Deveron Annual Report 2016

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BUILDING
BUILDING
BUILDING
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FUTURE
FUTURE

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2016
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2016

ANNUAL REPORT
ANNUAL REPORT
ANNUAL REPORT

13601 North Freeway, Suite 200

Fort Worth, TX 76177

888.998.2468

FarmerBros.com

Fellow Stockholders,

On behalf of our employees and Board of Directors, I am pleased to present the Farmer Bros.
Annual Report for fiscal year 2016. Over the past year, we continued to make meaningful
progress, which is reflected in our coffee volume growth, gross margin expansion and
improved earnings. Notably, during fiscal year 2016, we achieved our fourth consecutive
year-over-year growth in gross profit, and net income reached the highest level in more than
10 years. Our balance sheet is strong, providing us with the financial flexibility to grow our
business. We are well positioned to continue creating stockholder value, and expect on-going
improvement in the Company's performance as we look forward to next year.

We are highly enthusiastic about the future and long-term growth opportunities for Farmer
Bros. In addition to our stronger financial performance in fiscal 2016, I would like to highlight
our progress on a few of our notable initiatives.

Customers continue to recognize the quality and value
proposition of Farmer Bros. We grew total coffee pound
volume with our existing customer base during the fiscal
year. Additionally, we rolled out a new selling strategy
designed to further improve our customer acquisition
results and achieved notable new business wins across
multiple channels, including specialty coffee houses,
travel and leisure, convenience stores, regional full
service chains, retail grocery and club stores. We ended
the fiscal year with additional prospects in our active
pipeline, which we believe will position us well in fiscal
year 2017.

“Customers continue to

recognize the quality
and value proposition
of Farmer Brothers...

CUSTOMER
DEVELOPMENT
& ACQUISITION

FINANCIAL HIGHLIGHTS(1)

(In thousands, except per share data)

Fiscal year ended June 30,

2016

2015

2014

2013

2012

Consolidated Statement of Operations Data:

Net sales

Cost of goods sold

544,382

545,882

528,380

513,869

498,701

335,907

348,846

332,466

328,693

332,309

Restructuring and other transition expenses

16,533

10,432

$ —

—

Net gains from sale of Spice Assets

(5,603)

—

$ —

—

Net (gains) losses from sales of assets

(2,802)

394

(3,814)

(4,467)

(268)

Income (loss) from operations

8,179

3,284

8,916

372

(21,846)

Income (loss) from operations per common share—diluted

0.49

0.20

0.56

0.02

(1.41)

Income tax (benefit) expense

Net income (loss)

(79,997)

402

705

(825)

(347)

89,918

652

12,132

(8,462)

(26,576)

Net income (loss) per common share—basic

5.45

0.04

0.76

(0.54)

(1.72)

Net income (loss) per common share—diluted

5.41

0.04

0.76

(0.54)

(1.72)

Capital expenditures

31,050

19,216

25,267

15,894

17,498

June 30,

Total assets

Consolidated Balance Sheet Data:

Deferred income taxes

Capital lease obligations

2016

2015

2014

2013

2012

368,991

240,943

266,177

244,136

257,916

80,786

751

414

467

861

2,359

5,848

9,703

12,168

15,867

Long-term borrowings under revolving credit facility

—

10,000

—

Earn-out payable—RLC acquisition

100

$ 200

$ —

—

Long-term derivative liabilities

—

1,129

—

Total liabilities

186,397

150,932

151,313

162,298

174,364

(1) For a discussion of the factors that materially affect the comparability of the information reflected in the selected financial data, see Part II, Item 6, Selected Financial Data,

included in the Company’s Form 10-K for the fiscal year ended June 30, 2016.

During the 2016 fiscal year, we further elevated our

sustainability leadership in the coffee industry. Our most

recent Sustainability Report illustrated the significant

progress Farmer Bros. is making in sustainable practices

at origin to conserve resources and encourage biodiversity;

promote social, environmental and product compliance

standards in our supply chain; reduce waste-to-landfill

and improve energy efficiency within our roasting plants.

Further, we challenged our business partners to meet our

standards for sustainability goals that impact human rights

initiatives, waste reduction, environmental improvements,

and ethical trade practices.

CORPORATE
RELOCATION

We remain on track with our corporate relocation plan
and are encouraged by the significant benefits achieved
to-date. We successfully completed our planned head-
quarters move from Torrance, California to Fort Worth,
Texas, which included the hiring and on-boarding of
approximately 150 new team members. We expect to
begin the move of our manufacturing operations into
the new Northlake, Texas facility in the second quarter
of fiscal year 2017 and anticipate being fully operational
in the third quarter. We continue to estimate $18 million
to $20 million in annualized savings from the relocation
to Texas and specific corporate relocation initiatives, and
we are pleased to have achieved more than half of that
savings already as we ended fiscal 2016. The Torrance
wind-down is largely on track, and we expect to exit the
building by the end of the calendar year. We completed
the sale of our Torrance property at a higher-than-
expected sale price.

PORTFOLIO
EXPANSION

“We continue to

estimate $18 million
to $20 million in
annualized savings
from the relocation
to Texas...

In September 2016, we announced an expansion of our
portfolio through the acquisition of China Mist, a
premium tea brand with established consumer appeal,
a portfolio of exceptional product offerings and a culture
of sustainable practices. We believe the China Mist
business is highly complementary to ours, with different
customers and distinct offerings of products and
services. This allows us to further expand our brand port-
folio in the premium fresh-brewed tea category. China
Mist shares our focus on innovation and delivering excep-
tional service and high-quality products to customers.
We are excited to welcome the China Mist team to the
Farmer Bros. family.

We remain on track with our corporate relocation plan

and are encouraged by the significant benefits achieved

to-date. We successfully completed our planned head-

quarters move from Torrance, California to Fort Worth,

Texas, which included the hiring and on-boarding of

approximately 150 new team members. We expect to

begin the move of our manufacturing operations into

the new Northlake, Texas facility in the second quarter

of fiscal year 2017 and anticipate being fully operational

in the third quarter. We continue to estimate $18 million

to $20 million in annualized savings from the relocation

to Texas and specific corporate relocation initiatives, and

we are pleased to have achieved more than half of that

savings already as we ended fiscal 2016. The Torrance

wind-down is largely on track, and we expect to exit the

building by the end of the calendar year. We completed

the sale of our Torrance property at a higher-than-

expected sale price.

In September 2016, we announced an expansion of our

portfolio through the acquisition of China Mist, a

premium tea brand with established consumer appeal,

a portfolio of exceptional product offerings and a culture

of sustainable practices. We believe the China Mist

business is highly complementary to ours, with different

customers and distinct offerings of products and

services. This allows us to further expand our brand port-

folio in the premium fresh-brewed tea category. China

Mist shares our focus on innovation and delivering excep-

tional service and high-quality products to customers.

We are excited to welcome the China Mist team to the

Farmer Bros. family.

“We challenged our business partners to

meet our standards for sustainability goals...

During the 2016 fiscal year, we further elevated our
sustainability leadership in the coffee industry. Our most
recent Sustainability Report illustrated the significant
progress Farmer Bros. is making in sustainable practices
at origin to conserve resources and encourage biodiversity;
promote social, environmental and product compliance
standards in our supply chain; reduce waste-to-landfill
and improve energy efficiency within our roasting plants.
Further, we challenged our business partners to meet our
standards for sustainability goals that impact human rights
initiatives, waste reduction, environmental improvements,
and ethical trade practices.

SOCIAL
RESPONSIBILITY

I would also like to take this opportunity to briefly touch on our overall progress since initiating our turnaround
strategy. Since 2012, our team has been focused on better serving our existing customers and winning
new customers, driving growth in the volume of coffee pounds sold and creating supply-chain efficiencies to
reduce costs and improve how we operate. From fiscal 2012 through fiscal 2016, the Company has won significant
new customers and driven an increase of green coffee pounds sold and processed of over 40%. In addition, GAAP
net income improved from a loss of $26.6 million in fiscal 2012 to GAAP net income of $89.9 million in fiscal 2016.
We have seen our stock price appreciate by over 200% since I became involved with Farmer Bros., representing an
attractive value creation of over $400 million for our stockholders. While we are pleased with how far we have
come, our attention and focus across the organization continues to be on unlocking Farmer Bros.’ full potential
to drive additional value for our stockholders, while maintaining our commitment to quality and service.
We have and will continue to honor our heritage and proud history as we move the Company towards its next
chapter of growth.

I look forward to sharing more about our progress and future plans for growth at our Annual Meeting of
Stockholders on December 8, 2016 in Fort Worth, Texas. I am very proud to be a part of this team and confident
in our ability to drive long term value for our stockholders.

All the best,

Farmer Bros. Co. “We have and will

continue to honor
our heritage and
proud history...

Michael H. Keown
President and Chief Executive Officer

1 The 2016 fiscal year GAAP net income included non-cash income tax benefit of $80.3 million from the release of valuation allowance on deferred tax assets.

2 Stock price and stockholder value creation calculated from March 13, 2012 through September 30, 2016.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2016

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-34249

FARMER BROS. CO.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State of Incorporation)

95-0725980
(I.R.S. Employer Identification No.)

1
0
-
K

13601 North Freeway, Suite 200, Fort Worth, Texas 76177
(Address of Principal Executive Offices; Zip Code)

888-998-2468
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, $1.00 par value

Name of Each Exchange on Which Registered
The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,

every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). YES

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not

contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to

the closing price at which the Farmer Bros. Co. common stock was sold on December 31, 2015 was $278.4 million.

As of September 12, 2016 the registrant had 16,781,561 shares outstanding of its common stock, par value $1.00 per share,

which is the registrant’s only class of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Specified portions of the registrant’s definitive proxy statement to be filed with the U.S. Securities and Exchange

Commission (“SEC”) pursuant to Regulation 14A in connection with the registrant’s 2016 Annual Meeting of Stockholders (the
“Proxy Statement”) are incorporated by reference into Part III of this report. Such Proxy Statement will be filed with the SEC
not later than 120 days after the conclusion of the registrant’s fiscal year ended June 30, 2016.

TABLE OF CONTENTS

Business

Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services

Exhibits and Financial Statement Schedules
Form 10-K Summary

PART I
ITEM 1.

ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.

ITEM 6.
ITEM 7.

ITEM 7A.
ITEM 8.
ITEM 9.

ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.

ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
SIGNATURES

9
18
19
19
20

23
25

46
48
97

97
99

99
99
100

100
100

101
101
102

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other documents we file with the SEC contain forward-looking statements that are based on current
expectations, estimates, forecasts and projections about us, our future performance, our financial condition, our products, our
business strategy, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-
looking statements in press releases or written statements, or in our communications and discussions with investors and analysts
in the normal course of business through meetings, webcasts, phone calls and conference calls. These forward-looking
statements can be identified by the use of words like “anticipates,” “estimates,” “projects,” “expects,” “plans,” “believes,”
“intends,” “will,” “could,” “may,” “assumes” and other words of similar meaning. These statements are based on management’s
beliefs, assumptions, estimates and observations of future events based on information available to our management at the time
the statements are made and include any statements that do not relate to any historical or current fact. These statements are not
guarantees of future performance and they involve certain risks, uncertainties and assumptions that are difficult to predict.
Actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking
statements due in part to the risks, uncertainties and assumptions set forth below in Part I, Item 1A, Risk Factors of this report,
as well as those discussed elsewhere in this report and other factors described from time to time in our filings with the SEC.
Reference is made in particular to forward-looking statements regarding construction, relocation to and operation of our new
Texas facility, the timing and success of our relocation plan, product sales, expenses, earnings per share (EPS), and liquidity and
capital resources. We intend these forward-looking statements to speak only at the date of this report and do not undertake to
update or revise these statements, whether as a result of new information, future events, changes in assumptions or otherwise,
except as required under federal securities laws and the rules and regulations of the SEC.

[THIS PAGE INTENTIONALLY LEFT BLANK]

Item 1.

Business

Overview

PART I

Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise
requires, the “Company,” “we,” “us,” “our” or “Farmer Bros.”), is a national coffee roaster, wholesaler and distributor of
coffee, tea and culinary products. We serve a wide variety of customers, from small independent restaurants and foodservice
operators to large institutional buyers like restaurant and convenience store chains, hotels, casinos, hospitals, and gourmet
coffee houses, as well as grocery chains with private brand and consumer-branded coffee products. With a robust product
line, including organic, Direct Trade, Direct Trade Verified Sustainable coffees or DTVS and other sustainably-produced
coffees, iced and hot teas, cappuccino, spices, and baking/biscuit mixes, among others, we offer a comprehensive approach
to our customers by providing not only a breadth of high-quality products, but also value-added services such as market
insight, beverage planning, and equipment placement and service. We were founded in 1912, incorporated in California in
1923, and reincorporated in Delaware in 2004. We operate in one business segment.

Corporate Relocation

In an effort to make the Company more competitive and better positioned to capitalize on growth opportunities, in
fiscal 2015 we began the process of relocating our corporate headquarters, product development lab, and manufacturing and
distribution operations from Torrance, California to a new facility housing these operations currently under construction in
Northlake, Texas (the “New Facility”).

Closure and Sale of the Torrance Facility

We began the process of closing our Torrance facility in the spring of 2015 in phases, as follows:

• Manufacturing and Distribution. In the fourth quarter of fiscal 2015, we transitioned our coffee roasting,

grinding and packaging functions from our Torrance, California production facility and consolidated them with
our Houston, Texas and Portland, Oregon production facilities, and moved our Houston distribution operations
to our Oklahoma City, Oklahoma distribution center.

•

Corporate Headquarters. During the first half of fiscal 2016, we transferred our primary administrative offices
from Torrance to temporary leased offices in Fort Worth, Texas near the New Facility, including the transfer or
new hire of approximately 140 employees.

Sale of Spice Assets. In order to focus on our core product offerings, in the second quarter of fiscal 2016, we
completed the sale of certain assets associated with our manufacture, processing and distribution of raw,
processed and blended spices and certain other culinary products (collectively, the “Spice Assets”) to Harris
Spice Company Inc. (“Harris”). We provided certain post-closing transition services to Harris which concluded
during the fourth quarter of fiscal 2016. The sale of the Spice Assets does not represent a strategic shift for us
and is not expected to have a material impact on our results of operations because we will continue to sell a
complete portfolio of spice and other culinary products purchased from Harris under a supply agreement to our
direct-store-delivery, or DSD, customers.

Sale of the Torrance Facility. In the fourth quarter of fiscal 2016, we entered into a purchase and sale agreement
to sell the Torrance facility. Subsequent to the fiscal year end, the sale of the Torrance facility closed on July 15,
2016. We have agreed to lease back the Torrance facility on a triple net basis through October 31, 2016, subject
to two one-month extensions, at our option. As of June 30, 2016, the Torrance facility continued to house
certain administrative functions and serve as a distribution facility and branch warehouse pending transition of
the remaining Torrance operations to our other facilities.

Construction of the New Facility

In the first quarter of fiscal 2016, we entered into a lease agreement, (as amended the "Lease Agreement"), for the New

Facility to be constructed by the lessor, at its expense. The Lease Agreement included an option to purchase the New
Facility at a purchase price based on a percentage of the total project cost as of the closing date. In the fourth quarter of

fiscal 2016, we exercised the purchase option to acquire the partially constructed New Facility with a targeted closing date
in the first quarter of fiscal 2017. Construction of and relocation to the New Facility are expected to be completed in the
third quarter of fiscal 2017.

Products

We are a national coffee roaster, wholesaler and distributor of coffee, tea and culinary products manufactured under

supply agreements, under our owned brands, as well as under private labels on behalf of certain customers. Our product
categories consist of the following:

•

a robust line of roast and ground coffee, including organic, Direct Trade, DTVS and other sustainably-produced
offerings;

frozen liquid coffee;

flavored and unflavored iced and hot teas;

culinary products including gelatins and puddings, soup bases, dressings, gravy and sauce mixes, pancake and
biscuit mixes, jellies and preserves, and coffee-related products such as coffee filters, sugar and creamers;

spices; and

other beverages including cappuccino, cocoa, granitas, and ready-to-drink iced coffee.

Our owned brand products are sold primarily into the foodservice channel. Our primary brands include Farmer
Brothers™, Artisan Collection by Farmer Brothers™, Superior® and Metropolitan™. Our Artisan coffee products include
Direct Trade, Fair Trade Certified™, Rainforest Alliance Certified™, organic and proprietary blends. In addition, we sell
whole bean and roast and ground flavored and unflavored coffee products under the Un Momento®, Collaborative Coffee™,
Cain's™ and McGarvey® brands at retail. Our roast and ground coffee products are sold in traditional packaging, including
bags and fractional packages, as well as single-serve packaging. For a description of the amount of net sales attributed to
each of our product categories in fiscal 2016, 2015 and 2014, see Management's Discussion and Analysis of Financial
Conditions and Results of Operations—Results of Operations included in Part II, Item 7 of this report.

Business Strategy

Overview

We develop great tasting products delivered with concierge service with the goal of a positive impact on our
customers and the planet. Through our sustainability, stewardship, environmental efforts, and leadership we are not only
committed to serving the finest products available, considering the cost needs of the customer, but also insist on their
sustainable cultivation, manufacture and distribution whenever possible.

In order to achieve our mission, we have had to grow existing capabilities and develop new ones over the years. More

recently, we have undertaken initiatives such as, but not limited to, the following:

•

develop new products in response to demographic and other trends to better compete in areas such as premium
coffee and tea;

rethink aspects of our Company culture to improve productivity and employee engagement and to attract talent;

embrace sustainability across our operations, in the quality of our products, as well as, how we treat our coffee
growers; and

ensure our systems and processes provide the highest quality products at a competitive cost, protection from
cyber-risk, and a safe environment for our employees and partners.

We differentiate ourselves in the marketplace through our product offerings and through our customer service model,

which includes:

•

a wide variety of coffee product offerings and packaging options across numerous brands and quality tiers;

•

beverage equipment placement and service;

hassle-free inventory and product procurement management;

• DSD service;

• merchandising support; and

•

product and menu insights.

Our services are conducted primarily in person through Route Sales Representatives, or RSRs, who develop personal

relationships with chefs, restaurant owners and food buyers at their delivery locations. We also provide comprehensive
coffee programs to our national account customers, including private brand development, green coffee procurement,
hedging, category management, sustainable sourcing and supply chain management.

We distribute our owned brands primarily through our DSD network, while continuing to support and grow our
private label and other national account business. Although currently a small portion of our distribution, we also distribute
directly to consumers through our website and sell certain products such as Un Momento®, Collaborative Coffee™, Cain's™
and McGarvey® at retail.

Strategic Initiatives

We are focused on the following strategies to reduce costs, streamline our supply chain, improve the breadth of

products and services we provide to our customers, and better position the Company to attract new customers:

Reduce Costs to Compete More Effectively

• New Facility. In fiscal 2015, we commenced work on a corporate relocation plan to replace our aging production
facility in Torrance, California with a more efficient, state-of-the-art facility to be located in Northlake, Texas.
We undertook this endeavor, in part, to pursue improved production efficiency to allow us to provide a more
cost-competitive offering of high-quality products. We believe the expected improvements in production
efficiency, combined with the wind-down and sale of our Torrance facility, should allow us to operate at a lower
cost, generally.

•

Third-Party Logistics. During the second half of fiscal 2016, we replaced our long-haul fleet operations with
third-party logistics ("3PL"). We expect that this transportation arrangement will reduce our fuel consumption
and empty trailer miles, while improving our intermodal and trailer cube utilization.

• Vendor Managed Inventory. During the second half of fiscal 2016, we entered into a vendor managed inventory
arrangement with a third party. We anticipate that the use of vendor managed inventory arrangements will result
in a reduction in raw material, finished goods and logistics costs, while improving packaging innovation and
fulfillment.

• Warehouse Management. Subsequent to the fiscal year end, we entered into an agreement with a third party to

provide warehouse management services for our New Facility. We expect the warehouse management services
to facilitate cost savings by leveraging the third party's expertise in opening new facilities, implementing lean
management practices, improving performance on certain key performance metrics, and standardizing best
practices.

Optimize Sales, Pricing and Portfolio of Products

• Pricing and Products. In fiscal 2016, we built capability to more strategically optimize our pricing strategy

across product, channel, customer and geographic segments. This process is designed to improve our average
margins as well as retention rates. In addition, we continued our prior work optimizing SKU count and
identifying opportunities to consolidate suppliers to improve costs and supply chain efficiency.

• DSD Reorganization. During the second half of fiscal 2016, we began to realign our DSD organization by
undertaking initiatives intended to streamline communication and decision making, enhance branch
organizational structure, and improve customer focus, including initiatives toward a comprehensive training
program for all DSD team members to strengthen customer engagement.

• Accelerate Customer Acquisition Efforts. In fiscal 2016, we executed a regional test of our first advertising and
lead generation campaign designed to improve our new customer acquisition rate within our DSD network.

Strategic Investment in Assets and Evaluation of Cost Structure

• Asset Utilization. We continue to look for ways to deploy our personnel, systems, assets and infrastructure to

create or enhance stockholder value. Areas of focus have included corporate staffing and structure, methods of
procurement, logistics, inventory management, supporting technology, and real estate assets.

• Branch Consolidation and Property Sales. In an effort to streamline our branch operations, in the fourth quarter
of fiscal 2016, we sold two Northern California branch properties, with a third Northern California property
under contract for sale, and we acquired a new branch facility in Hayward, California.

• Acquisitions. One of our investment priorities is exploring acquisitions that we believe will enhance long-term
stockholder value and complement or enhance our product, equipment, service and/or distribution offerings to
existing and new customer bases. For example, on September 9, 2016, through a newly-formed, wholly-owned
subsidiary, we entered into an asset purchase agreement to acquire substantially all of the assets of China Mist
Brands, Inc., dba China Mist Tea Company ("China Mist") for an aggregate purchase price of $11.3 million, with
$10.8 million to be paid in cash at closing and $0.5 million to be paid as earnout if certain sales levels are
achieved in the calendar years of 2017 and 2018. The transaction is expected to close during the second quarter
of fiscal 2017. We anticipate that the acquisition of China Mist will give us a greater presence in the high-growth
premium tea industry. See Note 24, Subsequent Events, of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this report.

Corporate Capabilities and Alignment to Create Stockholder Value

•

Investment in Human Resources. In fiscal 2016, we hired Isaac N. Johnston, Jr. as our Treasurer and Chief
Financial Officer and Carolyn Suzanne Gargis as our VP of Human Relations. Each of these individuals brings a
proven track record at both large consumer packaged goods operations as well as experience in dealing with
smaller and more entrepreneurial companies. In addition, in fiscal 2016, we continued to emphasize greater
alignment of employee individual goals with Company goals under our compensation plans in order to focus the
entire organization on the effort to create value for our stockholders.

Drive High-Growth Product Categories and Address Broader Customer Needs

•

Introduction of Collaborative Coffee™ and Redesign of Un Momento®Branded Retail Products. In an effort to
address what we believe to be unmet consumer needs and improve margin within the retail grocery environment,
in fiscal 2016 we launched the Collaborative Coffee™ brand into the retail grocery channel and completed a
packaging redesign and product portfolio optimization of our Un Momento® retail branded product line.
Collaborative Coffee™ offers coffee enthusiasts a super-premium, verified direct trade coffee at an approachable
price. Un Momento® delivers Millennial Hispanic consumers appealing flavor variety and premium coffee at an
exceptional value.

Expand Sustainability Leadership

•

Sustainability. We believe that our collective efforts in measuring our social and environmental impact, creating
programs for waste, water and energy reduction, promoting partnerships in our supply chain that aim at supply
chain stability and food security, and focusing on employee engagement place us in a unique position to help
retailers and foodservice operators create differentiated coffee programs that can include sustainable supply
chains, direct trade purchasing, training and technical assistance, recycling and composting networks, and
packaging material reductions. During fiscal 2016, we submitted our second third-party verified Carbon
Disclosure Project survey for Scope 1, 2 and 3 emissions (direct emissions, indirect emissions from consumption
of purchased electricity, heat or steam and other indirect emissions). Further, we published a sustainability report
based on the Global Reporting Initiative’s compliance standard.

LEED® Certified Facilities. Our Portland production and distribution facility was one of the first in the
Northwest to achieve LEED® Silver Certification. We anticipate that our corporate offices at the New Facility
will also be LEED® certified.

•

Expansion of Direct Trade Verified Sustainable Program. In fiscal 2016, we completed our first third-party audit
and verification of our DTVS program for sourcing green coffee. DTVS is an impact-based product or raw
material sourcing framework that utilizes data-based sustainability metrics to influence an inclusive,
collaborative approach to sustainability along the supply chain. To evaluate whether coffee is DTVS, we follow
an outcome-based evaluation framework. The outcome of this evaluation weighs on where we invest our
resources within our supply chain and has led to an increased level of transparency for us. DTVS represents a
growing percentage of our coffee portfolio.

Green Coffee Traceability. We are committed to the inclusion of more sustainably-sourced coffees in our supply
chain. Regulatory and reputational risks can increase when customers, roasters and suppliers cannot see back into
their supply chain. To address these concerns, as well as to deepen our commitment to the longevity of the coffee
industry, in fiscal 2016 we began requiring our immediate suppliers of green coffee to enhance their reporting of
traceability information on each lot of coffee sold to us.

Charitable Activities

We view charitable involvement as a part of our corporate responsibility and sustainability model: Social,
Environmental, and Economic Development, or SEED. We endorse and support communities where our customers,
employees, businesses, and suppliers are located, and who have enthusiastically supported us over the past 100 years. Our
objective is to provide support toward a mission of supply chain stability with a focus on food security.

Recipient organizations include those with strong local and regional networks that ensure that families have access to

nutritious food. Donations may take the form of corporate cash contributions, product donations, employee volunteerism,
and workplace giving (with or without matching contributions).

•

Recipient organizations include Feeding America, Mercy Corps, Ronald McDonald House, and local food banks.

• We support industry organizations such as World Coffee Research, which commits to grow, protect, and enhance
supplies of quality coffee while improving the livelihoods of the families who produce it, and the Specialty
Coffee Association of America ("SCAA") Sustainability Council and the Coalition for Coffee Communities,
which are focused on sustainability in coffee growing regions.

•

Our employee-driven CAFÉ Crew organizes employee involvement at local charities and fund raisers, including
running in the Chicago Marathon in support of Team Ronald McDonald House, riding in the Ride Against
Hunger supported by Tarrant Area Food Bank, supporting delivery for Meals on Wheels, and hosting local food
drives.

All of our usable and near expiring products or products with damaged packaging are donated to Feeding
America affiliated food banks nationwide, in an effort to fully eliminate edible food waste from the landfill.

Industry and Market Leadership

We have made the following investments in an effort to ensure we are well-positioned within the industry to take

advantage of category trends, industry insights, and general coffee and tea knowledge to grow our business:

•

Coffee Industry Leadership. Through our dedication to the craft of sourcing, blending and roasting coffee, and
our participation and/or leadership positions with the SCAA, National Coffee Association, Coalition for Coffee
Communities, International Women's Coffee Alliance, International Foodservice Manufacturers Association,
Pacific Coast Coffee Association, Roasters Guild and World Coffee Research, we work to help shape the future
of the coffee industry. We believe that due to our commitment to the industry, large retail and foodservice
operators are drawn to working with us. We were among the first coffee roasters in the nation to receive SCAA
certification of a state-of-the-art coffee lab and operate Public Domain®, a specialty coffeehouse in Portland,
Oregon. Upon completion, we plan to submit our product development lab at the New Facility for SCAA
certification.

Market Insight and Consumer Research. We have developed a market insight capability internally that reinforces
our business-to-business positioning as a thought leader in the coffee industry. We provide trend insights that
help our customers create winning products and integrated marketing strategies for their own coffee brands.

Within this, we are focused on understanding key demographic groups such as Millennials and Hispanics, and
key channel trends.

Raw Materials and Supplies

Our primary raw material is green coffee, an agricultural commodity traded on the Commodities and Futures
Exchange that is subject to price fluctuations. Over the past five years, coffee “C” market price per pound ranged from
approximately $1.02 to $2.90. The coffee “C” market price as of June 30, 2016 and 2015 was $1.46 and $1.32 per pound,
respectively. Our principal packaging materials include cartonboard, corrugated and plastic. We also use a significant
amount of electricity, natural gas, and other energy sources to operate our production and distribution facilities.

We purchase green coffee beans from multiple coffee regions around the world. Although coffee “C” market prices in
fiscal 2016 were relatively low compared to historical levels, there can be no assurance that green coffee prices will remain
at these levels in the future. Some of the Arabica coffee beans we purchase do not trade directly on the commodity markets.
Rather, we purchase these coffee beans on a negotiated basis from coffee brokers, exporters and growers, including Direct
Trade, DTVS and Fair Trade Certified™ sources and Rainforest Alliance Certified™ farms. Fair Trade Certified™ provides
an assurance that farmer groups are receiving the Fair Trade minimum price and an additional premium for certified organic
products through arrangements with cooperatives. Direct Trade and DTVS products provide similar assurance except that
the arrangements are provided directly to farmers instead of through cooperatives in an effort to promote investment in
better and more sustainable farming practices as well as to ensure a fairer price. Rainforest Alliance Certified™ coffee is
grown using methods that help promote and preserve biodiversity, conserve scarce natural resources, and help farmers build
sustainable lives. Our business model strives to reduce the impact of green coffee price fluctuations on our financial results
and to protect and stabilize our margins, principally through customer arrangements and derivative instruments, as further
explained in Note 7, Derivative Instruments, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this report.

Intellectual Property

We own a number of United States trademarks and service marks that have been registered with the United States
Patent and Trademark Office. We also own other trademarks and service marks for which we have filed applications for U.S.
registration. We have licenses to use certain trademarks outside of the United States and to certain product formulas, all
subject to the terms of the agreements under which such licenses are granted. We believe our trademarks and service marks
are integral to customer identification of our products. It is not possible to assess the impact of the loss of such
identification. Depending on the jurisdiction, trademarks are generally valid as long as they are in use and/or their
registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks can
also generally be renewed indefinitely as long as the trademarks are in use. In addition, we own numerous copyrights,
registered and unregistered, registered domain names, and proprietary trade secrets, technology, know-how processes and
other proprietary rights that are not registered.

Seasonality

We experience some seasonal influences. The winter months are generally the strongest sales months. However, our

product line and geographic diversity provide some sales stability during the warmer months when coffee consumption
ordinarily decreases. Additionally, we usually experience an increase in sales during the summer and early fall months from
seasonal businesses located in vacation areas and from grocery retailers ramping up inventory for the winter selling season.
Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be
achieved for the full fiscal year.

Distribution

We operate production facilities in Portland, Oregon and Houston, Texas. Distribution takes place out of our Portland
facility as well as three separate distribution centers in Northlake, Illinois; Oklahoma City, Oklahoma; and Moonachie, New
Jersey. As of June 30, 2016, the Torrance facility continued to house certain administrative functions and serve as a
distribution facility and branch warehouse pending transition of the remaining Torrance operations to our other facilities.
Upon completion, the New Facility will serve as a production facility and distribution center for our products. Our products
reach our customers primarily in two ways: through our nationwide DSD network of 450 delivery routes and 109 branch
warehouses as of June 30, 2016, or direct-shipped via common carriers or third-party distributors.

DSD sales are made “off-truck” to our customers at their places of business by our RSRs who generally are

responsible for soliciting, selling and collecting from and otherwise maintaining our customer accounts. Our DSD business
includes office coffee services whereby we provide office coffee products, including a variety of coffee brands and blends,
brewing and beverage equipment, and foodservice supplies directly to offices. We operate a large fleet of trucks and other
vehicles to distribute and deliver our products, and we rely on 3PL service providers for our long-haul distribution. We
maintain inventory levels at each branch warehouse to promote minimal interruption in supply. We also sell directly to
consumers through our website.

Customers

We serve a wide variety of customers, from small independent restaurants and foodservice operators to large
institutional buyers like restaurant and convenience store chains, hotels, casinos, hospitals, and gourmet coffee houses, as
well as grocery chains with private brand and consumer-branded coffee products. Although no single customer accounted
for 10% or more of our net sales in any of the last three fiscal years, we have several large national account customers, the
loss of or reduction in sales to one or more of which would be likely to have a material adverse effect on our results of
operations. During fiscal 2016, our top five customers accounted for approximately 19% of our net sales.

Most of our customers rely on us for distribution; however, some of our customers use third-party distribution or
conduct their own distribution. Some of our customers are “price” buyers, seeking the low-cost provider with little concern
about service, while others find great value in the service programs we provide. We offer a full return policy to ensure
satisfaction and extended terms for those customers who qualify.

Competition

The coffee industry is highly competitive, including with respect to price, product quality, service, convenience and

innovation, and competition could become increasingly more intense due to the relatively low barriers to entry. We face
competition from many sources, including the institutional foodservice divisions of multi-national manufacturers of retail
products many of which have greater financial and other resources than we do, such as The J.M. Smucker Company
(Folgers Coffee), Dunkin' Brands Group, Inc., The Kraft Heinz Company (Maxwell House Coffee) and Massimo Zanetti
Beverage, wholesale foodservice distributors such as Sysco Corporation and US Foods, regional institutional coffee roasters
such as S&D Coffee & Tea (Cott Corporation) and Boyd Coffee Company, and specialty coffee suppliers such as Keurig
Green Mountain, Inc., Rogers Family Company, Distant Lands Coffee, Mother Parkers Tea & Coffee Inc., Starbucks
Corporation and Peet’s Coffee & Tea. As many of our customers are small foodservice operators, we also compete with cash
and carry and club stores (physical and on-line) such as Costco, Sam’s Club and Restaurant Depot and on-line retailers such
as Amazon. We also face competition from growth in the single-serve, ready-to-drink coffee beverage and cold-brewed
coffee channels, as well as competition from other beverages, such as soft drinks (including highly caffeinated energy
drinks), juices, bottled water, teas and other beverages.

We believe our longevity, product quality and offerings, national distribution network, coffee industry and
sustainability leadership, market insight, comprehensive approach to customer relationship management, and superior
customer service are the major factors that differentiate us from our competitors. We compete well when these factors are
valued by our customers, and we are less effective when only price matters. Our customer base is price sensitive, and we are
often faced with price competition.

Working Capital

We finance our operations internally and through borrowings under our existing credit facility. For a description of our
liquidity and capital resources, see Results of Operations and Liquidity, Capital Resources and Financial Condition included
in Part II, Item 7 of this report and Note 18, Other Current Liabilities, of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this report. Our working capital needs are greater in the months leading up to our peak sales
period during the winter months, which we typically finance with cash flows from operations. In anticipation of our peak
sales period, we typically increase inventory in the first quarter of the fiscal year. We use various techniques including
demand forecasting and planning to determine appropriate inventory levels for seasonal demand.

Regulatory Environment

The conduct of our businesses, including, among other things, the production, storage, distribution, sale, labeling,

quality and safety of our products, and occupational safety and health practices, are subject to various laws and regulations
administered by federal, state and local governmental agencies in the United States. Our facilities are subject to various laws
and regulations regarding the release of material into the environment and the protection of the environment in other ways.
We are not a party to any material legal proceedings arising under these regulations except as described in Note 22,
Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this
report.

Employees

On June 30, 2016, we employed 1,634 employees, 508 of whom are subject to collective bargaining agreements.

Other

The nature of our business does not provide for maintenance of or reliance upon a sales backlog. None of our business

is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government. We have
no material revenues from foreign operations or long-lived assets located in foreign countries.

Available Information

Our Internet website address is http://www.farmerbros.com (the website address is not intended to function as a
hyperlink, and the information contained in our website is not intended to be part of this filing), where we make available,
free of charge, through a link maintained on our website under the heading “Investor Relations—SEC Filings,” copies of our
annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, including amendments
thereto, as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the
SEC. Copies of our Corporate Governance Guidelines, the Charters of the Audit, Compensation, and Nominating and
Corporate Governance Committees of the Board of Directors, and our Code of Conduct and Ethics can also be found on our
website.

Item 1A.

Risk Factors

You should carefully consider each of the following factors, as well as the other information in this report, in

evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional
risks and uncertainties not presently known to us or that we currently consider immaterial may also negatively affect our
business operations. If any of the following risks actually occurs, our business and financial results could be harmed. In that
case, the trading price of our common stock could decline.

Relocation to the New Facility may be unsuccessful or less successful than we presently anticipate, which may adversely
affect our business, operating results and financial condition.

