Note 11. Debt Obligations
The following table summarizes the Company’s debt obligations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | September 30, 2022 | | June 30, 2022 |
(In thousands) | | Debt Origination Date | | Maturity | | Principal Borrowing Amount | | Carrying Value | | Weighted Average Interest Rate (1) | | Carrying Value | | Weighted Average Interest Rate |
Revolver | | Various | | 4/26/2027 | | N/A | | $ | 67,000 | | | 3.98 | % | | $ | 63,000 | | | 2.75 | % |
Term Loan | | 8/31/2022 | | 4/26/2027 | | $47,000 | | 47,000 | | | | | 45,600 | | | |
| | | | | | | | 114,000 | | | | | 108,600 | | | |
Unamortized deferred debt financing costs | | | | | | (1,018) | | | | | (1,677) | | | |
Total | | | | | | | | 112,982 | | | | | $ | 106,923 | | | |
__________
(1) The weighted average interest rate excludes the fixed rate on the de-designated Amended Rate Swap
Revolver Facility
On April 26, 2021, the Company entered into a senior secured facility which included a Revolver Credit Facility Agreement (the "Revolver Credit Facility"). The Revolver Credit Facility had a commitment of up to $80.0 million and a maturity date of April 25, 2025. On August 8, 2022, the Company and certain of its subsidiaries entered into the Increase Joinder and Amendment No. 2 to Credit Agreement (the “2nd Amendment”), with Wells Fargo, as administrative agent for each member of the lender group and as a lender. The 2nd Amendment amends certain terms and conditions of the Revolver Credit Facility by, among other things: (i) increasing the maximum revolver amount by $10.0 million to an aggregate maximum revolver commitment amount of $90.0 million; and (ii) replacing the London Interbank Offered Rate (LIBOR) interest rate benchmark (which had an applicable margin of 2.25% for LIBOR rate loans) with the secured overnight financing rate (SOFR) interest rate benchmark (which has an applicable margin of 1.75% for SOFR rate loans).
Availability under the Revolver Credit Facility is calculated as the lesser of (a) $90.0 million or (b) the amount equal to the sum of (i) 85% of eligible accounts receivable (less a dilution reserve), plus (ii) the lesser of: (a) 80% of eligible raw material inventory, eligible in-transit inventory and eligible finished goods inventory (collectively, “Eligible Inventory”), and (b) 85% of the net orderly liquidation value of eligible inventory, minus (c) applicable reserve.
The Revolver Credit Facility contains 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 Revolver Credit Facility becoming immediately due and payable and termination of the commitments.
Prior Term Loan Facility
On April 26, 2021, the Company borrowed $47.5 million of term loans from various financial institutions as part of a Credit Agreement, dated as of April 26, 2021 (the “Prior Term Loan Facility”). The following is a summary description of the Prior Term Loan Facility:
1.total commitment of $47.5 million in the form of a term loan;
2.maturity date of April 25, 2025 and scheduled payback required on the principal prior to the maturity date;
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 under the Term Loan is either LIBOR + 6.5% per annum, or (b) base rate + 5.50% per annum, with a 3% floor on base rate; and
5.commencing on the fiscal quarter ending on March 31, 2022, quarterly minimum EBITDA and fixed charge coverage ratio requirements specified therein.
Principal payments on the Prior Term Loan Facility were due quarterly in the amount of $0.95 million.
New Term Loan Facility
On August 31, 2022, the Company entered into Amendment No. 3 to Credit Agreement (the “Term Loan Facility”), with the lenders party thereto, and Wells Fargo Bank, as administrative agent for each member of the lender group and as a lender. The 3rd Amendment amends certain terms and conditions of the Revolver Credit Facility by, among other things: (i) adding a new $47.0 million term loan (the “Term Loan”); (ii) extending the maturity date of the Company’s obligations under the Revolver Credit Facility from April 25, 2025 to April 26, 2027; provided, that if the maturity date of the Revolver Commitments is extended on or prior to April 1, 2027 to a date that is after April 26, 2027, then the maturity of the Term
Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)
Loan Facility shall be August 31, 2037; (iii) releasing liens securing the obligations under the Revolver Facility Credit on various real properties owned by the Company; (iv) commencing on or around June 30, 2023, obligating the Company to maintain a Fixed Charge Coverage Ratio, calculated for each 12-month period ending on the last day of each fiscal month, of at least 1:00 to 1:00; and (v) lowering the Letter of Credit Fee payable with respect to letters of credit issued under the Credit Agreement from 2.25% to 1.75% of the average amount of the Letter of Credit Usage during the immediately preceding month.
