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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number: 001-34249
FARMER BROS. CO.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-0725980
(State of Incorporation) (I.R.S. Employer Identification No.)
1912 Farmer Brothers Drive,Northlake, Texas  76262
(Address of Principal Executive Offices; Zip Code)
 682549-6600
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $1.00 par value
FARM
NASDAQ Global Select Market
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      NO  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      NO  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer

  Accelerated filer 
Non-accelerated filer

  Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
YES  NO  
As of January 26, 2021, the registrant had 17,771,241 shares outstanding of its common stock, par value $1.00 per share, which is the registrant’s only class of common stock.



TABLE OF CONTENTS
 
 Page




PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
FARMER BROS. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
December 31, 2020June 30, 2020
ASSETS
Current assets:
Cash and cash equivalents$5,857 $60,013 
Accounts receivable, net41,864 40,882 
Inventories80,617 67,408 
Income tax receivable 831 
Short-term derivative assets3,772 165 
Prepaid expenses8,303 7,414 
Total current assets140,413 176,713 
Property, plant and equipment, net159,855 165,633 
Intangible assets, net19,457 20,662 
Other assets8,700 8,564 
Long-term derivatives assets 10 
Right-of-use operating lease assets27,658 21,117 
Total assets$356,083 $392,699 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable49,797 36,987 
Accrued payroll expenses15,769 9,394 
Operating leases liabilities - current7,029 5,854 
Short-term derivative liabilities1,428 5,255 
Other current liabilities7,489 6,802 
Total current liabilities81,512 64,292 
Long-term borrowings under revolving credit facility82,000 122,000 
Accrued pension liabilities56,358 58,772 
Accrued postretirement benefits10,309 9,993 
Accrued workers’ compensation liabilities3,687 4,569 
Operating lease liabilities - noncurrent20,770 15,628 
Other long-term liabilities5,254 5,532 
Total liabilities$259,890 $280,786 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $1.00 par value, 500,000 shares authorized; Series A Convertible Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; 14,700 shares issued and outstanding as of December 31, 2020 and June 30, 2020; liquidation preference of $16,463 and $16,178 as of December 31, 2020 and June 30, 2020, respectively
15 15 
Common stock, $1.00 par value, 25,000,000 shares authorized; 17,591,084 and 17,347,774 shares issued and outstanding as of December 31, 2020 and June 30, 2020, respectively
17,591 17,348 
Additional paid-in capital63,739 62,043 
Retained earnings84,256 108,536 
Accumulated other comprehensive loss(69,408)(76,029)
Total stockholders’ equity$96,193 $111,913 
Total liabilities and stockholders’ equity$356,083 $392,699 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1


FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)
 
 Three Months Ended December 31,Six Months Ended December 31,
 2020201920202019
Net sales$104,571 $152,498 $201,841 $291,098 
Cost of goods sold78,321 108,513 153,173 206,472 
Gross profit26,250 43,985 48,668 84,626 
Selling expenses24,769 34,906 48,268 68,520 
General and administrative expenses11,570 11,266 21,316 24,006 
Net gains from sales of assets(1,168)(11,057)(549)(23,662)
Impairment of fixed assets1,243  1,243  
Operating expenses36,414 35,115 70,278 68,864 
(Loss) income from operations(10,164)8,870 (21,610)15,762 
Other (expense) income:
Interest expense(2,938)(2,859)(6,181)(5,407)
Other, net9,080 1,662 17,639 1,865 
Total other income (expense)6,142 (1,197)11,458 (3,542)
(Loss) income before taxes(4,022)7,673 (10,152)12,220 
Income tax expense (benefit) 13,703 (81)13,845 (188)
Net (loss) income(17,725)7,754 (23,997)12,408 
Less: Cumulative preferred dividends, undeclared and unpaid143 138 284 275 
Net (loss) income available to common stockholders$(17,868)$7,616 $(24,281)$12,133 
Net (loss) income available to common stockholders per common share—basic$(1.02)$0.44 $(1.39)$0.71 
Net (loss) income available to common stockholders per common share—diluted$(1.02)$0.43 $(1.39)$0.69 
Weighted average common shares outstanding—basic
17,531,521 17,159,108 17,477,268 17,127,153 
Weighted average common shares outstanding—diluted
17,531,521 17,583,335 17,477,268 17,550,144 