We cannot guarantee that we will be successful in implementing the relocation to the New Facility in accordance with

our expectations, in a timely manner or at all, which may adversely impact our business, operating results and financial
condition. Relocation to the New Facility could disrupt our supply chain and ongoing operations, which could adversely
affect our ability to deliver products both on a timely basis and in accordance with customer requirements, the effect of
which could delay revenues or result in lost business opportunities. Our existing production facilities in Portland and
Houston have been operating at much higher utilization rates than they have historically pending completion of the New
Facility. In the event of significant increases in demand that precede the completion of and relocation to the New Facility,
we may be required to increase staffing, including through temporary labor and overtime, use third-party manufacturers,
lease additional production facilities, or some combination of those alternatives or others to satisfy demand. There can be no
assurance that we would be able to identify appropriate third-party providers on a timely basis or at all. In addition, our
success depends, in large part, on our ability to attract and retain skilled people. Competition for the best people in many of
our key positions may be intense, and we may not be able to attract and retain sufficiently skilled people at the New Facility.
Costs associated with the exit from our Torrance facility and the construction and relocation to, and operation of, the New
Facility may exceed our expectations, which could interfere with our ability to achieve our business objectives or could
cause us to incur indebtedness in amounts in excess of expectations. In addition, failure to satisfy the conditions of
governmental incentives relating to the New Facility could result in higher than expected costs.

Increases in the cost of green coffee could reduce our gross margin and profit.

Our primary raw material is green coffee, an agricultural commodity traded on the Commodities and Futures
Exchange that is subject to price fluctuations. Although coffee “C” market prices in fiscal 2016 were relatively low
compared to historical levels, there can be no assurance that green coffee prices will remain at these levels in the future. The
supply and price of green coffee may be impacted by, among other things, weather, natural disasters, real or perceived
supply shortages, crop disease (such as coffee rust) and pests, general increase in farm inputs and costs of production,
political and economic conditions, labor actions, foreign currency fluctuations, armed conflict in coffee producing nations,
acts of terrorism, government actions and trade barriers, and the actions of producer organizations that have historically
attempted to influence green coffee prices through agreements establishing export quotas or by restricting coffee supplies.
Speculative trading in coffee commodities can also influence coffee prices. Additionally, specialty green coffees tend to
trade on a negotiated basis at a premium above the “C” market price which premium, depending on the supply and demand
at the time of purchase, may be significant. Increases in the “C” market price may also impact our ability to enter into green
coffee purchase commitments at a fixed price or at a price to be fixed whereby the price at which the base “C” market price
will be fixed has not yet been established. There can be no assurance that our purchasing practices and hedging activities
will mitigate future price risk. As a result, increases in the cost of green coffee could have an adverse impact on our
profitability.

Our efforts to secure an adequate supply of quality coffees may be unsuccessful and impact our ability to supply our
customers or expose us to commodity price risk.

Maintaining a steady supply of green coffee is essential to keeping inventory levels low while securing sufficient stock

to meet customer needs. Some of the Arabica coffee beans we purchase do not trade directly on the commodity markets.
Rather, we purchase these coffee beans on a negotiated basis from coffee brokers, exporters and growers. If any of these
supply relationships deteriorate, we may be unable to procure a sufficient quantity of
coffee beans at prices
acceptable to us or at all. Further, non-performance by suppliers could expose us to credit and supply risk under coffee
purchase commitments for delivery in the future. In addition, the political situation in many of the Arabica coffee growing
regions, including Africa, Indonesia, and Central and South America, can be unstable, and such instability could affect our

ability to purchase coffee from those regions. If green coffee beans from a region become unavailable or prohibitively
expensive, we could be forced to use alternative coffee beans or discontinue certain blends, which could adversely impact
our sales. A raw material shortage could result in a deterioration of our relationship with our customers, decreased revenues
or could impair our ability to expand our business.

Changes in green coffee commodity prices may not be immediately reflected in our cost of goods sold and may increase
volatility in our results.

We purchase over-the-counter coffee derivative instruments to enable us to lock in the price of green coffee
commodity purchases on our behalf or at the direction of our customers under commodity-based pricing arrangements.
Although we account for certain coffee-related derivative instruments as accounting hedges, the portion of open hedging
contracts that are not 100% effective as cash flow hedges and those that are not designated as accounting hedges are marked
to period-end market price and unrealized gains or losses based on whether the period-end market price was higher or lower
than the price we locked-in are recognized in our financial results at the end of each reporting period. If the period-end green
coffee commodity prices decline below our locked in price for these derivative instruments, we will be required to recognize
the resulting losses in our results of operations. Further, changes in commodity prices and the number of coffee-related
derivative instruments held could have a significant impact on cash deposit requirements under our broker and counterparty
agreements. Such transactions could cause volatility in our results because the recognition of losses and the offsetting gains
may occur in different fiscal periods. Rapid, sharp decreases in the cost of green coffee could also force us to lower sales
prices before realizing cost reductions in our green coffee inventory.

Our business and results of operations are highly dependent upon sales of roast and ground coffee products. Any
decrease in the demand for coffee could materially adversely affect our business and financial results.

Sales of roast and ground coffee represented approximately 61%, 61% and 60% of our net sales in the fiscal years

ended June 30, 2016, 2015 and 2014, respectively. Demand for our products is affected by, among other things, consumer
tastes and preferences, global economic conditions, demographic trends and competing products. Any decrease in demand
for our roast and ground coffee products would cause our sales and profitability to decline.

Price increases may not be sufficient to offset cost increases or may result in volume declines which could adversely
impact our revenues and gross margin.

Customers generally pay for our products based either on an announced price schedule or under commodity-based
pricing arrangements whereby the changes in green coffee commodity costs are passed through to the customer. The pricing
schedule is generally subject to adjustment, either on contractual terms or in accordance with periodic product price
adjustments, which may result in a lag in our ability to correlate the changes in our prices with fluctuations in the cost of raw
materials and other inputs. Depending on contractual restrictions, we may be unable to pass some or all of these cost
increases to our customers by increasing the selling prices of our products. If we are not successful in increasing selling
prices sufficiently to offset increased raw material and other input costs, including packaging, direct labor and other
overhead, or if our sales volume decreases significantly as a result of price increases, our results of operations and financial
condition may be adversely affected.

We rely on co-packers to provide our supply of tea, spice and culinary products. Any failure by co-packers to fulfill their
obligations or any termination or renegotiation of our co-pack agreements could adversely affect our results of
operations.

We have a number of supply agreements with co-packers that require them to provide us with specific finished goods,
including tea, spice and culinary products. For some of our products we essentially rely upon a single co-packer as our sole-
source for the product. The failure for any reason of any such sole-source or other co-packer to fulfill its obligations under
the applicable agreements with us or the termination or renegotiation of any such co-pack agreement could result in
disruptions to our supply of finished goods and have an adverse effect on our results of operations. Additionally, our co-
packers are subject to risk, including labor disputes, union organizing activities, financial liquidity, inclement weather,
natural disasters, supply constraints, and general economic and political conditions that could limit their ability to timely
provide us with acceptable products, which could disrupt our supply of finished goods, or require that we incur additional
expense by providing financial accommodations to the co-packer or taking other steps to seek to minimize or avoid supply
disruption, such as establishing a new co-pack arrangement with another provider. A new co-pack arrangement may not be
available on terms as favorable to us as our existing co-pack arrangements, if at all.

Competition in the coffee industry and beverage category could impact our profitability.

The coffee industry is highly competitive, including with respect to price, product quality, service, convenience and

innovation, and competition could become increasingly more intense due to the relatively low barriers to entry. We face
competition from many sources, including the institutional foodservice divisions of multi-national manufacturers of retail
products many of which have greater financial and other resources than we do, wholesale foodservice distributors, regional
institutional coffee roasters, and specialty coffee suppliers. As many of our customers are small foodservice operators, we
also compete with cash and carry and club stores and on-line retailers. If we do not succeed in differentiating ourselves
through, among other things, our product and service offerings, then our competitive position may be weakened and our
sales and profitability may be materially adversely affected. If, due to competitive pressures or contractual restrictions, we
are required to reduce prices to attract market share or we are unable to increase prices in response to commodity and other
cost increases, our results of operations could be adversely affected if we are not able to increase sales volumes to offset the
margin declines. Increased competition in the single-serve, ready-to-drink coffee beverage and cold-brewed coffee channels,
as well as competition from other beverages, such as soft drinks (including highly caffeinated energy drinks), juices, bottled
water, teas and other beverages, may also have an adverse impact on sales of our coffee products.

We face exposure to other commodity cost fluctuations, which could impact our margins and profitability.

In addition to green coffee, we are exposed to cost fluctuations in other commodities under supply arrangements,
including tea, spices, and packaging materials such as cartonboard, corrugated and plastic. We purchase certain finished
goods and packaging materials under cost-plus supply arrangements whereby our cost may increase based on an increase in
the underlying commodity price. The cost of these commodities depend on various factors beyond our control, including
economic and political conditions, foreign currency fluctuations, and global weather patterns. Unlike green coffee, we do
not purchase any derivative instruments to hedge cost fluctuations in these other commodities. As a result, to the extent we
are unable to pass along such costs to our customers through price increases, our margins and profitability will decrease.

Increase in the cost, disruption of supply or shortage of energy or fuel could affect our profitability.

We operate a large fleet of trucks and other vehicles to distribute and deliver our products, and we rely on 3PL service
providers for our long-haul distribution. Certain products are also distributed by third parties or direct shipped via common
carrier. In addition, we use a significant amount of electricity, natural gas and other energy sources to operate our production
and distribution facilities. An increase in the price, disruption of supply or shortage of fuel and other energy sources that
may be caused by increasing demand or by events such as natural disasters, power outages, or the like, could lead to higher
electricity, transportation and other commodity costs, including the pass-through of such costs under our agreements with
3PL service providers and other suppliers, that could negatively impact our profitability.

Loss of business from one or more of our large national account customers and efforts by these customers to improve
their profitability could have a material adverse effect on our operations.

We have several large national account customers, the loss of or reduction in sales to one or more of which is likely to

have a material adverse effect on our results of operations. We generally do not have long-term contracts with our
customers. Accordingly, our customers can stop purchasing our products at any time without penalty and are free to
purchase products from our competitors. There can be no assurance that our customers will continue to purchase our
products in the same quantities as they have in the past. In addition, because of the competitive environment facing many of
our customers, they have increasingly sought to improve their profitability through pricing concessions and more favorable
trade terms. To the extent we provide pricing concessions or favorable trade terms, our margins would be reduced. If we are
unable to continue to offer terms that are acceptable to our customers, they may reduce purchases of our products which
would adversely affect our financial performance. Requirements that may be imposed on us by our customers, such as
sustainability, inventory management or product specification requirements, may have an adverse effect on our results of
operations. Additionally, our customers may face financial difficulties, bankruptcy or other business disruptions that may
impact their operations and their purchases from us and may affect their ability to pay us for products which could adversely
affect our sales and profitability.

We rely on information technology and are dependent on enterprise resource planning software in our operations. Any
material failure, inadequacy, interruption or security failure of that technology could affect our ability to effectively
operate our business.

Our ability to effectively manage our business, maintain financial accuracy and efficiency, comply with regulatory,

financial reporting, legal and tax requirements, and coordinate the production, distribution and sale of our products depends
significantly on the reliability, capacity and integrity of information technology systems on which we rely. We are also
dependent on enterprise resource planning software for some of our information technology systems and support. The
failure of these systems to operate effectively and continuously, problems with transitioning to upgraded or replacement
systems, including, without limitation, in connection with the relocation to the New Facility, flaws in third-party software, or
a breach in security of these systems could result in delays in processing replenishment orders from our branch warehouses,
an inability to record input costs or product sales accurately or at all, an impaired understanding of our operations and
results, and reduced operational efficiency. Failure to effectively allocate and manage our resources to support our
information technology infrastructure could result in transaction errors, processing inefficiencies, the loss of customers,
business disruptions, or the loss of sensitive or confidential data through security breach or otherwise. Significant capital
investments could be required to remediate any potential problems or to otherwise protect against security breaches or to
address problems caused by breaches. In addition, if we are unable to prevent security breaches, we may experience a loss
of critical data or suffer financial or reputational damage or penalties because of the unauthorized disclosure of confidential
information belonging to us or to our customers or suppliers. Our insurance policies do not cover losses caused by security
breaches.

Interruption of our supply chain, including a disruption in operations at any of our production and distribution facilities,
could affect our ability to manufacture or distribute products and could adversely affect our business and sales.

We rely on a limited number of production and distribution facilities. A disruption in operations at any of these
facilities or any other disruption in our supply chain relating to green coffee supply, service by our 3PL service providers or
common carriers, supply of raw materials and finished goods under vendor-managed inventory arrangements, or otherwise,
whether as a result of casualty, natural disaster, power loss, telecommunications failure, terrorism, labor shortages,
contractual disputes or other causes, could significantly impair our ability to operate our business and adversely affect our
relationship with our customers. In such event, we may also be forced to contract with alternative, and possibly more
expensive, suppliers or service providers, which would adversely affect our profitability. Additionally, the majority of our
green coffee comes through the Ports of Houston and Seattle. Any interruption to port operations, highway arteries, gas
mains or electrical service in the areas where we operate or obtain products or inventory could restrict our ability to
manufacture and distribute our products for sale and would adversely impact our business.

Our failure to accurately forecast demand for our products or quickly respond to forecast changes could have an adverse
effect on our sales.

Based upon our forecasts of customer demand, we set target levels for the manufacture of our products and for the

purchase of green coffee in advance of customer orders. If our forecasts exceed demand, we could experience excess
inventory and manufacturing capacity and/or price decreases or we could be required to write-down expired or obsolete
inventory, which could adversely impact our financial performance. Alternatively, if demand for our products increases
more than we currently forecast and we are unable to satisfy increases in demand through our current manufacturing
capacity or appropriate third-party providers, or we are unable to obtain sufficient raw materials inventories under vendor-
managed inventory arrangements, we may not be able to satisfy customer demand for our products which could have an
adverse impact on our sales and reputation.

We depend on the expertise of key personnel. The unexpected loss of one or more of these key employees or difficulty
recruiting and retaining qualified personnel could have a material adverse effect on our operations and competitive
position.

Our success largely depends on the efforts and abilities of our executive officers and other key personnel. There is

limited management depth in certain key positions throughout the Company. We must continue to recruit, retain and
motivate management and other employees sufficiently to maintain our current business and support our projected growth
and strategic initiatives. The loss of key employees could adversely affect our operations and competitive position. We do
not maintain key person life insurance policies on any of our executive officers.

Investment in acquisitions could disrupt our ongoing business, not result in the anticipated benefits and present risks not
originally contemplated.

We have invested and in the future may invest in acquisitions which may involve risks and uncertainties, including the

risks involved with entering new product categories or geographic regions, the difficulty in integrating newly-acquired
businesses or brands, contingent risks associated with the past operations of or other unanticipated problems arising in any
acquired business, the challenges of achieving strategic objectives and other benefits expected from acquisitions, the
diversion of our attention and resources from our operations and other initiatives, the potential impairment of acquired assets
and liabilities, the performance of underlying products, capabilities or technologies, and the potential loss of key personnel
and customers of the acquired businesses. Additionally, any such acquisitions may result in potentially dilutive issuances of
our equity securities, the incurrence of additional debt, restructuring charges and the recognition of significant charges for
depreciation and amortization related to intangible assets. There can be no assurance that any such acquisitions will be
identified or that we will be able to consummate any such acquisitions on terms favorable to us or at all. If any such
acquisitions are not successful, our business and results of operations could be adversely affected.

Volatility in the equity markets could reduce the value of our investment portfolio.

The value of our investment portfolio may be adversely affected by interest rate fluctuations, downgrades in credit

ratings, illiquidity in the capital markets and other factors which may result in other than temporary declines in the value of
our investments. Any of these events could cause us to record impairment charges with respect to our investment portfolio
or to realize losses on the sale of investments. We have incurred operating losses in the past and if we incur operating losses
in the future on a continual basis, a portion or all of this investment portfolio may be required to be liquidated to fund those
losses.

Increased severe weather patterns may increase commodity costs, damage our facilities and disrupt our production
capabilities and supply chain.

There is increasing concern that a gradual increase in global average temperatures due to increased concentration of

carbon dioxide and other greenhouse gases in the atmosphere have caused and will continue to cause significant changes in
weather patterns around the globe and an increase in the frequency and severity of extreme weather events. Major weather
phenomena like El Niño and La Niña are dramatically affecting coffee growing countries. The wet and dry seasons are
becoming unpredictable in timing and duration, causing improper development of the coffee cherries. A large portion of the
global coffee supply comes from Brazil and so the climate and growing conditions in that country carry heightened
importance. Decreased agricultural productivity in certain regions as a result of changing weather patterns may affect the
quality, limit the availability or increase the cost of key agricultural commodities, such as green coffee and tea, which are
important ingredients for our products. We have experienced storm-related damages and disruptions to our operations in the
recent past related to both winter storms as well as heavy rainfall and flooding. Increased frequency or duration of extreme
weather conditions could also damage our facilities, impair production capabilities, disrupt our supply chain or impact
demand for our products. As a result, the effects of climate change could have a long-term adverse impact on our business
and results of operations.

Volatility in the equity markets or interest rate fluctuations could substantially increase our pension funding
requirements and negatively impact our financial position.

At June 30, 2016, the projected benefit obligation under our single employer defined benefit pension plans exceeded
the fair value of plan assets. The difference between the projected benefit obligation and the fair value of plan assets, or the
funded status of the plans, significantly affects the net periodic benefit cost and ongoing funding requirements of those
plans. Among other factors, changes in interest rates, mortality rates, early retirement rates, mix of plan asset investments,
investment returns and the market value of plan assets can affect the level of plan funding, cause volatility in the net
periodic benefit cost, increase our future funding requirements and require payments to the Pension Benefit Guaranty
Corporation.

Our sales and distribution network is costly to maintain.

Our sales and distribution network requires a large investment to maintain and operate. Costs include the fluctuating

cost of gasoline, diesel and oil, costs associated with managing, purchasing, leasing, maintaining and insuring a fleet of
delivery vehicles, the cost of maintaining distribution centers and branch warehouses throughout the country, the cost of our

long-haul distribution, and the cost of hiring, training and managing our sales force. Many of these costs are beyond our
control, and many are fixed rather than variable. Some competitors use alternate methods of distribution that fix, control,
reduce or eliminate many of the costs associated with our method of distribution.

We are self-insured and our reserves may not be sufficient to cover future claims.

We are self-insured for many risks up to significant deductible amounts. The premiums associated with our insurance

continue to increase. General liability, fire, workers’ compensation, directors and officers liability, life, employee medical,
dental and vision, and automobile risks present a large potential liability. While we accrue for this liability based on
historical claims experience, future claims may exceed claims we have incurred in the past. Should a different number of
claims occur compared to what was estimated or the cost of the claims increase beyond what was anticipated, reserves
recorded may not be sufficient and the accruals may need to be adjusted accordingly in future periods.

Competitors may be able to duplicate our roasting and blending methods, which could harm our competitive position.

We consider our roasting and blending methods essential to the flavor and richness of our coffees and, therefore,
essential to our brand. Because our roasting methods cannot be patented, we would be unable to prevent competitors from
copying these methods if such methods became known. If our competitors copy our roasts or blends, the value of our brand
may be diminished, and we may lose customers to our competitors. In addition, competitors may be able to develop roasting
or blending methods that are more advanced than our production methods, which may also harm our competitive position.

Employee strikes and other labor-related disruptions may adversely affect our operations.

We have union contracts relating to a significant portion of our workforce. Although we believe union relations have

been amicable in the past, there is no assurance that this will continue in the future or that we will not be subject to future
union organizing activity. There are potential adverse effects of labor disputes with our own employees or by others who
provide warehousing, transportation (lines, truck drivers, 3PL service providers) or cargo handling (longshoremen), both
domestic and foreign, of our raw materials or other products. Strikes or work stoppages or other business interruptions could
occur if we are unable to renew collective bargaining agreements on satisfactory terms or enter into new agreements on
satisfactory terms, which could impair manufacturing and distribution of our products or result in a loss of sales, which
could adversely impact our business, financial condition or results of operations. The terms and conditions of existing,
renegotiated or new collective bargaining agreements could also increase our costs or otherwise affect our ability to fully
implement future operational changes to enhance our efficiency or to adapt to changing business needs or strategy.

We could face significant withdrawal liability if we withdraw from participation in the multiemployer pension plans in
which we participate.

We participate in two multiemployer defined benefit pension plans and one multiemployer defined contribution
pension plan for certain union employees. We make periodic contributions to these plans to allow them to meet their pension
benefit obligations to their participants. In the event we withdraw from participation in one or more of these plans, we could
be required to make an additional lump-sum contribution to the plan. Our withdrawal liability for any multiemployer
pension plan would depend on the extent of the plan’s funding of vested benefits. Future collective bargaining negotiations
may result in our withdrawal from the remaining multiemployer pension plans in which we participate and, if successful,
may result in a withdrawal liability, the amount of which could be material to our results of operations and cash flows.

Restrictive covenants in our credit facility may limit our ability to make investments or otherwise restrict our ability to
pursue our business strategies.

Our credit facility contains various covenants that limit our ability to, among other things, make investments; incur

additional indebtedness; create, incur, assume or permit any liens on our property; pay dividends under certain
circumstances; and consolidate, merge, sell or otherwise dispose of all or substantially all of our assets. Our credit facility
also contains financial covenants relating to the maintenance of a fixed charge coverage ratio in certain circumstances. Our
ability to meet those covenants may be affected by events beyond our control, and there can be no assurance that we will
meet those covenants. The breach of any of these covenants could result in a default under the credit facility.

Future impairment charges could adversely affect our operating results.

We perform an asset impairment analysis on an annual basis or whenever events occur that may indicate possible
existence of impairment. Failure to achieve our forecasted operating results, due to weakness in the economic environment
or other factors, and declines in our market capitalization, among other things, could result in impairment of our intangible
assets and goodwill and adversely affect our operating results.

We rely on independent certification for a number of our coffee products. Loss of certification could harm our business.

A number of our Artisan coffee products are independently certified as “Rainforest Alliance,” “Organic” and “Fair

Trade.” We must comply with the requirements of independent organizations and certification authorities in order to label
our products as certified. The loss of any independent certifications could adversely affect our reputation and competitive
position, which could harm our business.

Possible legislation or regulation intended to address concerns about climate change could adversely affect our results of
operations, cash flows and financial condition.

Governmental agencies are evaluating changes in laws to address concerns about the possible effects of greenhouse

gas emissions on climate. Increased public awareness and concern over climate change may increase the likelihood of more
proposals to reduce or mitigate the emission of greenhouse gases. Laws enacted that directly or indirectly affect our
suppliers (through an increase in the cost of production or their ability to produce satisfactory products) or our business
(through an impact on our inventory availability, cost of goods sold, operations or demand for the products we sell) could
adversely affect our business, financial condition, results of operations and cash flows. Compliance with any new or more
stringent laws or regulations, or stricter interpretations of existing laws, including increased government regulations to limit
carbon dioxide and other greenhouse gas emissions as a result of concern over climate change, could require us to reduce
emissions and to incur compliance costs which could affect our profitability or impede the production or distribution of our
products, which could affect our results of operations, cash flows and financial condition. In addition, public expectations
for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs and may
require us to make additional investments in facilities and equipment.

Our operating results may have significant fluctuations from period to period which could have a negative effect on our
stock price.

Our operating results may fluctuate from period to period as a result of a number of factors, including fluctuations in
the price and supply of green coffee, fluctuations in the selling prices of our products, the success of our hedging strategy,
competition, changes in consumer preferences, seasonality, our ability to retain and attract customers, our ability to manage
inventory and fulfillment operations and maintain gross margin, and period and year-end LIFO inventory adjustments.
Fluctuations in our operating results due to these factors or for any other reason could cause our stock price to decline. In
addition, price and volume fluctuations in the stock market as a whole may affect the market price of our stock in ways that
may be unrelated to our financial performance. Accordingly, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful, and such comparisons should not be relied upon as indicators of future performance.

If we experience a deterioration in operating performance, operating losses may recur and, as a result, could lead to
increased leverage which may harm our financial condition and results of operations.

We incurred an operating loss in fiscal 2012 and a net loss in fiscal 2013 and 2012. If our current strategies are
unsuccessful, we may not achieve the levels of sales and earnings we expect. As a result, we could suffer additional losses in
future years and our stock price could decline leading to deterioration in our credit rating, which could limit the availability
of additional financing and increase the cost of obtaining financing. In addition, an increase in leverage could raise the
likelihood of a financial covenant breach which in turn could limit our access to existing funding under our credit facility.

Our ability to fund the costs associated with the New Facility, satisfy our lease obligations and make payments of
principal and interest on our indebtedness depends on our future performance. Should we experience a deterioration in
operating performance, we will have less cash inflows from operations available to meet these obligations. In addition, if
such deterioration were to lead to the closure of leased facilities, we would need to fund the costs of terminating those
leases. If we are unable to generate sufficient cash flows from operations in the future to satisfy these financial obligations,
we may be required to, among other things:

•

seek additional financing in the debt or equity markets;

refinance or restructure all or a portion of our indebtedness;

sell selected assets; or

reduce or delay planned capital or operating expenditures.

Such measures might not be sufficient to enable us to satisfy our financial obligations. In addition, any such financing,

refinancing or sale of assets might not be available on economically favorable terms.

Customer quality control problems may adversely affect our brands thereby negatively impacting our sales.

Our success depends on our ability to provide customers with high-quality products and service. Although we take
measures to ensure that we sell only fresh products, we have no control over our products once they are purchased by our
customers. Accordingly, customers may prepare our products inconsistent with our standards, or store our products for
longer periods of time, potentially affecting product quality. Clean water is critical to the preparation of coffee beverages.
We have no ability to ensure that our customers use a clean water supply to prepare coffee beverages. If consumers do not
perceive our products and service to be of high quality, then the value of our brands may be diminished and, consequently,
our operating results and sales may be adversely affected.

Adverse public or medical opinions about caffeine may harm our business and reduce our sales.

Coffee contains caffeine and other active compounds, the health effects of some of which are not fully understood. A

number of research studies conclude or suggest that excessive consumption of caffeine may lead to increased adverse health
effects. An unfavorable report or other negative publicity or litigation on the health effects of caffeine or other compounds
present in coffee could significantly reduce the demand for coffee which could harm our business and reduce our sales. In
addition, we could be subject to litigation relating to the existence of such compounds in our coffee which could be costly
and adversely affect our business.

Instances or reports linking us to food safety issues could harm our business and lead to potential product recalls or
product liability claims.

Selling products for human consumption involves inherent legal risks. Instances or reports of food safety issues
involving our products, whether or not accurate, such as unclean water supply, food-borne illnesses, food tampering, food
contamination or mislabeling, could damage the value of our brands, negatively impact sales of our products, and potentially
lead to product recalls, product liability claims, litigation or damages. A significant product liability claim against us,
whether or not successful, or a widespread product recall may reduce our sales and harm our business.

Government regulations affecting the conduct of our business could increase our operating costs, reduce demand for our
products or result in litigation.

The conduct of our business is subject to various laws and regulations. These laws and regulations and interpretations
thereof are subject to change as a result of political, economic or social events. Such changes may include changes in: food
and drug laws, including the Food Safety Modernization Act of 2011 which requires, among other things, that food facilities
conduct contamination hazard analyses, implement risk-based preventive controls and develop track-and-trace capabilities;
laws relating to product labeling, advertising and marketing practices; laws regarding ingredients used in our products; and
increased regulatory scrutiny of, and increased litigation involving, product claims and concerns regarding the effects on
health of ingredients in, or attributes of, our products. Any new laws and regulations or changes in existing laws and
regulations or the interpretations thereof could require us to change certain of our operational processes and procedures, or
implement new ones, and may increase our operating and compliance costs. If we fail to comply with applicable laws and

regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential
criminal sanctions, which could have a material adverse effect on our results of operations.

Significant additional labeling or warning requirements may increase our costs and adversely affect sales of the affected
products.

Various jurisdictions may seek to adopt significant additional product labeling (such as requiring labeling of products

that contain genetically modified organisms) or warning requirements or limitations on the availability of our products
relating to the content or perceived adverse health consequences of certain of our products. If these types of requirements
become applicable to one or more of our major products, they may inhibit sales of such products. In addition, for example,
we are subject to the California Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly known as “Proposition
65”), a law which requires that a specific warning appear on any product sold in California that contains a substance listed
by that State as having been found to cause cancer or birth defects. The Council for Education and Research on Toxics
(“CERT”) has filed suit against a number of companies as defendants, including our subsidiary, Coffee Bean International,
Inc., which sell coffee in California for allegedly failing to issue clear and reasonable warnings in accordance with
Proposition 65 that the coffee they produce, distribute and sell contains acrylamide. Any action under Proposition 65 would
likely seek statutory penalties and costs of enforcement, as well as a requirement to provide warnings and other notices to
customers or remove acrylamide from finished products (which may be impossible). If we were required to add warning
labels to any of our products or place warnings in certain locations where our products are sold, sales of those products
could suffer not only in those locations but elsewhere. Any change in labeling requirements for our products also may lead
to an increase in packaging costs or interruptions or delays in packaging deliveries.

Litigation pending against us could expose us to significant liabilities and damage our reputation.

We are currently party to various legal and other proceedings, and additional claims may arise in the future. See
Note 22, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this report. Regardless of the merit of particular claims, litigation may be expensive, time-consuming, operationally
disruptive and distracting to management, and could negatively affect our brand name and image and subject us to statutory
penalties and costs of enforcement. We can provide no assurances as to the outcome of any litigation or the resolution of any
other claims against us. An adverse outcome of any litigation or other claim could negatively affect our financial condition,
results of operations or liquidity.

Compliance with regulations affecting publicly traded companies has resulted in increased costs and may continue to
result in increased costs in the future.

As a publicly traded company, we are subject to laws, accounting and reporting requirements, tax rules and other

regulations and requirements, including those imposed by the SEC and NASDAQ. Our efforts to comply with these
requirements and regulations have resulted in, and are likely to continue to result in, increased expenses and a diversion of
substantial management time and attention from revenue-generating activities to compliance activities. Because these laws
and regulations are subject to varying interpretations, their application in practice may evolve over time as new guidance
becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs
necessitated by ongoing revisions to our disclosure and governance practices. Failure to comply with such regulations could
have a material adverse effect on our business and stock price.

Concentration of ownership among our principal stockholders may dissuade potential investors from purchasing our
stock, may prevent new investors from influencing significant corporate decisions and may result in a lower trading price
for our stock than if ownership of our stock was less concentrated.

As of September 12, 2016, members of the Farmer family or entities controlled by the Farmer family (including trusts)

beneficially owned approximately 32.4% of our outstanding common stock, including members of the Farmer family or
entities controlled by the Farmer family (including trusts) comprising a group for purposes of Section 13 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) identified in a Schedule 13D/A filed with the SEC on September
8, 2016. As a result, these stockholders, acting together, may be able to influence the outcome of stockholder votes,
including votes concerning the election and removal of directors, the amendment of our charter documents, and approval of
significant corporate transactions. This level of concentrated ownership may have the effect of delaying or preventing a
change in the management or voting control of the Company. In addition, this significant concentration of share ownership

may adversely affect the trading price of our common stock if investors perceive disadvantages in owning stock in a
company with such concentrated ownership.

Future sales of shares by existing stockholders could cause our stock price to decline.

All of our outstanding shares are eligible for sale in the public market, subject in certain cases to limitations under

Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”). Also, shares subject to outstanding options and
restricted stock under our long-term incentive plan are eligible for sale in the public market to the extent permitted by the
provisions of various vesting agreements, our stock ownership guidelines, and Rule 144 under the Securities Act. If these
shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could
decline.

Anti-takeover provisions could make it more difficult for a third party to acquire us.

Our Board of Directors has the authority to issue up to 500,000 shares of preferred stock and to determine the price,

rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by
stockholders. The rights of the holders of our common stock may be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may have the effect of
delaying, deterring or preventing a change in control of the Company without further action by stockholders and may
adversely affect the voting and other rights of the holders of our common stock.

Further, certain provisions of our charter documents, including a classified board of directors, provisions eliminating

the ability of stockholders to take action by written consent, and provisions limiting the ability of stockholders to raise
matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes
in control or management of the Company, which could have an adverse effect on the market price of our stock. In addition,
our charter documents do not permit cumulative voting, which may make it more difficult for a third party to gain control of
our Board of Directors. Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which will prohibit us from engaging in a “business combination” with an “interested stockholder” for a
period of three years after the date of the transaction in which the person became an interested stockholder, even if such
combination is favored by a majority of stockholders, unless the business combination is approved in a prescribed manner.
The application of Section 203 also could have the effect of delaying or preventing a change in control or management.

Item 1.B.

Unresolved Staff Comments

None.

Item 2.

Properties

Our current production and distribution facilities are as follows:

Location
Northlake, TX(1)
Houston, TX
Portland, OR
Northlake, IL
Oklahoma City, OK
Moonachie, NY
Torrance, CA(2)

Approximate Square Feet

Purpose

538,000 Under construction
330,877 Manufacturing and warehouse
114,000 Manufacturing and distribution
89,837 Distribution and warehouse
142,115 Distribution and warehouse
41,404 Distribution and warehouse
665,000 Distribution and warehouse

Status
Leased
Owned
Leased
Leased
Owned
Leased
Leased

_____________
(1) Upon completion, the New Facility will house our manufacturing, distribution, product development lab and corporate

headquarters. In the fourth quarter of fiscal 2016, we exercised the purchase option under the Lease Agreement to acquire
the partially constructed New Facility with a targeted closing date in the first quarter of fiscal 2017. Construction of and
relocation to the New Facility are expected to be completed in the third quarter of fiscal 2017. In the interim, we have
leased 32,000 square feet of temporary office space in Fort Worth, Texas near the New Facility to house our primary
administrative offices. See Note 4, New Facility Lease Obligation, of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this report.

(2) We sold the Torrance facility on July 15, 2016, subject to a lease back as described in Note 24, Subsequent Events, of the
Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. As of June 30, 2016, the Torrance
facility continued to house certain administrative functions and serve as a distribution facility and a branch warehouse
pending transition of the remaining Torrance operations to our other facilities.

As of June 30, 2016, we stage our products in 109 branch warehouses throughout the contiguous United States. These

branch warehouses and our distribution centers, taken together, represent a vital part of our business, but no individual
branch warehouse is material to the business as a whole. Our branch warehouses vary in size from approximately 1,000 to
50,000 square feet.

Approximately 52% of our facilities are leased with a variety of expiration dates through 2021. The lease on the

Portland facility expires in 2018 and has options to renew up to an additional 10 years.

We calculate our utilization for all of our production facilities on an aggregate basis based on the number of product

pounds manufactured during the actual number of production shifts worked during an average week, compared to the
number of product pounds that could be manufactured based on the maximum number of production shifts that could be
operated during the week (assuming three shifts per day, seven days per week), in each case, based on our current product
mix. Utilization rates for our production facilities were approximately 90%, 66% and 65% during the fiscal years ended
June 30, 2016, 2015 and 2014, respectively. The higher utilization rate in fiscal 2016 was primarily due to wind-down of
production at our Torrance facility and the addition of those production volumes to our Portland and Houston production
facilities.

We believe that our Portland and Houston production facilities, together with our existing distribution centers and
branch warehouses, will provide adequate capacity for our current operations pending completion of the New Facility. In the
event of significant increases in demand that precede the completion of and relocation to the New Facility, we may be
required to increase staffing, including through temporary labor and overtime, use third-party manufacturers, lease
additional production facilities or some combination of those alternatives or others to satisfy demand.

Item 3.

Legal Proceedings

For information regarding legal proceedings in which we are involved, see Note 22, Commitments and Contingencies,

of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Market Information

Our common stock trades on the NASDAQ Global Select Market under the symbol “FARM.” The following table sets

forth the quarterly high and low sales prices of our common stock as reported by NASDAQ for each quarter during the last two
fiscal years.

1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

Year Ended June 30, 2016

Year Ended June 30, 2015

High

Low

High

Low

$
$
$
$

28.16
32.94
31.63
32.50

$
$
$
$

20.90
26.99
24.04
26.69

$
$
$
$

29.10
31.86
32.50
25.96

$
$
$
$

20.29
26.01
22.72
23.39

On September 12, 2016, the last sale price reported on NASDAQ for our common stock was $33.46 per share.

Holders

As of September 12, 2016, there were approximately 2,250 holders of record. Determination of holders of record is based
upon the number of record holders and individual participants in security position listings. This does not include persons whose
stock is in nominee or “street name” accounts through brokers.

Dividends

The Company’s Board of Directors has omitted the payment of a quarterly dividend since the third quarter of fiscal 2011.
The amount, if any, of dividends to be paid in the future will depend upon the Company’s then available cash, anticipated cash
needs, overall financial condition, credit agreement restrictions, future prospects for earnings and cash flows, as well as other
relevant factors. For a description of the credit agreement restrictions on the payment of dividends, see Liquidity, Capital
Resources and Financial Condition included in Part II, Item 7 of this report, and Note 15, Bank Loan, of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this report.

Equity Compensation Plan Information

This information appears in Equity Compensation Plan Information included in Part III, Item 12 of this report.