The proceeds of the Term Loan Facility were used to repay the outstanding term loans under the Term Credit Facility Agreement. With the repayment of the Company’s outstanding loans and other obligations under the Term Credit Facility Agreement, the Company is no longer subject to the minimum EBITDA covenants contained therein. As part of the refinancing transaction, the Company expensed $1.5 million in unamortized deferred financing costs, discount and payoff premium for the three months ended September 30, 2022, which are included in interest expense on the consolidated statement of operations.
The Term Loan Facility contains 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 Loan Facility Agreement and the Revolver Credit Facility becoming immediately due and payable and termination of the commitments.
Covenant Compliance
As of September 30, 2022, the Company was in compliance with all of the financial covenants under the Revolver Credit Facility and the Term Loan Facility (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.
Interest Rate Swap
In connection with the Revolver Credit Facility and Prior Term Loan Facility , the Company executed the 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%, 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.
Beginning with the quarter ended December 31, 2022, the Company is required to make monthly principal payments on the Term Loan debt obligation in the amount of $261 thousand. At September 30, 2022, the Company had outstanding borrowings on the Revolver Credit Facility of $67.0 million and had utilized $4.1 million of the letters of credit sublimit. At September 30, 2022, we had $18.9 million available on our Revolver Credit Facility.
Note 12. Share-based Compensation
Farmer Bros. Co. Amended and Restated 2017 Long-Term Incentive Plan (the “2017 Plan”)
As of September 30, 2022, there were 1,696,690 shares available under the 2017 Plan including shares that were forfeited under the prior plans for future issuance.
On December 15, 2021, the Company’s stockholders approved an amendment (the “Plan Amendment”) to the 2017 Plan, which (i) increased the number of shares of Common Stock available for grant under the Plan by 1,500,000 additional shares of Common Stock and (ii) allows the Company to utilize awards to attract and incentivize non-employee consultants.
Farmer Bros. Co. 2020 Inducement Incentive Award Plan (the “2020 Inducement Plan”)
As of September 30, 2022, there were 60,475 shares available under the 2020 Inducement Plan.
Non-qualified stock options with time-based vesting (“NQOs”)
One-third of the total number of shares subject to each stock option vest ratably on each of the first three anniversaries of the grant date, contingent on continued employment, and subject to accelerated vesting in certain circumstances. There were no NQOs granted during the three months ended September 30, 2022.
Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)
The following table summarizes NQO activity for three months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding NQOs: | | Number of NQOs | | Weighted Average Exercise Price ($) | | | | Weighted Average Remaining Life (Years) | | Aggregate Intrinsic Value ($ in thousands) |
Outstanding at June 30, 2022 | | 450,687 | | | 12.39 | | | | 4.34 | | $ | — | |
Granted | | — | | | — | | | | — | | — | |
Exercised | | — | | | — | | | | — | | — | |
Cancelled/Forfeited | | (8,096) | | | 15.94 | | | | — | | — | |
Expired | | (3,273) | | | 15.94 | | | | — | | — | |
Outstanding at September 30, 2022 | | 439,318 | | | 12.30 | | | | 3.92 | | $ | — | |
Exercisable at September 30, 2022 | | 375,501 | | | 12.69 | | | | 3.84 | | $ | — | |
| | | | | | | | | | |
The aggregate intrinsic values outstanding at the end of period in the table above represent the total pretax intrinsic values, based on the closing price of Common Stock of $4.69 at September 30, 2022 and June 30, 2022, 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, 2022 and 2021.
At September 30, 2022 and June 30, 2022, respectively, there was $0.1 million and $0.2 million of unrecognized NQO compensation cost. The unrecognized NQO compensation cost at September 30, 2022 is expected to be recognized over the weighted average period of five months. Total compensation expense for NQOs was $0.1 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively.
Non-qualified stock options with performance-based and time-based vesting (“PNQs”)
The following table summarizes PNQ activity for the three months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding PNQs: | | Number of PNQs | | Weighted Average Exercise Price ($) | | | | Weighted Average Remaining Life (Years) | | Aggregate Intrinsic Value ($ in thousands) |
Outstanding at June 30, 2022 | | 2,212 | | | 30.91 | | | | 0.83 | | $ | — | |
Granted | | — | | | — | | | | — | | — | |
Exercised | | — | | | — | | | | — | | — | |
Cancelled/Forfeited | | — | | | — | | | | — | | — | |
Expired | | — | | | — | | | | — | | — | |
Outstanding at September 30, 2022 | | 2,212 | | | 30.91 | | | | 0.57 | | $ | — | |
Exercisable at September 30, 2022 | | 2,211 | | | 30.91 | | | | 0.57 | | $ | — | |
| | | | | | | | | | |
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 $4.69 at September 30, 2022 and June 30, 2022, representing the last trading day of the respective fiscal periods, which would have been received by PNQ holders had all award holders exercised their PNQs that were in-the-money as of those dates.
