UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September 30,~~December 31, 2021


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

For the transition period from to

Commission file number: 001-34249

FARMER BROS. CO.

(Exact Name of Registrant as Specified in Its Charter)


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

~~888-301-0489~~682-549-6600
(Registrant’s Telephone Number, Including Area Code)

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share	FARM	Nasdaq Global Select Market

None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the

Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☒

As of ~~October~~January 25, ~~2021,~~2022, the registrant had ~~18,081,234~~18,300,855 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 ~~September~~ 30~~, 202~~1 December 31, 2021 and June 30, ~~202~~20211			1

~~Condensed~~ Consolidated Statements of Operations for the Three and Six Months Ended ~~September~~ 3 0 ~~, 202~~1 December 31, 2021 and 20 202020			2

~~Condensed~~ Consolidated Statements of Comprehensive ~~Income (~~Loss ) for the Three and Six Months Ended ~~September~~ 30~~, 202~~1 December 31, 2021 and 20 2 02020			3

~~Condensed~~ Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended ~~September~~ 30~~, 202~~1 December 31, 2021 and 20 202020			4

~~Condensed~~ Consolidated Statements of Cash Flows for the Three and Six Months Ended ~~September~~ 30~~, 202~~1 December 31, 2021 and 20 202020			6

Notes to ~~Condensed~~ Consolidated Financial Statements			87

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3526

Item 3. Quantitative and Qualitative Disclosures About Market Risk			5037

Item 4. Controls and Procedures			5138

PART II – OTHER INFORMATION

Item 1. Legal Proceedings			5238

Item 1A. Risk Factors			5238

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5238

Item 3. Defaults Upon Senior Securities			5238

Item 4. Mine Safety Disclosures			5238

Item 5. Other Information			5238

Item 6. Exhibits			5339

SIGNATURES			5440

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, 2021		June 30, 2021			December 31, 2021		June 30, 2021

ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	6,014	$	10,263	Cash and cash equivalents	$	3,624	$	10,263
Restricted cash	Restricted cash	175		175		Restricted cash	175		175
Accounts receivable, net of allowance for doubtful accounts of $334 and $325, respectively		43,377		40,321
Accounts receivable, net of allowance for doubtful accounts of $356 and $325, respectively						Accounts receivable, net of allowance for doubtful accounts of $356 and $325, respectively	48,478		40,321
Inventories	Inventories	83,862		76,791		Inventories	87,221		76,791

Short-term derivative assets	Short-term derivative assets	8,798		4,351		Short-term derivative assets	10,021		4,351
Prepaid expenses	Prepaid expenses	6,024		5,594		Prepaid expenses	4,241		5,594
Assets held for sale	Assets held for sale	90		1,591		Assets held for sale	—		1,591
Total current assets	Total current assets	148,340		139,086		Total current assets	153,760		139,086
Property, plant and equipment, net	Property, plant and equipment, net	146,703		150,091		Property, plant and equipment, net	144,356		150,091
Intangible assets, net	Intangible assets, net	17,649		18,252		Intangible assets, net	17,050		18,252
Right-of-use operating lease assets	Right-of-use operating lease assets	29,133		26,254		Right-of-use operating lease assets	28,221		26,254
Other assets	Other assets	3,911		4,323		Other assets	3,271		4,323
Total assets	Total assets	$	345,736	$	338,006	Total assets	$	346,658	$	338,006
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	52,816		45,703		Accounts payable	54,346		45,703
Accrued payroll expenses	Accrued payroll expenses	10,749		15,345		Accrued payroll expenses	13,797		15,345
Operating leases liabilities - current		6,908		6,262
Operating lease liabilities - current						Operating lease liabilities - current	6,999		6,262
Term loan - current	Term loan - current	1,900		950		Term loan - current	2,850		950
Short-term derivative liabilities	Short-term derivative liabilities	1,730		1,555		Short-term derivative liabilities	2,144		1,555
Other current liabilities	Other current liabilities	7,717		6,425		Other current liabilities	8,039		6,425
Total current liabilities	Total current liabilities	81,820		76,240		Total current liabilities	88,175		76,240
Long-term borrowings under revolving credit facility	Long-term borrowings under revolving credit facility	41,500		43,500		Long-term borrowings under revolving credit facility	43,500		43,500
Term loan - noncurrent	Term loan - noncurrent	43,432		44,328		Term loan - noncurrent	42,624		44,328
Accrued pension liabilities	Accrued pension liabilities	39,179		39,229		Accrued pension liabilities	38,563		39,229
Accrued postretirement benefits	Accrued postretirement benefits	958		960		Accrued postretirement benefits	967		960
Accrued workers’ compensation liabilities	Accrued workers’ compensation liabilities	3,649		3,649		Accrued workers’ compensation liabilities	3,381		3,649
Operating lease liabilities - noncurrent	Operating lease liabilities - noncurrent	22,455		20,049		Operating lease liabilities - noncurrent	21,605		20,049
Other long-term liabilities	Other long-term liabilities	4,710		5,092		Other long-term liabilities	2,533		5,092
Total liabilities	Total liabilities	$	237,703	$	233,047	Total liabilities	$	241,348	$	233,047
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Stockholders’ equity:	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 shares issued and outstanding as of September 30, 2021 and June 30, 2021; liquidation preference of $16,899 and $16,752 as of September 30, 2021 and June 30, 2021, respectively		15		15
Common stock, $1.00 par value, 25,000,000 shares authorized; 17,998,797 and 17,852,793 shares issued and outstanding as of September 30, 2021 and June 30, 2021, respectively		17,999		17,853
Preferred stock, $1.00 par value, 500,000 shares authorized; Series A Convertible Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; 14,700 shares issued and outstanding as of December 31, 2021 and June 30, 2021; liquidation preference of $17,047 and $16,752 as of December 31, 2021 and June 30, 2021, respectively						Preferred stock, $1.00 par value, 500,000 shares authorized; Series A Convertible Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; 14,700 shares issued and outstanding as of December 31, 2021 and June 30, 2021; liquidation preference of $17,047 and $16,752 as of December 31, 2021 and June 30, 2021, respectively	15		15
Common stock, $1.00 par value, 50,000,000 and 25,000,000 shares authorized as of December 31, 2021 and June 30, 2021, respectively; 18,210,526 and 17,852,793 shares issued and outstanding as of December 31, 2021 and June 30, 2021, respectively						Common stock, $1.00 par value, 50,000,000 and 25,000,000 shares authorized as of December 31, 2021 and June 30, 2021, respectively; 18,210,526 and 17,852,793 shares issued and outstanding as of December 31, 2021 and June 30, 2021, respectively	18,212		17,853
Additional paid-in capital	Additional paid-in capital	67,355		66,109		Additional paid-in capital	68,259		66,109
Retained earnings	Retained earnings	63,740		66,311		Retained earnings	58,172		66,311

Accumulated other comprehensive loss	Accumulated other comprehensive loss	(41,076)		(45,329)		Accumulated other comprehensive loss	(39,348)		(45,329)
Total stockholders’ equity	Total stockholders’ equity	$	108,033	$	104,959	Total stockholders’ equity	$	105,310	$	104,959
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	345,736	$	338,006	Total liabilities and stockholders’ equity	$	346,658	$	338,006

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 September 30,				Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020				2021		2020		2021		2020
Net sales	Net sales	$	108,362	$	97,270		Net sales	$	118,445	$	104,571	$	226,807	$	201,841
Cost of goods sold	Cost of goods sold	76,908		74,851			Cost of goods sold	83,451		78,321		160,359		153,173
Gross profit	Gross profit	31,454		22,419			Gross profit	34,994		26,250		66,448		48,668
Selling expenses	Selling expenses	26,009		23,498			Selling expenses	28,019		24,769		54,028		48,268
General and administrative expenses	General and administrative expenses	11,807		9,746			General and administrative expenses	11,394		11,570		23,201		21,316
Net (gains) losses from sales of assets	Net (gains) losses from sales of assets	(4,582)		618			Net (gains) losses from sales of assets	153		(1,168)		(4,429)		(549)
Impairment of fixed assets							Impairment of fixed assets	—		1,243		—		1,243
Operating expenses	Operating expenses	33,234		33,862			Operating expenses	39,566		36,414		72,800		70,278
Loss from operations	Loss from operations	(1,780)		(11,443)			Loss from operations	(4,572)		(10,164)		(6,352)		(21,610)
Other (expense) income:	Other (expense) income:						Other (expense) income:
Interest expense	Interest expense	(3,026)		(3,244)			Interest expense	(2,489)		(2,938)		(5,515)		(6,181)
Other, net	Other, net	2,444		8,559			Other, net	1,767		9,080		4,211		17,639
Total other (expense) income	Total other (expense) income	(582)		5,315			Total other (expense) income	(722)		6,142		(1,304)		11,458
Loss before taxes	Loss before taxes	(2,362)		(6,128)			Loss before taxes	(5,294)		(4,022)		(7,656)		(10,152)
Income tax expense	Income tax expense	62		142			Income tax expense	126		13,703		188		13,845
Net loss	Net loss	(2,424)		(6,270)			Net loss	$	(5,420)	$	(17,725)	$	(7,844)	$	(23,997)
Less: Cumulative preferred dividends, undeclared and unpaid	Less: Cumulative preferred dividends, undeclared and unpaid	147		142			Less: Cumulative preferred dividends, undeclared and unpaid	148		143		295		284
Net loss available to common stockholders	Net loss available to common stockholders	$	(2,571)	$	(6,412)		Net loss available to common stockholders	$	(5,568)	$	(17,868)	$	(8,139)	$	(24,281)
Net loss available to common stockholders per common share—basic	Net loss available to common stockholders per common share—basic	$	(0.14)	$	(0.37)		Net loss available to common stockholders per common share—basic	$	(0.31)	$	(1.02)	$	(0.45)	$	(1.39)
Net loss available to common stockholders per common share—diluted	Net loss available to common stockholders per common share—diluted	$	(0.14)	$	(0.37)		Net loss available to common stockholders per common share—diluted	$	(0.31)	$	(1.02)	$	(0.45)	$	(1.39)
Weighted average common shares outstanding—basic	Weighted average common shares outstanding—basic	17,969,694		17,420,442			Weighted average common shares outstanding—basic	18,106,151		17,531,521		18,034,658		17,477,268
Weighted average common shares outstanding—diluted	Weighted average common shares outstanding—diluted	17,969,694		17,420,442			Weighted average common shares outstanding—diluted	18,106,151		17,531,521		18,034,658		17,477,268

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

FARMER BROS. CO.

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

(In thousands)


		Three Months Ended September 30,				Three Months Ended December 31,				Six Months Ended December 31,
		2021		2020				2021		2020		2021		2020
Net loss	Net loss	$	(2,424)	$	(6,270)		Net loss	$	(5,420)	$	(17,725)	$	(7,844)	$	(23,997)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:						Other comprehensive income (loss), net of tax:
Unrealized gains on derivative instruments designated as cash flow hedges, net of tax	Unrealized gains on derivative instruments designated as cash flow hedges, net of tax	5,859		3,961			Unrealized gains on derivative instruments designated as cash flow hedges, net of tax	5,132		3,367		10,991		7,327
(Gains) on derivative instruments designated as cash flow hedges reclassified to cost of goods sold, net of tax		(1,920)		(28)
Gains on derivative instruments designated as cash flow hedges reclassified to cost of goods sold, net of tax							Gains on derivative instruments designated as cash flow hedges reclassified to cost of goods sold, net of tax	(3,712)		(232)		(5,632)		(260)
Losses on derivative instruments de-designated as cash flow hedges reclassified to interest expense, net of tax	Losses on derivative instruments de-designated as cash flow hedges reclassified to interest expense, net of tax	314		339			Losses on derivative instruments de-designated as cash flow hedges reclassified to interest expense, net of tax	308		320		622		659
Change in pension and retiree benefit obligations, net of tax	Change in pension and retiree benefit obligations, net of tax	—		(7,289)			Change in pension and retiree benefit obligations, net of tax	—		6,184		—		(1,105)

Total comprehensive income (loss), net of tax		$	1,829	$	(9,287)
Total comprehensive loss, net of tax							Total comprehensive loss, net of tax	$	(3,692)	$	(8,086)	$	(1,863)	$	(17,376)

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

FARMER BROS. CO.
CONDENSED 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
Income (Loss) Total
Balance at June 30, 2021 14,700 15 17,852,793 17,853 66,109 66,311 (45,329) 104,959
Net income — — — — — (2,424) — (2,424)
Cash flow hedges, net of taxes — — — — — — 4,253 4,253
Non-cash issuance of 401-k common stock — — 51,597 52 619 — — 671
Share-based compensation — — — — 721 — — 721
Issuance of common stock and stock option exercises — — 94,407 94 (94) — — —
Cumulative preferred dividends, undeclared and unpaid — — — — — (147) — (147)
Balance at September 30, 2021 14,700 15 17,998,797 17,999 67,355 63,740 (41,076) 108,033


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 Income (Loss)	Total
Balance at June 30, 2021	14,700	15	17,852,793	17,853	66,109	66,311	(45,329)	104,959
Net loss	—	—	—	—	—	(2,424)	—	(2,424)
Net reclassification of gain (loss) on cash flow hedges	—	—	—	—	—	—	4,253	4,253


ESOP compensation expense, including reclassifications	—	—	51,597	52	619	—	—	671
Share-based compensation	—	—	—	—	721	—	—	721
Issuance of common stock and Stock option exercises	—	—	94,407	94	(94)	—	—	—
Cumulative preferred dividends, undeclared and unpaid	—	—	—	—	—	(147)	—	(147)
Balance at September 30, 2021	14,700	15	17,998,797	17,999	67,355	63,740	(41,076)	108,033
Net loss	—	—	—	—	—	(5,420)	—	(5,420)
Net reclassification of gain (loss) on cash flow hedges	—	—	—	—	—	—	1,728	1,728


ESOP compensation expense, including reclassifications	—	—	82,437	84	664	—	—	748
Share-based compensation	—	—	—	—	858	—	—	858
Issuance of common stock and stock option exercises, net of shares withheld for taxes	—	—	129,292	129	(618)	—	—	(489)
Cumulative preferred dividends, undeclared and unpaid	—	—	—	—	—	(148)	—	(148)
Balance at December 31, 2021	14,700	15	18,210,526	18,212	68,259	58,172	(39,348)	105,310

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


FARMER BROS. CO. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Continued) (In thousands, except share and per share data)
FARMER BROS. CO. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Continued) (In thousands, except share and per share data)											FARMER BROS. CO. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Continued) (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 Income (Loss)	Total			Preferred Shares	Preferred Stock Amount	Common Shares	Common Stock Amount	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Balance at June 30, 2020	Balance at June 30, 2020	14,700	15	17,347,774	17,348	62,043	108,536	(76,029)	$	111,913	Balance at June 30, 2020	14,700	15	17,347,774	17,348	62,043	108,536	(76,029)	111,913
Net loss	Net loss	—	—	—	—	—	(6,270)	—	(6,270)		Net loss	—	—	—	—	—	(6,270)	—	(6,270)
Cash flow hedges, net of taxes		—	—	—	—	—	—	4,271	4,271
Net reclassification of gain (loss) on cash flow hedges											Net reclassification of gain (loss) on cash flow hedges	—	—	—	—	—	—	4,271	4,271

Change in the funded status of retiree benefit obligations, net of taxes	Change in the funded status of retiree benefit obligations, net of taxes	—	—	—	—	—	—	(7,289)	(7,289)		Change in the funded status of retiree benefit obligations, net of taxes	—	—	—	—	—	—	(7,289)	(7,289)
Non-cash issuance of 401-k common stock		—	—	76,671	77	323	—	—	400
ESOP compensation expense, including reclassifications											ESOP compensation expense, including reclassifications	—	—	76,671	77	323	—	—	400
Share-based compensation	Share-based compensation	—	—	—	—	745	—	—	745		Share-based compensation	—	—	—	—	745	—	—	745
Issuance of common stock and stock option exercises		—	—	7,370	7	(7)	—	—	—
Issuance of common stock and Stock option exercises											Issuance of common stock and Stock option exercises	—	—	7,370	7	(7)	—	—	—
Cumulative preferred dividends, undeclared and unpaid	Cumulative preferred dividends, undeclared and unpaid	—	—	—	—	—	(142)	—	(142)		Cumulative preferred dividends, undeclared and unpaid	—	—	—	—	—	(142)	—	(142)
Balance at September 30, 2020	Balance at September 30, 2020	14,700	15	17,431,815	17,432	63,104	102,124	(79,047)	103,628		Balance at September 30, 2020	14,700	15	17,431,815	17,432	63,104	102,124	(79,047)	103,628
Net loss											Net loss	—	—	—	—	—	(17,725)	—	(17,725)
Net reclassification of gain (loss) on cash flow hedges											Net reclassification of gain (loss) on cash flow hedges	—	—	—	—	—	—	3,455	3,455

Change in the funded status of retiree benefit obligations, net of taxes											Change in the funded status of retiree benefit obligations, net of taxes	—	—	—	—	—	—	6,184	6,184
ESOP compensation expense, including reclassifications											ESOP compensation expense, including reclassifications	—	—	108,426	108	287	—	—	395
Share-based compensation											Share-based compensation	—	—	—	—	399	—	—	399
Issuance of common stock and Stock option exercises											Issuance of common stock and Stock option exercises	—	—	50,843	51	(51)	—	—	—
Cumulative preferred dividends, undeclared and unpaid											Cumulative preferred dividends, undeclared and unpaid	—	—	—	—	—	(143)	—	(143)
Balance at December 31, 2020											Balance at December 31, 2020	14,700	15	17,591,084	17,591	63,739	84,256	(69,408)	96,193

