What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-29 · 193 added, 189 removed, 158 unchanged (71% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations describes the principal factors affecting the results of operations, financial condition, and changes in financial condition for the three and six months ended June 30, 2022.

This discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, and the notes thereto set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q and our December 31, 2021 Audited Consolidated Financial Statements and notes thereto included in our Registration Statement on Form S-4 (File No.

333-264464) , filed with the U.S.

Securities and Exchange Commission (“SEC”) on April 25, 2022, as amended by Amendments No.

1, 2, 3 and 4 thereto filed with SEC on June 10, 2022, July 15, 2022, August 1, 2022 and August 3, 2022, respectively (the “Registration Statement”).

Westrock Coffee Company (f/k/a Westrock Coffee Holdings, LLC) (the “Company,” “Westrock,” “we,” “us,” or “our”) is a leading integrated coffee, tea, flavors, extracts, and ingredients solutions provider in the United States, providing coffee sourcing, supply chain management, product development, roasting, packaging, and distribution to the retail, food service and restaurant, convenience store and travel center, non-commercial account, CPG, and hospitality industries around the world.

Securities and Exchange Commission (“SEC”) on September 20, 2022.

Westrock Coffee Company (the “Company,” “Westrock,” “we,” “us,” or “our”) is a leading integrated coffee, tea, flavors, extracts, and ingredients solutions provider in the United States, providing coffee sourcing, supply chain management, product development, roasting, packaging, and distribution to the retail, food service and restaurant, convenience store and travel center, non-commercial account, CPG, and hospitality industries around the world.

We supply the world’s most iconic brands with the world’s most innovative coffee, tea, flavors, extracts, and ingredients products.

In connection with the closing of our previously announced de-SPAC merger transaction (the “Transaction”) with Riverview Acquisition Corp.

(“Riverview”), the Company converted from a Delaware limited liability company to a Delaware corporation and changed its name from “Westrock Coffee Holdings, LLC” to “Westrock Coffee Company.”

(“Riverview”), the Company converted (the “Conversion”) from a Delaware limited liability company to a Delaware corporation and changed its name from “Westrock Coffee Holdings, LLC” (the “Converting Company”) to “Westrock Coffee Company.”

Our platform is built upon four fundamental pillars that enable us to positively impact the coffee, tea, flavors, extracts, and ingredients ecosystems from crop to cup:

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These four tenets comprise the backbone of our platform and position us as a leading provider of value-added beverage solutions.

By partnering with Westrock, our customers also benefit from the benchmark-setting responsible sourcing policies and strong Environmental, Social, and Governance (“ESG”) focus surrounding our products, top tier consumer insights, and a differentiated product ideation process.

By partnering with Westrock, our customers also benefit from the benchmark-setting responsible sourcing policies and strong Environmental, Social, and Governance focus surrounding our products, top tier consumer insights, and a differentiated product ideation process.

Leading brands choose us because we are singularly positioned to meet their needs, while simultaneously driving a new standard for sustainably and responsibly sourced products.

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We define “EBITDA” as net (loss) income, as defined by GAAP, before interest expense, provision for income taxes and depreciation and amortization.

We define “Adjusted EBITDA” as EBITDA before equity-based compensation expense and the impact, which may be recurring in nature, of acquisition, restructuring and integration related costs, including management services and consulting agreements entered into in connection with the acquisition of S&D, impairment charges, non-cash mark-to-market adjustments, certain costs specifically excluded from the calculation of EBITDA under our material debt agreements, the write off of unamortized deferred financing costs, costs incurred as a result of the early repayment of debt, gains or losses on dispositions, and other similar or infrequent items (although we may not have had such charges in the periods presented).

We define “Adjusted EBITDA” as EBITDA before equity-based compensation expense and the impact, which may be recurring in nature, of acquisition, restructuring and integration related costs, including management services and consulting agreements entered into in connection with the acquisition of S&D Coffee, Inc., impairment charges, changes in the fair value of warrant liabilities, non-cash mark-to-market adjustments, certain costs specifically excluded from the calculation of EBITDA under our material debt agreements, such as facility start-up costs, the write off of unamortized deferred financing costs, costs incurred as a result of the early repayment of debt, gains or losses on dispositions, and other similar or infrequent items (although we may not have had such charges in the periods presented).

We believe EBITDA and Adjusted EBITDA are important supplemental measures to net (loss) income because they provide additional information to evaluate our operating performance on an unleveraged basis.

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Further, our computations of EBITDA and Adjusted EBITDA may not be comparable to that reported by other companies that define EBITDA and Adjusted EBITDA differently than we do.

The reconciliation of our net loss to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

The reconciliation of our net loss to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021 is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Interest expense

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Acquisition, restructuring and integration expense

Management and consulting fees

Change in fair value of warrant liabilities

Management and consulting fees (S&D Coffee, Inc.

Equity-based compensation

(Gain) Loss on disposal of property, plant and equipment

Mark-to-market adjustments

Loss (gain) on disposal of property, plant and equipment

Adjusted EBITDA

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Sustainable Sourcing & Traceability

Subtotal of Reportable Segments

Total of Reportable Segments

Significant Developments

Merger with Riverview Acquisition Corp.

On August 26, 2022, the Company completed the Transaction with Riverview.

The Company issued 6,618,151 million shares of common stock, par value $0.01 per share, of the Company (the “Common Stock”), to shareholders of Riverview, receiving $66.3 million of the cash held in the trust account of Riverview.

The 6,618,151 million shares include 1,910,000 shares issued to PIPE investors who elected to satisfy their PIPE commitments through the purchase of Riverview Class A Shares on the public market, as permitted under the terms of their subscription agreements.

As a part of the Transaction, Westrock converted from a Delaware limited liability company to a Delaware corporation and the Company changed its corporate name from “Westrock Coffee Holdings, LLC” to “Westrock Coffee Company.” Substantially concurrently with the closing of the Transaction, the Company has received $230.9 million in gross proceeds (which amount includes the contribution to the Company of certain notes) from Common Stock PIPE investments (the “PIPE Financing”) at $10.00 per share and has entered into a credit agreement among the Company, WBS, as the borrower, Wells Fargo Bank, N.A.

as administrative agent, as collateral agent, and as swingline leader, Wells Fargo Securities, LLC, as sustainability structuring agent, and each issuing bank and lender party thereto for (a) a senior secured first lien revolving credit facility in an initial aggregate principal amount of $175.0 million (the “Revolving Credit Facility”), under which there were no outstanding borrowings as of August 29, 2022, and (b) a senior secured first lien term loan facility in an initial aggregate principal amount of $175.0 million (the “Term Loan Facility”).

The Revolving Credit Facility and the Term Loan Facility will mature on August 29, 2027.

Proceeds from the Transaction and the Term Loan Facility were used, in part, to retire borrowings under the Company’s existing term loan agreement and asset-based lending facility.