Performance Graph

The following graph depicts a comparison of the total cumulative stockholder return on our common stock for each of the

last five fiscal years relative to the performance of the Russell 2000 Index, the Value Line Food Processing Index and a peer
group index. The graph assumes an initial investment of $100.00 at the beginning of the five year period and that all dividends
paid by companies included in these indices have been reinvested.

Because no published peer group is similar to the Company's portfolio of business, the Company created a peer group

index that includes the following companies: B&G Foods, Inc., Boulder Brands, Inc., Coffee Holding Co. Inc., Dunkin' Brands
Group, Inc., National Beverage Corp., SpartanNash Company, Inventure Foods, Inc. and Treehouse Foods, Inc. The companies
in the peer group index are in the same industry as Farmer Bros. Co. with product offerings that overlap with the Company's
product offerings. Boulder Brands, Inc. is no longer a public company and has been excluded from the peer group index in
fiscal 2016.

The historical stock price performance of the Company’s common stock shown in the performance graph below is not
necessarily indicative of future stock price performance. The Russell 2000 Index, the Value Line Food Processing Index and the
peer group index are included for comparative purposes only. They do not necessarily reflect management's opinion that such
indices are an appropriate measure for the relative performance of the stock involved, and they are not intended to forecast or
be indicative of possible future performance of our common stock.

Comparison of Five-Year Cumulative Total Return

Farmer Bros. Co., Russell 2000 Index, Value Line Food Processing Index and Peer Group Index
(Performance Results Through June 30, 2016)

Farmer Bros. Co.
Russell 2000 Index
Value Line Food Processing Index
Peer Group Index

2011
100.00
100.00
100.00
100.00

$
$
$
$

2012
78.50
97.92
108.65
119.31

$
$
$
$

2013
138.66
121.63
130.34
144.21

$
$
$
$

2014
213.12
150.38
159.51
160.87

$
$
$
$

2015
231.76
160.61
170.55
175.66

$
$
$
$

2016
316.17
150.70
202.07
215.12

$
$
$
$

Source: Value Line Publishing, LLC

Item 6.

Selected Financial Data

The following selected consolidated financial data should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations, Risk Factors, and our consolidated financial statements and the
notes thereto included elsewhere in this report. The historical results do not necessarily indicate results expected for any
future period.

(In thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales

Cost of goods sold

Restructuring and other transition expenses(1)

Net gains from sale of Spice Assets(2)

Net (gains) losses from sales of assets
Income (loss) from operations

Income (loss) from operations per common share—diluted $
Income tax (benefit) expense(3)

Net income (loss)(4)

Net income (loss) per common share—basic

Net income (loss) per common share—diluted

Cash dividends declared per common share

Year Ended June 30,

2016

2015

2014

2013

2012

$544,382

$545,882

$528,380

$513,869

$498,701

$335,907

$348,846

$332,466

$328,693

$332,309

$ 10,432

— $

—

$ 16,533
$ (5,603) $
$ (2,802) $
$
$ 8,179

$
0.49
$(79,997) $
$
$ 89,918

5.45

5.41

— $

— $
$ (3,814) $ (4,467) $
$
$

8,916

394

3,284

0.20

402

652

0.04

0.56

705

$ 12,132

0.76

372

—
(268)
$ (21,846)
(1.41)
0.02
$
(347)
(825) $
$
$ (8,462) $ (26,576)
(1.72)
$
(1.72)
—

(0.54) $
(0.54) $
— $

— $

(In thousands)
Consolidated Balance Sheet Data:
Total assets(5)

Deferred income taxes

Capital lease obligations(6)

Long-term borrowings under revolving credit facility

Earn-out payable-RLC acquisition(7)

Long-term derivative liabilities

Total liabilities(8)

2016

2015

June 30,

2014

2013

2012

$368,991

$240,943

$266,177

$244,136

$257,916

$ 80,786

$ 2,359

751

5,848

414

467

861

9,703

$ 12,168

$ 15,867

— $

100

— $

— $ 10,000

200

— $

— $ 1,129

—

$186,397

$150,932

$151,313

$162,298

$174,364

_____________
(1) See Note 3, Corporate Relocation Plan, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of

this report.

(2) See Note 5, Sale of Spice Assets, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this

report.

(3) Includes non-cash income tax benefit of $80.3 million in fiscal 2016 from the release of valuation allowance on deferred
tax assets. See Note 20, Income Taxes, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this report.

(4) Includes: (a) beneficial effect of liquidation of LIFO inventory quantities of $4.2 million, $4.9 million, $0, $1.1 million
and $14.2 million in fiscal 2016, 2015, 2014, 2013 and 2012, respectively; and (b) $5.6 million in impairment losses on
goodwill and intangible assets and $4.6 million in pension withdrawal expense in fiscal 2012.

(5) Includes $28.1 million in assets at June 30, 2016 recorded in "Property, plant and equipment" to offset New Facility
lease obligation recorded in "Other long-term liabilities"related the New Facility included in "Property, plant and
equipment" as the deemed owner of the New Facility.

(6) Excludes imputed interest.

(7) See Note 2, Acquisition, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.
(8) Includes $28.1 million New Facility lease obligation at June 30, 2016 recorded in “Other long-term liabilities.”

See Note 19, Other Long-Term Liabilities, of the Notes to Consolidated Financial Statements included in Part II, Item 8
of this report.

Item 7.

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

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking statements as a result of many factors. The results of
operations for the fiscal years ended June 30, 2016, 2015 and 2014 are not necessarily indicative of the results that may be
expected for any future period. The following discussion should be read in combination with the consolidated financial
statements and the notes thereto included in Part II, Item 8 of this report and with the “Risk Factors” described in Part I,
Item 1A of this report.

Overview

We are a national coffee roaster, wholesaler and distributor of coffee, tea and culinary products manufactured under

supply agreements, under our owned brands, as well as under private labels on behalf of certain customers. We were
founded in 1912, incorporated in California in 1923, and reincorporated in Delaware in 2004. We operate in one business
segment.

We serve a wide variety of customers, from small independent restaurants and foodservice operators to large
institutional buyers like restaurants and convenience store chains, hotels, casinos, hospitals, and gourmet coffee houses, as
well as grocery chains with private brand and consumer-branded coffee products. Through our sustainability, stewardship,
environmental efforts, and leadership we are not only committed to serving the finest products available, considering the
cost needs of the customer, but also insist on their sustainable cultivation, manufacture and distribution whenever possible.
Our product categories consist of a robust line of roast and ground coffee, including organic, Direct Trade, DTVS and
sustainably-produced offerings; frozen liquid coffee; flavored and unflavored iced and hot teas; culinary products including
gelatins and puddings, soup bases, dressings, gravy and sauce mixes, pancake and biscuit mixes, jellies and preserves, and
coffee-related products such as coffee filters, sugar and creamers; spices; and other beverages including cappuccino, cocoa,
granitas, and ready-to-drink iced coffee. We offer a comprehensive approach to our customers by providing not only a
breadth of high-quality products, but also value-added services such as market insight, beverage planning, and equipment
placement and service.

We operate production facilities in Portland, Oregon and Houston, Texas. Distribution takes place out of our Portland
facility as well as three separate distribution centers in Northlake, Illinois; Oklahoma City, Oklahoma; and Moonachie, New
Jersey. As of June 30, 2016, the Torrance facility continued to house certain administrative functions, serve as a distribution
facility and branch warehouse pending transition of the remaining Torrance operations to our other facilities. Upon
completion, the New Facility will serve as a production facility and distribution center for our products.

Our products reach our customers primarily in two ways: through our nationwide DSD network of 450 delivery routes
and 109 branch warehouses at June 30, 2016, or direct-shipped via common carriers or third-party distributors. We operate a
large fleet of trucks and other vehicles to distribute and deliver our products, and we rely on 3PL service providers for our
long-haul distribution. DSD sales are made “off-truck” to our customers at their places of business.

Corporate Relocation

The significant milestones associated with our Corporate Relocation Plan are as follows:

Event
Announced Corporate Relocation Plan

Transitioned coffee processing and packaging from Torrance production facility
and consolidated them with Houston and Portland production facilities

Moved Houston distribution operations to Oklahoma City distribution center

Entered into the lease agreement and development management agreement for New
Facility

Commenced construction of New Facility

Transitioned primary administrative offices from Torrance to temporary leased
offices in Fort Worth, Texas

Sold Spice Assets to Harris

Principal design work completed on New Facility

Completed transition services to Harris and ceased spice processing and packaging at
Torrance facility

Entered into purchase and sale agreement to sell Torrance facility

Exercised purchase option on New Facility

Closed sale of Torrance facility

Close on purchase option for New Facility

Exit from Torrance facility

Completion of construction and relocation to New Facility

Date

Q3 fiscal 2015

Q4 fiscal 2015

Q1 fiscal 2016

Q1-Q2 fiscal 2016

Q2 fiscal 2016

Q3 fiscal 2016

Q4 fiscal 2016

Q1 fiscal 2017

Estimated Q1 fiscal 2017

Estimated Q2 fiscal 2017

Estimated Q3 fiscal 2017

See Liquidity, Capital Resources and Financial Condition below for further details of the impact of these activities on

our financial condition and liquidity.

Recent Developments

On September 9, 2016, we entered into an asset purchase agreement to acquire substantially all of the assets of China
Mist Brands, Inc., for an aggregate purchase price of $11.3 million, with $10.8 million to be paid in cash at closing and $0.5
million to be paid as earnout if certain sales levels are achieved in the calendar years of 2017 and 2018. The transaction is
expected to close during the second quarter of fiscal 2017. We anticipate that the acquisition of China Mist will give us a
greater presence in the high-growth premium tea industry. See Note 24, Subsequent Events, of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this report.

Important Factors Affecting Our Results of Operations

We have identified factors that affect our industry and business which we expect to also play an important role in our

future growth and profitability. Some of these factors include:

•

Demographic and Channel Trends. Our success is dependent upon our ability to develop new products in
response to demographic and other trends to better compete in areas such as premium coffee and tea, including
expansion of our product portfolio by investing resources in what we believe to be key growth categories,
including the launch of our Metropolitan™ single cup coffee, expanded seasonal coffee and specialty beverages,
new shelf-stable coffee products, new hot teas, the introduction of Collaborative Coffee™ branded products into
the retail grocery channel, and the packaging redesign and product portfolio optimization of our Un Momento®
retail branded product line.

Fluctuations in Green Coffee Prices. Our primary raw material is green coffee, an agricultural commodity
traded on the Commodities and Futures Exchange that is subject to price fluctuations. Over the past five years,
coffee “C” market price per pound ranged from approximately $1.02 to $2.90. The coffee “C” market price as of
June 30, 2016 and 2015 was $1.46 and $1.32 per pound, respectively. The price and availability of green coffee
directly impacts our results of operations. For additional details, see Risk Factors in Part I, Item 1A of this report.

•

Hedging Strategy. We are exposed to market risk of losses due to changes in coffee commodity prices. Our
business model strives to reduce the impact of green coffee price fluctuations on our financial results and to
protect and stabilize our margins, principally through customer arrangements and derivative instruments, as
further explained in Note 7, Derivative Instruments, of the Notes to Consolidated Financial Statements included
in Part II, Item 8 of this report. In each of fiscal 2016 and fiscal 2015, a lower percentage of our roast and ground
coffee volume was based on a price schedule and a higher percentage was sold to customers under commodity-
based pricing arrangements as compared to fiscal 2014.

Sustainability. With an increasing focus on sustainability across the coffee and foodservice industry, and
particularly from the customers we serve, it is important for us to embrace sustainability across our operations, in
the quality of our products, as well as, how we treat our coffee growers. We believe that our collective efforts in
measuring our social and environmental impact, creating programs for waste, water and energy reduction,
promoting partnerships in our supply chain that aim at supply chain stability and food security, and focusing on
employee engagement place us in a unique position to help retailers and foodservice operators create
differentiated coffee programs that can include sustainable supply chains, direct trade purchasing, training and
technical assistance, recycling and composting networks, and packaging material reductions.

Supply Chain Efficiencies and Competition. In order to compete effectively and capitalize on growth
opportunities, we must continue to evaluate and undertake initiatives to reduce costs and streamline our supply
chain. We undertook the Corporate Relocation Plan, in part, to pursue improved production efficiency to allow us
to provide a more cost-competitive offering of high-quality products. We continue to look for ways to deploy our
personnel, systems, assets and infrastructure to create or enhance stockholder value. Areas of focus have included
corporate staffing and structure, methods of procurement, logistics, inventory management, supporting
technology, and real estate assets.

• Market Opportunities. We have invested and in the future may invest in acquisitions that we believe will
enhance long-term stockholder value and complement or enhance our product, equipment, service and/or
distribution offerings to existing and new customer bases. For example, subsequent to the fiscal year end, on
September 9, 2016, we entered into an asset purchase agreement to acquire substantially all of the assets of China
Mist as described in Note 24, Subsequent Events, of the Notes to Consolidated Financial Statements included in
Part II, Item 8 of this report. We anticipate that the acquisition of China Mist will give us a greater presence in the
high-growth premium tea industry. Additionally, in the first quarter of fiscal 2015 we acquired substantially all
of the assets of Rae' Launo Corporation (“RLC”) as described in Note 2, Acquisition, of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this report.

•

Capacity Utilization. We calculate our utilization for all of our production facilities on an aggregate basis based
on the number of product pounds manufactured during the actual number of production shifts worked during an
average week, compared to the number of product pounds that could be manufactured based on the maximum
number of production shifts that could be operated during the week (assuming three shifts per day, seven days per
week), in each case, based on our current product mix. Utilization rates for our production facilities were
approximately 90%, 66% and 65% during the fiscal years ended June 30, 2016, 2015 and 2014, respectively. The
higher utilization rate in fiscal 2016 was due to the wind-down of production at our Torrance facility and the
addition of those production volumes to our Portland and Houston production facilities. Since most of our
customers do not commit to long-term firm production schedules, we are unable to forecast the level of customer
orders with certainty to maximize utilization of manufacturing capacity. As a result, our production facility
capacity utilization generally remains less than 100%.

Results of Operations

Fiscal Years Ended June 30, 2016 and 2015

Financial Highlights

•

Gross profit increased 5.8% to $208.5 million in fiscal 2016 from $197.0 million in fiscal 2015.

Gross margin increased to 38.3% in fiscal 2016 from 36.1% in fiscal 2015.

Income from operations increased 149.1% to $8.2 million in fiscal 2016 from $3.3 million in fiscal 2015.

Net income was $89.9 million, or $5.41 per diluted common share, in fiscal 2016, primarily due to non-cash
income tax benefit of $80.3 million from the release of valuation allowance on deferred tax assets, compared to
$0.7 million, or $0.04 per diluted common share, in fiscal 2015.

Fiscal 2016 Strategic Initiatives

In fiscal 2016, we undertook initiatives to reduce costs, streamline our supply chain, improve the breadth of products

and services we provide to our customers, and better position the Company to attract new customers. These initiatives
included the following:

•

Corporate Relocation Plan. We continued to execute on the Corporate Relocation Plan that we initiated in the
third quarter of fiscal 2015 by executing on the milestones described above under Corporate Relocation.

Third-Party Logistics. During the second half of fiscal 2016, we replaced our long-haul fleet operations with
3PL. We expect that this transportation arrangement will reduce our fuel consumption and empty trailer miles,
while improving our intermodal and trailer cube utilization.

Vendor Managed Inventory. During the second half of fiscal 2016, we entered into a vendor managed inventory
arrangement with a third party. We anticipate that the use of vendor managed inventory arrangements will result
in a reduction in raw material, finished goods and logistics costs, while improving packaging innovation and
fulfillment.

DSD Reorganization. In fiscal 2016, we continued our efforts to improve efficiencies in our sales and product
offerings. During the second half of fiscal 2016, we began to realign our DSD organization by undertaking
initiatives intended to streamline communication and decision making, enhance branch organizational structure,
and improve customer focus, including toward a comprehensive training program for all DSD team members to
strengthen customer engagement. In fiscal 2016, we executed a regional test of our first advertising and lead
generation campaign designed to improve our new customer acquisition rate within our DSD network.

Branch Consolidation and Property Sales. In an effort to streamline our branch operations, in the fourth quarter
of fiscal 2016 we sold two Northern California branch properties, with a third Northern California property under
contract for sale, and we acquired a new branch facility in Hayward, California.

Introduction of Collaborative Coffee™ and Redesign of Un Momento® Branded Retail Products. In an effort to
address what we believe to be unmet consumer needs and improve margin within the retail grocery environment,
in fiscal 2016, we launched Collaborative Coffee™, a new brand of ethically sourced, whole bean direct trade
coffees into the retail grocery channel. In addition, we completed a packaging redesign and product portfolio
optimization of our Un Momento® retail branded product line.

Net Sales

Net sales in fiscal 2016 decreased $1.5 million, or 0.3%, to $544.4 million from $545.9 million in fiscal 2015
primarily due to a decrease in net sales of coffee and tea products, partially offset by an increase in net sales of spice
products and other beverages. Net sales in fiscal 2016 included $9.7 million in price decreases to customers utilizing
commodity-based pricing arrangements, where the changes in the green coffee commodity costs are passed on to the
customer, as compared to $9.7 million in price increases to customers utilizing such arrangements in fiscal 2015.

The change in net sales in fiscal 2016 compared to fiscal 2015 was due to the following:

(In millions)

Effect of change in unit sales

Effect of pricing and product mix changes

Total decrease in net sales

Year Ended June 30,
2016 vs. 2015

14.4
(15.9)
(1.5)

Unit sales increased 3.6% in fiscal 2016 as compared to fiscal 2015, but average unit price decreased by 3.8%
resulting in a decrease in net sales of 0.3%. The increase in unit sales was primarily due to a 3.4% increase in unit sales of
roast and ground coffee products, which accounted for approximately 61% of our total net sales, while the decrease in
average unit price was primarily due to the lower average unit price of roast and ground coffee products primarily driven by
the pass-through of lower green coffee commodity purchase costs to our customers. In fiscal 2016, we processed and sold
approximately 90.7 million pounds of green coffee as compared to 87.7 million pounds of green coffee processed and sold
in fiscal 2015. There were no new product category introductions in fiscal 2016 or 2015 which had a material impact on our
net sales.

The following table presents net sales aggregated by product category for the respective periods indicated:

(In thousands)

Net Sales by Product Category:
Coffee (Roast & Ground)
Coffee (Frozen Liquid)
Tea (Iced & Hot)
Culinary
Spice(1)
Other beverages(2)
Net sales by product category
Fuel surcharge
Net sales

Year Ended June 30,

2016

2015

% of total

332,533
35,933
25,096
54,036
35,789
57,690
541,077
3,305
544,382

61% $
7%
4%
10%
6%
11%
99%
1%
100% $

336,129
37,428
27,172
54,208
32,336
54,933
542,206
3,676
545,882

60%
7%
5%
11%
6%
10%
99%
1%
100%

____________
(1) Spice product net sales included $3.2 million in sale of inventory to Harris at cost in fiscal 2016 upon conclusion of the
transition services provided by the Company in connection with the sale of Spice Assets.
(2) Includes all beverages other than coffee and tea.

Cost of Goods Sold

Cost of goods sold in fiscal 2016 decreased $12.9 million, or 3.7%, to $335.9 million, or 61.7% of net sales, from
$348.8 million, or 63.9% of net sales, in fiscal 2015. The decrease in cost of goods sold as a percentage of net sales in fiscal
2016 was primarily due to lower coffee commodity costs compared to the same period in the prior fiscal year, supply chain
efficiencies realized primarily through the consolidation of our former Torrance coffee production volumes into our Houston
manufacturing facility, and other supply chain improvements. The average Arabica "C” market price of green coffee
decreased 24.8% in fiscal 2016. Inventories decreased at the end of fiscal 2016 compared to fiscal 2015 primarily due to
production consolidation and the sale of processed and unprocessed inventories to Harris at cost upon conclusion of the
transition services provided by the Company in connection with the sale of Spice Assets. As a result, a beneficial effect of
liquidation of LIFO inventory quantities in the amount of $4.2 million was recorded in cost of goods sold in fiscal 2016
reducing cost of goods sold by the same amount. In fiscal 2015 $4.9 million in beneficial effect of liquidation of LIFO
inventory quantities was recorded.

Gross Profit

Gross profit in fiscal 2016 increased $11.4 million, or 5.8%, to $208.5 million from $197.0 million in the prior fiscal

year and gross margin increased to 38.3% in fiscal 2016 from 36.1% in the prior fiscal year. The increase in gross profit was
primarily due to lower coffee commodity costs compared to the same period in the prior fiscal year, supply chain
efficiencies realized primarily through the consolidation of our former Torrance coffee production volumes into our Houston
manufacturing facility and other supply chain improvements. Gross profit in fiscal 2016 and 2015 included the beneficial
effect of the liquidation of LIFO inventory quantities in the amount of $4.2 million and $4.9 million, respectively.

Operating Expenses

In fiscal 2016, operating expenses increased $6.5 million, or 3.4%, to $200.3 million or 36.8% of net sales, from
$193.8 million, or 35.5% of net sales, in fiscal 2015, primarily due to higher general and administrative expenses and
restructuring and other transition expenses associated with the Corporate Relocation Plan as compared to the prior fiscal
year. General and administrative expenses and restructuring and other transition expenses increased $10.8 million and $6.1
million, respectively, in fiscal 2016, as compared to the prior fiscal year, partially offset by a $1.6 million decrease in selling
expenses. The increase in general and administrative expenses in fiscal 2016 as compared to fiscal 2015 was primarily due
to higher accruals for incentive compensation to eligible employees as compared to a reduction in accrual for incentive
compensation to eligible employees in the prior fiscal year, an increase in employee and retiree medical costs, workers'
compensation expense and the write-off of a long-term loan receivable that was deemed uncollectible. The increase in
general and administrative expenses was partially offset by $5.6 million in net gains from sale of Spice Assets and $2.8
million in net gains from sales of assets, primarily real estate, as compared to $(0.4) million in net losses from sales of
assets, primarily vehicles, in fiscal 2015. The decrease in selling expenses in fiscal 2016 as compared to fiscal 2015 was
primarily due to lower depreciation and amortization expense and lower vehicle, fuel and freight expenses, partially offset
by higher accruals for incentive compensation for eligible employees as compared to a reduction in accrual for incentive
compensation to eligible employees in the prior fiscal year.

Income from Operations

Income from operations in fiscal 2016 was $8.2 million as compared to $3.3 million in fiscal 2015 primarily due to

higher gross profit, net gains from the sale of Spice Assets and certain real estate assets and lower selling expenses, partially
offset by higher restructuring and other transition expenses associated with the Corporate Relocation Plan and general and
administrative expenses.

Total Other Income (Expense)

Total other income in fiscal 2016 was $1.7 million compared to total other expense of $(2.2) million in fiscal 2015,
primarily due to net gains on derivative instruments and investments of $0.3 million in fiscal 2016 compared to net losses on
derivative instruments and investments of $(3.3) million in fiscal 2015. The net gains and net losses on derivative
instruments and investments in fiscal 2016 and fiscal 2015, respectively, were primarily due to mark-to-market net gains and
net losses on coffee-related derivative instruments not designated as accounting hedges. Net gains on such coffee-related
derivative instruments in fiscal 2016 were $0.3 million compared to net losses of $(3.0) million in fiscal 2015. In fiscal 2016
and 2015, we recognized $(0.6) million and $(0.3) million in net losses on coffee-related derivative instruments designated
as cash flow hedges due to ineffectiveness.

Income Taxes

In fiscal 2016, we released $80.3 million of the valuation allowance on deferred tax assets, resulting in unreserved
deferred tax assets of $90.2 million at June 30, 2016 and a non-cash reduction in income tax expense, or a tax benefit of
$80.0 million in fiscal 2016 as compared to income tax expense of $(0.4) million in fiscal 2015. In fiscal 2016, total
deferred tax assets were largely unchanged. Deferred tax assets related to our defined benefit pension plans and retiree
medical plan increased due to losses recorded in OCI, and net operating loss related to deferred tax assets declined as losses
were used to offset current income. In fiscal 2015, deferred tax assets increased primarily due to losses recorded in Other
comprehensive income (loss) ("OCI") related to coffee-related derivative instruments, our defined benefit pension plans and
retiree medical plan.

Since 2009, a full valuation allowance has been maintained to offset our deferred tax assets. In the fourth quarter of

fiscal 2016, after analyzing the available positive and negative evidence, we concluded that it is more likely than not that we
will utilize a portion of our tax loss carryforwards. In this analysis, we considered the following items of positive evidence:
twelve quarters of our cumulative gain position and our forecasted future earnings; completion of parts of our restructuring
plan which significantly reduced costs; and sale of our Torrance facility which is expected to result in a significant gain in
the first quarter of fiscal 2017. We also considered the following items of negative evidence: large pension related OCI
losses that we recorded in the prior twelve quarters and potential expiration of certain state unused net operating loss
carryforwards and credits.

We cannot conclude that certain state net operating loss carryforwards and tax credit carryovers will be utilized before

expiration. Accordingly, we will maintain a valuation allowance of $1.6 million to offset these deferred tax assets. We will
continue to monitor all available evidence, both positive and negative, in determining whether it is more likely than not that
the Company will realize its remaining deferred tax assets.

The Internal Revenue Service is currently auditing our tax years ended June 30, 2013 and 2014.

Net Income

As a result of the foregoing factors, net income was $89.9 million, or $5.41 per diluted common share, in fiscal 2016

as compared to $0.7 million, or $0.04 per diluted common share, in fiscal 2015.

Fiscal Years Ended June 30, 2015 and 2014

Overview

In fiscal 2015, we continued our efforts to improve efficiencies in our sales and product offerings. These efforts

included targeted selling efforts in untapped markets, sales and marketing training for all of our RSRs, and the
discontinuation over 300 SKUs, excluding the SKUs added from the RLC Acquisition. We also continued to expand our
product portfolio by investing resources in what we believe to be key growth categories, including the launch of our
Metropolitan™ single cup coffee, expanded seasonal coffee and specialty beverages, new shelf-stable coffee products, and
new hot teas.

Net Sales

Net sales in fiscal 2015 increased $17.5 million, or 3.3%, to $545.9 million from $528.4 million in fiscal 2014. The

increase in net sales in fiscal 2015 included $9.7 million in price increases to customers utilizing commodity-based pricing
arrangements, where the changes in the green coffee commodity costs are passed on to the customer.

The change in net sales in fiscal 2015 compared to fiscal 2014 was due to the following:

(In millions)

Effect of change in unit sales

Effect of pricing and product mix changes

Total increase in net sales

Year Ended June 30,
2015 vs. 2014

(2.0)
19.5

17.5

Unit sales decreased (0.2)% in fiscal 2015 as compared to fiscal 2014, fully offset by a 3.5% increase in average unit
price resulting in an increase in net sales of 3.3%. The decrease in unit sales was primarily due to a (0.7)% decrease in unit
sales of roast and ground coffee products, which accounted for approximately 61% of our total net sales, while the increase
in average unit price was primarily due to the higher average unit price of roast and ground coffee products primarily driven
by the pass-through of higher green coffee commodity purchase costs to our customers. In fiscal 2015, we processed and
sold approximately 87.7 million pounds of green coffee as compared to approximately 88.3 million pounds of green coffee
processed and sold in fiscal 2014. There were no new product category introductions in fiscal 2015 or 2014 which had a
material impact on our net sales.

The following table presents net sales aggregated by product category for the respective periods indicated:

(In thousands)

Net Sales by Product Category:
Coffee (Roast & Ground)
Coffee (Frozen Liquid)
Tea (Iced & Hot)
Culinary
Spice
Other beverages(1)
Net sales by product category
Fuel surcharge
Net sales

____________
(1) Includes all beverages other than coffee and tea.

Cost of Goods Sold

Year Ended June 30,

2015

2014

% of total

336,129
37,428
27,172
54,208
32,336
54,933
542,206
3,676
545,882

61% $
7%
5%
10%
6%
10%
99%
1%
100% $

319,251
37,840
28,452
56,567
31,876
50,572
524,558
3,822
528,380

60%
7%
5%
11%
6%
10%
99%
1%
100%

Cost of goods sold in fiscal 2015 increased $16.4 million, or 4.9%, to $348.8 million, or 63.9% of net sales, from
$332.5 million, or 62.9% of net sales in fiscal 2014. The increase in cost of goods sold as a percentage of net sales in fiscal
2015 was primarily due to a 16.2% increase in the average Arabica "C” market price of green coffee. Inventories decreased
at the end of fiscal 2015 compared to fiscal 2014 and, therefore, a beneficial effect of liquidation of LIFO inventory
quantities in the amount of $4.9 million was recorded in cost of goods sold in fiscal 2015 reducing cost of goods sold by the
same amount. No beneficial effect of liquidation of LIFO inventory quantities was recorded in fiscal 2014.

Gross Profit

Gross profit in fiscal 2015 increased $1.1 million, or 0.6%, to $197.0 million from $195.9 million in fiscal 2014, but

gross margin decreased to 36.1% in fiscal 2015 from 37.1% in the prior fiscal year. The increase in gross profit was
primarily due to the increase in net sales from higher prices of roast and ground coffee, frozen liquid coffee, tea products,
spice and other beverages. The decrease in gross margin was primarily due to a 16.9% increase in the average “C” market
price of green coffee as compared to the prior fiscal year. Gross profit in fiscal 2015 included the beneficial effect of the
liquidation of LIFO inventory quantities in the amount of $4.9 million.

Operating Expenses

In fiscal 2015, operating expenses increased $6.8 million, or 3.6%, to $193.8 million, or 35.5% of net sales, from
$187.0 million, or 35.4% of net sales, in fiscal 2014, primarily due to $10.4 million in restructuring and other transition
expenses associated with the Corporate Relocation Plan. In fiscal 2015 selling expenses decreased $(3.3) million and
general and administrative expenses decreased $(4.6) million as compared to fiscal 2014. The decrease in selling expenses
in fiscal 2015 as compared to fiscal 2014 was primarily due to lower depreciation and amortization expense, bonus expense
and salaries-related expense offset by an increase in workers' compensation expense. The decrease in general and
administrative expenses in fiscal 2015 as compared to fiscal 2014 was primarily due to lower depreciation and amortization
expense, bonus expense, consulting expense and the absence of expenses in connection with the restatement of certain prior
period financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013. This
decrease in general and administrative expenses was partially offset by an increase in salaries-related expense, employee and
retiree medical expense, ESOP compensation expense and workers' compensation expense. Operating expenses in fiscal
2015 also reflected $(0.4) million in net losses from sales of assets, primarily vehicles, as compared to $3.8 million in net
gains from sales of assets, primarily real estate, in fiscal 2014.

Income from Operations

Income from operations in fiscal 2015 was $3.3 million compared to $8.9 million in fiscal 2014 primarily due to

restructuring and other transition expenses associated with the Corporate Relocation Plan and lower gross profit partially
offset by the decrease in selling expenses and general administrative expenses.

Total Other Income (Expense)

Total other expense in fiscal 2015 was $(2.2) million compared to total other income of $3.9 million in fiscal 2014,

primarily due to net losses on derivative instruments and investments of $(3.3) million compared to net gains on derivative
instruments and investments of $3.1 million in fiscal 2014. The net losses and net gains on derivative instruments and
investments in fiscal 2015 and fiscal 2014, respectively, were primarily due to mark-to-market net losses and net gains,
respectively, on coffee-related derivative instruments not designated as accounting hedges. Net losses on such coffee-related
derivative instruments in fiscal 2015 were $(3.0) million compared to net gains on such coffee-related derivative instruments
in fiscal 2014 of $2.7 million. In each of the fiscal years ended June 30, 2015 and 2014, we recognized $(0.3) million in
losses on coffee-related derivative instruments designated as cash flow hedges due to ineffectiveness.

Income Taxes

In fiscal 2015, we recorded income tax expense of $0.4 million compared to $0.7 million in fiscal 2014. Income tax

expense in fiscal 2015 was primarily attributable to cash taxes paid.

As of June 30, 2015, the Company has generated approximately $0.6 million of excess tax benefits related to stock

compensation, the benefit of which will be recorded to additional paid in capital if and when realized.

Net Income

As a result of the foregoing factors, net income was $0.7 million, or $0.04 per diluted common share, in fiscal 2015

compared to $12.1 million, or $0.76 per diluted common share, in fiscal 2014.

Non-GAAP Financial Measures

In addition to net income determined in accordance with U.S. generally accepted accounting principles (“GAAP”),

we use the following non-GAAP financial measures in assessing our operating performance:

“Non-GAAP net income” is defined as net income excluding the impact of:

•

restructuring and other transition expenses;

net gains and losses from sales of assets; and

income tax benefit, including the release of valuation allowance on deferred tax assets.

“Non-GAAP net income per diluted common share” is defined as Non-GAAP net income divided by the weighted-average
number of common shares outstanding, inclusive of the dilutive effect of common equivalent shares outstanding during the
period.

“Adjusted EBITDA” is defined as net income excluding the impact of:

•

income taxes;

interest expense;

depreciation and amortization expense;

• ESOP and share-based compensation expense;

•

non-cash impairment losses;

non-cash pension withdrawal expense;

other similar non-cash expenses;

restructuring and other transition expenses; and

net gains and losses from sales of assets.

“Adjusted EBITDA Margin” is defined as Adjusted EBITDA expressed as a percentage of net sales.

Restructuring and other transition expenses are expenses that are directly attributable to the Corporate Relocation
Plan, consisting primarily of employee retention and separation benefits, facility-related costs and other related costs such as
travel, legal, consulting and other professional services.

We believe these non-GAAP financial measures provide a useful measure of the Company’s operating results, a
meaningful comparison with historical results and with the results of other companies, and insight into the Company's
ongoing operating performance. Further, management utilizes these measures, in addition to GAAP measures, when
evaluating and comparing the Company's operating performance against internal financial forecasts and budgets.

In the fourth quarter of fiscal 2016, we modified the calculation of Non-GAAP net income and Non-GAAP net
income per diluted common share to exclude the non-cash income tax benefit from the release of valuation allowance on
deferred tax assets. We believe this non-cash income tax benefit is not reflective of our ongoing operating results and that
excluding the income tax benefit will help investors with comparability of our results. The historical presentation of the non-
GAAP measures was not affected by this modification.

Non-GAAP net income, Non-GAAP net income per diluted common share, Adjusted EBITDA and Adjusted EBITDA
Margin, as defined by us, may not be comparable to similarly titled measures reported by other companies. We do not intend
for non-GAAP financial measures to be considered in isolation or as a substitute for other measures prepared in accordance
with GAAP.

Set forth below is a reconciliation of reported net income to Non-GAAP net income and reported net income per

common share-diluted to Non-GAAP net income per diluted common share:

(In thousands)
Net income, as reported

Restructuring and other transition expenses

Net gains from sale of Spice Assets

Net (gains) losses from sales of assets

Non-cash income tax benefit, including release of valuation

allowance on deferred tax assets

Non-GAAP net income

Net income per common share—diluted, as reported
Impact of restructuring and other transition expenses

Impact of net gains from sale of Spice Assets

Impact of net (gains) losses from sales of assets

Impact of release of valuation allowance on deferred tax assets
Non-GAAP net income per diluted common share

Year Ended June 30,

2016

2015

2014

89,918

652

12,132

16,533
(5,603)
(2,802)

(80,439)
17,607

5.41

1.00
$
(0.34) $
(0.17) $
(4.84) $
$
1.06

10,432

—

394

—

11,478

0.04

0.64

— $

0.03

— $

0.71

—

—
(3,814)

—

8,318

0.76

—

—
(0.24)
—

0.52

Set forth below is a reconciliation of reported net income to Adjusted EBITDA:

(In thousands)
Net income, as reported

Income tax (benefit) expense

Interest expense
Depreciation and amortization expense
ESOP and share-based compensation expense

Restructuring and other transition expenses

Net gains from sale of Spice Assets

Net (gains) losses from sales of assets
Adjusted EBITDA
Adjusted EBITDA Margin

Liquidity, Capital Resources and Financial Condition

Credit Facility

Year Ended June 30,

2016

2015

2014

89,918

652

(79,997)

425
20,774
4,342

16,533
(5,603)
(2,802)
43,590

402
769
24,179
5,691

10,432

—

394
42,519

12,132

705
1,258
27,334
4,692

—

—
(3,814)
42,307

8.0%

7.8%

8.0%

We maintain a $75.0 million senior secured revolving credit facility (the “Revolving Facility”) with JPMorgan Chase

Bank, N.A. and SunTrust Bank (collectively, the “Lenders”), with a sublimit on letters of credit and swingline loans of
$30.0 million and $15.0 million respectively. The Revolving Facility includes an accordion feature whereby we may
increase the Revolving Commitment by up to an additional $50.0 million, subject to certain conditions. Advances are based
on our eligible accounts receivable, eligible inventory, and the value of certain real property and trademarks, less required
reserves. The commitment fee ranges from 0.25% to 0.375% per annum based on average revolver usage. Outstanding
obligations are collateralized by all of our assets, excluding certain real property not included in the borrowing base,
machinery and equipment (other than inventory), and our preferred stock portfolio. Borrowings under the Revolving Facility
bear interest based on average historical excess availability levels with a range of PRIME - 0.25% to PRIME + 0.50% or
Adjusted LIBO Rate + 1.25% to Adjusted LIBO Rate + 2.00%. We are subject to a variety of affirmative and negative

covenants of types customary in an asset-based lending facility, including financial covenants relating to the maintenance of
a fixed charge coverage ratio in certain circumstances, and the right of the Lenders to establish reserve requirements, which
may reduce the amount of credit otherwise available to us. We are allowed to pay dividends, provided, among other things,
certain excess availability requirements are met, and no event of default exists or has occurred and is continuing as of the
date of any such payment and after giving effect thereto. The Revolving Facility expires on March 2, 2020.

