EX-99.2 7 tm2320566d1_ex99-2.htm EXHIBIT 99.2

 

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

OVERVIEW

 

On June 30, 2023, Farmer Bros. Co., a Delaware corporation (the “Company”), completed the previously announced sale of certain assets of the Company related to its direct ship and private label business (collectively “DS”), including the Company’s production facility and corporate office building in Northlake, Texas (the “Sale”), through an Asset Purchase Agreement (as amended, the “Purchase Agreement”) with TreeHouse Foods, Inc., a Delaware corporation (the “Buyer”). The aggregate purchase price consists of $100.0 million in cash, subject to certain adjustments, including a reduction for liabilities associated with a specified retained litigation matter. The Company received $92.2 million in cash (subject to certain adjustments and assuming full release of the $2.0 million placed into an escrow account for satisfying adjustments, if any, to the purchase price under the Purchase Agreement), after estimated transaction-related expenses of $7.8 million related to the Sale.

 

BASIS OF PRESENTATION

 

The following unaudited pro forma condensed consolidated financial statements of the Company were derived from its historical consolidated financial statements and are being presented to give effect to the Sale. The unaudited pro forma condensed consolidated statements of operations for the nine months ended March 31, 2023 and for each of the three years ended June 30, 2022, 2021, and 2020, reflect the Company’s results as if the Sale had occurred on July 1, 2019. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2023 gives effect to the Sale as if it occurred on that date. The estimated loss on sale in connection with the transaction is reflected in the unaudited pro forma condensed consolidated balance sheet within retained earnings. The estimated loss on sale is not reflected in the unaudited pro forma condensed consolidated statements of operations as it does not have a continuing impact on the Company’s results.

 

The unaudited pro forma condensed consolidated financial statements give effect to the Sale including: (i) the elimination of the historical DS financial results on a carve-out basis; and (ii) the adjustments to the DS carve-out financial statements to meet the requirements of discontinued operations; and (iii) the transfer of certain assets and liabilities between the Company and the Buyer upon the closing of the transactions contemplated by the Purchase Agreement. The Company has entered into (i) a Transition Services Agreement with the Buyer pursuant to which the Company will provide the Buyer certain specified services on a temporary basis, (ii) a Co-Manufacturing Agreement with the Buyer pursuant to which the Company and the Buyer will manufacture certain products for each other on a temporary basis and (iii) a Lease Agreement with the Buyer pursuant to which the Company will lease office space from the Buyer on a temporary basis.. Each of these transition services are not recurring in nature and as such have not been included in the pro forma adjustments. Additionally, the Company is required to utilize all of the cash proceeds from the Sale to fully extinguish its outstanding term loan with the remaining proceeds to repay a portion of the outstanding revolving credit facility and the related estimated reduction to interest expense. The adjustments related to the paydown of the Company’s debt are reflected in a separate column as “Pro Forma Adjustments for Debt Paydown” within the unaudited pro forma condensed consolidated balance sheet and unaudited pro forma condensed consolidated statements of operations.

 

The unaudited pro forma condensed consolidated financial information are subject to the assumptions and adjustments described in the accompanying notes. These assumptions and adjustments are based on information presently available. The unaudited pro forma condensed consolidated financial statements are based on the historical financial statements of the Company for each period presented and in the opinion of management, all adjustments and disclosures necessary for a fair presentation of the pro forma data based on information available at the time have been made.

 

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The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the results of operations that would have been achieved had the events reflected been completed as of the dates indicated or of the results that may be obtained in the future. These unaudited pro forma condensed consolidated financial statements and the notes thereto should be read together with the Company’s audited consolidated financial statements and the notes thereto as of and for the year ended June 30, 2022, and Management’s Discussion and Analysis (“MD&A”) included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, as well as the Company’s unaudited consolidated financial statements and the notes thereto as of and for the nine months ended March 31, 2023, and Management’s Discussion and Analysis included in the Company’s Quarterly Report on Form10-Q for the quarter ended March 31, 2023.