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

2


FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)
Three Months Ended December 31,Six Months Ended December 31,
2020201920202019
Net (loss) income$(17,725)$7,754 $(23,997)$12,408 
Other comprehensive (loss) income, net of tax:
Unrealized gains on derivative instruments designated as cash flow hedges, net of tax 3,367 11,284 7,327 7,395 
(Losses) gains on derivative instruments designated as cash flow hedges reclassified to cost of goods sold, net of tax (232)4,661 (260)7,249 
Losses on derivative instruments de-designated as cash flow hedges reclassified to interest expense, net of tax 320  659  
Change in pension and retiree benefit obligations, net of tax6,184  (1,105) 
Total comprehensive (loss) income, net of tax$(8,086)$23,699 $(17,376)$27,052 

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



3



FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share and per share data) 
Preferred SharesPreferred Stock AmountCommon
Shares
Common Stock
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at June 30, 202014,700 15 17,347,774 17,348 62,043 108,536 (76,029)$111,913 
Net loss— — — — — (6,270)— (6,270)
Net reclassification of unrealized gains on cash flow hedges, net of taxes— — — — — — 4,271 4,271 
Change in the funded status of retiree benefit obligations, net of taxes— — — — — — (7,289)(7,289)
ESOP compensation expense, including reclassifications— — 76,671 77 323 — — 400 
Share-based compensation— — — — 745 — — 745 
Issuance of common stock
and stock option exercises
— — 7,370 7 (7)— —  
Cumulative preferred dividends, undeclared and unpaid— — — — — (142)— (142)
Balance at September 30, 202014,700 15 17,431,815 17,432 63,104 102,124 (79,047)103,628 
Net loss— — — — — (17,725)— (17,725)
Net reclassification of unrealized losses on cash flow hedges, net of taxes— — — — — — 3,455 3,455 
Change in the funded status of retiree benefit obligations, net of taxes— — — — — — 6,184 6,184 
ESOP compensation expense, including reclassifications— — 108,426 108 287 — — 395 
Share-based compensation— — — — 399 — — 399 
Issuance of common stock
and stock option exercises
— — 50,843 51 (51)— —  
Cumulative preferred dividends, undeclared and unpaid— — — — — (143)— (143)
Balance at December 31, 202014,700 $15 17,591,084 $17,591 $63,739 $84,256 $(69,408)$96,193 



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



FARMER BROS. CO.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Continued)
(In thousands, except share and per share data) 
Preferred SharesPreferred Stock AmountCommon
Shares
Common Stock
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at June 30, 201914,700 $15 17,042,132 $17,042 $57,912 $146,177 $(63,652)157,494 
Net income4,654 4,654 
Net reclassification of unrealized losses on cash flow hedges, net of taxes(1,301)(1,301)
ESOP compensation expense, including reclassifications52,534 53 807 860 
Share-based compensation(1)(1)
Issuance of common stock and stock option exercises532 — —  
Cumulative preferred dividends, undeclared and unpaid(137)(137)
Balance at September 30, 201914,700 15 17,095,198 17,095 58,718 150,694 (64,953)161,569 
Net income7,754 7,754 
Net reclassification of unrealized gains on cash flow hedges, net of taxes15,945 15,945 
ESOP compensation expense, including reclassifications55,623 56 525 581 
Share-based compensation— — 319 319 
Issuance of common stock and stock option exercises26,627 29 101 130 
Cumulative preferred dividends, undeclared and unpaid(138)(138)
Balance at December 31, 201914,700 $15 17,177,448 $17,180 $59,663 $158,310 $(49,008)$186,160 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


