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What changed in FARMER BROTHERS CO's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FARMER BROTHERS CO's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+262 added−258 removedSource: 10-K (2023-09-12) vs 10-K (2022-09-02)

Top changes in FARMER BROTHERS CO's 2023 10-K

262 paragraphs added · 258 removed · 174 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe offer a full return policy to ensure satisfaction and extended terms for those customers who qualify. Historically, our product returns have not been significant. In fiscal 2022 and fiscal 2021, the COVID-19 pandemic had a material impact on our financial condition and results of operations.
Biggest changeSome of our customers are “price” buyers, seeking a low-cost provider with less concern for service, while others find great value in the service programs we provide. We offer a full return policy to ensure satisfaction and extended terms for those customers who qualify. Historically, our product returns have not been significant.
We were among the first coffee roasters 2 in the nation to receive SCA certification of a state-of-the-art coffee lab, which includes our product development labs at the Northlake, Texas and Portland, Oregon facilities. • Market Insight and Consumer Research.
We were among the first coffee roasters in the nation to receive 2 SCA certification of a state-of-the-art coffee lab, which includes our product development labs at the Northlake, Texas and Portland, Oregon facilities. • Market Insight and Consumer Research.
This has included company-paid short-term disability as well as paid parental leave for all non-union team members. 4 • Focused improvement of our overall team member experience, including investments in HR technology, well-being initiatives and a comprehensive Benefits Assistance Center to help employees understand their benefits better. Health and Safety The health and safety of our team members is crucial.
This has included company-paid short-term disability as well as paid parental leave for all non-union team members. • Focused improvement of our overall team member experience, including investments in HR technology, well-being initiatives and a comprehensive Benefits Assistance Center to help employees understand their benefits better. 4 Health and Safety The health and safety of our team members is crucial.
However, our product line and geographic diversity provide some sales stability during the warmer months when coffee consumption ordinarily decreases. Additionally, we usually experience an increase in sales during the summer and early fall months from seasonal businesses located in vacation areas and from grocery retailers ramping up inventory for the winter 5 selling season.
However, our product line and geographic diversity provide some sales stability during the warmer months when coffee consumption ordinarily decreases. Additionally, we usually experience an increase in sales during the summer and early fall months from seasonal businesses located in vacation areas and from grocery retailers ramping up inventory for the winter selling season.
Regulatory Environment 6 The conduct of our businesses, including, among other things, the production, storage, distribution, sale, labeling, quality and safety of our products, and occupational safety and health practices, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States.
Regulatory Environment The conduct of our businesses, including, among other things, the production, storage, distribution, sale, labeling, quality and safety of our products, and occupational safety and health practices, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States.
This helps us to bring transparency to our supply chain, rank our suppliers, and also to identify opportunities to select trusted providers, cooperatives, mills, exporters, and other suppliers, when offering sustainable coffees to our customers. It also helps us deepen our understanding of greenhouse gas emissions generated upstream of our supply chain. • Supplier Sustainability.
This helps us to bring transparency to our supply chain, rank our suppliers, and also to identify opportunities to select trusted providers, cooperatives, mills, exporters, and other suppliers, when offering sustainable coffees to our customers. It also helps us deepen our understanding of greenhouse gas emissions generated upstream in our supply chain. • Supplier Sustainability.
None of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government. We have no material revenues from foreign operations or long-lived assets located in foreign countries.
None of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government. We have no 6 material revenues from foreign operations or long-lived assets located in foreign countries.
Our commitments to DEI include: • Creating courageous and psychologically safe spaces for all team members through continual learning and development and implementation of Business Employee Resource Groups (BERGs). • Evaluation of all HR programs and processes through a DEI lens to identify and remove bias in our people practices. • Increase in diversity supplier partnerships and spend. • Actively recruiting from organizations that identify, prepare and develop diverse candidates for the workplace (e.g.
Our commitments to diversity, equity and inclusion ("DEI") include: • Creating courageous and psychologically safe spaces for all team members through continual learning and development and implementation of Business Employee Resource Groups (BERGs); • Evaluation of all HR programs and processes through a DEI lens to identify and remove bias in our people practices. • Increase in diversity supplier partnerships and spend; • Actively recruiting from organizations that identify, prepare and develop diverse candidates for the workplace (e.g.
Our services provided to DSD customers are conducted primarily in person through our RSRs, who develop business relationships with chefs, restaurant owners and food buyers at their delivery locations; and • Providing comprehensive coffee programs to our national account customers, including private brand development, green coffee procurement, hedging, category management, sustainable sourcing, limited time specialty products, packaging design and supply chain management.
Our services provided to DSD customers are conducted primarily in person through our RSRs, who develop business relationships with chefs, restaurant owners and food buyers at their delivery locations; and • Providing comprehensive coffee programs to our key account customers, including private brand development, green coffee procurement, hedging, category management, sustainable sourcing, limited time specialty products, packaging design and supply chain management.
Our corporate office in Northlake, Texas has also achieved LEED ® Silver Certification. • Project D.I.R.E.C.T. ® Program. In fiscal 2022, we continued to grow our direct trade sourcing model, Project D.I.R.E.C.T. ®. This program involves direct long-term partnerships with coffee growing communities based on principles of sustainability, transparent pricing and consumer education.
Our corporate office in Northlake, Texas has also achieved LEED ® Silver Certification. • Project D.I.R.E.C.T. ® Program. In fiscal 2023, we continued to grow our direct trade sourcing model, Project D.I.R.E.C.T. ®. This program involves direct long-term partnerships with coffee growing communities based on principles of sustainability, transparent pricing and consumer education.
We have developed a market insight capability internally that reinforces our business-to-business positioning as a thought leader in the coffee, tea and food service industries. We invest in proprietary consumer and customer segmentation studies and provide trend insights and product development support that help our customers create winning products and integrated marketing strategies.
We have developed a market insight capability internally that reinforces our business-to-business positioning as a thought leader in the coffee, tea and food service industries. We invest in proprietary consumer and customer segmentation studies and provide trend insights and product development support that helps our customers create winning products and integrated marketing strategies.
In fiscal 2022 we maintained our goal of 90% waste diversion for our primary production and distribution facilities. To accomplish this goal, we have focused on the circularity of our waste streams, making partnerships to reuse them, reintroducing them as inputs for new products, or recycling them and composting them when none of the previous options are possible.
In fiscal 2023, we maintained our goal of 90% waste diversion for our primary production and distribution facilities. To accomplish this goal, we have focused on the circularity of our waste streams, making partnerships to reuse them, reintroducing them as inputs for new products, or recycling them and composting them when none of the previous options are possible.
Our business model strives to reduce the impact of green coffee price fluctuations on our financial results and to protect and stabilize our margins, principally through customer arrangements and derivative instruments, as further explained in Note 4 , Derivative Instruments, of the Notes to Consolidated Financial Statements included in this Form 10‑K.
Our business model strives to reduce the impact of green coffee price fluctuations on our financial results and to protect and stabilize our margins, principally through customer arrangements and derivative instruments, as further explained in Note 5, Derivative Instruments, of the Notes to Consolidated Financial Statements included in this Form 10‑K.
Our fiscal year ends on June 30, and our discussion is as of and for the fiscal years ended June 30, 2022 ("fiscal 2022") and June 30, 2021 ("fiscal 2021"). See Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations included in Part II, Item 7 of this Form 10-K.
Our fiscal year ends on June 30, and our discussion is as of and for the fiscal years ended June 30, 2023 ("fiscal 2023") and June 30, 2022 ("fiscal 2022"). See Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations included in Part II, Item 7 of this Form 10-K.
Currently 77% of the waste generated company-wide is diverted from the landfill, and our roasting facilities have achieved the Zero Waste goal since 2018. • LEED ® Certified Facilities. Our Portland production and distribution facility is the first in the Northwest to achieve LEED ® Silver Certification.
Currently 79% of the waste generated company-wide is diverted from the landfill, and our roasting facilities have achieved the Zero Waste goal since 2018. • LEED ® Certified Facilities. Our Portland production and distribution facility is the first in the Northwest to achieve LEED ® Silver Certification.
In fiscal 2022 we made progress towards our science based carbon reduction targets. With a new baseline established in fiscal 2018, we set more ambitious goals in line with efforts to limit global warming to 1.5°C.
In fiscal 2023, we made progress towards our science-based carbon reduction targets. With a new baseline established in fiscal 2018, we set more ambitious goals in line with efforts to limit global warming to 1.5°C.
We tailor solutions to our customers' needs helping them deliver a great experience for their customers, which includes: • Offering a wide variety of sustainably sourced coffee, tea, and culinary products, thereby helping our customers achieve their sustainability goals and objectives; • Providing consumer, channel, and market insights; including ideation to support customer menu and product evaluation in line with consumer trends; • Delivering comprehensive commercial brewing equipment program support from installation to preventative maintenance to timely repair; • Providing DSD service where our trained Route Sales Representative ("RSR") orders product to keep our customers in-stock, merchandises the beverage station, rotates products, cleans and inspects equipment on-site, and performs “cup quality checks” all to ensure a great experience for the consumer.
We tailor solutions to our customers' needs, helping them deliver a great experience for their customers, including by: • Offering a wide variety of sustainably sourced coffee, tea, and culinary products, thereby helping our customers achieve their sustainability goals and objectives; • Providing consumer, channel, and market insights, including ideation to support customer menu and product evaluation in line with consumer trends; • Delivering comprehensive commercial brewing equipment program support from installation to preventative maintenance to timely repair; • Providing DSD service where our trained Route Sales Representative ("RSR") orders product to keep our customers in-stock, merchandises the beverage station, rotates products, cleans and inspects equipment on-site, and performs “cup quality checks,” all to ensure a great experience for the consumer.
Texas Workforce Commission, Hiring our Heroes, Mom’s Unfiltered, INROADS Inc., etc.). • Engagement with community based organizations and local schools and universities to ensure equal access to employment opportunities through job search/interview training, apprenticeships, internships, and other programs. • Commencement of a project with the National Organization on Disabilities to review our practices, train our leaders and help us increase our employment of people with disabilities.
Texas Workforce Commission, Hiring our Heroes, Mom’s Unfiltered, INROADS Inc., etc.); • Engagement with community based organizations and local schools and universities to ensure equal access to employment opportunities through job search/interview training, apprenticeships, internships, and other programs; and • Partnership with the National Organization on Disabilities to review our practices, train our leaders and help us increase our employment of people with disabilities.
Through our dedication to the craft of sourcing, blending and roasting coffee, and our participation and/or leadership positions with the Specialty Coffee Association ("SCA"), National Coffee Association, Coalition for Coffee Communities, International Women's Coffee Alliance, Pacific Coast Coffee Association, and Roasters Guild, we work to help shape the future of the coffee industry.
Through our dedication to the craft of sourcing, blending and roasting coffee, and our participation with the Specialty Coffee Association ("SCA"), National Coffee Association, Coalition for Coffee Communities, International Women's Coffee Alliance, Pacific Coast Coffee Association, and Roasters Guild, we work to help shape the future of the coffee industry.
In order to achieve our mission, we have grown existing capabilities and continue to develop new capabilities to deliver value to our customers. More recently, we have undertaken initiatives such as, but not limited to, the following: • Executing Manufacturing and Network Optimization . We continue to develop and execute manufacturing network optimization.
In order to achieve our mission, increase cash optimization, and improve margins, we have grown existing capabilities and continue to develop new capabilities to deliver value to our customers. More recently, we have undertaken initiatives such as, but not limited to, the following: • Executing Manufacturing and Network Optimization . We continue to develop and execute manufacturing network optimization.
Copies of our Corporate Governance Guidelines, the Charters of the Audit, Compensation, Technology, Nominating and Corporate Governance Committees of the Board of Directors, and our Code of Conduct and Ethics can also be found on our website.
Copies of our Corporate Governance Guidelines, the Charters of the Audit, Compensation, Technology, Strategy and Capital Allocation and Nominating and Corporate Governance Committees of the Board of Directors, and our Code of Conduct and Ethics can also be found on our website.
Human Capital On June 30, 2022, we employed approximately 1,068 employees, 166 of whom are subject to collective bargaining agreements expiring on or before June 30, 2025. Achieving our vision of building a leading specialty products distributor and service company starts with our people.
Human Capital On June 30, 2023, we employed approximately 993 employees, 198 of whom are subject to collective bargaining agreements expiring on or before March 31, 2027. Achieving our vision of building a leading specialty products distributor and service company starts with our people.
(S&D Coffee & Tea), Massimo Zanetti Beverage USA, Trilliant Food and Nutrition LLC, Gaviña & Sons, Inc., Royal Cup, Inc., Ronnoco Coffee, LLC, and Community Coffee Company, L.L.C., specialty coffee suppliers such as Rogers Family Company (San Francisco Bay Coffee), Distant Lands Coffee Company, Mother Parkers Tea & Coffee Inc., Starbucks Corporation and JAB Holding Company (Peet’s Coffee & Tea), and retail brand beverage manufacturers such as Keurig Dr.
Smucker Company (Folgers Coffee) and The Kraft Heinz Company (Maxwell House Coffee), wholesale foodservice distributors such as Sysco Corporation and US Foods Holding Corp., regional and national coffee roasters such as Westrock Coffee Company, Massimo Zanetti Beverage USA, Trilliant Food and Nutrition LLC, Gaviña & Sons, Inc., Royal Cup, Inc., Ronnoco Coffee, LLC, and Community Coffee Company, L.L.C., specialty coffee suppliers such as Rogers Family Company (San Francisco Bay Coffee), Distant Lands Coffee Company, Mother Parkers Tea & Coffee Inc., Starbucks Corporation and JAB Holding Company (Peet’s Coffee & Tea), and retail brand beverage manufacturers such as Keurig Dr.