At June 30, 2016, we were eligible to borrow up to a total of $58.6 million under the Revolving Facility and had

outstanding borrowings of $0.1 million, utilized $11.9 million of the letters of credit sublimit, and had excess availability
under the Revolving Facility of $46.6 million. At June 30, 2016, the weighted average interest rate on our outstanding
borrowings under the Revolving Facility was 1.64%. At June 30, 2016, we were in compliance with all of the restrictive
covenants under the Revolving Facility.

At August 31, 2016, we had estimated outstanding borrowings of $0.2 million, utilized $11.9 million of the letters of
credit sublimit, and had excess availability under the Revolving Facility of $46.5 million. At August 31, 2016, the weighted
average interest rate on our outstanding borrowings under the Revolving Facility was 1.65%.

Liquidity

We generally finance our operations through cash flows from operations and borrowings under our Revolving Facility

described above. At June 30, 2016, we had $21.1 million in cash and cash equivalents and $25.6 million in short-term
investments. We believe our Revolving Facility, to the extent available, in addition to our cash flows from operations and
other liquid assets, the net proceeds from the sale of the Spice Assets and the proceeds from the sale of our Torrance facility,
collectively, will be sufficient to fund our working capital and capital expenditure requirements for the next 12 to 18 months
including the expected capital expenditures associated with the Corporate Relocation Plan, the purchase option under the
Lease Agreement for the partially constructed New Facility, additional construction costs to complete the New Facility and
anticipated capital expenditures for machinery and equipment, furniture and fixtures, and related expenditures.

Changes in Cash Flows

We generate cash from operating activities primarily from cash collections related to the sale of our products. Net cash
provided by operating activities was $27.6 million in fiscal 2016 compared to $26.9 million in fiscal 2015 and $52.9 million
in fiscal 2014. The higher level of net cash provided by operating activities in fiscal 2016 compared to the prior fiscal year
was primarily due to higher net income and a higher level of cash inflows from operating activities. The increase in net
income was primarily due to non-cash income tax benefit resulting from the release of valuation allowance on deferred tax
assets. The higher level of cash inflows from operating activities was primarily due to higher proceeds from sales of short-
term investments, accruals for incentive compensation payments to eligible employees and a decrease in inventory balances,
partially offset by higher cash outflows from increases in derivative assets and accounts receivable balances, purchases of
short-term investments and payments for restructuring and other transition expenses. Inventories decreased at the end of
fiscal 2016 compared to fiscal 2015 primarily due to production consolidation, and the sale of processed and unprocessed
inventories to Harris at cost upon conclusion of the transition services provided by the Company in connection with the sale
of Spice Assets. At June 30, 2016, we had a net gain position in our margin accounts for coffee-related derivative
instruments resulting in the release of restriction of the use of $1.0 million of cash in these accounts, which contributed to
higher cash inflows in fiscal 2016. In fiscal 2015, the lower level of net cash provided by operating activities as compared to
the prior fiscal year was due to lower net income and a higher level of cash outflows from operating activities. Cash
outflows were primarily from payments of accounts payable balances including the payment of expenses associated with the
Corporate Relocation Plan, payroll expenses including accrued bonuses and restriction of cash held in margin accounts for
coffee-related derivative instruments. Cash outflows were partially offset by cash inflows from a decrease in inventory
balances. Inventory balances decreased in fiscal 2015 compared to the prior fiscal year primarily due to the consolidation of
coffee production from the Torrance production facility with the Houston and Portland production facilities pursuant to our
Corporate Relocation Plan. At June 30, 2015, we had a net loss position in our margin accounts for coffee-related derivative
instruments resulting in restriction of the use of $1.0 million of cash in these accounts, which contributed to lower cash
inflows in fiscal 2015.

Net cash used in investing activities was $39.5 million in fiscal 2016 as compared to $20.1 million in fiscal 2015 and

$20.7 million in fiscal 2014. In fiscal 2016, net cash used in investing activities included $31.1 million for purchases of
property, plant and equipment including $4.4 million in machinery and equipment for the New Facility and $19.4 million in

purchases of construction-in-progress assets in connection with the construction of the New Facility as the deemed owner
under the lease arrangement, partially offset by $10.9 million in proceeds from sales of assets, primarily spice assets and real
estate. In fiscal 2015, net cash used in investing activities included $1.2 million in payments in connection with the RLC
Acquisition and $19.2 million for purchases of property, plant and equipment, partially offset by proceeds from sales of
assets, primarily vehicles, of $0.3 million. The increase in cash outflows for property, plant and equipment compared to the
prior fiscal year was primarily due to the capital expenditures for the New Facility as the deemed owner of the New Facility.

Net cash provided by financing activities in fiscal 2016 was $17.8 million as compared to net cash used in financing
activities of $3.6 million and $22.8 million in fiscal 2015 and 2014, respectively. Net cash provided by financing activities
in fiscal 2016 included $19.4 million in proceeds from lease financing in connection with the construction of the New
Facility as the deemed owner under the lease arrangement and $1.7 million in proceeds from stock option exercises,
partially offset by $3.1 million used to pay capital lease obligations, $0.2 million in tax withholding payments related to net
share settlement of equity awards and net repayments on our credit facility of $31,000. Net cash used in financing activities
in fiscal 2015 included $3.9 million used to pay capital lease obligations, $0.6 million in net repayments on our credit
facility, $0.6 million in deferred financing costs for the Revolving Facility and $0.1 million in tax withholding payments
related to net share settlement of equity awards, partially offset by $1.5 million in proceeds from stock option exercises. Net
repayments on our credit facility in fiscal 2014 were $20.6 million.

Sale of Spice Assets

In order to focus on our core product offerings, in the second quarter of fiscal 2016, we completed the sale of certain
assets associated with our manufacture, processing and distribution of raw, processed and blended spices and certain other
culinary products to Harris. We received $6.0 million in cash at closing, and we are eligible to receive an earnout amount of
up to $5.0 million over a three year period based upon a percentage of certain institutional spice sales by Harris following
the closing. The sale of the Spice Assets does not represent a strategic shift for us and is not expected to have a material
impact on our results of operations because we will continue to sell a complete portfolio of spice and other culinary products
purchased from Harris under a supply agreement to our DSD customers. See Note 5, Sale of Spice Assets, of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this report.

Sale of Torrance Facility

In the fourth quarter of fiscal 2016, we entered into a purchase and sale agreement to sell the Torrance facility.

Subsequent to the fiscal year end, the sale of the Torrance facility closed on July 15, 2016 for an aggregate cash sale price of
$43.0 million (which sale price was subject to customary adjustments for closing costs and documentary transfer taxes). We
have agreed to lease back the Torrance facility on a triple net basis through October 31, 2016 at zero base rent, subject to
two one-month extensions at our option at a base rent of $100,000 per month. As of June 30, 2016, the Torrance facility
continued to house certain administrative functions and serve as a distribution facility and branch warehouse pending
transition of the remaining Torrance operations to our other facilities. See Note 6, Assets Held for Sale, and Note 24,
Subsequent Events, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

Torrance Facility Exit Costs

Based on current assumptions and subject to continued implementation of the Corporate Relocation Plan, we estimate
that we will incur approximately $31 million in cash costs in connection with the exit of the Torrance facility consisting of
$18 million in employee retention and separation benefits, $5 million in facility-related costs and $8 million in other related
costs. Since adoption of the Corporate Relocation Plan in fiscal 2015 through June 30, 2016, we have recognized a total of
$25.7 million of the estimated $31 million in aggregate cash costs, including $16.2 million in employee retention and
separation benefits, $3.1 million in facility-related costs related to the relocation of our Torrance operations and certain
distribution operations and $6.4 million in other related costs recorded in “Restructuring and other transition expenses” in
our consolidated statements of operations. The remainder is expected to be recognized in the first half of fiscal 2017.
Additionally, we recognized from inception through fiscal 2016 $1.3 million in non-cash depreciation expense associated
with the Torrance production facility. We may incur certain other non-cash asset impairment costs and pension-related costs
in connection with the Corporate Relocation Plan. See Note 3, Corporate Relocation Plan, of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this report.

New Facility Construction Costs

In the first quarter of fiscal 2016, we entered into the Lease Agreement for the New Facility pursuant to which the
New Facility is being constructed by the lessor, at its expense, in accordance with agreed upon specifications and plans.
Based on the final budget, which reflects substantial completion of the principal design work for the New Facility, we
estimate that the construction costs for the New Facility will be approximately $55 million to $60 million.

In the fourth quarter of fiscal 2016 we exercised the purchase option under the Lease Agreement to acquire the

partially constructed New Facility with a targeted closing date in the first quarter of fiscal 2017. The estimated purchase
option exercise price for the New Facility is $58.8 million based on the budget for the completed facility. The actual option
exercise price for the partially constructed New Facility will depend upon, among other things, the timing of the closing and
the actual costs incurred for construction of the New Facility as of the purchase option closing date. See Note 4, New
Facility Lease Obligation, and Note 22, Commitments and Contingencies, of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this report.

We recorded an asset related to the New Facility lease obligation included in property, plant and equipment of $28.1
million at June 30, 2016, as the deemed owner of the New Facility, and an offsetting liability of $28.1 million for the lease
obligation in "Other long-term liabilities" on our consolidated balance sheet at June 30, 2016. There were no such amounts
recorded at June 30, 2015.

Capital Expenditures

For the fiscal years ended June 30, 2016, 2015 and 2014, our capital expenditures were as follows:

(In thousands)

Coffee brewing equipment

Vehicles, machinery and equipment

Building and facilities

Software, office furniture and equipment

Land

Capital expenditures, excluding New Facility

New Facility:

Machinery and equipment

Total capital expenditures

June 30,

2016

8,375

2015
10,709

2014
13,550

10,254

3,354

3,165

1,458
26,606

4,443
31,049

$
$

6,079

1,460

946

—
19,194

22
19,216

$
$

9,270

758

1,689

—
25,267

We expect to incur approximately $35 million to $39 million in anticipated capital expenditures for machinery and
equipment, furniture and fixtures, and related expenditures associated with the New Facility. As of June 30, 2016, we had
spent $4.4 million towards the purchase of machinery and equipment for the New Facility. No such capital expenditures
were incurred in fiscal 2015. The majority of the capital expenditures associated with machinery and equipment, furniture
and fixtures and related expenditures for the New Facility are expected to be incurred in the first half of fiscal 2017.

Our expected capital expenditures for fiscal 2017 unrelated to the New Facility include expenditures to replace normal
wear and tear of coffee brewing equipment, vehicles, machinery and equipment and mobile sales solution hardware, and are
expected to be consistent with the average capital expenditures for the past three fiscal years.

Working Capital

At June 30, 2016 and 2015, our working capital was composed of the following:

(In thousands)
Current assets(1)
Current liabilities(2)
Working capital

__________

June 30,

2016

2015

153,365
56,837
96,528

135,685
64,874
70,811

(1) Includes $4.0 million in coffee-related short-term derivative assets and $7.2 million in assets held for sale at June 30,

2016 and $1.0 million in restricted cash at June 30, 2015.

(2) Includes $4.0 million in coffee-related short-term derivative liabilities and $1.4 million in deferred tax liabilities at June

30, 2015.

Contractual Obligations

The following table contains information regarding total contractual obligations as of June 30, 2016, including capital

leases:

(In thousands)
Contractual obligations:
Operating lease obligations
New Facility purchase option exercise

price(1)

Capital lease obligations(2)
Pension plan obligations
Postretirement benefits other than
pension plans

Revolving credit facility
Purchase commitments(3)
Total contractual obligations

______________

Payment due by period

Total

Less Than
One Year

1-3
Years

3-5
Years

More Than
5 Years

11,801

4,093

5,927

1,720

58,779
2,504
89,950

11,957
109
72,217
247,317

58,779
1,443
8,075

1,080
109
72,217
145,796

—
1,005
16,858

2,245
—
—
26,035

—
56
17,918

2,386
—
—
22,080

—
—
47,099

6,246
—
—
53,406

(1) In the fourth quarter of fiscal 2016, we exercised the purchase option under the Lease Agreement to acquire the partially
constructed New Facility with a targeted closing date in the first quarter of fiscal 2017. The purchase option exercise
price shown in the table above is an estimate based on the budget for the completed facility. The actual option exercise
price for the partially constructed New Facility will depend upon, among other things, the timing of the closing and the
actual costs incurred for construction of the New Facility as of the purchase option closing date. See Note 4, New
Facility Lease Obligation, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

(2) Includes imputed interest of $0.1 million.

(3) Purchase commitments include commitments under coffee purchase contracts for which all delivery terms have been

finalized but the related coffee has not been received as of June 30, 2016. Amounts shown in the table above: (a) include
all coffee purchase contracts that the Company considers to be from normal purchases; and (b) do not include amounts
related to derivative instruments that are recorded at fair value on the Company’s consolidated balance sheets.

As of June 30, 2016, we had committed to purchase green coffee inventory totaling $62.5 million under fixed-price

contracts, $3.3 million in equipment for the New Facility and $6.3 million in other inventory under non-cancelable purchase
orders.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with GAAP. Our significant accounting policies are discussed
in Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Part
II, Item 8 of this report. The preparation of these financial statements requires us to make estimates, judgments and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to inventory
valuation, including LIFO reserves, valuation of intangible assets, deferred tax assets, liabilities relating to retirement
benefits, liabilities resulting from self-insurance, tax liabilities and litigation. We base our estimates, judgments and
assumptions on historical experience and other relevant factors that are believed to be reasonable based on information
available to us at the time these estimates are made.

While we believe that the historical experience and other factors considered provide a meaningful basis for the
accounting policies applied in the preparation of the consolidated financial statements, actual results may differ from these
estimates, which could require us to make adjustments to these estimates in future periods.

We believe that the estimates, judgments and assumptions involved in the accounting policies described below require

the most subjective judgment and have the greatest potential impact on our financial statements, so we consider these to be
our critical accounting policies. Our senior management has reviewed the development and selection of these critical
accounting policies and estimates, and their related disclosure in this report, with the Audit Committee of our Board of
Directors.

Exposure to Commodity Price Fluctuations and Derivative Instruments

We are exposed to commodity price risk arising from changes in the market price of green coffee. In general, increases
in the price of green coffee could cause our cost of goods sold to increase and, if not offset by product price increases, could
negatively affect our financial condition and results of operations. As a result, our business model strives to reduce the
impact of green coffee price fluctuations on our financial results and to protect and stabilize our margins, principally through
customer arrangements and derivative instruments.

In addition to our customer arrangements, we utilize derivative instruments to reduce further the impact of changing

green coffee commodity prices. We purchase over-the-counter coffee derivative instruments to enable us to lock in the price
of green coffee commodity purchases. These derivative instruments may be entered into at the direction of the customer
under commodity-based pricing arrangements to effectively lock in the purchase price of green coffee under such customer
arrangements, in certain cases up to 18 months or longer in the future. Notwithstanding this customer direction, pursuant to
Accounting Standards Codification ("ASC") 815, “Derivatives and Hedging,” we are considered the owner of these
derivative instruments and, therefore, we are required to account for them as such. In the event the customer fails to
purchase the products associated with the underlying derivative instruments for which the price has been locked-in on behalf
of the customer, we expect that such derivative instruments will be assigned to, and assumed by, the customer in accordance
with contractual terms or, in the absence of such terms, in accordance with standard industry custom and practice. In the
event the customer fails to assume such derivative instruments, we will remain obligated on the derivative instruments at
settlement. We generally settle derivative instruments to coincide with the receipt of the purchased green coffee or apply the
derivative instruments to purchase orders effectively fixing the cost of in-bound green coffee purchases. As of June 30, 2016
and 2015, we had 34.0 million and 34.2 million pounds of green coffee covered under coffee-related derivative instruments,

respectively. We do not purchase any derivative instruments to hedge cost fluctuations of any commodities other than green
coffee.

The fair value of derivative instruments is based upon broker quotes. We account for certain coffee-related derivative

instruments as accounting hedges in order to minimize the volatility created in our quarterly results from utilizing these
derivative contracts and to improve comparability between reporting periods. The effective portion of the change in fair
value of the derivative is reported in accumulated other comprehensive income (loss) (“AOCI”) on our consolidated balance
sheet and subsequently reclassified into cost of goods sold in the period or periods when the hedged transaction affects
earnings. At June 30, 2016, approximately 96% of our outstanding coffee-related derivative instruments, representing 32.6
million pounds of forecasted green coffee purchases, were designated as cash flow hedges. At June 30, 2015, approximately
94% of our outstanding coffee-related derivative instruments, representing 32.3 million pounds of forecasted green coffee
purchases, were designated as cash flow hedges. The portion of open hedging contracts that are not 100% effective as cash
flow hedges and those that are not designated as accounting hedges are marked to period-end market price and unrealized
gains or losses based on whether the period-end market price was higher or lower than the price we locked-in are recognized
in our financial results.

Our risk management practices reduce but do not eliminate our exposure to changing green coffee prices. While we

have limited our exposure to unfavorable green coffee price changes, we have also limited our ability to benefit from
favorable price changes. Further, our counterparty may require that we post cash collateral if the fair value of our derivative
liabilities exceed the amount of credit granted by such counterparty, thereby reducing our liquidity. At June 30, 2016,
because we had a net gain position in our coffee-related derivative margin accounts, none of the cash in these accounts was
restricted. At June 30, 2015, we had $1.0 million in restricted cash representing cash held on deposit in margin accounts for
coffee-related derivative instruments due to a net loss position in such accounts. Changes in commodity prices and the
number of coffee-related derivative instruments held could have a significant impact on cash deposit requirements under our
broker and counterparty agreements.

Inventories

Inventories are valued at the lower of cost or market. We account for coffee, tea and culinary products on the last in,
first out (“LIFO”) basis, and coffee brewing equipment parts on the first in, first out (“FIFO”) basis. We regularly evaluate
these inventories to determine inventory reserves for obsolete and slow-moving inventory. Inventory reserves are based on
inventory obsolescence trends, historical experience and application of specific identification. At the end of each quarter, we
record the expected effect of the liquidation of LIFO inventory quantities, if any, and record the actual impact at fiscal year-
end. An actual valuation of inventory under the LIFO method is made only at the end of each fiscal year based on the
inventory levels and costs at that time. If inventory quantities decline at the end of the fiscal year compared to the beginning
of the fiscal year, the reduction results in the liquidation of LIFO inventory quantities carried at the cost prevailing in prior
years. This LIFO inventory liquidation may result in a decrease or increase in cost of goods sold depending on whether the
cost prevailing in prior years was lower or higher, respectively, than the current year cost. As these estimates are subject to
many forces beyond management's control, interim results are subject to the final fiscal year-end LIFO inventory valuation.

Impairment of Goodwill and Indefinite-lived Intangible Assets

We account for our goodwill and indefinite-lived intangible assets in accordance with ASC 350, “Intangibles-
Goodwill and Other” (“ASC 350”). Goodwill and other indefinite-lived intangible assets are not amortized but instead are
reviewed for impairment annually, or more frequently if an event occurs or circumstances change which indicate that an
asset might be impaired. We perform a qualitative assessment of goodwill and indefinite-lived intangible assets on our
consolidated balance sheets, to determine if there is a more likely than not indication that our goodwill and indefinite-lived
intangible assets are impaired as of June 30. If the indicators of impairment are present, we perform a quantitative test to
determine the impairment of these assets as of the measurement date.

Testing for impairment of goodwill is a two-step process. The first step requires us to compare the fair value of our

reporting unit to the carrying value of the reporting unit, including goodwill. If the fair value of a reporting unit is less than
its carrying value, goodwill of the reporting unit is potentially impaired and we then complete step two to measure the
impairment loss, if any. The second step requires the calculation of the implied fair value of goodwill, which is the residual
fair value remaining after deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair

value of the reporting unit. If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment
loss is recognized equal to the difference.

Indefinite-lived intangible assets are tested for impairment by comparing their fair values to their carrying values. An

impairment charge is recorded if the estimated fair value of such assets has decreased below their carrying value.

Other Intangible Assets

Other intangible assets consist of finite-lived intangible assets including acquired non-compete agreements and

customer relationships. These are amortized over their estimated useful lives and are tested for impairment by grouping
them with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other
groups of assets and liabilities. The estimated future cash flows are based upon, among other things, assumptions about
expected future operating performance and may differ from actual cash flows. If the sum of the projected undiscounted cash
flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair
value in the period in which the determination is made. We review the recoverability of our long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Self-Insurance

We use a combination of insurance and self-insurance mechanisms, including the use of captive insurance entities and

participation in a reinsurance treaty, to provide for the potential liability of certain risks including workers’ compensation,
health care benefits, general liability, product liability, property insurance and director and officers’ liability insurance.
Liabilities associated with risks retained by us are not discounted and are estimated by considering historical claims
experience, demographics, exposure and severity factors and other actuarial assumptions.

Our self-insurance for workers’ compensation liability includes estimated outstanding losses of unpaid claims and

allocated loss adjustment expenses (“ALAE”), case reserves, the development of known claims and incurred but not
reported claims. ALAE are the direct expenses for settling specific claims. The amounts reflect per occurrence and annual
aggregate limits maintained by the Company. The estimated liability analysis does not include estimating a provision for
unallocated loss adjustment expenses. We believe that the amount recorded at June 30, 2016 is adequate to cover all known
workers' compensation claims at June 30, 2016. If the actual costs of such claims and related expenses exceed the amount
estimated, additional reserves may be required which could have a material negative effect on operating results.

The estimated liability related to our self-insured group medical insurance is recorded on an incurred but not reported
basis, within deductible limits, based on actual claims and the average lag time between the date insurance claims are filed
and the date those claims are paid. General liability, product liability and commercial auto liability are insured through a
captive insurance program. We retain the risk within certain aggregate amounts. Cost of the insurance through the captive
program is accrued based on estimates of the aggregate liability claims incurred using certain actuarial assumptions and
historical claims experience.

Employee Benefit Plans

We provide benefit plans for most full-time employees, including 401(k), health and other welfare benefit plans and,

in certain circumstances, pension benefits. Generally the plans provide benefits based on years of service and/or a
combination of years of service and earnings. In addition, we contribute to two multiemployer defined benefit pension plans,
one multiemployer defined contribution pension plan and ten multiemployer defined contribution plans other than pension
plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to
collective bargaining agreements. In addition, we sponsor a postretirement defined benefit plan that covers qualified non-
union retirees and certain qualified union retirees and provides retiree medical coverage and, depending on the age of the
retiree, dental and vision coverage. We also provide a postretirement death benefit to certain of our employees and retirees.

We are required to recognize the funded status of a benefit plan in our consolidated balance sheet. We are also
required to recognize in OCI certain gains and losses that arise during the period but are deferred under pension accounting
rules.

Single Employer Pension Plans

We have a defined benefit pension plan, the Farmer Bros. Co. Pension Plan for Salaried Employees (the “Farmer Bros.

Plan”), for our employees hired prior to January 1, 2010 who are not covered under a collective bargaining agreement. We
amended the Farmer Bros. Plan, freezing the benefit for all participants effective June 30, 2011. After the plan freeze,
participants do not accrue any benefits under the Farmer Bros. Plan, and new hires are not eligible to participate in the
Farmer Bros. Plan. As all plan participants became inactive following this pension curtailment, net (gain) loss is now
amortized based on the remaining life expectancy of these participants instead of the remaining service period of these
participants.

We also have two defined benefit pension plans for certain hourly employees covered under collective bargaining

agreements (the “Brewmatic Plan” and the “Hourly Employees’ Plan”).

We obtain actuarial valuations for our single employer defined benefit pension plans. In fiscal 2016 we discounted the

pension obligations using a 4.40% discount rate and 7.50% expected long-term rate of return on plan assets. The
performance of the stock market and other investments as well as the overall health of the economy can have a material
effect on pension investment returns and these assumptions. A change in these assumptions could affect our operating
results.

At June 30, 2016, the projected benefit obligation under our single employer defined benefit pension plans was
$161.2 million and the fair value of plan assets was $96.6 million. The difference between the projected benefit obligation
and the fair value of plan assets is recognized as a decrease in OCI and an increase in pension liability and deferred tax
assets. The difference between plan obligations and assets, or the funded status of the plans, significantly affects the net
periodic benefit cost and ongoing funding requirements of those plans. Among other factors, changes in interest rates,
mortality rates, early retirement rates, mix of plan asset investments, investment returns and the market value of plan assets
can affect the level of plan funding, cause volatility in the net periodic benefit cost, increase our future funding requirements
and require premium payments to the Pension Benefit Guaranty Corporation. For the fiscal year ended June 30, 2016, we
made $1.6 million in contributions to our single employer defined benefit pension plans and recorded pension expense of
$1.2 million. We expect to make approximately $2.3 million in contributions to our single employer defined benefit pension
plans in fiscal 2017 and accrue pension expense of approximately $1.7 million per year beginning in fiscal 2017. These
pension contributions are expected to continue at this level for several years; however a deterioration in the current
economic environment would increase the risk that we may be required to make larger contributions in the future.

The following chart quantifies the effect on the projected benefit obligation and the net periodic benefit cost of a

change in the discount rate assumption and the impact on the net periodic benefit cost of a change in the assumed rate of
return on plan assets under our single employer defined benefit pension plans for fiscal 2017:

($ in thousands)

Farmer Bros. Plan Discount Rate
Net periodic benefit cost
Projected benefit obligation

Farmer Bros. Plan Rate of Return
Net periodic benefit cost

Brewmatic Plan Discount Rate
Net periodic benefit cost
Projected benefit obligation

Brewmatic Plan Rate of Return
Net periodic benefit cost

Hourly Employees’ Plan Discount Rate
Net periodic benefit cost
Projected benefit obligation

Hourly Employees' Plan Rate of Return
Net periodic benefit cost

Multiemployer Pension Plans

3.1%

Actual 3.55%

4.1%

983
162,790

$
$

1,086
152,324

$
$

1,159
142,921

7.3%

Actual 7.75%

8.3%

1,529

1,086

642

3.1%

Actual 3.55%

4.1%

68
4,856

$
$

71
4,575

$
$

73
4,327

7.3%

Actual 7.75%

8.3%

3.1%

Actual 3.55%

4.1%

606
4,725

$
$

530
4,329

$
$

462
3,980

7.3%

Actual 7.75%

8.3%

543

530

517

$
$

We participate in two multiemployer defined benefit pension plans that are union sponsored and collectively bargained

for the benefit of certain employees subject to collective bargaining agreements. We make contributions to these plans
generally based on the number of hours worked by the participants in accordance with the provisions of negotiated labor
contracts.

The risks of participating in multiemployer pension plans are different from single-employer plans in that: (i) assets
contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating
employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne
by the remaining participating employers; and (iii) if we stop participating in the multiemployer plan, we may be required to
pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Postretirement Benefits

We sponsor a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified union

retirees. The plan provides medical, dental and vision coverage for retirees under age 65 and medical coverage only for
retirees age 65 and above. Under this postretirement plan, our contributions toward premiums for retiree medical, dental and
vision coverage for participants and dependents are scaled based on length of service, with greater Company contributions
for retirees with greater length of service, subject to a maximum monthly Company contribution. Our retiree medical, dental
and vision plan is unfunded, and its liability was calculated using an assumed discount rate of 3.7% at June 30, 2016. We
project an initial medical trend rate of 9.0% in fiscal 2016, ultimately reducing to 4.5% in 10 years.

We also provide a postretirement death benefit to certain of our employees and retirees, subject, in the case of current
employees, to continued employment with the Company until retirement, and certain other conditions related to the manner
of employment termination and manner of death. We record the actuarially determined liability for the present value of the
postretirement death benefit using a discount rate of 3.8%. We have purchased life insurance policies to fund the

postretirement death benefit wherein we own the policy but the postretirement death benefit is paid to the employee's or
retiree's beneficiary. We record an asset for the fair value of the life insurance policies which equates to the cash surrender
value of the policies.

Share-based Compensation

We measure all share-based compensation cost at the grant date, based on the fair values of the awards that are
ultimately expected to vest, and recognize that cost on a straight line basis in our consolidated statements of operations over
the requisite service period. Fair value of restricted stock is the closing price of the Company's common stock on the date of
grant. We estimate the fair value of stock option awards on the date of grant using the Black-Scholes valuation model which
requires that we make certain assumptions regarding: (i) the expected volatility in the market price of our common stock;
(ii) dividend yield; (iii) risk-free interest rate; and (iv) the period of time employees are expected to hold the award prior to
exercise (referred to as the expected term).

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that

have no vesting restrictions and are fully transferable. Because our stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value
estimates, in management’s opinion, the existing models may not necessarily provide a reliable single measure of the fair
value of our stock options. Although the fair value of stock options is determined using an option valuation model, that
value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

In addition, we estimate the expected impact of forfeited awards and recognize share-based compensation cost only

for those awards ultimately expected to vest. If actual forfeiture rates differ materially from our estimates, share-based
compensation expense could differ significantly from the amounts we have recorded in the current period. We will
periodically review actual forfeiture experience and revise our estimates, as necessary. We will recognize as compensation
cost the cumulative effect of the change in estimated forfeiture rates on current and prior periods in earnings of the period of
revision. As a result, if we revise our assumptions and estimates, our share-based compensation expense could change
materially in the future. In each of fiscal 2016 and 2015, we used an estimated annual forfeiture rate of 4.8% to calculate
share-based compensation expense based on actual forfeiture experience.

We have outstanding share-based awards that have performance-based vesting conditions in addition to time-based

vesting. Awards with performance-based vesting conditions require the achievement of certain financial and other
performance criteria as a condition to the vesting. We recognize the estimated fair value of performance-based awards, net
of estimated forfeitures, as share-based compensation expense over the performance period based upon our determination of
whether it is probable that the performance targets will be achieved. At each reporting period, we reassess the probability of
achieving the performance criteria and the performance period required to meet those targets. Determining whether the
performance criteria will be achieved involves judgment, and the estimate of share-based compensation expense may be
revised periodically based on changes in the probability of achieving the performance criteria. Revisions are reflected in the
period in which the estimate is changed. If performance goals are not met, no share-based compensation expense is
recognized, and, to the extent share-based compensation expense was previously recognized, such share-based
compensation expense is reversed.

Income Taxes

Deferred income taxes are determined based on the temporary differences between the financial reporting and tax

bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Estimating our tax liabilities involves judgments related to uncertainties in the application of complex tax regulations. We
make certain estimates and judgments to determine tax expense for financial statement purposes as we evaluate the effect of
tax credits, tax benefits and deductions, some of which result from differences in the timing of recognition of revenue or
expense for tax and financial statement purposes. Changes to these estimates may result in significant changes to our tax
provision in future periods. Each fiscal quarter we re-evaluate our tax provision and reconsider our estimates and
assumptions related to specific tax assets and liabilities, making adjustments as circumstances change.

Deferred Tax Asset Valuation Allowance

We evaluate our deferred tax assets quarterly to determine if a valuation allowance is required. We consider whether a

valuation allowance should be recorded against deferred tax assets based on the likelihood that the benefits of the deferred
tax assets will or will not ultimately be realized in future periods. In making this assessment, significant weight is given to
evidence that can be objectively verified, such as recent operating results, and less consideration is given to less objective
indicators, such as future income projections. After consideration of positive and negative evidence, including the recent
history of income, we concluded that it is more likely than not that we will generate future income sufficient to realize our
the majority of our deferred tax assets as of June 30, 2016. Accordingly, we recorded a reduction in our valuation allowance
in fiscal 2016 in the amount of $83.2 million.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to market value risk arising from changes in interest rates on our securities portfolio. Our portfolio of
preferred securities has sometimes included investments in derivative instruments that provide a natural economic hedge of
interest rate risk. We review the interest rate sensitivity of these securities and may enter into “short positions” in futures
contracts on U.S. Treasury securities or hold put options on such futures contracts to reduce the impact of certain interest
rate changes. Specifically, we attempt to manage the risk arising from changes in the general level of interest rates. We do
not transact in futures contracts or put options for speculative purposes. The number and type of futures and options
contracts entered into depends on, among other items, the specific maturity and issuer redemption provisions for each
preferred stock held, the slope of the U.S. Treasury yield curve, the expected volatility of U.S. Treasury yields, and the costs
of using futures and/or options.

The following table demonstrates the impact of varying interest rate changes based on our preferred securities
holdings and market yield and price relationships at June 30, 2016. This table is predicated on an “instantaneous” change in
the general level of interest rates and assumes predictable relationships between the prices of our preferred securities
holdings and the yields on U.S. Treasury securities. At June 30, 2016, we had no futures contracts or put options with
respect to our preferred securities portfolio designated as interest rate risk hedges.

($ in thousands)

Interest Rate Changes
–150 basis points
–100 basis points
Unchanged
+100 basis points
+150 basis points

Market Value of
Preferred
Securities at
June 30, 2016

Change in Market
Value

$
$
$
$
$

26,495
26,310
25,591
24,644
24,184

$
$
$
$
$

904
719
—
(947)
(1,407)

Borrowings under our Revolving Facility bear interest based on average historical excess availability levels with a

range of PRIME - 0.25% to PRIME + 0.50% or Adjusted LIBO Rate + 1.25% to Adjusted LIBO Rate + 2.00%.

At June 30, 2016, we had outstanding borrowings of $0.1 million, utilized $11.9 million of the letters of credit
sublimit, and had excess availability under the Revolving Facility of $46.6 million. The weighted average interest rate on
our outstanding borrowings under the Revolving Facility at June 30, 2016 was 1.64%.

Commodity Price Risk

We are exposed to commodity price risk arising from changes in the market price of green coffee. We value green

coffee inventory on the LIFO basis. In the normal course of business we hold a large green coffee inventory and enter into
forward commodity purchase agreements with suppliers. We are subject to price risk resulting from the volatility of green

coffee prices. Due to competition and market conditions, volatile price increases cannot always be passed on to our
customers.

We purchase over-the-counter coffee derivative instruments to enable us to lock in the price of green coffee

commodity purchases. These derivative instruments also may be entered into at the direction of the customer under
commodity-based pricing arrangements to effectively lock in the purchase price of green coffee under such customer
arrangements, in certain cases up to 18 months or longer in the future. We account for certain coffee-related derivative
instruments as accounting hedges in order to minimize the volatility created in our quarterly results from utilizing these
derivative contracts and to improve comparability between reporting periods.

When we designate coffee-related derivative instruments as cash flow hedges, we formally document the hedging
instruments and hedged items, and measure at each balance sheet date the effectiveness of our hedges. The effective portion
of the change in fair value of the derivative is reported in AOCI and subsequently reclassified into cost of goods sold in the
period or periods when the hedged transaction affects earnings. For the fiscal year ended June 30, 2016 we reclassified
$(13.2) million in net losses into cost of goods sold from AOCI. For the fiscal years ended June 30, 2015 and 2014 we
reclassified $4.2 million and $1.2 million, respectively, in net gains into cost of goods sold from AOCI. Any ineffective
portion of the derivative's change in fair value is recognized currently in “Other, net.” Gains or losses deferred in AOCI
associated with terminated derivative instruments, derivative instruments that cease to be highly effective hedges, derivative
instruments for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow
hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable
that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, we recognize any gain or
loss deferred in AOCI in “Other, net” at that time. For the fiscal years ended June 30, 2016, 2015 and 2014, we recognized
in “Other, net” $(0.6) million, $(0.3) million and $(0.3) million, respectively, in net losses on coffee-related derivative
instruments designated as cash flow hedges due to ineffectiveness.

For derivative instruments that are not designated in a hedging relationship, and for which the normal purchases and

normal sales exception has not been elected, the changes in fair value are reported in “Other, net.”

For the fiscal years ended June 30, 2016, 2015 and 2014, we recorded in “Other, net” net (losses) gains on coffee-
related derivative instruments not designated as accounting hedges in the amounts of $(0.3) million, $(3.0) million and
$2.7 million, respectively.

The following table summarizes the potential impact as of June 30, 2016 to net income and AOCI from a hypothetical

10% change in coffee commodity prices. The information provided below relates only to the coffee-related derivative
instruments and does not include, when applicable, the corresponding changes in the underlying hedged items:

(In thousands)
Coffee-related derivative instruments(1)

Increase (Decrease) to Net Income

Increase (Decrease) to AOCI

10% Increase in
Underlying Rate

10% Decrease in
Underlying Rate

10% Increase in
Underlying Rate

10% Decrease in
Underlying Rate

118

(118) $

4,941

(4,941)

__________
(1) The Company's purchase contracts that qualify as normal purchases include green coffee purchase commitments for
which the price has been locked in as of June 30, 2016. These contracts are not included in the sensitivity analysis
above as the underlying price has been fixed.

