had $4.0 million of unrestricted cash and cash equivalents and $0.2 million in restricted cash. Further changes in commodity prices and the number of coffee-related derivative instruments held could have a significant impact on cash deposit requirements under our broker and counterparty agreements and may adversely affect our liquidity. At September 30, 2023, we had $25.4 million available on our Revolver Credit Facility.

Cash Flows

~~We generate~~The significant captions and amounts from our consolidated statements of cash ~~from operating activities primarily from cash collections related to the sale of our products.~~flows are summarized below:


	Three Months Ended September 30,
	2023		2022
Consolidated Statements of cash flows data (in thousands)
Net cash used in operating activities	$	(7,137)	$	(6,254)
Net cash provided by investing activities	5,747		6,238
Net cash provided by financing activities	184		5,090
Net decrease in cash and cash equivalents and restricted cash	$	(1,206)	$	5,074

Operating Activities

Net cash used in operating activities during the three months ended September 30, 2023 was ~~$(1.5)~~$7.1 million as compared to $6.3 million in the ~~six~~three months ended ~~December 31, 2017 compared to net~~September 30, 2022, an increase in cash used in operations of $0.9 million. The change was driven by an increase in inventory, partially offset by a decrease in accounts receivables.

Investing Activities

Net cash provided by ~~operating~~investing activities ~~of $11.3~~during the three months ended September 30, 2023 was $5.7 million as compared to $6.2 million in the ~~six~~three months ended ~~December 31, 2016. Net cash used~~September 30, 2022. The net change in ~~operating~~investing activities ~~in the six months ended December 31, 2017~~ was ~~primarily due to a higher level of cash outflows from operating activities~~ primarily due to an increase ~~in inventory balances and payment~~ of ~~accounts payable balances, and lower cash inflows from operations due to an increase in accounts receivable balances. The increase in cash outflows was primarily~~$0.2 million related to the addition of the Boyd Business as well as softer than expected sales resulting in higher inventories. Net cash provided by operating activities in the six months ended December 31, 2016 was primarily due to higher net income and a higher level of cash inflows from operating activities resulting primarilyproceeds from the increase in deferred income taxes and accounts payable balances, partially offset by cash outflows from increases in inventory, payment of previously accrued bonus and restructuring and other transition expenses related to the Torrance Facility closure, purchases of short-term investments, a decrease in derivative assets and lower cash inflows from higher accounts receivable balances.

Net cash used in investing activities in the six months ended December 31, 2017 was $55.8 million as compared to $56.5 million in the six months ended December 31, 2016. In the six months ended December 31, 2017, net cash used in investing activities included $39.6 million in cash, primarily used to acquire the Boyd Business, $14.7 million in cash used for purchasessale of property, plant and equipment ~~and $1.6~~offset by an increase of $0.7 million in fixed asset purchases ~~of assets in connection with construction of~~during the ~~New Facility, partially offset by $0.1 million in proceeds from sales of property, plant and equipment, primarily equipment. In the six~~three months ended December 31, 2016, net cash used in investing activities included $26.9 million for purchases of property, plant and equipment, $21.8 million in purchases of assets in connection with construction of the New Facility, and $11.1 million net of cash acquired, in connection with the China Mist acquisition, offset by $3.3 million in proceeds from sales of property, plant and equipment, primarily real estate.September 30, 2023.

Financing Activities

Net cash provided by financing activities induring the ~~six~~three months ended ~~December 31, 2017~~September 30, 2023 was ~~$56.5~~$0.2 million as compared to ~~$32.5~~$5.1 million in the ~~six~~three months ended ~~December 31, 2016. Net cash provided by financing activities~~September 30, 2022. The decrease of $4.9 million was due to net borrowing proceeds of $0.3 million under the Credit Facility this period compared to $5.4 million in the ~~six~~prior year period.

Capital Expenditures

For the three months ended ~~December 31, 2017 included $56.8~~September 30, 2023 and 2022, our capital expenditures paid were $3.5 million and $2.8 million, respectively. In fiscal 2024, we anticipate paying between $16.0 million to $18.0 million in ~~net~~capital expenditures. We expect to finance these expenditures through cash flows from operations and borrowings under our ~~Revolving Facility,~~Credit Facility.

Depreciation and ~~$0.6~~amortization expenses were $2.9 million and $3.4 million in ~~proceeds from stock option exercises, partially offset by $0.6~~the three months ended September 30, 2023 and 2022, respectively.

Purchase Commitments

As of September 30, 2023, the Company had committed to purchase green coffee inventory totaling $36.5 million ~~used to pay capital lease obligations~~under fixed-price contracts, and ~~$0.4~~$15.8 million in ~~financing costs associated~~inventory and other purchases under non-cancelable purchase orders.

Contractual Obligations

As of September 30, 2023, the Company had operating and finance lease payment commitments totaling $24.8 million.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the ~~amendment~~reported amounts of ~~the Revolving Facility. Net cash provided by financing activities~~assets, liabilities, revenues and expenses in the six months ended December 31, 2016 included $42.5 million in proceeds from sale-leaseback financing associated with the sale of the Torrance Facility, $7.7 million in proceeds from lease financing in connection with the purchase of the partially constructed New Facility, $18.4 million in net borrowings under our ~~Revolving Facility,~~consolidated financial statements. We base our estimates and ~~$0.4 million in proceeds from stock option exercises, partially offset by $35.8 million in repayments~~judgments on ~~lease financing to acquire the partially constructed New Facility upon purchase option closing,~~historical experience and ~~$0.6 million used to pay capital lease obligations.~~

~~Acquisitions~~

~~On October 2, 2017,~~other assumptions that we acquired substantially all of the assets and certain specified liabilities of Boyd Coffee. At closing, for consideration of the purchase, we paid Boyd Coffee $38.9 million in cash from borrowings under our Revolving Facility and issued to Boyd Coffee 14,700 shares of Series A Convertible Participating Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”), with a fair value of $11.8 million as of the closing date. Additionally, we held back $3.2 million in cash and 6,300 shares of Series A Preferred Stock, with a fair value of $4.8 million as of the closing date, for the satisfaction of any post-closing working capital adjustments and to secure Boyd Coffee’s (and the other seller parties’) indemnification obligationsbelieve are reasonable under the ~~purchase agreement.~~