 
FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 Six Months Ended December 31,
20202019
Cash flows from operating activities:
Net (loss) income$(23,997)$12,408 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization14,349 15,211 
Postretirement and Pension benefits gains(14,577) 
Deferred income taxes13,472  
Impairment of fixed assets1,243  
Net gains from sales of assets(549)(23,662)
Net (gains) losses on derivative instruments (2,093)4,075 
Other adjustments1,776 1,794 
Change in operating assets and liabilities:
Accounts receivable(818)(5,285)
Inventories(13,209)1,804 
Derivative assets/liabilities, net1,761 1,965 
Other assets2,418 361 
Accounts payable12,430 (10,608)
Accrued expenses and other3,971 (258)
Net cash used by operating activities$(3,823)$(2,195)
Cash flows from investing activities:
Purchases of property, plant and equipment(9,636)(9,007)
Proceeds from sales of property, plant and equipment
1,926 35,247 
Net cash (used) provided in investing activities$(7,710)$26,240 
Cash flows from financing activities:
Proceeds from revolving credit facility$21,150 $38,000 
Repayments on revolving credit facility(61,150)(60,000)
Payments of finance lease obligations(9)(27)
Payment of financing costs(2,614) 
Proceeds from stock option exercises 129 
Net cash used by financing activities$(42,623)$(21,898)
Net (decrease) increase in cash and cash equivalents$(54,156)$2,147 
Cash and cash equivalents at beginning of period60,013 6,983 
Cash and cash equivalents at end of period$5,857 $9,130 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6



FARMER BROS. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - (continued)
(In thousands)
Six Months Ended December 31,
20202019
Supplemental disclosure of non-cash investing and financing activities:
    Non-cash additions to property, plant and equipment
$380 $284 
    Non-cash issuance of 401-K common stock$185 $109 
    Cumulative preferred dividends, undeclared and unpaid
$284 $275 

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

7



FARMER BROS. CO.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Introduction and Basis of Presentation
Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires, the “Company”), is a national coffee roaster, wholesaler and distributor of coffee, tea, and culinary products.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim financial data have been included. Operating results for the three and six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021. Events occurring subsequent to December 31, 2020 have been evaluated for potential recognition or disclosure in the unaudited condensed consolidated financial statements for the three and six months ended December 31, 2020.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020, filed with the Securities and Exchange Commission (the “SEC”) on September 11, 2020 (the “2020 Form 10-K”).
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries FBC Finance Company, a California corporation, Coffee Bean Holding Co., Inc., a Delaware corporation, the parent company of Coffee Bean International, Inc., an Oregon corporation (“CBI”), China Mist Brands, Inc., a Delaware corporation, Boyd Assets Co., a Delaware corporation, and Coffee Bean International LLC, a Delaware limited liability company. All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results may differ from those estimates.

8

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









Note 2. Summary of Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies, see Note 2, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements in the 2020 Form 10-K.
During the three and six months ended December 31, 2020, other than as set forth below and the adoption of Financial Accounting Standards Board Accounting (“FASB”) Standards Update (“ASU”) ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) and ASU 2018-15, “Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service” (“ASU 2018-15”), there were no significant updates made to the Company’s significant accounting policies.
Concentration of Credit Risk
At December 31, 2020 and June 30, 2020, the financial instruments which potentially expose the Company to concentration of credit risk consist of cash in financial institutions (in excess of federally insured limits), derivative instruments and trade receivables.
The Company does not have any credit-risk related contingent features that would require it to post additional collateral in support of its net derivative asset positions. At December 31, 2020 and June 30, 2020, none of the cash in the Company’s coffee-related derivative margin accounts was restricted. Further changes in commodity prices and the number of coffee-related derivative instruments held, could have a significant impact on cash deposit requirements under certain of the Company's broker and counterparty agreements.
Approximately 29% and 39% of the Company’s trade accounts receivable balance was with five customers at December 31, 2020 and June 30, 2020, respectively. The Company estimates its maximum credit risk for accounts receivable at the amount recorded on the balance sheet. The trade accounts receivables are generally short-term and all estimated credit losses have been appropriately considered in establishing the allowance for doubtful accounts.