In addition, $25.0 million of the Company’s outstanding related party subordinated debt (including $13.3 million outstanding at June 30, 2022) was converted to equity in satisfaction of such related parties’ obligations under its subscription agreements, as described below in “PIPE Pre-Funding” and “Liquidity and Capital Resources—Subordinated Related Party Debt.”

On August 26, 2022 (the “Closing Date”), the Company completed the Transaction with Riverview (“Closing”).

At Closing, the Company issued 12,868,151 shares of common stock of the Company (“Common Shares”) to public and class B shareholders of Riverview, receiving $49.8 million of the cash held in the trust account of Riverview, which is net of $17.1 million of Riverview transaction expenses offset against proceeds received by the Company at Closing.

The 12,868,151 shares include 1,910,000 shares issued to PIPE investors who elected to satisfy their PIPE commitments through the purchase of Riverview Class A Shares on the public market, pursuant to the terms of their respective subscription agreements.

Substantially concurrently with the Closing, the Company received $205.9 million in cash proceeds (which amount excludes contribution to the Company of certain related party notes as described in Note 11 to our Condensed Consolidated Financial Statements) from common stock PIPE investments (the “PIPE Financing”), issued 20,590,000 Common Shares to the PIPE investors (which share amount excludes the conversion of the related party notes as described in Note 11 to our Condensed Consolidated Financial Statements), and entered into a credit agreement (the “Credit Agreement”) that includes (a) a senior secured first lien revolving credit facility in an initial aggregate principal amount of $175.0 million (the “Revolving Credit Facility”) and (b) a senior secured first lien term loan facility in an initial aggregate principal amount of $175.0 million (the “Term Loan Facility”).

Proceeds from the Transaction and the Term Loan Facility were used to pay off and terminate our then existing term loan and asset-based lending agreements, and to pay expenses related to the Transaction and new credit agreement.

PIPE Pre-Funding

In connection with the Transaction, the Company and Riverview had entered into subscription agreements (the “Subscription Agreement”) with certain institutional and accredited investors (the “PIPE Investors”).

Pursuant to the terms of its Subscription Agreement, on July 14, 2022, Wooster pre-funded $11.7 million of its committed PIPE Financing (the “Wooster Pre-fund”) and in exchange was issued a subordinated convertible note by Westrock (the “Convertible Note”).

The Convertible Note had a principal amount of $11.7 million, a maturity of one year (July 13, 2023) and an interest rate of 8% per annum, which was payable quarterly on the last business day of each quarter.

Upon closing of the Transaction, the Convertible Note was converted into 1,170,000 shares of Common Stock, which is equal to the quotient of the principal amount of the Convertible Note, then outstanding, divided by $10.00.

Sixth Amendment to the Prior Term Loan Agreement

On July 13, 2022, the Company entered into Amendment No.

6 to the Prior Term Loan Agreement (the “Sixth Term Loan Amendment”) in order to permit the Wooster Pre-fund.

The Sixth Term Loan Amendment included the following modifications:

(i) permitting the incurrence of subordinated debt from Wooster in the form of the Convertible Note;

(ii) extending the PIK interest period to December 31, 2022;

(iii) amending the definitions of EBITDA, Fixed Charge Coverage Ratio and Total Debt (which excludes the Convertible Note);

and (iv) amending the level of the Minimum Liquidity covenant that the Company is required to comply with.

The definition of EBITDA was modified to increase the cap on add-backs for the quarter ended June 30, 2022 and the quarter ended September 30, 2022 from 15% of EBITDA to 20% of EBITDA.

The Wooster Pre-fund, together with the Sixth Term Loan Amendment, allowed the Company to meet increased capital expenditure and working capital needs of the business and to remain in compliance with its financial covenants as of June 30, 2022.

In connection with the closing of the Transaction, all loans outstanding under the Prior Term Loan Facility were repaid, and the associated Prior Term Loan Agreement was terminated.

Fourth Amendment to the Prior ABL Credit Agreement

On July 13, 2022, the Company entered into Amendment No.

4 to the Prior ABL Credit Agreement, which included the following modifications:

(i) permitting the incurrence of subordinated debt from Wooster in the form of the Convertible Note and (ii) amending the definitions of EBITDA, Fixed Charge Coverage Ratio and Total Debt (which excludes the Convertible Note).

The definition of EBITDA was modified to increase the cap on add-backs for the quarter ended June 30, 2022 and the quarter ended September 30, 2022 from 15% of EBITDA to 20% of EBITDA.

In connection with the closing of the Transaction, all loans outstanding under the Prior ABL Facility were repaid, and the associated Prior ABL Credit Agreement was terminated.

In connection with the Transaction, on July 14, 2022, pursuant to the terms of the subscription agreement entered into between the Company and Wooster Capital, LLC (“Wooster”), in which Wooster agreed to subscribe for and purchase, and the Company agreed to issue and sell to Wooster, prior to and substantially concurrently with the Closing, an aggregate of 2,150,000 Common Shares at a purchase price of $10.00 per share, for aggregate gross proceeds of $21,500,000 to the Company, Wooster pre-funded $11.7 million of its commitment (the “Wooster Pre-fund”) and in exchange thereof was issued a subordinated convertible note by the Company (the “Convertible Note”).

The Convertible Note had a principal amount of $11.7 million, a maturity of one year and an interest rate of 8% per annum that was payable quarterly on the last business day of each quarter.

On August 26, 2022, in connection with the Closing, the Convertible Note automatically converted, in accordance with its terms, into 1,170,000 Common Shares.

Acquisition of Kohana Coffee, LLC

On November 14, 2022, Westrock Beverage Solutions, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company, acquired one hundred percent (100%) of the equity securities of Richmond, California-based Kohana Coffee, LLC (“Kohana Coffee”), a Texas limited liability company.

The acquisition of Kohana Coffee allows Westrock to accelerate the development, production and distribution of ready-to-drink products in cans and multi-serve bottles to meet increasing customer demand and expands the Company’s extraction and packaging capabilities.

Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table sets forth our results of operations expressed as dollars and as a percentage of total revenues for the periods indicated:

(Thousands, except per share data)

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

Costs of sales

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Income from operations

Other (income) expense, net

Interest expense, net

Other (income) expense

Interest expense

Change in fair value of warrant liabilities

Loss before income taxes

Income tax expense (benefit)

Net income attributable to noncontrolling interest

Net loss attributable to unitholders

Income tax benefit

Net (loss) income attributable to non-controlling interest

Net loss attributable to shareholders

Loss on extinguishment of Redeemable Common Equivalent Preferred Units, net

Common equivalent preferred dividends

Accumulating preferred dividends

Net loss attributable to common unitholders

The following table sets forth selected financial information of our reportable segments for the three months ended June 30, 2022 and 2021:

Net loss attributable to common shareholders

The following table sets forth selected financial information of our reportable segments for the three months ended September 30, 2022 and 2021:

Segment Revenues:

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Intersegment revenues represent sales of green coffee from our SS&T segment to our Beverage Solutions Segment.