In addition to the $3.2 million cash holdback, as part of the consideration for the purchase, at closing we held back $1.1 million in cash to pay, on behalf of Boyd Coffee, any assessment of withdrawal liability made against Boyd Coffee following the closing date in respect of Boyd Coffee’s multiemployer plans. The partiescircumstances. These assumptions, estimates or judgments, however, are in the process of determining the final net working capital under the purchase agreement. At December 31, 2017, we estimated a net working capital adjustment of $(8.1) million, which is reflected in the preliminary purchase price allocation. The purchase price allocation is preliminary as we are in the process of finalizing the valuation inputs including growth assumptions, cost projectionsboth subjective and discount rates which are used in the fair value calculation of certain assets as well as the determination of the final post-closing net working capital adjustment. The preliminary purchase price allocation is subject to change, and ~~such change could be material based on numerous factors, including~~actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the ~~final estimated fair value~~revisions are included in our results of operations for the ~~assets acquired and liabilities assumed and~~period in which the ~~amount~~actual amounts become known. For a summary of ~~the final post-closing net working capital adjustment.~~

~~At closing, the parties entered into a transition services agreement where Boyd Coffee agreed to provide certain~~our significant accounting ~~marketing, sales and distribution support during a transition period~~policies, see Note 2, Summary of up to 12 months. We also entered into a co-manufacturing agreement with Boyd Coffee for a transition period of up to 12 months as we transition production into our plants. Amounts paid by the Company to Boyd Coffee for these services totaled $9.2 million in the three and six months ended December 31, 2017.

On October 11, 2016, we acquired substantially all of the assets and certain specified liabilities of China Mist for aggregate purchase consideration of $12.2 million, consisting of $11.2 million in cash paid at closing including working capital adjustments of $0.4 million, post-closing final working capital adjustments of $0.6 million, and up to $0.5 million in contingent consideration to be paid as earnout if certain sales levels are achieved in the calendar years of 2017 or 2018. On February 7, 2017, we acquired substantially all of the assets and certain specified liabilities of West Coast Coffee for aggregate purchase consideration of $15.5 million, which included $14.7 million in cash paid at closing including working capital adjustments of $1.2 million, post-closing working capital adjustment of $(0.2) million and up to $1.0 million in contingent consideration to be paid as earnout if certain sales levels are achieved in the twenty-four months following the closing. We funded the purchase price for these acquisitions with proceeds under our Revolving Facility and cash flows from operations. See ~~Note 3~~, ~~Acquisitions~~,Significant Accounting Policies, of the Notes to ~~Unaudited Condensed~~ Consolidated Financial Statements included in Part I, Item 1 of ~~this report.~~our 2023 Form 10-K. For a summary of our critical accounting estimates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in our 2023 Form 10-K.

~~DSD Restructuring Plan~~Recent Accounting Pronouncements

~~On February 21, 2017, we announced the DSD Restructuring Plan. We have revised our estimated time~~See Note 2, Summary of completion of the DSD Restructuring Plan from the end of the second quarter of fiscal 2018 to the end of fiscal 2018. We estimate that we will recognize approximately $3.7 million to $4.9 million of pre-tax restructuring charges by the end of fiscal 2018 consisting of approximately $1.9 million to $2.7 million in employee-related costs, including severance, prorated bonuses for bonus eligible employees, contractual termination payments and outplacement services, and $1.8 million to $2.2 million in other related costs, including legal, recruiting, consulting, other professional services, and travel. Expenses related to the DSD Restructuring Plan in the three and six months ended December 31, 2017 consisted of $0 and $24,000, respectively, in employee-related costs and $0.1 million and $0.2 million, respectively, in other related costs. Since the adoption of the DSD Restructuring Plan through December 31, 2017, we have recognized and paid a total of $2.7 million in aggregate cash costs including $1.1 million in employee-related costs, and $1.6 million in other related costs. The remaining estimated costs of $1.0 million to $2.2 million are expected to be incurred in the remainder of fiscal 2018. We may also incur other charges not currently contemplated due to events that may occur as a result of, or associated with, the DSD Restructuring Plan. See ~~Note 4~~, ~~Restructuring Plans-Direct Store Delivery (“DSD”) Restructuring Plan~~Significant Accounting Policies, of the Notes to ~~Unaudited Condensed~~ Consolidated Financial Statements included in Part I, Item 1 of ~~this report.~~

~~Corporate Relocation Plan~~

We estimated that we would incur approximately $31 million in cash costs in connection with the Corporate Relocation Plan consisting of $18 million in employee retention and separation benefits, $5 million in facility-related costs and $8 million in other related costs. Since the adoption of the Corporate Relocation Plan in fiscal 2015 through December 31, 2017, we have recognized a total of $31.5 million in aggregate cash costs, including $17.1 million in employee retention and separation benefits, $7.0 million in facility-related costs related to the temporary office space, costs associated with the move of the Company’s headquarters, relocation of our Torrance operations and certain distribution operations and $7.4 million in other related costs recorded in “Restructuring and other transition expenses” in our Condensed Consolidated Statements of Operations. We completed the Corporate Relocation Plan in the fourth quarter of fiscal 2017 and have $0.1 million in unpaid expenses related to employee-related costs, which is expected to be paid by the end of fiscal 2018. Additionally, from inception through December 31, 2017, we recognized non-cash depreciation expense

of $2.3 million associated with the Torrance production facility resulting from the consolidation of coffee production operations with the Houston and Portland production facilities and $1.4 million in non-cash rent expense recognized in the sale-leaseback of the Torrance Facility. We may incur certain pension-related costs in connection with the Corporate Relocation Plan which are not included in the estimated $31 million in aggregate cash costs. See ~~Note 4~~, ~~Restructuring Plans—Corporate Relocation Plan, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.~~

~~New Facility Costs~~

We estimated that the total construction costs including the cost of the land for the New Facility would be approximately $60 million. As of December 31, 2017, we have incurred an aggregate of $60.8 million in construction costs. In addition to the costs to complete the construction of the New Facility, we estimated that we would incur approximately $35 million to $39 million for machinery and equipment, furniture and fixtures, and related expenditures in connection with construction of the New Facility of which we have incurred an aggregate of $33.2 million as of December 31, 2017, including $22.5 million under the amended building contract for the New Facility. See ~~Note 5~~, ~~New Facility~~ of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report. The majority of the capital expenditures associated with machinery and equipment, furniture and fixtures and related expenditures in connection with the initial construction of the New Facility were incurred in the first three quarters of fiscal 2017. We commenced distribution activities at the New Facility during the second quarter of fiscal 2017 and initial production activities late in the third quarter of fiscal 2017. We began roasting coffee in the New Facility in the fourth quarter of fiscal 2017.