There were no options exercised during three months ended September 30, 2022 and 2021.
At September 30, 2022 and June 30, 2022, there was no unrecognized PNQ compensation cost. There was no compensation expense related to PNQs in the three months ended September 30, 2022 and 2021.
Restricted Stock
The following table summarizes restricted stock activity for the three months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | |
Outstanding and Nonvested Restricted Stock Awards: | | Shares Awarded | | Weighted Average Grant Date Fair Value ($) | | | | |
Outstanding and nonvested at June 30, 2022 | | 816,811 | | | 6.67 | | | | | |
Granted | | 93,255 | | | 5.10 | | | | | |
Vested/Released | | (164,681) | | | 7.46 | | | | | |
Cancelled/Forfeited | | (40,044) | | | 6.25 | | | | | |
Outstanding and nonvested at September 30, 2022 | | 705,341 | | | 6.47 | | | | | |
| | | | | | | | |
Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)
The weighted average grant date fair value of RSUs granted during the quarters ended September 30, 2022 and 2021 were $5.10 and $8.96, respectively. The total grant-date fair value of restricted stock granted during the three months ended September 30, 2022 was $0.6 million. The total fair value of awards vested during the quarter ended September 30, 2022 and 2021 were $0.9 million and $1.2 million, respectively.
At September 30, 2022 and June 30, 2022, there was $3.4 million and $3.9 million, respectively, of unrecognized compensation cost related to restricted stock. The unrecognized compensation cost related to restricted stock at September 30, 2022 is expected to be recognized over the weighted average period of 1.0 years. Total compensation expense for restricted stock was $0.7 million and $0.5 million, respectively, in the three months ended September 30, 2022 and 2021.
Performance-Based Restricted Stock Units (“PBRSUs”)
The following table summarizes PBRSU activity for the three months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | |
Outstanding and Nonvested PBRSUs: | | PBRSUs Awarded (1) | | Weighted Average Grant Date Fair Value ($) | | | | |
Outstanding and nonvested at June 30, 2022 | | 456,993 | | | 6.16 | | | | | |
Granted (1) | | — | | | — | | | | | |
Vested/Released | | — | | | — | | | | | |
Cancelled/Forfeited | | (19,540) | | | 15.35 | | | | | |
Outstanding and nonvested at September 30, 2022 | | 437,453 | | | 5.75 | | | | | |
| | | | | | | | |
_____________
(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.
There were no PBRSUs granted or vested during the quarter ended September 30, 2022.
At September 30, 2022 and June 30, 2022, there was $1.5 million and $1.7 million, respectively, of unrecognized PBRSU compensation cost. The unrecognized PBRSU compensation cost at September 30, 2022 is expected to be recognized over the weighted average period of 1.7 years. Total compensation expense for PBRSUs was $181.9 thousand and $106.5 thousand, respectively, for the three months ended September 30, 2022 and 2021.
Cash-Settled Restricted Stock Units (“CSRSUs”)
CSRSUs vest in equal installments over a three-year period from the grant date, and are cash-settled upon vesting based on the closing share price of Common Stock on the vesting date.
The CSRSUs are accounted for as liability awards, and compensation expense is measured at fair value on the date of grant and recognized on a straight-line basis over the vesting period net of forfeitures. Compensation expense is remeasured at each reporting date with a cumulative adjustment to compensation cost during the period based on changes in the closing share price of Common Stock.
The following table summarizes CSRSU activity for the three months ended September 30, 2022:
| | | | | | | | | | | | | | | | | | |
Outstanding and Nonvested CSRSUs: | | CSRSUs Awarded | | Weighted Average Grant Date Fair Value ($) | | | | |
Outstanding and nonvested at June 30, 2022 | | 145,645 | | | 6.36 | | | | | |
Granted | | — | | | — | | | | | |
Vested/Released | | (17,924) | | | 8.91 | | | | | |
Cancelled/Forfeited | | (25,935) | | | 6.44 | | | | | |
Outstanding and nonvested at September 30, 2022 | | 101,786 | | | 5.89 | | | | | |
| | | | | | | | |
There were no CSRSUs granted during the quarter ended September 30, 2022. The total fair value of awards vested during the quarter ended September 30, 2022 was $0.1 million. There were no CSRSUs vested during the quarter ended September 30, 2021.