9

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










Recent Accounting Pronouncements
The Company considers the applicability and impact of all ASUs issued. ASUs not listed below were assessed and either determined to be not applicable or expected to have minimal impact on its condensed consolidated financial statements.

The following table provides a brief description of the applicable recent ASUs issued by the FASB:
StandardDescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effect of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”)The London Interbank Offered Rate (LIBOR) is set to expire at the end of 2021. Contracts affected by the rate change would be required to be modified. Under current U.S. GAAP, those modifications would have to be evaluated to determine whether they result in new contracts or continuation of the existing contracts. ASU 2020-04 provides temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the transition from LIBOR to alternative reference rate.  Issuance date of March 12, 2020 through December 31, 2022.The Company is currently evaluating the impact ASU 2020-04 will have on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes" ("ASU 2019-12").ASU 2019-12 guidance simplifies the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income). With the removal of this exception, entities will determine the tax effect of pre-tax income or loss from continuing operations without consideration of the tax effects of other items that are not included in continuing operations.Annual periods beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period.The Company is currently evaluating the impact ASU 2019-12 will have on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”).ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Annual periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period.The Company adopted the new guidance effective July 1, 2020 on a prospective basis which did not require the Company to adjust comparative periods. Adoption of ASU 2018-15 did not have a material impact on the results of operations, financial position or cash flows of the Company.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”).ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that no longer are considered cost beneficial, clarifying the specific requirements of disclosures and adding disclosure requirements identified as relevant.Annual periods beginning after December 15, 2020.  Early adoption is permitted.Effective for the Company beginning July 1, 2021. The Company is currently evaluating the impact ASU 2018-14 will have on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Since that date, the FASB has issued additional ASUs clarifying certain aspects of ASU 2016-13.The objective of the guidance in ASU 2016-13 is to allow entities to recognize estimated credit losses in the period that the change in valuation occurs. The amendments in ASU 2016-13 requires an entity to present financial assets measured on an amortized cost basis on the balance sheet net of an allowance for credit losses. The model requires an estimate of the credit losses expected over the life of an exposure or pool of exposures. The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.Annual reporting periods beginning after December 15, 2019 and interim periods within those reporting periods. The Company adopted the new guidance effective July 1, 2020 on a modified retrospective basis. Adoption of ASU 2016-13 did not have a material impact on the results of operations, financial position or cash flows of the Company.


10

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









Note 3. Leases
The Company has entered into leases for building facilities, vehicles and other equipment. The Company’s leases have remaining contractual terms of up to 10 years, some of which have options to extend the lease for up to 10 years. For purposes of calculating operating lease liabilities, lease terms are deemed not to include options to extend the lease renewal until it is reasonably certain that the Company will exercise that option. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
In September 2020, the Company entered a new 89 month lease for its western U.S. distribution center. The lease terminates on March 31, 2028, with a one 5 year renewal option. The lease has been classified as an operating lease and included in the lease tables and the related disclosures below.
Supplemental unaudited consolidated balance sheet information related to leases is as follows:
ClassificationDecember 31, 2020June 30, 2020
(In thousands)
Operating lease assetsRight-of-use operating lease assets$27,658 21,117 
Finance lease assetsProperty, plant and equipment, net 9 
Total lease assets
$27,658 $21,126 
 
Operating lease liabilities - currentOperating lease liabilities - current$7,029 5,854 
Operating lease liabilities - noncurrentOperating lease liabilities - noncurrent20,770 15,628 
Finance lease liabilitiesOther long-term liabilities 9 
Total lease liabilities
$27,799 $21,491 