Item 8.

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Farmer Bros. Co.
Fort Worth, Texas

We have audited the accompanying consolidated balance sheets of Farmer Bros. Co. and subsidiaries (the "Company") as of
June 30, 2016 and 2015 and the related consolidated statements of operations, comprehensive income (loss), stockholders'
equity, and cash flows for each of the three years in the period ended June 30, 2016. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Farmer
Bros. Co. and subsidiaries as of June 30, 2016 and 2015, and the results of their operations and their cash flows for each of
the three years in the period ended June 30, 2016, in conformity with accounting principles generally accepted in the United
States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company's internal control over financial reporting as of June 30, 2016, based on the criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated September 13, 2016 expressed an unqualified opinion on the Company's internal control over financial
reporting.

/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
September 13, 2016

FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

June 30, 2016

June 30, 2015

ASSETS
Current assets:

Cash and cash equivalents
Restricted cash
Short-term investments
Accounts and notes receivable, net of allowance for doubtful accounts of $714

and $643, respectively

Inventories
Income tax receivable
Short-term derivative assets
Prepaid expenses
Assets held for sale

Total current assets

Property, plant and equipment, net
Goodwill and intangible assets, net
Other assets
Deferred income taxes

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable
Accrued payroll expenses
Short-term borrowings under revolving credit facility
Short-term obligations under capital leases
Short-term derivative liabilities
Deferred income taxes
Other current liabilities

Total current liabilities

Accrued pension liabilities
Accrued postretirement benefits
Accrued workers’ compensation liabilities
Other long-term liabilities-capital leases
Other long-term liabilities
Deferred income taxes

Total liabilities

Commitments and contingencies (Note 22)
Stockholders’ equity:

Preferred stock, $1.00 par value, 500,000 shares authorized and none issued

Common stock, $1.00 par value, 25,000,000 shares authorized; 16,781,561 and
16,658,148 shares issued and outstanding at June 30, 2016 and 2015,
respectively

Additional paid-in capital
Retained earnings
Unearned ESOP shares
Accumulated other comprehensive loss

Total stockholders’ equity
Total liabilities and stockholders’ equity

$
$

21,095
—
25,591

44,364
46,378
247
3,954
4,557
7,179
153,365
118,416
6,491
9,933
80,786
368,991

23,919
24,540
109
1,323
—
—
6,946
56,837
68,047
20,808
11,459
1,036
28,210
—
186,397

15,160
1,002
23,665

40,161
50,522
535
—
4,640
—
135,685
90,201
6,691
7,615
751
240,943

27,023
23,005
78
3,249
3,977
1,390
6,152
64,874
47,871
23,471
10,964
2,599
225
928
150,932

—

16,782
39,096
196,782
(6,434)
(63,632)
182,594
368,991

$
$

16,658
38,143
106,864
(11,234)
(60,420)
90,011
240,943

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

FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)

Net sales
Cost of goods sold
Gross profit
Selling expenses
General and administrative expenses
Restructuring and other transition expenses
Net gains from sale of Spice Assets
Net (gains) losses from sales of assets
Operating expenses
Income from operations
Other income (expense):
Dividend income
Interest income
Interest expense
Other, net

Total other income (expense)

Income before taxes

Income tax (benefit) expense
Net income
Net income per common share—basic

Net income per common share—diluted

Year Ended June 30,

2016
544,382
335,907
208,475
150,198
41,970
16,533
(5,603)
(2,802)
200,296
8,179

1,115
496
(425)
556

1,742
9,921

(79,997)
89,918
5.45

5.41

$
$

2015
545,882
348,846
197,036
151,753
31,173
10,432
—
394
193,752
3,284

1,172
381
(769)
(3,014)

(2,230)
1,054

402
652
0.04

0.04

$
$

2014

528,380
332,466
195,914
155,088
35,724
—
—
(3,814)
186,998
8,916

1,073
429
(1,258)
3,677

3,921
12,837

705
12,132
0.76

0.76

Weighted average common shares outstanding—basic
Weighted average common shares outstanding—diluted

16,502,523
16,627,402

16,127,610
16,267,134

15,909,631
16,014,587

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

FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

Net income

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on derivative instruments

designated as cash flow hedges, net of taxes

Losses (Gains) on derivative instruments designated as
cash flow hedges reclassified to cost of goods sold,
net of taxes

Change in the funded status of retiree benefit

obligations, net of taxes

Year Ended June 30,

2016

2015

2014

89,918

652

12,132

185

(14,295)

18,685

8,064

(4,211)

(1,161)

(11,461)

(14,122)

(2,802)

Total comprehensive income (loss), net of tax

86,706

(31,976) $

26,854

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

FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Cash flows from operating activities:

Net income

Year Ended June 30,

2016

2015

2014

89,918

652

12,132

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Provision for (recovery of) doubtful accounts

Restructuring and other transition expenses, net of payments

Deferred income taxes

Net (gains) losses from sales of assets

ESOP and share-based compensation expense

Net losses (gains) on derivative instruments and investments
Change in operating assets and liabilities:

Restricted cash

Purchases of trading securities held for investment

Proceeds from sales of trading securities held for investment

Accounts and notes receivable

Inventories

Income tax receivable

Derivative (liabilities) assets, net

Prepaid expenses and other assets

Accounts payable

Accrued payroll expenses and other current liabilities

Accrued postretirement benefits

Other long-term liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Acquisition of business, net of cash acquired

Purchases of property, plant and equipment

Purchases of construction-in-progress assets under New Facility lease

Proceeds from sales of property, plant and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from revolving credit facility

Repayments on revolving credit facility

Proceeds from New Facility lease financing

Payments of capital lease obligations

Payment of financing costs

Proceeds from stock option exercises

Tax withholding payment - net share settlement of equity awards

Net cash provided by (used in) financing activities

20,774

71
(2,697)
(80,314)
(8,405)
4,342

12,910

1,002
(7,255)
5,901
(3,476)
3,608

288
(10,583)
(111)
(3,343)
5,829
(358)
(473)
27,628

24,179
(8)
6,608

123

394

5,691
(950)

(1,002)
(3,661)
2,358

2,078

20,470
(307)
(7,269)
(1,332)
(16,841)
(4,606)
(1,507)
1,860

27,334

—

137
(3,814)
4,692
(4,276)

8,084
(5,915)
4,290

2,248
(14,439)
181

3,932
(661)
17,526

2,574
(1,905)
695

26,930

52,895

— $

(31,050)
(19,426)
10,946
(39,530) $

405
(374)
19,426
(3,147)
(8)
1,694
(159)
17,837

(1,200) $
(19,216)
—

273
(20,143) $

63,376
(63,947)
—
(3,910)
(571)
1,548
(116)
(3,620) $

—
(25,267)
—

4,536
(20,731)

44,806
(65,454)
—
(3,681)
—

1,480

—
(22,849)

(continued on next page)

FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes
Supplemental disclosure of non-cash investing activities:

Equipment acquired under capital leases

Net change in derivative assets and liabilities
included in other comprehensive income (loss), net of tax
Construction-in-progress assets under New Facility lease

New Facility lease obligation

Non-cash additions to equipment

Asset held for sale

Non-cash portion of earnout recognized

Year Ended June 30,

2016

2015

2014

5,935

15,160

21,095

425
324

$
$

— $

8,249
8,684

8,684

441

7,179

496

$
$

3,167

11,993

15,160

769
858

$
$

9,315

2,678

11,993

1,258
361

1,217

(18,506) $
— $

17,524
—

— $

—

142

—

$
$

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

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FARMER BROS. CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Overview

Farmer Bros. Co., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires,

the “Company,” or “Farmer Bros.”), is a national coffee roaster, wholesaler and distributor of coffee, tea and culinary products.
The Company serves a wide variety of customers, from small independent restaurants and foodservice operators to large
institutional buyers like restaurant and convenience store chains, hotels, casinos, hospitals, and gourmet coffee houses, as well
as grocery chains with private brand and consumer-branded coffee products. The Company’s product categories consist of roast
and ground coffee, frozen liquid coffee; flavored and unflavored iced and hot teas; culinary products; spices; and other
beverages including cappuccino, cocoa, granitas, and ready-to-drink iced coffee. The Company was founded in 1912,
incorporated in California in 1923, and reincorporated in Delaware in 2004. The Company operates in one business segment.

The Company operates production facilities in Portland, Oregon and Houston, Texas. Distribution takes place out of the

Portland facility as well as separate distribution centers in Northlake, Illinois; Oklahoma City, Oklahoma; and Moonachie, New
Jersey. As of June 30, 2016, the Company’s Torrance facility continued to house certain administrative functions and serve as a
distribution facility and branch warehouse pending transition of the Company’s remaining Torrance operations to its other
facilities.

The Company’s products reach its customers primarily in two ways: through the Company’s nationwide direct-store-

delivery, or DSD, network of 450 delivery routes and 109 branch warehouses as of June 30, 2016, or direct-shipped via
common carriers or third-party distributors. The Company operates a large fleet of trucks and other vehicles to distribute and
deliver its products, and relies on third-party logistic (“3PL”) service providers for its long-haul distribution. DSD sales are
made “off-truck” by the Company to its customers at their places of business.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned
subsidiaries FBC Finance Company, a California corporation, Coffee Bean Holding Co., Inc., a Delaware corporation, the
parent company of Coffee Bean International, Inc., an Oregon corporation (“CBI”), and CBI. All inter-company balances and
transactions have been eliminated.

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”)

requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. The Company reviews its estimates on an ongoing basis using currently available
information. Changes in facts and circumstances may result in revised estimates and actual results may differ from those
estimates.

Cash Equivalents

The Company considers all highly liquid investments with original maturity dates of 90 days or less to be cash

equivalents. Fair values of cash equivalents approximate cost due to the short period of time to maturity.

Investments

The Company’s investments consist of money market instruments, marketable debt, equity and hybrid securities.
Investments are held for trading purposes and stated at fair value. The cost of investments sold is determined on the specific
identification method. Dividend and interest income are accrued as earned. See Note 8.

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

Fair Value Measurements

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:

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

• 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.

• 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.

Securities with quotes that are based on actual trades or actionable bids and offers with a sufficient level of activity on or

near the measurement date are classified as Level 1. Securities that are priced using quotes derived from implied values,
indicative bids and offers, or a limited number of actual trades, or the same information for securities that are similar in many
respects to those being valued, are classified as Level 2. If market information is not available for securities being valued, or
materially-comparable securities, then those securities are classified as Level 3. In considering market information,
management evaluates changes in liquidity, willingness of a broker to execute at the quoted price, the depth and consistency of
prices from pricing services, and the existence of observable trades in the market (see Note 9).

Derivative Instruments

The Company purchases various derivative instruments to create economic hedges of its commodity price risk. These

derivative instruments consist primarily of forward and option contracts. The Company reports the fair value of derivative
instruments on its consolidated balance sheets in “Short-term derivative assets,” “Other assets,” “Short-term derivative
liabilities,” or “Other long-term derivative liabilities.” The Company determines the current and noncurrent classification based
on the timing of expected future cash flows of individual trades and reports these amounts on a gross basis. Additionally, the
Company reports cash held on deposit in margin accounts for coffee-related derivative instruments on a gross basis on its
consolidated balance sheet in “Restricted cash” if restricted from withdrawal due to a net loss position in such margin accounts.

The accounting for the changes in fair value of the Company's derivative instruments can be summarized as follows:

Derivative Treatment

Accounting Method

Normal purchases and normal sales exception
Designated in a qualifying hedging relationship
All other derivative instruments

Accrual accounting
Hedge accounting
Mark-to-market accounting

The Company enters into green coffee purchase commitments at a fixed price or at a price to be fixed (“PTF”). PTF
contracts are purchase commitments whereby the quality, quantity, delivery period, price differential to the coffee “C” market
price and other negotiated terms are agreed upon, but the date, and therefore the price at which the base “C” market price will
be fixed has not yet been established. The coffee “C” market price is fixed at some point after the purchase contract date and
before the futures market closes for the delivery month and may be fixed either at the direction of the Company to the vendor,
or by the application of a derivative that was separately purchased as a hedge. For both fixed-price and PTF contracts, the
Company expects to take delivery of and to utilize the coffee in a reasonable period of time and in the conduct of normal
business. Accordingly, these purchase commitments qualify as normal purchases and are not recorded at fair value on the
Company's consolidated balance sheets.

The Company follows the guidelines of Accounting Standards Codification (“ASC”) 815, “Derivatives and

Hedging” (“ASC 815”), to account for certain coffee-related derivative instruments as accounting hedges in order to minimize
the volatility created in the Company's quarterly results from utilizing these derivative contracts and to improve comparability
between reporting periods. For a derivative to qualify for designation in a hedging relationship, it must meet specific criteria

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

and the Company must maintain appropriate documentation. The Company establishes hedging relationships pursuant to its risk
management policies. The hedging relationships are evaluated at inception and on an ongoing basis to determine whether the
hedging relationship is, and is expected to remain, highly effective in achieving offsetting changes in fair value or cash flows
attributable to the underlying risk being hedged. The Company also regularly assesses whether the hedged forecasted
transaction is probable of occurring. If a derivative ceases to be or is no longer expected to be highly effective, or if the
Company believes the likelihood of occurrence of the hedged forecasted transaction is no longer probable, hedge accounting is
discontinued for that derivative, and future changes in the fair value of that derivative are recognized in “Other, net.”

For coffee-related derivative instruments designated as cash flow hedges, the effective portion of the change in fair value

of the derivative is reported as accumulated other comprehensive income (loss) (“AOCI”) and subsequently reclassified into
cost of goods sold in the period or periods when the hedged transaction affects earnings. Any ineffective portion of the
derivative instrument's change in fair value is recognized currently in “Other, net.” Gains or losses deferred in AOCI associated
with terminated derivative instruments, derivative instruments that cease to be highly effective hedges, derivative instruments
for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have
been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted
transaction designated as the hedged item in a cash flow hedge will not occur, any gain or loss deferred in AOCI is recognized
in “Other, net” at that time. For derivative instruments that are not designated in a hedging relationship, and for which the
normal purchases and normal sales exception has not been elected, the changes in fair value are reported in “Other, net.”

The following gains and losses on derivative instruments are netted together and reported in “Other, net” in the

Company's consolidated statements of operations:

• Gains and losses on all derivative instruments that are not designated as cash flow hedges and for which the normal

purchases and normal sales exception has not been elected; and

• The ineffective portion of unrealized gains and losses on derivative instruments that are designated as cash flow

hedges.

The fair value of derivative instruments is based upon broker quotes. At June 30, 2016 and 2015 approximately 96% and

94%, respectively, of the Company's outstanding coffee-related derivative instruments were designated as cash flow hedges (see
Note 7).

Concentration of Credit Risk

At June 30, 2016, the financial instruments which potentially expose the Company to concentration of credit risk consist

of cash in financial institutions (in excess of federally insured limits), short-term investments, investments in the preferred
stocks of other companies, derivative instruments and trade receivables. Cash equivalents and short-term investments are not
concentrated by issuer, industry or geographic area. Maturities are generally shorter than 180 days. Investments in the preferred
stocks of other companies are limited to high quality issuers and are not concentrated by geographic area or issuer.

The Company does not have any credit-risk related contingent features that would require it to post additional collateral
in support of its net derivative liability positions. At June 30, 2016, because the Company had a net gain position in its coffee-
related derivative margin accounts, none of the cash in these accounts was restricted. At June 30, 2015, the Company had
$1.0 million in restricted cash representing cash held on deposit in margin accounts for coffee-related derivative instruments
due to a net loss position in such accounts. Changes in commodity prices and the number of coffee-related derivative
instruments held could have a significant impact on cash deposit requirements under the Company's broker and counterparty
agreements.

Concentration of credit risk with respect to trade receivables for the Company is limited due to the large number of

customers comprising the Company’s customer base and their dispersion across many different geographic areas. The trade
receivables are generally short-term and all probable bad debt losses have been appropriately considered in establishing the
allowance for doubtful accounts. In fiscal 2016 and 2014, the Company increased the allowance for doubtful accounts by
$71,000 and $80,000, respectively. In fiscal 2015, the Company decreased the allowance for doubtful accounts by $8,000.

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

Inventories

Inventories are valued at the lower of cost or market. The Company accounts for coffee, tea and culinary products on a

last in, first out (“LIFO”) basis, and coffee brewing equipment parts on a first in, first out (“FIFO”) basis. The Company
regularly evaluates these inventories to determine inventory reserves for obsolete and slow-moving inventory. Inventory
reserves are based on inventory obsolescence trends, historical experience and application of specific identification.

At the end of each quarter, the Company records the expected effect of the liquidation of LIFO inventory quantities, if

any, and records the actual impact at fiscal year-end. An actual valuation of inventory under the LIFO method is made only at
the end of each fiscal year based on the inventory levels and costs at that time. If inventory quantities decline at the end of the
fiscal year compared to the beginning of the fiscal year, the reduction results in the liquidation of LIFO inventory quantities
carried at the cost prevailing in prior years. This LIFO inventory liquidation may result in a decrease or increase in cost of
goods sold depending on whether the cost prevailing in prior years was lower or higher, respectively, than the current year cost.
See Note 11.

Property, Plant and Equipment

Property, plant and equipment is carried at cost, less accumulated depreciation. Depreciation is computed using the

straight-line method. The following useful lives are used:

Buildings and facilities
Machinery and equipment
Equipment under capital leases
Office furniture and equipment
Capitalized software

10 to 30 years
3 to 5 years
Term of lease
5 years
3 years

Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the asset or
the remaining lease term. When assets are sold or retired, the asset and related accumulated depreciation are removed from the
respective account balances and any gain or loss on disposal is included in operations. Maintenance and repairs are charged to
expense, and betterments are capitalized. See Note 12.

Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value or estimated net realizable
value. The Company considers properties to be assets held for sale when (1) management commits to a plan to sell the property;
(2) it is unlikely that the disposal plan will be significantly modified or discontinued; (3) the property is available for immediate
sale in its present condition; (4) actions required to complete the sale of the property have been initiated; (5) sale of the property
is probable and the Company expects the completed sale will occur within one year; and (6) the property is actively being
marketed for sale at a price that is reasonable given the Company's estimate of current market value. Upon designation of a
property as an asset held for sale, the Company records the property’s value at the lower of its carrying value or its estimated
fair value less estimated costs to sell and ceases depreciation. See Note 6.

The Company may incur certain other non-cash asset impairment costs in connection with the Corporate Relocation Plan.

Coffee Brewing Equipment and Service

The Company classifies certain expenses related to coffee brewing equipment provided to customers as cost of goods
sold. These costs include the cost of the equipment as well as the cost of servicing that equipment (including service employees’
salaries, cost of transportation and the cost of supplies and parts) and are considered directly attributable to the generation of
revenues from its customers. The Company capitalizes coffee brewing equipment and depreciates it over an estimated three or
five year period, depending on the assessment of the useful life and reports the depreciation expense in cost of goods sold.
Accordingly, such costs included in cost of goods sold in the accompanying consolidated financial statements for the years
ended June 30, 2016, 2015 and 2014 are $27.0 million, $26.6 million and $25.9 million, respectively. In addition, depreciation
expense related to capitalized coffee brewing equipment reported in cost of goods sold in the fiscal years ended June 30, 2016,
2015 and 2014 was $9.8 million, $10.4 million and $10.9 million, respectively. The Company capitalized coffee brewing
equipment (included in machinery and equipment) in the amounts of $8.4 million and $10.7 million in fiscal 2016 and 2015,
respectively.

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

Leases

Leases are categorized as either operating or capital leases at inception. Operating lease costs are recognized on a straight-
line basis over the term of the lease. An asset and a corresponding liability for the capital lease obligation are established for the
cost of capital leases. The capital lease obligation is amortized over the life of the lease. For leases such as the New Facility
lease, the Company establishes an asset and liability for the estimated construction costs incurred to the extent that it is involved
in the construction of structural improvements or takes construction risk prior to the commencement of the lease. A portion of
the lease arrangement is allocated to the land for which the Company accrues rent expense during the construction period. The
amount of rent expense to be accrued is determined using the fair value of the leased land at construction commencement and
the Company’s incremental borrowing rate, and recognized on a straight-line basis. See Note 4.

Income Taxes

Deferred income taxes are determined based on the temporary differences between the financial reporting and tax bases

of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. Estimating the
Company’s tax liabilities involves judgments related to uncertainties in the application of complex tax regulations. The
Company makes certain estimates and judgments to determine tax expense for financial statement purposes as it evaluates the
effect of tax credits, tax benefits and deductions, some of which result from differences in the timing of recognition of revenue
or expense for tax and financial statement purposes. Changes to these estimates may result in significant changes to the
Company’s tax provision in future periods. Each fiscal quarter the Company re-evaluates its tax provision and reconsiders its
estimates and assumptions related to specific tax assets and liabilities, making adjustments as circumstances change.
See Note 20.

Deferred Tax Asset Valuation Allowance

The Company evaluates its deferred tax assets quarterly to determine if a valuation allowance is required and considers

whether a valuation allowance should be recorded against deferred tax assets based on the likelihood that the benefits of the
deferred tax assets will or will not ultimately be realized in future periods. In making this assessment, significant weight is
given to evidence that can be objectively verified, such as recent operating results, and less consideration is given to less
objective indicators, such as future income projections. After consideration of positive and negative evidence, including the
recent history of income, if the Company determines that it is more likely than not that it will generate future income sufficient
to realize its deferred tax assets, the Company will record a reduction in the valuation allowance. See Note 20.

Revenue Recognition

The Company recognizes sales revenue when all of the following have occurred: (1) delivery; (2) persuasive evidence of
an agreement exists; (3) pricing is fixed or determinable; and (4) collection is reasonably assured. When product sales are made
“off-truck” to the Company’s customers at their places of business or products are shipped by third-party delivery "FOB
Destination," title passes and revenue is recognized upon delivery. When customers pick up products at the Company's
distribution centers, title passes and revenue is recognized upon product pick up.

Net Income Per Common Share

Net income per share (“EPS”) represents net income attributable to common stockholders divided by the weighted-
average number of common shares outstanding for the period, excluding unallocated shares held by the Company's Employee
Stock Ownership Plan (“ESOP”) (see Note 16). Diluted EPS represents net income attributable to common stockholders
divided by the weighted-average number of common shares outstanding, inclusive of the dilutive impact of common equivalent
shares outstanding during the period. However, nonvested restricted stock awards (referred to as participating securities) are
excluded from the dilutive impact of common equivalent shares outstanding in accordance with authoritative guidance under
the two-class method. The nonvested restricted stockholders are entitled to participate in dividends declared on common stock
as if the shares were fully vested and hence are deemed to be participating securities. Under the two-class method, net income
attributable to nonvested restricted stockholders is excluded from net income attributable to common stockholders for purposes
of calculating basic and diluted EPS. Computation of EPS for the years ended June 30, 2016, 2015 and 2014 includes the
dilutive effect of 124,879, 139,524 and 104,956 shares, respectively, issuable under stock options with exercise prices below the
closing price of the Company's common stock on the last trading day of the applicable period, but excludes the dilutive effect of
30,931, 10,455 and 22,441 shares, respectively, issuable under stock options with exercise prices above the closing price of the
Company's common stock on the last trading day of the applicable period because their inclusion would be anti-dilutive.
See Note 21.

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

Dividends

Employee Stock Ownership Plan

Compensation cost for the ESOP is based on the fair market value of shares released or deemed to be released to
employees in the period in which they are committed. Dividends on allocated shares retain the character of true dividends, but
dividends on unallocated shares are considered compensation cost. As a leveraged ESOP with the Company as lender, a contra
equity account is established to offset the Company’s note receivable. The contra account will change as compensation expense
is recognized (see Note 16). The cost of shares purchased by the ESOP which have not been committed to be released or
allocated to participants are shown as a contra-equity account “Unearned ESOP Shares” and are excluded from earnings per
share calculations.

Share-based Compensation

On December 5, 2013, the Company’s stockholders approved the Farmer Bros. Co. Amended and Restated 2007 Long-

Term Incentive Plan (the “Amended Equity Plan”). The principal change to the Amended Equity Plan was to limit awards under
the plan to performance-based stock options and to restricted stock under limited circumstances.

The Company measures all share-based compensation cost at the grant date, based on the fair values of the awards that
are ultimately expected to vest, and recognizes that cost as an expense on a straight line-basis in its consolidated statements of
operations over the requisite service period. Fair value of restricted stock is the closing price of the Company's common stock
on the date of grant. The Company estimates the fair value of option awards using the Black-Scholes option valuation model,
which requires management to make certain assumptions for estimating the fair value of stock options at the date of grant. The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. Because the Company’s stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates,
in management’s opinion, the existing models may not necessarily provide a reliable single measure of the fair value of the
Company’s stock options. Although the fair value of stock options is determined using an option valuation model, that value
may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. See Note 17.

Impairment of Goodwill and Indefinite-lived Intangible Assets

The Company accounts for its goodwill and indefinite-lived intangible assets in accordance with ASC 350, “Intangibles-

Goodwill and Other” (“ASC 350”). Goodwill and other indefinite-lived intangible assets are not amortized but instead are
reviewed for impairment annually, or more frequently if an event occurs or circumstances change which indicate that an asset
might be impaired. Pursuant to ASC 350, the Company performs a qualitative assessment of goodwill and indefinite-lived
intangible assets on its consolidated balance sheets, to determine if there is a more likely than not indication that its goodwill
and indefinite-lived intangible assets are impaired as of June 30. If the indicators of impairment are present, the Company
performs a quantitative assessment to determine the impairment of these assets as of the measurement date.

Testing for impairment of goodwill is a two-step process. The first step requires the Company to compare the fair value of
its reporting unit to the carrying value of the reporting unit, including goodwill. If the fair value of the reporting unit is less than
its carrying value, goodwill of the reporting unit is potentially impaired and the Company then completes step two to measure
the impairment loss, if any. The second step requires the calculation of the implied fair value of goodwill, which is the residual
fair value remaining after deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair
value of the reporting unit. If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment loss
is recognized equal to the difference.

Indefinite-lived intangible assets are tested for impairment by comparing their fair values to their carrying values. An

impairment charge is recorded if the estimated fair value of such assets has decreased below their carrying values. Long-lived
assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely
independent of the cash flows of other groups of assets and liabilities. The estimated future cash flows are based upon, among
other things, assumptions about expected future operating performance and may differ from actual cash flows. If the sum of the

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

projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written
down to the estimated fair value in the period in which the determination is made.

There were no intangible asset or goodwill impairment charges recorded in the fiscal year ended June 30, 2016 or 2015.

Other Intangible Assets

Other intangible assets consist of finite-lived intangible assets including acquired non-compete agreements and customer
relationships. These are amortized over their estimated useful lives and are tested for impairment by grouping them with other
assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets
and liabilities. The estimated future cash flows are based upon, among other things, assumptions about expected future
operating performance, and may differ from actual cash flows. If the sum of the projected undiscounted cash flows (excluding
interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in
which the determination is made. The Company reviews the recoverability of its long-lived assets whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be recoverable. There were no other intangible asset
impairment charges recorded in the fiscal year ended June 30, 2016 and 2015.

Shipping and Handling Costs

Shipping and handling costs incurred through outside carriers are recorded as a component of the Company's selling
expenses and were $13.3 million, $8.3 million and $8.4 million, respectively, in the fiscal years ended June 30, 2016, 2015 and
2014. Shipping and handling costs in fiscal 2016 include costs related to the Company's move to 3PL for its long-haul
operations.

Collective Bargaining Agreements

Certain Company employees are subject to collective bargaining agreements. The duration of these agreements extend to

2020. At June 30, 2016, approximately 31% of the Company's workforce was covered by such agreements.

Self-Insurance

The Company uses a combination of insurance and self-insurance mechanisms, including the use of captive insurance

entities and participation in a reinsurance treaty, to provide for the potential liability of certain risks including workers’
compensation, health care benefits, general liability, product liability, property insurance and director and officers’ liability
insurance. Liabilities associated with risks retained by the Company are not discounted and are estimated by considering
historical claims experience, demographics, exposure and severity factors and other actuarial assumptions.

The Company's self-insurance for workers’ compensation liability includes estimated outstanding losses of unpaid claims.

and allocated loss adjustment expenses (“ALAE”), case reserves, the development of known claims and incurred but not
reported claims. ALAE are the direct expenses for settling specific claims. The amounts reflect per occurrence and annual
aggregate limits maintained by the Company. The estimated liability analysis does not include estimating a provision for
unallocated loss adjustment expenses.

The estimated gross undiscounted workers’ compensation liability relating to such claims was $14.7 million and $13.4
million respectively, and the estimated recovery from reinsurance was $2.4 million and $2.5 million, respectively, as of June 30,
2016 and 2015. The short-term and long-term accrued liabilities for workers’ compensation claims are presented on the
Company's consolidated balance sheets in “Other current liabilities” and in “Accrued workers' compensation liabilities,”
respectively. The estimated insurance receivable is included in “Other assets” on the Company's consolidated balance sheets.

At June 30, 2016 and 2015, the Company posted a $7.4 million and $7.0 million letter of credit, respectively, as a security

deposit with the State of California Department of Industrial Relations Self-Insurance Plans for participation in the alternative
security program for California self-insurers for workers’ compensation liability. At June 30, 2016 and 2015, the Company had
posted a $4.3 million letter of credit as a security deposit for self-insuring workers’ compensation, general liability and auto
insurance coverages outside of California.

The estimated liability related to the Company's self-insured group medical insurance at June 30, 2016 and 2015 was

$1.3 million and $1.0 million, respectively, recorded on an incurred but not reported basis, within deductible limits, based on
actual claims and the average lag time between the date insurance claims are filed and the date those claims are paid.

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

General liability, product liability and commercial auto liability are insured through a captive insurance program. The

Company's liability reserve for such claims was $0.9 million and $0.8 million at June 30, 2016 and 2015, respectively.

The estimated liability related to the Company's self-insured group medical insurance, general liability, product liability

and commercial auto liability is included on the Company's consolidated balance sheets in “Other current liabilities.”

Pension Plans

The Company’s pension plans are not admitting new participants, therefore, changes to pension liabilities are primarily

due to market fluctuations of investments for existing participants and changes in interest rates. All plans are accounted for
using the guidance of ASC 710, "Compensation - General" and ASC 715 "Compensation-Retirement Benefits" and are
measured as of the end of the fiscal year.

The Company recognizes the overfunded or underfunded status of a defined benefit pension or postretirement plan as an
asset or liability in the accompanying consolidated balance sheets. Changes in the funded status are recognized through AOCI,
in the year in which the changes occur. See Note 14.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. The purchase price of

each business acquired is allocated to the tangible and intangible assets acquired and the liabilities assumed based on
information regarding their respective fair values on the date of acquisition. Any excess of the purchase price over the fair value
of the separately identifiable assets acquired and the liabilities assumed is allocated to goodwill. Management determines the
fair values used in purchase price allocations for intangible assets based on historical data, estimated discounted future cash
flows, and expected royalty rates for trademarks and trade names, as well as certain other information. The valuation of assets
acquired and liabilities assumed requires a number of judgments and is subject to revision as additional information about the
fair value of assets and liabilities becomes available. Additional information, which existed as of the acquisition date but
unknown to the Company at that time, may become known during the remainder of the measurement period, a period not to
exceed twelve months from the acquisition date. Adjustments in the purchase price allocation may require a recasting of the
amounts allocated to goodwill and intangible assets. Acquisition costs are expensed as incurred. The results of operations of
businesses acquired are included in the consolidated financial statements from their dates of acquisition. See Note 2.

Sale of Spice Assets

On December 8, 2015, the Company completed the sale of certain assets associated with the Company’s manufacture,
processing and distribution of raw, processed and blended spices and certain other culinary products (collectively, the “Spice
Assets”) to Harris Spice Company, Inc. (“Harris”). The Company has followed the guidance in ASC 205-20, "Presentation of
Financial Statements-Discontinued Operations," as updated by Accounting Standards Update ("ASU") No. 2014-08,
"Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity" and has not presented the sale of the Spice Assets as
discontinued operations. Gain from the earnout on the sale is recognized when earned and when realization is assured beyond a
reasonable doubt. See Note 5.

Recently Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2016-05, "Derivatives and
Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the
FASB Emerging Issues Task Force" ("ASU 2016-05"). ASU 2016-05 clarifies that "a change in the counterparty to a derivative
instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be
considered a termination of the derivative instrument" or "a change in a critical term of the hedging relationship." As long as all
other hedge accounting criteria in ASC 815 are met, a hedging relationship in which the hedging derivative instrument is
novated would not be discontinued or require redesignation. This clarification applies to both cash flow and fair value hedging
relationships. For public business entities, ASU 2016-05 is effective for financial statements issued for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted including
adoption in an interim period. The Company early adopted ASU 2016-05 beginning in April 1, 2016. Adoption of ASU 2016-05
did not have a material effect on the results of operations, financial position or cash flows of the Company.

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

In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of

Deferred Taxes" ("ASU 2015-17"), which requires entities to present deferred tax assets ("DTAs") and deferred tax liabilities
("DTLs") as noncurrent in a classified balance sheet. ASU 2015-17 simplifies the current guidance, which requires entities to
separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. For public business entities, the
amendments in ASU 2015-17 are effective for financial statements issued for annual periods beginning after December 15,
2016, and interim periods within those annual periods. Early application is permitted as of the beginning of an interim or annual
reporting period. The Company early adopted ASU 2015-17 beginning in April 1, 2016. Adoption of ASU 2015-17 did not have
a material effect on the results of operations, financial position or cash flows of the Company.

In August 2015, the FASB issued ASU No. 2015-15, “Interest-Imputation of Interest (Subtopic 835-30): Presentation and

Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”). ASU
2015-15 incorporates into the ASC an SEC staff announcement that the SEC staff will not object to an entity presenting the cost
of securing a revolving line of credit as an asset, regardless of whether a balance is outstanding. The standard, as issued, did not
address revolving lines of credit, which may not have outstanding balances. An entity that repeatedly draws on a revolving
credit facility and then repays the balance could present the cost as a deferred asset and reclassify all or a portion of it as a direct
deduction from the liability whenever a balance is outstanding. However, the SEC staff’s announcement provides a less-
cumbersome alternative. Either way, the cost should be amortized over the term of the arrangement. The Company adopted
ASU 2015-15 beginning July 1, 2015. Adoption of ASU 2015-15 did not have a material effect on the results of operations,
financial position or cash flows of the Company.

New Accounting Pronouncements

In May 2016, the FASB issued ASU No. 2016-12, "Revenue from Contracts with Customers (Topic 606); Identifying

Performance Obligations and Licensing" ("ASU 2016-12"), which clarifies guidance related to identifying performance
obligations and licensing implementation guidance contained in the new revenue recognition standard. The amendments in
ASU 2016-12 affect the guidance in ASU 2014-09, "Revenue From Contracts With Customers (Topic 606) ("ASU 2014-09")
which is not yet effective. The effective date and transition requirements for the amendments in ASU 2016-12 are the same as
the effective date and transition requirements in ASC 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14,
"Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date," ("ASU 2015-14"). defers the effective
date of ASU 2014-09 by one year and, therefore, the deferral results in ASU 2014-09 and its amendment ASU 2016-12 being
effective January 1, 2018.

In April 2016, the FASB issued ASU No. 2016-10 "Revenue from Contracts with Customers (Topic 606); Identifying

Performance Obligations and Licensing" ("ASU 2016-10"), which clarifies guidance related to identifying performance
obligations and licensing implementation guidance contained in the new revenue recognition standard. ASU 2016-10 seeks to
pro-actively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of
applying certain aspects of the guidance both at implementation and on an ongoing basis. The effective date and transition
requirements for the amendments in ASU 2016-10 are the same as the effective date and transition requirements in ASU
2014-09, which is effective January 1, 2018.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to

Employee Share-Based Payment Accounting" ("ASU 2016-09"). ASU 2016-09 is being issued as part of the FASB's
Simplification Initiative. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based
payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. For public
business entities, the amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and
interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an
entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal
year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.
ASU 2016-09 is effective for the Company beginning July 1, 2017. Adoption of ASU 2016-09 is not expected to have a
material effect on the results of operations, financial position or cash flows of the Company.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which introduces a new
lessee model that brings substantially all leases onto the balance sheet. In addition, while the new guidance retains most of the
principles of the existing lessor model in GAAP, it aligns many of those principles with ASC 606, "Revenue From Contracts
With Customers." For public business entities, ASU 2016-02 is effective for financial statements issued for annual periods
beginning after December 15, 2018, and interim periods within those annual periods. Early application is permitted. ASU

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

2016-02 is effective for the Company beginning July 1, 2019. Adoption of ASU 2016-02 is not expected to have a material
effect on the results of operations, financial position or cash flows of the Company.