~~The following table summarizes the expenditures incurred for construction of the New Facility as of December 31, 2017 as compared to the final budget:~~

Expenditures Incurred Budget
(In thousands) Six Months Ended December 31, 2017 Through Fiscal Year Ended June 30, 2017 Total Lower bound Upper bound
Building and facilities, including land $ —
$ 60,770
$ 60,770
$ 55,000
$ 60,000
Machinery and equipment; furniture and fixtures —
33,241
$ 33,241
35,000
39,000
Total $ —
$ 94,011
$ 94,011
$ 90,000
$ 99,000

~~Capital Expenditures~~

~~For the six months ended December 31, 2017 and 2016, our capital expenditures paid were as follows:~~

Six Months Ended December 31,
(In thousands) 2017 2016
Coffee brewing equipment $ 4,816
$ 5,885
Building and facilities 265
—
Vehicles, machinery and equipment 5,051
5,735
Software, office furniture and equipment 1,625
1,739
Capital expenditures excluding New Facility $ 11,757
$ 13,359
New Facility:
Building and facilities, including land(1) $ 1,577
$ 21,783
Machinery and equipment 2,489
10,554
Software, office furniture and equipment 426
2,951
Capital expenditures, New Facility $ 4,492
$ 35,288
Total capital expenditures $ 16,249
$ 48,647

~~___________~~

~~(1) Includes $21.8 million in purchase of assets for New Facility construction in the six months ended December 31, 2016.~~

In the six months ended December 31, 2017, we paid $4.5 million in capital expenditures for the New Facility. In fiscal 2018 we anticipate paying between $8 million to $11 million in capital expenditures to support investments in the business and to expand our customer base of which $2.7 million has been paid in the six months ended December 31, 2017. Additionally, in fiscal 2018 we expect to pay approximately $20 million to $22 million in expenditures to replace normal wear and tear of coffee brewing equipment, vehicles, machinery and equipment and mobile sales solution hardware of which $9.1 million has been paid in the six months ended December 31, 2017.

Depreciation and amortization expense was $8.1 million and $5.1 million in the three months ended December 31, 2017 and 2016, respectively. Depreciation and amortization expense was $15.3 million and $10.1 million, in the six months ended December 31, 2017 and 2016, respectively. We anticipate our depreciation and amortization expense will be approximately $8.0 million to $8.5 million per quarter in the remainder of fiscal 2018 based on our existing fixed asset commitments and the useful lives of our intangible assets.

~~Working Capital~~

~~At December 31, 2017 and June 30, 2017, our working capital was composed of the following:~~

December 31, 2017 June 30, 2017
(In thousands)
Current assets $ 150,355
$ 117,164
Current liabilities 166,062
97,267
Working capital $ (15,707 ) $ 19,897

~~Contractual Obligations~~

~~During the three months ended December 31, 2017, other than the following, there were no material changes in our contractual obligations.~~

~~At December 31, 2017, we had committed to purchase additional equipment for the New Facility totaling $6.3 million.~~

At December 31, 2017, we had outstanding borrowings of $84.4 million under our Revolving Facility, as compared to outstanding borrowings of $27.6 million at June 30, 2017. The increase in outstanding borrowings in the six months ended December 31, 2017 included $39.5 million to fund the purchase price for the Boyd Business and initial Company obligations under the post-closing transition services agreement.

In connection with the Boyd Coffee acquisition, as part of the consideration for the purchase, at closing we held back $1.1 million in cash to pay, on behalf of Boyd Coffee, any assessment of withdrawal liability made against Boyd Coffee following the closing date in respect of Boyd Coffee’s multiemployer plans. As we have not made this payment as of December 31, 2017 and we expect settling the pension liability will take greater than twelve months, the multiemployer plan holdback is recorded in other long-term liabilities on our Condensed Consolidated Balance Sheet at December 31, 2017.

As of December 31, 2017, we had committed to purchase green coffee inventory totaling $55.3 million under fixed-price contracts and other purchases totaling $12.9 million under non-cancelable purchase orders.2023 Form 10-K.

Off-Balance Sheet Arrangements

WeAs of September 30, 2023, the Company did not have noany off-balance sheet arrangements.



Item 3.			Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to market value risk arising from changes in interest rates on our securities portfolio. Our portfolio of preferred securities has sometimes included investments in derivative instruments that provide a natural economic hedge of interest rate risk. We review the interest rate sensitivity of these securities and may enter into “short positions” in futures contracts on U.S. Treasury securities or hold put options on such futures contracts to reduce the impact of certain interest rate changes. Specifically, we attempt to manage the risk arising from changes in the general level of interest rates. We do

not transact in futures contracts or put options for speculative purposes. The number and type of futures and options contracts entered into depends on, among other items, the specific maturity and issuer redemption provisions for each preferred stock held, the slope of the U.S. Treasury yield curve, the expected volatility of U.S. Treasury yields, and the costs of using futures and/or options.

In the fourth quarter of fiscal 2017, we liquidated substantially all of our preferred stock portfolio, net of purchases, to fund expenditures associated with our New Facility in Northlake, Texas. In the second quarter ended December 31, 2017, we liquidated the remaining security in our preferred stock portfolio and at December 31, 2017 the preferred stock portfolio was closed.

Borrowings under our Revolving Facility bear interest based on average historical excess availability levels with a range of PRIME - 0.25% to PRIME + 0.50% or Adjusted LIBO Rate + 1.25% to Adjusted LIBO Rate + 2.00%.