Net Sales from our Beverage Solutions segment were $170.9 million for the three months ended June 30, 2022, compared to $134.4 million for the three months ended June 30, 2021, an increase of approximately 27.1%.

The increase was driven by a 57% increase in single serve cup volumes, and a 20% increase in flavors, extracts and ingredients volumes, compared to the three months ended June 30, 2021.

Net Sales from our SS&T segment totaled $52.5 million, net of intersegment revenues, during the three months ended June 30, 2022, increasing 43.0% compared to $36.7 million during the three months ended June 30, 2021.

The increase is driven by an increase in the average sales price per pound, which increased 44% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

The increase in the average sales price per pound is directly correlated to the global commodities price, which increased approximately 53% for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

SS&T sales volume remained flat, with a change of less than 1%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Net Sales from our Beverage Solutions segment were $173.5 million for the three months ended September 30, 2022, compared to $138.8 million for the three months ended September 30, 2021, an increase of approximately 25%.

The increase was due to a $34.7 million increase in the sale of coffee & tea products, driven by a 59% increase in single serve cup volumes compared to the three months ended September 30, 2021, and an increase in underlying green coffee prices quarter over quarter.

These increases were partially offset by a 9% decrease in roast and ground coffee products, driven in part by higher inflation impacting end-consumer demand.

Net Sales from our SS&T segment totaled $56.8 million, net of intersegment revenues, during the three months ended September 30, 2022, increasing 34% compared to $42.4 million during the three months ended September 30, 2021.

The increase is driven by an increase in the average sales price per pound, which increased 36% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

The increase in the average sales price per pound is directly correlated to the global commodities price.

SS&T sales volume decreased approximately 3% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Costs of Sales

In our Beverage Solutions segment, costs of sales increased to $133.7 million for the three months ended June 30, 2022, from $102.9 million for the three months ended June 30, 2021;

however, costs of sales as a percentage of segment revenues remained approximately flat at 78% and 77%, for the three months ended June 30, 2022 and 2021, respectively.

The increase in costs of sales was driven by an increase in green coffee, tea and liquid extract costs of approximately $30.7 million, due to increased production volumes and underlying commodities pricing.

In our SS&T segment, costs of sales increased $16.9 million to $50.8 million for the three months ended June 30, 2022.

This increase is primarily due to an increase in green coffee cost driven by an increase in underlying commodities pricings, as volume of green coffee sold was essentially flat year-over-year.

Costs of sales for the three months ended June 30, 2022 included $1.4 million of net unrealized losses on forward sales and purchase contracts and mark-to-market adjustment on green coffee inventory compared to no such costs for the three months ended June 30, 2021.

In our Beverage Solutions segment, costs of sales increased to $136.4 million for the three months ended September 30, 2022, from $104.8 million for the three months ended September 30, 2021.

The increase in costs of sales was driven by an increase in materials costs of approximately $29.5 million driven by increased sales volume, specifically in single serve cups, an increase in underlying commodities pricing impacting the cost of green coffee, inflationary increases on other material costs, as well as a $2.0 million increases in manufacturing costs for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to wage inflation.

In our SS&T segment, costs of sales increased $14.6 million to $52.8 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

This increase is primarily due to an increase in green coffee costs driven by an increase in underlying commodities pricings.

Costs of sales for the three months ended September 30, 2022 included $0.5 million of net unrealized losses on forward sales and purchase contracts and mark-to-market adjustment on green coffee inventory compared to no such costs for the three months ended September 30, 2021.

Selling, General and Administrative Expense

Three Months Ended June 30,

Three Months Ended September 30,

Beverage Solutions

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Total selling, general and administrative expense

Total selling, general and administrative expenses in our Beverage Solutions segment increased $3.0 million to $32.7 million for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

The increase is primarily due to an approximately $1.2 million increase in advertising costs, $1.1 million increase in legal and professional fees, and a $0.8 million increase in software maintenance costs for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Total selling, general and administrative expenses in our Beverage Solutions segment decreased $1.7 million to $28.8 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

The decrease is primarily due to an approximately $2.2 million decrease in personnel-related expenses, a $0.9 million decrease in equipment and service costs and a $0.5 million decrease in insurance costs, partially offset by a $1.0 million increase in depreciation expense and a $0.9 million increase in legal and professional fees for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

In our SS&T segment, selling, general and administrative costs increased $0.1 million due to increased personnel costs.

Acquisition, Restructuring and Integration Expense

Acquisition, restructuring and integration expenses for the three months ended June 30, 2022 were $2.3 million, $0.9 million of which related to public-company preparedness costs, and $0.8 million related to the integration of our new enterprise resource planning system.

During the three months ended June 30, 2021, we incurred $1.0 million of acquisition, restructuring and integration expenses, approximately $0.8 million of which were integration costs related to the acquired S&D business.

Acquisition, restructuring and integration expenses for the three months ended September 30, 2022 were $4.0 million, $1.3 million of which related to the integration of our new enterprise resource planning system, $1.2 million of which related to public-company preparedness costs and $0.9 million of which related to startup costs for our Conway, Arkansas manufacturing facility.

During the three months ended September 30, 2021, we incurred $1.8 million of acquisition, restructuring and integration expenses, approximately $1.2 million of which relates to salesforce restructuring and $0.5 million of which related to integration costs related to the acquired S&D business.

Interest Expense

Three Months Ended June 30,

Three Months Ended September 30,

Interest expense, net

Term loan facility

Prior term loan facility

Prior term loan facility early termination fee

Prior ABL facility

Short-term related party debt

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Amortization of deferred financing costs

Write-off of deferred financing costs

Payments-in-kind interest

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Total interest expense, net

Interest expense for the three months ended June 30, 2022 was $8.8 million compared to $8.3 million for the three months ended June 30, 2021.

The increase is primarily driven by an increase in the utilization of Falcon’s working capital trade finance facility, and an increase in average Prior ABL Facility borrowings during the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

This increase was partially offset by a decrease in the payment-in-kind interest rate applicable to our Prior Term Loan Facility.

Interest expense for the three months ended September 30, 2022 was $13.4 million compared to $8.6 million for the three months ended September 30, 2021.

The increase is primarily due to the write off of $4.3 million of unamortized deferred financing fees associated with the termination of the Prior Term Loan Facility and Prior ABL Facility compared, and $1.6 million of early termination payments associated with the Prior Term Loan Facility.

No such costs

were incurred in the three months ended September 30, 2021.

These increases were partially offset by approximately $1.4 million of cash interest savings as a result of the entry into the Credit Agreement.

Income Tax Benefit

Income tax benefit for the three months ended June 30, 2022 was $1.5 million, resulting in an effective tax rate of 20.5%, compared to an income tax benefit for the three months ended June 30, 2021 of $0.5 million, resulting in an effective tax rate of 7.6%.

The effective tax rates differ primarily due to the impact of state income taxes and permanent differences, namely the global intangible low-taxed income (“GILTI”) inclusion, in relation to forecasted earnings before income taxes.