During fiscal 2022 we were part of the 2021 CDP Supplier Engagement Leaderboard. This means that we were among the top 8% of participants for supplier engagement on climate change, based on our 2021 CDP disclosure. Further, in fiscal 2022, we published our annual sustainability report based on the Global Reporting Initiative’s comprehensive compliance standard.
During fiscal 2023, we were part of the 2022 CDP Supplier Engagement Leaderboard. Further, in fiscal 2023, we published our annual sustainability report based on the Global Reporting Initiative’s comprehensive compliance standard.
We believe our state-of-the-art production facility, longevity, product quality and offerings, national distribution and equipment service network, industry and sustainability leadership, market insight, comprehensive approach to customer relationship management, and superior customer service are the major factors that differentiate us from our competitors.
We believe our longevity, product quality and offerings, national distribution and equipment service network, industry and sustainability leadership, market insight, comprehensive approach to customer relationship management, and superior customer service are the major factors that differentiate us from our competitors. We compete well when these factors are valued by our customers, and we are less effective when only price matters.
We are focused on understanding key demographic groups and their attitudes and behaviors to better position the Company as a consumer brand at retail and e-commerce and expand these sales channels. Sustainability Leadership • Sustainability.
We are focused on understanding key demographic groups and their attitudes and behaviors to better position the Company as a consumer brand at retail and meet the market needs of all our customers. Sustainability Leadership • Sustainability.
Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Distribution We operate production facilities in Northlake, Texas and Portland, Oregon.
Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
In addition, we are focused on optimizing our product commercialization process and bringing innovation to our customers. • Service Excellence in Revive Service & Restoration ("Revive"). We continue to have one of the largest coffee service networks in the industry and are able to install, repair, and refurbish commercial brewing equipment.
We continue to have one of the largest coffee service networks in the industry and are able to install, repair, and refurbish commercial brewing equipment. We are focused on continually improving time-to-install, time-to-repair and restoration of equipment.
Providing our customers the products they want, when they want them, is key to customer satisfaction and retention. We have invested in systems and processes to improve our ability to service our customers. We are driving continuous improvement on “On-Time and In-Full” and other key service metrics.
We will continue to provide leadership in sustainable product solutions for our customers. • Driving Customer Satisfaction . Providing our customers the products they want, when they want them, is key to customer satisfaction and retention. We have invested in systems and processes to improve our ability to service our customers.
With Revive, we are focused on continually improving time-to-install and time-to-repair and restoration of equipment. We have successfully built partnerships with leading equipment manufacturers and are invested in training our team on the latest equipment offerings to enhance our service capabilities and value addition. • Enhance Processes and Systems.
We have successfully built partnerships with leading equipment manufacturers and are invested in training our team on the latest equipment offerings to enhance our service capabilities and ability to add value. • Enhance Processes and Systems. We are implementing IT applications which we expect to enhance our supply chain optimization and flexibility.
We also use a significant amount of electricity, natural gas, and other energy sources to operate our production and distribution facilities. We purchase green coffee beans from multiple coffee regions around the world. Coffee “C” market prices in fiscal 2022 traded in a $1.12 range during the year, and averaged 60% above the historical average for the past five years.
We purchase green coffee beans from multiple coffee regions around the world. Coffee “C” market prices in fiscal 2023 traded in a $1.42 to $2.43 per pound range during the fiscal year, and averaged 28% above the historical average for the past five years.
We are implementing IT applications which we expect to enhance our e-commerce and supply chain optimization and flexibility. We are also continuing to invest in and enhance other IT capabilities to provide back-office support which will enable enhanced customer analytics, enable better product targeting, and create a more robust demand and supply process. • OmniChannel Sales Capability.
We are also continuing to invest in and enhance other IT capabilities to provide back-office support which will enable enhanced customer analytics, enable better product targeting and pricing, and create a more robust demand and supply process. In fiscal 2023, we introduced a newly integrated AI-backed pricing model that enhances our ability to evaluate and implement optimal pricing changes.
In addition to tracking common indicators, such as injury rates, we have taken a proactive approach to work place safety, including regular company-wide safety training, fleet safety reviews, and measures to address the COVID-19 pandemic. We will continue to focus on all aspects of team member health and safety by creating a Safety First Culture.
In addition to tracking common indicators, such as injury rates, we have taken a proactive approach to work place safety, including regular company-wide safety training, extensive driver safety curriculum to help keep our team members and others safer on the road, and fleet safety reviews.
We 1 also continue to execute branch rationalization, which improves our cost structure without sacrificing service to our customers. • Leveraging our Direct-Store-Delivery ("DSD") Network for growth. Our handheld technology helps drive productivity and customer service levels. This technology enhances our capabilities, including the ability to execute our pre-sell strategy.
We also continue to execute branch rationalization, optimize product 1 offerings, and enhance inventory management, which improves our cost structure without sacrificing service to our customers. • Leveraging our Direct-Store-Delivery Network for growth.
We compete well when these factors are valued by our customers, and we are less effective when only price matters. Our customer base is price sensitive, and we are often faced with price competition.
Our customer base is price sensitive, and we are often faced with price competition.
We are continuing to enhance our premium coffee and tea program, developing strategic partnerships, and building an advantaged allied product portfolio that resonates with our customers. We will continue to provide leadership in sustainable product solutions for our customers. • Driving Customer Satisfaction .
Additionally, we are focused on building partnerships that utilize our current distribution capabilities to expose us to industry and product innovation. • Product Innovation Pipeline. We are continuing to enhance our premium coffee and tea program, developing strategic partnerships, and building an advantaged allied product portfolio that resonates with our customers.
Over the past five years, the coffee “C” market near month price per pound ranged from approximately $0.86 to $2.60. The coffee “C” market near month price as of June 30, 2022 and 2021 was $2.30 and $1.60 per pound, respectively. Our principal packaging materials include carton board, corrugate and plastic.
The coffee “C” market near month price as of June 30, 2023 and 2022 was $1.65 and $2.30 per pound, respectively. Our principal packaging materials include carton board, corrugate and plastic. We also use a significant amount of electricity, natural gas, and other energy sources to operate our production and distribution facilities.
Distribution takes place out of the Northlake and Portland facilities, as well as separate distribution centers in Northlake, Illinois; Rialto, California; and Moonachie, New Jersey.
Distribution takes place out of the Portland facility, as well as separate distribution centers in Northlake, Texas; Northlake, Illinois; Rialto, California; and Moonachie, New Jersey. Our products reach our customers primarily through our nationwide DSD network of 242 delivery routes and 106 branch warehouses as of June 30, 2023.
This includes, but is not limited to, tracking and analyzing injury rates and incident trends, safety training, and team member engagement in the safety process. In fiscal 2022, we rolled out an extensive driver safety curriculum to help keep our team members and others safer on the road.
We will continue to focus on all aspects of team member health and safety by creating a Safety First Culture. This includes, but is not limited to, tracking and analyzing injury rates and incident trends, safety training, and team member engagement in the safety process.
We utilize our Northlake, Texas, facility to improve production efficiencies and balance volume across our manufacturing and distribution networks to facilitate sustainable long-term growth. In fiscal 2021, we substantially increased the production and packaging capacity at our Northlake, Texas production facility which allowed us to exit our aged Houston, Texas facility.
We utilize our Portland, Oregon, facility and separate distribution centers, including our Rialto, California distribution center, to improve production efficiencies and balance volume across our manufacturing and distribution networks to facilitate sustainable long-term growth.
We are focused on increasing our presence with leading retailers, enhancing our e-commerce platform and developing distributor partnerships. We continue to refresh our current branded product websites to help build our on-line sales and enhance customer experience. We differentiate ourselves in the marketplace by providing coffee, tea, and culinary expertise, service excellence, and equipment program support.
We differentiate ourselves in the marketplace by providing coffee, tea, and culinary expertise, service excellence, and equipment program support.
During fiscal 2022, our top five customers accounted for approximately 24% of our net sales.
During fiscal 2023, our top five customers accounted for approximately 3% of our net sales from continuing operations. Most of our customers rely on us for distribution; however, some of our customers use third-party distribution or conduct their own distribution.
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We also utilize our distribution center in Rialto, California, opened in fiscal 2021, which is geographically closer to many of our customers in the Western United States, and which enabled more efficient service to our West Coast network as well as the consolidation of certain branches in Southern California.
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In fiscal 2023, we sold our Northlake, Texas production facility and are in the process of transitioning the entirety of our Direct-Store-Delivery ("DSD") production operations to our Portland, Oregon, facility.
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We have also recently expanded dedicated new business resources to capture market share. Additionally, we are focused on building partnerships that utilize our current distribution capabilities to expose us to industry and product innovation. • Product Innovation Pipeline.
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The DSD system is central to our operational framework, and we are making significant enhancements to drive profitability, ensure customer retention and utilize our national reach to improve inventory management across our network.
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Our Diversity, Equity and Inclusion ("DEI") committee is comprised of team members across all functions and levels of the organization, including members of the senior management team, and reaches team members across the organization.
Added
The enhancements include optimizing the management of the route network to focus on business development, higher profitable sales and customer penetration and introducing key performance indicators to create better focus, accountability and alignment toward business objectives. We have also recently expanded dedicated new business resources to capture market share.
Removed
The training will continue in the year ended June 30, 2023 ("fiscal 2023"). We manufacture and distribute products deemed essential to critical infrastructure, and as a result, our production sites continued operating during the COVID-19 pandemic. As such, we implemented company safety guidelines improving the physical safety of work environments for our employees that continued to report to work sites.
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We are driving continuous improvement on “On-Time and In-Full” and other key service metrics. In addition, we are focused on optimizing our product commercialization process and bringing innovation to our customers. • Service Excellence in Revive Service & Restoration ("Revive").
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These measures have included increased sanitation procedures, limiting or prohibiting guests to work sites, hand washing, social distancing, mask wearing and temperature checks as well as encouraging individuals to stay home when ill.
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Raw Materials and Supplies Our primary raw material is green coffee, an exchange-traded agricultural commodity that is subject to price fluctuations. Over the past five years, the coffee “C” market near month price per pound ranged from approximately $0.86 to $2.60.
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Further, we provided work from home flexibility for our team members whose jobs did not require them to report to a specific job site, further limiting potential exposure for our team members. Raw Materials and Supplies Our primary raw material is green coffee, an exchange-traded agricultural commodity that is subject to price fluctuations.
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Sale of Direct Ship Business On June 30, 2023, the Company completed its previously announced sale of certain assets related to its direct ship and private label business, including its production facility and corporate office building in Northlake, Texas (the “Sale”), pursuant to that certain Asset Purchase Agreement, dated as of June 6, 2023, by and between the Company and TreeHouse Foods, Inc.
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Our products reach our customers primarily in the following ways: through our nationwide DSD network of 239 delivery routes and 103 branch warehouses as of June 30, 2022, 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.
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(the “Buyer”), as amended by that certain Amendment to Asset Purchase Agreement, dated June 30, 2023, for a purchase price of $100 million in cash, subject to customary working capital and certain other adjustments, including a reduction for liabilities associated with a specified retained litigation matter.
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Although no single customer accounted for 10% or more of our net sales in any of the last three fiscal years, the loss of, or reduction in, sales to one or more of our top customers would likely have a material adverse effect on our results of operations.
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In connection with the Sale, the Company and the Buyer have agreed to a mutual transitional co-manufacturing agreement where the Company will manufacture certain products for Buyer and Buyer will manufacture certain products for the Company for an initial period of twelve months.
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Most of our customers rely on us for distribution; however, some of our customers use third-party distribution or conduct their own distribution. Some of our customers are “price” buyers, seeking a low-cost provider with less concern for service, while others find great value in the service programs we provide.
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In addition, the Company is also 5 providing Buyer with certain transition services for an initial period of nine months and the Buyer is providing the Company with a lease of office and warehouse space at the Northlake, Texas facility sold in the Sale for an initial period of twelve months. Distribution We operate a production facility in Portland, Oregon.
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The measures taken to contain the spread of the virus adversely affected our business and those of our customers. Our success will depend on our ability and effectiveness in identifying and addressing our customers’ future needs in light of the development of COVID-19, its variants and responsive measures.
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Although we have already experienced some negative effects from the COVID-19 pandemic, it is difficult to predict the extent and timing of the impact that a resurgence could have on our customer demand.
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Smucker Company (Folgers Coffee) and The Kraft Heinz Company (Maxwell House Coffee), wholesale foodservice distributors such as Sysco Corporation and US Foods Holding Corp., regional and national coffee roasters such as Riverview Acquisition Corp.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

52 edited+49 added−28 removed125 unchanged
Biggest changeA significant increase in future funding requirements could have a negative impact on our financial condition and results of operations. Risks Related to Cybersecurity and Data Privacy Failure to maintain satisfactory compliance with certain privacy and data protections laws and regulations may subject us to substantial negative financial consequences and civil or criminal penalties.
Biggest changeRisks Related to Cybersecurity and Data Privacy Failure to maintain satisfactory compliance with certain privacy and data protections laws and regulations may subject us to substantial negative financial consequences and civil or criminal penalties. Complex local, state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data.
Our operating results may fluctuate from period to period as a result of a number of factors, including variations in our operating performance or the performance of our competitors, changes in accounting principles, fluctuations in the price and supply of green coffee, fluctuations in the selling prices of our products, the success of our hedging strategy, research reports and changes in financial estimates by analysts about us, or competitors or our industry, our inability or the inability of our competitors to meet analysts’ projections or guidance, strategic decisions by us or our competitors, such as acquisitions, capital 10 investments or changes in business strategy, the depth and liquidity of the market for our common stock, adverse outcomes of litigation, changes in or uncertainty about economic conditions, inflation, supply chain disruptions, conditions or trends in our industry, geographies, or customers, activism by any large stockholder or group of stockholders, speculation by the investment community regarding our business, actual or anticipated growth rates relative to our competitors, terrorist acts, natural disasters, including due to the effects of climate change, perceptions of the investment opportunity associated with our common stock relative to other investment alternatives, competition, changes in consumer preferences and market trends, seasonality, our ability to retain and attract customers, our ability to manage inventory and fulfillment operations and maintain gross margin, and other factors described elsewhere in this risk factors section.