At September 30, 2022 and June 30, 2022, there was $0.4 million and $0.6 million, respectively, of unrecognized compensation cost related to CSRSU. The unrecognized compensation cost related to CSRSU at September 30, 2022 is expected to be recognized over the weighted average period of 1.5 years. Total compensation expense for CSRSUs was $55.5 thousand and $0.1 million, respectively for the three months ended September 30, 2022 and 2021
Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)
Note 13. Other Current Liabilities
Other current liabilities consist of the following:
| | | | | | | | | | | | | | |
(In thousands) | | September 30, 2022 | | June 30, 2022 |
| | | | |
Accrued workers’ compensation liabilities | | $ | 872 | | | $ | 947 | |
Finance lease liabilities | | 193 | | | 193 | |
| | | | |
Other (1) | | 4,725 | | | 4,955 | |
Other current liabilities | | $ | 5,790 | | | $ | 6,095 | |
_________
(1) Includes accrued property taxes, sales and use taxes and insurance liabilities.
Note 14. Other Long-Term Liabilities
Other long-term liabilities include the following:
| | | | | | | | | | | | | | |
(In thousands) | | September 30, 2022 | | June 30, 2022 |
| | | | |
| | | | |
Deferred compensation (1) | | $ | 216 | | | $ | 195 | |
Finance lease liabilities | | 370 | | | 409 | |
Deferred income taxes and other liabilities | | 735 | | | 735 | |
Other long-term liabilities | | $ | 1,321 | | | $ | 1,339 | |
___________
(1) Includes payroll taxes and cash-settled restricted stock units liabilities.
Note 15. 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, |
| | | | | | 2022 | | 2021 |
Income tax expense | | | | | | $ | 43 | | | $ | 62 | |
Effective tax rate | | | | | | (0.6) | % | | (2.6) | % |
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.
Tax expense in the three months ended September 30, 2022 was $42.7 thousand compared to $0.1 million in the three months ended September 30, 2021, which primarily relates to state income tax expense in certain jurisdictions.
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 exceptions, as of September 30, 2022, the Company is no longer subject to income tax audits by taxing authorities for any years prior to 2019. 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 consolidated financial statements.
Note 16. Net Loss Per Common Share
Basic net 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 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.
Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)
The following table presents the computation of basic and diluted net earnings loss per common share:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, |
(In thousands, except share and per share amounts) | | | | | | 2022 | | 2021 |
Undistributed net loss available to common stockholders | | | | | | $ | (7,374) | | | $ | (2,474) | |
Undistributed net loss available to nonvested restricted stockholders and holders of convertible preferred stock | | | | | | — | | | (97) | |
Net loss available to common stockholders - basic | | | | | | $ | (7,374) | | | $ | (2,571) | |
| | | | | | | | |
Weighted average common shares outstanding - basic | | | | | | 18,948,453 | | | 17,969,694 | |
Effect of dilutive securities: | | | | | | | | |
Shares issuable under stock options | | | | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
Weighted average common shares outstanding - diluted | | | | | | 18,948,453 | | | 17,969,694 | |
Net loss available to common stockholders per common share—basic | | | | | | $ | (0.39) | | | $ | (0.14) | |
Net loss available to common stockholders per common share—diluted | | | | | | $ | (0.39) | | | $ | (0.14) | |
The following table summarizes anti-dilutive securities excluded from the computation of diluted net loss per common share for the periods indicated:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, |
| | | | | | 2022 | | 2021 |
Shares issuable under stock options | | | | | | 439,318 | | | 384,520 | |
Shares issuable under convertible preferred stock | | | | | | — | | | 440,990 | |
Shares issuable under PBRSUs | | | | | | 437,453 | | | 383,783 | |
Note 17. Preferred Stock
The Company is authorized to issue 500,000 shares of preferred stock at a par value of $1.00, including 21,000 authorized shares of Series A Preferred Stock. There are no preferred shares issued and outstanding as of September 30, 2022.
Effective August 25, 2022, 12,964 shares of Series A Preferred Stock were converted into 399,208 shares of common stock at a conversion price of $38.32, in accordance with the terms of the Company’s Designation of Series A Preferred Stock. The terms of the Series A Preferred Stock are disclosed in Note 20 to the Consolidated Financial Statements included in the 2022 Form 10-K.
