What changed in this filing

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Item 1. Financial Statements

2023-05-11 compared with 2022-11-14 · 347 added, 409 removed, 419 unchanged (64% of the section changed)

3 unchanged sentences

(Thousands, except par value)

September 30, 2022

March 31, 2023

December 31, 2022

7 unchanged sentences

Intangible assets, net

Operating lease right-of-use assets

Other long-term assets

LIABILITIES, CONVERTIBLE PREFERRED SHARES, REDEEMABLE UNITS, AND SHAREHOLDERS' EQUITY (DEFICIT)

LIABILITIES, CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY

Current maturities of long-term debt

Short-term debt

Short-term related party debt

Accounts payable

3 unchanged sentences

Long-term debt, net

Subordinated related party debt

Deferred income taxes

3 unchanged sentences

Commitments and contingencies (Note 20)

Series A Convertible Preferred Shares, $ 0.01 par value, 24,000 shares authorized, 23,588 shares issued and outstanding , $ 11.50 liquidation value

Series A Redeemable Common Equivalent Preferred Units:

$ 0.00 par value, 222,150 units authorized, no units and 222,150 units issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Series B Redeemable Common Equivalent Preferred Units:

$ 0.00 par value, 17,000 units authorized, no units and 17,000 units issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Shareholders' Equity (Deficit) (1)

Series A Convertible Preferred Shares, $ 0.01 par value, 24,000 shares authorized, 23,566 shares and 23,588 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively, $ 11.50 liquidation value

Shareholders' Equity

Preferred stock, $ 0.01 par value, 26,000 shares authorized, no shares issued and outstanding

Common stock, $ 0.01 par value, 300,000 shares authorized, 73,034 shares issued and outstanding at September 30, 2022;

$ 0.00 par value, 39,389 shares authorized, 34,523 shares issued and outstanding at December 31, 2021

Common stock, $ 0.01 par value, 300,000 shares authorized, 75,628 shares and 75,020 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in-capital

Accumulated deficit

Accumulated other comprehensive income

Total shareholders' equity (deficit) attributable to Westrock Coffee Company

Accumulated other comprehensive loss

Total shareholders' equity attributable to Westrock Coffee Company

Noncontrolling interest

Total shareholders' equity (deficit)

Total Liabilities, Convertible Preferred Shares, Redeemable Units and Shareholders' Equity (Deficit)

(1) Retroactively restated for de-SPAC merger transaction as described in Note 4.

Total shareholders' equity

Total Liabilities, Convertible Preferred Shares and Shareholders' Equity

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Thousands, except per share data)

2 unchanged sentences

Acquisition, restructuring and integration expense

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

Loss on disposal of property, plant and equipment

Total operating expenses

Income from operations

Income (loss) from operations

Other (income) expense

3 unchanged sentences

Income tax benefit

Net (loss) income attributable to non-controlling interest

Net 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

Accretion of Series A Convertible Preferred Shares

Accumulating preferred dividends

2 unchanged sentences

Weighted-average number of shares outstanding (1) :

(1) Retroactively restated for de-SPAC merger transaction as described in Note 4.

(1) Retroactively adjusted the three months ended March 31, 2022 for de-SPAC merger transaction as described in Note 4 .

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Other comprehensive income (loss), net of tax:

Unrealized (loss) gain on derivative instruments

Unrealized gain (loss) on derivative instruments

Foreign currency translation adjustment

Total other comprehensive (loss) income

Total other comprehensive income (loss)

Comprehensive loss

Comprehensive (loss) income attributable to non-controlling interests

Comprehensive income attributable to non-controlling interests

Comprehensive loss attributable to shareholders

Loss on extinguishment of Redeemable Common Equivalent Preferred Units, net

Common equivalent preferred dividends

Accretion of convertible preferred shares

Accumulating preferred dividends

6 unchanged sentences

Paid-in Capital

Equity (Deficit)

Balance at June 30, 2021

Net income (loss)

Other comprehensive income (loss)

Equity-based compensation

Accumulating preferred dividends

Balance at September 30, 2021

Balance at June 30, 2022

Net income (loss)

Issuance of common shares upon closing of de-SPAC merger transaction, net of issuance costs, net of $ 2,469 of taxes (see Note 4)

Issuance of common shares related to PIPE financing

Issuance of common shares related to conversion of debt to equity (see Note 11)

Issuance of common shares related to conversion of Common Equivalent Preferred Units (see Note 4)

Common Equivalent Preferred Unit dividends ($ 0.02 per unit)

Loss on extinguishment of Common Equivalent Preferred Units

Other comprehensive income (loss)

Equity-based compensation

Balance at September 30, 2022

See accompanying notes to condensed consolidated financial statements.

Comprehensive

Non-Controlling

Paid-in Capital

Income (Loss)

Equity (Deficit)

1 unchanged sentence

Net income (loss)

Other comprehensive income

Other comprehensive income (loss)

Equity-based compensation

Net unit settlement

Net share settlement of equity awards

Accumulating preferred dividends

Balance at September 30, 2021

Balance at March 31, 2022

Balance at December 31, 2022

Net income (loss)

Issuance of common shares upon closing of de-SPAC merger transaction, net of issuance costs, net of $ 2,469 of taxes (see Note 4)

Issuance of common shares related to PIPE financing

Issuance of common shares related to conversion of debt to equity (see Note 11)

Issuance of common shares related to conversion of Common Equivalent Preferred Units (see Note 4)

Common Equivalent Preferred Unit dividends ($ 0.02 per unit)

Loss on extinguishment of Common Equivalent Preferred units

Other comprehensive income

Issuance of common shares related to acquisitions

Issuance of common shares related to Public Warrant exercise

Issuance of common shares related to stock options exercised

Issuance of common shares related to conversion of Series A Convertible Preferred Shares

Accretion of Series A Convertible Preferred Shares

Other comprehensive income (loss)

Equity-based compensation

Net unit settlement

Accumulating preferred dividends

Balance at September 30, 2022

(1) Retroactively restated for de-SPAC merger transaction as described in Note 4.

Net share settlement of equity awards

Balance at March 31, 2023

(1) Retroactively adjusted December 31, 2021 and three months ended March 31, 2022 for de-SPAC merger transaction as described in Note 4.

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

5 unchanged sentences

Amortization of deferred financing fees included in interest expense

Write-off of unamortized deferred financing fees

Loss on debt extinguishment

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

Loss on disposal of property, plant and equipment

Mark-to-market adjustments

12 unchanged sentences

Additions to intangible assets

Acquisition of business, net of cash acquired

Proceeds from sale of property, plant and equipment

3 unchanged sentences

Proceeds from debt

Proceeds from related party debt

Debt extinguishment costs

Payment of debt issuance costs

Proceeds from de-SPAC merger and PIPE financing

Payment of common equity issuance costs

Payment of preferred equity issuance costs

Net proceeds from repurchase agreements

Common equivalent preferred dividends

Net unit settlement

Net payments from repurchase agreements

Proceeds from exercise of stock options

Proceeds from exercise of Public Warrants

Payment for taxes for net share settlement of equity awards

Net cash provided by financing activities

5 unchanged sentences

Property, plant and equipment acquired but not yet paid

Issuance of common shares related to Public Warrant exercise

Issuance of common shares related to acquisitions

Issuance of common shares related to conversion of Series A Preferred Shares

Accretion of convertible preferred shares

Accumulating preferred dividends

Exchange of Redeemable Common Equivalent Preferred Units for Series A Convertible Preferred Shares

Exchange of Redeemable Common Equivalent Preferred Units for common shares

Related party debt exchanged for common shares

Loss on extinguishment of Common Equivalent Preferred Units

The total cash and cash equivalents and restricted cash is as follows:

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Cash and cash equivalents

4 unchanged sentences

Organization and Description of Business

Westrock Coffee Company, a Delaware corporation (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 services to the retail, food service and restaurant, convenience store and travel center, non-commercial account, CPG, and hospitality industries around the world.

The Company has an 85 % ownership interest in Falcon Coffees Limited, which operates our trading business and is reported within our Sustainable Sourcing & Traceability segment.

Equity interests not owned by us are reflected as non-controlling interests.

In the Condensed Consolidated Statements of Operations, we allocate net income (loss) attributable to non-controlling interest to arrive at net income (loss) attributable to common shareholders based on their proportionate share.

The Company operates seven manufacturing facilities, three of which are located in Concord, North Carolina, two in North Little Rock, Arkansas, one in Kigali, Rwanda, and one in Johor Bahru, Malaysia.

We manage our business in two operating segments.

Beverage Solutions:

Through this segment, we combine our product innovation and customer insights to provide value-added beverage solutions, including coffee, tea, flavors, extracts and ingredients.

We provide products in a variety of packaging, including branded and private label coffee in bags, fractional packs, and single serve cups, as well as extract solutions to be used in products such as cold brew and ready-to-drink offerings.

Currently we serve customers in the United States, Europe and Asia, through the retail, food service and restaurant, convenience store and travel center, non-commercial account, CPG, and hospitality industries.

Sustainable Sourcing & Traceability:

Through this segment, we utilize our proprietary technology and digitally traceable supply chain to directly impact and improve the lives of our farming partners, tangible economic empowerment and an emphasis on environmental accountability and farmer literacy.

Revenues primarily consist of sales from commodity contracts related to forward sales of green coffee.

On August 26, 2022 (the “Closing Date”), pursuant to the terms of the Transaction Agreement, dated April 4, 2022, by and among the Company, Riverview Acquisition Corp., a special purpose acquisition vehicle and a Delaware corporation (“Riverview”), Origin Merger Sub I, Inc.