At ~~December 31, 2017,~~September 30, 2023, we had outstanding borrowings on our Revolver Credit Facility of ~~$84.4~~$23.3 million and had utilized ~~$1.1~~$4.6 million of the letters of credit ~~sublimit, and had excess availability under the Revolving Facility of $24.5 million.~~sublimit. The weighted average interest rate on our ~~outstanding borrowings under the Revolving~~Revolver Credit Facility ~~at December 31, 2017~~ was ~~3.62%~~6.99%.

The following table demonstrates the impact of interest rate changes on our annual interest expense on outstanding borrowings subject to interest rate variability under ~~the Revolving~~these Credit Facility ~~excluding interest on letters of credit,~~ based on the weighted average interest rate on the outstanding borrowings as of ~~December 31, 2017:~~September 30, 2023:


($ in thousands)	Principal	Interest Rate		Annual Interest Expense
(In thousands)						(In thousands)	Principal	Interest Rate	Annual Interest Expense
–150 basis points	$84,430	2.13	%	$	1,798	–150 basis points	$23,300	5.49%	$1,279
–100 basis points	$84,430	2.63	%	$	2,221	–100 basis points	$23,300	5.99%	$1,396
Unchanged	$84,430	3.63	%	$	3,065	Unchanged	$23,300	6.99%	$1,629
+100 basis points	$84,430	4.63	%	$	3,909	+100 basis points	$23,300	7.99%	$1,862
+150 basis points	$84,430	5.13	%	$	4,331	+150 basis points	$23,300	8.49%	$1,978

Commodity Price Risk

We are exposed to commodity price risk arising from changes in the market price of green coffee. We value green coffee inventory on the ~~LIFO~~FIFO basis. In the normal course of business we hold a large green coffee inventory and enter into forward commodity purchase agreements with suppliers. We are subject to price risk resulting from the volatility of green coffee prices. Due to competition and market conditions, volatile price increases cannot always be passed on to our customers.

We purchase over-the-counter coffee-related derivative instruments to enable us to lock in the price of green coffee commodity purchases. These derivative instruments also may be entered into at the direction See Note 5, Derivative Instruments, of the ~~customer under commodity-based pricing arrangements~~Notes to ~~effectively lock in~~ the ~~purchase price of green coffee under such customer arrangements, in certain cases up to 18 months or longer in the future. We account~~Unaudited Consolidated Financial Statements for certain coffee-related derivative instruments as accounting hedges in order to minimize the volatility created in our quarterly results from utilizing these derivative contracts and to improve comparability between reporting periods.

W~~hen we designate coffee-related derivative instruments as cash flow hedges, we formally document the hedging instruments and hedged items, and measure at each balance sheet date the effectiveness~~further discussions of our ~~hedges. The effective portion of the change in fair value of the~~ derivative is reported in AOCI and subsequently reclassified into cost of goods sold in the period or periods when the hedged transaction affects earnings. For the three months ended December 31, 2017 and 2016, respectively, we reclassified $(0.6) million in net losses and $0.2 million in net gains on derivative instruments designated as cash flow hedges, excluding tax, respectively, into cost of goods sold from AOCI. Any ineffective portion of the derivative’s change in fair value is recognized currently in “Other, net.” For the six months ended December 31, 2017 and 2016, respectively, we reclassified $(0.6) million and $(0.3) million in net losses on derivative instruments designated as cash flow hedges, excluding tax, respectively, into cost of goods sold from AOCI. Gains or losses deferred in AOCI associated with terminated derivative instruments, derivative instruments that cease to be highly effective hedges, derivative instruments for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, we recognize any gain or loss

deferred in AOCI in “Other, net” at that time. For the three months ended December 31, 2017 and 2016, we recognized in “Other, net” $0 and $(41,000) in net losses, respectively, on coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness. For the six months ended December 31, 2017 and 2016, we recognized in “Other, net” $48,000 in net gains and $(28,000) in net losses, respectively, on coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness.

For derivative instruments that are not designated in a hedging relationship, and for which the normal purchases and normal sales exception has not been elected, the changes in fair value are reported in “Other, net.” In the three months ended December 31, 2017 and 2016, we recorded in “Other, net” net losses of $(0.2) million and $(1.2) million, respectively, on coffee-related derivative instruments not designated as accounting hedges. In the six months ended December 31, 2017 and 2016, we recorded in “Other, net” net losses of $(93,000) and $(1.2) million, respectively, on coffee-related derivative instruments not designated as accounting hedges.instruments.

The following table summarizes the potential impact as of ~~December 31, 2017~~September 30, 2023 to net ~~income~~loss and AOCI from a hypothetical 10% change in coffee commodity prices. The information provided below relates only to the coffee-related derivative instruments and does not include, when applicable, the corresponding changes in the underlying hedged items:


	Increase (Decrease) to Net Income					Increase (Decrease) to AOCI						Increase (Decrease) to Net Loss				Increase (Decrease) to AOCI
	10% Increase in Underlying Rate		10% Decrease in Underlying Rate			10% Increase in Underlying Rate		10% Decrease in Underlying Rate				10% Increase in Underlying Rate		10% Decrease in Underlying Rate		10% Increase in Underlying Rate		10% Decrease in Underlying Rate
(In thousands)											(In thousands)
Coffee-related derivative instruments⁽¹⁾	$	211	$	(211	)	$	4,202	$	(4,202	)	Coffee-related derivative instruments (1)	$	70	$	(70)	$	133	$	(133)

__________

(1) The Company’s purchase contracts that qualify as normal purchases include green coffee purchase commitments for which the price has been locked in as of ~~December 31, 2017.~~September 30, 2023. These contracts are not included in the sensitivity analysis above as the underlying price has been fixed.



Item 4.			Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

~~As of December 31, 2017, our~~Our management, with the participation of our Interim Chief Executive Officer (principal executive officer) and Interim Chief Financial Officer (principal financial ~~and accounting~~ officer), carried out an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2023 pursuant to Rule 13a-15(e) promulgated under the Exchange Act. Based on that evaluation, our Interim Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

Management has determined that there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during our fiscal quarter ended ~~December 31, 2017~~September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

On October 2, 2017, we completed the acquisition of substantially all of the assets and certain specified liabilities of Boyd Coffee Company. We are currently integrating processes, employees, technologies and operations. Management will continue to evaluate our internal controls over financial reporting as we complete the integration.