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the

Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). ASU 2015-16 eliminates the requirement that an acquirer
in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a
measurement-period adjustment during the period in which it determines the amount of the adjustment, including the effect on
earnings of any amounts it would have recorded in previous periods if the accounting had been completed at the acquisition
date. The guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years,
beginning after December 15, 2015, with early adoption permitted. ASU 2015-16 is effective for the Company beginning July
1, 2016. Adoption of ASU 2015-16 is not expected to have a material effect on the results of operations, financial position or
cash flows of the Company.

In July 2015, the FASB issued ASU No. 2015-12, “Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined

Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965), (Part I) Fully Benefit-Responsive
Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical
Expedient” ("ASU 2015-12”). ASU 2015-12 eliminates requirements that employee benefit plans measure the fair value of
fully benefit-responsive investment contracts ("FBRICs") and provide the related fair value disclosures. As a result, FBRICs are
measured, presented and disclosed only at contract value. Also, plans will be required to disaggregate their investments
measured using fair value by general type, either on the face of the financial statements or in the notes, and self-directed
brokerage accounts are one general type. Plans no longer have to disclose the net appreciation/depreciation in fair value of
investments by general type or individual investments equal to or greater than 5% of net assets available for benefits. In
addition, a plan with a fiscal year end that does not coincide with the end of a calendar month is allowed to measure its
investments and investment-related accounts using the month end closest to its fiscal year end. The new guidance for FBRICs
and plan investment disclosures should be applied retrospectively. The measurement date practical expedient should be applied
prospectively. The guidance is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. ASU
2015-12 is effective for the Company beginning July 1, 2016. Adoption of ASU 2015-12 is not expected to have a material
effect on the results of operations, financial position or cash flows of the Company.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of

Inventory” (“ASU 2015-11”). ASU 2015-11 simplifies the subsequent measurement of inventory by requiring inventory to be
measured at the lower of cost and net realizable value. Entities will continue to apply their existing impairment models to
inventories that are accounted for using last-in first-out or LIFO and the retail inventory method or RIM. Under current
guidance, net realizable value is one of several calculations an entity needs to make to measure inventory at the lower of cost or
market. ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016, including
interim periods within those fiscal years. Early adoption is permitted, and the guidance must be applied prospectively after the
date of adoption. ASU 2015-11 is effective for the Company beginning July 1, 2017. Adoption of ASU 2015-11 is not expected
to have a material effect on the results of operations, financial position or cash flows of the Company.

In May 2015, the FASB issued ASU No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in

Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2015-07”). ASU 2015-07 removes the
requirement to categorize investments for which the fair values are measured using the net asset value per share practical
expedient within the fair value hierarchy. It also limits certain disclosures to investments for which the entity has elected to
measure the fair value using the practical expedient. ASU 2015-07 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2015, with early adoption permitted. ASU 2015-07 is effective for the Company beginning
July 1, 2016. The Company is in the process of assessing the impact of the adoption of ASU 2015-07 on its consolidated
financial statements.

In May 2014, the FASB issued accounting guidance which requires an entity to recognize the amount of revenue to which

it expects to be entitled for the transfer of promised goods or services to customers under ASU No. 2014-09, “Revenue from
Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 will replace most existing revenue recognition
guidance in GAAP when it becomes effective. On July 9, 2015, the FASB issued ASU No. 2015-14, "Revenue From Contracts
with Customers (Topic 606): Deferral of the Effective Date," which defers the effective date of ASU 2014-09 by one year
allowing early adoption as of the original effective date of January 1, 2017. The deferral results in the new accounting standard
being effective January 1, 2018. The Company is currently evaluating the impact of ASU 2014-09 on its results of operations,
financial position and cash flows.

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

Note 2. Acquisition

On January 12, 2015, the Company acquired substantially all of the assets of Rae’ Launo Corporation (“RLC”) relating
to its DSD and in-room distribution business in the Southeastern United States (the “RLC Acquisition”). The purchase price
was $1.5 million, consisting of $1.2 million in cash paid at closing and earnout payments of up to $0.1 million that the
Company expects to pay each year over a three-year period based on achievement of certain milestones.

The following table summarizes the estimated fair values of the assets acquired at the date of acquisition, based on the

final purchase price allocation:

Fair Values of Assets Acquired

(In thousands)

Property, plant and equipment

Intangible assets:

Non-compete agreement

Customer relationships

Goodwill

Total assets acquired

Estimated
Useful Life
(years)

3.0

4.5

338

870

272

1,500

Definite-lived intangible assets consist of a non-compete agreement and customer relationships. Total net carrying

value of definite-lived intangible assets as of June 30, 2016 and 2015 was $0.6 million and $0.8 million, respectively, and
accumulated amortization as of June 30, 2016 and 2015 was $0.3 million and $0.1 million, respectively. Estimated
aggregate amortization of definite-lived intangible assets, calculated on a straight-line basis and based on estimated fair
values is $0.2 million in each of the next three fiscal years commencing with fiscal 2017.

Note 3. Corporate Relocation Plan

On February 5, 2015, the Company announced a plan (the “Corporate Relocation Plan”) to close its Torrance,
California facility and relocate its corporate headquarters, product development lab, and manufacturing and distribution
operations from Torrance, California to a new facility housing these operations currently under construction in Northlake,
Texas (the “New Facility”). Approximately 350 positions were impacted as a result of the Torrance facility closure. The
Company’s decision resulted from a comprehensive review of alternatives designed to make the Company more competitive
and better positioned to capitalize on growth opportunities.

Based on current assumptions and subject to continued implementation of the Corporate Relocation Plan, the
Company estimates that it will incur approximately $31 million in cash costs in connection with the exit of the Torrance
facility consisting of $18 million in employee retention and separation benefits, $5 million in facility-related costs and
$8 million in other related costs. Expenses related to the Corporate Relocation Plan in fiscal 2016 consisted of $9.7 million
in employee retention and separation benefits, $3.7 million in facility-related costs including lease of temporary office
space, costs associated with the move of the Company's headquarters and the relocation of certain distribution operations
and $3.1 million in other related costs including travel, legal, consulting and other professional services. Facility-related
costs also included $1.0 million in non-cash depreciation expense associated with the Torrance production facility resulting
from the consolidation of coffee production operations with the Houston and Portland production facilities.

Since adoption of the Corporate Relocation Plan through June 30, 2016, the Company has recognized a total of
$25.7 million of the estimated $31 million in aggregate cash costs including $16.2 million in employee retention and
separation benefits, $3.1 million in facility-related costs related to the relocation of the Company’s Torrance operations and
certain distribution operations and $6.4 million in other related costs. The remainder is expected to be recognized in the first
half of fiscal 2017. The Company also recognized from inception through fiscal 2016 $1.3 million in non-cash depreciation
expense associated with the Torrance production facility. The Company may incur certain other non-cash asset impairment
costs and pension-related costs in connection with the Corporate Relocation Plan.

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

The following table sets forth the activity in liabilities associated with the Corporate Relocation Plan for the fiscal year

ended June 30, 2016:

(In thousands)

Employee-related costs(1)

Facility-related costs(2)

Other(3)

Total(2)

Current portion

Non-current portion

Total

Balances,
June 30, 2015

Additions

Payments

Non-Cash
Settled

Adjustments

Balances,
June 30, 2016

6,156

9,730

13,544

— $

2,342

—

200

3,716

3,087

2,712

3,087

1,004

—

200

6,356

16,533

19,343

1,004

— $

2,542

6,356

—

6,356

2,542

—

2,542

_______________
(1) Included in “Accrued payroll expenses” on the Company's consolidated balance sheets.
(2) Non-cash settled facility-related costs represent depreciation expense associated with the Torrance production facility

resulting from the consolidation of coffee production operations with the Houston and Portland production facilities and
included in "Property, plant and equipment, net" on the Company's consolidated balance sheets.

(3) Included in “Accounts payable” on the Company's consolidated balance sheets.

Note 4. New Facility Lease Obligation

On July 17, 2015, the Company entered into a lease agreement, (as amended the “Lease Agreement”), pursuant to which the
New Facility is being constructed by the lessor ("Lessor") at its expense, in accordance with agreed upon specifications and
plans determined as set forth in the Lease Agreement. Based on the final budget, which reflects substantial completion of the
principal design work for the New Facility, the Company estimates that the construction costs for the New Facility will be
approximately $55 million to $60 million. The Company recorded an asset related to the New Facility lease obligation
included in property, plant and equipment of $28.1 million at June 30, 2016 and an offsetting liability of $28.1 million for
the lease obligation in "Other long-term liabilities" on its consolidated balance sheet at June 30, 2016 (see Note 19). Rent
expense associated with the portion of the lease allocated to the land in the fiscal year ended June 30, 2016 and 2015 was
$0.3 million and $0, respectively. Construction of and relocation to the New Facility is expected to be completed in the third
quarter of fiscal 2017.

In conjunction with the Lease Agreement, the Company also entered into a Development Management Agreement (the

“DMA”) pursuant to which an affiliate of Stream Realty Partners (“Developer”) has agreed to manage, coordinate,
represent, assist and advise the Company on matters concerning the pre-development, development, design, entitlement,
infrastructure, site preparation and construction of the New Facility. Pursuant to the DMA, the Company will pay
Developer:

• a development fee of 3.25% of all development costs;

• an oversight fee of 2% of any amounts paid to the Company-contracted parties for any oversight by Developer of

Company-contracted work;

• an incentive fee, the amount of which will be determined by the parties, if final completion occurs prior to the

scheduled completion date; and

• an amount equal to $2.6 million as additional fee in respect of development services.

On June 15, 2016, the Company exercised the purchase option under the Lease Agreement to acquire the partially

constructed New Facility. The estimated purchase option exercise price for the New Facility is $58.8 million based on the
budget for the completed facility. The actual option exercise price for the partially constructed New Facility will depend

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

upon, among other things, the timing of the closing and the actual costs incurred for construction of the New Facility as of
the purchase option closing date.

In addition to the costs to complete the construction of the New Facility, the Company estimates that it will incur $35

million to $39 million for machinery and equipment, furniture and fixtures and related expenditures. As of June 30, 2016,
the Company had spent $4.4 million toward the purchase of machinery and equipment for the New Facility. No such capital
expenditures were incurred in fiscal 2015. The majority of the capital expenditures associated with machinery and
equipment, furniture, fixtures and related expenditures for the New Facility are expected to be incurred in the first half of
fiscal 2017.

Note 5. Sale of Spice Assets

In order to focus on its core products, on December 8, 2015, the Company completed the sale of the Spice Assets to
Harris. Harris acquired substantially all of the Company’s personal property used exclusively in connection with the Spice
Assets, including certain equipment; trademarks, tradenames and other intellectual property assets; contract rights under
sales and purchase orders and certain other agreements; and a list of certain customers, other than the Company’s DSD
customers, and assumed certain liabilities relating to the Spice Assets. The Company received $6.0 million in cash at
closing, and is eligible to receive an earnout amount of up to $5.0 million over a three year period based upon a percentage
of certain institutional spice sales by Harris following the closing. The Company recognized $0.5 million in earnout during
the fiscal year ended June 30, 2016, a portion of which is included in net gains from the sale of Spice Assets.

In connection with the sale of the Spice Assets, the Company and Harris entered into certain other agreements,

including (1) a transitional co-packaging supply agreement pursuant to which the Company, as the contractor, provided
Harris with certain transition services for a six-month transitional period following the closing of the asset sale, and (2) an
exclusive supply agreement pursuant to which Harris will supply to the Company, after the closing of the asset sale, spice
and culinary products that were previously manufactured by the Company on negotiated pricing terms. While title to the
Spice Assets transferred at closing, certain of the assets purchased by Harris were transferred to Harris' own manufacturing
facilities, in phases, during the transitional period. As of June 30, 2016, the Company completed all the agreed upon
transitional services to Harris. The sale of the Spice Assets does not represent a strategic shift for the Company and is not
expected to have a material impact on the Company's results of operations because the Company will continue to sell a
complete portfolio of spice and other culinary products purchased from Harris under the supply agreement to its DSD
customers.

Note 6. Assets Held for Sale

At June 30, 2016, the Company had listed for sale its Torrance facility and one of its branch properties in Northern
California. The Company actively marketed these properties, entered into purchase and sale agreements with prospective
buyers and expected these properties to be sold within one year. Accordingly, the Company designated these properties as
assets held for sale and recorded the carrying values of these properties in the aggregate amount of $7.2 million as "Assets
held for sale" on the Company's consolidated balance sheet at June 30, 2016. Subsequent to the year end the sale transaction
for the Torrance facility was completed (see Note 24).

Note 7. Derivative Instruments

Derivative Instruments Held

Coffee-Related Derivative Instruments

The Company is exposed to commodity price risk associated with its PTF green coffee purchase contracts, which are

described further in Note 1. The Company utilizes forward and option contracts to manage exposure to the variability in
expected future cash flows from forecasted purchases of green coffee attributable to commodity price risk. Certain of these
coffee-related derivative instruments utilized for risk management purposes have been designated as cash flow hedges, while
other coffee-related derivative instruments have not been designated as cash flow hedges or do not qualify for hedge accounting
despite hedging the Company's future cash flows on an economic basis.

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

The following table summarizes the notional volumes for the coffee-related derivative instruments held by the Company

at June 30, 2016 and 2015:

(In thousands)
Derivative instruments designated as cash flow hedges:
Long coffee pounds
Derivative instruments not designated as cash flow hedges:
Long coffee pounds

Less: Short coffee pounds

Total

June 30,

2016

2015

32,550

32,288

1,618
(188)
33,980

1,954
—
34,242

Coffee-related derivative instruments designated as cash flow hedges outstanding as of June 30, 2016 will expire within

18 months.

Effect of Derivative Instruments on the Financial Statements

Balance Sheets

Fair values of derivative instruments on the consolidated balance sheets:

(In thousands)

2016(1)

2015(2)

2016(1)

2015(2)

Derivative Instruments
Designated as Cash Flow Hedges

Derivative Instruments Not
Designated as Accounting Hedges

June 30,

Financial Statement Location:

Short-term derivative assets:

Coffee-related derivative instruments

Long-term derivative assets:

Coffee-related derivative instruments

Short-term derivative liabilities:

Coffee-related derivative instruments

Long-term derivative liabilities:

Coffee-related derivative instruments

3,771

2,575

128

136

— $

4,128

— $

163

183

— $

—

________________
(1) Included in "Short-term derivative assets" and "Other assets" on the Company's consolidated balance sheet at June 30, 2016.
(2) Included in "Short-term derivative liabilities" and "Other long-term liabilities" on the Company's consolidated balance sheet

at June 30, 2015.

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

Statements of Operations

The following table presents pretax net gains and losses for the Company's coffee-related derivative instruments

designated as cash flow hedges, as recognized in “AOCI,” “Cost of goods sold” and “Other, net”:

(In thousands)

Net gains (losses) recognized in accumulated other
comprehensive income (loss) (effective portion)

Year Ended June 30,

2016

2015

2014

Financial Statement
Classification

303

$ (14,295) $

17,524

Net (losses) gains recognized in earnings (effective portion)

Net losses recognized in earnings (ineffective portion)

$ (13,184) $
(575) $
$

4,211
$
(325) $

1,161
(259)

AOCI
Costs of goods
sold
Other, net

For the years ended June 30, 2016, 2015 and 2014, there were no gains or losses recognized in earnings as a result of

excluding amounts from the assessment of hedge effectiveness or as a result of reclassifications to earnings following the
discontinuance of any cash flow hedges.

Gains and losses on derivative instruments not designated as accounting hedges are included in “Other, net” in the
Company's consolidated statements of operations and in “Net losses (gains) on derivative instruments and investments” in the
Company's consolidated statements of cash flows.

Net gains and losses recorded in “Other, net” are as follows:

(In thousands)

Net (losses) gains on coffee-related derivative instruments

Net gains (losses) on investments

Net losses on interest rate swap

Net gains (losses) on derivative instruments and investments(1)

Other gains, net

Other, net

Year Ended June 30,

2016

2015

2014

(298) $
611

—

313
243

556

(2,992) $
(270)
—

(3,262)
248

(3,014) $

2,655

464
(5)

3,114

563

3,677

___________
(1) Excludes net (losses) gains on coffee-related derivative instruments designated as cash flow hedges recorded in cost of

goods sold in the fiscal years ended June 30, 2016, 2015 and 2014.

Offsetting of Derivative Assets and Liabilities

The Company has agreements in place that allow for the financial right of offset for derivative assets and liabilities at
settlement or in the event of default under the agreements. Additionally, the Company maintains accounts with its brokers to
facilitate financial derivative transactions in support of its risk management activities. Based on the value of the Company’s
positions in these accounts and the associated margin requirements, the Company may be required to deposit cash into these
broker accounts.

The following table presents the Company’s net exposure from its offsetting derivative asset and liability positions, as

well as cash collateral on deposit with its counterparty as of the reporting dates indicated:

(In thousands)

June 30, 2016

June 30, 2015

Gross Amount
Reported on
Balance Sheet

Netting
Adjustments

Cash Collateral
Posted

Net Exposure

Derivative Assets

Derivative Liabilities

6,586

291

4,292

— $
(291) $
(291) $

— $

1,001

6,586

—

3,000

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

Cash Flow Hedges

Changes in the fair value of the Company's coffee-related derivative instruments designated as cash flow hedges, to the
extent effective, are deferred in AOCI and reclassified into cost of goods sold in the same period or periods in which the hedged
forecasted purchases affect earnings, or when it is probable that the hedged forecasted transaction will not occur by the end of
the originally specified time period. Based on recorded values at June 30, 2016, $2.0 million of net gains on coffee-related
derivative instruments designated as cash flow hedges are expected to be reclassified into cost of goods sold within the next
twelve months. These recorded values are based on market prices of the commodities as of June 30, 2016. Due to the volatile
nature of commodity prices, actual gains or losses realized within the next twelve months will likely differ from these values.

Note 8. Investments

The following table shows gains and losses on trading securities held for investment by the Company:

(In thousands)
Total gains (losses) recognized from trading securities held

for investment

Less: Realized gains from sales of trading securities held

for investment

Unrealized gains (losses) from trading securities held

for investment

Year Ended June 30,

2016

2015

2014

611

(270) $

582

(359) $

464

116

348

Note 9. Fair Value Measurements

Assets and liabilities measured and recorded at fair value on a recurring basis were as follows:

(In thousands)

Total

Level 1

Level 2

Level 3

June 30, 2016
Preferred stock(1)
Derivative instruments designated as cash flow hedges:

Coffee-related derivative assets(2)
Coffee-related derivative liabilities(2)

Derivative instruments not designated as accounting hedges:

Coffee-related derivative assets(2)
Coffee-related derivative liabilities(2)

June 30, 2015
Preferred stock(1)
Derivative instruments designated as cash flow hedges:

Coffee-related derivative assets(2)
Coffee-related derivative liabilities(2)

Derivative instruments not designated as accounting hedges:

Coffee-related derivative assets(2)
Coffee-related derivative liabilities(2)

$
$

25,591

21,976

3,615

6,346

$
— $

240
$
— $

— $
— $

6,346

$
— $

240
$
— $

Total

Level 1

Level 2

Level 3

23,665

264
4,290

27
2

$
$

19,132

4,533

— $
— $

264
4,290

27
2

$
$

—

—
—

—

—
—

____________________
(1) Included in “Short-term investments” on the Company's consolidated balance sheets.
(2) The Company's coffee derivative instruments are traded over-the-counter and, therefore, classified as Level 2.

During the fiscal year ended June 30, 2016, there was one transfer of preferred stock from Level 1 to Level 2, resulting
from a decrease in the quantity and quality of information related to trading activity and broker quotes for that security. The

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

Company's coffee derivative instruments that were previously classified as Level 1 were appropriately reclassified as Level 2
because they are traded over-the-counter.

Note 10. Accounts and Notes Receivable, Net

(In thousands)
Trade receivables
Other receivables(1)
Allowance for doubtful accounts
Accounts and notes receivable, net

June 30,

2016

2015

43,113
1,965
(714)
44,364

38,783
2,021
(643)
40,161

__________
(1) At June 30, 2016 and 2015, respectively, the Company had recorded $0.5 million and $0 in "Other receivables" included in

"Accounts and notes receivable, net" on its consolidated balance sheets representing earnout receivable from Harris.

Allowance for doubtful accounts:

(In thousands)

Balance at June 30, 2013

Provision

Reclassification to long-term

Balance at June 30, 2014

Recovery

Balance at June 30, 2015

Provision

Write-off

Balance at June 30, 2016

Note 11. Inventories

(In thousands)

Coffee

Processed

Unprocessed

Total

Tea and culinary products

Processed

Unprocessed

Total

Coffee brewing equipment parts

Total inventories

(1,115)
(80)
544
(651)
8
(643)
(71)
—
(714)

June 30,

2016

2015

12,362

13,534

25,896

15,384

377

15,761

4,721

46,378

13,837

11,968

25,805

17,022

2,764

19,786

4,931

50,522

In addition to product cost, inventory costs include expenditures such as direct labor and certain supply and overhead
expenses incurred in bringing the inventory to its existing condition and location. The “Unprocessed” inventory values as stated
in the above table represent the value of raw materials and the “Processed” inventory values represent all other products
consisting primarily of finished goods.

Inventories decreased at the end of fiscal 2016 compared to fiscal 2015, primarily due to production consolidation and the

sale of processed and unprocessed inventories to Harris at cost upon conclusion of the transition services provided by the

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

Company in connection with the sale of the Spice Assets. Inventories decreased at the end of fiscal 2015 compared to fiscal
2014, primarily due to the consolidation of the Company's Torrance coffee production with its coffee production in Houston and
Portland as part of the Corporate Relocation Plan. As a result, the Company recorded in cost of goods sold $4.2 million and
$4.9 million in beneficial effect of liquidation of LIFO inventory quantities in the fiscal year ended June 30, 2016 and 2015,
respectively, which increased net income for the fiscal years ended June 30, 2016 and 2015 by $4.2 million and $4.9 million,
respectively. Inventories increased at the end of fiscal 2014 compared to fiscal 2013 and, therefore, there was no similar benefit
to cost of goods sold in fiscal 2014.

Current cost of coffee, tea and culinary product inventories exceeds the LIFO cost by:

(In thousands)
Coffee
Tea and culinary products

Total

Note 12. Property, Plant and Equipment

(In thousands)
Buildings and facilities

Machinery and equipment

Buildings and facilities—New Facility(1)

Equipment under capital leases

Capitalized software

Office furniture and equipment

Accumulated depreciation

Land

Property, plant and equipment, net(2)

June 30,

2016

2015

14,462
7,139
21,601

25,541
8,200
33,741

June 30,

2016

2015

54,768

182,227

28,110

11,982

21,545

16,077

314,709
(206,162)
9,869

118,416

79,040

172,432

—

18,562

19,703

15,005

304,742
(223,660)
9,119

90,201

______________
(1) Asset recorded to offset New Facility lease obligation recorded in "Other long-term liabilities" (see Note 19).
(2) Includes in the years ended June 30, 2016 and 2015, expenditures for items that have not been placed in service in the

amounts of $39.3 million and $2.5 million, respectively.

Capital leases consisted mainly of vehicle leases at June 30, 2016 and 2015. Depreciation and amortization expense

includes amortization expense for assets recorded under capitalized leases.

The Company capitalized coffee brewing equipment (included in machinery and equipment) in the amounts of
$8.4 million and $10.7 million in fiscal 2016 and 2015, respectively. Depreciation expense related to the capitalized coffee
brewing equipment reported as cost of goods sold was $9.8 million, $10.4 million and $10.9 million in fiscal 2016, 2015 and
2014, respectively.

The Company may incur certain other non-cash asset impairment costs in connection with the Corporate Relocation

Plan.

Maintenance and repairs to property, plant and equipment charged to expense for the years ended June 30, 2016, 2015,

and 2014 were $7.7 million, $8.2 million and $8.7 million, respectively.

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

Note 13. Goodwill and Intangible Assets

The following is a summary of changes in the carrying value of goodwill:

(In thousands)

Balance at June 30, 2014

Additions—RLC acquisition

Balance at June 30, 2015

Additions

Balance at June 30, 2016

—

272

—

272

The following is a summary of the Company’s amortized and unamortized intangible assets other than goodwill, along

with amortization expense on these intangible assets for the past two fiscal years.

(In thousands)
Amortized intangible assets:

Customer relationships

Covenant not to compete

Total amortized intangible assets

Unamortized intangible assets:

Tradenames with indefinite lives

Trademarks with indefinite lives

Total unamortized intangible assets

Total intangible assets

June 30, 2016

June 30, 2015

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

10,953

10,973

3,640

1,988

5,628

16,601

(10,373) $
(10)
(10,383) $

— $

—

— $
(10,383) $

10,953

10,973

3,640

1,988

5,628

16,601

Aggregate amortization expense for the past three fiscal years:

(In thousands):

For the fiscal year ended June 30, 2016

For the fiscal year ended June 30, 2015

For the fiscal year ended June 30, 2014

Estimated amortization expense for the next three fiscal years:

(In thousands):

For the fiscal year ending June 30, 2017

For the fiscal year ending June 30, 2018

For the fiscal year ending June 30, 2019

Remaining weighted average amortization periods for intangible assets with finite lives are as follows:

Customer relationships (years)
Covenant not to compete (years)

Note 14. Employee Benefit Plans

The Company provides benefit plans for most full-time employees, including 401(k), health and other welfare benefit
plans and, in certain circumstances, pension benefits. Generally the plans provide benefits based on years of service and/or a

(10,179)
(3)
(10,182)

—

—
(10,182)

200

649

200

198

193

3.0

1.5

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

combination of years of service and earnings. In addition, the Company contributes to two multiemployer defined benefit
pension plans, one multiemployer defined contribution pension plan and ten multiemployer defined contribution plans other
than pension plans that provide medical, vision, dental and disability benefits for active, union-represented employees subject to
collective bargaining agreements. In addition, the Company sponsors a postretirement defined benefit plan that covers qualified
non-union retirees and certain qualified union retirees and provides retiree medical coverage and, depending on the age of the
retiree, dental and vision coverage. The Company also provides a postretirement death benefit to certain of its employees and
retirees.

The Company is required to recognize the funded status of a benefit plan in its consolidated balance sheets. The Company
is also required to recognize in other comprehensive income (loss) (“OCI”) certain gains and losses that arise during the period
but are deferred under pension accounting rules.

Single Employer Pension Plans

The Company has a defined benefit pension plan, the Farmer Bros. Co. Pension Plan for Salaried Employees (the

“Farmer Bros. Plan”), for Company employees hired prior to January 1, 2010, who are not covered under a collective
bargaining agreement. The Company amended the Farmer Bros. Plan, freezing the benefit for all participants effective June 30,
2011. After the plan freeze, participants do not accrue any benefits under the Farmer Bros. Plan, and new hires are not eligible
to participate in the Farmer Bros. Plan. As all plan participants became inactive following this pension curtailment, net (gain)
loss is now amortized based on the remaining life expectancy of these participants instead of the remaining service period of
these participants.

The Company also has two defined benefit pension plans for certain hourly employees covered under collective
bargaining agreements (the “Brewmatic Plan” and the “Hourly Employees' Plan”). In fiscal 2015, the Company actuarially
determined that no adjustments were required to be made to fiscal 2015 net periodic benefit cost for the defined benefit pension
plans as a result of the Company's Corporate Relocation Plan.

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

($ in thousands)

2016

2015

2016

2015

2016

2015

Obligations and Funded Status

Farmer Bros. Plan
June 30,

Brewmatic Plan
June 30,

Hourly Employees’ Plan
June 30,

Change in projected benefit obligation

Benefit obligation at the beginning of the

year

Service cost

Interest cost

Actuarial loss

Benefits paid

Projected benefit obligation at the end of

the year
Change in plan assets

Fair value of plan assets at the beginning

of the year

Actual return on plan assets

Employer contributions

Benefits paid

Fair value of plan assets at the end of the

year

Funded status at end of year (underfunded)

overfunded

Amounts recognized in consolidated balance

sheets

Non-current liabilities

Total
Amounts recognized in consolidated statements

of operations

Net loss

Total accumulated OCI (not adjusted for

applicable tax)

Weighted average assumptions used to determine

benefit obligations

Discount rate

Rate of compensation increase

$ 136,962

$ 133,136

4,064

3,991

3,145

2,619

—

5,875

15,999

(6,511)

—

5,393

4,596
(6,163)

—

172

682
(344)

—

160

188
(275)

389

137

687
(29)

386

108

56
(24)

$ 152,325

$ 136,962

4,574

4,064

4,329

3,145

94,815

$ 98,426

3,291

3,435

2,104

1,629

1,556

1,341

(6,511)

1,731

821
(6,163)

—
(344)

65
(275)

287
(29)

489
(24)

$ 91,201

$ 94,815

2,989

(61,124)

$ (42,147)

(1,585)

(61,124)

$ (61,124)

(42,147)
$ (42,147)

(1,585)
$ (1,585)

70,246

$ 50,743

2,756

$ 70,246

$ 50,743

2,756

3,291

2,447

2,104

(773)

$ (1,882)

$ (1,041)

(773)
(773)

(1,882)
$ (1,882)

(1,041)
$ (1,041)

1,965

988

1,965

988

237

3.55%
N/A

4.40%
N/A

3.55%
N/A

4.40%
N/A

3.55%
N/A

4.40%
N/A

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

Components of Net Periodic Benefit Cost and
Other Changes Recognized in Other Comprehensive Income (Loss) (OCI)

($ in thousands)

2016

2015

2016

2015

2016

2015

Farmer Bros. Plan
June 30,

Brewmatic Plan
June 30,

Hourly Employees’ Plan
June 30,

Components of net periodic benefit cost

Service cost

Interest cost

Expected return on plan assets

Amortization of net loss

5,875

(6,470)

1,411

Net periodic benefit cost (credit)

816

Other changes recognized in OCI

Net loss
Amortization of net loss

Total recognized in OCI

Total recognized in net periodic

benefit cost and OCI

Weighted-average assumptions used to
determine net periodic benefit cost

$ 20,913
(1,411)

$ 19,502

$ 20,318

— $

389

5,393
(6,938)
1,153
(392)

9,803
(1,153)
8,650

8,258

172
(219)
68

859
(68)
791

812

160
(234)
57
(17)

356
(57)
299

282

137
(149)
—

377

750
—

750

1,127

386

108
(119)
—

375

165
—

165

540

Discount rate

4.40%

4.15%

4.40%

4.15%

4.40%

4.15%

Expected long-term return on plan

assets

Rate of compensation increase

7.50%

N/A

7.50%

N/A

7.50%

N/A

7.50%

N/A

7.50%

N/A

7.50%

N/A

Basis Used to Determine Expected Long-term Return on Plan Assets

The expected long-term return on plan assets assumption was developed as a weighted average rate based on the target

asset allocation of the plan and the Long-Term Capital Market Assumptions (CMA) 2014. The capital market assumptions were
developed with a primary focus on forward-looking valuation models and market indicators. The key fundamental economic
inputs for these models are future inflation, economic growth, and interest rate environment. Due to the long-term nature of the
pension obligations, the investment horizon for the CMA 2014 is 20 to 30 years. In addition to forward-looking models,
historical analysis of market data and trends was reflected, as well as the outlook of recognized economists, organizations and
consensus CMA from other credible studies.

Description of Investment Policy

The Company’s investment strategy is to build an efficient, well-diversified portfolio based on a long-term, strategic
outlook of the investment markets. The investment markets outlook utilizes both the historical-based and forward-looking
return forecasts to establish future return expectations for various asset classes. These return expectations are used to develop a
core asset allocation based on the specific needs of each plan. The core asset allocation utilizes investment portfolios of various
asset classes and multiple investment managers in order to maximize the plan’s return while providing multiple layers of
diversification to help minimize risk.

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

($ in thousands)

2016

2015

2016

2015

2016

2015

Additional Disclosures

Farmer Bros. Plan
June 30,

Brewmatic Plan
June 30,

Hourly Employees’ Plan
June 30,

Comparison of obligations to plan assets

Projected benefit obligation

$ 152,325

$ 136,962

Accumulated benefit obligation

$ 152,325

$ 136,962

Fair value of plan assets at

measurement date

Plan assets by category

Equity securities

Debt securities

Real estate

Total

Plan assets by category

Equity securities

Debt securities

Real estate

Total

4,574

2,989

1,909

899

181

4,064

3,291

1,638

1,322

331

4,329

2,447

1,542

758

147

3,145

2,104

1,050

839

215

$ 91,201

$ 94,815

$ 58,094

$ 47,340

27,586

5,521

37,789

9,686

$ 91,201

$ 94,815

2,989

3,291

2,447

2,104

64%

30%

50%

40%

10%

64%

30%

50%

40%

10%

63%

31%

50%

40%

10%

100.0%

100%

Fair values of plan assets were as follows:

(In thousands)
Farmer Bros. Plan
Brewmatic Plan
Hourly Employees’ Plan

Total

Level 1

Level 2

Level 3

June 30, 2016

$
$
$

91,201
2,989
2,447

Total

94,815
3,291
2,104

$
$
$

— $
— $
— $

91,201
2,989
2,447

June 30, 2015

Level 1

Level 2

— $
— $
— $

94,815
3,291
2,104

$
$
$

—
—
—

Level 3

As of June 30, 2016, approximately 6% of the assets of each of the Farmer Bros. Plan, the Brewmatic Plan and the
Hourly Employees’ Plan were invested in pooled separate accounts which invested mainly in commercial real estate and
included mortgage loans which were backed by the associated properties. These underlying real estate investments are able to
be redeemed at net asset value per share and therefore, are considered Level 2 assets.

The following is the target asset allocation for the Company's single employer pension plans—Farmer Bros. Plan,

Brewmatic Plan and Hourly Employees' Plan—for fiscal 2017:

U.S. large cap equity securities
U.S. small cap equity securities
International equity securities
Debt securities
Real estate
Total

Fiscal 2017

42.8%
5.2%
16.0%
30.0%
6.0%
100.0%

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

Estimated Amounts in OCI Expected To Be Recognized

In fiscal 2017, the Company expects to recognize as a component of net periodic benefit cost $1.1 million for the Farmer

Bros. Plan, $71,000 for the Brewmatic Plan, and $0.5 million for the Hourly Employees’ Plan.

Estimated Future Contributions and Refunds

In fiscal 2017, the Company expects to contribute $2.0 million to the Farmer Bros. Plan, $0.1 million to the

Brewmatic Plan, and $0.3 million to the Hourly Employees’ Plan. The Company is not aware of any refunds expected from
single employer pension plans.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid over the next 10 fiscal years:

(In thousands)

Year Ending:

June 30, 2017
June 30, 2018
June 30, 2019
June 30, 2020
June 30, 2021
June 30, 2022 to June 30, 2026

Farmer Bros. Plan

Brewmatic Plan

Hourly Employees’
Plan

$
$
$
$
$
$

7,310
7,520
7,760
8,040
8,250
42,770

$
$
$
$
$
$

320
310
310
300
290
1,340

$
$
$
$
$
$

81
110
120
140
170
1,170

These amounts are based on current data and assumptions and reflect expected future service, as appropriate.

Multiemployer Pension Plans

The Company participates in two multiemployer defined benefit pension plans that are union sponsored and collectively
bargained for the benefit of certain employees subject to collective bargaining agreements, of which the Western Conference of
Teamsters Pension Plan (“WCTPP”) is individually significant. The Company makes contributions to these plans generally
based on the number of hours worked by the participants in accordance with the provisions of negotiated labor contracts.

The risks of participating in multiemployer pension plans are different from single-employer plans in that: (i) assets
contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating
employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by
the remaining participating employers; and (iii) if the Company stops participating in the multiemployer plan, the Company
may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company's participation in WCTPP is outlined in the table below. The Pension Protection Act (“PPA”) Zone Status

available in the Company's fiscal year 2016 and fiscal year 2015 is for the plan's year ended December 31, 2015 and
December 31, 2014, respectively. The zone status is based on information obtained from WCTPP and is certified by WCTPP's
actuary. Among other factors, plans in the green zone are generally more than 80% funded. Based on WCTPP's annual report on
Form 5500, WCTPP was 91.7% and 91.9% funded for its plan year beginning January 1, 2015 and 2014, respectively. The
“FIP/RP Status Pending/Implemented” column indicates if a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”)
is either pending or has been implemented.