10 unchanged sentences

The Condensed Consolidated Balance Sheet as of December 31, 2022 was derived from the audited financial statements, but does not include all disclosures required by GAAP.

At March 31, 2023, the Company had an 85 % ownership interest in Falcon Coffees Limited (“Falcon”), which operates our trading business and is reported within our Sustainable Sourcing & Traceability segment.

Equity interests not owned by us are reflected as non-controlling interests.

The interim financial information is unaudited but, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair statement of results for the interim periods have been included.

Operating results from any interim period are not necessarily indicative of the results that may be expected for the full fiscal year.

The Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited December 31, 2021 consolidated financial statements and notes thereto included in our Registration Statement on Form S-1 filed with the U.S.

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

The Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited December 31, 2022 consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed with the U.S.

Securities and Exchange Commission (“SEC”) on March 21, 2023.

Accordingly, certain significant accounting policies and other disclosures normally provided have been omitted from the accompanying Condensed Consolidated Financial Statements and related notes since such items are disclosed in our audited financial statements.

Common Unit Conversion

In connection with the Transaction and pursuant to the Transaction Agreement, (a) each issued and outstanding common unit of the Converting Company (“Common Units”) was automatically converted into 0.1049203474320 shares of common stock, par value $ 0.01 per share, of the Converted Company (each such share, a “Common Share”), (b) each issued and outstanding common equivalent preferred unit of the Converting Company (the “Common Equivalent Preferred Units”) for which the holder had not elected to convert such unit into shares of Series A convertible preferred stock, par value $ 0.01 per share, of the Converted Company (the “Series A Preferred Shares”), automatically converted into 0.1086138208640 Common Shares if such Common Equivalent Preferred Unit was designated a Series A Common Equivalent Preferred Unit or 0.1049203474320 Common Shares if such Common Equivalent Preferred Unit was designated a Series B Common Equivalent Preferred Unit and (c) each outstanding Common Equivalent Preferred Unit for which the holder thereof had made an election to convert such unit into Series A Preferred Shares, converted into 0.1086138208740 Series A Preferred Shares if such Common Equivalent Preferred Unit was designated a Series A Common Equivalent Preferred Unit or 0.0919280171940 Series A Preferred Shares if such Common Equivalent Preferred Unit was designated a Series B Common Equivalent Preferred Unit.

For the periods prior to the Closing, the number of outstanding units, weighted average number of outstanding units, loss per common unit, equity-based compensation and other financial amounts previously expressed on the basis of Common Units have been retroactively adjusted on the basis of Common Shares reflecting the common unit conversion ratio, as described above.

Reclassifications

Certain reclassifications of prior years’ amounts have been made to conform with the current period financial statements presentation.

These reclassifications had no impact on prior years’ net income as previously reported.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes.

On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses, useful lives of property, equipment, incremental borrowing rates for lease liability measurement, fair values of forward purchase and sales contracts, green coffee associated with forward contracts, and warrant liabilities, share-based compensation, contingencies, and income taxes, among others.

On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses, useful lives of property, plant and equipment, incremental borrowing rates for lease liability measurement, fair values of forward purchase and sales contracts, green coffee associated with forward contracts, warrant liabilities, share-based compensation, contingencies, and income taxes, among others.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Actual results could differ from our estimates.

Summary of Significant Accounting Policies

Actual results may differ from the estimates and assumptions used in preparing the accompanying condensed consolidated financial statements.

Going Concern

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its obligations as they become due within one year after the date that the financial statements are available to be issued.

The Company is dependent on borrowings under its Credit Agreement (Note 12) and cash generated from operations to finance its operations, service its debt requirements, maintain compliance with its covenants, and to fund capital requirements.

The Company believes that its projected cash flow from operations and available borrowings under its Credit Agreement will be sufficient to fund operations for at least the next twelve months.

During the year ended December 31, 2022 and through the quarter ending March 31, 2023, we were and continue to be impacted by the negative effects of inflation on both our customer volume demand and manufacturing costs, including price increases in fuel, food, materials and labor.

We attempt to mitigate the impacts of inflation wherever possible.

Our mitigation strategies include working with our vendors and suppliers to ensure that we have adequate access to raw materials.

In addition, where possible, we seek to recover inflation-impacted costs by passing these costs onto our customers through periodic pricing increases.

However, our pricing increases often lag our cost increases, including increases in commodity costs.

The persistence of these negative effects on our business could adversely impact our ability to reach our revenue and other financial targets.

If we are unable to meet our financial targets and generate sufficient cash flows from operations, it may restrict our liquidity and capital resources and our ability to maintain compliance with our financial covenants.

As management’s ability to amend its financial covenants cannot be assured, management has committed to raise additional capital, delay growth capital expenditures and/or reduce operating expenses, as necessary, in order to have adequate liquidity and to remain in compliance with its debt covenants.

The accompanying Condensed Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable consists principally of amounts billed and currently due from customers and are generally unsecured and due within 30 to 60 days.

Accounts receivable consist principally of amounts billed and currently due from customers and are generally unsecured and due within 30 to 60 days.

A portion of our accounts receivable is not expected to be collected due to non-payment, bankruptcies and deductions.

3 unchanged sentences

Accounts receivable are written off when the account is determined to be uncollectible.

Activity in the allowance for credit losses was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Activity in the allowance for credit losses for the periods indicated was as follows:

Three Months Ended March 31,

Balance at beginning of period

Charged to selling, general and administrative expense

Green coffee associated with our forward contracts is recorded at net realizable value, which approximates market price, within our Sustainable Sourcing & Traceability segment, consistent with our forward purchase contracts recorded at fair value in accordance with Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”).

Within our Sustainable Sourcing & Traceability segment, green coffee associated with our forward contracts is recorded at net realizable value, which approximates market price, consistent with our forward purchase contracts recorded at fair value in accordance with Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”).

Green coffee is a commodity with quoted market prices in active markets, may be sold without significant further processing, has predictable and insignificant disposal costs and is available for immediate delivery.

We estimate the fair value of green coffee based on the quoted market price at the end of each reporting period, with changes in fair value being reported as a component of costs of sales in our Condensed Consolidated Statements of Operations.

For the three and nine months ended September 30, 2022, we recognized $ 0.6 million and $ 8.1 million, respectively, of unrealized losses on green coffee inventory associated with our forward sales and purchase contracts.

For the three and nine months ended September 30, 2021, we recognized $ 3.3 million and $ 5.9 million, respectively, of unrealized gains on green coffee inventory associated with our forward sales and purchase contracts.

For the three

months ended March 31, 2023 and 2022, we recognized $ 2.3 million of unrealized gains and $ 5.8 million of unrealized losses, respectively, on green coffee inventory associated with our forward sales and purchase contracts.

Supplier Finance Program

On March 2, 2023, the Company entered into a supplier finance program (the “Program”) with a third-party financing provider to provide better working capital usage by deferring payments for certain raw materials.

Under the Program, the financing provider remits payment to the Company’s suppliers for approved invoices, and the Company repays the financing provider the amount of the approved invoices, plus a financing charge, on 180 -day terms.

The Program is uncommitted and the financing provider may, at its sole discretion, cancel the Program at any time.

The Company may request cancellation of the Program in whole or in respect of one or more approved suppliers.

Due to the extension of payment terms beyond the original due date of approved invoices, obligations under the Program are recorded outside of accounts payable in our Condensed Consolidated Balance Sheets.

Amounts paid by the financing provider to suppliers are reported as cash inflows from financing activities and a corresponding cash outflow from operating activities in our Condensed Consolidated Statements of Cash Flows.

Amounts paid to the financing provider are reflected as cash outflows from financing activities in our Condensed Consolidated Statements of Cash Flows.

As of March 31, 2023, there were no obligations outstanding under the Program.

Warrant Liabilities

1 unchanged sentence

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 Public Warrants (as defined in Note 4) based on the quoted market price of the Public Warrants.

The Private Warrants (as defined in Note 4) are valued using a binomial lattice valuation model.

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.

Recently issued accounting pronouncements

Update ASU 2016-02 – Leases (Topic 842) and Update ASU 2018-10 – Codification Improvements to Topic 842, Leases

Effective January 1, 2022, we account for leases in accordance with ASC 842, Leases (“ASC 842”).

The standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.

We adopted ASC 842 using a modified retrospective transition approach as permitted by the amendments of ASU 2018-11 Leases (Topic 842):

Target Improvements , which provides an alternative modified retrospective transition method.

As a result, we were not required to adjust our comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption (i.e., January 1, 2022).

We have elected to adopt the package of transition practical expedients and, therefore, have not reassessed (i) whether existing or expired contracts contain a lease, (ii) lease classification for existing or expired leases, or (iii) the accounting for initial direct costs that were previously capitalized.

We determine if an arrangement is a lease at contract inception.

A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration.

The definition of a lease embodies two conditions:

(i) there is an identified asset in the contract that is land or a depreciable asset, and (ii) the customer has a right to control the use of the identified asset.

We enter into lease contracts for manufacturing and production facilities, warehouse facilities, vehicles and machinery and equipment.

Upon adoption, we recognized $ 13.0 million of ROU assets and lease liabilities on our Condensed Consolidated Balance Sheets.

See Note 10 for additional disclosures related to leases.

ROU assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives received.

The lease liabilities are initially measured at the present value of the unpaid lease payments at the lease commencement date.

Lease expense, for operating leases, is recognized on a straight-line basis over the lease term.

Key estimates and judgements include the following:

(i) Discount rate – ASC 842 requires a lessee to discount its unpaid lease payments using the rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate.

As we generally do not know the rate implicit in our leases, we use our incremental borrowing rate, based on the information available at the lease commencement date, in determining the present value of our lease payments.

Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

(ii) Lease term – The lease term for all of our leases includes the noncancellable period of the lease plus any additional periods covered by either a lessee option to extend (or not to terminate) the lease that is reasonably certain to be exercised.

Variable lease payments associated with our leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs.

Variable lease payments are included in both costs of sales and selling, general and administrative expense in our Condensed Consolidated Statements of Operations.

We monitor for events or changes in circumstances that require a reassessment of a lease.

When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the associated ROU asset, unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero.

In that case, the amount of the adjustment that would result in a negative ROU asset is recorded in the Condensed Consolidated Statements of Operations.

We have elected not to recognize ROU assets and lease liabilities for all short-term leases that have a lease term of 12 months or less.

We recognize the lease payments associated with our short-term leases as an expense on a straight-line basis over the lease term.

Furthermore, we have elected to combine lease and non-lease components for all contracts.

Non-lease components primarily relate to maintenance services related to the leased asset.

The liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Condensed Consolidated Statement of Operations.

The Company remeasures the fair value of the Westrock Public Warrants (as defined in Note 4) based on the quoted market price of the Westrock Public Warrants.

The Westrock Private Warrants (as defined in Note 4) are valued using a binomial lattice valuation model.

For the three months ended March 31, 2023, the Company recognized $ 5.5 million of gains related to the change in fair value of warrant liabilities, which is recognized in other (income) expense in the Condensed Consolidated Statements of Operations.

We account for income taxes under the asset and liability method.

Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amount of assets and liabilities and their respective tax bases, using enacted income tax rates expected to apply when the deferred tax assets and liabilities are expected to be realized or settled.

The Company’s foreign subsidiaries file income tax returns and are subject to tax provisions in their respective foreign tax jurisdictions.

A valuation allowance is established to reduce deferred income tax assets if, on the basis of available evidence, it is more likely than not that all or a portion of any deferred tax assets will not be realized.

The consideration of available evidence requires significant management judgment including an assessment of the future periods in which the deferred tax assets and liabilities are expected to be realized and projections of future taxable income.

Specifically, in assessing the need for a valuation allowance, we consider the reversal of taxable temporary differences, future taxable income, the ability to carryback certain attributes and tax-planning strategies.

The ultimate realization of the deferred tax assets, including net operating losses, is dependent upon the generation of future taxable income during the periods prior to their expiration.

If our estimates and assumptions about future taxable income are not appropriate, the value of our deferred tax assets may not be recoverable, which may result in an increase to our valuation allowance that will impact current earnings.

We re-evaluate our need for a valuation allowance on a quarterly basis.

The effective tax rates for the three months ended March 31, 2023 and March 31, 2022 were 50.2 % and 25.2 %, respectively.

The Company’s effective tax rate for the current period differs from the federal statutory rate primarily due to a change in the valuation allowance against domestic deferred tax assets and discrete items, including the windfall from

equity-based compensation awards.

The effective tax rate for the three months ended March 31, 2023 differs from the effective tax rate for the same period in 2022 primarily due to the change in the valuation allowance and an increase in the windfall from equity-based compensation awards.

There were no changes to uncertain tax benefits during the three months ended March 31, 2023, and the Company does not expect any significant changes to uncertain tax benefits within the next twelve months.

Recently adopted accounting pronouncements

Update ASU 2022-04 - Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations

In September 2022, the FASB issued ASU 2022-04 “Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations”, which requires that a company that uses a supplier finance program in connection with the purchase of goods or services disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude.

ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

The Company adopted the applicable amendments within ASU 2022-04 on a retrospective basis effective January 1, 2023.

The amendments to ASU 2022-04 do not affect the recognition, measurement or financial statement presentation of obligations covered by supplier finance programs.

Update ASU 2021-08 – Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued ASU 2021-08, which requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, instead of at fair value on the acquisition date as previously required by ASC 805.

The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for acquired revenue contracts and revenue contracts not acquired in a business combination.

ASU 2021-08 was effective for years beginning after December 15, 2022.

The adoption of ASU 2021-08 did not have a significant impact on the Company’s financial position or results of operations .

De-SPAC Merger Transaction

On 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 shares of Class A common stock of Riverview (“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) 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), and entered into a credit agreement that includes (a) a senior secured first lien revolving credit facility in an initial aggregate principal amount of $ 175.0 million and (b) a senior secured first lien term loan facility in an initial aggregate principal amount of $ 175.0 million.

See Note 11 for additional disclosures regarding the new credit agreement.

Pursuant to the Transaction Agreement, (a) each issued and outstanding common unit of the Converting Company was automatically converted into 0.1049203474320 Common Shares, (b) each issued and outstanding common equivalent preferred unit of the Converting Company (the “Westrock Preferred Unit ”) for which the holder had not elected to convert such unit into shares of Series A convertible preferred stock of Westrock (the “Westrock Series A Preferred Shares”) (see Note 12), automatically converted into 0.1086138208640 Common Shares if such Westrock Preferred Unit was designated a Series A common equivalent preferred unit of the Converting Company (the “Westrock Series A Preferred Units”) or 0.1049203474320 Common Shares if such Westrock Preferred Unit was designated a Series B common equivalent preferred unit of the Converting Company (the “Westrock Series B Preferred Units”) and (c) each outstanding Westrock Preferred Unit, for which the holder thereof had made an election to convert such unit into Westrock Series A Preferred Shares, converted into 0.1086138208740 Westrock Series A Preferred Shares if such Westrock Preferred Unit was a Westrock Series A Preferred Unit or 0.0919280171940 Westrock Series A Preferred Shares if such Westrock Preferred Unit was a Westrock Series B Preferred Unit.

In connection with the Closing, holders of Westrock Preferred Units were paid a cash dividend totaling $ 4.4 million, which is equal to the accreted liquidation preference of the Westrock Preferred Units from June 30, 2022 through the Closing Date.

As a result, we issued 34,855,535 Common Shares to common unitholders, 2,220,305 Common Shares to holders of Westrock Preferred Units who elected to convert their Westrock Preferred Units into Common Shares, and 23,587,952

Westrock Series A Preferred Shares to holders who elected to convert their Westrock Preferred Units into Westrock Series A Preferred Shares.

The Company realized a net loss on extinguishment of the Westrock Preferred Units of $ 2.9 million, including the payment of approximately $ 1.3 million of issuance costs, which have been recorded within accumulated deficit on our Condensed Consolidated Balance Sheets and adjusts earnings attributable to common shareholders in computing basic and diluted earnings per share.

On the Closing Date, the Company completed the Transaction with Riverview.

At Closing, the Company issued 12,868,151 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 that were either paid by Riverview prior to Closing or offset against proceeds received by the Company at Closing.

The 12,868,151 shares issued at Closing include 1,910,000 shares issued to PIPE investors who elected to satisfy their PIPE commitments through the purchase of shares of Class A common stock of Riverview (“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 outstanding immediately prior to Closing) 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), and entered into a credit agreement that includes (a) a senior secured first lien revolving credit facility in an initial aggregate principal amount of $ 175.0 million and (b) a senior secured first lien term loan facility in an initial aggregate principal amount of $ 175.0 million.

Prior to the Closing, the Company’s ownership interests consisted of two classes of equity, referred to as Common Units and Common Equivalent Preferred Units.

At inception, each Common Equivalent Preferred Unit has a liquidation preference of $ 1.00 per unit, increased by an amount accruing at the rate of 10 % per annum, compounding annually,

based on its liquidation preference as of the time of such accrual, and reduced by the cumulative amount of any cash dividends or distributions, if any, made by the Company in respect of such Common Equivalent Preferred Unit (the “Common Equivalent Preferred Unit Liquidation Preference”).

In connection with the Closing, holders of Common Equivalent Preferred Units were paid a cash dividend totaling $ 4.4 million, which is equal to the accreted liquidation preference of the Common Equivalent Preferred Units from June 30, 2022 through Closing.

Pursuant to the Transaction Agreement, (a) each issued and outstanding Common Unit converted into 0.1049203474320 Common Shares, (b) each issued and outstanding Common Equivalent Preferred Unit for which the holder had not elected to convert such unit into shares of Series A convertible preferred stock of Westrock (the “Westrock Series A Preferred Shares”) (see Note 13), automatically converted into 0.1086138208640 Common Shares if such Westrock Preferred Unit was designated a Series A Common Equivalent Preferred Unit or 0.1049203474320 Common Shares if such Common Equivalent Preferred Unit was designated a Series B Common Equivalent Preferred Unit and (c) each outstanding Westrock Preferred Unit, for which the holder thereof had made an election to convert such unit into Westrock Series A Preferred Shares, converted into 0.1086138208740 Westrock Series A Preferred Shares if such Common Equivalent Preferred Unit was designated a Series A Common Equivalent Preferred Unit or 0.0919280171940 Westrock Series A Preferred Shares if such Common Equivalent Preferred Unit was designated a Series B Common Equivalent Preferred Unit.

As a result, we issued 34,855,535 Common Shares to holders of Common Units, 2,220,305 Common Shares to holders of Common Equivalent Preferred Units who elected to convert their Common Equivalent Preferred Units into Common Shares, and 23,587,952 Westrock Series A Preferred Shares to holders who elected to convert their Common Equivalent Preferred Units into Westrock Series A Preferred Shares.