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


FARMER BROS. CO.	FARMER BROS. CO.					FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)						CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)	(In thousands)					(In thousands)
		Three Months Ended September 30,					Six Months Ended December 31,
		2021		2020			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(2,424)	$	(6,270)	Net loss	$	(7,844)	$	(23,997)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	6,279		7,041		Depreciation and amortization	12,328		14,349
Net (gains) losses from sales of assets		(4,582)		618
Net (gains) losses on derivative instruments		(3,192)		807
Impairment of fixed assets						Impairment of fixed assets	—		1,243
Postretirement Medical benefits gains						Postretirement Medical benefits gains	—		(14,577)
Deferred income taxes						Deferred income taxes	—		13,472
Net gains from sales of assets						Net gains from sales of assets	(4,429)		(549)
Net gains on derivative instruments						Net gains on derivative instruments	(7,952)		(2,093)
Other adjustments	Other adjustments	1,497		958000		Other adjustments	2,808		1,776
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Accounts receivable	Accounts receivable	(3,160)		(1,046)		Accounts receivable	(8,458)		(818)
Inventories	Inventories	(7,753)		(4,321)		Inventories	(11,634)		(13,209)
Derivative assets (liabilities), net		2,946		(7,553)
Derivative assets, net						Derivative assets, net	8,201		1,761
Other assets	Other assets	(19)		1,181		Other assets	2,273		2,418
Accounts payable	Accounts payable	6,863		12,880		Accounts payable	8,237		12,430
Accrued expenses and other	Accrued expenses and other	(3,190)		4,690		Accrued expenses and other	(2,125)		3,971
Net cash (used) provided by operating activities		$	(6,735)	$	8,985
Net cash used in operating activities						Net cash used in operating activities	$	(8,595)	$	(3,823)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(2,542)		(4,366)		Purchases of property, plant and equipment	(5,887)		(9,636)
Proceeds from sales of property, plant and equipment	Proceeds from sales of property, plant and equipment	7,297		226		Proceeds from sales of property, plant and equipment	8,175		1,926
Net cash provided (used) in investing activities		$	4,755	$	(4,140)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	$	2,288	$	(7,710)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from Credit Facilities	Proceeds from Credit Facilities	$	2,000	$	3,000	Proceeds from Credit Facilities	4,000		21,150
Repayments on Credit Facilities	Repayments on Credit Facilities	(4,000)		(55,200)		Repayments on Credit Facilities	(4,000)		(61,150)
Payments of finance lease obligations	Payments of finance lease obligations	(48)		(9)		Payments of finance lease obligations	(23)		(9)
Payment of financing costs	Payment of financing costs	(221)		(1,624)		Payment of financing costs	(309)		(2,614)
Net cash used in financing activities	Net cash used in financing activities	$	(2,269)	$	(53,833)	Net cash used in financing activities	$	(332)	$	(42,623)
Net decrease in cash and cash equivalents and restricted cash	Net decrease in cash and cash equivalents and restricted cash	$	(4,249)	$	(48,988)	Net decrease in cash and cash equivalents and restricted cash	(6,639)		(54,156)
Cash and cash equivalents and restricted cash at beginning of period	Cash and cash equivalents and restricted cash at beginning of period	10,438		60,013		Cash and cash equivalents and restricted cash at beginning of period	10,438		60,013
Cash and cash equivalents and restricted cash at end of period	Cash and cash equivalents and restricted cash at end of period	$	6,189	$	11,025	Cash and cash equivalents and restricted cash at end of period	$	3,799	$	5,857







Supplemental disclosure of non-cash investing and financing activities:


Non-cash additions to property, plant and equipment	$	406	$	380






Non-cash issuance of 401-K common stock	$	134	$	185



Cumulative preferred dividends, undeclared and unpaid	$	295	$	284

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

statemen
ts.

FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - (continued)
(In thousands)
Three Months Ended September 30,
2021 2020
Supplemental disclosure of non-cash investing and financing activities:
    Non-cash additions to property, plant and equipment $ 250 $ 171
    Non-cash issuance of 401-K common stock $ 52 $ 77
    Cumulative preferred dividends, undeclared and unpaid $ 147 $ 142

~~The accompanying notes are an integral part of these unaudited condensed 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”), is a national coffee roaster, wholesaler and distributor of coffee, tea, and culinary products manufactured under our owned brands, as well as under private labels on behalf of certain ~~customers..~~customers.

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 considered necessary for a fair presentation of the interim financial data have been included. Operating results for the three and six months ended ~~September 30,~~December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022. Events occurring subsequent to ~~September 30,~~December 31, 2021 have been evaluated for potential recognition or disclosure in the unaudited ~~condensed~~ consolidated financial statements for the three and six months ended ~~September 30,~~December 31, 2021.

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, 2021, filed with the Securities and Exchange Commission (the “SEC”) on September 9,10, 2021 (the “2021 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 and, the parent company of Coffee Bean International, Inc., an Oregon corporation, ~~(“CBI”),~~ China Mist Brands, Inc., a Delaware corporation, and Boyd Assets Co., a Delaware corporation. All ~~inter-company~~intercompany balances and transactions have been eliminated.

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.

~~Farmer Bros. Co.~~

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

Note 2. Summary of Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies, see Note 2, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements in the 2021 Form 10-K.

During the three and six months ended ~~September 30,~~December 31, 2021, there were no significant updates made to the Company’s significant accounting policies.

Concentration of Credit Risk

At ~~September 30,~~December 31, 2021 and June 30, 2021, the financial instruments which potentially expose the Company to concentration of credit risk consist of cash in financial institutions (in excess of federally insured limits), derivative instruments and trade receivables.

The Company does not have any credit-risk related contingent features that would require it to post additional collateral in support of its net derivative asset positions. At ~~September 30,~~December 31, 2021 and June 30, 2021, none of the cash in the Company’s coffee-related derivative margin accounts was restricted. Further changes in commodity prices and the number of coffee-related derivative instruments held could have a significant impact on cash deposit requirements under certain of the Company's broker and counterparty agreements.

Approximately ~~40%~~44% and 31% of the Company’s trade accounts receivable balance was with five customers at ~~September 30,~~December 31, 2021 and June 30, 2021, respectively. The Company estimates its maximum credit risk for accounts

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

receivable at the amount recorded on the balance sheet. The trade accounts receivables are generally short-term and all estimated credit losses have been appropriately considered in establishing the allowance for doubtful accounts.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (the “FASB”). ASUs not listed below were assessed and either determined to be not applicable or expected to have minimal impact on its ~~condensed~~ consolidated financial statements.

The following table provides a brief description of the recent ASUs applicable to the 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 set to expire at the end of 2021. Contracts affected by the rate change would be required to be modified. Under current U.S. GAAP, those modifications would have to be evaluated to determine whether they result in new contracts or continuation of 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, 2022.

The Company is currently evaluating the impact ASU 2020-04 will have on its consolidated financial statements.

~~Farmer Bros. Co.~~

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

Note 3. Leases

The Company has entered into leases for building facilities, vehicles and other equipment. The Company’s leases have remaining contractual terms through September 30, 2028, some of which have options to extend the lease for up to 10 years. For purposes of calculating operating lease liabilities, lease terms are deemed not to include options to extend the lease renewal until it is reasonably certain that the Company will exercise that option. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental unaudited consolidated balance sheet information related to leases is as follows:

Classification September 30, 2021 June 30, 2021
(In thousands)
Operating lease assets Right-of-use operating lease assets $ 29,133 26,254
Finance lease assets Property, plant and equipment, net 697 739
Total lease assets $ 29,830 $ 26,993

Operating lease liabilities - current Operating lease liabilities - current 6,908 6,262
Finance lease liabilities - current Other current liabilities 193 192
Operating lease liabilities - noncurrent Operating lease liabilities - noncurrent 22,455 20,049
Finance lease liabilities -noncurrent Other long-term liabilities 521 563
Total lease liabilities $ 30,077 $ 27,066


(In thousands)	Classification	December 31, 2021		June 30, 2021
Operating lease assets	Right-of-use operating lease assets	$	28,221	$	26,254
Finance lease assets	Property, plant and equipment, net	656		739
Total lease assets		$	28,877	$	26,993

Operating lease liabilities - current	Operating lease liabilities - current	6,999		6,262
Finance lease liabilities - current	Other current liabilities	193		192
Operating lease liabilities - noncurrent	Operating lease liabilities - noncurrent	21,605		20,049
Finance lease liabilities -noncurrent	Other long-term liabilities	484		563
Total lease liabilities		$	29,281	$	27,066

The components of lease expense are as follows:


			Three Months Ended September 30,
		Classification	2021		2020				Three Months Ended December 31,				Six Months Ended December 31,
(In thousands)	(In thousands)						(In thousands)	Classification	2021		2020		2021		2020

Operating lease expense	Operating lease expense	General and administrative expenses and cost of goods sold	$	1,782	$	1,625	Operating lease expense	General and administrative expenses and cost of goods sold	$	1,888	$	1,953	$	3,670	$	3,578
Finance lease expense:	Finance lease expense:						Finance lease expense:
Amortization of finance lease assets	Amortization of finance lease assets	General and administrative expenses	41		9		Amortization of finance lease assets	General and administrative expenses	41		—		82		9
Interest on finance lease liabilities	Interest on finance lease liabilities	Interest expense	12		—		Interest on finance lease liabilities	Interest expense	11		—		23		—
Total lease expense	Total lease expense		$	1,835	$	1,634	Total lease expense		$	1,940	$	1,953	$	3,775	$	3,587

108

Farmer Bros. Co.

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

Maturities of lease liabilities are as follows:


		September 30, 2021					December 31, 2021
(In thousands)	(In thousands)	Operating Leases		Finance Leases		(In thousands)	Operating Leases		Finance Leases

2022	2022	$	5,195	$	144	2022	$	3,516	$	96
2023	2023	$	6,751	$	193	2023	6,890		193
2024	2024	$	6,482	$	193	2024	6,624		193
2025	2025	$	5,293	$	193	2025	5,432		193
2026	2026	$	4,189	$	96	2026	4,325		96
Thereafter	Thereafter	$	6,476	$	—	Thereafter	6,559		—
Total lease payments	Total lease payments	$	34,386	$	819	Total lease payments	33,346		771
Less: interest	Less: interest	$	(5,023)	$	(105)	Less: interest	(4,742)		(94)
Total lease obligations	Total lease obligations	$	29,363	$	714	Total lease obligations	$	28,604	$	677

Lease term and discount rate:


		September 30, 2021		June 30, 2021			December 31, 2021		June 30, 2021
Weighted-average remaining lease terms (in years):	Weighted-average remaining lease terms (in years):					Weighted-average remaining lease terms (in years):
Operating lease	Operating lease	7.0		7.3		Operating lease	6.8		7.3
Finance lease	Finance lease	4.3		4.5		Finance lease	4.0		4.5

Weighted-average discount rate:	Weighted-average discount rate:					Weighted-average discount rate:
Operating lease	Operating lease	5.58	%	5.23	%	Operating lease	5.61	%	5.23	%
Finance lease	Finance lease	6.50	%	6.50	%	Finance lease	6.50	%	6.50	%

Other Information:

Three Months Ended September 30,
(In thousands) 2021 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 1,615 $ 1,593
Operating cash flows from finance leases $ 41 $ —
Financing cash flows from finance leases $ 12 $ 9


	Six Months Ended December 31,
(In thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,351	$	3,835
Operating cash flows from finance leases	73		—
Financing cash flows from finance leases	23		9

~~Farmer Bros. Co.~~

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

Note 4. 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 2021 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 ~~September 30,~~December 31, 2021 and June 30, 2021:

(In thousands)

September 30, 2021

June 30, 2021

(In thousands)

December 31, 2021

June 30, 2021

Derivative instruments designated as cash flow hedges:

Long coffee pounds

16,369

14,625

Long coffee pounds

14,663

14,625

Derivative instruments not designated as cash flow hedges:

Long coffee pounds

4,130

6,886

Long coffee pounds

2,921

6,886

Total

20,499

21,511

Total

17,584

21,511

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

Coffee-related derivative instruments designated as cash flow hedges outstanding as of ~~September 30,~~December 31, 2021 will expire within 15 months. At ~~September 30,~~December 31, 2021 and June 30, 2021 approximately ~~80%~~83% and 68%, 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 “Rate Swap”). In December 2019, the Company amended the notional amount to $65.0 million. The Rate Swap is intended to manage the Company’s interest rate risk on its floating-rate indebtedness under the Company’s revolving credit facility. Under the terms of the Rate Swap, the Company receives 1-month LIBOR, subject to a 0% floor, and makes payments based on a fixed rate of 2.1975%.

The Company had designated the Rate Swap derivative instrument as a cash flow hedge; however, during the three months ended September 30, 2020, the Company de-designated the Rate Swap derivative instrument. As a result, the balance in ~~AOCI~~accumulated other comprehensive income, or “AOCI” was frozen at the time of de-designation. The Company recognized $0.3 million and $0.6 million, respectively, out of AOCI and into interest expense for the three and six months ended ~~September 30,~~December 31, 2021. The remaining balance of ~~$2.2~~$2.0 million frozen in AOCI will be amortized over the life of the Rate Swap through October 11, 2023.

In connection with a new revolver credit facility agreement in April 2021 (see Note 11 for details), the Company also executed a new ISDA agreement (the “Amended Rate Swap”) to transfer its interest swap to Wells Fargo ~~(the “Amended Rate Swap”~~Bank, N.A. (“Wells Fargo”). Under the terms of the Amended Rate Swap, the Company receives 1-month LIBOR, subject to a 0% floor, and makes payments based on a fixed rate of 2.4725%, an increase of 0.275% from its original Rate Swap fixed rate of 2.1975%. The Amended Rate Swap utilizes the same notional amount of $65.0 million and maturity date of October 11, 2023 as the original interest rate swap.

The Company did not designate the Amended Rate Swap as a cash flow hedge. The Company’s obligations under the Amended Rate Swap are secured by the collateral which secures the loans under the new Revolver Credit Facility (see Note 11 for details) on a pari passu and pro rata basis with the principal of such loans.

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the Company’s consolidated balance sheets:


	Derivative Instruments Designated as Cash Flow Hedges				Derivative Instruments Not Designated as Accounting Hedges
(In thousands)	December 31, 2021		June 30, 2021		December 31, 2021		June 30, 2021
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments	$	8,783	$	3,823	$	1,238	$	528
Long-term derivative assets:



Coffee-related derivative instruments (1)	—		292		—		—
Short-term derivative liabilities:
Coffee-related derivative instruments	25		20		788		3

Interest rate swap derivative instruments	—		—		1,331		1,532
Long-term derivative liabilities:
Coffee-related derivative instruments (2)	—		—		—		—
Interest rate swap derivative instruments (2)	—		—		710		1,653

________________

(1) Included in “Other assets” on the Company's consolidated balance sheets.

(2) Included in “Other long-term liabilities” on the Company's consolidated balance sheets.

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:~~

Derivative Instruments
Designated as Cash Flow Hedges Derivative Instruments Not Designated as Accounting Hedges
September 30, 2021 June 30, 2021 September 30, 2021 June 30, 2021
(In thousands)
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments(1) $ 7,000 $ 3,823 $ 1,798 $ 528
Long-term derivative assets:
Coffee-related derivative instruments (2) $ 192 $ 292 $ — $ —
Short-term derivative liabilities:
Coffee-related derivative instruments $ 68 $ 20 $ 143 $ 3
Interest rate swap derivative instruments $ — $ — $ 1,518 $ 1,532
Long-term derivative liabilities:
Coffee-related derivative instruments (3) $ 10 $ — $ — $ —
Interest rate swap derivative instruments (3) $ — $ — $ 1,316 $ 1,653

~~________________~~

~~(1) Included in “Short-term derivative assets” on the Company’s condensed consolidated balance sheets.~~

~~(2) Included in “Other assets” on the Company's condensed consolidated balance sheets.~~

~~(3) Included in “Other long-term liabilities” on the Company's condensed consolidated balance sheets.~~

Statements of Operations

The following table presents pretax net gains and losses for the Company's derivative instruments designated as cash flow hedges, as recognized in “AOCI,” “Cost of goods sold” and “Other, net”.


		Three Months Ended September 30,				Financial Statement Classification		Three Months Ended December 31,						Six Months Ended December 31,					Financial Statement Classification
(In thousands)	(In thousands)	2021		2020			(In thousands)			2021			2020			2021					Financial Statement Classification
Net losses recognized in AOCI - Interest rate swap	Net losses recognized in AOCI - Interest rate swap	$	—	$	(304)		AOCI		Net losses recognized in AOCI - Interest rate swap		$	—		$	—		$	—	$	(304)
Net (losses) recognized from AOCI to earnings - Interest rate swap		$	—	$	(336)		Interest Expense
Net losses recognized from AOCI to earnings - Interest rate swap									Net losses recognized from AOCI to earnings - Interest rate swap		(4)			(9)			(4)		(344)			Interest Expense
Net losses reclassified from AOCI to earnings for de-designated Interest rate swap	Net losses reclassified from AOCI to earnings for de-designated Interest rate swap	$	(314)	$	(339)		Interest Expense		Net losses reclassified from AOCI to earnings for de-designated Interest rate swap		(304)			(320)			(618)		(659)			Interest Expense
Net gains (losses) recognized in AOCI - Coffee-related	Net gains (losses) recognized in AOCI - Coffee-related	$	5,859	$	4,265		AOCI		Net gains (losses) recognized in AOCI - Coffee-related		5,132			3,101			10,991		7,366			AOCI
Net gains (losses) recognized in earnings - Coffee - related	Net gains (losses) recognized in earnings - Coffee - related	$	1,920	$	364		Cost of goods sold		Net gains (losses) recognized in earnings - Coffee - related		3,712			240			5,632		604			Cost of goods sold

For the three and six months ended ~~September 30,~~December 31, 2021 and 2020, there were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness.

Net (gains) losses on derivative instruments in the Company’s ~~condensed~~ consolidated statements of cash flows also include net (gains) losses on coffee-related derivative instruments designated as cash flow hedges reclassified to cost of goods sold from AOCI in the three months ended ~~September 30,~~December 31, 2021 and 2020. 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 of operations and in Net (gains) losses on derivative instruments in the Company’s ~~condensed~~ consolidated statements of 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 September 30,				Three Months Ended December 31,				Six Months Ended December 31,
(In thousands)	(In thousands)	2021		2020			(In thousands)	2021		2020		2021		2020
Net gains on coffee-related derivative instruments(1)	Net gains on coffee-related derivative instruments(1)	$	1,550	$	496		Net gains on coffee-related derivative instruments(1)	$	872	$	1,338	$	2,422	$	1,834

Non-operating pension and other postretirement benefits(2)	Non-operating pension and other postretirement benefits(2)	894		7,744			Non-operating pension and other postretirement benefits(2)	895		7,744		1,789		15,488
Other gains, net		—		319
Other gains (losses), net							Other gains (losses), net	—		(2)		—		317
Other, net	Other, net	$	2,444	$	8,559		Other, net	$	1,767	$	9,080	$	4,211	$	17,639

___________

(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 ~~September 30,~~December 31, 2021 and 2020.