Comparison of the Six Months Ended June 30, 2022 and 2021

Income tax benefit for the three months ended September 30, 2022 was $0.4 million, resulting in an effective tax rate of 3.2%, compared to an income tax benefit for the three months ended September 30, 2021 of $0.8 million, resulting in an effective tax rate of 17.0%.

The effective tax rates differ primarily due to the increase in discrete items, namely the write-off of unamortized deferred financing costs associated with the termination of the Prior Term Loan Facility and Prior ABL Facility.

Comparison of the Nine Months Ended September 30, 2022 and 2021

The following table sets forth our results of operations expressed as dollars and as a percentage of total revenues for the periods indicated:

Six Months Ended

(Thousands, except per share data)

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

Costs of sales

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Income from operations

Other (income) expense, net

Interest expense, net

Other (income) expense

Interest expense

Change in fair value of warrant liabilities

Loss before income taxes

Income tax expense (benefit)

Net income attributable to noncontrolling interest

Net loss attributable to unitholders

Income tax (benefit)

Net (loss) income attributable to non-controlling interest

Net loss attributable to shareholders

Loss on extinguishment of Redeemable Common Equivalent Preferred Units, net

Common equivalent preferred dividends

Accumulating preferred dividends

Net loss attributable to common unitholders

The following table sets forth selected financial information of our reportable segments for the six months ended June 30, 2022 and 2021.

Net loss attributable to common shareholders

The following table sets forth selected financial information of our reportable segments for the nine months ended September 30, 2022 and 2021.

Segment Revenues:

4 unchanged sentences

Intersegment revenues represent sales of green coffee from our SS&T segment to our Beverage Solutions segment.

Net sales from our Beverage Solutions segment for the six months ended June 30, 2022 were $319.2 million, compared to $261.7 million for the six months ended June 30, 2021, an increase of approximately 22%.

The increase was driven by a 42% increase in single serve cup volumes, and a 15% increase in flavors, extracts and ingredients volumes, compared to the six months ended June 30, 2021.

Net sales from our SS&T segment totaled $90.6 million, net of intersegment revenues, for the six months ended June 30, 2022 compared to $64.8 million for the six months ended June 30, 2021, primarily due to increases in underlying commodities pricing, as the volume of green coffee sold was essentially flat year-over-year.

Net sales from our Beverage Solutions segment for the nine months ended September 30, 2022 were $492.7 million, compared to $400.5 million for the nine months ended September 30, 2021, an increase of approximately 23%.

The increase is due to a $85.4 million increase in the sale of coffee & tea products, driven by a 48% increase in single serve cup volumes, partially offset by a 7% decrease in roast and ground coffee products, driven in part by higher inflation impacting end-consumer demand, and an increase in underlying green coffee prices compared to the nine months ended September 30, 2021.

In addition, flavors, extracts and ingredients volumes increased 9% increase, contributing $9.0 million of the increase in sales year over year.

Net sales from our SS&T segment totaled $147.4 million, net of intersegment revenues, for the nine months ended September 30, 2022, increasing 37% compared to $107.2 million for the nine months ended September 30, 2021.

The increase is driven by an increase in the average sales price per pound, which increased 37% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The increase in the average sales price per pound is directly correlated to the global commodities price.

SS&T sales volume decreased approximately 2% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Costs of Sales

In our Beverage Solutions segment, costs of sales increased to $248.1 million for the six months ended June 30, 2022, compared to $201.1 million for the six months ended June 30, 2021;

however, costs of sales as a percentage of segment revenues remained approximately flat at 78% and 77% for the six months ended June 30, 2022 and 2021, respectively.

The increase in costs of sales is primarily due to a $46.9 million increase in green coffee, tea and liquid extracts costs, driven by higher volumes and commodity price increases, specifically related to green coffee.

In our SS&T segment, costs of sales were $84.4 million for the six months ended June 30, 2022, an increase of $26.5 million compared to the six months ended June 30, 2021.

In our Beverage Solutions segment, costs of sales increased to $384.3 million for the nine months ended September 30, 2022, compared to $306.0 million for the nine months ended September 30, 2021.

The increase in costs of sales is primarily due to a $78.9 million increase in green coffee, tea and liquid extracts costs, driven by higher single serve cup sales volumes and commodity price increases, specifically related to green coffee.

In our SS&T segment, costs of sales were $137.4 million for the nine months ended September 30, 2022, an increase of $41.4 million compared to the nine months ended September 30, 2021.

This increase is primarily due to an increase in green coffee cost driven by an increase in underlying commodities pricings, as volume of green coffee sold was essentially flat year-over-year.

Costs of sales for the six months ended June 30, 2022 included $0.3 million of net unrealized losses on forward sales and purchase contracts and mark-to-market adjustment on green coffee inventory compared to $2.0 million of net unrealized gains on forward sales and purchase contracts and mark-to-market adjustment on green coffee inventory for the six months ended June 30, 2021.

Costs of sales for the nine months ended September 30, 2022 included $0.8 million of net unrealized losses on forward sales and purchase contracts and mark-to-market adjustment on green coffee inventory compared to $2.0 million of net unrealized gains on forward sales and purchase contracts and mark-to-market adjustment on green coffee inventory for the nine months ended September 30, 2021.

Selling, General and Administrative Expense

Six Months Ended June 30,

Nine Months Ended September 30,

Beverage Solutions

1 unchanged sentence

Total selling, general and administrative expense

Total selling, general and administrative expenses in our Beverage Solutions segment increased $5.6 million to $64.9 million for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

The increase is primarily due to an approximately $1.5 million increase in advertising costs, $1.2 million increase in contract services, $1.1 million increase in freight costs resulting from increased freight rates and $1.1 million increase in bad debt expenses, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

In our SS&T segment, selling, general and administrative costs increased $1.0 million due to increased personnel costs.

Total selling, general and administrative expenses in our Beverage Solutions segment increased $3.8 million to $93.8 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

The increase is primarily due to an approximately $2.5 million increase in legal and professional fees, a $1.9 million increase in freight costs and a $1.3 million increase in bad debt expense, partially offset by an approximately $1.1 million decrease in equipment, service and fleet costs and a $0.7 million decrease in depreciation expense.

In our SS&T segment, selling, general and administrative costs increased $1.2 for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, approximately $0.6 million of which related to increased personnel costs.

Acquisition, Restructuring and Integration Expense

Acquisition, restructuring and integration expense increased $2.8 million to $4.8 million for the six months ended June 30, 2022, approximately $2.5 million of which related to public-company preparedness costs and $1.4 million of which related to the integration of our new enterprise resource planning system.

During the six months ended June 30, 2021, we incurred $2.0 million of acquisition, restructuring and integration expenses, approximately $1.2 million of which were integration costs related to the acquired S&D business.

Acquisition, restructuring and integration expense totaled $8.7 million for the nine months ended September 30, 2022, approximately $3.7 million of which related to public-company preparedness costs, $2.9 million of which related to the integration of our new enterprise resource planning system and $1.6 million of which related to equity-funded startup costs.