Our operating results may fluctuate from period to period as a result of a number of factors, including variations in our operating performance or the performance of our competitors, changes in accounting principles, fluctuations in the price and supply of green coffee, fluctuations in the selling prices of our products, the success of our hedging strategy, research reports and changes in financial estimates by analysts about us, or competitors or our industry, our inability or the inability of our competitors to meet analysts’ projections or guidance, strategic decisions by us or our competitors, such as acquisitions, capital investments or changes in business strategy, the depth and liquidity of the market for our common stock, adverse outcomes of litigation, changes in or uncertainty about economic conditions, inflation, supply chain disruptions, conditions or trends in our industry, geographies, or customers, activism by any large stockholder or group of stockholders, speculation by the investment community regarding our business, actual or anticipated growth rates relative to our competitors, terrorist acts, natural disasters, including due to the effects of climate change, perceptions of the investment opportunity associated with our common stock relative to other investment alternatives, competition, changes in consumer preferences and market trends, seasonality, our ability to retain and attract customers, our ability to manage inventory and fulfillment operations and maintain gross margin, and other factors described elsewhere in this risk factors section.
Instances or reports of food safety issues involving our products, whether or not accurate, such as unclean water supply, food or beverage-borne illnesses, tampering, contamination, mislabeling, or other food or beverage safety issues, including due to the 12 failure of our third-party co-packers to maintain the quality of our products and to comply with our product specifications, could damage the value of our brands, negatively impact sales of our products, and potentially lead to product recalls, production interruptions, product liability claims, litigation or damages.
Instances or reports of food safety issues involving our products, whether or not accurate, such as unclean water supply, food or beverage-borne illnesses, tampering, contamination, mislabeling, or other food or beverage safety issues, including due to the failure of our third-party co-packers to maintain the quality of our products and to comply with our product specifications, could damage the value of our brands, negatively impact sales of our products, and potentially lead to product recalls, production interruptions, product liability claims, litigation or damages.
Although we account for certain coffee-related derivative instruments as accounting hedges, the portion of open hedging contracts that are not designated as accounting hedges are marked to period-end market price and unrealized gains or losses based on whether the period-end market price was higher or lower than the price we locked-in are recognized in our financial results at the end of each reporting period.
Although we account for certain coffee-related derivative instruments as accounting hedges, the portion of open hedging contracts that are not designated as accounting hedges 8 are marked to period-end market price and unrealized gains or losses based on whether the period-end market price was higher or lower than the price we locked-in are recognized in our financial results at the end of each reporting period.
If we do not succeed in differentiating ourselves through, among other things, our product and service offerings, or if we are not 8 effective in setting proper pricing, then our competitive position may be weakened, we could fail to retain our existing customer base and our sales and profitability may be materially adversely affected.
If we do not succeed in differentiating ourselves through, among other things, our product and service offerings, or if we are not effective in setting proper pricing, then our competitive position may be weakened, we could fail to retain our existing customer base and our sales and profitability may be materially adversely affected.
As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations. Investment in acquisitions could disrupt our ongoing business, not result in the anticipated benefits and present risks not originally contemplated. We have invested, and in the future may invest, in acquisitions which may involve significant risks and uncertainties.
As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations. 9 Investment in acquisitions could disrupt our ongoing business, not result in the anticipated benefits and present risks not originally contemplated. We have invested, and in the future may invest, in acquisitions which may involve significant risks and uncertainties.
If our vendors fail to meet our standards, provide products in a timely and efficient manner, or comply with applicable laws, these issues could have a material negative impact on our business and profitability. We rely on co-packers to provide our supply of tea, spice, culinary and other products.
If our vendors fail to meet our standards, provide products in a timely and efficient manner, or comply with applicable laws, these issues could have a material negative impact on our business and profitability. 11 We rely on co-packers to provide our supply of tea, spice, culinary and other products.
As a result, we may be unable to realize a tax benefit from the use of our NOLs, even if we generate a sufficient level of taxable net income prior to the expiration of the NOL carry forward periods. Future impairment charges could adversely affect our operating results.
As a result, we may be unable to realize a tax benefit from the use of our NOLs, even if we generate a sufficient level of taxable net income prior to the expiration of the NOL carry forward periods. 12 Future impairment charges could adversely affect our operating results.
A successful claim against us that is not covered by insurance or is in excess of our reserves or available insurance limits could negatively affect our business, financial condition and results of operations. 14 We maintain finished goods product coverage in amounts we believe to be adequate.
A successful claim against us that is not covered by insurance or is in excess of our reserves or available insurance limits could negatively affect our business, financial condition and results of operations. We maintain finished goods product coverage in amounts we believe to be adequate.
Failure to effectively allocate and manage our resources to build, sustain, protect and upgrade our information technology infrastructure could result in transaction errors, processing inefficiencies, the loss of 17 customers, reputational damage, litigation, business disruptions, or the loss of sensitive or confidential data through security breach or otherwise.
Failure to effectively allocate and manage our resources to build, sustain, protect and upgrade our information technology infrastructure could result in transaction errors, processing inefficiencies, the loss of customers, reputational damage, litigation, business disruptions, or the loss of sensitive or confidential data through security breach or otherwise.
We may also need to invest significant amounts of cash and equity to attract talented new employees and to invest in our employee experience and culture, and we may never realize returns on these investments. We do not maintain key person life insurance policies on any of our executive officers.
We may also need to invest significant amounts of cash and equity to attract talented new employees and to invest in our 7 employee experience and culture, and we may never realize returns on these investments. We do not maintain key person life insurance policies on any of our executive officers.
Any new laws and regulations or changes in government policy, existing laws and regulations or the interpretations thereof could require us to change certain of our operational processes and procedures, or implement new ones, and may increase our operating and compliance costs, which could adversely affect our results of operations.
Any new laws and regulations or changes in government policy, existing laws and regulations or the interpretations thereof 13 could require us to change certain of our operational processes and procedures, or implement new ones, and may increase our operating and compliance costs, which could adversely affect our results of operations.
In addition, our legal and regulatory obligations in jurisdictions outside the U.S. are subject to unexpected changes, including the potential for regulatory or other governmental entities to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations or to increase penalties significantly.
In addition, our legal and regulatory obligations in jurisdictions outside the U.S. are subject to unexpected changes, including the potential for regulatory or other governmental 17 entities to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations or to increase penalties significantly.
The changes in the prices we pay may take place on a monthly, quarterly or annual basis depending on the product and supplier. Unlike green coffee, we do not purchase any derivative instruments to hedge cost fluctuations in these other commodities.
The changes in the prices we pay may take place on a monthly, quarterly or annual basis depending on the product and supplier. Unlike green coffee, we do not purchase 10 any derivative instruments to hedge cost fluctuations in these other commodities.
In such event, or if we are otherwise in default under the Credit Facilities or any such other agreements, the lenders could terminate their commitments to lend and/or accelerate the loans and declare all amounts borrowed due and payable. If our liquidity materially declines, we may experience springing covenants and an increase in our cost of borrowing.
In such event, or if we are otherwise in default under the Credit Facility or any such other agreements, the lenders could terminate their commitments to lend and/or accelerate the loans and declare all amounts borrowed due and payable. If our liquidity materially declines, we may experience springing covenants and an increase in our cost of borrowing.
In addition, if such 15 deterioration were to lead to the closure of leased facilities, we would need to fund the costs of terminating those leases.
In addition, if such deterioration were to lead to the closure of leased facilities, we would need to fund the costs of terminating those leases.
Furthermore, our lenders under the Credit Facilities could foreclose on their security interests in our assets. If any of those events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing on acceptable terms or at all.
Furthermore, our lenders under the Credit Facility could foreclose on their security interests in our assets. If any of those events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing on acceptable terms or at all.
The rights of the holders of our common stock may be subject to, and may be adversely affected by, the rights of the holders of preferred stock that may be issued in the future.
The rights of the holders of our common stock may be subject to, and may be adversely affected by, 16 the rights of the holders of preferred stock that may be issued in the future.
As of June 30, 2022, the projected benefit obligation under our two employer defined benefit pension plans exceeded the fair value of plan assets. The difference between the projected benefit obligation and the fair value of plan assets, or the funded status of the plans, significantly affects the net periodic benefit cost and ongoing funding requirements of those plans.
As of June 30, 2023, the projected benefit obligation under our two employer defined benefit pension plans exceeded the fair value of plan assets. The difference between the projected benefit obligation and the fair value of plan assets, or the funded status of the plans, significantly affects the net periodic benefit cost and ongoing funding requirements of those plans.
There were no intangible asset impairments during fiscal 2022 and fiscal 2021. Our business could be negatively impacted by corporate citizenship and sustainability matters. There is an increased focus from certain investors, customers, consumers, employees, and other stakeholders concerning corporate citizenship and sustainability matters.
There were no intangible asset impairments during fiscal 2023 and fiscal 2022. Our business could be negatively impacted by corporate citizenship and sustainability matters. There is an increased focus from certain investors, customers, consumers, employees, and other stakeholders concerning corporate citizenship and sustainability matters.
If we are unable to make payments as they come due or comply with the restrictions and covenants under the Credit Facilities or any other agreements governing our indebtedness, there could be a default under the terms of such agreements.
If we are unable to make payments as they come due or comply with the restrictions and covenants under the Credit Facility or any other agreements governing our indebtedness, there could be a default under the terms of such agreements.
Certain of the parties use third-party distributors or do business through a network of affiliate entities which can make collection efforts more challenging and, at times, collections may be economically unfeasible. Adverse changes in general economic conditions and/or contraction in global credit markets could precipitate liquidity problems among our debtors.
Adverse changes in general economic conditions and/or contraction in global credit markets could precipitate liquidity problems among our debtors. In addition, certain of our debtors use third-party distributors or do business through a network of affiliate entities which can make collection efforts more challenging and, at times, collections may be economically unfeasible.
See Note 1 8 , Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Form 10‑K. Regardless of the merit of particular claims, litigation may be expensive, time-consuming, operationally disruptive and distracting to management, and could negatively affect our brand name and image and subject us to statutory penalties and costs of enforcement.
See Note 19 , Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Form 10‑K. Regardless of the merit of particular claims, litigation may be expensive, time-consuming, operationally disruptive and distracting to management, and could negatively affect our brand name and image and subject us to statutory penalties and costs of enforcement.
There are potential adverse effects of labor disputes with our own employees or by others who provide warehousing, transportation (lines, truck drivers, 3PL service providers) or cargo handling (longshoremen), both domestic and foreign, of our raw materials or other products. We have union contracts relating to a portion of our workforce.
There are potential adverse effects of labor disputes with our own employees or with others who provide warehousing, co-packing, transportation (lines, truck drivers, 3PL service providers) or cargo handling (longshoremen), both domestic and foreign, of our raw materials or other products. We have union contracts relating to a portion of our workforce.
We currently have 479,000 authorized shares of preferred stock undesignated as to series, and we could cause shares currently designated as to series but not outstanding to become undesignated and available for issuance as a series of preferred stock to be designated in the future.
We currently have 500,000 authorized shares of preferred stock undesignated as to series, and we could cause shares currently designated as to series but not outstanding to become undesignated and available for issuance as a series of preferred stock to be designated in the future.
The Credit Facilities contain certain customary affirmative and negative covenants and restrictions that, among other things, require the Company to satisfy certain financial covenants and restricts 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.
The Credit Facility contains certain customary affirmative and negative covenants and restrictions that, among other things, require the Company to satisfy certain financial covenants and restricts 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 Credit Facilities becoming immediately due and payable and termination of the commitments.
Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the Credit Facility becoming immediately due and payable and termination of the commitments.
This could increase our exposure to losses from bad debts and have a material adverse effect on our business, financial condition and results of operations. Climate change, water scarcity or legal, regulatory, or market measures to address such could have a material adverse effect our business and operations.
Any increase in our exposure to losses from bad debts could have a material adverse effect on our business, financial condition and results of operations. Climate change, water scarcity or legal, regulatory, or market measures to address such could have a material adverse effect our business and operations.
Rising inflation may adversely affect us by increasing costs of raw materials, labor, and other costs beyond what we can recover through price increases. Inflation can adversely affect us by increasing the costs of raw materials, labor, and other costs required to operate and grow our business.
Inflationary pressures may adversely affect us by increasing costs of raw materials, labor, and other costs beyond what we can recover through price increases. Inflation can adversely affect us by increasing the costs of raw materials, labor, and other costs required to operate and grow our business.
In this competitive environment, our business has been and may continue to be adversely impacted by increases in labor costs, including wages and benefits, including those increases triggered by regulatory actions regarding wages, scheduling and benefits; increased health care and workers’ compensation insurance costs; increased wages and costs of other benefits necessary to attract and retain high quality employees with the right skill sets and increased wages, benefits and costs related to the effects of COVID-19 pandemic.
In this competitive environment, our business has been and may continue to be adversely impacted by increases in labor costs, including wages and benefits, including those increases triggered by regulatory actions regarding wages, scheduling and benefits; increased health care and workers’ compensation insurance costs; increased wages and costs of other benefits necessary to attract and retain high quality employees with the right skill sets.
Further, certain provisions of our organizational documents, including a classified board of directors which will phase out following our annual meeting of stockholders in 2022, have provisions eliminating the ability of stockholders to take action by 16 written consent, and provisions limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or management of the Company, which could have an adverse effect on the market price of our common stock.