Pension Plan

Western Conference

of Teamsters
Pension Plan

PPA Zone Status

Employer
Identification
Number

Pension
Plan
Number

July 1,
2015

July 1,
2014

FIP/RP
Status
Pending/
Implemented

Surcharge
Imposed

Expiration Date
of Collective
Bargaining
Agreements

91-6145047

001

Green

January 31, 2020

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

Based upon the most recent information available from the trustees managing WCTPP, the Company's share of the
unfunded vested benefit liability for the plan was estimated to be approximately $9.1 million if the withdrawal had occurred in
calendar year 2015. These estimates were calculated by the trustees managing WCTPP. Although the Company believes the
most recent plan data available from WCTPP was used in computing this 2015 estimate, the actual withdrawal liability amount
is subject to change based on, among other things, the plan's investment returns and benefit levels, interest rates, financial
difficulty of other participating employers in the plan such as bankruptcy, and continued participation by the Company and
other employers in the plan, each of which could impact the ultimate withdrawal liability.

If withdrawal liability were to be triggered, the withdrawal liability assessment can be paid in a lump sum or on a
monthly basis. The amount of the monthly payment is determined as follows: Average number of hours reported to the pension
plan trust during the three consecutive years with highest number of hours in the 10-year period prior to the withdrawal is
multiplied by the highest hourly contribution rate during the 10-year period ending with the plan year in which the withdrawal
occurred to determine the amount of withdrawal liability that has to be paid annually. The annual amount is divided by 12 to
arrive at the monthly payment due. If monthly payments are elected, interest is assessed on the unpaid balance after 12 months
at the rate of 7% per annum.

In fiscal 2012, the Company withdrew from the Local 807 Labor-Management Pension Fund (“Pension Fund”) and

recorded a charge of $4.3 million associated with withdrawal from this plan, representing the present value of the estimated
withdrawal liability expected to be paid in quarterly installments of $0.1 million over 80 quarters. On November 18, 2014, the
Pension Fund sent the Company a notice of assessment of withdrawal liability in the amount of $4.4 million, which the Pension
Fund adjusted to $4.9 million on January 5, 2015. The Company is in the process of negotiating a reduced liability amount. The
Company has commenced quarterly installment payments to the Pension Fund of $91,000 pending the final settlement of the
liability. The total estimated withdrawal liability of $3.8 million and $4.3 million, respectively, is reflected in the Company's
consolidated balance sheets at June 30, 2016 and June 30, 2015, with the short-term and long-term portions reflected in current
and long-term liabilities, respectively.

The Company may incur certain pension-related costs in connection with the Corporate Relocation Plan. Future collective

bargaining negotiations may result in the Company withdrawing from the remaining multiemployer pension plans in which it
participates and, if successful, the Company may incur a withdrawal liability, the amount of which could be material to the
Company's results of operations and cash flows.

Company contributions to the multiemployer pension plans:

(In thousands)

Year Ended:
June 30, 2016
June 30, 2015
June 30, 2014

WCTPP(1)(2)(3)

All Other
Plans(4)

$
$
$

2,587
3,593
3,153

$
$
$

39
41
34

____________
(1) Individually significant plan.
(2) Less than 5% of total contribution to WCTPP based on WCTPP's most recent annual report on Form 5500 for the calendar

year ended December 31, 2015.

(3) The Company guarantees that one hundred seventy-three (173) hours will be contributed upon for all employees who are

compensated for all available straight time hours for each calendar month. An additional 6.5% of the basic contribution
must be paid for PEER or the Program for Enhanced Early Retirement.

(4) Includes one plan that is not individually significant.

The Company's contribution to multiemployer plans decreased in fiscal 2016 as compared to fiscal 2015 and 2014, as a

result of reduction in employees due to the Corporate Relocation Plan. The Company expects to contribute an aggregate of $3.3
million towards multiemployer pension plans in fiscal 2017.

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

Multiemployer Plans Other Than Pension Plans

The Company participates in ten multiemployer defined contribution plans other than pension plans that provide medical,

vision, dental and disability benefits for active, union-represented employees subject to collective bargaining agreements. The
plans are subject to the provisions of the Employee Retirement Income Security Act of 1974, and provide that participating
employers make monthly contributions to the plans in an amount as specified in the collective bargaining agreements. Also, the
plans provide that participants make self-payments to the plans, the amounts of which are negotiated through the collective
bargaining process. The Company's participation in these plans is governed by collective bargaining agreements which expire
on or before January 31, 2020. The Company's aggregate contributions to multiemployer plans other than pension plans in the
fiscal years ended June 30, 2016, 2015 and 2014 were $6.3 million, $6.9 million and $6.6 million, respectively. The Company
expects to contribute an aggregate of $6.5 million towards multiemployer plans other than pension plans in fiscal 2017.

401(k) Plan

The Company's 401(k) Plan is available to all eligible employees who have worked more than 1,000 hours during a

calendar year and were employed at the end of the calendar year. Participants in the 401(k) Plan may choose to contribute a
percentage of their annual pay subject to the maximum contribution allowed by the Internal Revenue Service. The Company's
matching contribution is discretionary, based on approval by the Company's Board of Directors. For the calendar years 2016,
2015 and 2014, the Company's Board of Directors approved a Company matching contribution of 50% of an employee's annual
contribution to the 401(k) Plan, up to 6% of the employee's eligible income. The matching contributions (and any earnings
thereon) vest at the rate of 20% for each of the participant's first 5 years of vesting service, so that a participant is fully vested in
his or her matching contribution account after 5 years of vesting service, subject to accelerated vesting under certain
circumstances in connection with the Corporate Relocation Plan due to the closure of the Company’s Torrance facility or a
reduction-in-force at another Company facility designated by the Administrative Committee of the Farmer Bros. Co. Qualified
Employee Retirement Plans. A participant is automatically vested in the event of death, disability or attainment of age 65 while
employed by the Company. Employees are 100% vested in their contributions. For employees subject to a collective bargaining
agreement, the match is only available if so provided in the labor agreement.

The Company recorded matching contributions of $1.6 million, $1.4 million and $1.3 million in operating expenses for

the fiscal years ended June 30, 2016, 2015 and 2014, respectively.

Postretirement Benefits

The Company sponsors a postretirement defined benefit plan that covers qualified non-union retirees and certain qualified

union retirees (“Retiree Medical Plan”). The plan provides medical, dental and vision coverage for retirees under age 65 and
medical coverage only for retirees age 65 and above. Under this postretirement plan, the Company’s contributions toward
premiums for retiree medical, dental and vision coverage for participants and dependents are scaled based on length of service,
with greater Company contributions for retirees with greater length of service, subject to a maximum monthly Company
contribution. The Company's retiree medical, dental and vision plan is unfunded, and its liability was calculated using an
assumed discount rate of 3.7% at June 30, 2016. The Company projects an initial medical trend rate of 9.0% in fiscal 2017,
ultimately reducing to 4.5% in 10 years.

The Company also provides a postretirement death benefit (“Death Benefit”) to certain of its employees and retirees,

subject, in the case of current employees, to continued employment with the Company until retirement and certain other
conditions related to the manner of employment termination and manner of death. The Company records the actuarially
determined liability for the present value of the postretirement death benefit. The Company has purchased life insurance
policies to fund the postretirement death benefit wherein the Company owns the policy but the postretirement death benefit is
paid to the employee's or retiree's beneficiary. The Company records an asset for the fair value of the life insurance policies
which equates to the cash surrender value of the policies. In fiscal 2016, the Company actuarially determined that no
postretirement benefit costs related to the Corporate Relocation Plan were required to be recognized.

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

Retiree Medical Plan and Death Benefit

The following table shows the components of net periodic postretirement benefit cost for the Retiree Medical Plan and

Death Benefit for the fiscal years ended June 30, 2016, 2015 and 2014. Net periodic postretirement benefit cost for fiscal 2016
was based on employee census information as of July 1, 2015 and asset information as of June 30, 2016.

(In thousands)

Components of Net Periodic Postretirement Benefit Cost (credit):
Service cost
Interest cost
Amortization of net gains
Amortization of prior service credit

Net periodic postretirement benefit cost (credit)

Year Ended June 30,

2016

2015

2014

1,388
1,194
(196)
(1,757)
629

1,195
943
(500)
(1,757)

(119) $

936
810
(880)
(1,757)
(891)

The difference between the assets and the Accumulated Postretirement Benefit Obligation (APBO) at the adoption of
ASC 715-60 was established as a transition (asset) obligation and is amortized over the average expected future service for
active employees as measured at the date of adoption. Any plan amendments that retroactively increase benefits create prior
service cost. The increase in the APBO due to any plan amendment is established as a base and amortized over the average
remaining years of service to the full eligibility date of active participants who are not yet fully eligible for benefits at the plan
amendment date. Gains and losses due to experience different than that assumed or from changes in actuarial assumptions are
not immediately recognized. The tables below show the remaining bases for the transition (asset) obligation, prior service cost
(credit), and the calculation of the amortizable gain or loss.

Amortization Schedule
Transition (Asset) Obligation: The transition (asset) obligations have been fully amortized.

Prior service cost (credit) ($ in thousands):

Date Established
January 1, 2008
July 1, 2012

Balance at
July 1, 2015

Annual
Amortization

(962) $

(13,001)
(13,963) $

230
1,526
1,756

Years Remainin
g

Curtailment

Balance at
June 30, 2016

3.2
7.5

— $
—

(732)
(11,475)
(12,207)

($ in thousands)

Amortization of Net (Gain) Loss:
Net (gain) loss as of July 1
Net (gain) loss subject to amortization
Corridor (10% of greater of APBO or assets)
Net (gain) loss in excess of corridor
Amortization years

Year Ended June 30,

Retiree Medical Plan

Death Benefit

2016

2015

2016

2015

(8,710) $
(8,710)
1,724
(6,986) $
10.0

(3,655) $
(3,655)
1,723
(1,932) $
10.8

690
690
(729)

— $
7.7

690
690
(729)
—
8.7

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

The following tables provide a reconciliation of the benefit obligation and plan assets:

(In thousands)

Change in Benefit Obligation:
Projected postretirement benefit obligation at beginning of year

Service cost
Interest cost
Participant contributions
Actuarial losses

Benefits paid
Projected postretirement benefit obligation at end of year

(In thousands)
Change in Plan Assets:
Fair value of plan assets at beginning of year
Employer contributions
Participant contributions
Benefits paid
Fair value of plan assets at end of year
Projected postretirement benefit obligation at end of year
Funded status of plan

(In thousands)

Amounts Recognized in the Consolidated Balance Sheets Consist of:
Non-current assets

Current liabilities
Non-current liabilities
Total

(In thousands)

Amounts Recognized in Accumulated OCI Consist of:
Net gain

Transition obligation

Total accumulated OCI

(In thousands)

Other Changes in Plan Assets and Benefit Obligations Recognized in OCI:
Unrecognized actuarial loss
Amortization of net loss
Amortization of prior service cost
Total recognized in OCI

Net periodic benefit credit
Total recognized in net periodic benefit cost and OCI

Year Ended June 30,

2016

2015

24,522
1,388
1,194
795
(4,259)
(1,773)
21,867

20,889
1,195
943
711
2,751
(1,967)
24,522

Year Ended June 30,

2016

2015

— $
978
795
(1,773)
—
21,867
$
(21,867) $

—
1,256
711
(1,967)
—
24,522
(24,522)

June 30,

2016

2015

— $

(1,060)
(20,807)
(21,867) $

—
(1,051)
(23,471)
(24,522)

Year Ended June 30,

2016

2015

(7,027) $
(12,207)
(19,234) $

(2,965)
(13,963)
(16,928)

Year Ended June 30,

2016

2015

(4,259) $
196
1,757

(2,306)
629
(1,677) $

2,751
500
1,757

5,008
(119)
4,889

$
$

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

The estimated net gain and prior service credit that will be amortized from accumulated OCI into net periodic benefit cost

in fiscal 2017 are $0.6 million and $1.8 million, respectively.

(In thousands)

Estimated Future Benefit Payments:

Year Ending:

June 30, 2017
June 30, 2018
June 30, 2019
June 30, 2020
June 30, 2021
June 30, 2022 to June 30, 2026

Expected Contributions:

June 30, 2017

Sensitivity in Fiscal 2017 Results

$
$
$
$
$
$

1,080
1,102
1,143
1,176
1,210
6,246

1,080

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one

percentage point change in assumed health care cost trend rates would have the following effects in fiscal 2017:

(In thousands)
Effect on total of service and interest cost components
Effect on accumulated postretirement benefit obligation

Note 15. Bank Loan

1-Percentage Point

Increase

Decrease

$
$

181
1,664

$
$

(154)
(1,423)

The Company maintains a $75.0 million senior secured revolving credit facility (“Revolving Facility”) with JPMorgan
Chase Bank, N.A. and SunTrust Bank (collectively, the “Lenders”), with a sublimit on letters of credit and swingline loans of
$30.0 million and $15.0 million. respectively. The Revolving Facility includes an accordion feature whereby the Company may
increase the Revolving Commitment by up to an additional $50.0 million, subject to certain conditions. Advances are based on
the Company’s eligible accounts receivable, eligible inventory, and the value of certain real property and trademarks, less
required reserves. The commitment fee ranges from 0.25% to 0.375% per annum based on average revolver usage. Outstanding
obligations are collateralized by all of the Company’s assets, excluding certain real property not included in the borrowing base,
machinery and equipment (other than inventory), and the Company's preferred stock portfolio. Borrowings under the Revolving
Facility bear interest based on average historical excess availability levels with a range of PRIME - 0.25% to PRIME + 0.50%
or Adjusted LIBO Rate + 1.25% to Adjusted LIBO Rate + 2.00%. The Company is subject to a variety of affirmative and
negative covenants of types customary in an asset-based lending facility, including financial covenants relating to the
maintenance of a fixed charge coverage ratio in certain circumstances, and the right of the Lenders to establish reserve
requirements, which may reduce the amount of credit otherwise available to the Company. The Company is allowed to pay
dividends, provided, among other things, certain excess availability requirements are met, and no event of default exists or has
occurred and is continuing as of the date of any such payment and after giving effect thereto. The Revolving Facility expires on
March 2, 2020.

At June 30, 2016, the Company was eligible to borrow up to a total of $58.6 million under the Revolving Facility and had
outstanding borrowings of $0.1 million, utilized $11.9 million of the letters of credit sublimit, and had excess availability under
the Revolving Facility of $46.6 million. At June 30, 2016, the weighted average interest rate on the Company's outstanding
borrowings under the Revolving Facility was 1.64% and the Company was in compliance with all of the restrictive covenants
under the Revolving Facility.

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

Note 16. Employee Stock Ownership Plan

The Company’s ESOP was established in 2000. The plan is a leveraged ESOP in which the Company is the lender. The

loans are repaid from the Company’s discretionary plan contributions over the original 15 year term with a variable rate of
interest. The annual interest rate was 1.99% at June 30, 2016, which is updated on a quarterly basis.

Loan amount (in thousands)

As of and for the years ended June 30,

2016
$6,434

2015
$11,234

2014
$16,035

Shares are held by the plan trustee for allocation among participants as the loan is repaid. The unencumbered shares are
allocated to participants using a compensation-based formula. Subject to vesting requirements, allocated shares are owned by
participants and shares are held by the plan trustee until the participant retires.

Historically, the Company used the dividends, if any, on ESOP shares to pay down the loans, and allocated to the ESOP

participants shares equivalent to the fair market value of the dividends they would have received. No dividends were paid in
fiscal 2016, 2015 or 2014.

During the fiscal years ended June 30, 2016, 2015 and 2014, the Company charged $3.4 million, $4.4 million and $3.3
million, respectively, to compensation expense related to the ESOP. The decrease in ESOP expense in fiscal 2016 is primarily
due to the reduction in the number of shares being allocated to participant accounts as a result of paying down the loan amount.
The increase in ESOP expense in fiscal 2015 as compared to fiscal 2014 was due to the increase in the fair market value of the
Company's shares which determines the ESOP expense recorded. The difference between cost and fair market value of
committed to be released shares, which was $36,000, $1.0 million and $0.3 million for the fiscal years ended June 30, 2016,
2015 and 2014, respectively, is recorded as additional paid-in capital.

Allocated shares
Committed to be released shares
Unallocated shares

Total ESOP shares

(In thousands)
Fair value of ESOP shares

June 30,

2016
1,941,934
169,603
220,925
2,332,462

2015
1,970,117
172,398
390,528
2,533,043

74,779

59,527

Note 17. Share-based Compensation

Non-qualified stock options with time-based vesting (“NQOs”)

In fiscal 2016, the Company granted 21,595 shares issuable upon the exercise of NQOs with a weighted average exercise

price of $29.48 per share to eligible employees under the Amended Equity Plan which vest ratably over a three-year period.

Following are the weighted average assumptions used in the Black-Scholes valuation model for NQOs granted during the

fiscal years ended June 30, 2016, 2015 and 2014

Weighted average fair value of NQOs
Risk-free interest rate
Dividend yield
Average expected term
Expected stock price volatility

Year Ended June 30,

2016

2015

2014

12.63

10.38

1.6%
—%
5.1 years
47.1%

1.5%
—%
5.1 years
47.9%

9.17
1.7%
—%
6 years
50.4%

The Company’s assumption regarding expected stock price volatility is based on the historical volatility of the Company’s

stock price. The risk-free interest rate is based on U.S. Treasury zero-coupon issues at the date of grant with a remaining term

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

equal to the expected life of the stock options. The average expected term is based on historical weighted time outstanding and
the expected weighted time outstanding calculated by assuming the settlement of outstanding awards at the midpoint between
the vesting date and the end of the contractual term of the award. Currently, management estimates an annual forfeiture rate of
4.8% based on actual forfeiture experience. Forfeitures are estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.

The following table summarizes NQO activity for the three most recent fiscal years:

Outstanding NQOs:

Outstanding at June 30, 2013

Granted

Exercised

Cancelled/Forfeited

Outstanding at June 30, 2014

Granted

Exercised

Cancelled/Forfeited

Outstanding at June 30, 2015

Granted

Exercised

Cancelled/Forfeited

Outstanding at June 30, 2016

Vested and exercisable, June 30, 2016

Vested and expected to vest, June 30, 2016

Number
of NQOs

Weighted
Average
Exercise
Price ($)

Weighted
Average
Grant Date
Fair Value ($)

Weighted
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
($
in thousands)

557,427

1,927

(112,964)

(33,936)

412,454

25,703

(95,723)

(13,134)

329,300

21,595

(112,895)

(18,371)

219,629

180,298

217,160

12.81

18.68

13.10

16.63

12.44

23.91

16.17

11.26

12.30

29.48

12.35

13.45

13.87

11.06

13.72

5.44

9.17

5.81

6.13

5.30

10.38

5.86

5.00

5.54

12.63

5.37

6.17

6.28

5.13

6.22

5.1

6.4

—

4.4

6.8

—

3.9

6.4

—

3.7

3.1

3.6

1,620

—

895

—

3,782

—

747

3,700

—

1,853

—

3,995

3,800

3,983

The aggregate intrinsic values outstanding at the end of each fiscal period in the table above represent the total pretax

intrinsic value, based on the Company’s closing stock price of $32.06 at June 30, 2016, $23.50 at June 30, 2015 and $21.61 at
June 30, 2014, representing the last trading day of the respective fiscal years, which would have been received by NQO holders
had all award holders exercised their NQOs that were in-the-money as of those dates. The aggregate intrinsic value of stock
option exercises in each fiscal period above represents the difference between the exercise price and the value of the Company’s
common stock at the time of exercise. NQOs outstanding that are expected to vest are net of estimated forfeitures.

Total fair value of NQOs vested during fiscal 2016, 2015 and 2014 was $0.3 million, $0.5 million and $0.7 million,
respectively. The Company received $1.4 million in proceeds from exercises of vested NQOs in fiscal 2016, and $1.5 million in
proceeds from exercises of vested NQOs in each of fiscal 2015 and 2014.

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

The following table summarizes nonvested NQO activity for the three most recent fiscal years:

Nonvested NQOs:
Outstanding at June 30, 2013

Granted
Vested
Forfeited

Outstanding at June 30, 2014

Granted
Vested
Forfeited

Outstanding at June 30, 2015

Granted
Vested
Forfeited

Outstanding at June 30, 2016

Number
of
NQOs
315,661
1,927
(133,957)
(15,833)
167,798
25,703
(101,172)
(12,134)
80,195
21,595
(47,418)
(15,641)
38,731

Weighted
Average
Exercise
Price ($)
10.80
18.68
11.02
11.48
10.65
23.91
9.87
10.31
15.94
29.48
14.05
12.95
27.02

Weighted
Average
Grant Date
Fair Value ($)
5.12
9.17
5.21
5.49
5.06
10.38
4.72
4.91
7.21
12.63
6.44
6.09
11.63

Weighted
Average
Remaining
Life (Years)
6.1
6.4
—
—
5.3
6.8
—
—
5.2
6.4
—
—
6.1

As of June 30, 2016 and 2015, there was $0.4 million of unrecognized compensation cost related to NQOs. The
unrecognized compensation cost related to NQOs at June 30, 2016 is expected to be recognized over the weighted average
period of 2.2 years. Total compensation expense for NQOs was $0.2 million, $0.4 million and $0.6 million in fiscal 2016, 2015
and 2014, respectively.

Non-qualified stock options with performance-based and time-based vesting (“PNQs”)

In the fiscal year ended June 30, 2016, the Company granted a total of 143,466 shares with an exercise price of $29.48

per share to eligible employees under the Amended Equity Plan. With the exception of a portion of the award to the Company’s
President and Chief Executive Officer as described below, these PNQs vest over a three-year period with one-third of the total
number of shares subject to each such PNQ becoming exercisable each year on the anniversary of the grant date, based on the
Company’s achievement of modified net income targets for fiscal 2016 ("Fiscal 2016 Target") as approved by the
Compensation Committee, subject to the participant’s employment by the Company or service on the Board of Directors of the
Company on the applicable vesting date and the acceleration provisions contained in the Amended Equity Plan and the
applicable award agreement. But if actual modified net income for fiscal 2016 is less than the Fiscal 2016 Target, then 20% of
the total shares issuable under such grant will be forfeited.

On June 3, 2016, the Compensation Committee of the Board of Directors of the Company determined that a portion of the

non-qualified stock option granted to Michael H. Keown, the Company's President and Chief Executive Officer, on December
3, 2015 (the “Original Option”) was invalid because such portion caused the total number of option shares granted to Mr.
Keown in calendar year 2015 to exceed the limit of 75,000 shares that may be granted to a participant in a single calendar year
under the Amended Equity Plan by 22,862 shares. Therefore, the Compensation Committee reduced the total number of shares
of common stock issuable under the Original Option by 22,862 shares. The reduction of the 22,862 excess option shares
brought the total number of option shares granted to Mr. Keown in calendar 2015 within the limitation of the Amended Equity
Plan.

In addition, on June 3, 2016, the Compensation Committee, in accordance with the provisions of the Amended Equity
Plan, granted Mr. Keown a non-qualified stock option to purchase 22,862 shares of the Company's common stock (the “New
Option”) with an exercise price of $29.48 per share, which was the greater of the exercise price of the Original Option and the
closing price of the Company's common stock as reported on the NASDAQ Global Market on June 3, 2016, the date of grant.
The New Option is subject to the same terms and conditions of the Original Option including an expiration date of December 3,
2022, and the three-year vesting schedule, except that to comply with the Amended Equity Plan's minimum vesting schedule of
one year from the grant date, one-third of shares issuable under the New Option will vest on June 3, 2017, and the remainder of
the New Option shares will vest one-third each on the second and third anniversaries of the grant date of the Original Option,

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

based on the Company’s achievement of the same performance goals as the Original Option, subject to Mr. Keown’s continued
employment on the applicable vesting date.

In the fiscal year ended June 30, 2015, the Company granted 121,024 shares issuable upon the exercise of PNQs with an

exercise price of $23.44 per share to eligible employees under the Amended Equity Plan. These PNQs vest over a three-year
period with one-third of the total number of shares subject to each such PNQ becoming exercisable each year on the
anniversary of the grant date, based on the Company’s achievement of modified net income targets for fiscal years within the
performance period as approved by the Compensation Committee, subject to catch-up vesting of previously unvested shares in
a subsequent year within the three year period in which a cumulative modified net income target as approved by the
Compensation Committee is achieved, in each case, subject to the participant’s employment by the Company or service on the
Board of Directors of the Company on the applicable vesting date and the acceleration provisions contained in the Amended
Equity Plan and the applicable award agreement.

In the fiscal year ended June 30, 2014, the Company granted a total of 112,442 shares issuable upon the exercise of PNQs
with a weighted average exercise price of $21.27 per share to eligible employees under the Amended Equity Plan. These PNQs
vest over a three-year period with one-third of the total number of shares subject to each such PNQ vesting on the first
anniversary of the grant date based on the Company’s achievement of a modified net income target for the first fiscal year of the
performance period as approved by the Compensation Committee, and the remaining two-thirds of the total number of shares
subject to each PNQ vesting on the third anniversary of the grant date based on the Company’s achievement of a cumulative
modified net income target for all three years during the performance period as approved by the Compensation Committee, in
each case, subject to the participant’s employment by the Company or service on the Board of Directors of the Company on the
applicable vesting date. No PNQs were granted prior to fiscal 2014.

Following are the assumptions used in the Black-Scholes valuation model for PNQs granted during the fiscal years ended

June 30, 2016, 2015 and 2014:

Weighted average fair value of PNQs
Risk-free interest rate
Dividend yield
Average expected term (years)
Expected stock price volatility

Year Ended June 30,

2016

2015

2014

11.38

10.16

10.49

1.6%
—
4.9
42.5%

1.5%
—%
5.0
47.9%

1.8%
—%
6.0
50.5%

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

The following table summarizes PNQ activity for the three most recent fiscal years:

Outstanding PNQs:

Outstanding at June 30, 2013

Granted

Cancelled/Forfeited

Outstanding at June 30, 2014

Granted

Cancelled/Forfeited

Outstanding at June 30, 2015

Granted

Exercised
Cancelled/Forfeited

Outstanding at June 30, 2016

Vested and exercisable, June 30, 2016

Vested and expected to vest, June 30, 2016

Number
of
PNQs

Weighted
Average
Exercise
Price ($)

Weighted
Average
Grant Date
Fair Value ($)

Weighted
Average
Remaining
Life
(Years)

Aggregate
Intrinsic
Value
($ in
thousands)

—

112,442

—

112,442

121,024

(9,399)

224,067

143,466

(14,144)
(64,790)

288,599

48,132

274,919

—

21.27

—

21.27

23.44

21.33

22.44

29.48

21.20
23.20

25.83

22.52

25.75

—

10.49

—

10.49

10.16

10.52

10.31

11.38

10.45
10.37

10.82

10.31

10.81

—

6.5

—

6.5

6.6

—

6.0

6.2

0
0

5.7

5.1

5.7

—

237

—

107
—

1,798

459

1,736

The aggregate intrinsic values outstanding at the end of each fiscal period in the table above represent the total pretax

intrinsic values, based on the Company’s closing stock price of $32.06 at June 30, 2016, $23.50 at June 30, 2015 and $21.61 at
June 30, 2014 representing the last trading day of the respective fiscal years, which would have been received by PNQ holders
had all award holders exercised their PNQs that were in-the-money as of those dates. The aggregate intrinsic value of stock
option exercises in fiscal 2016 represents the difference between the exercise price and the value of the Company’s common
stock at the time of exercise. PNQs outstanding that are expected to vest are net of estimated forfeitures.

Total fair value of PNQs vested during the fiscal years ended June 30, 2016 and 2015 was $0.3 million and $0.4 million,

respectively. No PNQs vested during the fiscal year ended June 30, 2014. The Company received $0.3 million in proceeds from
exercises of vested PNQs in fiscal 2016, and no PNQs were exercised during the fiscal years ended June 30, 2015 or 2014.

As of June 30, 2016, the Company met the performance target for the first year of the fiscal 2014 and 2015 awards and

expects that it will achieve the performance targets set forth in the PNQ agreements for the remainder of the fiscal 2014, fiscal
2015 and fiscal 2016 awards.

The following table summarizes nonvested PNQ activity for the two most recent fiscal years:

Nonvested PNQs:
Outstanding at June 30, 2014

Granted
Vested
Forfeited

Outstanding at June 30, 2015

Granted
Vested
Forfeited

Outstanding at June 30, 2016

Weighted
Average
Exercise
Price ($)

21.27
23.44
21.27
21.33
22.66
29.48
10.16
23.20
26.49

Weighted
Average
Grant Date
Fair Value ($)
10.49
10.16
10.49
10.52
10.28
11.38
23.44
10.37
10.92

Weighted
Average
Remaining
Life (Years)

6.5
6.6
—
—
6.2
6.2
—
—
5.9

Number
of
PNQs
112,442
121,024
(34,959)
(9,399)
189,108
143,466
(27,317)
(64,790)
240,467

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

As of June 30, 2016 and 2015, there was $1.9 million and $1.5 million , respectively, of unrecognized compensation cost

related to PNQs. The unrecognized compensation cost related to PNQs at June 30, 2016 is expected to be recognized over the
weighted average period of 1.5 years. Total compensation expense related to PNQs in fiscal 2016, 2015 and 2014 was $0.5
million, $0.5 million and $0.3 million, respectively.

Restricted Stock

During fiscal 2016, 2015 and 2014 the Company granted a total of 10,170 shares, 13,256 shares and 9,200 shares of
restricted stock under the Amended Equity Plan, respectively, with a weighted average grant date fair value of $29.99, $23.64,
and $20.48 per share, respectively, to eligible employees and directors. Shares of restricted stock generally vest at the end of
three years for eligible employees. Shares of restricted stock generally vest ratably over a period of three years for directors.
During the fiscal year ended June 30, 2016, 24,841 shares of restricted stock vested, of which 5,177 shares were withheld to
meet the employees’ minimum statutory tax withholding and retired.

The following table summarizes restricted stock activity for the three most recent fiscal years:

Outstanding and Nonvested Restricted Stock Awards:
Outstanding at June 30, 2013

Granted
Exercised/Released
Cancelled/Forfeited
Outstanding at June 30, 2014

Granted
Exercised/Released(1)
Cancelled/Forfeited
Outstanding at June 30, 2015

Granted
Exercised/Released(2)
Cancelled/Forfeited
Outstanding at June 30, 2016
Expected to vest, June 30, 2016

Weighted
Average
Grant Date
Fair Value
($)

Shares
Awarded

139,360
9,200
(38,212)
(14,136)
96,212
13,256
(53,402)
(8,984)
47,082
10,170
(24,841)
(8,619)
23,792
22,253

9.87
20.48
11.59
9.38
10.27
23.64
8.43
8.36
16.48
29.99
14.08
13.06
26.00
25.91

Weighted
Average
Remaining
Life
(Years)
1.9
—
—
—
1.5
—
—
—
1.2
—
—
—
1.8
1.8

Aggregate
Intrinsic
Value
($ in thousands)
1,959
188
820
—
2,079
313
1,377
—
1,106
305
747
—
763
713

__________
(1) Includes 4,297 shares that were withheld to meet the employees' minimum statutory tax withholding and retired..
(2) Includes 5,177 shares that were withheld to meet the employees' minimum statutory tax withholding and retired.

The aggregate intrinsic value of shares outstanding at the end of each fiscal period in the table above represent the total

pretax intrinsic values, based on the Company’s closing stock price of $32.06 at June 30, 2016, $23.50 at June 30, 2015 and
$21.61 at June 30, 2014 , representing the last trading day of the respective fiscal years. Restricted stock that is expected to vest
is net of estimated forfeitures.

As of June 30, 2016 and 2015, there was $0.5 million of unrecognized compensation cost related to restricted stock. The

unrecognized compensation cost related to restricted stock at June 30, 2016 is expected to be recognized over the weighted
average period of 2.0 years. Total compensation expense for restricted stock was $0.2 million, $0.3 million and $0.5 million, for
the fiscal years ended June 30, 2016, 2015 and 2014, respectively.

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

Note 18. Other Current Liabilities

Other current liabilities consist of the following:

(In thousands)
Accrued postretirement benefits
Accrued workers’ compensation liabilities
Short-term pension liabilities
Earnout payable—RLC acquisition
Other (including net taxes payable)
Other current liabilities

Note 19. Other Long-Term Liabilities

Other long-term liabilities include the following:

June 30,

2016

2015

1,060
3,225
347
100
2,214
6,946

(In thousands)

New Facility lease obligation(1)

Earnout payable—RLC acquisition(2)

Derivative liabilities, non-current

Other long-term liabilities

June 30,

2016

2015

28,110

100

—

28,210

___________
(1) Lease obligation associated with construction of the New Facility (see Note 4).
(2) Earnout payable to RLC (see Note 2).

Note 20. Income Taxes

1,051
2,382
347
100
2,272
6,152

—

200

225

The current and deferred components of the provision for income taxes consist of the following:

(In thousands)
Current:

Federal
State

Total current income tax expense

Deferred:

Federal
State

Total deferred income tax (benefit)
expense

Income tax (benefit) expense

2016

June 30,

2015

2014

214
103
317

(66,648)
(13,666)

(80,314)
(79,997) $

(30) $
309
279

106
17

123
402

293
275
568

99
38

137
705

Income tax expense or benefit from continuing operations is generally determined without regard to other categories of

earnings, such as discontinued operations and OCI. An exception is provided in ASC 740, “Tax Provisions,” when there is
aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In
this case, the income tax benefit allocated to continuing operations is the amount by which the loss from continuing operations
reduces the income tax expense recorded with respect to the other categories of earnings, even when a valuation allowance has
been established against the deferred tax assets. In instances where a valuation allowance is established against current year
losses, income from other sources, including gain from postretirement benefits recorded as a component of OCI, is considered
when determining whether sufficient future taxable income exists to realize the deferred tax assets.

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

As a result, for the fiscal years ended June 30, 2016, 2015 and 2014, the Company recorded income tax expense of

$2.0 million, $0, and $0, respectively, in OCI related to the gain on postretirement benefits, and recorded a corresponding
income tax benefit of $2.0 million, $0, and $0, respectively, in continuing operations.

A reconciliation of income tax (benefit) expense to the federal statutory tax rate is as follows:

(In thousands)
Statutory tax rate
Income tax expense at statutory rate

State income tax expense, net of federal tax

benefit

Dividend income exclusion
Valuation allowance
Change in tax rate
Retiree life insurance
Change in contingency reserve (net)
Other (net)

Income tax (benefit) expense

2016

June 30,

2015

2014

35%

34%

3,472

358

4,365

557
(140)
(83,230)
(1,061)
135
—
270
(79,997)

260
(54)
(185)
—
—
—
23
402

749
—
(4,292)
—
—
(39)
(78)
705

The primary components of the temporary differences which give rise to the Company’s net deferred tax liabilities are as

follows:

(In thousands)
Deferred tax assets:

Postretirement benefits
Accrued liabilities
Net operating loss carryforwards
Intangible assets
Other

Total deferred tax assets

Deferred tax liabilities:

Unrealized gain on investments
Fixed assets
Other

Total deferred tax liabilities

Valuation allowance

Net deferred tax assets (liabilities)

2016

June 30,

2015

2014

33,273
11,760
38,196
71
6,881
90,181

(609)
(5,370)
(1,789)
(7,768)
(1,627)
80,786

31,100
10,091
41,544
594
6,794
90,123

(2,242)
(2,647)
(1,943)
(6,832)
(84,857)
(1,566) $

19,800
6,156
40,275
1,126
7,253
74,610

—
(1,902)
(1,538)
(3,440)
(72,613)
(1,443)

At June 30, 2016, the Company had approximately $99.7 million in federal and $88.6 million in state net operating loss
carryforwards that will begin to expire in the years ending June 30, 2030 and June 30, 2017, respectively. Additionally, at June
30, 2016, the Company had $0.8 million of federal business tax credits that begin to expire in June 30, 2025.

As of June 30, 2016, the Company has generated approximately $1.2 million of excess tax benefits related to stock

compensation, the benefit of which will be recorded to additional paid in capital if and when realized.

At June 30, 2016, the Company had total deferred tax assets of $90.2 million and net deferred tax assets before valuation

allowance of $82.4 million.

The Company evaluated it deferred tax assets quarterly to determine if a valuation is required. In the fourth quarter of
fiscal 2016, the Company considered whether a valuation allowance should be recorded against deferred tax assets based on the
likelihood that the benefits of the deferred tax assets would or would not ultimately be realized in future periods. In making

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

such assessment, significant weight was given to evidence that could be objectively verified such as recent operating results and
less consideration was given to less objective indicators such as future income projections. After consideration of positive and
negative evidence, including the recent history of income, the Company concluded that it is more likely than not that the
Company will generate future income sufficient to realize the majority of the Company’s deferred tax assets as of June 30,
2016. Accordingly, the Company has recorded a reduction in its valuation allowance in fiscal 2016 in the amount of
$83.2 million.

The Company cannot conclude that certain state net operating loss carry forwards and tax credit carryovers will be
utilized before expiration. Accordingly, the Company will maintain a valuation allowance of $1.6 million to offset this deferred
tax asset. The valuation allowance decreased $83.2 million and $12.3 million, respectively, in fiscal 2016 and 2015 and
increased $9.9 million in fiscal 2014. The Company will continue to monitor all available evidence, both positive and negative,
in determining whether it is more likely than not that the Company will realize its remaining deferred tax assets.