During the nine months ended September 30, 2021, we incurred $3.8 million of acquisition, restructuring and integration expenses, approximately $1.2 million of which were related to salesforce restructuring and $1.0 million of which were integration costs related to the acquired S&D business.

Interest Expense

Six Months Ended June 30,

Nine Months Ended September 30,

Interest expense, net

Term loan facility

Prior term loan facility

Prior term loan facility early termination fee

Prior ABL facility

Short-term related party debt

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Amortization of deferred financing costs

Write-off of deferred financing costs

Payments-in-kind interest

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Total interest expense, net

Interest expense for the six months ended June 30, 2022 increased by $1.2 million to $16.9 million.

The increase is primarily driven by an increase in the utilization of Falcon’s working capital trade finance facility, and an increase in average Prior ABL Facility borrowings during the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

This increase was partially offset by a decrease in the payment-in-kind interest rate applicable to our Prior Term Loan Facility.

Interest expense for the nine months ended September 30, 2022 increased by $6.0 million to $30.3 million.

The increase is primarily due to the write off of $4.3 million of unamortized deferred financing fees associated with the termination of the Prior Term Loan Facility and Prior ABL Facility, and $1.6 million of early termination payments associated with the

Prior Term Loan Facility.

No such costs were incurred in the nine months ended September 30, 2021.

In addition, cash interest related to our international trade finance lines increased due to increased utilization of Falcon’s working capital trade finance facility during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

Income Tax Benefit

Income tax benefit for the six months ended June 30, 2022 was $3.1 million, resulting in an effective tax rate of 22.7%, compared to an income tax benefit for the six months ended June 30, 2021 of $1.4 million, resulting in an effective tax rate of 10.6%.

Income tax benefit for the nine months ended September 30, 2022 was $3.5 million, resulting in an effective tax rate of 13.0%, compared to an income tax benefit for the nine months ended September 30, 2021 of $2.2 million, resulting in an effective tax rate of 12.2%.

Critical Accounting Policies and Estimates

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However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our financial statements, the resulting changes could have a material adverse effect on our results of operations and, in certain situations, could have a material adverse effect on our financial condition.

For further information on our critical accounting policies and estimates, see “Management Discussion and Analysis of Financial Condition and Results of Operations” and notes to our audited financial statements included in the Registration Statement.

As of June 30, 2022, there have been no material changes to these estimates.

Warrant Liabilities

We account for warrants assumed in connection with the Transaction (see Note 4 to our Condensed Consolidated Financial Statements) in accordance with the guidance contained in Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging , under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities.

Accordingly, we classify the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period.

This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations.

The Company remeasures the fair value of the Westrock Public Warrants (as defined in Note 4 to our Condensed Consolidated Financial Statements) based on the quoted market price of the Westrock Public Warrants.

The Westrock Private Warrants (as defined in Note 4 to our Condensed Consolidated Financial Statements) are valued a binomial lattice valuation model.

The primary unobservable input utilized in determining the fair value of the Westrock Private Warrants is the expected volatility of the stock price, which is determined by use of an option pricing model.

A 10% increase to the volatility input at September 30, 2022 would increase the fair value of the Private Warrants by approximately $1.1 million.

For the three and nine months ended September 30, 2022, the Company recognized $5.2 million of losses related to the change in fair value of warrant liabilities.

For further information on our critical accounting policies and estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to our audited financial statements included in our Registration Statement on Form S-1 filed with the SEC on September 20, 2022.

As of September 30, 2022, there have been no material changes to these estimates.

Liquidity and Capital Resources

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Our primary sources of liquidity and capital resources are cash on hand, cash provided by operating activities, and available borrowings under our Revolving Credit Facility.

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash used in operating activities

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Net cash provided by financing activities

As of June 30, 2022, we had unrestricted cash and cash equivalents of $14.3 million and $14.5 million of borrowing availability under our Prior ABL Facility, which was based on our borrowing base (accounts receivables and inventory as of May 31, 2022).

Subsequent to June 30, 2022, other than payments made in connection with the Transaction, there have been no material outlays of funds outside of our budgeted capital expenditures.

On August 29, 2022, we used proceeds from the Transaction and Term Loan Facility of $175.0 million to pay off and terminate our existing Prior Term Loan Facility and Prior ABL Facility and have $175.0 million of available borrowing capacity under our new Revolving Credit Facility.

As of September 30, 2022, we had unrestricted cash and cash equivalents of $91.0 million and $175.0 million of undrawn borrowings available under our Revolving Credit Facility (other than $2.6 million of standby letters of credit outstanding described below).

Subsequent to September 30, 2022, there have been no material outlays of funds outside of our budgeted capital expenditures.

We used proceeds from the Transaction and the Term Loan Facility to pay off and terminate our then existing term loan and asset-based lending arrangements, and to pay expenses related to the Transaction and the new Credit Agreement.

We believe we have sufficient liquidity to fund our operations for the foreseeable future, meet our debt obligations, and to comply with our new debt covenants, however;

if there was a sudden or prolonged negative change in our expectations regarding our liquidity, we may be forced to cease investments in our growth.

For the six months ended June 30, 2022, net cash used in operating activities was $47.0 million compared to $0.8 million for the six months ended June 30, 2021.

The change is primarily attributable to increased working capital needs, primarily related to a $46.1 million increase in inventory levels to meet anticipated customer demand.

Net cash used in investing activities was $13.0 million for the six months ended June 30, 2022, compared to $7.5 million for the six months ended June 30, 2021.

The increase was primarily driven by an increase of $6.6 million in growth capital expenditures for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

For the six months ended June 30, 2022, net cash provided by financing activities was $55.3 million, compared to $7.7 million for the six months ended June 30, 2021.

The increase is primarily related to an increase in net proceeds from debt of approximately $47.3 million, which were primarily used to fund inventory purchases.

For the nine months ended September 30, 2022, net cash used in operating activities was $59.5 million compared to $8.2 million for the nine months ended September 30, 2021.

The change is primarily attributable to increased working capital needs, primarily related to increases in inventory levels to meet anticipated customer demand.

Net cash used in investing activities was $19.8 million for the nine months ended September 30, 2022, compared to $11.7 million for the nine months ended September 30, 2021.

The increase was primarily driven by an increase of $10.4 million in growth capital expenditures for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, net cash provided by financing activities was $152.2 million, compared to $15.3 million for the nine months ended September 30, 2021.

The increase is primarily related to an increase in net proceeds received from the de-SPAC merger and PIPE financing of approximately $255.7 million, partially offset by an increase in debt repayments, net of increases in debt proceeds of approximately $92.7 million.

Credit Agreement

On August 29, 2022, the Company entered into the Credit Agreement among the Company, Westrock Beverage Solutions, LLC, as the borrower (the “Borrower”), Wells Fargo Bank, N.A., as administrative agent, collateral agent, and swingline lender, Wells Fargo Securities, LLC, as sustainability structuring agent, and each issuing bank and lender party thereto.