Further, certain provisions of our organizational documents have provisions eliminating the ability of stockholders to take action by written consent, and provisions limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or management of the Company, which could have an adverse effect on the market price of our common stock.
At June 30, 2022, we had outstanding borrowings of $98.8 million and utilized $4.1 million of the letters of credit sublimit under the Credit Facilities, and had $12.9 million of availability under our Credit Facilities. We may incur significant indebtedness in the future, including through additional borrowings under the credit facility, through the issuance of debt securities, or otherwise.
At June 30, 2023, we had outstanding borrowings of $23.0 million and utilized $4.0 million of the letters of credit sublimit under the Credit Facility, and had $35.8 million of availability under our Credit Facility. We may incur significant indebtedness in the future, including through additional borrowings under the Credit Facility, through the issuance of debt securities, or otherwise.
Further, any unplanned turnover or failure to develop or implement an adequate succession plan for our senior management and other key employees, could deplete our institutional knowledge base, erode our competitive advantage, and negatively affect our business, financial condition and results of operations. Competition in the coffee industry and beverage category could impact our profitability or harm our competitive position.
Further, any unplanned turnover or failure to develop or implement an adequate succession plan for our senior management and other key employees, could deplete our institutional knowledge base, erode our competitive advantage, and negatively affect our business, financial condition and results of operations.
In April 2021, we entered into a new senior secured credit facility composed of a revolver credit facility and a term credit facility agreement (together, the “Credit Facilities”) (See Liquidity for details).
In April 2021, we entered into a new senior secured credit facility composed of a revolver credit facility (the "Revolver Credit Facility" or the "Credit Facility") and a term credit facility agreement (the “Term Credit Facility”) (See Liquidity for 14 details).
The coffee industry is highly competitive, including with respect to price, product quality, service, convenience, technology and innovation, and competition could become more intense due to the relatively low barriers to entry and industry consolidation.
Competition in the coffee industry and beverage category could impact our profitability or harm our competitive position. The coffee industry is highly competitive, including with respect to price, product quality, service, convenience, technology and innovation, and competition could become more intense due to the relatively low barriers to entry and industry consolidation.
Our success depends in part on our ability to anticipate and offer products that appeal to the changing tastes, dietary habits and product packaging preferences of consumers in the market categories in which we compete.
We may be unable to anticipate changes in consumer preferences and consumer demographics, which may result in decreased demand for our products. Our success depends in part on our ability to anticipate and offer products that appeal to the changing tastes, dietary habits and product packaging preferences of consumers in the market categories in which we compete.
Net operating losses of $51.8 million in federal and $6.9 million of state are indefinite lived and will not expire.
Net operating losses of $78.9 million in federal and $10.3 million of state are indefinite lived and will not expire.
Any such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business. 13 Risks Related to Governance, Regulatory, Legislative and Legal Matters Government regulations affecting the conduct of our business could increase our operating costs, reduce demand for our products or result in litigation.
Risks Related to Governance, Regulatory, Legislative and Legal Matters Government regulations affecting the conduct of our business could increase our operating costs, reduce demand for our products or result in litigation.
A product liability judgment against us or a product recall or the damage to our reputation resulting therefrom could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. Risks Related to our Capital Structure An increase in our debt leverage could adversely affect our liquidity and results of operations.
A product liability judgment against us or a product recall or the damage to our reputation resulting therefrom could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
Product shortages could result in disruptions in our ability to deliver products to our customers, a deterioration of our relationship with our customers, decreased revenues or an inability to expand our business. 11 Interruption or increased costs of our supply chain and sales network or labor force, including a disruption in operations at any of our production and distribution facilities, could affect our ability to manufacture or distribute products and could adversely affect our business and sales.
Interruption or increased costs of our supply chain and sales network or labor force, including a disruption in operations at any of our production and distribution facilities, could affect our ability to manufacture or distribute products and could adversely affect our business and sales.
Complex local, state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These privacy and data protection laws and regulations are quickly evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations and enforcement.
These privacy and data protection laws and regulations are quickly evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations and enforcement.
The unexpected loss of one or more of these key employees or difficulty recruiting and retaining qualified personnel could have a material adverse effect on our operations and competitive position. Our success depends on the efforts and abilities of key personnel and a consistent workforce, including frontline workers, support staff and executive team members.
We depend on the expertise of key personnel to operate our business. The unexpected loss of one or more of these key employees or difficulty recruiting and retaining qualified personnel could have a material adverse effect on our operations and competitive position.
Our accounts receivable represents a significant portion of our current assets and a substantial portion of our trade accounts receivables relate principally to a limited number of customers, increasing our exposure to bad debts and counter-party risk which could have a material adverse effect on our results of operations.
As a result, increases in the cost of green coffee could have a material adverse impact on our profitability, financial condition or results of operations. Our accounts receivable represents a significant portion of our current assets increasing our exposure to bad debts and counter-party risk which could have a material adverse effect on our results of operations.
Our ability to use our net operating loss carryforwards to offset future taxable net income may be subject to certain limitations. At June 30, 2022, the Company had approximately $185.9 million in federal and $160.1 million in state net operating loss carryforwards that will begin to expire in the years ending June 30, 2038 and June 30, 2023, respectively.
At June 30, 2023, the Company had approximately $133.9 million in federal net operating loss carryforwards that will begin to expire in the tax year ending June 30, 2027 and $173.1 million in state net operating loss carryforwards that begin to expire in the tax year ending June 30, 2024.
If we are unable to increase our prices to offset the effects of inflation, our business, operating results, and financial condition could be materially and adversely affected. Our outstanding Series A Preferred Stock or future equity offerings could adversely affect the holders of our common stock in some circumstances.
If we are unable to increase our prices to offset the effects of inflation, our business, operating results, and financial condition could be materially and adversely affected. Anti-takeover provisions or stockholder dilution could make it more difficult for a third party to acquire us.
Should our operating performance deteriorate further or the COVID-19 pandemic recurs in the near term, we will have less cash inflows from operations available to meet our financial obligations or to fund our other liquidity needs.
Should our operating performance deteriorate further, we will have less cash inflows from operations available to meet our financial obligations or to fund our other liquidity needs. Deterioration of our operating performance may also result in a 15 reduction in our working capital, which could negatively impact our available borrowing capacity under our Credit Facility.
This may require us to adapt to evolving labor conditions and make significant investments in training, coaching and other career development and retention activities. Activities related to identifying, recruiting, hiring and integrating qualified individuals require significant time and attention.
Activities related to identifying, recruiting, hiring and integrating qualified individuals require significant time and attention.
Fluctuations in our operating results due to these factors or for any other reason could cause the market price of our common stock to decline. In addition, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market price of equity securities issued by many companies.
Fluctuations in our operating results due to these factors or for any other reason could cause the market price of our common stock to decline. Accordingly, we believe that period-to-period comparisons of our operating results should not be relied upon as indicators of future performance.
The competition for talent is extremely high and candidates’ preferences and expectations are evolving. We must continue to recruit, retain, motivate and develop management and other employees sufficiently to maintain our current business and support our projected growth and strategic initiatives.
We must continue to recruit, retain, motivate and develop management and other employees sufficiently to maintain our current business and support our projected growth and strategic initiatives. This may require us to adapt to evolving labor conditions and make significant investments in training, coaching and other career development and retention activities.
The filing of a lawsuit against us, regardless of the outcome, could have a negative effect on our business, financial condition and results of operations, as it could result in substantial legal costs, a diversion of management’s attention and resources, and require us to make substantial payments to satisfy judgments or to settle litigation.
A significant increase in future funding requirements could have a negative impact on our financial condition and results of operations. Actions of activist stockholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business.
In the past, some companies that have had volatile market prices for their securities have been subject to class action or derivative lawsuits.
The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future.
In that case, the trading price of our common stock could decline. Risks Related to our Business and Industry Pandemics or disease outbreaks, such as the COVID-19 pandemic, may disrupt our business, including among other things, our supply chain, our manufacturing operations and customer and consumer demand for our products, and could have a material adverse impact on our business.
In that case, the trading price of our common stock could decline. Risks Related to our Business and Industry Deterioration of global economic conditions, an economic recession, periods of inflation, rising interest rates, or economic uncertainty in our key markets may adversely affect customer and consumer spending, as well as demand for our products.
Removed
In fiscal years 2022 and 2021, the COVID-19 pandemic had a material impact on our financial condition and results of operations. The measures taken to contain the spread of the virus adversely affected our business and those of our customers.
Added
Global economic conditions can be uncertain and volatile.
Removed
The outbreak resulted in federal, state and local government authorities implementing numerous restrictive measures to attempt to contain COVID-19, including travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns. These measures impacted our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers.
Added
Our business and results of operations have in the past been, and may continue to be, adversely affected by changes in global economic conditions including inflation, interest rates, consumer spending rates, energy availability and costs, the negative impacts caused by public health crises, such as the COVID-19 pandemic, as well as the potential impacts of geopolitical uncertainties, and the effect of governmental initiatives to manage economic conditions.
Removed
The resurgences of COVID-19 or new variants of the virus may result in the reinstitution of certain of the restrictions and increased economic uncertainty, which could have a material adverse effect on our financial condition and results of operations.
Added
As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. Most of our products are purchased by our customers based on end-user demand from consumers.
Removed
The ultimate impact that the COVID-19 pandemic or any future pandemic or disease outbreak will have on our business and our consolidated results of operations is uncertain. The spread of pandemics or disease outbreaks such as COVID-19 may also disrupt our third-party business partners’ ability to meet their obligations to us, which may negatively affect our operations.
Added
Some of the factors that may influence consumer spending include general economic conditions, high levels of unemployment, health crises, higher consumer debt levels, reductions in net worth based on market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, inflationary pressure, tax rates, and general uncertainty regarding the overall future economic environment.
Removed
These third parties include those who supply our ingredients, packaging, and other necessary operating materials, and logistics and transportation providers. In addition, we rely on customers to be able to receive shipments and stock store shelves.
Added
Unfavorable economic conditions may lead customers and consumers to delay or reduce purchases of our products and could present challenges in collecting our account receivables on a timely basis.
Removed
If a significant percentage of our workforce or the workforce of our third-party business partners or customers is unable to work, including because of illness or travel or government restrictions in connection with the COVID-19 pandemic or any future pandemic or disease outbreak, our operations may be negatively impacted.
Added
Customer demand for our products may not reach our targets or may decline as distributors and retailers seek to reduce inventory positions if there is an economic downturn or economic uncertainty in our key markets. Economic cycles and related fluctuations in customer demand may have a material adverse effect on our business, financial condition, and results of operations.
Removed
In addition, the unprecedented demand for food and other consumer packaged goods products as a result of the COVID-19 pandemic or any future pandemic may limit the availability of ingredients, packaging and other raw 7 materials necessary to produce our products, and our operations may be negatively impacted.
Added
Our success depends on the efforts and abilities of key personnel and a consistent workforce, including frontline workers, support staff and executive team members. The competition for talent is extremely high and candidates’ preferences and expectations are evolving.
Removed
For example, we have experienced supply chain constraints for certain of our products, which have negatively impacted our ability to fully satisfy customer and consumer demand for certain of our products.
Added
We have undergone, and may continue to experience, changes to our executive leadership team and senior management, and our future success will depend in part on our ability to manage these transitions successfully.
Removed
Additionally, pandemics or disease outbreaks could result in a widespread health crisis that could adversely affect economies and financial markets, consumer spending and confidence levels resulting in an economic downturn that could affect customer and consumer demand for our products.
Added
From time to time, there may be changes to our executive leadership team and senior management for various reasons, including as a result of the hiring, departure or realignment of key personnel. Such changes may adversely impact our operations, programs, growth, financial condition and results of operations.
Removed
Our efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration and severity of any pandemic or disease outbreak, as well as third-party actions taken to contain its spread and mitigate public health effects.
Added
In 2022 and 2023, we had several changes to our executive leadership team and senior management as a result of organizational changes, including the departure of our chief sales officer and our chief supply chain officer.
Removed
The ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others, the implementation and duration of social distancing and stay-at-home and work-from-home mandates, policies and recommendations and whether, and the extent to which, additional waves or variants of COVID-19 will affect the United States and the rest of North America, our ability and the ability of our suppliers to continue to operate our and their manufacturing facilities and maintain the supply chain without material disruption and procure ingredients, packaging and other raw materials when needed despite disruptions in the supply chain and labor shortages, our customers’ ability to adequately staff their distribution centers and stores, and the extent to which macroeconomic conditions resulting from the pandemic impact consumer eating and shopping habits.
Added
Any significant leadership change or senior management transition involves inherent risk and any failure to ensure the timely and suitable replacement and a smooth transition could hinder our strategic planning, business execution and future performance.
Removed
We cannot predict the duration or scope of the disruption. Therefore, the financial impact cannot be reasonably estimated at this time. We depend on the expertise of key personnel to operate our business.
Added
In particular, these or any future leadership transitions may result in a loss of personnel with deep institutional or technical knowledge and changes in business strategy or objectives and have the potential to disrupt our operations and relationships with employees and customers due to added costs, operational inefficiencies, changes in strategy, decreased employee morale and productivity, and increased turnover.
Removed
As a result, increases in the cost of green coffee could have a material adverse impact on our profitability, financial condition or results of operations. Loss of business from one or more of our large national account customers and efforts by these customers to improve their profitability could have a material adverse effect on our operations.
Added
If we are unable to successfully manage changes to our executive leadership team and senior management, we could experience significant delays or difficulty in the achievement of our development and strategic objectives and our business, financial condition and results of operations could be materially and adversely harmed.
Removed
We have a number of large national account customers, the loss of or reduction in sales to one or more of which would likely have a material adverse effect on our results of operations. During fiscal 2022, our top five customers accounted for approximately 24% of our net sales.