(2) Presented in accordance with ASU 2017-07.

Offsetting of Derivative Assets and Liabilities

The Company has agreements in place that allow for the financial right of offset for derivative assets and liabilities at settlement or in the event of default under the agreements. Additionally, under certain coffee derivative agreements, the Company maintains accounts with its counterparties to facilitate financial derivative transactions in support of its risk management activities.

The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash collateral on deposit with its counterparties as of the reporting dates indicated:


(In thousands)	(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments		Cash Collateral Posted		Net Exposure		(In thousands)		Gross Amount Reported on Balance Sheet		Netting Adjustments		Cash Collateral Posted		Net Exposure
September 30, 2021		Derivative Assets	$	8,990	$	(222)	$	—	$	8,768
December 31, 2021											December 31, 2021	Derivative Assets	$	10,021	$	(813)	$	—	$	9,208
		Derivative Liabilities	$	3,055	$	(222)	$	—	$	2,833		Derivative Liabilities	2,854		(813)		—		2,041
June 30, 2021	June 30, 2021	Derivative Assets	$	4,643	$	(23)	$	—	$	4,620	June 30, 2021	Derivative Assets	4,643		(23)		—		4,620
		Derivative Liabilities	$	3,208	$	(23)	$	—	$	3,185		Derivative Liabilities	3,208		(23)		—		3,185

Cash Flow Hedges

Changes in the fair value of the Company’s coffee-related derivative instruments designated as cash flow hedges are deferred in AOCI and subsequently reclassified into cost of goods sold in the same period or periods in which the hedged forecasted purchases affect earnings, or when it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period. Based on recorded values at ~~September 30,~~December 31, 2021, $~~10.3~~11.7 million of net gains on

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

coffee-related derivative instruments designated as a cash flow hedge are expected to be reclassified into cost of goods sold within the next twelve months. These recorded values are based on market prices of the commodities as of ~~September 30,~~December 31, 2021.

The Company had designated the Rate Swap derivative instrument as a cash flow hedge; however, during the three months ended September 30, 2020, the Company de-designated the Rate Swap derivative instrument. The frozen AOCI is subsequently reclassified into interest expense in the period or periods when the hedged transaction affects earnings or when it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period. As of ~~September 30,~~December 31, 2021, $1.2 million of net losses on the Rate Swap de-designated as a cash flow hedge are expected to be reclassified into interest expense within the next twelve months.

~~Farmer Bros. Co.~~

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

Note 5. Fair Value Measurements

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


(In thousands)	(In thousands)	Total		Level 1		Level 2		Level 3		(In thousands)	Total		Level 1		Level 2		Level 3
September 30, 2021
December 31, 2021										December 31, 2021

Derivative instruments designated as cash flow hedges:	Derivative instruments designated as cash flow hedges:									Derivative instruments designated as cash flow hedges:

Coffee-related derivative assets (1)	Coffee-related derivative assets (1)	$	7,192	$	—	$	7,192	$	—	Coffee-related derivative assets (1)	$	8,783	$	—	$	8,783	$	—
Coffee-related derivative liabilities (1)	Coffee-related derivative liabilities (1)	$	78	$	—	$	78	$	—	Coffee-related derivative liabilities (1)	25		—		25		—

Derivative instruments not designated as accounting hedges:	Derivative instruments not designated as accounting hedges:									Derivative instruments not designated as accounting hedges:
Coffee-related derivative assets(1)	Coffee-related derivative assets(1)	$	1,798	$	—	$	1,798	$	—	Coffee-related derivative assets(1)	1,238		—		1,238		—
Coffee-related derivative liabilities(1)	Coffee-related derivative liabilities(1)	$	143	$	—	$	143	$	—	Coffee-related derivative liabilities(1)	788		—		788		—
Interest rate swap derivative liabilities (2)	Interest rate swap derivative liabilities (2)	$	2,834	—		$	2,834	—		Interest rate swap derivative liabilities (2)	2,041		—		2,041		—

(In thousands)		Total		Level 1		Level 2		Level 3

June 30, 2021	June 30, 2021									June 30, 2021

Derivative instruments designated as cash flow hedges:	Derivative instruments designated as cash flow hedges:									Derivative instruments designated as cash flow hedges:

Coffee-related derivative assets (1)	Coffee-related derivative assets (1)	$	4,115	$	—	$	4,115	$	—	Coffee-related derivative assets (1)	$	4,115	$	—	$	4,115	$	—
Coffee-related derivative liabilities (1)	Coffee-related derivative liabilities (1)	$	20	$	—	$	20	$	—	Coffee-related derivative liabilities (1)	20		—		20		—
Interest rate swap derivative liabilities (2)		$	—	$	—	$	—	$	—
Derivative instruments not designated as accounting hedges:	Derivative instruments not designated as accounting hedges:									Derivative instruments not designated as accounting hedges:

Coffee-related derivative assets (1)	Coffee-related derivative assets (1)	$	528	$	—	$	528	$	—	Coffee-related derivative assets (1)	528		—		528		—
Coffee-related derivative liabilities (1)	Coffee-related derivative liabilities (1)	$	3	$	—	$	3	$	—	Coffee-related derivative liabilities (1)	3		—		3		—
Interest rate swap derivative liabilities (1)		$	3,185	$	—	$	3,185	$	—
Interest rate swap derivative liabilities (2)										Interest rate swap derivative liabilities (2)	3,185		—		3,185		—

____________________

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

(2)The Company's interest rate swap derivative instrument are model-derived valuations with directly or indirectly observable significant inputs such as interest rate and, therefore, classified as Level 2.

Note 6. Accounts Receivable, Net


(In thousands)	(In thousands)	September 30, 2021		June 30, 2021		(In thousands)	December 31, 2021		June 30, 2021
Trade receivables	Trade receivables	$	42,323	$	37,208	Trade receivables	$	46,817	$	37,208
Other receivables(1)	Other receivables(1)	1,388		3,438		Other receivables(1)	2,017		3,438
Allowance for doubtful accounts	Allowance for doubtful accounts	(334)		(325)		Allowance for doubtful accounts	(356)		(325)
Accounts receivable, net	Accounts receivable, net	$	43,377	$	40,321	Accounts receivable, net	$	48,478	$	40,321

__________

(1) Includes vendor rebates and other non-trade receivables.

There was no material change in the allowance for doubtful accounts during the ~~three~~six months ended ~~September 30,~~December 31, 2021.

1512

Farmer Bros. Co.

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

Note 7. Inventories

(In thousands) September 30, 2021 June 30, 2021
Coffee
   Processed $ 23,482 $ 20,917
   Unprocessed 38,143 34,762
         Total $ 61,625 $ 55,679
Tea and culinary products
   Processed $ 15,988 $ 15,228
   Unprocessed 64 60
         Total $ 16,052 $ 15,288
Coffee brewing equipment parts $ 6,185 $ 5,824
              Total inventories $ 83,862 $ 76,791


(In thousands)	December 31, 2021		June 30, 2021
Coffee
Processed	$	25,767	$	20,917
Unprocessed	41,161		34,762
Total	$	66,928	$	55,679
Tea and culinary products
Processed	$	13,935	$	15,228
Unprocessed	57		60
Total	$	13,992	$	15,288
Coffee brewing equipment parts	$	6,301	$	5,824
Total inventories	$	87,221	$	76,791

In addition to product cost, inventory costs include expenditures such as direct labor and certain supply, freight, warehousing, overhead variances, purchase price variance and other expenses incurred in bringing the inventory to its existing condition and location. The “Unprocessed” inventory values as stated in the above table represent the value of raw materials and the “Processed” inventory values represent all other products consisting primarily of finished goods.

Note 8. Property, Plant and Equipment

(In thousands) September 30, 2021 June 30, 2021
Buildings and facilities $ 94,857 $ 94,846
Machinery, vehicles and equipment 221,141 223,579
Capitalized software 24,187 24,218
Office furniture and equipment 14,031 13,834
$ 354,216 $ 356,477
Accumulated depreciation (219,468) (218,341)
Land 11,955 11,955
Property, plant and equipment, net $ 146,703 $ 150,091


(In thousands)	December 31, 2021		June 30, 2021
Buildings and facilities	$	94,949	$	94,846
Machinery, vehicles and equipment	221,054		223,579

Capitalized software	24,639		24,218
Office furniture and equipment	14,129		13,834
	$	354,771	$	356,477
Accumulated depreciation	(222,370)		(218,341)
Land	11,955		11,955
Property, plant and equipment, net	$	144,356	$	150,091

Coffee Brewing Equipment (“CBE”) and Service

Capitalized CBE included in machinery and equipment above are:

(In thousands) September 30, 2021 June 30, 2021
Coffee Brewing Equipment $ 96,557 $ 97,105
Accumulated depreciation (70,774) $ (70,705)
Coffee Brewing Equipment, net $ 25,783 $ 26,400

~~Farmer Bros. Co.~~

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


(In thousands)	December 31, 2021		June 30, 2021
Coffee Brewing Equipment	$	95,907	$	97,105
Accumulated depreciation	(70,542)		(70,705)
Coffee Brewing Equipment, net	$	25,365	$	26,400

Depreciation expense related to capitalized CBE and other CBE related expenses provided to customers and reported in cost of goods sold were as follows:


		Three Months Ended September 30,				Three Months Ended December 31,				Six Months Ended December 31,
(In thousands)	(In thousands)	2021		2020			(In thousands)	2021		2020		2021		2020
Depreciation expense	Depreciation expense	$	1,964	$	2,360		Depreciation expense	$	1,905	$	2,334	$	3,869	$	4,694
Other CBE expenses	Other CBE expenses	$	6,048	$	5,567		Other CBE expenses	5,702		5,968		11,750		11,536

Other expenses related to CBE provided to customers, such as the cost of servicing that equipment (including service employees’ salaries, cost of transportation and the cost of supplies and parts), are considered directly attributable to the generation of revenues from the customers. Therefore, these costs are included in cost of goods sold.

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

Note 9. Intangible Assets

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


			September 30, 2021				June 30, 2021									December 31, 2021					June 30, 2021
(In thousands)	(In thousands)	Weighted Average Amortization Period as of September 30, 2021	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net		(In thousands)	Weighted Average Amortization Period as of December 31, 2021	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization		Net
Amortized intangible assets:	Amortized intangible assets:														Amortized intangible assets:
Customer relationships	Customer relationships	5.5	$	33,003	$	(20,242)	$	12,761	$	33,003	$	(19,692)	$	13,311	Customer relationships	5.2	$	33,003	$	(20,792)		$	12,211	$	33,003	$	(19,692)	$	13,311
Non-compete agreements	Non-compete agreements	0.2	220		(212)		8		220		(202)		18		Non-compete agreements	0.0	220		(218)			2		220		(202)		18
Recipes	Recipes	2.1	930		(653)		277		930		(619)		311		Recipes	1.8	930		(686)			244		930		(619)		311
Trade name/brand name	Trade name/brand name	2.2	510		(430)		80		510		(420)		90		Trade name/brand name	1.9	510		(439)			71		510		(420)		90
Total amortized intangible assets	Total amortized intangible assets		$	34,663	$	(21,537)	$	13,126	$	34,663	$	(20,933)	$	13,730	Total amortized intangible assets		$	34,663	$	(22,135)		$	12,528	$	34,663	$	(20,933)	$	13,730
Unamortized intangible assets:	Unamortized intangible assets:														Unamortized intangible assets:
Trademarks, trade names and brand name with indefinite lives	Trademarks, trade names and brand name with indefinite lives		$	4,522	$	—	$	4,522	$	4,522	$	—	$	4,522	Trademarks, trade names and brand name with indefinite lives		$	4,522	$	—		$	4,522	$	4,522	$	—	$	4,522
Total unamortized intangible assets	Total unamortized intangible assets		$	4,522	$	—	$	4,522	$	4,522	$	—	$	4,522	Total unamortized intangible assets		$	4,522	$	—		$	4,522	$	4,522	$	—	$	4,522
Total intangible assets	Total intangible assets		$	39,185	$	(21,537)	$	17,648	$	39,185	$	(20,933)	$	18,252	Total intangible assets		$	39,185	$	(22,135)		$	17,050	$	39,185	$	(20,933)	$	18,252

Aggregate amortization expense for the three months ended ~~September 30,~~December 31, 2021 and 2020 was $0.6 million in each period.Aggregate amortization expense for the six months ended December 31, 2021 and 2020 was $1.2 million in each period.

~~Farmer Bros. Co.~~

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

Note 10. Employee Benefit Plans

Single Employer Pension Plans

As of ~~September 30,~~December 31, 2021, the Company has two defined benefit pension plans for certain employees, the "Farmer Bros. Plan" and the “Hourly Employees' Plan”. The Company froze benefit accruals and participation in these plans effective June 30, 2011 and October 1, 2016, respectively. After the plan freezes, participants do not accrue any benefits under the plan, and new hires are not eligible to participate in the plan.

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

Three Months Ended September 30,
2021 2020
(In thousands)
Service cost $ — —
Interest cost 848 859
Expected return on plan assets (1,237) (1,038)
Amortization of net loss(1) 339 502
Net periodic benefit (credit) cost $ (50) $ 323


	Three Months Ended December 31,				Six Months Ended December 31,
(In thousands)	2021		2020		2021		2020
Service cost	$	—	$	—	$	—	$	—
Interest cost	848		859		1,696		1,718
Expected return on plan assets	(1,237)		(1,038)		(2,474)		(2,075)
Amortization of net loss(1)	339		502		678		1,005


Net periodic benefit (credit) cost	$	(50)	$	323	$	(100)	$	648

___________

(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


		September 30, 2021	June 30, 2021		December 31, 2021	June 30, 2021
Discount rate	Discount rate	2.60%	2.55%	Discount rate	2.60%	2.55%
Expected long-term return on plan assets	Expected long-term return on plan assets	6.25%	6.25%	Expected long-term return on plan assets	6.25%	6.25%

Multiemployer Pension Plans

The Company participates in two multiemployer defined benefit pension plans that are union sponsored and collectively bargained for the benefit of certain employees subject to collective bargaining agreements, of which the Western Conference of Teamsters Pension Plan ("WCTPP") is individually significant. The Company makes contributions to these plans

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

generally based on the number of hours worked by the participants in accordance with the provisions of negotiated labor contracts.

Contributions made by the Company to the multiemployer pension plans were as follows:


		Three Months Ended September 30,
		2021		2020					Three Months Ended December 31,				Six Months Ended December 31,
(In thousands)	(In thousands)					(In thousands)	2021		2020		2021		2020
Contributions to WCTPP	Contributions to WCTPP	$	244	$	224			Contributions to WCTPP	$	226	$	300	$	471	$	523
Contributions to All Other Plans	Contributions to All Other Plans	7		4				Contributions to All Other Plans	10		9		17		14

Multiemployer Plans Other Than Pension Plans

The Company participates in 9 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

~~Farmer Bros. Co.~~

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

through the collective bargaining process. The Company’s participation in these plans is governed by collective bargaining agreements which expire on or before January 31, 2025.

401(k) Plan

~~The Company's~~Farmer Bros. Co. 401(k) Plan (the “401(k) Plan”) is available to all eligible employees. The ~~Company's~~ 401(k) Plan match portion is available to all eligible employees who have worked more than 1,000 hours during a calendar year and were employed at the end of the calendar year. Participants in the 401(k) Plan may choose to contribute a percentage of their annual pay subject to the maximum contribution allowed by the Internal Revenue Service. The Company's matching contribution is discretionary, based on approval by the Company's Board of Directors.

In March 2020, due to the impact the COVID-19 pandemic had on our business and financial results, the Company elected to suspend the 401(k) Plan matching contribution for non-union employees and recorded no matching contributions in the ~~three~~six months ended ~~September 30,~~December 31, 2020.

Beginning in July 2021, the Company re-instated a 401(k) Plan matching program for non-union employees, by matching 50% of any non-union employee's annual contribution to the 401(k) Plan, up to 6% of such employee's eligible income, which is substantially similar to the program prior to its suspension in March 2020. The Company recorded matching contributions of ~~$0.6~~$0.5 million and $1.1 million in operating expenses in the three and six months ended ~~September 30,~~December 31, 2021.

Additionally, the Company makes an annual safe harbor non-elective contribution of shares of the Company’s common stock, par value $1.00 per share (the “Common Stock”), equal to 4% of each eligible participant’s annual plan compensation. During the three months ended ~~September 30,~~December 31, 2021 and 2020, the Company contributed a total of ~~51,597~~82,437 and ~~76,671~~108,426 shares ~~of the Company’s common stock~~Common Stock with a value of $0.7 million and ~~$0.5~~$0.3 million, respectively, to eligible participants’ annual plan compensation.

During the six months ended December 31, 2021 and 2020, the Company contributed a total of 134,034 and 185,097 shares of Common Stock with a value of $1.3 million and $0.6 million, respectively, to eligible participants’ annual plan compensation.

Effective January 1, 2022, the Company amended the 401(k) Plan to, among other things, increase the number of shares of Common Stock, available for issuance under the 401(k) Plan by 2,000,000 additional shares of Common Stock and permit participants in the 401(k) Plan to invest a portion of their 401(k) Plan accounts into Common Stock.

Postretirement Benefits

Retiree Medical Plan and Death Benefit

On March 23, 2020, the Company announced a plan to amend and terminate the postretirement medical benefit plan that covers qualified non-union retirees and certain qualified union retirees (“Retiree Medical Plan”) effective January 1, 2021. As a result, the re-measurement generated a prior service credit. This credit, along with actuarial gains, were amortized over the remaining months of the plan through January 1, 2021. The Retiree Medical Plan is now terminated.