The components of lease expense are as follows:
Three Months Ended December 31,Six Months Ended December 31,
Classification2020201920202019
(In thousands)
Operating lease expenseGeneral and administrative expenses and cost of goods sold$1,953 $1,253 $3,578 $2,363 
Finance lease expense:
Amortization of finance lease assets
General and administrative expenses 13 9 26 
Interest on finance lease liabilities
Interest expense   1 
Total lease expense$1,953 $1,266 $3,587 $2,390 
December 31, 2020
(In thousands)Operating LeasesFinance Leases
     Maturities of lease liabilities are as follows:
2021$3,874 $ 
20225,971 
20235,429  
20245,159  
20254,019  
Thereafter7,877  
Total lease payments32,329  
Less: interest (4,530) 
Total lease obligations$27,799 $ 
11

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









    
Lease term and discount rate:
December 31, 2020June 30, 2020
Weighted-average remaining lease terms (in years):
Operating lease7.78.3
Finance lease0.00.2
Weighted-average discount rate:
Operating lease5.01 %4.50 %
Finance lease %4.50 %

    Other Information:
Six Months Ended December 31,
(In thousands)20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$3,835 $2,165 
Operating cash flows from finance leases$ $1 
Financing cash flows from finance leases$9 $25 
Leased assets obtained in exchange for new finance lease liabilities$ $ 
Leased assets obtained in exchange for new operating lease liabilities$ $ 




12

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









Note 4. Derivative Instruments
Derivative Instruments Held
Coffee-Related Derivative Instruments
The Company is exposed to commodity price risk associated with its price to be fixed green coffee purchase contracts, which are described further in Note 2 to the consolidated financial statements in the 2020 Form 10-K. The Company utilizes forward and option contracts to manage exposure to the variability in expected future cash flows from forecasted purchases of green coffee attributable to commodity price risk. Certain of these coffee-related derivative instruments utilized for risk management purposes have been designated as cash flow hedges, while other coffee-related derivative instruments have not been designated as cash flow hedges or do not qualify for hedge accounting despite hedging the Company’s future cash flows on an economic basis.
The following table summarizes the notional volumes for the coffee-related derivative instruments held by the Company at December 31, 2020 and June 30, 2020:
(In thousands)December 31, 2020June 30, 2020
Derivative instruments designated as cash flow hedges:
  Long coffee pounds17,100 36,413 
Derivative instruments not designated as cash flow hedges:
  Long coffee pounds8,003 8,348 
      Total25,103 44,761 

Coffee-related derivative instruments designated as cash flow hedges outstanding as of December 31, 2020 will expire within 12 months. At December 31, 2020 and June 30, 2020 approximately 68% and 81%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges.

Interest Rate Swap Derivative Instruments
Pursuant to an International Swap Dealers Association, Inc. Master Agreement (“ISDA”) which was effective March 20, 2019, the Company on March 27, 2019, entered into an interest rate swap transaction utilizing a notional amount of $80.0 million, with an effective date of April 11, 2019 and a maturity date of October 11, 2023 (the “Rate Swap”). In December 2019, the Company amended the notional amount to $65.0 million. The Rate Swap is intended to manage the Company’s interest rate risk on its floating-rate indebtedness under the Company’s revolving credit facility. Under the terms of the Rate Swap, the Company receives 1-month LIBOR, subject to a 0% floor, and makes payments based on a fixed rate of 2.1975%. The Company’s obligations under the ISDA are secured by the collateral which secures the loans under the revolving credit facility on a pari passu and pro rata basis with the principal of such loans. The Company had designated the Rate Swap derivative instrument as a cash flow hedge; however, during the quarter ended September 30, 2020, the Company de-designated the Rate Swap derivative instruments. As a result, the balance in AOCI was frozen at the time of de-designation. The Company recognized $0.3 million and $0.7 million, respectively, in interest expense for the three and six months ended December 31, 2020. The remaining balance of $3.2 million frozen in AOCI will be amortized over the life of the Rate Swap through November 6, 2023.