Added
We may be subject to securities litigation, class action and derivative lawsuits, which could result in substantial costs and could divert management attention away from other business concerns.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of June 30, 2022, we stage our products in 103 branch warehouses throughout the contiguous United States. These branch warehouses and our distribution centers, taken together, represent a vital part of our business, but no individual branch warehouse is material to the business as a whole.
Biggest changeThese branch warehouses and our distribution centers, taken together, represent a vital part of our business, but no individual branch warehouse is material to the business as a whole. Our stand-alone branch warehouses vary in size from approximately 1,000 to 34,000 square feet.
Utilization rates for our coffee roasting facilities were approximately 75%, 63%, and 66% during fiscal 2022, 2021 and 2020, respectively. We believe that our existing facilities provide adequate capacity for our current operations. 18
Utilization rates for our coffee roasting facilities were approximately 68%, 75%, and 63% during fiscal 2023, 2022 and 2021, respectively. We believe that our existing facilities provide adequate capacity for our current operations.
Properties Our production and distribution facilities as of June 30, 2022 are as follows: Location Approximate Area (Square Feet) Purpose Status Northlake, TX 535,585 Corporate headquarters, manufacturing, distribution, warehouse, product development lab Owned Portland, OR 114,000 Manufacturing and distribution Leased Oklahoma City, OK 142,115 Equipment repair center Owned Northlake, IL 89,837 Distribution and warehouse Leased Moonachie, NJ 41,404 Distribution and warehouse Leased Hillsboro, OR (1) 20,400 Manufacturing, distribution and warehouse Leased Rialto, CA 156,000 Distribution and warehouse Leased ____________ (1) Consolidated into the Portland facility in July 2022.
Properties Our production and distribution facilities as of June 30, 2023 are as follows: Location Approximate Area (Square Feet) Purpose Status Northlake, TX 108,262 Corporate headquarters, manufacturing, distribution, warehouse, product development lab Leased Portland, OR 124,000 Manufacturing and distribution, product development lab Leased Oklahoma City, OK 142,115 Equipment repair center Owned Northlake, IL 89,837 Distribution and warehouse Leased Moonachie, NJ 41,404 Distribution and warehouse Leased Rialto, CA 156,586 Distribution and warehouse Leased As of June 30, 2023, we stage our products in 106 branch warehouses throughout the contiguous United States.
Our stand-alone branch warehouses vary in size from approximately 1,000 to 34,000 square feet. Approximately 65% of our facilities are leased with a variety of expiration dates within the range of 2022 through 2027.
Approximately 70% of our facilities are leased with a variety of expiration dates within the range of 2023 through 2032.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings For information regarding legal proceedings in which we are involved, see Not e 1 8 , Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, which is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. PART II
Biggest changeItem 3. Legal Proceedings For information regarding legal proceedings in which we are involved, see Note 19 , Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K, which is incorporated herein by reference.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeBecause no published peer group is similar to the Company's portfolio of business, the Company created a peer group index that includes the following companies that operate in a similar line of business: B&G Foods, Inc., Coffee Holding Co. Inc., Lancaster Colony Corporation, National Beverage Corp., SpartanNash Company, Seneca Foods Corp. and TreeHouse Foods, Inc.
Biggest changeBecause no published peer group is similar to the Company's portfolio of business, the Company created a peer group index that includes the following companies that operate in a similar line of business: Utz Brands, Inc., J&J Snack Foods Corp., Hostess Brands, Inc., The Simply Good Foods Company, Calavo Growers, John B Sanfilippo & Son, Inc., SunOpta, Inc., MGP Ingredients, Inc., Whole Earth Brands, Beyond Meat, Inc., Freshpet, Inc., NewAge, Inc., The Duckhorn Portfolio, Inc., Vital Farms, Inc. and Bridgford Foods Corporation.
The graph assumes an initial investment of $100.00 at the close of trading on June 30, 2017 and that all dividends paid by companies included in these indices have been reinvested.
The graph assumes an initial investment of $100.00 at the close of trading on June 30, 2018 and that all dividends paid by companies included in these indices have been reinvested.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The principal market on which our common stock is listed for trading is the Nasdaq Global Select Market under the symbol “FARM.” Holders As of August 22, 2022, there were approximately 199 shareholders of record of common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The principal market on which our common stock is listed for trading is the Nasdaq Global Select Market under the symbol “FARM.” Holders As of September 5, 2023, there were approximately 191 shareholders of record of common stock.
Sale of Unregistered Securities We did not sell unregistered securities during fiscal 2022.
Sale of Unregistered Securities We did not sell unregistered securities during fiscal 2023.
However, the Value Line Index is not available from our service provider and has been omitted from this performance graph. The historical stock price performance of the Company’s common stock shown in the performance graph below is not necessarily indicative of future stock price performance. The Russell 2000 Index and the peer group index are included for comparative purposes only.
The historical stock price performance of the Company’s common stock shown in the performance graph below is not necessarily indicative of future stock price performance. The Russell 2000 Index and the peer group index are included for comparative purposes only.
The material in this performance graph is not soliciting material, is not deemed filed with the SEC, and is not incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made on, before or after the date of this filing and irrespective of any general incorporation language in such filing. 19 Comparison of 5 Year Cumulative Total Return (Fiscal Years Ended June 30) Fiscal Years Ended June 30, 2017 2018 2019 2020 2021 2022 Farmer Bros.
The material in this performance graph is not soliciting material, is not deemed filed with the SEC, and is not incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made on, before or after the date of this filing and irrespective of any general incorporation language in such filing.
Co. 100.00 101.57 101.97 93.57 110.67 106.59 Russell 2000 Index 100.00 117.50 113.61 106.08 171.88 128.67 Peer Group Index 100.00 94.92 72.28 79.27 102.66 91.85 Issuer Purchases of Equity Securities Neither we, nor any affiliated purchaser, purchased any of our equity securities during the quarter ended June 30, 2022.
Co. 100.00 53.58 24.03 41.54 15.35 9.07 Russell 2000 Index 100.00 96.69 90.28 146.28 109.42 122.89 Peer Group Index 100.00 109.63 97.39 141.10 83.96 86.71 Issuer Purchases of Equity Securities Neither we, nor any affiliated purchaser, purchased any of our equity securities during the quarter ended June 30, 2023.
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Our performance graph has previously included a comparison of the total cumulative stockholder return on our common stock for each of the last five fiscal years relative to the performance of the Value Line Food Processing Index (the “Value Line Index”).
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Comparison of 5 Year Cumulative Total Return (Fiscal Years Ended June 30) 20 Fiscal Years Ended June 30, 2018 2019 2020 2021 2022 2023 Farmer Bros.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese changes were primarily due to our higher investment in inventory as our sales volumes continue to recover from the pandemic, and payments under our 2021 employee incentive program, partially offset by cash proceeds from the sale of three branch properties and realized hedging gains. 22 Financial Data Highlights (in thousands, except per share data and percentages) For The Years Ended June 30, 2022 vs 2021 2022 2021 Favorable (Unfavorable) Change % Change Income Statement Data: Net sales $ 469,193 $ 397,850 $ 71,343 17.9 % Gross margin 29.2 % 25.4 % 3.8 % NM Operating expenses as a % of sales 32.3 % 35.0 % 2.7 % NM Loss from operations $ (14,628) $ (38,173) $ 23,545 61.7 % Net loss $ (15,661) $ (41,651) $ 25,990 62.4 % Net loss available to common stockholders per common share—basic $ (0.89) $ (2.39) $ 1.50 NM Net loss available to common stockholders per common share—diluted $ (0.89) $ (2.39) $ 1.50 NM Operating Data: Coffee pounds 76,327 79,506 (3,179) (4.0) % EBITDA(1) $ 13,946 $ 11,480 $ 2,466 21.5 % EBITDA Margin(1) 3.0 % 2.9 % 0.1 % NM Adjusted EBITDA(1) $ 19,059 $ 16,611 $ 2,448 14.7 % Adjusted EBITDA Margin(1) 4.1 % 4.2 % (0.1) % NM Percentage of Total Net Sales By Product Category Coffee (Roasted) 64.4 % 66.2 % (1.8) % (2.7) % Tea & Other Beverages (2) 18.0 % 17.5 % 0.5 % 2.9 % Culinary 12.0 % 11.3 % 0.7 % 6.2 % Spices 4.7 % 4.7 % — % — % Net sales by product category 99.1 % 99.7 % (0.6) % (0.6) % Delivery Surcharge 0.9 % 0.3 % 0.6 % NM Total 100.0 % 100.0 % — % — % Other data: Capital expenditures related to maintenance $ 13,577 $ 7,758 $ (5,819) (75.0) % Total capital expenditures 15,163 15,117 (46) (0.3) % Depreciation & amortization expense 23,810 27,625 3,815 13.8 % ________________ NM - Not Meaningful (1) EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures.
Biggest changeFinancial Data Highlights (in thousands, except per share data and percentages) For The Years Ended June 30, 2023 vs 2022 2023 2022 2021 Favorable (Unfavorable) Change % Change Income Statement Data: Net sales $ 339,964 $ 314,783 261,911 $ 25,181 8.0 % Gross margin 33.7 % 42.5 % 36.6 % (8.8) % NM Operating expenses as a % of sales 39.9 % 44.4 % 48.8 % 4.5 % NM Loss from continuing operations $ (34,038) $ (1,974) (30,213) $ (32,064) NM Loss from continuing operations available to common stockholders per common share, basic and diluted $ (1.74) $ (0.14) $ (1.74) $ (1.60) NM Operating Data: Coffee pounds - continuing operations 24,373 26,159 26,347 (1,786) (6.8) % EBITDA(1) $ (16,925) $ 11,101 $ 8,646 $ (28,026) (252.5) % EBITDA Margin(1) (5.0) % 3.5 % 3.3 % (8.5) % NM Adjusted EBITDA(1) $ (14,153) $ 16,214 $ 13,777 $ (30,367) (187.3) % Adjusted EBITDA Margin(1) (4.2) % 5.2 % 5.3 % (9.4) % NM Percentage of Total Net Sales By Product Category Coffee (Roasted) 47.1 % 48.2 % 50.3 % (1.1) % (2.3) % Tea & Other Beverages (2) 26.0 % 25.6 % 24.8 % 0.4 % 1.6 % Culinary 19.0 % 17.7 % 16.9 % 1.3 % 7.3 % Spices 6.9 % 7.1 % 7.1 % (0.2) % (2.8) % Delivery Surcharge 1.0 % 1.4 % 0.9 % (0.4) % NM Net sales from continuing operations 100.0 % 100.0 % 100.0 % Other data: Capital expenditures related to maintenance $ 13,190 $ 12,038 $ 7,758 $ (1,152) (9.6) % Total capital expenditures 13,190 13,624 9,577 434 3.2 % Depreciation & amortization expense 12,938 12,359 18,760 (579) (4.7) % ________________ NM - Not Meaningful (1) EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures.
Availability under the revolver is calculated as the lesser of (a) $80.0 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.
Availability under the revolver is calculated as the lesser of (a) $75.0 million or (b) the amount equal to the sum of (i) 85% of eligible accounts receivable (less a dilution reserve), plus (ii) the lesser of: (a) 80% of eligible raw material inventory, eligible in-transit inventory and eligible finished goods inventory (collectively, “Eligible Inventory”), and (b) 85% of the net orderly liquidation value of Eligible Inventory, minus (c) applicable reserve.
Areas of focus include distribution network optimization, methods of procurement, logistics, inventory management, supporting technology, and real estate assets. The ability to attract and retain a skilled workforce, as well as mitigate current global supply chain challenges, will affect our future growth and profitability. • Demographic and Channel Trends.
Areas of focus include distribution network optimization, methods of procurement, logistics, inventory management, supporting technology, and real estate assets. The ability to attract and retain a skilled workforce, as well as mitigate global supply chain challenges, will affect our future growth and profitability. • Demographic and Channel Trends.
With Revive, we offer our customers a comprehensive equipment program and 24/7 nationwide equipment service which we believe differentiates us in the marketplace. We offer a full spectrum of equipment needs, which includes brewing equipment installation, water filtration systems, equipment training, and maintenance services to ensure we are able to meet our customer’s demands. • Sustainability.
With Revive, we offer our customers a comprehensive equipment program and 24/7 nationwide equipment service which we believe differentiates us in the marketplace. We offer a full spectrum of equipment needs, which includes brewing equipment installation, water filtration systems, equipment training, and maintenance services to ensure we are able to meet our customer’s demands.
In order to compete effectively and capitalize on growth opportunities, we must retain and continue to grow our customer base, evaluate and undertake initiatives to reduce costs and streamline our supply chain. We continue to look for ways to deploy our personnel, systems, assets and infrastructure to create or enhance stockholder value.
In order to compete effectively and capitalize on growth opportunities, we must retain and continue to grow our customer base, evaluate and undertake initiatives to reduce costs and streamline our supply chain. We continue to look for ways to deploy our personnel, systems, assets and infrastructure to create or 23 enhance stockholder value.
As a result, our business model strives to reduce the impact of green coffee price fluctuations on our financial results and to protect and stabilize our margins, principally through customer arrangements and derivative instruments. We utilize derivative instruments to reduce the impact of changing green coffee commodity prices.
As a result, our business model strives to reduce the impact 31 of green coffee price fluctuations on our financial results and to protect and stabilize our margins, principally through customer arrangements and derivative instruments. We utilize derivative instruments to reduce the impact of changing green coffee commodity prices.
Notwithstanding this customer direction, pursuant to Accounting Standards Codification (“ASC“) 815, “Derivatives and 31 Hedging,” we are considered the owner of these derivative instruments and, therefore, we are required to account for them as such.