The shares of Series A Preferred Stock were originally issued to Boyd Coffee Company (now known as BCC Newco, Inc.) (“BCC”), on October 2, 2017, pursuant to that certain Asset Purchase Agreement, dated as of August 18, 2017 (the “Purchase Agreement”), by and among the Company, Boyd Assets Co., a Delaware corporation and wholly owned subsidiary of the Company, BCC and each of the parties set forth on Exhibit A thereto. 1,736 shares of Series A Preferred Stock originally issued to BCC in accordance with the terms of the Purchase Agreement were previously reacquired and cancelled by the Company as part of a settlement with BCC. The shares of Series A Preferred Stock converted represented all of the issued and outstanding shares of Series A Preferred Stock. The Company withheld 914 shares of Series A Preferred Stock pending satisfaction of certain indemnification claims (“Holdback Shares”) against the Seller.
As a result of the settlement entered into with BCC, the Company recorded a $1.9 million gain on settlement with Boyd’s sellers, in general and administrative expense on the consolidated statement of operations, which included the cancellation of preferred shares and settlement of acquisition related contingent liabilities,
Note 18. Revenue Recognition
The Company’s primary sources of revenue are sales of coffee, tea and culinary products. The Company recognizes revenue when control of the promised good or service is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various shipping terms applicable to the Company’s sales.
The Company delivers products to customers through Direct-store-delivery (“DSD”) to the Company’s customers at their place of business and Direct ship from the Company’s warehouse to the customer’s warehouse, facility or address. Each delivery or shipment made to a third party customer is to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. The Company is entitled to collection of the sales price under normal credit terms in the regions in which it operates.
Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)
The Company disaggregates net sales from contracts with customers based on the characteristics of the products sold:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, |
| | | | | | 2022 | | 2021 |
(In thousands) | | | | | | | | | | $ | | % of total | | $ | | % of total |
Net Sales by Product Category: | | | | | | | | | | | | | | | | |
Coffee (Roasted) | | | | | | | | | | $ | 78,295 | | | 64.5 | % | | $ | 70,597 | | | 65.1 | % |
Tea & Other Beverages (1) | | | | | | | | | | 20,946 | | | 17.3 | % | | 19,037 | | | 17.6 | % |
Culinary | | | | | | | | | | 14,896 | | | 12.3 | % | | 13,075 | | | 12.1 | % |
Spices | | | | | | | | | | 6,024 | | | 4.9 | % | | 5,199 | | | 4.8 | % |
Net sales by product category | | | | | | | | | | 120,161 | | | 99.0 | % | | 107,908 | | | 99.6 | % |
Delivery Surcharge | | | | | | | | | | 1,219 | | | 1.0 | % | | 454 | | | 0.4 | % |
Net sales | | | | | | | | | | $ | 121,380 | | | 100.0 | % | | $ | 108,362 | | | 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, 2022. Receivables from contracts with customers are included in “Accounts receivable, net” on the Company’s consolidated balance sheets. At September 30, 2022 and June 30, 2022, “Accounts receivable, net” included, $46.2 million and $44.2 million, respectively, in receivables from contracts with customers.
Note 19. Commitments and Contingencies
For a detailed discussion about the Company’s commitments and contingencies, see Note 18, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements in the 2022 Form 10-K. During the three months ended September 30, 2022, other than the following, or as otherwise disclosed herein, there were no material changes in the Company’s commitments and contingencies.
Purchase Commitments
As of September 30, 2022, the Company had committed to purchase green coffee inventory totaling $103.6 million under fixed-price contracts, and $12.3 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 sell 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 and 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.
A series of procedural and legislative developments occurred in the ensuing years, and at hearings in August 2020, the Court denied CERT’s motion for summary judgment and granted the JDG’s motion for summary judgment. Notice of Judgment in favor of defendants was entered on October 6, 2020. CERT has appealed.
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.
Farmer Bros. Co.
Notes to Unaudited Consolidated Financial Statements (continued)
Note 20. Sales of Assets
Sale of Branch Property
During the three months ended September 30, 2022, the Company completed the sale of the following branch properties:
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(In thousands) | | | | | | | | |
Name of Branch Property | | Date Sold | | Sales Price | | Net Proceeds | | Gain on Sale |
Portland, Oregon | | 9/23/2022 | | $ | 1,990 | | | $ | 1,880 | | | $ | 1,770 | |
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San Diego, California | | 9/19/2022 | | 7,574 | | | 7,169 | | | 6,425 | |
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