PART II - OTHER INFORMATION



Item 1.			Legal Proceedings

The information set forth in Note 2120, Commitments and Contingencies, of the Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q is incorporated herein by reference.


Item 1A.			Risk Factors

For a discussion of our other potential risks and uncertainties, see the information under “Item 1A. Risk Factors” in our 2023 Form 10‑K. During the three months ended September 30, 2023, there have been no material changes to the risk factors disclosed in our 2023 Form 10‑K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None


Item 6.			Exhibits


Exhibit No.						Description

3.1						Second Amended and Restated Certificate of Incorporation of Farmer Bros. Co. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 12, 2023 and incorporated herein by reference).

3.2						Amended and Restated Bylaws (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2023 and incorporated herein by reference).

10.1						Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Restricted Stock Unit Award Agreement (filed herewith).*

10.2						Form of Farmer Bros. Co. Amended and Restated 2017 Long-Term Incentive Plan Restricted Stock Unit Award Agreement (filed herewith).*

10.3						Form of Farmer Bros. Co. Amended and Restated 2017 Long-Term Incentive Plan Cash-Based Restricted Stock Unit Award Agreement (filed herewith).*

10.4						Retention Agreement, dated September 13, 2023, by and between Farmer Bros. Co. and Brad Bollner (filed herewith).*

10.5						Retention Agreement, dated September 13, 2023, by and between Farmer Bros. Co. and Jared Vitemb (filed herewith).*

31.1*						Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**						Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**						Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*						Inline XBRL Instance Document

101.SCH*						Inline XBRL Taxonomy Extension Schema Document.

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104						The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (included in Exhibit 101).

________________



~~Item 6.~~			~~Exhibits~~
*			Filed herewith

**			Furnished, not filed, herewith

~~See Exhibit Index.~~

SIGNATURES

Pursuant to the requirements ~~of Section 13 or 15(d)~~ of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FARMER BROS. CO.

~~By:~~

~~/s/ Michael H. Keown~~

~~Michael H. Keown~~
~~President and Chief Executive Officer~~
~~(chief executive officer)~~

~~February 7, 2018~~

~~By:~~

~~/s/ David G. Robson~~

~~David G. Robson~~

~~Treasurer and Chief Financial Officer~~

~~(principal financial and accounting officer)~~

~~February 7, 2018~~

~~EXHIBIT INDEX~~

~~2.1~~

By:

Asset Purchase Agreement, dated as of November 16, 2015, by and between Farmer Bros. Co. and Harris Spice Company Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 20, 2015 and incorporated herein by reference).*

/s/ John Moore

~~2.2~~

Purchase Agreement, dated as of September 9, 2016, among Tea Leaf Acquisition Corp., China Mist Brands, Inc., certain stockholders of China Mist Brands, Inc., for certain limited purposes, Daniel W. SchweikerJohn Moore
Interim President and John S. Martinson, and Daniel W. Schweiker, in his capacity as the sellers’ representative (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 14, 2016 and incorporated herein by reference).*

~~2.3~~

Asset Purchase Agreement, dated as of August 18, 2017, by and among Farmer Bros. Co., Boyd Assets Co., Boyd Coffee Company, and each of the parties set forth on Exhibit A thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 21, 2017 and incorporated herein by reference).*

~~3.1~~

~~Certificate of Incorporation of Farmer Bros. Co. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 26, 2017 and incorporated herein by reference).~~

~~3.2~~

Certificate of Amendment to the Certificate of Incorporation of Farmer Bros. Co. (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC on June 26, 2017 and incorporated herein by reference).

~~3.3~~

Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~3.4~~

~~Certificate of Elimination (filed as Exhibit 3.3 to the Company's Registration Statement on Form 8-A12B/A filed with the SEC on September 24, 2015 and incorporated herein by reference).~~

~~3.5~~

Certificate of Designations of Series A Convertible Participating Cumulative Perpetual Preferred Stock of Farmer Bros. Co. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 3, 2017 and incorporated herein by reference).

~~4.1~~

~~Specimen Stock Certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A12B/A filed with the SEC on September 24, 2015 and incorporated herein by reference).~~

~~4.2~~

Specimen Stock Certificate for Series A Convertible Participating Cumulative Perpetual Preferred Stock (filed as Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 7, 2017 and incorporated herein by reference).

~~4.3~~

Registration Rights Agreement, dated as of June 16, 2016, among Farmer Bros. Co. and the Investors identified on the signature pages thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 21, 2016 and incorporated herein by reference).

~~10.1~~

Credit Agreement, dated as of March 2, 2015, by and among Farmer Bros. Co., Coffee Bean International, Inc., FBC Finance Company, Coffee Bean Holding Co., Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on March 6, 2015 and incorporated herein by reference).

~~10.2~~

Pledge and Security Agreement, dated as of March 2, 2015, by and among Farmer Bros. Co., Coffee Bean International, Inc., FBC Finance Company, Coffee Bean Holding Co., Inc. and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on March 6, 2015 and incorporated herein by reference).

Chief Executive Officer (principal executive officer)

~~10.3~~		Joinder Agreement, dated as of October 11, 2016, by and among China Mist Brands, Inc., Farmer Bros. Co., as the Borrower Representative, and JPMorgan Chase Bank, N.A., as Administrative Agent, under that certain Credit Agreement dated as of March 2, 2015 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2016 filed with the SEC on FebruaryNovember 9, ~~2017 and incorporated herein by reference).~~

~~10.4~~	Joinder to Pledge and Security Agreement, dated as of October 11, 2016, by and among Farmer Bros. Co., Coffee Bean International, Inc., FBC Finance Company, Coffee Bean Holding Co., Inc., China Mist Brands, Inc. and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2016 filed with the SEC on February 9, 2017 and incorporated herein by reference).