In addition, at Closing, (i) each outstanding share of class B common stock of Riverview (the “Riverview Class B Shares” together with the Riverview Class A Shares, the “Riverview Shares”) (other than the Riverview Class B Shares held as treasury stock, which were automatically cancelled and extinguished at Closing), automatically converted into one Riverview Class A Share, (ii) each outstanding Riverview Class A Share (including the Riverview Class A Shares resulting from the conversion of Riverview Class B Shares at Closing but excluding any Riverview Class A Shares held as treasury stock, which were automatically cancelled and extinguished at Closing) were exchanged for one Common Share, (iii) each outstanding warrant to purchase Riverview Class A Shares (the “Riverview Warrants”) was, by its terms, automatically converted into a comparable warrant to purchase Common Shares (the “Westrock Warrants”) on the terms and subject to the conditions set forth in the warrant agreement for the Riverview Warrants and the amended and restated warrant agreement for the Westrock Warrants, (iv) each Riverview Share held immediately prior to Closing by Riverview as treasury stock was automatically canceled and extinguished and (v) each share of capital stock of Merger Sub I issued and outstanding immediately prior to Closing was automatically canceled and extinguished and converted into one share of common stock, par value $ 0.01 , of the surviving corporation in the SPAC Merger.

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Accordingly, for accounting purposes, the Transaction is treated similar to an equity contribution in exchange for the issuance of Common Shares.

Accordingly, for accounting purposes, the financial statements of the combined entity represent a continuation of the financial statements of Westrock, and the net assets of Riverview have been stated at historical cost, with no goodwill or other intangible assets recorded.

The equity and net loss per unit attributable to common equityholders of the Company, prior to the Closing, have been retroactively restated as shares reflecting the common unit conversion ratio discussed above.

The financial statements of the combined entity represent a continuation of the financial statements of Westrock, and the net assets of Riverview have been stated at historical cost, with no goodwill or other intangible assets recorded.

The equity and net loss per unit attributable to common equityholders of the Company, prior to the Closing, have been retroactively adjusted as shares reflecting the common unit conversion ratio discussed above.

Proceeds from the Transaction and the $ 175.0 million 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 the new credit agreement.

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Costs incurred by Westrock were initially capitalized as incurred in the other assets on the Condensed Consolidated Balance Sheets.

At Closing, $ 24.2 million of transaction costs incurred by the Company related to the issuance of shares were recognized in additional paid-in capital as a reduction of proceeds.

As a result of the transaction, $ 24.0 million of transaction costs incurred by the Company related to the issuance of shares were recognized in additional paid-in capital as a reduction of proceeds.

The $ 17.1 million of expenses incurred by Riverview were either paid by Riverview prior to Closing or netted against proceeds received by the Company at Closing.

There were no deferred transaction costs recorded in the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021.

Common Stock Warrants

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The Westrock Warrants entitle the holder to purchase one share of Common Share at an exercise price of $ 11.50 per share.

The Westrock Warrants will become exercisable upon the effectiveness of our Registration Statement on Form S-1 (File No.

333-267509) (“Warrant Registration Statement”) registering the Common Shares issuable upon the exercise of the Westrock Warrants.

The Westrock Warrants may only be exercised for a whole number of shares, and will expire on August 26, 2027 (i.e., five years following the Closing), or earlier upon redemption or liquidations.

Once the Westrock Public Warrants become exercisable, Westrock may redeem the outstanding Westrock Public Warrants (i) in whole and not in part;

Westrock may redeem the outstanding Westrock Public Warrants (i) in whole and not in part;

(ii) at a price of $ 0.01 per warrant;

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and (iv) if, and only if, the reported last sale price of the Common Shares for any 20 trading days within a 30 -trading day period ending three business days before Westrock sends the notice of redemption to the warrant holders equals or exceeds $ 18.00 per share.

If the Warrant Registration Statement is not effective by November 25, 2022 (i.e., 60 business days after Closing), warrant holders may, until such time as there is an effective registration statement and during any period when Westrock will have failed to maintain an effective registration statement, exercise its Westrock Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act of 1933, as amended, or another exemption.

During any period when Westrock fails to maintain an effective registration statement registering the Common Shares issuable upon the exercise of the Westrock Warrants, Westrock is required to permit holders of Westrock Warrants to exercise their Westrock Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act of 1933, as amended, or another exemption.

If and when the Public Warrants become redeemable by Westrock, Westrock may exercise its redemption right even if Westrock is unable to register or qualify the underlying securities for sale under all applicable state securities laws.

The Westrock Private Warrants, which became transferable, assignable and salable on September 26, 2022 (i.e., 30 days after the Closing), are currently held by the Riverview Sponsor, and are generally identical to the Westrock Public Warrants, except they will not be redeemable by Westrock so long as they are held by the Riverview Sponsor or its permitted transferees.

The Westrock Private Warrants, which became transferable, assignable and salable on September 26, 2022 (i.e., 30 days after the Closing), are currently held by the Riverview Sponsor, and are generally identical to the Westrock Public Warrants, except they cannot be redeemable by Westrock so long as they are held by the Riverview Sponsor or its permitted transferees.

The Riverview Sponsor, or its permitted transferees, have the option to exercise the Westrock Private Warrants on a cashless basis.

If the Westrock Private Warrants are held by holders other than the Riverview Sponsor or its permitted transferees, the Westrock Private Warrants will be redeemable by Westrock and exercisable by the holders on the same basis as the Westrock Public Warrants.

If the Westrock Private Warrants are held by holders other than the Riverview Sponsor or its permitted transferees, the Westrock Private Warrants will become redeemable by Westrock and exercisable by the holders on the same basis as the Westrock Public Warrants.

Revenue from Contracts with Customers (ASC 606)

We measure revenue based on the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”).

Our principal source of revenue is from the procurement, trade, manufacture, and distribution of coffee, tea, flavors, extracts and ingredients to customers in the United States, Europe, and Asia.

We measure revenue based on the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied.

Our principal source of revenue is from the procurement, trade, manufacture, and distribution of coffee, tea and extracts to customers in the United States, Europe, and Asia.

The transaction price of a contract, net of discounts and expected returns, is allocated to each distinct performance obligation based on the relative standalone selling price of the obligation and is recognized as revenue when the performance obligation is satisfied.

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Such transactions are accounted for as financing transactions in accordance with ASC 606.

At September 30, 2022, the Company has $ 11.0 million of such repurchase agreement obligations, collateralized by the corresponding

inventory, that are recorded within accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.

At March 31, 2023, the Company has $ 10.2 million of such repurchase agreement obligations, collateralized by the corresponding inventory, that are recorded within accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.

Net cash flows associated with these repurchase agreements are reported as financing activities in the Condensed Consolidated Statements of Cash Flows.

Revenue from Forward Contracts (ASC 815)

A portion of the Company’s revenues relate to the physical delivery and settlement of forward sales contracts for green coffee that are accounted for under ASC 815.

These forward sales contracts meet the definition of a derivative under ASC 815 as they have an underlying, notional amount, no initial net investment and can be net settled since the commodity is readily converted to cash.

A portion of the Company’s revenues consist of sales from commodity contracts that are accounted for under ASC 815.

Sales from commodity contracts primarily relate to forward sales of green coffee which are accounted for as derivatives at fair value under ASC 815.

These forward sales meet the definition of a derivative under ASC 815 as they have an underlying, notional amount, no initial net investment and can be net settled since the commodity is readily converted to cash.

The Company does not apply the normal purchase and normal sale exception under ASC 815 to these contracts.

Revenues from forward sales contracts are recognized for the contractually stated amount when the contracts are settled.

Revenues from commodity contracts are recognized in revenues for the contractually stated amount when the contracts are settled.

Settlement generally occurs upon shipment or delivery of the product when title and risks and rewards of ownership transfers to the customer.

Prior to settlement, these forward sales contracts are recognized at fair value with the unrealized gains or losses recorded within costs of sales in our Condensed Consolidated Statements of Operations.

For the three and nine months ended September 30, 2022, we recorded a nominal amount and $ 7.3 million of net unrealized gains, respectively, within costs of sales.

For the three and nine months ended September 30, 2021, we recorded $ 3.3 million and $ 3.9 million of net unrealized losses, respectively, within costs of sales.

For the three and nine months ended September 30, 2022, the Company recognized $ 56.6 million and $ 147.0 million in revenues under ASC 815, respectively, and for the three and nine months ended September 30, 2021, the Company recognized $ 42.3 million and $ 106.2 million in revenues under ASC 815, respectively, which are reported within the Company’s Sustainable Sourcing & Traceability segment.

For the three months ended March 31, 2023 and 2022, we recorded $ 1.0 million of net unrealized losses and $ 6.9 million of net unrealized gains, respectively, within costs of sales.

For the three months ended March 31, 2023 and 2022, the Company recognized $ 24.4 million and $ 38.1 million in revenues under ASC 815, respectively, which are reported within the Company’s Sustainable Sourcing & Traceability segment.

Contract Estimates

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These estimated rebates or discounts are included in the transaction price of the Company’s contracts with customers as a reduction to net revenues and are included as accrued sales incentives in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

Accrued sales incentives were $ 1.3 million and $ 1.9 million at September 30, 2022 and December 31, 2021.

Accrued sales incentives were $ 1.3 million and $ 1.3 million at March 31, 2023 and December 31, 2022, respectively.

We do not disclose the value of unsatisfied performance obligations for contracts (i) with an original expected length of one year or less or (ii) for which the Company recognizes revenue at the amount in which it has the right to invoice as the product is delivered.

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Contract balances relate primarily to advances received from the Company’s customers before revenue is recognized.

The Company does not have any material contract liabilities as of September 30, 2022 or December 31, 2021.

Receivables from contracts with customers are included in accounts receivable, net on the Company’s Condensed Consolidated Balance Sheets.

At September 30, 2022 and December 31, 2021, accounts receivable, net included $ 101.0 million and $ 89.0 million in receivables from contracts with customers, respectively.

The Company does not have any material contract liabilities as of March 31, 2023 or December 31, 2022.