13

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









Effect of Derivative Instruments on the Financial Statements
Balance Sheets
Fair values of derivative instruments on the Company’s condensed consolidated balance sheets:
Derivative Instruments
Designated as Cash Flow Hedges
Derivative Instruments Not Designated as Accounting Hedges
December 31, 2020June 30, 2020December 31, 2020June 30, 2020
(In thousands)
Financial Statement Location:
Short-term derivative assets:
Coffee-related derivative instruments(1)
$2,573 $35 $1,199 $130 
Long-term derivative assets:
    Coffee-related derivative instruments (2)$ $10 $ $ 
Short-term derivative liabilities:
Coffee-related derivative instruments $73 $3,322 $6 $706 
Interest rate swap derivative instruments $ $1,228 $1,349 $ 
Long-term derivative liabilities:
Coffee-related derivative instruments (3)$ $246 $ $ 
Interest rate swap derivative instruments (3)$ $2,613 $2,224 $ 
________________
(1) Included in “Short-term derivative assets” on the Company’s condensed consolidated balance sheets.
(2) Included in “Long-term derivative assets” on the Company's condensed consolidated balance sheets.
(3) Included in “Other long-term liabilities” on the Company's condensed consolidated balance sheets.
Statements of Operations
The following table presents pretax net gains and losses for the Company's derivative instruments designated as cash flow hedges, as recognized in “AOCI,” “Cost of goods sold” and “Other, net”.
Three Months Ended December 31,Six Months Ended December 31,Financial Statement Classification
(In thousands)2020201920202019
Net losses recognized in AOCI - Interest rate swap
$ $448 $(304)$(48)AOCI
Net (losses) recognized from AOCI to earnings - Interest rate swap$(9)$(52)$(344)$(32)Interest Expense
Net losses reclassified from AOCI to earnings for de-designated Interest rate swap (1)$(320)$— $(659)$— Interest Expense
Net losses reclassified from AOCI to earnings for partial unwind of interest swap - Interest rate swap(2)$— $(407)$— $(407)Interest Expense
Net gains (losses) recognized in AOCI - Coffee-related$3,101 $12,130 $7,366 $7,431 AOCI
Net gains (losses) recognized in earnings - Coffee - related$240 $(3,451)$604 $(6,922)Cost of
goods sold
________________
(1)The $320 thousand of realized loss was due to the amortization of de-designated interest rate swap.
(2)The $407 thousand of realized loss was due to partial unwinding of interest rate swap resulting from the amendment of the notional amount from $80.0 million to $65.0 million.
For the three and six months ended December 31, 2020 and 2019, there were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness.
Net losses (gains) on derivative instruments in the Company’s condensed consolidated statements of cash flows also include net losses (gains) on coffee-related derivative instruments designated as cash flow hedges reclassified to cost of goods sold from AOCI in the three and six months ended December 31, 2020 and 2019. Gains and losses on coffee-related derivative instruments not designated as accounting hedges are included in “Other, net” in the Company’s condensed
14

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









consolidated statements of operations and in “Net losses (gains) on derivative instruments and investments” in the Company’s condensed consolidated statements of cash flows.
Net gains and losses recorded in “Other, net” are as follows:
 Three Months Ended December 31,Six Months Ended December 31,
(In thousands)2020201920202019
Net gains (losses) on coffee-related derivative instruments(1)$1,338 $419 $1,834 $(624)
Non-operating pension and other postretirement benefit (2)7,744 1,248 15,488 2,496 
Other gains (losses), net
(2)(5)317 (7)
             Other, net
$9,080 $1,662 $17,639 $1,865 
___________
(1) Excludes net gains and losses on coffee-related derivative instruments designated as cash flow hedges recorded in cost of goods sold in the three and six months ended December 31, 2020 and 2019.
(2) Presented in accordance with ASU 2017-07.

Offsetting of Derivative Assets and Liabilities

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

The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as well as cash collateral on deposit with its counterparties as of the reporting dates indicated:
(In thousands)Gross Amount Reported on Balance SheetNetting AdjustmentsCash Collateral PostedNet Exposure
December 31, 2020Derivative Assets$3,772 $(79)$ $3,693