~~10.5~~	First Amendment to Credit Agreement and First Amendment to Pledge and Security Agreement, dated as of August 25, 2017, by and among Farmer Bros. Co., China Mist Brands, Inc., Coffee Bean International, Inc., FBC Finance Company, Coffee Bean Holding Company, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 30, 2017 and incorporated herein by reference).

~~10.6~~	Joinder Agreement, dated as of November 29, 2017, by and among Boyd Assets Co., Farmer Bros. Co., as the Borrower’s Representative, and JPMorgan Chase Bank, N.A., as Administrative Agent, under that certain Credit Agreement dated as of March 2, 2015, as amended by that certain First Amendment to Credit Agreement, dated as of August 25, 2017(filed herewith).

~~10.7~~	Joinder to Pledge and Security Agreement, dated as of November 29, 2017, by and among Farmer Bros. Co., Coffee Bean International, Inc., FBC Finance Company, Coffee Bean Holding Co., Inc., China Mist Brands, Inc., Boyd Assets Co. and JPMorgan Chase Bank, N.A., as Administrative Agent (filed herewith).

~~10.8~~	Farmer Bros. Co. Pension Plan for Salaried Employees (filed (filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 7, 2017 and incorporated herein by reference).**

~~10.9~~	Amendment No. 1 to Farmer Bros. Co. Retirement Plan effective June 30, 2011 (filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 filed with the SEC on September 14, 2016 and incorporated herein by reference).**

~~10.10~~	Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans amending the Farmer Bros. Co. Retirement Plan, effective as of December 6, 2012 (filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the SEC on May 6, 2013 and incorporated herein by reference).**

~~10.11~~	Farmer Bros. Co. 2005 Incentive Compensation Plan (filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2013 filed with the SEC on February 10, 2014 and incorporated herein by reference).**

~~10.12~~	Amendment to Farmer Bros. Co. 2005 Incentive Compensation Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 10, 2014 and incorporated herein by reference).**

~~10.13~~	Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, as adopted by the Board of Directors on December 9, 2010 and effective as of January 1, 2010 (filed as Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).**

~~10.14~~	Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans amending the Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, effective as of January 1, 2012 (filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017 filed with the SEC on September 28, 2017 and incorporated herein by reference).**

2023

~~10.15~~

Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans amending the Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, effective as of January 1, 2015 (filed as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 filed with the SEC on November 9, 2015 and incorporated herein by reference).**

By:

/s/ Brad Bollner

~~10.16~~

Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans amending the Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, effective as of January 1, 2015 (filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 filed with the SEC on November 9, 2015 and incorporated herein by reference).**

~~10.17~~

Amendment dated October 6, 2016 to Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 7, 2016 and incorporated herein by reference).**

~~10.18~~

~~10.19~~

ESOP Loan Agreement including ESOP Pledge Agreement and Promissory Note, dated March 28, 2000, between Farmer Bros. Co. and Wells Fargo Bank, N.A., Trustee for the Farmer Bros Co. Employee Stock Ownership Plan (filed as Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.20~~

Amendment No. 1 to ESOP Loan Agreement, dated June 30, 2003, between Farmer Bros. Co. and Wells Fargo Bank, N.A., Trustee for the Farmer Bros Co. Employee Stock Ownership Plan (filed as Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.21~~

ESOP Loan Agreement No. 2 including ESOP Pledge Agreement and Promissory Note, dated July 21, 2003 between Farmer Bros. Co. and Wells Fargo Bank, N.A., Trustee for the Farmer Bros Co. Employee Stock Ownership Plan (filed as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.22~~

Employment Agreement, dated March 9, 2012, by and between Farmer Bros. Co. and Michael H. Keown (filed as Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and incorporated herein by reference).**

~~10.23~~

Employment Agreement, effective as of May 27, 2015, by and between Farmer Bros. Co. and Scott W. Bixby (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May 20, 2015 and incorporated herein by reference).**

~~10.24~~

Employment Agreement, effective as of August 6, 2015, by and between Farmer Bros. Co. and Thomas J. Mattei, Jr. (filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015 filed with the SEC on September 14, 2015 and incorporated herein by reference).**

~~10.25~~

Employment Agreement, dated as of February 17, 2017, by and between Farmer Bros. Co. and David G. Robson (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2017 and incorporated herein by reference).**

~~10.26~~

Employment Agreement, dated as of February 17, 2017, by and between Farmer Bros. Co. and Ellen D. Iobst (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2017 and incorporated herein by reference).**

~~10.27~~

Employment Agreement, dated as of February 17, 2017, by and between Farmer Bros. Co. and Scott A. Siers (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2017 and incorporated herein by reference).**

Brad Bollner Interim Chief Financial Officer (principal financial officer)

~~10.28~~		Form of First Amendment to Employment Agreement entered into between Farmer Bros. Co. and each of Michael H. Keown, David G. Robson, Ellen D. Iobst, Scott W. Bixby, Scott A. Siers and Thomas J. Mattei, Jr. (filed as Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and incorporated herein by reference).**

~~10.29~~	Confidential General Release and Separation Agreement by and between Barry C. Fischetto and Farmer Bros. Co. dated February 17, 2017 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 17, 2017 and incorporated herein by reference).**

~~10.30~~	Farmer Bros. Co. 2007 Omnibus Plan, as amended (as approved by the stockholders at the 2012 Annual Meeting of Stockholders on December 6, 2012) (filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 7, 2017 and incorporated herein by reference).**

~~10.31~~	Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (as approved by the stockholders at the 2013 Annual Meeting of Stockholders on December 5, 2013) (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on December 11, 2013 and incorporated herein by reference).**

~~10.32~~	Addendum to Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (filed as Exhibit 10.30 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2014 filed with the SEC on February 9, 2015 and incorporated herein by reference).**

~~10.33~~	Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Option Award Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 4, 2017 and incorporated herein by reference).**

~~10.34~~	Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Restricted Stock Unit Award Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 4, 2017 and incorporated herein by reference).**

~~10.35~~	Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Restricted Stock Grant Agreement (Directors) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 4, 2017 and incorporated herein by reference).**

~~10.36~~	Form of Farmer Bros. Co. 2017 Long-Term Incentive Plan Stock Restricted Stock Grant Agreement (Employees) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 4, 2017 and incorporated herein by reference).**