Receivables from contracts with customers are included in accounts receivable, net on the Company’s Condensed Consolidated

Balance Sheets.

At March 31, 2023 and December 31, 2022, accounts receivable, net included $ 118.0 million and $ 104.7 million in receivables from contracts with customers, respectively.

Contract acquisition costs for obtaining contracts that are deemed recoverable are capitalized as contract costs.

Such costs result from the payment of sales incentives and are amortized over the contract life.

As of September 30, 2022 and December 31, 2021, no costs were capitalized as all arrangements were less than a year.

As of March 31, 2023 and December 31, 2022, no costs were capitalized as all arrangements were less than a year.

Disaggregated Revenue

In general, the Company’s business segmentation is aligned according to the nature and economic characteristics of its products and customer relationships and provides meaningful disaggregation of each business segment’s results of operations.

Further disaggregation of revenues from sales to external customers by type are presented below:

Three Months Ended September 30,

Nine Months Ended September 30,

Further disaggregation of revenues from sales to external customers by type and geographic area, based on customer location, for the periods indicated is as follows:

Three Months Ended March 31,

Flavors, extracts & ingredients

The following table summarizes inventories as of September 30, 2022 and December 31, 2021:

September 30, 2022

Three Months Ended March 31,

United States

All other countries

Bixby Roasting Co.

On February 28, 2023, the Company completed the acquisition of substantially all of the assets of Bixby Roasting Co.

(“Bixby”), a specialty-grade roaster that is a leader in the emerging influencer-led brand space.

The transaction is accounted for as a business combination in accordance with ASC 805.

Aggregate consideration paid for Bixby included 39,778 Common Shares and approximately $ 2.2 million in cash, for total consideration of $ 2.6 million, subject to customary adjustments.

Net assets acquired totaled approximately $ 0.7 million.

The acquisition allows the Company to continue to expand its product marketing and development resources as it capitalizes on shifting consumer consumption trends.

The acquisition includes Bixby’s roasting facility in Los Angeles, California.

The acquisition was recorded by allocating the costs of the assets acquired and liabilities assumed, which consisted of accounts receivable, inventory, property, plant and equipment, and accounts payable, based on their estimated fair values at the acquisition date.

The excess of the cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill.

We recognized approximately $ 1.9 million of goodwill, which is deductible for tax purposes, within our Beverage Solutions segment.

The financial results of Bixby are included in the Beverage Solutions segment from the date of acquisition and were not material, individually or in the aggregate, to our results of operations and therefore, pro forma financial information has not been presented.

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 Kohana Coffee, LLC (“Kohana Coffee”), a Texas limited liability company (“Kohana Acquisition”).

Kohana Coffee is an extract and ready-

to-drink focused business, based in Richmond, California, serving customers in the retail and CPG industries.

The acquisition allows the Company to accelerate the development, production, and distribution of ready-to-drink products in cans and bottles.

Aggregate consideration paid for Kohana Coffee included 1,852,608 Common Shares and approximately $ 15.7 million in cash, subject to customary adjustments.

The fair value of the stock consideration was based on the closing price of the Company’s common stock on the date of acquisition.

The total consideration paid in the Kohana Acquisition is summarized below:

Cash consideration

Fair value of stock consideration

Total Consideration

The assets and liabilities acquired in the Kohana Acquisition are recorded at their estimated fair values.

Acquired Value

Cash and cash equivalents

Accounts receivable

Property, plant and equipment

Intangible assets

Accounts payable and accrued liabilities

The above purchase price allocation is considered preliminary and is subject to change when the valuation of assets and liabilities is finalized upon receipt of the final valuation report from a third-party valuation expert, which is anticipated to be finalized during the second quarter of 2023.

During the quarter ended March 31, 2023, we recorded $ 0.1 million of measurement period adjustments, primarily related to the settlement of post-closing working capital adjustments.

The cost of the acquisition in excess of the fair market value of the tangible and intangible assets acquired less liabilities assumed represents acquired goodwill, which is deductible for tax purposes.

The goodwill arising from the transaction is primarily attributable to strategic opportunities from the acquisition of Kohana, including our ability to accelerate the development, production, and distribution of ready-to-drink products in cans and bottles to our existing customers.

The following table summarizes inventories as of March 31, 2023 and December 31, 2022:

March 31, 2023

December 31, 2022

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Total inventories

Green coffee inventories represent green coffee held for re-sale.

At September 30, 2022 and December 31, 2021, all green coffee held for resale was included within our Sustainable Sourcing & Traceability segment.

Green coffee inventories represent green coffee held for resale.

At March 31, 2023 and December 31, 2022, all green coffee held for resale was included within our Sustainable Sourcing & Traceability segment.

Property, Plant and Equipment, Net

The following table summarizes property, plant and equipment, net:

The following table summarizes property, plant and equipment, net as of March 31, 2023 and December 31, 2022:

Depreciable Lives

September 30, 2022

March 31, 2023

December 31, 2022

10 - 40 years

Leasehold improvements (1)

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3 - Lease right-of-use assets are amortized over the shorter of the useful life of the asset or the lease term.

Depreciation expense for the three and nine months ended September 30, 2022 was $ 4.1 million and $ 12.7 million, respectively, and depreciation expense for the three and nine months ended September 30, 2021 was $ 4.4 million and $ 13.4 million, respectively.

Depreciation expense for the three months ended March 31, 2023 and 2022 was $ 3.9 million and $ 4.3 million, respectively.

Assets classified as construction in progress and equipment deposits are not depreciated, as they are not ready for production use.

All assets classified as construction in progress and equipment deposits at September 30, 2022 are expected to be in production use.

The following table reflects the carrying amount of goodwill:

All assets classified as construction in progress and equipment deposits at March 31, 2023 are expected to be in production use.

The following table reflects the carrying amount of goodwill as of March 31, 2023 and December 31, 2022:

Balance at December 31, 2022

Accumulated impairment loss

Balance at September 30, 2022, net

Changes during the period:

Measurement period adjustments

Balance at March 31, 2023

Accumulated impairment loss

Intangible Assets, Net

The following table summarizes intangible assets, net as of September 30, 2022 and December 31, 2021:

September 30, 2022

The following table summarizes intangible assets, net as of March 31, 2023 and December 31, 2022:

March 31, 2023

Customer relationships

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Intangible assets, net

Amortization expense of intangible assets was $ 1.7 million and $ 5.0 million for the three and nine months ended September 30, 2022, respectively, and amortization expense of intangible assets was $ 1.7 million and $ 5.0 million for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, the weighted average useful life for definite-lived intangibles is approximately 20 years .

We have operating leases for manufacturing and production facilities, warehouse facilities, vehicles and machinery and equipment.

The remaining non-cancelable terms on our leases range from 1 year to 22 years , some of which may include options to extend the leases generally between 1 and 10 years , and some of which may include options to terminate the leases within 1 year .

We do not have any leases with material residual value guarantees or restrictive covenants.

Amortization expense of intangible assets was $ 2.0 million and $ 1.7 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, the weighted average useful life for definite-lived intangibles is approximately 20 years .

We have operating leases for manufacturing and production facilities, distribution and warehousing facilities, vehicles and machinery and equipment.

Some of our lease agreements have renewal options, tenant improvement allowances, rent holidays and rent escalation clauses.

The remaining terms on our leases range from 1 year to 7 years , some of which may include options to extend the leases and some of which may include options to terminate the leases within 1 year .

The following table summarizes the amount of right-of-use lease assets and lease liabilities included in each respective line item on the Company’s Condensed Consolidated Balance Sheets:

Balance Sheet Location

September 30, 2022

March 31, 2023

December 31, 2022

Right-of-use operating lease assets

Other long-term assets

Operating lease right-of-use assets

Operating lease liabilities - current

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Depending on the nature of the lease, lease costs are classified within costs of sales or selling, general and administrative expense on the Company’s Condensed Consolidated Statements of Operations.

The components of lease costs are as follows:

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

The components of lease costs at March 31, 2023 and 2022, respectively, are as follows:

Three Months Ended March 31, 2023

Three Months Ended March 31, 2022

Operating lease cost

Short-term lease cost

The following table presents information about the Company’s weighted average discount rate and remaining lease term:

September 30, 2022

The following table presents information about the Company’s weighted average discount rate and remaining lease term as of March 31, 2023 and March 31, 2022:

March 31, 2023

March 31, 2022

Weighted-average discount rate

Weighted-average remaining lease term

Supplemental cash flow information about the Company’s leases is as follows:

Nine Months Ended September 30, 2022

Supplemental cash flow information about the Company’s leases as of March 31, 2023 is as follows:

Three Months Ended March 31, 2023

Three Months Ended March 31, 2022

Operating cash flows from operating leases

During the three months ended March 31, 2023, the Company obtained $ 6.0 million of right-of-use operating lease assets in exchange for lease obligations.

Finance lease assets are recorded in property, plant and equipment, net with the corresponding lease liabilities included in accrued expenses and other current liabilities and long-term debt, net on the Condensed Consolidated Balance Sheets.

There were no material finance leases as of September 30, 2022.

Future minimum lease payments under non-cancellable operating leases as of September 30, 2022 are as follows:

There were no material finance leases as of March 31, 2023.

Future minimum lease payments under non-cancellable operating leases as of March 31, 2023 are as follows:

Remainder of 2023

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Present value of minimum lease payments

Disclosures related to periods prior to adoption of ASC 842

Rent expense for operating lease agreements under the previous lease guidance was $ 1.0 million and $ 3.2 million for the three and nine months ended September 30, 2021, respectively.