 

FARMER BROS. CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)

 

   For the nine months ended March 31, 2023 
   Farmer Bros.
Historical		   Pro Forma
Adjustments		   Pro Forma
Adjustments for
Debt Paydown		   Pro Forma 
Net Sales  $378,306   $(121,119)(a)  $-   $257,187 
Cost of Goods Sold   292,648    (125,522)(a)   -    167,126 
Gross profit   85,658    4,403    -    90,061 
Selling expenses   83,136    (3,905)(b)   -    79,231 
General and administrative expenses   30,858    (5,004)(b)   -    25,854 
(Gain) loss on sale of assets   (7,685)   -    -    (7,685)
Operating expense   106,309    (8,909)   -    97,400 
Loss from operations   (20,651)   13,312    -    (7,339)
Other (expense) income:                    
Interest expense   (12,431)   749(c)   4,367(c)   (7,315)
Other, net   791    (861)(d)   -    (70)
Total other (expense) income   (11,640)   (112)   4,367    (7,385)
Loss before taxes   (32,291)   13,200    4,367    (14,724)
Income tax (benefit) expense   113    -    -    113 
Net Income (loss)  $(32,404)  $13,200   $4,367   $(14,837)
Net income (loss) available to common stockholders  $(32,404)  $13,200   $4,367   $(14,837)
Net loss available to common stockholders per common share—basic  $(1.66)            $(0.76)
Net loss available to common stockholders per common share—diluted  $(1.66)            $(0.76)
Weighted average common shares outstanding—basic   19,467,022              19,467,022 
Weighted average common shares outstanding—diluted   19,467,022              19,467,022 

 

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FARMER BROS. CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)

 

   For the year ended June 30, 2022 
   Farmer Bros.
Historical		   Pro Forma
Adjustments		   Pro Forma
Adjustments for
Debt Paydown		   Pro Forma 
Net Sales  $469,193   $(153,672)(a)  $-   $315,521 
Cost of Goods Sold   332,277    (155,386)(a)   -    176,891 
Gross profit   136,916    1,714    -    138,630 
Selling expenses   107,277    (6,136)(b)   -    101,141 
General and administrative expenses   47,172    (6,563)(b)   -    40,609 
Net (gains) loss on sale of assets   (2,905)   -    -    (2,905)
Operating expense   151,544    (12,699)   -    138,845 
Loss from operations   (14,628)   14,413    -    (215)
Other (expense) income:                    
Interest expense   (9,516)   335(c)   3,481(c)   (5,700)
Other, net   8,182    (42)(d)   -    8,140 
Total other (expense) income   (1,334)   293    3,481    2,440 
Loss before taxes   (15,962)   14,706    3,481    2,225 
Income tax (benefit) expense   (301)   51(e)   -    (250)
Net Income (loss)  $(15,661)  $14,655   $3,481   $2,475 
Net income (loss) available to common stockholders  $(16,255)  $14,655   $3,481   $1,881 
Net income (loss) available to common stockholders per common share—basic  $(0.89)            $0.10 
Net income (loss) available to common stockholders per common share—diluted  $(0.89)            $0.10 
Weighted average common shares outstanding—basic   18,200,080              18,200,080 
Weighted average common shares outstanding—diluted   18,200,080              18,889,740 

 

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FARMER BROS. CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)

 