~~10.37~~	Farmer Bros. Co. 2017 Long-Term Incentive Plan (as approved by the stockholders at the Special Meeting of Stockholders on June 20, 2017) filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on June 26, 2017 and incorporated herein by reference)**

~~10.38~~	Form of Farmer Bros. Co. 2007 Omnibus Plan Stock Option Grant Notice and Stock Option Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2013 and incorporated herein by reference).**

~~10.39~~	Form of Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan Stock Option Grant Notice and Stock Option Agreement (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on December 18, 2013 and incorporated herein by reference).**

~~10.40~~	Form of Farmer Bros. Co. 2007 Omnibus Plan Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2013 and incorporated herein by reference).**

~~10.41~~	Form of Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan Restricted Stock Award Grant Notice and Restricted Stock Award Agreement (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the SEC on December 18, 2013 and incorporated herein by reference).**
	2023



~~10.42~~		Stock Ownership Guidelines for Directors and Executive Officers (filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 filed with the SEC on September 14, 2016 and incorporated herein by reference).**

~~10.43~~		Form of Change in Control Severance Agreement for Executive Officers of the Company (with schedule of executive officers attached) (filed as Exhibit 10.35 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and incorporated herein by reference).**

~~10.44~~		Form of First Amendment to Change in Control Severance Agreement entered into between Farmer Bros. Co. and each of Michael H. Keown, David G. Robson, Ellen D. Iobst, Scott W. Bixby, Scott A. Siers and Thomas J. Mattei, Jr. (filed as Exhibit 10.36 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed with the SEC on May 10, 2017 and incorporated herein by reference).**

~~10.45~~		Form of Indemnification Agreement for Directors and Officers of the Company, as adopted on December 8, 2017 (with schedule of indemnitees attached) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 13, 2017 and incorporated herein by reference).**

~~10.46~~		Lease Agreement, dated as of July 17, 2015, by and between Farmer Bros. Co. as Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 23, 2015 and incorporated herein by reference).

~~10.47~~		First Amendment to Lease Agreement dated as of December 29, 2015, by and between Farmer Bros. Co. as Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.36 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.48~~		Amendment No. 2 to Lease Agreement dated as of March 10, 2016, by and between Farmer Bros. Co. as Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.37 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.49~~		Termination of Lease Agreement, dated as of September 15, 2016, by and between Farmer Bros. Co. as Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.33 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 filed with the SEC on November 9, 2016 and incorporated herein by reference).

~~10.50~~		Development Management Agreement dated as of July 17, 2015, by and between Farmer Bros. Co., as Tenant and Stream Realty Partners-DFW, L.P., as Developer (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on July 23, 2015 and incorporated herein by reference).

~~10.51~~		First Amendment to Development Management Agreement dated as of January 1, 2016, by and between Farmer Bros. Co., as Tenant and Stream Realty Partners-DFW, L.P., as Developer (filed as Exhibit 10.39 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.52~~		Second Amendment to Development Management Agreement dated as of March 25, 2016, by and between Farmer Bros. Co., as Tenant and Stream Realty Partners-DFW, L.P., as Developer (filed as Exhibit 10.40 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.53~~		AIA Document A141 - 2014, Standard Form of Agreement Between Owner and Design-Builder, dated as of September 22, 2015, between Farmer Bros. Co. and The Haskell Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 22, 2016 and incorporated herein by reference).

~~10.54~~		Change Order No. 12, dated as of September 17, 2016, between Farmer Bros. Co. and The Haskell Company (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 22, 2016 and incorporated herein by reference).



~~10.55~~		Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of April 11, 2016, by and between Farmer Bros. Co. as Seller, and Bridge Acquisition, LLC as Buyer (filed as Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed with the SEC on May 6, 2016 and incorporated herein by reference).

~~10.56~~		First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of June 1, 2016, by and between Farmer Bros. Co. and Bridge Acquisition, LLC (filed as Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016 filed with the SEC on September 14, 2016 and incorporated herein by reference).

~~31.1~~		~~Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).~~

~~31.2~~		Principal Financial and Accounting Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

~~32.1~~		~~Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).~~

~~32.2~~		~~Principal Financial and Accounting Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).~~

~~101~~		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the fiscal period ended December 31, 2017, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive (Loss) Income, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements (furnished herewith).

~~________________~~



*	Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and/or exhibits to this agreement have been omitted. The Registrant undertakes to supplementally furnish copies of the omitted schedules and/or exhibits to the Securities and Exchange Commission upon request.

**	~~Management contract or compensatory plan or arrangement.~~



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
	Six Months Ended December 31,
	2017			2016
Cash flows from operating activities:
Net (loss) income	$	(19,746	)	$	21,694
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	15,330			10,086
Provision for (recovery of) doubtful accounts	129			(44		)
Interest on sale-leaseback financing obligation	—			681
Restructuring and other transition expenses, net of payments	(958		)	1,082
Deferred income taxes	19,375			13,640
Net gain from sale of Torrance Facility	—			(37,449		)
Net gains from sales of spice assets and other assets	(401		)	(1,931		)
ESOP and share-based compensation expense	1,844			2,094
Net losses on derivative instruments and investments	1,033			2,583
Change in operating assets and liabilities:
Purchases of trading securities	—			(2,959		)
Proceeds from sales of trading securities	375			1,268
Accounts receivable	(8,102		)	(4,545		)
Inventories	(7,682		)	(10,071		)
Income tax receivable	112			(27		)
Derivative assets (liabilities), net	(3,000		)	4,329
Prepaid expenses and other assets	352			33
Accounts payable	1,264			18,356
Accrued payroll expenses and other current liabilities	1,178			(5,210		)
Accrued postretirement benefits	(676		)	(447		)
Other long-term liabilities	(1,960		)	(1,849		)
Net cash (used in) provided by operating activities	$	(1,533	)	$	11,314
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	$	(39,608	)	$	(11,183	)
Purchases of property, plant and equipment	(14,672		)	(26,864		)
Purchases of assets for construction of New Facility	(1,577		)	(21,783		)
Proceeds from sales of property, plant and equipment	85			3,332
Net cash used in investing activities	$	(55,772	)	$	(56,498	)
(continued on next page)