The Company provides a postretirement death benefit ~~(“Death~~(the “Death Benefit”) Plan) to certain 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. In June 2021, the Company amended the

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

Death Benefit Plan effective immediately, which triggered re-measurement of the plan. In conjunction with the amendment, the Company created a new Executive Death Benefit Plan (the “Executive Death Benefit Plan”) for a small group of participants in the Death Benefit Plan. Under the Executive Death Benefit Plan, the participants receive the same benefits they would have received under the Death Benefit Plan.

The following table shows the components of net periodic postretirement benefit cost (credit) for the Retiree Medical Plan and Death Benefit Plan for the three and six months ended ~~September 30,~~December 31, 2021 and 2020.

Three Months Ended September 30,
2021 2020
(In thousands)
Components of Net Periodic Postretirement Benefit Cost (Credit):
Service cost $ — $ 5
Interest cost 7 73
Amortization of net gain 3 (2,728)
Amortization of prior service credit — (4,481)
Net periodic postretirement benefit cost (credit) $ 10 $ (7,131)

~~Farmer Bros. Co.~~

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


	Three Months Ended December 31,				Six Months Ended December 31,
(In thousands)	2021		2020		2021		2020
Components of Net Periodic Postretirement Benefit Cost (Credit):
Service cost	$	—	$	5	$	—	$	10
Interest cost	7		73		13		147

Amortization of net gain	3		(2,728)		6		(5,456)

Amortization of prior service credit	—		(4,481)		—		(8,961)
Net periodic postretirement benefit cost (credit)	$	10	$	(7,131)	$	19	$	(14,260)

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

Three Months Ended September 30,
2021 2020
Retiree Medical Plan discount rate N/A 0.06%
Death Benefit discount rate 2.72% 2.87%


	Fiscal year
	2022	2021
Retiree Medical Plan discount rate	N/A	0.06%
Death Benefit Plan discount rate	2.72%	2.87%

~~Farmer Bros. Co.~~

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

Note 11. Debt Obligations

The following table summarizes the Company’s debt obligations:


					September 30, 2021				June 30, 2021								December 31, 2021				June 30, 2021
(In thousands)	(In thousands)	Debt Origination Date	Maturity	Principal Borrowing Amount	Carrying Value		Weighted Average Interest Rate (1)		Carrying Value		Weighted Average Interest Rate		(In thousands)	Debt Origination Date	Maturity	Principal Borrowing Amount	Carrying Value		Weighted Average Interest Rate (1)		Carrying Value		Weighted Average Interest Rate
Revolver	Revolver	Various	4/25/2025	N/A	$	41,500	2.75	%	$	43,500	6.21	%	Revolver	Various	4/25/2025	N/A	$	43,500	2.75	%	$	43,500	6.21	%
Term Loan	Term Loan	4/26/2021	4/25/2025	$47,500	$	45,332	7.50	%	$	45,278	7.50	%	Term Loan	4/26/2021	4/25/2025	$47,500	$	45,474	7.50	%	$	45,278	7.50	%
Total	Total				$	86,832			$	88,778			Total				$	88,974			$	88,778

__________

(1) The weighted average interest rate excludes the fixed rate on the de-designated Amended Rate Swap

On April 26, 2021, the Company entered into a new senior secured facility composed of (a) a Credit Agreement, (the “Revolver Credit Facility Agreement”) by and among the Company, Boyd Assets Co., FBC Finance Company, Coffee Bean Holding Co., Inc., Coffee Bean International, Inc. and China Mist Brands, Inc., as borrowers (collectively, the “Borrowers”), Wells Fargo, ~~Bank, N.A. (“Wells Fargo”),~~ as administrative agent and lender, and the other lenders party thereto, and various loan documents relating thereto including the Guaranty and Security Agreement, (the “Revolver Security Agreement”), by and among the Borrowers, as grantors, and Wells Fargo, as administrative agent, and (b) a Credit Agreement, (the “Term Credit Facility Agreement”) by and among the Borrowers, MGG Investment Group LP. (“MGG”), as administrative agent, and the lenders party thereto, and various loan documents relating thereto including the Guaranty and Security Agreement, (the “Term Security Agreement”), by and among the Borrowers, as grantors, and MGG, as administrative agent.

The following summary description of the Revolver Credit Facility Agreement and the Revolver Security Agreement key items.Please refer to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 for the full text of the agreements.

The Revolver Credit Facility Agreement, among other things include:

1.A commitment of up to $80.0 million (“Revolver”);

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

3.maturity date of April 25, 2025, and has no scheduled payback required on the principal prior to the maturity date;

4.fully collateralized by all existing and future capital stock of the Borrowers (other than the Company) and all of the Borrowers' personal and real property;

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

5.Revolver calculated as the lesser of (a) $80.0 million and (b) the amount derived from pursuant to a borrowing base composed of 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 ~~(“NOLV”)~~ of ~~eligible inventory,~~Eligible Inventory, minus (c) applicable reserve;

6.~~Interest~~interest under the Revolver isequal to either LIBOR + 2.25% per annum, with LIBOR floor 0.50%, or base rate + 1.25% per annum; and

7.In the event that Borrowers’ availability to borrow under the Revolver falls below $10.0 million, financial covenant requires the Company to have a fixed charge coverage ratio of at least 1.00:1.00 at all such times.

The Revolver Credit Facility Agreement and the Revolver Security Agreement contain customary affirmative and negative covenants and restrictions typical for a financing of this type that, among other things, require the Company to satisfy certain financial covenants and restrict the Company's and its subsidiaries' ability to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, transfer and sell material assets and merge or consolidate. Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the Revolver Credit Facility Agreement becoming immediately due and payable and termination of the commitments.

~~Farmer Bros. Co.~~

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

The following summary description of the Term Credit Facility Agreement and the Term Security Agreement key items. Please refer to Exhibit 10.3 ~~in this~~to our Quarterly Report on Form 10-Q for quarter ended March 31, 2021 for the full text of the agreements.

The Term Credit Facility Agreement, among other things include:

1.total commitment of $47.5 million in the form of a term loan (“Term Loan”);

2.maturity date of April 25, 2025;

3.fully collateralized by all existing and future capital stock of the Borrowers (other than the Company) and all of the Borrowers' personal and real property;

4.~~Interest~~interest under the Term Loan is either (a) LIBOR + 6.5% per annum, with LIBOR Floor 1.0%, or (b) base rate + 5.50% per annum, with a 3% floor on base rate; and

5.financial covenants include;

(i) ~~maintain qualified cash and Borrower’s availability to borrow under the Revolver of at least~~ ~~$15.0 million through September 30, 2021; and~~

~~(ii) Commencing~~commencing on the fiscal quarter ending on March 31, 2022, quarterly minimum EBITDA and fixed charge coverage ratio requirements specified therein.

The Term Credit Facility Agreement and the Term Security Agreement contain customary affirmative and negative covenants and restrictions typical for a financing of this type that, among other things, require the Company to satisfy certain financial covenants and restrict the Company's and its subsidiaries' ability to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, transfer and sell material assets and merge or consolidate. Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the Term Credit Facility Agreement becoming immediately due and payable and termination of the commitments.

At ~~September 30,~~December 31, 2021, the Company had outstanding borrowings on the Revolver Credit Facility of ~~$41.5~~$43.5 million and had utilized $4.1 million of the letters of credit sublimit. At December 31, 2021, we had $32.4 million available on our Revolver Credit Facility.

As of ~~September 30,~~December 31, 2021, the Company was in compliance with all of the financial covenants under the Revolver Credit Facility Agreement and the Term Credit Facility Agreement (collectively, the “Credit Facilities”). Furthermore, the Company believes it will be in compliance with the related financial covenants under these agreements for the next twelve months.

In connection with the Credit Facilities, the Company executed ~~a new ISDA agreement to transfer its interest rate swap to Wells Fargo (“~~the Amended Rate ~~Swap”).~~Swap. Under the terms of the Amended Rate Swap, the Company receives 1-month LIBOR, subject to a 0% floor, and makes payments based on a fixed rate of 2.4725%, an increase of 0.275% from its original interest rate swap fixed rate of 2.1975%. The Amended Rate Swap utilizes the same notional amount of $65.0 million and maturity date of October 11, 2023 as the original interest rate swap.

2217

Farmer Bros. Co.

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

Note 12. Employee Stock Ownership Plan

The Company’s Employee Stock Ownership Plan (“ESOP”) was established in 2000. As of December 31, 2018, the Company froze the ESOP such that (i) no employees of the Company may commence participation in the ESOP on or after December 31, 2018; (ii) no Company contributions will be made to the ESOP with respect to services performed or compensation received after December 31, 2018; and (iii) the ESOP accounts of all individuals who are actively employed by the Company and participating in the ESOP on December 31, 2018 will be fully vested as of such date. Additionally, the Administrative Committee, with the consent of the Board of Directors, designated certain employees who were terminated in connection with certain reductions-in-force in 2018 to be fully vested in their ESOP accounts as of their severance dates.

Shares are held by the ~~plan~~ESOP trustee for allocation among participants using a compensation-based formula. Subject to vesting requirements, allocated shares are owned by participants and shares are held by the plan trustee until the participant retires.


		September 30, 2021		June 30, 2021			December 31, 2021		June 30, 2021
Allocated shares	Allocated shares	1,041,054		1,067,687		Allocated shares	1,024,737		1,067,687
Committed to be released shares	Committed to be released shares	—		—		Committed to be released shares	—		—
Unallocated shares	Unallocated shares	—		—		Unallocated shares	—		—
Total ESOP shares	Total ESOP shares	1,041,054		1,067,687		Total ESOP shares	1,024,737		1,067,687

(In thousands)	(In thousands)					(In thousands)
Fair value of ESOP shares	Fair value of ESOP shares	$	8,755	$	13,549	Fair value of ESOP shares	$	7,634	$	13,549

Effective January 1, 2022, the Company merged the ESOP plan into the 401(k) Plan and transferred all of the assets in the ESOP to the 401(k) Plan.

~~Farmer Bros. Co.~~

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

Note 13. Share-based Compensation

Farmer Bros. Co. Amended and Restated 2017 Long-Term Incentive Plan (the “2017 Plan”)

As of ~~September 30,~~December 31, 2021, there were ~~110,066~~1,587,760 shares available under the 2017 Plan including shares that were forfeited under the prior plans for future issuance.

On December 15, 2021, the Company’s stockholders approved an amendment (the “Plan Amendment”) to the 2017 Plan, which (i) increased the number of shares of Common Stock available for grant under the Plan by 1,500,000 additional shares of Common Stock and (ii) allows the Company to utilize awards to attract and incentivize non-employee consultants.

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

As of ~~September 30,~~December 31, 2021, there were ~~171,371~~138,520 shares available under the 2020 Inducement Plan.

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

One-third of the total number of shares subject to each stock option vest ratably on each of the first three anniversaries of the grant date, contingent on continued employment, and subject to accelerated vesting in certain circumstances. There were no NQOs granted during the ~~three~~six months ended ~~September 30,~~December 31, 2021.

The following table summarizes NQO activity for ~~three~~six months ended ~~September 30,~~December 31, 2021:


Outstanding NQOs:	Outstanding NQOs:	Number of NQOs	Weighted Average Exercise Price ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)	Outstanding NQOs:	Number of NQOs	Weighted Average Exercise Price ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2021	Outstanding at June 30, 2021	513,325	13.06	5.17	706	Outstanding at June 30, 2021	513,325	13.06	5.17	$	706
Granted	Granted	—	—	—	—	Granted	—	—	—	—
Exercised	Exercised	—	—	—	—	Exercised	—	—	—	—
Forfeited	Forfeited	(5,320)	15.94	—	—	Forfeited	(12,595)	16.39	—	—
Expired	Expired	(18,627)	21.12	—	—	Expired	(21,243)	20.48	—	—
Outstanding at September 30, 2021		489,378	12.75	5.09	185
Exercisable at September 30, 2021		244,315	13.37	4.96	61
Outstanding at December 31, 2021						Outstanding at December 31, 2021	479,487	12.67	4.81	$	71
Exercisable at December 31, 2021						Exercisable at December 31, 2021	279,889	13.74	4.68	$	23

The aggregate intrinsic values outstanding at the end of period in the table above represent the total pretax intrinsic values, based on the ~~Company’s~~ closing ~~stock~~ price of ~~$8.41~~Common Stock of $7.45 at ~~September 30,~~December 31, 2021 and $12.69 at June 30, 2021, representing the last trading day of the respective 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. NQOs outstanding that are expected to vest are net of estimated forfeitures.~~

~~There were no options exercised during three months ended September 30, 2021 and 2020.~~

~~At September 30, 2021 and June 30, 2021, respectively, there was~~ ~~$0.7 million~~ ~~and $0.9 million of unrecognized NQO compensation cost. The unrecognized NQO compensation cost at September 30, 2021 is expected to be recognized over the weighted average period of~~ ~~1.1 years. Total compensation expense for NQOs was~~ ~~$0.2 million~~ ~~and $0.2 million for the three months ended September 30, 2021 and 2020, respectively.~~

2418

Farmer Bros. Co.

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

holders exercised their NQOs that were in-the-money as of those dates. NQOs outstanding that are expected to vest are net of estimated forfeitures.

There were no options exercised during six months ended December 31, 2021 and 2020.

At December 31, 2021 and June 30, 2021, respectively, there was $0.5 million and $0.9 million of unrecognized NQO compensation cost. The unrecognized NQO compensation cost at December 31, 2021 is expected to be recognized over the weighted average period of eleven months. Total compensation expense for NQOs was $0.2 million and $0.2 million for the three months ended December 31, 2021 and 2020, respectively and $0.3 million and $0.4 million for the six months ended December 31, 2021 and 2020, respectively.

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

The following table summarizes PNQ activity for the ~~three~~six months ended ~~September 30,~~December 31, 2021:

Outstanding PNQs: Number
of
PNQs Weighted
Average
Exercise
Price ($) Weighted
Average
Remaining
Life
(Years) Aggregate
Intrinsic
Value
($ in
thousands)
Outstanding at June 30, 2021 11,750 29.76 0.71 —
Granted — — — —
Exercised — — — —
Forfeited — — — —
Expired (8,035) 28.88 — —
Outstanding at September 30, 2021 3,715 31.71 1.80 —
Exercisable at September 30, 2021 3,714 31.72 1.80 —


Outstanding PNQs:	Number of PNQs	Weighted Average Exercise Price ($)	Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value ($ in thousands)
Outstanding at June 30, 2021	11,750	29.76	0.71	$	—
Granted	—	—	—	—
Exercised	—	—	—	—
Forfeited	—	—	—	—
Expired	(8,035)	28.88	—	—
Outstanding at December 31, 2021	3,715	31.71	0.79	$	—
Exercisable at December 31, 2021	3,714	31.72	0.79	$	—

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 $~~8.41~~7.45 at ~~September 30,~~December 31, 2021 and $12.69 at June 30, 2021, 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.

There were no options exercised during ~~three~~six months ended ~~September 30,~~December 31, 2021 and 2020.

At ~~September 30,~~December 31, 2021 and June 30, 2021, there was no unrecognized PNQ compensation cost. There was no compensation expense related to PNQs in the three and six months ended ~~September 30,~~December 31, 2021 and 2020.

Restricted Stock

The following table summarizes restricted stock activity for the ~~three~~six months ended ~~September 30,~~December 31, 2021:

Outstanding and Nonvested Restricted Stock Awards: Shares
Awarded Weighted
Average
Grant Date
Fair Value
($)
Outstanding and nonvested at June 30, 2021 681,570 10.47
Granted 275,602 8.96
Vested/Released (114,237) 12.06
Cancelled/Forfeited (16,592) 5.93
Outstanding and nonvested at September 30, 2021 826,343 11.14


Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded	Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2021	681,570	$	10.47
Granted	414,164	7.64
Vested/Released	(260,011)	5.02
Cancelled/Forfeited	(58,709)	3.40
Outstanding and nonvested at December 31, 2021	777,014	$	6.79

The total grant-date fair value of restricted stock granted during the ~~three~~six months ended ~~September 30,~~December 31, 2021 was $~~2.5~~3.4 million.

At ~~September 30,~~December 31, 2021 and June 30, 2021, there was $~~4.7~~4.8 million and $2.8 million, respectively, of unrecognized compensation cost related to restricted stock. The unrecognized compensation cost related to restricted stock at ~~September 30,~~December 31, 2021 is expected to be recognized over the weighted average period of ~~1.3~~1.6 years. Total compensation expense for restricted stock was $~~0.5~~0.6 million and ~~$0.5~~$0.6 million, respectively, in the three months ended ~~September 30,~~December 31, 2021 and 2020. Total compensation expense for restricted stock was $1.0 million and $1.1 million, respectively, in the six months ended December 31, 2021 and 2020.

~~Performance-Based Restricted Stock Units (“PBRSUs”)~~

~~The following table summarizes PBRSU activity for the three months ended September 30, 2021:~~

2519

Farmer Bros. Co.

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

Outstanding and Nonvested PBRSUs: PBRSUs
Awarded(1) Weighted
Average
Grant Date
Fair Value
($)
Outstanding and nonvested at June 30, 2021 354,466 6.06
Granted(1) 158,659 8.91
Vested/Released — —
Cancelled/Forfeited — —
Outstanding and nonvested at September 30, 2021 513,125 6.94
Performance-Based Restricted Stock Units (“PBRSUs”)

The following table summarizes PBRSU activity for the six months ended December 31, 2021:


Outstanding and Nonvested PBRSUs:	PBRSUs Awarded(1)	Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2021	354,466	$	6.06
Granted(1)	158,659	8.91
Vested/Released	(381)	25.04
Cancelled/Forfeited	(14,534)	4.22
Outstanding and nonvested at December 31, 2021	498,210	$	4.92

_____________

(1) The target number of PBRSUs is presented in the table. Under the terms of the awards, the recipient may earn between 0% and 200% 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 total grant-date fair value of PBRSUs granted during the ~~three~~six months ended ~~September 30,~~December 31, 2021 was $1.4 million.