As previously reported in our audited Consolidated Financial Statements for year ended December 31, 2021, the minimum future lease payments under the previous lease guidance as of December 31, 2021 were as follows:

Our long-term debt was as follows:

September 30, 2022

Our long-term debt at March 31, 2023 and December 31, 2022 is as follows:

March 31, 2023

December 31, 2022

Term loan facility

Prior term loan facility

Prior ABL facility

Revolving credit facility

International trade finance lines

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Credit Agreement

On August 29, 2022, the Company entered into a credit agreement (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.

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) 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”).

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The Revolving Credit Facility and the Term Loan Facility will mature 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.

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”) 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 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).

At March 31, 2023, we had $ 55.0 million of outstanding borrowings under the Revolving Credit Facility, with a weighted average interest rate of 7.3 %, and the interest rate applicable to our Term Loan Facility was 7.4 %.

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).

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.

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$ 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.

On February 14, 2023, the Company entered into an Incremental Assumption Agreement and Amendment No.

1 (the “Amendment”) to its Credit Agreement, which established a new class of incremental term loan commitments in the form of a senior secured delayed draw term loan credit facility (the “Delayed Draw Term Loan Facility”) in the aggregate principal amount of $ 50.0 million, proceeds of which may be used to fund capital expenditures related to our extract and ready-to-drink facility in Conway, Arkansas, or for general corporate purposes.

The interest rates under the Delayed Draw Term Loan Facility are the same as the interest rates with respect to the initial term loans under the existing Term Loan Facility, and the commitment fees applying to the unused portion of the Delayed Draw Term Loan Facility are the same as the commitment fees with respect to the Revolving Credit Facility.

Any delayed draw term loan funded under the Delayed Draw Term Loan Facility will mature on August 29, 2027.

As of the date of this Quarterly Report on Form 10-Q, no borrowings have been made under the Delayed Draw Term Loan Facility.

We had $ 2.6 million of standby letters of credit outstanding at March 31, 2023.

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, 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, 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.

As of March 31, 2023, the Company was in compliance with the Financial Covenants.

International Debt and Lending Facilities

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.

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

On March 21, 2023, the Company entered into a $ 70 million working capital trade finance facility with multiple financial institutions through its subsidiary, Falcon.

The facility replaced Falcon’s then existing working capital trade finance facility.

The new facility is uncommitted and repayable on demand, with certain of Falcon’s assets pledged as collateral against the facility.

The new facility will mature one year from inception.

Borrowings under the new facility will bear interest at the borrower’s option at a rate equal to (a) Term SOFR, as defined in the new facility, plus a margin of 4.00 % plus a liquidity premium set by the lender at the time of borrowing or (b) the Base Rate (determined by reference to the greatest of (i) the Prime Rate, as defined in the new facility, at such time, (ii) one-half of 1.00 % in excess of the Federal Funds Effective Rate, as defined in the new facility, at such time, and (iii) Term SOFR for a one-month tenor in effect at such time plus 1.00 %).

At March 31, 2023, there was $ 35.0 million outstanding under the facility, which is recorded in short-term debt in the Condensed Consolidated Balance Sheets.

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 March 31, 2023.

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.

The facility is renewable on an annual basis beginning in March 2023.

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 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.

Prime Rate plus 1.50 %, subject to a minimum rate of 5.00 %.

The facility carries an agent fee of 0.25 % of total available capital.

Availability under the facility is subject to a borrowing base calculation.

The credit facility is secured by substantially all liquid assets of Falcon.

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 September 30, 2022.

Subordinated Related Party Debt

On February 28, 2020, we issued $ 13.3 million of subordinated debt (the “Subordinated Notes”) to Wooster Capital, LLC (“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 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.

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, 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 which 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.

(a) a short-term trade finance facility with a balance of $ 7.8 million at March 31, 2023 and (b) a long-term note payable with a balance of $ 1.5 million at March 31, 2023.

Series A Preferred Shares

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The initial conversion price of $ 11.50 per Westrock Series A Preferred Share is subject to customary adjustments for the issuance of Common Shares as a dividend or distribution to the holders of Common Shares, a subdivision or combination of the Common Shares, reclassification of the Common Shares into a greater or lesser number of Common Shares, certain tender or exchange offers for the Common Shares, and issuances of Common Shares below a specified price.

a third-party lender provides debt financing to Westrock or its subsidiaries, at a redemption price per share equal to the greater of (a) the liquidation preference and (b) the product of (i) the number of Common Shares that would have been obtained from converting one Westrock Series A Preferred Share on the redemption notice date and (ii) the simple average of the daily volume weighted average price per Common Share for the ten trading days ending on and including the trading day immediately preceding the redemption notice date.

After February 26, 2028 (i.e., the five and a half year anniversary of the Closing), any holder of Westrock Series A Preferred Shares may require Westrock to redeem all or any whole number of such holder’s Westrock Series A Preferred Shares in cash, subject to applicable law and the terms of any credit agreement or similar arrangement pursuant to which a third-party lender provides debt financing to Westrock or its subsidiaries, at a redemption price per share equal to the greater of (a) the liquidation preference and (b) the product of (i) the number of Common Shares that would have been obtained from converting one Westrock Series A Preferred Share on the redemption notice date and (ii) the simple average of the daily volume weighted average price per Common Share for the ten trading days ending on and including the trading day immediately preceding the redemption notice date.

At any time after February 26, 2028 (i.e., the five and a half year anniversary of the date of Closing), Westrock may redeem, ratably, in whole or, from time to time in part, the Westrock Series A Preferred Shares of any holder then outstanding at the redemption price in cash, equal to the greater of (i) the liquidation preference and (ii) the product of (x) the number of Common Shares that would have been obtained from converting one Westrock Series A Preferred Share on the date of the exercise of such call is notified by Westrock (including fractional shares for this purpose) and (y) the simple average of the daily volume weighted average price per Common Share for the ten trading days ending on and including the trading day immediately preceding the date of the exercise of such call by Westrock.

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However, at no time will the Westrock Series A Preferred Shares be reported at a value less than its initial carrying value.

At September 30, 2022 the redemption value of the Westrock Series A Preferred Shares was less than its initial carrying value, as a result, no accretion was recorded for the three months ended September 30, 2022.

For the three months ended March 31, 2023, the Company recorded $ 0.4 million of accretion with respect to the Westrock Series A Preferred Shares.

We record all derivatives, whether designated in a hedging relationship or not, at fair value on the Condensed Consolidated Balance Sheets.

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The changes in the fair values of derivatives that have not been designated and for which hedge accounting is not applied, are recorded in the same line item in our Condensed Consolidated Statements of Operations as the changes in the fair value of the hedged items attributable to the risk being hedged.

The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) and are reclassified into the line item in the Condensed Consolidated Statements of Operations in which the hedged items are recorded in the same period the hedged items affect earnings.

The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) (“AOCI”) and are reclassified into the line item in the Condensed Consolidated Statements of Operations in which the hedged items are recorded in the same period the hedged items affect earnings.

For derivatives that will be accounted for as hedging instruments, we formally designate and document, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction.

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The changes in fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings.

We did not discontinue any cash flow hedging relationships during the nine months ended September 30, 2022 or 2021.

Within our Beverage Solutions segment, we have entered into coffee futures and options contracts to hedge our exposure to price fluctuations on green coffee associated with certain price-to-be-fixed purchase contracts, which generally range from three to twelve months in length.

These derivative instruments have been designated and qualified as a part of our commodity cash flow hedging program.

We did not discontinue any cash flow hedging relationships during the three months ended March 31, 2023 or 2022.

Within our Beverage Solutions segment, we have entered into coffee futures contracts to hedge our exposure to price fluctuations on green coffee associated with certain price-to-be-fixed purchase contracts, which generally range from

three to twelve months in length.

These derivative instruments have been designated as cash flow hedges.

The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of green coffee.

The notional amount for the coffee futures contracts that were designated and qualified for our commodity cash flow hedging program was 11.4 million pounds and 7.9 million pounds as of September 30, 2022 and December 31, 2021, respectively.

During the three and nine months ended September 30, 2022, the Company purchased coffee futures contracts and coffee options contracts under our cash flow hedging program with aggregate notional amounts of 8.8 million pounds and 57.0 million pounds, respectively.

During the three and nine months ended September 30, 2021, the Company purchased coffee futures contracts and coffee options contracts under our cash flow hedging program with aggregate notional amounts of 26.5 million pounds and 75.1 million pounds, respectively.

Approximately $ 4.3 million and $ 11.1 million of net realized gains, representing the effective portion of the cash flow hedge, were subsequently reclassified from AOCI to earnings and recognized in costs of sales in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022, respectively.

Approximately $ 1.7 million and $ 3.6 million of net realized gains, representing the effective portion of the cash flow hedge, were subsequently reclassified from AOCI to earnings and recognized in costs of sales in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, the estimated amount of net losses reported in AOCI that is expected to be reclassified to the Condensed Consolidated Statements of Operations within the next twelve months is $ 1.6 million.

The notional amount for the coffee futures contracts that were designated and qualified for our commodity cash flow hedging program was 5.6 million pounds and 29.2 million pounds as of March 31, 2023 and December 31, 2022, respectively.

During the three months ended March 31, 2023 and 2022, the Company purchased coffee futures contracts and coffee options contracts under our cash flow hedging program with aggregate notional amounts of 8.4 million pounds and 41.3 million pounds, respectively.

Approximately $ 0.7 million of net realized losses and $ 4.1 million of net realized gains, representing the effective portion of the cash flow hedge, were subsequently reclassified from AOCI to earnings and recognized in costs of sales in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, the estimated amount of net losses reported in AOCI that is expected to be reclassified to the Condensed Consolidated Statements of Operations within the next twelve months is $ 3.3 million.