Supplemental disclosure of non-cash investing and financing activities:
Net change in derivative assets and liabilities included in other comprehensive (loss) income, net of tax	$	(1,342	)	$	(1,203	)
Non-cash additions to property, plant and equipment	$	557		$	11,253
Non-cash portion of earnout receivable recognized—spice assets sale	$	545		$	492
Non-cash portion of earnout payable recognized—China Mist acquisition	$	—		$	500
Non-cash receivable from West Coast Coffee—post-closing final working capital adjustment	$	218		$	—
Non-cash consideration given—Issuance of Series A Preferred Stock	$	11,756		$	—
Non-cash Multiemployer Plan Holdback payable recognized—Boyd Coffee acquisition	$	1,056		$	—
Cumulative preferred dividends, undeclared and unpaid	$	129		$	—



(In thousands)	Fair Value			Estimated Useful Life (years)

Cash paid, net of cash acquired	$	11,183
Post-closing final working capital adjustments	553
Contingent consideration	500
Total consideration	$	12,236

Accounts receivable	$	811
Inventory	544
Prepaid assets	48
Property, plant and equipment	189
Goodwill	2,927
Intangible assets:
Recipes	930			7
Non-compete agreement	100			5
Customer relationships	2,000			10
Trade name/Trademark—indefinite-lived	5,070
Accounts payable	(383		)
Total consideration, net of cash acquired	$	12,236



(In thousands)	Fair Value			Estimated Useful Life (years)

Cash paid, net of cash acquired	$	14,671
Post-closing final working capital adjustments	(218		)
Fair value of contingent consideration	600
Total consideration	$	15,053

Accounts receivable	$	956
Inventory	910
Prepaid assets	16
Property, plant and equipment	1,546
Goodwill	7,630
Intangible assets:
Non-compete agreements	100			5
Customer relationships	4,400			10
Trade name—finite-lived	260			7
Brand name—finite-lived	250			1.7
Accounts payable	(833		)
Other liabilities	(182		)
Total consideration, net of cash acquired	$	15,053



	Closing Date through December 31, 2017
(In thousands)
Net sales	$	26,290
Income before taxes	$	511


Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded		Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)	Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded	Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2017	15,445		29.79	0.9	467
Outstanding and nonvested at June 30, 2023						Outstanding and nonvested at June 30, 2023	882,554	6.14
Granted	13,110		33.88	1.7	444	Granted	62,651	2.79
Vested/Released	(7,934	)	32.77	—	272	Vested/Released	(164,211)	6.93
Cancelled/Forfeited	(3,390	)	25.57	—	—	Cancelled/Forfeited	(216,715)	6.69
Outstanding and nonvested at December 31, 2017	17,231		32.35	1.6	554
Expected to vest at December 31, 2017	16,411		32.32	1.5	528
Outstanding and nonvested at September 30, 2023						Outstanding and nonvested at September 30, 2023	564,279	5.31



Outstanding and Nonvested PBRSUs:	PBRSUs Awarded	Weighted Average Grant Date Fair Value ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding and nonvested at June 30, 2017	—	—	—	—
Granted(1)	37,414	31.70	—	1,186
Vested/Released	—	—	—	—
Cancelled/Forfeited	—	—	—	—
Outstanding and nonvested at December 31, 2017	37,414	31.70	2.9	1,203
Expected to vest at December 31, 2017	32,495	31.70	2.9	1,045



Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations



(In millions)	Three Months Ended December 31, 2017 vs. 2016			Six Months Ended December 31, 2017 vs. 2016
Effect of change in unit sales	$	29.7		$	18.9
Effect of pricing and product mix changes	(1.3		)	10.7
Total increase in net sales	$	28.4		$	29.6



	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands, except per share data)	2017			2016			2017			2016
Net (loss) income, as reported	$	(18,768	)	$	20,076		$	(19,746	)	$	21,694
Restructuring and other transition expenses	139			3,965			259			6,995
Net gain from sale of Torrance Facility	—			(37,449		)	—			(37,449		)
Net gains from sale of spice assets	(395		)	(334		)	(545		)	(492		)
Net losses (gains) from sales of other assets	91			114			144			(1,439		)
Non-recurring 2016 proxy contest-related expenses	—			3,719			—			4,990
Interest expense on sale-leaseback financing obligation	—			371			—			681
Acquisition and integration costs	972			—			3,382			—
Income tax (benefit) expense on non-GAAP adjustments	(258		)	11,549			(1,037		)	10,418
Non-GAAP net (loss) income	$	(18,219	)	$	2,011		$	(17,543	)	$	5,398

Net (loss) income per common share—diluted, as reported	$	(1.12	)	$	1.20		$	(1.18	)	$	1.30
Impact of restructuring and other transition expenses	$	0.01		$	0.24		$	0.02		$	0.42
Impact of net gain from sale of Torrance Facility	$	—		$	(2.24	)	$	—		$	(2.24	)
Impact of net gains from sale of spice assets	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.03	)
Impact of net losses (gains) from sales of other assets	$	0.01		$	0.01		$	0.01		$	(0.09	)
Impact of non-recurring 2016 proxy contest-related expenses	$	—		$	0.22		$	—		$	0.30
Impact of interest expense on sale-leaseback financing obligation	$	—		$	0.02		$	—		$	0.04
Impact of acquisition and integration costs	$	0.06		$	—		$	0.20		$	—
Impact of income tax (benefit) expense on non-GAAP adjustments	$	(0.02	)	$	0.69		$	(0.06	)	$	0.62
Non-GAAP net (loss) income per diluted common share	$	(1.09	)	$	0.12		$	(1.05	)	$	0.32



	Expenditures Incurred						Budget
(In thousands)	Six Months Ended December 31, 2017		Through Fiscal Year Ended June 30, 2017		Total		Lower bound		Upper bound
Building and facilities, including land	$	—	$	60,770	$	60,770	$	55,000	$	60,000
Machinery and equipment; furniture and fixtures	—		33,241		$	33,241	35,000		39,000
Total	$	—	$	94,011	$	94,011	$	90,000	$	99,000