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Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Fair Value Measurements

Fair Value Measurements

Note 15. Fair Value Measurements

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

The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. These levels are:

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Level 1—Valuation is based upon quoted prices for identical instruments traded in active markets.

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Level 2—Valuation is based upon inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (i.e. interest rate and yield curves observable at commonly quoted intervals, default rates, etc.). Observable inputs include quoted prices for similar instruments in active and non-active markets. Level 2 includes those financial instruments that are valued with industry standard valuation models that incorporate inputs that are observable in the marketplace throughout the full term of the instrument or can otherwise be derived from or supported by observable market data in the marketplace. Level 2 inputs may also include insignificant adjustments to market observable inputs.

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Level 3—Valuation is based upon one or more unobservable inputs that are significant in establishing a fair value estimate. These unobservable inputs are used to the extent relevant observable inputs are not available and are developed based on the best information available. 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, 2023:


		September 30, 2023
(Thousands)		Level 1			Level 2			Level 3			Total
Assets:
Green coffee associated with forward contracts		$	—		$	38,169		$	—		$	38,169
Forward purchase and sales contracts			—			15,159			—			15,159
Total		$	—		$	53,328		$	—		$	53,328

Liabilities:
Coffee futures contracts		$	1,136		$	—		$	—		$	1,136
Forward purchase and sales contracts			—			3,962			—			3,962
Westrock Public Warrants			31,839			—			—			31,839
Westrock Private Warrants			—			—			4,336			4,336
Total		$	32,975		$	3,962		$	4,336		$	41,273

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


(Thousands)		Westrock Private Warrants
Fair value as of December 31, 2022		$	28,342
Transfer out of Level 3			(18,916)
Change in fair value			(5,090)
Fair value as of September 30, 2023		$	4,336

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


		December 31, 2022
(Thousands)		Level 1			Level 2			Level 3			Total
Assets:
Green coffee associated with forward contracts		$	—		$	39,928		$	—		$	39,928
Forward purchase and sales contracts			—			15,053			—			15,053
Total		$	—		$	54,981		$	—		$	54,981

Liabilities:
Coffee futures contracts		$	3,334		$	—		$	—		$	3,334
Forward purchase and sales contracts			—			4,258			—			4,258
Westrock Public Warrants			27,179			—			—			27,179
Westrock Private Warrants			—			—			28,342			28,342
Total		$	30,513		$	4,258		$	28,342		$	63,113

Coffee futures contracts and coffee options are valued based on quoted market prices. The estimated fair value for green coffee inventories associated with forward contracts and forward sales and purchase contracts are based on exchange-quoted prices, adjusted for differences in origin, quantity, quality, and future delivery period, as the exchange quoted prices represent standardized terms for the commodity. These adjustments are generally determined using broker or dealer quotes or based upon observable market transactions. 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 $1.86 and $2.27 per warrant as of September 30, 2023 and December 31, 2022, respectively. Westrock Private Warrants price of $2.14 and $3.83 per warrant as of September 30, 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, 2023			December 31, 2022
Stock price		$	8.86		$	13.36
Exercise price		$	11.50		$	11.50
Expected term (years)			5.00			5.00
Expected volatility			34.90%			7.74%
Risk-free rate of return			4.65%			3.99%
Dividend yield			0.00%			0.00%

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, a supply chain finance program and long-term debt. The carrying amount of cash, accounts receivable, accounts payable and the supply chain finance program was estimated by management to approximate fair value due to the relatively short period of time to maturity for those instruments. 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 September 30, 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 and nine months ended September 30, 2023 or 2022, requiring these non-financial assets and liabilities to be subsequently recognized at fair value.

At September 30, 2023, the Company had an equity investment with a carrying value of approximately $1.0 million, for which there is no readily determinable fair value. This investment is recorded at cost within other long-term assets on the Condensed Consolidated Balance Sheets. As of September 30, 2023, there have been no adjustments, upward or downward, to the carrying value.

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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