At ~~September 30,~~December 31, 2021 and June 30, 2021, there was $~~2.3~~2.0 million and $1.0 million, respectively, of unrecognized PBRSU compensation cost. The unrecognized PBRSU compensation cost at ~~September 30,~~December 31, 2021 is expected to be recognized over the weighted average period of ~~2.7~~2.4 years. Total compensation expense for PBRSUs was ~~$106.5~~$184.0 thousand and ~~$49.6~~$21.0 thousand, respectively, for the three months ended ~~September 30,~~December 31, 2021 and 2020. Total compensation expense for PBRSUs was $0.3 million for the six months ended December 31, 2021. For the six months ended December 31, 2020, the Company reversed the previously recognized nonvested compensation expense of $295.8 thousand for awards granted prior to fiscal 2021 since it was deemed not probable that the Company will achieve the target performance conditions.

Cash-Settled Restricted Stock Units (“CSRSUs”)

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

The following table summarizes CSRSU activity for the ~~three~~six months ended ~~September 30,~~December 31, 2021:

Outstanding and Nonvested CSRSUs: CSRSUs
Awarded Weighted
Average
Grant Date
Fair Value
($)
Outstanding and nonvested at June 30, 2021 185,602 4.31
Granted 85,851 8.91
Vested/Released — —
Cancelled/Forfeited (10,440) 4.31
Outstanding and nonvested at September 30, 2021 261,013 5.82


Outstanding and Nonvested CSRSUs:	CSRSUs Awarded	Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2021	185,602	$	4.31
Granted	85,851	8.91
Vested/Released	(52,583)	4.31
Cancelled/Forfeited	(27,841)	4.31
Outstanding and nonvested at December 31, 2021	191,029	$	6.38

The total grant-date fair value of CSRSUs granted during the ~~three~~six months ended ~~September 30,~~December 31, 2021 was $0.8 million.

At ~~September 30,~~December 31, 2021 and June 30, 2021, there was $~~1.8~~1.3 million and $2.0 million, respectively, of unrecognized compensation cost related to CSRSU. The unrecognized compensation cost related to CSRSU at ~~September 30,~~December 31, 2021 is expected to be recognized over the weighted average period of ~~2.5~~2.3 years. Total compensation expense for CSRSUs was $123.0 thousand and $117.1 thousand, respectively for the three and six months ended December 31, 2021. Total compensation expense for CSRSUs was a credit of ~~$5,896~~$20.6 thousand in the three and six months ended ~~September 30, 2021.~~December 31, 2020.

Performance Cash Awards (“PCAs”)

In November 2019, the Company granted PCAs under the 2017 Plan to certain employees. The PCAs 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, 2019 through June 30, 2022, subject to certain continued employment conditions and subject to acceleration provisions of the 2017 Plan. At the end of the three-year performance period, the amount of PCAs that actually

~~Farmer Bros. Co.~~

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

vest will be 0% to 200% 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.

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

The PCAs are measured initially based on a fixed amount of the awards at the date of grant and are required to be re-measured based on the probability of achieving the performance conditions at each reporting date until settlement. Compensation expense for PCAs is recognized over the applicable performance periods. The Company records a liability equal to the cost of PCAs for which achievement of the performance condition is deemed probable. As of ~~September 30,~~December 31, 2021 and 2020, there was no liability and no unrecognized PCA compensation cost since it was deemed not probable that the Company will achieve the target performance conditions.

~~Total compensation expense for PCAs was $25.8 thousand for the three months ended September 30 2020.~~

~~Farmer Bros. Co.~~

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

Note 14. Other Current Liabilities

Other current liabilities consist of the following:


(In thousands)	(In thousands)	September 30, 2021		June 30, 2021		(In thousands)	December 31, 2021		June 30, 2021
Cumulative preferred dividends, undeclared and unpaid	Cumulative preferred dividends, undeclared and unpaid	$	2,198	$	2,051	Cumulative preferred dividends, undeclared and unpaid	$	2,347	$	2,051
Accrued workers’ compensation liabilities	Accrued workers’ compensation liabilities	944		1,016		Accrued workers’ compensation liabilities	860		1,016
Finance lease liabilities	Finance lease liabilities	193		192		Finance lease liabilities	193		192

Other (1)	Other (1)	4,382		3,166		Other (1)	4,639		3,166
Other current liabilities	Other current liabilities	$	7,717	$	6,425	Other current liabilities	$	8,039	$	6,425

_________

(1) Includes accrued property taxes, sales and use taxes and insurance liabilities other than workers compensation.

Note 15. Other Long-Term Liabilities

Other long-term liabilities include the following:


(In thousands)	(In thousands)	September 30, 2021		June 30, 2021		(In thousands)	December 31, 2021		June 30, 2021

Derivative liabilities—noncurrent	Derivative liabilities—noncurrent	$	1,326	$	1,653	Derivative liabilities—noncurrent	$	710	$	1,653
Deferred compensation(1)	Deferred compensation(1)	1,703		1,716		Deferred compensation(1)	179		1,716
Finance lease liabilities	Finance lease liabilities	521		563		Finance lease liabilities	484		563
Deferred income taxes and other liabilities	Deferred income taxes and other liabilities	1,160		1,160		Deferred income taxes and other liabilities	1,160		1,160
Other long-term liabilities	Other long-term liabilities	$	4,710	$	5,092	Other long-term liabilities	$	2,533	$	5,092

___________

(1) Includes payroll taxes and cash-settled restricted stock units liabilities.

~~Farmer Bros. Co.~~

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

Note 16. Income Taxes

The income tax expense and the related effective tax rates are as follows (in thousands, except effective tax rate):


		Three Months Ended September 30,						Three Months Ended December 31,					Six Months Ended December 31,
		2021			2020					2021			2020			2021			2020
Income tax expense	Income tax expense	$	62		$	142			Income tax expense	$	126		$	13,703		$	188		$	13,845
Effective tax rate	Effective tax rate	(2.6)		%	(2.3)		%		Effective tax rate	(2.4)		%	(340.7)		%	(2.5)		%	(136.4)		%

The Company’s interim tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events that may occur during the quarter. The Company recognizes the effects of tax legislation in the period in which the law is enacted. Deferred tax assets and liabilities are remeasured using enacted tax rates expected to apply to taxable income in the years the Company estimates the related temporary differences to reverse. The Company evaluates its deferred tax assets quarterly to determine if a valuation allowance is required. In making such assessment, significant weight is given to evidence that can be objectively verified, such as recent operating results, and less consideration is given to less objective indicators such as future income projections. The difference between the Company’s effective tax rate and the federal statutory rate in each period presented primarily results from state tax expenses and changes in the Company’s valuation allowance. The effective tax rates for the three and six month periods ended December 31, 2020 were also affected by tax expense of $13.5 million related to previously deferred non-cash tax expense in accumulated other comprehensive income associated with gains on the postretirement medical plan in prior years.

Tax expense in the three months ended ~~September 30,~~December 31, 2021 was ~~$62~~$126 thousand compared to ~~$142 thousand~~$13.7 million in the three months ended ~~September 30,~~December 31, 2020, which primarily relates to ~~state income~~$13.5 million of previously deferred non-cash tax expense in ~~certain jurisdictions.~~accumulated other comprehensive income associated with gains on the postretirement medical plan in prior years. Tax expense in the six months ended December 31, 2021 was $188 thousand compared to $13.8 million in the six months ended December 31, 2020, which primarily relates to $13.5 million of previously deferred non-cash tax expense in accumulated other comprehensive income associated with gains on the postretirement medical plan in prior years.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by U.S. federal, state and local tax authorities. With limited

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

exceptions, as of ~~September 30,~~December 31, 2021, the Company is no longer subject to income tax audits by taxing authorities for any years prior to 2018. Although the outcome of tax audits is always uncertain, the Company does not believe the outcome of any future audit will have a material adverse effect on the Company’s ~~condensed~~ consolidated financial statements.

~~Farmer Bros. Co.~~

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

Note 17. Net Loss Per Common Share

Basic net ~~income~~ (loss) per common share is calculated by dividing net loss attributable to the Company by the weighted average number of common shares outstanding during the periods presented. Diluted net ~~income~~ (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 Series A Convertible Participating Cumulative Perpetual Preferred Stock, par value $1.00 per share (“Series A Preferred Stock”), as converted, during the 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 average market price of our common shares for the period) and unvested performance-based restricted stock units because their inclusion would have been anti-dilutive.

The following table presents the computation of basic and diluted earnings loss per common share:

Three Months Ended September 30,
(In thousands, except share and per share amounts) 2021 2020
Undistributed net loss available to common stockholders $ (2,474) $ (6,236)
Undistributed net loss available to nonvested restricted stockholders and holders of convertible preferred stock (97) (176)
Net loss available to common stockholders—basic $ (2,571) $ (6,412)
Weighted average common shares outstanding—basic 17,969,694 17,420,442
Effect of dilutive securities:
Shares issuable under stock options — —
Shares issuable under PBRSUs — —
Shares issuable under convertible preferred stock — —
Weighted average common shares outstanding—diluted 17,969,694 17,420,442
Net loss available to common stockholders per common share—basic $ (0.14) $ (0.37)
Net loss available to common stockholders per common share—diluted $ (0.14) $ (0.37)


	Three Months Ended December 31,				Six Months Ended December 31,
(In thousands, except share and per share amounts)	2021		2020		2021		2020
Undistributed net loss available to common stockholders	$	(5,334)	$	(17,223)	$	(7,830)	$	(23,509)
Undistributed net loss available to nonvested restricted stockholders and holders of convertible preferred stock	(234)		(645)		(309)		(772)
Net loss available to common stockholders—basic	$	(5,568)	$	(17,868)	$	(8,139)	$	(24,281)

Weighted average common shares outstanding—basic	18,106,151		17,531,521		18,034,658		17,477,268
Effect of dilutive securities:
Shares issuable under stock options	—		—		—		—
Shares issuable under PBRSUs	—		—		—		—
Shares issuable under convertible preferred stock	—		—		—		—
Weighted average common shares outstanding—diluted	18,106,151		17,531,521		18,034,658		17,477,268
Net loss available to common stockholders per common share—basic	$	(0.31)	$	(1.02)	$	(0.45)	$	(1.39)
Net loss available to common stockholders per common share—diluted	$	(0.31)	$	(1.02)	$	(0.45)	$	(1.39)

The following table summarizes anti-dilutive securities excluded from the computation of diluted net ~~income~~ (loss) per common share for the periods indicated:


		Three Months Ended September 30,		Three Months Ended December 31,			Six Months Ended December 31,
		2021	2020			2021	2020	2021	2020
Shares issuable under stock options	Shares issuable under stock options	384,520	548,671		Shares issuable under stock options	481,429	545,797	487,088	545,797
Shares issuable under convertible preferred stock	Shares issuable under convertible preferred stock	440,990	425,887		Shares issuable under convertible preferred stock	444,849	429,614	444,849	429,614
Shares issuable under PBRSUs	Shares issuable under PBRSUs	383,783	84,364		Shares issuable under PBRSUs	498,210	81,070	437,211	82,189

~~Farmer Bros. Co.~~

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

Note 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.

On October 2, 2017, the Company issued 14,700 shares of Series A Preferred Stock in connection with the acquisition of substantially all of the assets of the Boyd Coffee ~~acquisition.~~Company. At ~~September 30,~~December 31, 2021, Series A Preferred Stock consisted of the following:

(In thousands, except share and per share amounts)
Shares Authorized Shares Issued and Outstanding Stated Value per Share Carrying Value Cumulative Preferred Dividends, Undeclared and Unpaid Liquidation Preference
21,000 14,700 1,150 $ 16,899 $ 2,199 $ 16,899


(In thousands, except share and per share amounts)
Shares Authorized	Shares Issued and Outstanding	Stated Value per Share		Carrying Value		Cumulative Preferred Dividends, Undeclared and Unpaid		Liquidation Preference
21,000	14,700	$	1,160	$	17,047	$	2,347	$	17,047

Note 19. Revenue Recognition

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

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 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~~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,								Three Months Ended December 31,					Six Months Ended December 31,
		2021				2020					2021		2020				2021				2020
(In thousands)	(In thousands)	$		% of total		$		% of total				(In thousands)	$		% of total		$		% of total		$		% of total		$		% of total
Net Sales by Product Category:	Net Sales by Product Category:											Net Sales by Product Category:
Coffee (Roasted)	Coffee (Roasted)	$	70,597	65.1	%	$	66,154	68.0	%			Coffee (Roasted)	$	75,506	63.8	%	$	69,427	66.4	%	$	146,104	64.4	%	$	135,581	67.2	%
Tea & Other Beverages (1)	Tea & Other Beverages (1)	19,037		17.6	%	15,529		16.0	%			Tea & Other Beverages (1)	22,891		19.3	%	19,115		18.3	%	41,928		18.5	%	34,644		17.1	%
Culinary	Culinary	13,075		12.1	%	10,423		10.7	%			Culinary	13,913		11.7	%	11,497		11.0	%	$	26,988	11.9	%	21,920		10.9	%
Spices	Spices	5,199		4.8	%	4,746		4.9	%			Spices	5,059		4.3	%	4,264		4.1	%	10,258		4.5	%	9,010		4.5	%
Net sales by product category	Net sales by product category	107,908		99.6	%	96,852		99.6	%			Net sales by product category	117,369		99.1	%	104,303		99.8	%	225,278		99.3	%	201,155		99.7	%
Delivery Surcharge	Delivery Surcharge	454		0.4	%	418		0.4	%			Delivery Surcharge	1,076		0.9	%	268		0.2	%	1,529		0.7	%	686		0.3	%
Net sales	Net sales	$	108,362	100.0	%	$	97,270	100.0	%			Net sales	$	118,445	100.0	%	$	104,571	100.0	%	$	226,807	100.0	%	$	201,841	100.0	%

____________

(1)Includes all beverages other than roasted coffee, including frozen liquid coffee, and iced and hot tea, including cappuccino, cocoa, granitas, and concentrated and ready-to drink cold brew and iced coffee.

The Company does not have any material contract assets and liabilities as of ~~September 30,~~December 31, 2021. Receivables from contracts with customers are included in “Accounts receivable, net” on the Company’s ~~condensed~~ consolidated balance sheets. At ~~September 30,~~December 31, 2021 and June 30, 2021, “Accounts receivable, net” included, ~~$42.3~~$46.8 million and $37.2 million, respectively, in receivables from contracts with customers.

~~Farmer Bros. Co.~~

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

Note 20. Commitments and Contingencies

For a detailed discussion about the Company’s commitments and contingencies, see Note ~~22,~~20, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements in the 2021 Form 10-K. During the ~~three~~six months ended ~~September 30,~~December 31, 2021, other than the following, or as otherwise disclosed ~~in these footnotes in the current Form 10-Q,~~herein, there were no material changes in the Company’s commitments and contingencies.

Purchase Commitments

As of ~~September 30,~~December 31, 2021, the Company had committed to purchase green coffee inventory totaling ~~$37.9~~$50.5 million under fixed-price contracts, and ~~$13.6~~$16.9 million in inventory and other purchases under non-cancelable purchase orders.

Legal Proceedings

Council for Education and Research on Toxics (“CERT”) v. Brad Berry Company Ltd., et al., Superior Court of the State of California, County of Los Angeles

On August 31, 2012, CERT filed an amendment to a private enforcement action adding a number of companies as defendants, including the Company’s subsidiary, Coffee Bean International, Inc., which sells coffee in California under the State of California's Safe Drinking Water and Toxic Enforcement Act of 1986 (“Prop 65”). The suit alleges that the defendants have failed to issue clear and reasonable warnings in accordance with Prop 65 that the coffee they produce, distribute, and sell contains acrylamide. This lawsuit was filed in Los Angeles Superior Court (the “Court”). CERT alleges that the Company and the other defendants failed to provide warnings for their coffee products of exposure to the chemical acrylamide as required under Prop 65. Plaintiff seeks equitable relief, including providing warnings to consumers of coffee products, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Prop 65. The Plaintiff asserts that every consumed cup of coffee, absent a compliant warning, is equivalent to a violation under Prop 65.

The Company, as part of a joint defense group (“JDG”) organized to defend against the lawsuit, disputes the claims of CERT. Acrylamide is not added to coffee but is present in all coffee in small amounts (parts per billion) as a byproduct of the coffee bean roasting process. 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

Farmer Bros. Co.

Notes to Unaudited Consolidated Financial Statements (continued)

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 asserted multiple affirmative defenses. Trial of the first phase of the case commenced on September 8, 2014, and was limited to three affirmative defenses shared by all defendants. On September 1, 2015, the trial court issued a final ruling adverse to defendants on all Phase 1 defenses. Trial of the second phase of the case commenced in the fall of 2017. On May 7, 2018, the trial court issued a ruling adverse to defendants on the Phase 2 defense, the Company's last remaining defense to liability. On June 22, 2018, the California Office of Environmental Health Hazard Assessment (OEHHA) proposed a new regulation clarifying that cancer warnings are not required for coffee under Proposition 65. The case was set to proceed to a third phase trial on damages, remedies and attorneys' fees on October 15, 2018. However, on October 12, 2018, the California Court of Appeal granted the “defendants” request for a stay of the Phase 3 trial.

On June 3, 2019, the Office of Administrative Law (OAL) approved the coffee exemption regulation. The regulation became effective on October 1, 2019. On June 24, 2019, the Court of Appeal lifted the stay of the litigation. A status conference was held on July 11, 2019. The Court granted the JDG’s motion for leave to amend its answers to add the coffee exemption regulation as a defense. Concurrently, the Court denied CERT’s motion to add OEHHA as a party but granted CERT’s motions to complete the administrative record with respect to the exemption and to undertake certain third party discovery. A status conference was held November 12, 2019 to discuss discovery issues and dispositive motions. Plaintiff’s motion to compel OEHHA to add documents to the rulemaking file for the new coffee exemption regulation was denied. CERT continued to pursue third-party discovery with plans to file motions to compel appearances of proposed deponents. These motions, along with CERT’s eight summary judgment motions, were heard at a January 21, 2020 hearing where the Court denied several of CERT’s discovery requests. The JDG’s reply in support of its motion for summary judgment was due to the Court on the March 16, 2020 however, on March 17, 2020, notice was given that the Court was rescheduling the hearings set for March 23, 2020. Due to COVID 19 restrictions, the Court continued the hearing on the nine motions until July 16, 2020. At the hearing, the Court denied three of CERT’s motions for summary adjudication that challenged the

~~Farmer Bros. Co.~~

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

OEHHA rulemaking, and rescheduled the balance of the pending motions for August 10, 2020. Subsequent to the hearing on January 21, 2020, Plaintiff made broad discovery requests against each of the defendants in hopes of opening up a third round of discovery. The discovery focuses on “additives to” and “flavorings” in coffee. The JDG has responded to the discovery requests but Plaintiff has filed a motion to compel further answers to discovery and production of documents.