   For the year ended June 30, 2021 
   Farmer Bros.
Historical		   Pro Forma
Adjustments		   Pro Forma
Adjustments for
Debt Paydown		   Pro Forma 
Net Sales  $397,850   $(135,939)(a)  $-   $261,911 
Cost of Goods Sold   296,925    (133,019)(a)   -    163,906 
Gross profit   100,925    (2,920)   -    98,005 
Selling expenses   95,503    (4,384)(b)   -    91,119 
General and administrative expenses   42,945    (4,592)(b)   -    38,353 
Net (gains) loss on sale of assets   (593)   -    -    (593)
Impairment of fixed assets   1,243    -    -    1,243 
Operating expense   139,098    (8,976)   -    130,122 
Loss from operations   (38,173)   6,056    -    (32,117)
Other (expense) income:                    
Interest expense   (15,962)   413(c)   5,925(c)   (9,624)
Postretirement benefits curtailment and pension settlement charge   6,359    -    -    6,359 
Other, net   19,720    (334)(d)   -    19,386 
Total other (expense) income   10,117    79    5,925    16,121 
Loss before taxes   (28,056)   6,135    5,925    (15,996)
Income tax (benefit) expense   13,595    289(e)   -    13,884 
Net Income (loss)  $(41,651)  $5,846   $5,925   $(29,880)
Net income (loss) available to common stockholders  $(42,225)  $5,846   $5,925   $(30,454)
Net loss available to common stockholders per common share—basic  $(2.39)            $(1.73)
Net loss available to common stockholders per common share—diluted  $(2.39)            $(1.73)
Weighted average common shares outstanding—basic   17,635,402              17,635,402 
Weighted average common shares outstanding—diluted   17,635,402              17,635,402 

 

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FARMER BROS. CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)

 

   For the year ended June 30, 2020 
   Farmer Bros.
Historical		   Pro Forma
Adjustments		   Pro Forma
Adjustments for
Debt Paydown		   Pro Forma 
Net Sales  $501,320   $(143,894)(a)  $-   $357,426 
Cost of Goods Sold   363,198    (140,527)(a)   -    222,671 
Gross profit   138,122    (3,367)   -    134,755 
Selling expenses   121,762    (6,262)(b)   -    115,500 
General and administrative expenses   42,569    (4,738)(b)   -    37,831 
Net (gains) loss on sale of assets   (25,237)   -    -    (25,237)
Impairment of goodwill and intangible assets   42,030    -    -    42,030 
Operating expense   181,124    (11,000)   -    170,124 
Loss from operations   (43,002)   7,633    -    (35,369)
Other (expense) income:             -      
Interest expense   (10,483)   154(c)   3,959(c)   (6,370)
Postretirement benefits curtailment and pension settlement charge   5,760    -    -    5,760 
Other, net   10,443    9(d)   -    10,452 
Total other (expense) income   5,720    163    3,959    9,842 
Loss before taxes   (37,282)   7,796    3,959    (25,527)
Income tax (benefit) expense   (195)   (10)(e)   -    (205)
Net Income (loss)  $(37,087)  $7,806   $3,959   $(25,322)
Net income (loss) available to common stockholders  $(37,641)  $7,806   $3,959   $(25,876)
Net loss available to common stockholders per common share—basic  $(2.19)            $(1.50)
Net loss available to common stockholders per common share—diluted  $(2.19)            $(1.50)
Weighted average common shares outstanding—basic   17,205,849              17,205,849 
Weighted average common shares outstanding—diluted   17,205,849              17,205,849 

 

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FARMER BROS. CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share amounts)

 