Within our Sustainable Sourcing & Traceability segment, the Company’s forward sales and forward purchase contracts are for physical delivery of green coffee in a future period.

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Balance Sheet Location

September 30, 2022

March 31, 2023

December 31, 2022

Derivative assets designated as cash flow hedging instruments:

Coffee futures contracts 1

Derivative assets

Coffee options

Derivative assets

Derivative assets not designated as cash flow hedging instruments:

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Derivative liabilities

Coffee options

Derivative liabilities

Derivative liabilities not designated as cash flow hedging instruments:

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1 - The fair value of coffee futures excludes amounts related to margin accounts.

The following table presents the pre-tax net gains and losses for our derivative instruments:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents the pre-tax net gains and losses for our derivative instruments as of March 31, 2023 and March 31, 2022:

Three Months Ended March 31,

Statement of Operations Location

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ASC 820, Fair Value Measurements , defines fair value at the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

Additionally, the inputs used to measure fair value are

prioritized based on a three-level hierarchy.

Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy.

This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.

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These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The following table summarizes the fair value of financial instruments at September 30, 2022:

September 30, 2022

The following table summarizes the fair value of financial instruments at March 31, 2023:

March 31, 2023

Green coffee associated with forward contracts

Coffee futures contracts

Forward purchase and sales contracts

Coffee options

Coffee futures contracts

Forward purchase and sales contracts

Coffee options

Westrock Public Warrants

Westrock Private Warrants

The following table presents the change in the fair value of Level 3 Westrock Private Warrant liabilities:

The following table presents the change in fair value of Level 3 Westrock Private Warrant liabilities:

Westrock Private Warrants

Fair value as of January 1, 2022

Assumption of warrants

Fair value as of December 31, 2022

Change in fair value

Fair value as of September 30, 2022

Fair value as of March 31, 2023

The following table summarizes the fair value of financial instruments at December 31, 2022:

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Green coffee associated with forward contracts

Coffee futures contracts

Forward purchase and sales contracts

Coffee options

Coffee futures contracts

Forward purchase and sales contracts

Westrock Public Warrants

Westrock Private Warrants

Coffee futures contracts and coffee options are valued based on quoted market prices.

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As a result, green coffee associated with forward contracts and forward sales and purchase contracts are classified within Level 2 of the fair value hierarchy.

Westrock Public Warrants are valued based on their quoted market price of $ 1.45 per warrant as of September 30, 2022.

Westrock Private Warrants price of $ 1.92 per warrant are valued using a binomial lattice valuation model, which is considered to be a Level 3 fair value measurement.

Westrock Public Warrants are valued based on their quoted market price of $ 2.43 and $ 2.27 per warrant as of March 31, 2023 and December 31, 2022, respectively.

Westrock Private Warrants price of $ 2.83 and $ 3.83 per warrant as of March 31, 2023 and December 31, 2022, respectively, are valued using a binomial lattice valuation model, which is considered to be a Level 3 fair value measurement.

The primary unobservable inputs were as follows:

September 30, 2022

March 31, 2023

December 31, 2022

Exercise price

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Dividend yield

The most significant of these primary unobservable inputs 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.

Financial instruments consist primarily of cash, accounts receivable, accounts payable, and long-term debt.

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On August 29, 2022, the Company entered into the Credit Agreement, which includes the Term Loan Facility and the Revolving Credit Facility.

The Term Loan Facility and the Revolving Credit Facility are carried on the Condensed Consolidated Balance Sheets at amortized cost.

In November 2021, we amended our Prior Term Loan Agreement and our Prior ABL Credit Agreement, which comprised our material long-term debt obligations at December 31, 2021.

As there was no re-pricing of those obligations in connection with the amendments, the carrying amount of these obligations was estimated by management to approximate fair value as of December 31, 2021.

The Prior Term Loan Facility and the Prior ABL Facility were carried on the Condensed Consolidated Balance Sheets at amortized cost.

The fair value of the Term Loan Facility, Revolving Credit Facility, Prior Term Loan Facility and the Prior ABL Facility was determined based on Level 2 inputs under the fair value hierarchy.

The Term Loan Facility and the Revolving Credit Facility are carried on the Condensed Consolidated Balance Sheets at amortized cost and are estimated by management to approximate fair value as of March 31, 2023 as the interest rate on these facilities is adjusted for changes in the market rates.

The fair value of the Term Loan Facility and the Revolving Credit Facility was determined based on Level 2 inputs under the fair value hierarchy.

Non-financial assets and liabilities, including property, plant and equipment, goodwill and intangible assets are measured at fair value on a non-recurring basis.

No events occurred during the three or nine months ended September 30, 2022 and 2021, requiring these non-financial assets and liabilities to be subsequently recognized at fair value.

Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive loss, net of tax by component is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

No events occurred during the three months ended March 31, 2023 and 2022, requiring these non-financial assets and liabilities to be subsequently recognized at fair value.

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss), net of tax by component for the three months ended March 31, 2023 and March 31, 2022 is as follows:

Three Months Ended March 31,

Cash flow hedge changes in fair value gain (loss):

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Balance at end of period

Accumulated other comprehensive income at end of period

Accumulated other comprehensive income (loss) at end of period

Equity-Based Compensation

In August 2022, the Company’s Board of Directors adopted the Westrock Coffee Company 2022 Equity Incentive Plan (“2022 Equity Plan”), which is administered by the Compensation Committee of the Board of Directors.

Awards issuable under the 2022 Equity Plan include restricted stock, restricted stock units, incentive stock options, “non-qualified” stock options, stock appreciation rights and performance shares.

Restricted Stock Unit Awards

During the quarter ended September 30, 2022, the Company granted 1.1 million restricted stock units (“RSUs”) to employees, which had a grant date fair value of $ 12.8 million.

We calculate the grant date fair value of non-vested RSUs using the closing price of the Company’s Common Shares on the day of the grant.

During the three months ended March 31, 2023, the Company granted 1.1 million restricted stock units (“RSUs”) under the Westrock Coffee Company 2022 Equity Incentive Plan (the “2022 Equity Plan”).

The RSUs had a grant date fair value of $ 13.0 million, which was calculated using the closing price of the Company’s Common Shares on the applicable date of grant.

The RSUs are amortized on a straight-line basis to expense over the vesting period, which is generally three years .

As of September 30, 2022, there were 3.5 million shares available for future issuance under the 2022 Equity Plan.

The following table sets forth the number of unvested RSUs and the weighted-average fair value of these awards at the date of grant.

As of March 31, 2023, there were 2.4 million shares available for future issuance under the 2022 Equity Plan.

The following table sets forth the RSU activity under the 2022 Equity Plan for the three months ended March 31, 2023.

Outstanding at December 31, 2022

Outstanding at September 30, 2022

Furthermore, in August 2022, in connection with the Transaction, unit option awards issued under the Company’s 2020 Unit Option Incentive Plan, were equitably converted in accordance with the terms of the 2020 Unit Option Incentive Plan and the Transaction Agreement.

Each outstanding option to purchase units of Westrock Coffee Holdings, LLC, whether vested or unvested, was converted into an option to purchase Common Shares based on an exchange ratio (the “Exchange Ratio”) defined in the Transaction Agreement.

The per unit exercise price of unit options was converted to a per share exercise price based on the Exchange Ratio, and with respect to performance-based options, such options converted into performance-based options to purchase Common Shares that vest once the simple average of the daily volume weighted average price per share of Common Shares for 10 trading days in any consecutive 30 -day period is $ 18.50 per share.

These changes were deemed to be Type I modifications under ASC 718, Compensation – Stock Compensation ;

however, these modifications did not result in any additional compensation expense to be recognized by the Company.

Outstanding at March 31, 2023

Earnings per Share

Prior to the Conversion, the Company’s ownership interests consisted of two classes of equity units, referred to as Common Units and Common Equivalent Preferred Units (“CEP Units”), which have been retroactively restated as shares reflecting the conversion ratios discussed in Note 4.

Prior to the Conversion, the Company’s ownership interests consisted of two classes of equity units, referred to as Common Units and Common Equivalent Preferred Units (“CEP Units”), which have been retroactively adjusted as shares reflecting the conversion ratios discussed in Note 4.

Our Series A Preferred Shares and RSUs issued under our 2022 Equity Incentive Plan are considered participating securities as they receive non-forfeitable rights to dividends at the same rate as Common Shares.

As participating securities, we include these instruments in the computation of earnings per share under the two-class method described in ASC 260, Earnings per Share.

Prior to the Conversion, the dilutive effect of CEP Units is calculated by using the “if-converted” method.

This assumes an add-back of dividends on the CEP Units to net income attributable to unitholders as if the securities were converted to common shares at the beginning of the reporting period (or at the time of issuance, if later), and the resulting common shares are included in the number of weighted-average units outstanding.

As participating

securities, we include these instruments in the computation of earnings per share under the two-class method described in ASC 260, Earnings per Share.

Prior to the Conversion, the dilutive effect of CEP Units was calculated by using the “if-converted” method.

This assumed an add-back of dividends on the CEP Units to net income attributable to shareholders as if the securities were converted to common shares at the beginning of the reporting period (or at the time of issuance, if later), and the resulting common shares were included in the number of weighted-average units outstanding.

The dilutive effect of Westrock Series A Preferred Shares is calculated using the if-converted method, which assumes an add-back of any accretion on preferred shares to net income attributable to shareholders as if the securities were converted to common shares at the beginning of the reporting period (or at the time of issuance, if later), and the resulting common shares being included in the number of weighted-average units outstanding.

The dilutive effect of time-based option awards and RSUs is calculated using the treasury stock method, while performance-based awards are treated as contingently issuable.