The Credit Agreement includes a $175.0 million Revolving Credit Facility and a $175.0 million Term Loan Facility.

Proceeds from the Term Loan Facility were used for paying off existing indebtedness.

The Credit Agreement matures on August 29, 2027.

All obligations under the Credit Agreement are guaranteed by the Company and each of the Borrower’s domestic subsidiaries, which comprise our Beverage Solutions segment, and are secured by substantially all of the assets of the Company’s assets.

Borrowings under the Revolving Credit Facility and the Term Loan Facility will bear interest, at the Borrower’s option, initially at an annual rate equal to (i) Term SOFR plus a credit spread adjustment of 0.10% for loans with an interest period of one month, 0.15% for loans with an interest period of three months and 0.25% for loans with an interest period of six months, as applicable, (the “Adjusted Term SOFR Rate”) or (ii) the base rate (determined by reference to the greatest of (i) the rate of interest last quoted by The Wall Street Journal in the U.S.

as the prime rate in effect, (ii) the NYFRB Rate from time to time plus 0.50% and (iii) the Adjusted Term SOFR Rate for a one month interest period plus 1.00%, (the “Base Rate”)), in each case plus the Applicable Margin.

The Applicable Margin ranges from 1.50% to

2.50% for Adjusted Term SOFR loans and from 0.50% to 1.50% for Base Rate loans, in each case depending on the total net leverage ratio.

Commitment fees on the daily unused amount of commitments under the Revolving Credit Facility range from 0.20% to 0.35% depending on the total net leverage ratio.

At September 30, 2022, the Revolving Credit Facility was undrawn (other than the standby letters of credit outstanding described below) and the interest rate applicable to our Term Loan Facility was 5.7%.

The Term Loan Facility requires quarterly principal payments during the first three years of approximately $2.2 million (1.25% of the original principal balance beginning December 31, 2022).

Quarterly payments increase to approximately $3.3 million and $4.4 million (1.875% and 2.5% of the original principal balance) during the fourth and fifth years, respectively.

We incurred $6.0 million of financing fees in connection with the Credit Agreement.

$3.0 million of the fees were allocated to the Term Loan Facility and are being amortized utilizing the frozen effective yield method based on the interest rate in place at the issuance of the Term Loan Facility.

$3.0 million of the fees were allocated to the Revolving Credit Facility, are reported within other long-term assets on the Condensed Consolidated Balance Sheets and are being amortized ratably over the term of the Revolving Credit Facility.

We had $2.6 million of standby letters of credit outstanding at September 30, 2022.

The Credit Agreement contains two financial covenants requiring maintenance of a total net leverage ratio not to exceed 4.50 to 1.00, with a stepdown to 4.00 to 1.00 on the 18-month anniversary of the closing date of Credit Agreement (with an option to increase to 4.50 to 1.00 following certain permitted acquisitions), and an interest coverage ratio of at least 1.50 to 1.00 (the “Financial Covenants”).

As of September 30, 2022, the Company was in compliance with the Financial Covenants.

Prior Term Loan Facility

On February 28, 2020, Westrock Beverage Solutions, LLC (f/k/a Westrock Coffee Company, LLC), a Delaware limited liability company and wholly owned subsidiary of the Company (“WBS”), as borrower, borrowed $240.0 million of term loans from various financial institutions pursuant to a loan and security agreement (the “Prior Term Loan Agreement”) (such term loans, the “Prior Term Loan Facility”).

The Prior Term Loan Facility accrued interest quarterly, at the borrower’s option, at the LIBOR or Prime Rate plus an Applicable Margin, as such terms were defined in the Prior Term Loan Agreement, that corresponded to our total leverage ratio at the end of each quarter.

All outstanding loans accrued interest in the second quarter of 2022 at the LIBOR Rate, and the interest rate on the Prior Term Loan Facility was 9.75% on June 30, 2022.

On July 13, 2022, the Company entered into Amendment No.

6 to the Prior Term Loan Agreement (the “Sixth Term Loan Amendment”) in order to permit the Wooster Pre-fund.

The Sixth Term Loan Amendment included the following modifications:

(i) permitting the incurrence of subordinated debt from Wooster in the form of the Convertible Note;

(ii) extending the PIK interest period to December 31, 2022;

(iii) amending the definitions of EBITDA, Fixed Charge Coverage Ratio and Total Debt (which excludes the Convertible Note);

and (iv) amending the level of the Minimum Liquidity covenant that the Company is required to comply with.

The definition of EBITDA was modified to increase the cap on add-backs for the quarter ended June 30, 2022 and the quarter ended September 30, 2022 from 15% of EBITDA to 20% of EBITDA.

The Prior Term Loan Facility was repaid with proceeds from the Transaction, and the Prior Term Loan Agreement was terminated and replaced by the Credit Agreement described below under the heading “New Credit Agreement”.

On February 28, 2020, Westrock Beverage Solutions, LLC, as borrower, borrowed $240.0 million of term loans from various financial institutions pursuant to a loan and security agreement (the “Prior Term Loan Agreement”) (such term loans, the “Prior Term Loan Facility”).

In connection with the Closing, all outstanding Prior Term Loan Facility balances were repaid, and the associated Prior Term Loan Agreement was terminated.

The Company paid a $1.6 million early termination fee, and wrote off $4.0 million of unamortized deferred financing fees associated with the termination of the Prior Term Loan Facility, which are recorded within interest expense on the Condensed Consolidated Statement of Operations.

Prior ABL Facility

On February 28, 2020, WBS, as borrower, entered into a credit agreement with Bank of America as administrative agent (the “Prior ABL Credit Agreement”) that created an asset-based loan of $90.0 million (the “Prior ABL Facility”).

Proceeds from the Prior ABL Facility could be used for any lawful corporate purposes, including working capital.

Depending on the loan type, interest accrued, at the borrower’s option, at the LIBOR or Base Rate plus an Applicable Margin, as such terms were defined in the Prior ABL Credit Agreement.

The Applicable Margin ranged from 1.50% to 3.00% for LIBOR Rate loans and 0.50% to 2.00% for Base Rate loans.

As of June 30, 2022, our total availability under the Prior ABL Facility was $14.5 million, which was based on our borrowing base (accounts receivables and inventory as of May 31, 2022).

As of June 30, 2022, we had $72.8 million of outstanding borrowings under the Prior ABL Facility and $2.7 million of letters of credit.

The Prior ABL Facility carried a commitment fee on any of the unused commitment of 0.375% per annum.

The weighted average effective interest rate on our outstanding borrowings was 5.8% on June 30, 2022.

On July 13, 2022, the Company entered into Amendment No.

4 to the Prior ABL Credit Agreement, which included the following modifications:

The definition of EBITDA was modified to increase the cap on add-backs for the quarter ended June 30, 2022 and the quarter ended September 30, 2022 from 15% of EBITDA to 20% of EBITDA.