   As of March 31, 2023 
   Farmer Bros.
Historical		   Pro Forma
Adjustments		   Pro Forma
Adjustments for
Debt Paydown		   Pro Forma 
ASSETS                
Current assets:                    
Cash and cash equivalents  $7,256   $92,225(f)  $(92,225)(h)  $7,256 
Accounts and notes receivable, net   54,098    (28,770)(g)   -    25,328 
Inventories   82,255    (30,000)(g)   -    52,255 
Other current assets   6,698    -    -    6,698 
Total current assets   150,307    33,455    (92,225)   91,537 
Property, plant and equipment, net   131,399    (88,786)(g)   -    42,613 
Other long-term assets   43,341    -    -    43,341 
Total assets  $325,047   $(55,331)  $(92,225)  $177,491 
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY                    
Current liabilities:                    
Accounts payable  $65,145   $(21,374)(g)  $-   $43,771 
Accrued payroll expenses   8,329    (147)(g)   -    8,182 
Term loan - current   3,133    -    (3,133)(h)   - 
Other current liabilities   14,125    (508)(g)   -    13,618 
Total current liabilities   90,733    (22,029)  $(3,133)   65,571 
Long-term borrowings under revolving credit facility   67,000    -    (47,680)(h)   19,320 
Term loan - noncurrent   41,412    -    (41,412)(h)   - 
Accrued pension liabilities   28,476    -    -    28,476 
Other long-term liabilities   23,584    (735)(i)   -    22,849 
Total liabilities  $251,204   $(22,764)  $(92,225)  $136,214 
Stockholders’ equity:                    
Preferred stock, $1.00 par value, 500,000 shares authorized; Series A Convertible Participating Cumulative Perpetual Preferred Stock, 21,000 shares authorized; no shares outstanding as of March 31, 2023 and 14,700 shares issued and outstanding as of June 30, 2022; liquidation preference of $17,346 as of June 30, 2022   -    -    -    - 
Common stock, $1.00 par value, 50,000,000 shares authorized; 19,953,781 and 18,464,966 shares issued and outstanding as of March 31, 2023 and June 30, 2022, respectively   19,955    -    -    19,955 
Additional paid-in capital   75,395    -    -    75,395 
Retained earnings (deficit)   20,296    (32,567)(i)   -    (12,271)
Less accumulated other comprehensive loss   (41,803)   -    -    (41,803)
Total stockholders’ equity   73,843    (32,567)   -    41,277 
Total liabilities and stockholders’ equity  $325,047   $(55,331)  $(92,225)  $177,491 

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

The following items resulted in adjustments in the unaudited pro forma condensed consolidated financial information:

 

Unaudited Pro Forma Condensed Consolidated Statement of Operations

 

(a) Adjustments represent the elimination of revenues and cost of goods sold attributable to DS.  

 

(b) Adjustments represent the elimination of selling, general and administrative costs attributable to DS. Adjustments do not include general corporate and overhead costs that will have a continuing effect on the Company post-closing.  

 

(c) Adjustments represent the elimination of interest expense directly attributable to DS as well as the elimination of interest expense allocated to the Company's DS business based on the ratio of the net assets attributable to DS to the Company’s consolidated net assets for each period consistent with accounting standards related to the presentation of discontinued operations.

 

(d) Adjustments represent the elimination of other income attributable to the DS.

 

(e) Adjustments represent the estimated income tax effect of the pro forma adjustments. The Company used the applicable statutory rate based on the jurisdiction in which the adjustment relates to reflect income taxes on the Sale activity.

 

Unaudited Pro Forma Condensed Consolidated Balance Sheet

 

(f) Adjustment represents $100.0 million of cash consideration from the sale of DS (subject to certain adjustments and assuming full release of the $2.0 million placed into an escrow account for satisfying adjustments, if any, to the purchase price under the Purchase Agreement), less $7.8 million of estimated closing adjustments and costs directly associated with the transaction.

 

(g) Adjustments represent the elimination of specific assets and liabilities as a result of their transfer to the Buyer pursuant to the Sale.  

 

(h) Adjustments represent the Company's use of the cash proceeds from the Sale to paydown the outstanding borrowings on the term loan and revolving credit facility.

 

(i) Adjustments reflect the pre-tax loss on sale of DS of $33.3 million calculated as reflected below. The proforma net loss of $32.6 million is reflected as an adjustment to retained earnings. This amount is based on historical information as of March 31, 2023 for the Company's carrying value. The actual net gain will be based on the Company's carrying value in DS as of June 30, 2023.

 

(in thousands)  March 31, 2023 
Cash consideration received (net of selling expenses)  $92,225 
Less: carrying value of DS ($147.5 million in assets less $22.0 million in liabilities)   125,527 
Pro forma loss before income tax benefit   (33,302)
Benefit for income taxes   735 
Pro forma net loss on sale  $(32,567)

 

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