At the August 10, 2020 hearing, the Court denied multiple motions by the Plaintiffs for summary adjudication. The hearing on the remaining motions was scheduled for August 25, 2020 and at that hearing, the Court denied CERT’s motion for summary judgment and granted the JDG’s motion for summary judgment, noting that the discovery and claims regarding additives were outside the scope of this case. Notice of Judgment in favor of defendants was entered on October 6, 2020.

On November 20, 2020, CERT filed an appeal with the Superior Court of California. On January 29, 2021, CERT filed another appeal with the Superior Court of California. On April 9, 2021, CERT filed it’s opening brief on the first appeal. The Company filed its responsive brief on August 27, 2021. CERT’s response iswas due November 15, 2021. With respect to CERT’s second appeal, the Company’s Respondent Brief was filed on November 18, 2021. CERT’s reply in the second appeal is due February 4, 2022. The Company believes that the likelihood that the Company will ultimately incur a loss in connection with this litigation is less than reasonably possible.

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.

Note 21. Sales of Assets

Sale of Branch Property

During the ~~three~~six months ended ~~September 30,~~December 31, 2021, the Company completed the sale of the following branch properties, none of which were leased back:

(In thousands)
Name of Branch Property Date Sold Sales Price Net Proceeds Gain on Sale
Santa Ana, California 7/2/2021 $ 4,299 $ 4,072 $ 3,571
Santa Fe Springs, California 7/7/2021 $ 2,650 $ 2,507 $ 1,509

~~Assets Held for Sale~~

As of September 30, 2021, one branch property met the accounting guidance criteria to be classified as held for sale. As such, the Company evaluated this asset to determine whether the carrying value exceeded the fair value less any costs to sell. No loss was recorded as of September 30, 2021 and the aggregate assets held for sale are presented as a separate line item in the condensed consolidated balance sheet. The branch property did not meet the accounting guidance criteria to be classified as discontinued operations.

~~The following table presents net book value related to the major classes of assets that were classified as held for sale:~~


~~(In thousands)~~	~~September 30, 2021~~
~~Land~~	90
~~Assets held for sale~~	$	90


(In thousands)
Name of Branch Property	Date Sold	Sales Price		Net Proceeds		Gain on Sale
Santa Ana, California	7/2/2021	$	4,299	$	4,072	$	3,571
Santa Fe Springs, California	7/7/2021	2,650		2,507		1,509
San Antonio, Texas	11/2/2021	898		820		729

3324

Farmer Bros. Co.

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

~~Note 22. Subsequent Events~~

The Company evaluated all events or transactions that occurred after September 30, 2021 through the date the condensed consolidated financial statements were issued. During this period the Company had the following material subsequent events that require disclosure:

~~None~~

3425


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

ThisQuarterly Report on Form 10-Q and other documents we file with the Securities and Exchange Commission (“SEC”) contain forward-looking statements that are based on 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. 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 and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements due in part to the risks, uncertainties and assumptions set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed with the SEC on September 9,10, 2021 (the “2021 Form 10-K”) and Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as those discussed elsewhere in this report and other factors described from time to time in our filings with the SEC.

Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, the duration and magnitude of the disruption to our business and customers from the COVID-19 pandemic (including the effects of emerging and novel variants of the virus and any virus containment measures such as stay-at-home orders or government mandates) and severe winter weather, levels of consumer confidence in national and local economic business conditions, the duration and magnitude of the pandemic’s impact on ~~unemployment rates,~~labor conditions, the success of our strategy to recover from the effects of the pandemic, the success of our turnaround strategy, the execution of our five strategic initiatives, the impact of capital improvement projects, the adequacy and availability of capital resources to fund our existing and planned business operations and our capital expenditure requirements, the relative effectiveness of compensation-based employee incentives in causing improvements in our performance, the capacity to meet the demands of our large national account customers, the extent of execution of plans for the growth of our business and achievement of financial metrics related to those plans, our success in retaining and/or attracting qualified employees, our success in adapting to 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 Quarterly Report on Form 10-Q and other factors described from time to time in our filings with the SEC.

Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the 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 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 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.

Our Business

We are a national coffee roaster, wholesaler and distributor of coffee, tea and culinary 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 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, 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 production facilities in Northlake, Texas; Portland, Oregon; and Hillsboro, Oregon. We distribute our products from our Northlake, Texas, Portland, Oregon and Hillsboro, Oregon production facilities, as well as separate distribution centers in Portland, Oregon, Northlake, Illinois; Moonachie, New Jersey; and Rialto, California. Our products reach our customers primarily through our nationwide DSD network of ~~216~~224 delivery routes and 9288 branch warehouses as of ~~September 30,~~December 31, 2021, or direct-shipped via common carriers or third-party distributors. 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.

Impact of the COVID-19 Pandemic on Our Business

The COVID-19 pandemic has significantly impacted our financial position, results of operations, cash flows and liquidity as the ~~spread~~effects of the pandemic and resulting governmental actions have decreased the demand for our products, most notably throughout our DSD network, which consist of small independent restaurants, foodservice operators, large institutional buyers, convenience store chains, hotels, casinos, healthcare facilities, and foodservice distributors. ~~This~~The COVID-19 pandemic continues to have a material impact on our revenues during the three and six months ended ~~September 30,~~December 31, 2021.

~~Further, in September 2021, as part of its plan for responding to the COVID-19 pandemic, the current presidential administration directed the Occupational Safety~~As local and Health Administration (“OSHA”) to draft a rule which would require all employers with 100 or more employees to require their workforce to be fully vaccinated or, alternatively, to provide a negative COVID-19 test result on a weekly basis. Although we will work to mitigate the impact on our business, this rule, at such time that it becomes effective, could result in the loss of personnel who are unvaccinated and cause incremental costs for testing that could adversely affect us.

~~However, as local~~state governments across the country have eased COVID-19 restrictions, and vaccines have ~~been rolled out successfully,~~become generally available, we have continued to see improved average weekly sales trends. During the three months ended ~~September 30,~~December 31, 2021, our average weekly sales were down ~~25%~~17% compared to pre-COVID levels, which represents continued improvement from the three months ended ~~June~~September 30, 2021 and ~~September 30,~~December 31, 2020 when sales were down ~~27%~~25% and ~~41%~~40%, respectively. Although we experienced improvement in several markets this quarter, the recovery in certain regions and markets were negatively impacted starting in December by the recent increase in COVID-19 cases ~~which~~related to the Omicron variant that caused certain government restrictions to be reimplemented.

Although our Direct Ship sales channel was also affected by the COVID-19 pandemic, the impact was significantly less due to the types of customers we serve through this channel. These customers include our retail business and products sold by key grocery stores under their private labels, as well as third party e-commerce platforms, which have been impacted less by the pandemic. For the three months ended ~~September 30,~~December 31, 2021, our Direct Ship revenues were also negatively

impacted by accounts we decided to exit during fiscal 2021 because they resulted in lower or negative profit due to the impacts from COVID-19 on their business and caused supply chain complexities.

Due to the impact of the COVID-19 pandemic on our revenues, we instituted several initiatives in March 2020 and during fiscal 2021 to reduce operating expenses and capital expenditures to help mitigate the significant negative impact of our revenue decline. In addition to the costs saving initiatives, in fiscal 2021 we repaid our existing senior secured revolving credit facility, and entered into ~~our~~a new senior secured facility composed of a Revolver Credit ~~Facilities.~~Facility Agreement and a Term Credit Facility Agreement (the “Credit Facilities”). We believe that the Credit Facilities provide us with increased flexibility to proactively manage our working capital and execute our long term strategy, maintain compliance with our financial covenants, lower our cost of borrowing, and preserve financial liquidity to mitigate the impact of the uncertain business environment resulting from the COVID-19 pandemic, while continuing to execute on our strategic initiatives.

The duration and magnitude of the COVID-19 pandemic, including the extent of the weaker demand for our products, our financial position, results of operations and liquidity, which could be material, ~~is still uncertain due to the rapid development and fluidity~~remains uncertain. The ultimate impacts of the ~~situation.~~COVID-19 pandemic on our business will depend on future developments, including the availability and cost of labor, global supply chain disruptions, variants of the virus, and the availability and use of vaccines, which are highly uncertain and cannot be predicted. While we anticipate that our revenue will continue to recover slowly as local, state and national governments ease COVID-19 related restrictions, and vaccines ~~are distributed throughout the country,~~become more widely accepted, there can be no assurance that we will be successful in returning to the pre-COVID-19 pandemic levels of revenue or profitability for our fiscal year ending June 30, ~~2022.~~2022 (“fiscal 2022”).

For other impacts of the COVID-19 pandemic, please see “Item 1A. Risk Factors” in our 2021 Form 10‑K, which is accessible on the SEC’s website at www.sec.gov.

Summary Overview of Three Months Ended ~~September 30,~~December 31, 2021 Results of Operations

During the three months ended ~~September 30,~~December 31, 2021, revenues from both our DSD and ~~direct~~Direct ship sales channels continued to be negatively impacted by the COVID-19 pandemic.

As a result of the COVID-19 pandemic, our largest DSD revenue declines were in our restaurant, healthcare, hotel and casino channels, while the C-store channel was impacted less. However, due to the significant recovery in these channels throughout fiscal 2021 and fiscal 2022, our average weekly DSD sales compared to pre COVID levels improved from down ~~41% a year ago to down 25%~~40% during the three months ended ~~September 30, 2021.~~

~~Our direct ship channel sales declined 5.7%~~December 31, 2020 to down 17% during the three months ended ~~September 30,~~December 31, 2021.

Our Direct ship channel sales declined 6.8% during the three months ended December 31, 2021 compared to the prior year period. This was due to accounts we ~~decided to exit~~exited during fiscal 2021 because they resulted in lower or negative profit due to the impact of the COVID-19 pandemic on their business. These declines were partially offset by the recovery from the impact of the COVID-19 pandemic by some of our other ~~direct~~Direct ship customers.

Gross margin improved ~~6.0%~~4.4% from ~~23.0%~~25.1% during the prior year period to ~~29.0%~~29.5% during the three months ended ~~September 30,~~December 31, 2021. This improvement was mostly due to the effect of the continued recovery from the COVID-19 pandemic on our DSD channel sales since our DSD channel has higher margins. The increase was also attributable to a decline in our unfavorable production variances and inventory scrap write-downs due to the closure of our aged Houston, Texas plant during fiscal 2021. These improvements were partially offset by higher freight costs due to global supply chain challenges. During the three months ended December 31, 2021, we implemented price increases and delivery surcharges across our DSD network to mitigate the impact of higher supply chain and product costs.

Operating expenses ~~decreased~~increased $3.2 million during the three months ended ~~September 30,~~December 31, 2021 compared to the prior year period ~~primarily~~ due to a ~~$5.2 million increase in net gains from the from sales of assets due to the sale of two branch properties during the three months ended September 30, 2021. This decline was mostly offset by a $2.5~~$3.3 million increase in selling expenses and $1.3 million lower net gains from the sales of branch properties, partially offset by $1.2 million lower fixed assets impairment and a ~~$2.1~~$0.2 million ~~increase~~decrease in general and administrative expenses. The increase in selling expenses was primarily due to variable costs, including payroll, associated with the higher sales volumes, as well as operating costs ~~related to~~associated with our new distribution center in Rialto, California. The ~~increase~~decrease in general and administrative expenses was primarily due to ~~payroll~~the absence of one-time severance and ~~third party~~strategic costs ~~related to several supply chain optimization initiatives.~~saving action taken during the prior year period.

Our capital expenditures for the three months ended ~~September 30,~~December 31, 2021 were ~~$2.5~~$3.3 million, a decline of $1.9 million compared to the prior year period. This was due to lower investment ~~capital~~spending of ~~$2.5~~$2.4 million for several strategic initiatives completed during fiscal 2021, partially offset by higher maintenance capital spend of ~~$0.6~~$0.5 million compared to the prior year period. Our capital expenditures for the six months ended December 31, 2021 were $5.9 million, a decline of $3.8 million compared to the prior year period. This was due to lower investment capital of $4.9 million for several strategic initiatives completed during fiscal 2021, partially offset by higher maintenance capital spend of $1.2 million compared to the prior year period. The higher maintenance capital was mainly due to the purchase of coffee brewing equipment for our DSD customers as volumes have ~~improved.~~improved, as well as small DFW plant and IT projects. Several key initiatives in fiscal 2021, including a focus on refurbished coffee brewing equipment to drive cost savings, ~~have~~ helped reduce our purchases as DSD sales volumes return.

As of December 31, 2021, the outstanding principal on our Revolver and Term Loan Credit Facilities was $91.0 million, an increase of $2.0 million from September 30, 2021. Our cash balance decreased by $2.4 million, from $6.0 million as of September 30, 2021, to $3.6 million as of December 31, 2021.

As of December 31, 2021, the outstanding principal on our Credit Facilities was ~~$89.0~~$91.0 million, ~~a decrease of $2.0 million~~no change since June 30, 2021. Our cash balance decreased by ~~$4.3~~$6.7 million, from $10.3 million as of June 30, 2021, to ~~$6.0~~$3.6 million as of ~~September 30,~~December 31, 2021. These changes were primarily due to higher inventory as we increase purchases for our

peak season during our second fiscal quarter, and payment of our fiscal 2021 employee incentive program. These uses of cash were partially offset by cash proceeds from the sale of ~~two~~three branch properties during the ~~three~~six months ended ~~September 30, 2021.~~December 31, 2021 and realized hedging gains.

3828

Financial Data Highlights (in thousands, except per share data and percentages)


		Three Months Ended September 30,						Favorable (Unfavorable)					Three Months Ended December 31,		Favorable (Unfavorable)						Six Months Ended December 31,		Favorable (Unfavorable)
		2021			2020			Change			% Change				2021			2020			Change	% Change	2021			2020			Change	% Change
Income Statement Data:	Income Statement Data:													Income Statement Data:
Net sales	Net sales	$	108,362		$	97,270		$	11,092		11.4	%		Net sales	$	118,445		$	104,571		$13,874	13.3%	$	226,807		$	201,841		$24,966	12.4%
Gross margin	Gross margin	29.0		%	23.0		%	6.0		%	NM			Gross margin	29.5		%	25.1		%	4.4%	NM	29.3		%	24.1		%	5.2%	NM
Operating expenses as a % of sales	Operating expenses as a % of sales	30.7		%	34.8		%	4.1		%	NM			Operating expenses as a % of sales	33.4		%	34.8		%	1.4%	NM	32.1		%	34.8		%	2.7%	NM
Loss from operations	Loss from operations	$	(1,780)		$	(11,443)		$	9,663		84.4	%		Loss from operations	$	(4,572)		$	(10,164)		$5,592	55.0%	$	(6,352)		$	(21,610)		$15,258	70.6%
Net loss	Net loss	$	(2,424)		$	(6,270)		$	3,846		61.3	%		Net loss	$	(5,420)		$	(17,725)		$12,305	69.4%	$	(7,844)		$	(23,997)		$16,153	67.3%

Operating Data:	Operating Data:													Operating Data:
Coffee pounds	Coffee pounds	19,876			20,933			(1,057)			(5.0)	%		Coffee pounds	19,793			21,407			(1,614)	(7.5)%	39,669			42,340			(2,671)	(6.3)%
EBITDA(1)	EBITDA(1)	$	6,089		$	2,906		$	3,183		109.5	%		EBITDA(1)	$	2,389		$	5,288		$(2,899)	(54.8)%	$	8,478		$	8,191		$287	3.5%
EBITDA Margin(1)	EBITDA Margin(1)	5.6		%	3.0		%	2.6		%	NM			EBITDA Margin(1)	2.0		%	5.1		%	(3.1)%	NM	3.7		%	4.1		%	(0.4)%	NM
Adjusted EBITDA(1)	Adjusted EBITDA(1)	$	3,489		$	5,693		$	(2,204)		(38.7)	%		Adjusted EBITDA(1)	$	4,499		$	8,274		$(3,775)	(45.6)%	$	7,988		$	13,967		$(5,979)	(42.8)%
Adjusted EBITDA Margin(1)	Adjusted EBITDA Margin(1)	3.2		%	5.9		%	(2.7)		%	NM			Adjusted EBITDA Margin(1)	3.8		%	7.9		%	(4.1)%	NM	3.5		%	6.9		%	(3.4)%	NM

Percentage of Total Net Sales By Product Category	Percentage of Total Net Sales By Product Category													Percentage of Total Net Sales By Product Category
Coffee (Roasted)	Coffee (Roasted)	65.1		%	68.0		%	(2.9)		%	(4.3)	%		Coffee (Roasted)	63.8		%	66.4		%	(2.6)%	(3.9)%	64.4		%	67.2		%	(2.8)%	(4.2)%
Tea & Other Beverages (2)	Tea & Other Beverages (2)	17.6		%	16.0		%	1.6		%	10.0	%		Tea & Other Beverages (2)	19.3		%	18.3		%	1.0%	5.5%	18.5		%	17.1		%	1.4%	8.2%
Culinary	Culinary	12.1		%	10.7		%	1.4		%	13.1	%		Culinary	11.7		%	11.0		%	0.7%	6.4%	11.9		%	10.9		%	1.0%	9.2%
Spices	Spices	4.8		%	4.9		%	(0.1)		%	(2.0)	%		Spices	4.3		%	4.1		%	0.2%	4.9%	4.5		%	4.5		%	—%	NM
Net sales by product category	Net sales by product category	99.6		%	99.6		%	—		%	NM			Net sales by product category	99.1		%	99.8		%	(0.7)%	NM	99.3		%	99.7		%	(0.4)%	NM
Delivery Surcharge	Delivery Surcharge	0.4		%	0.4		%	—		%	NM			Delivery Surcharge	0.9		%	0.2		%	0.7%	NM	0.7		%	0.3		%	0.4%	NM
Net sales	Net sales	100.0		%	100.0		%	—		%	NM			Net sales	100.0		%	100.0		%	—%	—%	100.0		%	100.0		%	—%	—%

Other data:	Other data:													Other data:
Capital expenditures related to maintenance	Capital expenditures related to maintenance	$	2,243		$	1,595		$	648		40.6	%		Capital expenditures related to maintenance	$	2,666		$	2,147		$(519)	(24.2)%	$	4,908		$	3,741		$(1,167)	(31.2)%
Total capital expenditures	Total capital expenditures	$	2,542		$	4,366		$	(1,824)		(41.8)	%		Total capital expenditures	3,335			5,271			1,936	36.7%	5,887			9,636			3,749	38.9%
Depreciation and amortization expense	Depreciation and amortization expense	$	6,279		$	7,041		$	(762)		(10.8)	%		Depreciation and amortization expense	6,049			7,308			1,259	17.2%	12,328			14,349			2,021	14.1%

________________

NM - Not Meaningful

(1) EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. See “Non-GAAP Financial Measures” below for a reconciliation of these non-GAAP measures to their corresponding GAAP measures.