The Prior ABL Facility was repaid with the proceeds from the Transaction, and the Prior ABL Facility was terminated and replaced by the Credit Agreement described below under the heading “New Credit Agreement”.

Convertible Note

In connection with the Transaction, on July 14, 2022, pursuant to the terms of the subscription agreement entered into between the Company and Wooster, in which Wooster agreed to subscribe for and purchase, and the Company agreed to issue and sell to Wooster, prior to and substantially concurrently with the closing of the Transaction, an aggregate of 2,150,000 shares of Common Stock at a purchase price of $10.00 per share, for aggregate gross proceeds of $21,500,000 to the Company, Wooster pre-funded $11.7 million of its commitment (the “Wooster Pre-fund”) and in exchange thereof was issued the Convertible Note.

The Convertible Note had a principal amount of $11.7 million, a one-year maturity, and an interest rate of 8% per annum, which was payable quarterly on the last business day of each quarter.

On August 26, 2022, in connection with the closing of the Transaction, the Convertible Note was automatically converted into 1.17 million shares of Common Stock.

New Credit Agreement

On August 29, 2022, in connection with the Transaction, the Company entered into a credit agreement (the “Credit Agreement”) among the Company, WBS, as the borrower (the “Borrower”), Wells Fargo Bank, N.A., as administrative agent, as collateral agent, and as swingline lender, Wells Fargo Securities, LLC, as sustainability structuring agent, and each issuing bank and lender party thereto.

The Credit Agreement includes (a) the Revolving Credit Facility in an initial aggregate principal amount of $175.0 million and (b) the Term Loan Facility in an initial aggregate principal amount of $175.0 million.

The proceeds from the Revolving Credit Facility and the Term Loan Facility will be used for paying off existing indebtedness, working capital and other general corporate purposes.

The Revolving Credit Facility and the Term Loan Facility will mature on August 29, 2027.

As of August 29, 2022, there are no borrowings outstanding under the Revolving Credit Facility.

Borrowings under the Revolving Credit Facility or the Term Loan Facility will bear interest, at the borrower’s option, initially at an annual rate equal to (a) Term SOFR (as defined in the Credit Agreement) plus a credit spread adjustment of 0.10% for loans with an interest period of one month, 0.15% for loans with an interest period of three months and 0.25% for loans with an interest period of six months, as applicable, (the “Adjusted Term SOFR Rate”) plus the applicable margin or (b) the base rate (determined by reference to the greatest of (i) the rate of interest last quoted by The Wall Street Journal in the U.S.

as the prime rate in effect, (ii) the NYFRB Rate (as defined in the Credit Agreement) from time to time plus 0.50% and (iii) the Adjusted Term SOFR Rate for a one month interest period plus 1.00%, (the “Base Rate”)) plus the applicable margin.

The applicable margin for the Revolving Credit Facility and the Term Loan Facility ranges from 1.50% to 2.50% for Adjusted Term SOFR Rate loans and from 0.50% to 1.50% for Base Rate loans, in each case depending on the total net leverage ratio.

As of August 29, 2022, all borrowings under the Term Loan Facility will bear interest at the applicable Adjusted Term SOFR Rate plus the applicable margin.

Commitment fees on the daily unused amount of commitments under the Revolving Credit Facility range from 0.20% to 0.35% depending on the total net leverage ratio.

The Credit Agreement contains two financial covenants requiring maintenance of a total net leverage ratio not to exceed 4.50 to 1.00, with a stepdown to 4.00 to 1.00 on the 18-month anniversary of the closing date of the Transaction and an interest coverage ratio of at least 1.50 to 1.00, which will be tested with the fiscal quarter ending September 30, 2022.

On February 28, 2020, Westrock Beverage Solutions, LLC, as borrower, entered into a loan and security agreement with Bank of America as administrative agent (the “Prior ABL Credit Agreement”) that created an asset-based loan of $90.0 million (the “Prior ABL Facility”).

In connection with the Closing, all outstanding Prior ABL Facility balances were repaid, and the associated Prior ABL Credit Agreement was terminated.

Upon termination, we wrote off $0.3 million of the $1.3 million unamortized deferred financing fees associated with the Prior ABL Facility, which are recorded within interest expense on the Condensed Consolidated Statement of Operations.

The remaining unamortized deferred financing fees were allocated to the new Revolving Credit Facility and will be amortized over the life of the Revolving Credit Facility.

Outstanding letters of credit under the Prior ABL Facility were replaced by letters of credit under the Credit Agreement.

International Debt and Lending Facilities

At June 30, 2022, Westrock Coffee International, LLC (“Westrock International”), through its subsidiary Falcon Coffees Limited (“Falcon”) had a $1.6 million promissory note payable with responsAbility SICAV (Lux), split into two tranches.

At September 30, 2022, Westrock Coffee International, LLC, an Arkansas limited liability company and wholly owned subsidiary of the Company, through its subsidiary Falcon Coffees Limited (“Falcon”) had a $0.7 million promissory note payable with responsAbility SICAV (Lux).

Proceeds from the note are restricted for the sole purpose of financing Falcon’s trading activities.

The note was amended in January 2022 to adjust the maturity of certain tranches, and to re-set interest rates.

Borrowings on the note bear interest at a fixed rate of 9.5% for both the $0.9 million tranche and the $0.7 million tranche maturing on September 30, 2022 and December 31, 2022, respectively.

Westrock Coffee International, LLC, through its subsidiary Rwanda Trading Company, maintains two mortgage-backed lending facilities with a local bank in Rwanda:

a short-term trade finance facility with a balance of $8.9 million at June 30, 2022 and a long-term note payable with a balance of $1.9 million at June 30, 2022.

Falcon maintains a working capital trade finance facility with multiple financial institutions, which prior to March 16, 2022, was agented by BBH, a related party of the Company through its equity interests in the Company, and was reported as short-term related party debt on the Condensed Consolidated Balance Sheets.

Borrowings on the note bear interest at a fixed rate of 9.5% and mature on December 31, 2022.

Westrock Coffee International, LLC, through its subsidiary Rwanda Trading Company, maintains two mortgage-

backed lending facilities with a local bank in Rwanda:

a short-term trade finance facility with a balance of $9.1 million at September 30, 2022 and a long-term note payable with a balance of $1.9 million at September 30, 2022.

The short-term trade finance facility and the long-term note payable bear interest at a rate of 6.5% and 7.0%, respectively.

Falcon maintains a working capital trade finance facility with multiple financial institutions, which prior to March 16, 2022, was agented by Brown Brothers Harriman (“BBH”), a related party of the Company through its equity interests in the Company, and was reported as short-term related party debt on the Condensed Consolidated Balance Sheets.

On March 16, 2022, Falcon refinanced its working capital trade finance facility, and the facility was transferred to different lenders with the same terms as the previous facility.

At the time of refinance, there was $49.3 million outstanding under the facility.

The new facility is uncommitted, repayable on demand and secured by Falcon’s assets.

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On April 29, 2022, the facility size increased from $50 million to $55 million and subsequently, on June 16, 2022, the facility size increased to $62.5 million.