Notwithstanding this customer direction, pursuant to Accounting Standards Codification (“ASC“) 815, “Derivatives and Hedging,” we are considered the owner of these derivative instruments and, therefore, we are required to account for them as such.
The results of operations for fiscal 2022 and fiscal 2021 are not necessarily indicative of the results that may be expected for any future period.
The results of operations for fiscal 2023, fiscal 2022 and fiscal 2021 are not necessarily indicative of the results that may be expected for any future period.
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.
Through our sustainability, stewardship, environmental efforts, and leadership we are not only committed to serving the finest products available, considering the cost needs of the customer, but also focus on their sustainable cultivation, manufacture and distribution whenever possible.
This discussion, which presents our results for fiscal 2022 and fiscal 2021 should be read in conjunction with our Consolidated Financial Statements and the accompanying notes and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for fiscal 2021, filed with the SEC on September 10, 2021, which provides additional information on comparisons of fiscal 2021 and the year ended June 30, 2020 ("fiscal 2020").
This discussion, which presents our results for fiscal 2023, fiscal 2022, and fiscal 2021 should be read in conjunction with our Consolidated Financial Statements and the accompanying notes and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for fiscal 2022, filed with the SEC on September 2, 2022, which provides additional information on comparisons of fiscal 2022 and the year ended June 30, 2021 ("fiscal 2021").
Our success is dependent upon our ability to develop new products in response to demographic and other trends to better compete in areas such as premium coffee and tea, including expansion of our product portfolio by investing resources in what we believe to be key growth categories and different formats.
Our success is dependent upon our ability to develop new products in response to demographic and other trends to better compete in areas such as premium coffee and tea, including expansion of our product portfolio by investing resources in what we believe to be key growth categories and different formats. • Fluctuations in Green Coffee Prices.
The decrease in Other, net, was primarily a result of lower amortized gains on our terminated post-retirement medical benefit plan and mark-to-market net losses on coffee-related derivative instruments not designated as accounting hedges. Income Taxes In fiscal 2022, we recorded income tax benefit of $0.3 million as compared to income tax expense of $13.6 million in fiscal 2021.
The decrease in Other, net, was primarily a result of lower amortized gains on our terminated post-retirement medical benefit plan and mark-to-market net losses on coffee-related derivative instruments not designated as accounting hedges. Income Taxes In fiscal 2022, we recorded income tax expense of $0.1 million as compared to $13.9 million in fiscal 2021.
Our business model strives to reduce the impact of green coffee price fluctuations on our financial results and to protect and stabilize our margins, principally through customer arrangements and derivative instruments, as further explained in Note 4 , Derivative Instruments , of the Notes to Consolidated Financial Statements included in this Form 10‑K. • Coffee Brewing Equipment Service & Restoration ("Revive") .
Our business model strives to reduce the impact of green coffee price fluctuations on our financial results and to protect and stabilize our margins, principally through derivative instruments, as further explained in Note 5 , Derivative Instruments , of the Notes to Consolidated Financial Statements included in this Form 10‑K. • Coffee Brewing Equipment Service & Restoration ("Revive") .
(2) See Note 11 , Employee Benefit Plans, of the Notes to Consolidated Financial Statements included in this Form 10‑K. (3) Purchase commitments include commitments under coffee purchase contracts for which all delivery terms have been finalized but the related coffee has not been received as of June 30, 2022.
(2) See Note 12 , Employee Benefit Plans, of the Notes to Consolidated Financial Statements included in this Form 10‑K. (3) Purchase commitments include commitments under coffee purchase contracts for which all delivery terms have been finalized but the related coffee has not been received as of June 30, 2023.
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 and Portland, Oregon.
We offer a comprehensive approach to our customers by providing not only a breadth of high-quality products, but also value added services such as market insight, beverage planning, and equipment placement and service. We operate a production facility in Portland, Oregon.
The increase was primarily due to $11.8 million increase in selling expenses and a $4.2 million increase in general and administrative expenses, partially offset by $1.2 million decrease in fixed assets impairment and $2.3 million increase in net gains from sale of assets due to sale of branch properties during fiscal 2022.
The increase was primarily due to $11.2 million increase in selling expenses and a $4.3 million increased in general and administrative expenses offset by a $2.3 million increase in net gains from sale of assets due to sale of branch properties during fiscal 2022 and a $1.2 million decrease in fixed asset impairment.
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 June 30, 2022, we were in compliance with all of the covenants under the Credit Facilities.
Non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the Credit Facility becoming immediately due and payable and termination of the commitments. As of and through June 30, 2023, we were in compliance with all of the covenants under the Credit Facility.
As of June 30, 2022 and 2021, we had 4.7 million and 21.5 million pounds of green coffee covered under coffee-related derivative instruments, respectively. We do not purchase any derivative instruments to hedge cost fluctuations of any commodities other than green coffee. The fair value of derivative instruments is based upon broker quotes.
As of June 30, 2023 and 2022, we had 3.9 million and 4.7 million pounds of green coffee covered under coffee-related derivative instruments, respectively. We do not purchase any derivative instruments to hedge cost fluctuations of any commodities other than green coffee. The fair value of derivative instruments is based upon broker quotes.
Average unit price increased during fiscal 2022 due to a mix of products sold via DSD versus our Direct Ship sales channel, along with price increases and delivery surcharges implemented during fiscal 2022. There were no new product category introductions in fiscal 2022 and fiscal 2021, which had a material impact on our net sales.
Average unit price increased during fiscal 2022 due to a mix of products sold, along with price increases and delivery surcharges implemented during fiscal 2022. There were no new product category introductions in fiscal 2022 or fiscal 2021 which had a material impact on our net sales.
The following table illustrates the sensitivity to a change in certain assumptions for the Farmer Bros. pension plan, holding all other assumptions constant: ($ in thousands) Effect on 2023 Net Periodic Benefit Cost Effect on June 30, 2022 PBO 50 basis points decrease in discount rate $ (75) $ 5,376 50 basis points increase in discount rate $ 60 $ (4,926) 50 basis points decrease in expected rate of return on assets $ 357 N/A 50 basis points increase in expected rate of return on assets $ (357) N/A See Note 11 , Employee Benefit Plans, of the Notes to Consolidated Financial Statements included in this Form 10‑K for further discussions of our various pension plans. 32
The following table illustrates the sensitivity to a change in certain assumptions for the Farmer Bros. pension plan, holding all other assumptions constant: ($ in thousands) Effect on 2023 Net Periodic Benefit Cost Effect on June 30, 2023 PBO 50 basis points decrease in discount rate $ (62) $ 4,675 50 basis points increase in discount rate $ 50 $ (4,302) 50 basis points decrease in expected rate of return on assets $ 365 N/A 50 basis points increase in expected rate of return on assets $ (365) N/A See Note 12 , Employee Benefit Plans, of the Notes to Consolidated Financial Statements included in this Form 10‑K for further discussions of our various pension plans. 32
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. At June 30, 2022, we had $9.8 million of unrestricted cash and cash equivalents.
We believe that the Credit Facility, 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. At June 30, 2023, we had $5.2 million of unrestricted cash and cash equivalents.
“Adjusted EBITDA” is defined as net (loss) excluding the impact of: • income tax (benefit) expense; • interest expense; • depreciation and amortization expense; • ESOP and share-based compensation expense; • net gains from sales of assets; • strategic initiatives; • severance costs; • impairment of fixed assets; • non-recurring costs associated with the COVID-19 pandemic and severe winter weather; and • postretirement benefits gains curtailment and pension settlement charge.
“Adjusted EBITDA” is defined as loss from continuing operations excluding the impact of: • income tax benefit; • interest expense; • depreciation and amortization expense; • 401(k), ESOP and share-based compensation expense; • gain on Settlement with Boyd's sellers; • net gains from sales of assets; • strategic initiatives; • severance costs; • impairment of fixed assets; • costs associated with the COVID-19 pandemic; • severe weather event; and • postretirement benefits gains curtailment and pension settlement charge.
At June 30, 2022, approximately 89% of our outstanding coffee-related derivative instruments, representing 4.2 million pounds of forecasted green coffee purchases, were designated as cash flow hedges. At June 30, 2021, approximately 68% of our outstanding coffee-related derivative instruments, representing 14.6 million pounds of forecasted green coffee purchases, were designated as cash flow hedges.
At June 30, 2023, approximately 40% of our outstanding coffee-related derivative instruments, representing 1.5 million pounds of forecasted green coffee purchases, were designated as cash flow hedges. At June 30, 2022, approximately 89% of our outstanding coffee-related derivative instruments, representing 4.2 million pounds of forecasted green coffee purchases, were designated as cash flow hedges.
The decrease in interest expense in fiscal 2022 was principally due to lower interest rates on our new credit facility entered in April 2021, as well as the amortization of de-designated interest rate swap costs. In fiscal 2022, Other, net decreased by $11.5 million to $8.2 million compared to $19.7 million in fiscal 2021.
The decrease in interest expense in fiscal 2022 was principally due to lower interest rates on our new credit facility entered in April 2021, as well as a reduction in interest rate swap costs. In fiscal 2022, Other, net decreased by $11.3 million to $8.1 million compared to $19.4 million in fiscal 2021.
Total Other Income (Expense) Total other income (expense) in fiscal 2022 was $1.3 million of expense compared to $10.1 million of income in fiscal 2021.
Total Other Income (Expense) Total other income (expense) in fiscal 2022 was $4.1 million of income compared to $15.8 million of income in fiscal 2021.
This was driven by lower expansionary capital spend of $5.8 million in fiscal 2022 compared to fiscal 2021, offset by a $5.8 million increase in maintenance capital spend in fiscal 2022.
This was driven by lower expansionary capital spend of $1.6 million in fiscal 2023 compared to fiscal 2022, offset by a $1.2 million increase in maintenance capital spend in fiscal 2023.
The following table presents the effect of changes in unit sales, unit pricing and product mix for fiscal 2022 compared to fiscal 2021 (in millions): Units Sold and Pricing For Year Ended June 30, 2022 vs 2021 % of Total Mix Change Effect of change in unit sales $ (12.0) (16.8) % Effect of pricing and product mix changes 83.3 116.8 % Total increase in net sales $ 71.3 100.0 % Unit sales decreased 2.5% and average unit price increased by 20.4% in fiscal 2022 as compared to the same prior year period, resulting in a net increase in net sales of 18%.
The following table presents the effect of changes in unit sales, unit pricing and product mix for fiscal 2023 compared to fiscal 2022 (in millions): Units Sold and Pricing For Year Ended June 30, 2023 vs 2022 % of Total Mix Change Effect of change in unit sales (22.3) (88.5) % Effect of pricing and product mix changes 47.5 188.5 % Total increase in net sales 25.2 100.0 % Unit sales decreased 6.1% and average unit price increased by 15.1% in fiscal 2023 as compared to the same prior year period, resulting in a net increase in net sales of 8%.
At June 30, 2022, we had outstanding borrowings of $98.8 million and utilized $4.1 million of the letters of credit sublimit under the Credit Facilities, and had $12.9 million of availability under our Credit Facilities. Liquidity We generally finance our operations through cash flows from operations and borrowings under our Credit Facilities.
At June 30, 2023, we had outstanding borrowings of $23.0 million and utilized $4.0 million of the letters of credit sublimit under the Credit Facility, and had $35.8 million of availability under our Credit Facility. Liquidity We generally finance our operations through cash flows from operations and borrowings under our Credit Facility.
The price increases and delivery surcharges implemented across our DSD network beginning in the three months ended December 31, 2021 helped mitigate the impact of higher supply chain and product costs.
The price increases and delivery surcharges implemented across our network helped mitigate the impact of higher supply chain and product costs.
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.
The Credit Facility provides us with increased flexibility to proactively manage our liquidity and working capital, while maintaining compliance with our debt financial covenants, and preserving financial liquidity to mitigate the impact of the uncertain business environment and continue to execute on key strategic initiatives. Pursuant to an International Swap Dealers Association, Inc.
See Note 1 8 , Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in this Form 10‑K. (4) See Note 12 , Debt Obligations , of the Notes to Consolidated Financial Statements included in this Form 10‑K. Capital Expenditures For fiscal 2022 and fiscal 2021, our capital expenditures paid were $15.2 million and $15.1 million respectively.
(4) See Note 13 , Debt Obligations , of the Notes to Consolidated Financial Statements included in this Form 10‑K. 30 Capital Expenditures For fiscal 2023, fiscal 2022 and fiscal 2021 our capital expenditures paid were $15.0 million, $15.2 million and $15.1 million respectively. In fiscal 2024, we anticipate capital expenditures will be between $16.0 million and $18.0 million.
Operating expenses increased by $12.4 million in fiscal 2022 over the prior year period due to an $11.8 million increase in selling expenses and a $4.2 million increase in general and administrative expenses, partially offset by a $2.3 million gain on sale of assets.
Operating expenses decreased by $4.2 million in fiscal 2023 over the prior year period due to a $3.7 million increase in selling expenses offset by a $5.7 million decrease in general and administrative expenses and a $2.2 million increase in gain on sale of assets from the sale of branch properties and other assets.
In fiscal 2023, we anticipate capital expenditures will be between $18.0 million and $20.0 million. We expect to finance these expenditures through cash flows from operations and borrowings under our Revolving Facility. Depreciation and amortization expense was $23.8 million and $27.6 million in fiscal 2022 and 2021, respectively.
We expect to finance these expenditures through cash flows from operations and borrowings under our Revolver Credit Facility. Depreciation and amortization expense from continuing operations was $12.9 million, $12.4 million and $18.8 million in fiscal 2023, 2022 and 2021, respectively.
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.
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. The price increases and delivery surcharges implemented during fiscal 2022 helped mitigate the impact of higher supply chain and product costs.