(2) Includes all beverages other than roasted coffee, frozen liquid coffee, and iced and hot tea, including cappuccino, cocoa, granitas, and concentrated and ready-to-drink cold brew and iced coffee.

3929

Results of Operations

The following table sets forth information regarding our ~~condensed~~ consolidated results of operations for the three and six months ended ~~September 30,~~December 31, 2021 and 2020 (in thousands, except percentages):


		Three Months Ended September 30,				Favorable (Unfavorable)				Three Months Ended December 31,		Favorable (Unfavorable)				Six Months Ended December 31,		Favorable (Unfavorable)
		2021		2020		Change		% Change				2021		2020		Change	% Change	2021		2020		Change	% Change
Net sales	Net sales	$	108,362	$	97,270	$	11,092	11.4	%		Net sales	$	118,445	$	104,571	$13,874	13.3%	$	226,807	$	201,841	$24,966	12.4%
Cost of goods sold	Cost of goods sold	76,908		74,851		(2,057)		(2.7)	%		Cost of goods sold	83,451		78,321		(5,130)	(6.5)%	160,359		153,173		(7,186)	(4.7)%
Gross profit	Gross profit	31,454		22,419		9,035		40.3	%		Gross profit	34,994		26,250		8,744	33.3%	66,448		48,668		17,780	36.5%
Selling expenses	Selling expenses	26,009		23,498		(2,511)		(10.7)	%		Selling expenses	28,019		24,769		(3,250)	(13.1)%	54,028		48,268		(5,760)	(11.9)%
General and administrative expenses	General and administrative expenses	11,807		9,746		(2,061)		(21.1)	%		General and administrative expenses	11,394		11,570		176	1.5%	23,201		21,316		(1,885)	(8.8)%
Net (gains) losses from sales of assets	Net (gains) losses from sales of assets	(4,582)		618		5,200		NM			Net (gains) losses from sales of assets	153		(1,168)		(1,321)	NM	(4,429)		(549)		3,880	NM
Impairment of fixed assets											Impairment of fixed assets	—		1,243		1,243	100.0%	—		1,243		1,243	100.0%
Operating expenses	Operating expenses	33,234		33,862		628		1.9	%		Operating expenses	39,566		36,414		(3,152)	(8.7)%	72,800		70,278		(2,522)	(3.6)%
Loss from operations	Loss from operations	(1,780)		(11,443)		9,663		84.4	%		Loss from operations	(4,572)		(10,164)		5,592	55.0%	(6,352)		(21,610)		15,258	70.6%
Other (expense) income:	Other (expense) income:										Other (expense) income:
Interest expense	Interest expense	(3,026)		(3,244)		218		6.7	%		Interest expense	(2,489)		(2,938)		449	15.3%	(5,515)		(6,181)		666	10.8%
Other, net	Other, net	2,444		8,559		(6,115)		(71.4)	%		Other, net	1,767		9,080		(7,313)	NM	4,211		17,639		(13,428)	NM
Total other (expense) income	Total other (expense) income	(582)		5,315		(5,897)		NM			Total other (expense) income	(722)		6,142		(6,864)	NM	(1,304)		11,458		(12,762)	NM
Loss before taxes	Loss before taxes	(2,362)		(6,128)		3,766		61.5	%		Loss before taxes	(5,294)		(4,022)		(1,272)	(31.6)%	(7,656)		(10,152)		2,496	24.6%
Income tax expense	Income tax expense	62		142		80		56.3	%		Income tax expense	126		13,703		13,577	99.1%	188		13,845		13,657	98.6%
Net loss	Net loss	$	(2,424)	$	(6,270)	3,846		61.3	%		Net loss	$	(5,420)	$	(17,725)	12,305	69.4%	$	(7,844)	$	(23,997)	16,153	67.3%
Less: Cumulative preferred dividends, undeclared and unpaid	Less: Cumulative preferred dividends, undeclared and unpaid	147		142		(5)		(3.5)	%		Less: Cumulative preferred dividends, undeclared and unpaid	148		143		(5)	(3.5)%	295		284		(11)	(3.9)%
Net loss available to common stockholders	Net loss available to common stockholders	$	(2,571)	$	(6,412)	3,841		59.9	%		Net loss available to common stockholders	$	(5,568)	$	(17,868)	12,300	68.8%	$	(8,139)	$	(24,281)	16,142	66.5%

___________

NM - Not Meaningful

Three and Six Months Ended ~~September 30,~~December 31, 2021 Compared to Three and Six Months Ended ~~September 30,~~December 31, 2020

Net Sales

Net sales in the three months ended ~~September 30,~~December 31, 2021 increased ~~$11.1~~$13.9 million, or ~~11.4%~~13.3%, to ~~$108.4~~$118.4 million from ~~$97.3~~$104.6 million in the three months ended ~~September 30,~~December 31, 2020. Net sales in the six months ended December 31, 2021 increased $25.0 million, or 12.4%, to $226.8 million from $201.8 million in the six months ended December 31, 2020. The increase in net sales for the three and six months ended December 31, 2021 was primarily due to the continued recovery from the impact of the COVID-19 pandemic on our DSD network, which had improved volume of green coffee processed and sold, along with improved volume of other beverages, culinary, spice and tea products ~~sold.~~sold as we continue to experience higher weekly sales volumes compared to prior periods.

These increases were partially offset by a decline in revenues from our ~~direct~~Direct ship sales channel which were negatively impacted by lower coffee volumes due to accounts we ~~decided to exit~~exited during fiscal 2021 because they resulted in lower or negative profit due to the impacts from COVID-19 on their business and caused supply chain complexities. This decline was partially offset by higher volumes on other ~~direct~~Direct ship customers and price changes to customers utilizing commodity-based pricing arrangements where the changes in the green coffee commodity costs are passed on to the customer. Our ~~direct~~Direct ship net sales in the three months ended ~~September 30,~~December 31, 2021 included ~~$3.0~~$3.4 million in price increases to customers utilizing commodity-based pricing arrangements, as compared to ~~$0.9~~$0.8 million in price decreases to customers utilizing such arrangements in the three months ended ~~September~~ December 31, 2020. Our Direct ship net sales in the six months ended December 31, 2021 included $6.4 million in price increases to customers utilizing commodity-based pricing arrangements, as compared to $1.7 million in price decreases to customers utilizing such arrangements in the six months ended December 31, 2020.

30 ~~2020.~~

The following table presents the effect of changes in unit sales, and unit pricing and product mix in the three and six months ended ~~September 30,~~December 31, 2021 compared to the same period in the prior fiscal year (in millions):

Three Months Ended
September 30,
2021 vs. 2020
% of Total Mix Change
Effect of change in unit sales $ (3.7) (33.3) %
Effect of pricing and product mix changes 14.8 133.3 %
Total increase in net sales $ 11.1 100.0 %


	Three Months Ended December 31, 2021 vs. 2020		% of Total Mix Change		Six Months Ended December 31, 2021 vs. 2020		% of Total Mix Change
Effect of change in unit sales	$	(7.0)	(50.4)	%	$	(10.6)	(42.4)	%
Effect of pricing and product mix changes	20.9		150.4	%	35.6		142.4	%
Total increase in net sales	$	13.9	100.0	%	$	25.0	100.0	%

Unit sales decreased ~~3.3%~~5.6% and average unit price increased by ~~15.7%~~20.1% in the three months ended ~~September 30,~~December 31, 2021 as compared to the same period in the prior fiscal year, resulting in an increase in our net sales of ~~11.4%~~13.3%. Unit sales decreased 4.5% and average unit price increased by 17.6% in the six months ended December 31, 2021 as compared to the same period in the prior fiscal year, resulting in an increase in our net sales of 12.4%. Average unit price increased during three and six months ended ~~September 30,~~December 31, 2021 due to a higher mix of product sold via our DSD network versus ~~direct~~Direct ship, as ~~direct~~Direct ship has a lower average unit price. There were no new product category introductions which had a material impact on our net sales in the three and six months ended ~~September 30,~~December 31, 2021 or 2020.

Gross Profit

Gross profit in the three months ended ~~September 30,~~December 31, 2021 increased ~~$9.1~~$8.7 million, or ~~40.3%~~33.3%, to ~~$31.5~~$35.0 million from ~~$22.4~~$26.3 million in the three months ended ~~September 30,~~December 31, 2020. Gross margin increased to ~~29.0%~~29.5% in the three months ended ~~September 30,~~December 31, 2021 from ~~23.0%~~25.1% in the three months ended ~~September 30,~~December 31, 2020.

Gross profit in the six months ended December 31, 2021 increased $17.8 million, or 36.5%, to $66.4 million from $48.7 million in the six months ended December 31, 2020. Gross margin increased to 29.3% in the six months ended December 31, 2021 from 24.1% in the six months ended December 31, 2020.

The increase in gross profit in the current year was primarily driven by higher net sales ~~of $11.1 million,~~ partially offset by higher costs of goods sold, as well as higher freight and coffee brewing equipment costs due to higher DSD sales volume. Gross margin improved ~~6.0% from 23.0% during the prior year period to 29.0% during the three months ended September 30, 2021~~ due to the effect of the continued recovery from COVID-19 on our DSD channel sales since our DSD channel has higher margins. The increase was also attributable to a decline in our unfavorable production variances and inventory scrap write-downs due to the closure of our aged Houston, Texas plant during fiscal 2021.

These improvements were partially offset by higher freight costs due to global supply chain challenges. During the three months ended December 31, 2021, we implemented price increases and delivery surcharges across our DSD network to mitigate the impact of higher supply chain and product costs.

Operating Expenses

In the three months ended ~~September 30,~~December 31, 2021, operating expenses ~~decreased $0.6~~increased $3.2 million to ~~$33.2~~$39.6 million, or ~~30.7%~~33.4% of net sales, from ~~$33.9~~$36.4 million, or 34.8% of net sales in the prior year period. This ~~decline~~increase was due to a ~~$5.2~~$3.3 million increase in selling expenses and $1.3 million lower net gains from the sales of branch properties, partially offset by $1.2 million lower fixed assets impairment and a $0.2 million decrease in general and administrative expenses.

In the six months ended December 31, 2021, operating expenses increased $2.5 million to $72.8 million, or 32.1% of net sales, from $70.3 million, or 34.8% of net sales in the prior year period. This increase was due to a $5.8 million increase in selling expenses and a $1.9 million increase in general and administrative expenses, partially offset by a $1.2 million lower fixed assets impairment and $3.9 million increase in net gains from the sales of assets due to the sale of ~~two~~three branch properties during the ~~quarter~~six months ended ~~September 30, 2021, mostly offset by a $2.5 million~~December 31, 2021. The increase in selling expenses ~~and a $2.1 million increase in general and administrative expenses.~~

~~The increase in selling expenses~~during the six months ended December 31, 2021 was primarily due to variable costs, including payroll, associated with the higher sales volumes, as well as operating costs associated with our new distribution center in Rialto, California. The increase in general and administrative expenses during the six months ended December 31, 2021 was primarily due to payroll and third party costs related to several supply chain optimization ~~initiatives.~~initiatives, partially offset by the absence of one-time severance costs in the prior year period. The increase in payroll in both and selling and general and administrative expenses are predominately due to the ~~return~~expiration of the temporary 15% ~~temporary decline~~reduction in base salaries and the ~~return~~expiration of the 401(k) cash match suspension ~~that~~under the Farmer Bros. Co. 401(k) Plan, which were both cost saving actions implemented in fiscal 2020 due to the COVID-19 pandemic.

Total Other (Expense) Income

Total other (expense) income in the three months ended ~~September 30,~~December 31, 2021 ~~was $0.6~~decreased $6.9 million or 111.8% to $0.7 million of expense compared to ~~$5.3~~$6.1 million of income in the three months ended ~~September 30,~~December 31, 2020. Total other (expense) income in the six months ended December 31, 2021 decreased $12.8 million or 111.4% to $1.3 million of expense compared

to $11.5 million of income in the six months ended December 31, 2020. This change was primarily a result of the absence of the gains due to the postretirement benefit curtailment in the prior year, partially offset by lower interest expense and higher gains on coffee-related derivative instruments in the current year.

Interest expense in the three months ended ~~September 30,~~December 31, 2021 decreased ~~$0.2~~$0.4 million to ~~$3.0~~$2.5 million from ~~$3.2~~$2.9 million in the prior year period. Interest expense in the six months ended December 31, 2021 decreased $0.7 million to $5.5 million from $6.2 million in the prior year period. The decrease in interest expense was principally due to the lower interest rate on our Credit Facilities, and lower losses on our interest rate swap.

Other, net in the three months ended ~~September 30,~~December 31, 2021 decreased by ~~$6.1~~$7.3 million to income of ~~$2.4~~$1.8 million compared to income of ~~$8.6~~$9.1 million in the prior year period. Other, net in the six months ended December 31, 2021 decreased by $13.4 million to income of $4.2 million compared to income of $17.6 million in the prior year period. The decrease was primarily a result of lower amortized gains on our terminated postretirement medical benefit plan, partially offset by higher mark-to-market net gains on coffee-related derivative instruments not designated as accounting hedges.

Income Taxes

In the three months ended ~~September 30,~~December 31, 2021 and ~~September 30,~~December 31, 2020 , we recorded income tax expense of ~~$62 thousand~~$0.1 million and ~~$142 thousand,~~$13.7 million, respectively. In the six months ended December 31, 2021 and December 31, 2020 , we recorded income tax expense of $0.2 million and $13.8 million, respectively. See Note 16, Income Taxes, of the Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements included in Part I, Item 1 of this report.

Non-GAAP Financial Measures

In addition to net 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:

“EBITDA” is defined as net loss excluding the impact of:

•income ~~taxes;~~tax expense;

•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 excluding the impact of:

•income ~~taxes;~~tax expense;

•interest ~~expense (benefit);~~

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

•depreciation and amortization expense;

•ESOP and share-based compensation expense;

•~~severance costs;~~restructuring and other transition expenses;

•strategic initiatives;

•impairment of fixed assets;

•non-recurring costs associated with the COVID-19 pandemic;

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

•~~non-cash pension settlements and postretirement benefits curtailment;~~ and

•~~acquisition, integration and strategic initiative~~severance costs.

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

For purposes of calculating EBITDA and EBITDA Margin and Adjusted EBITDA and Adjusted EBITDA Margin, we have not adjusted for the impact of interest expense on our pension and postretirement benefit plans.

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.

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.

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 to EBITDA (unaudited):


		Three Months Ended September 30,						Three Months Ended December 31,					Six Months Ended December 31,
(In thousands)	(In thousands)	2021			2020				(In thousands)	2021			2020			2021			2020
Net loss, as reported	Net loss, as reported	$	(2,424)		$	(6,270)			Net loss, as reported	$	(5,420)		$	(17,725)		$	(7,844)		$	(23,997)
Income tax expense	Income tax expense	62			142				Income tax expense	126			13,703			188			13,845
Interest expense (1)	Interest expense (1)	2,172			1,993				Interest expense (1)	1,634			2,002			3,806			3,994
Depreciation and amortization expense	Depreciation and amortization expense	6,279			7,041				Depreciation and amortization expense	6,049			7,308			12,328			14,349
EBITDA	EBITDA	$	6,089		$	2,906			EBITDA	$	2,389		$	5,288		$	8,478		$	8,191
EBITDA Margin	EBITDA Margin	5.6		%	3.0		%		EBITDA Margin	2.0		%	5.1		%	3.7		%	4.1		%

____________

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

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


		Three Months Ended September 30,						Three Months Ended December 31,					Six Months Ended December 31,
(In thousands)	(In thousands)	2021			2020				(In thousands)	2021			2020			2021			2020
Net loss, as reported	Net loss, as reported	$	(2,424)		$	(6,270)			Net loss, as reported	$	(5,420)		$	(17,725)		$	(7,844)		$	(23,997)
Income tax expense	Income tax expense	62			142				Income tax expense	126			13,703			188			13,845
Interest expense(1)	Interest expense(1)	2,172			1,993				Interest expense(1)	1,634			2,002			3,806			3,994
Depreciation and amortization expense	Depreciation and amortization expense	6,279			7,041				Depreciation and amortization expense	6,049			7,308			12,328			14,349
ESOP and share-based compensation expense	ESOP and share-based compensation expense	1,392			1,155				ESOP and share-based compensation expense	1,605			794			2,997			1,950

Strategic initiatives	Strategic initiatives	—			341				Strategic initiatives	—			1,333			—			1,675
Net (gains) losses from sales of other assets		(4,582)			618
Net (gains) losses from sale of assets									Net (gains) losses from sale of assets	153			(1,168)			(4,429)			(549)
Impairment of fixed assets									Impairment of fixed assets	—			1,243			—			1,243
Non-recurring costs associated with the COVID-19 pandemic	Non-recurring costs associated with the COVID-19 pandemic	—			111				Non-recurring costs associated with the COVID-19 pandemic	—			149			—			260

Severance	Severance	590			562				Severance	352			635			942			1,197
Adjusted EBITDA(2)	Adjusted EBITDA(2)	$	3,489		$	5,693			Adjusted EBITDA(2)	$	4,499		$	8,274		$	7,988		$	13,967
Adjusted EBITDA Margin	Adjusted EBITDA Margin	3.2		%	5.9		%		Adjusted EBITDA Margin	3.8		%	7.9		%	3.5		%	6.9		%

____________

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

(2) Adjusted EBITDA for the three and six months ended ~~September 30,~~December 31, 2020 includes $7.2 million and $14.4 million, respectively, of higher amortized gains resulting from the curtailment of the postretirement medical plan in March 2020, which is further described in our consolidated financial statements in the 2021 Form 10-K.