We have excluded from the computation of diluted shares the effect of Warrants, time-based options awards and RSUs because their inclusion would have an anti-dilutive effect due to our reported net loss.

We had 19.9 million warrants, 1.6 million time-based options awards, and 1.1 million RSUs outstanding at September 30, 2022, and 15.3 million, 9.1 million and 222.2 million unit options, restricted Common Units, and CEP Units outstanding, respectively, at September 30, 2021, which if converted into common shares would yield 1.6 million, 1.0 million, and 23.3 million common shares, respectively.

The following table sets forth the computation of basic and diluted earnings per share under the two-class method.

Three Months Ended September 30,

Nine Months Ended September 30,

(Thousands, except per unit data)

The following potentially dilutive securities were excluded from the computation of diluted shares for the periods indicated because their inclusion would have an anti-dilutive effect due to our reported loss.

Three Months Ended March 31,

Restricted stock

If-converted securities

The following table sets forth the computation of basic and diluted earnings per share under the two-class method for the periods indicated.

Three Months Ended March 31,

(Thousands, except per share data)

Basic Earnings per Common Share

Net loss attributable to common shareholders

Basic weighted-average common shares outstanding

Weighted-average common shares outstanding - basic

Basic loss per common share

Diluted Earnings per Common Share

Net loss attributable to common shareholders

Impact of non-participating securities

Net loss attributable to common shareholders - basic

Effect of non-participating securities

Net loss attributable to common shareholders - diluted

Basic weighted-average common shares outstanding

Impact of dilutive non-participating securities

Weighted-average common shares outstanding - basic

Impact of if-converted securities

Weighted-average shares for dilutive earnings per common share

Effect of other dilutive securities

Weighted-average common shares outstanding - diluted

Dilutive loss per common share

Segment Information

Management, including our chief executive officer, who is our chief operating decision maker, manages our business in two operating segments.

Beverage Solutions:

Through this segment, we combine our product innovation and customer insights to provide value-added beverage solutions, including coffee, tea, juices, flavors, extracts and ingredients.

Sustainable Sourcing & Traceability:

Revenues primarily relate to the physical delivery and settlement of forward sales contracts for green coffee.

Management evaluates the performance of each segment using Adjusted EBITDA, which is a segment performance measure we define as net income determined in accordance with GAAP, before interest expense, provision for income taxes, depreciation and amortization, equity-based compensation expense and the impact, which may be recurring in nature, of acquisition, transaction and integrations costs, including management services and consulting agreements entered into in connection with the acquisition of S&D Coffee, Inc.

Our two operating segments, Beverage Solutions and Sustainable Sourcing & Traceability, are evaluated using Adjusted EBITDA, which is a segment performance measure we define as net income determined in accordance with GAAP, before interest expense, provision for income taxes, depreciation and amortization, equity-based compensation expense and the impact, which may be recurring in nature, of acquisition, transaction and integrations costs, including management services and consulting agreements entered into in connection with the acquisition of S&D Coffee, Inc.

(“S&D”), 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, and other similar or infrequent items (although we may not have had such charges in the periods presented).

Selected financial data related to our segments is presented below:

Three Months Ended September 30, 2022

Selected financial data related to our segments is presented below for the periods indicated:

Three Months Ended March 31, 2023

Adjusted EBITDA

3 unchanged sentences

Acquisition, restructuring and integration expense

Change in fair value of warrants

Change in fair value of warrant liabilities

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

Equity-based compensation

Conway extract and ready-to-drink facility start-up costs

Mark-to-market adjustments

Loss on disposal of property, plant and equipment

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Adjusted EBITDA

6 unchanged sentences

Mark-to-market adjustments

Gain on disposal of property, plant and equipment

Nine Months Ended September 30, 2022

Adjusted EBITDA

Interest expense, net

Income tax benefit

Depreciation and amortization

Acquisition, restructuring and integration expense

Change in fair value of warrants

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

Equity-based compensation

Mark-to-market adjustments

Loss on disposal of property, plant and equipment

Nine Months Ended September 30, 2021

Adjusted EBITDA

Interest expense, net

Income tax benefit

Depreciation and amortization

Acquisition, restructuring and integration expense

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

Equity-based compensation

Mark-to-market adjustments

Gain on disposal of property, plant and equipment

The following table presents net sales information by geographic area.

Net sales are attributed to countries based on the customer invoice location.

Three Months Ended September 30,

Nine Months Ended September 30,

United States

All other countries

Commitments and Contingencies

We are subject to various claims and legal proceedings with respect to matters such as governmental regulations, and other actions arising out of the ordinary course of business.

We are subject to various claims and legal proceedings with respect to matters such as governmental regulations, and other actions arising out of the normal course of business.

Management believes that the resolution of these matters will not have a material adverse effect on our financial position, results of operations, or cash flow.

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

We have future purchase obligations of $ 278.4 million as of March 31, 2023 that 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.

In addition, at March 31, 2023, we had an obligation to repurchase $ 10.2 million of inventory associated with repurchase agreements in which the Company’s Sustainable Sourcing & Traceability segment has sold inventory to a third party and from whom the Company’s Beverage Solutions segment has an obligation to repurchase.

The liability for these obligations is recorded within accrued expenses and other current liabilities on the Company’s Condensed Consolidated Balance Sheet.

Related Party Transactions

The Company transacts with certain entities or persons that have ownership in the Company, and/or for which our co-founder and Chief Executive Officer Scott Ford, our co-founder and Chairman, Joe Ford, or close family members of the Fords, have ownership interests in.

Prior to the Conversion, the Company had subordinated debt issued to Wooster Capital, LLC, which is owned and controlled by our co-founder and Chairman, Joe T.

Ford, and Jo Ellen Ford, who have ownership in the Company.

During 2022, Brown Brothers Harriman, who is a holder of Series A Preferred Shares, and prior to the Conversion was holder of Westrock Series A and Series B Preferred Units, participated in Falcon’s working capital trade finance facility.

As such, these persons and entities are deemed related parties.

In connection with the acquisition of S&D on February 28, 2020, certain affiliates of BBH were issued equity of the Company at which time BBH became a related party.

The consolidated financial statements reflect the following transactions with related parties:

September 30, 2022

December 31, 2021

Short-term related party debt:

Brown Brothers Harriman (1)

Subordinated related party debt:

Wooster Capital (2)

Jo Ellen Ford (1)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Interest expense, net:

2 unchanged sentences

Jo Ellen Ford

Westrock Finance, LLC (2)

1 – Related through common ownership

2 – Related through common ownership and management

In connection with the acquisition of S&D in February 2020, the Company entered into a Management Services Agreement with Westrock Group, LLC (“Westrock Group”), which expires February 2023.

Under the terms of the agreement Westrock Group will be paid $ 10.0 million in return for financial, managerial, operational, and strategic services.

In connection with the acquisition of S&D Coffee, Inc.

in February 2020, the Company entered into a Management Services Agreement with Westrock Group, LLC (“Westrock Group”), whose controlling manager and controlling member, Greenbrier Holdings, LLC, is owned and controlled by our co-founder and Chief Executive Officer Scott Ford.

Under the terms of the agreement, which expired in February 2023, Westrock Group was paid $ 10.0 million in return for financial, managerial, operational, and strategic services.

The associated expense is recorded within selling, general and administrative expense in our Condensed Consolidated Statements of Operations.

The Company recognized $ 0.8 million and $ 2.5 million of such expenses during the three and nine months ended, respectively, for both September 30, 2022 and 2021.

The Company recognized $ 0.6 million and $ 0.8 million of such expenses during the three months ended March 31, 2023 and 2022, respectively.

In addition, the Company reimburses Westrock Group for the usage of a corporate aircraft, and its portion of shared office space.

For the three and nine months ended September 30, 2022, the Company incurred expenses of $ 0.3 million and $ 1.0 million, respectively, for such items, which are recorded in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.

For the three and nine months ended September 30, 2021, the Company incurred expenses of $ 0.2 million and $ 0.5 million, respectively, for such items.

At September 30, 2022 and December 31, 2021, we had

payables to Westrock Group of $ 0.1 million and $ 0.2 million, respectively, reported within accrued expenses and other current liabilities on our Condensed Consolidated Balance Sheets.

For the three months ended March 31, 2023 and 2022, the Company recognized expenses of $ 0.3 million and $ 0.3 million, respectively, for such items, which are recorded in selling, general and administrative expenses in our Condensed Consolidated Statements of Operations.

At March 31, 2023 and December 31, 2022, we had no amounts payable to Westrock Group.

Subsequent Events

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 Kohana Coffee, LLC (“Kohana Coffee”), a Texas limited liability company.

Kohana Coffee is an extract and ready-to-drink focused business, based in Richmond, California, serving customers in the retail and CPG industries.

Aggregate consideration paid for Kohana Coffee included 1,852,608 shares of common stock of the Company, par value $ 0.01 per share, and approximately $ 15.5 million in cash, subject to customary adjustments.

We expect the business combination to be accounted for using the acquisition method of accounting under ASC 805.

However, due to the timing of the acquisitions subsequent to our September 30, 2022 reporting date, the initial accounting, including the allocation of purchase price and related supplemental pro form information, is incomplete as of the filing date.

As a result, applicable disclosures related to the acquisition of Kohana Coffee are not included herein.

On April 3, 2023, the Company purchased the 15 % of Falcon that it did not previously own, resulting in Falcon becoming a wholly-owned subsidiary of the Company.

Aggregate consideration paid for the interest totaled $ 3.2 million and included $ 2.0 million in cash and 100,000 Common Shares.

Due to the Company’s controlling financial interest in Falcon prior to the purchase, the transaction will be accounted for as an equity transaction.

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 1. Financial Statements