Set forth below is a reconciliation of reported net loss to Adjusted EBITDA (unaudited): Year Ended June 30, (In thousands) 2022 2021 Net loss, as reported $ (15,661) $ (41,651) Income tax (benefit) expense (301) 13,595 Interest expense (1) 6,098 11,911 Depreciation and amortization expense 23,810 27,625 ESOP and share-based compensation expense 6,989 4,580 Net gains from sale of assets (2,905) (593) Strategic initiatives (2) 76 4,203 Severance costs 953 1,596 Impairment of fixed assets — 1,243 Non-recurring costs associated with the COVID-19 pandemic — 352 Weather-related event - 2021 severe winter weather — 109 Postretirement benefits gains curtailment and pension settlement charge — (6,359) Adjusted EBITDA $ 19,059 $ 16,611 Adjusted EBITDA Margin 4.1% 4.2% ________ (1) Excludes interest expense related to pension plans and postretirement benefits.
Set forth below is a reconciliation of reported loss from continuing operations to Adjusted EBITDA (unaudited): Year Ended June 30, (In thousands) 2023 2022 2021 Loss from continuing operations, as reported $ (34,038) $ (1,974) $ (30,213) Income tax (benefit) expense (325) 124 13,928 Interest expense (1) 4,499 591 6,171 Depreciation and amortization expense 12,939 12,360 18,760 401(k), ESOP and share-based compensation expense 8,212 6,989 4,580 Net (gains) losses from sale of assets (5,140) (2,905) (593) Strategic initiatives (1,917) — — Severance costs — 76 4,203 Impairment of fixed assets 1,617 953 1,596 Gain on settlement with Boyd's sellers (2) — — 1,243 — — 352 Non-recurring costs associated with the COVID-19 pandemic — — 109 Weather-related event - 2021 severe winter weather — — (6,359) Postretirement benefits gains curtailment and pension settlement charge $ (14,153) $ 16,214 $ 13,777 Adjusted EBITDA (4.2) % 5.2 % 5.3 % Adjusted EBITDA Margin ________ (1) Excludes interest expense related to pension plans and postretirement benefits.
The announcement triggered a re-measurement, and resulted in settlement gains of $6.4 million in fiscal 2021. See Note 11 , Employee Benefit Plans of the Notes to Consolidated Financial Statements included in this Form 10‑K for details. Interest expense in fiscal 2022 decreased $6.4 million to $9.5 million from $16.0 million in the prior year period.
The announcement triggered a re-measurement, and resulted in settlement gains of $6.4 million in fiscal 2021. Interest expense in fiscal 2022 decreased $5.9 million to $4.0 million from $9.9 million in the prior year period.
We generally finance our obligations through cash flows from operations and borrowings under our Credit Facilities. 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 believe that the Credit Facility, 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. At June 30, 2023, we had $5.2 million of unrestricted cash and cash equivalents.
See Note 16 , Income Taxes, of the Notes to Consolidated Financial Statements included in this Form 10‑K. 26 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 tax (benefit) expense; • interest expense; and • depreciation and amortization expense.
Upon termination of this plan during fiscal 2021, the deferred non-cash tax expense was reversed out of other comprehensive income and recorded in continuing operations net income in the second quarter of fiscal 2021. 26 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 loss from continuing operations excluding the impact of: • income tax benefit; • interest expense; and • depreciation and amortization expense.
We continue to focus on accelerating our Roastery Direct and e-commerce initiatives via a new digital platform. • Fluctuations in Green Coffee Prices. Our primary raw material is green coffee, an exchange-traded agricultural commodity that is subject to price fluctuations. Over the past five years, coffee “C” market near month price per pound ranged from approximately $0.86 to $2.60.
Our primary raw material is green coffee, an exchange-traded agricultural commodity that is subject to price fluctuations. Over the past five years, coffee “C” market near month price per pound ranged from approximately $0.86 to $2.60. The coffee “C” market near month price as of June 30, 2023 and 2022 was $1.65 and $2.30 per pound, respectively.
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.
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.
Financing Activities Net cash provided by financing activities during fiscal 2022 was $17.1 million as compared to of $37.4 million of cash used in financing activities during fiscal 2021. Net cash provided by financing activities in fiscal 2022 included $17.6 million in net proceeds under our current credit facilities compared to $31.0 million in net payments in fiscal 2021.
Financing Activities Net cash used in financing activities during fiscal 2023 was $86.1 million as compared to of $17.1 million of cash provided by financing activities during fiscal 2022.
The expansionary capital spending reductions were driven by several key initiatives put in place, including a focus on refurbished coffee brewing equipment to drive cost savings, and reductions across some capital categories due to additional cost controls put in place during the COVID-19 pandemic.
The expansionary capital spending reductions were driven by several key initiatives put in place, including a focus on refurbished coffee brewing equipment to drive cost savings, and reductions across some capital categories. As of June 30, 2023, the outstanding debt on our Revolver Credit Facility was $23.0 million a decrease of $40.0 million since June 30, 2022.
These changes primarily resulted from the drawdown and repayments on our Revolver in fiscal 2021. Contractual Obligations, Commitments and Contingencies Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations and borrowing capacity currently available under our Credit facilities.
Contractual Obligations, Commitments and Contingencies Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from our operations and borrowing capacity currently available under our Credit Facility. We generally finance our obligations through cash flows from operations and borrowings under our Credit Facility.
The coffee “C” market near month price as of June 30, 2022 and 2021 was $2.30 and $1.60 per pound, respectively. The price and availability of green coffee directly impacts our results of operations. For additional details, see Risk F actors in Part I, Item 1A of this Form 10-K. • Hedging Strategy.
The price and availability of green coffee directly impacts our results of operations. For additional details, see Risk Factors in Part I, Item 1A of this Form 10-K. • Hedging Strategy. We are exposed to market risk of losses due to changes in coffee commodity prices.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.
The results of operations and the related discussions below focus on the Company’s continuing operations for each period. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.
We stopped production in our Houston, Texas facility and exited the facility in the fourth quarter of fiscal 2021. We distribute our products from our Northlake, Texas; and Portland, Oregon production facilities, as well as separate distribution centers in Portland, Oregon; Northlake, Illinois; Moonachie, New Jersey; and Rialto, California.
We distribute our products from our Portland, Oregon production facility, as well as separate distribution centers in Northlake, Texas; Portland, Oregon; Northlake, Illinois; Moonachie, New Jersey; and Rialto, California. Our products reach our customers primarily through our nationwide DSD network of 242 delivery routes and 106 branch warehouses as of June 30, 2023.
As of June 30, 2022, the outstanding debt on our Revolver and Term Loan Credit Facilities were $63.0 million and $45.6 million, respectively, an increase of $17.6 million since June 30, 2021. Our cash decreased by $0.4 million to $10.0 million as of June 30, 2022, compared to $10.4 million as of June 30, 2021.
Our cash decreased by $4.6 million to $5.4 million as of June 30, 2023, compared to $10.0 million as of June 30, 2022. The proceeds from the Sale were applied to pay off the Term Credit Facility and pay down the Revolver Credit Facility.
At June 30, 2022, we had $12.9 million of availability under our Credit Facilities. 30 The following table contains information regarding total contractual obligations as of June 30, 2022, which we expect to fund primarily with operating cash flows: Payment due by period (In thousands) Total Less Than One Year 1-3 Years 3-5 Years More Than 5 Years Contractual obligations: Operating lease obligations(1) $ 32,791 $ 7,721 $ 13,619 $ 8,452 $ 2,999 Finance lease obligations(1) 675 193 386 96 — Pension plan obligations(2) 73,360 7,430 14,680 14,900 36,350 Postretirement benefits other than pension plans (2) 622 56 119 127 320 Revolving credit facility (4) 63,000 — 63,000 — — Term loan (4) 45,600 3,800 41,800 — — Purchase commitments(3) 122,137 122,137 — — — Derivative liabilities 2,349 2,349 — — — Total contractual obligations $ 340,534 $ 143,686 $ 133,604 $ 23,575 $ 39,669 ______________ (1) See Note 5 , Leases, of the Notes to Consolidated Financial Statements included in this Form 10‑K.
The following table contains information regarding total contractual obligations as of June 30, 2023, which we expect to fund primarily with operating cash flows: Payment due by period (In thousands) Total Less Than One Year 1-3 Years 3-5 Years More Than 5 Years Contractual obligations: Operating lease obligations(1) $ 28,916 $ 7,979 $ 12,501 $ 7,509 $ 927 Finance lease obligations(1) 482 193 289 — — Pension plan obligations(2) 73,730 7,660 14,890 15,070 36,110 Postretirement benefits other than pension plans (2) 661 62 130 137 332 Revolving credit facility (4) 23,021 — 23,021 — — Purchase commitments(3) 115,335 115,335 — — — Derivative liabilities 2,636 2,636 — — — Total contractual obligations $ 244,781 $ 133,865 $ 50,831 $ 22,716 $ 37,369 ______________ (1) See Note 6 , Leases, of the Notes to Consolidated Financial Statements included in this Form 10‑K.
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.
The term loan under the Term Credit Facility was fully paid down on June 30, 2023. The Credit Facility contain customary affirmative and negative covenants and restrictions typical for a financing of this type.
(2) Includes initiatives related to the consolidation of the Hillsboro and Portland facilities in fiscal 2022 and Houston facility exit and opening of the Rialto distribution center in fiscal 2021. 28 Liquidity, Capital Resources and Financial Condition The following table summarizes the Company’s debt obligations, excluding unamortized deferred debt financing costs: June 30, 2022 June 30, 2021 (In thousands) Debt Origination Date Maturity Principal Amount Borrowed Carrying Value Weighted Average Interest Rate Carrying Value Weighted Average Interest Rate Revolver various 4/25/2025 N/A $ 63,000 2.75 % $ 43,500 6.17 % Term Loan 4/26/2021 4/25/2025 $ 47,500 $ 45,600 7.50 % $ 47,500 7.50 % Total $ 108,600 $ 91,000 Credit Facility On April 26, 2021, we repaid in full all of the outstanding loans and other amounts payable under a prior amended and restated credit agreement, using proceeds of loans received pursuant to a refinancing under a new senior secured facility composed of a Revolver Credit Facility Agreement and a Term Credit Facility Agreement (the "Credit Facilities") as described in more detail in Note 12 , Debt Obligations , of the Notes to Consolidated Financial Statements included in this Form 10‑K.
The following table summarizes the Company’s debt obligations, excluding unamortized deferred debt financing costs: June 30, 2023 June 30, 2022 (In thousands) Debt Origination Date Maturity Principal Amount Borrowed Carrying Value Weighted Average Interest Rate Carrying Value Weighted Average Interest Rate Revolver various 4/25/2025 N/A $ 23,021 6.66 % $ 63,000 6.17 % Term Loan 4/26/2021 4/25/2025 $ 47,500 $ — $ 45,600 7.50 % Total $ 23,021 $ 108,600 Credit Facility The revolver under the Credit Facility has a commitment of up to $75.0 million and a maturity date of April 25, 2025.
Cash Flows The significant captions and amounts from our consolidated statements of cash flows are summarized below: For the Years Ended June 30, 2022 2021 Consolidated Statements of cash flows data (in thousands) Net cash used in operating activities $ (11,454) $ (1,486) Net cash used in investing activities (6,045) (10,696) Net cash provided by (used in) financing activities 17,055 (37,393) Net decrease in cash and cash equivalents $ (444) $ (49,575) Operating Activities Cash used in operating activities in fiscal 2022 increased $10.0 million as compared to fiscal 2021 primarily attributable to changes in working capital related to inventory and accounts receivables, as well as employee compensation payments made in fiscal 2021 as part of our employee incentive program.
An economic downturn may also cause substantial changes in consumer behavior and demand for our products, adversely affecting results of operations and our financial position, some of which we may not be able to predict with certainty. 29 Cash Flows The significant captions and amounts from our consolidated statements of cash flows are summarized below: For the Years Ended June 30, 2023 2022 Consolidated Statements of cash flows data (in thousands) Net cash used in operating activities $ (6,880) $ (11,454) Net cash provided by (used in) investing activities 88,445 (6,045) Net cash (used in) provided by financing activities (86,140) 17,055 Net decrease in cash and cash equivalents $ (4,575) $ (444) Operating Activities Net cash used in operating activities in fiscal 2023 decreased $4.6 million as compared to fiscal 2022.
Some of these factors include: • Investment in State-of-the-Art Facility and Capacity Expansion. We are focused on leveraging our investment in the Northlake, Texas, facility to produce the highest quality coffee in response to the market shift to premium and specialty coffee, support volume rebalancing across our manufacturing network and create sustainable long-term growth.
We are focused on leveraging our Portland, Oregon facility to produce the highest quality coffee in response to the market shift to premium and specialty coffee and create sustainable long-term growth. We will continue to invest in our facility to ensure reliable production while focusing on overall production costs. • Supply Chain Efficiencies and Competition.
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. 27 Set forth below is a reconciliation of reported net loss to EBITDA (unaudited): For the Year Ended June 30, (In thousands) 2022 2021 Net loss, as reported $ (15,661) $ (41,651) Income tax (benefit) expense (301) 13,595 Interest expense (1) 6,098 11,911 Depreciation and amortization expense 23,810 27,625 EBITDA $ 13,946 $ 11,480 EBITDA Margin 3.0% 2.9% ____________ (1) Excludes interest expense related to pension plans and postretirement benefits.
This calculation is for continuing operations only. 27 Set forth below is a reconciliation of reported loss from continuing operations to EBITDA (unaudited): For the Year Ended June 30, (In thousands) 2023 2022 2021 Loss from continuing operations, as reported $ (34,038) $ (1,974) $ (30,213) Income tax (benefit) expense (325) 124 13,928 Interest expense (1) 4,499 591 6,171 Depreciation and amortization expense 12,939 12,360 18,760 EBITDA $ (16,925) $ 11,101 $ 8,646 EBITDA Margin (5.0) % 3.5 % 3.3 % ____________ (1) Excludes interest expense related to pension plans and postretirement benefits.
(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. 23 Factors Affecting Our Business We have identified factors that affect our industry and business which we expect will play an important role in our future growth and profitability.
Factors Affecting Our Business We have identified factors that affect our industry and business which we expect will play an important role in our future growth and profitability. Some of these factors include: • Investment in Manufacturing Facility.
See “ Non-GAAP Financial Measures ” below for a reconciliation of these non-GAAP measures to their corresponding GAAP 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.
Effective March 27, 2019, we entered into an interest rate swap to manage our interest rate risk on our floating-rate indebtedness. See Note 4 , Derivative Instruments , of the Notes to Consolidated Financial Statements included in this Form 10‑K, for details.
There is no remaining balance frozen in AOCI as of June 30, 2023. See Note 5 , Derivative Instruments , of the Notes to Consolidated Financial Statements included in this Form 10‑K, for details.
At June 30, 2022, we had $9.8 million of unrestricted cash and cash equivalents.
At June 30, 2023, we had $35.8 million of availability under our Credit Facility.
Gross Profit Gross profit in fiscal 2022 increased $36.0 million, or 36%, to $136.9 million from $100.9 million in fiscal 2021. Gross 25 margin increased 3.8% to 29.2% in fiscal 2022 from 25.4% in fiscal 2021.
Operating Expenses In fiscal 2022, operating expenses increased by $11.9 million, or 9%, to $139.8 million from $127.9 million, in fiscal 2021.
Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of June 30, 2022.
Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of June 30, 2023 or June 30, 2022. Quarterly Financial Data (Unaudited) The following tables set forth certain unaudited quarterly information for each of the eight fiscal quarters in the two-year period ended June 30, 2023.
These outflows were partially offset by realized gains from our coffee-related derivative instruments for fiscal year 2022. Investing Activities Net cash used in investing activities during fiscal 2022 was $6.0 million as compared to net cash used of $10.7 million during fiscal 2021.
The change was driven by a decrease in inventory, partially offset by lower cash earnings. Investing Activities Net cash provided by investing activities during fiscal 2023 was $88.4 million as compared to net cash used of $6.0 million during fiscal 2022. The $94.4 million change is primarily reflective of the $92.2 million of net cash proceeds resulting from the Sale.
For the Years Ended June 30, 2022 vs 2021 2022 2021 Favorable (Unfavorable) Change % Change Net sales $ 469,193 $ 397,850 $ 71,343 18 % Cost of goods sold 332,277 296,925 (35,352) (12) % Gross profit 136,916 100,925 35,991 36 % Selling expenses 107,277 95,503 (11,774) (12) % General and administrative expenses 47,172 42,945 (4,227) (10) % Net gains from sale of assets (2,905) (593) 2,312 NM Impairment of fixed assets — 1,243 1,243 100 % Operating expenses 151,544 139,098 (12,446) (9) % Loss from operations (14,628) (38,173) 23,545 62 % Other (expense) income: Interest expense (9,516) (15,962) 6,446 40 % Postretirement benefits curtailment and pension settlement charge — 6,359 (6,359) (100) % Other, net 8,182 19,720 (11,538) (59) % Total other (expense) income (1,334) 10,117 (11,451) (113) % Loss before taxes (15,962) (28,056) 12,094 43 % Income tax (benefit) expense (301) 13,595 13,896 102 % Net loss $ (15,661) $ (41,651) $ 25,990 62 % Less: Cumulative preferred dividends, undeclared and unpaid 594 574 (20) (3) % Net loss available to common stock holders $ (16,255) $ (42,225) $ 25,970 62 % _____________ NM - Not Meaningful Fiscal 2022 and Fiscal 2021 Net Sales Net sales in fiscal 2022 increased $71.3 million, or 18%, to $469.2 million from $397.9 million in fiscal 2021.
For the Years Ended June 30, 2023 vs 2022 2023 2022 2021 Favorable (Unfavorable) Change % Change Net sales $ 339,964 $ 314,783 $ 261,911 $ 25,181 8 % Cost of goods sold 225,351 180,968 166,130 (44,383) (25) % Gross profit 114,613 133,815 95,781 (19,202) (14) % Selling expenses 103,151 99,458 88,283 (3,693) (4) % General and administrative expenses 37,561 43,243 38,977 5,682 13 % Net gains from sale of assets (5,140) (2,905) (593) 2,235 NM Impairment of fixed assets — — 1,243 — — % Operating expenses 135,572 139,796 127,910 4,224 3 % Loss from operations (20,959) (5,981) (32,129) (14,978) (250) % Other (expense) income: Interest expense (9,162) (4,009) (9,901) (5,153) (129) % Postretirement benefits curtailment and pension settlement charge — — 6,359 — — % Other, net (4,242) 8,140 19,386 (12,382) (152) % Total other (expense) income (13,404) 4,131 15,844 (17,535) (424) % Loss from continuing operations before taxes (34,363) (1,850) (16,285) (32,513) (1,757) % Income tax (benefit) expense (325) 124 13,928 449 362 % Loss from continuing operations $ (34,038) $ (1,974) $ (30,213) $ (32,064) (1,624) % _____________ NM - Not Meaningful 24 Fiscal 2023 and Fiscal 2022 Net Sales Net sales in fiscal 2023 increased $25.2 million, or 8%, to $340.0 million from $314.8 million in fiscal 2022.
Removed
We opened and started operating the distribution center in Rialto, California in the third quarter of fiscal 2021. Our products reach our customers primarily through our nationwide DSD network of 239 delivery routes and 103 branch warehouses as of June 30, 2022, or direct-shipped via common carriers or third-party distributors.
Added
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains forward-looking statements that involve risks and uncertainties. This Management's Discussion and Analysis is for continuing operations of the Company. The Company’s results of operations for all periods presented have been adjusted to reflect the discontinued operations related to the Sale.
Removed
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 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, and convenience store chains, hotels, casinos, healthcare facilities, and foodservice distributors.
Added
Summary Overview of Fiscal 2023 Results Net sales in fiscal 2023 increased $25.2 million, or 8%, to $340.0 million from $314.8 million in fiscal 2022. The increase in net sales was primarily due to higher pricing compared to prior periods, partially offset by decline in sales volume.
Removed
This has had a material impact on our revenues during fiscal 2022 and fiscal 2021. As local governments across the country eased COVID-19 restrictions, and vaccines have become more widely available, we have continued to see improved sales trends.
Added
During fiscal 2023, we experienced lower gross margins compared to fiscal 2022, primarily resulting from higher product costs relative to fiscal 2022. Overall, gross margins decreased by 8.8% to 33.7% in fiscal 2023 from 42.5% compared to fiscal 2022. The decrease was also attributable to an increase in unfavorable production variances.
Removed
Although we have experienced improvements in several markets during fiscal 2022, our recovery has been slower in certain regions caused by general COVID-19 related restrictions as well as other indirect issues that some customers face from the impacts of the COVID-19 pandemic including labor and supply shortages as well as other issues.
Added
The increase in selling expenses during fiscal 2023 was primarily due to an increase in payroll-related costs.
Removed
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.
Added
The decrease in general and administrative expenses during fiscal 2023 was primarily due to a decrease in incentive compensation expense, a $1.9 million gain on settlement related to the acquisition of Boyd Coffee Company ("Boyd"), which included the cancellation of shares of the Series A Convertible Participating Cumulative Perpetual Preferred Stock, par value $1.00 per share, of the Company ("Series A Preferred Stock") and settlement of liabilities (the "Boyd Settlement"), and a payroll tax refund which was partially offset by an increase in contract services. 22 Our capital expenditures related to continuing operations for fiscal 2023 were $13.2 million as compared to $13.6 million in fiscal 2022, a decrease of $0.4 million.
Removed
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 seen moderate increases in demand that have helped mitigate the impact of the pandemic.
Added
Results of Operations The following table sets forth information regarding our consolidated results of operations for fiscal 2023, fiscal 2022 and fiscal 2021.
Removed
Compared to fiscal 2021, our Direct Ship revenues increased 21 in fiscal 2022 which was mainly driven by price changes to customers utilizing commodity-based pricing arrangements, recently optimized customer base and recovery of several larger accounts.
Added
The increase in net sales was primarily due to higher pricing compared to prior periods, partially offset by a decline in sales volume. On our sales, average unit price increased due to the increase in pricing and product mix sold to customers.
Removed
Due to the impact of the COVID-19 pandemic on our revenues, we instituted several initiatives during fiscal 2020 and 2021 to reduce operating expenses and capital expenditures to help mitigate the significant negative impact of our revenue decline.
Added
Average unit price increased during fiscal 2023 due to a mix of products sold, along with price increases implemented during fiscal 2023. There were no new product category introductions in fiscal 2023 or fiscal 2022 which had a material impact on our net sales.
Removed
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, as further described below in the Liquidity , Capital Resources and Financial Condition section of Part II, Item 7 of this Form 10-K.
Added
Gross Profit Gross profit in fiscal 2023 decreased $19.2 million, or 14%, to $114.6 million from $133.8 million in fiscal 2022. Gross margin decreased 8.8% to 33.7% in fiscal 2023 from 42.5% in fiscal 2022.
Removed
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−1 removed4 unchanged
Biggest changeAt June 30, 2022, we had outstanding borrowings on our Revolver of $63.0 million and had utilized $4.1 million of the letters of credit sublimit, as well as $45.6 million of debt outstanding under our term loan. As a result of the Amended Rate Swap, only $43.6 million is now subject to interest rate variability.
Biggest changeAt June 30, 2023, we had outstanding borrowings on our Revolver of $23.0 million and had utilized $4.0 million of the letters of credit sublimit. The weighted average interest rate on our outstanding borrowings subject to interest rate variability under the Revolver at June 30, 2023 was 6.66%.
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 this Form 10‑K for further discussions of our derivative instruments.
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 5 , Derivative Instruments, of the Notes to Consolidated Financial Statements included in this Form 10‑K for further discussions of our derivative instruments.
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 Consolidated Financial Statements included in this Form 10‑K for further discussions of our derivative instruments.
Due to competition and market conditions, volatile price increases cannot always be passed on to our customers. See Note 5 , Derivative Instruments, of the Notes to Consolidated Financial Statements included in this Form 10‑K for further discussions of our derivative instruments.
The following table summarizes the potential impact as of June 30, 2022 to net income (loss) and AOCI from a hypothetical 10% change in coffee commodity prices.
The following table summarizes the potential impact as of June 30, 2023 to net income (loss) and AOCI from a hypothetical 10% change in coffee commodity prices.
The information provided below relates only to the coffee-related derivative instruments and does not include, when applicable, the corresponding changes in the underlying hedged items: Increase (Decrease) to Net Income Increase (Decrease) to AOCI 10% Increase in Underlying Rate 10% Decrease in Underlying Rate 10% Increase in Underlying Rate 10% Decrease in Underlying Rate (In thousands) Coffee-related derivative instruments(1) $ 99 $ (99) $ 736 $ (736) __________ (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 June 30, 2022.
The information provided below relates only to the coffee-related derivative instruments and does not include, when applicable, the corresponding changes in the underlying hedged items: Increase (Decrease) to Net Income Increase (Decrease) to AOCI 10% Increase in Underlying Rate 10% Decrease in Underlying Rate 10% Increase in Underlying Rate 10% Decrease in Underlying Rate (In thousands) Coffee-related derivative instruments(1) $ 378 $ (378) $ 260 $ (260) __________ (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 June 30, 2023.
Effective March 27, 2019, the Company entered into an interest rate swap to manage the interest rate risk on its floating-rate indebtedness. In connection with the new Revolver Credit Facility Agreement and Term Credit Facility Agreement (collectively, the “Credit Facilities”), the Company also executed a new ISDA agreement to transfer its interest swap to Wells Fargo (“Amended Rate Swap”).
Effective March 27, 2019, the Company entered into an interest rate swap to manage the interest rate risk on its floating-rate indebtedness. In connection with the Revolver Credit Facility, the Company also executed a new ISDA agreement to transfer its interest swap to Wells Fargo (“Amended Rate Swap”).
The following table demonstrates the impact of interest rate changes on our annual interest expense on outstanding borrowings subject to interest rate variability under the Revolver based on the weighted average interest rate on the outstanding borrowings as of June 30, 2022: ($ in thousands) Principal Interest Rate Annual Interest Expense –150 basis points $ 43,600 3.24 % $ 1,413 –100 basis points $ 43,600 3.74 % $ 1,631 Unchanged $ 43,600 4.74 % $ 2,067 +100 basis points $ 43,600 5.74 % $ 2,503 +150 basis points $ 43,600 6.24 % $ 2,721 Commodity Price Risk We are exposed to commodity price risk arising from changes in the market price of green coffee.
The following table demonstrates the impact of interest rate changes on our annual interest expense on outstanding borrowings subject to interest rate variability under the Revolver based on the weighted average interest rate on the outstanding borrowings as of June 30, 2023: ($ in thousands) Principal Interest Rate Annual Interest Expense –150 basis points $ 23,021 5.16 % $ 1,188 –100 basis points $ 23,021 5.66 % $ 1,303 Unchanged $ 23,021 6.66 % $ 1,533 +100 basis points $ 23,021 7.66 % $ 1,763 +150 basis points $ 23,021 8.16 % $ 1,879 Commodity Price Risk We are exposed to commodity price risk arising from changes in the market price of green coffee.
Removed
The weighted average interest rate on our outstanding borrowings subject to interest rate variability under the Revolver at June 30, 2022 was 2.75%.

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