Liquidity, Capital Resources and Financial Condition

The following table summarizes our debt obligations:


					September 30, 2021				June 30, 2021								December 31, 2021				June 30, 2021
(In thousands)	(In thousands)	Debt Origination Date	Maturity	Principal Borrowing Amount	Carrying Value		Weighted Average Interest Rate (1)		Carrying Value		Weighted Average Interest Rate		(In thousands)	Debt Origination Date	Maturity	Principal Borrowing Amount	Carrying Value		Weighted Average Interest Rate (1)		Carrying Value		Weighted Average Interest Rate
Revolver	Revolver	Various	4/25/2025	N/A	$	41,500	2.75	%	$	43,500	6.21	%	Revolver	Various	4/25/2025	N/A	$	43,500	2.75	%	$	43,500	6.21	%
Term Loan	Term Loan	4/26/2021	4/25/2025	$47,500	$	45,332	7.50	%	$	45,278	7.50	%	Term Loan	4/26/2021	4/25/2025	$47,500	45,474		7.50	%	45,278		7.50	%
Total	Total				$	86,832			$	88,778			Total				$	88,974			$	88,778

__________

(1) The weighted average interest rate excludes the fixed rate on the de-designated Amended Rate Swap

On April 26, 2021, ~~we completed~~entered into the ~~financing of a new senior secured facility composed of a Revolver~~ Credit ~~Facility Agreement and a Term Credit Facility Agreement (the “Credit Facilities”)~~Facilities as described in more detail in Note ~~12,~~11, Debt Obligations, of the

Notes to Consolidated Financial Statements included in ~~the fiscal 2021 Annual~~this Quarterly Report on Form 10‑K.Q.

The revolver under the Credit Facilities has a commitment of up to $80.0 million and a maturity date of April 25, 2025. Availability under the revolver is calculated as the lesser of (a) $80.0 million and (b) the amount derived from pursuant to a borrowing base composed of 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 ~~(“NOLV”)~~ of ~~eligible inventory,~~Eligible Inventory, minus (c) applicable reserve. The term loan under the Credit Facilities has a principal amount of $47.5 million and a maturity date of April 25, 2025.

The Credit Facilities contain customary affirmative and negative covenants and restrictions typical for a financing of this type. Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the Credit Facilities becoming immediately due and payable and termination of the commitments. As of and through ~~September 30,~~December 31, 2021, we were in compliance with all of the covenants under the Credit Facilities. Furthermore, the Company believes it will be in compliance with the related financial covenants under these agreements for the next twelve months.

The Credit Facilities provide 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 resulting from the COVID-19 pandemic and continue to execute on key strategic initiatives.

Liquidity

We generally finance our operations through cash flows from operations and borrowings under our Credit Facilities described above. In light of our financial position, operating performance and current economic conditions, including the state of the global capital markets, there can be no assurance as to whether or when we will be able to raise capital by issuing securities. We believe that the Credit Facilities, to the extent available, in addition to our cash flows from operations, collectively, will be sufficient to fund our working capital and capital expenditure requirements for the next 12 months. We expect to fund our long-term liquidity needs, including contractual obligations, anticipated capital expenditures, principal payments on our Term Loan Credit Facility, as well as working capital requirements, from our operating cash flows and our Credit facilities to the extent available.

At ~~September 30,~~December 31, 2021, we had ~~$6.0~~$3.6 million of unrestricted cash and cash equivalents and ~~$33.0~~$32.4 million available on our Revolver Credit Facility.

Impact of the COVID-19 Pandemic on our Liquidity

The COVID-19 pandemic has significantly impacted our financial position, results of operations, cash flows and liquidity as the ~~spread~~effects of the pandemic and resulting governmental actions have decreased the demand for our products, most notably throughout our DSD network, which consists of small independent restaurants, foodservice operators, large institutional buyers, and convenience store chains, hotels, casinos, healthcare facilities, and foodservice distributors. ~~This~~The COVID-19 pandemic continues to have material impact on our revenues during the three and six months ended ~~September 30,~~December 31, 2021.

In response to the pandemic's impact on our business, we instituted several initiatives in March 2020 and during ~~the~~ fiscal 2021 to reduce operating expenses and capital expenditures to help mitigate the significant negative impact of our revenue decline. In addition to the costs saving initiatives, in fiscal 2021 we repaid our existing senior secured revolving credit facility, and entered into our new Credit Facilities. We believe that the Credit Facilities provide us with increased flexibility to proactively manage our working capital and execute our long term strategy, maintain compliance with our debt financial covenants, lower our cost of borrowing, and preserve financial liquidity to mitigate the impact of the uncertain business environment resulting from the COVID-19 pandemic, while continuing to execute on our strategic initiatives.

The duration and magnitude of the COVID-19 pandemic, including the extent of the weaker demand for our products, our financial position, results of operations and liquidity, which could be material, ~~is still uncertain due to the rapid development and fluidity~~remains uncertain. The ultimate impacts of the ~~situation.~~COVID-19 pandemic on our business will depend on future developments, including the availability and cost of labor, global supply chain disruptions, variants of the virus, and the availability and use of vaccines, which is highly uncertain and cannot be predicted. While we anticipate that our revenue will continue to recover slowly as local, state and national governments continue to ease COVID-19 related restrictions, and vaccines ~~are distributed throughout the country,~~become more widely accepted, there can be no assurance that we will be successful in returning to the pre-COVID-19 pandemic levels of revenue or profitability for ~~our~~ fiscal ~~year ending June 30,~~ 2022.

4634

Cash Flows

The significant captions and amounts from our ~~condensed~~ consolidated statements of cash flows are summarized below:

Three Months Ended September 30,
2021 2020
Condensed Consolidated Statements of cash flows data (in thousands)
Net cash (used) provided by operating activities $ (6,735) $ 8,985
Net cash provided (used) in investing activities 4,755 (4,140)
Net cash used in financing activities (2,269) (53,833)
Net decrease in cash and cash equivalents and restricted cash $ (4,249) $ (48,988)


	Six Months Ended December 31,
	2021		2020
Consolidated Statements of cash flows data (in thousands)
Net cash used in operating activities	$	(8,595)	$	(3,823)
Net cash provided by (used in) investing activities	2,288		(7,710)
Net cash used in financing activities	(332)		(42,623)
Net decrease in cash and cash equivalents and restricted cash	$	(6,639)	$	(54,156)

Operating Activities

Net cash used in operating activities during the ~~three~~six months ended ~~September 30,~~December 31, 2021 was ~~$6.7~~$8.6 million as compared to net cash ~~provided~~used of ~~$9.0~~$3.8 million in the ~~three~~six months ended ~~September 30,~~December 31, 2020. The ~~$15.7~~$4.8 million change in net cash used in operating activities was primarily attributable to changes in working capital primarily related to inventory and accounts ~~payable,~~receivables, as well as bonus payments for our fiscal 2021 employee incentive program. We did not pay bonuses ~~in prior year for~~as part of the ~~fiscal 2020~~ employee incentive program in fiscal 2020 due to the impact COVID-19 had on our business. These outflows were partially offset by realized gains from our coffee-related derivative instruments for the ~~three~~six months ended ~~September 30, 2021~~December 31, 2021.

Investing Activities

Net cash provided by investing activities during the ~~three~~six months ended ~~September 30,~~December 31, 2021 was ~~$4.8~~$2.3 million as compared to net cash used of ~~$4.1~~$7.7 million in the ~~three~~six months ended ~~September 30,~~December 31, 2020. The change was due to net cash proceeds of ~~$7.3~~$8.2 million primarily from the sale of ~~two~~three branch assets during the ~~three~~six months ended ~~September 30,~~December 31, 2021. Also, the decline was due to lower expansion capital expenditures to increase the capacity of our Northlake, Texas plant in the prior year period.

Financing Activities

Net cash used in financing activities during the ~~three~~six months ended ~~September 30,~~December 31, 2021 decreased ~~$51.6~~$42.3 million as compared to the ~~three~~six months ended ~~September 30,~~December 31, 2020. The decrease in net cash used in financing activities is primarily due to net repayments of ~~$52.2~~$40.0 million under the Amended and Restated Credit Agreement dated as of July 23, 2020 (the "Amended Revolving ~~Facility~~Facility"), which was fully repaid in prior year ~~compared to $2.0 million in net payments under our Credit Facilities in the current year.~~

period.

Capital Expenditures

For the three and six months ended ~~September 30,~~December 31, 2021 and 2020, our capital expenditures paid were as follows:


		Three Months Ended September 30,				Three Months Ended December 31,				Six Months Ended December 31,
(In thousands)	(In thousands)	2021		2020			(In thousands)	2021		2020		2021		2020
Maintenance:	Maintenance:						Maintenance:
Coffee brewing equipment	Coffee brewing equipment	$	1,763	$	1,100		Coffee brewing equipment	$	1,860	$	1,752	$	3,623	$	2,852
Building and facilities	Building and facilities	—		45			Building and facilities	42		—		32		45
Vehicles, machinery and equipment	Vehicles, machinery and equipment	216		95			Vehicles, machinery and equipment	273		133		499		228
IT, software, office furniture and equipment	IT, software, office furniture and equipment	264		355			IT, software, office furniture and equipment	491		262		754		616

Capital expenditures, maintenance	Capital expenditures, maintenance	$	2,243	$	1,595		Capital expenditures, maintenance	$	2,666	$	2,147	$	4,908	$	3,741

Expansion Project:	Expansion Project:						Expansion Project:
Machinery and equipment	Machinery and equipment	$	299	$	2,410		Machinery and equipment	$	669	$	2,360	$	968	$	4,770
IT equipment	IT equipment	$	—	$	361		IT equipment	—		344		—		705
Capital expenditures, Expansion Project	Capital expenditures, Expansion Project	$	299	$	2,771		Capital expenditures, Expansion Project	$	669	$	2,704	$	968	$	5,475

New Facility Costs							New Facility Costs
Building and facilities							Building and facilities	$	11	$	420	$	11	$	420
Capital expenditures, New Facility							Capital expenditures, New Facility	$	11	$	420	$	11	$	420

Total capital expenditures	Total capital expenditures	$	2,542	$	4,366		Total capital expenditures	$	3,335	$	5,271	$	5,887	$	9,636

In fiscal ~~year~~ 2022, we anticipate paying between $11.0 million to $14.0 million in maintenance capital expenditures. We expect to finance these expenditures through cash flows from operations and borrowings under our Credit Facilities.

Depreciation and amortization expenses were ~~$6.3~~$6.0 million and ~~$7.0~~$7.3 million in the three months ended ~~September 30,~~December 31, 2021 and 2020, respectively. Depreciation and amortization expenses were $12.3 million and $14.3 million in the six months ended December 31, 2021 and 2020, respectively. We anticipate our depreciation and amortization expense will be approximately $5.5 million to $7.0 million per quarter in the remainder of fiscal ~~year~~ 2022 based on our existing fixed asset commitments and the useful lives of our intangible assets.

Purchase Commitments

Contractual Obligations

As of ~~September 30,~~December 31, 2021, the Company had operating and finance lease payment commitments totaling ~~$35.2~~$29.3 million. Under our Term Loan Credit Agreement, the Company is required to make quarterly principal repayments of $950 thousand, beginning in fiscal quarter ending June 30, 2022.

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 reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. For a summary of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in Part I, Item 1 of our 2021 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 2021 Form 10-K.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in Part I, Item 1 of our 2021 Form 10-K.

Off-Balance Sheet Arrangements

As of ~~September 30,~~December 31, 2021, the Company had utilized $4.1 million of the letters of credit sublimit.

4936


Item 3.			Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

At ~~September 30,~~December 31, 2021, we had outstanding borrowings on our Revolver Credit Facility of ~~$41.5~~$43.5 million and had utilized $4.1 million of the letters of credit sublimit, as well as $47.5 million of debt outstanding under our Term Loan Credit Facility. The weighted average interest rate on our Revolver Credit Facility was 2.75% with a LIBOR Floor of 0.50%. The weighted average interest rate on our Term Loan Credit Facility was 7.50% with a LIBOR Floor of 1.0%.

The following table demonstrates the impact of interest rate changes on our annual interest expense on outstanding borrowings subject to interest rate variability under these Credit Facilities based on the weighted average interest rate on the outstanding borrowings as of ~~September 30,~~December 31, 2021:


(In thousands)	(In thousands)	Principal	Interest Rate		Annual Interest Expense		(In thousands)	Principal	Interest Rate		Annual Interest Expense
–150 basis points	–150 basis points	$89,000	5.29	%	$	4,708	–150 basis points	$91,000	5.23	%	$	4,759
–100 basis points	–100 basis points	$89,000	5.29	%	$	4,708	–100 basis points	$91,000	5.23	%	$	4,759
Unchanged	Unchanged	$89,000	5.29	%	$	4,708	Unchanged	$91,000	5.23	%	$	4,759
+100 basis points	+100 basis points	$89,000	5.60	%	$	4,984	+100 basis points	$91,000	5.57	%	$	5,069
+150 basis points	+150 basis points	$89,000	6.10	%	$	5,429	+150 basis points	$91,000	6.07	%	$	5,524

In addition to the Credit Facilities above, the Company executed an ISDA agreement with Wells Fargo (“Amended Rate Swap”). Under the terms of the Amended Rate Swap, the Company receives 1-month LIBOR, subject to a 0% floor, and makes payments based on a fixed rate of 2.4725%, The Amended Rate Swap utilizes the same notional amount of $65.0 million and maturity date of October 11, 2023 as the original interest rate swap. See Note 4,, Derivative Instruments, of the Notes to Consolidated Financial Statements included in the fiscal 2021 Annual Report on Form 10‑K for further discussions of our derivative instruments.

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 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. See Note 4, Derivative Instruments, of the Notes to the Unaudited ~~Condensed~~ Consolidated Financial Statements for further discussions of our derivative instruments.

The following table summarizes the potential impact as of ~~September 30,~~December 31, 2021 to net 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 Loss				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)									(In thousands)
Coffee-related derivative instruments(1)	Coffee-related derivative instruments(1)	$	804	$	(804)	$	3,215	$	(3,215)	Coffee-related derivative instruments(1)	$	660	$	(660)	$	3,309	$	(3,309)

__________

(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 ~~September 30,~~December 31, 2021. These contracts are not included in the sensitivity analysis above as the underlying price has been fixed.

5037


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 ~~September 30,~~December 31, 2021, our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) promulgated under the Exchange Act. Based on that evaluation, our Chief Executive Officer and 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 ~~September 30,~~December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION


Item 1.			Legal Proceedings

The information set forth in Note 20,, 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 ~~Annual Report on~~2021 Form 10‑~~K for the year ended June 30, 2021, which is accessible on the SEC’s website at www.sec.gov.~~K. During the ~~three~~six months ended ~~September 30,~~December 31, 2021, there have been no material changes to the risk factors disclosed in our 2021 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

5238


Item 6.			Exhibits


Exhibit No.						Description

3.1						Amended and Restated Certificate of Incorporation of Farmer Bros. Co. (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed with the SEC on September 11, 2019 and incorporated herein by reference).

3.2						Certificate of Amendment of Amended and Restated Certificate of Incorporation of Farmer Bros. Co. filed March 20, 2020. (filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 8, 2020 and incorporated herein by reference).

~~3.2~~3.3						Certificate of Amendment of Amended and Restated Certificate of Incorporation of Farmer Bros. Co. (filed as Exhibit ~~3.1~~4.4 to the Company’s ~~Annual Report~~Registration Statement on Form ~~10-K~~S-8 filed with the SEC on ~~September~~December 28, 2021 and incorporated herein by reference).

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

3.5						Amended and Restated Bylaws (filed as Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2019 filed with the SEC on February 11, 2019 and incorporated herein by reference).

~~3.3~~3.6						Amendment No. 1 to Amended and Restated Bylaws of Farmer Bros. Co. (filed as Exhibit 3.4 to the Company’s Annual Report on Form 10-K filed with the SEC on September 11, 2020 ~~and incorporated herein by reference).~~

~~3.4~~						~~Amended and Restated Bylaws (filed as Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2019 filed with the SEC on February 11, 2019~~ and incorporated herein by reference).

10.1						General Release and Separation Agreement, dated October 21, 2021 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 22, 2021 and incorporated herein by reference).

10.2						Farmer Bros. Co. Amended and Restated 2017 Long-Term Incentive Plan, as amended to date (filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed with the SEC on December 16, 2021 and incorporated herein by reference).

10.3						Farmer Bros. Co. 401(k) Plan, as amended to date (filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed with the SEC on December 28, 2021 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.

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

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**						Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

________________




*			Filed herewith

**			Furnished, not filed, herewith

5339

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FARMER BROS. CO.

By:

/s/ Deverl Maserang

Deverl Maserang
President and Chief Executive Officer
(principal executive officer)

~~November 4, 2021~~February 3, 2022

By:

/s/ Scott R. Drake

Scott R. Drake
Chief Financial Officer
(principal financial officer and principal accounting officer)

~~November 4, 2021~~February 3, 2022

5440


Outstanding and Nonvested Restricted Stock Awards:	Shares Awarded	Weighted Average Grant Date Fair Value ($)
Outstanding and nonvested at June 30, 2021	681,570	10.47
Granted	275,602	8.96
Vested/Released	(114,237)	12.06
Cancelled/Forfeited	(16,592)	5.93
Outstanding and nonvested at September 30, 2021	826,343	11.14