A tabular reconciliation of the total amounts (in absolute values) of unrecognized tax benefits is as follows:

(In thousands)
Unrecognized tax benefits at beginning of year
Decreases in tax positions for prior years
Settlements
Unrecognized tax benefits at end of year

Year Ended June 30,

2016

2015

2014

— $
—
—
— $

3,211
(30)
(3,181)
—

At June 30, 2016 and 2015, the Company has no unrecognized tax benefits.

The Company made a determination in the quarter ended June 30, 2014 that it would not, at that time, pursue certain refund

claims requested on its amended tax returns for the fiscal years ended June 30, 2003 through June 30, 2008. The Internal
Revenue Service previously denied these refund claims upon audit and maintained that decision upon appeal. The Company
released its tax reserve related to these refunds in the fourth quarter of fiscal 2014.

The Company files income tax returns in the U.S. and in various state jurisdictions with varying statutes of limitations.

The Company is no longer subject to U.S. income tax examinations for the fiscal years prior to June 30, 2012. The Internal
Revenue Service is currently auditing the Company's tax years ended June 30, 2013 and 2014.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of
income tax expense. In each of the fiscal years ended June 30, 2016 and 2015, the Company recorded $0 in accrued interest and
penalties associated with uncertain tax positions. Additionally, the Company recorded income of $0 related to interest and
penalties on uncertain tax positions in the fiscal years ended June 30, 2016, 2015 and 2014, respectively.

Note 21. Net Income Per Common Share

Year ended June 30,

(In thousands, except share and per share amounts)

2016

2015

2014

Net income attributable to common stockholders—basic

Net income attributable to nonvested restricted stockholders
Net income

Weighted average common shares outstanding—basic
Effect of dilutive securities:
Shares issuable under stock options
Weighted average common shares outstanding—diluted

Net income per common share—basic

Net income per common share—diluted

89,812

106
89,918

651

1
652

12,063

69
12,132

16,502,523

16,127,610

15,909,631

124,879
16,627,402

139,524
16,267,134

104,956
16,014,587

5.45

5.41

0.04

0.76

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

Note 22. Commitments and Contingencies

Leases

On July 17, 2015, the Company entered into the Lease Agreement, with lessor pursuant to which the Company leased

the New Facility (see Note 4). The Company recorded an asset related to the New Facility lease obligation included in
property, plant and equipment of $28.1 million at June 30, 2016 with an offsetting liability of $28.1 million for the lease
obligation included in "Other long-term liabilities" on the Company's consolidated balance sheet at June 30, 2016. There
were no such amounts recorded at June 30, 2015 (see Note 19). On June 15, 2016, the Company exercised its option to
purchase the partially constructed New Facility under the Lease Agreement. The terms of the Company's capital leases vary
from 12 months to 84 months with varying expiration dates through 2021.

The Company is also obligated under operating leases for branch warehouses, distribution centers and its production
facility in Portland, Oregon. Some operating leases have renewal options that allow the Company, as lessee, to extend the
leases. The Company has one operating lease with a term greater than five years that expires in 2018 and has a ten year
renewal option, and operating leases for computer hardware with terms that do not exceed three years. Rent expense for the
fiscal years ended June 30, 2016, 2015 and 2014 was $4.5 million, $3.8 million and $3.7 million, respectively.

Contractual obligations for future fiscal years are as follows:

Contractual Obligations

Capital Lease
Obligations

Operating
Lease
Obligations

New Facility
Purchase
Option
Exercise
Price(1)

Pension Plan
Obligations

Postretire
ment
Benefits
Other
Than
Pension
Plans

Revolving
Credit
Facility

Purchase
Commitments
(2)

1,443

880

125

— $

4,093

3,366

2,561

1,279

441

$ 11,801

58,779

— $

8,075

8,304

8,554

8,844

9,074

47,099

1,080

1,102

1,143

1,176

1,210

6,246

58,779

89,950

$ 11,957

109

72,217

— $

—

109

72,217

2,504

(145)

2,359

1,323

1,036

(In thousands)

Year Ended June 30,

2017

2018

2019

2020

2021

Thereafter

Total minimum lease

payments

Less: imputed interest
(0.82% to 10.7%)

Present value of future

minimum lease payments

Less: current portion

Long-term capital lease

obligations

___________

(1) Includes estimated purchase option exercise price pursuant to the Lease Agreement for the partially constructed New
Facility. The table above reflects purchase option exercise price based on the budget and after completion of the
construction, payable in fiscal year ending June 30, 2017 (see Note 4). The actual purchase option exercise price will be
based on actual construction-related costs for the partially constructed facility as of the purchase option closing date.
(2) Purchase commitments include commitments under coffee purchase contracts for which all delivery terms have been

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

Self-Insurance

At June 30, 2016 and 2015, the Company had posted a $7.4 million and $7.0 million letter of credit, respectively, as a
security deposit with the State of California Department of Industrial Relations Self-Insurance Plans for participation in the
alternative security program for California self-insurers for workers’ compensation liability. At June 30, 2016 and 2015, the
Company had posted a $4.3 million letter of credit as a security deposit for self-insuring workers’ compensation, general
liability and auto insurance coverages outside of California.

Non-cancelable Purchase Orders

As of June 30, 2016, the Company had committed to purchase green coffee inventory totaling $62.5 million under

fixed-price contracts, equipment for the New Facility totaling $3.3 million and other inventory totaling $6.3 million under
non-cancelable purchase orders.

Legal Proceedings

Council for Education and Research on Toxics (“CERT”) v. Brad Berry Company Ltd., et al., Superior Court of the
State of California, County of Los Angeles

On August 31, 2012, CERT filed an amendment to a private enforcement action adding a number of companies as
defendants, including CBI, which sell coffee in California. The suit alleges that the defendants have failed to issue clear and
reasonable warnings in accordance with Proposition 65 that the coffee they produce, distribute and sell contains acrylamide.
This lawsuit was filed in Los Angeles Superior Court (the “Court”). CERT has demanded that the alleged violators remove
acrylamide from their coffee or provide Proposition 65 warnings on their products and pay $2,500 per day for each and
every violation while they are in violation of Proposition 65.

Acrylamide is produced naturally in connection with the heating of many foods, especially starchy foods, and is
believed to be caused by the Maillard reaction, though it has also been found in unheated foods such as olives. With respect
to coffee, acrylamide is produced when coffee beans are heated during the roasting process-it is the roasting itself that
produces the acrylamide. While there has been a significant amount of research concerning proposals for treatments and
other processes aimed at reducing acrylamide content of different types of foods, to our knowledge there is currently no
known strategy for reducing acrylamide in coffee without negatively impacting the sensorial properties of the product.

The Company has joined a Joint Defense Group and, along with the other co-defendants, has answered the complaint,

denying, generally, the allegations of the complaint, including the claimed violation of Proposition 65 and further denying
CERT’s right to any relief or damages, including the right to require a warning on products. The Joint Defense Group
contends that based on proper scientific analysis and proper application of the standards set forth in Proposition 65,
exposures to acrylamide from the coffee products pose no significant risk of cancer and, thus, these exposures are exempt
from Proposition 65’s warning requirement.

To date, the pleadings stage of the case has been completed. The Court has phased trial so that the “no significant risk

level” defense, the First Amendment defense, and the preemption defense will be tried first. Fact discovery and expert
discovery on these “Phase 1” defenses have been completed, and the parties filed trial briefs. Trial commenced on
September 8, 2014, and testimony completed on November 4, 2014, for the three Phase 1 defenses. Following two
continuances, the court heard on April 9, 2015 final arguments on the Phase 1 issues. On July 25, 2015, the Court issued its
Proposed Statement of Decision with respect to Phase 1 defenses against the defendants, which was confirmed, on
September 2, 2015 in the Final Statement of Decision. The Court has stated that all defendants would be included in “Phase
2,” though this remains unresolved, including the extent of the involvement or participation in discovery. Following
permission from the Court, on October 14, 2015 the Joint Defense Group filed a writ petition for an interlocutory appeal. In
late December 2015, plaintiff’s counsel served letters proposing a new plan to file the anticipated motion for summary
adjudication and a new set of discovery on all defendants. On January 14, 2016, the Court of Appeals denied the Joint
Defense Group’s writ petition thereby denying the interlocutory appeal. On February 16, 2016, CERT filed a motion for
summary adjudication arguing that based upon facts that had been stipulated by defendants, CERT had proven its prima
facie case and all that remains is a determination of whether any affirmative defenses are available to defendants. On March
16, 2016, the Court reinstated the stay on discovery for all defendant parties except for the four largest defendants, so the
Company is not currently obligated to participate in discovery. Following a hearing on April 20, 2016, the Court granted

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

CERT’s motion for summary adjudication on its prima facie case. Plaintiff filed its motion for summary adjudication of
affirmatives defenses on May 16, 2016 and the defendants’ opposition brief was filed on July 22, 2016. Certain discovery
responses were scheduled to be due by September 9, 2016. At an August 19, 2016 hearing on Plaintiff’s motion for
summary adjudication and defendants’ opposition with respect to the affirmative defenses, the Court denied Plaintiff’s
motion, thus the Joint Defense Group will continue to be able to present the affirmative defenses at trial. At this time, the
Company is not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.

Steve Hernandez vs. Farmer Bros. Co., Superior Court of State of California, County of Los Angeles

On July 24, 2015, former Company employee Hernandez filed a putative class action complaint for damages alleging

a single cause of action for unfair competition under the California Business & Professions Code. The claim purports to seek
disgorgement of profits for alleged violations of various provisions of the California Labor Code relating to: failing to pay
overtime, failing to provide meal breaks, failing to pay minimum wage, failing to pay wages timely during employment and
upon termination, failing to provide accurate and complete wage statements, and failing to reimburse business-related
expenses. Hernandez’s complaint seeks restitution in an unspecified amount and injunctive relief, in addition to attorneys’
fees and expenses. Hernandez alleges that the putative class is all “current and former hourly-paid or non-exempt
individuals” for the four (4) years preceding the filing of the complaint through final judgment, and Hernandez also purports
to reserve the right to establish sub-classes as appropriate. On November 12, 2015, a separate putative class representative,
Monica Zuno, filed claim under the same class action; the Court has related this case to the Hernandez case. On November
17, 2015, the unified case was assigned to a judge, and this judge ordered the stay on discovery to remain intact until after a
decision on the Company’s demurrer action. The plaintiff filed an Opposition to the Demurrer and, in response, on January
5, 2016, the Company filed a reply to this Opposition to the Demurrer. On February 2, 2016, the Court held a hearing on the
demurrer and found in the Company’s favor, sustaining the demurrer in its entirety without leave to amend as to the plaintiff
Hernandez, and so dismissing Hernandez’s claims and the related putative class. Claims on behalf of the plaintiff Zuno
remain at this time, pending the filing of an amended complaint on behalf of this remaining plaintiff and reduced putative
class. The Company provided responses to discovery following a lift by the Court of the stay on discovery. The Court has
set a case management conference for October 18, 2016 to give Plaintiff’s counsel time to review the discovery documents
the Company produced and determine whether Plaintiff intends to proceed with the case as a putative class action or on an
individual basis only. At this time, we are not able to predict the probability of the outcome or estimate of loss, if any, related
to this matter.

The Company is a party to various other pending legal and administrative proceedings. It is management’s opinion

that the outcome of such proceedings will not have a material impact on the Company’s financial position, results of
operations, or cash flows.

Note 23. Selected Quarterly Financial Data (Unaudited)

The following tables set forth certain unaudited quarterly information for each of the eight fiscal quarters in the two year

period ended June 30, 2016. This quarterly information has been prepared on a consistent basis with the audited consolidated
financial statements and, in the opinion of management, includes all adjustments which management believes are necessary for
a fair presentation of the information for the periods presented.

The Company's quarterly operating results may fluctuate significantly as a result of a variety of factors, and operating

results for any fiscal quarter are not necessarily indicative of results for a full fiscal year or future fiscal quarters.

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

(In thousands, except per share data)
Net sales

Gross profit

(Loss) income from operations

Net (loss) income

Net (loss) income) per common share—basic

Net (loss) income per common share—diluted

(In thousands, except per share data)
Net sales

Gross profit

Income (loss) from operations

Net income (loss)

Net income (loss) per common share—basic

Net income (loss) per common share—diluted

September 30,
2015

December 31,
2015

March 31,
2016

June 30,
2016

133,445

50,579

$
(563) $
(1,074) $
(0.07) $
(0.07) $

142,307

52,908

5,361

5,561

0.34

September 30,
2014

December 31,
2014

135,984

48,121

2,601

2,515

0.16

144,809

53,142

3,505

2,896

0.18

134,468

52,560

306

1,192

0.07

134,162

52,428

3,075

84,239

5.09

5.05

March 31,
2015

June 30,
2015

132,507

132,582

46,569
$
(1,405) $
(2,572) $
(0.16) $
(0.16) $

49,204
(1,417)
(2,187)
(0.13)
(0.13)

In the fourth quarter of fiscal 2016, the Company concluded that it is more likely than not that the Company will

generate future earnings sufficient to realize the majority of the Company’s deferred tax assets as of June 30, 2016.
Accordingly, the Company recorded a reduction in its valuation allowance in the fourth quarter of fiscal 2016 in the amount of
$83.2 million. See Note 20.

Note 24. Subsequent Events

Completion of the Sale of Assets

On July 15, 2016, the Company completed the sale of certain property, including the Company’s former

headquarters, located at 20333 S. Normandie Avenue, Torrance, CA 90502 (the "Torrance Property"), consisting of
approximately 665,000 square feet of buildings located on approximately 20.33 acres of land, for an aggregate cash sale
price of $43.0 million. The Company received net proceeds of $42.5 million from the sale of the Torrance Property, after
customary adjustments for closing costs and documentary transfer taxes.

Asset Purchase Agreement

On September 9, 2016, a newly-formed, wholly-owned subsidiary of the Company, as the Buyer, and China Mist
Brands, Inc., dba China Mist Tea Company ("China Mist"), as the Seller, entered into a definitive agreement to purchase
substantially all of the assets and certain specified liabilities of China Mist, a provider of flavored iced teas and iced green
teas, for an aggregate purchase price of $11.3 million, with $10.8 million to be paid in cash at closing and $0.5 million to be
paid as earnout subject to certain conditions. The transaction is expected to close during the second quarter of fiscal 2017.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange

Act, are controls and other procedures that are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

As of June 30, 2016, our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e)
promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of June 30, 2016, our disclosure controls and procedures are effective.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the
process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by
our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Due to its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may
become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may
deteriorate.

With the participation of the Chief Executive Officer and Chief Financial Officer, our management conducted an

evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria
established in the 2013 “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our internal control over financial reporting was effective as of June 30, 2016.

The effectiveness of our internal control over financial reporting has been audited by Deloitte & Touche LLP, an

independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)

promulgated under the Exchange Act) during our fiscal quarter ended June 30, 2016, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Farmer Bros. Co.
Torrance, California

We have audited the internal control over financial reporting of Farmer Bros. Co. and subsidiaries (the "Company") as of
June 30, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected
on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
June 30, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements as of and for the year ended June 30, 2016 of the Company and our report dated
September 13, 2016 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas

September 13, 2016

Item 9B.

Other Information

None.

Item 10.

Directors, Executive Officers and Corporate Governance

PART III

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by

reference.

Code of Conduct and Ethics

We maintain a written Code of Conduct and Ethics for all employees, officers and directors, including our principal

executive officer, principal financial officer, principal accounting officer or controller, and other persons performing similar
functions. To view this Code of Conduct and Ethics free of charge, please visit our website at www.farmerbros.com (This
website address is not intended to function as a hyperlink, and the information contained in our website is not intended to be
a part of this filing). We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment
to, or waiver from, a provision of this Code of Conduct and Ethics, if any, by posting such information on our website as set
forth above.

Compliance with Section 16(a) of the Exchange Act

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and

written representations that no other reports were required during the fiscal year ended June 30, 2016, its officers, directors
and ten percent stockholders complied with all applicable Section 16(a) filing requirements, except that, Michael H. Keown,
the Company's President and Chief executive Officer, filed a late Form 4 in December 2015 reporting the sale of vested
restricted shares to cover tax withholding requirements and with the exception of those filings listed in the Company's Proxy
Statement expected to be dated and filed with the SEC not later than 120 days after the conclusion of the Company's fiscal
year ended June 30, 2016.

Item 11.

Executive Compensation

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by

reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by

reference.

Equity Compensation Plan Information

Information about our equity compensation plans at June 30, 2016 that were either approved or not approved by our

stockholders was as follows:

Plan Category
Equity compensation plans approved by stockholders(1)
Equity compensation plans not approved by stockholders

Total

________________

Number of
Shares to be
Issued Upon
Exercise of
Outstanding
Options
508,228
—
508,228

Weighted
Average
Exercise
Price of
Outstanding
Options
$20.66
—
$20.66

Number of
Shares
Remaining
Available
for Future
Issuance(2)
151,857
—
151,857

(1) Includes shares issued under the Amended Equity Plan and its predecessor plan, the Farmer Bros. Co. 2007 Omnibus

Plan.

(2) Shares available for future issuance under the Amended Equity Plan may be awarded in the form of performance-based
stock options, restricted stock awards, another cash-based award or other incentive payable in cash. Shares covered by
an award will be counted as used at the time the award is granted to a participant. If any award lapses, expires,
terminates or is canceled prior to the issuance of shares thereunder or if shares are issued under the Amended Equity
Plan to a participant and are thereafter reacquired by the Company, the shares subject to such awards and the reacquired
shares will again be available for issuance under the Amended Equity Plan. In addition to the shares that are actually
issued to a participant, the following items will be counted against the total number of shares available for issuance
under the Amended Equity Plan: (i) shares subject to an award that are not delivered to a participant because the award
is exercised through a reduction of shares subject to the award (i.e., “net exercised”); (ii) shares subject to an award that
are not delivered to a participant because such shares are withheld in satisfaction of the withholding of taxes incurred in
connection with the exercise of or issuance of shares under certain types of awards; and (iii) shares that are tendered to
the Company to pay the exercise price of any option. The following items will not be counted against the total number
of shares available for issuance under the Amended Equity Plan: (A) the payment in cash of dividends; and (B) any
award that is settled in cash rather than by issuance of stock.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by

reference.

Item 14.

Principal Accountant Fees and Services

The information required by this item will be set forth in the Proxy Statement and is incorporated in this report by

reference.

100

PART IV

Item 15.

Exhibits and Financial Statement Schedules

(a) List of Financial Statements and Financial Statement Schedules:

1. Financial Statements included in Part II, Item 8 of this report:

Consolidated Balance Sheets as of June 30, 2016 and 2015

Consolidated Statements of Operations for the Years Ended June 30, 2016, 2015 and 2014

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended June 30, 2016, 2015 and 2014

Consolidated Statements of Cash Flows for the Years Ended June 30, 2016, 2015 and 2014

Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2016, 2015 and 2014

Notes to Consolidated Financial Statements

2. Financial Statement Schedules: Financial Statement Schedules are omitted as they are not applicable, or the

required information is given in the consolidated financial statements and notes thereto.

3. The exhibits to this Annual Report on Form 10-K are listed on the accompanying index to exhibits and are

incorporated herein by reference or are filed as part of the Annual Report on Form 10-K. Each management contract or
compensation plan required to be filed as an exhibit is identified by an asterisk (*).

(b) Exhibits: See Exhibit Index.

Item 16.

Form 10-K Summary

None.

101

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly

caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

FARMER BROS. CO.

By:

/s/Michael H. Keown
Michael H. Keown
President and Chief Executive Officer
(chief executive officer)

September 13, 2016
/s/Isaac N. Johnston, Jr.
Isaac N. Johnston, Jr.
Treasurer and Chief Financial Officer
(principal financial and accounting officer)

September 13, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the

following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Randy E. Clark

Randy E. Clark

/s/ Guenter W. Berger

Guenter W. Berger

/s/ Hamideh Assadi

Hamideh Assadi

Jeanne Farmer Grossman

/s/ Michael H. Keown

Michael H. Keown

/s/ Charles F. Marcy

Charles F. Marcy

/s/ Christopher P. Mottern

Christopher P. Mottern

Chairman of the Board and Director

September 13, 2016

Chairman Emeritus and Director

September 13, 2016

Director

September 13, 2016

Director

September 13, 2016

Director

September 13, 2016

Director

September 13, 2016

102

2.1

3.1

3.2

3.3

4.1

4.2

10.1

10.2

10.3

EXHIBIT INDEX

Asset Purchase Agreement, dated as of November 16, 2015, by and between Farmer Bros. Co. and
Harris Spice Company Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
with the SEC on November 30, 2015 and incorporated herein by reference).*

Certificate of Incorporation (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K filed
with the SEC on September 16, 2014 and incorporated herein by reference).

Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Quarterly on Form 10-Q filed
with the SEC on May 6, 2016 and incorporated herein by reference).

Certificate of Elimination (filed as Exhibit 3.3 to the Company's Registration Statement on Form 8-A/A
filed with the SEC on September 24, 2015 and incorporated herein by reference).

Specimen Stock Certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A/
A filed with the SEC on September 24, 2015 and incorporated herein by reference)

Registration Rights Agreement, dated as of June 16, 2016, among Farmer Bros. Co. and the Investors
identified on the signature pages thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form
8-K filed with the SEC on June 21, 2016 and incorporated herein by reference).

Credit Agreement, dated as of March 2, 2015, by and among Farmer Bros. Co., Coffee Bean
International, Inc., FBC Finance Company, Coffee Bean Holding Co., Inc., the Lenders party thereto and
JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K for the period ended March 6, 2015 and incorporated herein by reference).

Pledge and Security Agreement, dated as of March 2, 2015, by and among Farmer Bros. Co., Coffee
Bean International, Inc., FBC Finance Company, Coffee Bean Holding Co., Inc. and JPMorgan Chase
Bank, N.A., as Administrative Agent (filed as Exhibit 10.2 to the Company's Current Report on Form 8-
K for the period ended March 6, 2015 and incorporated herein by reference).

Farmer Bros. Co. Pension Plan for Salaried Employees (filed as Exhibit 10.3 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 filed with the SEC on
November 5, 2012 and incorporated herein by reference).**

10.4

Amendment No. 1 to Farmer Bros. Co. Retirement Plan effective June 30, 2011 (filed herewith).**

10.5

10.6

10.7

10.8

Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans
amending the Farmer Bros. Co. Retirement Plan, effective as of December 6, 2012 (filed as Exhibit 10.8
to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the
SEC on May 6, 2013 and incorporated herein by reference).**

Farmer Bros. Co. 2005 Incentive Compensation Plan (filed as Exhibit 10.10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 2013 filed with the SEC on February 10, 2014
and incorporated herein by reference).**

Amendment to Farmer Bros. Co. 2005 Incentive Compensation Plan (filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the SEC on December 10, 2014 and incorporated
herein by reference).**

Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, as adopted by the Board of
Directors on December 9, 2010 and effective as of January 1, 2010 (filed as Exhibit 10.8 to the
Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2016 and incorporated herein
by reference).**

103

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans
amending the Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, effective as of
January 1, 2012 (filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year
ended June 30, 2012 filed with the SEC on September 7, 2012 and incorporated herein by reference).*

Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans
amending the Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, effective as of
January 1, 2015 (filed as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2015 filed with the SEC on November 9, 2015 and incorporated herein by
reference).**

Action of the Administrative Committee of the Farmer Bros. Co. Qualified Employee Retirement Plans
amending the Farmer Bros. Co. Amended and Restated Employee Stock Ownership Plan, effective as of
January 1, 2015 ((filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2015 filed with the SEC on November 9, 2015 and incorporated herein by
reference).**

ESOP Loan Agreement including ESOP Pledge Agreement and Promissory Note, dated March 28, 2000,
between Farmer Bros. Co. and Wells Fargo Bank, N.A., Trustee for the Farmer Bros Co. Employee
Stock Ownership Plan (filed as Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q filed
with the SEC on May 6, 2016 and incorporated herein by reference).

Amendment No. 1 to ESOP Loan Agreement, dated June 30, 2003, between Farmer Bros. Co. and Wells
Fargo Bank, N.A., Trustee for the Farmer Bros Co. Employee Stock Ownership Plan (filed as Exhibit
10.13 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2016 and
incorporated herein by reference).

ESOP Loan Agreement No. 2 including ESOP Pledge Agreement and Promissory Note, dated July 21,
2003 between Farmer Bros. Co. and Wells Fargo Bank, N.A., Trustee for the Farmer Bros Co. Employee
Stock Ownership Plan (filed as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed
with the SEC on May 6, 2016 and incorporated herein by reference).

Employment Agreement, dated March 9, 2012, by and between Farmer Bros. Co. and Michael H.
Keown (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on
March 13, 2012 and incorporated herein by reference).**

Employment Agreement, dated as of April 1, 2013, by and between Farmer Bros. Co. and Mark J.
Nelson (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on April
4, 2013 and incorporated herein by reference).**

Amendment No. 1 to Employment Agreement, dated as of January 1, 2014, by and between Farmer
Bros. Co. and Mark J. Nelson (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed
with the SEC on March 5, 2014 and incorporated herein by reference).**

Amendment No. 2 to Employment Agreement, dated as of November 23, 2015, between Farmer Bros.
Co. and Mark J. Nelson (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with
the SEC on November 30, 2015 and incorporated herein by reference).**

Employment Agreement, dated as of December 2, 2014, by and between Farmer Bros. Co. and Barry C.
Fischetto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on
December 5, 2014 and incorporated herein by reference).**

Employment Agreement, effective as of May 27, 2015, by and between Farmer Bros. Co. and Scott W.
Bixby (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May
20, 2015 and incorporated herein by reference).**

104

10.21

10.22

10.23

10.24

10.25

10.26

Employment Agreement, effective as of August 6, 2015, by and between Farmer Bros. Co. and Thomas
J. Mattei, Jr. (filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed with the SEC
on September 14, 2015 and incorporated herein by reference).**

Separation Agreement, dated as of July 16, 2014, by and between Farmer Bros. Co. and Mark A.
Harding (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July
17, 2014 and incorporated herein by reference).**

Farmer Bros. Co. 2007 Omnibus Plan, as amended (as approved by the stockholders at the 2012 Annual
Meeting of Stockholders on December 6, 2012) (filed as Exhibit 10.1 to the Company's Current Report
on Form 8-K filed with the SEC on December 12, 2012 and incorporated herein by reference).**

Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (as approved by the
stockholders at the 2013 Annual Meeting of Stockholders on December 5, 2013) (filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K filed with the SEC on December 11, 2013 and incorporated
herein by reference).**

Addendum to Farmer Bros. Co. Amended and Restated 2007 Long-Term Incentive Plan (filed as Exhibit
10.30 to the Company's Quarterly Report on Form 10-Q filed with the SEC on February 9, 2015 and
incorporated herein by reference).**

Form of Farmer Bros. Co. 2007 Omnibus Plan Stock Option Grant Notice and Stock Option Agreement
(filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2013
and incorporated herein by reference).**

10.27

Stock Ownership Guidelines for Directors and Executive Officers (filed herewith).**

10.28

10.29

10.30

10.31

10.32

10.33

10.34

Form of Award Letter (Fiscal 2014) under Farmer Bros. Co. 2005 Incentive Compensation Plan (filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on September 17, 2014
and incorporated herein by reference).**

Form of Target Award Notification Letter (Fiscal 2015) under Farmer Bros. Co. 2005 Incentive
Compensation Plan (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the
SEC on September 17, 2014 and incorporated herein by reference).**

Form of Change in Control Severance Agreement for Executive Officers of the Company (with schedule
of executive officers attached) (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K
filed with the SEC on September 29, 2015 and incorporated herein by reference).**

Form of Indemnification Agreement for Directors and Officers of the Company, as adopted on
December 5, 2013 (with schedule of indemnitees attached) (filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K filed with the SEC on September 29, 2015 and incorporated herein by
reference).**

Lease Agreement, dated as of July 17, 2015, by and between Farmer Bros. Co. as Tenant, and WF-FB
NLTX, LLC as Landlord (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with
the SEC on July 23, 2015 and incorporated herein by reference).

First Amendment to Lease Agreement dated as of December 29, 2015, by and between Farmer Bros. Co.
as Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.36 to the Company’s Quarterly
Report on Form 10-Q filed with the SEC on May 6, 2016 and incorporated herein by reference).

Amendment No. 2 to Lease Agreement dated as of March 10, 2016, by and between Farmer Bros. Co. as
Tenant, and WF-FB NLTX, LLC as Landlord (filed as Exhibit 10.37 to the Company’s Quarterly Report
on Form 10-Q filed with the SEC on May 6, 2016 and incorporated herein by reference).

105

10.35

10.36

10.37

10.38

Development Management Agreement dated as of July 17, 2015, by and between Farmer Bros. Co., as
Tenant and Stream Realty Partners-DFW, L.P., as Developer (filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K filed with the SEC on July 23, 2015 and incorporated herein by reference).

First Amendment to Development Management Agreement dated as of January 1, 2016, by and between
Farmer Bros. Co., as Tenant and Stream Realty Partners-DFW, L.P., as Developer (filed as Exhibit 10.39
to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2016 and incorporated
herein by reference).

Second Amendment to Development Management Agreement dated as of March 25, 2016, by and
between Farmer Bros. Co., as Tenant and Stream Realty Partners-DFW, L.P., as Developer (filed as
Exhibit 10.40 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2016 and
incorporated herein by reference).

Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of April 11, 2016, by and
between Farmer Bros. Co. as Seller, and Bridge Acquisition, LLC as Buyer (filed as Exhibit 10.41 to the
Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2016 and incorporated herein
by reference).

10.39

First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of June 1,
2016, by and between Farmer Bros. Co. and Bridge Acquisition, LLC (filed herewith).

14.1

21.1

23.1

31.1

31.2

32.1

32.2

101

Farmer Bros. Co. Code of Conduct and Ethics adopted on August 26, 2010 and updated February 2013
and September 7, 2016 (filed herewith).

List of all Subsidiaries of Farmer Bros. Co. (filed herewith)

Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm (filed herewith)

Principal Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

Principal Financial and Accounting Officer Certification Pursuant to Securities Exchange Act
Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).

Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

Principal Financial and Accounting Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2016, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive
Income (Loss), (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of
Stockholders' Equity, and (vi) Notes to Consolidated Financial Statements (furnished herewith).

________________

Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and/or exhibits to this agreement have been
omitted. The Registrant undertakes to supplementally furnish copies of the omitted schedules and/or exhibits to
the Securities and Exchange Commission upon request.
** Management contract or compensatory plan or arrangement.

106

Forward-Looking Statements

Certain statements contained in this Annual Report are not based on historical fact and are forward-looking

statements within the meaning of federal securities laws and regulations. These statements are based on

management’s current expectations, assumptions, estimates and observations of future events and include any

statements that do not directly relate to any historical or current fact; actual results may differ materially due in

part to the risk factors set forth in Part I, Item 1A of the 2016 Form 10-K. These forward-looking statements can

be identified by the use of words like “anticipates,” “estimates,” “projects,” “expects, ” “plans,” “believes,”

“intends,” “will,” “assumes” and other words of similar meaning. These risks and uncertainties include, but are

not limited to, the timing and success of implementation of the Company’s Corporate Relocation Plan,

completion of construction of the new Northlake, Texas facility and the availability of capital resources to fund

the construction costs and capital expenditures for the new facility, the ability of the Company to achieve

strategic initiatives, the success of the Company’s selling strategies to improve customer acquisition results and

increase coffee volume growth, whether Company changes executed in the past year will produce Company

benefits in the future, the capacity to meet the demands of the Company’s large national account customers, the

extent of execution of plans for the growth of Company business and achievement of financial metrics related to

those plans, the success of the Company to retain and/or attract qualified employees, and whether improvements

in Company performance would improve stockholder value. Certain risks and uncertainties related to the

Company’s business are or will be described in greater detail in the Company’s filings with the SEC. Owing to

the uncertainties inherent in forward-looking statements, actual results could differ materially from those set

forth in forward-looking statements. The Company intends these forward-looking statements to speak only at the

time of this Annual Report and does not undertake to update or revise these statements as more information

becomes available except as required under federal securities laws and the rules and regulations of the SEC.

FARMER BROS. CO.
13601 North Freeway, Suite 200
Fort Worth, Texas 76177

DIRECTORS

EXECUTIVE OFFICERS

Randy E. Clark
Chairman of the Board

Chair, Compensation Committee

Food Industry Consultant

Guenter W. Berger
Chairman Emeritus

Farmer Bros. Co. — Retired Chief Executive Officer

Hamideh Assadi

Retired Tax Consultant

Jeanne Farmer Grossman
Retired Teacher

Michael H. Keown
President, Chief Executive Officer

Isaac N. Johnston
Treasurer, Chief Financial Officer

Scott W. Bixby
Senior Vice President, General Manager

Direct Store Delivery

Barry C. Fischetto
Senior Vice President of Operations

Michael H. Keown
Farmer Bros. Co. — President, Chief Executive Officer

Thomas J. Mattei, Jr.
General Counsel, Assistant Secretary

Charles F. Marcy
Chair, Nominating and Corporate Governance Committee

Independent Business Consultant

Christopher P. Mottern
Chair, Audit Committee

Independent Business Consultant

Fellow Stockholders,

On behalf of our employees and Board of Directors, I am pleased to present the Farmer Bros.

Annual Report for fiscal year 2016. Over the past year, we continued to make meaningful

progress, which is reflected in our coffee volume growth, gross margin expansion and

improved earnings. Notably, during fiscal year 2016, we achieved our fourth consecutive

year-over-year growth in gross profit, and net income reached the highest level in more than

10 years. Our balance sheet is strong, providing us with the financial flexibility to grow our

business. We are well positioned to continue creating stockholder value, and expect on-going

improvement in the Company's performance as we look forward to next year.

We are highly enthusiastic about the future and long-term growth opportunities for Farmer

Bros. In addition to our stronger financial performance in fiscal 2016, I would like to highlight

our progress on a few of our notable initiatives.

Customers continue to recognize the quality and value

proposition of Farmer Bros. We grew total coffee pound

volume with our existing customer base during the fiscal

year. Additionally, we rolled out a new selling strategy

designed to further improve our customer acquisition

results and achieved notable new business wins across

multiple channels, including specialty coffee houses,

travel and leisure, convenience stores, regional full

service chains, retail grocery and club stores. We ended

the fiscal year with additional prospects in our active

pipeline, which we believe will position us well in fiscal

year 2017.

recognize the quality

“Customers continue to

of Farmer Brothers...

and value proposition

CUSTOMER

DEVELOPMENT

& ACQUISITION

FINANCIAL HIGHLIGHTS(1)
FINANCIAL HIGHLIGHTS(1)
(In thousands, except per share data)
(In thousands, except per share data)

Fiscal year ended June 30,

2016

2015

2014

2013

2012

Consolidated Statement of Operations Data:

Net sales

Cost of goods sold

Restructuring and other transition expenses

Net gains from sale of Spice Assets

Net (gains) losses from sales of assets

Income (loss) from operations

Income (loss) from operations per common share—diluted

Income tax (benefit) expense

Net income (loss)

Net income (loss) per common share—basic

Net income (loss) per common share—diluted

Capital expenditures

544,382

545,882

528,380

332,466

-
$ —

$ —

-
$ —

$ —

(3,814)

348,846

10,432

—

394

3,284

8,916

0.20

0.56

513,869

498,701

328,693

332,309

—

(4,467)

372

(268)

(21,846)

0.02

(1.41)

335,907

16,533

(5,603)

(2,802)

8,179

0.49

(79,997)

402

705

(825)

(347)

89,918

652

12,132

5.45

0.04

0.76

5.41

0.04

0.76

(8,462)

(26,576)

(0.54)

(1.72)

31,050

19,216

25,267

15,894

17,498

June 30,

2016

2015

2014

2013

2012

Consolidated Balance Sheet Data:

Total assets

Deferred income taxes

Capital lease obligations

Long-term borrowings under revolving credit facility

Earn-out payable—RLC acquisition

Long-term derivative liabilities

Total liabilities

368,991

240,943

266,177

244,136

257,916

80,786

751

414

467

861

2,359

5,848

—

9,703

—

12,168

10,000

100

$ 200

-
$ —

$ —

—

—
$

—

186,397

150,932

—

151,313

1,129

162,298

15,867

—

174,364

(1) For a discussion of the factors that materially affect the comparability of the information reflected in the selected financial data, see Part II, Item 6, Selected Financial Data,
included in the Company’s Form 10-K for the fiscal year ended June 30, 2016.

BUILDING

OUR

FUTURE

2016

ANNUAL REPORT

13601 North Freeway, Suite 200
13601 North Freeway, Suite 200
13601 North Freeway, Suite 200
Fort Worth, TX 76177
Fort Worth, TX 76177
Fort Worth, TX 76177
888.998.2468
888.998.2468
888.998.2468
FarmerBros.com
FarmerBros.com
FarmerBros.com