At June 30, 2022, there was $52.0 million outstanding under the facility, which is recorded in short-term debt in the Condensed Consolidated Balance Sheets.

At September 30, 2022, there was $49.6 million outstanding under the facility, which is recorded in short-term debt in the Condensed Consolidated Balance Sheets.

Interest is payable monthly at the U.S.

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Falcon’s facility contains certain restrictive financial covenants which require Falcon to maintain certain levels of working capital, debt, and net worth.

Falcon was in compliance with these financial covenants as of June 30, 2022.

Falcon was in compliance with these financial covenants as of September 30, 2022.

Subordinated Related Party Debt

On February 28, 2020, we issued $13.3 million of subordinated debt (the “Subordinated Notes”) to Wooster and Jo Ellen Ford.

The Subordinated Notes provided for maturity on the earlier of (i) six months after the Prior Term Loan Facility is paid in full or (ii) 10 years from the date of issuance (February 2030).

On February 28, 2020, we issued $13.3 million of subordinated debt (the “Subordinated Notes”) to Wooster and Jo Ellen Ford, related parties of the Company through their equity ownership and relation with Joe Ford, the chairman of our board of directors.

The Subordinated Notes provided for maturity on the earlier of (i) six months after the Prior Term Loan Facility due in 2025 was paid in full or (ii) 10 years from the date of issuance (February 2030).

Interest was payable quarterly at the end of each calendar quarter at a rate of 6% per annum.

Substantially concurrently with the closing of the Transaction and pursuant to the terms of their respective subscription agreements with the Company, Wooster and Jo Ellen Ford contributed their respective Subordinated Notes to the Company and in exchange for such contribution, the Company issued shares of Common Stock to Wooster and Jo Ellen Ford.

The Company issued a total of 1,330,000 shares of Common Stock in exchange for the contribution of the Subordinated Notes, which were subsequently extinguished.

Substantially concurrently with the Closing and pursuant to the terms of their respective subscription agreements with the Company, Wooster and Jo Ellen Ford contributed their respective Subordinated Notes to the Company and in exchange for such contribution, the Company issued Common Shares, par value $0.01 per share, to Wooster and Jo Ellen Ford.

The Company issued a total of 1,330,000 Common Shares in exchange for the contribution of the Subordinated Notes, which were subsequently extinguished.

Current and Long-Term Liquidity

Our current liquidity needs are to fund operating expenses, meet debt service obligations, and fund both current and long-term investment activities, which include capital expenditures.

Proceeds from the Transaction were used to repay all existing term loan and asset-based lending facilities.

Our liquidity needs are to fund operating expenses, meet debt service obligations, and fund both current and long-term investment activities, which include capital expenditures.

Proceeds from the Transaction and the Term Loan Facility were used to repay outstanding borrowings under our Prior Term Loan Facility and Prior ABL Facility.

In addition, we expect to use proceeds to fund our near-term growth strategies, which include, (i) extending and enhancing product offerings through innovation, (ii) expanding our customer base, (iii) expanding geographically, (iv) funding accretive acquisitions, and (v) continuing to drive margin expansion.

As of August 29, 2022, we had no borrowings outstanding under our Revolving Credit Facility.

A key component of our long-term growth strategy will be to complete the phased build-out of our FE&I manufacturing facility in Conway, Arkansas, which will utilize state-of-the-art equipment, including advanced robotics specifically designed to efficiently manufacture and package a wide range of beverages, such as canned or bottled cold brew coffees, lattes, assorted teas, and juice-based products, as well as single serve coffee capsules.

This facility will also incorporate a premiere product development laboratory, enabling us to test and produce new beverage solutions.

We believe proceeds from the Transaction and available borrowings under our Revolving Credit Facility will provide sufficient cash on-hand to complete the initial build-out of this facility, which is currently expected to be approximately $190 million over the next three years.

However, the Company will continuously evaluate its liquidity needs, and if it is determined that we have insufficient liquidity to fund the Conway build-out or fund our acquisition strategy, we may delay the initial build-out of the Conway facility and/or modify the scope of the build-out and we may reprioritize our strategy to focus on organic growth opportunities, which may have an adverse impact on our ability to achieve our growth objectives.

As of September 30, 2022, we had no borrowings outstanding under our Revolving Credit Facility.

A key component of our long-term growth strategy will be to complete the build-out of our extract and ready-to-drink manufacturing facility in Conway, Arkansas, which will utilize state-of-the-art equipment specifically designed to efficiently manufacture and package a wide range of beverages, such as canned or bottled cold brew coffees, lattes, assorted teas, and juice-based products.

We initially planned to complete the build-out in phases;

however, the Company is accelerating capital spending that was originally slated for Phase II of the project into Phase I.

The Company will now be adding a state-of-the-art extraction technology system, a multi-serve bottling line, a specialty canning line and Bag-in-a-Box packaging lines to its Phase I projects that previously included a standard extraction system and high-speed glass bottling and canning lines.

The Company now expects to incur approximately $275.0 million of capital expenditures over the next three (3) years to complete the enhanced build-out of Phase I and Phase II.

We believe proceeds from the Transaction, available borrowings under our Revolving Credit Facility, and more efficient use of our working capital will provide sufficient cash on-hand to complete the build-out.

However, the Company will

continuously evaluate its liquidity needs, and may seek to opportunistically access additional liquidity, including through either the debt or equity capital markets.

If it is determined that we have insufficient liquidity to fund the Conway build-out or fund our acquisition strategy, we may delay the build-out of the Conway facility and/or modify the scope of the build-out and we may reprioritize our strategy to focus on organic growth opportunities, which may have an adverse impact on our ability to achieve our growth objectives.

Contractual Obligations

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We have no other material obligations to pay principal amounts of our long-term debt obligations prior to their maturity.

Future purchase obligations of $371.7 million as of June 30, 2022 consist of commitments for the purchase of inventory over the next 12 months.

Future purchase obligations of $284.6 million as of September 30, 2022 consist of commitments for the purchase of inventory over the next 12 months.

These obligations represent the minimum contractual obligations expected under the normal course of business.

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Customer beverage equipment represents Company-owned equipment that is deployed in our customers’ locations.

Capital expenditures for the six months ended June 30, 2022 and 2021 were as follows:

Six months ended June 30, 2022

Six months ended June 30, 2021

We expect to invest to expand our FE&I product manufacturing capacity in Conway, Arkansas, for which we currently expect to spend approximately $190 million over the next 3 years to complete the initial build-out.

Capital expenditures for the nine months ended September 30, 2022 and 2021 were as follows:

Nine months ended September 30, 2022

Nine months ended September 30, 2021

We expect to invest to expand our extract and ready-to-drink product manufacturing capacity in Conway, Arkansas, for which we currently expect to spend approximately $275 million over the next 3 years.

If circumstances warrant, we may need to take measures to conserve cash, which may include a suspension, delay, or reduction in growth and/or maintenance capital expenditures.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis